<PAGE> 1
As filed with the Securities and Exchange Commission on
December 11, 1995
Registration No. 33-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / PRE-EFFECTIVE AMENDMENT NO.
/ / POST-EFFECTIVE AMENDMENT NO.
(Check appropriate box or boxes)
------------------
The Cardinal Group
(Exact Name of Registrant as Specified in Charter)
155 East Broad Street, Columbus, Ohio 43215
(Address of Principal Executive Offices)
(614) 464-5511
(Area Code and Telephone Number)
------------------
Frank W. Siegel
115 East Broad Street, Columbus, Ohio 43215
(Name and address of Agent for Service)
Copy to:
Charles H. Hire, Esq., Baker & Hostetler
65 East State Street, Columbus, Ohio 43215
Approximate Date of Proposed Public Offering: As soon as
practicable after this Registration Statement becomes effective.
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), shall determine.
An indefinite amount of the Registrant's securities has been registered
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. In reliance upon such Rule, no filing fee is being paid at
this time. A Rule 24f-2 notice for the Registrant for the year ended September
30, 1995, was filed on November 21, 1995.
<PAGE> 2
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 APPROVAL OF THE PLAN -- Summary and
-- Special Considerations And Risk Factors
4 APPROVAL OF THE PLAN -- The Proposed Transaction,
-- Additional Comparative Information
5 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and
-- Additional Comparative Information; MISCELLANEOUS
-- Additional Information and
-- Documents Incorporated by Reference
6 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and
-- Additional Comparative Information; MISCELLANEOUS
-- Additional Information and
-- Documents Incorporated by Reference
7 Front Cover; APPROVAL OF THE PLAN -- Summary,
-- Approval and Consummation of the Proposed
Transaction, -- The Proposed Transaction; and
MISCELLANEOUS -- Solicitation of Proxies and
Payment of Expenses and -- Substantial Shareholders
8 Not Applicable
9 Not Applicable
</TABLE>
<PAGE> 3
[Letterhead]
January ____, 1996
Dear The Cardinal Fund Inc. Shareholder:
The Board of Directors of The Cardinal Fund Inc. ("TCFI") recently reviewed and
unanimously approved a proposal to reorganize TCFI with and into a newly
created series of The Cardinal Group (the "Group"). This proposed
reorganization is described in the accompanying Combined Prospectus/Proxy
Statement and will be addressed at a Special Meeting of Shareholders on
February 23, 1996.
The primary purpose of the proposed reorganization is to achieve certain
economies of scale by having TCFI become an additional series of the Group
rather than operate as a separate stand-alone investment company. By operating
more efficiently, we expect to realize cost savings through the elimination of
certain Annual Meeting expenses, a reduction of printing and mailing
expenditures, the lowering of regulatory filing expenses and the reduction of
professional fees. The Board determined that such a reorganization is in the
best interest of TCFI.
If the Agreement and Plan of Reorganization and Liquidation is approved, you
will receive shares of the newly created series of the Group, known as The
Cardinal Fund, in exchange for your shares of TCFI. Shares received in this
distribution will be equal in value at the time of reorganization to your
shares in TCFI. There will be no adverse federal income tax consequences
associated with this distribution.
As a result of the reorganization, many features of the new series will be the
same as those of TCFI. For instance, the securities in the underlying portfolio
will remain the same. Purchase and redemption procedures will not change.
Slight differences in investment objectives, policies and restrictions are
proposed but are not expected to increase significantly the level of risk
associated with your investment.
There are, however, two important changes that I wish to draw to your
attention. First, Cardinal Management Corp. will become the investment adviser
instead of its parent company, The Ohio Company. Second, operating expenses for
the new series shares are expected to be higher than those of TCFI. This is due
to the addition of a Rule 12b-1 Plan and higher investment advisory and fund
accounting fees. This increase will enable us to be more competitive in today's
mutual fund marketplace by investing in the people and resources necessary to
deliver a high level of service. Although operating expenses will be greater,
the proposed level places your investment company within the norms of its
industry peer group.
<PAGE> 4
Please read the accompanying materials carefully. For more details regarding
the proposed reorganization, direct any questions you may have to the Treasurer
of TFCI, Mr. James Schrack, at (800) 282-9446. IT IS VERY IMPORTANT THAT YOU
COMPLETE AND RETURN THE PROXY CARD.
Thank you for your support and investment in The Cardinal Fund Inc.
Sincerely,
Frank W. Siegel, CFA
President
The Cardinal Fund Inc.
<PAGE> 5
THE CARDINAL FUND INC.
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
TELEPHONE: (800) 282-9446
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 23, 1996
To The Shareholders Of The
Cardinal Fund Inc.:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of The Cardinal Fund Inc. ("TCFI") will be held on Friday, February
23, 1996, at 10:00 A.M. (Eastern Time) concurrently with special meetings of
three of the other funds of the Cardinal family of funds, at the offices of
TCFI, 155 East Broad Street, Columbus, Ohio 43215. The Meeting is being called
for the following purposes:
(1) To fix the number of directors of TCFI at ten;
(2) To elect ten directors of TCFI to hold office for the ensuing
year and until their successors are elected and qualified;
(3) To ratify the selection of KPMG Peat Marwick LLP, independent
certified public accountants, as auditors to be employed by
TCFI for the fiscal year ending September 30, 1996;
(4) To approve an Agreement and Plan of Reorganization and
Liquidation (the "Plan") for TCFI, and the transactions
contemplated thereby, which includes (a) the transfer of all
of the assets of TCFI to The Cardinal Fund (the "Acquiring
Fund") of The Cardinal Group (the "Group"), in exchange for
shares of the Acquiring Fund, and the assumption by the
Acquiring Fund of all of the liabilities of TCFI; and (b) the
distribution to shareholders of TCFI of shares of the
Acquiring Fund so received in complete liquidation of TCFI;
(5) To approve an amendment to TCFI's fundamental investment
policies by deleting its policy with respect to related party
transactions; and
(6) To transact such other business as may properly come before
the Meeting, or any adjournment(s) thereof, including any
adjournment(s) necessary to obtain requisite quorums and/or
approvals.
The Board of Directors of TCFI has fixed the close of business on
January 8, 1996, as the record date for the determination of shareholders of
TCFI entitled to receive notice of and to vote at
<PAGE> 6
the Meeting or any adjournments thereof. The enclosed Combined
Prospectus/Proxy Statement contains further information regarding the Meeting
and the proposals to be considered. The enclosed Proxy Card is intended to
permit you to vote even if you do not attend the Meeting in person.
IN ORDER TO APPROVE THE PLAN DESCRIBED ABOVE AT THE MEETING, THE
HOLDERS OF AT LEAST A MAJORITY OF TCFI'S SHARES OUTSTANDING AND ENTITLED TO
VOTE MUST BE PRESENT IN PERSON OR BY PROXY AND MUST VOTE FOR ISSUE NO. 4.
THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED BUT UNMARKED PROXY
CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS PRESENT AND WILL BE
VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Directors
Karen J. Hipsher, Secretary
January __, 1996
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
2
<PAGE> 7
COMBINED PROSPECTUS/PROXY STATEMENT
January __, 1996
The Cardinal Fund, a series of
The Cardinal Group The Cardinal Fund Inc.
155 East Broad Street 155 East Broad Street
Columbus, Ohio 43215 Columbus, Ohio 43215
Telephone: (800) 282-9446 Telephone: (800) 282-9446
This Combined Prospectus/Proxy Statement is being furnished to
shareholders of The Cardinal Fund Inc., an Ohio corporation ("TCFI"), in
connection with the solicitation of proxies by the Board of Directors of TCFI
to be used at a Special Meeting of Shareholders of TCFI (the "Meeting"), to be
held at the offices of The Ohio Company, 155 East Broad Street, Columbus, Ohio
43215, on Friday, February 23, 1996, beginning at 10:00 A.M. (Eastern Time).
In addition to the customary annual election of Directors and
ratification of the selection of independent accountants, the Directors of TCFI
are seeking your approval of an Agreement and Plan of Reorganization and
Liquidation (the "Plan") and of a related amendment to TCFI's fundamental
investment policies. The Plan contemplates that The Cardinal Fund (the
"Acquiring Fund"), a series or portfolio of The Cardinal Group (the "Group"),
will acquire all of the assets of and will assume all of the liabilities of
TCFI in exchange for shares of the Acquiring Fund.
Following such exchange, the shares of the Acquiring Fund received by
TCFI will be distributed to TCFI's shareholders and TCFI will be liquidated and
dissolved. This exchange and distribution transaction is sometimes referred to
herein as the "Reorganization."
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Fund
that a prospective investor, including shareholders of TCFI, should know before
investing. Additional information about the Reorganization and the Acquiring
Fund is contained in a separate Statement of Additional Information which has
been filed with the Securities and Exchange Commission (the "Commission") and
is available upon request without charge by calling the Group at (800) 282-9446
or writing to the Group at the address set forth above. The Statement of
Additional Information bears the same date as this Combined Prospectus/Proxy
Statement and is incorporated by reference herein.
THE SHARES OF THE ACQUIRING FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE ACQUIRING
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
<PAGE> 8
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.
Upon completion of the Reorganization, you will receive full and
fractional shares of the Acquiring Fund equal in value when issued to the
shares of TCFI owned by you immediately prior to the Reorganization. No
commissions or sales loads will be charged in connection with the
Reorganization and there will be no adverse federal income tax consequences.
You should separately consider any other tax consequences in consultation with
your tax advisers.
As discussed in detail herein, the investment objectives and strategy
of the Acquiring Fund are substantially similar to those of TCFI. There are
some differences between investment objectives, policies and restrictions, as
well as differences in fee levels and in voting rights, which are described in
detail below. The Prospectus of the Acquiring Fund relating to its shares,
dated January __, 1996, is incorporated by reference into this Combined
Prospectus/Proxy Statement and accompanies this Combined Prospectus/Proxy
Statement.
TCFI's Prospectus dated February 1, 1995, as supplemented December 11,
1995, contains additional information about TCFI, has been filed with the
Commission, is incorporated by reference herein and is available without charge
by writing TCFI at 155 East Broad Street, Columbus, Ohio 43215, or by calling
TCFI at (800) 282-9446. Copies of documents requested will be sent by
first-class mail to the requesting shareholder within one business day of the
request.
2
<PAGE> 9
TABLE OF CONTENTS
Page
----
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FIXING THE NUMBER OF DIRECTORS AND ELECTION OF
DIRECTORS -- ISSUES 1 AND 2 . . . . . . . . . . . . . . . . . . . 5
Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Executive Officers . . . . . . . . . . . . . . . . . . . . . 9
RATIFICATION OF SELECTION OF INDEPENDENT
ACCOUNTANTS - ISSUE 3 . . . . . . . . . . . . . . . . . . . . . . 9
APPROVAL OF THE PLAN - ISSUE 4 . . . . . . . . . . . . . . . . . . . . . . 10
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Considerations and Risk Factors . . . . . . . . . . . . . 16
The Proposed Transaction . . . . . . . . . . . . . . . . . . . . . 20
Comparison of Investment Objectives, Policies
and Restrictions . . . . . . . . . . . . . . . . . . . . . 26
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . 27
Additional Comparative Information . . . . . . . . . . . . . . . . 30
DELETION OF TCFI'S FUNDAMENTAL POLICY REGARDING
RELATED PARTY TRANSACTIONS -- ISSUE 5 . . . . . . . . . . . . . . 36
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
EXHIBIT A - AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION . . . . . A-1
3
<PAGE> 10
GENERAL
This Combined Prospectus/Proxy Statement is furnished in connection
with the solicitation of proxies by the Board of Directors of TCFI to be used
in connection with the Meeting to be held on Friday, February 23, 1996.
The management knows of no business which will be presented for
consideration other than that mentioned in Issues 1, 2, 3, 4 and 5 of the
Notice of Special Meeting of Shareholders. If any other matters are properly
presented at the Meeting or any adjournment(s) thereof, it is the intention of
the persons named therein to vote the proxies in accordance with their judgment
on such matters.
The Board of Directors has fixed the close of business on January 8,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Meeting (the "Record Date"). On the Record Date
there were ________ shares of common stock, without par value ("Shares"), of
TCFI outstanding and entitled to vote. Each of the Shares is entitled to one
vote. Shareholders of fractional Shares will be entitled to a vote of such
fraction. Shareholders present in person or by proxy at the Meeting will be
deemed to constitute a quorum for the transaction of business at the Meeting.
The expenses for preparation, printing and mailing of the enclosed
proxy, accompanying notice and Combined Prospectus/Proxy Statement, or any
re-solicitation of the foregoing, will be paid in part by TCFI and in part by
The Ohio Company.
Only shareholders of record at the close of business on the Record
Date will be entitled to notice of and to vote at the Meeting. Shares
represented by management proxies, unless previously revoked, will be voted at
the Meeting in accordance with the instructions of the shareholders. If no
instructions are given, the proxies will be voted in favor of the proposals.
To revoke a management proxy, the shareholder giving such proxy must either
submit to TCFI a subsequently dated proxy, deliver to TCFI a written notice of
revocation or otherwise give notice of revocation in open meeting, in all cases
prior to the exercise of the authority granted in the management proxy.
In the event that sufficient votes are not received by the Meeting
date, a person named as proxy may propose one or more adjournments of the
Meeting for a period or periods of not more than 45 days in the aggregate to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of the holders of a majority of TCFI's shares present at the
Meeting in person or by proxy. The persons named as proxies will vote in favor
of such adjournment those proxies which they are entitled to vote in favor of
the proposals and will vote against any such
4
<PAGE> 11
adjournment those proxies required to be voted against the proposals.
Each shareholder may vote cumulatively for the election of directors
if notice of a desire to do so is given in writing by any shareholder to the
President, Vice President or Secretary of TCFI not less than forty-eight (48)
hours before the time fixed for the Meeting and if announcement of the giving
of such notice is made upon the convening of the Meeting by the Chairman or
Secretary or by or on behalf of the shareholder giving such notice. In the
event voting shall be cumulative, each shareholder has the right to cumulate
such voting power as he possesses and to give one candidate as many votes as
the number of directors to be elected multiplied by the number of Shares held,
or to distribute his votes on the same principle among two or more candidates,
as he sees fit.
The mailing address of the principal executive offices of TCFI is 155
East Broad Street, Columbus, Ohio 43215. The approximate date on which this
Combined Prospectus/Proxy Statement and form of proxy are first sent to
shareholders is January ___, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding.
The Acquiring Fund does not have and will not have until the effective date of
the Reorganization, any assets or liabilities nor will it have commenced
operations.
Any proxy which is properly executed and received in time to be voted
at the Meeting will be counted in determining whether a quorum is present and
will be voted in accordance with the instructions marked thereon. Abstentions
and "broker non-votes" (i.e., proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a particular matter with respect to which
the brokers or nominees do not have discretionary power to vote) will be
counted for purposes of determining whether a quorum is present. For purposes
of determining whether a proposal has been approved, abstentions and broker
non-votes will have the effect of a vote against the proposal in those
instances where approval of an issue requires a certain percentage of all votes
outstanding or of the votes constituting the quorum, but will have no effect
where approval of the issue requires a plurality of the votes being voted.
FIXING THE NUMBER OF DIRECTORS AND ELECTION OF
DIRECTORS -- ISSUES 1 AND 2
It is the present intention that the enclosed proxy will be used for
the purposes of voting in favor of fixing the number of directors at ten and
the election of each of the following ten nominees as a director to hold office
until the next annual meeting and until his successor is elected and
qualified. Except for Mr. Allen, each of the nominees is a member of the
present Board of
5
<PAGE> 12
Directors of TCFI and has been elected by shareholder vote. Pursuant
to Rule 14a-4(d) under the Securities Exchange Act of 1934, each nominee has
consented to be named in this Combined Prospectus/Proxy Statement and to serve
if elected. It is not expected that any of the nominees will decline or
become unavailable for election, but in case this should happen, the
discretionary power given in the proxy may be used to vote for a substitute
nominee or nominees.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH TCFI SHARES OF TCFI
PRINCIPAL OCCUPATION(a) A DIRECTOR OF BENEFICIALLY OWNED % OF CLASS AT
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(b) TCFI SINCE AS OF 1/8/96 1/8/96
- --------------------------------------------------- ------------- ------------------ -------------
<S> <C> <C> <C>
H. KEITH ALLEN -- Age 54 -- Chairman(c) and Director(d)(f)* 1995 ______ ______%
Chief Operating Officer, Secretary, Treasurer and a Director of
The Ohio Company (investment banking).
FRANK W. SIEGEL -- Age 43 -- President(c) and Director(d)(f)* 1995 ______ ______
Chartered Financial Analyst and Senior Vice President of The Ohio Company
(investment banking); formerly Vice President of Keystone Group (mutual fund
management/ administration); formerly Senior Vice President of Trust
Advisory Group (mutual fund consulting).
GORDON B. CARSON -- Age 84 -- Director(f) 1966 ______ ______
Principal, Whitfield Robert Associates (construction consulting firm).
JOHN B. GERLACH, JR. -- Age 41 -- Director(e) 1993 ______ ______
President and a Director of Lancaster Colony Corporation (diversified
consumer products) since 1994; formerly Executive Vice President,
Secretary and a Director of Lancaster Colony.
MICHAEL J. KNILANS -- Age 68 -- Director(f) 1989 ______ ______
From November, 1989 to August, 1995, member, Workers' Compensation Board
(Ohio Bureau of Workers Compensation) and Chairman from 1992 through
August, 1995; a Director of Eagle Food Centers, Inc. (supermarket company).
JAMES I. LUCK -- Age 50 -- Director 1989 ______ ______
President of The Columbus Foundation (philanthropic public foundation).
DAVID L. NELSON -- Age 65 -- Director(d)(e) 1971 ______ ______
Since October, 1995, Chairman of the Board of Directors of Herman Miller, Inc.
(furniture manufacturer); former Vice President, Customer Support, Americas
Region, and Vice President, Customer Satisfaction, Industry Segment, Asea Brown
Boveri, Inc. (designer and manufacturer of process automation systems for basic
industries).
</TABLE>
6
<PAGE> 13
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH TCFI SHARES OF TCFI
PRINCIPAL OCCUPATION(a) A DIRECTOR OF BENEFICIALLY OWNED % OF CLASS AT
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(b) TCFI SINCE AS OF 1/8/96 1/8/96
- --------------------------------------------------- ------------- ------------------ -------------
<S> <C> <C> <C>
C. A. PETERSON -- Age 69 -- Director* 1966 ______ ______
Chartered Financial Analyst and former Senior Executive Vice President
and a Director of The Ohio Company (investment banking).
LAWRENCE H. ROGERS II -- Age 74 -- Director 1973 ______ ______
Self-employed author; former Vice Chairman of Motor Sports Enterprises,
Inc.; also a Director of Cincinnati Life Insurance Company and
Cincinnati Financial Corporation.
JOSEPH H. STEGMAYER -- Age 44 -- Director(d)(e) 1986 ______ ______
President and a Director of Clayton Homes, Inc. (manufactured homes);
former Vice President, Treasurer, Chief Financial Officer and a
Director of Worthington Industries, Inc. (specialty steel and
plastics manufacturer).
All Directors and Officers of TCFI as a group (including __ persons). ______ ______
<FN>
_____________________
(a) Unless otherwise noted, Principal Occupation reflects principal
responsibility of each individual during the past five years.
(b) All nominees also serve as Trustees of Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, Cardinal Government
Obligations Fund and the Group.
(c) Mr. Allen has been an officer of TCFI since July, 1995. Mr. Siegel
has been an officer of TCFI since October, 1994.
(d) Member of the Nominating Committee.
(e) Member of the Audit Committee.
(f) Member of the Executive Committee.
* Messrs. Allen, Siegel and Peterson are considered "interested persons"
of TCFI and The Ohio Company, as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended (the "1940
Act").
</TABLE>
TCFI has an Audit Committee comprised of the above designated
Directors. During the fiscal year ended September 30, 1995, the Audit
Committee held two meetings. The function of such Committee includes such
specific matters as recommending independent auditors to the Board of
Directors, reviewing audit plans and results of audits, and considering other
related matters deemed appropriate by the Board of Directors.
TCFI has a Nominating Committee which is comprised of the above
designated Directors. During the fiscal year ended September 30, 1995, the
Nominating Committee held no meetings. The Committee's function includes
selecting and recommending to the full Board of Directors nominees for election
as Directors of TCFI. The Committee has been able to identify from its own
resources an ample number of qualified candidates, but will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the Board. Such suggestion must be sent in writing to the
Nominating Committee of TCFI, c/o TCFI's Secretary. Suggestions must be
received by TCFI's Secretary before the end of TCFI's fiscal year to be
eligible for consideration for nomination at or before the next annual meeting
of shareholders.
7
<PAGE> 14
During the fiscal year ended September 30, 1995, TCFI's Board
of Directors held four meetings.
The affirmative vote of shareholders holding a majority of the voting
power of TCFI is required to approve the proposal to fix the number of
directors at ten, and a plurality of all votes of shareholders voting on the
election of directors is required for the election of directors.
The following table sets forth information regarding all compensation
paid by TCFI to its Directors for their services as directors during the fiscal
year ended September 30, 1995. TCFI has no pension or retirement plans.
<TABLE>
<CAPTION>
COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION
NAME AND POSITION COMPENSATION FROM TCFI AND
WITH TCFI* FROM TCFI THE FUND COMPLEX**
- ----------------- ------------ ------------------
<S> <C> <C>
H. Keith Allen $0 $0
Chairman, Director and
Member of Executive and
Nominating Committees
Gordon B. Carson $2,400 $12,000
Director and Member of
Executive Committee
John B. Gerlach $2,600 $13,000
Director and Member of
Audit Committee
Michael J. Knilans $2,400 $12,000
Director and Member of
Executive Committee
James I. Luck $2,400 $12,000
Director
David L. Nelson $2,600 $13,000
Director and Member of
Audit and Nominating
Committees
C.A. Peterson $2,400 $12,000
Director
Lawrence H. Rogers, II $2,400 $12,000
Director
Frank W. Siegel $0 $0
Director, President and
Member of Nominating
and Executive
Committees
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
NAME AND POSITION COMPENSATION FROM TCFI AND
WITH TCFI* FROM TCFI THE FUND COMPLEX**
- ----------------- ------------ ------------------
<S> <C> <C>
Joseph H. Stegmayer $2,000 $10,000
Director and Member of
Audit and Nominating
Committees
__________________________________
<FN>
*For the fiscal year ended September 30, 1995, John L. Schlater, a
former officer of The Ohio Company and CMC, had served as a director of TCFI
but no longer does so as the date hereof. Mr. Schlater received no
compensation from TCFI or the Fund Complex.
**For purposes of this Table, Fund Complex means one or more mutual
funds, including TCFI, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being
related.
</TABLE>
OTHER EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
other executive officers of TCFI:
<TABLE>
<CAPTION>
NAME (POSITION WITH PRINCIPAL AN OFFICER OF THE
TCFI) AGE OCCUPATION(1) TCFI SINCE
- ------------------- --- ------------- -----------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1983
(Treasurer) The Ohio Company
David C. Will 54 Vice President 1993
(Vice President) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
______________
<FN>
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
</TABLE>
Officers of TCFI are elected for terms of one year and until their
respective successors are chosen and qualified, subject to removal from office
at any time by a vote of the majority of the Board of Directors.
None of the officers of TCFI receives compensation from TCFI. TCFI
has no employees.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS - ISSUE 3
The Board of Directors of TCFI, including a majority of the Board of
Directors who are not "interested persons," on November 13, 1995, approved the
selection of KPMG Peat Marwick LLP as the independent certified public
accountants of TCFI. Unless instructed in the Proxy to the contrary, the
persons named therein intend to vote in favor of the ratification of the
selection of KPMG Peat Marwick LLP as independent
9
<PAGE> 16
certified public accountants of TCFI to serve for the fiscal year
ending September 30, 1996.
A representative of KPMG Peat Marwick LLP will be present at the
Meeting with an opportunity to make a statement if he desires to do so and to
respond to appropriate questions.
The affirmative vote of shareholders holding a majority of the voting
power of TCFI is required to ratify the Board of Directors' selection of KPMG
Peat Marwick LLP as independent accountants for TCFI.
APPROVAL OF THE PLAN - ISSUE 4
SUMMARY
This Summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
the Plan, a copy of which is attached to this Prospectus/Proxy Statement as
Exhibit A, the accompanying Prospectus of the Acquiring Fund dated January __,
1996, the Prospectus of TCFI dated February 1, 1995, as supplemented December
11, 1995, and the accompanying Annual Report to Shareholders of TCFI for the
year ended September 30, 1995.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of
the assets of TCFI to the Acquiring Fund in exchange for shares of the
Acquiring Fund and the assumption by the Group on behalf of the Acquiring Fund
of all of the liabilities of TCFI. The Plan also calls for the distribution of
shares of the Acquiring Fund to TCFI's shareholders in complete liquidation of
TCFI. (The foregoing proposed transactions are referred to in this
Prospectus/Proxy Statement as the "Reorganization.") As a result of the
Reorganization, each shareholder of TCFI will become the owner of that number
of full and fractional shares of the Acquiring Fund having an aggregate value
equal to the aggregate value of the shareholder's Shares of TCFI as of the
close of business on the day preceding the date that TCFI's assets are
exchanged for shares of the Acquiring Fund. Proposals for similar
reorganizations into other series of the Group are simultaneously being made to
shareholders of Cardinal Government Obligations Fund, Cardinal Government
Securities Trust and Cardinal Tax Exempt Money Trust, the other funds of the
Cardinal family of funds.
For the reasons set forth below under "THE PROPOSED TRANSACTION --
REASONS FOR THE REORGANIZATION," the Board of Directors of TCFI, including
directors of TCFI (the "Independent Directors") who are not "interested
persons" as that term is defined in the 1940 Act, at a special meeting held on
November 13, 1995, unanimously concluded that the Reorganization will be in the
best interests of TCFI and its shareholders and that the interests of TCFI's
existing shareholders will not be diluted as a result of the transaction
contemplated by the Reorganization and therefore has submitted the Plan for
approval by TCFI's shareholders. The Board of Trustees of the Group
has reached
10
<PAGE> 17
similar conclusions with respect to the Acquiring Fund and has also approved
the Reorganization in respect of the Acquiring Fund.
Approval of the Reorganization will require the affirmative vote of
the holders of Shares entitling them to exercise a majority of the voting power
of TCFI. See "APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION" below.
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables
is to assist shareholders of TCFI in understanding the costs and expenses that
a shareholder in the Acquiring Fund would bear directly or indirectly. The
shareholder transaction expenses for the Acquiring Fund are estimated for the
fiscal period following the Reorganization and ending September 30, 1996, and
reflect the proposed Rule 12b-1 fee waiver. The expenses of TCFI are based
upon the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
ACQUIRING ACQUIRING FUND ON
SHAREHOLDER TRANSACTION EXPENSES FUND TCFI A PRO FORMA BASIS*
- -------------------------------- --------- ---- ------------------
<S> <C> <C> <C>
Sales Charge (as a percentage of 4.50% 4.50% 4.50%
offering price)
Annual Fund Expenses (as a percentage
of average net assets)
Investment Advisory Fees .60%(1) .50% .60%(1)
Rule 12b-1 Fees 0(1) 0 0(1)
Other Expenses .21(2) .20 .21(2)
---- ---- ----
Total Fund Operating Expenses .81%(1) .70% .81%(1)
==== ==== ====
________________
<FN>
1 The investment advisory fee charged to the Acquiring Fund is 10 basis
points higher than that currently charged to TCFI. In addition, the
Acquiring Fund, unlike TCFI, is subject to a Rule 12b-1 fee. However,
The Ohio Company has agreed with the Group to waive all of its Rule
12b-1 fees for the period following the effective date of the
Reorganization and ending September 30, 1996. Absent such fee waiver,
12b-1 Fees and Total Fund Operating Expenses for the Acquiring Fund
are estimated to be 0.25% and 1.06%, respectively.
2 "Other Expenses" are based upon estimated amounts for the current
fiscal year. In addition, the Acquiring Fund pays a fund accounting
fee to Cardinal Management Corp. ("CMC"), a wholly owned subsidiary of
The Ohio Company, in the amount of .03% of the first $100 million of
average daily net assets and .01% of its average daily net assets in
excess of $100 million. TCFI pays no such fee.
* These calculations reflect the expense information for the Acquiring
Fund after giving effect to the Reorganization.
</TABLE>
11
<PAGE> 18
EXAMPLE
- -------
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return
and (2) redemption at the end of
each period:
<TABLE>
<CAPTION>
ACQUIRING FUND
ON A PRO
ACQUIRING FUND(1) TCFI FORMA BASIS*(1)
----------------- ---- ---------------
<S> <C> <C> <C>
One Year $53 $ 52 $ 53
Three Years $70 $ 66 $ 70
Five Years N/A $ 82 $ 88
Ten Years N/A $128 $141
______________
<FN>
* These calculations reflect the expense information
for the Acquiring Fund after giving effect to the Reorganization.
(1) Absent The Ohio Company's Rule 12b-1 fee waiver described above,
expenses for the Acquiring Fund would be $55 and $77 for One Year and
Three Years, respectively, and expenses for the Acquiring Fund on a
pro forma basis would be $55, $77, $101 and $169 for One Year, Three
Years, Five Years and Ten Years, respectively.
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of the
Reorganization, TCFI will have received an opinion of counsel that, upon the
consummation of the Reorganization and the transfer of the assets of TCFI, no
gain or loss will be recognized by TCFI or its shareholders for federal income
tax purposes. The holding period and aggregate tax basis for the Acquiring
Fund shares that are received by a TCFI shareholder will be the same as the
holding period and aggregate tax basis of the Shares of TCFI previously held by
such shareholder. In addition, the holding period and tax basis of the assets
of TCFI in the hands of the Acquiring Fund as a result of the Reorganization
will be the same as the holding period and tax basis of the assets in the hands
of TCFI immediately prior to the Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Directors of TCFI, at a special meeting held on November 13, 1995, determined
unanimously that the Reorganization is in the best interests of TCFI and that
the interests of the existing shareholders of TCFI will not be diluted as a
result of the Reorganization. Similarly, the Board of Trustees of the Group
unanimously determined that the Reorganization is in the best interests of the
Group and the Acquiring Fund. The proposed Reorganization of TCFI with and
into the Acquiring Fund is part of a larger plan to reorganize each of TCFI,
Cardinal Tax Exempt Money Trust, Cardinal Government Securities Trust and
Cardinal Government Obligations Fund, each a separate stand-alone investment
company, into a separate portfolio of the Group, and will allow the
shareholders of TCFI to realize certain economies of scale as a result of
becoming shareholders of a series investment company and thus having certain
fixed fees spread over a larger pool of assets. In addition, the corporate
structure of and the more uniform investment policies and restrictions of the
Acquiring Fund will improve oversight of compliance
12
<PAGE> 19
obligations and overall management of the shareholders' investment
since many of such policies and restrictions will be the same for all of the
series or portfolios of the Group. The investment advisory fee paid by the
Acquiring Fund to CMC is ten basis points higher than that fee charged to TCFI
by The Ohio Company. However, CMC and The Ohio Company have undertaken to use
such higher fee to commit additional investment management personnel and
additional resources to manage the portfolio of the Acquiring Fund. The
Acquiring Fund is also subject to the Rule 12b-1 plan of the Group and
therefore pays a 25 basis point (0.25%) fee which TCFI does not pay. The
Boards of TCFI and the Group, in approving the Reorganization, concluded that
the payment of such Rule 12b-1 fees will improve the servicing of shareholder
accounts by broker-dealers and is necessary to compete successfully through a
broker-dealer distribution channel in today's marketplace when competing funds
pay a similar or higher fee to such brokers. As a result, the Boards of TCFI
and the Group found that the payment of such Rule 12b-1 fees will promote fund
sales and discourage fund redemptions and that a larger fund will be able to
spread its fixed costs over a wider base and to achieve better portfolio
diversification. Finally, the Boards of TCFI and the Group considered the fund
accounting fees charged by CMC to the Acquiring Fund (and which are not charged
to TCFI) and found them to be fair and reasonable and comparable to those
charged by other service providers. See "THE PROPOSED TRANSACTION -- REASONS
FOR THE PROPOSED TRANSACTION."
To be approved, the Plan will require the affirmative vote of the
holders of Shares entitling them to exercise a majority of the voting power of
TCFI. The Reorganization with respect to TCFI is not contingent on the
approval of the Reorganization with respect to any of the other Cardinal funds.
If TCFI's shareholders do not approve the proposed Reorganization, TCFI's Board
of Directors will consider what other alternatives would be in the
shareholders' best interests. If the Plan is approved at the Meeting, the
effective date of the Reorganization (the "Closing Date") is expected to be on
or about March 31, 1996, subject, however, to the receipt by TCFI and the
Group, if necessary, of an order of exemption from the Commission with respect
to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. TCFI and the Acquiring Fund have
substantially similar investment objectives, policies and restrictions. TCFI
seeks to achieve long-term growth of capital and income through selective
participation in the long-term progress of American businesses and industries.
Current income, while a factor in portfolio selection, is secondary to TCFI's
primary objective. The Acquiring Fund seeks to achieve long-term growth of
capital and income. Current income is a secondary objective. The Acquiring
Fund seeks to achieve its objectives through selective participation in the
long-term progress of businesses and industries. The policy of each of TCFI
and the Acquiring Fund is generally to invest in equity securities. For a
discussion of the differences between the investment restrictions of the
Acquiring Fund and TCFI, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS -- INVESTMENT RESTRICTIONS."
13
<PAGE> 20
FEES AND EXPENSES. TCFI pays the following fees: to The Ohio
Company, an investment advisory and management fee computed daily and payable
quarterly at the annual rate of 0.50% of the value of its average daily net
assets; to CMC for transfer agency services an annual fee, paid monthly, at an
annual rate of $18 per shareholder account plus out-of-pocket expenses.
The Acquiring Fund pays the following fees to CMC: an investment
advisory and management fee computed daily and payable monthly at the annual
rate of 0.60% of the value of its average daily net assets; for transfer agency
services an annual fee, paid monthly, at an annual rate of $18 per shareholder
account plus out-of-pocket expenses; and for fund accounting services a fee
computed daily and paid periodically at an annual rate of .03% of its average
daily net assets of $100 million or less and .01% of its average daily net
assets in excess of $100 million.
Shares of each of TCFI and the Acquiring Fund are distributed by The
Ohio Company, a registered broker-dealer and the sole shareholder of CMC. TCFI
pays no distribution fees or expenses. The Acquiring Fund, however, has
adopted a distribution plan (the "Rule 12b-1 Plan") pursuant to Rule 12b-1 of
the 1940 Act which permits the Acquiring Fund to pay or reimburse The Ohio
Company, as the Acquiring Fund's distributor, an amount paid periodically and
calculated at an annual rate not to exceed 0.25% of the average daily net asset
value of the Acquiring Fund. Such amount may be used by The Ohio Company to
pay broker-dealers, banks and other institutions (a "Participating
Organization") for distribution and/or shareholder service assistance pursuant
to an agreement between The Ohio Company and the Participating Organization or
for distribution assistance and/or shareholder service provided by The Ohio
Company. Under the Plan, a Participating Organization may include The Ohio
Company, its subsidiaries and affiliates.
A sales charge is imposed upon the sale of both TCFI's and the
Acquiring Fund's shares equal to 4.5% of the public offering price (4.71% of
the net amount invested). Such sales charge is reduced on investments of
$100,000 or more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AS A OF OFFERING PRICE
PERCENTAGE ----------------------
AMOUNT OF OF THE NET SALES DEALER'S
SINGLE TRANSACTION AMOUNT INVESTED CHARGE CONCESSION
------------------ --------------- ------ ----------
<S> <C> <C> <C>
Less than $100,000 4.71% 4.50% 4.00%
$100,000 but less than $250,000 3.63 3.50 3.00
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 1.52 1.50 1.00
$1,000,000 or more 0.50 0.50 0.40
</TABLE>
For each of TCFI and the Acquiring Fund, the sales charge may be
waived under certain specified conditions.
14
<PAGE> 21
The expense ratio of the Acquiring Fund subsequent to the
Reorganization is expected to be higher than that of TCFI. See "THE PROPOSED
TRANSACTION -- REASONS FOR THE PROPOSED TRANSACTION." The annual total
operating expenses of TCFI as of September 30, 1995, were 0.70% as a percentage
of average net assets. Assuming the same level of net assets for the Acquiring
Fund after the Reorganization, it is estimated that the total annual operating
expenses for the Acquiring Fund stated as a percentage of average net assets
would be 0.81%, taking into account the proposed Rule 12b-1 fee waiver, and
1.06%, assuming no Rule 12b-1 fee waiver.
COMPARISON OF PURCHASE AND REDEMPTION PROCEDURES. Shares of TCFI and
the Acquiring Fund are offered at net asset value, plus the applicable sales
charge as described above, and may be purchased through The Ohio Company on
each Business Day. A "Business Day" is defined as each business day the New
York Stock Exchange is open for business and on any other day (other than a day
on which no shares of that fund are tendered for redemption and no order to
purchase any shares of that fund are received) where there is sufficient
trading in such fund's portfolio securities that its net asset value per share
might be materially affected by changes in the value of its portfolio
securities. The minimum initial investment in both TCFI and the Acquiring Fund
is $1,000, the minimum subsequent investment is $50 and there is no sales
charge imposed upon the reinvestment of dividends and distributions.
Redemption orders for shares of both TCFI and the Acquiring Fund must
be placed with CMC. Investors may redeem Shares of TCFI at the net asset value
per share next determined following the receipt by CMC of the following: (a)
written or telephonic notice to redeem, and (b) for Shares represented by
certificates, either the share certificates, properly endorsed, or properly
executed stock powers. Investors may redeem shares of the Acquiring Fund at
the net asset value per share next determined following the receipt by CMC of
written or telephonic notice to redeem.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of TCFI and of the
Acquiring Fund may be exchanged for shares of any other fund advised by The
Ohio Company or CMC (a "Cardinal Fund") at respective net asset values,
although payment of a sales charge equal to the difference, if any, between the
sales charge payable upon purchase of shares of such fund and the sales charge
previously paid on the shares to be exchanged may be applicable upon exchanges
of shares for a Cardinal Fund sold with a sales charge.
COMPARISON OF DIVIDEND POLICIES. Each of TCFI and the Acquiring Fund
declare dividends and distributions periodically as they may so determine.
Each of TCFI and Acquiring Fund will distribute all of any capital gains at
least annually. In addition, shareholders of TCFI and the Acquiring Fund
receive
15
<PAGE> 22
dividends and distributions in the form of additional shares and not in cash
unless otherwise requested by the shareholder.
COMPARISON OF VOTING RIGHTS. Each shareholder of TCFI is entitled to
one vote for each full share held and a proportionate fractional vote for each
fractional share held on each matter submitted to the vote of TCFI's
shareholders, regardless of the net asset value of such share. In addition,
shareholders of TCFI may cumulate their votes for purposes of voting for the
election of directors. Each shareholder of the Acquiring Fund, however, is
entitled to one vote for each dollar of value invested and a proportionate
fractional vote for any fraction of a dollar invested. Therefore, the number
of full and fractional votes per share of the Acquiring Fund will change
depending upon the net asset value of the Acquiring Fund's shares. In
addition, shareholders of the Acquiring Fund have no cumulative voting rights.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies, strategies and
restrictions of TCFI and the Acquiring Fund are substantially similar, the
overall level of investment risk should not significantly change as a result of
the Reorganization. There can be no assurance that either TCFI or the
Acquiring Fund will achieve its investment objectives.
Like any investment program, an investment in either TCFI or the
Acquiring Fund entails certain risks. As a fund investing primarily in common
stocks, TCFI and the Acquiring Fund are subject to stock market risk, i.e., the
possibility that stock prices in general will decline over short or even
extended periods.
The Acquiring Fund may invest in put and call options and futures, as
described below. Such instruments are considered to be derivatives. A
derivative is generally defined as an instrument whose value is based upon, or
derived from, some underlying index, reference rate (e.g., interest rates),
security, commodity or other asset. The Acquiring Fund will not invest more
than 10% of its total assets in such derivatives at any one time.
The following discussion is qualified in its entirety by the
disclosure set forth in the Acquiring Fund's Prospectus accompanying this
Combined Prospectus/Proxy Statement and TCFI's Prospectus. For additional
information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
REPURCHASE AGREEMENTS. Securities held by each of TCFI and the
Acquiring Fund may be subject to repurchase agreements. Under the terms of a
repurchase agreement, TCFI or the Acquiring Fund, as the case may be, acquires
securities from a financial institution
16
<PAGE> 23
such as a well-established securities dealer or a bank which is a member of the
Federal Reserve System which its investment adviser deems creditworthy under
guidelines approved by the respective Board of Directors/Trustees. At the time
of purchase, the bank or securities dealer agrees to repurchase the underlying
securities at a specified time and price. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or maturity of the underlying security. Under the 1940 Act,
repurchase agreements are considered to be loans by TCFI and the Acquiring
Fund. Each of TCFI and the Acquiring Fund will only enter into a repurchase
agreement where (i) the underlying securities are of the type which such fund's
investment policies would allow it to purchase directly, (ii) the market value
of the underlying security, including interest accrued, will be at all times
equal to or exceed the value of the repurchase agreement, and (iii) payment for
the underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the fund's custodian or a bank acting as
agent. The investment adviser will be responsible for continuously monitoring
such requirements. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, TCFI or the Acquiring Fund (as the case may be)
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying
securities during the period while seeking to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
INVESTMENT COMPANY SECURITIES. Each of TCFI and the Acquiring Fund
may also invest up to 10% of the value of its total assets in the securities of
other investment companies subject to the limitations set forth in the 1940
Act. Such funds intend to invest in the securities of other investment
companies which, in the opinion of its investment adviser, will assist such
Fund in achieving its objectives and of other money market mutual funds for
purposes of short-term cash management. Their investment in such other
investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees.
FOREIGN SECURITIES. Unlike TCFI, the Acquiring Fund may also invest
up to 25% of its net assets in foreign securities through the purchase of
sponsored and unsponsored American Depositary Receipts ("ADRs"). Unsponsored
ADRs may be less liquid than sponsored ADRs, and there may be less information
available regarding the underlying foreign issuer for unsponsored ADRs.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of U.S.
domestic issuers. Such risks include trade balances and imbalances, and
related economic policies, future adverse political, economic and social
developments, the possible imposition of withholding taxes on interest income,
17
<PAGE> 24
possible seizure, nationalization, or expropriation of foreign investments or
deposits, less stringent disclosure requirements, the possible establishment of
exchange controls or taxation at the source, or the adoption of other foreign
governmental restrictions. In addition, foreign issuers may be subject to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to U.S. domestic issuers, and securities markets in foreign
countries may be structured differently from and may not be as liquid as the
U.S. markets. The Acquiring Fund will acquire securities issued by foreign
issuers only when CMC believes that the risks associated with such investments
are minimal.
PUT AND CALL OPTIONS. Subject to its investment policies and for
purposes of hedging against market risks related to its portfolio securities,
the Acquiring Fund may purchase put and call options on securities. TCFI may
not acquire put and call options.
Purchasing options is a specialized investment technique that entails
a substantial risk of a complete loss of the amounts paid as premiums to
writers of options. The Acquiring Fund will purchase put options only on
securities in which the Acquiring Fund may otherwise invest. The Acquiring
Fund may also engage in writing call options from time to time as the Adviser
deems appropriate. The Acquiring Fund will write only covered call options
(options on securities owned by the Acquiring Fund). In order to close out a
call option it has written, the Acquiring Fund will enter into a "closing
purchase transaction" -- the purchase of a call option on the same security
with the same exercise price and expiration date as the call option which the
Acquiring Fund previously has written. When a portfolio security subject to a
call option is sold, the Acquiring Fund will effect a closing purchase
transaction to close out any existing call option on that security. If the
Acquiring Fund is unable to effect a closing purchase transaction, it will not
be able to sell the underlying security until the option expires or the
Acquiring Fund delivers the underlying security upon exercise. Under normal
market conditions, it is not expected that the underlying value of portfolio
securities subject to such options would exceed 25% of the net assets of the
Acquiring Fund.
The Acquiring Fund, as part of its option transactions, also may
purchase index put and call options and write index options. As with options
on individual securities, the Acquiring Fund will write only covered index call
options. Through the writing or purchase of index options the Acquiring Fund
can achieve many of the same objectives as through the use of options on
individual securities. Options on securities indices are similar to options on
a security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
18
<PAGE> 25
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option.
Price movements in securities which the Acquiring Fund owns or intends
to purchase probably will not correlate perfectly with movements in the level
of an index and, therefore, the Acquiring Fund bears the risk of a loss on an
index option that is not completely offset by movements in the price of such
securities. Because index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific securities, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. The Acquiring Fund may be required to segregate assets or provide
an initial margin to cover index options that would require it to pay cash upon
exercise.
FUTURES CONTRACTS. Unlike TCFI, the Acquiring Fund may also enter
into contracts for the future delivery of securities and futures contracts
based on a specific security, class of securities or an index, purchase or sell
options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
The Acquiring Fund may engage in such futures contracts in an effort
to hedge against market risks. For example, when interest rates are expected
to rise or market values of portfolio securities are expected to fall, the
Acquiring Fund can seek through the sale of futures contracts to offset a
decline in the value of its portfolio securities. When interest rates are
expected to fall or market values are expected to rise, the Acquiring Fund,
through the purchase of such contracts, can attempt to secure better rates or
prices for the Acquiring Fund than might later be available in the market when
it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Acquiring Fund the right (but not the obligation), for a
specified price, to sell or to purchase the underlying futures contract, upon
exercise of the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of the Acquiring Fund's
total assets, and the value of securities that are the subject of such futures
and options (both for receipt and delivery) may not exceed one-third of the
market value of the Acquiring Fund's total assets. Futures transactions will
be limited to the extent necessary to maintain the Acquiring Fund's
qualification as a regulated investment company.
19
<PAGE> 26
Futures transactions involve brokerage costs and require the Acquiring
Fund to segregate assets to cover contracts that would require it to purchase
securities. The Acquiring Fund may lose the expected benefit of futures
transactions if interest rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall
performance than if the Acquiring Fund had not entered into any futures
transactions. In addition, the value of the Acquiring Fund's futures positions
may not prove to be perfectly or even highly correlated with the value of its
portfolio securities, limiting the Acquiring Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market
for purposes of closing out futures positions.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The Plan
provides that all of the assets of TCFI as of the Exchange Date (as defined in
the Plan) will be transferred to the Acquiring Fund in exchange for shares of
the Acquiring Fund and the assumption by the Acquiring Fund of all of the
liabilities of TCFI. The Exchange Date is expected to be on or about March 31,
1996, subject, however, to the receipt by TCFI and the Group of any necessary
order of exemption from the Commission with respect to the Reorganization. A
copy of the Plan is attached as Exhibit A to this Combined Prospectus/Proxy
Statement. Although portions of the Plan are summarized below, this summary is
qualified in its entirety by reference to the Plan.
Promptly after the Exchange Date, TCFI will distribute the shares of
the Acquiring Fund to TCFI's shareholders of record as of the close of business
on the Exchange Date. The shares of the Acquiring Fund which will be issued
for distribution to TCFI's shareholders will be equal in aggregate value to the
Shares of TCFI held as of the Valuation Time (as defined in the Plan). All
issued and outstanding Shares of TCFI will be cancelled on TCFI's books.
Shares of the Acquiring Fund will be represented only by book entries; no share
certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction
of a number of conditions set forth in the Plan, including approval by
shareholders of TCFI. The Plan also may be terminated and the Reorganization
abandoned by TCFI and the Acquiring Fund by mutual consent of their respective
directors/trustees. If the consummation of the Reorganization is so abandoned,
no party shall be liable to the other party for any damages resulting
therefrom. If the Reorganization is otherwise not consummated by reason of
either party's being unwilling or unable to go forward (other than by reason of
the non-fulfillment or failure of certain conditions to such party's
obligations), such
20
<PAGE> 27
party will pay directly all reasonable fees and expenses incurred by the other
party in connection with the Reorganization.
The Reorganization also is subject to the condition of obtaining an
opinion of counsel to the effect that the Reorganization constitutes a tax-free
reorganization for federal income tax purposes and any necessary written order
of exemption from the Commission exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by
a party in connection with the Plan will be paid by the party directly
incurring such costs except where a party is unwilling or unable to go forward
(other than for lack of requisite shareholder approval or breach by the other
party in its covenants) in which case such party will pay all reasonable fees
and expenses of the other party. The Ohio Company will pay the costs of the
Reorganization. TCFI will pay those costs associated with that portion of the
Meeting relating to customary annual meeting matters (e.g., election of
directors), and the Acquiring Fund will bear its organizational costs.
Finally, the Reorganization is subject to TCFI shareholders' approval
of Issue 5 described below. Generally, TCFI is asking shareholders to approve
the deletion of its fundamental policy with respect to related party
transactions. Such policy, if not deleted, may be interpreted to prevent TCFI
from selling all of its portfolio securities to the Acquiring Fund pursuant to
the terms of the Plan.
Under Ohio law, shareholders of record as of the Record Date who vote
against the proposed Reorganization, or who refrain from voting thereon, may
within ten (10) days after the vote is taken express their dissent and demand
payment to them of the fair cash value of their shares, such value to be
determined as of the day immediately preceding the date on which the vote was
taken. Any such demand must be in writing, stating the address of such
shareholder, the number and class of shares as to which relief is sought and
the amount claimed as the fair cash value thereof and must be delivered to TCFI
within ten (10) days after the vote on the Reorganization is taken.
Thereafter, unless TCFI and the dissenting shareholder have come to an
agreement with respect to the fair cash value of the shares as to which relief
is sought, either party may, within three months after service of demand by the
shareholder, file a petition in the Court of Common Pleas in Franklin County,
Ohio, for appraisal and determination of the fair cash value. The foregoing is
a summary of the rights of dissenters, the full provisions of which are set
forth in the Ohio General Corporation Law and particularly Section 1701.85,
Ohio Revised Code.
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However, the Commission has taken the position that Rule 22c-1 of the
1940 Act limits a shareholder of a registered investment company, dissenting
from a reorganization, from receiving for his shares an amount different from
the net asset value thereof, next computed after receipt of the written
dissent. This position, if accepted by an appropriate court, would establish
net asset value next computed after receipt of the written dissent as the
amount a dissenting shareholder would receive and would supersede contrary
provisions of law. If the Plan is duly approved by shareholders, all
shareholders of TCFI as of the Exchange Date, including those that voted
against the approval of the Plan, will receive shares of the Acquiring Fund.
All shareholders of TCFI have the right at any time up to the next business day
preceding the Exchange Date to redeem their Shares at net asset value according
to the procedures set forth in TCFI's Prospectus.
This summary does not purport to be a complete description of the Plan
and is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, TCFI is a separate,
stand-alone investment company organized in 1966. The Group was organized as a
series investment company in 1993, and in October and November 1995, its Board
of Directors created the Acquiring Fund with substantially similar investment
objectives, policies and restrictions to those of TCFI. Because of the
similarity between TCFI and the Acquiring Fund, the risks involved with an
investment in the Acquiring Fund are not expected to be significantly greater
than those associated with an investment in TCFI. The Acquiring Fund has been
established for purposes of effecting the Reorganization and will not commence
operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board
of Directors of TCFI for their consideration at meetings held on October 20,
1995, and November 13, 1995. The Board of Directors of TCFI concluded
unanimously that the Reorganization is in the best interests of TCFI and that
the interests of the existing shareholders of TCFI will not be diluted by the
Reorganization.
The Board of Directors of TCFI, in reaching this conclusion,
considered the costs resulting from the separate operation of TCFI and the
proposed costs of operating the Acquiring Fund as provided by The Ohio Company,
in light of their substantially similar investment objectives, policies,
restrictions, Boards of Directors/Trustees, officers and service providers.
The Board also considered the operating and compliance efficiencies that could
result from moving the operation of TCFI from a stand-alone investment company
to a separate portfolio of a series investment company. The investment
objective of the Acquiring Fund varies from that of TCFI in that the Acquiring
Fund does not limit
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<PAGE> 29
achieving its investment objectives through investing in American businesses.
Specifically, the Acquiring Fund intends to invest, from time to time, in ADRs,
as more fully described above under "SPECIAL CONSIDERATIONS AND RISK FACTORS --
FOREIGN SECURITIES." The investment restrictions of the Acquiring Fund which
were approved by the Board of Trustees of the Group also vary somewhat from the
restrictions of TCFI; however, such differences reflect a more uniform and
flexible set of investment restrictions that are currently in place for each of
the other series or portfolios of the Group. Such restrictions were approved
to help achieve greater compliance efficiencies by having each series of the
Group have the same or substantially the same investment restrictions and to
give the Acquiring Fund the ability to engage in options and futures
transactions as described above under "Special Considerations and Risk
Factors."
One of the operating efficiencies expected to be achieved is that
under Ohio law and the Group's Declaration of Trust an annual meeting of
shareholders of the Acquiring Fund is not required. TCFI as an Ohio
corporation is required to hold such a meeting. Also, certain fixed costs
associated with the operation of TCFI when incurred by the Acquiring Fund as
part of the Group would decrease on a per share basis since such costs would be
spread over a larger pool of assets, e.g., certain legal and printing fees,
while maintaining the same services by the same or affiliated service
providers.
In particular, the Board considered the anticipated expense ratios of
the Acquiring Fund, the structure of the Group, the experience of the service
providers of the Acquiring Fund and the level of service to be provided to the
shareholders of the Acquiring Fund, as represented by The Ohio Company,
including the greater resources that could be dedicated to managing the
Acquiring Fund's portfolio securities and marketing the Acquiring Fund and
providing shareholder services.
TCFI's Board also considered the higher fees charged to the Acquiring
Fund compared to those of TCFI. With respect to the higher investment advisory
fee, TCFI's Board considered CMC's and The Ohio Company's express commitment of
additional investment management personnel and other resources to manage the
portfolio of the Acquiring Fund. With respect to the Rule 12b-1 fee, TCFI's
Directors concluded that the payment of such fees will improve the servicing of
shareholder accounts by broker-dealers and is necessary to compete successfully
through a broker-dealer distribution channel in today's marketplace when
competing funds pay a similar or higher fee to such brokers. Thus, TCFI's
Board determined that the payment of such Rule 12b-1 fees will promote fund
sales and discourage fund redemptions and that a larger fund will be able to
spread its fixed costs (exclusive of those costs based upon a percentage of net
assets) over a wider based and to achieve better portfolio diversification.
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<PAGE> 30
The Board of Directors of TCFI based its decision to approve the
proposed transaction upon its consideration of a number of factors, including
those described above and the following:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
(2) the similarity of TCFI's investment objectives, strategies and
policies with those of the Acquiring Fund, as well as the views of CMC that any
differences between the investment policies and restrictions of TCFI and the
Acquiring Fund should not significantly increase investment risks;
(3) the experience and resources of CMC with respect to providing
investment management services, CMC's commitment to increase the personnel and
resources dedicated to the management of the Acquiring Fund's portfolio
investments and the experience of and quality of services to be provided by the
Acquiring Fund's other service providers;
(4) the projected expense ratios and information regarding fees
and expenses of TCFI, the Acquiring Fund and other similar funds and the
services being offered to shareholders;
(5) the conditioning of the Reorganization on the receipt of a
legal opinion confirming the absence of any adverse federal tax consequences to
TCFI or its shareholders resulting from the Reorganization; and
(6) other factors as it deemed relevant.
In particular, the Board considered the following per share operating
expense ratios (total annual operating expenses expressed as a percentage of
average net assets) for shares of TCFI for the year ended September 30, 1995,
and as estimated for the shares of the Acquiring Fund for the period following
the effective date of the Reorganization and ending September 30, 1996, after
giving effect to the Reorganization:
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<PAGE> 31
OPERATING EXPENSE RATIOS
TCFI ACQUIRING FUND
---- --------------
0.70% 0.81%(1)
______________
(1) Reflects the waiver of Rule 12b-1 fees by The Ohio Company
through September 30, 1996. Absent such waiver, total annual operating
expenses of the Acquiring Fund, as a percentage of average net assets, are
estimated to be 1.06%.
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in the
Acquiring Fund is represented by units of beneficial interest, without par
value, of The Cardinal Group (the "Group"), which is an open-end investment
company of the management type, organized as an Ohio business trust on March
23, 1993. The Acquiring Fund is currently one of six separate series of the
Group. Like TCFI, the Acquiring Fund is diversified, as that term is defined
in the 1940 Act. Currently there is only one class of shares for the Acquiring
Fund. Shareholders of the Acquiring Fund are entitled to one vote for each
dollar of value invested and a proportionate fractional vote for any fraction
of a dollar invested. See "ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, TCFI and the Group must receive a favorable opinion from Baker
& Hostetler, counsel to both TCFI and the Group, substantially to the effect
that, for federal income tax purposes: (a) the Reorganization will constitute a
"tax-free" reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); (b) no gain or loss will be
recognized by the Acquiring Fund or TCFI as a result of the Reorganization; (c)
no gain or loss will be recognized by shareholders of TCFI upon the exchange of
their Shares of TCFI for shares of the Acquiring Fund; (d) the tax basis of the
Acquiring Fund shares received by shareholders of TCFI pursuant to the
Reorganization will be the same as the basis of the Shares of TCFI held
immediately prior to the Reorganization; (e) the holding period of the
Acquiring Fund shares so received will include the period during which TCFI
shareholder held Shares of TCFI, provided such Shares were held as a capital
asset; (f) the tax basis of TCFI's assets acquired by the Acquiring Fund will
be the same as the basis of such assets immediately prior to the
Reorganization; and (g) the holding period of such assets will include the
period during which those assets were held by TCFI. The Group and TCFI do not
intend to seek a private letter ruling with respect to the tax effects of the
Reorganization.
CAPITALIZATION. The following table shows the capitalization of TCFI
as of September 30, 1995. The Acquiring Fund has no and
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<PAGE> 32
will have no assets or liabilities or commence operations prior to the
consummation of the Reorganization. THEREFORE, NO PRO FORMA INFORMATION GIVING
EFFECT TO THE REORGANIZATION IS PROVIDED.
THE CARDINAL FUND INC.
Net assets . . . . . . . . . . . . . . .. . . . . . . . . . . . $226,181,233
Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . 17,099,016
Net asset value per share . . . . . . . . . . . . . . . . . . . . . . $13.23
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and
policies of TCFI are substantially similar to those of the Acquiring Fund. The
investment objectives of TCFI and Acquiring Fund are "fundamental," which means
that they may not be changed without the consent of a majority of such fund's
outstanding shares, as defined in the 1940 Act.
The investment objectives of TCFI are to achieve long-term growth of
capital and income through selective participation in the long-term progress of
American businesses and industries. Current income, while a factor in
portfolio selection, is secondary to the primary objective. The investment
objectives of the Acquiring Fund are long-term growth of capital and income.
Current income is a secondary objective.
The policy of each of TCFI and the Acquiring Fund is generally to
invest in equity securities of companies which, in the opinion of the
investment adviser, are growth oriented. The securities purchased by TCFI and
the Acquiring Fund are traded in either established over-the-counter markets or
on national exchanges and are issued by companies having a market
capitalization of at least $10 million. Current income, while a factor in
portfolio selection, is secondary to the primary objective. This policy of
normally investing in equity securities believed to have a potential for
long-term capital appreciation means that the assets of TCFI and the Acquiring
Fund will generally be subject to greater risk than may be involved in
securities which do not have such growth characteristics. It is recognized,
however, that there may be times when, as a temporary, defensive measure, such
Funds' equity position should be reduced. At such times, and otherwise for
cash management purposes, each of TCFI and the Acquiring Fund may hold its
assets in cash or invest its assets in investment grade debt securities, U.S.
Government securities, securities of other investment companies, repurchase
agreements and preferred stock. The Acquiring Fund, however, unlike TCFI, may
invest in foreign securities including ADRs.
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<PAGE> 33
INVESTMENT RESTRICTIONS
The fundamental investment restrictions of TCFI and the Acquiring Fund
are similar except for the following differences:
(1) TCFI may not purchase the securities of any issuer if such
purchase would cause more than 5% of TCFI's total assets upon
such purchase to be invested in the securities of any one
issuer (not including the government of the United States or
corporations which are the instrumentalities of the United
States) nor may it purchase the securities of any issuer if
such purchase would cause TCFI to hold (i) more than 10% of
the voting securities of such issuer, (ii) more than 10% of
all debt securities of such issuer taken as a class, or (iii)
more than 10% of all equity securities of such issuer
preferred in any way over the common stock of such issuer
taken as a class. The Acquiring Fund may not purchase
securities of any one issuer, 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 the value of the Acquired Fund's total assets would
be invested in such issuer or the Acquired Fund would hold
more than 10% of the outstanding voting securities of the
issuer, except that up to 25% of the value of the Acquired
Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets
that may be invested in U.S. Treasury bills, notes or other
obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities.
(2) TCFI may not concentrate more than 25% of the value of the
total assets of TCFI (determined at the date of acquisition)
in investments in any particular industry. The Acquiring Fund
has a similar policy except that its policy expressly includes
the Commission's position that there is no limitation with
respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities. The Acquiring Fund's
policy is further qualified as follows: (a) wholly owned
finance companies will be considered to be in the industries
of their parents if their activities are primarily related to
financing the activities of their parents, and (b) utilities
will be divided according to their services; for example, gas,
gas transmission, electric and gas, electric and telephone
will each be considered a separate industry.
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<PAGE> 34
(3) TCFI may not purchase securities on margin. The
Acquiring Fund has a similar restriction except that
the Acquiring Fund may use short-term credit
necessary for clearance of purchases of portfolio
securities and may also make margin payments as may
be necessary in connection with derivative securities
transactions.
(4) TCFI has a policy of not purchasing or selling commodities,
commodity contracts or futures contracts. The Acquiring Fund
has a similar policy with respect to commodities and commodity
contracts except it may engage in such transactions to the
extent disclosed to shareholders in its current Prospectus.
(5) TCFI may not write, purchase or sell puts, calls or
combinations thereof. The Acquiring Fund has no such
restriction.
(6) TCFI may not mortgage, pledge or hypothecate any assets to a
greater extent than 15% of its gross assets taken at cost.
The Acquiring Fund has a non-fundamental policy that it may
not mortgage or hypothecate the Acquiring Fund's assets in
excess of one-third of the Acquiring Fund's total assets.
(7) TCFI may not purchase any securities from or sell any
securities to (other than stock issued by TCFI) officers or
directors of TCFI, any person or organization furnishing
managerial or advisory services to TCFI, or related classes of
persons as principals. The Acquiring Fund has no similar
policy.
(8) TCFI may not invest in companies for the purpose of exercising
control or management thereof. The Acquiring Fund has no
similar policy.
(9) TCFI may not change its classification as a "management
company" under Section 4 of the 1940 Act or change its
subclassifications as an "open-end company" or as a
"diversified company" under Section 5 of the 1940 Act. The
Acquiring Fund has no such policy although the 1940 Act
requires that shareholders approve any such change by the
Acquiring Fund.
In addition, the Acquiring Fund has the following non-fundamental
investment restrictions. Except as noted below, these non-fundamental
investment restrictions are substantially similar to fundamental investment
restrictions of TCFI. As discussed above, however, fundamental restrictions of
a fund may not be changed without a vote of a majority of the outstanding
voting securities of the fund; non-fundamental policies may be changed without
a shareholder vote. As a consequence, the following
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<PAGE> 35
policies could be modified, or eliminated, by the Group with respect to the
Acquiring Fund without shareholder approval.
(1) The Acquiring Fund may not engage in any short sales. TCFI
has a similar fundamental policy except that TCFI may make
short sales of securities to the extent that the same are
owned by TCFI (i.e., short sales "against the box").
(2) The Acquiring Fund may not purchase or otherwise acquire any
securities if, as a result, more than 15% of the Acquiring
Fund's net assets would be invested in securities that are
illiquid. In addition, the Acquiring Fund may not invest more
than 15% of its total assets in securities which are
restricted as to disposition. TCFI has a fundamental policy
that provides that it may not purchase securities subject to
restrictions on disposition under the Securities Act of 1933
if at the time of acquisition more than 5% of the total assets
of TCFI would be invested in such securities.
(3) The Acquiring Fund may not purchase or retain any securities
of an issuer if, to the knowledge of the Group, the officers
and trustees of the Group or the officers and directors of CMC
individually owning more than 1/2 of 1% of the securities of
such issuer together own beneficially more than 5% of the
securities of such issuer.
(4) The Acquiring Fund may not purchase securities of enterprises
which have a record of less than three years' continuous
operation, if such purchase would cause more than 10% of the
total assets of the Acquiring Fund to be invested in the
securities of such enterprises. TCFI's fundamental policy as
to such securities is limited to 5% of its total assets.
Finally, the Acquiring Fund has the non-fundamental policy that it may
not purchase participations or direct interests in oil, gas or other mineral
exploration or development programs (although investments by the Acquiring Fund
in marketable securities of companies engaged in such activities are not
prohibited by this restriction). TCFI has no such restriction.
PORTFOLIO MANAGERS. Since CMC is a wholly owned subsidiary of The
Ohio Company and serves as the investment adviser to the Acquiring Fund, the
person currently serving as portfolio manager for TCFI intends to continue to
serve after the Reorganization as portfolio manager for the Acquiring Fund.
It is not anticipated that the above-mentioned differences in
investment policies and restrictions will, individually or in the
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<PAGE> 36
aggregate, result in an significant variation between the level of
investment risks associated with an investment in TCFI. For a more complete
description of the Acquiring Fund's investment policies and restrictions,
including relevant risk factors, see "WHAT ARE THE INVESTMENT OBJECTIVES AND
POLICIES OF THE FUND?" in the Acquiring Fund's Prospectus and "INVESTMENT
OBJECTIVES AND POLICIES" in the Acquiring Fund's Statement of Additional
Information. For a more complete description of TCFI's investment policies and
restrictions, including relevant risk factors, see "WHAT ARE THE INVESTMENT
OBJECTIVES AND POLICIES OF THE FUND?" in TCFI's Prospectus and "INVESTMENT
OBJECTIVES AND POLICIES" in TCFI's Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
TCFI
Pursuant to the laws of Ohio and TCFI's Articles of Incorporation, the
responsibility for the management of TCFI is vested in its Board of Directors
which, among other things, is empowered to elect officers of TCFI and contract
with and provide for the compensation of agents, consultants, and other
professionals to assist and advise in such management.
INVESTMENT ADVISER. TCFI is advised by The Ohio Company, 155 East
Broad Street, Columbus, Ohio 43215. CMC, a wholly owned subsidiary of The Ohio
Company, serves as the investment adviser and manager of each of the other
Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock Exchange, the Midwest Stock Exchange, other
regional stock exchanges and the National Association of Securities Dealers,
Inc. Descendants of H.P. and R.F. Wolfe, deceased, and members of their
families, through their possession of a majority of voting stock, may be
considered controlling persons of The Ohio Company.
In its capacity as investment adviser, and subject to the ultimate
authority of TCFI's Board of Directors, The Ohio Company, in accordance with
TCFI's investment objectives and policies, manages TCFI, and makes decisions
with respect to and places orders for all purchases and sales of its portfolio
securities. In addition, pursuant to the Investment Advisory Agreement, The
Ohio Company generally assists in all aspects of TCFI's administration and
operation. Since December 22, 1995, John Bevilacqua has been primarily
responsible for the day-to-day management of TCFI's portfolio. Mr. Bevilacqua
has been a Vice President and Portfolio Manager for The Ohio Company since
October, 1994. Prior thereto, and since February, 1984, Mr. Bevilacqua served
as Second Vice
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<PAGE> 37
President - Investments for Midland Mutual Life Insurance Company, Columbus,
Ohio.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with TCFI, The Ohio Company receives a fee from
TCFI, computed daily and paid quarterly at the annual rate of .50% of average
net daily assets of TCFI.
For a complete description of TCFI's advisory arrangements, see the
section in TCFI's Prospectus entitled "WHO MANAGES MY INVESTMENT IN THE FUND?
- -- Investment Adviser and Manager."
DISTRIBUTOR. TCFI has entered into a Distributor's Contract with The
Ohio Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which
shares of TCFI continuously are offered on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an officer
and director of both TCFI, CMC and The Ohio Company. Frank W. Siegel, an officer
and director of TCFI, is an officer of The Ohio Company and an officer and
director of CMC. David C. Will and James M. Schrack II are officers of both
TCFI and The Ohio Company, and Mr. Will is an officer of CMC. The Ohio Company
receives no compensation from TCFI in connection with its services under such
Distributor's Contract but may retain some or all of the sales charge imposed
upon sales of TCFI's Shares.
DIVIDEND AND TRANSFER AGENT. CMC, 215 East Capital Street, Columbus,
Ohio 43215, serves as TCFI's Dividend and Transfer Agent. In consideration of
such services, TCFI has agreed to pay CMC an annual fee, paid monthly, equal to
$18 per shareholder account, plus out-of-pocket expenses.
For a complete description of these arrangements and the other
expenses borne by TCFI, see the sections in TCFI's Prospectus entitled "WHO
MANAGES MY INVESTMENT IN THE FUND?"
CUSTODIAN. TCFI has appointed The Fifth Third Bank ("Fifth Third") 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as TCFI's custodian. In such
capacity Fifth Third will hold or arrange for the holding of all portfolio
securities and other assets acquired and owned by TCFI.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio
43215, serves as counsel to TCFI.
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for TCFI, and, as
such, has audited the financial statements of TCFI.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE. Management discussion of
fund performance is contained in the accompanying
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<PAGE> 38
Annual Report to Shareholders for the year ended September 30, 1995.
THE ACQUIRING FUND
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's
Trustees, who are elected by the shareholders of the Group's series or
portfolios, including the Acquiring Fund, and who are empowered to elect
officers and contract with and provide for the compensation of agents,
consultants, and other professionals to assist and advise in its day-to-day
operations. The Group will be managed in accordance with its Declaration of
Trust and the laws of Ohio governing business trusts.
INVESTMENT ADVISER. The Acquiring Fund is advised by CMC. CMC was
established as an Ohio corporation on March 21, 1980, and has been providing
investment advisory services to open-end investment management companies like
TCFI since 1980. It is intended that, upon completion of the Reorganization,
Mr. Bevilacqua will be responsible for the day-to-day management of the
Acquiring Fund's portfolio. For its services as investment adviser, CMC
receives a fee, which is calculated daily and paid monthly, at an annual rate
of 0.60% of the average daily net assets of the Acquiring Fund.
For a complete description of the Acquiring Fund's advisory
arrangements, see the section in the Acquiring Fund's Prospectus entitled "WHO
MANAGES MY INVESTMENT IN THE FUND? -- Investment Adviser and Manager."
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT. CMC, 215 East
Capital Street, Columbus, Ohio 43215, also serves as the Acquiring Fund's
Dividend and Transfer Agent. In consideration of such services, the Acquiring
Fund has agreed to pay CMC an annual fee, paid monthly, equal to $18 per
shareholder account, plus out-of-pocket expenses.
In addition, CMC provides certain fund accounting services for the
Acquiring Fund. CMC receives a fee from the Acquiring Fund for such services
equal to a fee computed daily and paid periodically at an annual rate of .03%
of the Acquiring Fund's average daily net assets of $100 million or less and
.01% of the Acquiring Fund's average daily net assets in excess of $100
million.
For a complete description of these arrangements and the other
expenses borne by the Acquiring Fund, see the sections in the Acquiring Fund's
Prospectus entitled "WHO MANAGES MY INVESTMENT IN THE FUND? -- Dividend and
Transfer Agent and Fund Accountant."
DISTRIBUTOR. The Ohio Company also serves as the distributor of the
Acquiring Fund's Shares pursuant to a distribution agreement.
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<PAGE> 39
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Rule 12b-1 Plan under which the Acquiring Fund is authorized to pay or
reimburse The Ohio Company, as the Acquiring Fund's principal underwriter, a
periodic amount calculated at an annual rate not to exceed .25% of the average
daily net asset value of the Acquiring Fund. Such amount may be used by The
Ohio Company to pay broker-dealers, banks and other institutions (a
"Participating Organization") for distribution and/or shareholder service
assistance pursuant to an agreement between The Ohio Company and the
Participating Organization or for distribution assistance and/or shareholder
service provided by The Ohio Company pursuant to an agreement between The Ohio
Company and the Group. Under the Plan, a Participating Organization may
include The Ohio Company's subsidiaries, and its affiliates.
As authorized by the Plan, The Ohio Company has agreed to provide
certain shareholder services in connection with shares of the Acquiring Fund
purchased and held by The Ohio Company for the accounts of its customers and
shares of the Acquiring Fund purchased and held by customers of The Ohio
Company directly, including, but not limited to, answering shareholder
questions concerning the Acquiring Fund, providing information to shareholders
on their investments in the Acquiring Fund and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration of such services the Group has agreed to pay The
Ohio Company a monthly fee, computed at the annual rate of .25% of the average
aggregate net asset value of shares held during the period in customer accounts
for which The Ohio Company has provided services under the Plan. Such fees
paid by the Group will be borne solely by the Acquiring Fund.
In addition, The Ohio Company may enter into, from time to time, other
Rule 12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
For a complete description of these arrangements, see the sections in
the Acquiring Fund's Prospectus entitled "WHO MANAGES MY INVESTMENT IN THE
FUND? -- Distribution Plan."
For fiscal period ending September 30, 1996, The Ohio Company has
agreed to waive all of such 12b-1 fees.
CUSTODIAN. The Acquiring Fund has also appointed Fifth Third as the
Acquiring Fund's custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Fund.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio
43215, also serves as counsel to the Acquiring Fund.
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<PAGE> 40
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Fund, and, as such, will audit the financial statements of
the Acquiring Fund.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE. No management discussion of
fund performance is included since the Acquiring Fund has not yet commenced
operations.
CERTAIN FINANCIAL INFORMATION. The Prospectus for TCFI contains
information on per share income, capital changes and performance calculations
under the caption "FINANCIAL HIGHLIGHTS."
The Acquiring Fund has not yet commenced operations and has no and
will have no assets or liabilities prior to the consummation of the
Reorganization. Therefore, no information regarding per share income and
capital changes is available. For information regarding performance
calculations and comparisons, see the information under the caption
"PERFORMANCE INFORMATION" in the Acquiring Fund's Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS. TCFI is an Ohio
corporation, registered under the 1940 Act as an open-end investment company of
the management type. TCFI was incorporated on September 16, 1966, under the
laws of Ohio. The Group is an Ohio business trust, registered under the 1940
Act as an open-end investment company of the management type. The Group was
established under a Declaration of Trust dated as of March 23, 1993. TCFI is
authorized to issue 30,000,000 shares of common stock, without par value. The
Group is authorized to issue an unlimited number of shares of beneficial
interest, which shares may be divided into one or more series or separate
classes of shares.
Each share of TCFI represents an equal proportionate interest in TCFI
with each other share. Shares are entitled upon liquidation to a pro rata
share of the net assets of TCFI. Shares of TCFI issued pursuant to TCFI's
Articles of Incorporation are fully paid and nonassessable and have no
preemptive or other right to subscribe for any additional shares.
Shares of the Acquiring Fund, once properly issued and outstanding,
are fully paid and nonassessable and have no preference as to conversion,
exchange, dividends, retirement or other features, and have no preemptive or
appraisal rights.
Shareholders of TCFI are entitled to one vote for each full share held
and a proportionate fractional vote for each fractional share held.
Shareholders of the Acquiring Fund are entitled to one vote for each dollar of
value invested and a proportionate fractional vote for any fraction of a dollar
invested. Shareholders of TCFI may cumulate their votes for purposes of the
34
<PAGE> 41
election of its Directors as described above under "GENERAL." TCFI currently
holds an annual meeting of shareholders.
Shareholders of the Acquiring Fund have no cumulative voting rights,
which means that the holders of a plurality of the shares voting for the
election of the Group's Board of Trustees can elect all of the Group's Board of
Trustees if they choose to do so. The Group does not intend to hold annual
meetings of shareholders, except as required under its Declaration of Trust or
the 1940 Act. Shareholders of the Acquiring Fund will vote in the aggregate
with other shareholders of the Group and not by series or portfolio except as
otherwise expressly required by law. For example, shareholders of the
Acquiring Fund will vote in the aggregate with other shareholders of the Group
with respect to the election of Trustees and ratification of the selection of
independent accountants. However, shareholders of the Acquiring Fund will vote
as a Fund, and not in the aggregate with other shareholders of the Group, for
purposes of approval of amendments to the Acquiring Fund's investment advisory
agreement or any of the Acquiring Fund's fundamental policies.
Therefore, after the Reorganization, shareholders of the Acquiring
Fund alone will not be able to elect the Trustees of the Group or ratify the
selection of independent accountants but will vote with all the other
shareholders of the Group on such issues if and when presented to shareholders.
In addition, since the Group currently does not intend to hold annual meetings
unless otherwise required to do so, it can not be determined when shareholders
of the Acquiring Fund will next be entitled to vote for the election of
Trustees or the ratification of the selection of independent public
accountants.
For a complete description of the respective attributes of TCFI's and
the Group's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of TCFI or the Acquiring Fund, as the
case may be, and its shareholders, and dividend and distribution policies, see
the sections in TCFI's and the Acquiring Fund's respective Prospectuses
entitled "HOW DO I PURCHASE SHARES OF THE FUND?," "WHAT DISTRIBUTIONS WILL I
RECEIVE?," "HOW MAY I REDEEM MY SHARES?" "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?" "DOES THE FUND PAY FEDERAL INCOME TAX?" and "WHAT ABOUT MY TAXES?"
Additional information about TCFI is included in its Prospectus, dated February
1, 1995, as supplemented on December 11, 1995, which is incorporated herein by
reference, and in TCFI's Statement of Additional Information dated February 1,
1995. Copies of the Prospectus and the Statement of Additional Information may
be obtained without charge by calling TCFI at 1-800-282-9446.
Additional information about the Acquiring Fund is included in its
Prospectus dated January __, 1996, which accompanies this Combined Prospectus
Proxy Statement and Statement of Additional
35
<PAGE> 42
Information dated January __, 1996, copies of which may be obtained without
charge by calling the Group at 1-800-282-9446.
Additional information regarding the Reorganization and the Acquiring
Fund is contained in the Statement of Additional Information, dated January __,
1996, to this Combined Prospectus/Proxy Statement. The Statement of Additional
Information is incorporated by reference herein and may be obtained by calling
the Group at 1-800-282-9446.
TCFI'S BOARD OF DIRECTORS AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
DELETION OF TCFI'S FUNDAMENTAL POLICY REGARDING
RELATED PARTY TRANSACTIONS -- ISSUE 5
TCFI's fundamental policies currently provide that TCFI may not
purchase any securities from or sell any securities to (other than stock issued
by TCFI) officers or directors of TCFI, any person or organization furnishing
managerial or advisory services to TCFI, OR RELATED CLASSES OF PERSONS as
principals [emphasis added]. Because this policy is unclear as it relates to
the Reorganization but could be read to prohibit the Reorganization (i.e.,
because the Group may be a person related to The Ohio Company), shareholders
are being asked to approve the deletion of this policy.
The 1940 Act contains limitations on transactions between investment
companies and their affiliates which will continue to apply to TCFI if the
above policy is deleted.
Approval of the deletion of TCFI's fundamental policy regarding
related party transactions requires the affirmative vote of a majority of the
outstanding voting securities of TCFI, defined as the affirmative vote, at a
meeting of shareholders duly called, of the lesser of (a) 67% or more of the
votes of the shareholders of TCFI present at the meeting at which the holders
of more than 50% of the votes attributable to shareholders of record of TCFI
are represented in person or by proxy, or (b) the holders of more than 50% of
the outstanding votes of shareholders of TCFI. TCFI'S BOARD OF DIRECTORS AND
ITS MANAGEMENT RECOMMEND APPROVAL OF THIS PROPOSED DELETION. IF ISSUE 5 IS NOT
APPROVED, SUCH FUNDAMENTAL POLICY WILL REMAIN IN EFFECT AND THE REORGANIZATION
WILL NOT BE CONSUMMATED.
MISCELLANEOUS
ADDITIONAL INFORMATION. TCFI and the Group are each subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the 1940 Act, and in accordance therewith each files
reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public
36
<PAGE> 43
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such materials can be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of
soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the costs of any supplementary solicitation and
proxy soliciting services provided by third parties, will be borne in part by
TCFI and in part by The Ohio Company. Proxies will be solicited initially, and
in any supplemental solicitation, by mail and may be solicited in person, by
telephone, telegraph or other electronic means by officers of TCFI.
SUBSTANTIAL SHAREHOLDERS. As of January 8, 1996, the following
persons, to the knowledge of TCFI, were the shareholders owning beneficially
five percent or more of the Shares of TCFI:
Amount and Nature of
Name and Address Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
The Ohio Company _________(1) ______%
155 East Broad Street
Columbus, Ohio 43215
(1) For its own account and as trustee for various pension plans and
trusts.
As of the close of business on January 8, 1996, the officers and
Directors of TCFI as a group beneficially owned less than 1% of the outstanding
Shares of TCFI.
As of the close of business on January 8, 1996, there were _______
issued and outstanding shares of the Group of which ____ were shares of
Cardinal Balanced Fund and ____ were shares of Cardinal Aggressive Growth Fund.
As of such date, there were no shareholders of the Acquiring Fund. It is
anticipated, however, that those persons who are beneficial holders of 5% or
more of TCFI's Shares immediately prior to the Reorganization will be
beneficial holders of the same percentage of the Acquiring Fund's Shares
immediately after the Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of
the Acquiring Fund dated January __, 1996, and the Management's Discussion of
Fund Performance section of the accompanying The Cardinal Fund Inc. Annual
Report to Shareholders as of September 30, 1995, are incorporated by reference
into this Combined Prospectus/Proxy Statement. In addition, TCFI's Prospectus
dated February 1, 1995, as supplemented December 11, 1995, is incorporated by
reference into this Combined Prospectus/Proxy Statement and may be obtained by
writing TCFI at 155 East Broad Street, Columbus, Ohio 43215 or by calling TCFI
at
37
<PAGE> 44
1-800-282-9446. Copies of documents requested will be sent by first-class
mail to the requesting shareholder within one business day of receipt of
the request.
OTHER BUSINESS. The Board of Directors of TCFI knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in
accordance with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the
Commission under the 1934 Act, investors may request inclusion in the proxy
statement for shareholder meetings certain proposals for action which they
intend to introduce at such meeting. Any shareholder proposals must be
presented a reasonable time before the proxy materials for the next meeting are
sent to shareholders. The submission of a proposal does not guarantee its
inclusion in TCFI's proxy statement and is subject to limitations under the
1934 Act. It is not presently anticipated that the Group will hold regular
meetings of shareholders, and no anticipated date of the next meeting can be
provided.
38
<PAGE> 45
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
----------------------------------------------------
Agreement and Plan of Reorganization and Liquidation ("Agreement")
dated as of December 1, 1995, by and between The Cardinal Group, an Ohio
business trust ("TCG"), and The Cardinal Fund Inc., an Ohio corporation
("TCFI").
WHEREAS, TCG is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end investment company of the management
type and has, or before the Exchange Date (as defined below) is expected to
have, issued and outstanding one class of shares of beneficial interest,
without par value ("Shares"), for each of six series, one such series being The
Cardinal Fund (hereinafter sometimes referred to as the "Cardinal Fund" or the
"Acquiring Series"); and
WHEREAS, TCFI is registered under the 1940 Act as an open-end
investment company of the management type and currently has issued and
outstanding one class of common shares, without par value; and
WHEREAS, TCFI plans to transfer all of its assets, and to assign all
of its liabilities, to the Acquiring Series, in exchange for Shares of the
Acquiring Series (the "Acquiring Series Shares"), followed by the distribution
of the Acquiring Series Shares by TCFI to its shareholders, and followed by the
dissolution of TCFI, all upon the terms and provisions of this Agreement (the
"Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization
is in the best interests of TCG, and that the interests of its shareholders
will not be diluted as a result thereof; and
WHEREAS, the Board of Directors of TCFI has determined that the
Reorganization is in the best interests of TCFI and that the interests of its
shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION.
(a) SALE OF ASSETS, ASSUMPTION OF LIABILITIES. Subject to
the prior approval of shareholders of TCFI and to the other
<PAGE> 46
terms and conditions contained herein (including the obligation of
TCFI to distribute to its shareholders all of its investment company
taxable income and net capital gain as described in Section 8(i)
herein), TCFI agrees to sell, assign, convey, transfer and deliver
to the Acquiring Series, and the Acquiring Series agrees to acquire
from TCFI on the Exchange Date (as defined below), all of the
Investments (as defined below), cash and other assets of TCFI in
exchange for that number of full and fractional Acquiring Series Shares
of the Acquiring Series having an aggregate net asset value equal to
the value of all assets of TCFI transferred to the Acquiring Series, as
provided in Section 4, less the liabilities of TCFI assumed by the
Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the
Acquiring Series from TCFI shall consist of all of TCFI's property,
including, without limitation, all Investments, cash and dividends or
interest receivables which are owned by TCFI and any deferred or
prepaid expenses shown as an asset on the books of TCFI as of the
Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date TCFI
will endeavor to discharge or cause to be discharged, or make
provision for the payment of, all of its known liabilities and
obligations. The Acquiring Series shall assume all liabilities,
expenses, costs, charges and reserves of TCFI, contingent or
otherwise, including liabilities reflected in the unaudited statement
of assets and liabilities of TCFI as of the Valuation Time, prepared
by or on behalf of TCFI in accordance with generally accepted
accounting principles consistently applied from and after September
30, 1995.
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, TCFI
shall distribute in complete liquidation to its shareholders of record
as of the Exchange Date the Acquiring Series Shares received by it,
each TCFI shareholder of record being entitled to receive that number
of Acquiring Series Shares equal to the proportion which the number of
common shares, without par value, of TCFI held by such shareholder
bears to the total number of such shares of TCFI outstanding on such
date, and shall take such further action as may be required, necessary
or appropriate under TCFI's Articles of Incorporation, Ohio law and
the Code to effect the complete liquidation and dissolution of TCFI.
TCFI will fulfill all reporting requirements under the 1940 Act, both
before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCFI. TCFI represents
and warrants to and agrees with TCG and the Acquiring Series that:
A-2
<PAGE> 47
(a) TCFI is a corporation validly existing under the laws of
the State of Ohio and has power to own all of its properties and
assets and to carry out its obligations under this Agreement. TCFI
has qualified as a foreign corporation in each jurisdiction where the
ownership of its property and the conduct of its business require
qualification. TCFI has all necessary federal, state and local
authorizations to carry on its business as now being conducted and to
fulfill the terms of this Agreement, except as set forth in Section
2(1).
(b) TCFI is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. TCFI
has elected to qualify and has qualified as a regulated investment
company under Part I of Subchapter M of the Code as of and since its
first taxable year, and qualifies and intends to continue to qualify
as a regulated investment company for its taxable year ending upon its
liquidation. TCFI has been a regulated investment company under such
sections of the Code at all times since its inception.
(c) The statement of assets and liabilities, including the
statement of investments as of September 30, 1995, and the related
statement of operations for the year then ended, and statements of
changes in net assets for each of the two years in the period then
ended, for TCFI, such statements having been audited by KPMG Peat
Marwick LLP, independent auditors of TCFI, have been furnished to TCG.
Such statement of assets and liabilities fairly present the financial
position of TCFI as of such date and such statements of operations and
changes in net assets fairly reflect the results of operations and
changes in net assets for the periods covered thereby in conformity
with generally accepted accounting principles, and there are no known
material liabilities of TCFI as of such dates which are not disclosed
therein.
(d) The Prospectus of TCFI dated February 1, 1995 (the "TCFI
Prospectus") and the related Statement of Additional Information for
TCFI dated February 1, 1995, in the forms filed with the Securities
and Exchange Commission and previously furnished to TCG, did not as of
their date and do not as of the date hereof contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(e) Except as may have been previously disclosed to TCG,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of TCFI threatened against TCFI.
A-3
<PAGE> 48
(f) There are no material contracts outstanding to
which TCFI is a party, other than as disclosed in the TCFI Prospectus
and its corresponding Statement of Additional Information, and there
are no such contracts or commitments (other than this Agreement)
which will be terminated with liability to TCFI on or prior to the
Exchange Date.
(g) TCFI has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of September 30, 1995 and
those incurred in the ordinary course of TCFI's business as an
investment company since that date. Prior to the Exchange Date, TCFI
will advise TCG of all known material liabilities, contingent or
otherwise, incurred by it subsequent to September 30, 1995, whether or
not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall
mean TCFI's investments shown on the statement of assets and
liabilities as of September 30, 1995 referred to in Section 2(c)
hereof, as supplemented with such changes as TCFI shall make after
September 30, 1995 and prior to the date of this Agreement, which
changes have been disclosed to TCG, and changes made on and after the
date of this Agreement after advising TCFI of such changes, and
changes resulting from stock dividends stock split-ups, mergers and
similar corporate actions.
(i) TCFI has filed or will file all federal and state tax
returns which, to the knowledge of TCFI's officers, are required to be
filed by TCFI and has paid or will pay all federal and state taxes
shown to be due on said returns or on any assessments received by
TCFI. All tax liabilities of TCFI have been adequately provided for
on its books, and no tax deficiency or liability of TCFI has been
asserted, and no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax authority for
taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and
except for shareholder approval and otherwise as described in Section
2(1), TCFI will have full right, power and authority to sell, assign,
transfer and deliver the Investments and any other of its assets and
liabilities to be transferred to TCG and the Acquiring Series pursuant
to this Agreement. At the Exchange Date, subject only to the delivery
of the Investments and any such other assets and liabilities as
contemplated by this Agreement, TCG and the Acquiring Series will
acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of TCFI and, except as
A-4
<PAGE> 49
described in Section 2(k), without any restrictions upon the transfer
thereof.
(k) No registration under the Securities Act of 1933, as
amended (the "1933 Act"), of any of the Investments would be required
if they were, as of the time of such transfer, the subject of a public
distribution by either of TCFI or TCG, except as previously disclosed
to TCG by TCFI in writing prior to the date hereof.
(l) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by TCFI of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, Securities Exchange Act of 1934, as
amended (the "1934 Act"), 1940 Act, state securities or blue sky laws
(which term as used herein shall include the laws of the District of
Columbia and of Puerto Rico) or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R Act").
(m) The registration statement (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the
"Commission") by TCG on Form N-14 relating to the Acquiring Series
Shares issuable hereunder, and the proxy statement of TCFI included
therein (the "Proxy Statement"), on the effective date of the
Registration Statement and insofar as they relate to TCFI, (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in the Registration Statement
of which the Proxy Statement is a part (the "Prospectus"), as amended
or supplemented by any amendments or supplements filed with the
Commission by TCG, insofar as it relates to TCFI, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the representations
and warranties in this Section 2(m) shall apply only to statements of
fact relating to TCFI contained in the Registration Statement, the
Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to TCFI, as such Registration
Statement, Prospectus and Proxy Statement shall be furnished to TCFI
in definitive form as soon as practicable following effectiveness of
the Registration Statement and before any public distribution of the
Prospectus or Proxy Statement.
A-5
<PAGE> 50
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with TCFI that:
(a) TCG is a business trust validly existing under the laws
of the State of Ohio and has power to carry on its business as it is
now being conducted and to carry out its obligations under this
Agreement. TCG has qualified as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification. TCG and the Acquiring Series each
has all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set
forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. The
Acquiring Series expects to qualify as a regulated investment company
under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no financial statements
as of the Valuation Time.
(d) The prospectus of TCG and the Acquiring Series, expected
to be dated in January, 1996 (the "Acquiring Series Prospectus"), and
the related Statement of Additional Information for the Acquiring
Series to be dated such date, in the forms to be filed with the
Securities and Exchange Commission, will be furnished to TCFI promptly
upon the completion thereof and will not as of their date contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(e) Except as may have been previously disclosed to TCFI,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of TCG or its Acquiring Series,
threatened against TCG or the Acquiring Series, which assert liability
on the part of TCG or the Acquiring Series.
(f) There are no material contracts outstanding to which TCG
or the Acquiring Series is a party, other than material contracts
disclosed in the Acquiring Series Prospectus and the corresponding
Statement of Additional Information.
(g) The Acquiring Series will have no assets or liabilities
as of the Valuation Time.
A-6
<PAGE> 51
(h) TCG and the Acquiring Series will file all federal and
state tax returns which, to the knowledge of TCG's officers, are
required to be filed by TCG and the Acquiring Series and will pay all
federal and state taxes shown to be due on such returns or on any
assessments received by TCG or the Acquiring Series. All tax
liabilities of TCG and the Acquiring Series have been adequately
provided for on its books, and no tax deficiency or liability of TCG
or the Acquiring Series has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or
by any state or local tax authority for taxes in excess of those
already paid.
(i) No consent, approval, authorization or order of any
governmental authority is required for the consummation by TCG or the
Acquiring Series of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, 1934 Act, 1940 Act,
state securities or Blue Sky Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and
otherwise as described in Section 3(i), TCG and the Acquiring Series
will have full right, power and authority to purchase the Investments
and any other assets and assume the liabilities of TCFI to be
transferred to the Acquiring Series pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy
Statement, on the effective date of the Registration Statement and
insofar as they relate to TCG and the Acquiring Series: (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and at the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by TCG, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to
statements in or omissions from the Registration Statement, the
Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by TCFI for use in the
Registration Statement, the Prospectus or the Proxy Statement.
(l) The Acquiring Series Shares to be issued by TCG have been
duly authorized and when issued and delivered by TCG to TCFI pursuant
to this Agreement and the Prospectus will be
A-7
<PAGE> 52
legally and validly issued by TCG and will be fully paid and
nonassessable, and no shareholder of TCG will have any preemptive
right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this
Agreement will be in compliance with all applicable federal and state
securities laws.
(n) Cardinal Fund, upon filing of its first income tax return
at the completion of its first taxable year will elect to be a
regulated investment company and until such time will take all steps
necessary to ensure qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver
to TCFI a number of Acquiring Series Shares having an aggregate net asset value
equal to the value of the assets of TCFI acquired by the Acquiring Series, less
the value of the liabilities of TCFI assumed, determined as hereafter provided
in this Section 4.
(a) The net asset value of TCFI will be computed as of the
Valuation Time, using the valuation procedures set forth in the
current prospectus of TCFI.
(b) The net asset value of each of the Acquiring Series
Shares will be determined to the nearest full cent as of the Valuation
Time, and shall be set at the net asset value per share of TCFI as of
the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard
Time, on March 30, 1996, or such earlier or later day as may be
mutually agreed upon in writing by the parties hereto (the "Valuation
Time").
(d) The Acquiring Series shall issue its Acquiring Series
Shares to TCFI on one share deposit receipt registered in the name of
TCFI. TCFI shall distribute in liquidation the Acquiring Series
Shares received by it hereunder pro rata to its shareholders by
redelivering such share deposit receipt to TCG's transfer agent,
which will as soon as practicable set up open accounts for each TCFI
shareholder in accordance with written instructions furnished by TCFI.
(e) The Acquiring Series shall assume all liabilities of
TCFI, whether accrued or contingent, described in subsection 1(c)
hereof in connection with the acquisition of assets and subsequent
dissolution of TCFI or otherwise, except that recourse for assumed
liabilities relating to TCFI will be limited to the Acquiring Series.
A-8
<PAGE> 53
5. EXPENSES, FEES, ETC.
(a) Subject to the further provisions of this Section 5, TOC
shall be responsible for the fees and expenses of the Reorganization.
The Acquiring Series will be responsible for its organization costs.
TCFI will be responsible for proxy solicitation and other costs
associated with its annual meeting (or special meeting in lieu
thereof) to the extent such costs are comparable to those incurred for
annual meetings in recent prior years. TOC has undertaken to absorb
all other costs of the Reorganization.
(b) In the event the transactions contemplated by this
Agreement are not consummated by reason of TCFI's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to TCFI's obligations
referred to in Section 7(a) or Section 9), TCFI shall pay directly all
reasonable fees and expenses incurred by TCG in connection with such
transactions, including, without limitation, legal, accounting and
filing fees.
(c) In the event the transactions contemplated by this
Agreement are not consummated by reason of TCG's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to TCG's obligations
referred to in Section 7(a) or Section 8), TCG shall pay directly all
of the reasonable fees and expenses incurred by TCFI in connection
with such transactions, including, without limitation, legal,
accounting and filing fees.
(d) Notwithstanding any other provisions of this Agreement,
if for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to the other party for any
damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of TCFI to be transferred,
assumption of the liabilities of TCFI to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of The Ohio
Company, 155 East Broad Street, Columbus, Ohio at 9:00 A.M. on March 31, 1996,
or at such other time and date agreed to by TCG and TCFI, the date and time
upon which such delivery is to take place being referred to herein as the
"Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) TCFI agrees to call a special meeting of its
shareholders as soon as is practicable after the effective
A-9
<PAGE> 54
date of the Registration Statement for the purpose of considering the
sale of all of the assets of TCFI to and the assumption of all of the
liabilities of TCFI by the Acquiring Series as herein provided,
authorizing and approving this Agreement, and authorizing and
approving the liquidation and dissolution of TCFI, and it shall be a
condition to the obligations of each of the parties hereto that the
holders of common shares, without par value, of TCFI shall have
approved this Agreement, and the transactions contemplated herein,
including the liquidation and dissolution of TCFI, in the manner
required by law and TCFI's Articles of Incorporation at such a meeting
on or before the Valuation Time.
(b) TCFI agrees that the liquidation and dissolution of TCFI
will be effected in the manner provided in TCFI's Articles of
Incorporation and in accordance with applicable law, and that it will
not make any distributions of any Acquiring Series Shares to the
shareholders of TCFI without first paying or adequately providing for
the payment of all of TCFI's known debts, obligations and liabilities.
(c) Each of TCG and TCFI will cooperate with the other, and
each will furnish to the other the information relating to itself
required by the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder to be set forth in the Registration Statement,
including the Prospectus and the Proxy Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of TCFI, shall have been approved by the directors and
shareholders of TCFI in the manner required by law.
(b) TCFI shall have furnished to TCG a statement of TCFI's
assets and liabilities, with values determined as provided in Section
4 of this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on
TCFI's behalf by its President (or any Vice President) and Treasurer
(or other financial officer), and a certificate of both such officers,
dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change
in the financial position of TCFI since September 30, 1995, other than
changes in the Investments since that date or changes in the market
value of the Investments, or changes due to net redemptions of shares
of TCFI, dividends paid or losses from operations.
A-10
<PAGE> 55
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCFI made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, TCFI has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
each of such dates, and TCFI shall have furnished to TCG a statement,
dated the Exchange Date, signed by TCFI's President (or any Vice
President) and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) TCG shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to TCG and dated the Exchange Date, to
the effect that (i) TCFI is a corporation validly existing under the
laws of the State of Ohio, and is, to the knowledge of such counsel,
qualified to do business as a foreign corporation in each jurisdiction
where the ownership of its property and the conduct of its business
require qualification, (ii) this Agreement has been duly authorized,
executed and delivered by TCFI and, assuming that the Registration
Statement, the Prospectus and the Proxy Statement comply with the 1933
Act, 1934 Act and 1940 Act and assuming due authorization, execution
and delivery of this Agreement by TCG, is a valid and binding
obligation of TCFI, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and other equitable principles, (iii) TCFI has power to
sell, assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement,
TCFI will have duly sold, assigned, conveyed, transferred and
delivered such Investments and other assets to TCG, (iv) the execution
and delivery of this Agreement did not and the consummation of the
transactions contemplated hereby will not, violate TCFI's Articles of
Incorporation or its Code of Regulations, as amended, or any provision
of any agreement known to such counsel to which TCFI is a party or by
which it is bound, it being understood that with respect to any
investment restrictions as contained in TCFI's Articles of
Incorporation or Code of Regulations, or then current prospectus or
statement of additional information, such counsel may rely upon a
certificate of an officer of TCFI, whose responsibility it is to
advise TCFI with respect to such matters and (v) to the knowledge of
such counsel no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by TCFI of
the transactions
A-11
<PAGE> 56
contemplated hereby, except such as have been obtained under the 1933
Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws and the H-S-R Act. In rendering such
opinion, Baker & Hostetler may rely upon certain reasonable and
customary assumptions and certifications of fact received from TCG,
TCFI, and certain of its shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler,
addressed to TCG, the Acquiring Series and TCFI, in form reasonably
satisfactory to TCG and dated the Exchange Date, to the effect that
for Federal income tax purposes (i) the transfer of all or
substantially all of TCFI's assets in exchange for the Acquiring
Series Shares and the assumption by the Acquiring Series of
liabilities of TCFI will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each of the Acquiring
Series and TCFI is a "party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by
TCFI upon the transfer of the assets of the Acquiring Series in
exchange for Acquiring Series Shares and the assumption by the
Acquiring Series of the liabilities of TCFI or upon the distribution
of Acquiring Series Shares by TCFI to its shareholders in liquidation;
(iii) no gain or loss will be recognized by the shareholders of TCFI
upon the exchange of their shares for Acquiring Series Shares, (iv)
the basis of the Acquiring Series Shares a TCFI shareholder receives
in connection with the Reorganization will be the same as the basis of
his or her shares exchanged therefor; (v) a TCFI shareholder's holding
period for his or her Acquiring Series Shares will be determined by
including the period for which he or she held TCFI shares exchanged
therefor, provided that he or she held such shares as capital assets;
(vi) no gain or loss will be recognized by the Acquiring Series upon
the receipt of the assets of TCFI in exchange for Acquiring Series
Shares and the assumption by the Acquiring Series of the liabilities
of TCFI; (vii) the basis in the hands of the Acquiring Series the
assets of TCFI transferred to the Acquiring Series will be the same as
the basis of the assets in the hands of TCFI immediately prior to the
transfer; and (viii) the Acquiring Series' holding periods of the
assets of TCFI will include the period for which such assets were held
by TCFI. In rendering such opinion, Baker & Hostetler may rely upon
certain reasonable and customary assumptions and certifications of
fact received from TCG, TCFI, and certain of its shareholders.
(g) The Registration Statement shall have become effective
under the 1933 Act and applicable Blue Sky provisions, and no stop
order suspending such effectiveness shall have been instituted or, to
the knowledge of TCG, contemplated by the Commission or any state
regulatory authority.
A-12
<PAGE> 57
(h) All necessary proceedings taken by TCFI in connection
with the transactions contemplated by this Agreement and all documents
incidental thereto reasonably shall be satisfactory in form and
substance to TCG and Baker & Hostetler.
(i) Prior to the Exchange Date, TCFI shall have declared a
dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable income for its taxable year
ended September 30, 1995 and the short taxable year beginning on
October 1, 1995 and ending on the Valuation Date (computed without
regard to any deduction for dividends paid), and all of its net
capital gain realized in its taxable year ended September 30, 1995 and
the short taxable year beginning on October 1, 1995 and ending on the
Valuation Date (after reduction for any capital loss carryover).
(j) TCFI shall have furnished to TCG a certificate, signed by
the President (or any Vice President) and the Treasurer (or other
financial officer) of TCFI, as to the tax cost to TCG of the
securities delivered to TCG pursuant to this Agreement, together with
any such evidence as to such tax cost as TCG reasonably may request.
(k) TCFI's custodian shall have delivered to TCG a
certificate identifying all of the assets of TCFI held by such
custodian as of the Valuation Time.
(l) TCFI's transfer agent shall have provided to TCG (i) the
originals or true copies of all of the records of TCFI in the
possession of such transfer agent as of the Exchange Date, (ii) a
certificate setting forth the number of shares of TCFI outstanding as
of the Valuation Time and (iii) the name and address of each holder of
record of any such shares of TCFI and the number of shares held of
record by each such shareholder.
(m) TCFI shall have duly executed and delivered to TCG a bill
of sale, assignment, certificate and other instruments of transfer
("Transfer Documents") as TCG may deem necessary or desirable to
transfer all of TCFI's entire right, title and interest in and to the
Investments and all other assets of TCFI to the Acquiring Series.
(n) TCG and TCFI shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and TCFI, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
A-13
<PAGE> 58
9. CONDITIONS OF TCFI'S OBLIGATIONS. The obligations of TCFI
hereunder shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of TCFI, shall have been approved by the directors and
shareholders of TCFI in the manner required by law.
(b) TCG shall have executed and delivered to TCFI an
Assumption of Liabilities dated as of the Exchange Date pursuant to
which the Acquiring Series will assume all of the liabilities,
expenses, costs, charges and reserves of TCFI, contingent or
otherwise, including liabilities existing at the Valuation Time and
described in Section 1(c) hereof in connection with the transactions
contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, TCG and the Acquiring Series have complied with all of the
agreements and satisfied all of the conditions on their part to be
performed or satisfied at or prior to each of such dates, and TCG
shall have furnished to TCFI a statement, dated the Exchange Date,
signed by TCG's President (or any Vice President) and Treasurer (or
other financial officer) certifying those facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) TCFI shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to TCFI and dated the Exchange Date,
to the effect that (i) TCG is a business trust validly existing under
the laws of the State of Ohio and is, to the knowledge of such
counsel, qualified to do business in each jurisdiction where the
ownership of its property and the conduct of its business requires
qualification, (ii) the Acquiring Series Shares to be delivered to
TCFI as provided for by this Agreement are duly authorized and upon
such delivery will be validly issued and will be fully paid and
nonassessable by TCG and no shareholder of TCG has any preemptive
right to subscription or purchase in respect thereof, (iii) this
Agreement has been duly authorized, executed and delivered by TCG and
assuming that the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1933 Act, 1934 Act and 1940 Act, and
assuming due authorization, execution and delivery of this Agreement
by TCFI, is a valid and binding obligation of TCG, enforceable in
accordance with its terms, except as the same may be limited
A-14
<PAGE> 59
by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and other
equitable principles, (iv) the execution and delivery of this
Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate TCG's Declaration of Trust or
its By-Laws or any provision of any agreement known to such counsel to
which TCG or the Acquiring Series is a party or by which it is bound,
it being understood that with respect to investment restrictions as
contained in TCG's Declaration of Trust, By-Laws or then current
prospectus or statement of additional information, such counsel may
rely upon a certificate of an officer of TCG whose responsibility it
is to advise TCG with respect to such matters, (v) to the knowledge of
such counsel no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by TCG or
the Acquiring Series of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, 1934 Act and 1940 Act
and such as may be required under state securities or blue sky laws
and the H-S-R Act. In rendering such opinion Baker & Hostetler may
rely on certain reasonable assumptions and certifications of fact
received from TCFI, TCG and certain of its shareholders.
(f) TCFI shall have received an opinion of Baker & Hostetler
addressed to TCFI, TCG and the Acquiring Series and in a form
reasonably satisfactory to TCFI dated the Exchange Date, with respect
to the matters specified in Section 8(f) of this Agreement. In
rendering such opinion Baker & Hostetler may rely on certain
reasonable assumptions and certifications of fact received from TCFI,
TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with
the transactions contemplated by this Agreement and all documents,
incidental thereto reasonably shall be satisfactory in form and
substance to TCFI and Baker & Hostetler.
(h) The Registration Statement shall have become effective
under the 1933 Act and applicable Blue Sky provisions, and no stop
order suspending such effectiveness shall have been instituted or, to
the knowledge of TCFI, contemplated by the Commission or any state
regulatory authority.
(i) TCG and TCFI shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and TCFI, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
A-15
<PAGE> 60
10. TERMINATION. TCG and TCFI may, by mutual consent of their
respective trustees or directors, terminate this Agreement, and TCG or TCFI,
after consultation with counsel and by consent of their respective trustees or
directors or an officer authorized by such trustees or directors, may, subject
to Section 11 of this Agreement, waive any condition to their respective
obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes
all previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding with
respect to such subject matter and shall be construed in accordance with and
governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officer of TCG and
TCFI; provided, however, that following the meeting of TCFI's shareholders
called by TCFI pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received
by TCFI, or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect TCFI's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
-------------------------------
Frank W. Siegel, President
THE CARDINAL FUND INC.
By /s/ Frank W. Siegel
-------------------------------
Frank W. Siegel, President
A-16
<PAGE> 61
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 APPROVAL OF THE PLAN -- Summary and -- Special
Considerations And Risk Factors
4 APPROVAL OF THE PLAN -- The Proposed Transaction, --
Additional Comparative Information
5 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and --
Additional Comparative Information; MISCELLANEOUS --
Additional Information and -- Documents Incorporated by
Reference
6 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and --
Additional Comparative Information; MISCELLANEOUS --
Additional Information and -- Documents Incorporated by
Reference
7 Front Cover; APPROVAL OF THE PLAN -- Summary, --
Approval and Consummation of the Proposed
Transaction, -- The Proposed Transaction; and
MISCELLANEOUS -- Solicitation of Proxies and Payment of
Expenses and -- Substantial Shareholders
8 Not Applicable
9 Not Applicable
</TABLE>
<PAGE> 62
[Letterhead]
January ____, 1996
Dear Cardinal Government Obligations Fund Shareholder:
The Board of Trustees of Cardinal Government Obligations Fund (the "Trust")
recently reviewed and unanimously approved a proposal to reorganize the Trust
with and into a newly created series of The Cardinal Group (the "Group"). This
proposed reorganization is described in the accompanying Combined
Prospectus/Proxy Statement and will be addressed at the Annual Meeting of
Shareholders on February 23, 1996.
The primary purpose of the proposed reorganization is to achieve certain
economies of scale by having the Trust become an additional series of the Group
rather than operate as a separate stand-alone investment company. By operating
more efficiently, we expect to realize cost savings through the elimination of
certain Annual Meeting expenses, a reduction of printing and mailing
expenditures, the lowering of regulatory filing expenses and the reduction of
professional fees. The Board determined that such a reorganization is in the
best interest of the Trust.
If the Agreement and Plan of Reorganization and Liquidation is approved, you
will receive shares of the newly created series of the Group, also known as
Cardinal Government Obligations Fund, in exchange for your shares of the Trust.
Shares received in this distribution will be equal in value at the time of
reorganization to your shares in the Trust. There will be no adverse federal
income tax consequences associated with this distribution.
As a result of the reorganization, many features of the new series will be the
same as those of the Trust. For instance, the securities in the underlying
portfolio will remain the same. Purchase and redemption procedures will not
change. Slight differences in investment policies and restrictions are proposed
but are not expected to increase the level of risk associated with your
investment.
Operating expenses for the new series shares are expected to be higher than
those of the Trust due to the addition of a Rule 12b-1 Plan. This increase will
enable us to remain competitive in today's mutual fund marketplace by investing
in the people and resources necessary to continue providing a high level of
service. Although operating expenses will be greater, the proposed level places
your investment company within the norms of its industry peer group.
Please read the accompanying materials carefully. For more details regarding
the proposed reorganization, direct any questions you may have to the Treasurer
of the Trust, Mr.
<PAGE> 63
James Schrack, at (800) 282-9446. IT IS VERY IMPORTANT THAT
YOU COMPLETE AND RETURN THE PROXY CARD.
Thank you for your support and investment in Cardinal Government Obligations
Fund.
Sincerely,
Frank W. Siegel, CFA
President
Cardinal Government Obligations Fund
<PAGE> 64
CARDINAL GOVERNMENT OBLIGATIONS FUND
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
TELEPHONE: (800) 282-9446
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 23, 1996
To The Shareholders Of Cardinal
Government Obligations Fund:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of Cardinal Government Obligations Fund (the "Trust") will be held
on Friday, February 23, 1996, at 10:00 A.M. (Eastern Time) concurrently with
annual or special in lieu of annual meetings of three other funds of the
Cardinal family of funds, at the offices of the Trust, 155 East Broad Street,
Columbus, Ohio 43215. The Meeting is being called for the following purposes:
(1) To elect ten trustees of the Trust to hold office for the ensuing year
and until their successors are elected and qualified;
(2) To ratify the selection of KPMG Peat Marwick LLP, independent certified
public accountants, as auditors to be employed by the Trust for the
fiscal year ending September 30, 1996;
(3) To approve an Agreement and Plan of Reorganization and Liquidation (the
"Plan") for the Trust, and the transactions contemplated thereby, which
includes (a) the transfer of all of the assets of the Trust to Cardinal
Government Obligations Fund (the "Acquiring Fund") of The Cardinal Group
(the "Group"), in exchange for shares of the Acquiring Fund, and the
assumption by the Acquiring Fund of all of the liabilities of the Trust;
and (b) the distribution to shareholders of the Trust of shares of the
Acquiring Fund so received in complete liquidation of the Trust; and
(4) To transact such other business as may properly come before the Meeting,
or any adjournment(s) thereof, including any adjournment(s) necessary to
obtain requisite quorums and/or approvals.
The Board of Trustees of the Trust has fixed the close of business on January
8, 1996, as the record date for the determination of shareholders of the Trust
entitled to receive notice of and to vote at the Meeting or any adjournments
thereof. The enclosed Combined Prospectus/Proxy Statement contains further
information regarding the Meeting and the proposals to be
<PAGE> 65
considered. The enclosed Proxy Card is intended to permit you to vote even
if you do not attend the Meeting in person.
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT LEAST
A MAJORITY OF THE TRUST'S SHARES OUTSTANDING AND ENTITLED TO VOTE MUST BE
PRESENT IN PERSON OR BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
SIGNED BUT UNMARKED PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM
IS PRESENT AND WILL BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees
Karen J. Hipsher, Secretary
January __, 1996
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
2
<PAGE> 66
COMBINED PROSPECTUS/PROXY STATEMENT
January __, 1996
Cardinal Government Obligations Cardinal Government Obligations
Fund, a series of The Cardinal Fund
Group 155 East Broad Street
155 East Broad Street Columbus, Ohio 43215
Columbus, Ohio 43215 Telephone: (800) 282-9446
Telephone: (800) 282-9446
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Cardinal Government Obligations Fund, an Ohio business trust (the "Trust"),
in connection with the solicitation of proxies by the Board of Trustees of the
Trust to be used at the Annual Meeting of Shareholders of the Trust (the
"Meeting"), to be held at the offices of The Ohio Company, 155 East Broad
Street, Columbus, Ohio 43215, on Friday, February 23, 1996, beginning at 10:00
A.M. (Eastern Time).
In addition to the customary annual election of Trustees and ratification of
the selection of independent accountants, the Trustees of the Trust are seeking
your approval of an Agreement and Plan of Reorganization and Liquidation (the
"Plan"), which contemplates that Cardinal Government Obligations Fund (the
"Acquiring Fund"), a series or portfolio of The Cardinal Group (the "Group"),
will acquire all of the assets of and will assume all of the liabilities of the
Trust in exchange for shares of the Acquiring Fund.
Following such exchange, the shares of the Acquiring Fund received by the
Trust will be distributed to the Trust's shareholders and the Trust will be
liquidated and dissolved. This exchange and distribution transaction is
sometimes referred to herein as the "Reorganization."
This Combined Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor, including shareholders of the Trust, should know before
investing. Additional information about the Reorganization and the Acquiring
Fund is contained in a separate Statement of Additional Information which has
been filed with the Securities and Exchange Commission (the "Commission") and
is available upon request without charge by calling the Group at (800) 282-9446
or writing to the Group at the address set forth above. The Statement of
Additional Information bears the same date as this Combined Prospectus/Proxy
Statement and is incorporated by reference herein.
THE SHARES OF THE ACQUIRING FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE ACQUIRING
FUND
<PAGE> 67
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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.
Upon completion of the Reorganization, you will receive full and fractional
shares of the Acquiring Fund equal in value when issued to the shares of the
Trust owned by you immediately prior to the Reorganization. No commissions or
sales loads will be charged in connection with the Reorganization and there
will be no adverse federal income tax consequences. You should separately
consider any other tax consequences in consultation with your tax advisers.
As discussed in detail herein, the investment objectives and strategy of the
Acquiring Fund are substantially identical to those of the Trust. There are
some differences between investment policies and restrictions, as well as
differences in fee levels and in voting rights, which are described in detail
below. The Prospectus of the Acquiring Fund relating to its shares, dated
January __, 1996, is incorporated by reference into this Combined
Prospectus/Proxy Statement and accompanies this Combined Prospectus/Proxy
Statement.
The Trust's Prospectus dated February 1, 1995, as supplemented December 11,
1995, contains additional information about the Trust, has been filed with the
Commission, is incorporated by reference herein and is available without charge
by writing the Trust at 155 East Broad Street, Columbus, Ohio 43215, or by
calling the Trust at (800) 282-9446. Copies of documents requested will be
sent by first-class mail to the requesting shareholder within one business day
of the request.
2
<PAGE> 68
TABLE OF CONTENTS
Page
----
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ELECTION OF TRUSTEES -- ISSUE 1 . . . . . . . . . . . . . . . . . . . . . . 5
Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . 9
RATIFICATION OF SELECTION OF INDEPENDENT
ACCOUNTANTS - ISSUE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . 9
APPROVAL OF THE PLAN - ISSUE 3 . . . . . . . . . . . . . . . . . . . . . . 10
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Considerations and Risk Factors . . . . . . . . . . . . . . . . . 15
The Proposed Transaction . . . . . . . . . . . . . . . . . . . . . . . . 21
Comparison of Investment Objectives, Policies and Restrictions . . . . . 26
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Additional Comparative Information . . . . . . . . . . . . . . . . . . . . 30
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION
AND LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
3
<PAGE> 69
GENERAL
This Combined Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Trustees of the Trust to be used in
connection with the Meeting to be held on Friday, February 23, 1996.
The management knows of no business which will be presented for consideration
other than that mentioned in Issues 1, 2 and 3 of the Notice of Annual Meeting
of Shareholders. If any other matters are properly presented at the Meeting or
any adjournment(s) thereof, it is the intention of the persons named therein to
vote the proxies in accordance with their judgment on such matters.
The Board of Trustees has fixed the close of business on January 8, 1996, as
the record date for the determination of shareholders entitled to notice of and
to vote at the Meeting (the "Record Date"). On the Record Date there were
________ shares of beneficial interest, without par value ("Shares"), of the
Trust outstanding and entitled to vote. Each of the Shares is entitled to one
vote. Shareholders of fractional Shares will be entitled to a vote of such
fraction. Shareholders holding a majority of the Shares of the Trust entitled
to vote at the Meeting will be deemed to constitute a quorum for the
transaction of business at the Meeting.
The expenses for preparation, printing and mailing of the enclosed proxy,
accompanying notice and Combined Prospectus/Proxy Statement, or any
re-solicitation of the foregoing, will be paid in part by the Trust and in part
by The Ohio Company.
Only shareholders of record at the close of business on the Record Date will
be entitled to notice of and to vote at the Meeting. Shares represented by
management proxies, unless previously revoked, will be voted at the Meeting in
accordance with the instructions of the shareholders. If no instructions are
given, the proxies will be voted in favor of the proposals. To revoke a
management proxy, the shareholder giving such proxy must either submit to the
Trust a subsequently dated proxy, deliver to the Trust a written notice of
revocation or otherwise give notice of revocation in open meeting, in all cases
prior to the exercise of the authority granted in the management proxy.
In the event that sufficient votes are not received by the Meeting date, a
person named as proxy may propose one or more adjournments of the Meeting for a
period or periods of not more than 45 days in the aggregate to permit further
solicitation of proxies. Any such adjournment will require the affirmative
vote of the holders of a majority of the Trust's shares present at the Meeting
in person or by proxy. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
proposals and will vote against
4
<PAGE> 70
any such adjournment those proxies required to be voted against the proposals.
The mailing address of the principal executive offices of the Trust is 155
East Broad Street, Columbus, Ohio 43215. The approximate date on which this
Combined Prospectus/Proxy Statement and form of proxy are first sent to
shareholders is January ___, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding. The
Acquiring Fund does not have and will not have until the effective date of the
Reorganization, any assets or liabilities nor will it have commenced
operations.
Any proxy which is properly executed and received in time to be voted at the
Meeting will be counted in determining whether a quorum is present and will be
voted in accordance with the instructions marked thereon. Abstentions and
"broker non-votes" (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a particular matter with respect to which
the brokers or nominees do not have discretionary power to vote) will be
counted for purposes of determining whether a quorum is present. For purposes
of determining whether a proposal has been approved, abstentions and broker
non-votes will have the effect of a vote against the proposal in those
instances where the 1940 Act requires a certain percentage of all votes
outstanding or of the votes constituting the quorum, but are not treated as
either "against votes" or "for votes" in any other matter except as otherwise
provided by law.
ELECTION OF TRUSTEES -- ISSUE 1
It is the present intention that the enclosed proxy will be used for the
purposes of voting in favor of the election of each of the following ten
nominees as a trustee to hold office until the next annual meeting and until
his successor is elected and qualified. Except for Mr. Allen, each of the
nominees is a member of the present Board of Trustees of the Trust and has been
elected by shareholder vote. Pursuant to Rule 14a- 4(d) under the Securities
Exchange Act of 1934, each nominee has consented to be named in this Combined
Prospectus/Proxy Statement and to serve if elected. It is not expected that
any of the nominees will decline or become unavailable for election, but in
case this should happen, the discretionary power given in the proxy may be used
to vote for a substitute nominee or nominees.
5
<PAGE> 71
<TABLE>
<CAPTION>
Name, Age, Position with the Trust Shares of Trust
Principal Occupation(a) A Trustee of Beneficially Owned % of Class at
Directorships with Other Publicly Held Companies(b) the Trust Since as of 1/8/96 1/8/96
- --------------------------------------------------- --------------- ------------------ -------------
<S> <C> <C> <C>
H. KEITH ALLEN -- Age 54 -- Chairman(c) and Trustee(d)(f)* 1995 ______ ______ %
Chief Operating Officer, Secretary, Treasurer and a Director of The
Ohio Company (investment banking).
FRANK W. SIEGEL -- Age 43 -- President(c) and Trustee(d)(f)* 1995 ______ ______
Chartered Financial Analyst and Senior Vice President of The Ohio
Company (investment banking); formerly Vice President of Keystone
Group (mutual fund management/administration); formerly Senior Vice
President of Trust Advisory Group (mutual fund consulting).
GORDON B. CARSON -- Age 84 -- Trustee(f) 1985 ______ ______
Principal, Whitfield Robert Associates (construction consulting firm).
JOHN B. GERLACH, JR. -- Age 41 -- Trustee(e) 1993 ______ ______
President and a Director of Lancaster Colony Corporation (diversified
consumer products) since 1994; formerly Executive Vice President, Secretary
and a Director of Lancaster Colony.
MICHAEL J. KNILANS -- Age 68 -- Trustee(f) 1989 ______ ______
From November, 1989 to August, 1995, member, Workers' Compensation Board
(Ohio Bureau of Workers Compensation) and Chairman from 1992 through August,
1995; a Director of Eagle Food Centers, Inc. (supermarket company).
JAMES I. LUCK -- Age 50 -- Trustee President of The Columbus Foundation 1989 ______ ______
(philanthropic public foundation).
DAVID L. NELSON -- Age 65 -- Trustee(d)(e) 1985 ______ ______
Since October, 1995, Chairman of the Board of Directors of Herman Miller,
Inc. (furniture manufacturer); former Vice President, Customer Support,
Americas Region, and Vice President, Customer Satisfaction, Industry Segment,
of Asea Brown Boveri, Inc. (designer and manufacturer of process automation
systems for basic industries).
C. A. PETERSON -- Age 69 -- Trustee* 1985 ______ ______
Chartered Financial Analyst and former Senior Executive Vice President
and a Director of The Ohio Company (investment banking).
LAWRENCE H. ROGERS II -- Age 74 -- Trustee 1985 ______ ______
Self-employed author; former Vice Chairman of Motor Sports Enterprises, Inc.;
also a Director of Cincinnati Life Insurance Company and Cincinnati
Financial Corporation.
</TABLE>
6
<PAGE> 72
<TABLE>
<CAPTION>
Name, Age, Position with the Trust Shares of Trust
Principal Occupation(a) A Trustee of Beneficially Owned % of Class at
Directorships with Other Publicly Held Companies(b) the Trust Since as of 1/8/96 1/8/96
- --------------------------------------------------- --------------- ------------------ -------------
<S> <C> <C> <C>
JOSEPH H. STEGMAYER -- Age 44 -- Trustee(d)(e) 1986 ______ ______
President and a Director of Clayton Homes, Inc. (manufactured homes); former
Vice President, Treasurer, Chief Financial Officer and a Director of
Worthington Industries, Inc. (specialty steel and plastics manufacturer).
All Trustees and Officers of the Trust as a group (including __ persons). ______ ______
<FN>
_____________________
(a) Unless otherwise noted, Principal Occupation reflects principal
responsibility of each individual during the past five years.
(b) All nominees also serve as Trustees of Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust and The Cardinal Group, and as
Directors of The Cardinal Fund Inc.
(c) Mr. Allen has been an officer of the Trust since July, 1995. Mr. Siegel
has been an officer of the Trust since October 1994.
(d) Member of the Nominating Committee.
(e) Member of the Audit Committee.
(f) Member of the Executive Committee.
* Messrs. Allen, Siegel and Peterson are considered "interested persons" of
the Trust and CMC, as that term is defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended (the "1940 Act").
</TABLE>
The Trust has an Audit Committee comprised of the above designated Trustees.
During the fiscal year ended September 30, 1995, the Audit Committee held two
meetings. The function of such Committee includes such specific matters as
recommending independent auditors to the Board of Trustees, reviewing audit
plans and results of audits, and considering other related matters deemed
appropriate by the Board of Trustees.
The Trust has a Nominating Committee which is comprised of the above
designated Trustees. During the fiscal year ended September 30, 1995, the
Nominating Committee held no meetings. The Committee's function includes
selecting and recommending to the full Board of Trustees nominees for election
as Trustees of the Trust. The Committee has been able to identify from its own
resources an ample number of qualified candidates, but will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the Board. Such suggestion must be sent in writing to the
Nominating Committee of the Trust, c/o the Trust's Secretary. Suggestions must
be received by the Trust's Secretary before the end of the Trust's fiscal year
to be eligible for consideration for nomination at or before the next annual
meeting of shareholders.
During the fiscal year ended September 30, 1995, the Trust's Board of
Trustees held four meetings.
7
<PAGE> 73
A plurality of the Shares voted at the Meeting on the election of trustees
is required for the election of trustees.
The following table sets forth information regarding all compensation paid by
the Trust to its Trustees for their services as trustees during the fiscal year
ended September 30, 1995. The Trust has no pension or retirement plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Position Aggregate Compensation Total Compensation From the
With the Trust* From the Trust Trust and the Fund Complex**
- --------------- ---------------------- ----------------------------
<S> <C> <C>
H. Keith Allen $0 $0
Chairman, Trustee and Member of Executive and
Nominating Committees
Gordon B. Carson $2,400 $12,000
Trustee and Member of Executive Committee
John B. Gerlach $2,600 $13,000
Trustee and Member of Audit Committee
Michael J. Knilans $2,400 $12,000
Trustee and Member of Executive Committee
James I. Luck $2,400 $12,000
Trustee
David L. Nelson $2,600 $13,000
Trustee and Member of Audit and
Nominating Committees
C.A. Peterson $2,400 $12,000
Trustee
Lawrence H. Rogers, II $2,400 $12,000
Trustee
Frank W. Siegel $0 $0
Trustee, President and Member of
Nominating and Executive Committees
Joseph H. Stegmayer $2,000 $10,000
Trustee and Member of Audit and
Nominating Committees
</TABLE>
8
<PAGE> 74
[FN]
_______
*During the fiscal year, John L. Schlater, a former officer of The Ohio
Company and CMC, and John R. Carle, the portfolio manager of the Trust, each
had served as trustees of the Trust but no longer do so as of the date hereof.
Neither Mr. Schlater nor Mr. Carle received any compensation from the Trust or
the Fund Complex.
**For purposes of this Table, Fund Complex means one or more mutual funds,
including the Trust, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being
related.
OTHER EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the other
executive officers of the Trust:
<TABLE>
<CAPTION>
Name (Position with Principal An Officer of the
Trust) Age Occupation(1) Trust Since
- ------------------- ------- ------------- -----------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1985
(Treasurer) The Ohio Company
David C. Will 54 Vice President 1993
(Vice President) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
<FN>
______________
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
</TABLE>
Officers of the Trust are elected for terms of one year and until their
respective successors are chosen and qualified, subject to removal from office
at any time by a vote of the majority of the Board of Trustees.
None of the officers of the Trust receives compensation from the Trust. The
Trust has no employees.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS - ISSUE 2
The Board of Trustees of the Trust, including a majority of the Board of
Trustees who are not "interested persons," on November 13, 1995, approved the
selection of KPMG Peat Marwick LLP as the independent certified public
accountants of the Trust. Unless instructed in the Proxy to the contrary, the
persons named therein intend to vote in favor of the ratification of the
selection of KPMG Peat Marwick LLP as independent certified public accountants
of the Trust to serve for the fiscal year ending September 30, 1996.
A representative of KPMG Peat Marwick LLP will be present at the Meeting with
an opportunity to make a statement if he desires to do so and to respond to
appropriate questions.
9
<PAGE> 75
A majority of the Shares voted at the Meeting is required to ratify the Board
of Trustees' selection of KPMG Peat Marwick LLP as independent accountants for
the Trust.
APPROVAL OF THE PLAN - ISSUE 3
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the Plan, a
copy of which is attached to this Prospectus/Proxy Statement as Exhibit A, the
accompanying Prospectus of the Acquiring Fund dated January __, 1996, the
Prospectus of the Trust dated February 1, 1995, as supplemented December 11,
1995, and the accompanying Annual Report to Shareholders of the Trust for the
year ended September 30, 1995.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of the Trust to the Acquiring Fund in exchange for shares of the
Acquiring Fund and the assumption by the Group on behalf of the Acquiring Fund
of all of the liabilities of the Trust. The Plan also calls for the
distribution of shares of the Acquiring Fund to the Trust's shareholders in
complete liquidation of the Trust. (The foregoing proposed transactions are
referred to in this Prospectus/Proxy Statement as the "Reorganization.") As a
result of the Reorganization, each shareholder of the Trust will become the
owner of that number of full and fractional shares of the Acquiring Fund having
an aggregate value equal to the aggregate value of the shareholder's Shares of
the Trust as of the close of business on the day preceding the date that the
Trust's assets are exchanged for shares of the Acquiring Fund. Proposals for
similar reorganizations into series of the Group are simultaneously being made
to shareholders of The Cardinal Fund Inc., Cardinal Government Securities Trust
and Cardinal Tax Exempt Money Trust, the other funds of the Cardinal family of
funds.
For the reasons set forth below under "THE PROPOSED TRANSACTION -- REASONS
FOR THE REORGANIZATION," the Board of Trustees of the Trust, including the
Trustees of the Trust (the "Independent Trustees") who are not "interested
persons" as that term is defined in the 1940 Act, at a special meeting held on
November 13, 1995, unanimously concluded that the Reorganization will be in the
best interests of the Trust and its shareholders and that the interests of the
Trust's existing shareholders will not be diluted as a result of the
transaction contemplated by the Reorganization and therefore has submitted the
Plan for approval by the Trust's shareholders. The Board of Trustees of the
Group has reached similar conclusions with respect to the Acquiring Fund and
has also approved the Reorganization in respect of the Acquiring Fund.
Approval of the Reorganization will require the affirmative vote of the
lesser of (a) 67% or more of the Shares of the Trust outstanding and
represented or present at the Meeting and (b) more than 50% of the total
10
<PAGE> 76
outstanding Shares of the Trust. See "APPROVAL AND CONSUMMATION OF THE
PROPOSED TRANSACTION" below.
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Trust in understanding the costs and expenses that a
shareholder in the Acquiring Fund would bear directly or indirectly. The
shareholder transaction expenses for the Acquiring Fund are estimated for the
fiscal period following the Reorganization and ending September 30, 1996, and
reflect the proposed Rule 12b-1 fee waiver. The expenses of the Trust are
based upon the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
ACQUIRING ACQUIRING FUND ON
SHAREHOLDER TRANSACTION EXPENSES FUND TRUST A PRO FORMA BASIS*
- -------------------------------- ---------- ----- ------------------
<S> <C> <C> <C>
Sales Charge (as a percentage of 4.50% 4.50% 4.50%
offering price)
Annual Fund Expenses (as a percentage
of average net assets)
Investment Advisory Fees .50% .50% .50%
Rule 12b-1 Fees 0(1) 0 0(1)
Other Expenses .24(2) .26 .24
---- ---- ----
Total Fund Operating Expenses .74%(1) .76% .74%(1)
==== ==== ====
<FN>
________________
1 The Ohio Company has agreed with the Group to waive all of its Rule 12b-1
fees for the period following the Reorganization and ending September 30, 1996.
Absent such fee waiver, 12b-1 Fees and Total Fund Operating Expenses for the
Acquiring Fund are estimated to be 0.25% and 0.99%, respectively.
2 "Other Expenses" are based upon estimated amounts for the current fiscal
year.
* These calculations reflect the expense information for the Acquiring Fund
after giving effect to the Reorganization.
Example
</TABLE>
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
period:
<TABLE>
<CAPTION>
ACQUIRING ACQUIRING FUND ON
FUND(1) TRUST A PRO FORMA BASIS*(1)
--------- ----- ---------------------
<S> <C> <C> <C>
One Year $52 $ 52 $ 52
Three Years $68 $ 68 $ 68
Five Years N/A $ 85 $ 84
Ten Years N/A $135 $133
<FN>
______________
* These calculations reflect the expense information for the Acquiring Fund
after giving effect to the Reorganization.
1 Absent The Ohio Company's Rule 12b-1 fee waiver described above, expenses
for the Acquiring Fund would be $55 and $75 for One Year and Three Years,
respectively, and expenses for the Acquiring Fund on a pro forma basis would
be $55, $75, $97, and $161 for One Year, Three Years, Five Years and Ten
Years, respectively.
</TABLE>
11
<PAGE> 77
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of the Reorganization,
the Trust will have received an opinion of counsel that, upon the consummation
of the Reorganization and the transfer of the assets of the Trust, no gain or
loss will be recognized by the Trust or its shareholders for federal income
tax purposes. The holding period and aggregate tax basis for the Acquiring
Fund shares that are received by a Trust shareholder will be the same as the
holding period and aggregate tax basis of the Shares of the Trust previously
held by such shareholder. In addition, the holding period and tax basis of
the assets of the Trust in the hands of the Acquiring Fund as a result of the
Reorganization will be the same as the holding period and tax basis of the
assets in the hands of the Trust immediately prior to the Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of Trustees
of the Trust, at a special meeting held on November 13, 1995, determined
unanimously that the Reorganization is in the best interests of the Trust and
that the interests of the existing shareholders of the Trust will not be
diluted as a result of the Reorganization. Similarly, the Board of Trustees of
the Group unanimously determined that the Reorganization is in the best
interests of the Group and the Acquiring Fund. The proposed Reorganization of
the Trust with and into the Acquiring Fund is part of a larger plan to
reorganize each of the Trust, Cardinal Tax Exempt Money Trust, Cardinal
Government Securities Trust and The Cardinal Fund Inc., each a separate
stand-alone investment company, into a separate portfolio of the Group, and
will allow the shareholders of the Trust to realize certain economies of scale
as a result of becoming shareholders of a series investment company and thus
having certain fixed fees spread over a larger pool of assets. In addition,
the corporate structure of and the more uniform investment policies and
restrictions of the Acquiring Fund will improve oversight of compliance
obligations and overall management of the shareholders' investment since many
of such policies and restrictions will be the same for all of the series or
portfolios of the Group. The Acquiring Fund also is subject to the Rule 12b-1
Plan of the Group and therefore pays a 25 basis point (0.25%) fee on its
average net assets which the Trust does not pay. The Trustees of the Trust and
the Group, in approving the Reorganization, concluded that the payment of such
Rule 12b-1 fees will improve the servicing of shareholder accounts by
broker-dealers and is necessary to compete successfully through a
broker-dealer distribution channel in today's marketplace when competing funds
pay a similar or higher fee to such brokers. As a result, the Boards of the
Trust and the Group found that the payment of such Rule 12b-1 fee will promote
fund sales and discourage fund redemptions and that a larger fund will be able
to spread its fixed costs over a wider base and to achieve better portfolio
diversification. See "THE PROPOSED TRANSACTION -- REASONS FOR THE PROPOSED
TRANSACTION."
To be approved, the Plan will require the affirmative vote of the lesser of
(a) 67% or more of the Shares of the Trust outstanding and represented or
present at the Meeting and (b) more than 50% of the total outstanding Shares of
the Trust. The Reorganization with respect to the Trust is not contingent on
the approval of the Reorganization with respect to any of the other Cardinal
funds. If the Trust's shareholders do not approve the proposed Reorganization,
the Trust's Board of Trustees will consider what other alternatives would be in
the
12
<PAGE> 78
shareholders' best interests. If the Plan is approved at the Meeting, the
effective date of the Reorganization (the "Closing Date") is expected to be on
or about March 31, 1996, subject, however, to the receipt by the Trust and the
Group, if necessary, of an order of exemption from the Commission with respect
to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The Trust and the Acquiring Fund have
the same investment objectives, and generally have the same investment policies
and restrictions. Each of the Trust and the Acquiring Fund seek to maximize
safety of capital and, consistent with such objective, earn the highest
available current income obtainable from government securities. In order to
achieve these objectives, under normal market conditions, each will invest
substantially all, but in no event less than 65% of the value of its total
assets, in obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities"). Each of the
Trust and the Acquiring Fund may also invest, under normal market conditions,
in certain fixed income instruments and in repurchase agreements, and may also
engage in the options transactions. The Acquiring Fund, unlike the Trust, may
also engage in future transactions. For a discussion of the differences
between the investment policies and restrictions of the Acquiring Fund and the
Trust, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS --
INVESTMENT RESTRICTIONS."
FEES AND EXPENSES. Each of the Trust and the Acquiring Fund pay the
following fees: to Cardinal Management Corp. ("CMC") an investment advisory
and management fee computed daily and payable monthly at the annual rate of
0.50% of the value of its average daily net assets; and to CMC for transfer
agency services an annual fee, paid monthly, at an annual rate of $21 per
shareholder account plus out-of-pocket expenses. The Acquiring Fund also pays
to CMC for fund accounting services a fee computed daily and paid periodically
at an annual rate of .03% of its average daily net assets of $100 million or
less and .01% of its average daily net assets in excess of $100 million.
The Trust pays to CMC for fund accounting services a fee equal to $12,800 on
net assets of up to $30 million, $25,000 for the next $20 million of net
assets, $30,000 for the next $25 million of net assets, $35,000 for the next
$50 million of net assets and $5,000 for each $50 million of net assets
thereafter.
Shares of each of the Trust and the Acquiring Fund are distributed by The
Ohio Company, a registered broker-dealer and the sole shareholder of CMC. The
Trust pays no distribution fees or expenses. The Acquiring Fund, however, has
adopted a distribution plan (the "Rule 12b-1 Plan") pursuant to Rule 12b-1 of
the 1940 Act which permits the Acquiring Fund to pay or reimburse The Ohio
Company, as the Acquiring Fund's distributor, an amount paid periodically and
calculated at an annual rate not to exceed 0.25% of the average daily net asset
value of the Acquiring Fund. Such amount may be used by The Ohio Company to
pay broker-dealers, banks and other institutions (a "Participating
Organization") for distribution and/or shareholder service assistance
13
<PAGE> 79
pursuant to an agreement between The Ohio Company and the Participating
Organization or for distribution assistance and/or shareholder service provided
by The Ohio Company. Under the Plan, a Participating Organization may include
The Ohio Company, its subsidiaries and affiliates.
A sales charge is imposed upon the sale of both the Trust's and the Acquiring
Fund's shares equal to 4.5% of the public offering price (4.71% of the net
amount invested). Such sales charge is reduced on investments of $100,000 or
more, as set forth in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AS A OF OFFERING PRICE
PERCENTAGE ------------------------
AMOUNT OF OF THE NET SALES DEALER'S
SINGLE TRANSACTION AMOUNT INVESTED CHARGE CONCESSION
- ------------------ --------------- ------ ----------
<S> <C> <C>
Less than $100,000 4.71% 4.50% 4.00%
$100,000 but less than $250,000 3.63 3.50 3.00
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 1.52 1.50 1.00
$1,000,000 or more 0.50 0.50 0.40
</TABLE>
For each of the Trust and the Acquiring Fund, the sales charge may be waived
under certain specified conditions.
The expense ratio of the Acquiring Fund subsequent to the Reorganization is
expected to be higher than that of the Trust, not taking into account the 12b-1
fee waiver by The Ohio Company. See "THE PROPOSED TRANSACTION -- REASONS FOR
THE PROPOSED TRANSACTION." The annual total operating expenses of the Trust as
of September 30, 1995, were 0.74% as a percentage of average net assets.
Assuming the same level of net assets for the Acquiring Fund after the
Reorganization, it is estimated that the total annual operating expenses for
the Acquiring Fund stated as a percentage of average net assets would be 0.74%,
taking into account the proposed Rule 12b-1 fee waiver, and 0.99%, assuming no
Rule 12b-1 fee waiver.
COMPARISON OF PURCHASE AND REDEMPTION PROCEDURES. Shares of the Trust and
the Acquiring Fund are offered at net asset value, plus the applicable sales
charge as described above, and may be purchased through The Ohio Company on
each Business Day. A "Business Day" is defined as each business day the New
York Stock Exchange is open for business and on any other day (other than a day
on which no shares of that fund are tendered for redemption and no order to
purchase any shares of that fund are received) where there is sufficient
trading in such fund's portfolio securities that its net asset value per share
might be materially affected by changes in the value of its portfolio
securities. The minimum initial investment in both the Trust and the Acquiring
Fund is $1,000, the minimum subsequent investment is $50 and there is no sales
charge imposed upon the reinvestment of dividends and distributions.
14
<PAGE> 80
Redemption orders for shares of both the Trust and the Acquiring Fund must be
placed with CMC. Investors may redeem Shares of the Trust at the net asset
value per share next determined following the receipt by CMC of the following:
(a) written or telephonic notice to redeem, and (b) for Shares represented by
certificates, either the share certificates, properly endorsed, or properly
executed stock powers. Investors may redeem shares of the Acquiring Fund at
the net asset value per share next determined following the receipt by CMC of
written or telephonic notice to redeem.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of the Trust and of the Acquiring
Fund may be exchanged for shares of any other fund advised by The Ohio Company
or CMC (a "Cardinal Fund") at respective net asset values, although payment of
a sales charge equal to the difference, if any, between the sales charge
payable upon purchase of shares of such fund and the sales charge previously
paid on the shares to be exchanged may be applicable upon exchanges of shares
for a Cardinal Fund sold with a sales charge.
COMPARISON OF DIVIDEND POLICIES. Each of the Trust and the Acquiring Fund
declare dividends daily and pay dividends from net investment income monthly.
Each of the Trust and Acquiring Fund will distribute all of any capital gains
at least annually. In addition, shareholders of the Trust and the Acquiring
Fund receive dividends and distributions in the form of additional shares and
not in cash unless otherwise requested by the shareholder and such dividends
and distributions are of $10 or more each.
COMPARISON OF VOTING RIGHTS. Each shareholder of the Trust is entitled to
one vote for each full share held and a proportionate fractional vote for each
fractional share held on each matter submitted to the vote of the Trust's
shareholders, regardless of the net asset value of such share. Each
shareholder of the Acquiring Fund, however, is entitled to one vote for each
dollar of value invested and a proportionate fractional vote for any fraction
of a dollar invested. Therefore, the number of full and fractional votes per
share of the Acquiring Fund will change depending upon the net asset value of
the Acquiring Fund's shares.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies, strategies and restrictions of
the Trust and the Acquiring Fund are substantially similar, the overall level
of investment risk should not materially change as a result of the
Reorganization. There can be no assurance that either the Trust or the
Acquiring Fund will achieve its investment objectives. The current income
earned from such government securities as are purchased by the Trust and the
Acquiring Fund may not be as great as the current income earned on
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lower quality securities which have less liquidity and greater risk of
nonpayment.
The following discussion is qualified in its entirety by the disclosure set
forth in the Acquiring Fund's Prospectus accompanying this Combined
Prospectus/Proxy Statement and the Trust's Prospectus. For additional
information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION" below.
MORTGAGE RELATED SECURITIES. The Trust and the Acquiring Fund each invests
or intends to invest substantially all, but in no event less than 65% of their
assets in U.S. Government Securities. Such U.S. Government Securities may have
mortgage obligations backing such securities, including among others,
conventional thirty year fixed rate mortgage obligations, graduated payment
mortgage obligations, fifteen year mortgage obligations and adjustable rate
mortgage obligations. All of these mortgage obligations can be used to create
pass-through securities. A pass-through security is created when mortgage
obligations are pooled together and undivided interests in the pool or pools
are sold. The cash flow from the mortgage obligations is passed through to the
holders of the securities in the form of periodic payments of interest,
principal and prepayments (net of a service fee).
Prepayments occur when the holder of an individual mortgage obligation
prepays the remaining principal before the mortgage obligation's scheduled
maturity date. As a result of the pass-through of prepayments of principal on
the underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgage obligations
vary, it is not possible to predict accurately the realized yield or average
life of a particular issue of pass-through certificates. Prepayment rates are
important because of their effect on the yield and price of the securities.
Accelerated prepayments have an adverse impact on yields for pass-through
certificates purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the
premium may not have been fully amortized at the time the obligation is repaid.
The opposite is true for pass-through certificates purchased at a discount.
Each of the Trust and the Acquiring Fund may purchase mortgage-related
securities at a premium or at a discount. Reinvestment of principal payments
may occur at higher or lower rates than the original yield on such securities.
Due to the prepayment feature and the need to reinvest payments and prepayments
of principal at current rates, mortgage-related securities can be less
effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
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Certain debt securities such as, but not limited to, mortgage backed
securities, as well as securities subject to prepayment of principal prior to
the stated maturity date, are expected to be repaid prior to their stated
maturity dates. As a result, the effective maturity of these securities is
expected to be shorter than the stated maturity. For purposes of calculating
the Trust's and the Acquiring Fund's weighted average portfolio maturity, the
effective maturity of such securities will be used.
Under present market conditions, each of the Trust and the Acquiring Fund
expects to invest a substantial amount of its portfolio in Ginnie Mae
certificates, which are mortgage-backed securities representing part ownership
in a specific pool of mortgage loans insured by the Federal Housing
Administration or Farmers Home Administration or guaranteed by the Veterans
Administration. Should market or economic conditions warrant, this practice
may be changed in the discretion of CMC. Ginnie Mae guarantees the timely
payment of monthly installments of principal and interest on its certificates,
when due, whether or not payments are received on the underlying mortgage
loans, and the full faith and credit of the United States is pledged to the
timely payment by Ginnie Mae of such principal and interest.
Although the mortgage loans in the pool underlying a Ginnie Mae certificate
will have maturities of up to thirty years, the actual average life of the
Ginnie Mae certificates typically will be substantially less because the
mortgage loans will be subject to normal principal amortization and may be
prepaid prior to maturity. Prepayment rates vary widely and may be affected by
changes in market interest rates. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average
life of the Ginnie Mae certificates and shortening the period of time over
which income at the higher rate is received. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the Ginnie Mae certificates and extending the period of
time over which income at the lower rates is received. Accordingly, it is not
possible to accurately predict the average life of a particular pool. Standard
practice is to treat Ginnie Mae certificates as having effective maturities of
twelve years. Reinvestment of principal payments may occur at higher or lower
rates than the original yield on the certificates. Due to the prepayment
feature and the need to reinvest payments and prepayments of principal at
current rates, Ginnie Mae certificates can be less effective than typical bonds
of similar maturities at maintaining yields during periods of declining
interest rates.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Acquiring Fund may also
purchase securities on a when-issued or delayed-delivery basis. The Acquiring
Fund will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objectives and
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policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. Such securities
are not paid for or start earning interest until they are received although the
payment obligation and the coupon rate have been established before the time
the mutual fund enters into the commitment. When the Acquiring Fund agrees to
purchase such securities, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. In when-issued and delayed-delivery transactions, the mutual
fund relies on the seller to complete the transaction; the seller's failure to
do so may cause such fund to miss a price or yield considered to be
advantageous.
The Acquiring Fund's commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual market conditions.
In the event that its commitments to purchase when-issued securities ever
exceed 25% of the value of its assets, the Acquiring Fund's liquidity and the
ability of CMC to manage it might be adversely affected.
REPURCHASE AGREEMENTS. Securities held by each of the Trust and the
Acquiring Fund may be subject to repurchase agreements. Under the terms of a
repurchase agreement, the Trust or the Acquiring Fund acquires securities from
a financial institution such as a well-established securities dealer or a bank
which is a member of the Federal Reserve System which the Adviser deems
creditworthy under guidelines approved by the respective Board of Trustees. At
the time of purchase, the bank or securities dealer agrees to repurchase the
underlying securities at a specified time and price. The resale price reflects
the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. Under the
1940 Act, repurchase agreements are considered to be loans by the Trust and the
Acquiring Fund. The Trust and the Acquiring Fund will only enter into a
repurchase agreement where (i) the underlying securities are of the type which
such fund's investment policies would allow it to purchase directly, (ii) the
market value of the underlying security, including interest accrued, will be at
all times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying securities is made only upon physical delivery or
evidence of book-entry transfer to the account of the fund's custodian or a
bank acting as agent. CMC, as investment adviser, will be responsible for
continuously monitoring such requirements. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Trust or the Acquiring
Fund (as the case may be) could experience both delays in
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liquidating the underlying securities and losses, including: (a) possible
decline in the value of the underlying securities during the period while
seeking to enforce its rights thereto; (b) possible subnormal levels of income
and lack of access to income during this period; and (c) expenses of enforcing
its rights.
PUT AND CALL OPTIONS. Subject to its investment policies and for purposes of
hedging against market risks related to its portfolio securities, unlike the
Trust, the Acquiring Fund may purchase put and call options on securities.
Purchasing options is a specialized investment technique that entails a
substantial risk of a complete loss of the amounts paid as premiums to writers
of options. The Acquiring Fund will purchase put options only on securities in
which it may otherwise invest.
However, each of the Trust and the Acquiring Fund may engage in writing call
options from time to time as CMC deems appropriate. The Trust and the
Acquiring Fund will write only covered call options (options on securities
owned by such fund). The Trust and the Acquiring Fund may use covered call
option strategies as a means of increasing the total return on the portfolio
and also as a means of providing limited protection against decreases in market
value. In order to close out a call option it has written, the Trust or the
Acquiring Fund, as the case may be, will enter into a "closing purchase
transaction" -- the purchase of a call option on the same security with the
same exercise price and expiration date as the call option which such fund
previously has written. When a portfolio security subject to a call option is
sold, the Trust or the Acquiring Fund, as the case may be, will effect a
closing purchase transaction to close out any existing call option on that
security. If the fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or
the fund delivers the underlying security upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio
securities subject to such options would exceed 25% of the net assets of the
Acquiring Fund. With respect to the Trust, it will not invest more than 5% of
its total assets at any one time in premiums paid for call options and put
options.
The Acquiring Fund, as part of its option transactions, also may purchase
index put and call options and write index options. As with options on
individual securities, the Acquiring Fund will write only covered index call
options. Through the writing or purchase of index options the Acquiring Fund
can achieve many of the same objectives as through the use of options on
individual securities. Options on securities indices are similar to options on
a security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the securities index upon which the option is based is greater
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than, in the case of a call, or less than, in the case of a put, the exercise
price of the option.
Price movements in securities which the Acquiring Fund owns or intends to
purchase probably will not correlate perfectly with movements in the level of
an index and, therefore, such fund bears the risk of a loss on an index option
that is not completely offset by movements in the price of such securities.
Because index options are settled in cash, a call writer cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific securities, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities. The
Acquiring Fund may be required to segregate assets or provide an initial margin
to cover index options that would require it to pay cash upon exercise.
FUTURES CONTRACTS. The Acquiring Fund, unlike the Trust, may also enter into
contracts for the future delivery of securities and futures contracts based on
a specific security, class of securities or an index. Each of the Trust and
the Acquiring Fund may purchase or sell options on any such futures contracts
and engage in related closing transactions. A futures contract on a securities
index is an agreement obligating either party to pay, and entitling the other
party to receive, while the contract is outstanding, cash payments based on the
level of a specified securities index.
The Acquiring Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, the Acquiring Fund
can seek through the sale of futures contracts to offset a decline in the value
of its portfolio securities. When interest rates are expected to fall or
market values are expected to rise, the Acquiring Fund, through the purchase of
such contracts, can attempt to secure better rates or prices for the Acquiring
Fund than might later be available in the market when it effects anticipated
purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Trust and the Acquiring Fund the right (but not the
obligation), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed five percent of either the Trust's or the
Acquiring Fund's total assets, and the value of securities that are the subject
of such futures and options (both for receipt and delivery) may not exceed
one-third of the market value of such fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Trust's
and the Acquiring Fund's qualification as a regulated investment company.
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Futures transactions involve brokerage costs and require a fund to segregate
assets to cover contracts that would require it to purchase securities. A fund
may lose the expected benefit of futures transactions if interest rates or
securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the fund had not entered
into any futures transactions. In addition, the value of a fund's futures
positions may not prove to be perfectly or even highly correlated with the
value of its portfolio securities, limiting the fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market
for purposes of closing out futures positions.
Options and futures are considered to be derivatives. A derivative is
generally defined as an instrument whose value is based upon, or derived from,
some underlying index, reference rate (e.g., interest rates), security,
commodity or other asset. Neither the Trust nor the Acquiring Fund will invest
more than 5% of its total assets at any one time in premiums paid for call
options and put options or in futures contracts.
INVESTMENT COMPANY SECURITIES. Each of the Trust and the Acquiring Fund may
also invest up to 10% of the value of its total assets in the securities of
other investment companies subject to the limitations set forth in the 1940
Act. Such funds intend to invest in the securities of other money market
mutual funds for purposes of short-term cash management. Their investment in
such other investment companies may result in the duplication of fees and
expenses, particularly investment advisory fees.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The Plan provides that
all of the assets of the Trust as of the Exchange Date (as defined in the Plan)
will be transferred to the Acquiring Fund in exchange for shares of the
Acquiring Fund and the assumption by the Acquiring Fund of all of the
liabilities of the Trust. The Exchange Date is expected to be on or about
March 31, 1996, subject, however, to the receipt by the Trust and the Group of
any necessary order of exemption from the Commission with respect to the
Reorganization. A copy of the Plan is attached as Exhibit A to this Combined
Prospectus/Proxy Statement. Although portions of the Plan are summarized
below, this summary is qualified in its entirety by reference to the Plan.
Promptly after the Exchange Date, the Trust will distribute the shares of the
Acquiring Fund to the Trust's shareholders of record as of the close of
business on the Exchange Date. The shares of the Acquiring Fund which will be
issued for distribution to the Trust's shareholders will be equal in aggregate
value to the Shares of the Trust held as of the Exchange Date. All issued and
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outstanding Shares of the Trust will be cancelled on the Trust's books. Shares
of the Acquiring Fund will be represented only by book entries; no share
certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of the Trust. The Plan also may be terminated and the Reorganization abandoned
by the Trust and the Acquiring Fund by mutual consent of their respective
trustees. If the consummation of the Reorganization is so abandoned, no party
shall be liable to the other party for any damages resulting therefrom. If
the Reorganization is otherwise not consummated by reason of either party's
being unwilling or unable to go forward (other than by reason of the
non-fulfillment or failure of certain conditions to such party's obligations),
such party will pay directly all reasonable fees and expenses incurred by the
other party in connection with the Reorganization.
The Reorganization also is subject to the condition of obtaining an opinion
of counsel to the effect that the Reorganization constitutes a tax-free
reorganization for federal income tax purposes and any necessary written order
of exemption from the Commission exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a party
in connection with the Plan will be paid by the party directly incurring such
costs except where a party is unwilling or unable to go forward (other than for
lack of requisite shareholder approval or breach by the other party in its
covenants) in which case such party will pay all reasonable fees and expenses
of the other party. The Ohio Company will pay the costs associated with the
Reorganization. The Trust will pay those costs associated with that portion of
the Meeting relating to customary annual meeting matters (e.g., election of
trustees), and the Acquiring Fund will bear its organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders, all shareholders of the
Trust as of the Exchange Date, including those that voted against the approval
of the Plan, will receive shares of the Acquiring Fund. All shareholders of
the Trust have the right at any time up to the next business day preceding the
Exchange Date to redeem their Shares at net asset value according to the
procedures set forth in the Trust's Prospectus.
This summary does not purport to be a complete description of the Plan and is
subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in 1985. The Group was organized as a
series investment company in 1993, and in
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October and November 1995, its Board of Trustees created the Acquiring Fund
with substantially identical investment objectives, policies and restrictions
to those of the Trust. Because of the similarity between the Trust and the
Acquiring Fund, the considerations and risks involved with an investment in the
Acquiring Fund are expected to be comparable to those associated with an
investment in the Trust. The Acquiring Fund has been established for purposes
of effecting the Reorganization and will not commence operations prior to the
Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for their consideration at meetings held on October 20,
1995, and November 13, 1995. The Board of Trustees of the Trust concluded
unanimously that the Reorganization is in the best interests of the Trust and
that the interests of the existing shareholders of the Trust will not be
diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Trust and the proposed
costs of the Acquiring Fund as provided by The Ohio Company, in light of their
substantially similar investment objectives, policies, restrictions, Boards of
Trustees, officers and service providers. The Board also considered the
operating and compliance efficiencies that could result from moving the
operation of the Trust from a stand-alone investment company to a separate
portfolio of a series investment company. The investment policies and
restrictions of the Acquiring Fund which were approved by the Board of Trustees
of the Group vary somewhat from the policies of the Trust; however, such
differences reflect a more uniform and flexible set of investment restrictions
that are currently in place for each of the other series or portfolios of the
Group. Such restrictions were approved to help achieve greater compliance
efficiencies by having each series of the Group have the same or substantially
the same investment restrictions.
One of the operating efficiencies expected is that under Ohio law and the
Group's Declaration of Trust an annual meeting of shareholders is not required.
The Trust under its Declaration of Trust is required to hold such a meeting.
Also, certain fixed costs associated with the operation of the Trust when
incurred by the Acquiring Fund as part of the Group would decrease on a per
share basis since such costs would be spread over a larger pool of assets,
e.g., certain legal and printing fees, while maintaining the same services by
the same service providers.
In particular, the Board considered the anticipated expense ratios of the
Acquiring Fund, the structure of the Group, the experience of the service
providers of the Acquiring Fund and the level of service to be provided to the
shareholders of the Acquiring Fund, as represented by The Ohio Company,
including the
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greater resources that could be dedicated to marketing the Acquiring Fund and
providing shareholder services.
The Trust's Board also considered the higher fees charged to the Acquiring
Fund compared to those of the Trust. With respect to the Rule 12b-1 fee, the
Trustees of the Trust concluded that the payment of such fees will improve the
servicing of shareholder accounts by broker-dealers and is necessary to
compete successfully through a broker-dealer distribution channel in today's
marketplace when competing funds pay a similar or higher fee to such brokers.
Thus, the Trust's Board determined that the payment of such Rule 12b-1 fees
will promote fund sales and discourage fund redemptions and that a larger fund
will be able to spread its fixed costs (exclusive of those costs based upon a
percentage of net assets) over a wider base and to achieve better portfolio
diversification.
The Board of Trustees of the Trust based its decision to approve the proposed
transaction upon its consideration of a number of factors, including, among
other things:
(1) the terms and conditions of the Reorganization and whether it would
result in a dilution of the existing shareholders' interests;
(2) the similarity of the Trust's investment objectives, strategies and
policies with those of the Acquiring Fund, as well as the views of CMC that any
differences between the investment policies and restrictions of the Trust and
the Acquiring Fund should not materially increase investment risks;
(3) the experience and resources of CMC with respect to providing investment
management services, and the experience of and quality of services to be
provided by the Acquiring Fund's other service providers;
(4) the projected expense ratios and information regarding fees and expenses
of the Trust, the Acquiring Fund and other similar funds and the services being
offered to shareholders;
(5) the conditioning of the Reorganization on the receipt of a legal opinion
confirming the absence of any adverse federal tax consequences to the Trust or
its shareholders resulting from the Reorganization; and
(6) other factors as it deemed relevant.
In particular, the Board considered the following per share operating expense
ratios (total annual operating expenses expressed as a percentage of average
net assets) for shares of the Trust for the year ended September 30, 1995, and
as estimated for the shares of the Acquiring Fund for the period following the
effective date
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of the Reorganization and ending September 30, 1996, after giving effect to the
Reorganization:
OPERATING EXPENSE RATIOS
TRUST ACQUIRING FUND
----- --------------
0.76% 0.74%(1)
______________
1 Reflects the waiver of Rule 12b-1 fees by The Ohio Company through
September 30, 1996. Absent such waiver, total annual operating expenses of the
Acquiring Fund, as a percentage of average net assets, is estimated to be
0.99%.
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in the Acquiring Fund
is represented by units of beneficial interest, without par value, of The
Cardinal Group (the "Group"), which is an open-end investment company of the
management type, organized as an Ohio business trust on March 23, 1993. The
Acquiring Fund is currently one of six separate series of the Group. Like the
Trust, the Acquiring Fund is diversified, as that term is defined in the 1940
Act. Currently there is only one class of shares for the Acquiring Fund.
Shareholders of the Acquiring Fund are entitled to one vote for each dollar of
value invested and a proportionate fractional vote for any fraction of a dollar
invested. See "ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the Group must receive a favorable opinion from
Baker & Hostetler, counsel to both the Trust and the Group, substantially to
the effect that, for federal income tax purposes: (a) the Reorganization will
constitute a "tax-free" reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); (b) no gain or loss
will be recognized by the Acquiring Fund or the Trust as a result of the
Reorganization; (c) no gain or loss will be recognized by shareholders of the
Trust upon the exchange of their Shares of the Trust for shares of the
Acquiring Fund; (d) the tax basis of the Acquiring Fund shares received by
shareholders of the Trust pursuant to the Reorganization will be the same as
the basis of the Shares of the Trust held immediately prior to the
Reorganization; (e) the holding period of the Acquiring Fund shares so received
will include the period during which the Trust shareholder held Shares of the
Trust, provided such Shares were held as a capital asset; (f) the tax basis of
the Trust's assets acquired by the Acquiring Fund will be the same as the basis
of such assets immediately prior to the Reorganization; and (g) the holding
period of such assets will include the period during which
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those assets were held by the Trust. The Group and the Trust do not
intend to seek a private letter ruling with respect to the tax effects of
the Reorganization.
CAPITALIZATION. The following table shows the capitalization of the Trust as
of September 30, 1995. The Acquiring Fund has no and will have no assets or
liabilities or commence operations prior to the consummation of the
Reorganization. THEREFORE, NO PRO FORMA FINANCIAL INFORMATION GIVING EFFECT TO
THE REORGANIZATION IS PROVIDED.
CARDINAL GOVERNMENT OBLIGATIONS FUND
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . $151,710,671
Shares outstanding . . . . . . . . . . . . . . . . . . . . . . 18,543,620
Net asset value per share . . . . . . . . . . . . . . . . . . . $8.18
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of the Trust are substantially similar to those of the Acquiring Fund. The
investment objectives of the Trust and Acquiring Fund are "fundamental," which
means that they may not be changed without the consent of a majority of such
fund's outstanding shares, as defined in the 1940 Act.
The investment objectives of each of the Trust and the Acquiring Fund are to
maximize safety of capital and, consistent with such objective, earn the
highest available current income obtainable from government securities.
Under normal market conditions, each of the Trust and the Acquiring Fund will
invest substantially all, but in no event less than 65% of the value of its
total assets, in obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities"). Each of the
Trust and the Acquiring Fund may also invest, under normal market conditions,
in the fixed income instruments described below and in repurchase agreements
and may also engage in the options transactions described above under "SPECIAL
CONSIDERATIONS AND RISK FACTORS -- OPTIONS." The Acquiring Fund, however, may
purchase securities on a when-issued or delayed-delivery basis.
Each of the Trust and the Acquiring Fund may, for daily cash management
purposes, invest in high quality money market securities and in repurchase
agreements. In addition, each may invest, without limit, in any combination of
U.S. Government Securities, money market securities and repurchase agreements
when, in the opinion of CMC, it is determined that a temporary defensive
position is warranted based upon current market conditions. Each of the Trust
and the Acquiring Fund may also invest in securities of other investment
companies, as described more fully above under
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"SPECIAL CONSIDERATIONS AND RISK FACTORS -- INVESTMENT COMPANY SECURITIES."
The types of U.S. Government Securities invested in by the Trust and the
Acquiring Fund will include obligations issued by or guaranteed as to payment
of principal and interest by the full faith and credit of the U.S. Treasury,
such as Treasury bills, notes, bonds and certificates of indebtedness, and
obligations issued or guaranteed by the agencies or instrumentalities of the
U.S. Government, but not supported by such full faith and credit. Obligations
of certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("Ginnie Mae") and the Export-Import
Bank of the United States, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Federal Farm Credit Banks or the Federal Home Loan Mortgage Corporation,
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government sponsored agencies or instrumentalities if it is not obligated to do
so by law. The Trust and the Acquiring Fund will invest in the obligations of
such agencies or instrumentalities only when CMC believes that the credit risk
with respect thereto is minimal.
Certain securities held by the Trust and the Acquiring Fund may have
mortgage obligations backing such securities as more fully described above
under "SPECIAL CONSIDERATIONS AND RISK FACTORS -- MORTGAGE RELATED SECURITIES."
Under present market conditions, both the Trust and the Acquiring Fund expect
to invest a substantial amount of its portfolio in Ginnie Mae certificates.
INVESTMENT RESTRICTIONS
The fundamental investment restrictions of the Trust and the Acquiring Fund
are substantially identical except for the following differences:
(1) The Trust may not concentrate more than 25% of the value of the assets
of the Trust in investments in any particular industry. The Acquiring Fund has
a similar policy except that its policy expressly includes the Commission's
position that there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities. The Acquiring Fund's policy is further
qualified as follows: (a) wholly owned finance companies will be considered to
be in the industries of their parents if their activities are primarily related
to financing the activities of their parents, and (b) utilities will be divided
according to their services; for example, gas, gas transmission, electric and
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gas, electric and telephone will each be considered a separate industry.
(2) The Trust may not make loans although the Trust may enter into
repurchase agreements. The Acquiring Fund has a similar policy except that
such policy contains the further exceptions that the Acquiring Fund may
purchase or hold debt instruments and lend portfolio securities in accordance
with its investment objectives and policies and make time deposits with
financial institutions. The Acquiring Fund currently does not intend to engage
in portfolio securities lending.
(3) The Trust may not underwrite securities issued by other persons, except:
to the extent that the Trust may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase of
government securities directly from the issuer in accordance with the Trust's
investment objective, program and restrictions. The Acquiring Fund has a
similar policy except that the Acquiring Fund may underwrite the securities of
others to the extent it may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities."
(4) The Trust may not purchase securities on margin, except for use of
short-term credit necessary for clearance of purchases of portfolio securities.
The Acquiring Fund has a similar policy except that the Acquiring Fund may also
make margin payments as may be necessary in connection with derivative
securities transactions.
(5) The Trust has a policy of not purchasing or selling commodities or
commodity contracts. The Acquiring Fund has a similar policy except it may
engage in such transactions to the extent disclosed to shareholders in its
current Prospectus.
(6) The Trust may not purchase or retain securities of any issuer if, to the
knowledge of the Trust' management, those officers and trustees of the Trust,
and of its investment adviser, who each owns beneficially more than .5% of the
outstanding securities of such issuer, together beneficially own more than 5%
of such securities. The Acquiring Fund has no such policy.
(7) The Trust may not invest in puts, calls, straddles, spreads, or any
combination thereof, except as follows: (a) the Trust may write covered call
options and enter into closing purchase transactions with respect to such
options so long as the securities underlying outstanding options will not at
any one time exceed 25% of the assets of the Trust, and (b) the Trust may
purchase options in interest rate futures contracts so long as not more than 5%
of the Trust's assets are at any one time invested in the premiums paid for
such options. The Acquiring Fund has no such policy.
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<PAGE> 94
(8) The Trust may not purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein). The Acquiring Fund
has the same policy except that its policy further excepts investments in
marketable securities of companies engaged in real estate activities.
(9) The Trust may not change its classification as a "management company"
under Section 4 of the 1940 Act or change its subclassifications as an
"open-end company" or as a "diversified company" under Section 5 of the 1940
Act. The Acquiring Fund has no such policy although the 1940 Act requires that
shareholders approve any such change by the Acquiring Fund.
(10) The Trust has a fundamental policy that provides that it may not (i)
purchase securities with legal or contractual restrictions on resale
(restricted securities), (ii) purchase illiquid securities, (iii) purchase
securities without readily available market quotations, or (iv) invest more
than 10% of the value of its total assets in repurchase agreements maturing in
more than seven days. The Acquiring Fund has the non-fundamental policy that
it may not purchase or otherwise acquire any securities if as a result, more
than 15% of the Acquiring Fund's net assets would be invested in securities
that are illiquid. In addition, the Acquiring Fund may not invest more than
15% of its total assets in securities which are restricted as to disposition.
In addition, the Acquiring Fund has the non-fundamental investment
restriction that it may not engage in any short sales. This non-fundamental
investment restriction is substantially similar to the fundamental investment
restriction of the Trust. As discussed above, however, fundamental
restrictions of a fund may not be changed without a vote of a majority of the
outstanding voting securities of the fund; non-fundamental policies may be
changed without a shareholder vote. As a consequence, such policies could be
modified, or eliminated, by the Group with respect to the Acquiring Fund
without shareholder approval.
PORTFOLIO MANAGERS. Since CMC serves as the investment adviser to both the
Trust and the Acquiring Fund, the person currently serving as portfolio manager
for the Trust intends to continue to serve after the Reorganization as
portfolio manager for the Acquiring Fund.
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in the Trust. For a more complete description of the Acquiring
Fund's investment policies and restrictions, including relevant risk factors,
see "WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUND?" in the
Acquiring Fund's Prospectus and "INVESTMENT OBJECTIVES AND POLICIES" in the
Acquiring Fund's Statement of Additional Information. For a more complete
description of the Trust's
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<PAGE> 95
investment policies and restrictions, including relevant risk factors, see
"WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE TRUST?" in the Trust's
Prospectus and "INVESTMENT OBJECTIVES AND POLICIES" in the Trust's Statement
of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE TRUST
Pursuant to the laws of Ohio and the Trust's Declaration of Trust, the
responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Declaration of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants, and other professionals to assist and
advise in such management.
INVESTMENT ADVISER. The Trust is advised by Cardinal Management Corp.
("CMC"), 155 East Broad Street, Columbus, Ohio 43215, a wholly owned subsidiary
of The Ohio Company. CMC is also the investment adviser and manager of each of
the other Cardinal Funds except The Cardinal Fund Inc. CMC was established as
an Ohio corporation on March 21, 1980, and has been providing investment
advisory services to open-end investment management companies like the Trust
since 1980.
The Ohio Company, an investment banking firm organized in 1925, is a member
of the New York Stock Exchange, the Midwest Stock Exchange, other regional
stock exchanges and the National Association of Securities Dealers, Inc.
Descendants of H.P. and R.F. Wolfe, deceased, and members of their families,
through their possession of a majority of voting stock, may be considered
controlling persons of The Ohio Company.
In its capacity as investment adviser, and subject to the ultimate authority
of the Trust's Board of Trustees, CMC, in accordance with the Trust's
investment objectives and policies, manages the Trust, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. Since the Trust's inception, John R. Carle has been primarily
responsible for the day-to-day management of the Trust's portfolio. Mr. Carle
has been a portfolio manager with CMC and/or The Ohio Company since 1971. In
addition, pursuant to the Investment Advisory Agreement, the Adviser generally
assists in all aspects of the Trust's administration and operation.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Trust, CMC receives a fee from the Trust, computed
daily and paid monthly at the annual rate of .50% of average net daily assets
of the Trust.
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<PAGE> 96
For a complete description of the Trust's advisory arrangements, see the
section in the Trust's Prospectus entitled "WHO MANAGES MY INVESTMENT IN
THE FUND? -- Investment Adviser and Manager."
DISTRIBUTOR. The Trust has entered into a Distributor's Contract with The
Ohio Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which
shares of the Trust continuously are offered on a best efforts basis by The
Ohio Company and dealers selected by The Ohio Company. H. Keith Allen is an
officer and trustee/director of both the Trust, CMC and The Ohio Company. Frank
W. Siegel, an officer and trustee of the Trust, is an officer of The Ohio
Company and an officer and director of CMC. David C. Will and James M. Schrack
II are officers of both the Trust and The Ohio Company, and Mr. Will is an
officer of CMC. The Ohio Company receives no compensation from the Trust in
connection with its services under such Distributor's Contract but may retain
some or all of the sales charge imposed upon sales of the Trust's Shares.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT. CMC, 215 East Capital
Street, Columbus, Ohio 43215, serves as the Trust's Dividend and Transfer
Agent. In consideration of such services, the Trust has agreed to pay CMC an
annual fee, paid monthly, equal to $21 per shareholder account, plus
out-of-pocket expenses.
The Trust also pays to CMC for fund accounting services a fee equal to
$12,800 on net assets of up to $30 million, $25,000 for the next $20 million of
net assets, $30,000 for the next $25 million of net assets, $35,000 for the
next $50 million of net assets and $5,000 for each $50 million of net assets
thereafter.
For a complete description of these arrangements and the other expenses borne
by the Trust, see the section in the Trust's Prospectus entitled "WHO MANAGES
MY INVESTMENT IN THE FUND?"
CUSTODIAN. The Trust has appointed The Fifth Third Bank ("Fifth Third"), 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Trust's custodian. In
such capacity Fifth Third will hold or arrange for the holding of all portfolio
securities and other assets acquired and owned by the Trust.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio 43215,
serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Trust, and,
as such, has audited the financial statements of the Trust.
MANAGEMENT DISCUSSION OF FUND PERFORMANCE. Management discussion of fund
performance is contained in the accompanying Annual Report to Shareholders for
the year ended September 30, 1995.
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<PAGE> 97
THE ACQUIRING FUND
Except where shareholder action is required by law, all of the authority of
the Group is exercised under the direction of the Group's Trustees, who are
elected by the shareholders of the Group's series or portfolios, including the
Acquiring Fund, and who are empowered to elect officers and contract with and
provide for the compensation of agents, consultants, and other professionals to
assist and advise in its day-to- day operations. The Group will be managed in
accordance with its Declaration of Trust and the laws of Ohio governing
business trusts.
INVESTMENT ADVISER. The Acquiring Fund is also advised by CMC. It is
intended that upon completion of the Reorganization, Mr. Carle will be
responsible for the day-to-day management of the Acquiring Fund's portfolio.
For its services as investment adviser, CMC receives a fee, which is calculated
daily and paid monthly, at an annual rate of 0.50% of the average daily net
assets of the Acquiring Fund.
For a complete description of the Acquiring Fund's advisory arrangements, see
the section in the Acquiring Fund's Prospectus entitled "WHO MANAGES MY
INVESTMENT IN THE FUND? -- Investment Adviser and Manager."
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT. CMC also serves as the
Acquiring Fund's Dividend and Transfer Agent. In consideration of such
services, the Acquiring Fund has agreed to pay CMC an annual fee, paid monthly,
equal to $21 per shareholder account, plus out-of-pocket expenses.
In addition, CMC provides certain fund accounting services for the Acquiring
Fund. CMC receives a fee from the Acquiring Fund for such services equal to a
fee computed daily and paid periodically at an annual rate of .03% of the
Acquiring Fund's average daily net assets of $100 million or less and .01% of
its average daily net assets in excess of $100 million.
For a complete description of these arrangements and the other expenses borne
by the Acquiring Fund, see the sections in the Acquiring Fund's Prospectus
entitled "WHO MANAGES MY INVESTMENT IN THE FUND? -- Dividend and Transfer Agent
and Fund Accountant."
DISTRIBUTOR. The Ohio Company also serves as the distributor of the
Acquiring Fund's shares pursuant to a distribution agreement.
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a Rule 12b-1
Plan under which the Acquiring Fund is authorized to pay or reimburse The Ohio
Company, as the Acquiring Fund's principal underwriter, a periodic amount
calculated at an annual rate not to exceed .25% of the average daily net asset
value of the Acquiring Fund. Such amount may be used by The Ohio Company
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<PAGE> 98
to pay broker-dealers, banks and other institutions (a "Participating
Organization") for distribution and/or shareholder service assistance pursuant
to an agreement between The Ohio Company and the Participating Organization or
for distribution assistance and/or shareholder service provided by The Ohio
Company pursuant to an agreement between The Ohio Company and the Group. Under
the Plan, a Participating Organization may include The Ohio Company's
subsidiaries, and its affiliates.
As authorized by the Plan, The Ohio Company has agreed to provide certain
shareholder services in connection with shares of the Acquiring Fund purchased
and held by The Ohio Company for the accounts of its customers and shares of
the Acquiring Fund purchased and held by customers of The Ohio Company
directly, including, but not limited to, answering shareholder questions
concerning the Acquiring Fund, providing information to shareholders on their
investments in the Acquiring Fund and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration of such services the Group has agreed to pay The
Ohio Company a monthly fee, computed at the annual rate of .25% of the average
aggregate net asset value of shares held during the period in customer accounts
for which The Ohio Company has provided services under the Plan. Such fees
paid by the Group will be borne solely by the Acquiring Fund.
In addition, The Ohio Company may enter into, from time to time, other Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
For a complete description of these arrangements, see the sections in the
Acquiring Fund's Prospectus entitled "WHO MANAGES MY INVESTMENT IN THE FUND? --
Distribution Plan."
For fiscal period ending September 30, 1996, The Ohio Company has agreed to
waive all of such 12b-1 fees.
CUSTODIAN. The Acquiring Fund has also appointed Fifth Third as the
Acquiring Fund's custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Fund.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio 43215, also
serves as counsel to the Acquiring Fund.
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Fund, and, as such, will audit the financial statements of
the Acquiring Fund.
33
<PAGE> 99
MANAGEMENT DISCUSSION OF FUND PERFORMANCE. No management discussion of fund
performance is included since the Acquiring Fund has not yet commenced
operations.
CERTAIN FINANCIAL INFORMATION. The Prospectus for the Trust contains
information on per share income, capital changes and performance calculations
under the caption "FINANCIAL HIGHLIGHTS."
The Acquiring Fund has not yet commenced operations and has no and will have
no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE INFORMATION" in the
Acquiring Fund's Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS. The Trust is an Ohio business
trust, registered under the 1940 Act as an open-end investment company of the
management type. The Trust was established under a Declaration of Trust dated
November 15, 1985. The Group is an Ohio business trust, registered under the
1940 Act as an open-end investment company of the management type. The Group
was established under a Declaration of Trust dated as of March 23, 1993. Both
the Trust and the Group are authorized to issue an unlimited number of shares
of beneficial interest, and for the Group, such shares may be divided into one
or more series or separate classes of shares. The Acquiring Fund is one of six
series of the Group. The other five series of the Group are The Cardinal Fund,
Cardinal Government Securities Money Market Fund, Cardinal Tax Exempt Money
Market Fund, Cardinal Balanced Fund and Cardinal Aggressive Growth Fund.
Each Share of the Trust represents an equal proportionate interest in the
Trust with each other Share. Shares are entitled upon liquidation to a pro
rata share of the net assets of the Trust. Shares of the Trust issued pursuant
to the Trust's Declaration of Trust are fully paid and nonassessable and have
no preemptive or other right to subscribe for any additional Shares.
Shares of the Acquiring Fund, once properly issued and outstanding, are fully
paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
Shareholders of the Trust are entitled to one vote for each full Share held
and a proportionate fractional vote for each fractional Share held.
Shareholders of the Acquiring Fund are entitled to one vote for each dollar of
value invested and a proportionate fractional vote for any fraction of a dollar
invested.
Voting rights for Trust shareholders are not cumulative, so that the holders
of more than 50% of the Trust voting in the election of its Trustees have the
power to elect all of the Trustees of the Trust. The Trust currently holds an
annual meeting of shareholders.
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<PAGE> 100
Shareholders of the Group have no cumulative voting rights, which means that
the holders of a plurality of the shares voting for the election of the Group's
Board of Trustees can elect all of the Group's Board of Trustees if they choose
to do so. The Group does not intend to hold annual meetings of shareholders,
except as required under its Declaration of Trust or the 1940 Act.
Shareholders of the Acquiring Fund will vote in the aggregate with other
shareholders of the Group and not by series or portfolio except as otherwise
expressly required by law. For example, shareholders of the Acquiring Fund
will vote in the aggregate with other shareholders of the Group with respect to
the election of Trustees and ratification of the selection of independent
accountants. However, shareholders of the Acquiring Fund will vote as a Fund,
and not in the aggregate with other shareholders of the Group, for purposes of
approval of amendments to the Acquiring Fund's investment advisory agreement or
any of the Acquiring Fund's fundamental policies.
Therefore, after the Reorganization, shareholders of the Acquiring Fund alone
will not be able to elect the Trustees of the Group or ratify the selection of
independent accountants but will vote with all the other shareholders of the
Group on such issues if and when presented to shareholders. In addition,
since the Group currently does not intend to hold annual meetings unless
otherwise required to do so, it can not be determined when shareholders of the
Acquiring Fund will next be entitled to vote for the election of Trustees or
the ratification of the selection of independent public accountants.
For a complete description of the respective attributes of the Trust's and
the Group's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Trust or the Acquiring Fund, as
the case may be, and its shareholders, and dividend and distribution policies,
see the sections in the Trust's and the Acquiring Fund's respective
Prospectuses entitled "HOW DO I PURCHASE SHARES OF THE FUND?," "WHAT
DISTRIBUTIONS WILL I RECEIVE?," "HOW MAY I REDEEM MY SHARES?" "WHAT OTHER
SHAREHOLDER PROGRAMS ARE PROVIDED?" "DOES THE FUND PAY FEDERAL INCOME TAX?" and
"WHAT ABOUT MY TAXES?" Additional information about the Trust is included in
its Prospectus, dated February 1, 1995, as supplemented on December 11, 1995,
which is incorporated herein by reference, and in the Trust's Statement of
Additional Information dated February 1, 1995. Copies of the Prospectus and
the Statement of Additional Information may be obtained without charge by
calling the Trust at 1-800-282-9446.
Additional information about the Acquiring Fund is included in its Prospectus
dated January __, 1996, which accompanies this Combined Prospectus Proxy
Statement and Statement of Additional Information dated January __, 1996,
copies of which may be obtained without charge by calling the Group at
1-800-282-9446.
35
<PAGE> 101
Additional information regarding the Reorganization and the Acquiring Fund is
contained in the Statement of Additional Information, dated January __, 1996,
to this Combined Prospectus/Proxy Statement. The Statement of Additional
Information is incorporated by reference herein and may be obtained by calling
the Group at 1-800-282-9446.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the Group are each subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the 1940 Act, and in accordance therewith each files
reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne in part by the
Trust and in part by The Ohio Company. Proxies will be solicited initially,
and in any supplemental solicitation, by mail and may be solicited in person,
by telephone, telegraph or other electronic means by officers of the Trust.
SUBSTANTIAL SHAREHOLDERS. As of January 8, 1996, to the knowledge of the
Trust, no persons owned of record or beneficially five percent or more of the
Shares of the Trust.
As of the close of business on January 8, 1996, the officers and Trustees of
the Trust as a group beneficially owned less than 1% of the outstanding shares
of the Trust.
As of the close of business on January 8, 1996, there were _____ issued and
outstanding shares of the Group, of which ___ were shares of Cardinal Balanced
Fund and ___ were shares of Cardinal Aggressive Growth Fund. As of such date,
there were no shareholders ofthe Acquiring Fund. It is anticipated, however,
that those persons who are beneficial holders of the Trust's Shares immediately
prior to the Reorganization will be beneficial holders of the same percentage
of the Acquiring Fund's Shares immediately after the Reorganization.
36
<PAGE> 102
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Fund dated January __, 1996, and the Management's Discussion of Fund
Performance section of the accompanying Cardinal Government Obligations Fund
Annual Report to Shareholders as of September 30, 1995, are incorporated by
reference into this Combined Prospectus/Proxy Statement. In addition, the
Trust's Prospectus dated February 1, 1995, as supplemented December 11, 1995,
is incorporated by reference into this Combined Prospectus/Proxy Statement and
may be obtained by writing the Trust at 155 East Broad Street, Columbus, Ohio
43215 or by calling the Trust at 1-800-282-9446. Copies of documents requested
will be sent by first-class mail to the requesting shareholder within one
business day of receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in
accordance with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to
introduce at such meeting. Any shareholder proposals must be presented a
reasonable time before the proxy materials for the next meeting are sent to
shareholders. The submission of a proposal does not guarantee its inclusion in
the Trust's proxy statement and is subject to limitations under the 1934 Act.
It is not presently anticipated that the Group will hold regular meetings of
shareholders, and no anticipated date of the next meeting can be provided.
37
<PAGE> 103
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
----------------------------------------------------
Agreement and Plan of Reorganization and Liquidation ("Agreement") dated as
of December 1, 1995, by and between The Cardinal Group, an Ohio business trust
("TCG"), and Cardinal Government Obligations Fund, an Ohio business trust
("CGOF").
WHEREAS, TCG is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end investment company of the management type
and has, or before the Exchange Date (as defined below) is expected to have,
issued and outstanding one class of shares of beneficial interest, without par
value ("Shares"), for each of six series, one such series being Cardinal
Government Obligations Fund (hereinafter sometimes referred to as the "Cardinal
Government Obligations Fund" or the "Acquiring Series"); and
WHEREAS, CGOF is registered under the 1940 Act as an open-end investment
company of the management type and currently has issued and outstanding one
class of shares of beneficial interest, without par value; and
WHEREAS, CGOF plans to transfer all of its assets, and to assign all of its
liabilities, to the Acquiring Series, in exchange for Shares of the Acquiring
Series (the "Acquiring Series Shares"), followed by the distribution of the
Acquiring Series Shares by CGOF to its shareholders, and followed by the
dissolution of CGOF, all upon the terms and provisions of this Agreement (the
"Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization is in
the best interests of TCG, and that the interests of its shareholders will not
be diluted as a result thereof; and
WHEREAS, the trustees of CGOF have determined that the Reorganization is in
the best interests of CGOF and that the interests of its shareholders will not
be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION.
<PAGE> 104
(a) SALE OF ASSETS, ASSUMPTION OF lIABILITIES. Subject to the prior
approval of shareholders of CGOF and to the other terms and conditions
contained herein (including the obligation of CGOF to distribute to its
shareholders all of its investment company taxable income and net capital
gain as described in Section 8(i) herein), CGOF agrees to sell, assign,
convey, transfer and deliver to TCG and the Acquiring Series, and TCG and
the Acquiring Series agree to acquire from CGOF on the Exchange Date (as
defined below), all of the Investments (as defined below), cash and other
assets of CGOF in exchange for that number of full and fractional Acquiring
Series Shares of the Acquiring Series having an aggregate net asset value
equal to the value of all assets of CGOF transferred to the Acquiring
Series, as provided in Section 4, less the liabilities of CGOF assumed by
the Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the Acquiring Series from
CGOF shall consist of all of CGOF's property, including, without limitation,
all Investments, cash and dividends or interest receivables which are owned
by CGOF and any deferred or prepaid expenses shown as an asset on the books
of CGOF as of the Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date CGOF will endeavor to
discharge or cause to be discharged, or make provision for the payment of,
all of its known liabilities and obligations. The Acquiring Series shall
assume all liabilities, expenses, costs, charges and reserves of CGOF,
contingent or otherwise, including liabilities reflected in the unaudited
statement of assets and liabilities of CGOF as of the Valuation Time,
prepared by or on behalf of CGOF in accordance with generally accepted
accounting principles consistently applied from and after September 30, 1995.
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the transactions
described in Section 1(a), 1(b) and 1(c) above, CGOF shall distribute in
complete liquidation to its shareholders of record as of the Exchange Date
the Acquiring Series Shares received by it, each CGOF shareholder of record
being entitled to receive that number of Acquiring Series Shares equal to the
proportion which the number of shares of beneficial interest, without par
value, of CGOF held by such shareholder bears to the total number of such
shares of CGOF outstanding on such date, and shall take such further action
as may be required, necessary or appropriate under CGOF's Declaration of
Trust, Ohio law and the Code to effect the complete liquidation and
dissolution of CGOF. CGOF will fulfill all reporting requirements under the
1940 Act, both before and after the Reorganization.
A-2
<PAGE> 105
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CGOF. CGOF represents and
warrants to and agrees with TCG and the Acquiring Series that:
(a) CGOF is a business trust validly existing under the laws of the State
of Ohio and has power to own all of its properties and assets and to carry
out its obligations under this Agreement. CGOF has qualified as a foreign
business trust in each jurisdiction where the ownership of its property and
the conduct of its business require qualification. CGOF has all necessary
federal, state and local authorizations to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set forth in
Section 2(1).
(b) CGOF is registered under the 1940 Act as an open-end investment company
of the management type, and such registration has not been revoked or
rescinded and is in full force and effect. CGOF has elected to qualify and
has qualified as a regulated investment company under Part I of Subchapter M
of the Code as of and since its first taxable year, and qualifies and intends
to continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. CGOF has been a regulated investment company
under such sections of the Code at all times since its inception.
(c) The statement of assets and liabilities, including the statement of
investments as of September 30, 1995, and the related statement of operations
for the year then ended, and statements of changes in net assets for each of
the two years in the period then ended, for CGOF, such statements having been
audited by KPMG Peat Marwick LLP, independent auditors of CGOF, have been
furnished to TCG. Such statement of assets and liabilities fairly present
the financial position of CGOF as of such date and such statements of
operations and changes in net assets fairly reflect the results of operations
and changes in net assets for the periods covered thereby in conformity with
generally accepted accounting principles, and there are no known material
liabilities of CGOF as of such dates which are not disclosed therein.
(d) The Prospectus of CGOF dated February 1, 1995 (the "CGOF Prospectus")
and the related Statement of Additional Information for CGOF dated February
1, 1995, in the forms filed with the Securities and Exchange Commission and
previously furnished to TCG, did not as of their date and do not as of the
date hereof contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
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(e) Except as may have been previously disclosed to TCG, there are no
material legal, administrative or other proceedings pending or, to the
knowledge of CGOF threatened against CGOF.
(f) There are no material contracts outstanding to which CGOF is a party,
other than as disclosed in the CGOF Prospectus and its corresponding
Statement of Additional Information, and there are no such contracts or
commitments (other than this Agreement) which will be terminated with
liability to CGOF on or prior to the Exchange Date.
(g) CGOF has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statement of
assets and liabilities as of September 30, 1995 and those incurred in the
ordinary course of CGOF's business as an investment company since that date.
Prior to the Exchange Date, CGOF will advise TCG of all known material
liabilities, contingent or otherwise, incurred by it subsequent to September
30, 1995, whether or not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean CGOF's
investments shown on the statement of assets and liabilities as of September
30, 1995 referred to in Section 2(c) hereof, as supplemented with such
changes as CGOF shall make after September 30, 1995 and prior to the date of
this Agreement, which changes have been disclosed to TCG, and changes made on
and after the date of this Agreement after advising CGPF of such changes, and
changes resulting from stock dividends stock split-ups, mergers and similar
corporate actions.
(i) CGOF has filed or will file all federal and state tax returns which, to
the knowledge of CGOF's officers, are required to be filed by CGOF and has
paid or will pay all federal and state taxes shown to be due on said returns
or on any assessments received by CGOF. All tax liabilities of CGOF have
been adequately provided for on its books, and no tax deficiency or liability
of CGOF has been asserted, and no question with respect thereto has been
raised, by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), CGOF will
have full right, power and authority to sell, assign, transfer and deliver
the Investments and any other of its assets and liabilities to be transferred
to TCG and the Acquiring Series pursuant to this Agreement. At the Exchange
Date, subject only to the delivery of the Investments and any such other
assets and liabilities as contemplated by this Agreement, TCG and the
Acquiring
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Series will acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of CGOF and, except as described in Section 2(k), without any
restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as amended (the "1933
Act"), of any of the Investments would be required if they were, as of the
time of such transfer, the subject of a public distribution by either of CGOF
or TCG, except as previously disclosed to TCG by CGOF in writing prior to the
date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by CGOF of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), 1940 Act, state securities or blue sky laws (which term as used
herein shall include the laws of the District of Columbia and of Puerto Rico)
or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "H-S-R
Act").
(m) The registration statement (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the "Commission") by TCG on Form
N-14 relating to the Acquiring Series Shares issuable hereunder, and the
proxy statement of CGOF included therein (the "Proxy Statement"), on the
effective date of the Registration Statement and insofar as they relate to
CGOF, (i) will comply in all material respects with the provisions of the
1933 Act, 1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 below and on the Exchange Date, the
prospectus contained in the Registration Statement of which the Proxy
Statement is a part (the "Prospectus"), as amended or supplemented by any
amendments or supplements filed with the Commission by TCG, insofar as it
relates to CGOF, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the
representations and warranties in this Section 2(m) shall apply only to
statements of fact relating to CGOF contained in the Registration Statement,
the Prospectus or the Proxy Statement, or omissions to state in any thereof a
material fact relating to CGOF, as such Registration Statement, Prospectus
and Proxy Statement shall be furnished to CGOF in definitive form as soon as
practicable following effectiveness of the Registration Statement and
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before any public distribution of the Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with CGOF that:
(a) TCG is a business trust validly existing under the laws of the State of
Ohio and has power to carry on its business as it is now being conducted and
to carry out its obligations under this Agreement. TCG has qualified as a
foreign business trust in each jurisdiction where the ownership of its
property and the conduct of its business require qualification. TCG and the
Acquiring Series each has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry on its
business as now being conducted and to fulfill the terms of this Agreement,
except as set forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end investment company
of the management type, and such registration has not been revoked or
rescinded and is in full force and effect. The Acquiring Series expects to
qualify as a regulated investment company under Part I of Subchapter M of the
Code.
(c) The Acquiring Series will have no financial statements as of the
Valuation Time.
(d) The prospectus of TCG and the Acquiring Series, expected to be dated in
January, 1996 (the "Acquiring Series Prospectus"), and the related Statement
of Additional Information for the Acquiring Series to be dated such date, in
the forms to be filed with the Securities and Exchange Commission, will be
furnished to CGOF promptly upon the completion thereof and will not as of
their date contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(e) Except as may have been previously disclosed to CGOF, there are no
material legal, administrative or other proceedings pending or, to the
knowledge of TCG or its Acquiring Series, threatened against TCG or the
Acquiring Series, which assert liability on the part of TCG or the Acquiring
Series.
(f) There are no material contracts outstanding to which TCG or the
Acquiring Series is a party, other than material contracts disclosed in the
Acquiring Series Prospectus and the corresponding Statement of Additional
Information.
(g) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
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(h) TCG and the Acquiring Series will file all federal and state tax
returns which, to the knowledge of TCG's officers, are required to be filed
by TCG and the Acquiring Series and will pay all federal and state taxes
shown to be due on such returns or on any assessments received by TCG or the
Acquiring Series. All tax liabilities of TCG and the Acquiring Series have
been adequately provided for on its books, and no tax deficiency or liability
of TCG or the Acquiring Series has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid.
(i) No consent, approval, authorization or order of any governmental
authority is required for the consummation by TCG or the Acquiring Series of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, 1934 Act, 1940 Act, state securities or Blue Sky
Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and otherwise as
described in Section 3(i), TCG and the Acquiring Series will have full right,
power and authority to purchase the Investments and any other assets and
assume the liabilities of CGOF to be transferred to the Acquiring Series
pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy Statement, on
the effective date of the Registration Statement and insofar as they relate
to TCG and the Acquiring Series: (i) will comply in all material respects
with the provisions of the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and at the time
of the shareholders' meeting referred to in Section 7 and at the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by TCG, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement, the Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by CGOF for use in the Registration
Statement, the Prospectus or the Proxy Statement.
(l) The Acquiring Series Shares to be issued by TCG have been duly
authorized and when issued and delivered by TCG to CGOF pursuant to this
Agreement and the Prospectus will be legally and validly issued by TCG and
will be fully paid and
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nonassessable, and no shareholder of TCG will have any preemptive right of
subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement will
be in compliance with all applicable federal and state securities laws.
(n) Cardinal Government Obligations Fund, upon filing of its first income
tax return at the completion of its first taxable year will elect to be a
regulated investment company and until such time will take all steps
necessary to ensure qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver to
CGOF a number of Acquiring Series Shares having an aggregate net asset value
equal to the value of the assets of CGOF acquired by the Acquiring Series, less
the value of the liabilities of CGOF assumed, determined as hereafter provided
in this Section 4.
(a) The net value of CGOF will be computed as of the Valuation Time, using
the valuation procedures set forth in the current prospectus of CGOF.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of CGOF as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on March
30, 1996, or such earlier or later day as may be mutually agreed upon in
writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to CGOF on
one share deposit receipt registered in the name of CGOF. CGOF shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to TCG's transfer agent, which will as soon as practicable set up
open accounts for each CGOF shareholder in accordance with written
instructions furnished by CGOF.
(e) The Acquiring Series shall assume all liabilities of CGOF, whether
accrued or contingent, described in subsection 1(c) hereof in connection with
the acquisition of assets and subsequent dissolution of CGOF or otherwise,
except that recourse for assumed liabilities relating to CGOF will be limited
to the Acquiring Series.
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5. EXPENSES, FEES, ETC.
(a) Subject to the further provisions of this Section 5, TOC shall be
responsible for the fees and expenses of the Reorganization. The Acquiring
Series will be responsible for its organization costs. CGOF will be
responsible for proxy solicitation and other costs associated with its annual
meeting (or special meeting in lieu thereof) to the extent such costs are
comparable to those incurred for annual meetings in recent prior years. TOC
has undertaken to absorb all other costs of the Reorganization.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of CGOF's being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any
condition to CGOF's obligations referred to in Section 7(a) or Section 9),
CGOF shall pay directly all reasonable fees and expenses incurred by TCG in
connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of CGOF's being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any
condition to TCG's obligations referred to in Section 7(a) or Section 8), TCG
shall pay directly all of the reasonable fees and expenses incurred by CGOF
in connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(d) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated,
no party shall be liable to the other party for any damages resulting
therefrom, including, without limitation, consequential damages, except as
specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of CGOF to be transferred, assumption
of the liabilities of CGOF to be assumed, and the delivery of Acquiring Series
Shares to be issued shall be made at the offices of The Ohio Company, 155 East
Broad Street, Columbus, Ohio at 9:00 A.M. on March 31, 1996, or at such other
time and date agreed to by TCG and CGOF, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) CGOF agrees to call a special meeting of its shareholders as soon as is
practicable after the effective date of the Registration Statement for the
purpose of
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considering the sale of all of the assets of CGOF to and the assumption of
all of the liabilities of CGOF by the Acquiring Series as herein provided,
authorizing and approving this Agreement, and authorizing and approving the
liquidation and dissolution of CGOF, and it shall be a condition to the
obligations of each of the parties hereto that the holders of shares of
beneficial interest, without par value, of CGOF shall have approved this
Agreement, and the transactions contemplated herein, including the
liquidation and dissolution of CGOF, in the manner required by law and CGOF's
Declaration of Trust, at such a meeting on or before the Valuation Time.
(b) CGOF agrees that the liquidation and dissolution of CGOF will be
effected in the manner provided in CGOF's Declaration of Trust and in
accordance with applicable law, and that it will not make any distributions
of any Acquiring Series Shares to the shareholders of CGOF without first
paying or adequately providing for the payment of all of CGOF's known debts,
obligations and liabilities.
(c) Each of TCG and CGOF will cooperate with the other, and each will
furnish to the other the information relating to itself required by the 1933
Act, 1934 Act and 1940 Act and the rules and regulations thereunder to be set
forth in the Registration Statement, including the Prospectus and the Proxy
Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the Acquiring
Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of CGOF, shall
have been approved by the trustees and shareholders of CGOF in the manner
required by law.
(b) CGOF shall have furnished to TCG a statement of CGOF's assets and
liabilities, with values determined as provided in Section 4 of this
Agreement, together with a list of Investments with their respective tax
costs, all as of the Valuation Time, certified on CGOF's behalf by its
President (or any Vice President) and Treasurer (or other financial officer),
and a certificate of both such officers, dated the Exchange Date, to the
effect that as of the Valuation Time and as of the Exchange Date there has
been no material adverse change in the financial position of CGOF since
September 30, 1995, other than changes in the Investments since that date or
changes in the market value of the Investments, or changes due to net
redemptions of shares of CGOF, dividends paid or losses from operations.
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(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of CGOF made in this Agreement are true
and correct in all material respects as if made at and as of such dates, CGOF
has complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to each of such dates, and CGOF
shall have furnished to TCG a statement, dated the Exchange Date, signed by
CGOF's President (or any Vice President) and Treasurer (or other financial
officer) certifying those facts as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) TCG shall have received an opinion of Baker & Hostetler, in form
reasonably satisfactory to TCG and dated the Exchange Date, to the effect
that (i) CGOF is a business trust validly existing under the laws of the
State of Ohio, and is, to the knowledge of such counsel, qualified to do
business as a foreign business trust in each jurisdiction where the ownership
of its property and the conduct of its business require qualification, (ii)
this Agreement has been duly authorized, executed and delivered by CGOF and,
assuming that the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by TCG, is a valid
and binding obligation of CGOF, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and other equitable principles, (iii) CGOF has power to sell,
assign, convey, transfer and deliver the Investments and other assets
contemplated hereby and, upon consummation of the transactions contemplated
hereby in accordance with the terms of this Agreement, CGOF will have duly
sold, assigned, conveyed, transferred and delivered such Investments and
other assets to TCG, (iv) the execution and delivery of this Agreement did
not and the consummation of the transactions contemplated hereby will not,
violate CGOF's Declaration of Trust or its By-Laws, as amended, or any
provision of any agreement known to such counsel to which CGOF is a party or
by which it is bound, it being understood that with respect to any investment
restrictions as contained in CGOF's Declaration of Trust or By-Laws, or then
current prospectus or statement of additional information, such counsel may
rely upon a certificate of an officer of CGOF, whose responsibility it is to
advise CGOF with respect to such matters and (v) to the knowledge of such
counsel no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by CGOF of the
transactions contemplated hereby, except such as have been obtained under the
1933 Act, 1934 Act and 1940 Act and such as
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may be required under state securities or blue sky laws and the H-S-R Act.
In rendering such opinion, Baker & Hostetler may rely upon certain reasonable
and customary assumptions and certifications of fact received from TCG, CGOF,
and certain of its shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler, addressed to
TCG, the Acquiring Series and CGOF, in form reasonably satisfactory to TCG
and dated the Exchange Date, to the effect that for Federal income tax
purposes (i) the transfer of all or substantially all of CGOF's assets in
exchange for the Acquiring Series Shares and the assumption by the Acquiring
Series of liabilities of CGOF will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each of the Acquiring Series and
CGOF are a "party to a reorganization" within the meaning of Section 368(b)
of the Code; (ii) no gain or loss will be recognized by CGOF upon the
transfer of the assets of the Acquiring Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of CGOF or upon the distribution of Acquiring Series Shares by CGOF to its
shareholders in liquidation; (iii) no gain or loss will be recognized by the
shareholders of CGOF upon the exchange of their shares for Acquiring Series
Shares, (iv) the basis of the Acquiring Series Shares a CGOF shareholder
receives in connection with the Reorganization will be the same as the basis
of his or her shares exchanged therefor; (v) a CGOF shareholder's holding
period for his or her Acquiring Series Shares will be determined by including
the period for which he or she held CGOF shares exchanged therefor, provided
that he or she held such shares as capital assets; (vi) no gain or loss will
be recognized by the Acquiring Series upon the receipt of the assets of CGOF
in exchange for Acquiring Series Shares and the assumption by the Acquiring
Series of the liabilities of CGOF; (vii) the basis in the hands of the
Acquiring Series the assets of CGOF transferred to the Acquiring Series will
be the same as the basis of the assets in the hands of CGOF immediately prior
to the transfer; and (viii) the Acquiring Series' holding periods of the
assets of CGOF will include the period for which such assets were held by
CGOF. In rendering such opinion, Baker & Hostetler may rely upon certain
reasonable and customary assumptions and certifications of fact received from
TCG, CGOF, and certain of its shareholders.
(g) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of TCG,
contemplated by the Commission or any state regulatory authority.
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(h) All necessary proceedings taken by CGOF in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to TCG and
Baker & Hostetler.
(i) Prior to the Exchange Date, CGOF shall have declared a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of its investment company
taxable income for its taxable year ended September 30, 1995 and the short
taxable year beginning on October 1, 1995 and ending on the Valuation Date
(computed without regard to any deduction for dividends paid), and all of its
net capital gain realized in its taxable year ended September 30, 1995 and
the short taxable year beginning on October 1, 1995 and ending on the
Valuation Date (after reduction for any capital loss carryover).
(j) CGOF shall have furnished to TCG a certificate, signed by the President
(or any Vice President) and the Treasurer (or other financial officer) of
CGOF, as to the tax cost to TCG of the securities delivered to TCG pursuant
to this Agreement, together with any such evidence as to such tax cost as TCG
reasonably may request.
(k) CGOF's custodian shall have delivered to TCG a certificate identifying
all of the assets of CGOF held by such custodian as of the Valuation Time.
(l) CGOF's transfer agent shall have provided to TCG (i) the originals or
true copies of all of the records of CGOF in the possession of such transfer
agent as of the Exchange Date, (ii) a certificate setting forth the number of
shares of CGOF outstanding as of the Valuation Time and (iii) the name and
address of each holder of record of any such shares of CGOF and the number of
shares held of record by each such shareholder.
(m) CGOF shall have duly executed and delivered to TCG a bill of sale,
assignment, certificate and other instruments of transfer ("Transfer
Documents") as TCG may deem necessary or desirable to transfer all of CGOF's
entire right, title and interest in and to the Investments and all other
assets of CGOF the Acquiring Series.
(n) TCG and CGOF shall have received from the Commission, if necessary, a
written order of exemption, satisfactory in form and substance to TCG and
CGOF, exempting the Reorganization from the provisions of Section 17(a) of
the 1940 Act.
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9. CONDITIONS OF CGOF'S OBLIGATIONS. The obligations of CGOF hereunder shall
be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of CGOF, shall
have been approved by the trustees and shareholders of CGOF in the manner
required by law.
(b) TCG shall have executed and delivered to CGOF an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of CGOF, contingent or otherwise, including liabilities existing at
the Valuation Time and described in Section 1(c) hereof in connection with
the transactions contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true and
correct in all material respects as if made at and as of such dates, TCG and
the Acquiring Series have complied with all of the agreements and satisfied
all of the conditions on their part to be performed or satisfied at or prior
to each of such dates, and TCG shall have furnished to CGOF a statement,
dated the Exchange Date, signed by TCG's President (or any Vice President)
and Treasurer (or other financial officer) certifying those facts as of such
dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) CGOF shall have received an opinion of Baker & Hostetler, in form
reasonably satisfactory to CGOF and dated the Exchange Date, to the effect
that (i) TCG is a business trust validly existing under the laws of the State
of Ohio and is, to the knowledge of such counsel, qualified to do business as
a foreign business trust in each jurisdiction where the ownership of its
property and the conduct of its business require qualification, (ii) the
Acquiring Series Shares to be delivered to CGOF as provided for by this
Agreement are duly authorized and upon such delivery will be validly issued
and will be fully paid and nonassessable by TCG and no shareholder of TCG has
any preemptive right to subscription or purchase in respect thereof, (iii)
this Agreement has been duly authorized, executed and delivered by TCG and
assuming that the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1933 Act, 1934 Act and 1940 Act, and assuming due
authorization, execution and delivery of this Agreement by CGOF, is a valid
and binding obligation of TCG, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization
or
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other similar laws affecting the enforcement of creditors' rights generally
and other equitable principles, (iv) the execution and delivery of this
Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate TCG's Declaration of Trust or its By-Laws or any
provision of any agreement known to such counsel to which TCG or the
Acquiring Series is a party or by which it is bound, it being understood that
with respect to investment restrictions as contained in TCG's Declaration of
Trust, By-Laws or then current prospectus or statement of additional
information, such counsel may rely upon a certificate of an officer of TCG
whose responsibility it is to advise TCG with respect to such matters, (v) to
the knowledge of such counsel no consent, approval, authorization or order of
any court or governmental authority is required for the consummation by TCG
or the Acquiring Series of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, 1934 Act and 1940 Act and such as
may be required under state securities or blue sky laws and the H-S-R Act.
In rendering such opinion Baker & Hostetler may rely on certain reasonable
assumptions and certifications of fact received from CGOF, TCG and certain of
its shareholders.
(f) CGOF shall have received an opinion of Baker & Hostetler addressed to
CGOF, TCG and the Acquiring Series and in a form reasonably satisfactory to
CGOF dated the Exchange Date, with respect to the matters specified in
Section 8(f) of this Agreement. In rendering such opinion Baker & Hostetler
may rely on certain reasonable assumptions and certifications of fact
received from CGOF, TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with the
transactions contemplated by this Agreement and all documents, incidental
thereto reasonably shall be satisfactory in form and substance to CGOF and
Baker & Hostetler.
(h) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of CGOF,
contemplated by the Commission or any state regulatory authority.
(i) TCG and CGOF shall have received from the Commission, if necessary, a
written order of exemption, satisfactory in form and substance to TCG and
CGOF, exempting the Reorganization from the provisions of Section 17(a) of
the 1940 Act.
10. TERMINATION. TCG and CGOF may, by mutual consent of their respective
trustees, terminate this Agreement, and TCG or CGOF, after consultation with
counsel and by consent of their respective
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trustees or an officer authorized by such trustees, may, subject to Section
11 of this Agreement, waive any condition to their respective obligations
hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties regarding
the subject matter hereof, constitutes the only understanding with respect to
such subject matter and shall be construed in accordance with and governed by
the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as may
be mutually agreed upon in writing by the authorized officer of TCG and CGOF;
provided, however, that following the meeting of CGOF's shareholders called by
CGOF pursuant to Section 7 of this Agreement, no such amendment may have the
effect of altering or changing the amount or kind of shares received by CGOF,
or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect CGOF's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
----------------------------------
Frank W. Siegel, President
CARDINAL GOVERNMENT OBLIGATIONS FUND
By /s/ Frank W. Siegel
----------------------------------
Frank W. Siegel, President
A-16
<PAGE> 119
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 APPROVAL OF THE PLAN -- Summary and -- Special
Considerations And Risk Factors
4 APPROVAL OF THE PLAN -- The Proposed Transaction,
-- Additional Comparative Information
5 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and --
Additional Comparative Information; MISCELLANEOUS --
Additional Information and -- Documents Incorporated by
Reference
6 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and --
Additional Comparative Information; MISCELLANEOUS --
Additional Information and -- Documents Incorporated by
Reference
7 Front Cover; APPROVAL OF THE PLAN -- Summary, --
Approval and Consummation of the Proposed
Transaction, -- The Proposed Transaction; and
MISCELLANEOUS -- Solicitation of Proxies and Payment of
Expenses and -- Substantial Shareholders
8 Not Applicable
9 Not Applicable
</TABLE>
<PAGE> 120
[Letterhead]
January ____, 1996
Dear Cardinal Government Securities Trust Shareholder:
The Board of Trustees of Cardinal Government Securities Trust (the "Trust")
recently reviewed and unanimously approved a proposal to reorganize the Trust
with and into a newly created series of The Cardinal Group (the "Group"). This
proposed reorganization is described in the accompanying Combined
Prospectus/Proxy Statement and will be addressed at the Annual Meeting of
Shareholders on February 23, 1996.
The primary purpose of the proposed reorganization is to achieve certain
economies of scale by having the Trust become an additional series of the Group
rather than operate as a separate stand-alone investment company. By operating
more efficiently, we expect to realize cost savings through the elimination of
certain Annual Meeting expenses, a reduction of printing and mailing
expenditures, the lowering of regulatory filing expenses and the reduction of
professional fees. The Board determined that such a reorganization is in the
best interest of the Trust.
If the Agreement and Plan of Reorganization and Liquidation is approved, you
will receive shares of the newly created series of the Group, known as Cardinal
Government Securities Money Market Fund, in exchange for your shares of the
Trust. Shares received in this distribution will be equal in value at the time
of reorganization to your shares in the Trust. There will be no adverse
federal income tax consequences associated with this distribution.
<PAGE> 121
As a result of the reorganization, many features of the new series will be the
same as those of the Trust. For instance, the securities in the underlying
portfolio will remain the same. Purchase and redemption procedures will not
change. Slight differences in investment policies and restrictions are
proposed but are not expected to increase the level of risk associated with
your investment.
Please read the accompanying materials carefully. For more details regarding
the proposed reorganization, direct any questions you may have to the Treasurer
of the Trust, Mr. James Schrack, at (800) 282-9446. IT IS VERY IMPORTANT THAT
YOU COMPLETE AND RETURN THE PROXY CARD.
Thank you for your support and investment in Cardinal Government Securities
Trust.
Sincerely,
Frank W. Siegel, CFA
President
Cardinal Government Securities Trust
<PAGE> 122
CARDINAL GOVERNMENT SECURITIES TRUST
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
TELEPHONE: (800) 282-9446
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 23, 1996
To The Shareholders Of Cardinal
Government Securities Trust:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of Cardinal Government Securities Trust (the "Trust") will be held
on Friday, February 23, 1996, at 10:00 A.M. (Eastern Time) concurrently with
the annual or special in lieu of annual meetings of three of the other funds of
the Cardinal family of funds, at the offices of the Trust, 155 East Broad
Street, Columbus, Ohio 43215. The Meeting is being called for the following
purposes:
(1) To elect ten trustees of the Trust to hold office for the ensuing year
and until their successors are elected and qualified;
(2) To ratify the selection of KPMG Peat Marwick LLP, independent certified
public accountants, as auditors to be employed by the Trust for the
fiscal year ending September 30, 1996;
(3) To approve an Agreement and Plan of Reorganization and Liquidation (the
"Plan") for the Trust, and the transactions contemplated thereby, which
includes (a) the transfer of all of the assets of the Trust to Cardinal
Government Securities Money Market Fund (the "Acquiring Fund") of The
Cardinal Group (the "Group"), in exchange for shares of the Acquiring
Fund, and the assumption by the Acquiring Fund of all of the liabilities
of the Trust; and (b) the distribution to shareholders of the Trust of
shares of the Acquiring Fund so received in complete liquidation of the
Trust; and
(4) To transact such other business as may properly come before the Meeting,
or any adjournment(s) thereof, including any adjournment(s) necessary to
obtain requisite quorums and/or approvals.
The Board of Trustees of the Trust has fixed the close of business on
January 8, 1996, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or
any adjournments thereof. The enclosed Combined Prospectus/Proxy Statement
contains further information regarding the Meeting and the proposals
to be
<PAGE> 123
considered. The enclosed Proxy Card is intended to permit you to vote even
if you do not attend the Meeting in person.
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT LEAST
A MAJORITY OF THE TRUST'S SHARES OUTSTANDING MUST BE PRESENT IN PERSON OR BY
PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US. WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED BUT UNMARKED
PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS PRESENT AND WILL
BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees
Karen J. Hipsher, Secretary
January __, 1996
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
2
<PAGE> 124
COMBINED PROSPECTUS/PROXY STATEMENT
January __, 1996
Cardinal Government Securities Cardinal Government Securities
Money Market Fund, a series of Trust
The Cardinal Group 155 East Broad Street
155 East Broad Street Columbus, Ohio 43215
Columbus, Ohio 43215 Telephone: (800) 282-9446
Telephone: (800) 282-9446
This Combined Prospectus/Proxy Statement is being furnished to shareholders
of Cardinal Government Securities Trust, a Pennsylvania business trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at the Annual Meeting of Shareholders of the
Trust (the "Meeting"), to be held at the offices of The Ohio Company, 155 East
Broad Street, Columbus, Ohio 43215 on Friday, February 23, 1996, beginning at
10:00 A.M. (Eastern Time).
In addition to the customary annual election of Trustees and ratification of
the selection of independent accountants, the Trustees of the Trust are seeking
your approval of an Agreement and Plan of Reorganization and Liquidation (the
"Plan"), which contemplates that Cardinal Government Securities Money Market
Fund (the "Acquiring Fund"), a series or portfolio of The Cardinal Group (the
"Group"), will acquire all of the assets of and will assume all of the
liabilities of the Trust in exchange for shares of the Acquiring Fund.
Following such exchange, the shares of the Acquiring Fund received by the
Trust will be distributed to the Trust's shareholders and the Trust will be
liquidated and dissolved. This exchange and distribution transaction is
sometimes referred to herein as the "Reorganization."
This Combined Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor, including shareholders of the Trust, should know before
investing. Additional information about the Reorganization and the Acquiring
Fund is contained in a separate Statement of Additional Information which has
been filed with the Securities and Exchange Commission (the "Commission") and
is available upon request without charge by calling the Group at (800) 282-9446
or writing to the Group at the address set forth above. The Statement of
Additional Information bears the same date as this Combined Prospectus/Proxy
Statement and is incorporated by reference herein.
THE SHARES OF THE ACQUIRING FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE ACQUIRING
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
<PAGE> 125
PRINCIPAL. THE ACQUIRING FUND INTENDS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT NET ASSET VALUE WILL NOT
VARY.
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.
Upon completion of the Reorganization, you will receive full and fractional
shares of the Acquiring Fund equal in value when issued to the shares of the
Trust owned by you immediately prior to the Reorganization. No commissions or
sales loads will be charged in connection with the Reorganization and there
will be no adverse federal income tax consequences. You should separately
consider any other tax consequences in consultation with your tax advisers.
As discussed in detail herein, the investment objectives and strategy of the
Acquiring Fund are substantially similar to those of the Trust. There are some
differences between investment policies and restrictions, as well as
differences in fees and in voting rights, which are described in detail below.
The Prospectus of the Acquiring Fund relating to its shares, dated January __,
1996, is incorporated by reference into this Combined Prospectus/Proxy
Statement and accompanies this Combined Prospectus/Proxy Statement.
The Trust's Prospectus dated February 1, 1995, as supplemented December 11,
1995, contains additional information about the Trust, has been filed with the
Commission, is incorporated by reference herein and is available without charge
by writing the Trust at 155 East Broad Street, Columbus, Ohio 43215, or by
calling the Trust at (800) 282-9446. Copies of documents requested will be
sent by first-class mail to the requesting shareholder within one business day
of the request.
2
<PAGE> 126
TABLE OF CONTENTS
Page
----
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ELECTION OF TRUSTEES -- ISSUE 1 . . . . . . . . . . . . . . . . . . 5
Compensation Table . . . . . . . . . . . . . . . . . . . . . . . 8
Other Executive Officers . . . . . . . . . . . . . . . . . . . . 9
RATIFICATION OF SELECTION OF INDEPENDENT
ACCOUNTANTS - ISSUE 2 . . . . . . . . . . . . . . . . . . . . . . 9
APPROVAL OF THE PLAN - ISSUE 3 . . . . . . . . . . . . . . . . . . 10
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Considerations and Risk Factors . . . . . . . . . . . . . 14
The Proposed Transaction . . . . . . . . . . . . . . . . . . . . 16
Comparison of Investment Objectives,
Policies and Restrictions . . . . . . . . . . . . . . . . . . 21
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . 21
Additional Comparative Information . . . . . . . . . . . . . . . 23
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 28
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION
AND LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . A-1
3
<PAGE> 127
GENERAL
This Combined Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Trustees of the Trust to be used in
connection with the Meeting to be held on Friday, February 23, 1996.
The management knows of no business which will be presented for consideration
other than that mentioned in Issues 1, 2 and 3 of the Notice of Annual Meeting
of Shareholders. If any other matters are properly presented at the Meeting or
any adjournment(s) thereof, it is the intention of the persons named therein to
vote the proxies in accordance with their judgment on such matters.
The Board of Trustees has fixed the close of business on January 8, 1996, as
the record date for the determination of shareholders entitled to notice of and
to vote at the Meeting (the "Record Date"). On the Record Date there were
________ shares of beneficial interest, par value $0.01 per share ("Shares"),
of the Trust outstanding and entitled to vote. Each of the Shares is entitled
to one vote. Shareholders of fractional Shares will be entitled to a vote of
such fraction. Shareholders holding a majority of the outstanding Shares of
the Trust will be deemed to constitute a quorum for the transaction of business
at the Meeting.
The expenses for preparation, printing and mailing of the enclosed proxy,
accompanying notice and Combined Prospectus/Proxy Statement, or any
re-solicitation of the foregoing, will be paid in part by the Trust and in part
by The Ohio Company.
Only shareholders of record at the close of business on the Record Date will
be entitled to notice of and to vote at the Meeting. Shares represented by
management proxies, unless previously revoked, will be voted at the Meeting in
accordance with the instructions of the shareholders. If no instructions are
given, the proxies will be voted in favor of the proposals. To revoke a
management proxy, the shareholder giving such proxy must either submit to the
Trust a subsequently dated proxy, deliver to the Trust a written notice of
revocation or otherwise give notice of revocation in open meeting, in all cases
prior to the exercise of the authority granted in the management proxy.
In the event that sufficient votes are not received by the Meeting date, a
person named as proxy may propose one or more adjournments of the Meeting for a
period or periods of not more than 45 days in the aggregate to permit further
solicitation of proxies. Any such adjournment will require the affirmative
vote of the holders of a majority of the Trust's Shares present at the Meeting
in person or by proxy. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
proposals and will vote against
4
<PAGE> 128
any such adjournment those proxies required to be voted against the proposals.
The mailing address of the principal executive offices of the Trust is 155
East Broad Street, Columbus, Ohio 43215. The approximate date on which this
Combined Prospectus/Proxy Statement and form of proxy are first sent to
shareholders is January ___, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding. The
Acquiring Fund does not have and will not have until the effective date of the
Reorganization, any assets or liabilities nor will it have commenced
operations.
Any proxy which is properly executed and received in time to be voted at the
Meeting will be counted in determining whether a quorum is present and will be
voted in accordance with the instructions marked thereon. Abstentions and
"broker non-votes" (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a particular matter with respect to which
the brokers or nominees do not have discretionary power to vote) will be
counted for purposes of determining whether a quorum is present. For purposes
of determining whether a proposal has been approved, abstentions and broker
non-votes will have the effect of a vote against the proposal in those
instances where approval of an issue requires a certain percentage of all votes
outstanding or of the votes constituting the quorum.
ELECTION OF TRUSTEES -- ISSUE 1
It is the present intention that the enclosed proxy will be used for the
purposes of voting in favor of the election of each of the following ten
nominees as a trustee to hold office until the next annual meeting and until
his successor is elected and qualified. Except for Mr. Allen, each of the
nominees is a member of the present Board of Trustees of the Trust and has been
elected by shareholder vote. Pursuant to Rule 14a-4(d) under the Securities
Exchange Act of 1934, each nominee has consented to be named in this Combined
Prospectus/Proxy Statement and to serve if elected. It is not expected that
any of the nominees will decline or become unavailable for election, but in
case this should happen, the discretionary power given in the proxy may be used
to vote for a substitute nominee or nominees.
5
<PAGE> 129
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST SHARES OF TRUST
PRINCIPAL OCCUPATION(a) A TRUSTEE OF BENEFICIALLY OWNED % OF CLASS AT
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(b) THE TRUST SINCE AS OF 1/8/96 1/8/96
- -------------------------------------------------- --------------- ---------------------- -------------
<S> <C> <C> <C>
H. KEITH ALLEN -- Age 54 -- Chairman(c) and Trustee(d)(f)* 1995 _______ _______ %
Chief Operating Officer, Secretary, Treasurer and a Director
of The Ohio Company (investment banking).
FRANK W. SIEGEL -- Age 43 -- President(c) and Trustee (d)(f)* 1995 _______ _______
Chartered Financial Analyst and Senior Vice President of The
Ohio Company (investment banking); formerly Vice President of
Keystone Group (mutual fund management/ administration);
formerly Senior Vice President of Trust Advisory Group
(mutual fund consulting).
GORDON B. CARSON -- Age 84 -- Trustee(f) 1980 _______ _______
Principal, Whitfield Robert Associates (construction consulting firm).
JOHN B. GERLACH, JR. -- Age 41 -- Trustee(e) 1993 _______ _______
President and a Director of Lancaster Colony Corporation
(diversified consumer products) since 1994; formerly Executive
Vice President, Secretary and a Director of Lancaster Colony.
MICHAEL J. KNILANS -- Age 68 -- Trustee(f) From November, 1989 _______ _______
1989 to August, 1995, member, Workers' Compensation Board
(Ohio Bureau of Workers Compensation), and Chairman from
1992 through August, 1995; a Director of Eagle Food Centers, Inc.
(supermarket company).
JAMES I. LUCK -- Age 50 -- Trustee 1989 _______ _______
President of The Columbus Foundation (philanthropic public foundation).
DAVID L. NELSON -- Age 65 -- Trustee(d)(e) 1983 _______ _______
Chairman of the Board of Directors of Herman Miller, Inc. (furniture
manufacturer); former Vice President, Customer Support, Americas Region,
and Vice President, Customer Satisfaction, Industry Segment, of Asea
Brown Boveri, Inc. (designer and manufacturer of process automation
systems for basic industries).
C. A. PETERSON -- Age 69 -- Trustee* 1980 _______ _______
Chartered Financial Analyst and former Senior Executive Vice President
and a Director of The Ohio Company (investment banking).
LAWRENCE H. ROGERS II -- Age 74 1980 _______ _______
Trustee Self-employed author; former Vice Chairman of Motor Sports
Enterprises, Inc.; also a Director of Cincinnati Life Insurance Company
and Cincinnati Financial Corporation.
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST SHARES OF TRUST
PRINCIPAL OCCUPATION(a) A TRUSTEE OF BENEFICIALLY OWNED % OF CLASS AT
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(b) THE TRUST SINCE AS OF 1/8/96 1/8/96
- -------------------------------------------------- --------------- ---------------------- -------------
<S> <C> <C> <C>
JOSEPH H. STEGMAYER -- Age 44 -- Trustee(d)(e) 1986 _______ _______
President and a Director of Clayton Homes, Inc. (manufactured
homes); former Vice President, Treasurer, Chief Financial
Officer and a Director of Worthington Industries, Inc.
(specialty steel and plastics manufacturer).
All Trustees and Officers of the Trust as a group
(including __ persons).
_____________________
<FN>
(a) Unless otherwise noted, Principal Occupation reflects principal
responsibility of each individual during the past five years.
(b) All nominees also serve as Trustees of Cardinal Tax Exempt Money Trust, Cardinal
Government Obligations Fund and the Group, and as
Directors of The Cardinal Fund Inc.
(c) Mr. Allen has been an officer of the Trust since July, 1995. Mr. Siegel
has been an officer of the Trust since October, 1994.
(d) Member of the Nominating Committee.
(e) Member of the Audit Committee.
(f) Member of the Executive Committee.
* Messrs. Allen, Siegel and Peterson are considered "interested persons" of
the Trust and Cardinal Management Corp., as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended (the "1940 Act").
</TABLE>
The Trust has an Audit Committee comprised of the above designated Trustees.
During the fiscal year ended September 30, 1995, the Audit Committee held two
meetings. The function of such Committee includes such specific matters as
recommending independent auditors to the Board of Trustees, reviewing audit
plans and results of audits, and considering other related matters deemed
appropriate by the Board of Trustees.
The Trust has a Nominating Committee which is comprised of the above
designated Trustees. During the fiscal year ended September 30, 1995, the
Nominating Committee held no meetings. The Committee's function includes
selecting and recommending to the full Board of Trustees nominees for election
as Trustees of the Trust. The Committee has been able to identify from its own
resources an ample number of qualified candidates, but will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the Board. Such suggestion must be sent in writing to the
Nominating Committee of the Trust, c/o the Trust's Secretary. Suggestions must
be received by the Trust's Secretary before the end of the Trust's fiscal year
to be eligible for consideration for nomination at or before the next annual
meeting of shareholders.
During the fiscal year ended September 30, 1995, the Trust's Board of
Trustees held four meetings.
7
<PAGE> 131
The affirmative vote of a majority of the Shares of the Trust present in
person or by proxy is required for the election of trustees.
The following table sets forth information regarding all compensation paid by
the Trust to its Trustees for their services as trustees during the fiscal year
ended September 30, 1995. The Trust has no pension or retirement plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND POSITION AGGREGATE COMPENSATION TOTAL COMPENSATION FROM THE
WITH THE TRUST* FROM THE TRUST TRUST AND THE FUND COMPLEX**
-------------- ---------------------- ----------------------------
<S> <C> <C>
H. Keith Allen $0 $0
Chairman, Trustee and Member of
Executive and
Nominating Committees
Gordon B. Carson $2,400 $12,000
Trustee and Member of Executive
Committee
John B. Gerlach $2,600 $13,000
Trustee and Member of Audit Committee
Michael J. Knilans $2,400 $12,000
Trustee and Member of Executive
Committee
James I. Luck $2,400 $12,000
Trustee
David L. Nelson $2,600 $13,000
Trustee and Member of Audit and
Nominating Committees
C.A. Peterson $2,400 $12,000
Trustee
Lawrence H. Rogers, II $2,400 $12,000
Trustee
Frank W. Siegel $0 $0
Trustee, President and Member of
Nominating and Executive Committees
</TABLE>
8
<PAGE> 132
<TABLE>
<CAPTION>
NAME AND POSITION AGGREGATE COMPENSATION TOTAL COMPENSATION FROM THE
WITH THE TRUST* FROM THE TRUST TRUST AND THE FUND COMPLEX**
-------------- -------------- -----------------------------
<S> <C> <C>
Joseph H. Stegmayer $2,000 $10,000
Trustee and Member of Audit and
Nominating Committees
_______
<FN>
*During the fiscal year ended September 30, 1995, Hannibal L. Godwin, a
former officer of the Trust, and John L. Schlater, each former officers of The
Ohio Company and CMC, had served as trustees of the Trust but no longer do so
as of the date hereof. Neither Mr. Godwin nor Mr. Schlater received any
compensation from the Trust or the Fund Complex.
**For purposes of this Table, Fund Complex means one or more mutual funds,
including the Trust, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being
related.
</TABLE>
OTHER EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the other
executive officers of the Trust:
<TABLE>
<CAPTION>
NAME (POSITION WITH PRINCIPAL AN OFFICER OF THE
TRUST) AGE OCCUPATION(1) TRUST SINCE
------------------- ------- ----------------- -----------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1983
(Treasurer) The Ohio Company
David C. Will 54 Vice President 1993
(Vice President) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
______________
<FN>
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
</TABLE>
Officers of the Trust are elected for terms of one year and until their
respective successors are chosen and qualified, subject to removal from office
at any time by a vote of the majority of the Board of Trustees.
None of the officers of the Trust receives compensation from the Trust. The
Trust has no employees.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS - ISSUE 2
The Board of Trustees of the Trust, including a majority of the Board of
Trustees who are not "interested persons," on November 13, 1995, approved the
selection of KPMG Peat Marwick LLP as the independent certified public
accountants of the Trust. Unless instructed in the Proxy to the contrary, the
persons named therein intend to vote in favor of the ratification of the
selection of
9
<PAGE> 133
KPMG Peat Marwick LLP as independent certified public accountants of the
Trust to serve for the fiscal year ending September 30, 1996.
A representative of KPMG Peat Marwick LLP will be present at the Meeting with
an opportunity to make a statement if he desires to do so and to respond to
appropriate questions.
The affirmative vote of shareholders holding at least a majority of the
voting power of the Trust is required to ratify the Board of Trustees'
selection of KPMG Peat Marwick LLP as independent accountants for the Trust.
APPROVAL OF THE PLAN - ISSUE 3
SUMMARY
This Summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the Plan, a
copy of which is attached to this Prospectus/Proxy Statement as Exhibit A, the
accompanying Prospectus of the Acquiring Fund dated January __, 1996, and the
Prospectus of the Trust dated February 1, 1995, as supplemented December 11,
1995.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of the Trust to the Acquiring Fund in exchange for shares of the
Acquiring Fund and the assumption by the Group on behalf of the Acquiring Fund
of all of the liabilities of the Trust. The Plan also calls for the
distribution of shares of the Acquiring Fund to the Trust's shareholders in
complete liquidation of the Trust. (The foregoing proposed transactions are
referred to in this Prospectus/Proxy Statement as the "Reorganization.") As a
result of the Reorganization, each shareholder of the Trust will become the
owner of that number of full and fractional shares of the Acquiring Fund having
an aggregate value equal to the aggregate value of the shareholder's Shares of
the Trust as of the close of business on the day preceding the date that the
Trust's assets are exchanged for shares of the Acquiring Fund. Proposals for
similar reorganizations into other series of the Group are simultaneously being
made to shareholders of The Cardinal Fund Inc., Cardinal Government Obligations
Fund and Cardinal Tax Exempt Money Trust, the other funds of the Cardinal
family of funds.
For the reasons set forth below under "THE PROPOSED TRANSACTION -- REASONS
FOR THE REORGANIZATION," the Board of Trustees of the Trust, including the
Trustees of the Trust (the "Independent Trustees") who are not "interested
persons" as that term is defined in the 1940 Act, at a special meeting held on
November 13, 1995, unanimously concluded that the Reorganization will be in the
best interests of the Trust and its shareholders and that the interests of the
Trust's existing shareholders will not be diluted as a result of the
transaction contemplated by the Reorganization and therefore has submitted the
Plan for approval by the Trust's shareholders. The Board of Trustees of the
Group has
10
<PAGE> 134
reached similar conclusions with respect to the Acquiring Fund and has also
approved the Reorganization in respect of the Acquiring Fund.
Approval of the Reorganization will require the affirmative vote of not less
than two-thirds of the Shares of the Trust outstanding. See "APPROVAL AND
CONSUMMATION OF THE PROPOSED TRANSACTION" below.
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables is to
assist shareholders of the Trust in understanding the costs and expenses that a
shareholder in the Acquiring Fund would bear directly or indirectly. The
shareholder transaction expenses for the Acquiring Fund are estimated for the
fiscal period following the Reorganization and ending September 30, 1996. The
expenses of the Trust are based upon the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
ACQUIRING ACQUIRING FUND ON
SHAREHOLDER TRANSACTION EXPENSES FUND TRUST A PRO FORMA BASIS*
- -------------------------------- ---------- ----- ------------------
<S> <C> <C> <C>
Sales Charge (as a percentage of 0% 0% 0%
offering price)
Annual Fund Expenses (as a percentage
of average net assets)
Investment Advisory Fees .50% .50% .50%
Rule 12b-1 Fees 0 0 0
Other Expenses .29(1) .31 .29
------ --- ---
Total Fund Operating Expenses .79% .81% .79%
==== ==== ====
________________
<FN>
1 "Other Expenses" are based upon estimated amounts for the current fiscal
year.
* These calculations reflect the expense information for the Acquiring Fund
after giving effect to the Reorganization.
</TABLE>
EXAMPLE
- -------
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
period:
<TABLE>
<CAPTION>
ACQUIRING FUND ON
ACQUIRING FUND TRUST A PRO FORMA BASIS*
-------------- ----- ------------------
<S> <C> <C> <C>
One Year $ 8
$ 8 $ 8
Three Years $25 $ 26 $25
Five Years N/A $ 45 $44
Ten Years N/A $100 $98
______________
<FN>
* These calculations reflect the expense information for the Acquiring Fund
after giving effect to the Reorganization.
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of the Reorganization,
the Trust will have received an opinion of counsel
11
<PAGE> 135
that, upon the consummation of the Reorganization and the transfer of the
assets of the Trust, no gain or loss will be recognized by the Trust or its
shareholders for federal income tax purposes. The holding period and
aggregate tax basis for the Acquiring Fund shares that are received by a
Trust shareholder will be the same as the holding period and aggregate tax
basis of the Shares of the Trust previously held by such shareholder. In
addition, the holding period and tax basis of the assets of the Trust in the
hands of the Acquiring Fund as a result of the Reorganization will be the
same as the holding period and tax basis of the assets in the hands of the
Trust immediately prior to the Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of Trustees
of the Trust, at a special meeting held on November 13, 1995, determined
unanimously that the Reorganization is in the best interests of the Trust and
that the interests of the existing shareholders of the Trust will not be
diluted as a result of the Reorganization. Similarly, the Board of Trustees of
the Group unanimously determined that the Reorganization is in the best
interests of the Group and the Acquiring Fund. The proposed Reorganization of
the Trust with and into the Acquiring Fund is part of a larger plan to
reorganize each of the Trust, Cardinal Government Obligations Fund, Cardinal
Tax Exempt Money Trust and The Cardinal Fund Inc., each a separate stand-alone
investment company, into a separate portfolio of the Group, and will allow the
shareholders of the Trust to realize certain economies of scale as a result of
becoming shareholders of a series investment company and thus having certain
fixed fees spread over a larger pool of assets. In addition, the corporate
structure of and the more uniform investment policies and restrictions of the
Acquiring Fund will improve oversight of compliance obligations and overall
management of the shareholders' investment since many of such policies and
restrictions will be the same for all of the series or portfolios of the Group.
See "THE PROPOSED TRANSACTION -- REASONS FOR THE PROPOSED TRANSACTION."
To be approved, the Plan will require the affirmative vote of no less than
two-thirds of the Shares of the Trust entitled to vote on the matter. The
Reorganization with respect to the Trust is not contingent on the approval of
the Reorganization with respect to any of the other Cardinal funds. If the
Trust's shareholders do not approve the proposed Reorganization, the Trust's
Board of Trustees will consider what other alternatives would be in the
shareholders' best interests. If the Plan is approved at the Meeting, the
effective date of the Reorganization (the "Closing Date") is expected to be on
or about March 31, 1996, subject, however, to the receipt by the Trust and the
Group, if necessary, of an order of exemption from the Commission with respect
to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The Trust and the Acquiring Fund have
the same investment objectives, and generally
12
<PAGE> 136
have the same investment policies and restrictions. Each of the Trust and the
Acquiring Fund seek to maximize current income while preserving capital and
maintaining liquidity. In order to achieve these objectives, the Acquiring
Fund has a policy of investing as fully as possible, but in no event less than
80% of its total assets, in U.S. Treasury bills, notes and bonds, other
obligations issued or guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements relating to such obligations. The
Trust seeks to attain its investment objectives by investing in U.S. Treasury
bills, notes and bonds, other obligations issued or guaranteed by the United
States, its agencies or instrumentalities and repurchase agreements relating to
such obligations. Each of the Acquiring Fund and the Trust will purchase only
obligations which have, or are deemed to have, maturities, from the date of
purchase, of thirteen months or less. For a discussion of the differences
between the investment policies and restrictions of the Acquiring Fund and the
Trust, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS --
INVESTMENT RESTRICTIONS."
FEES AND EXPENSES. Each of the Trust and the Acquiring Fund pay the
following fees: to Cardinal Management Corp. ("CMC") an investment advisory
and management fee computed daily and payable monthly at the annual rate of
0.50% of the value of its average daily net assets; and to CMC for transfer
agency services an annual fee, paid monthly, at an annual rate of $21 per
shareholder account plus out-of-pocket expenses. The Acquiring Fund also pays
to CMC for fund accounting services a fee computed daily and paid periodically
at an annual rate of .03% of its average daily net assets of $100 million or
less and .01% of its average daily net assets in excess of $100 million.
The Trust pays to CMC for fund accounting services a fee equal to $9,000 for
the first $25 million of assets and $3,000 for each additional $25 million of
assets.
Shares of each of the Trust and the Acquiring Fund are distributed by The
Ohio Company, a registered broker-dealer and the sole shareholder of CMC.
Neither the Trust nor the Acquiring Fund pays any distribution fees or expenses
nor is any sales charge imposed upon the sale of its shares.
The expense ratio of the Acquiring Fund subsequent to the Reorganization is
expected to be slightly lower than that of the Trust. See "THE PROPOSED
TRANSACTION -- REASONS FOR THE PROPOSED TRANSACTION." The total annual
operating expenses of the Trust as of September 30, 1995, were 0.81% as a
percentage of average net assets. Assuming the same level of net assets for
the Acquiring Fund after the Reorganization, it is estimated that the total
annual operating expenses for the Acquiring Fund stated as a percentage of
average net assets would be 0.79%.
13
<PAGE> 137
COMPARISON OF PURCHASE AND REDEMPTION PROCEDURES. Shares of the Trust and
the Acquiring Fund are offered at net asset value and may be purchased through
The Ohio Company on each day the New York Stock Exchange is open for business
(a "Business Day"). The minimum initial investment in both the Trust and the
Acquiring Fund is $1,000, the minimum subsequent investment is $100 and there
is no sales charge imposed upon the purchase of shares or upon the reinvestment
of dividends and distributions.
Redemption orders for shares of both the Trust and the Acquiring Fund must be
placed with CMC. Proceeds of redemption requests received by CMC in proper
form before (1) 4:00 p.m. Eastern Time for shareholders who are customers of
The Ohio Company and who have submitted their redemption request through their
broker at The Ohio Company or (2) 12:00 noon Eastern Time for all other
redemption requests, will be sent by mail on the next Business Day or, if the
expedited redemption option is available, by federal funds wire on the next
Business Day for use on that day.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of the Trust and of the Acquiring
Fund may be exchanged for shares of any other fund advised by The Ohio Company
or CMC (a "Cardinal Fund") at respective net asset values, although a sales
charge may be applicable upon exchanges of shares for a Cardinal Fund sold with
a sales charge.
COMPARISON OF DIVIDEND POLICIES. Each of the Trust and the Acquiring Fund
declare dividends daily and pay dividends from net investment income monthly.
Each of the Trust and Acquiring Fund will distribute all of any capital gains
at least annually. In addition, shareholders of the Trust and the Acquiring
Fund receive dividends and distributions in the form of additional shares and
not in cash unless otherwise requested by the shareholder.
COMPARISON OF VOTING RIGHTS. Each shareholder of the Trust is entitled to
one vote for each full share held and a proportionate fractional vote for each
fractional share held on each matter submitted to the vote of the Trust's
shareholders. Each shareholder of the Acquiring Fund, however, is entitled to
one vote for each dollar of value invested and a proportionate fractional vote
for any fraction of a dollar invested. In addition, on certain matters, such
as the election of Trustees, the shareholders of the Acquiring Fund will need
to vote as a group with the other shareholders of the Group. Therefore,
shareholders of the Acquiring Fund may be unable to elect, based upon their
votes alone, the trustees of the Group.
14
<PAGE> 138
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies, strategies and restrictions of
the Trust and the Acquiring Fund are substantially similar, the overall level
of investment risk should not materially change as a result of the
Reorganization. There can be no assurance that either the Trust or the
Acquiring Fund will achieve its investment objectives or be able continuously
to maintain a net asset value per share of $1.00.
The following discussion is qualified in its entirety by the disclosure set
forth in the Acquiring Fund's Prospectus accompanying this Combined
Prospectus/Proxy Statement and the Trust's Prospectus. For additional
information, see "COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND
RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
GOVERNMENT SECURITIES. The Trust intends to invest all, and the Acquiring
Fund intends to be invested as fully as possible but in no event less than 80%,
of its total assets in securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, or repurchase agreements relating to such
securities. Direct obligations issued by the U.S. Treasury include bills,
notes and bonds which differ from each other only in interest rates, maturities
and times of issuance; Treasury bills have a maturity of one year or less;
Treasury notes have maturities of one to ten years and Treasury bonds generally
have maturities of greater than ten years.
Examples of obligations issued by agencies or instrumentalities of the U.S.
Government include, among others, securities issued by the General Services
Administration, Federal Housing Administration, Farmers Home Administration,
Government National Mortgage Association, Federal Home Loan Banks, Federal
Intermediate Credit Banks, Federal Land Banks, Federal Home Loan Mortgage
Corporation, Central Bank for Cooperatives, Maritime Administration, The
Tennessee Valley Authority, Washington, D.C. Armory Board, Export-Import Bank
of the United States, the International Bank for Reconstruction and
Development, Federal National Mortgage Association and Student Loan Marketing
Association. Certain of such U.S. Government obligations may have variable or
floating rates of interest. The Trust and the Acquiring Fund each intend to
invest in variable and floating rate instruments whose market value, upon reset
of the interest rate, will approximate par value because their interest rates
will be tied to short-term market rates. Some obligations issued or guaranteed
by U.S. Government agencies or instrumentalities are supported by the full
faith and credit of the U.S. Treasury; others by U.S. Treasury guarantees; and
others, such as those issued by Federal Home Loan Banks, by the right of the
issuer to borrow from the Treasury. In addition, some obligations of U.S.
Government agencies or instrumentalities, such as those issued by the Federal
15
<PAGE> 139
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase certain obligations of the agency or
instrumentality and others, such as those issued by the Student Loan Marketing
Association, are supported solely by the credit of the issuing agency or
instrumentality itself. No assurance can be given that the U.S. Government
will provide financial support to such U.S. Government sponsored agencies or
instrumentalities in the future, since it is not obligated to do so by law.
The Trust and the Acquiring Fund each will invest in such securities only when
it is satisfied that the credit risk with respect to the issuer is minimal.
REPURCHASE AGREEMENTS. Securities held by each of the Trust and the
Acquiring Fund may be subject to repurchase agreements. Under the terms of a
repurchase agreement, the Trust or the Acquiring Fund acquires securities from
a financial institution such as a well-established securities dealer or a bank
which is a member of the Federal Reserve System which the Adviser deems
creditworthy under guidelines approved by the respective Boards of Trustees. At
the time of purchase, the bank or securities dealer agrees to repurchase the
underlying securities at a specified time and price. The resale price reflects
the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. Under the
1940 Act, repurchase agreements are considered to be loans by the Trust and the
Acquiring Fund. The Trust and the Acquiring Fund will only enter into a
repurchase agreement where (i) the underlying securities are of the type which
such fund's investment policies would allow it to purchase directly, (ii) the
market value of the underlying security, including interest accrued, will be at
all times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying securities is made only upon physical delivery or
evidence of book-entry transfer to the account of the fund's custodian or a
bank acting as agent. CMC will be responsible for continuously monitoring such
requirements. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Trust or the Acquiring Fund (as the case may be)
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying
securities during the period while seeking to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
INVESTMENT COMPANY SECURITIES. Each of the Trust and the Acquiring Fund may
also invest up to 10% of the value of its total assets in the securities of
other investment companies subject to the limitations set forth in the 1940
Act. Such funds intend to invest in the securities of other money market
mutual funds for purposes of short-term cash management. Their investment in
such other investment companies may result in the duplication of fees and
expenses, particularly investment advisory fees.
16
<PAGE> 140
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The Plan provides that
all of the assets of the Trust as of the Exchange Date (as defined in the Plan)
will be transferred to the Acquiring Fund in exchange for shares of the
Acquiring Fund and the assumption by the Acquiring Fund of all of the
liabilities of the Trust. The Exchange Date is expected to be on or about
March 31, 1996, subject, however, to the receipt by the Trust and the Group of
any necessary order of exemption from the Commission with respect to the
Reorganization. A copy of the Plan is attached as Exhibit A to this Combined
Prospectus/Proxy Statement. Although portions of the Plan are summarized
below, this summary is qualified in its entirety by reference to the Plan.
Promptly after the Exchange Date, the Trust will distribute the shares of the
Acquiring Fund to the Trust's shareholders of record as of the close of
business on the Exchange Date. The shares of the Acquiring Fund which will be
issued for distribution to the Trust's shareholders will be equal in aggregate
value to the Shares of the Trust held as of the Valuation Time (as defined in
the Plan). All issued and outstanding Shares of the Trust will be cancelled on
the Trust's books. Shares of the Acquiring Fund will be represented only by
book entries; no share certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction of a
number of conditions set forth in the Plan, including approval by shareholders
of the Trust. The Plan also may be terminated and the Reorganization abandoned
by the Trust and the Acquiring Fund by mutual consent of their respective
trustees. If the consummation of the Reorganization is so abandoned, no party
shall be liable to the other party for any damages resulting therefrom. If
the Reorganization is otherwise not consummated by reason of either party's
being unwilling or unable to go forward (other than by reason of the
non-fulfillment or failure of certain conditions to such party's obligations),
such party will pay directly all reasonable fees and expenses incurred by the
other party in connection with the Reorganization.
The Reorganization also is subject to the condition of obtaining an opinion
of counsel to the effect that the Reorganization constitutes a tax-free
reorganization for federal income tax purposes and any necessary written order
of exemption from the Commission exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by a party
in connection with the Plan will be paid by the party directly incurring such
costs except where a party is unwilling or unable to go forward (other than for
lack of requisite shareholder approval or breach by the other party in its
covenants) in which case such party will pay all reasonable fees and expenses
17
<PAGE> 141
of the other party. The Ohio Company will pay the costs associated with
the Reorganization. The Trust will pay those costs associated with that portion
of the Meeting relating to customary annual meeting matters (e.g., election of
trustees), and the Acquiring Fund will bear its organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is approved by shareholders, all shareholders of the Trust
as of the Exchange Date, including those that voted against the approval of the
Plan, will receive shares of the Acquiring Fund. All shareholders of the Trust
have the right at any time up to the next business day preceding the Exchange
Date to redeem their Shares at net asset value according to the procedures set
forth in the Trust's Prospectus.
This summary does not purport to be a complete description of the Plan and is
subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a separate,
stand-alone investment company organized in 1980. The Group was organized as a
series investment company in 1993, and in October and November 1995, its Board
of Trustees created the Acquiring Fund with substantially similar investment
objectives, policies and restrictions to those of the Trust. Because of the
similarity between the Trust and the Acquiring Fund, the considerations and
risks involved with an investment in the Acquiring Fund are expected to be
comparable to those associated with an investment in the Trust. The Acquiring
Fund has been established for purposes of effecting the Reorganization and will
not commence operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board of
Trustees of the Trust for their consideration at meetings held on October 20,
1995 and November 13, 1995. The Board of Trustees of the Trust concluded
unanimously that the Reorganization is in the best interests of the Trust and
that the interests of the existing shareholders of the Trust will not be
diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion, considered
the costs resulting from the separate operation of the Trust and the proposed
costs of the Acquiring Fund as provided by The Ohio Company, in light of their
substantially similar investment objectives, policies, restrictions, Boards of
Trustees, officers and service providers. The Board also considered the
operating and compliance efficiencies that could result from moving the
operation of the Trust from a stand-alone investment company to a separate
portfolio of a series investment company. The investment policies and
restrictions of the Acquiring Fund which were approved by the Board of Trustees
of the Group vary somewhat from the policies and restrictions of the Trust;
however,
18
<PAGE> 142
such differences reflect a more uniform and flexible set of investment
restrictions that are currently in place for each of the other series or
portfolios of the Group. Such restrictions were approved to help achieve
greater compliance efficiencies by having each series of the Group have the same
or substantially the same investment restrictions.
In addition, certain operating efficiencies are expected since under Ohio law
and the Group's Declaration of Trust an annual meeting of shareholders is not
required. The Trust under its Amended Declaration of Trust is required to hold
such a meeting. Also, certain fixed costs associated with the operation of the
Trust when incurred by the Acquiring Fund as part of the Group would decrease
on a per share basis since such costs would be spread over a larger pool of
assets, e.g., certain legal and printing fees, while maintaining the same
services by the same service providers.
In particular, the Trust's Board considered the anticipated expense ratios of
the Acquiring Fund, the structure of the Group, the experience of the service
providers of the Acquiring Fund and the level of service to be provided to the
shareholders of the Acquiring Fund, as represented by The Ohio Company.
The Board of Trustees of the Trust based its decision to approve the proposed
transaction upon its consideration of a number of factors, including, among
other things:
(1) the terms and conditions of the Reorganization and whether it would
result in a dilution of the existing shareholders' interests;
(2) the similarity of the Trust's investment objectives, strategies and
policies with those of the Acquiring Fund, as well as the views of CMC that any
differences between the investment policies and restrictions of the Trust and
the Acquiring Fund should not materially increase investment risks;
(3) the experience and resources of CMC with respect to providing investment
management services, and the experience of, and quality of services to be
provided by, the Acquiring Fund's other service providers;
(4) the projected expense ratios and information regarding fees and expenses
of the Trust, the Acquiring Fund and other similar funds and the services being
offered to shareholders;
(5) the conditioning of the Reorganization on the receipt of a legal opinion
confirming the absence of any adverse federal tax consequences to the Trust or
its shareholders resulting from the Reorganization; and
19
<PAGE> 143
(6) other factors as it deemed relevant.
In particular, the Board considered the following per share operating expense
ratios (total annual operating expenses expressed as a percentage of average
net assets) for Shares of the Trust for the year ended September 30, 1995, and
as estimated for the shares of the Acquiring Fund for the period following the
effective date of the Reorganization and ending September 30, 1996, after
giving effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<CAPTION>
CARDINAL GOVERNMENT SECURITIES CARDINAL GOVERNMENT SECURITIES
TRUST MONEY MARKET FUND
----- -----------------
<S> <C>
0.81% 0.79%
</TABLE>
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in the Acquiring Fund
is represented by units of beneficial interest, without par value, of The
Cardinal Group (the "Group"), which is an open-end investment company of the
management type, organized as an Ohio business trust on March 23, 1993. The
Acquiring Fund is currently one of six separate series of the Group. Like the
Trust, the Acquiring Fund is diversified, as that term is defined in the 1940
Act. Currently there is only one class of shares for the Acquiring Fund.
Shareholders of the Acquiring Fund are entitled to one vote for each dollar of
value invested and a proportionate fractional vote for any fraction of a dollar
invested. See "ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the Group must receive a favorable opinion from
Baker & Hostetler, counsel to both the Trust and the Group, substantially to
the effect that, for federal income tax purposes: (a) the Reorganization will
constitute a "tax-free" reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); (b) no gain or loss
will be recognized by the Acquiring Fund or the Trust as a result of the
Reorganization; (c) no gain or loss will be recognized by shareholders of the
Trust upon the exchange of their Shares of the Trust for shares of the
Acquiring Fund; (d) the tax basis of the Acquiring Fund shares received by
shareholders of the Trust pursuant to the Reorganization will be the same as
the basis of the Shares of the Trust held immediately prior to the
Reorganization; (e) the holding period of the Acquiring Fund shares so received
will include the period during which the Trust shareholder held Shares of the
Trust, provided such Shares were held as a capital asset; (f) the tax basis of
the Trust's assets acquired by the Acquiring Fund will be the same as the basis
of such assets immediately prior to the Reorganization; and (g) the holding
period of such assets will include the period during which
20
<PAGE> 144
those assets were held by the Trust. The Group and the Trust do not intend to
seek a private letter ruling with respect to the tax effects of the
Reorganization.
CAPITALIZATION. The following table shows the capitalization of the Trust as
of September 30, 1995. The Acquiring Fund has no and will have no assets or
liabilities or commence operations prior to the consummation of the
Reorganization. THEREFORE, NO PRO FORMA FINANCIAL INFORMATION GIVING EFFECT TO
THE REORGANIZATION IS PROVIDED.
CARDINAL GOVERNMENT SECURITIES TRUST
Net assets . . . . . . . . . . . . . . . . . . . . . . . $445,373,567
Shares outstanding . . . . . . . . . . . . . . . . . . . 445,373,567
Net asset value per share . . . . . . . . . . . . . . . . . . . $1.00
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and policies
of the Trust are substantially similar to those of the Acquiring Fund. The
investment objectives of the Trust and Acquiring Fund are "fundamental," which
means that they may not be changed without the consent of a majority of such
fund's outstanding shares, as defined in the 1940 Act.
The investment objectives of each of the Trust and the Acquiring Fund are to
maximize current income while preserving capital and maintaining liquidity.
As money market funds, each of the Trust and the Acquiring Fund invests
exclusively in United States dollar-denominated instruments which are
determined by CMC and the Trustees to present minimal credit risks and which at
the time of acquisition are rated by one or more appropriate nationally
recognized statistical rating organizations ("NRSROs") (e.g., Standard & Poor's
Corporation and Moody's Investors Service, Inc.) in one of the two highest
rating categories for short-term debt obligations or, if unrated, are of
comparable quality. All securities or instruments in which the Trust and the
Acquiring Fund invest have, or are deemed to have, remaining maturities of 397
calendar days (thirteen months) or less. The dollar-weighted average maturity
of the obligations in each of the Trust and the Acquiring Fund will not exceed
90 days.
As a matter of policy, under normal market conditions, the Trust will be
fully invested in, and the Acquiring Fund will invest at least 80% of its net
assets in, U.S. Treasury bills, notes and bonds, other obligations issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements relating to such obligations.
21
<PAGE> 145
INVESTMENT RESTRICTIONS
The fundamental investment restrictions of the Trust and the Acquiring Fund
are substantially identical except for the following differences:
(1) The Acquiring Fund may not purchase securities of any one issuer, 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 the value of the Acquiring Fund's total assets would be
invested in such issuer, or the Acquiring Fund would hold more than 10%
of the outstanding voting securities of the issuer, except that up to
25% of the value of the Acquiring Fund's total assets may be invested
without regard to such limitations. There is no limit to the percentage
of assets that may be invested in U.S. Treasury bills, notes, or other
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities. The Trust may not purchase securities or make any
investments other than those described under "Investment Objective and
Policies" in its Prospectus, which is limited to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
repurchase agreements relating to such securities and in certain
securities of other investment companies.
(2) The Trust may not underwrite any securities issued by others. The
Acquiring Fund has a similar policy except that the Acquiring Fund may
underwrite the securities of others to the extent it may be deemed to be
an underwriter under certain securities laws in the disposition of
"restricted securities."
(3) The Acquiring Fund may not purchase any securities on margin, except for
such short term credits as are necessary for the clearance of purchases
of portfolio transactions. The Trust has no such policy.
(4) The Trust may not purchase or sell oil and gas interests. The Acquiring
Fund has a similar policy except that such policy also excludes
purchases of participations or other direct interests in other mineral
exploration or development programs.
In addition, the Acquiring Fund has the following non-fundamental investment
restrictions. Except as noted below, these non-fundamental investment
restrictions are substantially similar to fundamental investment restrictions
of the Trust. As discussed above, however, fundamental restrictions of a fund
may not be changed without a vote of a majority of the outstanding voting
securities of the fund; non-fundamental policies may be changed
22
<PAGE> 146
without a shareholder vote. As a consequence, the following policies could
be modified, or eliminated, by the Group with respect to the Acquiring Fund
without shareholder approval.
(1) The Acquiring Fund may not engage in any short sales.
(2) The Acquiring Fund may not (a) purchase or otherwise acquire any
securities if as a result, more than 10% of the Acquiring Fund's net
assets would be invested in securities that are illiquid or (b) invest
more than 15% of the Acquiring Fund's total assets in securities which
are restricted as to disposition. The Trust has a fundamental policy
that provides that it may not enter into a repurchase agreement maturing
in more than seven days or knowingly purchase securities which are
subject to restrictions on resale or for which there is no readily
available market if, as a result, more than 10% of the value of the
Trust's total assets at the time would be invested in such securities.
PORTFOLIO MANAGERS. Since CMC serves as the investment adviser to both the
Trust and the Acquiring Fund, the person currently serving as portfolio manager
for the Trust intends to continue to serve after the Reorganization as
portfolio manager for the Acquiring Fund.
It is not anticipated that the above-mentioned differences in investment
policies and restrictions will, individually or in the aggregate, result in an
appreciable variation between the level of investment risks associated with an
investment in the Trust. For a more complete description of the Acquiring
Fund's investment policies and restrictions, including relevant risk factors,
see "WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUND?" in the
Acquiring Fund's Prospectus and "INVESTMENT OBJECTIVES AND POLICIES" in the
Acquiring Fund's Statement of Additional Information. For a more complete
description of the Trust's investment policies and restrictions, including
relevant risk factors, see "WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF
THE TRUST?" in the Trust's Prospectus and "INVESTMENT OBJECTIVES AND POLICIES"
in the Trust's Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEE
THE TRUST
Pursuant to the laws of Pennsylvania and the Trust's Amended Declaration of
Trust, the responsibility for the management of the Trust is vested in its
Board of Trustees which, among other things, is empowered by the Trust's
Declaration of Trust to elect officers of the Trust and contract with and
provide for the compensation of
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agents, consultants, and other professionals to assist and advise in such
management.
INVESTMENT ADVISER. The Trust is advised by Cardinal Management Corp.
("CMC"), 155 East Broad Street, Columbus, Ohio 43215, a wholly owned subsidiary
of The Ohio Company. CMC is also the investment adviser and manager of each of
the other Cardinal Funds except The Cardinal Fund Inc., which is advised by The
Ohio Company. CMC was established as an Ohio corporation on March 21, 1980,
and has been providing investment advisory services to open-end investment
management companies like the Trust since 1980.
The Ohio Company, an investment banking firm organized in 1925, is a member
of the New York Stock Exchange, the Midwest Stock Exchange, other regional
stock exchanges and the National Association of Securities Dealers, Inc.
Descendants of H.P. and R.F. Wolfe, deceased, and members of their families,
through their possession of a majority of voting stock, may be considered
controlling persons of The Ohio Company.
In its capacity as investment adviser, and subject to the ultimate authority
of the Trust's Board of Trustees, CMC, in accordance with the Trust's
investment objectives and policies, manages the Trust, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. In addition, pursuant to the Investment Advisory Agreement, the
Adviser generally assists in all aspects of the Trust's administration and
operation. Since December 22, 1995, John R. Carle has been primarily
responsible for the day-to-day management of the Trust's portfolio. Mr. Carle
has been a portfolio manager with CMC and/or The Ohio Company since 1971 and
has more than 28 years of investment management experience.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Trust, CMC receives a fee from the Trust, computed
daily and paid monthly at the annual rate of .50% of average net daily assets
of the Trust.
For a complete description of the Trust's advisory arrangements, see the
section in the Trust's Prospectus entitled "WHO MANAGES MY INVESTMENT IN THE
TRUST? -- Investment Adviser and Manager."
DISTRIBUTOR. The Trust has entered into a Distributor's Contract with The
Ohio Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which
shares of the Trust continuously are offered on a best efforts basis by The
Ohio Company and dealers selected by The Ohio Company. H. Keith Allen is an
officer and trustee/director of both the Trust, CMC and The Ohio Company.
Frank W. Siegel, an officer and trustee of the Trust, is an officer of The Ohio
Company and an officer and director of CMC. David C. Will and James M. Schrack
II are officers of both the Trust and The Ohio Company, and Mr. Will is an
officer of CMC. The Ohio Company receives
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no compensation from the Trust in connection with its services under such
Distributor's Contract.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT. CMC, 215 East Capital
Street, Columbus, Ohio 43215, serves as the Trust's Dividend and Transfer
Agent. In consideration of such services, the Trust has agreed to pay CMC an
annual fee, paid monthly, equal to $21 per shareholder account, plus
out-of-pocket expenses.
In addition, CMC provides certain fund accounting services for the Trust.
CMC receives a fee from the Trust for such services equal to $9,000 for the
first $25 million of assets and $3,000 for each additional $25 million of
assets.
For a complete description of these arrangements and the other expenses borne
by the Trust, see the sections in the Trust's Prospectus entitled "WHO MANAGES
MY INVESTMENT IN THE TRUST?"
CUSTODIAN. The Trust has appointed The Fifth Third Bank ("Fifth Third"), 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Trust's custodian. In
such capacity Fifth Third will hold or arrange for the holding of all portfolio
securities and other assets acquired and owned by the Trust.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio 43215,
serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Trust, and,
as such, has audited the financial statements of the Trust.
THE ACQUIRING FUND
Except where shareholder action is required by law, all of the authority of
the Group is exercised under the direction of the Group's Trustees, who are
elected by the shareholders of the Group's series or portfolios, including the
Acquiring Fund, and who are empowered to elect officers and contract with and
provide for the compensation of agents, consultants, and other professionals to
assist and advise in its day-to-day operations. The Group will be managed in
accordance with its Declaration of Trust and the laws of Ohio governing
business trusts.
INVESTMENT ADVISER. The Acquiring Fund is also advised by CMC. It is
intended that upon completion of the Reorganization, Mr. Carle will be
responsible for the day-to-day management of the Acquiring Fund's portfolio.
For its services as investment adviser, CMC receives a fee, which is calculated
daily and paid monthly, at an annual rate of 0.50% of the average daily net
assets of the Acquiring Fund.
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For a complete description of the Acquiring Fund's advisory arrangements, see
the section in the Acquiring Fund's Prospectus entitled "WHO MANAGES MY
INVESTMENT IN THE FUND? -- Investment Adviser and Manager."
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT. CMC also serves as the
Acquiring Fund's Dividend and Transfer Agent. In consideration of such
services, the Acquiring Fund has agreed to pay CMC an annual fee, paid monthly,
equal to $21 per shareholder account, plus out-of-pocket expenses.
In addition, CMC provides certain fund accounting services for the Acquiring
Fund. CMC receives a fee from the Acquiring Fund for such services equal to a
fee computed daily and paid periodically at an annual rate of .03% of the
Acquiring Fund's average daily net assets of $100 million or less and .01% of
the Acquiring Fund's average daily net assets in excess of $100 million.
For a complete description of these arrangements and the other expenses borne
by the Acquiring Fund, see the sections in the Acquiring Fund's Prospectus
entitled "WHO MANAGES MY INVESTMENT IN THE TRUST? -- Dividend and Transfer
Agent and Fund Accountant."
DISTRIBUTOR. The Ohio Company also serves as the distributor of the
Acquiring Fund's shares on essentially the same terms and conditions as it
serves as the Trust's distributor.
CUSTODIAN. The Acquiring Fund has also appointed Fifth Third as the
Acquiring Fund's custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Fund.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio 43215, also
serves as counsel to the Acquiring Fund.
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Fund, and, as such, will audit the financial statements of
the Acquiring Fund.
CERTAIN FINANCIAL INFORMATION. The Prospectus for the Trust contains
information on per share income, capital changes and performance calculations
under the caption "FINANCIAL HIGHLIGHTS."
The Acquiring Fund has not yet commenced operations and has no and will have
no assets or liabilities prior to the consummation of the Reorganization.
Therefore, no information regarding per share income and capital changes is
available. For information regarding performance calculations and comparisons,
see the information under the caption "PERFORMANCE INFORMATION" in the
Acquiring Fund's Prospectus.
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COMPARISON OF RIGHTS OF SECURITY HOLDERS. The Trust is a Pennsylvania
business trust, registered under the 1940 Act as an open-end investment company
of the management type. The Trust was established under an Amended Declaration
of Trust dated April 24, 1980. The Group is an Ohio business trust, registered
under the 1940 Act as an open-end investment company of the management type.
The Group was established under a Declaration of Trust dated as of March 23,
1993. Both the Trust and the Group are authorized to issue an unlimited number
of shares of beneficial interest, and such shares may be divided into one or
more series and for the Group, separate classes of shares. The Acquiring Fund
is one of six series of the Group. The other five series of the Group are The
Cardinal Fund, Cardinal Government Obligations Fund, Cardinal Tax Exempt Money
Market Fund, Cardinal Balanced Fund and Cardinal Aggressive Growth Fund.
Each share of the Trust is of equal rank, constitutes a single class of
shares in the Trust and is identical in all respect except as may be fixed by
the Trustees pursuant to the Amended Declaration of Trust. Shares of the Trust
issued pursuant to the Trust's Amended Declaration of Trust are fully paid and
nonassessable and have no preemptive rights or other preferences or conversion
rights except to the extent set by the Trustees. Shareholders of the Trust
have no appraisal or dissenters' rights.
Shares of the Acquiring Fund, once properly issued and outstanding, are fully
paid and nonassessable and have no preference as to conversion, exchange,
dividends, retirement or other features, and have no preemptive or appraisal
rights.
Shareholders of the Trust are entitled to one vote for each full Share held
and a proportionate fractional vote for each fractional Share held.
Shareholders of the Acquiring Fund are entitled to one vote for each dollar of
value invested and a proportionate fractional vote for any fraction of a dollar
invested.
Voting rights of the Trust's Shareholders are not cumulative, so that the
holders of more than 50% of the Trust voting in the election of its Trustees
have the power to elect all of the Trustees of the Trust. The Trust currently
holds an annual meeting of shareholders.
Shareholders of the Group have no cumulative voting rights, which means that
the holders of a plurality of the shares voting for the election of the Group's
Board of Trustees can elect all of the Group's Board of Trustees if they choose
to do so. The Group does not intend to hold annual meetings of shareholders,
except as required under its Declaration of Trust or the 1940 Act.
Shareholders of the Acquiring Fund will vote in the aggregate with other
shareholders of the Group and not by series or portfolio except as otherwise
expressly required by law. For example, shareholders of the Acquiring Fund
will vote in the aggregate with other shareholders of the Group with respect to
the election of Trustees and ratification of the selection of independent
accountants. However, shareholders of the Acquiring Fund will vote
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as a Fund, and not in the aggregate with other shareholders of the Group, for
purposes of approval of amendments to the Acquiring Fund's investment advisory
agreement or any of the Acquiring Fund's fundamental policies.
Therefore, after the Reorganization, shareholders of the Acquiring Fund alone
may not be able to elect the Trustees of the Group or ratify the selection of
independent accountants but will vote with all the other shareholders of the
Group on such issues if and when presented to shareholders. In addition,
shareholders of the Group receive one vote for each dollar of value invested;
therefore, a shareholder of one share of the Acquiring Fund will receive one
vote for such share while a holder of one share of another non-money market
fund of the Group will receive more than one vote for such share, e.g., a share
of Cardinal Balanced Fund with a net asset value of $9.50 will be entitled to
9.5 votes. In addition, since the Group currently does not intend to hold
annual meetings unless otherwise required to do so, it can not be determined
when shareholders of the Acquiring Fund will next be entitled to vote for the
election of Trustees or the ratification of the selection of independent public
accountants.
For a complete description of the respective attributes of the Trust's and
the Group's shares, including how to purchase, redeem or exchange shares and
certain restrictions thereon, taxation of the Trust or the Acquiring Fund, as
the case may be, and its shareholders, and dividend and distribution policies,
see the sections in the Trust's and the Acquiring Fund's respective
Prospectuses entitled "HOW DO I PURCHASE SHARES OF THE TRUST/FUND?," "WHAT
DISTRIBUTIONS WILL I RECEIVE?," "HOW MAY I REDEEM MY SHARES?" "WHAT OTHER
SHAREHOLDER PROGRAMS ARE PROVIDED?" "DOES THE TRUST/FUND PAY FEDERAL INCOME
TAX?" and "WHAT ABOUT MY TAXES?" Additional information about the Trust is
included in its Prospectus, dated February 1, 1995, as supplemented on December
11, 1995, which is incorporated herein by reference, and in the Trust's
Statement of Additional Information dated February 1, 1995. Copies of the
Prospectus and the Statement of Additional Information may be obtained without
charge by calling the Trust at 1-800-282-9446.
Additional information about the Acquiring Fund is included in its Prospectus
dated January __, 1996, which accompanies this Combined Prospectus/Proxy
Statement and Statement of Additional Information dated January __, 1996,
copies of which may be obtained without charge by calling the Group at
1-800-282-9446.
Additional information regarding the Reorganization is contained in the
Statement of Additional Information, dated January __, 1996, to this Combined
Prospectus/Proxy Statement. The Statement of Additional Information is
incorporated by reference herein and may be obtained by calling the Group at
1-800-282-9446.
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THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the Group are each subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the 1940 Act, and in accordance therewith each files
reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of soliciting
proxies for the Meeting, consisting principally of printing and mailing
expenses, together with the costs of any supplementary solicitation and proxy
soliciting services provided by third parties, will be borne in part by the
Trust and in part by The Ohio Company. Proxies will be solicited initially,
and in any supplemental solicitation, by mail and may be solicited in person,
by telephone, telegraph or other electronic means by officers of the Trust.
SUBSTANTIAL SHAREHOLDERS. As of January 8, 1996, the following persons, to
the knowledge of the Trust, were the shareholders owning beneficially five
percent or more of the Shares of the Trust:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
- ---------------- ---------- --------
The Ohio Company _________(1) ______%
155 East Broad Street
Columbus, Ohio 43215
(1) For its own account and as trustee for various pension plans and trusts.
As of the close of business on January 8, 1996, the officers and Trustees of
the Trust as a group beneficially owned less than 1% of the outstanding shares
of the Trust.
As of the close of business on January 8, 1996, there were ____ issued and
outstanding shares of the Group, of which ____ were shares of Cardinal Balanced
Fund and ____ were shares of Cardinal Aggressive Growth Fund. As of such date,
there were no shareholders of the Acquiring Fund. It is anticipated, however,
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that those persons who are beneficial holders of 5% or more of the
Trust's shares immediately prior to the Reorganization will be beneficial
holders of the same percentage of the Acquiring Fund's shares immediately after
the Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of the
Acquiring Fund dated January __, 1996, is incorporated by reference into this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
February 1, 1995, as supplemented December 11, 1995, is incorporated by
reference into this Combined Prospectus/Proxy Statement and may be obtained by
writing the Trust at 155 East Broad Street, Columbus, Ohio 43215 or by calling
the Trust at 1-800-282-9446. Copies of documents requested will be sent by
first-class mail to the requesting shareholder within one business day of
receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in
accordance with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the Commission
under the 1934 Act, investors may request inclusion in the proxy statement for
shareholder meetings certain proposals for action which they intend to
introduce at such meeting. Any shareholder proposals must be presented a
reasonable time before the proxy materials for the next meeting are sent to
shareholders. The submission of a proposal does not guarantee its inclusion in
the Trust's proxy statement and is subject to limitations under the 1934 Act.
It is not presently anticipated that the Group will hold regular meetings of
shareholders, and no anticipated date of the next meeting can be provided.
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Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
Agreement and Plan of Reorganization and Liquidation ("Agreement") dated as
of December 1, 1995, by and between The Cardinal Group, an Ohio business trust
("TCG"), and Cardinal Government Securities Trust, a Pennsylvania business
trust ("CGST").
WHEREAS, TCG is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end investment company of the management type
and has, or before the Exchange Date (as defined below) is expected to have,
issued and outstanding one class of shares of beneficial interest, without par
value ("Shares"), for each of six series, one such series being Cardinal
Government Securities Money Market Fund (hereinafter sometimes referred to as
the "Cardinal Government Securities Money Market Fund" or the "Acquiring
Series"); and
WHEREAS, CGST is registered under the 1940 Act as an open-end investment
company of the management type and currently has issued and outstanding one
class of shares of beneficial interest, par value $.01 per share; and
WHEREAS, CGST plans to transfer all of its assets, and to assign all of its
liabilities, to the Acquiring Series, in exchange for Shares of the Acquiring
Series (the "Acquiring Series Shares"), followed by the distribution of the
Acquiring Series Shares by CGST to its shareholders, and followed by the
dissolution of CGST, all upon the terms and provisions of this Agreement (the
"Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization is in
the best interests of TCG, and that the interests of its shareholders will not
be diluted as a result thereof; and
WHEREAS, the trustees of CGST have determined that the Reorganization is in
the best interests of CGST and that the interests of its shareholders will not
be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto covenant and agree as follows:
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1. Plan of Reorganization and Liquidation.
(a) Sale of Assets, Assumption of Liabilities. Subject to the prior
approval of shareholders of CGST and to the other terms and conditions
contained herein (including the obligation of CGST to distribute to its
shareholders all of its investment company taxable income and net capital
gain as described in Section 8(i) herein), CGST agrees to sell, assign,
convey, transfer and deliver to the Acquiring Series, and the Acquiring
Series agrees to acquire from CGST on the Exchange Date (as defined below),
all of the Investments (as defined below), cash and other assets of CGST in
exchange for that number of full and fractional Acquiring Series Shares of
the Acquiring Series having an aggregate net asset value equal to the value
of all assets of CGST transferred to the Acquiring Series, as provided in
Section 4, less the liabilities of CGST assumed by the Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the Acquiring Series
from CGST shall consist of all of CGST's property, including, without
limitation, all Investments, cash and dividends or interest receivables
which are owned by CGST and any deferred or prepaid expenses shown as an
asset on the books of CGST as of the Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date CGST will endeavor to
discharge or cause to be discharged, or make provision for the payment
of, all of its known liabilities and obligations. The Acquiring Series
shall assume all liabilities, expenses, costs, charges and reserves of CGST,
contingent or otherwise, including liabilities reflected in the unaudited
statement of assets and liabilities of CGST as of the Valuation Time,
prepared by or on behalf of CGST in accordance with generally accepted
accounting principles consistently applied from and after September 30,
1995.
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the transactions
described in Section 1(a), 1(b) and 1(c) above, CGST shall distribute
in complete liquidation to its shareholders of record as of the Exchange
Date the Acquiring Series Shares received by it, each CGST shareholder of
record being entitled to receive that number of Acquiring Series Shares
equal to the proportion which the number of shares of beneficial interest,
par value $.01 per share, of CGST held by such shareholder bears to the
total number of such shares of CGST outstanding on such date, and shall take
such further action as may be required, necessary or appropriate under
CGST's Amended Declaration of Trust, Pennsylvania law and the Code to effect
the complete liquidation and dissolution of CGST. CGST will fulfill all
reporting requirements under the 1940 Act, both before and after the
Reorganization.
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2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CGST. CGST represents and
warrants to and agrees with TCG and the Acquiring Series that:
(a) CGST is a business trust validly existing under the laws of the
Commonwealth of Pennsylvania and has power to own all of its properties
and assets and to carry out its obligations under this Agreement. CGST has
qualified as a foreign business trust in each jurisdiction where the
ownership of its property and the conduct of its business require
qualification. CGST has all necessary federal, state and local
authorizations to carry on its business as now being conducted and to
fulfill the terms of this Agreement, except as set forth in Section 2(1).
(b) CGST is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked
or rescinded and is in full force and effect. CGST has elected to qualify
and has qualified as a regulated investment company under Part I of
Subchapter M of the Code as of and since its first taxable year, and
qualifies and intends to continue to qualify as a regulated investment
company for its taxable year ending upon its liquidation. CGST has been a
regulated investment company under such sections of the Code at all times
since its inception.
(c) The statement of assets and liabilities, including the statement of
investments as of September 30, 1995, and the related statement of
operations for the year then ended, and statements of changes in net assets
for each of the two years in the period then ended, for CGST, such
statements having been audited by KPMG Peat Marwick LLP, independent
auditors of CGST, have been furnished to TCG. Such statement of assets and
liabilities fairly present the financial position of CGST of such date and
such statements of operations and changes in net assets fairly reflect the
results of operations and changes in net assets for the periods covered
thereby in conformity with generally accepted accounting principles, and
there are no known material liabilities of CGST as of such dates which are
not disclosed therein.
(d) The Prospectus of CGST dated February 1, 1995 (the "CGST Prospectus")
and the related Statement of Additional Information for CGST dated
February 1, 1995, in the forms filed with the Securities and Exchange
Commission and previously furnished to TCG, did not as of their date and do
not as of the date hereof contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
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(e) Except as may have been previously disclosed to TCG, there are no
material legal, administrative or other proceedings pending or, to the
knowledge of CGST, threatened against CGST.
(f) There are no material contracts outstanding to which CGST is a party,
other than as disclosed in the CGST Prospectus and its corresponding
Statement of Additional Information, and there are no such contracts or
commitments (other than this Agreement) which will be terminated with
liability to CGST on or prior to the Exchange Date.
(g) CGST has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statement
of assets and liabilities as of September 30, 1995 and those incurred in the
ordinary course of CGST's business as an investment company since that date.
Prior to the Exchange Date, CGST will advise TCG of all known material
liabilities, contingent or otherwise, incurred by it subsequent to September
30, 1995, whether or not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean CGST's
investments shown on the statement of assets and liabilities as of
September 30, 1995 referred to in Section 2(c) hereof, as supplemented with
such changes as CGST shall make after September 30, 1995 and prior to the
date of this Agreement, which changes have been disclosed to TCG, and
changes made on and after the date of this Agreement after advising CGST of
such changes, and changes resulting from stock dividends stock split-ups,
mergers and similar corporate actions.
(i) CGST has filed or will file all federal and state tax returns which, to
the knowledge of CGST's officers, are required to be filed by CGST and
has paid or will pay all federal and state taxes shown to be due on said
returns or on any assessments received by CGST. All tax liabilities of CGST
have been adequately provided for on its books, and no tax deficiency or
liability of CGST has been asserted, and no question with respect thereto
has been raised, by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), CGST
will have full right, power and authority to sell, assign, transfer and
deliver the Investments and any other of its assets and liabilities to be
transferred to TCG and the Acquiring Series pursuant to this Agreement. At
the Exchange Date, subject only to the delivery of the Investments and any
such other assets and liabilities
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as contemplated by this Agreement, TCG and the Acquiring Series will
acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of CGST and, except as described in Section 2(k), without any
restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as amended (the
"1933 Act"), of any of the Investments would be required if they were, as of
the time of such transfer, the subject of a public distribution by either of
CGST or TCG, except as previously disclosed to TCG by CGST in writing prior
to the date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by CGST of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, Securities Exchange Act of 1934, as amended (the "1934
Act"), 1940 Act, state securities or blue sky laws (which term as used
herein shall include the laws of the District of Columbia and of Puerto
Rico) or the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"H-S-R Act").
(m) The registration statement (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the "Commission") by TCG
on Form N-14 relating to the Acquiring Series Shares issuable hereunder, and
the proxy statement of CGST included therein (the "Proxy Statement"), on the
effective date of the Registration Statement and insofar as they relate to
CGST, (i) will comply in all material respects with the provisions of the
1933 Act, 1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 below and on the Exchange Date, the
prospectus contained in the Registration Statement of which the Proxy
Statement is a part (the "Prospectus"), as amended or supplemented by any
amendments or supplements filed with the Commission by TCG, insofar as it
relates to CGST, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the
representations and warranties in this Section 2(m) shall apply only to
statements of fact relating to CGST contained in the Registration Statement,
the Prospectus or the Proxy Statement, or omissions to state in any thereof
a material fact relating to CGST, as such Registration Statement, Prospectus
and Proxy Statement shall be furnished to CGST in definitive form as soon as
practicable
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following effectiveness of the Registration Statement and before any
public distribution of the Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with CGST that:
(a) TCG is a business trust validly existing under the laws of the
State of Ohio and has power to carry on its business as it is now being
conducted and to carry out its obligations under this Agreement. TCG has
qualified as a foreign business trust in each jurisdiction where the
ownership of its property and the conduct of its business require
qualification. TCG and the Acquiring Series each has all necessary
federal, state and local authorizations to own all of its properties and
assets and to carry on its business as now being conducted and to fulfill
the terms of this Agreement, except as set forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end investment company
of the management type, and such registration has not been revoked or
rescinded and is in full force and effect. The Acquiring Series expects to
qualify as a regulated investment company under Part I of Subchapter M of
the Code.
(c) The Acquiring Series will have no financial statements as of the
Valuation Time.
(d) The prospectus of TCG and the Acquiring Series, expected to be
dated in January, 1966 (the "Acquiring Series Prospectus"), and the related
Statement of Additional Information for the Acquiring Series to be dated
such date, in the forms to be filed with the Securities and Exchange
Commission, will be furnished to CGST promptly upon the completion thereof
and will not as of their date contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) Except as may have been previously disclosed to CGST, there are no
material legal, administrative or other proceedings pending or, to the
knowledge of TCG or its Acquiring Series, threatened against TCG or the
Acquiring Series, which assert liability on the part of TCG or the Acquiring
Series.
(f) There are no material contracts outstanding to which TCG or the
Acquiring Series is a party, other than material contracts disclosed in
the Acquiring Series Prospectus and the corresponding Statement of
Additional Information.
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(g) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(h) TCG and the Acquiring Series will file all federal and state tax
returns which, to the knowledge of TCG's officers, are required to be
filed by TCG and the Acquiring Series and will pay all federal and state
taxes shown to be due on such returns or on any assessments received by TCG
or the Acquiring Series. All tax liabilities of TCG and the Acquiring
Series have been adequately provided for on its books, and no tax deficiency
or liability of TCG or the Acquiring Series has been asserted, and no
question with respect thereto has been raised, by the Internal Revenue
Service or by any state or local tax authority for taxes in excess of those
already paid.
(i) No consent, approval, authorization or order of any governmental
authority is required for the consummation by TCG or the Acquiring
Series of the transactions contemplated by this Agreement, except such as
may be required under the 1933 Act, 1934 Act, 1940 Act, state securities or
Blue Sky Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and otherwise as
described in Section 3(i), TCG and the Acquiring Series will have full
right, power and authority to purchase the Investments and any other assets
and assume the liabilities of CGST to be transferred to the Acquiring Series
pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy
Statement, on the effective date of the Registration Statement and insofar
as they relate to TCG and the Acquiring Series: (i) will comply in all
material respects with the provisions of the 1933 Act, 1934 Act and 1940 Act
and the rules and regulations thereunder and (ii) will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and at the time of the shareholders' meeting referred to in
Section 7 and at the Exchange Date, the Prospectus, as amended or
supplemented by any amendments or supplements filed with the Commission by
TCG, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to statements
in or omissions from the Registration Statement, the Prospectus or the Proxy
Statement made in reliance upon and in conformity with information furnished
by CGST for use in the Registration Statement, the Prospectus or the Proxy
Statement.
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<PAGE> 161
(l) The Acquiring Series Shares to be issued by TCG have been duly
authorized and when issued and delivered by TCG to CGST pursuant to
this Agreement and the Prospectus will be legally and validly issued by TCG
and will be fully paid and nonassessable, and no shareholder of TCG will
have any preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement
will be in compliance with all applicable federal and state securities laws.
(n) Cardinal Government Securities Money Market Fund, upon filing of its
first income tax return at the completion of its first taxable year
will elect to be a regulated investment company and until such time will
take all steps necessary to ensure qualification as a regulated investment
company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver to
CGST a number of Acquiring Series Shares having an aggregate net asset value
equal to the value of the assets of CGST acquired by the Acquiring Series, less
the value of the liabilities of CGST assumed, determined as hereafter provided
in this Section 4.
(a) The net asset value of CGST will be computed as of the Valuation Time,
using the valuation procedures set forth in the current prospectus of CGST.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the Valuation Time, and shall be
set at the net asset value per share of CGST as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on March
30, 1996, or such earlier or later day as may be mutually agreed upon in
writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to CGST on
one share deposit receipt registered in the name of CGST. CGST shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder pro rata to its shareholders by redelivering such share deposit
receipt to TCG's transfer agent, which will as soon as practicable set up
open accounts for each CGST shareholder in accordance with written
instructions furnished by CGST.
(e) The Acquiring Series shall assume all liabilities of CGST, whether
accrued or contingent, described in subsection 1(c) hereof in connection with
the acquisition of assets and
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<PAGE> 162
subsequent dissolution of CGST or otherwise, except that recourse for assumed
liabilities relating to CGST will be limited to the Acquiring Series.
5. EXPENSES, FEES, ETC.
(a) Subject to the further provisions of this Section 5, TOC shall be
responsible for the fees and expenses of the Reorganization. The Acquiring
Series will be responsible for its organization costs. CGST will be
responsible for proxy solicitation and other costs associated with its annual
meeting (or special meeting in lieu thereof) to the extent such costs are
comparable to those incurred for annual meetings in recent prior years. TOC
has undertaken to absorb all other costs of the Reorganization.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of CGST's being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any
condition to CGST's obligations referred to in Section 7(a) or Section 9),
CGST shall pay directly all reasonable fees and expenses incurred by TCG in
connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of TCG's being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
TCG's obligations referred to in Section 7(a) or Section 8), TCG shall pay
directly all of the reasonable fees and expenses incurred by CGST in
connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(d) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated,
no party shall be liable to the other party for any damages resulting
therefrom, including, without limitation, consequential damages, except as
specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of CGST to be transferred, assumption
of the liabilities of CGST to be assumed, and the delivery of Acquiring Series
Shares to be issued shall be made at the offices of The Ohio Company, 155 East
Broad Street, Columbus, Ohio at 9:00 A.M. on March 31, 1996, or at such other
time and date agreed to by TCG and CGST, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
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<PAGE> 163
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) CGST agrees to call a special meeting of its shareholders as soon as
is practicable after the effective date of the Registration Statement for the
purpose of considering the sale of all of the assets of CGST to and the
assumption of all of the liabilities of CGST by the Acquiring Series as
herein provided, authorizing and approving this Agreement, and authorizing
and approving the liquidation and dissolution of CGST, and it shall be a
condition to the obligations of each of the parties hereto that the holders
of shares of beneficial interest, par value $.01 per share, of CGST shall
have approved this Agreement, and the transactions contemplated herein,
including the liquidation and dissolution of CGST, in the manner required by
law and CGST'S Amended Declaration of Trust at such a meeting on or before
the Valuation Time.
(b) CGST agrees that the liquidation and dissolution of CGST will be
effected in the manner provided in CGST's Amended Declaration of Trust and in
accordance with applicable law, and that it will not make any distributions
of any Acquiring Series Shares to the shareholders of CGST without first
paying or adequately providing for the payment of all of CGST's known debts,
obligations and liabilities.
(c) Each of TCG and CGST will cooperate with the other, and each will
furnish to the other the information relating to itself required by the 1933
Act, 1934 Act and 1940 Act and the rules and regulations thereunder to be set
forth in the Registration Statement, including the Prospectus and the Proxy
Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the Acquiring
Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of CGST, shall
have been approved by the trustees and shareholders of CGST in the manner
required by law.
(b) CGST shall have furnished to TCG a statement of CGST's assets and
liabilities, with values determined as provided in Section 4 of this
Agreement, together with a list of Investments with their respective tax
costs, all as of the Valuation Time, certified on CGST's behalf by its
President (or any Vice President) and Treasurer (or other financial officer),
and a certificate of both such officers, dated the Exchange Date, to the
effect that as of the Valuation Time and as of the Exchange Date there has
been no material adverse
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<PAGE> 164
change in the financial position of CGST since September 30, 1995, other than
changes in the Investments since that date or changes in the market value of
the Investments, or changes due to net redemptions of shares of CGST,
dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of CGST made in this Agreement are true and
correct in all material respects as if made at and as of such dates, CGST has
complied with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to each of such dates, and CGST
shall have furnished to TCG a statement, dated the Exchange Date, signed by
CGST's President (or any Vice President) and Treasurer (or other financial
officer) certifying those facts as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) TCG shall have received an opinion of Baker & Hostetler, in form
reasonably satisfactory to TCG and dated the Exchange Date, to the effect
that (i) CGST is a business trust validly existing under the laws of the
Commonwealth of Pennsylvania, and is, to the knowledge of such counsel,
qualified to do business as a foreign business trust in each jurisdiction
where the ownership of its property and the conduct of its business require
qualification, (ii) this Agreement has been duly authorized, executed and
delivered by CGST and, assuming that the Registration Statement, the
Prospectus and the Proxy Statement comply with the 1933 Act, 1934 Act and
1940 Act and assuming due authorization, execution and delivery of this
Agreement by TCG, is a valid and binding obligation of CGST, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles, (iii) CGST has
power to sell, assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, CGST will
have duly sold, assigned, conveyed, transferred and delivered such
Investments and other assets to TCG, (iv) the execution and delivery of this
Agreement did not and the consummation of the transactions contemplated
hereby will not, violate CGST's Amended Declaration of Trust or its By-Laws,
as amended, or any provision of any agreement known to such counsel to which
CGST is a party or by which it is bound, it being understood that with
respect to any investment restrictions as contained in CGST's Amended
Declaration of Trust or By-Laws, or then current prospectus or statement of
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<PAGE> 165
additional information, such counsel may rely upon a certificate of an
officer of CGST, whose responsibility it is to advise CGST with respect to
such matters and (v) to the knowledge of such counsel no consent, approval,
authorization or order of any court or governmental authority is required for
the consummation by CGST of the transactions contemplated hereby, except such
as have been obtained under the 1933 Act, 1934 Act and 1940 Act and such as
may be required under state securities or blue sky laws and the H-S-R Act.
In rendering such opinion, Baker & Hostetler may rely upon certain reasonable
and customary assumptions and certifications of fact received from TCG, CGST,
and certain of its shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler, addressed to
TCG, the Acquiring Series and CGST, in form reasonably satisfactory to TCG
and dated the Exchange Date, to the effect that for Federal income tax
purposes (i) the transfer of all or substantially all of CGST's assets in
exchange for the Acquiring Series Shares and the assumption by the Acquiring
Series of liabilities of CGST will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each of the Acquiring Series and
CGST is a "party to a reorganization" within the meaning of Section 368(b) of
the Code; (ii) no gain or loss will be recognized by CGST upon the transfer
of the assets of the Acquiring Series in exchange for Acquiring Series Shares
and the assumption by the Acquiring Series of the liabilities of CGST or upon
the distribution of Acquiring Series Shares by CGST to its shareholders in
liquidation; (iii) no gain or loss will be recognized by the shareholders of
CGST upon the exchange of their shares for Acquiring Series Shares, (iv) the
basis of the Acquiring Series Shares a CGST shareholder receives in
connection with the Reorganization will be the same as the basis of his or
her shares exchanged therefor; (v) a CGST shareholder's holding period for
his or her Acquiring Series Shares will be determined by including the period
for which he or she held CGST shares exchanged therefor, provided that he or
she held such shares as capital assets; (vi) no gain or loss will be
recognized by the Acquiring Series upon the receipt of the assets of CGST in
exchange for Acquiring Series Shares and the assumption by the Acquiring
Series of the liabilities of CGST; (vii) the basis in the hands of the
Acquiring Series the assets of CGST transferred to the Acquiring Series will
be the same as the basis of the assets in the hands of CGST immediately prior
to the transfer; and (viii) the Acquiring Series' holding periods of the
assets of CGST will include the period for which such assets were held by
CGST. In rendering such opinion, Baker & Hostetler may rely upon certain
reasonable and customary assumptions and certifications of fact received from
TCG, CGST, and certain of its shareholders.
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<PAGE> 166
(g) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of TCG,
contemplated by the Commission or any state regulatory authority.
(h) All necessary proceedings taken by CGST in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to TCG and
Baker & Hostetler.
(i) Prior to the Exchange Date, CGST shall have declared a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of its investment company
taxable income for its taxable year ended September 30, 1995 and the short
taxable year beginning on October 1, 1995 and ending on the Valuation Date
(computed without regard to any deduction for dividends paid), and all of its
net capital gain realized in its taxable year ended September 30, 1995 and
the short taxable year beginning on October 1, 1995 and ending on the
Valuation Date (after reduction for any capital loss carryover).
(j) CGST shall have furnished to TCG a certificate, signed by the President
(or any Vice President) and the Treasurer (or other financial officer) of
CGST, as to the tax cost to TCG of the securities delivered to TCG pursuant
to this Agreement, together with any such evidence as to such tax cost as TCG
reasonably may request.
(k) CGST's custodian shall have delivered to CGST a certificate identifying
all of the assets of CGST held by such custodian as of the Valuation Time.
(l) CGST's transfer agent shall have provided to TCG (i) the originals or
true copies of all of the records of CGST in the possession of such transfer
agent as of the Exchange Date, (ii) a certificate setting forth the number of
shares of CGST outstanding as of the Valuation Time and (iii) the name and
address of each holder of record of any such shares of CGST and the number of
shares held of record by each such shareholder.
(m) CGST shall have duly executed and delivered to TCG a bill of sale,
assignment, certificate and other instruments of transfer ("Transfer
Documents") as TCG may deem necessary or desirable to transfer all of CGST's
entire right, title and interest in and to the Investments and all other
assets of CGST to the Acquiring Series.
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<PAGE> 167
(n) TCG and CGST shall have received from the Commission, if necessary, a
written order of exemption, satisfactory in form and substance to TCG and
CGST, exempting the Reorganization from the provisions of Section 17(a) of
the 1940 Act.
9. CONDITIONS OF CGST'S OBLIGATIONS. The obligations of CGST hereunder shall
be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of CGST, shall
have been approved by the trustees and shareholders of CGST in the manner
required by law.
(b) TCG shall have executed and delivered to CGST an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of CGST, contingent or otherwise, including liabilities existing at
the Valuation Time and described in Section 1(c) hereof in connection with
the transactions contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true and
correct in all material respects as if made at and as of such dates, TCG and
the Acquiring Series have complied with all of the agreements and satisfied
all of the conditions on their part to be performed or satisfied at or prior
to each of such dates, and TCG shall have furnished to CGST a statement,
dated the Exchange Date, signed by TCG's President (or any Vice President)
and Treasurer (or other financial officer) certifying those facts as of such
dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) CGST shall have received an opinion of Baker & Hostetler, in form
reasonably satisfactory to CGST and dated the Exchange Date, to the effect
that (i) TCG is a business trust validly existing under the laws of the State
of Ohio and is, to the knowledge of such counsel, qualified to do business as
a foreign business trust in each jurisdiction where the ownership of its
property and the conduct of its business requires qualification, (ii) the
Acquiring Series Shares to be delivered to CGST as provided for by this
Agreement are duly authorized and upon such delivery will be validly issued
and will be fully paid and nonassessable by TCG and no shareholder of TCG has
any preemptive right to subscription or purchase in respect thereof, (iii)
this Agreement has been duly
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<PAGE> 168
authorized, executed and delivered by TCG and assuming that the Registration
Statement, the Prospectus and the Proxy Statement comply with the 1933 Act,
1934 Act and 1940 Act, and assuming due authorization, execution and delivery
of this Agreement by CGST, is a valid and binding obligation of TCG,
enforceable in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable principles,
(iv) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, violate TCG's
Declaration of Trust or its By-Laws or any provision of any agreement known
to such counsel to which TCG or the Acquiring Series is a party or by which
it is bound, it being understood that with respect to investment restrictions
as contained in TCG's Declaration of Trust, By-Laws or then current
prospectus or statement of additional information, such counsel may rely upon
a certificate of an officer of TCG whose responsibility it is to advise TCG
with respect to such matters, (v) to the knowledge of such counsel no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by TCG or the Acquiring Series of
the transactions contemplated herein, except such as have been obtained under
the 1933 Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws and the H-S-R Act. In rendering such opinion
Baker & Hostetler may rely on certain reasonable assumptions and
certifications of fact received from CGST, TCG and certain of its
shareholders.
(f) CGST shall have received an opinion of Baker & Hostetler addressed to
CGST, TCG and the Acquiring Series and in a form reasonably satisfactory to
CGST dated the Exchange Date, with respect to the matters specified in
Section 8(f) of this Agreement. In rendering such opinion Baker & Hostetler
may rely on certain reasonable assumptions and certifications of fact
received from CGST, TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with the
transactions contemplated by this Agreement and all documents, incidental
thereto reasonably shall be satisfactory in form and substance to CGST and
Baker & Hostetler.
(h) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of CGST,
contemplated by the Commission or any state regulatory authority.
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<PAGE> 169
(i) TCG and CGST shall have received from the Commission, if necessary, a
written order of exemption, satisfactory in form and substance to TCG and
CGST, exempting the Reorganization from the provisions of Section 17(a) of
the 1940 Act.
10. TERMINATION. TCG and CGST may, by mutual consent of their respective
trustees, terminate this Agreement, and TCG or CGST, after consultation with
counsel and by consent of their respective trustees or an officer authorized by
such trustees, may, subject to Section 11 of this Agreement, waive any
condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties regarding
the subject matter hereof, constitutes the only understanding with respect to
such subject matter and shall be construed in accordance with and governed by
the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as may
be mutually agreed upon in writing by the authorized officer of TCG and CGST;
provided, however, that following the meeting of CGST's shareholders called by
CGST pursuant to Section 7 of this Agreement, no such amendment may have the
effect of altering or changing the amount or kind of shares received by CGST,
or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect CGST's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ FRANK W. SIEGEL
---------------------------------
Frank W. Siegel, President
CARDINAL GOVERNMENT SECURITIES TRUST
By /s/ FRANK W. SIEGEL
---------------------------------
Frank W. Siegel, President
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<PAGE> 170
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 ITEM CAPTION IN COMBINED PROSPECTUS/PROXY STATEMENT
- -------------- ----------------------------------------------
<S> <C>
1 Cross-Reference Sheet; Front Cover
2 TABLE OF CONTENTS
3 APPROVAL OF THE PLAN -- Summary and -- Special
Considerations And Risk Factors
4 APPROVAL OF THE PLAN -- The Proposed Transaction,
-- Additional Comparative Information
5 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and --
Additional Comparative Information; MISCELLANEOUS --
Additional Information and -- Documents Incorporated by
Reference
6 APPROVAL OF THE PLAN -- Comparison Of Investment
Objectives, Policies And Restrictions and --
Additional Comparative Information; MISCELLANEOUS --
Additional Information and -- Documents Incorporated by
Reference
7 Front Cover; APPROVAL OF THE PLAN -- Summary, --
Approval and Consummation of the Proposed
Transaction, -- The Proposed Transaction; and
MISCELLANEOUS -- Solicitation of Proxies and Payment of
Expenses and -- Substantial Shareholders
8 Not Applicable
9 Not Applicable
</TABLE>
<PAGE> 171
[Letterhead]
January ____, 1996
Dear Cardinal Tax Exempt Money Trust Shareholder:
The Board of Trustees of Cardinal Tax Exempt Money Trust (the "Trust") recently
reviewed and unanimously approved a proposal to reorganize the Trust with and
into a newly created series of The Cardinal Group (the "Group"). This proposed
reorganization is described in the accompanying Combined Prospectus/Proxy
Statement and will be addressed at the Annual Meeting of Shareholders on
February 23, 1996.
The primary purpose of the proposed reorganization is to achieve certain
economies of scale by having the Trust become an additional series of the Group
rather than operate as a separate stand-alone investment company. By operating
more efficiently, we expect to realize cost savings through the elimination of
certain Annual Meeting expenses, a reduction of printing and mailing
expenditures, the lowering of regulatory filing expenses and the reduction of
professional fees. The Board determined that such a reorganization is in the
best interest of the Trust.
If the Agreement and Plan of Reorganization and Liquidation is approved, you
will receive shares of the newly created series of the Group, known as Cardinal
Tax Exempt Money Market Fund, in exchange for your shares of the Trust. Shares
received in this distribution will be equal in value at the time of
reorganization to your shares in the Trust. There will be no adverse federal
income tax consequences associated with this distribution.
<PAGE> 172
As a result of the reorganization, many features of the new series will be the
same as those of the Trust. For instance, the securities in the underlying
portfolio will remain the same. Purchase and redemption procedures will not
change. Slight differences in investment policies and restrictions are proposed
but are not expected to increase the level of risk associated with your
investment.
Please read the accompanying materials carefully. For more details regarding
the proposed reorganization, direct any questions you may have to the Treasurer
of the Trust, Mr. James Schrack, at (800) 282-9446. IT IS VERY IMPORTANT THAT
YOU COMPLETE AND RETURN THE PROXY CARD.
Thank you for your support and investment in Cardinal Tax Exempt Money Trust.
Sincerely,
Frank W. Siegel, CPA
President
Cardinal Tax Exempt Money Trust
<PAGE> 173
CARDINAL TAX EXEMPT MONEY TRUST
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
TELEPHONE: (800) 282-9446
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 23, 1996
To The Shareholders Of Cardinal Tax
Exempt Money Trust:
Notice is hereby given that the Annual Meeting of Shareholders (the
"Meeting") of Cardinal Tax Exempt Money Trust (the "Trust") will be held on
Friday, February 23, 1996, at 10:00 A.M. (Eastern Time) concurrently with the
annual or special in lieu of annual meetings of three of the other funds of the
Cardinal family of funds, at the offices of the Trust, 155 East Broad Street,
Columbus, Ohio 43215. The Meeting is being called for the following purposes:
(1) To fix the number of trustees of the Trust at ten;
(2) To elect ten trustees of the Trust to hold office for the
ensuing year and until their successors are elected and
qualified;
(3) To ratify the selection of KPMG Peat Marwick LLP, independent
certified public accountants, as auditors to be employed by
the Trust for the fiscal year ending September 30, 1996;
(4) To approve an Agreement and Plan of Reorganization and
Liquidation (the "Plan") for the Trust, and the transactions
contemplated thereby, which includes (a) the transfer of all
of the assets of the Trust to Cardinal Tax Exempt Money Market
Fund (the "Acquiring Fund") of The Cardinal Group (the
"Group"), in exchange for shares of the Acquiring Fund, and
the assumption by the Acquiring Fund of all of the liabilities
of the Trust; and (b) the distribution to shareholders of the
Trust of shares of the Acquiring Fund so received in complete
liquidation of the Trust; and
(5) To transact such other business as may properly come before
the Meeting, or any adjournment(s) thereof, including any
adjournment(s) necessary to obtain requisite quorums and/or
approvals.
The Board of Trustees of the Trust has fixed the close of business on
January 8, 1996, as the record date for the determination of shareholders of
the Trust entitled to receive notice of and to vote at the Meeting or any
adjournments thereof. The enclosed Combined Prospectus/Proxy Statement
contains further
<PAGE> 174
information regarding the Meeting and the proposals to be considered.
The enclosed Proxy Card is intended to permit you to vote even if you do not
attend the Meeting in person.
IN ORDER TO HAVE A QUORUM FOR ACTION AT THE MEETING, THE HOLDERS OF AT
LEAST ONE-THIRD OF THE TRUST'S SHARES OUTSTANDING MUST BE PRESENT IN PERSON OR
BY PROXY. THEREFORE, YOUR PROXY IS VERY IMPORTANT TO US. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SIGNED BUT UNMARKED
PROXY CARDS WILL BE COUNTED IN DETERMINING WHETHER A QUORUM IS PRESENT AND WILL
BE VOTED IN FAVOR OF THE PROPOSALS.
By Order of the Board of Trustees
Karen J. Hipsher, Secretary
January __, 1996
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS
OF THE NUMBER OF SHARES THAT YOU OWN.
PLEASE MARK, SIGN, DATE AND RETURN YOUR
PROXY CARD IMMEDIATELY.
2
<PAGE> 175
COMBINED PROSPECTUS/PROXY STATEMENT
January __, 1996
Cardinal Tax Exempt Money Cardinal Tax Exempt Money Trust
Market Fund, a series of 155 East Broad Street
The Cardinal Group Columbus, Ohio 43215
155 East Broad Street Telephone: (800) 282-9446
Columbus, Ohio 43215
Telephone: (800) 282-9446
This Combined Prospectus/Proxy Statement is being furnished to
shareholders of Cardinal Tax Exempt Money Trust, an Ohio business trust (the
"Trust"), in connection with the solicitation of proxies by the Board of
Trustees of the Trust to be used at the Annual Meeting of Shareholders of the
Trust (the "Meeting"), to be held at the offices of The Ohio Company, 155 East
Broad Street, Columbus, Ohio 43215 on Friday, February 23, 1996, beginning at
10:00 A.M. (Eastern Time).
In addition to the customary annual election of Trustees and
ratification of the selection of independent accountants, the Trustees of the
Trust are seeking your approval of an Agreement and Plan of Reorganization and
Liquidation (the "Plan"), which contemplates that Cardinal Tax Exempt Money
Market Fund (the "Acquiring Fund"), a series or portfolio of The Cardinal Group
(the "Group"), will acquire all of the assets of and will assume all of the
liabilities of the Trust in exchange for shares of the Acquiring Fund.
Following such exchange, the shares of the Acquiring Fund received by
the Trust will be distributed to the Trust's shareholders and the Trust will be
liquidated and dissolved. This exchange and distribution transaction is
sometimes referred to herein as the "Reorganization."
This Combined Prospectus/Proxy Statement, which should be retained for
future reference, sets forth concisely the information about the Acquiring Fund
that a prospective investor, including shareholders of the Trust, should know
before investing. Additional information about the Reorganization and the
Acquiring Fund is contained in a separate Statement of Additional Information
which has been filed with the Securities and Exchange Commission (the
"Commission") and is available upon request without charge by calling the Group
at (800) 282-9446 or writing to the Group at the address set forth above. The
Statement of Additional Information bears the same date as this Combined
Prospectus/Proxy Statement and is incorporated by reference herein.
THE SHARES OF THE ACQUIRING FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE ACQUIRING
FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
<PAGE> 176
PRINCIPAL. THE ACQUIRING FUND INTENDS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT NET ASSET VALUE WILL NOT
VARY.
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.
Upon completion of the Reorganization, you will receive full and
fractional shares of the Acquiring Fund equal in value when issued to the
shares of the Trust owned by you immediately prior to the Reorganization. No
commissions or sales loads will be charged in connection with the
Reorganization and there will be no adverse federal income tax consequences.
You should separately consider any other tax consequences in consultation with
your tax advisers.
As discussed in detail herein, the investment objectives and strategy
of the Acquiring Fund are substantially similar to those of the Trust. There
are some differences between investment policies and restrictions, as well as
differences in fees and in voting rights, which are described in detail below.
The Prospectus of the Acquiring Fund relating to its shares, dated January __,
1996, is incorporated by reference into this Combined Prospectus/Proxy
Statement and accompanies this Combined Prospectus/Proxy Statement.
The Trust's Prospectus dated February 1, 1995, as supplemented
December 11, 1995, contains additional information about the Trust, has been
filed with the Commission, is incorporated by reference herein and is available
without charge by writing the Trust at 155 East Broad Street, Columbus, Ohio
43215, or by calling the Trust at (800) 282-9446. Copies of documents
requested will be sent by first-class mail to the requesting shareholder within
one business day of the request.
2
<PAGE> 177
TABLE OF CONTENTS
Page
----
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FIXING THE NUMBER OF TRUSTEES AND ELECTION OF
TRUSTEES - ISSUES 1 AND 2 . . . . . . . . . . . . . . . . . . . . 5
Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . 8
Other Executive Officers . . . . . . . . . . . . . . . . . . . . . 9
RATIFICATION OF SELECTION OF INDEPENDENT
ACCOUNTANTS - ISSUE 3 . . . . . . . . . . . . . . . . . . . . . . 9
APPROVAL OF THE PLAN - ISSUE 4 . . . . . . . . . . . . . . . . . . . . . . 10
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Considerations and Risk Factors . . . . . . . . . . . . . 14
The Proposed Transaction . . . . . . . . . . . . . . . . . . . . . 18
Comparison of Investment Objectives, Policies
and Restrictions . . . . . . . . . . . . . . . . . . . . . 22
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . 23
Additional Comparative Information . . . . . . . . . . . . . . . . 25
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 30
EXHIBIT A - AGREEMENT AND PLAN OF REORGANIZATION
AND LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . A-1
3
<PAGE> 178
GENERAL
This Combined Prospectus/Proxy Statement is furnished in connection
with the solicitation of proxies by the Board of Trustees of the Trust to be
used in connection with the Meeting to be held on Friday, February 23, 1996.
The management knows of no business which will be presented for
consideration other than that mentioned in Issues 1, 2, 3 and 4 of the Notice
of Annual Meeting of Shareholders. If any other matters are properly presented
at the Meeting or any adjournment(s) thereof, it is the intention of the
persons named therein to vote the proxies in accordance with their judgment on
such matters.
The Board of Trustees has fixed the close of business on January 8,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Meeting (the "Record Date"). On the Record Date
there were ________ shares of beneficial interest, $0.10 par value per share
("Shares"), of the Trust outstanding and entitled to vote. Each of the Shares
is entitled to one vote. Shareholders of fractional Shares will be entitled to
a vote of such fraction. Shareholders holding one third of the outstanding
Shares of the Trust will be deemed to constitute a quorum for the transaction
of business at the Meeting.
The expenses for preparation, printing and mailing of the enclosed
proxy, accompanying notice and Combined Prospectus/Proxy Statement, or any
re-solicitation of the foregoing, will be paid in part by the Trust and in part
by The Ohio Company.
Only shareholders of record at the close of business on the Record
Date will be entitled to notice of and to vote at the Meeting. Shares
represented by management proxies, unless previously revoked, will be voted at
the Meeting in accordance with the instructions of the shareholders. If no
instructions are given, the proxies will be voted in favor of the proposals.
To revoke a management proxy, the shareholder giving such proxy must either
submit to the Trust a subsequently dated proxy, deliver to the Trust a written
notice of revocation or otherwise give notice of revocation in open meeting, in
all cases prior to the exercise of the authority granted in the management
proxy.
In the event that sufficient votes are not received by the Meeting
date, a person named as proxy may propose one or more adjournments of the
Meeting for a period or periods of not more than 45 days in the aggregate to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of the holders of a majority of the Trust's Shares present at
the Meeting in person or by proxy. The persons named as proxies will vote in
favor of such adjournment those proxies which they are entitled to vote in
favor of the proposals and will vote against
4
<PAGE> 179
any such adjournment those proxies required to be voted against the proposals.
The mailing address of the principal executive offices of the Trust is
155 East Broad Street, Columbus, Ohio 43215. The approximate date on which
this Combined Prospectus/Proxy Statement and form of proxy are first sent to
shareholders is January ___, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding.
The Acquiring Fund does not have and will not have, until the effective date of
the Reorganization, any assets or liabilities nor will it have commenced
operations.
Any proxy which is properly executed and received in time to be voted
at the Meeting will be counted in determining whether a quorum is present and
will be voted in accordance with the instructions marked thereon. Abstentions
and "broker non-votes" (i.e., proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a particular matter with respect to which
the brokers or nominees do not have discretionary power to vote) will be
counted for purposes of determining whether a quorum is present. For purposes
of determining whether a proposal has been approved, abstentions and broker
non-votes will have the effect of a vote against the proposal in those
instances where approval of an issue requires a certain percentage of all votes
outstanding or of the votes constituting the quorum.
FIXING THE NUMBER OF TRUSTEES AND ELECTION OF TRUSTEES -
ISSUES 1 AND 2
It is the present intention that the enclosed proxy will be used for
the purposes of voting in favor of fixing the number of trustees at ten and the
election of each of the following ten nominees as a trustee to hold office
until the next annual meeting and until his successor is elected and qualified.
Except for Mr. Allen, each of the nominees is a member of the present Board of
Trustees of the Trust and has been elected by shareholder vote. Pursuant to
Rule 14a-4(d) under the Securities Exchange Act of 1934, each nominee has
consented to be named in this Combined Prospectus/Proxy Statement and to serve
if elected. It is not expected that any of the nominees will decline or become
unavailable for election, but in case this should happen, the discretionary
power given in the proxy may be used to vote for a substitute nominee or
nominees.
5
<PAGE> 180
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST SHARES OF TRUST
PRINCIPAL OCCUPATION(a) A TRUSTEE OF BENEFICIALLY OWNED % OF CLASS AT
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(b) THE TRUST SINCE AS OF 1/8/96 1/8/96
--------------------------------------------------- --------------- -------------------- -------------
<S> <C> <C> <C>
H. KEITH ALLEN -- Age 54 -- Chairman(c) and Trustee(d)(f)* 1995 ________ ______ %
Chief Operating Officer, Secretary, Treasurer and a Director of The Ohio
Company (investment banking).
FRANK W. SIEGEL -- Age 43 -- President(c) and Trustee (d)(f)* 1995 ________ ________
Chartered Financial Analyst and Senior Vice President of The Ohio Company
(investment banking); formerly Vice President of Keystone Group (mutual fund
management/administration); formerly Senior Vice President of Trust Advisory
Group (mutual fund consulting).
GORDON B. CARSON -- Age 84 -- Trustee(f) 1983 ________ ________
Principal, Whitfield Robert Associates (construction consulting firm).
JOHN B. GERLACH, JR. -- Age 41 -- Trustee(e) 1993 ________ ________
President and a Director of Lancaster Colony Corporation (diversified
consumer products) since 1994; formerly Executive Vice President, Secretary
and a Director of Lancaster Colony.
MICHAEL J. KNILANS -- Age 68 -- Trustee(f) 1989 ________ ________
From November, 1989 to August, 1995, member, Workers' Compensation Board
(Ohio Bureau of Workers Compensation) and Chairman from 1992 through August,
1995; a Director of Eagle Food Centers, Inc. (supermarket company).
JAMES I. LUCK -- Age 50 -- Trustee 1989 ________ ________
President of The Columbus Foundation (philanthropic public foundation).
DAVID L. NELSON -- Age 65 -- Trustee(d)(e) 1983 ________ ________
Since October, 1995, Chairman of the Board of Directors of Herman Miller,
Inc. (furniture manufacturer); former Vice President, Customer Support,
Americas Region, and Vice President, Customer Satisfaction, Industry Segment,
of Asea Brown Boveri, Inc. (designer and manufacturer of process automation
systems for basic industries).
C. A. PETERSON -- Age 69 -- Trustee* 1983 ________ ________
Chartered Financial Analyst and former Senior Executive Vice President and a
Director of The Ohio Company (investment banking).
LAWRENCE H. ROGERS II -- Age 74 -- Trustee 1983 -- --
Self-employed author; former Vice Chairman of Motor Sports Enterprises, Inc.;
also a Director of Cincinnati Life Insurance Company and Cincinnati Financial
Corporation.
</TABLE>
6
<PAGE> 181
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST SHARES OF TRUST
PRINCIPAL OCCUPATION(a) A TRUSTEE OF BENEFICIALLY OWNED % OF CLASS AT
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(b) THE TRUST SINCE AS OF 1/8/96 1/8/96
--------------------------------------------------- --------------- -------------------- -------------
<S> <C> <C> <C>
JOSEPH H. STEGMAYER -- Age 44 -- Trustee(d)(e) 1983 ________ ________
President and a Director of Clayton Homes, Inc. (manufactured homes); former
Vice President, Treasurer, Chief Financial Officer and a Director of
Worthington Industries, Inc. (specialty steel and plastics manufacturer).
All Trustees and Officers of the Trust as a group (including __ persons). ________ _________
_____________________
<FN>
(a) Unless otherwise noted, Principal Occupation reflects principal
responsibility of each individual during the past five years.
(b) All nominees also serve as Trustees of Cardinal Government Securities
Trust, Cardinal Government Obligations Fund and the Group, and as
Directors of The Cardinal Fund Inc.
(c) Mr. Allen has been an officer of the Trust since July, 1995. Mr.
Siegel has been an officer of the Trust since October, 1994.
(d) Member of the Nominating Committee.
(e) Member of the Audit Committee.
(f) Member of the Executive Committee.
* Messrs. Allen, Siegel and Peterson are considered "interested persons"
of the Trust and Cardinal Management Corp., as that term is defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended
(the "1940 Act").
</TABLE>
The Trust has an Audit Committee comprised of the above designated
Trustees. During the fiscal year ended September 30, 1995, the Audit Committee
held two meetings. The function of such Committee includes such specific
matters as recommending independent auditors to the Board of Trustees,
reviewing audit plans and results of audits, and considering other related
matters deemed appropriate by the Board of Trustees.
The Trust has a Nominating Committee which is comprised of the above
designated Trustees. During the fiscal year ended September 30, 1995, the
Nominating Committee held no meetings. The Committee's function includes
selecting and recommending to the full Board of Trustees nominees for election
as Trustees of the Trust. The Committee has been able to identify from its own
resources an ample number of qualified candidates, but will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the Board. Such suggestion must be sent in writing to the
Nominating Committee of the Trust, c/o the Trust's Secretary. Suggestions must
be received by the Trust's Secretary before the end of the Trust's fiscal year
to be eligible for consideration for nomination at or before the next annual
meeting of shareholders.
During the fiscal year ended September 30, 1995, the Trust's Board of
Trustees held four meetings.
7
<PAGE> 182
The affirmative vote of the holders of at least a majority of the
Shares of the Trust present in person or by proxy is required to approve the
proposal to fix the number of trustees at ten and for the election of trustees.
The following table sets forth information regarding all compensation
paid by the Trust to its Trustees for their services as trustees during the
fiscal year ended September 30, 1995. The Trust has no pension or retirement
plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
NAME AND POSITION COMPENSATION TOTAL COMPENSATION FROM THE
WITH THE TRUST* FROM THE TRUST TRUST AND THE FUND COMPLEX**
-------------- -------------- ----------------------------
<S> <C> <C>
H. Keith Allen $0 $0
Chairman, Trustee and Member of
Executive and
Nominating Committees
Gordon B. Carson $2,400 $12,000
Trustee and Member of Executive
Committee
John B. Gerlach $2,600 $13,000
Trustee and Member of Audit Committee
Michael J. Knilans $2,400 $12,000
Trustee and Member of Executive
Committee
James I. Luck $2,400 $12,000
Trustee
David L. Nelson $2,600 $13,000
Trustee and Member of Audit and
Nominating Committees
C.A. Peterson $2,400 $12,000
Trustee
Lawrence H. Rogers, II $2,400 $12,000
Trustee
Frank W. Siegel $0 $0
Trustee, President and Member of
Nominating and Executive Committees
</TABLE>
8
<PAGE> 183
<TABLE>
<CAPTION>
AGGREGATE
NAME AND POSITION COMPENSATION TOTAL COMPENSATION FROM THE
WITH THE TRUST* FROM THE TRUST TRUST AND THE FUND COMPLEX**
-------------- -------------- ----------------------------
<S> <C> <C>
Joseph H. Stegmayer $2,000 $10,000
Trustee and Member of Audit and
Nominating Committees
__________________________________
<FN>
*During the fiscal year ended September 30, 1995, Hannibal L. Godwin,
a former officer of the Trust, and John L. Schlater, each former officers of
The Ohio Company and CMC, had served as trustees of the Trust but no longer do
so as of the date hereof. Neither Mr. Godwin nor Mr. Schlater received any
compensation from the Trust or the Fund Complex.
**For purposes of this Table, Fund Complex means one or more mutual
funds, including the Trust, which have a common investment adviser or
affiliated investment advisers or which hold themselves out to the public as
being related.
</TABLE>
OTHER EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
other executive officers of the Trust:
<TABLE>
<CAPTION>
NAME (POSITION WITH PRINCIPAL AN OFFICER OF THE
TRUST) AGE OCCUPATION(1) TRUST SINCE
------------------- ------- ----------------- -----------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1983
(Treasurer) The Ohio Company
David C. Will 54 Vice President 1993
(Vice President) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
______________
<FN>
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
</TABLE>
Officers of the Trust are elected for terms of one year and until
their respective successors are chosen and qualified, subject to removal from
office at any time by a vote of the majority of the Board of Trustees.
None of the officers of the Trust receives compensation from the
Trust. The Trust has no employees.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS - ISSUE 3
The Board of Trustees of the Trust, including a majority of the Board
of Trustees who are not "interested persons," on November 13, 1995, approved
the selection of KPMG Peat Marwick LLP as the independent
9
<PAGE> 184
certified public accountants of the Trust. Unless instructed in the
Proxy to the contrary, the persons named therein intend to vote in
favor of the ratification of the selection of KPMG Peat Marwick LLP as
independent certified public accountants of the Trust to serve for the
fiscal year ending September 30, 1996.
A representative of KPMG Peat Marwick LLP will be present at the
Meeting with an opportunity to make a statement if he desires to do so and to
respond to appropriate questions.
The affirmative vote of the holders of at least a majority of the
total number of Shares present in person or by proxy at the meeting is required
to ratify the Board of Trustees' selection of KPMG Peat Marwick LLP as
independent accountants for the Trust.
APPROVAL OF THE PLAN - ISSUE 4
SUMMARY
This Summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
the Plan, a copy of which is attached to this Prospectus/Proxy Statement as
Exhibit A, the accompanying Prospectus of the Acquiring Fund dated January __,
1996, and the Prospectus of the Trust dated February 1, 1995, as supplemented
December 11, 1995.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of
the assets of the Trust to the Acquiring Fund in exchange for shares of the
Acquiring Fund and the assumption by the Group on behalf of the Acquiring Fund
of all of the liabilities of the Trust. The Plan also calls for the
distribution of shares of the Acquiring Fund to the Trust's shareholders in
complete liquidation of the Trust. (The foregoing proposed transactions are
referred to in this Prospectus/Proxy Statement as the "Reorganization.") As a
result of the Reorganization, each shareholder of the Trust will become the
owner of that number of full and fractional shares of the Acquiring Fund having
an aggregate value equal to the aggregate value of the shareholder's Shares of
the Trust as of the close of business on the day preceding the date that the
Trust's assets are exchanged for shares of the Acquiring Fund. Proposals for
similar reorganizations into other series of the Group are simultaneously being
made to shareholders of The Cardinal Fund Inc., Cardinal Government Obligations
Fund and Cardinal Government Securities Trust, the other series of the Cardinal
family of funds.
For the reasons set forth below under "THE PROPOSED TRANSACTION --
REASONS FOR THE REORGANIZATION," the Board of Trustees of the Trust, including
the Trustees of the Trust (the "Independent Trustees") who are not "interested
persons" as that term is defined in the 1940 Act, at a special meeting held on
November 13, 1995, unanimously concluded that the Reorganization will be in the
best interests of the Trust and its shareholders and that the interests of the
Trust's existing shareholders will not be diluted as a result of the
transaction contemplated by the
10
<PAGE> 185
Reorganization and therefore has submitted the Plan for approval by the Trust's
shareholders. The Board of Trustees of the Group has reached similar
conclusions with respect to the Acquiring Fund and has also approved the
Reorganization in respect of the Acquiring Fund.
Approval of the Reorganization will require the affirmative vote of at
least two-thirds of the Shares of the Trust outstanding and entitled voted on
the matter. See "APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION" below.
COMPARATIVE EXPENSE INFORMATION. The purpose of the following tables
is to assist shareholders of the Trust in understanding the costs and expenses
that a shareholder in the Acquiring Fund would bear directly or indirectly.
The shareholder transaction expenses for the Acquiring Fund are estimated for
the fiscal period following the Reorganization and ending September 30, 1996.
The expenses of the Trust are based upon the fiscal year ended September 30,
1995.
<TABLE>
<CAPTION>
ACQUIRING ACQUIRING FUND ON
SHAREHOLDER TRANSACTION EXPENSES FUND TRUST A PRO FORMA BASIS*
- -------------------------------- ---------- ----- ------------------
<S> <C> <C> <C>
Sales Charge (as a percentage of 0% 0% 0%
offering price)
Annual Fund Expenses (as a percentage
of average net assets)
Investment Advisory Fees .50% .50% .50%
Rule 12b-1 Fees 0 0 0
Other Expenses .32(1) .33 .32
------ --- ---
Total Fund Operating Expenses .82% .83% .82%
==== ==== ====
________________
<FN>
1 "Other Expenses" are based upon estimated amounts for the current
fiscal year.
* These calculations reflect the expense information for the Acquiring
Fund after giving effect to the Reorganization.
</TABLE>
EXAMPLE
- -------
You would pay the following
expenses on a $1,000
investment, assuming (1) 5%
annual return and (2)
redemption at the end of each
period:
<TABLE>
<CAPTION>
ACQUIRING FUND ON
ACQUIRING FUND TRUST A PRO FORMA BASIS*
-------------- ----- ------------------
<S> <C> <C> <C>
One Year $ 8 $ 8 $ 8
Three Years $26 $ 26 $ 26
Five Years N/A $ 46 $ 46
Ten Years N/A $103 $101
______________
</TABLE>
11
<PAGE> 186
* These calculations reflect the expense information for the
Acquiring Fund after giving effect to the Reorganization.
FEDERAL INCOME TAX CONSEQUENCES. Prior to completion of the
Reorganization, the Trust will have received an opinion of counsel that, upon
the consummation of the Reorganization and the transfer of the assets of the
Trust, no gain or loss will be recognized by the Trust or its shareholders for
federal income tax purposes. The holding period and aggregate tax basis for
the Acquiring Fund shares that are received by a Trust shareholder will be the
same as the holding period and aggregate tax basis of the Shares of the Trust
previously held by such shareholder. In addition, the holding period and tax
basis of the assets of the Trust in the hands of the Acquiring Fund as a result
of the Reorganization will be the same as the holding period and tax basis of
the assets in the hands of the Trust immediately prior to the Reorganization.
APPROVAL AND CONSUMMATION OF THE PROPOSED TRANSACTION. The Board of
Trustees of the Trust, at a special meeting held on November 13, 1995,
determined unanimously that the Reorganization is in the best interests of the
Trust and that the interests of the existing shareholders of the Trust will not
be diluted as a result of the Reorganization. Similarly, the Board of Trustees
of the Group unanimously determined that the Reorganization is in the best
interests of the Group and the Acquiring Fund. The proposed Reorganization of
the Trust with and into the Acquiring Fund is part of a larger plan to
reorganize each of the Trust, Cardinal Government Obligations Fund, Cardinal
Government Securities Trust and The Cardinal Fund Inc., each a separate
stand-alone investment company, into a separate portfolio of the Group, and
will allow the shareholders of the Trust to realize certain economies of scale
as a result of becoming shareholders of a series investment company and thus
having certain fixed fees spread over a larger pool of assets. In addition,
the corporate structure of and the more uniform investment policies and
restrictions of the Acquiring Fund will improve oversight of compliance
obligations and overall management of the shareholders' investment since many
of such policies and restrictions will be the same for all of the series or
portfolios of the Group. See "THE PROPOSED TRANSACTION -- REASONS FOR THE
PROPOSED TRANSACTION" below.
To be approved, the Plan will require the affirmative vote of the
holders of at least two-thirds of the Shares of the Trust entitled to vote on
the matter. The Reorganization with respect to the Trust is not contingent on
the approval of the Reorganization with respect to any of the other Cardinal
funds. If the Trust's shareholders do not approve the proposed Reorganization,
the Trust's Board of Trustees will consider what other alternatives would be in
the shareholders' best interests. If the Plan is approved at the Meeting, the
effective date of the Reorganization (the "Closing Date") is expected to be on
or about March 31, 1996, subject, however, to the receipt by the Trust and the
Group, if necessary, of an order of exemption from the Commission with respect
to the Reorganization.
12
<PAGE> 187
INVESTMENT OBJECTIVES AND POLICIES. The Trust and the Acquiring Fund
have the same investment objectives, and generally have the same investment
policies and restrictions. Each of the Trust and the Acquiring Fund seek to
maximize current income exempt from federal income tax while preserving capital
and maintaining liquidity. In order to achieve these objectives each has a
policy of investing at least 80% of its net assets in a diversified portfolio
of Municipal Securities (as defined below under "COMPARISON OF INVESTMENT
OBJECTIVES, POLICIES AND RESTRICTIONS -- INVESTMENT OBJECTIVES AND POLICIES"),
the interest on which is both exempt from federal income tax and not treated as
a preference item for purposes of the federal alternative minimum tax. For a
discussion of the differences between the investment restrictions of the
Acquiring Fund and the Trust, see "COMPARISON OF INVESTMENT OBJECTIVES,
POLICIES AND RESTRICTIONS -- INVESTMENT RESTRICTIONS."
FEES AND EXPENSES. Each of the Trust and the Acquiring Fund pay the
following fees: to Cardinal Management Corp. ("CMC") an investment advisory
and management fee computed daily and payable monthly at the annual rate of
0.50% of the value of its average daily net assets; and to CMC for transfer
agency services an annual fee, paid monthly, at an annual rate of $21 per
shareholder account plus out-of-pocket expenses. The Acquiring Fund also pays
to CMC for fund accounting services a fee computed daily and paid periodically
at an annual rate of .03% of its average daily net assets of $100 million or
less and .01% of its average daily net assets in excess of $100 million.
The Trust pays to CMC for fund accounting services a fee equal to
$9,000 for the first $25 million of assets, $6,000 for the next $25 million of
assets, $3,000 for each additional $25 million to $350 million of assets, and
$3,000 for each additional $100 million of assets thereafter.
Shares of each of the Trust and the Acquiring Fund are distributed by
The Ohio Company, a registered broker-dealer and the sole shareholder of CMC.
Neither the Trust nor the Acquiring Fund pays any distribution fees or expenses
nor is any sales charge imposed upon the sale of its shares.
The expense ratio of the Acquiring Fund subsequent to the
Reorganization is expected to be slightly lower than that of the Trust. See
"THE PROPOSED TRANSACTION -- REASONS FOR THE PROPOSED TRANSACTION." The total
annual operating expenses of the Trust as of September 30, 1995, were 0.83% as
a percentage of average net assets. Assuming the same level of net assets for
the Acquiring Fund after the Reorganization, it is estimated that the total
annual operating expenses for the Acquiring Fund stated as a percentage of
average net assets would be 0.82%.
COMPARISON OF PURCHASE AND REDEMPTION PROCEDURES. Shares of the Trust
and the Acquiring Fund are offered at net asset value and may be purchased
through The Ohio Company on each day the New York Stock Exchange is open for
business (a "Business Day"). The minimum initial
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investment in both the Trust and the Acquiring Fund is $1,000, the minimum
subsequent investment is $100 and there is no sales charge imposed upon the
purchase of shares or upon the reinvestment of dividends and distributions.
Redemption orders for shares of both the Trust and the Acquiring Fund
must be placed with CMC. Proceeds of redemption requests received by CMC in
proper form before (1) 4:00 p.m. Eastern Time for shareholders who are
customers of The Ohio Company and who have submitted their redemption request
through their broker at The Ohio Company or (2) 12:00 noon Eastern Time for all
other redemption requests, will be sent by mail on the next Business Day or, if
the expedited redemption option is available, by federal funds wire on the next
Business Day for use on that day.
COMPARISON OF EXCHANGE PRIVILEGES. Shares of the Trust and of the
Acquiring Fund may be exchanged for shares of any other fund advised by The
Ohio Company or CMC (a "Cardinal Fund") at respective net asset values,
although a sales charge may be applicable upon exchanges of shares for a
Cardinal Fund sold with a sales charge.
COMPARISON OF DIVIDEND POLICIES. Each of the Trust and the Acquiring
Fund declare dividends daily and pay dividends from net investment income
monthly. Each of the Trust and Acquiring Fund will distribute all of any
capital gains at least annually. In addition, shareholders of the Trust and
the Acquiring Fund receive dividends and distributions in the form of
additional shares and not in cash unless otherwise requested by the
shareholder.
COMPARISON OF VOTING RIGHTS. Each shareholder of the Trust is
entitled to one vote for each full share held and a proportionate fractional
vote for each fractional share held on each matter submitted to the vote of the
Trust's shareholders, regardless of the net asset value of such share. Each
shareholder of the Acquiring Fund, however, is entitled to one vote for each
dollar of value invested and a proportionate fractional vote for any fraction
of a dollar invested.
SPECIAL CONSIDERATIONS AND RISK FACTORS
Because the investment objectives, policies, strategies and
restrictions of the Trust and the Acquiring Fund are substantially similar, the
overall level of investment risk should not materially change as a result of
the Reorganization. There can be no assurance that either the Trust or the
Acquiring Fund will achieve its investment objectives or be able continuously
to maintain a net asset value per share of $1.00.
The following discussion is qualified in its entirety by the
disclosure set forth in the Acquiring Fund's Prospectus accompanying this
Combined Prospectus/Proxy Statement and the Trust's Prospectus. For additional
information, see "COMPARISON OF INVESTMENT OBJECTIVES,
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POLICIES AND RESTRICTIONS" and "ADDITIONAL COMPARATIVE INFORMATION," below.
VARIABLE RATE SECURITIES. The Trust and the Acquiring Fund invest or
intend to invest more than 25% of their assets in certain variable or floating
rate demand Municipal Securities, including participation interests therein.
The value of such securities may change with changes in interest rates
generally. However, the variable or floating rate nature of such securities
should reduce, to the extent the Trust or the Acquiring Fund (as the case may
be) is invested in such securities, the degree of fluctuation in the value of
portfolio investments. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio composed entirely
of fixed income securities. The Trust and the Acquiring Fund's portfolio may
contain variable or floating rate demand securities on which stated minimum or
maximum rates set by state law limit the degree to which interest on such
securities may fluctuate; to the extent it does, increases or decreases in
value may be somewhat greater than would be the case without such limits.
Because the adjustment of interest rates on the variable or floating rate
demand securities is made in relation to movements of the applicable indices
(e.g., the prime rate), such securities are not comparable to longer-term fixed
rate securities. Accordingly, interest rates on such securities may be higher
or lower than current market rates for fixed rate obligations of comparable
quality with similar maturities. The Trust and the Acquiring Fund, however,
will only acquire variable or floating rate securities the interest rates on
which are determined by reference to other short-term market rates of interest.
To the extent the Trust's or the Acquiring Fund's portfolio is invested in
variable or floating rate securities, yield can be expected to decline in
periods of falling interest rates more rapidly than if its portfolio is
invested solely in longer-term fixed rate securities. Conversely, yield, under
the same circumstances, can be expected to increase more rapidly in periods of
rising interest rates. Such instruments may be considered to be derivatives.
A derivative is generally defined as an instrument whose value is based upon,
or derived from, some underlying index, reference rate (e.g., interest rates),
security, commodity or other asset. As stated above, neither the Trust nor the
Acquiring Fund has any limit as to the percentage of its total assets that may
be invested in such variable or floating rate securities.
The characteristics of short-term Municipal Securities are such that
the price stability and liquidity of a fund which invests in such securities
may not be equal to that of a money market fund which exclusively invests in
short-term taxable money market securities. While CMC believes that the
purchase of variable rate demand Municipal Securities will facilitate
maintaining a $1.00 per share net asset value, each of the Trust and the
Acquiring Trust is still expected to have a significantly longer average
maturity than a general purpose taxable money market fund with the result that
the pricing of its
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portfolio will tend to be more subject to short-term interest rate
fluctuations.
CONCENTRATION. Variable rate demand Municipal Securities in which the
Trust and the Acquiring Fund invest may be supported by bank letters of credit
or comparable guarantees of financial institutions. To the extent that 25% or
more of the Trust's or the Acquiring Fund's assets are invested in variable
rate demand Municipal Securities supported by such letters of credit or
guarantees, the Trust or the Acquiring Fund, as the case may be, may be deemed
to be concentrated in the banking industry. The profitability of this industry
is largely dependent upon the availability and cost of capital funds for the
purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations under a letter of credit.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each of the Trust and
the Acquiring Fund may also purchase securities on a when-issued or
delayed-delivery basis. The Trust and the Acquiring Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies,
not for investment leverage, although such transactions represent a form of
leveraging. When-issued securities are securities purchased for delivery
beyond the normal settlement date at a stated price and yield and thereby
involve a risk that the yield obtained in the transaction will be less than
those available in the market when delivery takes place. Such securities are
not paid for or do not start earning interest until they are received although
the payment obligation and the coupon rate have been established before the
time the mutual fund enters into the commitment. When the Trust or the
Acquiring Fund agrees to purchase such securities, its custodian will set aside
cash or liquid securities equal to the amount of the commitment in a separate
account. Securities purchased on a when-issued basis are recorded as an asset
and are subject to changes in the value based upon changes in the general level
of interest rates. In when-issued and delayed-delivery transactions, the
mutual fund relies on the seller to complete the transaction; the seller's
failure to do so may cause such fund to miss a price or yield considered to be
advantageous.
Neither the Trust's nor the Acquiring Fund's commitments to purchase
when-issued securities will exceed 25% of the value of its total assets absent
unusual market conditions. In the event that its commitments to purchase
when-issued securities ever exceed 25% of the value of its assets, such fund's
liquidity and the ability of CMC to manage it might be adversely affected.
TAXABLE MONEY MARKET SECURITIES. Under normal operating
circumstances, the Trust's and the Acquiring Fund's assets will be managed with
a view towards producing only income that is exempt from federal income
taxation. However, the Trust and the Acquiring Fund may
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each invest up to 20% of its respective assets in "temporary investments," that
is, money market instruments consisting of marketable obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, deposit
obligations of banks and savings and loans which are members of the Federal
Deposit Insurance Corporation ("FDIC"), bankers' acceptances, high-grade
commercial paper guaranteed or issued by domestic corporations and repurchase
agreements secured by such obligations.
REPURCHASE AGREEMENTS. Securities held by each of the Trust and the
Acquiring Fund may be subject to repurchase agreements. Under the terms of a
repurchase agreement, the Trust or the Acquiring Fund acquires securities from
a financial institution such as a well-established securities dealer or a bank
which is a member of the Federal Reserve System which CMC deems creditworthy
under guidelines approved by the respective Boards of Trustees. At the time of
purchase, the bank or securities dealer agrees to repurchase the underlying
securities at a specified time and price. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated
to the coupon rate or maturity of the underlying security. Under the 1940 Act,
repurchase agreements are considered to be loans by the Trust and the Acquiring
Fund. The Trust and the Acquiring Fund will only enter into a repurchase
agreement where (i) the underlying securities are of the type which such fund's
investment policies would allow it to purchase directly, (ii) the market value
of the underlying security, including interest accrued, will be at all times
equal to or exceed the value of the repurchase agreement, and (iii) payment for
the underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the fund's custodian or a bank acting as
agent. CMC will be responsible for continuously monitoring such requirements.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Trust or the Acquiring Fund, as the case may be, could
experience both delays in liquidating the underlying securities and losses,
including: (a) possible decline in the value of the underlying securities
during the period while seeking to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights.
LOAN PARTICIPATIONS. The Trust and the Acquiring Fund may each
acquire participations in privately negotiated loans to municipal borrowers,
provided that the interest received thereon is exempt, in the opinion of bond
counsel to the municipal borrower, from federal income tax. Loan
participations are loans subject to the Trust's and the Acquiring Fund's
respective investment restrictions applicable to these activities. See
"COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS" below.
INVESTMENT COMPANY SECURITIES. Each of the Trust and the Acquiring
Fund may also invest up to 10% of the value of its total assets in the
securities of other investment companies subject to the limitations set forth
in the 1940 Act. Such funds intend to invest in the securities of
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other money market mutual funds for purposes of short-term cash management.
Their investment in such other investment companies may result in the
duplication of fees and expenses, particularly investment advisory fees.
THE PROPOSED TRANSACTION
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION. The Plan
provides that all of the assets of the Trust as of the Exchange Date (as
defined in the Plan) will be transferred to the Acquiring Fund in exchange for
shares of the Acquiring Fund and the assumption by the Acquiring Fund of all of
the liabilities of the Trust. The Closing Date is expected to be on or about
March 31, 1996, subject, however, to the receipt by the Trust and the Group of
any necessary order of exemption from the Commission with respect to the
Reorganization. A copy of the Plan is attached as Exhibit A to this Combined
Prospectus/Proxy Statement. Although portions of the Plan are summarized
below, this summary is qualified in its entirety by reference to the Plan.
Promptly after the Exchange Date, the Trust will distribute the shares
of the Acquiring Fund to the Trust's shareholders of record as of the close of
business on the Exchange Date. The shares of the Acquiring Fund which will be
issued for distribution to the Trust's shareholders will be equal in aggregate
value to the Shares of the Trust held as of the Valuation Time (as defined in
the Plan). All issued and outstanding Shares of the Trust will be cancelled on
the Trust's books. Shares of the Acquiring Fund will be represented only by
book entries; no share certificates will be issued.
The consummation of the Reorganization is subject to the satisfaction
of a number of conditions set forth in the Plan, including approval by
shareholders of the Trust. The Plan also may be terminated and the
Reorganization abandoned by the Trust and the Acquiring Fund by mutual consent
of their respective trustees. If the consummation of the Reorganization is so
abandoned, no party shall be liable to the other party for any damages
resulting therefrom. If the Reorganization is otherwise not consummated by
reason of either party's being unwilling or unable to go forward (other than by
reason of the non-fulfillment or failure of certain conditions to such party's
obligations), such party will pay directly all reasonable fees and expenses
incurred by the other party in connection with the Reorganization.
The Reorganization also is subject to the condition of obtaining an
opinion of counsel to the effect that the Reorganization constitutes a tax-free
reorganization for federal income tax purposes and any necessary written order
of exemption from the Commission exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
Except as otherwise provided below, all fees and expenses incurred by
a party in connection with the Plan will be paid by the party directly
incurring such costs except where a party is unwilling or unable to go forward
(other than for lack of requisite shareholder approval or breach by the other
party in its covenants) in which case
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such party will pay all reasonable fees and expenses of the other party. The
Ohio Company will pay the costs associated with the Reorganization. The Trust
will pay those costs associated with that portion of the Meeting relating to
customary annual meeting matters (e.g., election of trustees), and the
Acquiring Fund will bear its organizational costs.
Shareholders of the Trust will have no dissenters' rights or appraisal
rights. If the Plan is duly approved by shareholders, all shareholders of the
Trust as of the Exchange Date, including those that voted against the approval
of the Plan, will receive shares of the Acquiring Fund. All shareholders of
the Trust have the right at any time up to the next business day preceding the
Exchange Date to redeem their Shares at net asset value according to the
procedures set forth in the Trust's Prospectus.
This summary does not purport to be a complete description of the Plan
and is subject to the terms and conditions of the Plan set forth in Exhibit A.
REASONS FOR THE PROPOSED TRANSACTION. Currently, the Trust is a
separate, stand-alone investment company organized in 1983. The Group was
organized as a series investment company in 1993, and in October and November
1995, its Board of Trustees created the Acquiring Fund with substantially
identical investment objectives, policies and restrictions to those of the
Trust. Because of the similarity between the Trust and the Acquiring Fund, the
considerations and risks involved with an investment in the Acquiring Fund are
expected to be comparable to those associated with an investment in the Trust.
The Acquiring Fund has been established for purposes of effecting the
Reorganization and will not commence operations prior to the Exchange Date.
The transactions contemplated by the Plan were presented to the Board
of Trustees of the Trust for their consideration at meetings held on October
20, 1995, and November 13, 1995. The Board of Trustees of the Trust concluded
unanimously that the Reorganization is in the best interests of the Trust and
that the interests of the existing shareholders of the Trust will not be
diluted by the Reorganization.
The Board of Trustees of the Trust, in reaching this conclusion,
considered the costs resulting from the separate operation of the Trust and the
proposed costs of the Acquiring Fund as provided by The Ohio Company, in light
of their substantially similar investment objectives, policies, restrictions,
Boards of Trustees, officers and service providers. The Board also considered
the operating and compliance efficiencies that could result from moving the
operation of the Trust from a stand-alone investment company to a separate
portfolio of a series investment company. The investment policies and
restrictions of the Acquiring Fund which were approved by the Board of Trustees
of the Group vary somewhat from the policies of the Trust; however, such
differences reflect a more uniform and flexible set of investment restrictions
that are currently in place for each of the other series or portfolios of the
Group. Such restrictions were approved to help
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achieve greater compliance efficiencies by having each series of the Group have
the same or substantially the same investment restrictions.
In addition, certain operating efficiencies are expected to be
achieved since under Ohio law and the Group's Declaration of Trust an annual
meeting of shareholders of the Acquiring Fund is not required. The Trust under
its Declaration of Trust is required to hold such a meeting. Also, certain
fixed costs associated with the operation of the Trust when incurred by the
Acquiring Fund as part of the Group would decrease on a per share basis since
such costs would be spread over a larger pool of assets, e.g., certain legal
and printing fees, while maintaining the same services by the same service
providers.
In particular, the Board considered the anticipated expense ratios of
the Acquiring Fund, the structure of the Group, the experience of the service
providers of the Acquiring Fund and the level of service to be provided to the
shareholders of the Acquiring Fund, as represented by The Ohio Company.
The Board of Trustees of the Trust based its decision to approve the
proposed transaction upon its consideration of a number of factors, including,
among other things:
(1) the terms and conditions of the Reorganization and whether it
would result in a dilution of the existing shareholders' interests;
(2) the similarity of the Trust's investment objectives,
strategies and policies with those of the Acquiring Fund, as well as the views
of CMC that any differences between the investment policies and restrictions of
the Trust and the Acquiring Fund should not materially increase investment
risks;
(3) the experience and resources of CMC with respect to providing
investment management services, and the experience of and quality of services
to be provided by the Acquiring Fund's other service providers;
(4) the projected expense ratios and information regarding fees
and expenses of the Trust, the Acquiring Fund and other similar funds and the
services being offered to shareholders;
(5) the conditioning of the Reorganization on the receipt of a
legal opinion confirming the absence of any adverse federal tax consequences to
the Trust or its shareholders resulting from the Reorganization; and
(6) other factors as it deemed relevant.
In particular, the Board considered the following per share operating
expense ratios (total annual operating expenses expressed as a percentage of
average net assets) for Shares of the Trust for the year ended September 30,
1995, and as estimated for the shares of the Acquiring Fund for the period
following the effective date of the
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Reorganization and ending September 30, 1996, after giving effect to the
Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<CAPTION>
CARDINAL TAX EXEMPT CARDINAL TAX EXEMPT MONEY
------------------- -------------------------
MONEY TRUST MARKET FUND
----------- -----------
<S> <C>
0.83% 0.82%
</TABLE>
DESCRIPTION OF THE SECURITIES TO BE ISSUED. Ownership in the
Acquiring Fund is represented by units of beneficial interest, without par
value, of The Cardinal Group (the "Group"), which is an open-end investment
company of the management type, organized as an Ohio business trust on March
23, 1993. The Acquiring Fund is currently one of six separate series of the
Group. Like the Trust, the Acquiring Fund is diversified, as that term is
defined in the 1940 Act. Currently there is only one class of shares for the
Acquiring Fund. Shareholders of the Acquiring Fund are entitled to one vote
for each dollar of value invested and a proportionate fractional vote for any
fraction of a dollar invested. See "ADDITIONAL COMPARATIVE INFORMATION."
FEDERAL INCOME TAX CONSEQUENCES. As a condition to the closing of the
Reorganization, the Trust and the Group must receive a favorable opinion from
Baker & Hostetler, counsel to both the Trust and the Group, substantially to
the effect that, for federal income tax purposes: (a) the Reorganization will
constitute a "tax-free" reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); (b) no gain or loss
will be recognized by the Acquiring Fund or the Trust as a result of the
Reorganization; (c) no gain or loss will be recognized by shareholders of the
Trust upon the exchange of their Shares of the Trust for shares of the
Acquiring Fund; (d) the tax basis of the Acquiring Fund shares received by
shareholders of the Trust pursuant to the Reorganization will be the same as
the basis of the Shares of the Trust held immediately prior to the
Reorganization; (e) the holding period of the Acquiring Fund shares so received
will include the period during which the Trust shareholder held Shares of the
Trust, provided such Shares were held as a capital asset; (f) the tax basis of
the Trust's assets acquired by the Acquiring Fund will be the same as the basis
of such assets immediately prior to the Reorganization; and (g) the holding
period of such assets will include the period during which those assets were
held by the Trust. The Group and the Trust do not intend to seek a private
letter ruling with respect to the tax effects of the Reorganization.
CAPITALIZATION. The following table shows the capitalization of the
Trust as of September 30, 1995. The Acquiring Fund has no and will have no
assets or liabilities or commence operations prior to the consummation of the
Reorganization. THEREFORE, NO PRO FORMA FINANCIAL INFORMATION GIVING EFFECT TO
THE REORGANIZATION IS PROVIDED.
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CARDINAL TAX EXEMPT MONEY TRUST
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,779,828
Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 64,779,828
Net asset value per share . . . . . . . . . . . . . . . . . . . . . . . . $1.00
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES. The investment objectives and
policies of the Trust are substantially similar to those of the Acquiring Fund.
The investment objectives of the Trust and Acquiring Fund are "fundamental,"
which means that they may not be changed without the consent of a majority of
such fund's outstanding shares, as defined in the 1940 Act.
The investment objectives of each of the Trust and the Acquiring Fund
are to maximize current income exempt from federal income tax while preserving
capital and maintaining liquidity.
As money market funds, each of the Trust and the Acquiring Fund
invests exclusively in United States dollar-denominated instruments which are
determined by CMC and the Trustees to present minimal credit risks and which at
the time of acquisition are rated by one or more appropriate nationally
recognized statistical rating organizations ("NRSROs") (e.g., Standard & Poor's
Corporation and Moody's Investors Service, Inc.) in one of the two highest
rating categories for short-term debt obligations or, if unrated, are of
comparable quality. All securities or instruments in which the Trust and the
Acquiring Fund invest have, or are deemed to have, remaining maturities of 397
calendar days (thirteen months) or less. The dollar-weighted average maturity
of the obligations in each of the Trust and the Acquiring Fund will not exceed
90 days.
As a matter of policy, under normal market conditions, each of the
Trust and the Acquiring Fund will invest at least 80% of its net assets in a
diversified portfolio of Municipal Securities (as defined below), the interest
on which is both exempt from federal income tax and not treated as a preference
item for purposes of the federal alternative minimum tax. Subject to the
foregoing limitations and in order to achieve its investment objectives, each
of the Trust and the Acquiring Fund expects to invest in the following types of
securities: bond anticipation notes, construction loan notes, project notes,
revenue anticipation notes and tax anticipation notes, as well as municipal
bonds and participation interests therein, including industrial development
revenue bonds and pollution control revenue bonds (collectively, "Municipal
Securities"). The Trust, however, unlike the Acquiring Fund, may also acquire
"stand-by commitments" with respect to Municipal Securities held in its
portfolio. Under a "stand-by commitment" a dealer agrees to purchase, at the
Trust's option, specified Municipal Securities at a specified price which
ordinarily is substantially the same as the value of the underlying Municipal
Security.
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<PAGE> 197
Specific types of Municipal Securities which may be purchased include
bond anticipation notes, construction loan notes, project notes, revenue
anticipation notes and tax anticipation notes which, in each case (1) are
backed by the full faith and credit of the United States, (2) are rated in one
of the two highest rating categories by an appropriate NRSRO for short-term tax
exempt securities (e.g., MIG-1 or MIG-2, by Moody's Investors Service, Inc.) or
(3) if the notes are not rated, are, as determined by CMC in accordance with
guidelines established by the respective Boards of Trustees, of a quality
equivalent to securities so rated. The Trust and the Acquiring Fund may each
also invest in municipal bonds and participation interests therein, including
industrial development revenue bonds and pollution control revenue bonds, which
have remaining maturities of 397 days or less and (1) are rated in one of the
two highest rating categories by an appropriate NRSRO for short-term tax exempt
securities, or (2) if not rated, have, in the opinion of CMC, determined in
accordance with guidelines established by the respective Boards of Trustees,
essentially the same characteristics and quality as bonds being so rated. In
addition, the Trust and the Acquiring Fund may purchase other types of
tax-exempt Municipal Securities such as short-term discount notes. These
investments must (1) be rated or are deemed to have been rated in one of the
two highest rating categories by an appropriate NRSRO for short-term tax exempt
securities, or (2) if not rated, possess equivalent characteristics and quality
to securities so rated in the opinion of CMC determined in accordance with
guidelines established by the respective Boards of Trustees.
Each of the Trust and the Acquiring Fund may invest in variable rate
demand municipal securities, loan participations and taxable money market
securities, purchase securities on a when-issued or delayed-delivery basis, may
invest in securities of other investment companies, may purchase taxable money
market securities and may enter into repurchase agreements.
INVESTMENT RESTRICTIONS
The fundamental investment restrictions of the Trust and the Acquiring
Fund are substantially identical except for the following differences:
(1) The Trust may not underwrite any securities issued by others.
The Acquiring Fund has a similar policy except that the
Acquiring Fund may underwrite the securities of others to the
extent it may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities."
(2) The Trust may not purchase or retain securities of any issuer
for the Trust's portfolio if those officers and Trustees of
the Trust or officers or Directors of CMC, who individually
own more than 1/2 of 1% of the outstanding securities of such
issuer, together beneficially own more than 5% of such
outstanding securities. The Acquiring Fund has no such
policy.
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<PAGE> 198
(3) The Trust may not purchase or sell oil and gas interests. The
Acquiring Fund has a similar policy except that such policy
also excludes purchases of participations or other direct
interests in other mineral exploration or development
programs.
(4) The Trust has the policy of not purchasing from or selling to
any of its officers or Trustees or the officers or Directors
of CMC, portfolio securities of the Trust. The Acquiring Fund
has no such policy but is limited in its ability to do so by
the 1940 Act.
(5) The Trust may not invest in companies for the purposes of
exercising control or management of another company. The
Acquiring Fund has no such policy.
In addition, the Acquiring Fund has the following non-fundamental
investment restrictions. Except as noted below, these non-fundamental
investment restrictions are substantially similar to fundamental investment
restrictions of the Trust. As discussed above, however, fundamental
restrictions of a fund may not be changed without a vote of a majority of the
outstanding voting securities of the fund; non-fundamental policies may be
changed without a shareholder vote. As a consequence, the following policies
could be modified, or eliminated, by the Group with respect to the Acquiring
Fund without shareholder approval.
(1) The Acquiring Fund may not engage in any short sales.
(2) The Acquiring Fund may not (a) purchase or otherwise acquire
any securities, if as a result, more than 10% of the Acquiring
Fund's net assets would be invested in securities that are
illiquid or (b) invest more than 15% of the Acquiring Fund's
total assets in securities which are restricted as to
disposition. The Trust has a fundamental policy that provides
that it may not purchase securities subject to legal or
contractual restrictions on the resale thereof ("restricted
securities") if such purchase would cause more than 10% of the
Trust's assets (including repurchase agreements maturing in
more than seven days) to be invested in restricted securities
and other securities that are not readily marketable.
(3) The Acquiring Fund may not purchase securities of other
investment companies except (a) in connection with a merger,
consolidation, acquisition or reorganization, and (b) to the
extent permitted by the 1940 Act or pursuant to any exemptions
therefrom.
PORTFOLIO MANAGERS. Since CMC serves as the investment adviser to
both the Trust and the Acquiring Fund, the person currently serving as
portfolio manager for the Trust intends to continue to serve after the
Reorganization as portfolio manager for the Acquiring Fund.
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<PAGE> 199
It is not anticipated that the above-mentioned differences in
investment policies and restrictions will, individually or in the aggregate,
result in an appreciable variation between the level of investment risks
associated with an investment in the Trust. For a more complete description of
the Acquiring Fund's investment policies and restrictions, including relevant
risk factors, see "WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUND?"
in the Acquiring Fund's Prospectus and INVESTMENT OBJECTIVES AND POLICIES" in
the Acquiring Fund's Statement of Additional Information. For a more complete
description of the Trust's investment policies and restrictions, including
relevant risk factors, see "WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF
THE TRUST?" in the Trust's Prospectus and "INVESTMENT OBJECTIVES AND POLICIES"
in the Trust's Statement of Additional Information.
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEES
THE TRUST
Pursuant to the laws of Ohio and the Trust's Declaration of Trust, the
responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Declaration of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants, and other professionals to assist and
advise in such management.
INVESTMENT ADVISER. The Trust is advised by Cardinal Management Corp.
("CMC"), 155 East Broad Street, Columbus, Ohio 43215, a wholly owned subsidiary
of The Ohio Company. CMC is also the investment adviser and manager of each of
the other Cardinal Funds except The Cardinal Fund Inc. CMC was established as
an Ohio corporation on March 21, 1980, and has been providing investment
advisory services to open-end investment management companies like the Trust
since 1980.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock Exchange, the Midwest Stock Exchange, other
regional stock exchanges and the National Association of Securities Dealers,
Inc. Descendants of H.P. and R.F. Wolfe, deceased, and members of their
families, through their possession of a majority of voting stock, may be
considered controlling persons of The Ohio Company.
In its capacity as investment adviser, and subject to the ultimate
authority of the Trust's Board of Trustees, CMC, in accordance with the Trust's
investment objectives and policies, manages the Trust, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. In addition, pursuant to the Investment Advisory Agreement, CMC
generally assists in all aspects of the Trust's administration and operation.
Since December 22, 1995, David C. Will has been primarily responsible for the
day-to-day management of the Trust's portfolio. Mr. Will has been a Vice
President of The Ohio
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<PAGE> 200
Company and CMC since 1990 and has more than 25 years of investment management
experience.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Trust, CMC receives a fee from the
Trust, computed daily and paid monthly at the annual rate of .50% of average
net daily assets of the Trust.
For a complete description of the Trust's advisory arrangements, see
the section in the Trust's Prospectus entitled "WHO MANAGES MY INVESTMENT IN
THE TRUST? -- Investment Adviser and Manager."
DISTRIBUTOR. The Trust has entered into a Distributor's Contract with
The Ohio Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to
which Shares of the Trust continuously are offered on a best efforts basis by
The Ohio Company and dealers selected by The Ohio Company. H. Keith Allen is
an officer and trustee/director of both the Trust, CMC and The Ohio Company.
Frank W. Siegel, an officer and trustee of the Trust, is an officer of The Ohio
Company and an officer and director of CMC. David C. Will and James M. Schrack
II are officers of both the Trust and The Ohio Company, and Mr. Will is an
officer of CMC. The Ohio Company receives no compensation from the Trust in
connection with its services under such Distributor's Contract.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT. CMC, 215 East
Capital Street, Columbus, Ohio 43215, serves as the Trust's Dividend and
Transfer Agent. In consideration of such services, the Trust has agreed to pay
CMC an annual fee, paid monthly, equal to $21 per shareholder account, plus
out-of-pocket expenses.
In addition, CMC provides certain fund accounting services for the
Trust. CMC receives a fee from the Trust for such services equal to $9,000 for
the first $25 million of assets, $6,000 for the next $25 million of assets,
$3,000 for each additional $25 million to $350 million of assets, and $3,000
for each additional $100 million of assets thereafter.
For a complete description of these arrangements and the other
expenses borne by the Trust, see the sections in the Trust's Prospectus
entitled "WHO MANAGES MY INVESTMENT IN THE TRUST?"
CUSTODIAN. The Trust has appointed The Fifth Third Bank ("Fifth
Third"), 38 Fountain Square Plaza, Cincinnati, Ohio 45263, as the Trust's
custodian. In such capacity Fifth Third will hold or arrange for the holding
of all portfolio securities and other assets acquired and owned by the Trust.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio
43215, serves as counsel to the Trust.
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, serves as the independent accountants for the Trust, and,
as such, has audited the financial statements of the Trust.
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THE ACQUIRING FUND
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's
Trustees, who are elected by the shareholders of the Group's series or
portfolios, including the Acquiring Fund, and who are empowered to elect
officers and contract with and provide for the compensation of agents,
consultants, and other professionals to assist and advise in its day-to-day
operations. The Group will be managed in accordance with its Declaration of
Trust and the laws of Ohio governing business trusts.
INVESTMENT ADVISER. The Acquiring Fund is also advised by CMC. It is
intended that upon completion of the Reorganization, Mr. Will will be
responsible for the day-to-day management of the Acquiring Fund's portfolio.
For its services as investment adviser, CMC receives a fee, which is calculated
daily and paid monthly, at an annual rate of 0.50% of the average daily net
assets of the Acquiring Fund.
For a complete description of the Acquiring Fund's advisory
arrangements, see the section in the Acquiring Fund's Prospectus entitled "WHO
MANAGES MY INVESTMENT IN THE FUND? -- Investment Adviser and Manager."
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT. CMC also serves as
the Acquiring Fund's Dividend and Transfer Agent. In consideration of such
services, the Acquiring Fund has agreed to pay CMC an annual fee, paid monthly,
equal to $21 per shareholder account, plus out-of-pocket expenses.
In addition, CMC provides certain fund accounting services for the
Acquiring Fund. CMC receives a fee from the Acquiring Fund for such services
equal to a fee computed daily and paid periodically at an annual rate of .03%
of the Acquiring Fund's average daily net assets of up to $100 million and .01%
of the Acquiring Fund's average daily net assets in excess of $100 million.
For a complete description of these arrangements and the other
expenses borne by the Acquiring Fund, see the sections in the Acquiring Fund's
Prospectus entitled "WHO MANAGES MY INVESTMENT IN THE FUND? -- Dividend and
Transfer Agent and Fund Accountant."
DISTRIBUTOR. The Ohio Company also serves as the distributor of the
Acquiring Fund's shares on essentially the same terms and conditions as it
serves as the Trust's distributor.
CUSTODIAN. The Acquiring Fund has also appointed Fifth Third as the
Acquiring Fund's custodian. In such capacity Fifth Third will hold or arrange
for the holding of all portfolio securities and other assets acquired and owned
by the Acquiring Fund.
COUNSEL. Baker & Hostetler, 65 East State Street, Columbus, Ohio
43215, also serves as counsel to the Acquiring Fund.
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<PAGE> 202
INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, has been selected to serve as the independent accountants
for the Acquiring Fund, and, as such, will audit the financial statements of
the Acquiring Fund.
CERTAIN FINANCIAL INFORMATION. The Prospectus for the Trust contains
information on per share income, capital changes and performance calculations
under the caption "FINANCIAL HIGHLIGHTS."
The Acquiring Fund has not yet commenced operations and has no and
will have no assets or liabilities prior to the consummation of the
Reorganization. Therefore, no information regarding per share income and
capital changes is available. For information regarding performance
calculations and comparisons, see the information under the caption
"PERFORMANCE INFORMATION" in the Acquiring Fund's Prospectus.
COMPARISON OF RIGHTS OF SECURITY HOLDERS. The Trust is an Ohio
business trust, registered under the 1940 Act as an open-end investment
company of the management type. The Trust was established under a Declaration
of Trust dated January 13, 1983. The Group is an Ohio business trust,
registered under the 1940 Act as an open-end investment company of the
management type. The Group was established under a Declaration of Trust dated
as of March 23, 1993. Both the Trust and the Group are authorized to issue an
unlimited number of shares of beneficial interest, and such shares may be
divided into one or more series and for the Group, separate classes of shares.
The Acquiring Fund is one of six series of the Group. The other five series of
the Group are The Cardinal Fund, Cardinal Government Obligations Fund, Cardinal
Government Securities Money Market Fund, Cardinal Balanced Fund and Cardinal
Aggressive Growth Fund.
Each Share of the Trust represents an equal proportionate interest in
the Trust with each other share. Shares are entitled upon liquidation to a pro
rata share of the net assets of the Trust. Shares of the Trust issued pursuant
to the Trust's Declaration of Trust are fully paid and nonassessable and have
no preemptive rights or other preferences, appraisal or conversion rights
except to the extent set by the Trustees.
Shares of the Acquiring Fund, once properly issued and outstanding,
are fully paid and nonassessable and have no preference as to conversion,
exchange, dividends, retirement or other features, and have no preemptive or
appraisal rights.
Shareholders of the Trust are entitled to one vote for each full Share
held and a proportionate fractional vote for each fractional Share held.
Shareholders of the Acquiring Fund are entitled to one vote for each dollar of
value invested and a proportionate fractional vote for any fraction of a dollar
invested.
Voting rights are not cumulative, so that the holders of more than 50%
of the Trust voting in the election of its Trustees have the power to elect all
of the Trustees of the Trust. The Trust currently holds an annual meeting of
shareholders.
Shareholders of the Group have no cumulative voting rights, which
means that the holders of a plurality of the shares voting for the
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<PAGE> 203
election of the Group's Board of Trustees can elect all of the Group's Board of
Trustees if they choose to do so. The Group does not intend to hold annual
meetings of shareholders, except as required under its Declaration of Trust or
the 1940 Act. Shareholders of the Acquiring Fund will vote in the aggregate
with other shareholders of the Group and not by series or portfolio except as
otherwise expressly required by law. For example, shareholders of the
Acquiring Fund will vote in the aggregate with other shareholders of the Group
with respect to the election of Trustees and ratification of the selection of
independent accountants. However, shareholders of the Acquiring Fund will vote
as a Fund, and not in the aggregate with other shareholders of the Group, for
purposes of approval of amendments to the Acquiring Fund's investment advisory
agreement or any of the Acquiring Fund's fundamental policies.
Therefore, after the Reorganization, shareholders of the Acquiring
Fund alone will not be able to elect the Trustees of the Group or ratify the
selection of independent accountants but will vote with all the other
shareholders of the Group on such issues if and when presented to shareholders.
In addition, shareholders of the Group receive one vote for each dollar of
value invested; therefore, a shareholder of one share of the Acquiring Fund
will receive one vote for such share while a shareholder of one share of
another non-money market fund of the Group will receive more than one vote for
such share, e.g., a share of Cardinal Balanced Fund with a net asset value of
$9.50 will be entitled to 9.5 votes. In addition, the Group currently does not
intend to hold annual meetings unless otherwise required to do so. Therefore,
it can not be determined when shareholders of the Acquiring Fund will next be
entitled to vote for the election of Trustees or the ratification of the
selection of independent public accountants.
For a complete description of the respective attributes of the Trust's
and the Group's shares, including how to purchase, redeem or exchange shares
and certain restrictions thereon, taxation of the Trust or the Acquiring Fund,
as the case may be, and its shareholders, and dividend and distribution
policies, see the sections in the Trust's and the Acquiring Fund's respective
Prospectuses entitled "HOW DO I PURCHASE SHARES OF THE TRUST/FUND?," "WHAT
DISTRIBUTIONS WILL I RECEIVE?," "HOW MAY I REDEEM MY SHARES?," "WHAT OTHER
SHAREHOLDER PROGRAMS ARE PROVIDED?," "DOES THE TRUST/FUND PAY FEDERAL INCOME
TAX?" and "WHAT ABOUT MY TAXES?" Additional information about the Trust is
included in its Prospectus, dated February 1, 1995, as supplemented on December
11, 1995, which is incorporated herein by reference, and in the Trust's
Statement of Additional Information dated February 1, 1995. Copies of the
Prospectus and the Statement of Additional Information may be obtained without
charge by calling the Trust at 1-800-282-9446.
Additional information about the Acquiring Fund is included in its
Prospectus dated January __, 1996, which accompanies this Combined
Prospectus/Proxy Statement and Statement of Additional Information dated
January __, 1996, copies of which may be obtained without charge by calling the
Group at 1-800-282-9446.
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<PAGE> 204
Additional information regarding the Reorganization is contained in
the Statement of Additional Information, dated January __, 1996, to this
Combined Prospectus/Proxy Statement. The Statement of Additional Information
is incorporated by reference herein and may be obtained by calling the Group at
1-800-282-9446.
THE TRUST'S BOARD OF TRUSTEES AND MANAGEMENT RECOMMEND APPROVAL OF THE
PLAN.
MISCELLANEOUS
ADDITIONAL INFORMATION. The Trust and the Group are each subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act, and in accordance therewith each
files reports, proxy materials and other information with the Commission. Such
reports, proxy materials and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
SOLICITATION OF PROXIES AND PAYMENT OF EXPENSES. The cost of
soliciting proxies for the Meeting, consisting principally of printing and
mailing expenses, together with the costs of any supplementary solicitation and
proxy soliciting services provided by third parties, will be borne in part by
the Trust and in part by The Ohio Company. Proxies will be solicited
initially, and in any supplemental solicitation, by mail and may be solicited
in person, by telephone, telegraph or other electronic means by officers of the
Trust.
SUBSTANTIAL SHAREHOLDERS. As of January 8, 1996, the following
persons, to the knowledge of the Trust, were the shareholders owning
beneficially five percent or more of the Shares of the Trust:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OWNERSHIP OF CLASS
- ---------------- ----------- --------
<S> <C> <C>
The Ohio Company _________(1) ______%
155 East Broad Street
Columbus, Ohio 43215
<FN>
(1) As trustee for various trusts.
</TABLE>
As of the close of business on January 8, 1996, the officers and
Trustees of the Trust as a group beneficially owned less than 1% of the
outstanding shares of the Trust.
As of the close of business on January 8, 1996, there were ____ issued
and outstanding shares of the Group, of which ____ were shares of Cardinal
Balanced Fund and ___ were shares of Cardinal Aggressive Growth Fund. As of
such date, there were no shareholders of the Acquiring Fund. It is
anticipated, however, that
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<PAGE> 205
those persons who are beneficial holders of 5% or more of the Trust's shares
immediately prior to the Reorganization will be beneficial holders of the same
percentage of the Acquiring Fund's Shares immediately after the Reorganization.
DOCUMENTS INCORPORATED BY REFERENCE. The accompanying Prospectus of
the Acquiring Fund dated January __, 1996, is incorporated by reference into
this Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus
dated February 1, 1995, as supplemented December 11, 1995, is incorporated by
reference into this Combined Prospectus/Proxy Statement and may be obtained by
writing the Trust at 155 East Broad Street, Columbus, Ohio 43215 or by calling
the Trust at 1-800-282-9446. Copies of documents requested will be sent by
first-class mail to the requesting shareholder within one business day of
receipt of the request.
OTHER BUSINESS. The Board of Trustees of the Trust knows of no other
business to be brought before the Meeting. However, if any other matters come
before the Meeting, it is their intention that the proxies which do not contain
specific instructions to the contrary will be voted on such matter in
accordance with the judgment of the person named in the enclosed Proxy Card.
FUTURE SHAREHOLDER PROPOSALS. Pursuant to rules adopted by the
Commission under the 1934 Act, investors may request inclusion in the proxy
statement for shareholder meetings certain proposals for action which they
intend to introduce at such meeting. Any shareholder proposals must be
presented a reasonable time before the proxy materials for the next meeting are
sent to shareholders. The submission of a proposal does not guarantee its
inclusion in the Trust's proxy statement and is subject to limitations under
the 1934 Act. It is not presently anticipated that the Group will hold regular
meetings of shareholders, and no anticipated date of the next meeting can be
provided.
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Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
----------------------------------------------------
Agreement and Plan of Reorganization and Liquidation ("Agreement")
dated as of December 1, 1995, by and between The Cardinal Group, an Ohio
business trust ("TCG"), and Cardinal Tax Exempt Money Trust, an Ohio business
trust ("CTEMT").
WHEREAS, TCG is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end investment company of the management
type and has, or before the Exchange Date (as defined below) is expected to
have, issued and outstanding one class of shares of beneficial interest,
without par value ("Shares"), for each of six series, one such series being
Cardinal Tax Exempt Money Market Fund (hereinafter sometimes referred to as the
"Cardinal Tax Exempt Money Market Fund" or the "Acquiring Series"); and
WHEREAS, CTEMT is registered under the 1940 Act as an open-end
investment company of the management type and currently has issued and
outstanding one class of shares of beneficial interest, par value $.10 per
share; and
WHEREAS, CTEMT plans to transfer all of its assets, and to assign all
of its liabilities, to the Acquiring Series, in exchange for Shares of the
Acquiring Series (the "Acquiring Series Shares"), followed by the distribution
of the Acquiring Series Shares by CTEMT to its shareholders, and followed by
the dissolution of CTEMT, all upon the terms and provisions of this Agreement
(the "Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization
is in the best interests of TCG, and that the interests of its shareholders
will not be diluted as a result thereof; and
WHEREAS, the trustees of CTEMT have determined that the Reorganization
is in the best interests of CTEMT and that the interests of its shareholders
will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION.
(a) SALE OF ASSETS, ASSUMPTION OF LIABILITIES. Subject to
the prior approval of shareholders of CTEMT and to the other terms and
conditions contained herein (including the obligation of CTEMT to
distribute to its shareholders all of its investment company taxable
income and net capital gain as described in Section 8(i)
<PAGE> 207
herein), CTEMT agrees to sell, assign, convey, transfer and
deliver to the Acquiring Series, and the Acquiring Series agrees to
acquire from CTEMT on the Exchange Date (as defined below), all of the
Investments (as defined below), cash and other assets of CTEMT in
exchange for that number of full and fractional Acquiring Series Shares
of the Acquiring Series having an aggregate net asset value equal to
the value of all assets of CTEMT transferred to the Acquiring Series,
as provided in Section 4, less the liabilities of CTEMT assumed by the
Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the
Acquiring Series from CTEMT shall consist of all of CTEMT's property,
including, without limitation, all Investments, cash and dividends or
interest receivables which are owned by CTEMT and any deferred or
prepaid expenses shown as an asset on the books of CTEMT as of the
Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date CTEMT
will endeavor to discharge or cause to be discharged, or make
provision for the payment of, all of its known liabilities and
obligations. The Acquiring Series shall assume all liabilities,
expenses, costs, charges and reserves of CTEMT, contingent or
otherwise, including liabilities reflected in the unaudited statement
of assets and liabilities of CTEMT as of the Valuation Time, prepared
by or on behalf of CTEMT in accordance with generally accepted
accounting principles consistently applied from and after September
30, 1995.
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, CTEMT
shall distribute in complete liquidation to its shareholders of record
as of the Exchange Date the Acquiring Series Shares received by it,
each CTEMT shareholder of record being entitled to receive that number
of Acquiring Series Shares equal to the proportion which the number of
shares of beneficial interest, par value $.10 per share, of CTEMT held
by such shareholder bears to the total number of such shares of CTEMT
outstanding on such date, and shall take such further action as may be
required, necessary or appropriate under CTEMT's Declaration of Trust,
Ohio law and the Code to effect the complete liquidation and
dissolution of CTEMT. CTEMT will fulfill all reporting requirements
under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CTEMT. CTEMT represents
and warrants to and agrees with TCG and the Acquiring Series that:
(a) CTEMT is a business trust validly existing under the laws
of the State of Ohio and has power to own all of its properties and
assets and to carry out its obligations under this Agreement. CTEMT
has qualified as a foreign business trust in each jurisdiction where
the ownership of its property and the conduct of its business require
qualification. CTEMT has all necessary
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federal, state and local authorizations to carry on its business as
now being conducted and to fulfill the terms of this Agreement, except
as set forth in Section 2(1).
(b) CTEMT is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. CTEMT
has elected to qualify and has qualified as a regulated investment
company under Part I of Subchapter M of the Code as of and since its
first taxable year, and qualifies and intends to continue to qualify
as a regulated investment company for its taxable year ending upon its
liquidation. CTEMT has been a regulated investment company under such
sections of the Code at all times since its inception.
(c) The statement of assets and liabilities, including the
statement of investments as of September 30, 1995, and the related
statement of operations for the year then ended, and statements of
changes in net assets for each of the two years in the period then
ended, for CTEMT, such statements having been audited by KPMG Peat
Marwick LLP, independent auditors of CTEMT, have been furnished to
TCG. Such statement of assets and liabilities fairly present the
financial position of CTEMT as of such date and such statements of
operations and changes in net assets fairly reflect the results of
operations and changes in net assets for the periods covered thereby
in conformity with generally accepted accounting principles, and there
are no known material liabilities of CTEMT as of such dates which are
not disclosed therein.
(d) The Prospectus of CTEMT dated February 1, 1995 (the
"CTEMT Prospectus") and the related Statement of Additional
Information for CTEMT dated February 1, 1995, in the forms filed with
the Securities and Exchange Commission and previously furnished to
TCG, did not as of their date and do not as of the date hereof contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(e) Except as may have been previously disclosed to TCG,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of CTEMT, threatened against CTEMT.
(f) There are no material contracts outstanding to which
CTEMT is a party, other than as disclosed in the CTEMT Prospectus and
its corresponding Statement of Additional Information, and there are
no such contracts or commitments (other than this Agreement) which
will be terminated with liability to CTEMT on or prior to the Exchange
Date.
(g) CTEMT has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of September 30, 1995 and
those incurred in the ordinary course of CTEMT's business as an
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<PAGE> 209
investment company since that date. Prior to the Exchange Date, CTEMT
will advise TCG of all known material liabilities, contingent or
otherwise, incurred by it subsequent to September 30, 1995, whether or
not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall
mean CTEMT's investments shown on the statement of assets and
liabilities as of September 30, 1995 referred to in Section 2(c)
hereof, as supplemented with such changes as CTEMT shall make after
September 30, 1995 and prior to the date of this Agreement, which
changes have been disclosed to TCG, and changes made on and after the
date of this Agreement after advising CTEMT of such changes, and
changes resulting from stock dividends stock split-ups, mergers and
similar corporate actions.
(i) CTEMT has filed or will file all federal and state tax
returns which, to the knowledge of CTEMT's officers, are required to
be filed by CTEMT and has paid or will pay all federal and state taxes
shown to be due on said returns or on any assessments received by
CTEMT. All tax liabilities of CTEMT have been adequately provided for
on its books, and no tax deficiency or liability of CTEMT has been
asserted, and no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax authority for
taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and
except for shareholder approval and otherwise as described in Section
2(1), CTEMT will have full right, power and authority to sell, assign,
transfer and deliver the Investments and any other of its assets and
liabilities to be transferred to TCG and the Acquiring Series pursuant
to this Agreement. At the Exchange Date, subject only to the delivery
of the Investments and any such other assets and liabilities as
contemplated by this Agreement, TCG and the Acquiring Series will
acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of CTEMT and, except as described in Section 2(k), without
any restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as
amended (the "1933 Act"), of any of the Investments would be required
if they were, as of the time of such transfer, the subject of a public
distribution by either of CTEMT or TCG, except as previously disclosed
to TCG by CTEMT in writing prior to the date hereof.
(l) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by CTEMT of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, Securities Exchange Act of 1934, as
amended (the "1934 Act"), 1940 Act, state securities or blue sky laws
(which term as used herein shall include the laws of
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<PAGE> 210
the District of Columbia and of Puerto Rico) or the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "H-S-R Act").
(m) The registration statement (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the
"Commission") by TCG on Form N-14 relating to the Acquiring Series
Shares issuable hereunder, and the proxy statement of CTEMT included
therein (the "Proxy Statement"), on the effective date of the
Registration Statement and insofar as they relate to CTEMT, (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in the Registration Statement
of which the Proxy Statement is a part (the "Prospectus"), as amended
or supplemented by any amendments or supplements filed with the
Commission by TCG, insofar as it relates to CTEMT, will not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the representations
and warranties in this Section 2(m) shall apply only to statements of
fact relating to CTEMT contained in the Registration Statement, the
Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to CTEMT, as such Registration
Statement, Prospectus and Proxy Statement shall be furnished to CTEMT
in definitive form as soon as practicable following effectiveness of
the Registration Statement and before any public distribution of the
Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with CTEMT that:
(a) TCG is a business trust validly existing under the laws
of the State of Ohio and has power to carry on its business as it is
now being conducted and to carry out its obligations under this
Agreement. TCG has qualified as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification. TCG and the Acquiring Series each
has all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set
forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. The
Acquiring Series expects to qualify as a regulated investment company
under Part I of Subchapter M of the Code.
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(c) The Acquiring Series will have no financial statements
as of the Valuation Time.
(d) The prospectus of TCG and the Acquiring Series, expected
to be dated in January, 1996 (the "Acquiring Series Prospectus"), and
the related Statement of Additional Information for the Acquiring
Series to be dated such date, in the forms to be filed with the
Securities and Exchange Commission, will be furnished to CTEMT
promptly upon the completion thereof and will not as of their date
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(e) Except as may have been previously disclosed to CTEMT,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of TCG or its Acquiring Series,
threatened against TCG or the Acquiring Series, which assert liability
on the part of TCG or the Acquiring Series.
(f) There are no material contracts outstanding to which TCG
or the Acquiring Series is a party, other than material contracts
disclosed in the Acquiring Series Prospectus and the corresponding
Statement of Additional Information.
(g) The Acquiring Series will have no assets or liabilities
as of the Valuation Time.
(h) TCG and the Acquiring Series will file all federal and
state tax returns which, to the knowledge of TCG's officers, are
required to be filed by TCG and the Acquiring Series and will pay all
federal and state taxes shown to be due on such returns or on any
assessments received by TCG or the Acquiring Series. All tax
liabilities of TCG and the Acquiring Series have been adequately
provided for on its books, and no tax deficiency or liability of TCG
or the Acquiring Series has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already
paid.
(i) No consent, approval, authorization or order of any
governmental authority is required for the consummation by TCG or the
Acquiring Series of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, 1934 Act, 1940 Act,
state securities or Blue Sky Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and
otherwise as described in Section 3(i), TCG and the Acquiring Series
will have full right, power and authority to purchase the Investments
and any other assets and assume the liabilities of CTEMT to be
transferred to the Acquiring Series pursuant to this Agreement.
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(k) The Registration Statement, the Prospectus and the Proxy
Statement, on the effective date of the Registration Statement and
insofar as they relate to TCG and the Acquiring Series: (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and (ii)
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and at the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by TCG, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to
statements in or omissions from the Registration Statement, the
Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by CTEMT for use in the
Registration Statement, the Prospectus or the Proxy Statement.
(l) The Acquiring Series Shares to be issued by TCG have been
duly authorized and when issued and delivered by TCG to CTEMT
pursuant to this Agreement and the Prospectus will be legally and
validly issued by TCG and will be fully paid and nonassessable, and no
shareholder of TCG will have any preemptive right of subscription or
purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this
Agreement will be in compliance with all applicable federal and state
securities laws.
(n) Cardinal Tax Exempt Money Market Fund, upon filing of its
first income tax return at the completion of its first taxable year
will elect to be a regulated investment company and until such time
will take all steps necessary to ensure qualification as a regulated
investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver
to CTEMT a number of Acquiring Series Shares having an aggregate net
asset value equal to the value of the assets of CTEMT acquired by the
Acquiring Series, less the value of the liabilities of CTEMT assumed,
determined as hereafter provided in this Section 4.
(a) The asset net value of CTEMT will be computed as of the
Valuation Time, using the valuation procedures set forth in the
current prospectus of CTEMT.
(b) The net asset value of each of the Acquiring Series
Shares will be determined to the nearest full cent as of the Valuation
Time, and shall be set at the net asset value per share of CTEMT as of
the Valuation Time.
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(c) The Valuation Time shall be 4:00 P.M., Eastern Standard
Time, on March 30, 1996, or such earlier or later day as may be
mutually agreed upon in writing by the parties hereto (the "Valuation
Time").
(d) The Acquiring Series shall issue its Acquiring Series
Shares to CTEMT on one share deposit receipt registered in the name of
CTEMT. CTEMT shall distribute in liquidation the Acquiring Series
Shares received by it hereunder pro rata to its shareholders by
redelivering such share deposit receipt to TCG's transfer agent,
which will as soon as practicable set up open accounts for each CTEMT
shareholder in accordance with written instructions furnished by
CTEMT.
(e) The Acquiring Series shall assume all liabilities of
CTEMT, whether accrued or contingent, described in subsection 1(c)
hereof in connection with the acquisition of assets and subsequent
dissolution of CTEMT or otherwise, except that recourse for assumed
liabilities relating to CTEMT will be limited to the Acquiring Series.
5. EXPENSES, FEES, ETC.
(a) Subject to the further provisions of this Section 5, TOC
shall be responsible for the fees and expenses of the Reorganization.
The Acquiring Series will be responsible for its organization costs.
CTEMT will be responsible for proxy solicitation and other costs
associated with its annual meeting (or special meeting in lieu
thereof) to the extent such costs are comparable to those incurred for
annual meetings in recent prior years. TOC has undertaken to absorb
all other costs of the Reorganization.
(b) In the event the transactions contemplated by this
Agreement are not consummated by reason of CTEMT's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to CTEMT's obligations
referred to in Section 7(a) or Section 9), CTEMT shall pay directly
all reasonable fees and expenses incurred by TCG in connection with
such transactions, including, without limitation, legal, accounting
and filing fees.
(c) In the event the transactions contemplated by this
Agreement are not consummated by reason of TCG's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to TCG's obligations
referred to in Section 7(a) or Section 8), TCG shall pay directly all
of the reasonable fees and expenses incurred by CTEMT in connection
with such transactions, including, without limitation, legal,
accounting and filing fees.
(d) Notwithstanding any other provisions of this Agreement,
if for any reason the transactions contemplated by this Agreement
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are not consummated, no party shall be liable to the other party for
any damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of CTEMT to be transferred,
assumption of the liabilities of CTEMT to be assumed, and the delivery
of Acquiring Series Shares to be issued shall be made at the offices of The
Ohio Company, 155 East Broad Street, Columbus, Ohio at 9:00 A.M. on March
31, 1996, or at such other time and date agreed to by TCG and CTEMT, the
date and time upon which such delivery is to take place being referred to
herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) CTEMT agrees to call a special meeting of its
shareholders as soon as is practicable after the effective date of the
Registration Statement for the purpose of considering the sale of all
of the assets of CTEMT to and the assumption of all of the liabilities
of CTEMT by the Acquiring Series as herein provided, authorizing and
approving this Agreement, and authorizing and approving the
liquidation and dissolution of CTEMT, and it shall be a condition to
the obligations of each of the parties hereto that the holders of
shares of beneficial interest, par value $.10 per share, of CTEMT
shall have approved this Agreement, and the transactions contemplated
herein, including the liquidation and dissolution of CTEMT, in the
manner required by law and CTEMT's Declaration of Trust at such a
meeting on or before the Valuation Time.
(b) CTEMT agrees that the liquidation and dissolution of
CTEMT will be effected in the manner provided in CTEMT's Declaration
of Trust and in accordance with applicable law, and that it will not
make any distributions of any Acquiring Series Shares to the
shareholders of CTEMT without first paying or adequately providing for
the payment of all of CTEMT'S known debts, obligations and
liabilities.
(c) Each of TCG and CTEMT will cooperate with the other, and
each will furnish to the other the information relating to itself
required by the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder to be set forth in the Registration Statement,
including the Prospectus and the Proxy Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of CTEMT, shall have been approved by the trustees and
shareholders of CTEMT in the manner required by law.
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(b) CTEMT shall have furnished to TCG a statement of CTEMT's
assets and liabilities, with values determined as provided in Section 4
of this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on
CTEMT's behalf by its President (or any Vice President) and Treasurer
(or other financial officer), and a certificate of both such officers,
dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change
in the financial position of CTEMT since September 30, 1995, other than
changes in the Investments since that date or changes in the market
value of the Investments, or changes due to net redemptions of shares
of CTEMT, dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of CTEMT made in this Agreement are
true and correct in all material respects as if made at and as of such
dates, CTEMT has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
each of such dates, and CTEMT shall have furnished to TCG a statement,
dated the Exchange Date, signed by CTEMT's President (or any Vice
President) and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) TCG shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to TCG and dated the Exchange Date, to
the effect that (i) CTEMT is a business trust validly existing under
the laws of the State of Ohio, and is, to the knowledge of such
counsel, qualified to do business as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification, (ii) this Agreement has been duly
authorized, executed and delivered by CTEMT and, assuming that the
Registration Statement, the Prospectus and the Proxy Statement comply
with the 1933 Act, 1934 Act and 1940 Act and assuming due
authorization, execution and delivery of this Agreement by TCG, is a
valid and binding obligation of CTEMT, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable
principles, (iii) CTEMT has power to sell, assign, convey, transfer
and deliver the Investments and other assets contemplated hereby and,
upon consummation of the transactions contemplated hereby in
accordance with the terms of this Agreement, CTEMT will have duly
sold, assigned, conveyed, transferred and delivered such Investments
and other assets to TCG, (iv) the execution and delivery of this
Agreement did not and the consummation of the transactions
contemplated hereby will not, violate CTEMT's Declaration of Trust or
its By-Laws, as amended, or any provision of any agreement known to
such counsel to which CTEMT
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is a party or by which it is bound, it being understood that with
respect to any investment restrictions as contained in CTEMT's
Declaration of Trust or By-Laws, or then current prospectus or
statement of additional information, such counsel may rely upon a
certificate of an officer of CTEMT, whose responsibility it is to
advise CTEMT with respect to such matters and (v) to the knowledge of
such counsel no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by CTEMT of
the transactions contemplated hereby, except such as have been
obtained under the 1933 Act, 1934 Act and 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act.
In rendering such opinion, Baker & Hostetler may rely upon certain
reasonable and customary assumptions and certifications of fact
received from TCG, CTEMT, and certain of its shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler,
addressed to TCG, the Acquiring Series and CTEMT, in form reasonably
satisfactory to TCG and dated the Exchange Date, to the effect that
for Federal income tax purposes (i) the transfer of all or
substantially all of CTEMT's assets in exchange for the Acquiring
Series Shares and the assumption by the Acquiring Series of
liabilities of CTEMT will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each of the Acquiring
Series and CTEMT is a "party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by CTEMT upon the transfer of the assets of the Acquiring Series in
exchange for Acquiring Series Shares and the assumption by the
Acquiring Series of the liabilities of CTEMT or upon the distribution
of Acquiring Series Shares by CTEMT to its shareholders in
liquidation; (iii) no gain or loss will be recognized by the
shareholders of CTEMT upon the exchange of their shares for Acquiring
Series Shares, (iv) the basis of the Acquiring Series Shares a CTEMT
shareholder receives in connection with the Reorganization will be the
same as the basis of his or her shares exchanged therefor; (v) a CTEMT
shareholder's holding period for his or her Acquiring Series Shares
will be determined by including the period for which he or she held
CTEMT shares exchanged therefor, provided that he or she held such
shares as capital assets; (vi) no gain or loss will be recognized by
the Acquiring Series upon the receipt of the assets of CTEMT in
exchange for Acquiring Series Shares and the assumption by the
Acquiring Series of the liabilities of CTEMT; (vii) the basis in the
hands of the Acquiring Series the assets of CTEMT transferred to the
Acquiring Series will be the same as the basis of the assets in the
hands of CTEMT immediately prior to the transfer; and (viii) the
Acquiring Series' holding periods of the assets of CTEMT will include
the period for which such assets were held by CTEMT. In rendering
such opinion, Baker & Hostetler may rely upon certain reasonable and
customary assumptions and certifications of fact received from TCG,
CTEMT, and certain of its shareholders.
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(g) The Registration Statement shall have become effective
under the 1933 Act and applicable Blue Sky provisions, and no stop
order suspending such effectiveness shall have been instituted or, to
the knowledge of TCG, contemplated by the Commission or any state
regulatory authority.
(h) All necessary proceedings taken by CTEMT in connection
with the transactions contemplated by this Agreement and all documents
incidental thereto reasonably shall be satisfactory in form and
substance to TCG and Baker & Hostetler.
(i) Prior to the Exchange Date, CTEMT shall have declared a
dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable income for its taxable year
ended September 30, 1995 and the short taxable year beginning on
October 1, 1995 and ending on the Valuation Date (computed without
regard to any deduction for dividends paid), and all of its net
capital gain realized in its taxable year ended September 30, 1995 and
the short taxable year beginning on October 1, 1995 and ending on the
Valuation Date (after reduction for any capital loss carryover).
(j) CTEMT shall have furnished to TCG a certificate, signed
by the President (or any Vice President) and the Treasurer (or other
financial officer) of CTEMT, as to the tax cost to TCG of the
securities delivered to TCG pursuant to this Agreement, together with
any such evidence as to such tax cost as TCG reasonably may request.
(k) CTEMT'S custodian shall have delivered to TCG a
certificate identifying all of the assets of CTEMT held by such
custodian as of the Valuation Time.
(l) CTEMT's transfer agent shall have provided to TCG (i) the
originals or true copies of all of the records of CTEMT in the
possession of such transfer agent as of the Exchange Date, (ii) a
certificate setting forth the number of shares of CTEMT outstanding as
of the Valuation Time and (iii) the name and address of each holder of
record of any such shares of CTEMT and the number of shares held of
record by each such shareholder.
(m) CTEMT shall have duly executed and delivered to TCG a
bill of sale, assignment, certificate and other instruments of
transfer ("Transfer Documents") as TCG may deem necessary or desirable
to transfer all of CTEMT's entire right, title and interest in and to
the Investments and all other assets of CTEMT to the Acquiring Series.
(n) TCG and CTEMT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and CTEMT, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
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9. CONDITIONS OF CTEMT'S OBLIGATIONS. The obligations of CTEMT hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of CTEMT, shall have been approved by the trustees and
shareholders of CTEMT in the manner required by law.
(b) TCG shall have executed and delivered to CTEMT an
Assumption of Liabilities dated as of the Exchange Date pursuant to
which the Acquiring Series will assume all of the liabilities,
expenses, costs, charges and reserves of CTEMT, contingent or
otherwise, including liabilities existing at the Valuation Time and
described in Section 1(c) hereof in connection with the transactions
contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, TCG and the Acquiring Series have complied with all of the
agreements and satisfied all of the conditions on their part to be
performed or satisfied at or prior to each of such dates, and TCG
shall have furnished to CTEMT a statement, dated the Exchange Date,
signed by TCG's President (or any Vice President) and Treasurer (or
other financial officer) certifying those facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) CTEMT shall have received an opinion of Baker &
Hostetler, in form reasonably satisfactory to CTEMT and dated the
Exchange Date, to the effect that (i) TCG is a business trust validly
existing under the laws of the State of Ohio and is, to the knowledge
of such counsel, qualified to do business as a foreign business trust
in each jurisdiction where the ownership of its property and the
conduct of its business requires qualification, (ii) the Acquiring
Series Shares to be delivered to CTEMT as provided for by this
Agreement are duly authorized and upon such delivery will be validly
issued and will be fully paid and nonassessable by TCG and no
shareholder of TCG has any preemptive right to subscription or
purchase in respect thereof, (iii) this Agreement has been duly
authorized, executed and delivered by TCG and assuming that the
Registration Statement, the Prospectus and the Proxy Statement comply
with the 1933 Act, 1934 Act and 1940 Act, and assuming due
authorization, execution and delivery of this Agreement by CTEMT, is a
valid and binding obligation of TCG, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable
principles, (iv) the execution and delivery of this Agreement did not,
and the consummation of the transactions
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contemplated hereby will not, violate TCG's Declaration of Trust or
its By-Laws or any provision of any agreement known to such counsel to
which TCG or the Acquiring Series is a party or by which it is bound,
it being understood that with respect to investment restrictions as
contained in TCG's Declaration of Trust, By-Laws or then current
prospectus or statement of additional information, such counsel may
rely upon a certificate of an officer of TCG whose responsibility it
is to advise TCG with respect to such matters, (v) to the knowledge of
such counsel no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by TCG or
the Acquiring Series of the transactions contemplated herein, except
such as have been obtained under the 1933 Act, 1934 Act and 1940 Act
and such as may be required under state securities or blue sky laws
and the H-S-R Act. In rendering such opinion Baker & Hostetler may
rely on certain reasonable assumptions and certifications of fact
received from CTEMT, TCG and certain of its shareholders.
(f) CTEMT shall have received an opinion of Baker & Hostetler
addressed to CTEMT, TCG and the Acquiring Series and in a form
reasonably satisfactory to CTEMT dated the Exchange Date, with respect
to the matters specified in Section 8(f) of this Agreement. In
rendering such opinion Baker & Hostetler may rely on certain
reasonable assumptions and certifications of fact received from CTEMT,
TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with
the transactions contemplated by this Agreement and all documents,
incidental thereto reasonably shall be satisfactory in form and
substance to CTEMT and Baker & Hostetler.
(h) The Registration Statement shall have become effective
under the 1933 Act and applicable Blue Sky provisions, and no stop
order suspending such effectiveness shall have been instituted or, to
the knowledge of CTEMT, contemplated by the Commission or any state
regulatory authority.
(i) TCG and CTEMT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and CTEMT, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
10. TERMINATION. TCG and CTEMT may, by mutual consent of their respective
trustees, terminate this Agreement, and TCG or CTEMT, after
consultation with counsel and by consent of their respective trustees or an
officer authorized by such trustees, may, subject to Section 11 of this
Agreement, waive any condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes
all previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only
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understanding with respect to such subject matter and shall be construed in
accordance with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officer of TCG and
CTEMT; provided, however, that following the meeting of CTEMT's shareholders
called by CTEMT pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received
by CTEMT, or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect
CTEMT's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ FRANK W. SIEGEL
--------------------------------------
Frank W. Siegel, President
CARDINAL TAX EXEMPT MONEY TRUST
By /s/ FRANK W. SIEGEL
--------------------------------------
Frank W. Siegel, President
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<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TCFI
<S> <C>
The undersigned hereby appoints H. Keith Allen, Frank W. Siegel and
P Gordon B. Carson, and each of them, with full power of substitution,
proxies to vote and act with respect to all Shares of THE CARDINAL FUND
R INC. ("TCFI"), which the undersigned is entitled to vote, at the Special
Meeting of Shareholders of TCFI to be held Friday, February 23, 1996, at
O its offices at 155 East Broad Street, Columbus, Ohio, at 10:00 A.M. E.S.T.
and at any and all adjournments thereof, on the following proposals and any
X other matters that may properly come before the meeting.
Y
(1) FOR / / AGAINST / / ABSTAIN / / Fixing the number of directors at ten
(2) FOR / / all nominees listed below WITHHOLD AUTHORITY / / to vote for
(except as completed below): all nominees listed below:
H. Keith Allen, Frank W. Siegel, Gordon B. Carson, John B. Gerlach, Jr., Michael J. Knilans, James I. Luck,
David L. Nelson, C.A. Peterson, Lawrence H. Rogers II and Joseph H. Stegmayer.
Instructions: To withhold authority to vote for any one or more nominees, but less than all nominees,
write the nominees' names in the following space.
--------------------------------------------------------------------------------------------------------------
(Continued and to be signed on other side)
</TABLE>
<PAGE> 222
<TABLE>
(Continued from other side)
<S> <C>
(3) FOR / / AGAINST / / ABSTAIN / / The ratification of the selection of KPMG Peat Marwick LLP as independent
certified public accountants for the fiscal year ending September 30, 1996.
(4) FOR / / AGAINST / / ABSTAIN / / approval of the Agreement and Plan of Reorganization and Liquidation by and
between The Cardinal Group and TCFI providing for the transfer of all of the assets of TCFI to The Cardinal Fund of
The Cardinal Group in exchange for shares of The Cardinal Fund and the assumption by The Cardinal Fund of all of the
liabilities of TCFI, followed by the dissolution and liquidation of TCFI and the distribution of shares of The
Cardinal Fund to the shareholders of TCFI.
The Shares represented by this proxy will be voted upon the proposals listed hereon in accordance with the instructions
given by the shareholder, but if no instructions are given this proxy will be voted FOR the proposals and in accordance with the
best judgment of the proxies on any other matter which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of Shareholders dated January __, 1996, and the
Combined Prospectus/Proxy Statement attached thereto.
DATED:
-----------------------------
------------------------------------
(Signature of Shareholder)
------------------------------------
(Signature of Shareholder)
(Please sign legibly exactly as
the name is printed on the left or as
it appears on your stock certificate.)
If the certificate orcertificates are
registered in joint name, both parties must
sign the proxy. If the registration is as
attorney, executor, administrator, trustee,
or guardian, please sign full title as such.
Please Date, Sign and Mail Promptly
</TABLE>
<PAGE> 223
<TABLE>
<CAPTION>
CARDINAL GOVERNMENT OBLIGATIONS FUND
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<S> <C>
The undersigned hereby appoints H. Keith Allen, Frank W. Siegel and
P Gordon B. Carson, and each of them, with full power of substitution,
proxies to vote and act with respect to all Shares of CARDINAL GOVERNMENT
R OBLIGATIONS FUND (the "Trust"), which the undersigned is entitled to
vote, at the Annual Meeting of Shareholders of the Trust to be held
O Friday, February 23, 1996, at its offices at 155 East Broad Street,
Columbus, Ohio, at 10:00 A.M. E.S.T. and at any and all adjournments
X thereof, on the following proposals and any other matters that may
properly come before the meeting.
Y
(1) FOR / / all nominees listed below WITHHOLD AUTHORITY / / to vote for
(except as completed below): all nominees listed below:
H. Keith Allen, Frank W. Siegel, Gordon B. Carson, John B. Gerlach, Jr., Michael J. Knilans, James I. Luck,
David L. Nelson, C.A. Peterson, Lawrence H. Rogers II and Joseph H. Stegmayer.
Instructions: To withhold authority to vote for any one or more nominees, but less than all nominees,
write the nominees' names in the following space.
------------------------------------------------------------------------------------------------------------
(Continued and to be signed on other side)
</TABLE>
<PAGE> 224
<TABLE>
(Continued from other side)
<S> <C>
(2) FOR / / AGAINST / / ABSTAIN / / The ratification of the selection of KPMG Peat Marwick LLP as independent
certified public accountants for the fiscal year ending September 30, 1996.
(3) FOR / / AGAINST / / ABSTAIN / / approval of the Agreement and Plan of Reorganization and Liquidation by and
between The Cardinal Group and the Trust providing for the transfer of all of the assets of the Trust to The Cardinal
Government Obligations Fund of The Cardinal Group for shares of Cardinal Government Obligations Fund and the
assumption by Cardinal Government Obligations Fund of all of the liabilities of Trust, followed by the dissolution
and liquidation of the Trust and the distribution of shares of Cardinal Government Obligations Fund to the
shareholders of Trust.
The Shares represented by this proxy will be voted upon the proposals listed hereon in accordance with the instructions
given by the shareholder, but if no instructions are given this proxy will be voted FOR the proposals and in accordance with the
best judgment of the proxies on any other matter which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders dated January __, 1996, and the
Combined Prospectus/Proxy Statement attached thereto.
DATED:
-----------------------------
------------------------------------
(Signature of Shareholder)
------------------------------------
(Signature of Shareholder)
(Please sign legibly exactly as
the name is printed on the left or as
it appears on your stock certificate.)
If the certificate orcertificates are
registered in joint name, both parties must
sign the proxy. If the registration is as
attorney, executor, administrator, trustee,
or guardian, please sign full title as such.
Please Date, Sign and Mail Promptly
</TABLE>
<PAGE> 225
<TABLE>
<CAPTION>
CARDINAL GOVERNMENT SECURITIES TRUST
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<S> <C>
The undersigned hereby appoints H. Keith Allen, Frank W. Siegel and
P Gordon B. Carson, and each of them, with full power of substitution,
proxies to vote and act with respect to all Shares of CARDINAL GOVERNMENT
R SECURITIES TRUST (the "Trust"), which the undersigned is entitled to vote, at
the Annual Meeting of Shareholders of the Trust to be held Friday,
O February 23, 1996, at its offices at 155 East Broad Street, Columbus,
Ohio, at 10:00 A.M. E.S.T. and at any and all adjournments thereof, on the
X following proposals and any other matters that may properly come before the
meeting.
Y
(1) FOR / / all nominees listed below WITHHOLD AUTHORITY / / to vote for
(except as completed below): all nominees listed below:
H. Keith Allen, Frank W. Siegel, Gordon B. Carson, John B. Gerlach, Jr., Michael J. Knilans, James I. Luck,
David L. Nelson, C.A. Peterson, Lawrence H. Rogers II and Joseph H. Stegmayer.
Instructions: To withhold authority to vote for any one or more nominees, but less than all nominees,
write the nominees' names in the following space.
-------------------------------------------------------------------------------------------------------------
(Continued and to be signed on other side)
</TABLE>
<PAGE> 226
<TABLE>
(Continued from other side)
<S> <C>
(2) FOR / / AGAINST / / ABSTAIN / / The ratification of the selection of KPMG Peat Marwick LLP as independent
certified public accountants for the fiscal year ending September 30, 1996.
(3) FOR / / AGAINST / / ABSTAIN / / approval of the Agreement and Plan of Reorganization and Liquidation by and
between The Cardinal Group and the Trust providing for the transfer of all of the assets of the Trust to Cardinal
Government Securities Money Market Fund of The Cardinal Group for shares of Cardinal Government Securities Money
Market Fund and the assumption by Cardinal Government Securities Money Market Fund of all of the liabilities of
the Trust, followed by the dissolution and liquidation of the Trust and the distribution of shares of Cardinal
Government Securities Money Market Fund to the shareholders of Trust.
The Shares represented by this proxy will be voted upon the proposals listed hereon in accordance with the instructions
given by the shareholder, but if no instructions are given this proxy will be voted FOR the proposals and in accordance with the
best judgment of the proxies on any other matter which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders dated January __, 1996, and the
Combined Prospectus/Proxy Statement attached thereto.
DATED:
-----------------------------
------------------------------------
(Signature of Shareholder)
------------------------------------
(Signature of Shareholder)
(Please sign legibly exactly as
the name is printed on the left or as
it appears on your stock certificate.)
If the certificate orcertificates are
registered in joint name, both parties must
sign the proxy. If the registration is as
attorney, executor, administrator, trustee,
or guardian, please sign full title as such.
Please Date, Sign and Mail Promptly
</TABLE>
<PAGE> 227
<TABLE>
<CAPTION>
CARDINAL TAX EXEMPT MONEY TRUST
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE TRUST
<S> <C>
The undersigned hereby appoints H. Keith Allen, Frank W. Siegel and
P Gordon B. Carson, and each of them, with full power of substitution,
proxies to vote and act with respect to all Shares of CARDINAL TAX EXEMPT
R MONEY TRUST (the "Trust"), which the undersigned is entitled to vote, at
the Annual Meeting of Shareholders of the Trust to be held Friday,
O February 23, 1996, at its offices at 155 East Broad Street, Columbus,
Ohio, at 10:00 A.M. E.S.T. and at any and all adjournments thereof, on
X the following proposals and any other matters that may properly come
before the meeting.
Y
(1) FOR / / AGAINST / / ABSTAIN / / Fixing the number of trustees at ten
(2) FOR / / all nominees listed below WITHHOLD AUTHORITY / / to vote for
(except as completed below): all nominees listed below:
H. Keith Allen, Frank W. Siegel, Gordon B. Carson, John B. Gerlach, Jr., Michael J. Knilans, James I. Luck,
David L. Nelson, C.A. Peterson, Lawrence H. Rogers II and Joseph H. Stegmayer.
Instructions: To withhold authority to vote for any one or more nominees, but less than all nominees,
write the nominees' names in the following space.
------------------------------------------------------------------------------------------------------------
(Continued and to be signed on other side)
</TABLE>
<PAGE> 228
<TABLE>
(Continued from other side)
<S> <C>
(3) FOR / / AGAINST / / ABSTAIN / / The ratification of the selection of KPMG Peat Marwick LLP as independent
certified public accountants for the fiscal year ending September 30, 1996.
(4) FOR / / AGAINST / / ABSTAIN / / approval of the Agreement and Plan of Reorganization and Liquidation by and
between The Cardinal Group and the Trust providing for the transfer of all of the assets of the Trust to Cardinal
Tax Exempt Money Market Fund of The Cardinal Group in exchange for shares of Cardinal Tax Exempt Money Market
Fund and the assumption by Cardinal Tax Exempt Money Market Fund of all of the liabilities of the Trust, followed
by the dissolution and liquidation of the Trust and the distribution of shares of Cardinal Tax Exempt Money Market
Fund to the shareholders of Trust.
The Shares represented by this proxy will be voted upon the proposals listed hereon in accordance with the instructions
given by the shareholder, but if no instructions are given this proxy will be voted FOR the proposals and in accordance with the
best judgment of the proxies on any other matter which properly comes before the Meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders dated January __, 1996, and the
Combined Prospectus/Proxy Statement attached thereto.
DATED:
-----------------------------
------------------------------------
(Signature of Shareholder)
------------------------------------
(Signature of Shareholder)
(Please sign legibly exactly as
the name is printed on the left or as
it appears on your stock certificate.)
If the certificate orcertificates are
registered in joint name, both parties must
sign the proxy. If the registration is as
attorney, executor, administrator, trustee,
or guardian, please sign full title as such.
Please Date, Sign and Mail Promptly
</TABLE>
<PAGE> 229
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL FUND
CARDINAL GOVERNMENT OBLIGATIONS FUND
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
CARDINAL TAX EXEMPT MONEY MARKET FUND
Four Funds of
THE CARDINAL GROUP
This Statement of Additional Information is not a prospectus
and contains information which may be of interest to investors
but which is not included in the Combined Prospectus/Proxy
Statements (the "Prospectuses") of The Cardinal Group (the
"Group") dated January __, 1996, relating to the transfer of
assets from The Cardinal Fund Inc. ("TCFI"), Cardinal Government
Obligations Fund ("CGOF"), Cardinal Government Securities Trust
("CGST") and Cardinal Tax Exempt Money Trust ("CTEMT")
(collectively the "Acquired Funds") to The Cardinal Fund,
Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund and Cardinal Tax Exempt Money Market
Fund, respectively, of The Cardinal Group (collectively the
"Acquiring Funds"). The Statements of Additional Information for
the Acquired Funds each dated February 1, 1995, and the
Statement of Additional Information for the Acquiring Funds dated
January __, 1996, have been filed with the Securities and
Exchange Commission and are incorporated herein by reference.
This Statement of Additional Information is not a Prospectus and
is authorized for distribution only when it accompanies or
follows delivery of the Prospectuses. This Statement of
Additional Information should be read in conjunction with the
Prospectuses. Copies of the January __, 1996 Prospectus may be
obtained, without charge, by writing the Group, 155 East Broad
Street, Columbus, Ohio 43215, or by calling 1-800-282-9446.
The date of this Statement of Additional Information is
January __, 1996.
<PAGE> 230
Registration Statement
of
THE CARDINAL GROUP
on
Form N-14
PART C. OTHER INFORMATION
Item 15. Indemnification
The information required by this item is
incorporated by reference to the Item 27 of Post-
Effective Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-59984) filed on
October 27, 1995, under the Securities Act of 1933 and
the Investment Company Act of 1940 (File No. 811-7588).
Item 16. Exhibits
(1) Declaration of Trust, as amended as of
October 20, 1995, is incorporated by reference to
Exhibits (1)(a) and (1)(b) to Post-Effective
Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-59984) filed
on October 27, 1995.
(2) By-Laws are incorporated by reference to
Exhibit (2) to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A
(File No. 33-59984) filed on October 27, 1995.
(3) Not Applicable.
(4) (a) Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995,
between Registrant and The Cardinal Fund Inc.
(b) Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995,
between Registrant and Cardinal Government
Obligations Fund.
(c) Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995,
between Registrant and Cardinal Government
Securities Trust.
(d) Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995,
between Registrant and Cardinal Tax Exempt
Money Trust.
(5) Certificates for shares are not issued.
Articles IV, V, VI and VII of the Declaration of
Trust, incorporated by reference to Exhibit (1)
hereto, define rights of holders of shares.
<PAGE> 231
(6) Investment Advisory and Management Agreement
dated as of June 18, 1983, as proposed
to be amended, between Registrant and Cardinal
Management Corp. is incorporated by reference to
Exhibit (5) to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A
(File No. 33-59984) filed on October 27, 1995.
(7) (a) Distribution Agreement dated
as of June 18, 1993, as proposed to be
amended, between Registrant and The Ohio
Company is incorporated by reference to
Exhibit (6)(a) to Post-Effective Amendment
No. 3 to Registrant's Registration Statement
on Form N-1A (File No. 33-59984) filed on
October 27, 1995.
(b) Form of revised Dealer Agreement is
incorporated by reference to Exhibit (6)(b)
to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on
Form N-1A (File No. 33-59984) filed on
October 27, 1995.
(8) Not Applicable.
(9) Custody Agreement dated as of June 18, 1993,
as proposed to be amended, between Registrant
and The Fifth Third Bank is incorporated by reference
to Exhibit (8) to Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-1A
(File No. 33-59984) filed on October 27, 1995.
(10) (a) Rule 12b-1 Plan is incorporated by reference
to Exhibit (15)(a) of Post-Effective Amendment
No. 3 to Registrant's Registration Statement
on Form N-1A (File No. 33-59984) filed on
October 27, 1995.
(b) Rule 12b-1 Agreement dated as of June 18, 1993,
as proposed to be amended, between Registrant
and The Ohio Company (a related agreement under
the Rule 12b-1 Plan) is incorporated by reference
to Exhibit (15)(b) to Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-1A
(File No. 33-59984) filed on October 27, 1995.
(c) Form of revised Selected Dealer Agreement (a related
agreement under the Rule 12b-1 Plan) is incorporated by
reference to Exhibit (15)(c) to Post-Effective
Amendment No. 3 to Registrant's Registration Statement
on Form N-1A (File No. 33-59984) filed on October 27, 1995.
C-2
<PAGE> 232
(11) Opinion and Consent of Baker & Hostetler as to the
shares offered hereby.
(12) Opinions and Consents of Baker & Hostetler as to
Tax Matters.
(13) Transfer Agency and Fund Accounting Agreement dated
as of June 18, 1993, as proposed to be amended,
between Registrant and Cardinal Management Corp.
is incorporated by reference to Exhibit (9) to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No. 33-
59984) filed on October 27, 1995.
(14) (a) Consent of KPMG Peat Marwick LLP.
(b) Consent of Baker & Hostetler.
(15) Not Applicable.
(16) Powers of Attorney of H. Keith Allen,
Gordon B. Carson, John B. Gerlach, Jr., Michael J.
Knilans, James I. Luck, David L. Nelson, C. A.
Peterson, John L. Schlater, Frank W. Siegel,
Joseph H. Stegmayer, Lawrence H. Rogers II and
James M. Schrack, II.
(17) (a) Declaration pursuant to Rule
24f-2 under the Investment Company Act of
1940 for the Registrant dated March 24, 1993.
(b) Current form of Prospectus dated January __, 1996,
and Statement of Additional Information dated
January __, 1996, for The Cardinal Group, with
respect to The Cardinal Fund, Cardinal Government
Obligations Fund, Cardinal Government Securities Trust
and Cardinal Tax Exempt Money Trust in substantially the
form filed with the Securities and Exchange Commission on
October 27, 1995, as part of Post-Effective Amendment No.
3 to Registrant's Registration Statement on Form N-1A.
(c) Prospectus dated February 1, 1995, as supplemented
December 11, 1995, Statement of Additional Information
dated February 1, 1995, and Annual Report for the year
ended September 30, 1995, for each of The Cardinal Fund
Inc., Cardinal Government Obligations Fund, Cardinal
Government Securities Trust and Cardinal Tax Exempt Money
Trust.
(d) Financial Data Schedules for each of The Cardinal Fund
Inc., Cardinal Government Obligations Fund, Cardinal
Government
C-3
<PAGE> 233
Securities Trust and Cardinal Tax Exempt Money
Trust.
Item 17. Undertakings
(1) Registrant agrees that prior to any public reoffering
of the securities registered through the use of a
prospectus which is a part of this registration statement
by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the
information called for by the applicable registration
form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by
the other items of the applicable form.
(2) Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of
an amendment to the registration statement and will not
be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein,
and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
C-4
<PAGE> 234
SIGNATURES
----------
As required by the Securities Act of 1933, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Columbus and State of
Ohio on the 7th day of December, 1995.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
------------------------------
Frank W. Siegel, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Frank W. Siegel President (Principal December 7, 1995
- ------------------------------- Executive Officer)
Frank W. Siegel
/s/*H. Keith Allen Chairman and Trustee December 7, 1995
- -------------------------------
H. Keith Allen
/s/*Gordon B. Carson Trustee December 7, 1995
- -------------------------------
Gordon B. Carson
/s/*John B. Gerlach, Jr. Trustee December 7, 1995
- -------------------------------
John B. Gerlach, Jr.
/s/*Michael J. Knilans Trustee December 7, 1995
- -------------------------------
Michael J. Knilans
/s/*James I. Luck Trustee December 7, 1995
- -------------------------------
James I. Luck
/s/*David L. Nelson Trustee December 7, 1995
- -------------------------------
David L. Nelson
/s/*C. A. Peterson Trustee December 7, 1995
- -------------------------------
C. A. Peterson
/s/*Lawrence H. Rogers II Trustee December 7, 1995
- -------------------------------
Lawrence H. Rogers II
/s/*John L. Schlater Trustee December 7, 1995
- -------------------------------
John L. Schlater
/s/*Joseph H. Stegmayer Trustee December 7, 1995
- -------------------------------
Joseph H. Stegmayer
/s/ James M. Schrack II Treasurer (Principal December 7, 1995
- ------------------------------- Financial and Accounting
James M. Schrack II Officer)
*By /s/ James M. Schrack II December 7, 1995
- -------------------------------
James M. Schrack II
Attorney-In-Fact
</TABLE>
C-5
<PAGE> 235
EXHIBIT INDEX
Exhibit No. Description Page
- ---------- ------------------------------------------------- ----
(1) Declaration of Trust, as amended as of October
20, 1995, was filed as Exhibits (1)(a) and (1)
(b) to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A
(File No. 33-59984) on October 27, 1995.
(2) By-Laws were filed as Exhibit (2) to Post-
Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A
(File No. 33-59984) on October 27, 1995.
(4)(a) Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995,
between Registrant and The Cardinal Fund Inc.
(b) Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995, between
Registrant and Cardinal Government Obligations
Fund.
(c) Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995, between
Registrant and Cardinal Government Securities
Trust.
(d) Agreement and Plan of Reorganization and Liquidation
dated as of December 1, 1995, between Registrant and
Cardinal Tax Exempt Money Trust.
(6) Investment Advisory and Management Agreement dated
as of June 18, 1983, as proposed to be amended,
between Registrant and Cardinal Management Corp.
was filed as Exhibit (5) to Post-Effective
Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-59984) on
October 27, 1995.
(7)(a) Distribution Agreement dated as of June 18, 1993,
as proposed to be amended, between Registrant and
The Ohio Company was filed as Exhibit (6)(a) to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No.
33-59984) on October 27, 1995.
(b) Form of revised Dealer Agreement was filed as Exhibit
(6)(b) to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on
C-6
<PAGE> 236
Exhibit No. Description Page
- ---------- ------------------------------------------------- ----
Form N-1A (File No. 33-59984) filed on October 27,
1995.
(9) Custody Agreement dated as of June 18, 1993, as
proposed to be amended between Registrant and The
Fifth Third Bank was filed as Exhibit (8) to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No.
33-59984) on October 27, 1995.
(10)(a) Rule 12b-1 Plan was filed as Exhibit (15)(a) of
Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No.
33-59984) on October 27, 1995.
(b) Rule 12b-1 Agreement dated as of June 18, 1993,
as proposed to be amended, between Registrant and
The Ohio Company (a related agreement under the
Rule 12b-1 Plan) was filed as Exhibit (15)(b) to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File
No. 33-59984) on October 27, 1995.
(c) Form of revised Selected Dealer Agreement (a
related agreement under the Rule 12b-1 Plan) was
filed as Exhibit (15)(c) to Post-Effective
Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-59984) on
October 27, 1995.
(11) Opinion and Consent of Baker & Hostetler as to
the shares offered hereby.
(12) Opinions and Consents of Baker & Hostetler as
to Tax Matters.
(13) Transfer Agency and Fund Accounting Agreement dated
as of June 18, 1993, as proposed to be amended,
between Registrant and Cardinal Management Corp.
was filed as Exhibit (9) to Post-Effective
Amendment No. 3 to Registrant's Registration
Statement on Form N-1A (File No. 33-59984)
on October 27, 1995.
(14)(a) Consent of KPMG Peat Marwick LLP.
(b) Consent of Baker & Hostetler.
(16) Powers of Attorney of H. Keith Allen, Gordon B.
Carson, John B. Gerlach, Jr., Michael J. Knilans,
James I. Luck, David L. Nelson, C. A. Peterson,
John L. Schlater, Frank W. Siegel,
C-7
<PAGE> 237
Exhibit No. Description Page
- ---------- ------------------------------------------------- ----
Joseph H. Stegmayer, Lawrence H. Rogers II and
James M. Schrack, II.
(17)(a) Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 for the Registrant
dated March 24, 1993.
(b) Current form of Prospectus dated January __,
1996, and Statement of Additional Information
dated January __, 1996, for The Cardinal Group,
with respect to The Cardinal Fund, Cardinal
Government Obligations Fund, Cardinal
Government Securities Trust and Cardinal Tax
Exempt Money Trust in substantially the form filed
with the Securities and Exchange Commission
on October 27, 1995, as part of Post-Effective
Amendment No. 3.
(c) Prospectus dated February 1, 1995, as supplemented
December 11, 1995, Statement of Additional
Information dated February 1, 1995, for each of
The Cardinal Fund Inc., Cardinal Government
Obligations Fund, Cardinal Government Securities
Trust and Cardinal Tax Exempt Money Trust.
(d) Financial Data Schedules for each of The Cardinal
Fund Inc., Cardinal Government Obligations Fund,
Cardinal Government Securities Trust and Cardinal
Tax Exempt Money Trust.
C-8
<PAGE> 238
VOLUME II
As filed with the Securities and Exchange Commission December 11, 1995
1933 Act Registration No. 33-______
EXHIBITS TO
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
The Cardinal Group
(Exact Name of Registrant as Specified in Charter)
155 East Broad Street
Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(614) 464-5511
<PAGE> 1
EXHIBIT (4) (a)
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
----------------------------------------------------
Agreement and Plan of Reorganization and Liquidation ("Agreement")
dated as of December 1, 1995, by and between The Cardinal Group, an Ohio
business trust ("TCG"), and The Cardinal Fund Inc., an Ohio corporation
("TCFI").
WHEREAS, TCG is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end investment company of the management
type and has, or before the Exchange Date (as defined below) is expected to
have, issued and outstanding one class of shares of beneficial interest,
without par value ("Shares"), for each of six series, one such series being The
Cardinal Fund (hereinafter sometimes referred to as the "Cardinal Fund" or the
"Acquiring Series"); and
WHEREAS, TCFI is registered under the 1940 Act as an open-end
investment company of the management type and currently has issued and
outstanding one class of common shares, without par value; and
WHEREAS, TCFI plans to transfer all of its assets, and to assign all
of its liabilities, to the Acquiring Series, in exchange for Shares of the
Acquiring Series (the "Acquiring Series Shares"), followed by the distribution
of the Acquiring Series Shares by TCFI to its shareholders, and followed by the
dissolution of TCFI, all upon the terms and provisions of this Agreement (the
"Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization
is in the best interests of TCG, and that the interests of its shareholders
will not be diluted as a result thereof; and
WHEREAS, the Board of Directors of TCFI has determined that the
Reorganization is in the best interests of TCFI and that the
<PAGE> 3
interests of its shareholders will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION.
(a) SALE OF ASSETS, ASSUMPTION OF LIABILITIES. Subject to
the prior approval of shareholders of TCFI and to the other terms and
conditions contained herein (including the obligation of TCFI to
distribute to its shareholders all of its investment company taxable
income and net capital gain as described in Section 8(i) herein), TCFI
agrees to sell, assign, convey, transfer and deliver to the Acquiring
Series, and the Acquiring Series agrees to acquire from TCFI on the
Exchange Date (as defined below), all of the Investments (as defined
below), cash and other assets of TCFI in exchange for that number of
full and fractional Acquiring Series Shares of the Acquiring Series
having an aggregate net asset value equal to the value of all assets
of TCFI transferred to the Acquiring Series, as provided in Section 4,
less the liabilities of TCFI assumed by the Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the
Acquiring Series from TCFI shall consist of all of TCFI's property,
including, without limitation, all Investments, cash and dividends or
interest receivables which are owned by TCFI and any deferred or
prepaid expenses shown as an asset on the books of TCFI as of the
Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date TCFI
will endeavor to discharge or cause to be discharged, or make
provision for the payment of, all of its known liabilities and
obligations. The Acquiring Series shall assume all liabilities,
expenses, costs, charges and reserves of TCFI, contingent or
otherwise, including liabilities reflected in the unaudited statement
of assets and liabilities of TCFI as of the Valuation Time, prepared
by or on behalf of TCFI in accordance with generally accepted
accounting principles consistently applied from and after September
30, 1995.
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, TCFI
shall distribute in complete liquidation to its shareholders of record
as of the Exchange Date the Acquiring Series Shares received by it,
each TCFI shareholder of record being entitled to receive that number
of Acquiring Series Shares equal to the proportion which the number of
common
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<PAGE> 4
shares, without par value, of TCFI held by such shareholder bears to
the total number of such shares of TCFI outstanding on such date, and
shall take such further action as may be required, necessary or
appropriate under TCFI's Articles of Incorporation, Ohio law and the
Code to effect the complete liquidation and dissolution of TCFI. TCFI
will fulfill all reporting requirements under the 1940 Act, both
before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCFI. TCFI represents
and warrants to and agrees with TCG and the Acquiring Series that:
(a) TCFI is a corporation validly existing under the laws of
the State of Ohio and has power to own all of its properties and
assets and to carry out its obligations under this Agreement. TCFI
has qualified as a foreign corporation in each jurisdiction where the
ownership of its property and the conduct of its business require
qualification. TCFI has all necessary federal, state and local
authorizations to carry on its business as now being conducted and to
fulfill the terms of this Agreement, except as set forth in Section
2(1).
(b) TCFI is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. TCFI
has elected to qualify and has qualified as a regulated investment
company under Part I of Subchapter M of the Code as of and since its
first taxable year, and qualifies and intends to continue to qualify
as a regulated investment company for its taxable year ending upon its
liquidation. TCFI has been a regulated investment company under such
sections of the Code at all times since its inception.
(c) The statement of assets and liabilities, including the
statement of investments as of September 30, 1995, and the related
statement of operations for the year then ended, and statements of
changes in net assets for each of the two years in the period then
ended, for TCFI, such statements having been audited by KPMG Peat
Marwick LLP, independent auditors of TCFI, have been furnished to TCG.
Such statement of assets and liabilities fairly present the financial
position of TCFI as of such date and such statements of operations and
changes in net assets fairly reflect the results of operations and
changes in net assets for the periods covered thereby in conformity
with generally accepted accounting principles, and there are no known
material liabilities of TCFI as of such dates which are not disclosed
therein.
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<PAGE> 5
(d) The Prospectus of TCFI dated February 1, 1995 (the "TCFI
Prospectus") and the related Statement of Additional Information for
TCFI dated February 1, 1995, in the forms filed with the Securities
and Exchange Commission and previously furnished to TCG, did not as of
their date and do not as of the date hereof contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(e) Except as may have been previously disclosed to TCG,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of TCFI threatened against TCFI.
(f) There are no material contracts outstanding to which TCFI
is a party, other than as disclosed in the TCFI Prospectus and its
corresponding Statement of Additional Information, and there are no
such contracts or commitments (other than this Agreement) which will
be terminated with liability to TCFI on or prior to the Exchange Date.
(g) TCFI has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of September 30, 1995 and
those incurred in the ordinary course of TCFI's business as an
investment company since that date. Prior to the Exchange Date, TCFI
will advise TCG of all known material liabilities, contingent or
otherwise, incurred by it subsequent to September 30, 1995, whether or
not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall
mean TCFI's investments shown on the statement of assets and
liabilities as of September 30, 1995 referred to in Section 2(c)
hereof, as supplemented with such changes as TCFI shall make after
September 30, 1995 and prior to the date of this Agreement, which
changes have been disclosed to TCG, and changes made on and after the
date of this Agreement after advising TCFI of such changes, and
changes resulting from stock dividends stock split-ups, mergers and
similar corporate actions.
(i) TCFI has filed or will file all federal and state tax
returns which, to the knowledge of TCFI's officers, are required to be
filed by TCFI and has paid or will pay all federal and state taxes
shown to be due on said returns or on any assessments received by
TCFI. All tax liabilities of TCFI have been adequately provided for
on its books, and no tax deficiency or liability of TCFI has been
asserted, and no
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<PAGE> 6
question with respect thereto has been raised, by the Internal Revenue
Service or by any state or local tax authority for taxes in excess of
those already paid.
(j) As of both the Valuation Time and the Exchange Date and
except for shareholder approval and otherwise as described in Section
2(1), TCFI will have full right, power and authority to sell, assign,
transfer and deliver the Investments and any other of its assets and
liabilities to be transferred to TCG and the Acquiring Series pursuant
to this Agreement. At the Exchange Date, subject only to the delivery
of the Investments and any such other assets and liabilities as
contemplated by this Agreement, TCG and the Acquiring Series will
acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of TCFI and, except as described in Section 2(k), without any
restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as
amended (the "1933 Act"), of any of the Investments would be required
if they were, as of the time of such transfer, the subject of a public
distribution by either of TCFI or TCG, except as previously disclosed
to TCG by TCFI in writing prior to the date hereof.
(l) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by TCFI of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, Securities Exchange Act of 1934, as
amended (the "1934 Act"), 1940 Act, state securities or blue sky laws
(which term as used herein shall include the laws of the District of
Columbia and of Puerto Rico) or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R Act").
(m) The registration statement (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the
"Commission") by TCG on Form N-14 relating to the Acquiring Series
Shares issuable hereunder, and the proxy statement of TCFI included
therein (the "Proxy Statement"), on the effective date of the
Registration Statement and insofar as they relate to TCFI, (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus
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<PAGE> 7
contained in the Registration Statement of which the Proxy Statement
is a part (the "Prospectus"), as amended or supplemented by any
amendments or supplements filed with the Commission by TCG, insofar as
it relates to TCFI, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that the representations and warranties in this
Section 2(m) shall apply only to statements of fact relating to TCFI
contained in the Registration Statement, the Prospectus or the Proxy
Statement, or omissions to state in any thereof a material fact
relating to TCFI, as such Registration Statement, Prospectus and Proxy
Statement shall be furnished to TCFI in definitive form as soon as
practicable following effectiveness of the Registration Statement and
before any public distribution of the Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with TCFI that:
(a) TCG is a business trust validly existing under the laws
of the State of Ohio and has power to carry on its business as it is
now being conducted and to carry out its obligations under this
Agreement. TCG has qualified as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification. TCG and the Acquiring Series each
has all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set
forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. The
Acquiring Series expects to qualify as a regulated investment company
under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no financial statements as
of the Valuation Time.
(d) The prospectus of TCG and the Acquiring Series, expected
to be dated in January, 1996 (the "Acquiring Series Prospectus"), and
the related Statement of Additional Information for the Acquiring
Series to be dated such date, in the forms to be filed with the
Securities and Exchange Commission, will be furnished to TCFI promptly
upon the completion thereof and will not as of their date contain any
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<PAGE> 8
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(e) Except as may have been previously disclosed to TCFI,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of TCG or its Acquiring Series,
threatened against TCG or the Acquiring Series, which assert liability
on the part of TCG or the Acquiring Series.
(f) There are no material contracts outstanding to which TCG
or the Acquiring Series is a party, other than material contracts
disclosed in the Acquiring Series Prospectus and the corresponding
Statement of Additional Information.
(g) The Acquiring Series will have no assets or liabilities
as of the Valuation Time.
(h) TCG and the Acquiring Series will file all federal and
state tax returns which, to the knowledge of TCG's officers, are
required to be filed by TCG and the Acquiring Series and will pay all
federal and state taxes shown to be due on such returns or on any
assessments received by TCG or the Acquiring Series. All tax
liabilities of TCG and the Acquiring Series have been adequately
provided for on its books, and no tax deficiency or liability of TCG
or the Acquiring Series has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already
paid.
(i) No consent, approval, authorization or order of any
governmental authority is required for the consummation by TCG or the
Acquiring Series of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, 1934 Act, 1940 Act,
state securities or Blue Sky Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and
otherwise as described in Section 3(i), TCG and the Acquiring Series
will have full right, power and authority to purchase the Investments
and any other assets and assume the liabilities of TCFI to be
transferred to the Acquiring Series pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy
Statement, on the effective date of the Registration Statement and
insofar as they relate to TCG and the Acquiring Series: (i) will
comply in all material respects with the
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<PAGE> 9
provisions of the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred to
in Section 7 and at the Exchange Date, the Prospectus, as amended or
supplemented by any amendments or supplements filed with the
Commission by TCG, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the
Registration Statement, the Prospectus or the Proxy Statement made in
reliance upon and in conformity with information furnished by TCFI for
use in the Registration Statement, the Prospectus or the Proxy
Statement.
(l) The Acquiring Series Shares to be issued by TCG have been
duly authorized and when issued and delivered by TCG to TCFI pursuant
to this Agreement and the Prospectus will be legally and validly
issued by TCG and will be fully paid and nonassessable, and no
shareholder of TCG will have any preemptive right of subscription or
purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this
Agreement will be in compliance with all applicable federal and state
securities laws.
(n) Cardinal Fund, upon filing of its first income tax return
at the completion of its first taxable year will elect to be a
regulated investment company and until such time will take all steps
necessary to ensure qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver
to TCFI a number of Acquiring Series Shares having an aggregate net asset value
equal to the value of the assets of TCFI acquired by the Acquiring Series, less
the value of the liabilities of TCFI assumed, determined as hereafter provided
in this Section 4.
(a) The net asset value of TCFI will be computed as of the
Valuation Time, using the valuation procedures set forth in the
current prospectus of TCFI.
(b) The net asset value of each of the Acquiring Series
Shares will be determined to the nearest full cent as of the
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<PAGE> 10
Valuation Time, and shall be set at the net asset value per share of
TCFI as of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard
Time, on March 30, 1996, or such earlier or later day as may be
mutually agreed upon in writing by the parties hereto (the
"Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series
Shares to TCFI on one share deposit receipt registered in the name of
TCFI. TCFI shall distribute in liquidation the Acquiring Series
Shares received by it hereunder PRO RATA to its shareholders by
redelivering such share deposit receipt to TCG's transfer agent,
which will as soon as practicable set up open accounts for each TCFI
shareholder in accordance with written instructions furnished by TCFI.
(e) The Acquiring Series shall assume all liabilities of
TCFI, whether accrued or contingent, described in subsection 1(c)
hereof in connection with the acquisition of assets and subsequent
dissolution of TCFI or otherwise, except that recourse for assumed
liabilities relating to TCFI will be limited to the Acquiring Series.
5. EXPENSES, FEES, ETC.
(a) Subject to the further provisions of this Section 5, TOC
shall be responsible for the fees and expenses of the Reorganization.
The Acquiring Series will be responsible for its organization costs.
TCFI will be responsible for proxy solicitation and other costs
associated with its annual meeting (or special meeting in lieu
thereof) to the extent such costs are comparable to those incurred for
annual meetings in recent prior years. TOC has undertaken to absorb
all other costs of the Reorganization.
(b) In the event the transactions contemplated by this
Agreement are not consummated by reason of TCFI's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to TCFI's obligations
referred to in Section 7(a) or Section 9), TCFI shall pay directly all
reasonable fees and expenses incurred by TCG in connection with such
transactions, including, without limitation, legal, accounting and
filing fees.
(c) In the event the transactions contemplated by this
Agreement are not consummated by reason of TCG's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to TCG's obligations
referred to in Section 7(a) or Section 8), TCG
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<PAGE> 11
shall pay directly all of the reasonable fees and expenses incurred by
TCFI in connection with such transactions, including, without
limitation, legal, accounting and filing fees.
(d) Notwithstanding any other provisions of this Agreement,
if for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to the other party for any
damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of TCFI to be transferred,
assumption of the liabilities of TCFI to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of The Ohio
Company, 155 East Broad Street, Columbus, Ohio at 9:00 A.M. on March 31, 1996,
or at such other time and date agreed to by TCG and TCFI, the date and time
upon which such delivery is to take place being referred to herein as the
"Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) TCFI agrees to call a special meeting of its
shareholders as soon as is practicable after the effective date of the
Registration Statement for the purpose of considering the sale of all
of the assets of TCFI to and the assumption of all of the liabilities
of TCFI by the Acquiring Series as herein provided, authorizing and
approving this Agreement, and authorizing and approving the
liquidation and dissolution of TCFI, and it shall be a condition to
the obligations of each of the parties hereto that the holders of
common shares, without par value, of TCFI shall have approved this
Agreement, and the transactions contemplated herein, including the
liquidation and dissolution of TCFI, in the manner required by law and
TCFI's Articles of Incorporation at such a meeting on or before the
Valuation Time.
(b) TCFI agrees that the liquidation and dissolution of TCFI
will be effected in the manner provided in TCFI's Articles of
Incorporation and in accordance with applicable law, and that it will
not make any distributions of any Acquiring Series Shares to the
shareholders of TCFI without first paying or adequately providing for
the payment of all of TCFI's known debts, obligations and liabilities.
(c) Each of TCG and TCFI will cooperate with the other, and
each will furnish to the other the information relating to itself
required by the 1933 Act, 1934 Act and 1940 Act and the
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<PAGE> 12
rules and regulations thereunder to be set forth in the Registration
Statement, including the Prospectus and the Proxy Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of TCFI, shall have been approved by the directors and
shareholders of TCFI in the manner required by law.
(b) TCFI shall have furnished to TCG a statement of TCFI's
assets and liabilities, with values determined as provided in Section
4 of this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on
TCFI's behalf by its President (or any Vice President) and Treasurer
(or other financial officer), and a certificate of both such officers,
dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change
in the financial position of TCFI since September 30, 1995, other than
changes in the Investments since that date or changes in the market
value of the Investments, or changes due to net redemptions of shares
of TCFI, dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCFI made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, TCFI has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
each of such dates, and TCFI shall have furnished to TCG a statement,
dated the Exchange Date, signed by TCFI's President (or any Vice
President) and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) TCG shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to TCG and dated the Exchange Date, to
the effect that (i) TCFI is a corporation validly existing under the
laws of the State of Ohio, and is, to the knowledge of such counsel,
qualified to do business as a foreign corporation in each jurisdiction
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<PAGE> 13
where the ownership of its property and the conduct of its business
require qualification, (ii) this Agreement has been duly authorized,
executed and delivered by TCFI and, assuming that the Registration
Statement, the Prospectus and the Proxy Statement comply with the 1933
Act, 1934 Act and 1940 Act and assuming due authorization, execution
and delivery of this Agreement by TCG, is a valid and binding
obligation of TCFI, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and other equitable principles, (iii) TCFI has power to
sell, assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement,
TCFI will have duly sold, assigned, conveyed, transferred and
delivered such Investments and other assets to TCG, (iv) the execution
and delivery of this Agreement did not and the consummation of the
transactions contemplated hereby will not, violate TCFI's Articles of
Incorporation or its Code of Regulations, as amended, or any provision
of any agreement known to such counsel to which TCFI is a party or by
which it is bound, it being understood that with respect to any
investment restrictions as contained in TCFI's Articles of
Incorporation or Code of Regulations, or then current prospectus or
statement of additional information, such counsel may rely upon a
certificate of an officer of TCFI, whose responsibility it is to
advise TCFI with respect to such matters and (v) to the knowledge of
such counsel no consent, approval, authorization or order of any court
or governmental authority is required for the consummation by TCFI of
the transactions contemplated hereby, except such as have been
obtained under the 1933 Act, 1934 Act and 1940 Act and such as may be
required under state securities or blue sky laws and the H-S-R Act.
In rendering such opinion, Baker & Hostetler may rely upon certain
reasonable and customary assumptions and certifications of fact
received from TCG, TCFI, and certain of its shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler,
addressed to TCG, the Acquiring Series and TCFI, in form reasonably
satisfactory to TCG and dated the Exchange Date, to the effect that
for Federal income tax purposes (i) the transfer of all or
substantially all of TCFI's assets in exchange for the Acquiring
Series Shares and the assumption by the Acquiring Series of
liabilities of TCFI will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each of the Acquiring
Series and TCFI is a "party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by
TCFI upon the
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<PAGE> 14
transfer of the assets of the Acquiring Series in exchange for
Acquiring Series Shares and the assumption by the Acquiring Series of
the liabilities of TCFI or upon the distribution of Acquiring Series
Shares by TCFI to its shareholders in liquidation; (iii) no gain or
loss will be recognized by the shareholders of TCFI upon the exchange
of their shares for Acquiring Series Shares, (iv) the basis of the
Acquiring Series Shares a TCFI shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) a TCFI shareholder's holding period for his or
her Acquiring Series Shares will be determined by including the period
for which he or she held TCFI shares exchanged therefor, provided that
he or she held such shares as capital assets; (vi) no gain or loss
will be recognized by the Acquiring Series upon the receipt of the
assets of TCFI in exchange for Acquiring Series Shares and the
assumption by the Acquiring Series of the liabilities of TCFI; (vii)
the basis in the hands of the Acquiring Series the assets of TCFI
transferred to the Acquiring Series will be the same as the basis of
the assets in the hands of TCFI immediately prior to the transfer; and
(viii) the Acquiring Series' holding periods of the assets of TCFI
will include the period for which such assets were held by TCFI. In
rendering such opinion, Baker & Hostetler may rely upon certain
reasonable and customary assumptions and certifications of fact
received from TCG, TCFI, and certain of its shareholders.
(g) The Registration Statement shall have become effective
under the 1933 Act and applicable Blue Sky provisions, and no stop
order suspending such effectiveness shall have been instituted or, to
the knowledge of TCG, contemplated by the Commission or any state
regulatory authority.
(h) All necessary proceedings taken by TCFI in connection
with the transactions contemplated by this Agreement and all documents
incidental thereto reasonably shall be satisfactory in form and
substance to TCG and Baker & Hostetler.
(i) Prior to the Exchange Date, TCFI shall have declared a
dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable income for its taxable year
ended September 30, 1995 and the short taxable year beginning on
October 1, 1995 and ending on the Valuation Date (computed without
regard to any deduction for dividends paid), and all of its net
capital gain realized in its taxable year ended September 30, 1995 and
the short taxable year beginning on October 1, 1995 and ending on the
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<PAGE> 15
Valuation Date (after reduction for any capital loss carryover).
(j) TCFI shall have furnished to TCG a certificate, signed by
the President (or any Vice President) and the Treasurer (or other
financial officer) of TCFI, as to the tax cost to TCG of the
securities delivered to TCG pursuant to this Agreement, together with
any such evidence as to such tax cost as TCG reasonably may request.
(k) TCFI's custodian shall have delivered to TCG a
certificate identifying all of the assets of TCFI held by such
custodian as of the Valuation Time.
(l) TCFI's transfer agent shall have provided to TCG (i) the
originals or true copies of all of the records of TCFI in the
possession of such transfer agent as of the Exchange Date, (ii) a
certificate setting forth the number of shares of TCFI outstanding as
of the Valuation Time and (iii) the name and address of each holder of
record of any such shares of TCFI and the number of shares held of
record by each such shareholder.
(m) TCFI shall have duly executed and delivered to TCG a bill
of sale, assignment, certificate and other instruments of transfer
("Transfer Documents") as TCG may deem necessary or desirable to
transfer all of TCFI's entire right, title and interest in and to the
Investments and all other assets of TCFI to the Acquiring Series.
(n) TCG and TCFI shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and TCFI, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
9. CONDITIONS OF TCFI'S OBLIGATIONS. The obligations of TCFI hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of TCFI, shall have been approved by the directors and
shareholders of TCFI in the manner required by law.
(b) TCG shall have executed and delivered to TCFI an
Assumption of Liabilities dated as of the Exchange Date pursuant to
which the Acquiring Series will assume all of the liabilities,
expenses, costs, charges and reserves of TCFI, contingent or
otherwise, including liabilities existing at the
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<PAGE> 16
Valuation Time and described in Section 1(c) hereof in connection with
the transactions contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, TCG and the Acquiring Series have complied with all of the
agreements and satisfied all of the conditions on their part to be
performed or satisfied at or prior to each of such dates, and TCG
shall have furnished to TCFI a statement, dated the Exchange Date,
signed by TCG's President (or any Vice President) and Treasurer (or
other financial officer) certifying those facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) TCFI shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to TCFI and dated the Exchange Date,
to the effect that (i) TCG is a business trust validly existing under
the laws of the State of Ohio and is, to the knowledge of such
counsel, qualified to do business in each jurisdiction where the
ownership of its property and the conduct of its business requires
qualification, (ii) the Acquiring Series Shares to be delivered to
TCFI as provided for by this Agreement are duly authorized and upon
such delivery will be validly issued and will be fully paid and
nonassessable by TCG and no shareholder of TCG has any preemptive
right to subscription or purchase in respect thereof, (iii) this
Agreement has been duly authorized, executed and delivered by TCG and
assuming that the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1933 Act, 1934 Act and 1940 Act, and
assuming due authorization, execution and delivery of this Agreement
by TCFI, is a valid and binding obligation of TCG, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights generally and other equitable
principles, (iv) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate TCG's Declaration of Trust or its By-Laws or any provision of
any agreement known to such counsel to which TCG or the Acquiring
Series is a party or by which it is bound, it being understood that
with respect to investment restrictions as contained in TCG's
Declaration of Trust, By-Laws or then current prospectus or statement
of additional information, such counsel may rely upon a certificate of
an officer of TCG whose responsibility
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<PAGE> 17
it is to advise TCG with respect to such matters, (v) to the knowledge
of such counsel no consent, approval, authorization or order of any
court or governmental authority is required for the consummation by
TCG or the Acquiring Series of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, 1934 Act and
1940 Act and such as may be required under state securities or blue
sky laws and the H-S-R Act. In rendering such opinion Baker &
Hostetler may rely on certain reasonable assumptions and
certifications of fact received from TCFI, TCG and certain of its
shareholders.
(f) TCFI shall have received an opinion of Baker & Hostetler
addressed to TCFI, TCG and the Acquiring Series and in a form
reasonably satisfactory to TCFI dated the Exchange Date, with respect
to the matters specified in Section 8(f) of this Agreement. In
rendering such opinion Baker & Hostetler may rely on certain
reasonable assumptions and certifications of fact received from TCFI,
TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with
the transactions contemplated by this Agreement and all documents,
incidental thereto reasonably shall be satisfactory in form and
substance to TCFI and Baker & Hostetler.
(h) The Registration Statement shall have become effective
under the 1933 Act and applicable Blue Sky provisions, and no stop
order suspending such effectiveness shall have been instituted or, to
the knowledge of TCFI, contemplated by the Commission or any state
regulatory authority.
(i) TCG and TCFI shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and TCFI, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
10. TERMINATION. TCG and TCFI may, by mutual consent of their respective
trustees or directors, terminate this Agreement, and TCG or TCFI, after
consultation with counsel and by consent of their respective trustees or
directors or an officer authorized by such trustees or directors, may, subject
to Section 11 of this Agreement, waive any condition to their respective
obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes
all previous correspondence and oral communications
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<PAGE> 18
between the parties regarding the subject matter hereof, constitutes the only
understanding with respect to such subject matter and shall be construed in
accordance with and governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officer of TCG and
TCFI; provided, however, that following the meeting of TCFI's shareholders
called by TCFI pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received
by TCFI, or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect TCFI's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
-------------------------------
Frank W. Siegel, President
THE CARDINAL FUND INC.
By /s/ Frank W. Siegel
-------------------------------
Frank W. Siegel, President
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<PAGE> 1
EXHIBIT (4) (b)
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
Agreement and Plan of Reorganization and Liquidation ("Agreement")
dated as of December 1, 1995, by and between The Cardinal Group, an Ohio
business trust ("TCG"), and Cardinal Government Obligations Fund, an Ohio
business trust ("CGOF").
WHEREAS, TCG is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end investment company of the management
type and has, or before the Exchange Date (as defined below) is expected to
have, issued and outstanding one class of shares of beneficial interest,
without par value ("Shares"), for each of six series, one such series being
Cardinal Government Obligations Fund (hereinafter sometimes referred to as the
"Cardinal Government Obligations Fund" or the "Acquiring Series"); and
WHEREAS, CGOF is registered under the 1940 Act as an open-end
investment company of the management type and currently has issued and
outstanding one class of shares of beneficial interest, without par value; and
WHEREAS, CGOF plans to transfer all of its assets, and to assign all
of its liabilities, to the Acquiring Series, in exchange for Shares of the
Acquiring Series (the "Acquiring Series Shares"), followed by the distribution
of the Acquiring Series Shares by CGOF to its shareholders, and followed by the
dissolution of CGOF, all upon the terms and provisions of this Agreement (the
"Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization
is in the best interests of TCG, and that the interests of its shareholders
will not be diluted as a result thereof; and
<PAGE> 3
WHEREAS, the trustees of CGOF have determined that the Reorganization
is in the best interests of CGOF and that the interests of its shareholders
will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION.
(a) SALE OF ASSETS, ASSUMPTION OF LIABILITIES. Subject to
the prior approval of shareholders of CGOF and to the other terms and
conditions contained herein (including the obligation of CGOF to
distribute to its shareholders all of its investment company taxable
income and net capital gain as described in Section 8(i) herein), CGOF
agrees to sell, assign, convey, transfer and deliver to TCG and the
Acquiring Series, and TCG and the Acquiring Series agree to acquire
from CGOF on the Exchange Date (as defined below), all of the
Investments (as defined below), cash and other assets of CGOF in
exchange for that number of full and fractional Acquiring Series
Shares of the Acquiring Series having an aggregate net asset value
equal to the value of all assets of CGOF transferred to the Acquiring
Series, as provided in Section 4, less the liabilities of CGOF assumed
by the Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the
Acquiring Series from CGOF shall consist of all of CGOF's property,
including, without limitation, all Investments, cash and dividends or
interest receivables which are owned by CGOF and any deferred or
prepaid expenses shown as an asset on the books of CGOF as of the
Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date CGOF
will endeavor to discharge or cause to be discharged, or make
provision for the payment of, all of its known liabilities and
obligations. The Acquiring Series shall assume all liabilities,
expenses, costs, charges and reserves of CGOF, contingent or
otherwise, including liabilities reflected in the unaudited statement
of assets and liabilities of CGOF as of the Valuation Time, prepared
by or on behalf of CGOF in accordance with generally accepted
accounting principles consistently applied from and after September
30, 1995.
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, CGOF
shall distribute in complete liquidation to its shareholders of record
as of the Exchange Date the Acquiring Series Shares received by it,
each CGOF shareholder of record
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<PAGE> 4
being entitled to receive that number of Acquiring Series Shares equal
to the proportion which the number of shares of beneficial interest,
without par value, of CGOF held by such shareholder bears to the total
number of such shares of CGOF outstanding on such date, and shall take
such further action as may be required, necessary or appropriate under
CGOF's Declaration of Trust, Ohio law and the Code to effect the
complete liquidation and dissolution of CGOF. CGOF will fulfill all
reporting requirements under the 1940 Act, both before and after the
Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CGOF. CGOF represents
and warrants to and agrees with TCG and the Acquiring Series that:
(a) CGOF is a business trust validly existing under the laws
of the State of Ohio and has power to own all of its properties and
assets and to carry out its obligations under this Agreement. CGOF
has qualified as a foreign business trust in each jurisdiction where
the ownership of its property and the conduct of its business require
qualification. CGOF has all necessary federal, state and local
authorizations to carry on its business as now being conducted and to
fulfill the terms of this Agreement, except as set forth in Section
2(1).
(b) CGOF is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. CGOF
has elected to qualify and has qualified as a regulated investment
company under Part I of Subchapter M of the Code as of and since its
first taxable year, and qualifies and intends to continue to qualify
as a regulated investment company for its taxable year ending upon its
liquidation. CGOF has been a regulated investment company under such
sections of the Code at all times since its inception.
(c) The statement of assets and liabilities, including the
statement of investments as of September 30, 1995, and the related
statement of operations for the year then ended, and statements of
changes in net assets for each of the two years in the period then
ended, for CGOF, such statements having been audited by KPMG Peat
Marwick LLP, independent auditors of CGOF, have been furnished to TCG.
Such statement of assets and liabilities fairly present the financial
position of CGOF as of such date and such statements of operations and
changes in net assets fairly reflect the results of operations and
changes in net assets for the periods covered thereby in conformity
with generally accepted accounting principles, and
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<PAGE> 5
there are no known material liabilities of CGOF as of such dates which
are not disclosed therein.
(d) The Prospectus of CGOF dated February 1, 1995 (the "CGOF
Prospectus") and the related Statement of Additional Information for
CGOF dated February 1, 1995, in the forms filed with the Securities
and Exchange Commission and previously furnished to TCG, did not as of
their date and do not as of the date hereof contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(e) Except as may have been previously disclosed to TCG,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of CGOF threatened against CGOF.
(f) There are no material contracts outstanding to which CGOF
is a party, other than as disclosed in the CGOF Prospectus and its
corresponding Statement of Additional Information, and there are no
such contracts or commitments (other than this Agreement) which will
be terminated with liability to CGOF on or prior to the Exchange Date.
(g) CGOF has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of September 30, 1995 and
those incurred in the ordinary course of CGOF's business as an
investment company since that date. Prior to the Exchange Date, CGOF
will advise TCG of all known material liabilities, contingent or
otherwise, incurred by it subsequent to September 30, 1995, whether or
not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall
mean CGOF's investments shown on the statement of assets and
liabilities as of September 30, 1995 referred to in Section 2(c)
hereof, as supplemented with such changes as CGOF shall make after
September 30, 1995 and prior to the date of this Agreement, which
changes have been disclosed to TCG, and changes made on and after the
date of this Agreement after advising CGPF of such changes, and
changes resulting from stock dividends stock split-ups, mergers and
similar corporate actions.
(i) CGOF has filed or will file all federal and state tax
returns which, to the knowledge of CGOF's officers, are required to be
filed by CGOF and has paid or will pay all federal and state taxes
shown to be due on said returns or on
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<PAGE> 6
any assessments received by CGOF. All tax liabilities of CGOF have
been adequately provided for on its books, and no tax deficiency or
liability of CGOF has been asserted, and no question with respect
thereto has been raised, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already
paid.
(j) As of both the Valuation Time and the Exchange Date and
except for shareholder approval and otherwise as described in Section
2(1), CGOF will have full right, power and authority to sell, assign,
transfer and deliver the Investments and any other of its assets and
liabilities to be transferred to TCG and the Acquiring Series pursuant
to this Agreement. At the Exchange Date, subject only to the delivery
of the Investments and any such other assets and liabilities as
contemplated by this Agreement, TCG and the Acquiring Series will
acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of CGOF and, except as described in Section 2(k), without any
restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as
amended (the "1933 Act"), of any of the Investments would be required
if they were, as of the time of such transfer, the subject of a public
distribution by either of CGOF or TCG, except as previously disclosed
to TCG by CGOF in writing prior to the date hereof.
(l) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by CGOF of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), 1940 Act, state securities or blue sky laws
(which term as used herein shall include the laws of the District of
Columbia and of Puerto Rico) or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R Act").
(m) The registration statement (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the
"Commission") by TCG on Form N-14 relating to the Acquiring Series
Shares issuable hereunder, and the proxy statement of CGOF included
therein (the "Proxy Statement"), on the effective date of the
Registration Statement and insofar as they relate to CGOF, (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
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<PAGE> 7
necessary to make the statements therein not misleading; and at the
time of the shareholders' meeting referred to in Section 7 below and
on the Exchange Date, the prospectus contained in the Registration
Statement of which the Proxy Statement is a part (the "Prospectus"),
as amended or supplemented by any amendments or supplements filed with
the Commission by TCG, insofar as it relates to CGOF, will not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the representations
and warranties in this Section 2(m) shall apply only to statements of
fact relating to CGOF contained in the Registration Statement, the
Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to CGOF, as such Registration
Statement, Prospectus and Proxy Statement shall be furnished to CGOF
in definitive form as soon as practicable following effectiveness of
the Registration Statement and before any public distribution of the
Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with CGOF that:
(a) TCG is a business trust validly existing under the laws
of the State of Ohio and has power to carry on its business as it is
now being conducted and to carry out its obligations under this
Agreement. TCG has qualified as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification. TCG and the Acquiring Series each
has all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set
forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. The
Acquiring Series expects to qualify as a regulated investment company
under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no financial statements
as of the Valuation Time.
(d) The prospectus of TCG and the Acquiring Series, expected
to be dated in January, 1996 (the "Acquiring Series Prospectus"), and
the related Statement of Additional Information for the Acquiring
Series to be dated such date, in
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<PAGE> 8
the forms to be filed with the Securities and Exchange Commission,
will be furnished to CGOF promptly upon the completion thereof and
will not as of their date contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) Except as may have been previously disclosed to CGOF,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of TCG or its Acquiring Series,
threatened against TCG or the Acquiring Series, which assert liability
on the part of TCG or the Acquiring Series.
(f) There are no material contracts outstanding to which TCG
or the Acquiring Series is a party, other than material contracts
disclosed in the Acquiring Series Prospectus and the corresponding
Statement of Additional Information.
(g) The Acquiring Series will have no assets or liabilities
as of the Valuation Time.
(h) TCG and the Acquiring Series will file all federal and
state tax returns which, to the knowledge of TCG's officers, are
required to be filed by TCG and the Acquiring Series and will pay all
federal and state taxes shown to be due on such returns or on any
assessments received by TCG or the Acquiring Series. All tax
liabilities of TCG and the Acquiring Series have been adequately
provided for on its books, and no tax deficiency or liability of TCG
or the Acquiring Series has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already
paid.
(i) No consent, approval, authorization or order of any
governmental authority is required for the consummation by TCG or the
Acquiring Series of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, 1934 Act, 1940 Act,
state securities or Blue Sky Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and
otherwise as described in Section 3(i), TCG and the Acquiring Series
will have full right, power and authority to purchase the Investments
and any other assets and assume the liabilities of CGOF to be
transferred to the Acquiring Series pursuant to this Agreement.
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<PAGE> 9
(k) The Registration Statement, the Prospectus and the Proxy
Statement, on the effective date of the Registration Statement and
insofar as they relate to TCG and the Acquiring Series: (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and at the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by TCG, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to
statements in or omissions from the Registration Statement, the
Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by CGOF for use in the
Registration Statement, the Prospectus or the Proxy Statement.
(l) The Acquiring Series Shares to be issued by TCG have been
duly authorized and when issued and delivered by TCG to CGOF pursuant
to this Agreement and the Prospectus will be legally and validly
issued by TCG and will be fully paid and nonassessable, and no
shareholder of TCG will have any preemptive right of subscription or
purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this
Agreement will be in compliance with all applicable federal and state
securities laws.
(n) Cardinal Government Obligations Fund, upon filing of its
first income tax return at the completion of its first taxable year
will elect to be a regulated investment company and until such time
will take all steps necessary to ensure qualification as a regulated
investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver
to CGOF a number of Acquiring Series Shares having an aggregate net asset value
equal to the value of the assets of CGOF acquired by the Acquiring Series, less
the value of the liabilities of CGOF assumed, determined as hereafter provided
in this Section 4.
(a) The net value of CGOF will be computed as of the
Valuation Time, using the valuation procedures set forth in the
current prospectus of CGOF.
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<PAGE> 10
(b) The net asset value of each of the Acquiring Series
Shares will be determined to the nearest full cent as of the Valuation
Time, and shall be set at the net asset value per share of CGOF as of
the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard
Time, on March 30, 1996, or such earlier or later day as may be
mutually agreed upon in writing by the parties hereto (the "Valuation
Time").
(d) The Acquiring Series shall issue its Acquiring Series
Shares to CGOF on one share deposit receipt registered in the name of
CGOF. CGOF shall distribute in liquidation the Acquiring Series
Shares received by it hereunderPRO RATA to its shareholders by
redelivering such share deposit receipt to TCG's transfer agent,
which will as soon as practicable set up open accounts for each CGOF
shareholder in accordance with written instructions furnished by CGOF.
(e) The Acquiring Series shall assume all liabilities of
CGOF, whether accrued or contingent, described in subsection 1(c)
hereof in connection with the acquisition of assets and subsequent
dissolution of CGOF or otherwise, except that recourse for assumed
liabilities relating to CGOF will be limited to the Acquiring Series.
5. EXPENSES, FEES, ETC.
(a) Subject to the further provisions of this Section 5, TOC
shall be responsible for the fees and expenses of the Reorganization.
The Acquiring Series will be responsible for its organization costs.
CGOF will be responsibe for proxy solicitation and other costs
associated with its annual meeting (or special meeting in lieu
thereof) to the extent such costs are comparable to those incurred for
annual meetings in recent prior years. TOC has undertaken to absorb
all other costs of the Reorganization.
(b) In the event the transactions contemplated by this
Agreement are not consummated by reason of CGOF's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to CGOF's obligations
referred to in Section 7(a) or Section 9), CGOF shall pay directly all
reasonable fees and expenses incurred by TCG in connection with such
transactions, including, without limitation, legal, accounting and
filing fees.
(c) In the event the transactions contemplated by this
Agreement are not consummated by reason of CGOF's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to TCG's
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<PAGE> 11
obligations referred to in Section 7(a) or Section 8), TCG shall pay
directly all of the reasonable fees and expenses incurred by CGOF in
connection with such transactions, including, without limitation,
legal, accounting and filing fees.
(d) Notwithstanding any other provisions of this Agreement,
if for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to the other party for any
damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of CGOF to be transferred,
assumption of the liabilities of CGOF to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of The Ohio
Company, 155 East Broad Street, Columbus, Ohio at 9:00 A.M. on March 31, 1996,
or at such other time and date agreed to by TCG and CGOF, the date and time
upon which such delivery is to take place being referred to herein as the
"Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) CGOF agrees to call a special meeting of its shareholders
as soon as is practicable after the effective date of the Registration
Statement for the purpose of considering the sale of all of the assets
of CGOF to and the assumption of all of the liabilities of CGOF by the
Acquiring Series as herein provided, authorizing and approving this
Agreement, and authorizing and approving the liquidation and
dissolution of CGOF, and it shall be a condition to the obligations of
each of the parties hereto that the holders of shares of beneficial
interest, without par value, of CGOF shall have approved this
Agreement, and the transactions contemplated herein, including the
liquidation and dissolution of CGOF, in the manner required by law and
CGOF's Declaration of Trust, at such a meeting on or before the
Valuation Time.
(b) CGOF agrees that the liquidation and dissolution of CGOF
will be effected in the manner provided in CGOF's Declaration of Trust
and in accordance with applicable law, and that it will not make any
distributions of any Acquiring Series Shares to the shareholders of
CGOF without first paying or adequately providing for the payment of
all of CGOF's known debts, obligations and liabilities.
(c) Each of TCG and CGOF will cooperate with the other, and
each will furnish to the other the information relating to itself
required by the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder to be set forth in the
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<PAGE> 12
Registration Statement, including the Prospectus and the Proxy
Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of CGOF, shall have been approved by the trustees and
shareholders of CGOF in the manner required by law.
(b) CGOF shall have furnished to TCG a statement of CGOF's
assets and liabilities, with values determined as provided in Section
4 of this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on
CGOF's behalf by its President (or any Vice President) and Treasurer
(or other financial officer), and a certificate of both such officers,
dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change
in the financial position of CGOF since September 30, 1995, other than
changes in the Investments since that date or changes in the market
value of the Investments, or changes due to net redemptions of shares
of CGOF, dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of CGOF made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, CGOF has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
each of such dates, and CGOF shall have furnished to TCG a statement,
dated the Exchange Date, signed by CGOF's President (or any Vice
President) and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) TCG shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to TCG and dated the Exchange Date, to
the effect that (i) CGOF is a business trust validly existing under
the laws of the State of Ohio, and is, to the knowledge of such
counsel, qualified to do business as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification, (ii) this Agreement has been duly
authorized, executed and delivered by CGOF and, assuming
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<PAGE> 13
that the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1934 Act and the 1940 Act and assuming due
authorization, execution and delivery of this Agreement by TCG, is a
valid and binding obligation of CGOF, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable
principles, (iii) CGOF has power to sell, assign, convey, transfer and
deliver the Investments and other assets contemplated hereby and, upon
consummation of the transactions contemplated hereby in accordance
with the terms of this Agreement, CGOF will have duly sold, assigned,
conveyed, transferred and delivered such Investments and other assets
to TCG, (iv) the execution and delivery of this Agreement did not and
the consummation of the transactions contemplated hereby will not,
violate CGOF's Declaration of Trust or its By-Laws, as amended, or any
provision of any agreement known to such counsel to which CGOF is a
party or by which it is bound, it being understood that with respect
to any investment restrictions as contained in CGOF's Declaration of
Trust or By-Laws, or then current prospectus or statement of
additional information, such counsel may rely upon a certificate of an
officer of CGOF, whose responsibility it is to advise CGOF with
respect to such matters and (v) to the knowledge of such counsel no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by CGOF of the transactions
contemplated hereby, except such as have been obtained under the 1933
Act, 1934 Act and 1940 Act and such as may be required under state
securities or blue sky laws and the H-S-R Act. In rendering such
opinion, Baker & Hostetler may rely upon certain reasonable and
customary assumptions and certifications of fact received from TCG,
CGOF, and certain of its shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler,
addressed to TCG, the Acquiring Series and CGOF, in form reasonably
satisfactory to TCG and dated the Exchange Date, to the effect that
for Federal income tax purposes (i) the transfer of all or
substantially all of CGOF's assets in exchange for the Acquiring
Series Shares and the assumption by the Acquiring Series of
liabilities of CGOF will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each of the Acquiring
Series and CGOF are a "party to a reorganization" within the meaning
of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by CGOF upon the transfer of the assets of the Acquiring Series in
exchange for Acquiring Series Shares and the assumption by the
Acquiring Series of the liabilities of CGOF or upon the distribution
of Acquiring Series Shares by CGOF to its shareholders in liquidation;
(iii) no gain or loss will be recognized by the shareholders of CGOF
upon the exchange of
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<PAGE> 14
their shares for Acquiring Series Shares, (iv) the basis of the
Acquiring Series Shares a CGOF shareholder receives in connection with
the Reorganization will be the same as the basis of his or her shares
exchanged therefor; (v) a CGOF shareholder's holding period for his or
her Acquiring Series Shares will be determined by including the period
for which he or she held CGOF shares exchanged therefor, provided that
he or she held such shares as capital assets; (vi) no gain or loss
will be recognized by the Acquiring Series upon the receipt of the
assets of CGOF in exchange for Acquiring Series Shares and the
assumption by the Acquiring Series of the liabilities of CGOF; (vii)
the basis in the hands of the Acquiring Series the assets of CGOF
transferred to the Acquiring Series will be the same as the basis of
the assets in the hands of CGOF immediately prior to the transfer; and
(viii) the Acquiring Series' holding periods of the assets of CGOF
will include the period for which such assets were held by CGOF. In
rendering such opinion, Baker & Hostetler may rely upon certain
reasonable and customary assumptions and certifications of fact
received from TCG, CGOF, and certain of its shareholders.
(g) The Registration Statement shall have become
effective under the 1933 Act and applicable Blue Sky provisions, and
no stop order suspending such effectiveness shall have been instituted
or, to the knowledge of TCG, contemplated by the Commission or any
state regulatory authority.
(h) All necessary proceedings taken by CGOF in connection
with the transactions contemplated by this Agreement and all documents
incidental thereto reasonably shall be satisfactory in form and
substance to TCG and Baker & Hostetler.
(i) Prior to the Exchange Date, CGOF shall have declared a
dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable income for its taxable year
ended September 30, 1995 and the short taxable year beginning on
October 1, 1995 and ending on the Valuation Date (computed without
regard to any deduction for dividends paid), and all of its net
capital gain realized in its taxable year ended September 30, 1995 and
the short taxable year beginning on October 1, 1995 and ending on the
Valuation Date (after reduction for any capital loss carryover).
(j) CGOF shall have furnished to TCG a certificate, signed by
the President (or any Vice President) and the Treasurer (or other
financial officer) of CGOF, as to the tax cost to TCG of the
securities delivered to TCG pursuant to
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<PAGE> 15
this Agreement, together with any such evidence as to such tax cost as
TCG reasonably may request.
(k) CGOF's custodian shall have delivered to TCG a
certificate identifying all of the assets of CGOF held by such
custodian as of the Valuation Time.
(l) CGOF's transfer agent shall have provided to TCG (i) the
originals or true copies of all of the records of CGOF in the
possession of such transfer agent as of the Exchange Date, (ii) a
certificate setting forth the number of shares of CGOF outstanding as
of the Valuation Time and (iii) the name and address of each holder of
record of any such shares of CGOF and the number of shares held of
record by each such shareholder.
(m) CGOF shall have duly executed and delivered to TCG a
bill of sale, assignment, certificate and other instruments of
transfer ("Transfer Documents") as TCG may deem necessary or desirable
to transfer all of CGOF's entire right, title and interest in and to
the Investments and all other assets of CGOF the Acquiring Series.
(n) TCG and CGOF shall have received from the Commission,
if necessary, a written order of exemption, satisfactory in form and
substance to TCG and CGOF, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
9. CONDITIONS OF CGOF'S OBLIGATIONS. The obligations of CGOF hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of CGOF, shall have been approved by the trustees and
shareholders of CGOF in the manner required by law.
(b) TCG shall have executed and delivered to CGOF an
Assumption of Liabilities dated as of the Exchange Date pursuant to
which the Acquiring Series will assume all of the liabilities,
expenses, costs, charges and reserves of CGOF, contingent or
otherwise, including liabilities existing at the Valuation Time and
described in Section 1(c) hereof in connection with the transactions
contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, TCG and the Acquiring Series have complied with all of the
agreements and satisfied all of
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<PAGE> 16
the conditions on their part to be performed or satisfied at or prior
to each of such dates, and TCG shall have furnished to CGOF a
statement, dated the Exchange Date, signed by TCG's President (or any
Vice President) and Treasurer (or other financial officer) certifying
those facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) CGOF shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to CGOF and dated the Exchange Date,
to the effect that (i) TCG is a business trust validly existing under
the laws of the State of Ohio and is, to the knowledge of such
counsel, qualified to do business as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification, (ii) the Acquiring Series Shares
to be delivered to CGOF as provided for by this Agreement are duly
authorized and upon such delivery will be validly issued and will be
fully paid and nonassessable by TCG and no shareholder of TCG has any
preemptive right to subscription or purchase in respect thereof, (iii)
this Agreement has been duly authorized, executed and delivered by TCG
and assuming that the Registration Statement, the Prospectus and the
Proxy Statement comply with the 1933 Act, 1934 Act and 1940 Act, and
assuming due authorization, execution and delivery of this Agreement
by CGOF, is a valid and binding obligation of TCG, enforceable in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights generally and other equitable
principles, (iv) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate TCG's Declaration of Trust or its By-Laws or any provision of
any agreement known to such counsel to which TCG or the Acquiring
Series is a party or by which it is bound, it being understood that
with respect to investment restrictions as contained in TCG's
Declaration of Trust, By-Laws or then current prospectus or statement
of additional information, such counsel may rely upon a certificate of
an officer of TCG whose responsibility it is to advise TCG with
respect to such matters, (v) to the knowledge of such counsel no
consent, approval, authorization or order of any court or governmental
authority is required for the consummation by TCG or the Acquiring
Series of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, 1934 Act and 1940 Act and such as
may be required under state securities or blue sky laws and the H-S-R
Act. In rendering such opinion Baker & Hostetler may rely on certain
reasonable assumptions and certifications of fact received from CGOF,
TCG and certain of its shareholders.
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<PAGE> 17
(f) CGOF shall have received an opinion of Baker & Hostetler
addressed to CGOF, TCG and the Acquiring Series and in a form
reasonably satisfactory to CGOF dated the Exchange Date, with respect
to the matters specified in Section 8(f) of this Agreement. In
rendering such opinion Baker & Hostetler may rely on certain
reasonable assumptions and certifications of fact received from CGOF,
TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with
the transactions contemplated by this Agreement and all documents,
incidental thereto reasonably shall be satisfactory in form and
substance to CGOF and Baker & Hostetler.
(h) The Registration Statement shall have become
effective under the 1933 Act and applicable Blue Sky provisions, and
no stop order suspending such effectiveness shall have been instituted
or, to the knowledge of CGOF, contemplated by the Commission or any
state regulatory authority.
(i) TCG and CGOF shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and CGOF, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
10. TERMINATION. TCG and CGOF may, by mutual consent of their respective
trustees, terminate this Agreement, and TCG or CGOF, after consultation with
counsel and by consent of their respective trustees or an officer authorized by
such trustees, may, subject to Section 11 of this Agreement, waive any
condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes
all previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding with
respect to such subject matter and shall be construed in accordance with and
governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officer of TCG and
CGOF; provided, however, that following the meeting of CGOF's shareholders
called by CGOF pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received
by CGOF, or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect CGOF's
shareholders without their further approval.
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<PAGE> 18
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
--------------------------------------
Frank W. Siegel, President
CARDINAL GOVERNMENT OBLIGATIONS FUND
By /s/ Frank W. Siegel
--------------------------------------
Frank W. Siegel, President
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<PAGE> 1
EXHIBIT (4) (c)
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
----------------------------------------------------
Agreement and Plan of Reorganization and Liquidation ("Agreement") dated as
of December 1, 1995, by and between The Cardinal Group, an Ohio business trust
("TCG"), and Cardinal Government Securities Trust, a Pennsylvania business
trust ("CGST").
WHEREAS, TCG is registered under the Investment Company Act of 1940, as
amended ("1940 Act"), as an open-end investment company of the management type
and has, or before the Exchange Date (as defined below) is expected to have,
issued and outstanding one class of shares of beneficial interest, without par
value ("Shares"), for each of six series, one such series being Cardinal
Government Securities Money Market Fund (hereinafter sometimes referred to as
the "Cardinal Government Securities Money Market Fund" or the "Acquiring
Series"); and
WHEREAS, CGST is registered under the 1940 Act as an open-end investment
company of the management type and currently has issued and outstanding one
class of shares of beneficial interest, par value $.01 per share; and
WHEREAS, CGST plans to transfer all of its assets, and to assign all of its
liabilities, to the Acquiring Series, in exchange for Shares of the Acquiring
Series (the "Acquiring Series Shares"), followed by the distribution of the
Acquiring Series Shares by CGST to its shareholders, and followed by the
dissolution of CGST, all upon the terms and provisions of this Agreement (the
"Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization is in
the best interests of TCG, and that the interests of its shareholders will not
be diluted as a result thereof; and
<PAGE> 3
WHEREAS, the trustees of CGST have determined that the Reorganization is in
the best interests of CGST and that the interests of its shareholders will not
be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION.
(a) SALE OF ASSETS, ASSUMPTION OF LIABILITIES. Subject to the prior
approval of shareholders of CGST and to the other terms and conditions
contained herein (including the obligation of CGST to distribute to its
shareholders all of its investment company taxable income and net capital
gain as described in Section 8(i) herein), CGST agrees to sell, assign,
convey, transfer and deliver to the Acquiring Series, and the Acquiring
Series agrees to acquire from CGST on the Exchange Date (as defined below),
all of the Investments (as defined below), cash and other assets of CGST in
exchange for that number of full and fractional Acquiring Series Shares of
the Acquiring Series having an aggregate net asset value equal to the value
of all assets of CGST transferred to the Acquiring Series, as provided in
Section 4, less the liabilities of CGST assumed by the Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the Acquiring Series from
CGST shall consist of all of CGST's property, including, without limitation,
all Investments, cash and dividends or interest receivables which are owned
by CGST and any deferred or prepaid expenses shown as an asset on the books
of CGST as of the Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date CGST will endeavor to
discharge or cause to be discharged, or make provision for the payment of,
all of its known liabilities and obligations. The Acquiring Series shall
assume all liabilities, expenses, costs, charges and reserves of CGST,
contingent or otherwise, including liabilities reflected in the unaudited
statement of assets and liabilities of CGST as of the Valuation Time,
prepared by or on behalf of CGST in accordance with generally accepted
accounting principles consistently applied from and after September 30, 1995.
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the transactions
described in Section 1(a), 1(b) and 1(c) above, CGST shall distribute in
complete liquidation to its shareholders of record as of the Exchange Date
the Acquiring Series Shares received by it, each CGST shareholder of record
being entitled to receive that number of Acquiring Series Shares equal to the
proportion which the number of shares of
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<PAGE> 4
beneficial interest, par value $.01 per share, of CGST held by such
shareholder bears to the total number of such shares of CGST outstanding on
such date, and shall take such further action as may be required, necessary
or appropriate under CGST's Amended Declaration of Trust, Pennsylvania law
and the Code to effect the complete liquidation and dissolution of CGST.
CGST will fulfill all reporting requirements under the 1940 Act, both before
and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CGST. CGST represents and
warrants to and agrees with TCG and the Acquiring Series that:
(a) CGST is a business trust validly existing under the laws of the
Commonwealth of Pennsylvania and has power to own all of its properties and
assets and to carry out its obligations under this Agreement. CGST has
qualified as a foreign business trust in each jurisdiction where the
ownership of its property and the conduct of its business require
qualification. CGST has all necessary federal, state and local
authorizations to carry on its business as now being conducted and to fulfill
the terms of this Agreement, except as set forth in Section 2(1).
(b) CGST is registered under the 1940 Act as an open-end investment
company of the management type, and such registration has not been revoked or
rescinded and is in full force and effect. CGST has elected to qualify and
has qualified as a regulated investment company under Part I of Subchapter M
of the Code as of and since its first taxable year, and qualifies and intends
to continue to qualify as a regulated investment company for its taxable year
ending upon its liquidation. CGST has been a regulated investment company
under such sections of the Code at all times since its inception.
(c) The statement of assets and liabilities, including the statement of
investments as of September 30, 1995, and the related statement of operations
for the year then ended, and statements of changes in net assets for each of
the two years in the period then ended, for CGST, such statements having been
audited by KPMG Peat Marwick LLP, independent auditors of CGST, have been
furnished to TCG. Such statement of assets and liabilities fairly present
the financial position of CGST of such date and such statements of operations
and changes in net assets fairly reflect the results of operations and
changes in net assets for the periods covered thereby in conformity with
generally accepted accounting principles, and there are no known material
liabilities of CGST as of such dates which are not disclosed therein.
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<PAGE> 5
(d) The Prospectus of CGST dated February 1, 1995 (the "CGST Prospectus")
and the related Statement of Additional Information for CGST dated February
1, 1995, in the forms filed with the Securities and Exchange Commission and
previously furnished to TCG, did not as of their date and do not as of the
date hereof contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(e) Except as may have been previously disclosed to TCG, there are no
material legal, administrative or other proceedings pending or, to the
knowledge of CGST, threatened against CGST.
(f) There are no material contracts outstanding to which CGST is a party,
other than as disclosed in the CGST Prospectus and its corresponding
Statement of Additional Information, and there are no such contracts or
commitments (other than this Agreement) which will be terminated with
liability to CGST on or prior to the Exchange Date.
(g) CGST has no known liabilities of a material nature, contingent or
otherwise, other than those shown as belonging to it on its statement of
assets and liabilities as of September 30, 1995 and those incurred in the
ordinary course of CGST's business as an investment company since that date.
Prior to the Exchange Date, CGST will advise TCG of all known material
liabilities, contingent or otherwise, incurred by it subsequent to September
30, 1995, whether or not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall mean CGST's
investments shown on the statement of assets and liabilities as of September
30, 1995 referred to in Section 2(c) hereof, as supplemented with such
changes as CGST shall make after September 30, 1995 and prior to the date of
this Agreement, which changes have been disclosed to TCG, and changes made on
and after the date of this Agreement after advising CGST of such changes, and
changes resulting from stock dividends stock split-ups, mergers and similar
corporate actions.
(i) CGST has filed or will file all federal and state tax returns which, to
the knowledge of CGST's officers, are required to be filed by CGST and has
paid or will pay all federal and state taxes shown to be due on said returns
or on any assessments received by CGST. All tax liabilities of CGST have
been adequately provided for on its books, and no tax deficiency or liability
of CGST has been asserted, and no
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<PAGE> 6
question with respect thereto has been raised, by the Internal Revenue
Service or by any state or local tax authority for taxes in excess of those
already paid.
(j) As of both the Valuation Time and the Exchange Date and except for
shareholder approval and otherwise as described in Section 2(1), CGST will
have full right, power and authority to sell, assign, transfer and deliver
the Investments and any other of its assets and liabilities to be transferred
to TCG and the Acquiring Series pursuant to this Agreement. At the Exchange
Date, subject only to the delivery of the Investments and any such other
assets and liabilities as contemplated by this Agreement, TCG and the
Acquiring Series will acquire the Investments and any such other assets
subject to no encumbrances, liens or security interests in favor of any third
party creditor of CGST and, except as described in Section 2(k), without any
restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as amended (the "1933
Act"), of any of the Investments would be required if they were, as of the
time of such transfer, the subject of a public distribution by either of CGST
or TCG, except as previously disclosed to TCG by CGST in writing prior to the
date hereof.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by CGST of the
transactions contemplated by this Agreement, except such as may be required
under the 1933 Act, Securities Exchange Act of 1934, as amended (the "1934
Act"), 1940 Act, state securities or blue sky laws (which term as used herein
shall include the laws of the District of Columbia and of Puerto Rico) or the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "H-S-R Act").
(m) The registration statement (the "Registration Statement") to be filed
with the Securities and Exchange Commission (the "Commission") by TCG on Form
N-14 relating to the Acquiring Series Shares issuable hereunder, and the
proxy statement of CGST included therein (the "Proxy Statement"), on the
effective date of the Registration Statement and insofar as they relate to
CGST, (i) will comply in all material respects with the provisions of the
1933 Act, 1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the shareholders'
meeting referred to in Section 7 below and on the Exchange Date, the
prospectus
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<PAGE> 7
contained in the Registration Statement of which the Proxy Statement is a
part (the "Prospectus"), as amended or supplemented by any amendments or
supplements filed with the Commission by TCG, insofar as it relates to CGST,
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
representations and warranties in this Section 2(m) shall apply only to
statements of fact relating to CGST contained in the Registration Statement,
the Prospectus or the Proxy Statement, or omissions to state in any thereof a
material fact relating to CGST, as such Registration Statement, Prospectus
and Proxy Statement shall be furnished to CGST in definitive form as soon as
practicable following effectiveness of the Registration Statement and before
any public distribution of the Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with CGST that:
(a) TCG is a business trust validly existing under the laws of the State of
Ohio and has power to carry on its business as it is now being conducted and
to carry out its obligations under this Agreement. TCG has qualified as a
foreign business trust in each jurisdiction where the ownership of its
property and the conduct of its business require qualification. TCG and the
Acquiring Series each has all necessary federal, state and local
authorizations to own all of its properties and assets and to carry on its
business as now being conducted and to fulfill the terms of this Agreement,
except as set forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end investment company
of the management type, and such registration has not been revoked or
rescinded and is in full force and effect. The Acquiring Series expects to
qualify as a regulated investment company under Part I of Subchapter M of the
Code.
(c) The Acquiring Series will have no financial statements as of the
Valuation Time.
(d) The prospectus of TCG and the Acquiring Series, expected to be dated in
January, 1966 (the "Acquiring Series Prospectus"), and the related Statement
of Additional Information for the Acquiring Series to be dated such date, in
the forms to be filed with the Securities and Exchange Commission, will be
furnished to CGST promptly upon the completion thereof and will not as of
their date contain any
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<PAGE> 8
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(e) Except as may have been previously disclosed to CGST, there are no
material legal, administrative or other proceedings pending or, to the
knowledge of TCG or its Acquiring Series, threatened against TCG or the
Acquiring Series, which assert liability on the part of TCG or the Acquiring
Series.
(f) There are no material contracts outstanding to which TCG or the
Acquiring Series is a party, other than material contracts disclosed in the
Acquiring Series Prospectus and the corresponding Statement of Additional
Information.
(g) The Acquiring Series will have no assets or liabilities as of the
Valuation Time.
(h) TCG and the Acquiring Series will file all federal and state tax
returns which, to the knowledge of TCG's officers, are required to be filed
by TCG and the Acquiring Series and will pay all federal and state taxes
shown to be due on such returns or on any assessments received by TCG or the
Acquiring Series. All tax liabilities of TCG and the Acquiring Series have
been adequately provided for on its books, and no tax deficiency or liability
of TCG or the Acquiring Series has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid.
(i) No consent, approval, authorization or order of any governmental
authority is required for the consummation by TCG or the Acquiring Series of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, 1934 Act, 1940 Act, state securities or Blue Sky
Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and otherwise as
described in Section 3(i), TCG and the Acquiring Series will have full right,
power and authority to purchase the Investments and any other assets and
assume the liabilities of CGST to be transferred to the Acquiring Series
pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy Statement, on
the effective date of the Registration Statement and insofar as they relate
to TCG and the Acquiring Series: (i) will comply in all material respects
with the
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<PAGE> 9
provisions of the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and at the time
of the shareholders' meeting referred to in Section 7 and at the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by TCG, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that none of the representations and warranties in this
subsection shall apply to statements in or omissions from the Registration
Statement, the Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by CGST for use in the Registration
Statement, the Prospectus or the Proxy Statement.
(l) The Acquiring Series Shares to be issued by TCG have been duly
authorized and when issued and delivered by TCG to CGST pursuant to this
Agreement and the Prospectus will be legally and validly issued by TCG and
will be fully paid and nonassessable, and no shareholder of TCG will have any
preemptive right of subscription or purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this Agreement will
be in compliance with all applicable federal and state securities laws.
(n) Cardinal Government Securities Money Market Fund, upon filing of its
first income tax return at the completion of its first taxable year will
elect to be a regulated investment company and until such time will take all
steps necessary to ensure qualification as a regulated investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver to
CGST a number of Acquiring Series Shares having an aggregate net asset value
equal to the value of the assets of CGST acquired by the Acquiring Series, less
the value of the liabilities of CGST assumed, determined as hereafter provided
in this Section 4.
(a) The net asset value of CGST will be computed as of the Valuation Time,
using the valuation procedures set forth in the current prospectus of CGST.
(b) The net asset value of each of the Acquiring Series Shares will be
determined to the nearest full cent as of the
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<PAGE> 10
Valuation Time, and shall be set at the net asset value per share of CGST as
of the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard Time, on March
30, 1996, or such earlier or later day as may be mutually agreed upon in
writing by the parties hereto (the "Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series Shares to CGST on
one share deposit receipt registered in the name of CGST. CGST shall
distribute in liquidation the Acquiring Series Shares received by it
hereunder PRO RATA to its shareholders by redelivering such share deposit
receipt to TCG's transfer agent, which will as soon as practicable set up
open accounts for each CGST shareholder in accordance with written
instructions furnished by CGST.
(e) The Acquiring Series shall assume all liabilities of CGST, whether
accrued or contingent, described in subsection 1(c) hereof in connection with
the acquisition of assets and subsequent dissolution of CGST or otherwise,
except that recourse for assumed liabilities relating to CGST will be limited
to the Acquiring Series.
5. EXPENSES, FEES, ETC.
(a) Subject to the further provisions of this Section 5, TOC shall be
responsible for the fees and expenses of the Reorganization. The Acquiring
Series will be responsible for its organization costs. CGST will be
responsible for proxy solicitation and other costs associated with its annual
meeting (or special meeting in lieu thereof) to the extent such costs are
comparable to those incurred for annual meetings in recent prior years. TOC
has undertaken to absorb all other costs of the Reorganization.
(b) In the event the transactions contemplated by this Agreement are not
consummated by reason of CGST's being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any
condition to CGST's obligations referred to in Section 7(a) or Section 9),
CGST shall pay directly all reasonable fees and expenses incurred by TCG in
connection with such transactions, including, without limitation, legal,
accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement are not
consummated by reason of TCG's being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
TCG's
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obligations referred to in Section 7(a) or Section 8), TCG shall pay directly
all of the reasonable fees and expenses incurred by CGST in connection with
such transactions, including, without limitation, legal, accounting and
filing fees.
(d) Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not consummated,
no party shall be liable to the other party for any damages resulting
therefrom, including, without limitation, consequential damages, except as
specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of CGST to be transferred, assumption
of the liabilities of CGST to be assumed, and the delivery of Acquiring Series
Shares to be issued shall be made at the offices of The Ohio Company, 155 East
Broad Street, Columbus, Ohio at 9:00 A.M. on March 31, 1996, or at such other
time and date agreed to by TCG and CGST, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) CGST agrees to call a special meeting of its shareholders as soon as
is practicable after the effective date of the Registration Statement for the
purpose of considering the sale of all of the assets of CGST to and the
assumption of all of the liabilities of CGST by the Acquiring Series as
herein provided, authorizing and approving this Agreement, and authorizing
and approving the liquidation and dissolution of CGST, and it shall be a
condition to the obligations of each of the parties hereto that the holders
of shares of beneficial interest, par value $.01 per share, of CGST shall
have approved this Agreement, and the transactions contemplated herein,
including the liquidation and dissolution of CGST, in the manner required by
law and CGST'S Amended Declaration of Trust at such a meeting on or before
the Valuation Time.
(b) CGST agrees that the liquidation and dissolution of CGST will be
effected in the manner provided in CGST's Amended Declaration of Trust and in
accordance with applicable law, and that it will not make any distributions
of any Acquiring Series Shares to the shareholders of CGST without first
paying or adequately providing for the payment of all of CGST's known debts,
obligations and liabilities.
(c) Each of TCG and CGST will cooperate with the other, and each will
furnish to the other the information relating to
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<PAGE> 12
itself required by the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder to be set forth in the Registration Statement,
including the Prospectus and the Proxy Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the Acquiring
Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of CGST, shall
have been approved by the trustees and shareholders of CGST in the manner
required by law.
(b) CGST shall have furnished to TCG a statement of CGST's assets and
liabilities, with values determined as provided in Section 4 of this
Agreement, together with a list of Investments with their respective tax
costs, all as of the Valuation Time, certified on CGST's behalf by its
President (or any Vice President) and Treasurer (or other financial officer),
and a certificate of both such officers, dated the Exchange Date, to the
effect that as of the Valuation Time and as of the Exchange Date there has
been no material adverse change in the financial position of CGST since
September 30, 1995, other than changes in the Investments since that date or
changes in the market value of the Investments, or changes due to net
redemptions of shares of CGST, dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of CGST made in this Agreement are true and
correct in all material respects as if made at and as of such dates, CGST has
complied with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to each of such dates, and CGST
shall have furnished to TCG a statement, dated the Exchange Date, signed by
CGST's President (or any Vice President) and Treasurer (or other financial
officer) certifying those facts as of such dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) TCG shall have received an opinion of Baker & Hostetler, in form
reasonably satisfactory to TCG and dated the Exchange Date, to the effect
that (i) CGST is a business trust validly existing under the laws of the
Commonwealth of Pennsylvania, and is, to the knowledge of such counsel,
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qualified to do business as a foreign business trust in each jurisdiction
where the ownership of its property and the conduct of its business require
qualification, (ii) this Agreement has been duly authorized, executed and
delivered by CGST and, assuming that the Registration Statement, the
Prospectus and the Proxy Statement comply with the 1933 Act, 1934 Act and
1940 Act and assuming due authorization, execution and delivery of this
Agreement by TCG, is a valid and binding obligation of CGST, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and other equitable principles, (iii) CGST has
power to sell, assign, convey, transfer and deliver the Investments and other
assets contemplated hereby and, upon consummation of the transactions
contemplated hereby in accordance with the terms of this Agreement, CGST will
have duly sold, assigned, conveyed, transferred and delivered such
Investments and other assets to TCG, (iv) the execution and delivery of this
Agreement did not and the consummation of the transactions contemplated
hereby will not, violate CGST's Amended Declaration of Trust or its By-Laws,
as amended, or any provision of any agreement known to such counsel to which
CGST is a party or by which it is bound, it being understood that with
respect to any investment restrictions as contained in CGST's Amended
Declaration of Trust or By-Laws, or then current prospectus or statement of
additional information, such counsel may rely upon a certificate of an
officer of CGST, whose responsibility it is to advise CGST with respect to
such matters and (v) to the knowledge of such counsel no consent, approval,
authorization or order of any court or governmental authority is required for
the consummation by CGST of the transactions contemplated hereby, except such
as have been obtained under the 1933 Act, 1934 Act and 1940 Act and such as
may be required under state securities or blue sky laws and the H-S-R Act.
In rendering such opinion, Baker & Hostetler may rely upon certain reasonable
and customary assumptions and certifications of fact received from TCG, CGST,
and certain of its shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler, addressed to
TCG, the Acquiring Series and CGST, in form reasonably satisfactory to TCG
and dated the Exchange Date, to the effect that for Federal income tax
purposes (i) the transfer of all or substantially all of CGST's assets in
exchange for the Acquiring Series Shares and the assumption by the Acquiring
Series of liabilities of CGST will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and each of the Acquiring Series and
CGST is a "party to a reorganization" within the meaning of Section 368(b) of
the Code; (ii) no gain or loss will be recognized by CGST upon the
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<PAGE> 14
transfer of the assets of the Acquiring Series in exchange for Acquiring
Series Shares and the assumption by the Acquiring Series of the liabilities
of CGST or upon the distribution of Acquiring Series Shares by CGST to its
shareholders in liquidation; (iii) no gain or loss will be recognized by the
shareholders of CGST upon the exchange of their shares for Acquiring Series
Shares, (iv) the basis of the Acquiring Series Shares a CGST shareholder
receives in connection with the Reorganization will be the same as the basis
of his or her shares exchanged therefor; (v) a CGST shareholder's holding
period for his or her Acquiring Series Shares will be determined by including
the period for which he or she held CGST shares exchanged therefor, provided
that he or she held such shares as capital assets; (vi) no gain or loss will
be recognized by the Acquiring Series upon the receipt of the assets of CGST
in exchange for Acquiring Series Shares and the assumption by the Acquiring
Series of the liabilities of CGST; (vii) the basis in the hands of the
Acquiring Series the assets of CGST transferred to the Acquiring Series will
be the same as the basis of the assets in the hands of CGST immediately prior
to the transfer; and (viii) the Acquiring Series' holding periods of the
assets of CGST will include the period for which such assets were held by
CGST. In rendering such opinion, Baker & Hostetler may rely upon certain
reasonable and customary assumptions and certifications of fact received from
TCG, CGST, and certain of its shareholders.
(g) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of TCG,
contemplated by the Commission or any state regulatory authority.
(h) All necessary proceedings taken by CGST in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto reasonably shall be satisfactory in form and substance to TCG and
Baker & Hostetler.
(i) Prior to the Exchange Date, CGST shall have declared a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of its investment company
taxable income for its taxable year ended September 30, 1995 and the short
taxable year beginning on October 1, 1995 and ending on the Valuation Date
(computed without regard to any deduction for dividends paid), and all of its
net capital gain realized in its taxable year ended September 30, 1995 and
the short taxable year beginning on October 1, 1995 and ending on the
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<PAGE> 15
Valuation Date (after reduction for any capital loss carryover).
(j) CGST shall have furnished to TCG a certificate, signed by the President
(or any Vice President) and the Treasurer (or other financial officer) of
CGST, as to the tax cost to TCG of the securities delivered to TCG pursuant
to this Agreement, together with any such evidence as to such tax cost as TCG
reasonably may request.
(k) CGST's custodian shall have delivered to CGST a certificate identifying
all of the assets of CGST held by such custodian as of the Valuation Time.
(l) CGST's transfer agent shall have provided to TCG (i) the originals or
true copies of all of the records of CGST in the possession of such transfer
agent as of the Exchange Date, (ii) a certificate setting forth the number of
shares of CGST outstanding as of the Valuation Time and (iii) the name and
address of each holder of record of any such shares of CGST and the number of
shares held of record by each such shareholder.
(m) CGST shall have duly executed and delivered to TCG a bill of sale,
assignment, certificate and other instruments of transfer ("Transfer
Documents") as TCG may deem necessary or desirable to transfer all of CGST's
entire right, title and interest in and to the Investments and all other
assets of CGST to the Acquiring Series.
(n) TCG and CGST shall have received from the Commission, if necessary, a
written order of exemption, satisfactory in form and substance to TCG and
CGST, exempting the Reorganization from the provisions of Section 17(a) of
the 1940 Act.
9. CONDITIONS OF CGST'S OBLIGATIONS. The obligations of CGST hereunder shall
be subject to the following conditions:
(a) This Agreement shall have been authorized and the transactions
contemplated hereby, including the liquidation and dissolution of CGST, shall
have been approved by the trustees and shareholders of CGST in the manner
required by law.
(b) TCG shall have executed and delivered to CGST an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the Acquiring
Series will assume all of the liabilities, expenses, costs, charges and
reserves of CGST, contingent or otherwise, including liabilities existing at
the
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<PAGE> 16
Valuation Time and described in Section 1(c) hereof in connection with the
transactions contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true and
correct in all material respects as if made at and as of such dates, TCG and
the Acquiring Series have complied with all of the agreements and satisfied
all of the conditions on their part to be performed or satisfied at or prior
to each of such dates, and TCG shall have furnished to CGST a statement,
dated the Exchange Date, signed by TCG's President (or any Vice President)
and Treasurer (or other financial officer) certifying those facts as of such
dates.
(d) There shall not be any material litigation pending or overtly
threatened with respect to the matters contemplated by this Agreement.
(e) CGST shall have received an opinion of Baker & Hostetler, in form
reasonably satisfactory to CGST and dated the Exchange Date, to the effect
that (i) TCG is a business trust validly existing under the laws of the State
of Ohio and is, to the knowledge of such counsel, qualified to do business as
a foreign business trust in each jurisdiction where the ownership of its
property and the conduct of its business requires qualification, (ii) the
Acquiring Series Shares to be delivered to CGST as provided for by this
Agreement are duly authorized and upon such delivery will be validly issued
and will be fully paid and nonassessable by TCG and no shareholder of TCG has
any preemptive right to subscription or purchase in respect thereof, (iii)
this Agreement has been duly authorized, executed and delivered by TCG and
assuming that the Registration Statement, the Prospectus and the Proxy
Statement comply with the 1933 Act, 1934 Act and 1940 Act, and assuming due
authorization, execution and delivery of this Agreement by CGST, is a valid
and binding obligation of TCG, enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and other equitable principles, (iv) the execution and delivery of
this Agreement did not, and the consummation of the transactions contemplated
hereby will not, violate TCG's Declaration of Trust or its By-Laws or any
provision of any agreement known to such counsel to which TCG or the
Acquiring Series is a party or by which it is bound, it being understood that
with respect to investment restrictions as contained in TCG's Declaration of
Trust, By-Laws or then current prospectus or statement of additional
information, such counsel may rely upon a certificate of an officer of TCG
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whose responsibility it is to advise TCG with respect to such matters, (v) to
the knowledge of such counsel no consent, approval, authorization or order of
any court or governmental authority is required for the consummation by TCG
or the Acquiring Series of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, 1934 Act and 1940 Act and such as
may be required under state securities or blue sky laws and the H-S-R Act.
In rendering such opinion Baker & Hostetler may rely on certain reasonable
assumptions and certifications of fact received from CGST, TCG and certain of
its shareholders.
(f) CGST shall have received an opinion of Baker & Hostetler addressed to
CGST, TCG and the Acquiring Series and in a form reasonably satisfactory to
CGST dated the Exchange Date, with respect to the matters specified in
Section 8(f) of this Agreement. In rendering such opinion Baker & Hostetler
may rely on certain reasonable assumptions and certifications of fact
received from CGST, TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with the
transactions contemplated by this Agreement and all documents, incidental
thereto reasonably shall be satisfactory in form and substance to CGST and
Baker & Hostetler.
(h) The Registration Statement shall have become effective under the 1933
Act and applicable Blue Sky provisions, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of CGST,
contemplated by the Commission or any state regulatory authority.
(i) TCG and CGST shall have received from the Commission, if necessary, a
written order of exemption, satisfactory in form and substance to TCG and
CGST, exempting the Reorganization from the provisions of Section 17(a) of
the 1940 Act.
10. TERMINATION. TCG and CGST may, by mutual consent of their respective
trustees, terminate this Agreement, and TCG or CGST, after consultation with
counsel and by consent of their respective trustees or an officer authorized by
such trustees, may, subject to Section 11 of this Agreement, waive any
condition to their respective obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes all
previous correspondence and oral communications between the parties regarding
the subject matter hereof, constitutes the only understanding with respect to
such subject
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<PAGE> 18
matter and shall be construed in accordance with and governed by the laws of
the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner as may
be mutually agreed upon in writing by the authorized officer of TCG and CGST;
provided, however, that following the meeting of CGST's shareholders called by
CGST pursuant to Section 7 of this Agreement, no such amendment may have the
effect of altering or changing the amount or kind of shares received by CGST,
or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect CGST's
shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
------------------------------
Frank W. Siegel, President
CARDINAL GOVERNMENT SECURITIES TRUST
By /s/ Frank W. Siegel
------------------------------
Frank W. Siegel, President
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<PAGE> 1
EXHIBIT (4) (d)
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
----------------------------------------------------
Agreement and Plan of Reorganization and Liquidation ("Agreement")
dated as of December 1, 1995, by and between The Cardinal Group, an Ohio
business trust ("TCG"), and Cardinal Tax Exempt Money Trust, an Ohio business
trust ("CTEMT").
WHEREAS, TCG is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end investment company of the management
type and has, or before the Exchange Date (as defined below) is expected to
have, issued and outstanding one class of shares of beneficial interest,
without par value ("Shares"), for each of six series, one such series being
Cardinal Tax Exempt Money Market Fund (hereinafter sometimes referred to as the
"Cardinal Tax Exempt Money Market Fund" or the "Acquiring Series"); and
WHEREAS, CTEMT is registered under the 1940 Act as an open-end
investment company of the management type and currently has issued and
outstanding one class of shares of beneficial interest, par value $.10 per
share; and
WHEREAS, CTEMT plans to transfer all of its assets, and to assign all
of its liabilities, to the Acquiring Series, in exchange for Shares of the
Acquiring Series (the "Acquiring Series Shares"), followed by the distribution
of the Acquiring Series Shares by CTEMT to its shareholders, and followed by
the dissolution of CTEMT, all upon the terms and provisions of this Agreement
(the "Reorganization"); and
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the trustees of TCG have determined that the Reorganization
is in the best interests of TCG, and that the
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<PAGE> 3
interests of its shareholders will not be diluted as a result thereof; and
WHEREAS, the trustees of CTEMT have determined that the Reorganization
is in the best interests of CTEMT and that the interests of its shareholders
will not be diluted as a result thereof;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto covenant and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION.
(a) SALE OF ASSETS, ASSUMPTION OF LIABILITIES. Subject to
the prior approval of shareholders of CTEMT and to the other terms and
conditions contained herein (including the obligation of CTEMT to
distribute to its shareholders all of its investment company taxable
income and net capital gain as described in Section 8(i) herein),
CTEMT agrees to sell, assign, convey, transfer and deliver to the
Acquiring Series, and the Acquiring Series agrees to acquire from
CTEMT on the Exchange Date (as defined below), all of the Investments
(as defined below), cash and other assets of CTEMT in exchange for
that number of full and fractional Acquiring Series Shares of the
Acquiring Series having an aggregate net asset value equal to the
value of all assets of CTEMT transferred to the Acquiring Series, as
provided in Section 4, less the liabilities of CTEMT assumed by the
Acquiring Series.
(b) ASSETS ACQUIRED. The assets to be acquired by the
Acquiring Series from CTEMT shall consist of all of CTEMT's property,
including, without limitation, all Investments, cash and dividends or
interest receivables which are owned by CTEMT and any deferred or
prepaid expenses shown as an asset on the books of CTEMT as of the
Valuation Time described in Section 4.
(c) LIABILITIES ASSUMED. Prior to the Exchange Date CTEMT
will endeavor to discharge or cause to be discharged, or make
provision for the payment of, all of its known liabilities and
obligations. The Acquiring Series shall assume all liabilities,
expenses, costs, charges and reserves of CTEMT, contingent or
otherwise, including liabilities reflected in the unaudited statement
of assets and liabilities of CTEMT as of the Valuation Time, prepared
by or on behalf of CTEMT in accordance with generally accepted
accounting principles consistently applied from and after September
30, 1995.
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<PAGE> 4
(d) LIQUIDATION AND DISSOLUTION. Upon consummation of the
transactions described in Section 1(a), 1(b) and 1(c) above, CTEMT
shall distribute in complete liquidation to its shareholders of record
as of the Exchange Date the Acquiring Series Shares received by it,
each CTEMT shareholder of record being entitled to receive that number
of Acquiring Series Shares equal to the proportion which the number of
shares of beneficial interest, par value $.10 per share, of CTEMT held
by such shareholder bears to the total number of such shares of CTEMT
outstanding on such date, and shall take such further action as may be
required, necessary or appropriate under CTEMT's Declaration of Trust,
Ohio law and the Code to effect the complete liquidation and
dissolution of CTEMT. CTEMT will fulfill all reporting requirements
under the 1940 Act, both before and after the Reorganization.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CTEMT. CTEMT represents
and warrants to and agrees with TCG and the Acquiring Series that:
(a) CTEMT is a business trust validly existing under the laws
of the State of Ohio and has power to own all of its properties and
assets and to carry out its obligations under this Agreement. CTEMT
has qualified as a foreign business trust in each jurisdiction where
the ownership of its property and the conduct of its business require
qualification. CTEMT has all necessary federal, state and local
authorizations to carry on its business as now being conducted and to
fulfill the terms of this Agreement, except as set forth in Section
2(1).
(b) CTEMT is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. CTEMT
has elected to qualify and has qualified as a regulated investment
company under Part I of Subchapter M of the Code as of and since its
first taxable year, and qualifies and intends to continue to qualify
as a regulated investment company for its taxable year ending upon its
liquidation. CTEMT has been a regulated investment company under such
sections of the Code at all times since its inception.
(c) The statement of assets and liabilities, including the
statement of investments as of September 30, 1995, and the related
statement of operations for the year then ended, and statements of
changes in net assets for each of the two years in the period then
ended, for CTEMT, such statements having been audited by KPMG Peat
Marwick LLP, independent auditors of CTEMT, have been furnished to
TCG. Such statement of assets
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<PAGE> 5
and liabilities fairly present the financial position of CTEMT as of
such date and such statements of operations and changes in net assets
fairly reflect the results of operations and changes in net assets for
the periods covered thereby in conformity with generally accepted
accounting principles, and there are no known material liabilities of
CTEMT as of such dates which are not disclosed therein.
(d) The Prospectus of CTEMT dated February 1, 1995 (the
"CTEMT Prospectus") and the related Statement of Additional
Information for CTEMT dated February 1, 1995, in the forms filed with
the Securities and Exchange Commission and previously furnished to
TCG, did not as of their date and do not as of the date hereof contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
(e) Except as may have been previously disclosed to TCG,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of CTEMT, threatened against CTEMT.
(f) There are no material contracts outstanding to which
CTEMT is a party, other than as disclosed in the CTEMT Prospectus and
its corresponding Statement of Additional Information, and there are
no such contracts or commitments (other than this Agreement) which
will be terminated with liability to CTEMT on or prior to the Exchange
Date.
(g) CTEMT has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on
its statement of assets and liabilities as of September 30, 1995 and
those incurred in the ordinary course of CTEMT's business as an
investment company since that date. Prior to the Exchange Date, CTEMT
will advise TCG of all known material liabilities, contingent or
otherwise, incurred by it subsequent to September 30, 1995, whether or
not incurred in the ordinary course of business.
(h) As used in this Agreement, the term "Investments" shall
mean CTEMT's investments shown on the statement of assets and
liabilities as of September 30, 1995 referred to in Section 2(c)
hereof, as supplemented with such changes as CTEMT shall make after
September 30, 1995 and prior to the date of this Agreement, which
changes have been disclosed to TCG, and changes made on and after the
date of this Agreement after advising CTEMT of such changes, and
changes resulting from stock dividends stock split-ups, mergers and
similar corporate actions.
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<PAGE> 6
(i) CTEMT has filed or will file all federal and state tax
returns which, to the knowledge of CTEMT's officers, are required to
be filed by CTEMT and has paid or will pay all federal and state taxes
shown to be due on said returns or on any assessments received by
CTEMT. All tax liabilities of CTEMT have been adequately provided for
on its books, and no tax deficiency or liability of CTEMT has been
asserted, and no question with respect thereto has been raised, by the
Internal Revenue Service or by any state or local tax authority for
taxes in excess of those already paid.
(j) As of both the Valuation Time and the Exchange Date and
except for shareholder approval and otherwise as described in Section
2(1), CTEMT will have full right, power and authority to sell, assign,
transfer and deliver the Investments and any other of its assets and
liabilities to be transferred to TCG and the Acquiring Series pursuant
to this Agreement. At the Exchange Date, subject only to the delivery
of the Investments and any such other assets and liabilities as
contemplated by this Agreement, TCG and the Acquiring Series will
acquire the Investments and any such other assets subject to no
encumbrances, liens or security interests in favor of any third party
creditor of CTEMT and, except as described in Section 2(k), without
any restrictions upon the transfer thereof.
(k) No registration under the Securities Act of 1933, as
amended (the "1933 Act"), of any of the Investments would be required
if they were, as of the time of such transfer, the subject of a public
distribution by either of CTEMT or TCG, except as previously disclosed
to TCG by CTEMT in writing prior to the date hereof.
(l) No consent, approval, authorization or order of any court
or governmental authority is required for the consummation by CTEMT of
the transactions contemplated by this Agreement, except such as may be
required under the 1933 Act, Securities Exchange Act of 1934, as
amended (the "1934 Act"), 1940 Act, state securities or blue sky laws
(which term as used herein shall include the laws of the District of
Columbia and of Puerto Rico) or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "H-S-R Act").
(m) The registration statement (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the
"Commission") by TCG on Form N-14 relating to the Acquiring Series
Shares issuable hereunder, and the proxy statement of CTEMT included
therein (the "Proxy Statement"), on the effective date of the
Registration Statement and insofar as they relate to CTEMT, (i) will
comply in all
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<PAGE> 7
material respects with the provisions of the 1933 Act, 1934 Act and
1940 Act and the rules and regulations thereunder and (ii) will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 below and on the
Exchange Date, the prospectus contained in the Registration Statement
of which the Proxy Statement is a part (the "Prospectus"), as amended
or supplemented by any amendments or supplements filed with the
Commission by TCG, insofar as it relates to CTEMT, will not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the representations
and warranties in this Section 2(m) shall apply only to statements of
fact relating to CTEMT contained in the Registration Statement, the
Prospectus or the Proxy Statement, or omissions to state in any
thereof a material fact relating to CTEMT, as such Registration
Statement, Prospectus and Proxy Statement shall be furnished to CTEMT
in definitive form as soon as practicable following effectiveness of
the Registration Statement and before any public distribution of the
Prospectus or Proxy Statement.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF TCG. TCG represents and
warrants to and agrees with CTEMT that:
(a) TCG is a business trust validly existing under the laws
of the State of Ohio and has power to carry on its business as it is
now being conducted and to carry out its obligations under this
Agreement. TCG has qualified as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification. TCG and the Acquiring Series each
has all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as now being
conducted and to fulfill the terms of this Agreement, except as set
forth in Section 3(i).
(b) TCG is registered under the 1940 Act as an open-end
investment company of the management type, and such registration has
not been revoked or rescinded and is in full force and effect. The
Acquiring Series expects to qualify as a regulated investment company
under Part I of Subchapter M of the Code.
(c) The Acquiring Series will have no financial statements as
of the Valuation Time.
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<PAGE> 8
(d) The prospectus of TCG and the Acquiring Series, expected
to be dated in January, 1996 (the "Acquiring Series Prospectus"), and
the related Statement of Additional Information for the Acquiring
Series to be dated such date, in the forms to be filed with the
Securities and Exchange Commission, will be furnished to CTEMT
promptly upon the completion thereof and will not as of their date
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading.
(e) Except as may have been previously disclosed to CTEMT,
there are no material legal, administrative or other proceedings
pending or, to the knowledge of TCG or its Acquiring Series,
threatened against TCG or the Acquiring Series, which assert liability
on the part of TCG or the Acquiring Series.
(f) There are no material contracts outstanding to which TCG
or the Acquiring Series is a party, other than material contracts
disclosed in the Acquiring Series Prospectus and the corresponding
Statement of Additional Information.
(g) The Acquiring Series will have no assets or liabilities
as of the Valuation Time.
(h) TCG and the Acquiring Series will file all federal and
state tax returns which, to the knowledge of TCG's officers, are
required to be filed by TCG and the Acquiring Series and will pay all
federal and state taxes shown to be due on such returns or on any
assessments received by TCG or the Acquiring Series. All tax
liabilities of TCG and the Acquiring Series have been adequately
provided for on its books, and no tax deficiency or liability of TCG
or the Acquiring Series has been asserted, and no question with
respect thereto has been raised, by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already
paid.
(i) No consent, approval, authorization or order of any
governmental authority is required for the consummation by TCG or the
Acquiring Series of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, 1934 Act, 1940 Act,
state securities or Blue Sky Laws or the H-S-R Act.
(j) As of both the Valuation Time and the Exchange Date and
otherwise as described in Section 3(i), TCG and the Acquiring Series
will have full right, power and authority to purchase the Investments
and any other assets and assume the
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<PAGE> 9
liabilities of CTEMT to be transferred to the Acquiring Series
pursuant to this Agreement.
(k) The Registration Statement, the Prospectus and the Proxy
Statement, on the effective date of the Registration Statement and
insofar as they relate to TCG and the Acquiring Series: (i) will
comply in all material respects with the provisions of the 1933 Act,
1934 Act and 1940 Act and the rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and at the Exchange
Date, the Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by TCG, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that none of the
representations and warranties in this subsection shall apply to
statements in or omissions from the Registration Statement, the
Prospectus or the Proxy Statement made in reliance upon and in
conformity with information furnished by CTEMT for use in the
Registration Statement, the Prospectus or the Proxy Statement.
(l) The Acquiring Series Shares to be issued by TCG have been
duly authorized and when issued and delivered by TCG to CTEMT pursuant
to this Agreement and the Prospectus will be legally and validly
issued by TCG and will be fully paid and nonassessable, and no
shareholder of TCG will have any preemptive right of subscription or
purchase in respect thereof.
(m) The issuance of Acquiring Series Shares pursuant to this
Agreement will be in compliance with all applicable federal and state
securities laws.
(n) Cardinal Tax Exempt Money Market Fund, upon filing of its
first income tax return at the completion of its first taxable year
will elect to be a regulated investment company and until such time
will take all steps necessary to ensure qualification as a regulated
investment company.
4. EXCHANGE DATE; VALUATION TIME. On the Exchange Date, TCG will deliver
to CTEMT a number of Acquiring Series Shares having an aggregate net asset
value equal to the value of the assets of CTEMT acquired by the Acquiring
Series, less the value of the liabilities of CTEMT assumed, determined as
hereafter provided in this Section 4.
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<PAGE> 10
(a) The asset net value of CTEMT will be computed as of the
Valuation Time, using the valuation procedures set forth in the
current prospectus of CTEMT.
(b) The net asset value of each of the Acquiring Series
Shares will be determined to the nearest full cent as of the Valuation
Time, and shall be set at the net asset value per share of CTEMT as of
the Valuation Time.
(c) The Valuation Time shall be 4:00 P.M., Eastern Standard
Time, on March 30, 1996, or such earlier or later day as may be
mutually agreed upon in writing by the parties hereto (the
"Valuation Time").
(d) The Acquiring Series shall issue its Acquiring Series
Shares to CTEMT on one share deposit receipt registered in the name of
CTEMT. CTEMT shall distribute in liquidation the Acquiring Series
Shares received by it hereunder PRO RATA to its shareholders by
redelivering such share deposit receipt to TCG's transfer agent,
which will as soon as practicable set up open accounts for each CTEMT
shareholder in accordance with written instructions furnished by
CTEMT.
(e) The Acquiring Series shall assume all liabilities of
CTEMT, whether accrued or contingent, described in subsection 1(c)
hereof in connection with the acquisition of assets and subsequent
dissolution of CTEMT or otherwise, except that recourse for assumed
liabilities relating to CTEMT will be limited to the Acquiring Series.
5. EXPENSES, FEES, ETC.
-------------------
(a) Subject to the further provisions of this Section 5, TOC
shall be responsible for the fees and expenses of the Reorganization.
The Acquiring Series will be responsible for its organization costs.
CTEMT will be responsible for proxy solicitation and other costs
associated with its annual meeting (or special meeting in lieu
thereof) to the extent such costs are comparable to those incurred for
annual meetings in recent prior years. TOC has undertaken to absorb
all other costs of the Reorganization.
(b) In the event the transactions contemplated by this
Agreement are not consummated by reason of CTEMT's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to CTEMT's obligations
referred to in Section 7(a) or Section 9), CTEMT shall pay directly
all reasonable fees and expenses incurred by TCG in connection with
such transactions, including, without limitation, legal, accounting
and filing fees.
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<PAGE> 11
(c) In the event the transactions contemplated by this
Agreement are not consummated by reason of TCG's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to TCG's obligations
referred to in Section 7(a) or Section 8), TCG shall pay directly all
of the reasonable fees and expenses incurred by CTEMT in connection
with such transactions, including, without limitation, legal,
accounting and filing fees.
(d) Notwithstanding any other provisions of this Agreement,
if for any reason the transactions contemplated by this Agreement are
not consummated, no party shall be liable to the other party for any
damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
6. EXCHANGE DATE. Delivery of the assets of CTEMT to be transferred,
assumption of the liabilities of CTEMT to be assumed, and the delivery of
Acquiring Series Shares to be issued shall be made at the offices of The Ohio
Company, 155 East Broad Street, Columbus, Ohio at 9:00 A.M. on March 31, 1996,
or at such other time and date agreed to by TCG and CTEMT, the date and time
upon which such delivery is to take place being referred to herein as the
"Exchange Date."
7. SPECIAL MEETING OF SHAREHOLDERS; DISSOLUTION.
(a) CTEMT agrees to call a special meeting of its
shareholders as soon as is practicable after the effective date of the
Registration Statement for the purpose of considering the sale of all
of the assets of CTEMT to and the assumption of all of the liabilities
of CTEMT by the Acquiring Series as herein provided, authorizing and
approving this Agreement, and authorizing and approving the
liquidation and dissolution of CTEMT, and it shall be a condition to
the obligations of each of the parties hereto that the holders of
shares of beneficial interest, par value $.10 per share, of CTEMT
shall have approved this Agreement, and the transactions contemplated
herein, including the liquidation and dissolution of CTEMT, in the
manner required by law and CTEMT's Declaration of Trust at such a
meeting on or before the Valuation Time.
(b) CTEMT agrees that the liquidation and dissolution of
CTEMT will be effected in the manner provided in CTEMT's Declaration
of Trust and in accordance with applicable law, and that it will not
make any distributions of any Acquiring Series Shares to the
shareholders of CTEMT without first
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<PAGE> 12
paying or adequately providing for the payment of all of CTEMT'S known
debts, obligations and liabilities.
(c) Each of TCG and CTEMT will cooperate with the other, and
each will furnish to the other the information relating to itself
required by the 1933 Act, 1934 Act and 1940 Act and the rules and
regulations thereunder to be set forth in the Registration Statement,
including the Prospectus and the Proxy Statement.
8. CONDITIONS TO TCG'S OBLIGATIONS. The obligations of TCG and the
Acquiring Series hereunder shall be subject to the following conditions:
(a) That this Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of CTEMT, shall have been approved by the trustees and
shareholders of CTEMT in the manner required by law.
(b) CTEMT shall have furnished to TCG a statement of CTEMT's
assets and liabilities, with values determined as provided in Section
4 of this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on
CTEMT's behalf by its President (or any Vice President) and Treasurer
(or other financial officer), and a certificate of both such officers,
dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change
in the financial position of CTEMT since September 30, 1995, other
than changes in the Investments since that date or changes in the
market value of the Investments, or changes due to net redemptions of
shares of CTEMT, dividends paid or losses from operations.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of CTEMT made in this Agreement are
true and correct in all material respects as if made at and as of such
dates, CTEMT has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
each of such dates, and CTEMT shall have furnished to TCG a statement,
dated the Exchange Date, signed by CTEMT's President (or any Vice
President) and Treasurer (or other financial officer) certifying those
facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
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<PAGE> 13
(e) TCG shall have received an opinion of Baker & Hostetler,
in form reasonably satisfactory to TCG and dated the Exchange Date, to
the effect that (i) CTEMT is a business trust validly existing under
the laws of the State of Ohio, and is, to the knowledge of such
counsel, qualified to do business as a foreign business trust in each
jurisdiction where the ownership of its property and the conduct of
its business require qualification, (ii) this Agreement has been duly
authorized, executed and delivered by CTEMT and, assuming that the
Registration Statement, the Prospectus and the Proxy Statement comply
with the 1933 Act, 1934 Act and 1940 Act and assuming due
authorization, execution and delivery of this Agreement by TCG, is a
valid and binding obligation of CTEMT, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable
principles, (iii) CTEMT has power to sell, assign, convey, transfer
and deliver the Investments and other assets contemplated hereby and,
upon consummation of the transactions contemplated hereby in
accordance with the terms of this Agreement, CTEMT will have duly
sold, assigned, conveyed, transferred and delivered such Investments
and other assets to TCG, (iv) the execution and delivery of this
Agreement did not and the consummation of the transactions
contemplated hereby will not, violate CTEMT's Declaration of Trust or
its By-Laws, as amended, or any provision of any agreement known to
such counsel to which CTEMT is a party or by which it is bound, it
being understood that with respect to any investment restrictions as
contained in CTEMT's Declaration of Trust or By-Laws, or then current
prospectus or statement of additional information, such counsel may
rely upon a certificate of an officer of CTEMT, whose responsibility
it is to advise CTEMT with respect to such matters and (v) to the
knowledge of such counsel no consent, approval, authorization or order
of any court or governmental authority is required for the
consummation by CTEMT of the transactions contemplated hereby, except
such as have been obtained under the 1933 Act, 1934 Act and 1940 Act
and such as may be required under state securities or blue sky laws
and the H-S-R Act. In rendering such opinion, Baker & Hostetler may
rely upon certain reasonable and customary assumptions and
certifications of fact received from TCG, CTEMT, and certain of its
shareholders.
(f) TCG shall have received an opinion of Baker & Hostetler,
addressed to TCG, the Acquiring Series and CTEMT, in form reasonably
satisfactory to TCG and dated the Exchange Date, to the effect that
for Federal income tax purposes (i) the transfer of all or
substantially all of CTEMT's assets in exchange for the Acquiring
Series Shares and the assumption by
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<PAGE> 14
the Acquiring Series of liabilities of CTEMT will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and
each of the Acquiring Series and CTEMT is a "party to a
reorganization" within the meaning of Section 368(b) of the Code; (ii)
no gain or loss will be recognized by CTEMT upon the transfer of the
assets of the Acquiring Series in exchange for Acquiring Series Shares
and the assumption by the Acquiring Series of the liabilities of CTEMT
or upon the distribution of Acquiring Series Shares by CTEMT to its
shareholders in liquidation; (iii) no gain or loss will be recognized
by the shareholders of CTEMT upon the exchange of their shares for
Acquiring Series Shares, (iv) the basis of the Acquiring Series Shares
a CTEMT shareholder receives in connection with the Reorganization
will be the same as the basis of his or her shares exchanged therefor;
(v) a CTEMT shareholder's holding period for his or her Acquiring
Series Shares will be determined by including the period for which he
or she held CTEMT shares exchanged therefor, provided that he or she
held such shares as capital assets; (vi) no gain or loss will be
recognized by the Acquiring Series upon the receipt of the assets of
CTEMT in exchange for Acquiring Series Shares and the assumption by
the Acquiring Series of the liabilities of CTEMT; (vii) the basis in
the hands of the Acquiring Series the assets of CTEMT transferred to
the Acquiring Series will be the same as the basis of the assets in
the hands of CTEMT immediately prior to the transfer; and (viii) the
Acquiring Series' holding periods of the assets of CTEMT will include
the period for which such assets were held by CTEMT. In rendering
such opinion, Baker & Hostetler may rely upon certain reasonable and
customary assumptions and certifications of fact received from TCG,
CTEMT, and certain of its shareholders.
(g) The Registration Statement shall have become
effective under the 1933 Act and applicable Blue Sky provisions, and
no stop order suspending such effectiveness shall have been instituted
or, to the knowledge of TCG, contemplated by the Commission or any
state regulatory authority.
(h) All necessary proceedings taken by CTEMT in connection
with the transactions contemplated by this Agreement and all documents
incidental thereto reasonably shall be satisfactory in form and
substance to TCG and Baker & Hostetler.
(i) Prior to the Exchange Date, CTEMT shall have declared a
dividend or dividends which, together with all previous such
dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable
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<PAGE> 15
income for its taxable year ended September 30, 1995 and the short
taxable year beginning on October 1, 1995 and ending on the Valuation
Date (computed without regard to any deduction for dividends paid),
and all of its net capital gain realized in its taxable year ended
September 30, 1995 and the short taxable year beginning on October 1,
1995 and ending on the Valuation Date (after reduction for any capital
loss carryover).
(j) CTEMT shall have furnished to TCG a certificate, signed
by the President (or any Vice President) and the Treasurer (or other
financial officer) of CTEMT, as to the tax cost to TCG of the
securities delivered to TCG pursuant to this Agreement, together with
any such evidence as to such tax cost as TCG reasonably may request.
(k) CTEMT'S custodian shall have delivered to TCG a
certificate identifying all of the assets of CTEMT held by such
custodian as of the Valuation Time.
(l) CTEMT's transfer agent shall have provided to TCG (i) the
originals or true copies of all of the records of CTEMT in the
possession of such transfer agent as of the Exchange Date, (ii) a
certificate setting forth the number of shares of CTEMT outstanding as
of the Valuation Time and (iii) the name and address of each holder of
record of any such shares of CTEMT and the number of shares held of
record by each such shareholder.
(m) CTEMT shall have duly executed and delivered to TCG a
bill of sale, assignment, certificate and other instruments of
transfer ("Transfer Documents") as TCG may deem necessary or desirable
to transfer all of CTEMT's entire right, title and interest in and to
the Investments and all other assets of CTEMT to the Acquiring Series.
(n) TCG and CTEMT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and CTEMT, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
9. CONDITIONS OF CTEMT'S OBLIGATIONS. The obligations of CTEMT hereunder
shall be subject to the following conditions:
(a) This Agreement shall have been authorized and the
transactions contemplated hereby, including the liquidation and
dissolution of CTEMT, shall have been approved by the
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<PAGE> 16
trustees and shareholders of CTEMT in the manner required by law.
(b) TCG shall have executed and delivered to CTEMT an
Assumption of Liabilities dated as of the Exchange Date pursuant to
which the Acquiring Series will assume all of the liabilities,
expenses, costs, charges and reserves of CTEMT, contingent or
otherwise, including liabilities existing at the Valuation Time and
described in Section 1(c) hereof in connection with the transactions
contemplated by this Agreement.
(c) As of the Valuation Time and as of the Exchange Date, all
representations and warranties of TCG made in this Agreement are true
and correct in all material respects as if made at and as of such
dates, TCG and the Acquiring Series have complied with all of the
agreements and satisfied all of the conditions on their part to be
performed or satisfied at or prior to each of such dates, and TCG
shall have furnished to CTEMT a statement, dated the Exchange Date,
signed by TCG's President (or any Vice President) and Treasurer (or
other financial officer) certifying those facts as of such dates.
(d) There shall not be any material litigation pending or
overtly threatened with respect to the matters contemplated by this
Agreement.
(e) CTEMT shall have received an opinion of Baker &
Hostetler, in form reasonably satisfactory to CTEMT and dated the
Exchange Date, to the effect that (i) TCG is a business trust validly
existing under the laws of the State of Ohio and is, to the knowledge
of such counsel, qualified to do business as a foreign business trust
in each jurisdiction where the ownership of its property and the
conduct of its business requires qualification, (ii) the Acquiring
Series Shares to be delivered to CTEMT as provided for by this
Agreement are duly authorized and upon such delivery will be validly
issued and will be fully paid and nonassessable by TCG and no
shareholder of TCG has any preemptive right to subscription or
purchase in respect thereof, (iii) this Agreement has been duly
authorized, executed and delivered by TCG and assuming that the
Registration Statement, the Prospectus and the Proxy Statement comply
with the 1933 Act, 1934 Act and 1940 Act, and assuming due
authorization, execution and delivery of this Agreement by CTEMT, is a
valid and binding obligation of TCG, enforceable in accordance with
its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and other equitable
principles, (iv) the execution and delivery of this Agreement did not,
and the
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<PAGE> 17
consummation of the transactions contemplated hereby will not, violate
TCG's Declaration of Trust or its By-Laws or any provision of any
agreement known to such counsel to which TCG or the Acquiring Series
is a party or by which it is bound, it being understood that with
respect to investment restrictions as contained in TCG's Declaration
of Trust, By-Laws or then current prospectus or statement of
additional information, such counsel may rely upon a certificate of an
officer of TCG whose responsibility it is to advise TCG with respect
to such matters, (v) to the knowledge of such counsel no consent,
approval, authorization or order of any court or governmental
authority is required for the consummation by TCG or the Acquiring
Series of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, 1934 Act and 1940 Act and such as
may be required under state securities or blue sky laws and the H- S-R
Act. In rendering such opinion Baker & Hostetler may rely on certain
reasonable assumptions and certifications of fact received from CTEMT,
TCG and certain of its shareholders.
(f) CTEMT shall have received an opinion of Baker & Hostetler
addressed to CTEMT, TCG and the Acquiring Series and in a form
reasonably satisfactory to CTEMT dated the Exchange Date, with respect
to the matters specified in Section 8(f) of this Agreement. In
rendering such opinion Baker & Hostetler may rely on certain
reasonable assumptions and certifications of fact received from CTEMT,
TCG and certain of its shareholders.
(g) All necessary proceedings taken by TCG in connection with
the transactions contemplated by this Agreement and all documents,
incidental thereto reasonably shall be satisfactory in form and
substance to CTEMT and Baker & Hostetler.
(h) The Registration Statement shall have become effective
under the 1933 Act and applicable Blue Sky provisions, and no stop
order suspending such effectiveness shall have been instituted or, to
the knowledge of CTEMT, contemplated by the Commission or any state
regulatory authority.
(i) TCG and CTEMT shall have received from the Commission, if
necessary, a written order of exemption, satisfactory in form and
substance to TCG and CTEMT, exempting the Reorganization from the
provisions of Section 17(a) of the 1940 Act.
10. TERMINATION. TCG and CTEMT may, by mutual consent of their respective
trustees, terminate this Agreement, and TCG or CTEMT, after consultation with
counsel and by consent of their respective
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<PAGE> 18
trustees or an officer authorized by such trustees, may, subject to
Section 11 of this Agreement, waive any condition to their respective
obligations hereunder.
11. SOLE AGREEMENT; GOVERNING LAW; AMENDMENTS. This Agreement supersedes
all previous correspondence and oral communications between the parties
regarding the subject matter hereof, constitutes the only understanding with
respect to such subject matter and shall be construed in accordance with and
governed by the laws of the State of Ohio.
This Agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officer of TCG and
CTEMT; provided, however, that following the meeting of CTEMT's shareholders
called by CTEMT pursuant to Section 7 of this Agreement, no such amendment may
have the effect of altering or changing the amount or kind of shares received
by CTEMT, or altering or changing to any material extent the amount or kind of
liabilities assumed by TCG and the Acquiring Series, or altering or changing
any other terms and conditions of the Reorganization if any of the alterations
or changes, alone or in the aggregate, would materially adversely affect
CTEMT's shareholders without their further approval.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
-------------------------------------
Frank W. Siegel, President
CARDINAL TAX EXEMPT MONEY TRUST
By /s/ Frank W. Siegel
-------------------------------------
Frank W. Siegel, President
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<PAGE> 1
EXHIBIT (11)
<PAGE> 2
BAKER & HOSTETLER
65 East State Street, Suite 2100
Columbus, Ohio 43215-4260
(614) 228-1541
December 7, 1995
The Cardinal Group
155 East Broad Street
Columbus, Ohio 43215
Subject: THE CARDINAL GROUP (THE "GROUP") -- REGISTRATION STATEMENT ON FORM
N-14, FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"REGISTRATION STATEMENT")
Ladies and Gentlemen:
In connection with the filing of the Registration Statement, it is our
opinion that, upon the effectiveness of the Registration Statement, the
indefinite number of units of beneficial interest, without par value, of The
Cardinal Fund, Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund and Cardinal Tax Exempt Money Market Fund, four
new investment portfolios of the Group, when issued as described in the
Registration Statement and for the consideration described in the Registration
Statement, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
BAKER & HOSTETLER
<PAGE> 1
EXHIBIT (12)
<PAGE> 2
December 8, 1995
Board of Directors
The Cardinal Fund Inc.
155 East Broad Street
Columbus, OH 43215
Board of Trustees
The Cardinal Group - The Cardinal Fund
155 East Broad Street
Columbus, OH 43215
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization and Liquidation by and
between The Cardinal Fund Inc. ("Target") and The Cardinal Group, an Ohio
business trust ("TCG"), dated as of December 1, 1995 (the "Agreement"), on
behalf of The Cardinal Fund ("Acquiring"), a series of TCG, a "series company"
as described in Rule 18f-2 of the Investment Company Act of 1940, as amended
(the "1940 Act"). The conclusions presented herein are based on the facts and
representations in the Agreement and the Combined Prospectus/Proxy Statement
with respect to Target and Acquiring contained in the Registration Statement on
Form N-14 (the "Registration Statement") to be filed with the Securities and
Exchange Commission ("SEC") on December 11, 1995 (collectively, the "Documents")
and the representations set forth in letters dated December 8, 1995 from Target
and TCG (the "Representation Letters") and the applicable tax law as it exists
today. We have assumed with your consent that the facts and representations
set forth in the Documents and the Representation Letters are true and correct
and there will be no change in any of the facts and representation between the
date of this opinion and the date of the exchange (the "Exchange Date").
FACTS
TCG is a an Ohio business trust registered under the 1940 Act
as an open-end investment company of the management type and has issued and
outstanding one class of voting shares of beneficial interest, without par
value of two "series", and before the Exchange Date is expected to have
authorized one class of voting shares of beneficial interest, without par value
of four additional "series", one of which is Acquiring. Acquiring
<PAGE> 3
Board of Directors
December 8, 1995
Page 2
will elect to qualify as a regulated investment company under Part I of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to be treated as a separate corporation under Section 851(h) of the Code.
Target is an Ohio corporation registered under the 1940 Act as
an open-end investment company of the management type and currently has issued
and outstanding shares of common stock, without par value. The shares of
Target are redeemable at net asset value at the option of the shareholders of
Target. Target has elected to qualify as a regulated investment company under
Part I of Subchapter M of the Code and is treated as a separate corporation
under Section 851(h) of the Code.
Target seeks to achieve long-term capital growth and income
through selective participation in the long-term progress of American business
and industries and invests primarily in equity securities. Acquiring seeks to
achieve long-term of growth capital and income and invests primarily in equity
securities.
Acquiring and Target seek to achieve economies of scale and a
more competitive structure for shareholder servicing and distribution of
shares.
THE EXCHANGE
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for voting
shares of beneficial interest of Acquiring (the "Acquiring Shares"). Target
will immediately thereafter distribute the Acquiring Shares to its shareholders
in complete liquidation and cease operations and upon receipt of the requisite
governmental approval will terminate its existence.
The assets Target will transfer to Acquiring will consist of
all of the property, including, without limitation, all investments, cash, and
dividend and interest receivables owned by Target and any deferred or prepaid
expenses shown as assets on its books as of the day prior to the Exchange Date
(the "Valuation Time"), as defined in the Agreement. The liabilities assumed
will consist of all liabilities, expenses, costs, and charges not discharged by
Target prior to the Exchange Date.
On the Exchange Date, Acquiring will deliver to Target a
number of Acquiring Shares having an aggregate net asset value equal to the
value of the assets (less the assumed liabilities) of Target as of the
Valuation Time. Target will then as part of the reorganization distribute the
Acquiring Shares pro rata to its shareholders in complete liquidation. The
shareholders of
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Board of Directors
December 8, 1995
Page 3
Target (other than those who dissent) will receive only Acquiring Shares in
exchange for their shares of Target. The shareholders of Target who properly
exercise their right to dissent will receive the fair cash value of their
shares.
REPRESENTATIONS
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
Acquiring Shares received in the transaction that would reduce
the ownership by the shareholders of Target of Acquiring
Shares to a number of Acquiring Shares having a value, as of
the Exchange Date, of less than 50 percent of the value of all
of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target
and Acquiring held by shareholders of Target and sold,
redeemed, or disposed of prior or subsequent to the Exchange
Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to dissenters, amounts paid to
shareholders who receive cash or other property, amounts used
by Target to pay its reorganization expenses, and all
redemptions and distributions (except for redemptions in the
ordinary course of its business as required by Section 22(e)
of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends including distributions of
investment company taxable income and net capital gain) made
by Target immediately preceding the Exchange Date
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Board of Directors
December 8, 1995
Page 4
will be included as assets of Target held immediately prior
to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in
connection with its legal obligation under Section 22(e) of
the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target acquired in the
transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(6) Pursuant to the transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the Acquiring Shares it receives in the
transaction and after the transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(8) Following the transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring, will pay the costs
associated with the reorganization, other than those costs
associated with that portion of the shareholders meeting of
Target relating to customary annual meeting matters (E.G.,
election of directors) and the organizational costs of
Acquiring.
<PAGE> 6
Board of Directors
December 8, 1995
Page 5
(10) The amounts to be paid to dissenting shareholders (when
aggregated with other liabilities assumed by Acquiring or to
which property of Target is subject) will not exceed 20% of
the fair market value of the assets of Target.
(11) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
(12) Acquiring will meet, and Target meets, the requirements of a
regulated investment company as defined in Section 851 of the
Code.
(13) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(14) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(15) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(16) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code, and after the exchange, Acquiring will elect
to be taxed as a regulated investment company.
(17) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate
<PAGE> 7
Board of Directors
December 8, 1995
Page 6
consideration for, or allocable to, any employment agreement;
and the compensation paid to any shareholder-employees will be
for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for
similar services.
(18) Acquiring is a series of a business trust and will be taxable
as a corporation.
APPLICABLE LAW
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation in exchange solely for all or part of its voting stock of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing at least 90 percent of the fair market value of the net assets and
at least 70 percent of the fair market value of the gross assets held by the
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part
of the plan of reorganization will be considered as assets held by the
corporation immediately prior to the transfer.
It is represented that Acquiring will acquire at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets
of Target
<PAGE> 8
Board of Directors
December 8, 1995
Page 7
within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of the Code.
Pursuant to the exchange, except for payments to dissenters,
solely shares of beneficial interest of Acquiring, which are shares entitled to
vote, will be exchanged for the assets of Target. It is represented that the
amounts paid to dissenters (when aggregated with other liabilities assumed by
Acquiring or to which property of Target is subject) will not exceed 20% of the
fair market value of the assets of Target.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or
more of its shareholders (including persons who were shareholders immediately
before the transfer), or any combination thereof, is in control of the
corporation to which the assets are transferred, but only if, in pursuance of
the plan, stock or securities of the corporation to which the assets are
transferred are distributed in a transaction which qualifies under Sections
354, 355 or 356. For this purpose, "control" is defined in Sections
368(a)(2)(H) and 304(c) and it is represented that Target will immediately
after the Exchange Date cease operations and distribute in complete liquidation
the Acquiring Shares it receives in the exchange to the shareholders of Target
and shareholders of Target will be in control of Acquiring within the meaning
of Sections 368(a)(2)(H) and 304(c) immediately after the transaction. Upon
receipt of any required governmental approval, Target will terminate its
existence. Target will transfer substantially all its assets to Acquiring and
will in complete liquidation transfer the Acquiring Shares to its shareholders;
therefore, the Acquiring Shares will be distributed in a transaction which
qualifies under Section 354. Therefore, the transaction will satisfy the
definitional requirements of a "D" reorganization as well as a "C"
reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction
shall be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
must be satisfied. The Regulations provide that the purpose of the
reorganization provisions of the Code is to except from the general rule of
taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the
<PAGE> 9
Board of Directors
December 8, 1995
Page 8
particular ways specified in the Code, as are required by business exigencies
and which effect only a readjustment of continuing interest in property under
the modified corporate forms. Requisite to a reorganization under the Code are
a continuity of the business enterprise under the modified corporate form and a
continuity of interest therein on the part of those persons who, directly or
indirectly, were the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will avoid duplication of operations of separate
investment companies and may result in economies of scale for both Target and
Acquiring and a structure for shareholder servicing and distribution of shares
which is more competitive. This should satisfy the genuine business purpose
requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business.
It is represented that after the transaction Acquiring will continue the
historic business of Target or use a significant portion of such historic
business assets in its business. Accordingly, the transaction should meet the
continuity of business enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or
transferor corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same
date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal
in value to at least 50 percent of the value of his former stock interest in
the acquired or transferor corporation, so long as one or more shareholders of
<PAGE> 10
Board of Directors
December 8, 1995
Page 9
the acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired
or transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of
the exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and,
to the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly,
the exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to
38 percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the
Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another corporation. Accordingly, Acquiring and Target will each
be "a party to a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the
<PAGE> 11
Board of Directors
December 8, 1995
Page 10
reorganization." Section 361(b) provides that if Section 361(a) would apply to
an exchange but for the fact that the property received in the exchange
consists not only of stock and securities but also other property or money,
then if the corporation receiving such other property or money distributes it
in pursuance of the plan of reorganization, no gain to the corporation will be
recognized.
Although Acquiring will assume Target's obligation to pay cash
to dissenters, since the exchange is a reorganization under Section 368(a) of
the Code and Target will be treated as distributing to its dissenting
shareholders the amounts to be paid to such shareholders, no gain will be
recognized to Target on the receipt of such amounts. Rev. Rul. 73-102, 1973-1
C.B. 186.
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a
part of the consideration, another party to the exchange assumes a liability of
the taxpayer, or acquires from the taxpayer property subject to a liability,
then such assumption or acquisition shall not be treated as money or other
property, and shall not prevent the exchange from being within the provisions
of Section 361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities (including amounts which may be
paid to dissenters), no gain or loss will be recognized by Target by reason of
the exchange and Sections 361(a) and 357(a) of the Code. Further, since it is
represented that the amount of the liabilities assumed by Acquiring (including
certain fees and expenses of Target in connection with the transaction), plus
the amount of the liabilities to which the property of Target is subject, does
not exceed the total of the adjusted basis of Target in the property
transferred to Acquiring, there is no excess which would be considered as gain
under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis
of such property shall be the same as it would be in the hands of the
transferor, increased by the
<PAGE> 12
Board of Directors
December 8, 1995
Page 11
amount of gain recognized to the transferor on such transfer. Since Acquiring
will receive property (i.e., the assets) from Target in connection with a
reorganization within the meaning of Section 368(a) of the Code and no gain
will be recognized by Target, the basis of the assets to be received by
Acquiring will be the same as the basis of those assets in the hands of Target
immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, the shareholders of
Target, a party to the reorganization, who receive solely shares of Acquiring,
another party to the reorganization, will recognize no gain or loss.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to
be received under Section 354 without the recognition of gain or loss shall be
the same as that of the property exchanged, decreased by (i) the fair market
value of any other property (except money) received by the taxpayer, (ii) the
amount of any money received by the taxpayer, and (iii) the amount of loss to
the taxpayer which was recognized on such exchange, and increased by (i) the
amount which was treated as a dividend, and (ii) the amount of gain to the
taxpayer which was recognized on such exchange (not including any portion of
such gain which was treated as a dividend).
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target who receive solely shares of Acquiring will be the same
as the basis of the shares of Target constructively surrendered in the
exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property
<PAGE> 13
Board of Directors
December 8, 1995
Page 12
received in an exchange, there shall be included the period for which the
taxpayer held the property exchanged if the property has, for the purpose of
determining gain or loss from a sale or exchange, the same basis (in whole or
in part) in his hands as the property exchanged, provided the property
exchanged at the time of such exchange is a capital asset as defined in Section
1221 or property described in Section 1231. Since the basis of the shares of
Acquiring held by the shareholders of Target who receive solely shares of
Acquiring will have the same basis (in whole or in part) as the stock
exchanged, the holding period of the Acquiring Shares will include the period
for which the shares of Target were held, provided that such shares were held
as a capital asset on the date of the exchange.
OPINION
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
o The transfer of all of Target's assets in exchange for Acquiring
Shares and Acquiring's assumption of all of Target's liabilities,
followed by Target's distribution of the Acquiring Shares in complete
liquidation to its shareholders will qualify as a reorganization under
Section 368(a) of the Code. Acquiring and Target will each be "a
party to a reorganization" within the meaning of Section 368(b) of the
Code.
o No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target or the payment of cash to dissenters in complete liquidation.
Sections 361 and 357 of the Code.
o No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
o The basis of the assets of Target in the hands of Acquiring will be
the same as the basis of such assets in the hands of Target
immediately prior to the exchange. Section 362(b) of the Code.
o The holding period of the property acquired by Acquiring from Target
will include the holding period of such property
<PAGE> 14
Board of Directors
December 8, 1995
Page 13
in the hands of Target immediately prior to the exchange. Section
1223(2) of the Code.
o No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
o The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as
the basis of the shares of Target surrendered in the exchange
therefor. Section 358(a)(1) of the Code.
o The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of
the Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are, and will be at the Exchange Date, as set forth in this letter. It
is also based on the Code, Regulations, case law and Internal Revenue Service
rulings as they now exist. These authorities are all subject to change and
such change may be made with retroactive effect. Were there to be such changes
either before or after the date of the exchange, or should the relevant facts
prove to be other than as we have reviewed, our opinion could be affected.
We hereby consent to the reference to us under the heading
"THE PROPOSED TRANSACTION -- Certain Federal Income Tax Consequences" in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the SEC
promulgated thereunder.
Very truly yours,
Baker & Hostetler
<PAGE> 15
Exhibit A
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
The Cardinal Fund Inc. ("Target") and The Cardinal Group
("TCG") have entered into an Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to a series fund of TCG, The
Cardinal Fund ("Acquiring") and Acquiring will assume all of the liabilities of
Target. In accordance with the Agreement, we are requesting your opinion (the
"Opinion") on certain federal income tax consequences as described in Section
9(f) of the Agreement with respect to the overall transaction contemplated by
such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
shares of Acquiring received in the Transaction that would
reduce the ownership by the shareholders of Target of shares
of Acquiring to a number of shares of Acquiring having a
value, as of the Exchange Date, of less than 50 percent of the
value of all of the formerly outstanding shares of Target as
of the same date. For purposes of this representation, shares
of Target and Acquiring held by shareholders of Target and
otherwise sold, redeemed, or disposed of prior or subsequent
to the Exchange Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to
<PAGE> 16
Baker & Hostetler
December 8, 1995
Page 2
dissenters, amounts paid to shareholders who receive cash or
other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions
(except for redemptions in the ordinary course of its business
as required by Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act") pursuant to a demand of a
shareholder and regular, normal dividends including
distributions of investment company taxable income and net
capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring, will pay the costs
associated with the reorganization, other than those costs
associated with that portion of the shareholders meeting of
Target relating to customary annual meeting matters (E.G.,
election of directors) and the organizational costs of
Acquiring.
(7) The amounts to be paid to dissenting shareholders (when
aggregated with other liabilities assumed by Acquiring or to
which property of Target is subject) will not exceed 20% of
the fair market value of the assets of Target.
<PAGE> 17
Baker & Hostetler
December 8, 1995
Page 3
(8) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
(9) Target meets the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(10) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(11) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring, and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(12) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(14) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler to form and issue the Opinion.
The Cardinal Fund Inc.
By: /s/ Frank W. Siegel
--------------------------
<PAGE> 18
Exhibit B
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
The Cardinal Fund Inc. ("Target") and The Cardinal Group
("TCG") have entered into an Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to a series fund of TCG, The
Cardinal Fund ("Acquiring") and Acquiring will assume all of the liabilities of
Target. In accordance with the Agreement, we are requesting your opinion (the
"Opinion") on certain federal income tax consequences as described in Section
8(f) of the Agreement with respect to the transaction contemplated by such
Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid dissenters, amounts paid to
shareholders who receive cash or other property, amounts used
by Target to pay its reorganization expenses and all
redemptions and distributions (except for redemptions in the
ordinary course of its business as required by Section 22(e)
of the Investment Company Act of 1940, as amended (the "1940
Act") pursuant to a demand of a shareholder and regular,
normal dividends including distributions of investment company
taxable income and net capital gain) made by Target
immediately preceding the Exchange Date will be included as
assets of Target held immediately prior to the Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the
shares of Acquiring issued in the Transaction,
<PAGE> 19
Baker & Hostetler
December 8, 1995
Page 2
except in connection with its legal obligation under Section
22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target, acquired in the
Transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(5) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(h) and 304(c) of the Code. For the purpose,
"control" means the ownership of stock possessing at least 50
percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total
value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring, will pay the costs
associated with the reorganization, other than those costs
associated with that portion of the shareholders meeting of
Target relating to customary annual meeting matters (E.G.,
election of directors) and the organizational costs of
Acquiring.
(8) The amounts to be paid to dissenting shareholders (when
aggregated with other liabilities assumed by Acquiring or to
which property of Target is subject) will not exceed 20% of
the fair market value of the assets of Target.
(9) There is no intercorporate indebtedness existing between
Acquiring and Target, that was issued, acquired, or will be
settled at a discount.
<PAGE> 20
Baker & Hostetler
December 8, 1995
Page 3
(10) Acquiring will meet the requirements of a "regulated
investment company" as defined in Section 851 of the Code.
(11) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(12) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(13) After the Transaction, Acquiring will meet the requirements
of, and elect to be taxed as a regulated investment company as
defined in Section 851 of the Code and will continue to be
taxed as a regulated investment company.
(14) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(15) Acquiring is a series of a business trust and will be taxable
as a corporation.
(16) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
<PAGE> 21
Baker & Hostetler
December 8, 1995
Page 4
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler to form and issue the Opinion.
The Cardinal Group
By: /s/ Frank W. Siegel
-------------------------
<PAGE> 22
December 8, 1995
Board of Trustees
Cardinal Government Obligations Fund
155 East Broad Street
Columbus, OH 43215
Board of Trustees
The Cardinal Group - Cardinal Government Obligations Fund
155 East Broad Street
Columbus, OH 43215
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization and Liquidation by and
between Cardinal Government Obligations Fund, an Ohio business trust
("Target"), and The Cardinal Group, an Ohio business trust ("TCG"), dated as of
December 1, 1995 (the "Agreement"), on behalf of Cardinal Government
Obligations Fund ("Acquiring"), a series of TCG, a "series company" as
described in Rule 18f-2 of the Investment Company Act of 1940, as amended (the
"1940 Act"). The conclusions presented herein are based on the facts and
representations in the Agreement and the Combined Prospectus/Proxy Statement
with respect to Target and Acquiring contained in the Registration Statement on
Form N-14 (the "Registration Statement") to be filed with the Securities and
Exchange Commission ("SEC") on December 11, 1995 (collectively, the "Documents")
and the representations set forth in letters dated December 8, 1995 from Target
and TCG (the "Representation Letters") and the applicable tax law as it exists
today. We have assumed with your consent that the facts and representations
set forth in the Documents and the Representation Letters are true and correct
and there will be no change in any of the facts and representation between the
date of this opinion and the date of the exchange (the "Exchange Date").
FACTS
TCG is a an Ohio business trust registered under the 1940 Act
as an open-end investment company of the management type and has issued and
outstanding one class of voting shares of beneficial interest, without par
value, of two "series", and before the Exchange Date is expected to have
authorized one class of voting shares of beneficial interest, without par
value, of four additional series, one of which is Acquiring. Acquiring will
elect to qualify as a regulated investment company under
<PAGE> 23
Board of Trustees
December 8, 1995
Page 2
Part I of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") and to be treated as a separate corporation under Section 851(h) of the
Code.
Target is an Ohio business trust taxable as a corporation
registered under the 1940 Act as an open-end investment company of the
management type and currently has issued and outstanding one class of shares of
beneficial interest, without par value. The shares of Target are redeemable at
net asset value at the option of the shareholders of Target. Target has
elected to qualify as a regulated investment company under Part I of Subchapter
M of the Code and is treated as a separate corporation under Section 851(h) of
the Code.
Acquiring and Target each seeks to maximize safety of capital
and, consistent with that objective, earn the highest available current income
from government securities.
Acquiring and Target seek to achieve economies of scale and a
more competitive structure for shareholder servicing and distribution of
shares.
THE EXCHANGE
Pursuant to the Agreement, Target will transfer all of its
assets and assign its liabilities to Acquiring in exchange for voting shares of
beneficial interest of Acquiring (the "Acquiring Shares"). Target will
immediately thereafter distribute the Acquiring Shares to its shareholders in
complete liquidation and cease operations and upon receipt of the required
governmental approval will terminate its existence.
The assets Target will transfer to Acquiring will consist of
all of the property, including, without limitation, all investments, cash, and
dividend and interest receivables owned by Target and any deferred or prepaid
expenses shown as assets on its books as of the day prior to the Exchange Date
(the "Valuation Time"), as defined in the Agreement. The liabilities assumed
will consist of all liabilities, expenses, costs, and charges not discharged by
Target prior to the Exchange Date.
On the Exchange Date, Acquiring will deliver to Target a
number of Acquiring Shares having an aggregate net asset value equal to the
value of the assets (less the assumed liabilities) of Target as of the
Valuation Time. Target will then as part of the reorganization distribute the
Acquiring Shares pro rata to its shareholders in complete liquidation. The
shareholders of Target will receive only Acquiring Shares in exchange for their
shares of Target. There are no dissenters or appraisal rights.
<PAGE> 24
Board of Trustees
December 8, 1995
Page 3
REPRESENTATIONS
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
Acquiring Shares received in the transaction that would reduce
the ownership by the shareholders of Target of Acquiring
Shares to a number of Acquiring Shares having a value, as of
the Exchange Date, of less than 50 percent of the value of all
of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target
and Acquiring held by shareholders of Target and sold,
redeemed, or disposed of prior or subsequent to the Exchange
Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to shareholders who receive cash
or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions
(except for redemptions in the ordinary course of its business
as required by Section 22(e) of the 1940 Act pursuant to a
demand of a shareholder and regular, normal dividends
including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except
<PAGE> 25
Board of Trustees
December 8, 1995
Page 4
in connection with its legal obligation under Section 22(e) of
the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target acquired in the
transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(6) Pursuant to the transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the Acquiring Shares it receives in the
transaction and after the transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(8) Following the transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (E.G.,
election of trustees) and the organizational costs of
Acquiring.
(10) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
<PAGE> 26
Board of Trustees
December 8, 1995
Page 5
(11) Acquiring will meet, and Target meets, the requirements of a
regulated investment company as defined in Section 851 of the
Code.
(12) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(13) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(15) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code, and after the exchange, Acquiring will elect
to be taxed as a regulated investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(17) Acquiring is a series of a business trust and will be taxable
as a corporation and Target is a business trust and is taxable
as a corporation.
<PAGE> 27
Board of Trustees
December 8, 1995
Page 6
APPLICABLE LAW
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation in exchange solely for all or part of its voting stock of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing at least 90 percent of the fair market value of the net assets and
at least 70 percent of the fair market value of the gross assets held by the
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part
of the plan of reorganization will be considered as assets held by the
corporation immediately prior to the transfer.
It is represented that Acquiring will acquire at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets
of Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of
the Code.
Pursuant to the exchange, solely shares of beneficial interest
of Acquiring, which are shares entitled to vote, will be exchanged for the
assets of Target.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer
<PAGE> 28
Board of Trustees
December 8, 1995
Page 7
the transferor or one or more of its shareholders (including persons who were
shareholders immediately before the transfer), or any combination thereof, is
in control of the corporation to which the assets are transferred, but only if,
in pursuance of the plan, stock or securities of the corporation to which the
assets are transferred are distributed in a transaction which qualifies under
Sections 354, 355 or 356. For this purpose, "control" is defined in Sections
368(a)(2)(H) and 304(c) and it is represented that Target will immediately
after the Exchange Date cease operations and distribute in complete liquidation
the Acquiring Shares it receives in the exchange to the shareholders of Target
and shareholders of Target will be in control of Acquiring within the meaning
of Sections 368(a)(2)(H) and 304(c) immediately after the transaction. Upon
receipt of any required governmental approval, Target will terminate its
existence. Target will transfer substantially all its assets to Acquiring and
will in complete liquidation transfer the Acquiring Shares to its shareholders;
therefore, the Acquiring Shares will be distributed in a transaction which
qualifies under Section 354. Therefore, the transaction will satisfy the
definitional requirements of a "D" reorganization as well as a "C"
reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction
shall be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
must be satisfied. The Regulations provide that the purpose of the
reorganization provisions of the Code is to except from the general rule of
taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity
of interest therein on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will avoid duplication of operations of separate
investment companies and may result in economies of scale for both Target and
Acquiring
<PAGE> 29
Board of Trustees
December 8, 1995
Page 8
and a structure for shareholder servicing and distribution of shares which is
more competitive. This should satisfy the genuine business purpose requirement
for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business.
It is represented that after the transaction Acquiring will continue the
historic business of Target or use a significant portion of such historic
business assets in its business. Accordingly, the transaction should meet the
continuity of business enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or
transferor corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same
date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal
in value to at least 50 percent of the value of his former stock interest in
the acquired or transferor corporation, so long as one or more shareholders of
the acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired
or transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of
the exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
<PAGE> 30
Board of Trustees
December 8, 1995
Page 9
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and,
to the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly,
the exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to
38 percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the
Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another corporation. Accordingly, Acquiring and Target will each
be "a party to a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section
361(a) would apply to an exchange but for the fact that the property received
in the exchange consists not only of stock and securities but also other
property or money, then if the corporation receiving such other property or
money distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a
part of the consideration, another party to the exchange assumes a liability of
the
<PAGE> 31
Board of Trustees
December 8, 1995
Page 10
taxpayer, or acquires from the taxpayer property subject to a liability, then
such assumption or acquisition shall not be treated as money or other property,
and shall not prevent the exchange from being within the provisions of Section
361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a)
of the Code. Further, since it is represented that the amount of the
liabilities assumed by Acquiring (including certain fees and expenses of Target
in connection with the transaction), plus the amount of the liabilities to
which the property of Target is subject, does not exceed the total of the
adjusted basis of Target in the property transferred to Acquiring, there is no
excess which would be considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis
of such property shall be the same as it would be in the hands of the
transferor, increased by the amount of gain recognized to the transferor on
such transfer. Since Acquiring will receive property (i.e., the assets) from
Target in connection with a reorganization within the meaning of Section 368(a)
of the Code and no gain will be recognized by Target, the basis of the assets
to be received by Acquiring will be the same as the basis of those assets in
the hands of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
<PAGE> 32
Board of Trustees
December 8, 1995
Page 11
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization. Therefore, since the shareholders
of Target, a party to the reorganization, will receive solely shares of
Acquiring, another party to the reorganization, no gain or loss will be
recognized by the shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to
be received under Section 354 without the recognition of gain or loss shall be
the same as that of the property exchanged, decreased by (i) the fair market
value of any other property (except money) received by the taxpayer, (ii) the
amount of any money received by the taxpayer, and (iii) the amount of loss to
the taxpayer which was recognized on such exchange, and increased by (i) the
amount which was treated as a dividend, and (ii) the amount of gain to the
taxpayer which was recognized on such exchange (not including any portion of
such gain which was treated as a dividend).
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
constructively surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of the shares of Acquiring held by the shareholders of Target
will have the same basis (in whole or in part) as the stock exchanged, the
holding period of the Acquiring Shares will include the period for which the
shares of Target were held, provided that such shares were held as a capital
asset on the date of the exchange.
<PAGE> 33
Board of Trustees
December 8, 1995
Page 12
OPINION
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
o The transfer of all of Target's assets in exchange for Acquiring
Shares and Acquiring's assumption of all of Target's liabilities,
followed by Target's distribution of the Acquiring Shares in complete
liquidation to its shareholders will qualify as a reorganization under
Section 368(a) of the Code. Acquiring and Target will each be "a
party to a reorganization" within the meaning of Section 368(b) of the
Code.
o No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation. Sections 361 and 357 of the Code.
o No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
o The basis of the assets of Target in the hands of Acquiring will be
the same as the basis of such assets in the hands of Target
immediately prior to the exchange. Section 362(b) of the Code.
o The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of
Target immediately prior to the exchange. Section 1223(2) of the
Code.
o No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
o The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as
the basis of the shares of Target surrendered in the exchange
therefor. Section 358(a)(1) of the Code.
o The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided
<PAGE> 34
Board of Trustees
December 8, 1995
Page 13
that the shares of Target were capital assets at the date of the
exchange. Section 1223(1) of the Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are, and will be at the Exchange Date, as set forth in this letter. It
is also based on the Code, Regulations, case law and Internal Revenue Service
rulings as they now exist. These authorities are all subject to change and
such change may be made with retroactive effect. Were there to be such changes
either before or after the date of the exchange, or should the relevant facts
prove to be other than as we have reviewed, our opinion could be affected.
We hereby consent to the reference to us under the heading
"THE PROPOSED TRANSACTION -- Certain Federal Income Tax Consequences" in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the SEC
promulgated thereunder.
Very truly yours,
Baker & Hostetler
<PAGE> 35
Exhibit A
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Cardinal Government Obligations Fund ("Target") and The
Cardinal Group ("TCG") have entered into an Agreement and Plan of
Reorganization and Liquidation dated as of December 1, 1995 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to a series
fund of TCG, Cardinal Government Obligations Fund ("Acquiring") and Acquiring
will assume the liabilities of Target. In accordance with the Agreement, we
are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 9(f) of the Agreement with respect to the
overall transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
shares of Acquiring received in the Transaction that would
reduce the ownership by the shareholders of Target of shares
of Acquiring to a number of shares of Acquiring having a
value, as of the Exchange Date, of less than 50 percent of the
value of all of the formerly outstanding shares of Target as
of the same date. For purposes of this representation, shares
of Target and Acquiring held by shareholders of Target and
otherwise sold, redeemed, or disposed of prior or subsequent
to the Exchange Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by
<PAGE> 36
Baker & Hostetler
December 8, 1995
Page 2
Target immediately prior to the Exchange Date. For purposes
of this representation, amounts paid to shareholders who
receive cash or other property, amounts used by Target to pay
its reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course
of its business as required by Section 22(e) of the Investment
Company Act of 1940, as amended (the "1940 Act") pursuant to a
demand of a shareholder and regular, normal dividends
including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (E.G.,
election of trustees) and the organizational costs of
Acquiring.
(7) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
<PAGE> 37
Baker & Hostetler
December 8, 1995
Page 3
(8) Target meets the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
(9) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(10) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(11) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(13) Target is a business trust and is taxable as a corporation.
(14) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler to form and issue the Opinion.
Cardinal Government Obligations Fund
By: /s/ Frank W. Siegel
-------------------------
<PAGE> 38
Exhibit B
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Cardinal Government Obligations Fund ("Target") and The
Cardinal Group ("TCG") have entered into an Agreement and Plan of
Reorganization and Liquidation dated as of December 1, 1995 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to a series
fund of TCG, Cardinal Government Obligations Fund ("Acquiring") and Acquiring
will assume the liabilities of Target. In accordance with the Agreement, we
are requesting your opinion (the "Opinion") on certain federal income tax
consequences as described in Section 8(f) of the Agreement with respect to the
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to shareholders who receive cash
or other property, amounts used by Target to pay its
reorganization expenses and all redemptions and distributions
(except for redemptions in the ordinary course of its business
as required by Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act") pursuant to a demand of a
shareholder and regular, normal dividends including
distributions of investment company taxable income and net
capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the
shares of Acquiring issued in the Transaction, except in
connection with its legal obligation under Section 22(e) of
the 1940 Act.
<PAGE> 39
Baker & Hostetler
December 8, 1995
Page 2
(4) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target, acquired in the
Transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(5) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(h) and 304(c) of the Code. For the purpose,
"control" means the ownership of stock possessing at least 50
percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total
value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (e.g.,
election of trustees) and the organizational costs of
Acquiring.
(8) There is no intercorporate indebtedness existing between
Acquiring and Target, that was issued, acquired, or will be
settled at a discount.
(9) Acquiring will meet the requirements of a "regulated
investment company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
<PAGE> 40
Baker & Hostetler
December 8, 1995
Page 3
(11) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(12) After the Transaction, Acquiring will meet the requirements
of, and elect to be taxed as a regulated investment company as
defined in Section 851 of the Code and will continue to be
taxed as a regulated investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable
as a corporation.
(15) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler to form and issue the Opinion.
The Cardinal Group
By: /s/ Frank W. Siegel
--------------------------
<PAGE> 41
December 8, 1995
Board of Trustees
Cardinal Government Securities Trust
155 East Broad Street
Columbus, OH 43215
Board of Trustees
The Cardinal Group - Cardinal Government Securities Money
Market Fund
155 East Broad Street
Columbus, OH 43215
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization and Liquidation by and
between Cardinal Government Securities Trust, a Pennsylvania business trust
("Target"), and The Cardinal Group, an Ohio business trust ("TCG"), dated as of
December 1, 1995 (the "Agreement"), on behalf of Cardinal Government Securities
Money Market Fund ("Acquiring"), a series of TCG, a "series company" as
described in Rule 18f-2 of the Investment Company Act of 1940, as amended (the
"1940 Act"). The conclusions presented herein are based on the facts and
representations in the Agreement and the Combined Prospectus/Proxy Statement
with respect to Target and Acquiring contained in the Registration Statement on
Form N-14 (the "Registration Statement") to be filed with the Securities and
Exchange Commission ("SEC") on December 11, 1995 (collectively, the "Documents")
and the representations set forth in letters dated December 8, 1995 from Target
and TCG (the "Representation Letters") and the applicable tax law as it exists
today. We have assumed with your consent that the facts and representations
set forth in the Documents and the Representation Letters are true and correct
and there will be no change in any of the facts and representation between the
date of this opinion and the date of the exchange (the "Exchange Date").
FACTS
- -----
TCG is a an Ohio business trust registered under the 1940 Act
as an open-end investment company of the management type and has issued and
outstanding one class of voting shares of beneficial interest, without par
value, of two "series", and before the Exchange Date is expected to have
authorized one class of voting shares of beneficial interest, without par
value, of four additional "series", one of which is Acquiring. Acquiring
<PAGE> 42
Board of Trustees
December 8, 1995
Page 2
will elect to qualify as a regulated investment company under Part I of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to be treated as a separate corporation under Section 851(h) of the Code.
Target is a Pennsylvania business trust taxable as a
corporation registered under the 1940 Act as an open-end investment company of
the management type and currently has issued and outstanding one class shares
of beneficial interest, par value, $.01 per share. The shares of Target are
redeemable at net asset value at the option of the shareholders of Target.
Target has elected to qualify as a regulated investment company under Part I of
Subchapter M of the Code and is treated as a separate corporation under Section
851(h) of the Code.
Acquiring and Target each seek to maximize current income
while preserving capital and maintaining liquidity.
Acquiring and Target seek to achieve economies of scale.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign its liabilities to Acquiring in exchange for voting shares of
beneficial interest of Acquiring (the "Acquiring Shares"). Target will
immediately thereafter distribute the Acquiring Shares to its shareholders in
complete liquidation and cease operations and upon receipt of required
government approval will terminate its existence.
The assets Target will transfer to Acquiring will consist of
all of the property, including, without limitation, all investments, cash, and
dividend and interest receivables owned by Target and any deferred or prepaid
expenses shown as assets on its books as of the day prior to the Exchange Date
(the "Valuation Time") as defined in the Agreement. The liabilities assumed
will consist of all liabilities, expenses, costs, and charges not discharged by
Target prior to the Exchange Date.
On the Exchange Date, Acquiring will deliver to Target a
number of Acquiring Shares having an aggregate net asset value equal to the
value of the assets (less the assumed liabilities) of Target as of the
Valuation Time. Target will then as part of the reorganization distribute the
Acquiring Shares pro rata to its shareholders in complete liquidation. The
shareholders of Target will receive only Acquiring Shares in exchange for their
shares of Target. There are no dissenters or appraisal rights.
<PAGE> 43
Board of Trustees
December 8, 1995
Page 3
REPRESENTATIONS
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
Acquiring Shares received in the transaction that would reduce
the ownership by the shareholders of Target of Acquiring
Shares to a number of Acquiring Shares having a value, as of
the Exchange Date, of less than 50 percent of the value of all
of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target
and Acquiring held by shareholders of Target and sold,
redeemed, or disposed of prior or subsequent to the Exchange
Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to shareholders who receive cash
or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions
(except for redemptions in the ordinary course of its business
as required by Section 22(e) of the 1940 Act pursuant to a
demand of a shareholder and regular, normal dividends
including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except
<PAGE> 44
Board of Trustees
December 8, 1995
Page 4
in connection with its legal obligation under Section 22(e) of
the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target acquired in the
transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(6) Pursuant to the transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the Acquiring Shares it receives in the
transaction and after the transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(8) Following the transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (e.g.,
election of trustees) and the organizational costs of
Acquiring.
(10) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
<PAGE> 45
Board of Trustees
December 8, 1995
Page 5
(11) Acquiring will meet, and Target meets, the requirements of a
regulated investment company as defined in Section 851 of the
Code.
(12) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(13) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(15) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code, and after the exchange, Acquiring will elect
to be taxed as a regulated investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(17) Acquiring is a series of a business trust and will be taxable
as a corporation and Target is a business trust and is taxable
as a corporation.
<PAGE> 46
Board of Trustees
December 8, 1995
Page 6
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation in exchange solely for all or part of its voting stock of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing at least 90 percent of the fair market value of the net assets and
at least 70 percent of the fair market value of the gross assets held by the
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part
of the plan of reorganization will be considered as assets held by the
corporation immediately prior to the transfer.
It is represented that Acquiring will acquire at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets
of Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of
the Code.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer the transferor or one or
more of its shareholders (including persons who were shareholders immediately
before the transfer), or any combination thereof, is in control of the
corporation to which the assets are transferred, but only if, in pursuance of
<PAGE> 47
Board of Trustees
December 8, 1995
Page 7
the plan, stock or securities of the corporation to which the assets are
transferred are distributed in a transaction which qualifies under Sections
354, 355 or 356. For this purpose, "control" is defined in Sections
368(a)(2)(H) and 304(c) and it is represented that Target will immediately
after the Exchange Date cease operations and distribute in complete liquidation
the Acquiring Shares it receives in the exchange to the shareholders of Target
and shareholders of Target will be in control of Acquiring within the meaning
of Sections 368(a)(2)(H) and 304(c) immediately after the transaction. Upon
receipt of any required governmental approval Target will terminate its
existence. Target will transfer substantially all its assets to Acquiring and
will in complete liquidation transfer the Acquiring Shares to its shareholders;
therefore, the Acquiring Shares will be distributed in a transaction which
qualifies under Section 354. Therefore, the transaction will satisfy the
definitional requirements of a "D" reorganization as well as a "C"
reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction
shall be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
must be satisfied. The Regulations provide that the purpose of the
reorganization provisions of the Code is to except from the general rule of
taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity
of interest therein on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will avoid duplication of operations of separate
investment companies and may result in economies of scale for both Target and
Acquiring. This should satisfy the genuine business purpose requirement for
the exchange.
<PAGE> 48
Board of Trustees
December 8, 1995
Page 8
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business.
It is represented that after the transaction Acquiring will continue the
historic business of Target or use a significant portion of such historic
business assets in its business. Accordingly, the transaction should meet the
continuity of business enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or
transferor corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same
date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal
in value to at least 50 percent of the value of his former stock interest in
the acquired or transferor corporation, so long as one or more shareholders of
the acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired
or transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of
the exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the shares of Target and,
to the best of the knowledge of the management of Target, there is no plan or
intention on the part of remaining shareholders of Target to sell, exchange, or
<PAGE> 49
Board of Trustees
December 8, 1995
Page 9
otherwise dispose of a number of Acquiring Shares that will reduce Target
shareholders' ownership of such stock to a number of shares having, as of the
date of the exchange, a value of less than 50 percent of the total value of all
the formerly outstanding shares of Target as of the same date. Accordingly,
the exchange should meet the continuity of interest requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to
38 percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the
Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another corporation. Accordingly, Acquiring and Target will each
be "a party to a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section
361(a) would apply to an exchange but for the fact that the property received
in the exchange consists not only of stock and securities but also other
property or money, then if the corporation receiving such other property or
money distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a
part of the consideration, another party to the exchange assumes a liability of
the taxpayer, or acquires from the taxpayer property subject to a liability,
then such assumption or acquisition shall not be treated as money or other
property, and shall not prevent the exchange from being within the provisions
of Section 361.
<PAGE> 50
Board of Trustees
December 8, 1995
Page 10
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities (including amounts to be paid to
shareholders who exercise their appraisal rights), no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a)
of the Code. Further, since it is represented that the amount of the
liabilities assumed by Acquiring (including certain fees and expenses of Target
in connection with the transaction), plus the amount of the liabilities to
which the property of Target is subject, does not exceed the total of the
adjusted basis of Target in the property transferred to Acquiring, there is no
excess which would be considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis
of such property shall be the same as it would be in the hands of the
transferor, increased by the amount of gain recognized to the transferor on
such transfer. Since Acquiring will receive property (i.e., the assets) from
Target in connection with a reorganization within the meaning of Section 368(a)
of the Code and no gain will be recognized by Target, the basis of the assets
to be received by Acquiring will be the same as the basis of those assets in
the hands of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization is, in
pursuance of the plan of reorganization, exchanged solely for stock in another
corporation a party to the reorganization.
<PAGE> 51
Board of Trustees
December 8, 1995
Page 11
Therefore, since the shareholders of Target, a party to the reorganization,
will receive solely shares of Acquiring, another party to the reorganization,
no gain or loss will be recognized by the shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to
be received under Section 354 without the recognition of gain or loss shall be
the same as that of the property exchanged, decreased by (i) the fair market
value of any other property (except money) received by the taxpayer, (ii) the
amount of any money received by the taxpayer, and (iii) the amount of loss to
the taxpayer which was recognized on such exchange, and increased by (i) the
amount which was treated as a dividend, and (ii) the amount of gain to the
taxpayer which was recognized on such exchange (not including any portion of
such gain which was treated as a dividend).
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target who receive solely shares of Acquiring will be the same
as the basis of the shares of Target constructively surrendered in the
exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of the shares of Acquiring held by the shareholders of Target
who receive solely shares of Acquiring will have the same basis (in whole or in
part) as the stock exchanged, the holding period of the Acquiring Shares will
include the period for which the shares of Target were held, provided that such
shares were held as a capital asset on the date of the exchange.
OPINION
- -------
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
o The transfer of all of Target's assets in exchange for Acquiring
Shares and Acquiring's assumption of all of Target's liabilities,
followed by Target's distribution of the Acquiring Shares in complete
liquidation to its
<PAGE> 52
Board of Trustees
December 8, 1995
Page 12
shareholders will qualify as a reorganization under Section 368(a) of
the Code. Acquiring and Target will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
o No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation. Sections 361 and 357 of the Code.
o No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
o The basis of the assets of Target in the hands of Acquiring will be
the same as the basis of such assets in the hands of Target
immediately prior to the exchange. Section 362(b) of the Code.
o The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of
Target immediately prior to the exchange. Section 1223(2) of the
Code.
o No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
o The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as
the basis of the shares of Target surrendered in the exchange
therefor. Section 358(a)(1) of the Code.
o The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of
the Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are, and will be at the Exchange Date, as set forth in this letter. It
is also based on the Code, Regulations, case law and Internal Revenue Service
rulings as they now exist. These authorities are all subject to
<PAGE> 53
Board of Trustees
December 8, 1995
Page 13
change and such change may be made with retroactive effect. Were there to be
such changes either before or after the date of the exchange, or should the
relevant facts prove to be other than as we have reviewed, our opinion could be
affected.
We hereby consent to the reference to us under the heading
"THE PROPOSED TRANSACTION -- Certain Federal Income Tax Consequences" in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the SEC
promulgated thereunder.
Very truly yours,
Baker & Hostetler
<PAGE> 54
Exhibit A
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Cardinal Government Securities Trust ("Target") and The
Cardinal Group ("TCG") have entered into an Agreement and Plan of
Reorganization and Liquidation dated as of December 1, 1995 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to a series
fund of TCG, Cardinal Government Securities Money Market Fund ("Acquiring") and
Acquiring will assume all of the liabilities of Target. In accordance with the
Agreement, we are requesting your opinion (the "Opinion") on certain federal
income tax consequences as described in Section 9(f) of the Agreement with
respect to the overall transaction contemplated by such Agreement (the
"Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
shares of Acquiring received in the Transaction that would
reduce the ownership by the shareholders of Target of shares
of Acquiring to a number of shares of Acquiring having a
value, as of the Exchange Date, of less than 50 percent of the
value of all of the formerly outstanding shares of Target as
of the same date. For purposes of this representation, shares
of Target and Acquiring held by shareholders of Target and
otherwise sold, redeemed, or disposed of prior or subsequent
to the Exchange Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For
<PAGE> 55
Baker & Hostetler
December 8, 1995
Page 2
purposes of this representation, amounts paid to shareholders
who receive cash or other property, amounts used by Target to
pay its reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course
of its business as required by Section 22(e) of the Investment
Company Act of 1940, as amended (the "1940 Act") pursuant to a
demand of a shareholder and regular, normal dividends
including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (e.g.,
election of trustees) and the organizational costs of
Acquiring.
(7) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
(8) Target meets the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
<PAGE> 56
Baker & Hostetler
December 8, 1995
Page 3
(9) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(10) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring, and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(11) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(13) Target is a business trust and is taxable as a corporation.
(14) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler to form and issue the Opinion.
Cardinal Government Securities Trust
By: /s/ Frank W. Siegel
--------------------------------
<PAGE> 57
Exhibit B
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Cardinal Government Securities Trust ("Target") and The
Cardinal Group ("TCG") have entered into an Agreement and Plan of
Reorganization and Liquidation dated as of December 1, 1995 (the "Agreement").
Pursuant to the Agreement, Target will transfer all of its assets to a series
fund of TCG, Cardinal Government Securities Money Market Fund ("Acquiring") and
Acquiring will assume all of the liabilities of Target. In accordance with the
Agreement, we are requesting your opinion (the "Opinion") on certain federal
income tax consequences as described in Section 8(f) of the Agreement with
respect to the transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to shareholders who receive cash
or other property, amounts used by Target to pay its
reorganization expenses and all redemptions and distributions
(except for redemptions in the ordinary course of its business
as required by Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act") pursuant to a demand of a
shareholder and regular, normal dividends including
distributions of investment company taxable income and net
capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the
shares of Acquiring issued in the Transaction,
<PAGE> 58
Baker & Hostetler
December 8, 1995
Page 2
except in connection with its legal obligation under Section
22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target, acquired in the
Transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(5) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(h) and 304(c) of the Code. For the purpose,
"control" means the ownership of stock possessing at least 50
percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total
value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (e.g.,
election of trustees) and the organizational costs of
Acquiring.
(8) There is no intercorporate indebtedness existing between
Acquiring and Target, that was issued, acquired, or will be
settled at a discount.
(9) Acquiring will meet the requirements of a "regulated
investment company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed
<PAGE> 59
Baker & Hostetler
December 8, 1995
Page 3
by Acquiring and (b) the amount of liabilities, if any, to
which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(12) After the Transaction, Acquiring will meet the requirements
of, and elect to be taxed as a regulated investment company as
defined in Section 851 of the Code and will continue to be
taxed as a regulated investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable
as a corporation.
(15) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
<PAGE> 60
Baker & Hostetler
December 8, 1995
Page 4
The above assumptions and representations of fact were made for the
purpose of allowing Baker & Hostetler to form and issue the Opinion.
The Cardinal Group
By: /s/ Frank W. Siegel
---------------------------
<PAGE> 61
December 8, 1995
Board of Trustees
Cardinal Tax Exempt Money Trust
155 East Broad Street
Columbus, OH 43215
Board of Trustees
The Cardinal Group - Cardinal Tax Exempt Money Market Fund
155 East Broad Street
Columbus, OH 43215
Members of the Boards:
This is in response to your request for our tax opinion in
connection with the Agreement and Plan of Reorganization and Liquidation by and
between Cardinal Tax Exempt Money Trust, an Ohio business trust ("Target"), and
The Cardinal Group, an Ohio business trust ("TCG"), dated as of December 1,
1995 (the "Agreement"), on behalf of Cardinal Tax Exempt Money Market Fund
("Acquiring"), a series of TCG, a "series company" as described in Rule 18f-2
of the Investment Company Act of 1940, as amended (the "1940 Act"). The
conclusions presented herein are based on the facts and representations in the
Agreement and the Combined Prospectus/Proxy Statement with respect to Target
and Acquiring contained in the Registration Statement on Form N-14 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission ("SEC") on December 11, 1995 (collectively, the "Documents") and the
representations set forth in letters dated December 8, 1995 from Target and TCG
(the "Representation Letters") and the applicable tax law as it exists today.
We have assumed with your consent that the facts and representations set forth
in the Documents and the Representation Letters are true and correct and there
will be no change in any of the facts and representation between the date of
this opinion and the date of the exchange (the "Exchange Date").
FACTS
- -----
TCG is a an Ohio business trust registered under the 1940 Act
as an open-end investment company of the management type and has issued and
outstanding one class of voting shares of beneficial interest, without par
value, of two "series", and
<PAGE> 62
Board of Trustees
December 8, 1995
Page 2
before the Exchange Date is expected to have authorized one class of voting
shares of beneficial interest, without par value, of four additional "series,"
one of which is Acquiring. Acquiring will elect to qualify as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code") and to be treated as a separate corporation under
Section 851(h) of the Code.
Target is an Ohio business trust taxable as a corporation
registered under the 1940 Act as an open-end investment company of the
management type and currently has issued and outstanding one class of shares of
beneficial interest, par value $.10 per share. The shares of Target are
redeemable at net asset value at the option of the shareholders of Target.
Target has elected to qualify as a regulated investment company under Part I of
Subchapter M of the Code and is treated as a separate corporation under Section
851(h) of the Code.
Acquiring and Target each seek to maximize current income
exempt from Federal income tax while preserving capital and maintaining
liquidity.
Acquiring and Target seek to achieve economies of scale.
THE EXCHANGE
- ------------
Pursuant to the Agreement, Target will transfer all of its
assets and assign all of its liabilities to Acquiring in exchange for voting
shares of beneficial interest of Acquiring (the "Acquiring Shares"). Target
will immediately thereafter distribute the Acquiring Shares to its shareholders
in complete liquidation and cease operations and upon receipt of requisite
governmental approval will terminate its existence.
The assets Target will transfer to Acquiring will consist of
all of the property, including, without limitation, all investments, cash, and
dividend and interest receivables owned by Target and any deferred or prepaid
expenses shown as assets on its books as of the day prior to the Exchange Date
(the "Valuation Time") as defined in the Agreement. The liabilities assumed
will consist of all liabilities, expenses, costs, and charges not discharged by
Target prior to the Exchange Date.
On the Exchange Date, Acquiring will deliver to Target a
number of Acquiring Shares having an aggregate net asset value equal to the
value of the assets (less the assumed liabilities) of Target as of the
Valuation Time. Target will then as part of the reorganization distribute the
Acquiring Shares pro rata to
<PAGE> 63
Board of Trustees
December 8, 1995
Page 3
its shareholders in complete liquidation. The shareholders of Target will
receive only Acquiring Shares in exchange for their shares of Target. There
are no dissenters or appraisal rights.
REPRESENTATIONS
- ---------------
In order to determine the consequences of the transaction for
federal income tax purposes, with your permission we have relied on the
following assumptions and representations which we have received from Target
and/or Acquiring:
(1) The fair market value of the Acquiring Shares received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
Acquiring Shares received in the transaction that would reduce
the ownership by the shareholders of Target of Acquiring
Shares to a number of Acquiring Shares having a value, as of
the Exchange Date, of less than 50 percent of the value of all
of the formerly outstanding shares of Target as of the same
date. For purposes of this representation, shares of Target
and Acquiring held by shareholders of Target and sold,
redeemed, or disposed of prior or subsequent to the Exchange
Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to shareholders who receive cash
or other property, amounts used by Target to pay its
reorganization expenses, and all redemptions and distributions
(except for redemptions in the ordinary course of its business
as required by Section 22(e) of the 1940 Act pursuant to a
demand of a shareholder and regular, normal dividends
including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
<PAGE> 64
Board of Trustees
December 8, 1995
Page 4
(4) Acquiring has no plan or intention to reacquire any of the
Acquiring Shares issued in the transaction, except in
connection with its legal obligation under Section 22(e) of
the 1940 Act.
(5) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target acquired in the
transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(6) Pursuant to the transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the Acquiring Shares it receives in the
transaction and after the transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(7) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(8) Following the transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(9) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (e.g.,
election of trustees) and the organizational costs of
Acquiring.
(10) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
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Board of Trustees
December 8, 1995
Page 5
(11) Acquiring will meet, and Target meets, the requirements of a
regulated investment company as defined in Section 851 of the
Code.
(12) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(13) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(14) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(15) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code, and after the exchange, Acquiring will elect
to be taxed as a regulated investment company.
(16) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(17) Target is a business trust and is taxable as a corporation and
Acquiring is a series of a business trust and will be a
taxable as a corporation.
<PAGE> 66
Board of Trustees
December 8, 1995
Page 6
APPLICABLE LAW
- --------------
Section 368(a)(1)(C) of the Code provides that the acquisition
by one corporation in exchange solely for all or part of its voting stock of
substantially all of the properties of another corporation constitutes a
"reorganization" and in determining whether the exchange is solely for stock,
the assumption by the acquiring corporation of a liability of the other, or the
fact that property acquired is subject to a liability, shall be disregarded.
Section 368(a)(2)(B) of the Code provides that if an acquisition of
substantially all the assets would qualify under Section 368(a)(1)(C) of the
Code but for the fact that the acquiring corporation exchanges money or other
property in addition to voting stock and the acquiring corporation acquires,
solely for voting stock, property having a fair market value which is at least
80% of the fair market value of all the property of the other corporation, then
such acquisition shall be treated as qualifying as a "reorganization" under
Section 368(a)(1)(C) of the Code. For this purpose, liabilities assumed by the
acquiring corporation or to which property acquired is subject are treated as
money paid for the property.
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the
"substantially all" requirement is satisfied if there is a transfer of assets
representing at least 90 percent of the fair market value of the net assets and
at least 70 percent of the fair market value of the gross assets held by the
corporation immediately prior to the transfer. All payments to dissenters and
all redemptions and distributions (except for regular and normal distributions)
made by the corporation immediately preceding the transfer and which are part
of the plan of reorganization will be considered as assets held by the
corporation immediately prior to the transfer.
It is represented that Acquiring will acquire at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by Target immediately prior to
the exchange. Therefore, Acquiring will acquire substantially all the assets
of Target within the meaning of Rev. Proc. 77-37 and Section 368(a)(1)(C) of
the Code.
Pursuant to the exchange, solely shares of Acquiring, which
are shares entitled to vote, will be exchanged for the assets of Target.
Section 368(a)(1)(D) provides that a transfer by a corporation
of all or a part of its assets to another corporation constitutes a
"reorganization" if immediately after the transfer
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Board of Trustees
December 8, 1995
Page 7
the transferor or one or more of its shareholders (including persons who were
shareholders immediately before the transfer), or any combination thereof, is
in control of the corporation to which the assets are transferred, but only if,
in pursuance of the plan, stock or securities of the corporation to which the
assets are transferred are distributed in a transaction which qualifies under
Sections 354, 355 or 356. For this purpose, "control" is defined in Sections
368(a)(2)(H) and 304(c) and it is represented that Target will immediately
after the Exchange Date cease operations and distribute in complete liquidation
the Acquiring Shares it receives in the exchange to the shareholders of Target
and shareholders of Target will be in control of Acquiring within the meaning
of Sections 368(a)(2)(H) and 304(c) immediately after the transaction. Upon
receipt of any required governmental approval Target will terminate its
existence. Target will transfer substantially all its assets to Acquiring and
will in complete liquidation transfer the Acquiring Shares to its shareholders;
therefore, the Acquiring Shares will be distributed in a transaction which
qualifies under Section 354. Therefore, the transaction will satisfy the
definitional requirements of a "D" reorganization as well as a "C"
reorganization.
Section 368(a)(2)(A) provides that if a transaction is
described in both Sections 368(a)(1)(C) and 368(a)(1)(D), such transaction
shall be treated as described only in Section 368(a)(1)(D).
In addition to the definitional requirements set forth in the
statute, in order for an exchange to be a tax-free reorganization, certain
requirements set forth under Section 1.368-1(b) of the Income Tax Regulations
must be satisfied. The Regulations provide that the purpose of the
reorganization provisions of the Code is to except from the general rule of
taxability certain specifically described exchanges incident to such
readjustments of corporate structures made in one of the particular ways
specified in the Code, as are required by business exigencies and which effect
only a readjustment of continuing interest in property under the modified
corporate forms. Requisite to a reorganization under the Code are a continuity
of the business enterprise under the modified corporate form and a continuity
of interest therein on the part of those persons who, directly or indirectly,
were the owners of the enterprise prior to the reorganization.
To be treated as a reorganization, the exchange must be
planned and carried out for a genuine business purpose. Acquiring and Target
each believes the transaction will avoid duplication of operations of separate
investment companies and may result in economies of scale for both Target and
Acquiring.
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Board of Trustees
December 8, 1995
Page 8
This should satisfy the genuine business purpose requirement for the exchange.
Section 1.368-1(d) of the Regulations provides that continuity
of business enterprise requires that the acquiring corporation either (i)
continue the acquired corporation's historic business or (ii) use a significant
portion of the acquired corporation's historic business assets in a business.
It is represented that after the transaction Acquiring will continue the
historic business of Target or use a significant portion of such historic
business assets in its business. Accordingly, the transaction should meet the
continuity of business enterprise requirement.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a continuing
interest through stock ownership on the part of those persons who, directly or
indirectly, were the owners of the stock of the acquired corporation prior to
the reorganization. Rev. Proc. 77-37 provides that the continuity of interest
requirement of Section 1.368-1(b) of the Regulations is satisfied if there is
continuing interest through the stock ownership in the acquiring or transferee
corporation on the part of the former shareholders of the acquired or
transferor corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation as of the same
date.
It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof, which is equal
in value to at least 50 percent of the value of his former stock interest in
the acquired or transferor corporation, so long as one or more shareholders of
the acquired or transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a corporation in
"control" thereof) which is, in the aggregate, equal in value to at least 50
percent of the value of all of the formerly outstanding stock of the acquired
or transferor corporation. Sales, redemptions, and other dispositions of stock
occurring prior or, if planned or intended by the shareholder at the time of
the exchange, subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
reorganization.
It is represented that there is no plan or intention by the
shareholders of Target who own 1 percent or more of the
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Board of Trustees
December 8, 1995
Page 9
shares of Target and, to the best of the knowledge of the management of Target,
there is no plan or intention on the part of remaining shareholders of Target
to sell, exchange, or otherwise dispose of a number of Acquiring Shares that
will reduce Target shareholders' ownership of such stock to a number of shares
having, as of the date of the exchange, a value of less than 50 percent of the
total value of all the formerly outstanding shares of Target as of the same
date. Accordingly, the exchange should meet the continuity of interest
requirement.
The 50 percent continuity of interest standard set forth in
Rev. Proc. 77-37 is a guideline utilized by the Internal Revenue Service in
determining whether to issue an advance ruling and does not represent how much
continuity of interest is needed in a reorganization as a matter of law. In
fact, in NELSON V. HELVERING, 296 U.S. 374 (1936), the Supreme Court held that
there was a valid reorganization when the continuity of interest was equal to
38 percent.
Based upon the analysis set forth above, the exchange should
qualify as a reorganization as described under Section 368(a)(1)(D) of the
Code.
Section 368(b)(2) of the Code provides that the term "a party
to a reorganization" includes both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another corporation. Accordingly, Acquiring and Target will each
be "a party to a reorganization."
Section 361(a) of the Code provides that no gain or loss shall
be recognized to a corporation if such corporation is "a party to a
reorganization" and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another corporation, which is
"a party to the reorganization." Section 361(b) provides that if Section
361(a) would apply to an exchange but for the fact that the property received
in the exchange consists not only of stock and securities but also other
property or money, then if the corporation receiving such other property or
money distributes it in pursuance of the plan of reorganization, no gain to the
corporation will be recognized.
Section 357(a) of the Code provides that if the taxpayer
receives property which would be permitted to be received under Section 361
without the recognition of gain if it were the sole consideration, and as a
part of the consideration, another party to the exchange assumes a liability of
the taxpayer, or acquires from the taxpayer property subject to a liability,
then such assumption or acquisition shall not be
<PAGE> 70
Board of Trustees
December 8, 1995
Page 10
treated as money or other property, and shall not prevent the exchange from
being within the provisions of Section 361.
Since the exchange is a reorganization under Section 368(a) of
the Code and Target is exchanging its property solely for shares of Acquiring
and assumption by Acquiring of its liabilities, no gain or loss will be
recognized by Target by reason of the exchange and Sections 361(a) and 357(a)
of the Code. Further, since it is represented that the amount of the
liabilities assumed by Acquiring (including certain fees and expenses of Target
in connection with the transaction), plus the amount of the liabilities to
which the property of Target is subject, does not exceed the total of the
adjusted basis of Target in the property transferred to Acquiring, there is no
excess which would be considered as gain under Section 357(c) of the Code.
Section 1032(a) of the Code provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock of such corporation. Accordingly, no gain or loss should
result to Acquiring as a result of the exchange.
Section 362(b) of the Code provides that if property was
acquired by a corporation in connection with a reorganization, then the basis
of such property shall be the same as it would be in the hands of the
transferor, increased by the amount of gain recognized to the transferor on
such transfer. Since Acquiring will receive property (i.e., the assets) from
Target in connection with a reorganization within the meaning of Section 368(a)
of the Code and no gain will be recognized by Target, the basis of the assets
to be received by Acquiring will be the same as the basis of those assets in
the hands of Target immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property, however acquired, there shall
be included the period for which such property was held by any other person, if
such property has, for purposes of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in its hands as it would have in
the hands of such other person. Because the basis of the assets to be received
by Acquiring will be the same as the basis of those assets in the hands of
Target immediately prior to the transfer, the holding period for the assets of
Target to be received by Acquiring will include the period during which such
assets were held by Target.
Section 354(a) provides that no gain or loss will be
recognized if stock in a corporation a party to a reorganization
<PAGE> 71
Board of Trustees
December 8, 1995
Page 11
is, in pursuance of the plan of reorganization, exchanged solely for stock in
another corporation a party to the reorganization. Therefore, since the
shareholders of Target, a party to the reorganization, will receive solely
shares of Acquiring, another party to the reorganization, no gain or loss will
be recognized by the shareholders of Target.
Section 358(a)(1) of the Code provides that, in the case of an
exchange to which Section 354 applies, the basis of the property permitted to
be received under Section 354 without the recognition of gain or loss shall be
the same as that of the property exchanged, decreased by (i) the fair market
value of any other property (except money) received by the taxpayer, (ii) the
amount of any money received by the taxpayer, and (iii) the amount of loss to
the taxpayer which was recognized on such exchange, and increased by (i) the
amount which was treated as a dividend, and (ii) the amount of gain to the
taxpayer which was recognized on such exchange (not including any portion of
such gain which was treated as a dividend).
Since the exchange constitutes an exchange to which Section
354 of the Code applies, the basis of the Acquiring Shares in the hands of the
shareholders of Target will be the same as the basis of the shares of Target
constructively surrendered in the exchange.
Section 1223(1) of the Code provides that, in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which the taxpayer held the property exchanged
if the property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis (in whole or in part) in his hands as the property
exchanged, provided the property exchanged at the time of such exchange is a
capital asset as defined in Section 1221 or property described in Section 1231.
Since the basis of the shares of Acquiring held by the shareholders of Target
will have the same basis (in whole or in part) as the stock exchanged, the
holding period of the Acquiring Shares will include the period for which the
shares of Target were held, provided that such shares were held as a capital
asset on the date of the exchange.
OPINION
Based upon and subject to the foregoing, our opinion as to the
federal income tax consequences of the exchange is as follows:
o The transfer of all of Target's assets in exchange for Acquiring
Shares and Acquiring's assumption of all of
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Board of Trustees
December 8, 1995
Page 12
Target's liabilities, followed by Target's distribution of the
Acquiring Shares in complete liquidation to its shareholders will
qualify as a reorganization under Section 368(a) of the Code.
Acquiring and Target will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
o No gain or loss will be recognized to Target upon the transfer of its
assets to Acquiring in exchange for the Acquiring Shares and the
assumption by Acquiring of the liabilities of Target or on the
distribution of the Acquiring Shares by Target to the shareholders of
Target in complete liquidation. Sections 361 and 357 of the Code.
o No gain or loss will be recognized to Acquiring on the receipt of the
assets of Target and the assumption by Acquiring of liabilities of
Target in exchange for Acquiring Shares. Section 1032 of the Code.
o The basis of the assets of Target in the hands of Acquiring will be
the same as the basis of such assets in the hands of Target
immediately prior to the exchange. Section 362(b) of the Code.
o The holding period of the property acquired by Acquiring from Target
will include the holding period of such property in the hands of
Target immediately prior to the exchange. Section 1223(2) of the
Code.
o No gain or loss will be recognized by a shareholder of Target on the
receipt of Acquiring Shares solely in exchange for his shares of
Target. Section 354 of the Code.
o The basis of Acquiring Shares received by a shareholder of Target who
exchanges shares of Target for Acquiring Shares will be the same as
the basis of the shares of Target surrendered in the exchange
therefor. Section 358(a)(1) of the Code.
o The holding period of Acquiring Shares received by a shareholder of
Target will include the holding period of the shares of Target
surrendered in exchange therefor, provided that the shares of Target
were capital assets at the date of the exchange. Section 1223(1) of
the Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the Internal
Revenue Service. Our opinion is based on the understanding that the relevant
facts are, and will be at the Exchange Date, as set forth in this letter. It
is also based on
<PAGE> 73
Board of Trustees
December 8, 1995
Page 13
the Code, Regulations, case law and Internal Revenue Service rulings as they
now exist. These authorities are all subject to change and such change may be
made with retroactive effect. Were there to be such changes either before or
after the date of the exchange, or should the relevant facts prove to be other
than as we have reviewed, our opinion could be affected.
We hereby consent to the reference to us under the heading
"THE PROPOSED TRANSACTION -- Certain Federal Income Tax Consequences" in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the SEC
promulgated thereunder.
Very truly yours,
Baker & Hostetler
<PAGE> 74
Exhibit A
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Cardinal Tax Exempt Money Trust ("Target") and The Cardinal
Group ("TCG") have entered into an Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to a series fund of TCG,
Cardinal Tax Exempt Money Market Fund ("Acquiring") and Acquiring will assume
the liabilities of Target. In accordance with the Agreement, we are requesting
your opinion (the "Opinion") on certain federal income tax consequences as
described in Section 9(f) of the Agreement with respect to the overall
transaction contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) There is no plan or intention by the shareholders of Target
who own 1 percent or more of the shares of Target, and to the
best of the knowledge of the management of Target, there is no
plan or intention on the part of the remaining shareholders of
Target to sell, exchange or otherwise dispose of a number of
shares of Acquiring received in the Transaction that would
reduce the ownership by the shareholders of Target of shares
of Acquiring to a number of shares of Acquiring having a
value, as of the Exchange Date, of less than 50 percent of the
value of all of the formerly outstanding shares of Target as
of the same date. For purposes of this representation, shares
of Target and Acquiring held by shareholders of Target and
otherwise sold, redeemed, or disposed of prior or subsequent
to the Exchange Date are considered.
(3) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For
<PAGE> 75
Baker & Hostetler
December 8, 1995
Page 2
purposes of this representation, amounts paid to shareholders
who receive cash or other property, amounts used by Target to
pay its reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course
of its business as required by Section 22(e) of the Investment
Company Act of 1940, as amended (the "1940 Act") pursuant to a
demand of a shareholder and regular, normal dividends
including distributions of investment company taxable income
and net capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(4) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(H) and 304(c) of the Code. For this
purpose, "control" means the ownership of stock possessing at
least 50 percent of the total combined voting power of all
classes of stock entitled to vote, or at least 50 percent of
the total value of shares of all classes of stock.
(5) The liabilities of Target assumed by Acquiring and the
liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business and are associated with the assets transferred.
(6) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (e.g.,
election of trustees) and the organizational costs of
Acquiring.
(7) There is no intercorporate indebtedness existing between
Acquiring and Target that was issued, acquired, or will be
settled at a discount.
(8) Target meets the requirements of a "regulated investment
company" as defined in Section 851 of the Code.
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Baker & Hostetler
December 8, 1995
Page 3
(9) Target is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
(10) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed by Acquiring, and (b)
the amount of liabilities, if any, to which the transferred
assets are subject.
(11) Target has, for all of its taxable periods, elected to be
taxed as a regulated investment company as defined in Section
851 of the Code.
(12) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(13) Target is a business trust and is taxable as a corporation.
(14) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
The above assumptions and representations of fact were made
for the purpose of allowing Baker & Hostetler to form and issue the Opinion.
Cardinal Tax Exempt Money Trust
By: /s/ Frank W. Siegel
-------------------------------
<PAGE> 77
Exhibit B
December 8, 1995
Baker & Hostetler
3200 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Dear Sirs:
Cardinal Tax Exempt Money Trust ("Target") and The Cardinal
Group ("TCG") have entered into an Agreement and Plan of Reorganization and
Liquidation dated as of December 1, 1995 (the "Agreement"). Pursuant to the
Agreement, Target will transfer all of its assets to a series fund of TCG,
Cardinal Tax Exempt Money Market Fund ("Acquiring") and Acquiring will assume
the liabilities of Target. In accordance with the Agreement, we are requesting
your opinion (the "Opinion") on certain federal income tax consequences as
described in Section 8(f) of the Agreement with respect to the transaction
contemplated by such Agreement (the "Transaction").
In preparing the Opinion, you may rely on the following
representations and/or assumptions relating to the Transaction:
(1) The fair market value of the shares of Acquiring received by
Target and the shareholders of Target will be approximately
equal to the fair market value of the shares of Target
constructively surrendered by the shareholders of Target in
the Transaction.
(2) Acquiring will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Target immediately
prior to the Exchange Date. For purposes of this
representation, amounts paid to shareholders who receive cash
or other property, amounts used by Target to pay its
reorganization expenses and all redemptions and distributions
(except for redemptions in the ordinary course of its business
as required by Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act") pursuant to a demand of a
shareholder and regular, normal dividends including
distributions of investment company taxable income and net
capital gain) made by Target immediately preceding the
Exchange Date will be included as assets of Target held
immediately prior to the Exchange Date.
(3) Acquiring has no plan or intention to reacquire any of the
shares of Acquiring issued in the Transaction,
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Baker & Hostetler
December 8, 1995
Page 2
except in connection with its legal obligation under Section
22(e) of the 1940 Act.
(4) Acquiring has no plan or intention to sell or otherwise
dispose of any of the assets of Target, acquired in the
Transaction, except for dispositions made in the ordinary
course of business, including dispositions to maintain its
qualification as a regulated investment company under Section
851 of the Code.
(5) Pursuant to the Transaction, Target will terminate its
existence and will in complete liquidation distribute to its
shareholders the shares of Acquiring it receives in the
Transaction and after the Transaction the shareholders of
Target will be in control of Acquiring within the meaning of
Sections 368(a)(2)(h) and 304(c) of the Code. For the purpose,
"control" means the ownership of stock possessing at least 50
percent of the total combined voting power of all classes of
stock entitled to vote, or at least 50 percent of the total
value of shares of all classes of stock.
(6) Following the Transaction, Acquiring will continue the
historic business of Target or use a significant portion of
Target's historic business assets in its business.
(7) Acquiring, Target and the shareholders of Target will pay
their respective expenses, if any, incurred in connection with
the transaction, except that The Ohio Company, the sole
shareholder of Cardinal Management Corp., which is the
investment adviser for Acquiring and Target, will pay the
costs associated with the reorganization, other than those
costs associated with that portion of the shareholders meeting
of Target relating to customary annual meeting matters (e.g.,
election of trustees) and the organizational costs of
Acquiring.
(8) There is no intercorporate indebtedness existing between
Acquiring and Target, that was issued, acquired, or will be
settled at a discount.
(9) Acquiring will meet the requirements of a "regulated
investment company" as defined in Section 851 of the Code.
(10) The fair market value and the total adjusted basis of the
assets of Target transferred to Acquiring will equal or exceed
the sum of (a) the liabilities assumed
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Baker & Hostetler
December 8, 1995
Page 3
by Acquiring and (b) the amount of liabilities, if any, to
which the transferred assets are subject.
(11) Acquiring does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any
shares of Target. On the Exchange Date, Acquiring will not
have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any person could
acquire shares in Acquiring that, if exercised or converted,
would affect the Target shareholders' acquisition or retention
of control of Acquiring. For this purpose "control" means the
ownership of stock possessing at least 50 percent of the total
combined voting power of all classes of stock entitled to
vote, or at least 50 percent of the total value of shares of
all classes of stock.
(12) After the Transaction, Acquiring will meet the requirements
of, and elect to be taxed as a regulated investment company as
defined in Section 851 of the Code and will continue to be
taxed as a regulated investment company.
(13) None of the compensation to be received by any
shareholder-employees of Target will be separate consideration
for, or allocable to, any of their shares of Target; none of
the shares of Acquiring received by any shareholder-employees
will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered
and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
(14) Acquiring is a series of a business trust and will be taxable
as a corporation.
(15) The facts set forth in the Opinion are correct and true and
there will be no change in any of the facts material to the
Opinion between today and the Exchange Date.
<PAGE> 80
Baker & Hostetler
December 8, 1995
Page 4
The above assumptions and representations of fact were made for the
purpose of allowing Baker & Hostetler to form and issue the Opinion.
The Cardinal Group
By: /s/ Frank W. Siegel
----------------------------
<PAGE> 1
EXHIBIT (14)(a)
<PAGE> 2
AUDITORS' CONSENT
The Board of Trustees
The Cardinal Group:
We consent to the references to our firm under the heading "Independent
Accountants" in The Cardinal Group's Form N-14 Registration Statement filed
under the Securities Act of 1933, under the heading "Legal Counsel and
Independent Auditors" in the Statements of Additional Information dated
February 1, 1995, which are incorporated by reference and included herein, and
under the heading "Financial Highlights" in the Prospectuses dated February 1,
1995, as amended as of December 11, 1995, which are incorporated by reference
and included herein. We also consent to the use of our Independent Auditors'
Reports dated November 18, 1994 in the Statements of Additional Information
dated February 1, 1995 which are incorporated by reference and included herein
and dated November 17, 1995 in the September 30, 1995 Annual Reports to
Shareholders which are included herein.
KPMG PEAT MARWICK LLP
Columbus, Ohio
December 11, 1995
<PAGE> 1
EXHIBIT (14)(b)
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the captions "The Proposed Transaction -- Federal Income Tax
Consequences" and "Additional Comparative Information -- Service Arrangements
and Fees -- The Trust/TCFI -- Counsel" and "-- The Acquiring Fund -- Counsel"
included in or made a part of this Registration Statement on Form N-14, filed
under the Securities Act of 1933, as amended, of The Cardinal Group.
BAKER & HOSTETLER
Columbus, Ohio
December 11, 1995
<PAGE> 1
EXHIBIT (16)
<PAGE> 2
POWER OF ATTORNEY
Frank W. Siegel, whose signature appears below, does hereby constitute
and appoint H. Keith Allen, James M. Schrack II and Frank W. Seigel, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ Frank W. Siegel
---------------------------
FRANK W. SIEGEL
<PAGE> 3
POWER OF ATTORNEY
H. Keith Allen, whose signature appears below, does hereby constitute
and appoint H. Keith Allen, James M. Schrack II and Frank W. Seigel, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ H. Keith Allen
---------------------------
H. KEITH ALLEN
<PAGE> 4
POWER OF ATTORNEY
Gordon B. Carson, whose signature appears below, does hereby
constitute and appoint H. Keith Allen, James M. Schrack II and Frank W.
Seigel, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ Gordon B. Carson
---------------------------
GORDON B. CARSON
<PAGE> 5
POWER OF ATTORNEY
John B. Gerlach, Jr., whose signature appears below, does hereby
constitute and appoint H. Keith Allen, James M. Schrack II and Frank W. Seigel,
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ John B. Gerlach, Jr.
---------------------------
JOHN B. GERLACH, JR
<PAGE> 6
POWER OF ATTORNEY
Michael J. Knilans, whose signature appears below, does hereby
constitute and appoint H. Keith Allen, James M. Schrack II and Frank W.
Seigel, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ Michael J. Knilans
---------------------------
MICHAEL J. KNILANS
<PAGE> 7
POWER OF ATTORNEY
James I. Luck, whose signature appears below, does hereby constitute
and appoint H. Keith Allen, James M. Schrack II and Frank W. Seigel, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ James I. Luck
---------------------------
JAMES I. LUCK
<PAGE> 8
POWER OF ATTORNEY
David L. Nelson, whose signature appears below, does hereby constitute
and appoint H. Keith Allen, James M. Schrack II and Frank W. Seigel, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ David L. Nelson
---------------------------
DAVID L. NELSON
<PAGE> 9
POWER OF ATTORNEY
C. A. Peterson, whose signature appears below, does hereby constitute
and appoint H. Keith Allen, James M. Schrack II and Frank W. Seigel, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ C. A. Peterson
---------------------------
C. A. PETERSON
<PAGE> 10
POWER OF ATTORNEY
Lawrence H. Rogers II, whose signature appears below, does hereby
constitute and appoint H. Keith Allen, James M. Schrack II and Frank W. Seigel,
each individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ Lawrence H. Rogers II
---------------------------
LAWRENCE H. ROGERS II
<PAGE> 11
POWER OF ATTORNEY
John L. Schlater, whose signature appears below, does hereby
constitute and appoint H. Keith Allen, James M. Schrack II and Frank W.
Seigel, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ John L. Schlater
---------------------------
JOHN L. SCHLATER
<PAGE> 12
POWER OF ATTORNEY
Joseph H. Stegmayer, whose signature appears below, does hereby
constitute and appoint H. Keith Allen, James M. Schrack II and Frank W.
Seigel, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ Joseph H. Stegmayer
---------------------------
JOSEPH H. STEGMAYER
<PAGE> 13
POWER OF ATTORNEY
James M. Schrack II, whose signature appears below, does hereby
constitute and appoint H. Keith Allen, James M. Schrack II and Frank W.
Seigel, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to
enable The Cardinal Group (the "Fund") to comply with the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the filing and effectiveness
of the Fund's Registration Statements on Form N-1A and Form N-14 pursuant to
said Acts and any and all amendments thereto (including pre- and post-effective
amendments), including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as trustee and/or officer of the Fund such Registration
Statement(s) and any and all such amendments filed with the Securities and
Exchange Commission under any Acts and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Dated: October 20, 1995 /s/ James M. Schrack II
---------------------------
JAMES M. SCHRACK II
<PAGE> 1
EXHIBIT (17)(a)
<PAGE> 2
As filed with the Securities
and Exchange Commission on March 24, 1993
1933 Act Registration No. 33-59984
1940 Act File No. 811-7588
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and
REGISTRATION STATEMENT UNDER THE INVESTMENT / X /
Amendment No. / /
THE CARDINAL GROUP
(Exact Name of Registrant as Specified in Charter)
155 East Broad Street, Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 614/464-5511
John L. Schlater, 155 East Broad Street, Columbus, Ohio 43215
(Name and Address of Agent for Service)
Copy to: Charles H. Hire, Esq.
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Effective Date of this Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
Amount Proposed
Title of Securities Being Maximum Offering Amount of
Being Registered Registered Price per Unit Registration Fee
- --------------------------------------------------------------------------------
Units of Beneficial Indefinite $10.00 $500*
Interest
- --------------------------------------------------------------------------------
*Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, as amended, Registrant hereby elects to register an indefinite number of
Units of Beneficial Interest.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
<PAGE> 1
EXHIBIT (17) (b)
<PAGE> 2
PROSPECTUS
THE CARDINAL FUND
The Cardinal Fund (the "Fund") is a diversified investment fund of The
Cardinal Group (the "Group"), an open-end, management investment company. The
Trustees of the Group have divided the Fund's beneficial ownership into an
unlimited number of transferable units called shares (the "Shares").
The Fund's investment objectives are long-term growth of capital and
income. Current income is a secondary objective. The Fund seeks to achieve
its objectives through selective participation in the long-term progress of
businesses and industries. The policy of the Fund is generally to invest in
equity securities. There can be no assurance that the Fund's objectives will
be achieved.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
________________________________________________________________________________
For further information regarding the Fund or for
assistance in opening an account or redeeming Shares,
please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
________________________________________________________________________________
The Prospectus relates only to The Cardinal Fund, currently one of six
funds of the Group. Interested persons who wish to obtain copies of the
prospectus of Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund, Cardinal Tax Exempt Money Market Fund, Cardinal
Balanced Fund or Cardinal Aggressive Growth Fund, the other funds of the Group
(collectively, with the Fund, the "Cardinal Funds"), should contact The Ohio
Company at the number above. Additional information about the Fund, contained
in a Statement Of Additional Information dated as of January __, 1996, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. Such
- 1 -
<PAGE> 3
Statement is available upon request without charge from the Fund at
the above address or by calling the phone number provided above.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing in the Fund. This
Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
THE OHIO COMPANY
The date of this Prospectus is January __, 1996.
- 2 -
<PAGE> 4
<TABLE>
<CAPTION>
PROSPECTUS HIGHLIGHTS
<S> <C>
INVESTMENT OBJECTIVES . . . . . . . . . . . . The Fund seeks long-term growth of capital and income. Current income is a
secondary objective. (See page __.)
INVESTMENT POLICIES . . . . . . . . . . . . . The Fund generally invests in equity securities which are growth oriented.
Current income, while a factor in portfolio selection, is secondary to the
primary objective. (See page __.)
PURCHASES . . . . . . . . . . . . . . . . . . There is a minimum initial investment of $1,000 with subsequent minimums of
$50. (See page __.) Purchases are made at the public offering price which is
equal to net asset value per share plus a sales charge. This charge is equal
to 4.50% of the public offering price (4.71% of net amount invested) reduced on
investments of $100,000 or more (see page __) and waived for certain purchasers
for whom The Ohio Company serves as a trustee or investment adviser.
(See page __.)
REDEMPTIONS . . . . . . . . . . . . . . . . . Shares can be redeemed at net asset value per share without charge, if redeemed
through the Fund's distributor, The Ohio Company. (See page __.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS . . . . . . . . . . . . . . An investment in a mutual fund such as the Fund involves a certain amount of
risk and may not be suitable for all investors. Some investment policies of
the Fund may entail certain risks. (See "WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND? -- Risk Factors and Investment Techniques" on
page ___.)
INVESTMENT ADVISER . . . . . . . . . . . . . Cardinal Management Corp. (the "Adviser"), a wholly-owned subsidiary of The
Ohio Company, is the
</TABLE>
- 3 -
<PAGE> 5
<TABLE>
<S> <C>
Fund's investment adviser. The Adviser also serves as investment adviser for
Cardinal Government Obligations Fund, Cardinal Government Securities Money
Market Fund, Cardinal Tax Exempt Money Market Fund, Cardinal Balanced Fund and
Cardinal Aggressive Growth Fund. (See page __.)
DIVIDENDS . . . . . . . . . . . . . . . . . . Dividends and capital gains distributions are made with such frequency as the
Group shall determine. Generally, dividends are declared quarterly and
long-term capital gains, if any, are declared annually. Such dividends and
distributions may be invested in additional Shares of the Fund at no charge.
(See page __.)
</TABLE>
- 4 -
<PAGE> 6
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .60%
12b-1 Fees After Fee Waiver(1) 0
Other Expenses(2) .22
-----
Total Fund Operating Expenses
After Fee Waiver .82%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years
------ -------
<S> <C> <C>
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $53 $71
<FN>
__________________
1 The Ohio Company, as the Fund's distributor, has agreed with
the Group to waive all of its Rule 12b-1 fees until September 30, 1996. Absent
such waiver, Rule 12b-1 Fees and Total Fund Operating Expenses would be 0.25%
and 1.07%, respectively.
2 "Other Expenses" are based upon estimated amounts for the
current fiscal year.
The purpose of the above table is to assist a potential purchaser of
the Fund's Shares in understanding the various costs and expenses that an
investor in the Fund will bear directly or indirectly. See "WHO MANAGES MY
INVESTMENT IN THE FUND?" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of the Fund. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
__________________
</TABLE>
PERFORMANCE INFORMATION
From time to time the Fund may advertise its average annual total
return and cumulative return. SUCH RETURN FIGURES ARE BASED UPON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The average
annual total return advertised by the Fund refers to the return generated by an
investment in the Fund
- 5 -
<PAGE> 7
over certain specified periods since the establishment of the Fund. The
average annual total return over a period equates the amount of an initial
investment in the Fund to the amount redeemable at the end of that period
assuming that any dividends and distributions earned by an investment in the
Fund are immediately reinvested and the maximum applicable sales charge
(currently 4.5%) is deducted from the initial investment at the time of
investment. Such figure is then annualized. The cumulative return advertised
refers to the total return on a hypothetical investment over the relevant
period and equates the amount of an initial investment in the Fund to the
amount redeemable at the end of that period assuming that any dividends and
distributions are immediately reinvested and the maximum sales charge is
deducted from the initial investment. If the sales charge were not deducted,
the average annual total return and cumulative return advertised would be
higher.
Investors may also judge the performance of the Fund by comparing or
referencing its performance to the performance of other mutual funds or mutual
fund portfolios with comparable investment objectives and policies through
various mutual fund or market indices such as those prepared by Dow Jones &
Co., Inc., and Standard & Poor's Corporation, and to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. and CDA Investment Technologies,
Inc. Comparisons may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, The
Columbus Dispatch, Business Week, U.S.A. Today and Consumer Reports. In
addition to performance information, general information about the Fund that
appears in a publication such as those mentioned above may be included in
advertisements and in reports to shareholders.
Further information about the performance of the Fund is contained in
the Fund's Annual Report to Shareholders which may be obtained without charge
by contacting the Fund at the telephone number set forth on the cover page of
this Prospectus.
WHAT IS THE FUND?
The Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
has been organized for the purpose of acquiring all of the assets and
liabilities of The Cardinal Fund Inc. ("TCFI") to effect a reorganization of
TCFI from a stand alone investment company to a separate series of the Group.
- 6 -
<PAGE> 8
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?
IN GENERAL
The investment objectives of the Fund are to achieve long-term growth
of capital and income. Current income is a secondary objective. The Fund
seeks to achieve its objectives through selective participation in the
long-term progress of businesses and industries. The investment objectives
with respect to the Fund are a fundamental policy and as such may not be
changed without a vote of the holders of a majority of the outstanding Shares
of the Fund (as defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund is not intended to provide a complete and balanced investment program
for an investor. There can be no assurance that the investment objectives of
the Fund will be achieved.
The policy of the Fund is generally to invest in equity securities of
companies which, in the opinion of the Adviser, are growth oriented. The
securities purchased by the Fund are traded in either established
over-the-counter markets or on national exchanges and are issued by companies
having a market capitalization of at least $10 million. This policy of
normally investing in equity securities believed to have a potential for
long-term capital appreciation means that the assets of the Fund will generally
be subject to greater risk than may be involved in securities which do not have
such growth characteristics. It is recognized, however, that there may be
times when, as a temporary, defensive measure, the Fund's equity position
should be reduced. At such times, and otherwise for cash management purposes,
the Fund may hold its assets in cash or invest its assets in investment grade
debt securities, U.S. Government securities, securities of other investment
companies, repurchase agreements and preferred stock.
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in the Fund
entails certain risks. As a fund investing primarily in common stocks, the
Fund is subject to stock market risk, I.E., the possibility that stock prices
in general will decline over short or even extended periods.
The Fund may invest in put and call options and futures, as described
below. Such instruments are considered to be derivatives. A derivative is
generally defined as an instrument whose value is based upon, or derived from,
some underlying index, reference rate (e.g., interest rates), security,
commodity or other asset. The Fund will not invest more than 10% of its total
assets in such derivatives at any one time.
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<PAGE> 9
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, the Fund
would acquire securities from a financial institution such as a
well-established securities dealer or a bank which is a member of the Federal
Reserve System which the Adviser deems creditworthy under guidelines approved
by the Group's Board of Trustees. At the time of purchase, the bank or
securities dealer agrees to repurchase the underlying securities from the Fund
at a specified time and price. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. The Fund will only enter into a
repurchase agreement where (i) the underlying securities are of the type which
the Fund's investment policies would allow it to purchase directly, (ii) the
market value of the underlying security, including interest accrued, will be at
all times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying securities is made only upon physical delivery or
evidence of book-entry transfer to the account of the Fund's custodian or a
bank acting as agent. The Adviser will be responsible for continuously
monitoring such requirements.
FOREIGN SECURITIES. The Fund may also invest up to 25% of its net
assets in foreign securities through the purchase of sponsored and unsponsored
American Depositary Receipts ("ADRs"). Unsponsored ADRs may be less liquid
than sponsored ADRs, and there may be less information available regarding the
underlying foreign issuer for unsponsored ADRs. Investment in foreign
securities is subject to special investment risks that differ in some respects
from those related to investments in securities of U.S. domestic issuers. Such
risks include trade balances and imbalances, and related economic policies,
future adverse political, economic and social developments, the possible
imposition of withholding taxes on interest income, possible seizure,
nationalization, or expropriation of foreign investments or deposits, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, or the adoption of other foreign
governmental restrictions. In addition, foreign issuers may be subject to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to U.S. domestic issuers, and securities markets in foreign
countries may be structured differently from and may not be as liquid as the
U.S. markets. The Fund will acquire securities issued by foreign issuers only
when the Adviser believes that the risks associated with such investments are
minimal.
PUT AND CALL OPTIONS. Subject to its investment policies and for
purposes of hedging against market risks related to its portfolio securities,
the Fund may purchase put and call options on securities. Purchasing options
is a specialized investment technique that entails a substantial risk of a
complete loss of the
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<PAGE> 10
amounts paid as premiums to writers of options. The Fund will purchase put
options only on securities in which the Fund may otherwise invest. The Fund
may also engage in writing call options from time to time as the Adviser deems
appropriate. The Fund will write only covered call options (options on
securities owned by the Fund). In order to close out a call option it has
written, the Fund will enter into a "closing purchase transaction" -- the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which the Fund previously has written. When
a portfolio security subject to a call option is sold, the Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If the Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or
the Fund delivers the underlying security upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio
securities subject to such options would exceed 25% of the net assets of the
Fund.
The Fund, as part of its option transactions, also may purchase index
put and call options and write index options. As with options on individual
securities, the Fund will write only covered index call options. Through the
writing or purchase of index options the Fund can achieve many of the same
objectives as through the use of options on individual securities. Options on
securities indices are similar to options on a security except that, rather
than the right to take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
Price movements in securities which the Fund owns or intends to
purchase probably will not correlate perfectly with movements in the level of
an index and, therefore, the Fund bears the risk of a loss on an index option
that is not completely offset by movements in the price of such securities.
Because index options are settled in cash, a call writer cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific securities, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities. The
Fund may be required to segregate assets or provide an initial margin to cover
index options that would require it to pay cash upon exercise.
FUTURES CONTRACTS. The Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities or an index, purchase or sell options on any such
futures contracts and engage in related
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<PAGE> 11
closing transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
The Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, the Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market
values are expected to rise, the Fund, through the purchase of such contracts,
can attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of the Fund's total
assets, and the value of securities that are the subject of such futures and
options (both for receipt and delivery) may not exceed one-third of the market
value of the Fund's total assets. Futures transactions will be limited to the
extent necessary to maintain the Fund's qualification as a regulated investment
company.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase
securities. The Fund may lose the expected benefit of futures transactions if
interest rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of
the Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting the Fund's
ability to hedge effectively against interest rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of
the value of its total assets in the securities of other investment companies
subject to the limitations set forth in the 1940 Act. The Fund intends to
invest in the securities of other investment companies which, in the opinion of
the Adviser, will
- 10 -
<PAGE> 12
assist the Fund in achieving its investment objectives and in money market
mutual funds for purposes of short-term cash management. The Fund's investment
in such other investment companies may result in the duplication of fees and
expenses, particularly investment advisory fees. For a further discussion of
the limitations on the Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Group's
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of the Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund will not:
1. Purchase securities of any one issuer, 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 the value of the Fund's total assets would be invested
in such issuer or the Fund would hold more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of
the Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets that may
be invested in U.S. Treasury bills, notes or other obligations issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities.
2. Purchase any securities which would cause more than
25% of the value of the Fund's total assets at the time of purchase to
be invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that:
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing
the activities of their parents; and (c) utilities will be divided
according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry.
3. Borrow money or issue senior securities, except that
the Fund may borrow from banks or enter into reverse
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<PAGE> 13
repurchase agreements or dollar roll agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing and except as permitted pursuant to an
exemption from the 1940 Act. The Fund will not purchase securities
while its borrowings (including reverse repurchase agreements and
dollar roll agreements) exceed 5% of its total assets.
4. Make loans, except that the Fund may purchase or hold
debt instruments and lend portfolio securities in accordance with its
investment objectives and policies, make time deposits with financial
institutions and enter into repurchase agreements.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any securities, if as a
result, more than 15% of the Fund's net assets would be invested in
securities that are illiquid.
HOW DO I PURCHASE SHARES OF THE FUND?
GENERAL
The Fund's Shares may be purchased at the public offering price, as
described below under "Public Offering Price," through The Ohio Company,
principal underwriter of the Fund's Shares, at its address and telephone number
set forth on the cover page of this Prospectus, and through other
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and have sales agreements with The Ohio Company.
Subsequent purchases of Shares of the Fund may be made by ACH
processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -
ACH Processing" below. In addition, if an Account Information Form has
previously been received by The Ohio Company, Shares may also be purchased by
wiring funds to the Fund's custodian. Prior to wiring any such funds and to in
order to ensure that wire orders are invested properly, you must call The Ohio
Company to obtain the necessary instructions and information.
The minimum initial investment for individuals is $1,000, except the
initial investment for an applicant investing by means of the Automatic
Investment Plan, as described below, must be at least $50. Subsequent
investments must be in amounts of at least $50.
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<PAGE> 14
The Group reserves the right to reject any order for the purchase of
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Shares
owned by you and the number of Shares being held in safekeeping by Cardinal
Management Corp., as the Fund's transfer agent (the "Transfer Agent"), for your
account. Certificates representing Shares will not be issued.
PUBLIC OFFERING PRICE
The public offering price of Shares of the Fund is the net asset value
per share (see "HOW IS NET ASSET VALUE CALCULATED?") next determined after
receipt by The Ohio Company, its agents or broker-dealers with whom it has an
agreement, of an order and payment, plus a sales charge as follows:
<TABLE>
<CAPTION>
As a Percentage
Sales Charge of Offering Price
as a Percentage -----------------
Amount of of the Net Sales Dealer's
Single Transaction Amount Invested Charge Concession
------------------ ---------------- ------ ----------
<S> <C> <C> <C>
Less than $100,000 4.71% 4.50% 4.00%
$100,000 but less than $250,000 3.63 3.50 3.00
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 1.52 1.50 1.00
$1,000,000 or more 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the
computation of net asset value per share.)
The above charges on investments of $100,000 or more are applicable
to purchases made at one time by an individual, or an individual, his spouse
and their children not of legal age, or a trustee, guardian or other like
fiduciary of certain single trust estates or certain single fiduciary
accounts.
No sales charge is imposed on purchases of Shares by (1) officers,
trustees, and employees of the Group, (2) full-time employees of The Ohio
Company or the Adviser who have been such for at least 90 days or by qualified
retirement plans for such persons, or (3) accounts or trusts which are managed
and advised in whole or in part by The Ohio Company or the Adviser.
From time to time, The Ohio Company, from its own resources, may also
provide additional compensation to securities dealers in connection with sales
of Shares of the Cardinal Funds. Such compensation will include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales
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<PAGE> 15
campaigns and/or shareholder services and programs regarding one or more of the
Cardinal Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Cardinal Funds. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Securities dealers may not use sales of the Fund's Shares to qualify
for this compensation to the extent such may be prohibited by the laws of any
state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. In addition, The Ohio Company may make ongoing
payments to brokerage firms, financial institutions (including banks) and
others to facilitate the administration and servicing of shareholder accounts.
None of the aforementioned additional compensation is paid for by the Fund or
its shareholders.
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly
or quarterly investments, in the minimum amount of $50 per transaction, from
your checking account. Assuming the cooperation of your financial institution,
your checking account therein will be debited to purchase Shares of the Fund on
the periodic basis you select. Confirmation of your purchase of Fund Shares
will be provided by the Transfer Agent. The debit of your checking account
will be reflected in the checking account statement you receive from your
financial institution. Please contact The Ohio Company for the appropriate
form.
MAY MY TAX SHELTERED RETIREMENT
PLAN INVEST IN THE FUND?
Shares of the Fund qualify for purchase in connection with the
following tax sheltered retirement plans:
-- Individual retirement account ("IRAs") plans
-- Simplified Employee Pension Plans
-- 403(b)(7) Custodial Plans sponsored by certain tax-exempt
employers
-- Pension, profit-sharing and 401(k) plans qualifying under
Section 401(a) of the Internal Revenue Code
- 14 -
<PAGE> 16
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to
purchase $100,000 or more of Shares of the Fund and of any other Cardinal Fund
sold with a sales charge (a "Cardinal Load Fund") during any 13-month period
you may sign a letter of intention to that effect obtained from The Ohio
Company and pay the reduced sales charge applicable to the total amount of
Shares to be so purchased. The 13-month period during which the Letter of
Intention is in effect will begin on the date of the earliest purchase to be
included. In addition, trustees, guardians or other like fiduciaries of single
trust estates or certain single fiduciary accounts may take advantage of the
quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase
the full amount indicated. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in your name) to secure
payment of the higher sales charge applicable to the shares actually purchased.
If the full amount indicated is not purchased, such escrowed Shares will be
involuntarily redeemed to pay the additional sales charge, if necessary.
Dividends on escrowed Shares, whether paid in cash or reinvested in additional
Shares of the applicable Cardinal Load Fund, are not subject to escrow. The
escrowed Shares will not be available for disposal by you until all purchases
pursuant to the letter of intention have been made or the higher sales charge
has been paid. When the full amount indicated has been purchased, the escrow
will be released. To the extent that you purchase more than the dollar amount
indicated on the Letter of Intention and qualify for a further reduced sales
charge, the sales charge will be adjusted for the entire amount purchased at
the end of the 13-month period. The difference in sales charge will be, as you
instruct, either delivered to you in cash or used to purchase additional Shares
of the Cardinal Load Fund designated by you subject to the rate of sales charge
applicable to the actual amount of the aggregate purchases. This program,
however, may be modified or eliminated at any time or from time to time by the
Group without notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the
privilege of combining "concurrent purchases" of Shares of the Fund and of one
or more of the other Cardinal Load Funds. For example, if you concurrently
purchase Shares of the Fund at the total public offering price of $50,000 and
shares of another Cardinal Load Fund at the total public offering price of
$50,000,
- 15 -
<PAGE> 17
the sales charge would be that applicable to a $100,000 purchase as shown in
the table above. "Concurrent purchases," as described above, shall include the
combined purchases of you, your spouse and your children not of legal age. To
receive the applicable public offering price pursuant to this privilege, you
must, at the time of purchase, give The Ohio Company sufficient information to
permit confirmation of qualification. This privilege, however, may be modified
or eliminated at any time or from time to time by the Group without notice
thereof.
RIGHTS OF ACCUMULATION
After your initial purchase of Shares you may also be eligible to pay
a reduced sales charge for your subsequent purchases of Shares where the total
public offering price of Shares then being purchased plus the then aggregate
current net asset value of Shares of the Fund and of shares of any Cardinal
Load Fund held in your account equals $100,000 or more. You would be able to
purchase Shares at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the Fund then being purchased plus
(b) the then current net asset value of Shares of the Fund and of shares of any
other Cardinal Load Fund held in your account. For purposes of determining the
aggregate current net asset value of Shares held in your account, you may
include Shares then owned by your spouse and children not of legal age.
You may obtain additional information about the foregoing special
purchase method from The Ohio Company. You are responsible for notifying The
Ohio Company at the time of purchase when purchases may be accumulated to take
advantage of the reduced sales charge. This program, however, may be modified
or eliminated at any time or from time to time by the Group without notice
thereof.
WHAT DISTRIBUTIONS WILL I RECEIVE?
Dividends and distributions shall be made with such frequency (long
term capital gains normally will be distributed only once annually) and in such
amounts as the Group from time to time shall determine and from net income and
net realized capital gains of the Fund. It is the policy of the Fund to
distribute, at least annually, substantially all of its net investment income
and to distribute annually any net realized capital gains. Unless a
shareholder specifically requests otherwise in writing to the Transfer Agent,
dividends and distributions will be made only in additional full and fractional
Shares of the Fund and not in cash. Dividends are paid in cash not later than
seven days after a shareholder's complete redemption of his Shares in the Fund.
- 16 -
<PAGE> 18
Shareholders may also elect to receive dividends and distributions in
cash by using ACH processing as described under "WHAT OTHER SHAREHOLDER
PROGRAMS ARE PROVIDED? - ACH Processing" below.
HOW MAY I REDEEM MY SHARES?
Investors may redeem Shares of the Fund at the net asset value per
share next determined following the receipt by the Transfer Agent, 215 East
Capital Street, Columbus, Ohio 43215, of written or telephonic notice to
redeem, as described more fully below. See "HOW IS NET ASSET VALUE
CALCULATED?", below, for a description of when net asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his Shares and may
charge a fee for such services.
The Group will make payment for redeemed Shares as promptly as
practicable but in no event more than seven days after receipt by the Transfer
Agent of the foregoing notice. The Group reserves the right to delay payment
for the redemption of Shares where such Shares were purchased with other than
immediately available funds, but only until the purchase payment has cleared
(which may take fifteen or more days from the date the purchase payment is
received by the Fund). The purchase of Fund Shares by wire transfer of federal
funds would avoid any such delay.
The Group intends to pay cash for all Shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Group may make
payment wholly or partly in portfolio securities at their then market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment
during any period the determination of net asset value is suspended. See "HOW
IS NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem, at net asset value, involuntarily Shares in any account at the
then current net asset value if at any time redemptions (but not as a result of
a decrease in the market price of such Shares or the deduction of any sales
charge) have reduced a shareholder's total investment in the Fund to a net
asset value below $500. A shareholder will be notified in writing that the
value of Fund Shares in the account is less than $500 and allowed 30 days to
increase his investment in the Fund to $500 before the redemption is processed.
Proceeds of redemptions so
- 17 -
<PAGE> 19
processed, including dividends declared to the date of redemption, will be
promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Fund by submitting a
written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however, that the address of
record has not been changed within the preceding 15 days. For purposes of this
policy, an "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in the Securities
Exchange Act of 1934. The Transfer Agent reserves the right to reject any
signature guarantee if (1) it has reason to believe that the signature is not
genuine or (2) it has reason to believe that the transaction would otherwise be
improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Fund by calling the
Group at the telephone numbers set forth on the front of this Prospectus. The
Shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Fund nor its service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Group's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Group will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Group, the
Fund or its service providers may be liable for any losses due to unauthorized
or fraudulent instructions. These procedures may include recording all phone
conversations, sending confirmations to shareholders within 72 hours of the
telephone transaction, and verification of account name and account number or
tax identification number. If, due to temporary adverse conditions, investors
are unable to effect telephone transactions, shareholders may also redeem their
Shares by mail as described above.
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<PAGE> 20
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Shares of the Fund having a total value of
$10,000 or more at the current net asset value, you may elect to redeem your
Shares monthly or quarterly in amounts of $50 or more, pursuant to the Fund's
Systematic Withdrawal Plan. Please contact The Ohio Company for the
appropriate form.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Shares and/or electronically transfer
distributions paid on Fund Shares, in addition to the other methods described
in this Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Shareholders of the Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made
in states where it is legally authorized, exchange Shares of the Fund for
shares of:
Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of
capital (upon the payment of the appli-
cable sales charge);
Cardinal Balanced Fund,
a fund seeking current income and
long-term growth of both capital and
income (upon the payment of the
applicable sales charge);
- 19 -
<PAGE> 21
Cardinal Government Obligations Fund,
a fund investing in securities issued
or guaranteed by the U.S. Government
(upon the payment of the applicable
sales charge);
Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund
(without payment of any sales charge); or
Cardinal Tax Exempt Money Market Fund,
a tax-free money market fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained
in the following paragraph, (i) exchanges by holders of Fund Shares, for whom
the sales charge has been waived, for shares of a Cardinal Load Fund may be
completed without the payment of a sales charge, and (ii) exchanges of Fund
Shares by all other shareholders for shares of a Cardinal Load Fund may be
completed upon the payment of a sales charge equal to the difference, if any,
between the sales charge payable upon purchase of shares of such Cardinal Load
Fund and the sales charge previously paid on the Fund Shares to be exchanged.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is
requested to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of the Fund by telephone. Neither the Group, the Fund
nor any of its service providers will be liable for any loss, damages, expense
or cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new
purchase. However, a shareholder may not include any sales charge on Shares of
the Fund for purposes of calculating the gain or loss realized upon an exchange
of those Shares within 90 days of their purchase.
- 20 -
<PAGE> 22
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Fund 60 days'
advance written notice of any such modification or termination.
HOW IS NET ASSET VALUE CALCULATED?
The net asset value of the Fund is determined once daily as of 4:00
P.M. Eastern Time, on each Business Day. A "Business Day" is a day on which
the New York Stock Exchange is open for business and any other day (other than
a day on which no Shares of the Fund are tendered for redemption and no order
to purchase any Shares of the Fund is received) during which there is a
sufficient degree of trading in the Fund's portfolio securities that the net
asset value might be materially affected by changes in the value of the
portfolio securities. The net asset value per share of the Fund is computed by
dividing the sum of the value of the Fund's portfolio securities plus any cash
and other assets (including interest and dividends accrued but not received)
minus all liabilities (including estimated accrued expenses) by the total
number of Shares then outstanding.
The net asset value per share will fluctuate as the value of the
investment portfolio of the Fund changes.
Portfolio securities which are traded on United States stock exchanges
are valued at the last sale price on such an exchange as of the time of
valuation on the day the securities are being valued. Securities traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as one or the other may be quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") as of
the time of valuation on the day the securities are being valued. The Group
uses one or more pricing services to provide such market quotations.
Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Group.
Determination of the net asset value may be suspended at times when
(a) trading on the New York Stock Exchange is restricted by applicable rules
and regulations of the Commission, (b) the New York Stock Exchange is closed
for other than customary weekend and holiday closings, (c) an emergency exists
as a result of which disposal by the Group of portfolio securities owned by the
Fund or valuation of net assets of the Fund is not reasonably practicable, or
(d) the Commission has by order permitted such suspension.
- 21 -
<PAGE> 23
DOES THE FUND PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Fund, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Code for so long as such qualification
is in the best interest of that fund's shareholders. Qualification as a
regulated investment company under the Code requires, among other things, that
the regulated investment company distribute to its shareholders at least 90% of
its investment company taxable income. The Fund contemplates declaring as
dividends 100% of the Fund's investment company taxable income (before
deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
WHAT ABOUT MY TAXES?
It is expected that the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal
income tax purposes, even if paid in additional Shares of the Fund and not in
cash. The dividends-received deduction for corporations will apply to the
aggregate of such ordinary income distributions in the same proportion as the
aggregate dividends eligible for the dividends received deduction, if any,
received by the Fund bear to its gross income.
Distribution by the Fund of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term
capital gain in the year in which it is received, regardless of how long the
shareholder has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
If the net asset value of a Share is reduced below the shareholder's
cost of that Share by the distribution of income or gain realized on the sale
of securities, the distribution is a return of invested principal, although
taxable as described above.
- 22 -
<PAGE> 24
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of
such dividends or distributions, although in effect a return of capital, is
subject to tax.
Foreign taxes may be imposed on the Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
the Fund's total assets at the end of its fiscal year are expected to be
invested in stock or securities of foreign corporations, the Fund will not be
entitled under the Code to pass through to its shareholders their pro rata
share of the foreign taxes paid by the Fund. These taxes will be taken as a
deduction by the Fund.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Potential investors in the Fund are urged to consult their tax advisers
concerning the application of federal, state and local taxes as such laws and
regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
WHO MANAGES MY INVESTMENT IN THE FUND?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's
Trustees, who are elected by the shareholders of the Group's funds and who are
empowered to elect officers and contract with and provide for the compensation
of agents, consultants and other professionals to assist and advise it in its
day-to-day operations. The Group will be managed in accordance with its
Declaration of Trust and the laws of Ohio governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting
as investment adviser and manager and as dividend and transfer agent. The Ohio
Company receives no fees
- 23 -
<PAGE> 25
under its Distribution Agreement with the Group but may retain all or a portion
of the sales charge and may receive fees under the Distribution Plan discussed
below.
INVESTMENT ADVISER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of the Fund. The Adviser is also the investment
adviser and manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock Exchange, the Midwest Stock Exchange, other
regional stock exchanges and the National Association of Securities Dealers,
Inc. Descendants of H.P. and R.F. Wolfe, deceased, and members of their
families, through their possession of a majority of a voting stock, may be
considered controlling persons of The Ohio Company.
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Fund's investment objectives and policies, manages the Fund, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since 1989, John L. Schlater has been primarily
responsible for the day-to-day management of the Fund's portfolio. Mr.
Schlater has been a portfolio manager with and an officer of the Adviser and
The Ohio Company since 1986. In addition, pursuant to the Investment Advisory
Agreement, the Adviser generally assists in all aspects of the Fund's
administration and operation.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Group with respect to the Fund, the
Adviser receives a fee from the Fund, computed daily and paid monthly at the
annual rate of .60% of average net daily assets of the Fund.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement with Cardinal Management Corp. (the "Transfer Agent"), 215 East
Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer Agent has
agreed to act as the Fund's transfer agent and dividend disbursing agent. In
consideration of such services, the Fund has agreed to pay the Transfer Agent
an annual fee, paid monthly, equal to $18 per shareholder account plus
out-of-pocket expenses. In addition, the Transfer Agent provides certain fund
accounting services for the Fund. The Transfer Agent receives a fee from the
Fund for such services equal to a fee computed daily
- 24 -
<PAGE> 26
and paid periodically at an annual rate of .03% of the Fund's average daily net
assets.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Fund will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an
officer and trustee of the Group and an officer and director of The Ohio
Company. Frank W. Siegel is an officer and trustee of the Group and an officer
of The Ohio Company. Barry C. McMahon, John Bevilacqua, David C. Will and
James M. Schrack II are officers of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund. The Fund will bear the following expenses relating to
its operations: organizational expenses, taxes, interest, any brokerage fees
and commissions, fees and expenses of the Trustees of the Group, Commission
fees, state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to the Fund's current
shareholders, outside auditing and legal expenses, advisory fees, fees and
out-of-pocket expenses of the custodian and Transfer Agent, costs for
independent pricing services, certain insurance premiums, costs of maintenance
of the Group's existence, costs of shareholders' reports and meetings,
distribution expenses incurred pursuant to the Distribution and Shareholder
Service Plan described below, and any extraordinary expenses incurred in the
Fund's operation.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which the Fund is
authorized to pay or reimburse The Ohio Company, as the Fund's principal
underwriter, a periodic amount calculated at an annual rate not to exceed
twenty-five one-hundredths of one percent (.25%) of the average daily net asset
value of the Fund. Such amount may be used by The Ohio Company to pay
broker-dealers (including The Ohio Company), banks and other institutions (a
"Participating Organization") for distribution and/or shareholder service
assistance pursuant to an agreement between The Ohio Company and the
Participating Organization or for distribution assistance and/or shareholder
service provided by The Ohio Company
- 25 -
<PAGE> 27
pursuant to an agreement between The Ohio Company and the Group. Under the
Plan, a Participating Organization may include The Ohio Company, its
subsidiaries, and its affiliates. The Ohio Company may from time to time
waive all or a portion of the fees payable to it pursuant to the Plan. Any
such waiver will cause the total return of the Fund to be higher than it would
otherwise be absent such a waiver.
As authorized by the Plan, The Ohio Company has entered into a Rule
12b-1 Agreement with the Group pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Shares of the Fund
purchased and held by The Ohio Company for the accounts of its customers and
Shares of the Fund purchased and held by customers of The Ohio Company
directly, including, but not limited to, answering shareholder questions
concerning the Fund, providing information to shareholders on their investments
in the Fund and providing such personnel and communication equipment as is
necessary and appropriate to accomplish such matters. In consideration of such
services the Group has agreed to pay The Ohio Company a monthly fee, computed
at the annual rate of .25% of the average aggregate net asset value of Shares
held during the period in customer accounts for which The Ohio Company has
provided services under this Agreement. Such fees paid by the Group will be
borne solely by the Fund. Such fee may exceed the actual costs incurred by The
Ohio Company in providing such services.
In addition, The Ohio Company may enter into, from time to time, other
Rule 12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third") 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In
such capacity, Fifth Third will hold or arrange for the holding of all
portfolio securities and other assets acquired and owned by the Fund.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23, 1993.
The Group currently consists of six funds, each having its own class of shares.
The other funds of the Group are Cardinal Balanced Fund, Cardinal Aggressive
Growth Fund, Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund and Cardinal Tax Exempt Money Market Fund. Each
share represents an equal proportional interest in a fund with other shares of
the same fund, and is entitled to such dividends and distributions out
- 26 -
<PAGE> 28
of the income earned on the assets belonging to that fund as are declared at
the discretion of the Trustees.
Shareholders are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested, and will vote in the aggregate and not by series except as otherwise
expressly required by law. For example, shareholders of the Fund will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, shareholders of the Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of amendments to
the Fund's investment advisory agreement, the Plan or any of the Fund's
fundamental policies.
Overall responsibility for the management of the Fund is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?"
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and Ohio law.
See "ADDITIONAL INFORMATION - Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group may elect not to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will
call a special meeting of shareholders for purposes of considering the removal
of one or more Trustees upon written request thereof from shareholders holding
not less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c)
of the 1940 Act. At such meeting, a quorum of shareholders (constituting a
majority of votes attributable to all outstanding shares of the Group), by
majority vote, has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds,
- 27 -
<PAGE> 29
and any general assets of the Group not readily identified as belonging to a
particular fund that are allocated to the fund by the Group's Board of
Trustees. The Board of Trustees may allocate such general assets in any manner
it deems fair and equitable. Determinations by the Board of Trustees of the
Group as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect
to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser
of (a) 67% or more of the votes of shareholders of the Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
shareholders of record of the Fund are represented in person or by proxy, or
(b) the holders of more than 50% of the outstanding votes of shareholders of
the Fund.
Shareholders should direct all inquiries concerning such matters to
the Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215,
or by calling (800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
- 28 -
<PAGE> 30
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
- 29 -
<PAGE> 31
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
---- ___________
<S> <C> <C>
PROSPECTUS
PROSPECTUS HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ____________
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
WHAT IS THE FUND? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND? . . . . . . . . . . . . . . . . . . . 7
HOW DO I PURCHASE SHARES OF THE FUND? . . . . . . . . . . . . . . . . . . 12 January __, 1996
MAY MY TAX SHELTERED RETIREMENT
PLAN INVEST IN THE FUND? . . . . . . . . . . . . . . . . . . . . 14
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS? . . . . . . . . . . . . . . . . 15
WHAT DISTRIBUTIONS WILL I RECEIVE? . . . . . . . . . . . . . . . . . . . 16
HOW MAY I REDEEM MY SHARES? . . . . . . . . . . . . . . . . . . . . . . . 17
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? . . . . . . . . . . . . . . 19 THE OHIO COMPANY
HOW IS NET ASSET VALUE CALCULATED? . . . . . . . . . . . . . . . . . . . 21
DOES THE FUND PAY FEDERAL INCOME TAX? . . . . . . . . . . . . . . . . . . 22
WHAT ABOUT MY TAXES? . . . . . . . . . . . . . . . . . . . . . . . . . . 22 THE CARDINAL
WHO MANAGES MY INVESTMENT IN THE FUND? . . . . . . . . . . . . . . . . . 23 FUND
WHAT ARE MY RIGHTS AS A SHAREHOLDER? . . . . . . . . . . . . . . . . . . 26
<FN>
________________
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained in this Prospectus
and, if given or made, such other information or representations must not be [LOGO]
relied upon as having been authorized by the Fund, the Adviser, or The Ohio CARDINAL FUNDS
Company. This Prospectus does not constitute an offer by the Fund or by The
Ohio Company to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to
whom it is unlawful for the Fund to make such an offer in such jurisdiction.
</TABLE>
- 30 -
<PAGE> 32
PROSPECTUS
CARDINAL GOVERNMENT OBLIGATIONS FUND
Cardinal Government Obligations Fund (the "Fund") is a diversified
investment fund of The Cardinal Group (the "Group"), an open-end, management
investment company. The Trustees of the Group have divided the Fund's
beneficial ownership into an unlimited number of transferable units called
shares (the "Shares").
The Fund seeks as its investment objectives to maximize safety of
capital and, consistent with such objective, earn the highest available current
income obtainable from government securities. The current income earned from
such government securities may not be as great as the current income earned on
lower quality securities which have less liquidity and greater risk of
nonpayment. There can be no assurance that the Fund's objectives will be
achieved.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
________________________________________________________________________________
For further information regarding the
Fund or for assistance in opening an
account or redeeming Shares,
please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
________________________________________________________________________________
The Prospectus relates only to Cardinal Government Obligations Fund,
currently one of six funds of the Group. Interested persons who wish to obtain
copies of the prospectus of The Cardinal Fund, Cardinal Government Securities
Money Market Fund, Cardinal Tax Exempt Money Market Fund, Cardinal Balanced
Fund or Cardinal Aggressive Growth Fund, the other funds of the Group
(collectively, with the Fund, the "Cardinal Funds"), should contact The Ohio
Company at the number above. Additional information about the Fund, contained
in a Statement Of Additional Information, dated as of January __, 1996, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. Such Statement is available upon request without charge
from the Fund at the above address or by calling the phone number provided
above.
- 1 -
<PAGE> 33
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing in the Fund. This
Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
THE OHIO COMPANY
The date of this Prospectus is January __, 1996.
- 2 -
<PAGE> 34
<TABLE>
<CAPTION>
PROSPECTUS HIGHLIGHTS
<S> <C>
INVESTMENT OBJECTIVES . . . . . . . . . . . . The Fund seeks to maximize safety of capital and, consistent with such
objective, earn the highest available current income obtainable from government
securities. (See page __.)
INVESTMENT POLICIES . . . . . . . . . . . . . Under normal market conditions, the Fund invests substantially all but in no
event less than 65% of its total assets in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements secured by securities of the U.S. Government. Under present market
conditions, the Fund expects to invest a substantial amount of its portfolio in
Ginnie Mae certificates. These investments entail certain risks. (See page __.)
PURCHASES . . . . . . . . . . . . . . . . . . There is a minimum initial investment of $1,000 with subsequent minimums of
$50. (See page __.) Purchases are made at the public offering price which
is equal to net asset value per share plus a sales charge. This charge is equal
to 4.50% of the public offering price (4.71% of net amount invested) reduced on
investments of $100,000 or more (see page __) and waived for certain purchasers
for whom The Ohio Company serves as a trustee or investment adviser.
(See page __.)
REDEMPTIONS . . . . . . . . . . . . . . . . . Shares can be redeemed at net asset value per share without charge, if redeemed
through the Fund's distributor, The Ohio Company. (See page __.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS . . . . . . . . . . . . . An investment in a mutual fund such as the Fund involves a certain amount of
risk and may not be
</TABLE>
- 3 -
<PAGE> 35
<TABLE>
<S> <C>
suitable for all investors. Some investment policies of the Fund may entail
certain risks. (See "WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE
FUND? -- Risk Factors and Investment Techniques" on page ___.)
INVESTMENT ADVISER . . . . . . . . . . . . . Cardinal Management Corp. (the "Adviser"), a wholly-owned subsidiary of The
Ohio Company, is the Fund's investment adviser. The Adviser also serves as
investment adviser for The Cardinal Fund, Cardinal Government Securities Money
Market Fund, Cardinal Tax Exempt Money Market Fund, Cardinal Balanced Fund and
Cardinal Aggressive Growth Fund. (See page __.)
DIVIDENDS . . . . . . . . . . . . . . . . . . Dividends are declared daily and distributions are generally made monthly as
the Fund shall determine. Long-term capital gains, if any, are distributed
annually. (See page__.)
</TABLE>
- 4 -
<PAGE> 36
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees After Fee Waiver(1) 0
Other Expenses(2) .24
----
Total Fund Operating Expenses After Fee Waiver .74%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years
------ -------
<S> <C> <C>
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $52 $68
<FN>
____________________
1 The Ohio Company, as the Fund's distributor, has agreed with the
Group to waive all of its Rule 12b-1 fees until September 30, 1996. Absent
such waiver, Rule 12b-1 Fees and Total Fund Operating Expenses would be 0.25%
and 0.99%, respectively.
2 "Other Expenses" are based upon estimated amounts for the current
fiscal year.
The purpose of the above table is to assist a potential purchaser of
the Fund's Shares in understanding the various costs and expenses that an
investor in the Fund will bear directly or indirectly. See "WHO MANAGES MY
INVESTMENT IN THE FUND?" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of the Fund. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
__________________
</TABLE>
PERFORMANCE INFORMATION
From time to time the Fund may advertise its average annual total
return, cumulative return and/or yield. SUCH RETURN AND YIELD FIGURES ARE
BASED UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The average annual total return advertised by the Fund refers to
the return generated by an
- 5 -
<PAGE> 37
investment in the Fund over certain specified periods since the
establishment of the Fund. The average annual total return over a period
equates the amount of an initial investment in the Fund to the amount
redeemable at the end of that period assuming that any dividends and
distributions earned by an investment in the Fund are immediately reinvested
and the maximum applicable sales charge (currently 4.5%) is deducted from the
initial investment at the time of investment. Such figure is then annualized.
The cumulative return advertised refers to the total return on a hypothetical
investment over the relevant period and equates the amount of an initial
investment in the Fund to the amount redeemable at the end of that period
assuming that any dividends and distributions are immediately reinvested and
the maximum sales charge is deducted from the initial investment. Yield will
be computed by dividing the Fund's net investment income per share earned
during a recent one-month period by the Fund's per share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. If the
sales charge were not deducted, the average annual total return, cumulative
return and yield advertised would be higher.
In addition, from time to time the Fund may include in its sales
literature and shareholder reports a quote of the current "distribution" rate
for the Fund. A distribution rate is simply a measure of the level of
dividends distributed for a specified period and is computed by dividing the
total amount of dividends per share paid by the Fund during the past 12 months
by a current maximum offering price. It differs from yield, which is a measure
of the income actually earned by the Fund's investments, and from total return,
which is a measure of the income actually earned by, plus the effect of any
realized and unrealized appreciation or depreciation of, such investments
during a stated period. A distribution rate is, therefore, not intended to be
a complete measure of performance. A distribution rate may sometimes be
greater than yield since, for instance, it may include short-term and possibly
long-term gains (which may be non-recurring), may not include the effect of
amortization of bond premiums and does not reflect unrealized gains or losses.
Investors may also judge the performance of the Fund by comparing or
referencing its performance to the performance of other mutual funds or mutual
fund portfolios with comparable investment objectives and policies through
various mutual fund or market indices such as those prepared by Dow Jones &
Co., Inc., and Standard & Poor's Corporation, and to data prepared by Lipper
Analytical Services, Inc., Morningstar, Inc. and CDA Investment Technologies,
Inc. Comparisons may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, The
Columbus Dispatch, Business Week,
- 6 -
<PAGE> 38
U.S.A. Today and Consumer Reports. In addition to performance information,
general information about the Fund that appears in a publication such as those
mentioned above may be included in advertisements and in reports to
shareholders.
Further information about the performance of the Fund is contained in
the Fund's Annual Report to Shareholders which may be obtained without charge
by contacting the Fund at the telephone number set forth on the cover page of
this Prospectus.
WHAT IS THE FUND?
The Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
has been organized for the purpose of acquiring all of the assets and
liabilities of Cardinal Government Obligations Fund ("CGOF") to effect a
reorganization of CGOF from a stand-alone investment company to a separate
series of the Group.
The Fund is designed for individuals, corporations, fiduciaries, and
institutions who wish to invest for current income in a diversified,
professionally managed portfolio of securities issued by the U.S. Government
and securities directly guaranteed by the full faith and credit of the U.S.
Government -- without having to become involved in the detailed accounting and
safekeeping procedures normally associated with direct investment in these
securities.
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?
IN GENERAL
The Fund's investment objectives are to maximize safety of capital
and, consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
The Fund's investment objectives are a fundamental policy of the Fund,
which means that they may be changed only with the approval of a majority of
the outstanding Shares of the Fund (as defined below under "WHAT ARE MY RIGHTS
AS A SHAREHOLDER?"). There can be no assurance that the investment objectives
of the Fund will be achieved.
- 7 -
<PAGE> 39
Under normal market conditions, the Fund will invest substantially
all, but in no event less than 65% of the value of its total assets, in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities"). The Fund may also invest,
under normal market conditions, in the fixed income instruments described below
and in repurchase agreements. It may also engage in the options transactions
described below.
The Fund may, for daily cash management purposes, invest in high
quality money market securities and in repurchase agreements. In addition, the
Fund may invest, without limit, in any combination of U.S. Government
Securities, money market securities and repurchase agreements when, in the
opinion of the Adviser, it is determined that a temporary defensive position is
warranted based upon current market conditions. The Fund may also invest in
securities of other investment companies, as described more fully below.
The types of U.S. Government Securities invested in by the Fund will
include obligations issued by or guaranteed as to payment of principal and
interest by the full faith and credit of the U.S. Treasury, such as Treasury
bills, notes, bonds and certificates of indebtedness, and obligations issued or
guaranteed by the agencies or instrumentalities of the U.S. Government, but not
supported by such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association ("Ginnie Mae") and the Export-Import Bank of the United
States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government sponsored
agencies or instrumentalities if it is not obligated to do so by law. The Fund
will invest in the obligations of such agencies or instrumentalities only when
the Adviser believes that the credit risk with respect thereto is minimal.
Certain securities held by the Fund may have mortgage obligations
backing such securities, including among others, conventional thirty year fixed
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled
- 8 -
<PAGE> 40
together and undivided interests in the pool or pools are sold.
The cash flow from the mortgage obligations is passed through to
the holders of the securities in the form of periodic payments of
interest, principal and prepayments (net of a service fee) .
Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage
obligation's scheduled maturity date. As a result of the pass-
through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the
realized yield or average life of a particular issue of pass-
through certificates. Prepayment rates are important because of
their effect on the yield and price of the securities. Accelerated
prepayments have an adverse impact on yields for pass-through
certificates purchased at a premium (i.e., a price in excess of
principal amount) and may involve additional risk of loss of
principal because the premium may not have been fully amortized at
the time the obligation is repaid. The opposite is true for pass-
through certificates purchased at a discount. The Fund may
purchase mortgage-related securities at a premium or at a discount.
Reinvestment of principal payments may occur at higher or lower
rates than the original yield on such securities. Due to the
prepayment feature and the need to reinvest payments and
prepayments of principal at current rates, mortgage-related
securities can be less effective than typical bonds of similar
maturities at maintaining yields during periods of declining
interest rates.
Certain debt securities such as, but not limited to, mortgage
backed securities, as well as other securities subject to
prepayment of principal prior to the stated maturity date, are
expected to be repaid prior to their stated maturity dates. As a
result, the effective maturity of these securities is expected to
be shorter than the stated maturity. For purposes of calculating
the Fund's weighted average portfolio maturity, the effective
maturity of such securities will be used.
Under present market conditions, the Fund expects to invest a
substantial amount of its portfolio in Ginnie Mae certificates,
which are mortgage-backed securities representing part ownership in
a specific pool of mortgage loans insured by the Federal Housing
Administration or Farmers Home Administration or guaranteed by the
Veterans Administration. Should market or economic conditions
warrant, this practice may be changed at the discretion of the
Adviser. Ginnie Mae guarantees the timely payment of monthly
installments of principal and interest on its certificates, when
due, whether or not payments are received on the underlying
mortgage loans, and the full faith and credit of the United States
- 9 -
<PAGE> 41
is pledged to the timely payment by Ginnie Mae of such principal and interest.
Although the mortgage loans in the pool underlying a Ginnie Mae
certificate will have maturities of up to thirty years, the actual average life
of the Ginnie Mae certificates typically will be substantially less because the
mortgage loans will be subject to normal principal amortization and may be
prepaid prior to maturity. Prepayment rates vary widely and may be affected by
changes in market interest rates and general economic conditions. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the Ginnie Mae certificates and
shortening the period of time over which income at the higher rate is received.
Conversely, when interest rates are rising, the rate of prepayment tends to
decrease, thereby lengthening the actual average life of the Ginnie Mae
certificates and extending the period of time over which income at the lower
rates is received. Accordingly, it is not possible to accurately predict the
average life of a particular pool. Standard practice is to treat Ginnie Mae
certificates as having effective maturities of twelve years. Reinvestment of
principal payments may occur at higher or lower rates than the original yield
on the certificates. Due to the prepayment feature and the need to reinvest
payments and prepayments of principal at current rates, Ginnie Mae certificates
can be less effective than typical bonds of similar maturities at maintaining
yields during periods of declining interest rates.
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in the Fund
entails certain risks. The value of the Fund's portfolio securities, and
therefore the Fund's net asset value per share, may increase or decrease due to
various factors, principally changes in prevailing interest rates. Generally,
a rise in interest rates will result in a decrease in the Fund's net asset
value per share, while a drop in interest rates will result in an increase in
the Fund's net asset value per share.
The Fund may invest in put and call options and futures, as described
below. Such instruments are considered to be derivatives. A derivative is
generally defined as an instrument whose value is based upon, or derived from,
some underlying index, reference rate (e.g., interest rates), security,
commodity or other asset. The Fund will not invest more than 10% of its total
assets in such derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, the Fund
would acquire securities from a financial institution such as a
well-established securities dealer or a bank
- 10 -
<PAGE> 42
which is a member of the Federal Reserve System which the Adviser deems
creditworthy under guidelines approved by the Group's Board of Trustees. At the
time of purchase, the bank or securities dealer agrees to repurchase the
underlying securities from the Fund at a specified time and price. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security.
The Fund will only enter into a repurchase agreement where (i) the underlying
securities are of the type which the Fund's investment policies would allow it
to purchase directly, (ii) the market value of the underlying security,
including interest accrued, will be at all times equal to or exceed the value
of the repurchase agreement, and (iii) payment for the underlying securities is
made only upon physical delivery or evidence of book-entry transfer to the
account of the Fund's custodian or a bank acting as agent. The Adviser will be
responsible for continuously monitoring such requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund may also
purchase securities on a when-issued or delayed-delivery basis. The Fund will
engage in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objectives and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. The Fund will
not pay for such securities or start earning interest on them until they are
received. When the Fund agrees to purchase such securities, its custodian will
set aside cash or liquid securities equal to the amount of the commitment in a
separate account. Securities purchased on a when-issued basis are recorded as
an asset and are subject to changes in the value based upon changes in the
general level of interest rates. In when- issued and delayed-delivery
transactions, the Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss a price or yield
considered to be advantageous.
The Fund's commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual market conditions.
In the event that its commitments to purchase when-issued securities ever
exceed 25% of the value of its assets, the Fund's liquidity and the ability of
the Adviser to manage it might be adversely affected.
PUT AND CALL OPTIONS. Subject to its investment policies and for
purposes of hedging against market risks related to its portfolio securities,
the Fund may purchase put and call options on securities. Purchasing options
is a specialized investment
- 11 -
<PAGE> 43
technique that entails a substantial risk of a complete loss of the amounts
paid as premiums to writers of options. The Fund will purchase put options
only on securities in which the Fund may otherwise invest. The Fund may also
engage in writing call options from time to time as the Adviser deems
appropriate. The Fund will write only covered call options (options on
securities owned by the Fund). In order to close out a call option it has
written, the Fund will enter into a "closing purchase transaction" -- the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which the Fund previously has written. When
a portfolio security subject to a call option is sold, the Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If the Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or
the Fund delivers the underlying security upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio
securities subject to such options would exceed 25% of the net assets of the
Fund.
The Fund, as part of its option transactions, also may purchase index
put and call options and write index options. As with options on individual
securities, the Fund will write only covered index call options. Through the
writing or purchase of index options the Fund can achieve many of the same
objectives as through the use of options on individual securities. Options on
securities indices are similar to options on a security except that, rather
than the right to take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
Price movements in securities which the Fund owns or intends to
purchase probably will not correlate perfectly with movements in the level of
an index and, therefore, the Fund bears the risk of a loss on an index option
that is not completely offset by movements in the price of such securities.
Because index options are settled in cash, a call writer cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific securities, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities. The
Fund may be required to segregate assets or provide an initial margin to cover
index options that would require it to pay cash upon exercise.
FUTURES CONTRACTS. The Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities or an index, purchase or
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<PAGE> 44
sell options on any such futures contracts and engage in related closing
transactions. A futures contract on a securities index is an agreement
obligating either party to pay, and entitling the other party to receive, while
the contract is outstanding, cash payments based on the level of a specified
securities index.
The Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, the Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market
values are expected to rise, the Fund, through the purchase of such contracts,
can attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of the Fund's total
assets, and the value of securities that are the subject of such futures and
options (both for receipt and delivery) may not exceed one-third of the market
value of the Fund's total assets. Futures transactions will be limited to the
extent necessary to maintain the Fund's qualification as a regulated investment
company.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase
securities. The Fund may lose the expected benefit of futures transactions if
interest rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of
the Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting the Fund's
ability to hedge effectively against interest rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of
the value of its total assets in the securities of other investment companies
subject to the limitations set forth in the 1940 Act. The Fund intends to
invest in the securities of other
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<PAGE> 45
investment companies which, in the opinion of the Adviser, will assist
the Fund in achieving its objectives and in money market mutual funds for
purposes of short-term cash management. The Fund's investment in such other
investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on the Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Fund's
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of the Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund will not:
1. Purchase securities of any one issuer, 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 the value of the Fund's total assets would be invested
in such issuer, or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that up to 25% of
the value of the Fund's total assets may be invested without regard to
such limitations. There is no limit to the percentage of assets that
may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
2. Purchase any securities which would cause more than
25% of the value of the Fund's total assets at the time of purchase to
be invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that:
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing
the activities of their parents; and (c) utilities will be divided
according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry.
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<PAGE> 46
3. Borrow money or issue senior securities, except that
the Fund may borrow from banks or enter into reverse repurchase
agreements or dollar roll agreements for temporary purposes in amounts
up to 10% of the value of its total assets at the time of such
borrowing and except as permitted pursuant to an exemption from the
1940 Act. The Fund will not purchase securities while its borrowings
(including reverse repurchase agreements and dollar roll agreements)
exceed 5% of its total assets.
4. Make loans, except that the Fund may purchase or hold
debt instruments and lend portfolio securities in accordance with its
investment objectives and policies, make time deposits with financial
institutions and enter into repurchase agreements.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of the Fund. The Fund may
not:
1. Purchase or otherwise acquire any securities, if as a
result, more than 15% of the Fund's net assets would be invested in
securities that are illiquid.
HOW DO I PURCHASE SHARES OF THE FUND?
GENERAL
The Fund's Shares may be purchased at the public offering price, as
described below under "Public Offering Price," through The Ohio Company,
principal underwriter of the Fund's Shares, at its address and telephone number
set forth on the cover page of this Prospectus, and through other
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and have sales agreements with The Ohio Company.
Subsequent purchases of Shares of the Fund may be made by ACH
processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -
ACH Processing" below. In addition, if an Account Information Form has
previously been received by The Ohio Company, Shares may also be purchased by
wiring funds to the Fund's custodian. Prior to wiring any such funds and to in
order to ensure that wire orders are invested properly, you must call The Ohio
Company to obtain the necessary instructions and information.
The minimum initial investment for individuals is $1,000, except the
initial investment for an applicant investing by means of the Automatic
Investment Plan, as described below, must be at least $50. Subsequent
investments must be in amounts of at least $50.
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<PAGE> 47
The Group reserves the right to reject any order for the purchase of
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Shares
owned by you and the number of Shares being held in safekeeping by Cardinal
Management Corp., as the Fund's transfer agent (the "Transfer Agent"), for your
account. Certificates representing Shares will not be issued.
PUBLIC OFFERING PRICE
The public offering price of Shares of the Fund is the net asset value
per share (see "HOW IS NET ASSET VALUE CALCULATED?") next determined after
receipt by The Ohio Company, its agents or broker-dealers with whom it has an
agreement, of an order and payment, plus a sales charge as follows:
<TABLE>
<CAPTION>
Sales Charge As a Percentage
as a of Offering Price
Percentage -----------------
Amount of of the Net Sales Dealer's
Single Transaction Amount Invested Charge Concession
------------------ --------------- ------ ----------
<S> <C> <C> <C>
Less than $100,000 4.71% 4.50% 4.00%
$100,000 but less than $250,000 3.63 3.50 3.00
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 1.52 1.50 1.00
$1,000,000 or more 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the
computation of net asset value per share.)
The above charges on investments of $100,000 or more are applicable to
purchases made at one time by an individual, or an individual, his spouse and
their children not of legal age, or a trustee, guardian or other like fiduciary
of certain single trust estates or certain single fiduciary accounts.
No sales charge is imposed on purchases of Shares by (1) officers,
trustees, and employees of the Group, (2) full-time employees of The Ohio
Company or the Adviser who have been such for at least 90 days or by qualified
retirement plans for such persons, or (3) accounts or trusts which are managed
and advised in whole or in part by The Ohio Company or the Adviser.
From time to time, The Ohio Company, from its own resources, may also
provide additional compensation to securities dealers in connection with sales
of Shares of the Cardinal Funds. Such compensation will include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales
- 16 -
<PAGE> 48
campaigns and/or shareholder services and programs regarding one or more
of the Cardinal Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Cardinal Funds. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Securities dealers may not use sales of the Fund's Shares to qualify
for this compensation to the extent such may be prohibited by the laws of any
state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. In addition, The Ohio Company may make ongoing
payments to brokerage firms, financial institutions (including banks) and
others to facilitate the administration and servicing of shareholder accounts.
None of the aforementioned additional compensation is paid for by the Fund or
its shareholders.
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly
or quarterly investments, in the minimum amount of $50 per transaction, from
your checking account. Assuming the cooperation of your financial institution,
your checking account therein will be debited to purchase Shares of the Fund on
the periodic basis you select. Confirmation of your purchase of Fund Shares
will be provided by the Transfer Agent. The debit of your checking account
will be reflected in the checking account statement you receive from your
financial institution. Please contact The Ohio Company for the appropriate
form.
MAY MY TAX SHELTERED RETIREMENT
PLAN INVEST IN THE FUND?
Shares of the Fund qualify for purchase in connection with the
following tax sheltered retirement plans:
-- Individual retirement account ("IRAs") plans
-- Simplified Employee Pension Plans
-- 403(b)(7) Custodial Plans sponsored by certain tax-exempt
employers
-- Pension, profit-sharing and 401(k) plans qualifying under
Section 401(a) of the Internal Revenue Code
- 17 -
<PAGE> 49
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to
purchase $100,000 or more of Shares of the Fund and of any other Cardinal Fund
sold with a sales charge (a "Cardinal Load Fund") during any 13-month period
you may sign a letter of intention to that effect obtained from The Ohio
Company and pay the reduced sales charge applicable to the total amount of
Shares to be so purchased. The 13-month period during which the Letter of
Intention is in effect will begin on the date of the earliest purchase to be
included. In addition, trustees, guardians or other like fiduciaries of single
trust estates or certain single fiduciary accounts may take advantage of the
quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase
the full amount indicated. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in your name) to secure
payment of the higher sales charge applicable to the Shares actually purchased.
If the full amount indicated is not purchased, such escrowed Shares will be
involuntarily redeemed to pay the additional sales charge, if necessary.
Dividends on escrowed Shares, whether paid in cash or reinvested in additional
Shares of the applicable Cardinal Load Fund, are not subject to escrow. The
escrowed Shares will not be available for disposal by you until all purchases
pursuant to the letter of intention have been made or the higher sales charge
has been paid. When the full amount indicated has been purchased, the escrow
will be released. To the extent that you purchase more than the dollar amount
indicated on the Letter of Intention and qualify for a further reduced sales
charge, the sales charge will be adjusted for the entire amount purchased at
the end of the 13-month period. The difference in sales charge will be, as you
instruct, either delivered to you in cash or used to purchase additional Shares
of the Cardinal Load Fund designated by you subject to the rate of sales charge
applicable to the actual amount of the aggregate purchases. This program,
however, may be modified or eliminated at any time or from time to time by the
Group without notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the
privilege of combining "concurrent purchases" of Shares of the Fund and of one
or more of the other Cardinal Load Funds. For example, if you concurrently
purchase Shares of the Fund at the total public offering price of $50,000 and
shares of another Cardinal Load Fund at the total public offering price of
$50,000,
- 18 -
<PAGE> 50
the sales charge would be that applicable to a $100,000 purchase as shown in
the table above. "Concurrent purchases," as described above, shall include
the combined purchases of you, your spouse and your children not of legal age.
To receive the applicable public offering price pursuant to this privilege,
you must, at the time of purchase, give The Ohio Company sufficient
information to permit confirmation of qualification. This privilege, however,
may be modified or eliminated at any time or from time to time by the Group
without notice thereof.
RIGHTS OF ACCUMULATION
After your initial purchase of Shares you may also be eligible to pay
a reduced sales charge for your subsequent purchases of Shares where the total
public offering price of Shares then being purchased plus the then aggregate
current net asset value of Shares of the Fund and of shares of any Cardinal
Load Fund held in your account equals $100,000 or more. You would be able to
purchase Shares at the public offering price applicable to the total of (a) the
total public offering price of the Shares of the Fund then being purchased plus
(b) the then current net asset value of Shares of the Fund and of shares of any
other Cardinal Load Fund held in your account. For purposes of determining the
aggregate current net asset value of Shares held in your account, you may
include Shares then owned by your spouse and children not of legal age.
You may obtain additional information about the foregoing special
purchase method from The Ohio Company. You are responsible for notifying The
Ohio Company at the time of purchase when purchases may be accumulated to take
advantage of the reduced sales charge. This program, however, may be modified
or eliminated at any time or from time to time by the Group without notice
thereof.
WHAT DISTRIBUTIONS WILL I RECEIVE?
A dividend consisting of net income is declared daily to Shareholders
of the Fund at the close of business on the day of declaration, and such
dividends are generally paid monthly. Dividends consisting of long-term
capital gains normally will be distributed only once annually. Dividends and
distributions will be paid only in additional Shares and not in cash; except,
however, that for dividends and distributions of $10 or more, a shareholder may
specifically request that such amounts be paid to him in cash. Dividends are
paid in cash not later than seven days after a shareholder's complete
redemption of his Shares in the Fund.
Shareholders may also elect to receive dividends and distributions in
cash by using ACH processing as described under "WHAT OTHER SHAREHOLDER
PROGRAMS ARE PROVIDED? - ACH Processing" below.
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<PAGE> 51
HOW MAY I REDEEM MY SHARES?
Investors may redeem Shares of the Fund at the net asset value per
share next determined following the receipt by the Transfer Agent, 215 East
Capital Street, Columbus, Ohio 43215, of written or telephonic notice to
redeem, as described more fully below. See "HOW IS NET ASSET VALUE
CALCULATED?", below, for a description of when net asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his Shares and may
charge a fee for such services.
The Group will make payment for redeemed Shares as promptly as
practicable but in no event more than seven days after receipt by the Transfer
Agent of the foregoing notice. The Group reserves the right to delay payment
for the redemption of Shares where such Shares were purchased with other than
immediately available funds, but only until the purchase payment has cleared
(which may take fifteen or more days from the date the purchase payment is
received by the Fund). The purchase of Fund Shares by wire transfer of federal
funds would avoid any such delay.
The Group intends to pay cash for all Shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Group may make
payment wholly or partly in portfolio securities at their then market value
equal to the redemption price. In such cases, an investor may incur brokerage
costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment
during any period the determination of net asset value is suspended. See "HOW
IS NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem, at net asset value, involuntarily Shares in any account at the
then current net asset value if at any time redemptions (but not as a result of
a decrease in the market price of such Shares or the deduction of any sales
charge) have reduced a shareholder's total investment in the Fund to a net
asset value below $500. A shareholder will be notified in writing that the
value of Fund Shares in the account is less than $500 and allowed 30 days to
increase his investment in the Fund to $500 before the redemption is processed.
Proceeds of redemptions so processed, including dividends declared to the date
of redemption, will be promptly paid to the shareholder.
- 20 -
<PAGE> 52
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Fund by submitting a
written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however, that the address of
record has not been changed within the preceding 15 days. For purposes of this
policy, an "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in the Securities
Exchange Act of 1934. The Transfer Agent reserves the right to reject any
signature guarantee if (1) it has reason to believe that the signature is not
genuine or (2) it has reason to believe that the transaction would otherwise be
improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Fund by calling the
Group at the telephone numbers set forth on the front of this Prospectus. The
Shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Fund nor its service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Group's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Group will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Group, the Fund
or its service providers may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures may include recording all phone
conversations, sending confirmations to shareholders within 72 hours of the
telephone transaction, and verification of account name and account number or
tax identification number. If, due to temporary adverse conditions, investors
are unable to effect telephone transactions, shareholders may also redeem their
Shares by mail as described above.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
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<PAGE> 53
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Shares of the Fund having a total value of
$25,000 or more at the current net asset value, you may elect to redeem your
Shares monthly or quarterly in amounts of $50 or more, pursuant to the Fund's
Systematic Withdrawal Plan. Please contact The Ohio Company for the
appropriate form.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Shares and/or electronically transfer
distributions paid on Fund Shares, in addition to the other methods described
in this Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Shareholders of the Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made
in states where it is legally authorized, exchange Shares of the Fund for
shares of:
Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of
capital (upon the payment of the appli-
cable sales charge);
Cardinal Balanced Fund,
a fund seeking current income and long-term
growth of both capital and income (upon
the payment of the applicable sales charge);
The Cardinal Fund,
an equity fund seeking long-term growth
of capital and income (upon the payment of
the applicable sales charge);
Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund
(without payment of any sales charge); or
Cardinal Tax Exempt Money Market Fund,
a tax-free money market fund
(without payment of any sales charge).
- 22 -
<PAGE> 54
Notwithstanding the foregoing and subject to the limitations contained
in the following paragraph, (i) exchanges by holders of Fund Shares, for whom
the sales charge has been waived, for shares of a Cardinal Load Fund may be
completed without the payment of a sales charge, and (ii) exchanges of Fund
Shares by all other shareholders for shares of a Cardinal Load Fund may be
completed upon the payment of a sales charge equal to the difference, if any,
between the sales charge payable upon purchase of shares of such Cardinal Load
Fund and the sales charge previously paid on the Fund Shares to be exchanged.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is
requested to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of the Fund by telephone. Neither the Group, the Fund
nor any of its service providers will be liable for any loss, damages, expense
or cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new
purchase. However, a shareholder may not include any sales charge on Shares of
the Fund for purposes of calculating the gain or loss realized upon an exchange
of those Shares within 90 days of their purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Fund 60 days'
advance written notice of any such modification or termination.
HOW IS NET ASSET VALUE CALCULATED?
The net asset value of the Fund is determined once daily as of 4:00
P.M. Eastern Time, on each Business Day. A "Business Day" is a day on which
the New York Stock Exchange is open for business and any other day (other than
a day on which no Shares of the Fund are tendered for redemption and no order
to purchase any Shares of the Fund is received) during which there is a
sufficient degree of trading in the Fund's portfolio securities that the net
asset value might be materially affected by changes in the value of the
portfolio securities. The net asset value per share of the Fund is
- 23 -
<PAGE> 55
computed by dividing the sum of the value of the Fund's portfolio securities
plus any cash and other assets (including interest and dividends accrued but not
received) minus all liabilities (including estimated accrued expenses) by the
total number of Shares then outstanding.
The net asset value per share will fluctuate as the value of the
investment portfolio of the Fund changes.
Portfolio securities for which over-the-counter market quotations are
readily available are valued at the bid price. The Fund uses one or more
pricing services to provide such market quotations. Securities and other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Trustees of the Group.
Determination of the net asset value may be suspended at times when
(a) trading on the New York Stock Exchange is restricted by applicable rules
and regulations of the Commission, (b) the New York Stock Exchange is closed
for other than customary weekend and holiday closings, (c) an emergency exists
as a result of which disposal by the Group of portfolio securities owned by the
Fund or valuation of net assets of the Fund is not reasonably practicable, or
(d) the Commission has by order permitted such suspension.
DOES THE FUND PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Fund, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Code for so long as such qualification
is in the best interest of that fund's shareholders. Qualification as a
regulated investment company under the Code requires, among other things, that
the regulated investment company distribute to its shareholders at least 90% of
its investment company taxable income. The Fund contemplates declaring as
dividends 100% of the Fund's investment company taxable income (before
deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
- 24 -
<PAGE> 56
WHAT ABOUT MY TAXES?
It is expected that the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal
income tax purposes, even if paid in additional Shares of the Fund and not in
cash. Since all of the Fund's net investment income is expected to be derived
from earned interest and short-term capital gains, it is anticipated that no
part of any distribution will be eligible for the dividends-received deduction
for corporations.
Distribution by the Fund of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term
capital gain in the year in which it is received, regardless of how long the
shareholder has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
If the net asset value of a Share is reduced below the shareholder's
cost of that Share by the distribution of income or gain realized on the sale
of securities, the distribution is a return of invested principal, although
taxable as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of
such dividends or distributions, although in effect a return of capital, is
subject to tax.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Potential investors in the Fund are urged to consult their tax advisers
concerning the application of federal, state and local taxes as such laws and
regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
WHO MANAGES MY INVESTMENT IN THE FUND?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's
Trustees, who are elected by the shareholders of the Group's funds and who are
empowered to elect officers and contract
- 25 -
<PAGE> 57
with and provide for the compensation of agents, consultants and other
professionals to assist and advise it in its day-to-day operations. The Group
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting
as investment adviser and manager and as dividend and transfer agent. The Ohio
Company receives no fees under its Distribution Agreement with the Group but
may retain all or a portion of the sales charge and may receive fees under the
Distribution Plan discussed below.
INVESTMENT ADVISER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of the Fund. The Adviser is also the investment
adviser and manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock Exchange, the Midwest Stock Exchange, other
regional stock exchanges and the National Association of Securities Dealers,
Inc. Descendants of H.P. and R.F. Wolfe, deceased, and members of their
families, through their possession of a majority of a voting stock, may be
considered controlling persons of The Ohio Company.
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Fund's investment objectives and policies, manages the Fund, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since the Fund's inception, John R. Carle has been
primarily responsible for the day-to-day management of the Fund's portfolio.
Mr. Carle has been a portfolio manager with the Adviser and/or The Ohio Company
since 1971. In addition, pursuant to the Investment Advisory Agreement, the
Adviser generally assists in all aspects of the Fund's administration and
operation.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Group with respect to the Fund, the
Adviser receives a fee from the Fund, computed daily and paid monthly at the
annual rate of .50% of average net daily assets
- 26 -
<PAGE> 58
of the Fund. The Adviser may, however, periodically waive all or a portion
of its advisory fee with respect to the Fund to increase the net income of
the Fund available for distribution as dividends. The waiver of such fee
will cause the yield of the Fund to be higher than it would otherwise be in the
absence of such a waiver.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement with Cardinal Management Corp. (the "Transfer Agent"), 215 East
Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer Agent has
agreed to act as the Fund's transfer agent and dividend disbursing agent. In
consideration of such services, the Fund has agreed to pay the Transfer Agent
an annual fee, paid monthly, equal to $21 per shareholder account plus
out-of-pocket expenses. In addition, the Transfer Agent provides certain fund
accounting services for the Fund. The Transfer Agent receives a fee from the
Fund for such services equal to a fee computed daily and paid periodically at
an annual rate of .03% of the Fund's average daily net assets.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Fund will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an officer
and trustee of the Group and an officer and director of The Ohio Company. Frank
W. Siegel is an officer and trustee of the Group and an officer of The Ohio
Company. Barry C. McMahon, John Bevilacqua, David C. Will and James M. Schrack
II are officers of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund. The Fund will bear the following expenses relating to
its operations: organizational expenses, taxes, interest, any brokerage fees
and commissions, fees and expenses of the Trustees of the Group, Commission
fees, state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to the Fund's current
shareholders, outside auditing and legal expenses, advisory fees, fees and
out-of-pocket expenses of the custodian and Transfer Agent, costs for
independent pricing services, certain insurance premiums, costs of maintenance
of the Group's existence, costs of shareholders' reports and meetings,
distribution expenses incurred pursuant to the Distribution and
- 27 -
<PAGE> 59
Shareholder Service Plan described below, and any extraordinary expenses
incurred in the Fund's operation.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a
Distribution and Shareholder Service Plan (the "Plan"), under which the Fund is
authorized to pay or reimburse The Ohio Company, as the Fund's principal
underwriter, a periodic amount calculated at an annual rate not to exceed
twenty-five one-hundredths of one percent (.25%) of the average daily net asset
value of the Fund. Such amount may be used by The Ohio Company to pay
broker-dealers (including The Ohio Company), banks and other institutions (a
"Participating Organization") for distribution and/or shareholder service
assistance pursuant to an agreement between The Ohio Company and the
Participating Organization or for distribution assistance and/or shareholder
service provided by The Ohio Company pursuant to an agreement between The Ohio
Company and the Group. Under the Plan, a Participating Organization may
include The Ohio Company, its subsidiaries, and its affiliates. The Ohio
Company may from time to time waive all or a portion of the fees payable to it
pursuant to the Plan. Any such waiver will cause the total return and yield of
the Fund to be higher than it would otherwise be absent such a waiver.
As authorized by the Plan, The Ohio Company has entered into a Rule
12b-1 Agreement with the Group pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Shares of the Fund
purchased and held by The Ohio Company for the accounts of its customers and
Shares of the Fund purchased and held by customers of The Ohio Company directly,
including, but not limited to, answering shareholder questions concerning the
Fund, providing information to shareholders on their investments in the Fund and
providing such personnel and communication equipment as is necessary and
appropriate to accomplish such matters. In consideration of such services the
Group has agreed to pay The Ohio Company a monthly fee, computed at the annual
rate of .25% of the average aggregate net asset value of Shares held during the
period in customer accounts for which The Ohio Company has provided services
under this Agreement. Such fees paid by the Group will be borne solely by the
Fund. Such fee may exceed the actual costs incurred by The Ohio Company in
providing such services.
In addition, The Ohio Company may enter into, from time to time, other
Rule 12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain Shareholder services such as those described above.
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<PAGE> 60
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third") 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In
such capacity, Fifth Third will hold or arrange for the holding of all
portfolio securities and other assets acquired and owned by the Fund.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23, 1993.
The Group currently consists of six funds, each having its own class of shares.
The other funds of the Group are Cardinal Balanced Fund, Cardinal Aggressive
Growth Fund, The Cardinal Fund, Cardinal Government Securities Money Market
Fund and Cardinal Tax Exempt Money Market Fund. Each share represents an equal
proportional interest in a fund with other shares of the same fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that fund as are declared at the discretion of the
Trustees.
Shareholders are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested, and will vote in the aggregate and not by series except as otherwise
expressly required by law. For example, shareholders of the Fund will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, shareholders of the Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of amendments to
the Fund's investment advisory agreement, the Plan or any of the Fund's
fundamental policies.
Overall responsibility for the management of the Fund is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?"
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and Ohio law.
See "ADDITIONAL INFORMATION - Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group may elect not to have an annual or special meeting.
- 29 -
<PAGE> 61
The Group has represented to the Commission that the Trustees will
call a special meeting of shareholders for purposes of considering the removal
of one or more Trustees upon written request therefor from shareholders holding
not less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c)
of the 1940 Act. At such meeting, a quorum of shareholders (constituting a
majority of votes attributable to all outstanding shares of the Group), by
majority vote, has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in
any manner it deems fair and equitable. Determinations by the Board of
Trustees of the Group as to the timing of the allocation of general liabilities
and expenses and as to the timing and allocable portion of any general assets
with respect to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser
of (a) 67% or more of the votes of shareholders of the Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
shareholders of record of the Fund are represented in person or by proxy, or
(b) the holders of more than 50% of the outstanding votes of shareholders of
the Fund.
Shareholders should direct all inquiries concerning such matters to
the Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215,
or by calling (800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
- 30 -
<PAGE> 62
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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<PAGE> 63
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C> <C>
PROSPECTUS
PROSPECTUS HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ____________
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
WHAT IS THE FUND? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND? . . . . . . . . . . . . . . . . . . . 7
HOW DO I PURCHASE SHARES OF THE FUND? . . . . . . . . . . . . . . . . . . 15 January __, 1996
MAY MY TAX SHELTERED RETIREMENT
PLAN INVEST IN THE FUND? . . . . . . . . . . . . . . . . . . . . 17
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS? . . . . . . . . . . . . . . . . 18
WHAT DISTRIBUTIONS WILL I RECEIVE? . . . . . . . . . . . . . . . . . . . 19
HOW MAY I REDEEM MY SHARES? . . . . . . . . . . . . . . . . . . . . . . . 20
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? . . . . . . . . . . . . . . 22 THE OHIO COMPANY
HOW IS NET ASSET VALUE CALCULATED? . . . . . . . . . . . . . . . . . . . 23
DOES THE FUND PAY FEDERAL INCOME TAX? . . . . . . . . . . . . . . . . . . 24 CARDINAL GOVERNMENT
WHAT ABOUT MY TAXES? . . . . . . . . . . . . . . . . . . . . . . . . . . 25 OBLIGATIONS FUND
WHO MANAGES MY INVESTMENT IN THE FUND? . . . . . . . . . . . . . . . . . 25
WHAT ARE MY RIGHTS AS A SHAREHOLDER? . . . . . . . . . . . . . . . . . . 29
<FN>
________________
No dealer, salesman or any other person has been authorized
to give any information or to make any representations, other
than those contained in this Prospectus, in connection
with the offer contained in this Prospectus and, if given or
made, such other information or representations must not be
relied upon as having been authorized by the Fund, the Adviser, [LOGO]
or The Ohio Company. This Prospectus does not constitute an CARDINAL FUNDS
offer by the Fund or by The Ohio Company to sell or a
solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful
for the Fund to make such an offer in such jurisdiction.
</TABLE>
-32 -
<PAGE> 64
PROSPECTUS
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
Cardinal Government Securities Money Market Fund (the "Fund") is a
diversified investment fund of The Cardinal Group (the "Group"), an open-end,
management investment company. The Trustees of the Group have divided the
Fund's beneficial ownership into an unlimited number of transferable units
called shares (the "Shares").
The Fund seeks as its investment objectives maximizing current income
while preserving capital and maintaining liquidity. The Fund seeks to attain
its objectives by investing as fully as possible, but in no event less than 80%
of its total assets, in U.S. Treasury bills, notes and bonds, other obligations
issued or guaranteed by the United States, its agencies or instrumentalities,
and repurchase agreements relating to such obligations. All obligations
purchased by the Fund will mature, or be deemed to mature, in thirteen months
or less. There can be no assurance that the Fund's objectives will be
achieved.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED OR
GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE FUND INTENDS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT NET ASSET VALUE
WILL NOT VARY.
The Fund is designed for institutions and individuals who desire
current income that reflects prevailing interest rates for short-term
investments together with a high degree of liquidity and the security of a
portfolio invested only in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements
collateralized by such obligations.
________________________________________________________________________________
For further information regarding the
Fund or for assistance in opening an
account or redeeming Shares,
please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
________________________________________________________________________________
- 1 -
<PAGE> 65
The Prospectus relates only to Cardinal Government Securities
Money Market Fund, currently one of six funds of the Group.
Interested persons who wish to obtain copies of the prospectus of
Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, The Cardinal
Fund, Cardinal Government Obligations Fund or Cardinal Tax Exempt
Money Market Fund, the other funds of the Group (collectively, with
the Fund, the "Cardinal Funds"), should contact The Ohio Company at
the number above. Additional information about the Fund, contained in
a Statement Of Additional Information dated January __, 1996, has been
filed with the Securities and Exchange Commission and is incorporated
herein by reference. Such Statement is available upon request without
charge from the Fund at the above address or by calling the phone
number provided above.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing in the Fund. This
Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
THE OHIO COMPANY
The date of this Prospectus is January __, 1996.
- 2 -
<PAGE> 66
<TABLE>
<CAPTION>
PROSPECTUS HIGHLIGHTS
<S> <C>
INVESTMENT OBJECTIVES . . . . . . . . . . . . The Fund seeks to maximize current income while maintaining liquidity and
preserving capital. (See page ____.)
INVESTMENT POLICIES . . . . . . . . . . . . . The Fund invests as fully as possible, but in no event less than 80% of its
total assets, in short-term obligations issued or guaranteed by the
U.S. Government and its agencies and instrumentalities, and repurchase agreements
secured by such obligations. (See pages ____.)
CURRENT INCOME . . . . . . . . . . . . . . . Dividends are generally credited daily and paid monthly. Such distributions are
automatically reinvested in additional Shares of the Fund without charge.
Dividends may also be received in cash. (See page ___.)
LIQUIDITY . . . . . . . . . . . . . . . . . . Through the free check writing privilege or telephone transfer, Shares may be
redeemed on any Business Day at the net asset value without charge.
(See page ___.)
PURCHASES . . . . . . . . . . . . . . . . . . There is a minimum initial investment of $1,000 with subsequent minimums of
$100. Such minimums may be waived under certain circumstances. (See page __.)
INVESTMENT ADVISER . . . . . . . . . . . . . Cardinal Management Corp. (the "Adviser"), a wholly-owned subsidiary of The
Ohio Company, is the Fund's investment adviser. The Adviser also serves as
investment adviser for The Cardinal Fund, Cardinal Government Obligations Fund,
Cardinal Tax Exempt Money Market Fund, Cardinal Balanced Fund and Cardinal
Aggressive Growth Fund. (See page __.)
</TABLE>
- 3 -
<PAGE> 67
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 0%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees 0
Other Expenses(1) .34
---
Total Fund Operating Expenses .84%
===
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years
------ -------
<S> <C> <C>
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $9 $27
<FN>
</TABLE>
1 "Other Expenses" are based upon estimated amounts for the current
fiscal year.
The purpose of the above table is to assist a potential purchaser of
the Fund's Shares in understanding the various costs and expenses that an
investor in the Fund will bear directly or indirectly. See "WHO MANAGES MY
INVESTMENT IN THE FUND?" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of the Fund. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
__________________
- 4 -
<PAGE> 68
PERFORMANCE INFORMATION
From time to time the Fund may advertise its "yield" or "annualized
yield" and its "effective yield". BOTH YIELD FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" or
"annualized yield" of the Fund refers to the income generated by an investment
in the Fund over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" or "annualized
yield" because of the compounding effect of this assumed reinvestment.
Investors may also judge the performance of the Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard
& Poor's Corporation and to data prepared by Lipper Analytical Services, Inc.
and CDA Investment Technologies, Inc. Comparisons may also be made to indices
or data published in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts,
a nationally recognized money market fund reporting service, Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, The Columbus
Dispatch, Business Week, Consumer Reports and U.S.A. Today. In addition to
performance information, general information about the Fund that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
WHAT IS THE FUND?
The Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
has been organized for the purpose of acquiring all of the assets and
liabilities of Cardinal Government Securities Trust ("CGST") to effect a
reorganization of CGST from a stand alone investment company to a series of the
Group.
- 5 -
<PAGE> 69
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?
IN GENERAL
The investment objectives of the Fund are to maximize current income
while preserving capital and maintaining liquidity. The investment objectives
with respect to the Fund are a fundamental policy and as such may not be
changed without a vote of the holders of a majority of the outstanding Shares
of the Fund (as defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
There can be no assurance that the objectives of the Fund will be achieved.
The Fund seeks to attain its investment objectives by investing as
fully as possible, but in no event less than 80% of its total assets, in U.S.
Treasury bills, notes and bonds, other obligations issued or guaranteed by the
United States, its agencies or instrumentalities and repurchase agreements
relating to such obligations. The Fund will purchase only obligations which
have, or are deemed to have, maturities, from the date of purchase, of thirteen
months or less. Current income earned on such securities may not be as great
as current income that could be earned on lower quality securities that have
less liquidity and/or a greater risk of non-payment or securities that have a
longer term.
Notwithstanding any of the foregoing, the Fund, as a money market fund
subject to Rule 2a-7 of the 1940 Act, must invest exclusively in United States
dollar-denominated instruments which the Trustees of the Group and the Adviser
determine present minimal credit risks and which at the time of acquisition are
rated by one or more appropriate nationally recognized statistical rating
organizations ("NRSROs") (e.g. Standard & Poor's Corporation and Moody's
Investors Service, Inc.) in one of the two highest rating categories for
short-term debt obligations or, if unrated, are of comparable quality. In
addition, the dollar-weighted average maturity of the obligations in the Fund
may not exceed 90 days.
Subject to the foregoing limitations and in order to achieve its
investment objectives, the Fund expects to invest in the following types of
securities.
Direct obligations issued by the U.S. Treasury include bills, notes
and bonds which differ from each other only in interest rates, maturities and
times of issuance: Treasury bills have maturities of one year or less;
Treasury notes have maturities of one to ten years and Treasury bonds generally
have maturities of greater than ten years.
Examples of obligations issued by agencies or instrumentalities of the
U.S. Government include, among others, securities
- 6 -
<PAGE> 70
issued by the General Services Administration, Federal Housing Administration,
Farmers Home Administration, Government National Mortgage Association, Federal
Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks, Federal
Home Loan Mortgage Corporation, Central Bank for Cooperatives, Maritime
Administration, The Tennessee Valley Authority, Washington, D.C. Armory Board,
Export-Import Bank of the United States, the International Bank for
Reconstruction and Development, Federal National Mortgage Association and
Student Loan Marketing Association.
Certain of such U.S. Government obligations may have variable or
floating rates of interest. The Fund intends to invest in variable and
floating rate instruments whose market value, upon reset of the interest rate,
will approximate par value because their interest rates will be tied to
short-term market rates. Some obligations issued or guaranteed by U.S.
Government agencies or instrumentalities are supported by the full faith and
credit of the U.S. Treasury; others by U.S. Treasury guarantees; and others,
such as those issued by Federal Home Loan Banks, by the right of the issuer to
borrow from the Treasury. In addition, some obligations of U.S. Government
agencies or instrumentalities, such as those issued by the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality,
and others, such as those issued by the Student Loan Marketing Association, are
supported solely by the credit of the issuing agency or instrumentality itself.
No assurance can be given that the U.S. Government will provide financial
support to such U.S. Government sponsored agencies or instrumentalities in the
future, since it is not obligated to do so by law. The Fund will invest in
such securities only when it is satisfied that the credit risk with respect to
the issuer is minimal.
RISK FACTORS AND INVESTMENT TECHNIQUES
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, the Fund
would acquire securities from a financial institution such as a well-
established securities dealer or a bank which is a member of the Federal
Reserve System which the Adviser deems creditworthy under guidelines approved
by the Group's Board of Trustees. At the time of purchase, the bank or
securities dealer agrees to repurchase the underlying securities from the Fund
at a specified time and price. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. The Fund will only enter into a
repurchase agreement where (i) the underlying securities are of the type which
the Fund's investment policies would allow it to purchase directly, (ii) the
market value
- 7 -
<PAGE> 71
of the underlying security, including interest accrued, will be at all
times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying securities is made only upon physical delivery or
evidence of book-entry transfer to the account of the Fund's custodian or a bank
acting as agent. The Adviser will be responsible for continuously monitoring
such requirements.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of
the value of its total assets in the securities of other investment companies
subject to the limitations set forth in the 1940 Act. The Fund intends to
invest in the securities of other money market mutual funds for purposes of
short-term cash management. The Fund's investment in such other investment
companies may result in the duplication of fees and expenses, particularly
investment advisory fees. For a further discussion of the limitations on the
Fund's investments in other investment companies, see "INVESTMENT OBJECTIVES
AND POLICIES -- Additional Information on Portfolio Instruments -- Securities
of Other Investment Companies" in the Fund's Statement of Additional
Information.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund may also
purchase securities on a when-issued or delayed-delivery basis. The Fund will
engage in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objectives and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. The Fund will
not pay for such securities or start earning interest on them until they are
received. When the Fund agrees to purchase such securities, its custodian will
set aside cash or liquid securities equal to the amount of the commitment in a
separate account. Securities purchased on a when-issued basis are recorded as
an asset and are subject to changes in the value based upon changes in the
general level of interest rates. In when-issued and delayed-delivery
transactions, the Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause the Fund to miss a price or yield
considered to be advantageous.
The Fund's commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual market conditions.
In the event that its commitments to purchase when-issued securities ever
exceed 25% of the value of its assets,the Fund's liquidity and the ability of
the Adviser to manage it might be adversely affected.
- 8 -
<PAGE> 72
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of the Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund will not:
1. Purchase securities of any one issuer, 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 the value of the Fund's total assets would be invested
in such issuer, or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that up to 25% of
the value of the Fund's total assets may be invested without regard to
such limitations. There is no limit to the percentage of assets that
may be invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
2. Purchase any securities which would cause more than
25% of the value of the Fund's total assets at the time of purchase to
be invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that:
(a) there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) wholly owned
finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of their parents; and (c) utilities will be divided
according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a
separate industry.
3. Borrow money except from banks for temporary or
emergency non-investment purposes, such as to accommodate abnormally
heavy redemption requests, and then only in an amount not exceeding
10% of the value of the Fund's total assets at the time of borrowing;
provided that so long as any borrowings exceed 5% of the value of the
Fund's total assets, the Fund shall not purchase portfolio securities.
4. Make loans, other than by entering into repurchase
agreements to the extent allowed herein and through the purchase of
other obligations in accordance with its investment objective and
policies.
- 9 -
<PAGE> 73
The following additional investment restriction may be changed without
the vote of a majority of the outstanding shares of the Fund.
The Fund may not:
1. Purchase otherwise acquire any securities, if as a
result, more than 10% of the Fund's net assets would be invested in
securities that are illiquid.
HOW DO I PURCHASE SHARES OF THE FUND?
GENERAL
Shares of the Fund are sold on a continuing basis without a sales
charge at the net asset value next determined after an order is received by The
Ohio Company, 155 East Broad Street, Columbus, Ohio 43215, the Fund's principal
underwriter, and federal funds (monies credited to a member bank's account in a
Federal Reserve Bank) are received by The Ohio Company as hereinafter provided.
The minimum initial investment for individuals is $1,000 and subsequent
investments must be in amounts of at least $100. The Fund may, at its
discretion, waive the subsequent investment minimum for purchases effected
through the automatic reinvestment of distributions from unit investment trusts
sponsored by The Ohio Company, and may waive both the initial and subsequent
investment minimums for purchases effected with cash balances in brokerage
accounts of customers of The Ohio Company. Institutions may place orders for
any number of individual accounts with a minimum initial purchase of $1,000 for
each individual account. Subsequent purchases may be made in minimum amounts
of $100 for each individual account. Shares of the Fund may be purchased
through a securities dealer, investment adviser, agent or other fiduciary which
may charge a fee for its services in connection with the purchase. No sales
charge is imposed by the Group or by The Ohio Company.
Subsequent purchases of Shares of the Fund may be made by ACH
processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -
ACH Processing" below. In addition, if an Account Information Form has
previously been received by The Ohio Company, Shares may also be purchased by
wiring funds to the Fund's custodian, as described below under "Purchase by
Federal Funds Wire."
All Shares purchased will be credited to shareholder accounts after
receipt of an order and federal funds by The Ohio Company, at the net asset
value next determined. The Fund currently determines net asset value and enters
purchases and redemptions of its Shares as of 4:00 p.m. Eastern Time on each day
that the New York Stock Exchange is open for business and on such other days on
which there
- 10 -
<PAGE> 74
is a sufficient degree of trading in the Fund's portfolio securities that the
Fund's net asset value might be materially affected by changes in the value of
the portfolio securities ("Business Day"). If a properly completed order and
federal funds (or other immediately available funds) are received at or prior to
12:00 noon Eastern Time on a Business Day, then the purchase will be entered as
of 4:00 p.m. Eastern Time on that day and dividends will commence on that day.
If either federal funds (or other immediately available funds) or the completed
purchase order are received after 12:00 noon Eastern Time (but prior to 4:00
p.m. Eastern Time) Shares will be credited to the shareholder's account as of
4:00 p.m. Eastern Time on that day but will not earn dividends until the
following day.
The Group reserves the right to reject any order for the purchase of
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Shares
owned by you and the number of Shares being held in safekeeping by Cardinal
Management Corp., the Fund's transfer agent (the "Transfer Agent"), for your
account. Certificates representing Shares will not be issued.
From time to time, The Ohio Company, from its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of the Cardinal Funds. Such compensation will include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Cardinal Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Cardinal Funds. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Securities dealers may not use sales of the Fund's Shares to qualify
for this compensation to the extent such may be prohibited by the laws of any
state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. In addition, The Ohio Company may make ongoing
payments to brokerage firms, financial institutions (including banks) and
others to facilitate the administration and servicing of shareholder accounts.
None of the aforementioned additional compensation is paid for by the Fund or
its shareholders.
PURCHASE BY FEDERAL FUNDS WIRE
Investments in Shares of the Fund may be made by wire transfer of
federal funds, avoiding delays of the mail and the normal check clearance
process described below. An investor may telephone the
- 11 -
<PAGE> 75
Fund (464-5511 from Columbus, Ohio; (800) 282-9446, toll free from other
Ohio locations; or (800) 848-7734, toll free from outside Ohio) prior to wire
transfer of its investment to advise the Group of the investment and, if a new
investor, to obtain an account number. If an investor does not telephone the
Group for wire instructions and the investor's wire transfer does not include
sufficient information, such purchase will be delayed until the proper
information is received. An investor must instruct its bank to "wire transfer"
the investment immediately to:
The Huntington National Bank
Account Number 01891688407
Routing Number 044000024
17 South High Street
Columbus, Ohio 43215
Attn: Cardinal Government Securities Fund
[Include Fund Account Number and Name of Account Holder]
Funds transmitted by wire will be invested in Shares of the Fund at
the net asset value next computed after receipt thereof as described above
under "General." A bank may charge for its services in effecting wire
transfers of funds.
PURCHASE BY MAIL
Investment in Shares of the Fund may be made by mail by sending a
check or other negotiable bank draft payable to the order of "Cardinal
Government Securities Money Market Fund" together with, in the case of an
initial purchase, an Application Form to:
Cardinal Government Securities Money Market Fund
155 East Broad Street
Columbus, Ohio 43215
Money transmitted by check drawn on a member of the Federal Reserve
System will normally be converted to federal funds and invested in Shares of
the Fund within one Business Day following receipt by The Ohio Company. Checks
drawn on non-member banks may take considerably longer. The Transfer Agent or
the Group will attempt to notify the investor upon receipt of the latter type
of check as to the possible delay and to arrange for a better means of
transmittal of funds. THE GROUP STRONGLY RECOMMENDS THAT INVESTORS OF
SUBSTANTIAL AMOUNTS USE FEDERAL FUNDS TO PURCHASE SHARES.
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly
or quarterly investments, in the minimum amount of $50 per transaction, from
your checking account. Assuming the cooperation of your financial institution,
your checking account therein will be debited to purchase Shares of the Fund on
the periodic basis you select. Confirmation of your purchase of Fund Shares
will be provided by the Transfer Agent. The debit of your checking account
- 12 -
<PAGE> 76
will be reflected in the checking account statement you receive from your
financial institution. Please contact The Ohio Company for the appropriate
form.
MAY MY TAX SHELTERED RETIREMENT
PLAN INVEST IN THE FUND?
Shares of the Fund qualify for purchase in connection with the
following tax sheltered retirement plans:
-- Individual retirement account ("IRAs") plans
-- Simplified Employee Pension Plans
-- 403(b)(7) Custodial Plans sponsored by certain tax-exempt
employers
-- Pension, profit-sharing and 401(k) plans qualifying under
Section 401(a) of the Internal Revenue Code
WHAT DISTRIBUTIONS WILL I RECEIVE?
The Fund's net income is declared as a dividend and accrued on each
Business Day immediately prior to the determination of the Fund's net asset
value at 4:00 p.m. Eastern Time. Net investment income (from the time of the
immediately preceding declaration) consists of interest accrued on the
portfolio of the Fund (including accrued discount earned and premium
amortized), plus realized net short-term capital gains (losses) due to
portfolio transactions (if any), less the accrued expenses of the Fund
applicable to that dividend period. The Fund does not expect to realize any
long-term capital gains due to its policy of investing in securities maturing
in 13 months or less.
All dividends of net income are credited to each shareholder's account
daily and automatically reinvested in additional Shares of the Fund at the net
asset value on the last Business Day of each month. Shareholders, however, may
elect to receive monthly the dividends of $10 or more declared on their Shares
in cash by checking the appropriate box on the Account Information Form or by
otherwise notifying the Transfer Agent in writing. In addition, investors may
obtain cash at any time without charge by redeeming Shares at net asset value.
If the entire account of a shareholder is withdrawn, all dividends accrued to
the time of withdrawal will be paid at that time.
Shareholders may also elect to receive dividends and distributions in
cash by using ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS
ARE PROVIDED? - ACH Processing" below.
Should the Fund incur or anticipate any extraordinary expense, loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Trustees
- 13 -
<PAGE> 77
would at that time consider whether to adhere to the present dividend
policy described above or to revise it in light of the then-prevailing
circumstances. For example, if the Fund's net asset value per share were
reduced, or expected to be reduced, below $1.00, the Trustees might suspend
further dividend accruals until the net asset value returned to $1.00. Thus,
extraordinary expenses, losses or depreciation may result in no dividends being
accrued for the period during which an investor holds Shares as well as a
redemption price lower than the purchase price for such Shares.
HOW MAY I REDEEM MY SHARES?
Investors may redeem Shares of the Fund on any Business Day at the net
asset value next determined following receipt by the Transfer Agent, 215 East
Capital Street, Columbus, Ohio 43215, of a written or telephonic notice to
redeem, or by check, each as more fully described below. See "HOW IS NET ASSET
VALUE CALCULATED?" below, for a description of when net asset value is
determined.
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his Shares and may
charge a fee for such services.
Proceeds of redemption requests received by the Transfer Agent in
proper form before (1) 4:00 p.m. Eastern Time for shareholders who are
customers of The Ohio Company and who have submitted their redemption request
through their broker at The Ohio Company or (2) 12:00 noon Eastern Time for all
other redemption requests, will be sent by mail on the next Business Day or, if
the expedited redemption option is available, by federal funds wire on the next
Business Day for use on that day.
The Group reserves the right to delay payment for the redemption of
Shares where such Shares were purchased with other than immediately available
funds, but only until the purchase payment has cleared (which may take fifteen
or more days from the date the purchase payment is received by the Fund). The
purchase of Fund Shares by wire transfer of federal funds would avoid any such
delay.
The Group may suspend the right of redemption or may delay payment
during any period the determination of net asset value is suspended. See "HOW
IS NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem involuntarily Shares in any account at the then current net
asset value if at any time redemptions have reduced a shareholder's total
investment to a net asset value below
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<PAGE> 78
$500. A shareholder will be notified in writing that the value of the
account is less than $500 and allowed not less than 30 days to increase the
account to $500 before the redemption is processed. Proceeds of redemptions so
processed, including dividends declared to the date of redemption, will be
promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Fund by submitting a
written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however, that the address of
record has not been changed within the preceding 15 days. For purposes of this
policy, an "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in the Securities
Exchange Act of 1934. The Transfer Agent reserves the right to reject any
signature guarantee if (1) it has reason to believe that the signature is not
genuine or (2) it has reason to believe that the transaction would otherwise be
improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Fund by calling the
Fund at the telephone numbers set forth on the front of this Prospectus. The
Shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Fund nor its service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Fund's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Fund will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Fund or its
service providers may be liable for any losses due tounauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, shareholders may also redeem their
Shares by mail as described above.
- 15 -
<PAGE> 79
EXPEDITED REDEMPTION
Any investor may elect to use the expedited redemption procedure by
designating on the Account Information Form submitted at the time of initial
investment the name of a commercial bank and account number to receive proceeds
of redemption. If this election is made, requests for redemption may be made
by mail or by telephone as described above.
An investor may elect to have redemption proceeds sent by federal
funds wire to the designated U.S. bank account if the proceeds are $1,000 or
more. Otherwise, proceeds will be sent by mail. No signature guarantee will
be required of investors electing this procedure. Requests to change bank or
account designations may only be made in writing to the Fund with the type of
signature guarantee and other documentation specified under "Redemption by
Mail" above. To participate in this procedure, an investor must complete the
expedited redemption portion of the Account Information Form or notify the Fund
at any time after making an initial investment.
An investor may also elect to have redemption proceeds sent by federal
funds wire to The Ohio Company, the Fund's distributor, if the proceeds are
$500 or more. If the investor elects to have federal funds so wired, the
investor may pick up a check at The Ohio Company's main office at 155 East
Broad Street, Columbus, Ohio or The Ohio Company will mail a check to the
investor's address of record. The Fund may, at its discretion, waive the
minimum redemption requirement for redemptions effected to cover debit balances
in brokerage accounts of customers of The Ohio Company.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
As a shareholder, you may elect to redeem your Shares monthly or
quarterly in amounts of $50 or more, pursuant to the Fund's Systematic
Withdrawal Plan. Please contact The Ohio Company for the appropriate form.
CHECK-WRITING REDEMPTION PROCEDURE
The Transfer Agent will provide any shareholder who so requests with a
supply of checks, imprinted with the shareholder's name, which may be drawn
against the Fund's account maintained by The Fifth Third Bank (the "Bank"), for
redemption of Fund Shares.
- 16 -
<PAGE> 80
These checks may be made payable to the order of any person in any amount not
less than $100. To participate in this procedure, an investor must complete the
Check-Writing Redemption Form available from the Transfer Agent. When a check
is presented to the Bank for payment, the Transfer Agent (as your agent) will
cause the Fund to redeem sufficient Shares in your account to cover the amount
of the check. Shares continue earning daily dividends until the day on which
the check is presented to the Bank for payment. Cancelled checks will be
returned to you. Due to the delay caused by the requirement that redemptions be
priced at the next computed net asset value, the Bank will only accept for
payment checks presented through normal bank clearing channels. Shareholders
should not attempt to withdraw the full amount of an account or to close out an
account by using this procedure.
No charge will be made to a shareholder for participation in the
check-writing redemption procedure or for the clearance of any checks.
However, charges for copies ($5 each), returned checks ($15 each) and returned
items of deposit ($15 each) will be deducted from a shareholder's account.
In order to stop payment on a check, the shareholder must notify the
Fund in writing before the check has been presented to the Bank for payment. A
charge of $15 will be deducted from the shareholder's account for each stop
payment order.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Shares and/or electronically transfer
distributions paid on Fund Shares, in addition to the other methods described
in this Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Shareholders of the Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made
in states where it is legally authorized, exchange Shares of the Fund for
shares of:
Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of
capital (upon the payment of the appli-
cable sales charge);
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<PAGE> 81
Cardinal Balanced Fund,
a fund seeking current income and long-term
growth of both capital and income (upon the
payment of the applicable sales charge);
The Cardinal Fund,
an equity fund seeking long-term growth
of capital and income (upon the payment of
the applicable sales charge);
Cardinal Government Obligations Fund,
a fund investing in securities issued
or guaranteed by the U.S. Government
(upon the payment of the applicable
sales charge); or
Cardinal Tax Exempt Money Market Fund,
a tax-free money market fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained
in the following paragraph, exchanges of Fund Shares for shares of The Cardinal
Fund, Cardinal Government Obligations Fund, Cardinal Balanced Fund or Cardinal
Aggressive Growth Fund (individually, a "Cardinal Load Fund") generally may be
completed upon the payment of a sales charge equal to the sales charge payable
upon purchase of shares of that Cardinal Load Fund. If, however, the Shares of
Fund to be exchanged were acquired as a result of an exchange of shares of the
Cardinal Load Fund, the sales charge to be paid on the present exchange may be
reduced by the sales charge previously paid.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is requested
to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of the Fund by telephone. Neither the Group, the Fund nor
any of its service providers will be liable for any loss, damages, expense or
cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
- 18 -
<PAGE> 82
For tax purposes, an exchange is treated as a redemption and a new
purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Fund 60 days'
advance written notice of any such modification or termination.
HOW IS NET ASSET VALUE CALCULATED?
The Fund's net asset value per share is currently determined as of
4:00 p.m. Eastern Time on each Business Day. Net asset value per share is
computed by dividing the total value of the assets of the Fund, less its
liabilities, by the total number of Shares outstanding. Expenses and fees of
the Fund, including the management fee, are accrued daily and taken into
account for the purpose of determining the net asset value.
The Board of Trustees has adopted a policy requiring the Fund to use
its best efforts, under normal circumstances, to maintain a constant net asset
value of $1.00 per share. The Fund values its portfolio securities by the
amortized cost method which involves valuing a security at its cost and
thereafter accruing any discount or premium at a constant rate to maturity.
The Fund will normally include any accrued discount or premium in its daily
dividend and will thereby keep constant the value of the Fund's assets and,
consequently, its net asset value per share. This method does not take into
account unrealized capital gains or losses or the effect of fluctuating
interest rates.
DOES THE FUND PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Fund, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), for so long as such qualification is in the best interest
of that fund's shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that the regulated investment
company distribute to its shareholders at least 90% of its investment
company taxable income. The Fund contemplates declaring as dividends 100% of
the Fund's investment company taxable income (before deduction of dividends
paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
- 19 -
<PAGE> 83
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
WHAT ABOUT MY TAXES?
It is expected that the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal
income tax purposes, even if paid in additional Shares of the Fund and not in
cash. Since all of the Fund's net investment income is expected to be derived
from earned interest and short-term capital gains, it is anticipated that no
part of any distribution will be eligible for the dividends received deduction
for corporations. The Fund does not expect to realize any long-term capital
gains and, therefore, does not foresee paying any "capital gains dividends" as
described in the Code. However, if the Fund were to realize any long-term
capital gains, distribution by the Fund of the excess of any such net long-term
capital gain over net short-term capital loss is taxable to shareholders as
long-term capital gain in the year in which it is received, regardless of how
long the shareholder has held the Shares. Such distributions are not eligible
for the dividends-received deduction.
Even though a substantial portion of distributions of net income will
be attributable to interest on U.S. Government obligations, which may be exempt
from state or local tax if received directly by a shareholder, shareholders of
the Fund may be subject to state and local taxes with respect to their
ownership of Fund Shares or distributions from the Fund.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Potential investors in the Fund are urged to consult their tax advisers
concerning the application of federal, state and local taxes as such laws and
regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
WHO MANAGES MY INVESTMENT IN THE FUND?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's
Trustees, who are elected by the shareholders of the Group's funds and who are
empowered to elect officers and contract
- 20 -
<PAGE> 84
with and provide for the compensation of agents, consultants and other
professionals to assist and advise it in its day-to-day operations. The Group
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting
as investment adviser and manager and as dividend and transfer agent. The Ohio
Company receives no fees under its Distribution Agreement with the Group.
INVESTMENT ADVISER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of the Fund. The Adviser is also the investment
adviser and manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock Exchange, the Midwest Stock Exchange, other
regional stock exchanges and the National Association of Securities Dealers,
Inc. Descendants of H.P. and R.F. Wolfe, deceased, and members of their
families, through their possession of a majority of a voting stock, may be
considered controlling persons of The Ohio Company. The Ohio Company serves as
principal underwriter for each of the Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Fund's investment objectives and policies, manages the Fund, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since the Fund's inception, Hannibal L. Godwin III has
been primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Godwin has been a portfolio manager with the Adviser and/or The
Ohio Company since 1981. In addition, pursuant to the Investment Advisory
Agreement, the Adviser generally assists in all aspects of the Fund's
administration and operation.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Group with respect to the Fund, the
Adviser receives a fee from the Fund, computed daily and paid monthly at the
annual rate of .50% of average net daily assets
- 21 -
<PAGE> 85
of the Fund. The Adviser has, however, and may in the future periodically
waive all or a portion of its advisory fee with respect to the Fund to increase
the net income of the Fund available for distributions as dividends. The waiver
of such fee will cause the yield of the Fund to be higher than it would
otherwise be in the absence of such waiver.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement with Cardinal Management Corp. (the "Transfer Agent"), 215 East
Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer Agent has
agreed to act as the Fund's transfer agent and dividend disbursing agent. In
consideration of such services, the Fund has agreed to pay the Transfer Agent
an annual fee, paid monthly, equal to $21 per shareholder account plus
out-of-pocket expenses. In addition, the Transfer Agent provides certain fund
accounting services for the Fund. The Transfer Agent receives a fee from the
Fund for such services equal to a fee computed daily and paid periodically at
an annual rate of .03% of the Fund's average daily net assets.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Fund will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an
officer and trustee of the Group and an officer and director of The Ohio
Company. Frank W. Siegel is an officer and trustee of the Group and an officer
of The Ohio Company. Barry C. McMahon, David C. Will and James M. Schrack II
are officers of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund. The Fund will bear the following expenses relating to
its operations: organizational expenses, taxes, interest, any brokerage fees
and commissions, fees and expenses of the Trustees of the Group, Commission
fees, state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to the Fund's current
shareholders, outside auditing and legal expenses, advisory fees, fees and
out-of-pocket expenses of the custodian and Transfer Agent, costs for
independent pricing service, certain insurance premiums, costs of maintenance of
the
- 22 -
<PAGE> 86
Group's existence, costs of shareholders' reports and meetings, and any
extraordinary expenses incurred in the Fund's operation.
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third") 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In
such capacity, Fifth Third will hold or arrange for the holding of all
portfolio securities and other assets acquired and owned by the Fund.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23, 1993.
The Group currently consists of six funds, each having its own class of shares.
The other funds of the Group are The Cardinal Fund, Cardinal Government
Obligations Fund, Cardinal Tax Exempt Money Market Fund, Cardinal Balanced Fund
and Cardinal Aggressive Growth Fund. Each share represents an equal
proportional interest in a fund with other shares of the same fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that fund as are declared at the discretion of the
Trustees.
Shareholders are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested, and will vote in the aggregate and not by series except as otherwise
expressly required by law. For example, shareholders of the Fund will vote in
the aggregate with other shareholders of the Group with respect to the election
of trustees and ratification of the selection of independent accountants.
However, shareholders of the Fund will vote as a fund, and not in the aggregate
with other shareholders of the Group, for purposes of approval of amendments to
the Fund's investment advisory agreement or any of the Fund's fundamental
policies.
Overall responsibility for the management of the Fund is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?"
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and Ohio law.
See "ADDITIONAL INFORMATION - Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements.
- 23 -
<PAGE> 87
To the extent that such a meeting is not required, the Group may elect not to
have an annual or special meeting.
The Group has represented to the Commission that the Trustees will
call a special meeting of shareholders for purposes of considering the removal
of one or more Trustees upon written request therefor from shareholders holding
not less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c)
of the 1940 Act. At such meeting, a quorum of shareholders (constituting a
majority of votes attributable to all outstanding shares of the Group), by
majority vote, has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in
any manner it deems fair and equitable. Determinations by the Board of
Trustees of the Group as to the timing of the allocation of general liabilities
and expenses and as to the timing and allocable portion of any general assets
with respect to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding shares" of the Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser
of (a) 67% or more of the votes of shareholders of the Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
shareholders of record of the Fund are represented in person or by proxy, or
(b) the holders of more than 50% of the outstanding votes of shareholders of
the Fund.
Shareholders should direct all inquiries concerning such matters to
the Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215,
or by calling (800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
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<PAGE> 88
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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<PAGE> 89
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
---- ____________
<S> <C> <C>
PROSPECTUS
____________
PROSPECTUS HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
WHAT IS THE FUND? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND? . . . . . . . . . . . . . . . . . . . 6 January __, 1996
HOW DO I PURCHASE SHARES OF THE FUND? . . . . . . . . . . . . . . . . . . 10
MAY MY TAX SHELTERED RETIREMENT
PLAN INVEST IN THE FUND? . . . . . . . . . . . . . . . . . . . . 13
WHAT DISTRIBUTIONS WILL I RECEIVE? . . . . . . . . . . . . . . . . . . . 13
HOW MAY I REDEEM MY SHARES? . . . . . . . . . . . . . . . . . . . . . . . 14
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? . . . . . . . . . . . . . . 17 THE OHIO COMPANY
HOW IS NET ASSET VALUE CALCULATED? . . . . . . . . . . . . . . . . . . . 19
DOES THE FUND PAY FEDERAL INCOME TAX? . . . . . . . . . . . . . . . . . . 19
WHAT ABOUT MY TAXES? . . . . . . . . . . . . . . . . . . . . . . . . . . 20
WHO MANAGES MY INVESTMENT IN THE FUND? . . . . . . . . . . . . . . . . . 20 CARDINAL
WHAT ARE MY RIGHTS AS A SHAREHOLDER? . . . . . . . . . . . . . . . . . . 23 GOVERNMENT SECURITIES
<FN> MONEY MARKET
FUND
________________
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, [LOGO]
if given or made, such other information or representations must not be relied CARDINAL FUNDS
upon as having been authorized by the Fund, the Adviser, or The Ohio Company.
This Prospectus does not constitute an offer by the Fund or by The Ohio Company
to sell or a solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund
to make such an offer in such jurisdiction.
</TABLE>
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<PAGE> 90
PROSPECTUS
CARDINAL TAX EXEMPT MONEY MARKET FUND
Cardinal Tax Exempt Money Market Fund (the "Fund") is a diversified
investment fund of The Cardinal Group (the "Group"), an open-end, management
investment company. The Trustees of the Group have divided the Fund's
beneficial ownership into an unlimited number of transferable units called
shares (the "Shares").
The Fund has an investment objectives of maximizing current income
exempt from federal income tax while preserving capital and maintaining
liquidity. The Fund seeks to attain its objective through professional
management of a high-grade portfolio of short-term municipal bonds and notes,
tax-exempt commercial paper and tax-exempt short-term discount notes, some of
which may be secured by the full faith and credit of the U.S. Government. All
obligations purchased by the Fund will mature, or be deemed to mature, in 397
days (13 months) or less or will have interest rates adjusted in accordance
with established indexes (E.G., the prime rate) not less frequently than
semi-annually. There can be no assurance that the Fund's objectives will be
achieved.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED OR
GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE FUND INTENDS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT NET ASSET VALUE
WILL NOT VARY.
The Fund is designed for institutions and individuals who desire
current income exempt from federal income tax that reflects prevailing interest
rates for short-term tax-exempt investments together with a high degree of
liquidity.
________________________________________________________________________________
For further information regarding the
Fund or for assistance in opening an
account or redeeming Shares,
please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
________________________________________________________________________________
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<PAGE> 91
The Prospectus relates only to Cardinal Tax Exempt Money Market Fund,
currently one of six funds of the Group. Interested persons who wish to obtain
copies of the prospectus of Cardinal Balanced Fund, Cardinal Aggressive Growth
Fund, The Cardinal Fund, Cardinal Government Obligations Fund or Cardinal
Government Securities Money Market Fund, the other funds of the Group
(collectively, with the Fund, the "Cardinal Funds"), should contact The Ohio
Company at the number above. Additional information about the Fund, contained in
a Statement Of Additional Information dated January __, 1996, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. Such Statement is available upon request without charge from the
Fund at the above address or by calling the phone number provided above.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing in the Fund. This
Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
THE OHIO COMPANY
The date of this Prospectus is January __, 1996.
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<PAGE> 92
<TABLE>
<CAPTION>
PROSPECTUS HIGHLIGHTS
<S> <C>
INVESTMENT OBJECTIVES . . . . . . . . . . . . The Funds seeks to maximize current income, exempt from federal income tax,
while preserving capital and maintaining liquidity. (See page __.)
INVESTMENT POLICIES . . . . . . . . . . . . . The Fund invests in short-term tax exempt securities including, but not limited
to, bond anticipation notes, construction loan notes, project notes, revenue
anticipation notes and tax anticipation notes as well as municipal bonds and
participations therein. (See page __.)
CURRENT INCOME . . . . . . . . . . . . . . . Dividends are generally credited daily and paid monthly. Such distributions are
automatically reinvested in additional Shares of the Fund without charge.
Dividends may also be received in cash. (See page ___.)
LIQUIDITY . . . . . . . . . . . . . . . . . . Through the free check writing privilege or telephone transfer, Shares may be
redeemed on any Business Day at the net asset value without charge.
(See page ___.)
PURCHASES . . . . . . . . . . . . . . . . . . There is a minimum initial investment of $1,000 with subsequent minimums of
$100. Such minimums may be waived under certain circumstances. (See page __.)
INVESTMENT ADVISER . . . . . . . . . . . . . Cardinal Management Corp. (the "Adviser"), a wholly-owned subsidiary of The
Ohio Company, is the Fund's investment adviser. The Adviser also serves as
investment adviser for The Cardinal Fund, Cardinal Government Obligations Fund,
Cardinal Government Securities Money Market Fund, Cardinal Balanced Fund and
Cardinal Aggressive Growth Fund. (See page __.)
</TABLE>
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<PAGE> 93
<TABLE>
<CAPTION>
FEE TABLE
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 0%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees 0
Other Expenses(1) .25
---
Total Fund Operating Expenses .75%
===
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years
------ -------
<S> <C> <C>
You would pay the following
expenses on a $1,000 invest-
ment, assuming (1) 5% annual
return and (2) redemption at
the end of each time period: $8 $24
<FN>
__________________
1 "Other Expenses" are based upon estimated amounts for the
current fiscal year.
The purpose of the above table is to assist a potential purchaser of
the Fund's Shares in understanding the various costs and expenses that an
investor in the Fund will bear directly or indirectly. See "WHO MANAGES MY
INVESTMENT IN THE FUND?" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of the Fund. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
__________________
</TABLE>
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<PAGE> 94
PERFORMANCE INFORMATION
From time to time the Fund may advertise its "yield" or "annualized
yield," its "effective yield," its "tax equivalent yield" and its "tax
equivalent effective yield." ALL YIELD FIGURES ARE BASED ON HISTORICAL
EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" or
"annualized yield" of the Fund refers to the income generated by an investment
in the Fund over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" or "annualized
yield" because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" demonstrates the taxable yield necessary to produce an
after-tax yield equivalent to that of the Fund. The "tax-equivalent effective
yield" is calculated similarly to the "tax-equivalent yield" but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "tax-equivalent effective yield" will be slightly higher than
the "tax-equivalent yield" because of the compounding effect of this assumed
reinvestment.
Investors may also judge the performance of the Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard
& Poor's Corporation and to data prepared by Lipper Analytical Services, Inc.
and CDA Investment Technologies, Inc. Comparisons may also be made to indices
or data published in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts,
a nationally recognized money market fund reporting service, Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, The Columbus
Dispatch, Business Week, Consumer Reports and U.S.A. Today. In addition to
performance information, general information about the Fund that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
WHAT IS THE FUND?
The Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund
has been organized for the purpose of acquiring all of the assets and
liabilities of Cardinal Tax Exempt Money Trust ("CTEMT") to effect a
reorganization of CTEMT from a stand-alone investment company to a separate
series of the Group.
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<PAGE> 95
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?
IN GENERAL
The investment objectives of the Fund is to maximize current income
exempt from federal income tax while preserving capital and maintaining
liquidity. The investment objectives with respect to the Fund are a
fundamental policy and as such may not be changed without a vote of the holders
of a majority of the outstanding Shares of the Fund.
As a money market fund, the Fund invests exclusively in United States
dollar-denominated instruments which the Trustees of the Group and the Adviser
determine present minimal credit risks and which at the time of acquisition are
rated by one or more appropriate nationally recognized statistical rating
organizations ("NRSROs") (e.g., Standard & Poor's Corporation and Moody's
Investors Service, Inc.) in one of the two highest rating categories for
short-term debt obligations or, if unrated, are of comparable quality. All
securities or instruments in which the Fund invests have, or are deemed to
have, remaining maturities of 397 calendar days (thirteen months) or less. The
dollar-weighted average maturity of the obligations in the Fund will not exceed
90 days.
As a matter of policy, under normal market conditions, the Fund will
invest at least 80% of its net assets in a diversified portfolio of Municipal
Securities (as defined below), the interest on which is both exempt from
federal income tax and not treated as a preference item for purposes of the
federal alternative minimum tax. Subject to the foregoing limitations and in
order to achieve its investment objective, the Fund expects to invest in the
following types of securities.
The Fund may invest in bond anticipation notes, construction loan
notes, project notes, revenue anticipation notes and tax anticipation notes, as
well as municipal bonds and participation interests therein, including
industrial development revenue bonds and pollution control revenue bonds
(collectively, "Municipal Securities").
Specific types of Municipal Securities which the Fund may purchase
include bond anticipation notes, construction loan notes, project notes,
revenue anticipation notes and tax anticipation notes which, in each case (1)
are backed by the full faith and credit of the United States, (2) are rated in
one of the two highest rating categories by an appropriate NRSRO for short-term
tax exempt securities (E.G., MIG-1 or MIG-2, by Moody's Investors Service,
Inc.) or (3) if the notes are not rated, are, as
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<PAGE> 96
determined by the Adviser in accordance with guidelines established by the
Group's Board of Trustees, of a quality equivalent to securities so rated. The
Fund may also invest in municipal bonds and participation interests therein,
including industrial development revenue bonds and pollution control revenue
bonds, which have, or are deemed to have, remaining maturities of 397 days or
less and (1) are rated in one of the two highest rating categories by an
appropriate NRSRO for short-term tax exempt securities, or (2) if not rated,
are, as determined by the Adviser in accordance with guidelines established by
the Group's Board of Trustees, of a quality equivalent to securities so rated.
In addition, the Fund may purchase other types of tax-exempt Municipal
Securities such as short-term discount notes. These investments must (1) be
rated in one of the two highest rating categories by an appropriate NRSRO for
short-term tax exempt securities, or (2) if not rated, possess equivalent
characteristics and quality to securities so rated in the opinion of the
Adviser as determined in accordance with guidelines established by the Board of
Trustees. For further information regarding the rating categories of the
NRSROs, please see the Appendix to the Fund's Statement of Additional
Information.
Current income earned on such Municipal Securities may not be as great
as current income that could be earned on lower quality securities that have
less liquidity and/or a greater risk of nonpayment or securities that have a
longer term.
RISK FACTORS AND INVESTMENT TECHNIQUES
VARIABLE RATE SECURITIES. The Fund has invested and intends to
continue to invest more than 25% of its assets in certain variable or floating
rate demand Municipal Securities, including participation interests therein.
The value of such securities may change with changes in interest rates
generally. However, the variable or floating rate nature of such securities
should reduce, to the extent the Fund is invested in such securities, the
degree of fluctuation in the value of portfolio investments. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation and
the risk of potential capital depreciation is less than would be the case with
a portfolio composed entirely of fixed income securities. The Fund's portfolio
may contain variable or floating rate demand securities on which stated minimum
or maximum rates set by state law limit the degree to which interest on such
securities may fluctuate; to the extent it does, increases or decreases in
value may be somewhat greater than would be the case without such limits.
Because the adjustment of interest rates on the variable or floating rate
demand securities is made in relation to movements of the applicable indexes
(E.G., the prime rate), such securities are not comparable to longer-term fixed
rate securities. Accordingly, interest rates on such securities may be higher
or
- 7 -
<PAGE> 97
lower than current market rates for fixed rate obligations of comparable
quality with similar maturities. The Fund, however, will only acquire variable
or floating rate securities the interest rates on which are determined by
reference to other short-term market rates of interest. The Fund will attempt
to achieve a balance of variable or floating and fixed rate securities such
that under normal circumstances the net asset value of the Fund can be
maintained at $1.00 per share while the highest possible yield can be returned
to investors. To the extent the Fund's portfolio is invested in variable or
floating rate securities, yield can be expected to decline in periods of
falling interest rates more rapidly than if the Fund's portfolio is invested
solely in longer-term fixed rate securities. Conversely, yield, under the same
circumstances, can be expected to increase more rapidly in periods of rising
interest rates. Such instruments may be considered to be derivatives. A
derivative is generally defined as an instrument whose value is based upon, or
derived from, some underlying index, reference rate (E.G., interest rates),
security, commodity or other asset. As stated above, the Fund has no limit as
to the percentage of its total assets that may be invested in such variable or
floating rate securities.
Variable rate demand Municipal Securities in which the Trust invests
may be supported by bank letters of credit or comparable guarantees of
financial institutions. To the extent that 25% or more of the Trust's assets
are invested in variable rate demand Municipal Securities supported by such
letters of credit or guarantees, the Trust may be deemed to be concentrated in
the banking industry. (See "Certain Factors" below)
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund may also
purchase securities on a when-issued or delayed-delivery basis. The Fund will
engage in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objectives and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. The Fund will
not pay for such securities or start earning interest on them until they are
received although the payment obligation and the coupon rate have been
established before the time the Fund enters into the commitment. When the Fund
agrees to purchase such securities, its custodian will set aside cash or liquid
securities equal to the amount of the commitment in a separate account.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. In when-issued and delayed-delivery transactions, the Fund
relies on the
- 8 -
<PAGE> 98
seller to complete the transaction; the seller's failure to do so may cause the
Fund to miss a price or yield considered to be advantageous.
The Fund's commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual market conditions.
In the event that its commitments to purchase when-issued securities ever
exceed 25% of the value of its assets, the Fund's liquidity and the ability of
the Adviser to manage it might be adversely affected.
TAXABLE MONEY MARKET SECURITIES. Under normal operating
circumstances, Fund assets will be managed with a view towards producing only
income that is exempt from federal income taxation. However, the Fund may
invest up to 20% of its assets in "temporary investments," that is, money
market instruments consisting of marketable obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, deposit obligations of
banks and savings and loans which are members of the Federal Deposit Insurance
Corporation ("FDIC"), bankers' acceptances, high-grade commercial paper
guaranteed or issued by domestic corporations and repurchase agreements secured
by such obligations.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, the Fund
would acquire securities from a financial institution such as a
well-established securities dealer or a bank which is a member of the Federal
Reserve System which the Adviser deems creditworthy under guidelines approved
by the Group's Board of Trustees. At the time of purchase, the bank or
securities dealer agrees to repurchase the underlying securities from the Fund
at a specified time and price. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. The Fund will only enter into a
repurchase agreement where (i) the underlying securities are of the type which
the Fund's investment policies would allow it to purchase directly, (ii) the
market value of the underlying security, including interest accrued, will be at
all times equal to or exceed the value of the repurchase agreement, and (iii)
payment for the underlying securities is made only upon physical delivery or
evidence of book-entry transfer to the account of the Fund's custodian or a
bank acting as agent. The Adviser will be responsible for continuously
monitoring such requirements. Use of repurchase agreements may cause the Fund
to earn income which would be taxable to its shareholders.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of
the value of its total assets in the securities of other investment companies
subject to the limitations set forth in the 1940 Act. The Fund intends to
invest in the securities of other
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<PAGE> 99
money market mutual funds for purposes of short-term cash management. The
Fund's investment in such other investment companies may result in the
duplication of fees and expenses, particularly investment advisory fees. For a
further discussion of the limitations on the Fund's investments in other
investment companies, see "INVESTMENT OBJECTIVES AND POLICIES -- Additional
Information on Portfolio Instruments -- Securities of Other Investment
Companies" in the Fund's Statement of Additional Information.
CERTAIN FACTORS. Naturally, there can be no assurance that the Fund
will achieve its investment objective or be able continuously to maintain a net
asset value per share of $1.00. The characteristics of short-term Municipal
Securities are such that the price stability and liquidity of the Fund may not
be equal to that of a money market fund which exclusively invests in short-term
taxable money market securities. While the Adviser believes that the purchase
of variable rate demand Municipal Securities will facilitate maintaining a
$1.00 per share net asset value, the Fund is still expected to have a
significantly longer average maturity than a general purpose taxable money
market fund with the result that the pricing of its portfolio will tend to be
more subject to short-term interest rate fluctuations.
In addition, the Fund expects that substantially all the demand rights
of the Fund with respect to variable rate demand Municipal Securities will be
supported by letters of credit of major commercial banks. Fund investors
should be aware that banks are subject to extensive governmental regulation
which may limit both the amounts and type of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of the Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund will not:
1. Purchase securities, if as a result of such purchase
more than 5% of its total assets would be invested in the
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<PAGE> 100
securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
which securities include project notes for purposes of this
restriction), except that up to 25% of the value of the Fund's assets
may be invested without regard to this 5% limitation (for purposes of
this test, the non-governmental user of facilities financed by
industrial development or pollution control revenue bonds and a bank
issuing a letter of credit or comparable guarantee supporting a
variable rate demand municipal security is considered to be the
issuer).
2. Purchase the securities of issuers conducting their
principal business activity in the same industry if as a result of
such purchase more than 25% of its total assets would be invested in
the securities of issuers in that industry; provided that such
limitation shall not apply to the purchase of Municipal Securities,
securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, or securities issued by domestic branches of
domestic banks (the only securities issued by domestic branches of
domestic banks that the Fund contemplates investing in are variable
rate demand Municipal Securities supported by letters of credit or
guarantees issued by domestic branches of domestic banks).
3. Borrow money or enter into reverse repurchase
agreements except for temporary or emergency non-investment purposes,
such as to accommodate abnormally heavy redemption requests, and then
only in an amount not exceeding 5% of the value of the Fund's total
assets at the time of borrowing.
4. Make loans, other than by entering into repurchase
agreements and through the purchase of participation in privately
negotiated loans and portions of publicly issued debt obligations that
are in accordance with its investment objective and policies;
provided, however, that the Fund may not enter into a repurchase
agreement if, as a result thereof, more than 10% of its total assets
would be subject to repurchase agreements maturing in more than seven
days.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any securities, if as a
result, more than 10% of the Fund's net assets would be invested in
securities that are illiquid.
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<PAGE> 101
HOW DO I PURCHASE SHARES OF THE FUND?
GENERAL
Shares of the Fund are sold on a continuing basis without a sales
charge at the net asset value next determined after an order is received by The
Ohio Company, 155 East Broad Street, Columbus, Ohio 43215, the Fund's principal
underwriter, and federal funds (monies credited to a member bank's account in a
Federal Reserve Bank) are received by The Ohio Company as hereinafter provided.
The minimum initial investment for individuals is $1,000 and subsequent
investments must be in amounts of at least $100. The Fund may, at its
discretion, waive the subsequent investment minimum for purchases effected
through the automatic reinvestment of distributions from unit investment trusts
sponsored by The Ohio Company, and may waive both the initial and subsequent
investment minimums for purchases effected with cash balances in brokerage
accounts of customers of The Ohio Company. Institutions may place orders for
any number of individual accounts with a minimum initial purchase of $1,000 for
each individual account. Subsequent purchases may be made in minimum amounts
of $100 for each individual account. Shares of the Fund may be purchased
through a securities dealer, investment adviser, agent or other fiduciary which
may charge a fee for its services in connection with the purchase. No sales
charge is imposed by the Group or by The Ohio Company.
Subsequent purchases of Shares of the Fund may be made by ACH
processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -
ACH Processing" below. In addition, if an Account Information Form has
previously been received by The Ohio Company, Shares may also be purchased by
wiring funds to the Fund's custodian as described below under "Purchase by
Federal Funds Wire."
All Shares purchased will be credited to shareholder accounts after
receipt of an order and federal funds by The Ohio Company, at the net asset
value next determined. The Fund currently determines net asset value and
enters purchases and redemptions of its Shares as of 4:00 p.m. Eastern Time on
each day that the New York Stock Exchange is open for business and on such
other days on which there is a sufficient degree of trading in the Fund's
portfolio securities that the Fund's net asset value might be materially
affected by changes in the value of the portfolio securities ("Business Day").
If a properly completed order and federal funds (or other immediately available
funds) are received at or prior to 12:00 noon Eastern Time on a Business Day,
then the purchase will be entered as of 4:00 p.m. Eastern Time on that day
and dividends will commence on that day. If either federal funds (or other
immediately available funds) or the completed purchase order are received
after 12:00 noon Eastern Time (but prior to 4:00 p.m.
- 12 -
<PAGE> 102
Eastern Time) Shares will be credited to the shareholder's account as of 4:00
p.m. Eastern Time on that day but will not earn dividends until the following
day.
The Group reserves the right to reject any order for the purchase of
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Shares
owned by you and the number of Shares being held in safekeeping by Cardinal
Management Corp., as the Fund's transfer agent (the "Transfer Agent"), for your
account. Certificates representing Shares will not be issued.
From time to time, The Ohio Company, from its own resources, may also
provide additional compensation to securities dealers in connection with sales
of shares of the Cardinal Funds. Such compensation will include financial
assistance to securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising,
sales campaigns and/or shareholder services and programs regarding one or more
of the Cardinal Funds and other dealer-sponsored programs or events. In some
instances, this compensation may be made available only to certain securities
dealers whose representatives have sold or are expected to sell significant
amounts of shares of the Cardinal Funds. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Securities dealers may not use sales of the Fund's Shares to qualify
for this compensation to the extent such may be prohibited by the laws of any
state or any self-regulatory agency, such as the National Association of
Securities Dealers, Inc. In addition, The Ohio Company may make ongoing
payments to brokerage firms, financial institutions (including banks) and
others to facilitate the administration and servicing of shareholder accounts.
None of the aforementioned additional compensation is paid for by the Fund or
its shareholders.
PURCHASE BY FEDERAL FUNDS WIRE
Investments in Shares of the Fund may be made by wire transfer of
federal funds, avoiding delays of the mail and the normal check clearance
process described below. An investor may telephone the Fund (464-5511 from
Columbus, Ohio; (800) 282-9446, toll free from other Ohio locations; or (800)
848-7734, toll free from outside Ohio) prior to wire transfer of its investment
to advise the Group of the investment and, if a new investor, to obtain an
account number. If an investor does not telephone the Group for wire
instructions and the investor's wire transfer does not include sufficient
information, such purchase will be delayed until the
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<PAGE> 103
proper information is received. An investor must instruct its bank to "wire
transfer" the investment immediately to:
The Huntington National Bank
Account Number 01891688407
Routing Number 044000024
17 South High Street
Columbus, Ohio 43215
Attn: Cardinal Tax Exempt Money Market Fund
[Include Fund Account Number and Name of Account Holder]
Funds transmitted by wire will be invested in Shares of the Fund at
the net asset value next computed after receipt thereof as described above
under "General." A bank may charge for its services in effecting wire
transfers of funds.
PURCHASE BY MAIL
Investment in Shares of the Fund may be made by mail by sending a
check or other negotiable bank draft payable to the order of "Cardinal Tax
Exempt Money Market Fund" together with, in the case of an initial purchase, an
Application Form to:
Cardinal Tax Exempt Money Market Fund
155 East Broad Street
Columbus, Ohio 43215
Money transmitted by check drawn on a member of the Federal Reserve
System will normally be converted to federal funds and invested in Shares of
the Fund within one Business Day following receipt by The Ohio Company. Checks
drawn on non-member banks may take considerably longer. The Transfer Agent or
the Group will attempt to notify the investor upon receipt of the latter type
of check as to the possible delay and to arrange for a better means of
transmittal of funds. THE GROUP STRONGLY RECOMMENDS THAT INVESTORS OF
SUBSTANTIAL AMOUNTS USE FEDERAL FUNDS TO PURCHASE SHARES.
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly
or quarterly investments, in the minimum amount of $50 per transaction, from
your checking account. Assuming the cooperation of your financial institution,
your checking account therein will be debited to purchase Shares of the Fund on
the periodic basis you select. Confirmation of your purchase of Fund Shares
will be provided by the Transfer Agent. The debit of your checking account
will be reflected in the checking account statement you receive from your
financial institution. Please contact The Ohio Company for the appropriate
form.
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<PAGE> 104
WHAT DISTRIBUTIONS WILL I RECEIVE?
The Fund's net income is declared as a dividend and accrued on each
Business Day immediately prior to the determination of the Fund's net asset
value at 4:00 p.m. Eastern Time. Net investment income (from the time of the
immediately preceding declaration) consists of interest accrued on the
portfolio of the Fund (including accrued discount earned and premium
amortized), plus realized net short-term capital gains (losses) due to
portfolio transactions (if any), less the accrued expenses of the Fund
applicable to that dividend period. The Fund does not expect to realize any
long-term capital gains due to its policy of investing in securities maturing
in 13 months or less.
All dividends of net income are credited to each shareholder's account
daily and automatically reinvested in additional Shares of the Fund at the net
asset value on the last Business Day of each month. Shareholders, however, may
elect to receive monthly the dividends of $10 or more declared on their Shares
in cash by checking the appropriate box on the Account Information Form or by
otherwise notifying the Transfer Agent in writing. In addition, investors may
obtain cash at any time without charge by redeeming Shares at net asset value.
If the entire account of a shareholder is withdrawn, all dividends accrued to
the time of withdrawal will be paid at that time.
Shareholders may also elect to receive dividends and distributions in
cash by using ACH processing as described under "WHAT OTHER SHAREHOLDER
PROGRAMS ARE PROVIDED? - ACH Processing" below.
Should the Fund incur or anticipate any extraordinary expense, loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Trustees would at that time consider
whether to adhere to the present dividend policy described above or to revise
it in light of the then-prevailing circumstances. For example, if the Fund's
net asset value per share were reduced, or expected to be reduced, below $1.00,
the Trustees might suspend further dividend accruals until the net asset value
returned to $1.00. Thus, extraordinary expenses or losses or depreciation may
result in no dividends being accrued for the period during which an investor
holds Shares as well as a redemption price lower than the purchase price for
such Shares.
HOW MAY I REDEEM MY SHARES?
Investors may redeem Shares of the Fund on any Business Day at the net
asset value next determined following receipt by the Transfer Agent, 215 East
Capital Street, Columbus, Ohio 43215, of a written or telephonic notice to
redeem, or by check, each as more
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<PAGE> 105
fully described below. See "HOW IS NET ASSET VALUE CALCULATED?" below, for a
description of when net asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his Shares and may
charge a fee for such services.
Proceeds of redemption requests received by the Transfer Agent in
proper form before (1) 4:00 p.m. Eastern Time for shareholders who are
customers of The Ohio Company and who have submitted their redemption request
through their broker at The Ohio Company or (2) 12:00 noon Eastern Time for all
other redemption requests, will be sent by mail on the next Business Day or, if
the expedited redemption option is available, by federal funds wire on the next
Business Day for use on that day.
The Group reserves the right to delay payment for the redemption of
Shares where such Shares were purchased with other than immediately available
funds, but only until the purchase payment has cleared (which may take fifteen
or more days from the date the purchase payment is received by the Fund). The
purchase of Fund Shares by wire transfer of federal funds would avoid any such
delay.
The Group may suspend the right of redemption or may delay payment
during any period the determination of net asset value is suspended. See "HOW
IS NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem involuntarily Shares in any account at the then current net
asset value if at any time redemptions have reduced a shareholder's total
investment to a net asset value below $500. A shareholder will be notified in
writing that the value of the account is less than $500 and allowed not less
than 30 days to increase the account to $500 before the redemption is
processed. Proceeds of redemptions so processed, including dividends declared
to the date of redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Fund by submitting a
written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however,
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<PAGE> 106
that the address of record has not been changed within the preceding 15 days.
For purposes of this policy, an "eligible guarantor institution" shall include
banks, brokers, dealers, credit unions, securities exchanges and associations,
clearing agencies and savings associations as those terms are defined in the
Securities Exchange Act of 1934. The Transfer Agent reserves the right to
reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine or (2) it has reason to believe that the transaction
would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Fund by calling the
Fund at the telephone numbers set forth on the front of this Prospectus. The
shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Fund nor its service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Fund's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Fund will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Group, the
Fund or its service providers may be liable for any losses due to unauthorized
or fraudulent instructions. These procedures may include recording all phone
conversations, sending confirmations to shareholders within 72 hours of the
telephone transaction, and verification of account name and account number or
tax identification number. If, due to temporary adverse conditions, investors
are unable to effect telephone transactions, shareholders may also redeem their
Shares by mail as described above.
EXPEDITED REDEMPTION
Any investor may elect to use the expedited redemption procedure by
designating on the Account Information Form submitted at the time of initial
investment the name of a commercial bank and account number to receive proceeds
of redemption. If this election is made, requests for redemption may be made
by mail or by telephone as described above.
An investor may elect to have redemption proceeds sent by federal
funds wire to the designated U.S. bank account if the proceeds are $1,000 or
more. Otherwise, proceeds will be sent by mail. No signature guarantee will
be required of investors electing this procedure. Requests to change bank or
account designations may only be made in writing to the Fund with the type of
signature guarantee and other documentation specified under "Redemption by
Mail" above. To participate in this procedure, an
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<PAGE> 107
investor must complete the expedited redemption portion of the Account
Information Form or notify the Fund at any time after making an initial
investment.
An investor may also elect to have redemption proceeds sent by federal
funds wire to The Ohio Company, the Fund's distributor, if the proceeds are
$500 or more. If the investor elects to have federal funds so wired, the
investor may pick up a check at The Ohio Company's main office at 155 East
Broad Street, Columbus, Ohio or The Ohio Company will mail a check to the
investor's address of record. The Fund may, at its discretion, waive the
minimum redemption requirement for redemptions effected to cover debit balances
in brokerage accounts of customers of The Ohio Company.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
As a shareholder, you may elect to redeem your Shares monthly or
quarterly in amounts of $50 or more, pursuant to the Fund's Systematic
Withdrawal Plan. Please contact The Ohio Company for the appropriate form.
CHECK-WRITING REDEMPTION PROCEDURE
The Transfer Agent will provide any shareholder who so requests with a
supply of checks, imprinted with the shareholder's name, which may be drawn
against the Fund's account maintained by The Fifth Third Bank (the "Bank"), for
redemption of Fund Shares. These checks may be made payable to the order of
any person in any amount not less than $100. To participate in this procedure,
an investor must complete the Check-Writing Redemption Form available from the
Transfer Agent. When a check is presented to the Bank for payment, the
Transfer Agent (as your agent) will cause the Fund to redeem sufficient Shares
in your account to cover the amount of the check. Shares continue earning
daily dividends until the day on which the check is presented to the Bank for
payment. Cancelled checks will be returned to you. Due to the delay caused by
the requirement that redemptions be priced at the next computed net asset
value, the Bank will only accept for payment checks presented through normal
bank clearing channels. Shareholders should not attempt to withdraw the full
amount of an account or to close out an account by using this procedure.
No charge will be made to a shareholder for participation in the
check-writing redemption procedure or for the clearance of any
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<PAGE> 108
checks. However, charges for copies ($5 each), returned checks ($15 each) and
returned items of deposit ($15 each) will be deducted from a shareholder's
account.
In order to stop payment on a check, the shareholder must notify the
Fund in writing before the check has been presented to the Bank for payment. A
charge of $15 will be deducted from the shareholder's account for each stop
payment order.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Shares and/or electronically transfer
distributions paid on Fund Shares, in addition to the other methods described
in this Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Shareholders of the Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made
in states where it is legally authorized, exchange Shares of the Fund for
shares of:
Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of
capital (upon the payment of the appli-
cable sales charge);
Cardinal Balanced Fund,
a fund seeking current income and long-term
growth of both capital and income (upon the
payment of the applicable sales charge);
The Cardinal Fund,
an equity fund seeking long-term growth
of capital and income (upon the payment of
the applicable sales charge);
Cardinal Government Obligations Fund,
a fund investing in securities issued
or guaranteed by the U.S. Government
(upon the payment of the applicable
sales charge); or
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<PAGE> 109
Cardinal Government Securities Money Market Fund,
a short-term U.S. Government securities fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained
in the following paragraph, exchanges of Fund Shares for shares of The Cardinal
Fund, Cardinal Government Obligations Fund, Cardinal Balanced Fund or Cardinal
Aggressive Growth Fund (individually, a "Cardinal Load Fund") generally may be
completed upon the payment of a sales charge equal to the sales charge payable
upon purchase of shares of that Cardinal Load Fund. If, however, the Shares of
Fund to be exchanged were acquired as a result of an exchange of shares of the
Cardinal Load Fund, the sales charge to be paid on the present exchange may be
reduced by the sales charge previously paid.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is
requested to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of shares of the Fund by telephone. Neither the Group, the Fund
nor any of its service providers will be liable for any loss, damages, expense
or cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new
purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Fund 60 days'
advance written notice of any such modification or termination.
HOW IS NET ASSET VALUE CALCULATED?
The Fund's net asset value per share is currently determined as of
4:00 p.m. Eastern Time on each Business Day. Net asset value per share is
computed by dividing the total value of the assets of the Fund, less its
liabilities, by the total number of Shares outstanding. Expenses and fees of
the Fund, including the
- 20 -
<PAGE> 110
management fee, are accrued daily and taken into account for the purpose of
determining the net asset value.
The Board of Trustees has adopted a policy requiring the Fund to use
its best efforts, under normal circumstances, to maintain a constant net asset
value of $1.00 per share. The Fund values its portfolio securities by the
amortized cost method which involves valuing a security at its cost and
thereafter accruing any discount or premium at a constant rate to maturity.
The Fund will normally include any accrued discount or premium in its daily
dividend and will thereby keep constant the value of the Fund's assets and,
consequently, its net asset value per share. This method does not take into
account unrealized capital gains or losses or the effect of fluctuating
interest rates.
DOES THE FUND PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Fund, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), for so long as such qualification is in the best interest
of that fund's shareholders. Qualification as a regulated investment company
under the Code requires, among other things, that the regulated investment
company distribute to its shareholders at least 90% of its investment company
taxable income. The Fund contemplates declaring as dividends 100% of the
Fund's investment company taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
WHAT ABOUT MY TAXES?
FEDERAL TAXES
The Fund will distribute substantially all of its net investment
income and net capital gains to shareholders. Dividends derived from interest
earned on Municipal Securities the interest on which is excluded from gross
income for federal income tax purposes, including insurance proceeds
representing maturing interest on defaulted Municipal Securities the interest
on which
- 21 -
<PAGE> 111
would be so excluded, constitute "exempt-interest dividends" when designated as
such by the Fund and will be excluded from gross income for federal income tax
purposes. However, interest excluded from gross income for federal income tax
purposes that is received by individuals and corporations on certain municipal
obligations issued on or after August 8, 1986, to finance certain private
activities will be treated as a tax preference item in computing the
alternative minimum tax. It is likely that exempt-interest dividends received
by shareholders from the Fund will also be treated as tax preference items in
computing the alternative minimum tax to the extent, if any, that distributions
by the Fund are attributable to interest earned by the Fund on such
obligations. Also, a portion of all other interest excluded from gross income
for federal income tax purposes earned by a corporation may be subject to the
alternative minimum tax as a result of the inclusion in alternative minimum
taxable income of 75% of the excess of adjusted current earnings over adjusted
net book income.
Distributions, if any, derived from capital gains will generally be
taxable to shareholders as capital gains for federal income tax purposes to the
extent so designated by the Fund. Dividends, if any, derived from sources
other than interest excluded from gross income for federal income tax purposes
and capital gains will be taxable to shareholders as ordinary income for
federal income tax purposes whether or not reinvested in additional Shares.
Shareholders not subject to federal income tax on their income will not, of
course, be required to pay federal income tax on any amounts distributed to
them. The Fund anticipates that substantially all of its dividends will be
excluded from gross income for federal income tax purposes and will not be a
preference item for individuals for purposes of the federal alternative minimum
tax.
If a shareholder receives an exempt-interest dividend with respect to
any Share and such Share is held by the shareholder for six months or less, any
loss on the sale or exchange of such Share will be disallowed to the extent of
the amount of such exempt-interest dividend. In certain limited instances, the
portion of Social Security benefits that may be subject to federal income
taxation, may be affected by the amount of tax-exempt interest income,
including exempt-interest dividends, received by a shareholder.
STATE AND LOCAL TAXES
Under state or local law, distributions of net investment income may
be taxable to shareholders as dividend income even though a substantial portion
of such distribution may be derived from interest excluded from gross income
for federal income tax
- 22 -
<PAGE> 112
purposes that, if received directly, would be exempt from such income taxes.
The Fund will report to its shareholders annually after the close of its
taxable year the percentage and source, on a state-by-state basis, of interest
income earned on Municipal Securities held by the Fund during the preceding
year.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Fund and its shareholders.
Potential investors in the Fund are urged to consult their tax advisers
concerning the application of federal, state and local taxes as such laws and
regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
WHO MANAGES MY INVESTMENT IN THE FUND?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's
Trustees, who are elected by the shareholders of the Group's funds and who are
empowered to elect officers and contract with and provide for the compensation
of agents, consultants and other professionals to assist and advise it in its
day-to-day operations. The Group will be managed in accordance with its
Declaration of Trust and the laws of Ohio governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting
as investment adviser and manager and as dividend and transfer agent. The Ohio
Company receives no fees under its Distribution Agreement with the Group.
INVESTMENT ADVISER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of the Fund. The Adviser is also the investment
adviser and manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock Exchange, the Midwest Stock Exchange, other
regional stock exchanges and the National Associ-
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<PAGE> 113
ation of Securities Dealers, Inc. Descendants of H.P. and R.F. Wolfe,
deceased, and members of their families, through their possession of a majority
of a voting stock, may be considered controlling persons of The Ohio Company.
The Ohio Company serves as principal underwriter for each of the Cardinal
Funds.
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Fund's investment objectives and policies, manages the Fund, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since the Fund's inception, Hannibal L. Godwin III has
been primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Godwin has been a portfolio manager with the Adviser and/or The
Ohio Company since 1981. In addition, pursuant to the Investment Advisory
Agreement, the Adviser generally assists in all aspects of the Fund's
administration and operation.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Group with respect to the Fund, the
Adviser receives a fee from the Fund, computed daily and paid monthly at the
annual rate of .50% of average net daily assets of the Fund. The Adviser has,
however, and may in the future periodically waive all or a portion of its
advisory fee with respect to the Fund to increase the net income of the Fund
available for distributions as dividends. The waiver of such fee will cause
the yield of the Fund to be higher than it would otherwise be in the absence of
such waiver.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement with Cardinal Management Corp. (the "Transfer Agent"), 215 East
Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer Agent has
agreed to act as the Fund's transfer agent and dividend disbursing agent. In
consideration of such services, the Fund has agreed to pay the Transfer Agent
an annual fee, paid monthly, equal to $21 per shareholder account plus
out-of-pocket expenses. In addition, the Transfer Agent provides certain fund
accounting services for the Fund. The Transfer Agent receives a fee from the
Fund for such services equal to a fee computed daily and paid periodically at
an annual rate of .03% of the Fund's average daily net assets.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Fund will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio
- 24 -
<PAGE> 114
Company. H. Keith Allen is an officer and trustee of the Group and an officer
and director of The Ohio Company. Frank W. Siegel is an officer and trustee of
the Group and an officer of The Ohio Company. Barry C. McMahon, David C. Will
and James M. Schrack II are officers of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund. The Fund will bear the following expenses relating to
its operations: organizational expenses, taxes, interest, any brokerage fees
and commissions, fees and expenses of the Trustees of the Group, Commission
fees, state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to the Fund's current
shareholders, outside auditing and legal expenses, advisory fees, fees and
out-of-pocket expenses of the custodian and Transfer Agent, costs for
independent pricing services, certain insurance premiums, costs of maintenance
of the Group's existence, costs of shareholders' reports and meetings, and any
extraordinary expenses incurred in the Fund's operation.
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third") 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In
such capacity, Fifth Third will hold or arrange for the holding of all
portfolio securities and other assets acquired and owned by the Fund.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23, 1993.
The Group currently consists of six funds, each having its own class of shares.
The other funds of the Group are The Cardinal Fund, Cardinal Government
Obligations Fund, Cardinal Government Securities Money Market Fund, Cardinal
Balanced Fund and Cardinal Aggressive Growth Fund. Each share represents an
equal proportional interest in a fund with other shares of the same fund, and
is entitled to such dividends and distributions out of the income earned on the
assets belonging to that fund as are declared at the discretion of the
Trustees.
Shareholders are entitled to one vote for each dollar of value
invested and a proportionate fractional vote for any fraction of a dollar
invested, and will vote in the aggregate and not by series except as otherwise
expressly required by law. For example, shareholders of the Fund will vote in
the aggregate with other share-
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<PAGE> 115
holders of the Group with respect to the election of trustees and ratification
of the selection of independent accountants. However, shareholders of the Fund
will vote as a fund, and not in the aggregate with other shareholders of the
Group, for purposes of approval of amendments to the Fund's investment advisory
agreement or any of the Fund's fundamental policies.
Overall responsibility for the management of the Fund is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?"
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and Ohio law.
See "ADDITIONAL INFORMATION - Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group may elect not to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will
call a special meeting of shareholders for purposes of considering the removal
of one or more Trustees upon written request thereof from shareholders holding
not less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c)
of the 1940 Act. At such meeting, a quorum of shareholders (constituting a
majority of votes attributable to all outstanding shares of the Group), by
majority vote, has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in
any manner it deems fair and equitable. Determinations by the Board of
Trustees of the Group as to the timing of the allocation of general liabilities
and expenses and as to the timing and allocable portion of any general assets
with respect to the Fund are conclusive.
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<PAGE> 116
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding shares" of the Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser
of (a) 67% or more of the votes of shareholders of the Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
shareholders of record of the Fund are represented in person or by proxy, or
(b) the holders of more than 50% of the outstanding votes of shareholders of
the Fund.
Shareholders should direct all inquiries concerning such matters to
the Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215,
or by calling (800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
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<PAGE> 117
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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<PAGE> 118
<TABLE>
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TABLE OF CONTENTS
Page
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PROSPECTUS
PROSPECTUS HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ____________
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 5
WHAT IS THE FUND? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND? . . . . . . . . . . . . . . . . . . . . . 6
HOW DO I PURCHASE SHARES OF THE FUND? . . . . . . . . . . . . . . . . . . 12 January __, 1996
WHAT DISTRIBUTIONS WILL I RECEIVE? . . . . . . . . . . . . . . . . . . . 15
HOW MAY I REDEEM MY SHARES? . . . . . . . . . . . . . . . . . . . . . . . 15
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
HOW IS NET ASSET VALUE CALCULATED? . . . . . . . . . . . . . . . . . . . 20
DOES THE FUND PAY FEDERAL INCOME TAX? . . . . . . . . . . . . . . . . . . 21 THE OHIO COMPANY
WHAT ABOUT MY TAXES? . . . . . . . . . . . . . . . . . . . . . . . . . . 21
WHO MANAGES MY INVESTMENT IN THE FUND? . . . . . . . . . . . . . . . . . 23
WHAT ARE MY RIGHTS AS A SHAREHOLDER? . . . . . . . . . . . . . . . . . . 25 CARDINAL
<FN> TAX EXEMPT MONEY
________________ MARKET FUND
No dealer, salesman or any other person has been authorized to
give any information or to make any representations, other than
those contained in this Prospectus, in connection with the offer
contained in this Prospectus and, if given or made, such other
information or representations must not be relied upon as having
been authorized by the Fund, the Adviser, or The Ohio Company. [LOGO]
This Prospectus does not constitute an offer by the Fund or by CARDINAL FUNDS
The Ohio Company to sell or a solicitation of an offer to buy
any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful for the Fund to make such an
offer in such jurisdiction.
</TABLE>
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<PAGE> 119
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL FUND
CARDINAL GOVERNMENT OBLIGATIONS FUND
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
CARDINAL TAX EXEMPT MONEY MARKET FUND
FOUR INVESTMENT PORTFOLIOS OF
THE CARDINAL GROUP
The Cardinal Fund ("TCF"), Cardinal Government Obligations Fund
("CGOF"), Cardinal Government Securities Money Market Fund ("CGSMMF") and
Cardinal Tax Exempt Money Market Fund ("CTEMMF") (collectively, the "Funds" and
individually a "Fund") are each a separate diversified, investment portfolio of
The Cardinal Group, an open-end, management investment company (the "Group").
The investment objectives of TCF are long-term growth of capital and income.
Current income is a secondary objective. The investment objectives of CGOF are
to maximize safety of capital and, consistent with such objective, earn the
highest available current income obtainable from government securities. The
investment objectives of CGSMMF are to maximize current income while preserving
capital and maintaining liquidity. The investment objectives of CTEMMF are to
maximize current income exempt from federal income tax while preserving capital
and maintaining liquidity.
For further information regarding the Funds or for assistance
in opening an account or redeeming Shares, please call (800)
282-9446 toll free.
Inquiries may also be made by mail addressed to the Group at
its principal office:
155 East Broad Street
Columbus, Ohio 43215
This Statement Of Additional Information is not a prospectus and
should be read in conjunction with the Prospectuses of the Funds, each dated as
of January __, 1996, which have been filed with the Securities and Exchange
Commission. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. The Prospectuses are
available upon request without charge from the Group at the above address or by
calling the phone number provided above.
JANUARY __, 1996
<PAGE> 120
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THE CARDINAL GROUP . . . . . . . . . . . . . . . . . . . . .. . . . . . . . B-1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . .. . . . . . . . B-1
Additional Information on Portfolio Instruments . .. . . . . . . . B-1
Investment Restrictions . . . . . . . . . . . . . .. . . . . . . . B-11
Portfolio Turnover . . . . . . . . . . . . . . . . .. . . . . . . . B-14
MANAGEMENT OF THE GROUP . . . . . . . . . . . . . . . . . . .. . . . . . . . B-15
PRINCIPAL SHAREHOLDERS OF THE GROUP . . . . . . . . . . . . .. . . . . . . . B-19
THE ADVISER . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . B-19
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . .. . . . . . . . B-20
TRANSFER AND DIVIDEND AGENT AND FUND ACCOUNTANT . . . . . . .. . . . . . . . B-22
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . B-23
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . B-23
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . B-25
LEGAL COUNSEL AND INDEPENDENT AUDITORS . . . . . . . . . . .. . . . . . . . B-25
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . .. . . . . . . . B-26
Determination of Net Asset Value . . . . . . . . . .. . . . . . . . B-26
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . B-27
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . .. . . . . . . . B-32
Description of Shares . . . . . . . . . . . . . . .. . . . . . . . B-32
Vote of a Majority of the Outstanding Shares . . . .. . . . . . . . B-33
Miscellaneous . . . . . . . . . . . . . . . . . . .. . . . . . . . B-33
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . .. . . . . . . . B-34
Yield . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . B-34
Calculation of Total Return . . . . . . . . . . . .. . . . . . . . B-35
Performance Comparisons . . . . . . . . . . . . . .. . . . . . . . B-36
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . A-1
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL GROUP
The Cardinal Group (the "Group") is an open-end management investment
company which currently offers six separate diversified investment portfolios,
each with different investment objectives.
This Statement of Additional Information contains information about
The Cardinal Fund ("TCF"), Cardinal Government Obligations Fund ("CGOF"),
Cardinal Government Securities Money Market Fund ("CGSMMF") and Cardinal Tax
Exempt Money Market Fund ("CTEMMF") (collectively, the "Funds" and individually
a "Fund").
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the respective
Fund. Capitalized terms not defined herein are defined in the Prospectuses.
No investment in Shares of a Fund should be made without first reading the
Prospectus of that Fund.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objectives and
policies of the Funds as set forth in their respective Prospectuses.
Bank Obligations. As described in its Prospectus, CTEMMF may invest
in bank obligations consisting of bankers' acceptances, certificates of
deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically 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.
Bankers' acceptances invested in by CTEMMF will be those guaranteed by domestic
and foreign banks having, at the time of investment, assets in excess of
$500,000,000 (as of the date of their most recently published financial
statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of
deposit and time deposits will be those of domestic banks and savings and loan
associations, if at the time of investment the depository institution has
assets in excess of $500,000,000 (as of the date of its most recently published
financial statements).
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COMMERCIAL PAPER. Commercial paper in which TCF, CGOF and CTEMMF may
invest consists of unsecured promissory notes issued by corporations. Issues
of commercial paper normally have maturities of less than nine months and fixed
rates of return.
TCF, CGOF and CTEMMF will invest only in commercial paper which is
rated at the time of purchase within the two highest rating groups assigned by
one or more appropriate NRSROs, or if unrated, which the Adviser determines to
be of comparable quality. For a description of the rating symbols of the
NRSROs, see the Appendix.
U.S. GOVERNMENT OBLIGATIONS CGOF and CGSMMF invest in, and TCF and
CTEMMF may invest in, obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; and still others
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to
do so by law.
MUNICIPAL SECURITIES. Municipal Securities which may be purchased by
CTEMMF currently can be divided into two basic groups: Municipal Notes and
Municipal Bonds.
Municipal Notes generally provide capital for short-term needs and
have maturities of one year or less. They include:
1. PROJECT NOTES. Project notes are sold through the
Department of Housing and Urban Development to raise funds for
federally sponsored urban renewal, neighborhood development and
housing programs. In low-income housing, proceeds from project notes
are chiefly used for construction financing prior to permanent
financing. In urban renewal the funds have generally been used for
land acquisition and site improvements. (No new urban renewal
projects are currently being undertaken as that program has been
superseded by the Community Block Grant Program contained in the
Housing and Community Development Act of 1974.) Project notes are
issued by public bodies created under the laws of one of the states,
territories or U.S. possessions and are referred to as Local Issuing
Agencies. Project Notes generally range in maturity from three months
to one year. While they are the primary obligations of the public
housing agencies or the local urban renewal agencies which have issued
them, they are also secured by the full faith and credit of the U.S.
Government. Payment by the United States pursuant to its full faith
and credit
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obligation does not impair the tax-exempt character of the income from
project notes.
2. TAX ANTICIPATION NOTES. Tax anticipation notes are
issued by state and local governments in anticipation of collection of
taxes to finance the current operations of such governments. The
notes are generally payable only from tax collections and often only
from the proceeds of the specific tax levy whose collection they
anticipate.
3. REVENUE ANTICIPATION NOTES. Revenue anticipation
notes are issued by governmental entities in anticipation of revenues
to be received later in the then current fiscal year.
4. BOND ANTICIPATION NOTES. Bond anticipation notes are
issued in anticipation of a later issuance of bonds and are usually
payable from the proceeds of the sale of the bonds anticipated or of
renewal notes.
5. CONSTRUCTION LOAN NOTES. Construction loan notes,
issued to provide construction financing for specific projects, are
often redeemed after the projects are completed and accepted with
funds obtained from the Federal Housing Administration under "Fannie
Mae" (Federal National Mortgage Association) or "Ginnie Mae"
(Government National Mortgage Association).
6. TAX-EXEMPT COMMERCIAL PAPER. Tax-exempt commercial
paper is issued by state and local governments and agencies thereof to
finance seasonal working capital needs or in anticipation of longer
term financing. The stated maturity is 365 days or less.
Municipal Bonds are usually issued to obtain funds for various
public purposes, to refund outstanding obligations, to meet general
operating expenses or to obtain funds to lend to other public
institutions and facilities. They are generally classified as either
"general obligation" or "revenue" bonds and frequently have maturities
in excess of one year at the time of issuance, although issues having
variable interest rates with demand features may permit CTEMMF to
treat them as having maturities of less than 397 days. See
"ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Determination of
Net Asset Value" herein and "HOW IS NET ASSET VALUE CALCULATED?" in
CTEMMF's Prospectus.
1. GENERAL OBLIGATION BONDS. General obligation bonds
are issued by states, counties, regional districts, cities, towns and
school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer
system construction, repair or improvement. Payment of these bonds is
secured by a pledge of the issuer's full faith and credit and taxing
(usually property tax) power.
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2. REVENUE BONDS. Revenue bonds are payable solely from
the revenues generated from the operations of the facility or
facilities being financed or from other non-tax sources. These bonds
are often secured by debt service reserve funds, rent subsidies and/or
mortgage collateral to finance the construction of housing, highways,
bridges, tunnels, hospitals, university and college buildings, port
and airport facilities, and electric, water, gas and sewer systems.
3. INDUSTRIAL DEVELOPMENT REVENUE AND PRIVATE ACTIVITY
BONDS. Industrial development revenue bonds and private activity
bonds are usually issued by local government bodies or their
authorities to provide funding for industrial facilities, privately
operated housing, health care facilities, airports, docks and mass
commuting facilities, certain water and sewage facilities, qualified
hazardous waste facilities and high speed innercity rail facilities.
Under prior law, these bonds also were issued to finance commercial
facilities, sports facilities, convention and trade show facilities
and pollution control facilities. Payment of principal and interest
on such bonds is not secured by the taxing power of the governmental
body. Rather, payment is dependent solely upon the ability of the
users of the facilities financed by the bonds to meet their financial
obligations and the pledge, if any, of the real and personal property
financed by such bonds as security for payment.
Legislation to restrict or eliminate the federal income tax exemption
for interest on certain Municipal Securities has been enacted periodically in
the recent past and additional legislation may be enacted in the future. This
legislation may adversely affect the availability of Municipal Securities for
CTEMMF's portfolio. If any such legislation has a materially adverse effect on
CTEMMF's ability to achieve its investment objectives, CTEMMF will re-evaluate
its investment objectives and submit to its shareholders for approval necessary
changes in the objectives and policies of CTEMMF.
The Municipal Securities described above represent those which CTEMMF
currently expects to purchase. However, several new types of municipal bonds
and notes, particularly those with shorter maturities, have been introduced in
recent years and the Adviser believes that other types of municipal bonds and
notes may be offered in the future. Therefore, in order to preserve maximum
flexibility in seeking to attain its investment objectives, CTEMMF has
determined not to limit its purchase to the types of Municipal Securities
described herein, although it will purchase only municipal obligations which
have the credit characteristics described herein. In addition, CTEMMF may not
purchase any municipal bonds or notes having characteristics or terms that are
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inconsistent with the investment objectives or investment policies of CTEMMF.
Subsequent to CTEMMF's purchase of a security, it may be assigned a
lower rating or cease to be rated. In such an event the Adviser is required to
promptly reassess the credit quality of such security. If such security no
longer presents minimal credit risks or if the security is deemed to be an
"Unrated Security" or a "Second-Tier Security," within the meaning of Rule 2a-7
of the 1940 Act, and receives a rating by any NRSRO below the second highest
rating category, the Adviser is generally required to sell such security within
five business days of becoming aware of such an event.
VARIABLE RATE DEMAND MUNICIPAL SECURITIES. Variable rate demand
Municipal Securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days' notice either from the issuer or by drawing on a bank
letter of credit or comparable guarantee issued with respect to such security.
The issuer of a variable rate demand security may have a corresponding right to
prepay in its discretion the outstanding principal of the instrument plus
accrued interest upon notice comparable to that required for the holder to
demand payment.
The terms of the securities must provide that interest rates are
adjustable at intervals ranging from weekly up to semi-annually. The
adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. The
variable rate demand securities purchased by CTEMMF are subject to the quality
characteristics for Municipal Securities described above. While these
securities are expected to have maturities in excess of one year, the Adviser
will determine at least monthly that such securities are of high quality. The
Trustees have instructed the Adviser to exercise its right to demand payment of
principal and accrued interest thereon, if a variable rate demand security held
by CTEMMF no longer meets the quality standards of CTEMMF, unless, of course,
the security can be sold for a greater amount in the market.
The principal and accrued interest payable to CTEMMF on demand will be
supported by an irrevocable letter of credit or comparable guarantee of a
financial institution (generally a commercial bank) whose short-term taxable
debt meets the quality criteria for investment by CTEMMF in Municipal
Securities, except in cases where the security itself meets the credit criteria
of CTEMMF without such letter of credit or comparable guarantee. Thus,
although a variable rate demand security may be unrated, CTEMMF will have at
all times an alternate high quality credit source to draw upon for payment with
respect to such security.
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The variable rate demand securities which CTEMMF may purchase include
participation interests in variable rate securities. Such participation
interests will have, as part of the participation agreement between CTEMMF and
the selling financial institution, a demand feature which permits CTEMMF to
demand payment from the seller of the principal amount of CTEMMF's
participation plus accrued interest thereon. This demand feature always will
be supported by a letter of credit or comparable guarantee provided by the
selling financial institution. Such financial institution will retain a
service and a letter of credit fee, and a fee for issuing commitments to
purchase on demand, in an amount equal to the excess of the interest paid on
the variable rate security in which CTEMMF has a participation interest over
the negotiated yield at which the participation interest was purchased by
CTEMMF. Accordingly, CTEMMF will purchase such participation interests only
when the yield to CTEMMF, net of such fees, is equal to or greater than the
yield then available on other variable rate demand securities or short-term
fixed rate tax exempt securities of comparable quality and where the fees are
reasonable in relation to the services provided by the financial institution
and the security and liquidity provided by the letter of credit or guarantee.
CONCENTRATION. CTEMMF may invest more than 25% of its net assets in
(i) Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities the interest upon which is paid solely from revenues of similar
projects and (iii) industrial development and pollution control revenue bonds
which are not variable rate demand Municipal Securities, i.e., Municipal
Securities which are related in such a way that an economic, business or
political development or change affecting one such Municipal Security would
also affect the other Municipal Securities; for example, Municipal Securities
the interest on which is paid from revenues of similar type projects or
Municipal Securities whose issuers are located in the same state. The District
of Columbia, each state, each of its political subdivisions, agencies,
instrumentalities and authorities, and each multi-state agency of which a state
is a member, is a separate "issuer" as that term is used in this Statement of
Additional Information and in CTEMMF's investment restrictions contained in its
Prospectus. The identification of the "issuer" depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is supported
only by the assets and revenues of the subdivision, such subdivision would be
deemed to be the sole "issuer." Similarly, in the case of an industrial
development or pollution control revenue bond, if that bond is supported only
by the assets and revenues of the nongovernmental user, then such
nongovernmental user would be deemed to be the sole "issuer." If, however, in
either case, the creating government or some other entity guarantees a
security, such a guarantee would be considered a separate security and must be
separately valued.
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WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. CGOF, CGSMMF and CTEMMF
may purchase securities on a "when-issued" or "delayed-delivery" basis (i.e.,
for delivery beyond the normal settlement date at a stated price and yield).
When a Fund agrees to purchase securities on a "when-issued" or
"delayed-delivery" basis, the Fund's custodian will set aside in a separate
account cash or liquid portfolio securities equal to the amount of the
commitment. Normally, the custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of such Fund's
commitment. It may be expected that a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments
in the manner described above, such Fund's liquidity and the ability of the
Adviser to manage it might be affected in the event its commitments to purchase
"when-issued" or "delayed-delivery" securities ever exceeded 25% of the value
of its assets. Under normal market conditions, however, neither CGOF's,
CGSMMF's nor CTEMMF's commitments to purchase "when-issued" or
"delayed-delivery" securities will exceed 25% of the value of its assets.
When CGOF, CGSMMF or CTEMMF engages in "when-issued" or
"delayed-delivery" transactions, such Fund relies on the seller to consummate
the trade. Failure of the seller to do so may result in that Fund's incurring
a loss or missing the opportunity to obtain a price considered to be
advantageous. CGOF, CGSMMF and CTEMMF will engage in "when-issued" or
"delayed-delivery" transactions only for the purpose of acquiring portfolio
securities consistent with such Fund's investment objectives and policies and
not for investment leverage.
SECURITIES OF OTHER INVESTMENT COMPANIE. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends
to limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will
be invested in the securities of any one investment company; (b) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by such
Fund. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that such Fund bears directly in connection with its own
operations. Investment companies in which TCF and CGOF may invest may also
impose a sales or distribution charge in connection with the purchase or
redemption of their shares and other types of commissions or charges. Such
charges
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will be payable by such Fund and, therefore, will be borne directly by
shareholders.
REPURCHASE AGREEMENTS. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from member banks of the Federal Reserve System
and registered broker-dealers which the Adviser deems creditworthy under
guidelines approved by the Group's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain at all times the
value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest). In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying securities and losses, including:
(a) possible decline in the value of the underlying securities during the
period while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during this period; and
(c) expenses of enforcing its rights. Additionally, there is no controlling
legal precedent confirming that the Fund would be entitled, as against a claim
by such seller or its receiver or trustee in bankruptcy, to retain the
underlying securities, although the Board of Trustees of the Group believes
that, under the regular procedures normally in effect for custody of the Fund's
securities subject to repurchase agreements and under federal laws, a court of
competent jurisdiction would rule in favor of the Group if presented with the
question. Securities subject to repurchase agreements will be held by the
Group's custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENT. CTEMMF is permitted to enter into
reverse repurchase agreements for temporary or emergency non- investment
purposes in an amount not exceeding (together with other borrowings) 5% of the
value of CTEMMF's assets at the time of entering into the agreement. CTEMMF,
however, has not entered into such agreements in the past and does not intend
to enter into such agreements in the foreseeable future.
FOREIGN INVESTMENT. Investment in foreign securities is subject to
special investment risks that differ in some respects from those related to
investments in securities of U.S. domestic issuers. Since investments in the
securities of foreign issuers may involve currencies of foreign countries, TCF
may be affected favorably or unfavorably by changes in currency rates and in
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exchange control regulations and may incur costs in connection with conversions
between various currencies.
Since foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company.
Securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect TCF's investments in
those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
TCF will acquire such securities only when the Adviser believes the
risks associated with such investments are minimal.
OPTIONS TRADING. Each of TCF and CGOF may purchase put and call
options. A call option gives the purchaser of the option the right to buy, and
a writer has the obligation to sell, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is
consideration for undertaking the obligations under the option contract. A put
option gives the purchaser the right to sell the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. Put and call options purchased
by such Funds will be valued at the last sale price, or in the absence of such
a price, at the mean between bid and asked price.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option expires on the stipulated
expiration date or if the Fund enters into a closing purchase transaction, it
will realize a gain (or a loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If an option is exercised,
the Fund may deliver the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net
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premium originally received and the Fund will realize a gain or loss.
TCF and CGOF may also purchase or sell index options. Index options
(or options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
FUTURES CONTRACTS. As discussed in the Prospectuses of the TCF and
CGOF, each of those Funds may enter into futures contracts. This investment
technique is designed primarily to hedge against anticipated future changes in
market conditions which otherwise might adversely affect the value of
securities which a Fund holds or intends to purchase. For example, when
interest rates are expected to rise or market values of portfolio securities
are expected to fall, a Fund can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, a Fund, through the
purchase of such contracts, can attempt to secure better rates or prices for
the Fund than might later be available in the market when it effects
anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid high grade debt obligations, to cover its performance under such
contracts. A Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not
prove to be perfectly or even highly correlated with the value of its portfolio
securities, limiting the Fund's ability to hedge effectively against interest
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
REGULATORY RESTRICTIONS. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will
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maintain in a segregated account cash or liquid high-grade securities equal to
the value of such contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for
futures contracts held by such Fund plus premiums paid by it for open options
on futures would exceed 5% of such Fund's total assets. A Fund will not engage
in transactions in financial futures contracts or options thereon for
speculation, but only to attempt to hedge against changes in market conditions
affecting the values of securities which such Fund holds or intends to
purchase. When futures contracts or options thereon are purchased to protect
against a price increase on securities intended to be purchased later, it is
anticipated that at least 25% of such intended purchases will be completed.
When other futures contracts or options thereon are purchased, the underlying
value of such contracts will at all times not exceed the sum of: (1) accrued
profit on such contracts held by the broker; (2) cash or high quality money
market instruments set aside in an identifiable manner; and (3) cash proceeds
from investments due in 30 days.
Investment Restrictions
- -----------------------
Each Fund's investment objectives are fundamental policies and as such
may not be changed without a vote of the holders of a majority of that Fund's
outstanding Shares. In addition, the following investment restrictions of the
Funds may be changed only by a vote of a majority of the outstanding Shares of
a Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares" in this Statement of Additional Information).
Each of TCF and CGOF may not:
1. Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio securities and except
as may be necessary to make margin payments in connection with derivative
securities transactions;
2. Underwrite the securities of other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities";
3. Purchase or sell real estate (although investments in
marketable securities of companies engaged in such activities and securities
secured by real estate or interests therein are not prohibited by this
restriction).
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4. Purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of the Fund.
In addition, CGOF may not:
1. Purchase participation or other direct interests in oil, gas,
or other mineral exploration or development programs; or
2. Mortgage, pledge, hypothecate or, in any other manner,
transfer as security for indebtedness any security owned by a Fund, except as
may be necessary in connection with permissible borrowings, in which event such
mortgaging, pledging or hypothecating may not exceed 5% of a Fund's assets,
valued at cost and except that the deposit of assets in escrow in connection
with writing covered call options will not be deemed to be the mortgage,
pledge, hypothecation or transfer of assets as security described above.
CGSMMF will not:
1. Pledge, mortgage or hypothecate its assets, except that to
secure borrowings permitted for temporary or emergency non- investment
purposes, the Trust may pledge securities having a market value at the time of
pledge not exceeding 15% of its total assets (so long as certain state law
restrictions are applicable, the market value of securities subject to any such
pledge will not exceed 10% of the market value of the Trust's total assets);
2. Underwrite the securities issued by other persons, except to
the extent that the Fund may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities";
3. Purchase or sell real estate or real estate mortgage loans;
4. Purchase commodities or commodities contracts;
5. Purchase participations or other direct interests in oil, gas
or other mineral exploration or development programs; or
6. Purchase any securities on margin, except for such short term
credits as are necessary for the clearance of portfolio transactions.
CTEMMF will not:
1. Pledge, mortgage or hypothecate its assets, except that to
secure borrowing permitted by (3) above, it may pledge securities having a
market value at the time of pledge not exceeding 15% of the Trust's total
assets; provided, however, so long as certain state law restrictions are
applicable, the market value of securities subject to any such pledge will not
exceed 10% of the market value of the Trust's total assets;
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<PAGE> 133
2. Underwrite the securities issued by other persons, except to
the extent that the Fund may be deemed to be an underwriter under certain
securities laws in the disposition of "restricted securities";
3. Purchase or sell real estate, although the Trust may invest in
Municipal Securities or temporary investments secured by interests in real
estate;
4. Purchase or sell commodities or commodity contracts;
5. Purchase any securities on margin, except for such short term
credits as are necessary for the clearance of portfolio transactions;
6. Write, purchase or sell put or call options, except to the
extent that securities subject to a demand obligation or stand-by commitment
may be acquired;
7. Purchase participations or other direct interests in oil, gas,
or other mineral exploration or development programs; or
8. Purchase securities which are not Municipal Securities and the
income from which is subject to federal income tax, if such purchase would
cause more than 20% of the Trust's total assets to be invested in such
securities.
The following additional investment restrictions may be changed without
the majority vote of the outstanding Shares of any of the Funds. Each Fund may
not:
1. Purchase securities of other investment companies, except (a)
in connection with a merger, consolidation, acquisition or reorganization, and
(b) to the extent permitted by the 1940 Act or pursuant to any exemptions
therefrom;
2. Engage in any short sales; or
3. Invest more than 15% of the Fund's total assets in securities
which are restricted as to disposition.
In addition, TCF has the following nonfundamental investment
restrictions: (1) TCF may not purchase or retain any securities of an issuer
if, to the knowledge of the Group, the officers and trustees of the Group or
the officers and directors of the Adviser individually owning more than 1/2 of
1% of the securities of such issuer together own beneficially more than 5% of
the securities of such issuer, (2) mortgage or hypothecate the Fund's assets in
excess of one-third of the Fund's total assets, (3) purchase participations or
direct interests in oil, gas or other mineral exploration or development
programs (although investments by the Fund in marketable securities of
companies engaged in such activities are not prohibited by this restriction),
or (4) purchase securities of enterprises which have a record of less than
three years' continuous operation, if such purchase would cause more than
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<PAGE> 134
10% of the total assets of the Fund to be invested in the securities of such
enterprises.
If a percentage restriction or requirement set forth above is met at
the time of investment, a later increase or decrease in such percentage
resulting from a change in net asset value will not be considered a violation
of the policy. However, should a change in net asset value or other external
events cause a Fund's investments in illiquid securities to exceed the
limitation in its non-fundamental policy as set forth in its Prospectus, the
Fund will act to cause the aggregate amount of illiquid securities to come
within such limit as soon as reasonably practicable. In such an event,
however, the Fund would not be required to liquidate any portfolio securities
where the Fund would suffer a loss on the sale of such securities.
The Group has represented to the California Department of Corporations
on behalf of each of the Funds that, in order to comply with applicable
regulations, each Fund will acquire or retain securities of other open-end
management investment companies if such investments are made in open-end
management investment companies sold with no sales commission and the Fund's
investment adviser waives its management fee with respect to such investments.
The Group intends to comply with this undertaking with respect to a Fund for so
long as such Fund has its Shares registered for sale in the State of California
or such representation is required by the California Department of
Corporations.
In addition, the Group, on behalf of TCF, has represented to the Texas
State Securities Board that TCF will (1) limit its investment in warrants,
valued at the lower of cost or market, to 5% or less of the value of TCF's net
assets, provided that included within that amount, but not to exceed 2% of
TCF's net assets, may be warrants which are not listed on the New York or
American Stock Exchanges and that warrants acquired by TCF in units or attached
to securities may be deemed to be without value, and (2) not invest in oil, gas
or other mineral leases.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each Fund is calculated by dividing
the lesser of that Fund's purchases or sales of portfolio securities for the
year by the monthly average value of the portfolio securities. The Securities
and Exchange Commission (the "Commission") requires that the calculation
exclude all securities whose remaining maturities at the time of acquisition
were one year or less.
Because CGSMMF and CTEMMF intend to invest entirely in securities with
maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover with respect to each of CGSMMF and CTEMMF is expected to be
zero percent for regulatory purposes. For each of the other Funds, the
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<PAGE> 135
portfolio turnover rate may vary greatly from year to year as well as within a
particular year, and may also be affected by cash requirements for redemptions
of Shares. Portfolio turnover will not be a limiting factor in making
investment decisions.
MANAGEMENT OF THE GROUP
The trustees and officers of the Group, together with their addresses
and principal business occupations and other affiliations during the last five
years, are shown below. Each person named as a trustee also serves as a
director of The Cardinal Fund Inc. and also serves as a trustee of Cardinal
Government Securities Trust, Cardinal Tax Exempt Money Trust and Cardinal
Government Obligations Fund. Each trustee who is an "interested person" of the
Group, as that term is defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Name, Business Position(s) Held Principal Occupation(s)
Address and Age with the Group During Past 5 Years
--------------- ---------------- ----------------------
<S> <C> <C>
Gordon B. Carson Trustee, Member of Principal, Whitfield Robert
5413 Gardenbrook Drive Executive Committee Associates (construction consulting
Midland, Michigan 48642 firm) since 1988; formerly, Vice
Age: 84 President of Michigan Molecular
Institute (polymer science research
institute).
*H. Keith Allen Chairman and Trustee, Senior Executive Vice President and
155 East Broad Street Member of Executive, a Director of The Ohio Company
Columbus, Ohio 43215 Nominating and Investment (investment banking).
Age: ___ Committees
John B. Gerlach, Jr. Trustee, Member of Audit Since 1994, President and a
37 West Broad Street Committee Director of Lancaster Colony
Columbus, Ohio 43215 Corporation (diversified consumer
Age: 41 products); prior thereto, Executive
Vice President, Secretary and a
Director of Lancaster Colony
Corporation.
Michael J. Knilans Trustee, Member of Chairman, Ohio Bureau of Workers'
1119 Kingsdale Terrace Executive Committee Compensation.
Columbus, Ohio 43220
Age: 68
James I. Luck Trustee President, The Columbus Foundation
1234 East Broad Street (philanthropic public foundation).
Columbus, Ohio 43205
Age: 50
</TABLE>
B-15
<PAGE> 136
<TABLE>
<S> <C> <C>
David L. Nelson Trustee, Member of Audit Vice President, Customer
18 James Lane and Nominating Committees Satisfaction, Industry Segment, and
Stamford, CT 06903 former President, ABB Process
Age: 65 Automation Business of Asea Brown
Boveri, Inc. (designer and
manufacturer of process automation
systems for basic industries);
former President, Process
Automation Business, of Combustion
Engineering, Inc. (designer and
manufacturer of process automation
systems for basic industries).
*C. A. Peterson Trustee Retired; Chartered Financial
150 E. Wilson Bridge Rd. Analyst, former Senior Executive
Worthington, Ohio 43085 Vice President and Director of The
Age: 69 Ohio Company (investment banking).
Lawrence H. Rogers II Trustee Self-employed author; former Vice
4600 Drake Road Chairman, Motor Sports Enterprises,
Cincinnati, Ohio 45243 Inc.
Age: 74
*John L. Schlater Trustee Chartered Financial Analyst and
155 East Broad Street Executive Vice President, The Ohio
Columbus, Ohio 43215 Company (investment banking).
Age: 43
*Frank W. Siegel President and Senior Vice President, The Ohio
155 East Broad Street Trustee, Member of Company (investment banking);
Columbus, Ohio 43215 Executive and Nominating former Vice President, Keystone
Age: 43 Committees Group (mutual fund
management/administration); former
Senior Vice President, Trust
Advisory Group (mutual fund
consulting).
Joseph H. Stegmayer Trustee, Member of Audit President and a Director of Clayton
724 Hampton Roads Dr. and Nominating Committees Homes, Inc. (manufactured homes);
Knoxville, TN 37922-4071 former Vice President, Treasurer,
Age: 44 Chief Financial Officer and a
Director of Worthington Industries,
Inc. (specialty steel and plastics
manufacturer).
Barry G. McMahon Vice President Vice President of The Ohio Company
155 East Broad Street (investment banking); formerly,
Columbus, Ohio 43215 Assistant Vice President of The
Age: 38 Ohio Company.
</TABLE>
B-16
<PAGE> 137
<TABLE>
<S> <C> <C>
David C. Will Vice President Vice President of The Ohio Company
155 East Broad Street (investment banking); formerly
Columbus, Ohio 43215 Senior Portfolio Manager,
Age: 54 Huntington National Bank, Trust
Investments.
Karen J. Hipsher Secretary Executive Secretary, The Ohio
155 East Broad Street Company (investment banking).
Columbus, Ohio 43215
Age: 50
James M. Schrack II Treasurer Vice President and Trust Officer of
155 East Broad Street The Ohio Company (investment
Columbus, Ohio 43215 banking).
Age: 37
Bruce E. McKibben Assistant Treasurer Since April, 1992, Employee of The
155 East Broad Street Ohio Company (investment banking);
Columbus, Ohio 43215 prior thereto, student at The Ohio
Age: 26 State University.
</TABLE>
As of October 26, 1995, all trustees and officers of the Group as a
group owned fewer than one percent of the Shares of each Fund then outstanding.
Pursuant to the ultimate authority of the Board of Trustees of the
Group, the Executive Committee is responsible for the general management of the
affairs of the Group. This Committee's actions are reported to and reviewed by
the Board of Trustees.
Messrs. Allen, Siegel and Schlater are Chairman, President and a
director, Vice President and a director, and Vice President and a director,
respectively, of the Adviser, and Messrs. Godwin, McMahon, Schrack and Will are
each a Vice President of the Adviser. The compensation of trustees and
officers of the Group who are employed by The Ohio Company is paid by The Ohio
Company. Trustees' fees plus expenses are paid by the Group, except that
Messrs. Allen, Siegel and Schlater receive no fees from the Group.
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended September 30, 1995. The Group has no pension or retirement
plans.
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<PAGE> 138
<TABLE>
COMPENSATION TABLE
<CAPTION>
Aggregate Compensation Total Compensation From the
Name and Position From the Group Group and the Fund Complex*
-------------- ---------------------------
With the Group
--------------
<S> <C> <C>
Gordon B. Carson $2,000 $12,000
Trustee and Member of
Executive Committee
H. Keith Allen $ 0 $ 0
Chairman, Trustee and Member of
Executive, Nominating and Investment
Committees
John B. Gerlach $2,000 $13,000
Trustee and Member of Audit Committee
Michael J. Knilans $2,000 $12,000
Trustee and Member of
Executive Committee
James I. Luck $2,000 $12,000
Trustee
David L. Nelson $2,000 $13,000
Trustee and Member of Audit and
Nominating Committees
C.A. Peterson $2,000 $12,000
Trustee
Lawrence H. Rogers, II $2,000 $12,000
Trustee
John L. Schlater $ 0 $ 0
Trustee
Frank W. Siegel $ 0 $ 0
Trustee, President and Member of
Executive and Nominating Committees
Joseph H. Stegmayer $1,500 $10,000
Trustee and Member of Audit and
Nominating Committees
<FN>
___________________________________
*For purposes of this Table, Fund Complex means one or more mutual
funds, including the Group, which have a common investment adviser or
affiliated investment advisers or which hold themselves out to the public as
being related.
</TABLE>
B-18
<PAGE> 139
PRINCIPAL SHAREHOLDERS OF THE GROUP
There were no persons known to the Group to be the beneficial owner of
more than 5% of any Fund's Shares or of the total number of the Group's shares
outstanding as of October 26, 1995.
THE ADVISER
The Group has entered into an Investment Advisory and Management
Agreement dated as of June 18, 1993, as amended January __, 1996 (the
"Investment Advisory Agreement"), with Cardinal Management Corp. (the
"Adviser"). Pursuant to the Investment Advisory Agreement, the Adviser has
agreed to provide investment advisory and management services as described in
the Prospectuses of the Funds. As compensation for such services, facilities
and expenses, the Adviser receives a fee (1) from each of CGOF, CGSMMF and
CTEMMF, computed and accrued daily and paid monthly, based on an annual rate of
.50% of the daily net asset value of that Fund and (2) from TCF, computed and
accrued daily and paid monthly, based on an annual rate of 0.60% of the daily
net asset value of TCF. In addition, the Adviser also provides similar
services to the other two funds of the Group, Cardinal Balanced Fund ("CBF")
and Cardinal Aggressive Growth Fund ("CAGF"), and receives a fee from each such
Fund, computed and accrued daily and paid monthly, based on an annual rate of
.75% of the daily net asset value of that Fund. For the fiscal years ended
September 30, 1995 and 1994, and the fiscal period ended September 30, 1993,
fees earned under the Investment Advisory Agreement, with respect to CBF, were
$101,585, $103,264 and $11,128, respectively, and, with respect to CAGF, were
$71,508, $66,792 and $5,058, respectively.
The Adviser is a wholly owned subsidiary of The Ohio Company, an
investment banking firm organized in 1925. Descendants of H. P. and R. F.
Wolfe, deceased, and members of their families, through their possession of a
majority of the voting stock, may be considered controlling persons of The Ohio
Company. H. Keith Allen is an officer and director of The Ohio Company. Frank
W. Siegel, John L. Schlater, Hannibal L. Godwin III, and James M. Schrack II,
are each officers of The Ohio Company.
Unless sooner terminated, the Investment Advisory Agreement with
respect to a Fund continues for successive one-year periods ending June 18 of
each year if such continuance is approved at least annually by the Group's
Board of Trustees or by vote of a majority of the outstanding Shares of that
Fund (as defined under "ADDITIONAL INFORMATION -- Vote of a Majority of the
Outstanding Shares" below), and a majority of the Trustees who are not parties
to the Investment Advisory Agreement or interested persons (as defined in the
1940 Act) of any party to the Investment Advisory Agreement by votes cast in
person at a meeting called for such purpose. The Investment Advisory Agreement
is terminable as to a Fund at any time on 60 days' written notice without
penalty by the Trustees, by vote of a majority of the outstanding Shares of
that
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<PAGE> 140
Fund, or by the Adviser. The Investment Advisory Agreement also terminates
automatically in the event of any assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Group in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or negligence on the part of the Adviser in the
performance of its duties, or from negligent disregard by the Adviser of its
duties and obligations thereunder.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser, subject to
the policies established by the Board of Trustees of the Group and in
accordance with the Funds' investment restrictions and policies, is responsible
for each Fund's portfolio decisions and the placing of the Funds' portfolio
transactions. Purchases and sales of portfolio securities which are debt
securities usually are principal transactions in which such portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions on stock
exchanges involve the payment of negotiated brokerage commissions.
Transactions in the over-the-counter market are generally principal
transactions with dealers. With respect to the over-the-counter market, the
Group, where possible, will deal directly with dealers who make a market in the
securities involved except in those circumstances where better price and
execution are available elsewhere.
In executing such transactions, the Adviser seeks to obtain the best net
results for a Fund taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulties
of execution and operational facilities of the firm involved and the firm's
risk in positioning a block of securities. While the Adviser generally seeks
reasonably competitive commission rates, for the reasons stated in the prior
sentence, a Fund will not necessarily be paying the lowest commission or spread
available.
The Adviser may consider provision of research, statistical and other
information to the Group, a Fund or the Adviser in the selection of qualified
broker-dealers who effect portfolio transactions for a Fund so long as the
Adviser's ability to obtain the best net results for portfolio transactions of
that Fund is not diminished. Such research services include supplemental
research, securities and economic analyses, and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Such research services may
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<PAGE> 141
also be useful to the Adviser in connection with its services to other clients.
Similarly, research services provided by brokers serving such other clients may
be useful to the Adviser in connection with its services to a Fund. Although
this information is useful to a Fund and the Adviser, except as described
below, it is not possible to place a dollar value on it. It is the opinion of
the Board of Trustees and the Adviser that the review and study of this
information will not reduce the overall cost to the Adviser of performing its
duties to the Funds under the Investment Advisory Agreement. The Adviser, on
behalf of the Funds, may direct brokerage transactions to Columbine Research in
return for the provision of research services. Such brokerage transactions
are subject to the requirements as to price and execution as described above.
The Group is not authorized to pay brokerage commissions which are in excess of
those which another qualified broker would charge solely by reason of brokerage
and research services provided.
In addition, the Group has authorized the Adviser to place brokerage
transactions through Pershing and Company, a division of Donaldson, Lufkin &
Jenrette, in return for Lipper Data information prepared for the Group's
Trustees relating to information on fees and expenses of other mutual funds.
However, such brokerage transactions are subject to the requirements as to
execution and price described above.
Investment decisions for a Fund are made independently from those for
another Fund of the Group or any other investment company or account managed by
the Adviser. Any such other Funds, investment company or account may also
invest in the same securities as a Fund. When a purchase or sale of the same
security is made at substantially the same time on behalf of one Fund and
another Fund, investment company or account, the transaction will be averaged
as to price and available investments will be allocated as to amount in a
manner which the Adviser believes to be equitable to the Fund and such other
Fund, investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained by that Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for a Fund with
those to be sold or purchased for other funds or for other investment companies
or accounts in order to obtain best execution. As provided by the Investment
Advisory Agreement, in making investment recommendations for the Group, the
Adviser will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Group is a customer of the
Adviser, its parent or its subsidiaries or affiliates and, in dealing with its
customers, the Adviser, its parent, subsidiaries and affiliates will not
inquire or take into consideration whether securities of such customers are
held by the Group.
Pursuant to Investment Advisory Agreement, the Adviser also serves as
general manager and administrator to each of the Funds.
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<PAGE> 142
The Adviser assists in supervising all operations of each Fund (other than
those performed by The Fifth Third Bank under the Custodian Agreement and by
the Adviser under the Transfer Agency and Fund Accounting Agreement).
The Adviser has agreed to maintain office facilities; furnish
statistical and research data, clerical, certain bookkeeping services and
stationery and office supplies; prepare the periodic reports to the Commission
on Form N-SAR or any replacement forms therefor; compile data for, prepare for
execution by each Fund and file all of a Fund's federal and state tax returns
and required tax filings other than those required to be made by each Fund's
custodian and Transfer Agent; prepare compliance filings pursuant to state
securities laws with the advice of the Group's counsel; assist to the extent
requested by the Group with the Group's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statement (on Form
N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
keep and maintain the financial accounts and records of each Fund, including
calculation of daily expense accruals; and generally assist in all aspects of
each Fund's operations.
TRANSFER AND DIVIDEND AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement dated as of June 18, 1993, as amended as of January __, 1996 (the
"Transfer Agency Agreement"), with the Transfer Agent, pursuant to which the
Transfer Agent has agreed to act as the transfer agent, dividend disbursing
agent and administrator of plans for each Fund and to provide certain fund
accounting services for each Fund. Pursuant to the Transfer Agency Agreement,
the Transfer Agent, among other things, performs the following services in
connection with each Fund's shareholders of record: maintenance of shareholder
records for the Fund's shareholders of record; processing shareholder purchase
and redemption orders; processing transfers and exchanges of shares of the
Group on the shareholder files and records; processing dividend payments and
reinvestment; and assistance in the mailing of shareholder reports and proxy
solicitation materials. In consideration of such services each Fund has agreed
to pay the Transfer Agent monthly an annual fee equal to $21 per shareholder
account plus out-of-pocket expenses.
In addition, the Transfer Agency provides certain fund accounting
services to each of the Funds, including maintaining the accounting books and
records for each Fund, including journals containing an itemized daily record
of all purchases and sales of portfolio securities, all receipts and
disbursements of cash and all other debits and credits, general and auxiliary
ledgers reflecting all asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received, and other required
separate ledger accounts; maintaining a monthly
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<PAGE> 143
trial balance of all ledger accounts; performing certain accounting services
for each Fund, including calculation of the net asset value per share,
calculation of the dividend and capital gain distributions, if any, and of
yield, reconciliation of cash movements with such Fund's custodian, affirmation
to that Fund's custodian of all portfolio trades and cash settlements,
verification and reconciliation with that Fund's custodian of all daily trade
activity; providing certain reports; obtaining dealer quotations, prices from a
pricing service or matrix prices on all portfolio securities in order to mark
the portfolio to the market; and preparing an interim balance sheet, statement
of income and expense, and statement of changes in net assets for each Fund.
In consideration for such services, each Fund has agreed to pay the Transfer
Agent a fee, computed daily and paid periodically at an annual rate of .03% of
such Fund's average daily net assets.
EXPENSES
If total expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities regulations, the Adviser
will reimburse that Fund by the amount of such excess. As of the date of this
Statement of Additional Information, the most restrictive expense limitation
applicable to the Funds limit each Fund's aggregate annual expenses, including
management and advisory fees but excluding interest, taxes, brokerage
commissions, and certain other expenses, to 2 1/2% of the first $30 million of
a Fund's average net assets, 2% of the next $70 million of such Fund's average
net assets, and 1 1/2% of such Fund's remaining average net assets. Any
expense reimbursements will be estimated daily and reconciled and paid on a
monthly basis.
THE DISTRIBUTOR
The Ohio Company serves as agent for the Funds in the distribution of
their Shares pursuant to a Distribution Agreement dated June 18, 1993, as
amended as of January __, 1996 (the "Distribution Agreement"). Unless
otherwise terminated, the Distribution Agreement remains in effect for
successive annual periods ending on June 18 if approved at least annually (i)
by the Group's Board of Trustees or by the vote of a majority of the
outstanding shares of the Group, and (ii) by the vote of a majority of the
Trustees of the Group who are not parties to the Distribution Agreement or
interested persons (as defined in the 1940 Act) of any party to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement may be terminated in the
event of any assignment, as defined in the 1940 Act.
In its capacity as Distributor, The Ohio Company solicits orders for the
sale of Shares, advertises and pays the costs of advertising, office space and
the personnel involved in such activities. The Distributor receives no
compensation from the Group under the Distribution Agreement, but may receive
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<PAGE> 144
compensation under the Distribution and Shareholder Service Plan described
below and retain all or a portion of the sales charges with respect to its
sales of Shares of TCF and CGOF.
As described in the Prospectus, the Group has adopted a Distribution and
Shareholder Service Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act
under which each of TCF and CGOF (collectively, the "12b-1 Funds") is
authorized to pay The Ohio Company for payments it makes to broker-dealers,
including The Ohio Company, banks and other institutions (with all of the
foregoing organizations being referred to as "Participating Organizations") for
providing distribution or shareholder service assistance or for distribution
assistance and/or shareholder service provided by The Ohio Company pursuant to
an agreement between The Ohio Company and the Group. Payments to such
Participating Organizations may be made pursuant to agreements entered into
with The Ohio Company. The Plan authorizes each 12b-1 Fund to make payments to
The Ohio Company in an amount not in excess, on an annual basis, of 0.25% of
the average daily net asset value of that 12b-1 Fund.
As required by Rule 12b-1, the Plan was approved by the initial sole
shareholder of each 12b-1 Fund and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of that 12b-1 Fund and
who have no direct or indirect financial interest in the operation of the Plan
(the "Independent Trustees"). The Plan may be terminated as to a 12b-1 Fund by
vote of a majority of the Independent Trustees, or by vote of majority of the
outstanding Shares of that 12b-1 Fund. Any change in the Plan that would
materially increase the distribution cost to a 12b-1 Fund requires shareholder
approval. The Trustees review quarterly a written report of such costs and the
purposes for which such costs have been incurred. The Plan may be amended by
vote of the Trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for that purpose. For so long as the Plan is in
effect, selection and nomination of those Trustees who are not interested
persons of the Group shall be committed to the discretion of such disinterested
persons. All agreements with any person relating to the implementation of the
Plan with respect to a 12b-1 Fund may be terminated at any time on 60 days'
written notice without payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of the majority of the outstanding Shares of
such 12b-1 Fund.
The Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by a vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
The Board of Trustees has a duty to request and evaluate such information as
may be reasonably necessary for them to make an informed determination of
whether the Plan should be implemented or continued. In addition the Trustees
in approving the Plan must determine that
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<PAGE> 145
there is a reasonable likelihood that the Plan will benefit the 12b-1 Funds and
their Shareholders.
The Board of Trustees of the Group believes that the Plan is in the best
interests of the 12b-1 Funds since it encourages Fund growth and retention of
Fund assets. As a 12b-1 Fund grows in size, certain expenses, and therefore
total expenses per Share, may be reduced and overall performance per Share may
be improved.
As authorized by the Plan, the Group has entered into a Rule 12b-1
Agreement with The Ohio Company pursuant to which The Ohio Company has agreed
to provide certain shareholder services in connection with Shares of a 12b-1
Fund purchased and held by The Ohio Company for the accounts of its customers
and Shares of a 12b-1 Fund purchased and held by customers of The Ohio Company
directly, including, but not limited to, answering Shareholder questions
concerning the 12b-1 Funds, providing information to Shareholders on their
investments in the 12b-1 Funds and providing such personnel and communication
equipment as is necessary and appropriate to accomplish such matters. In
consideration of such services the Group, on behalf of each 12b-1 Fund, has
agreed to pay The Ohio Company a monthly fee, computed at the annual rate of
.25% of the average aggregate net asset value of Shares of that 12b-1 Fund held
during the period in customer accounts for which The Ohio Company has provided
services under this Agreement.
In addition, The Ohio Company may enter into, from time to time, Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain Shareholder services including, but not limited to, those
discussed above.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263,
has been selected to serve as the Funds' custodian pursuant to the Custody
Agreement dated June 18, 1993, as amended as of January __, 1996. In such
capacity the custodian will hold or arrange for the holding of all portfolio
securities and other assets of the Funds.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Baker & Hostetler, 65 East State Street, Columbus, Ohio 43215, is
counsel to the Group and will pass upon the legality of the Shares offered
thereby. The Group has selected KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as independent auditors for the Funds.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Funds' Shares may be purchased at the public offering price and are
sold on a continuous basis through The Ohio Company, principal underwriter of
the Funds' Shares, at its address and number set forth on the cover page of
this Statement of Additional Information, and through other broker-dealers who
are members of the National Association of Securities Dealers, Inc. and have
sales agreements with The Ohio Company.
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical or (ii) it is not reasonably
practical for the Group to determine the fair value of its net assets.
Use of the check-writing redemption procedure will be subject to the
rules and regulations of The Fifth Third Bank (the "Bank") governing checking
accounts. Neither the Bank nor the Group shall incur any liability to a
participating shareholder under this procedure for not honoring a check that
exceeds the value of Shares in a shareholder's account, for honoring checks
properly drafted, for effecting redemptions pursuant to payment thereof or for
Freturning checks not accepted for payment. This procedure may be terminated at
any time by the Group, the Bank or the participating shareholder. A
shareholder participating in the check-writing redemption procedure has not
established a checking or other account with the Bank for the purposes of
Federal Deposit Insurance or otherwise.
Determination of Net Asset Value
- --------------------------------
The Group values the portfolio securities of CGSMMF and CTEMMF
(collectively, the "Money Market Funds" and individually a "Money Market Fund")
using the amortized cost valuation method. This method involves valuing a
security at its cost and thereafter accruing any discount or premium at a
constant rate to maturity. By declaring these accruals to the Money Market
Funds' shareholders in the daily dividend, the value of a Money Market Fund's
assets, and, thus, its net asset value per share, will generally remain
constant. Although this method provides certainty in valuation, it may result
in periods during which the value of a Money Market Fund's securities, as
determined by amortized cost, is higher or lower than the price the Money
Market Fund would receive if it sold the securities. During such periods, the
yield on Shares of the Money Market Fund may differ somewhat from that obtained
in a similar fund with identical investments utilizing a method of valuation
based upon market prices and estimates of market prices
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for all of its portfolio securities. For example, if the use of amortized cost
by a Money Market Fund resulted in a lower aggregate portfolio value on a
particular day, a prospective investor in the Money Market Fund would be able
to obtain a somewhat higher yield than would result from investment in a
similar fund utilizing solely market values, and existing investors in the
Money Market Fund would receive less investment income.
The valuation of the Money Market Funds' portfolio securities based upon
their amortized cost and the maintenance of the Money Market Funds' per share
net asset value of $1.00 is permitted based on the Money Market Funds'
adherence to certain conditions, including maintaining a dollar-weighted
average portfolio maturity of 90 days or less and purchasing only portfolio
securities having remaining maturities of 397 days or less. The Board of
Trustees has also established procedures designed to stabilize, to the extent
reasonably possible, the Money Market Funds' net asset value per share, as
computed for the purpose of sales and redemptions, at $1.00. Such procedures
include review of the Money Market Funds' portfolio holdings by the Board of
Trustees at such intervals as it may deem appropriate to determine whether the
Money Market Funds' net asset value calculated by using available market
quotations deviates from $1.00 per Share and, if so, whether such deviation may
result in material dilution or may be otherwise unfair to existing
shareholders. These procedures also include a review by the Adviser in
accordance with policies established by the Board of Trustees not less
frequently than [monthly] of the quality of certain Municipal Securities having
variable interest rates and demand features that permit CTEMMF to calculate the
maturity of such obligations to a point in time prior to their stated maturity.
In the event the Board of Trustees determines that deviation in net asset value
exists, the Board of Trustees will take such corrective action as it deems
necessary and appropriate, which action might include redemption of Shares in
kind, selling portfolio securities prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
reduction of the number of Shares outstanding (i.e. the declaration of a
negative dividend) or establishing a net asset value per share by using
available market quotations.
TAXES
GENERAL. Each Fund intends to qualify as a "regulated investment
company" under the Code for so long as such qualification is in the best
interest of that Fund's shareholders. In order to qualify as a regulated
investment company, a Fund must, among other things: derive at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing
in such stocks, securities, or currencies; derive less than 30% of its gross
income from the sale or other disposition of
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stocks, securities, options, future contracts or foreign currencies held less
than three months; and diversify its investments within certain prescribed
limits. In addition, to utilize the tax provisions specially applicable to
regulated investment companies, a Fund must distribute to its shareholders at
least 90% of its investment company taxable income for the year. In general, a
Fund's investment company taxable income will be its taxable income subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, such
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if
for any taxable year a Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to federal tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions
would be taxable to shareholders to the extent of earnings and profits, and
would be eligible for the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal
income tax purposes, even if paid in additional Shares of the Fund and not in
cash.
Distribution by a Fund of the excess of net long-term capital gain over
net short-term capital loss is taxable to shareholders as long- term capital
gain in the year in which it is received, regardless of how long the
shareholder has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
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Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in
excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on capital gains of
individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss
each year to offset ordinary income. Excess net capital loss may be carried
forward to future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%.
Further, a corporation's federal taxable income in excess of $15 million is
subject to an additional tax equal to 3% of taxable income over $15 million,
but not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset
capital gains and excess net capital loss may be carried back three years and
forward five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
A Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends paid to any shareholder who has
provided either an incorrect tax identification number or no number at all, or
who is subject to withholding by the Internal Revenue Service for failure
properly to include on his return payments of interest or dividends.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of a Fund. No attempt has been made to present a detailed
explanation of the federal income tax treatment of a Fund or its shareholders
and this discussion is not intended as a substitute for careful tax planning.
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<PAGE> 150
Accordingly, potential purchasers of Shares of a Fund are urged to consult
their tax advisers with specific reference to their own tax situation. In
addition, the tax discussion in the Prospectuses and this Statement of
Additional Information is based on tax laws and regulations which are in effect
on the date of the Prospectuses and this Statement of Additional Information;
such laws and regulations may be changed by legislative or administrative
action.
SPECIFIC INFORMATION REGARDING CTEMMF. An exempt-interest dividend
is any dividend or part thereof (other than a capital gain dividend) paid by
CTEMMF that is derived from interest received by CTEMMF that is excluded from
gross income for federal income tax purposes, net of certain deductions,
provided the dividend is designated as an exempt-interest dividend in a written
notice mailed to shareholders not later than sixty days after the close of
CTEMMF's taxable year. The percentage of the total dividends paid by CTEMMF
during any taxable year that qualifies as exempt-interest dividends will be the
same for all shareholders receiving dividends during such year.
Exempt-interest dividends shall be treated by CTEMMF's shareholders as items of
interest excludable from their gross income for Federal income tax purposes
under Section 103(a) of the Code. However, a shareholder is advised to consult
his tax adviser with respect to whether exempt-interest dividends retain the
exclusion under Section 103(a) of the Code if such shareholder is a
"substantial user" or a "related person" to such user under Section 147(a) of
the Code with respect to any of the Municipal Securities held by CTEMMF. If a
shareholder receives an exempt-interest dividend with respect to any Share and
such Share is held by the shareholder for six months or less, any loss on the
sale or exchange of such Share shall be disallowed to the extent of the amount
of such exempt-interest dividend.
In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry Shares of CTEMMF is not deductible for federal
income tax purposes if CTEMMF distributes exempt-interest dividends during the
shareholder's taxable year. A shareholder of CTEMMF that is a financial
institution may not deduct interest expense attributable to indebtedness
incurred or continued to purchase or carry Shares of CTEMMF if CTEMMF
distributes exempt-interest dividends during the shareholder's taxable year
(except that 80% in the case of interest expense attributable to tax-exempt
obligations acquired after December 31, 1982, and prior to August 7, 1986 may
be deducted). Certain federal income tax deductions of property and casualty
insurance companies holding Shares of CTEMMF and receiving exempt-interest
dividends may also be adversely affected. In certain limited instances, the
portion of Social Security benefits received by a shareholder which may be
subject to federal income tax may be affected by the amount of tax-exempt
interest income, including exempt-interest dividends received by shareholders
of CTEMMF.
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In the unlikely event CTEMMF realizes long-term capital gains, CTEMMF
intends to distribute any realized net long-term capital gains annually. If
CTEMMF distributes such gains, CTEMMF will have no tax liability with respect
to such gains, and the distributions will be taxable to shareholders as
long-term capital gains regardless of how long the shareholders have held the
Shares. Any such distributions will be designated as a capital gain dividend
in a written notice mailed by CTEMMF to the shareholders not later than sixty
days after the close of CTEMMF's taxable year. It should be noted, however,
that capital gains are taxed like ordinary income except that net capital gains
of individuals are subject to a maximum federal income tax rate of 28%. Net
capital gains are the excess of net long-term capital gains over net short-term
capital losses. Any net short-term capital gains are taxed at ordinary income
tax rates. If a shareholder receives a capital gain dividend with respect to
any Share and then sells the Share before he has held it for more than six
months, any loss on the sale of the Share is treated as long-term capital loss
to the extent of the capital gain dividend received.
Interest earned by individuals and corporations on certain municipal
obligations issued on or after August 8, 1986, to finance certain private
activities will be treated as a tax preference item in computing the
alternative minimum tax. It is likely that exempt-interest dividends received
by shareholders from CTEMMF will also be treated as tax preference items in
computing the alternative minimum tax to the extent that distributions by
CTEMMF are attributable to such obligations. Also, a portion of all other
interest excluded from gross income for federal income tax purposes earned by a
corporation may be subject to the alternative minimum tax as a result of the
inclusion in alternative minimum taxable income of 75% of the excess of
adjusted current earnings and profits over pre-book alternative minimum taxable
income. Adjusted current earnings and profits would include exempt-interest
dividends distributed by CTEMMF to corporate shareholders.
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income," which would include a portion of the exempt-interest dividends
distributed by CTEMMF to such corporation, and exempt-interest dividends
distributed to certain foreign corporations doing business in the United States
could be subject to a branch profits tax imposed by Section 884 of the Code.
Distributions of exempt-interest dividends by CTEMMF may be subject to
state and local taxes even though a substantial portion of such distributions
may be derived from interest on obligations which, if received directly, would
be exempt from such taxes. CTEMMF will report to its shareholders annually
after the close of
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its taxable year the percentage and source, on a state-by-state basis, of
interest income earned on municipal obligations held by CTEMMF during the
preceding year. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
ADDITIONAL INFORMATION
Description of Shares
- ---------------------
The Group is an Ohio business trust. The Group was organized on March
23, 1993, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on March 23, 1993. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of Shares, which are units of
beneficial interest, without par value. The Group presently has six series of
Shares, four of which represent interests in the Funds. The Group's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued Shares of the Group into one or more additional series by setting or
changing in any one or more respects their respective preferences, conversion
or other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the respective Prospectus
and this Statement of Additional Information, a Fund's Shares will be fully
paid and non-assessable. In the event of a liquidation or dissolution of the
Group, shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Fund, of any general assets
not belonging to any particular Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a series will be required
in connection with a matter, a series will be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical, or that the matter does not affect any interest of the series.
Under Rule 18f-2, the approval of any amendment to the Investment Advisory
Agreement or any change in investment policy submitted to shareholders would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, Rule 18f-2 also provides
that the ratification of independent public accountants
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and the election of Trustees may be effectively acted upon by shareholders of
the Group voting without regard to series.
Vote of a Majority of the Outstanding Shares
- --------------------------------------------
As used in the Prospectuses and this Statement of Additional
Information, "vote of a majority of the outstanding Shares" of the Group or a
Fund, means the affirmative vote, at an annual or special meeting of
shareholders duly called, of the lesser of (a) 67% or more of the votes of
shareholders of the Group or that Fund present at such meeting at which the
holders of more than 50% of the votes attributable to the shareholders of
record of the Group or that Fund are represented in person or by proxy, or (b)
the holders of more than 50% of the outstanding votes of shareholders of the
Group or such Fund.
Miscellaneous
- -------------
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals.
Generally, shareholders owning not less than 20% of the outstanding shares of
the Group entitled to vote may cause the Trustees to call a special meeting.
However, the Group has represented to the Commission that the Trustees will
call a special meeting for the purpose of considering the removal of one or
more Trustees upon written request therefor from shareholders owning not less
than 10% of the outstanding votes of the Group entitled to vote and that the
Group will assist in communications with other shareholders as required by
Section 16(c) of the 1940 Act. At such a meeting, a quorum of shareholders
(constituting a majority of votes attributable to all outstanding shares of the
Group), by majority vote, has the power to remove one or more Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of
the management or policies of the Group.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized
to give any information or make any representation other than those contained
in the Prospectuses and this Statement of Additional Information.
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PERFORMANCE INFORMATION
Yields
- ------
The yield of TCF and CGOF will be computed by annualizing net investment
income per share for a recent 30-day period and dividing that amount by a
Share's maximum offering price (as of the date hereof, 4.5%) (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
trading day of that period. Net investment income will reflect amortization of
any market value premium or discount of fixed income securities (except for
obligations backed by mortgages or other assets) and may include recognition of
a pro rata portion of the stated dividend rate of dividend paying portfolio
securities. The yield of TCF and CGOF will vary from time to time depending
upon market conditions, the composition of such Fund's portfolio and operating
expenses of the Group allocated to that Fund. These factors and possible
differences in the methods used in calculating yield should be considered when
comparing TCF's or CGOF's yield to yields published for other investment
companies and other investment vehicles. Yield should also be considered
relative to changes in the value of TCF's and CGOF's Shares and to the relative
risks associated with the investment objectives and policies of those Funds.
The current (average annualized) yield of CGSMMF and CTEMMF for any
seven-day period is calculated by dividing the average daily net income per
Share earned by that Fund during the seven-day calendar period by such Fund's
average price per Share over the same period and annualizing this quotient on a
365 day basis. For purposes of this calculation, the daily net income reflects
dividends declared on the original Share and dividends declared on any Shares
purchased with dividends on that Share. Capital changes that are excluded from
the calculation are realized gains and losses from the sale of securities as
well as unrealized appreciation and depreciation with respect to the Fund's
portfolio.
The effective or compounded yield of CGSMMF and CTEMMF for any seven-day
period is computed by adding the number one to the daily net income per Share
earned by such Fund during the seven-day calendar period, raising the sum to a
power equal to 365 divided by seven, and subtracting the number one from the
result.
CTEMMF's tax-equivalent yield is computed by dividing that portion of
CTEMMF's yield which is tax-exempt by 1 minus the stated income tax rate and
adding the result to that portion, if any, of CTEMMF's yield that is not
tax-exempt. CTEMMF's tax-equivalent effective yield is computed by dividing
that portion of the effective yield which is tax-exempt by 1 minus the stated
income tax rate and adding to that result the portion, if any, of CTEMMF's
effective yield that is not tax-exempt.
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<PAGE> 155
Calculation of Total Return
- ---------------------------
Each quotation of average annual total return will be computed by
finding the average annual compounded rate of return over that period which
would equate the value of an initial amount of $1,000 invested in a Fund equal
to the ending redeemable value, according to the following formula:
P(T + 1)n = ERV
Where: P = a hypothetical initial payment of $1,000, T = average annual
total return, n = number of years, and ERV = ending redeemable value of a
hypothetical $1,000 payment at the beginning of the period at the end of the
period for which average annual total return is being calculated assuming a
complete redemption. The calculation of average annual total return assumes
the deduction of the maximum sales charge from the initial investment of
$1,000, assumes the reinvestment of all dividends and distributions at the
price stated in the then effective Prospectus on the reinvestment dates during
the period and includes all recurring fees that are charged to all shareholder
accounts assuming such Fund's average account size. Cumulative return is
computed by using average annual total return, as calculated above, for each
year of the relevant period to determine the total return on a hypothetical
initial investment of $1,000 over such period.
In addition, as described in CGOF's Prospectus, from time to time CGOF
may include in its sales literature and shareholder reports a quote of a
current "distribution" rate. The current distribution rate is computed by
dividing the total amount of dividends per share paid by CGOF during the past
twelve months by a current maximum offering price. Under certain
circumstances, such as when there has been a change in the amount of dividend
payout, or a fundamental change in investment policies, it might be appropriate
to annualize the dividends paid over the period such changed policies were in
effect, rather than using the dividends during the past twelve months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing, short-term capital gains
and net equalization credits and is calculated over a different period of time.
At any time in the future, yields and total return may be higher or
lower than past yields and total return and there can be no assurance that any
historical results will continue. Investors in the Funds are specifically
advised that Share prices of TCF and CGOF, expressed as the net asset values
per share, will vary just as yields and total return will vary.
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Performance Comparisons
- -----------------------
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and, Standard
& Poor's Corporation and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and CDA Investment Technologies, Inc. Comparisons may also
be made to indices or data published in Donoghue's MONEY FUND REPORT of
Holliston, Massachusetts, a nationally recognized money market fund reporting
service, Money Magazine, Forbes, Barron's, The Wall Street Journal, The New
York Times, The Columbus Dispatch, Business Week, U.S.A. Today and Consumer
Reports. In addition to performance information, general information about the
Funds that appears in a publication such as those mentioned above may be
included in advertisements and in reports to shareholders.
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APPENDIX
COMMERCIAL PAGER RATINGS. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debts having original maturities of no more than 365 days. Commercial paper
rated A-1 by S&P indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted A-1+. Commercial paper rated
A-2 by S&P indicates that capacity for timely payment on issues is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternative liquidity is maintained.
Commercial paper rated F-1 by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-2 by Fitch is regarded as having an assurance of
timely payment only slightly less than the strongest rating, i.e., F-1.
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
CORPORATE DEBT RATINGS. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong. Debt rated AA has a
very strong capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Debt rated BBB is regarded as
having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
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<PAGE> 158
The following summarizes the four highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues. Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Bonds that are rated A by Moody's possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment some time in the future. Bonds that are rated Baa by Moody's are
considered as medium grade obligations, i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through Baa. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
The following summarizes the four highest long-term debt ratings by
Duff. Debt rated AAA has the highest credit quality. The risk factors are
negligible being only slightly more than for risk-free U.S. Treasury debt.
Debt rated AA has a high credit quality and protection factors are strong.
Risk is modest but may vary slightly from time to time because of economic
conditions. Debt rated A has protection factors that are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress. Debt rated BBB has below average protection factors but is still
considered sufficient for prudent investment. However, there is considerable
variability in risk during economic cycles.
To provide more detailed indications of credit quality, the ratings from
AA to BBB may be modified by the addition of a plus or
B-2
<PAGE> 159
minus sign to show relative standing within this major rating category.
The following summarizes the four highest long-term debt ratings by
Fitch (except for AAA ratings, plus or minus signs are used with a rating
symbol to indicate the relative position of the credit within the rating
category). Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and
of very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issues
is generally rated "F-1+." Bonds rated as A are considered to be investment
grade and of high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
for these bonds will fall below investment grade is higher than for bonds with
higher ratings.
The following summarizes IBCA's four highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
rated AA are those for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic, or financial conditions may increase
investment risk albeit not very significantly. Obligations rated A are those
for which there is a low expectation of investment risk. Capacity for timely
repayment of principal and interest is strong, although adverse changes in
business, economic or financial conditions may lead to increased investment
risk. Obligations rated BBB are those for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic, or
financial conditions are more likely to lead to increased investment risk than
for obligations in other categories.
B-3
<PAGE> 160
The following summarizes Thomson's description of its four highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A
is the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB is the lowest investment grade category and indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Definitions of Certain Money Market Instruments
- -----------------------------------------------
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
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.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations are guaranteed as to payment of principal and interest by the full
faith and credit of the U.S. Government.
B-4
<PAGE> 161
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Export-Import Bank of the United States, the Tennessee Valley Authority,
the Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks, are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
B-5
<PAGE> 1
EXHIBIT (17)(c)
<PAGE> 2
THE CARDINAL FUND INC.
SUPPLEMENT DATED DECEMBER 11, 1995,
TO PROSPECTUS DATED FEBRUARY 1, 1995
Capitalized terms used in this Supplement have the meaning assigned to them
in the Prospectus.
The Fund has entered into an Agreement and Plan of Reorganization and
Liquidation, dated as of December 1, 1995 (the "Plan"), with The Cardinal Group,
an Ohio business trust (the "Group"). Pursuant to the Plan, The Cardinal Fund, a
series of the Group (the "Acquiring Fund"), would acquire all of the assets of
the Fund in exchange for the assumption of all of the Fund's liabilities and a
number of full and fractional shares of the Acquiring Fund having an aggregate
net asset value equal to the Fund's net assets (the "Reorganization"). The Fund
would then be liquidated, and the shares of the Acquiring Fund would be
distributed to Fund shareholders.
The Reorganization is subject to certain regulatory approvals and to
approval by the shareholders of the Fund at a special Shareholders Meeting
currently expected to be held in February, 1996. If the shareholders approve the
Reorganization, it is expected that the Reorganization would be effected on or
about March 31, 1996; however, the Reorganization may be effected on such
earlier or later date as the Group and the Fund may determine. There can be no
assurance that the Reorganization will take place when or as currently proposed.
The following paragraph is added to the cover page of this Prospectus:
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN
THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
The following two sentences are added at the end of the second paragraph
under the heading "WHO MANAGES MY INVESTMENT IN THE FUND? -- Investment Adviser"
on pages 13 and 14 of the Prospectus:
As of December 22, 1995, John Bevilacqua will be primarily responsible for
the day-to-day management of the Fund's portfolio. Mr. Bevilacqua has been
a Vice President and Portfolio Manager for The Ohio Company since October,
1994. Prior thereto, and since February, 1984, Mr. Bevilacqua served as
Second Vice-President -- Investments for Midland Mutual Life Insurance
Company, Columbus, Ohio.
The Prospectus Supplement supersedes in its entirety the prospectus
supplement dated February 22, 1995.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS
FOR FUTURE REFERENCE
<PAGE> 3
- --------------------------------------------------------------------------------
PROSPECTUS
[LOGO]
THE CARDINAL FUND INC.
The Cardinal Fund Inc. (the "Fund") is a diversified, open-end, management
investment company. The primary investment objective of the Fund is to achieve
long-term growth of capital and income through selective participation in the
long-term progress of American businesses and industries. The policy of the Fund
is generally to invest in equity securities. Current income, while a factor in
portfolio selection, is secondary to the Fund's primary objective. There can be
no assurance that the Fund's objective will be achieved.
- --------------------------------------------------------------------------------
For further information regarding the Fund or for assistance
in opening an account or redeeming shares, please call:
In Columbus 464-5512 (opening accounts and further information)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing in the Fund. This Prospectus
should be retained for future reference. A Statement Of Additional Information
respecting the Fund dated February 1, 1995, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. Such Statement
is available upon request without charge from the Fund at the above address or
by calling one of the phone numbers provided above.
Investors should read and retain this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OHIO COMPANY
The date of this Prospectus is February 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
KEY FEATURES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PROFESSIONAL MANAGERS.......... The Fund's portfolio is fully managed by professional
portfolio managers. (See page 13.)
DIVERSIFICATION................ The Fund's portfolio of securities represents an interest
in many companies and industries and therefore provides a
diversification of risk.
REDUCED SALES CHARGE........... An investor will pay a reduced sales charge for large
investments. (See page 8.)
LOW INITIAL INVESTMENT......... An investor can acquire shares of a portfolio of common
stocks with a smaller investment than would be needed to
purchase a similar portfolio directly.
FLEXIBILITY.................... You may switch once each calendar quarter from one mutual
fund to another within the Cardinal Group of Funds as
your personal circumstances or market conditions dictate.
(See pages 14 and 15.)
RETIREMENT PROGRAMS............ The Fund is a permissible investment for qualified
retirement plans.
DIVIDEND REINVESTMENT.......... You may reinvest dividends, capital gains or both in
additional shares of the Fund at no charge. (See pages 4
and 10.)
ACH PROCESSING................. Investors may use Automated Clearing House ("ACH")
processing for subsequent purchases of shares,
redemptions, and/or distributions paid. (See page 14.)
</TABLE>
2
<PAGE> 5
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHARES OFFERED................. The Fund has authorized 30,000,000 shares of common
stock, without par value (the "Shares"), all of a single
class. (See page 15.)
OFFERING PRICE & SALES
CHARGE....................... The public offering price is equal to net asset value per
share plus a sales charge equal to 4.50% of the public
offering price (4.71% of net amount invested) reduced on
investments of $100,000 or more (see page 8) and waived
if purchasers are Qualifying Plans for whom The Ohio
Company serves as a trustee or investment adviser. (See
page 10.)
MINIMUM PURCHASE............... $1,000 minimum initial investment and $50 minimum subse-
quent investments. (See pages 7 and 8.)
TYPE OF COMPANY................ Diversified, open-end, management investment company,
commonly known as a mutual fund. Organized as an Ohio
corporation on September 16, 1966. (See page 6.)
INVESTMENT OBJECTIVE........... Long-term growth of capital and income through selective
participation in the long-term progress of American
business and industry. (See page 6.)
INVESTMENT POLICIES............ The Fund generally invests in equity securities. Current
income, while a factor in portfolio selection, is
secondary to the primary objective. (See pages 6 and 7.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS............... An investment in a mutual fund such as the Fund involves
a certain amount of risk, including market risk, and may
not be suitable for all investors. Some investment
policies of the Fund may entail certain risks, including
the use of repurchase agreements. (See "WHAT ARE THE
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?" on pages
6 and 7.)
INVESTMENT ADVISER............. The Fund has entered into an Investment Advisory Agree-
ment with The Ohio Company. Cardinal Management Corp., a
wholly-owned subsidiary of The Ohio Company, acts as the
Fund's transfer agent, and acts as investment adviser to
and transfer agent for Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, Cardinal
Government Obligations Fund, Cardinal Balanced Fund and
Cardinal Aggressive Growth Fund. (See page 13.)
MANAGEMENT FEE................. The annual rate is .5% of the average daily net assets of
the Fund. (See page 14.)
DISTRIBUTIONS.................. Dividends and distributions are made with such frequency
as the Fund shall determine. (See page 10.)
REDEMPTION..................... At net asset value per share without charge, except that
broker-dealers may charge a service fee for assisting in
a redemption. (See page 11.)
TRANSFER AGENT................. Cardinal Management Corp. (See page 14.)
</TABLE>
3
<PAGE> 6
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................... 0%
Deferred Sales Load
(as a percentage of original purchase price or redemption
proceeds, as applicable)..................................... 0%
Redemption Fees
(as a percentage of amount redeemed, if applicable).......... 0%
Exchange Fee................................................... $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................ .50%
12b-1 Fees..................................................... .00
Other Expenses................................................. .22
--------
Total Fund Operating Expenses.................................. .72%
=================
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:................ $ 52 $ 67 $ 83 $130
</TABLE>
The purpose of the above table is to assist a potential purchaser of the Fund's
Shares in understanding the various costs and expenses that an investor in the
Fund will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN THE
FUND?" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of the Fund. The example and expenses above
reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
4
<PAGE> 7
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the ten fiscal years
ended September 30, 1994, have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon, together with certain financial
statements, are contained in the Fund's Statement Of Additional Information and
which may be obtained by shareholders and prospective investors.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH PERIOD*:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of period................ $ 12.91 $ 12.95 $ 11.88 $ 9.28 $ 11.75
Income from investment operations:
Net investment income............................. .31 .32 .35 .35 .42
Net gains or losses on securities (both realized
and unrealized)................................. .12 .55 1.37 2.70 (1.87)
--------- --------- --------- --------- ---------
Total from investment operations.................. .43 .87 1.72 3.05 (1.45)
--------- --------- --------- --------- ---------
Less Distributions:
Dividends (from net investment income)............ (.33) (.29) (.36) (.38) (.53)
Distributions (from capital gains)................ (.28) (.62) (.29) (.07) (.49)
Returns of capital................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions............................... (.61) (.91) (.65) (.45) (1.02)
Net asset value, End of period...................... $ 12.73 $ 12.91 $ 12.95 $ 11.88 $ 9.28
========= ========= ========= ========= =========
Total Return........................................ 3.38% 6.98% 15.05% 33.54% (13.42)%
Ratios/Supplemental Data:
Net assets, End of period (000) omitted............. $ 246,581 $ 282,125 $ 261,392 $ 221,428 $ 168,184
Ratio of expenses to average net assets............. 0.72% 0.68% 0.67% 0.67% 0.74%
Ratio of net investment income to average net
assets............................................ 2.40% 2.46% 2.83% 3.15% 3.98%
Portfolio Turnover Rate............................. 23.20% 11.11% 6.22% 33.27% 27.1%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1989 1988 1987 1986 1985
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of period................ $ 10.38 $ 11.73 $ 10.35 $ 8.55 $ 7.95
Income from investment operations:
Net investment income............................. .41 .37 .33 .22 .24
Net gains or losses on securities (both realized
and unrealized)................................. 1.73 (.82) 2.05 2.37 1.11
--------- --------- --------- --------- ---------
Total from investment operations.................. 2.14 (.45) 2.38 2.59 1.35
--------- --------- --------- --------- ---------
Less Distributions:
Dividends (from net investment income)............ (.39) (.47) (.28) (.23) (.24)
Distributions (from capital gains)................ (.38) (.43) (.72) (.56) (.51)
Returns of capital................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions............................... (.77) (.90) (1.00) (.79) (.75)
Net asset value, End of period...................... $ 11.75 $ 10.38 $ 11.73 $ 10.35 $ 8.55
========= ========= ========= ========= =========
Total Return........................................ 22.04% (3.46)% 25.00% 32.56% 18.77%
Ratios/Supplemental Data:
Net assets, End of period (000) omitted............. $ 174,156 $ 130,978 $ 136,619 $ 84,972 $ 34,501
Ratio of expenses to average net assets............. 0.70% 0.73% 0.75% 0.89% 0.89%
Ratio of net investment income to average net
assets............................................ 3.93% 3.77% 3.32% 3.12% 2.91%
Portfolio Turnover Rate............................. 23.2% 12.3% 13.2% 10.3% 14.4%
</TABLE>
* The Information included in the Financial Highlights has been restated to
reflect a three-for-two stock split made on January 11, 1990.
See notes to financial statements appearing in the Fund's Statement Of
Additional Information.
5
<PAGE> 8
Pursuant to a Revolving Credit Agreement between the Fund and The Fifth Third
Bank dated April 10, 1992 (the "Loan Agreement"), the Fund may borrow money from
The Fifth Third Bank for temporary purposes, such as to accommodate abnormally
heavy redemption requests, and only in an amount not exceeding the lesser of 10%
of the Fund's gross assets taken at cost or 5% of the Fund's gross assets taken
at value. The table below sets forth certain information concerning the Loan
Agreement.
<TABLE>
<CAPTION>
AVERAGE AVERAGE NUMBER AVERAGE
AMOUNT OF DEBT AMOUNT OF DEBT OF FUND'S SHARES AMOUNT OF
YEAR ENDED OUTSTANDING AT OUTSTANDING OUTSTANDING DEBT PER SHARE
SEPTEMBER 30, END OF PERIOD DURING THE PERIOD DURING THE PERIOD DURING THE PERIOD
- ---------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
1994 $0 $4,565 20,614,531 $0.0002214
1993............ $0 $1,018 21,018,555 $0.0000484
</TABLE>
From time to time the Fund advertises "average annual total return" and
"cumulative return." SUCH TOTAL RETURN FIGURES AND CUMULATIVE RETURN FIGURES ARE
BASED UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The average annual total return advertised by the Fund refers to
the return generated by an investment in the Fund over one-, five-and ten-year
periods and from September 30, 1975 (which periods will be stated in the
advertisement). The average annual total return over a period equates the amount
of an initial investment in the Fund to the amount redeemable at the end of that
period assuming that any dividends and distributions earned by an investment in
the Fund are immediately reinvested and the maximum applicable sales charge is
deducted from the initial investment at the time of investment. The cumulative
return advertised refers to the total return on a hypothetical investment over
the relevant period and equates the amount of an initial investment in the Fund
to the amount redeemable at the end of that period assuming that any dividends
and distributions are immediately reinvested and the maximum sales charge is
deducted from the initial investment at the time of investment. If the sales
charge were not deducted, the average annual total return and cumulative return
advertised would be higher.
Investors may also judge the performance of the Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc., and Standard
& Poor's Corporation, and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and CDA Investment Technologies, Inc. Comparisons may also be
made to the Consumer Price Index and to other indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, The
Columbus Dispatch, Business Week, U.S.A. Today and Consumer Reports. In addition
to performance information, general information about the Fund that appears in a
publication such as those mentioned above and comparisons to such indices or
data may be included in advertisements and in reports to shareholders.
Further information about the performance of the Fund is contained in the Fund's
Annual Report to Shareholders which may be obtained without charge by contacting
the Fund at the telephone numbers set forth on the cover page of this
Prospectus.
- --------------------------------------------------------------------------------
WHAT IS THE FUND?
- --------------------------------------------------------------------------------
The Fund was organized on September 16, 1966, as an Ohio corporation and is
registered and operates as a diversified, open-end management investment company
as defined in the Investment Company Act of 1940 and commonly known as a mutual
fund.
- --------------------------------------------------------------------------------
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?
- --------------------------------------------------------------------------------
The investment objective of the Fund is to achieve long-term growth of capital
and income through selective participation in the long-term progress of American
business and industries. The investment objective with respect to the Fund is a
fundamental policy and as such may not be changed without a vote
6
<PAGE> 9
of the holders of a majority of the outstanding Shares of the Fund. The policy
of the Fund is generally to invest in equity securities of companies which, in
the opinion of The Ohio Company, are growth oriented. The securities purchased
by the Fund are traded in either established over-the-counter markets or on
national exchanges and are issued by companies having a market capitalization of
at least $10 million. Current income, while a factor in portfolio selection, is
secondary to the primary objective. This policy of normally investing in equity
securities believed to have a potential for long-term capital appreciation means
that the assets of the Fund will generally be subject to greater risk than may
be involved in securities which do not have such growth characteristics. It is
recognized, however, that there may be times when, as a temporary, defensive
measure, the Fund's equity position should be reduced. At such times, and
otherwise for cash management purposes, the Fund may hold its assets in cash or
invest its assets in investment grade debt securities, U.S. Government
securities, repurchase agreements and preferred stock.
A repurchase agreement is an agreement under which an investor (such as the
Fund) purchases a security from a financial institution such as a
well-established securities dealer or a bank which is a member of the Federal
Reserve System which the Fund's investment adviser deems creditworthy under
guidelines approved by the Fund's Board of Directors. At the time of purchase,
the bank or securities dealer agrees to repurchase the underlying security at a
specified time and price. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the underlying security. Securities subject to repurchase agreements
will be U.S. Government securities. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), repurchase agreements are considered to be loans by
the Fund. The Fund will only enter into a repurchase agreement where (i) the
underlying securities are of the type which the Fund's investment guidelines
would allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
securities is made only upon physical delivery or evidence of book-entry
transfer to the account of the custodian or a bank acting as agent. The Ohio
Company will be responsible for continuously monitoring such requirements. In
the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
The Fund may also invest up to 10% of the value of its total assets in the
securities of other investment companies subject to the limitations set forth in
the 1940 Act. The Fund intends to invest in the securities of other investment
companies which, in the opinion of The Ohio Company, will assist the Fund in
achieving its objectives and in money market mutual funds for purposes of
short-term cash management. The Fund's investment in such other investment
companies may result in the duplication of fees and expenses, particularly
investment advisory fees. For a further discussion of the limitations on the
Fund's investments in other investment companies, see "INVESTMENT OBJECTIVES AND
POLICIES -- Additional Information on Portfolio Instruments -- Securities of
Other Investment Companies" in the Statement of Additional Information.
The Fund is not intended to provide a complete and balanced investment program
for an investor. There is no guarantee that the investment objective of the Fund
will be realized.
- --------------------------------------------------------------------------------
HOW DO I PURCHASE SHARES OF THE FUND?
- --------------------------------------------------------------------------------
GENERAL
The Fund's Shares may be purchased at the public offering price through The Ohio
Company, principal underwriter of the Fund's Shares, at its address and
telephone number set forth on the cover page of this Prospectus, and through
other broker-dealers who are members of the National Association of Securities
Dealers, Inc. and have sales agreements with The Ohio Company.
7
<PAGE> 10
Subsequent purchases of Shares of the Fund may be made by ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below.
The minimum initial investment for individuals is $1,000, except the initial
investment for an applicant investing by means of the Automatic Investment Plan
(see "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?") must be at least $50.
Subsequent investments must be in amounts of at least $50.
Due to the high cost of maintaining accounts, the Fund reserves the right to
redeem involuntarily Shares in any account at the then current net asset value
if at any time redemptions have reduced a shareholder's total investment to a
net asset value below $500. A shareholder will be notified in writing that the
value of the account is less than $500 and allowed 30 days to increase the
account to $500 before the redemption is processed. Proceeds of redemptions so
processed, including dividends declared to the date of redemption, will be
promptly paid to the shareholder. Shares of the Fund may be redeemed through a
securities dealer, investment adviser, agent or other fiduciary which may charge
a fee for its services in connection with the redemption. No redemption charge
is imposed by the Fund or by The Ohio Company, the Fund's principal distributor.
PUBLIC OFFERING PRICE
The public offering price of Shares of the Fund is the net asset value per share
next determined after receipt by The Ohio Company of an order and payment, plus
a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AS A OF OFFERING PRICE
PERCENTAGE ------------------------
AMOUNT OF OF THE NET SALES DEALER'S
SINGLE TRANSACTION AMOUNT INVESTED CHARGE CONCESSION
--------------------------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000................................. 4.71% 4.50% 4.00%
$100,000 but less than $250,000.................... 3.63 3.50 3.00
$250,000 but less than $500,000.................... 2.56 2.50 2.00
$500,000 but less than $1,000,000.................. 1.52 1.50 1.00
$1,000,000 or more................................. 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the computation
of net asset value per share.)
The above charges on investments of $100,000 or more are applicable to purchases
made at one time by an individual, or an individual, his or her spouse and their
children not of legal age, or a trustee, guardian or other like fiduciary of
certain single trust estates or certain single fiduciary accounts.
No sales charge is imposed on purchases of Shares by officers, directors, and
employees of the Fund, or by full-time employees of The Ohio Company, who have
been such for at least 90 days or by qualified retirement plans for such
persons.
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Shares of the Fund on the
periodic basis you select. Confirmation of your purchase of Fund Shares will be
provided by the Fund. The debit of your checking account will be reflected in
the checking account statement you receive from your financial institution.
Please contact The Ohio Company for the appropriate form.
8
<PAGE> 11
- --------------------------------------------------------------------------------
MAY MY TAX SHELTERED RETIREMENT PLAN INVEST IN THE FUND?
- --------------------------------------------------------------------------------
Shares of the Fund qualify for purchase in connection with the following tax
sheltered retirement plans:
-- Individual retirement account ("IRAs") plans
-- Simplified Employee Pension Plans
-- 403(b)(7) Custodial Plans sponsored by certain tax-exempt employers
-- Pension, profit-sharing and 401(k) plans qualifying under Section 401(a)
of the Internal Revenue Code.
The Ohio Company offers a wide range of services to assist employers in reducing
the cost and complexity of utilizing any of the above retirement programs. These
services include:
Consulting services
Prototype plan documents
Low-cost recordkeeping and IRS reporting
On-going employee educational programs
Investment consultation
Trust services
Please contact your local office of The Ohio Company or call 1-800-237-2169
(inside Ohio) or 1-800-237-2170 (outside Ohio) to obtain complete information
regarding The Ohio Company's retirement plan services.
- --------------------------------------------------------------------------------
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
- --------------------------------------------------------------------------------
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to purchase
$100,000 or more of Shares of the Fund and of any fund of The Cardinal Group or
of Cardinal Government Obligations Fund, other members of the Cardinal family of
funds, which are sold with a sales charge (collectively, the "Cardinal Load
Funds") during any 13-month period, you may sign a letter of intention to that
effect obtained from The Ohio Company and pay the reduced sales charge
applicable to the total amount of shares to be so purchased. The 13-month period
during which the Letter of Intention is in effect will begin on the date of the
earliest purchase to be included. In addition, trustees, guardians or other like
fiduciaries of single trust estates or certain single fiduciary accounts may
take advantage of the quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase the full
amount indicated. Shares purchased with the first 5% of such amount will be held
in escrow (while remaining registered in your name) to secure payment of the
highest sales charge applicable to the shares actually purchased. If the full
amount indicated is not purchased, such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. Dividends on escrowed
shares, whether paid in cash or reinvested in additional shares of the
applicable Cardinal Load Fund, are not subject to escrow. The escrowed shares
will not be available for disposal by you until all purchases pursuant to the
letter of intention have been made or the higher sales charge has been paid.
When the full amount indicated has been purchased, the escrow will be released.
To the extent that you purchase more than the dollar amount indicated on the
Letter of Intention and qualify for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in sales charge will be, as you instruct, either
delivered to you in cash or used to purchase additional shares of the Cardinal
Load Fund designated by you subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases. This program, however, may be
modified or eliminated at any time or from time to time by the Group without
notice.
9
<PAGE> 12
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the privilege of
combining "concurrent purchases" of Shares of the Fund and of one or more of the
other Cardinal Load Funds. For example, if you concurrently purchase Shares of
the Fund at the total public offering price of $50,000 and shares of another
Cardinal Load Fund at the total public offering price of $50,000, the sales
charge would be that applicable to a $100,000 purchase as shown in the table
above. "Concurrent purchases," as described above, shall include the combined
purchases of you, your spouse and your children not of legal age. To receive the
applicable public offering price pursuant to this privilege, you must, at the
time of purchase, give The Ohio Company sufficient information to permit
confirmation of qualification. This privilege, however, may be modified or
eliminated at any time or from time to time by the Group without notice thereof.
RIGHTS OF ACCUMULATION
After your initial purchase of Shares you may also be eligible to pay a reduced
sales charge for your subsequent purchases of Shares where the total public
offering price of Shares then being purchased plus the then aggregate current
net asset value of Shares of the Fund and of shares of any Cardinal Load Fund
held in your account equals $100,000 or more. You would be able to purchase
Shares at the public offering price applicable to the total of (a) the total
public offering price of the Shares of the Fund then being purchased plus (b)
the then current net asset value of Shares of the Fund and of shares of any
other Cardinal Load Fund held in your account. For purposes of determining the
aggregate current net asset value of shares held in your account, you may
include shares then owned by your spouse and children not of legal age.
You may obtain additional information about the foregoing special purchase
method from The Ohio Company. You are responsible for notifying The Ohio Company
at the time of purchase when purchases may be accumulated to take advantage of
the reduced sales charge. This program, however, may be modified or eliminated
at any time or from time to time by the Fund without notice thereof.
- --------------------------------------------------------------------------------
ARE THERE ANY SPECIAL PURCHASE PROGRAMS FOR CERTAIN RETIREMENT PLANS?
- --------------------------------------------------------------------------------
No sales charge is imposed on purchases of Shares of the Fund by trusts
qualifying under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and by deferred compensation plans of state and local governments
and tax exempt organizations qualifying under section 457 or 403(b) of the Code
(collectively "Qualifying Plans"), so long as The Ohio Company serves as either
a trustee or an investment adviser for the applicable Qualifying Plans.
- --------------------------------------------------------------------------------
WHAT DISTRIBUTIONS WILL I RECEIVE?
- --------------------------------------------------------------------------------
Dividends and distributions shall be made with such frequency (long term capital
gains normally will be distributed only once annually) and in such amounts as
the Fund from time to time shall determine and from net income and net realized
capital gains of the Fund. It is the policy of the Fund to distribute, at least
annually, substantially all of its net investment income and to distribute
annually any net realized capital gains. Unless a shareholder specifically
requests otherwise, dividends and distributions will be made only in additional
Shares of the Fund and not in cash.
Shareholders may elect to receive cash distributions by using ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? - ACH Processing"
below.
10
<PAGE> 13
- --------------------------------------------------------------------------------
HOW MAY I REDEEM MY SHARES?
- --------------------------------------------------------------------------------
Investors may redeem Shares of the Fund at the net asset value per share next
determined following the receipt by the Fund's transfer agent, Cardinal
Management Corp., 215 East Capital Street, Columbus, Ohio 43215, of the
following: (a) written or telephonic notice to redeem, as described more fully
below, and (b) for Shares represented by certificates, either the share
certificates, properly endorsed, or properly executed stock powers. See "HOW IS
NET ASSET VALUE CALCULATED?", below, for a description of when net asset value
is determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem and any share certificates or stock powers to
Cardinal Management Corp. without charge. Other broker-dealers may assist a
shareholder in redeeming his shares and may charge a fee for such services.
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Fund by submitting a written
request therefor to Cardinal Management Corp., the Fund's Transfer Agent at 215
East Capital Street, Columbus, Ohio 43215. Cardinal Management Corp. will
request a signature guarantee by an eligible guarantor institution as described
below. However, a signature guarantee will not be required if (1) the redemption
check is payable to the Shareholder(s) of record, and (2) the redemption check
is mailed to the Shareholder(s) at the address of record, provided, however,
that the address of record has not been changed within the preceding 15 days.
For purposes of this policy, an "eligible guarantor institution" shall include
banks, brokers, dealers, credit unions, securities exchanges and associations,
clearing agencies and savings associations as those terms are defined in the
Securities Exchange Act of 1934. Cardinal Management Corp. reserves the right to
reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine or (2) it has reason to believe that the transaction
would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Fund by calling the Fund at the
telephone numbers set forth on the front of this Prospectus. The Shareholder may
direct that the redemption proceeds be mailed to the address of record or
another address.
Neither the Fund nor its service providers will be liable for any loss, damages,
expense or cost arising out of any telephone redemption effected in accordance
with the Fund's telephone redemption procedures, acting upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurances that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures may include recording all phone conversations, sending confirmations
to Shareholders within 72 hours of the telephone transaction, and verification
of account name and account number or tax identification number. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, Shareholders may also redeem their Shares by mail as described
above.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
The Fund will make payment for redeemed Shares as promptly as practicable but in
no event more than seven days after receipt by Cardinal Management Corp. of the
foregoing notice and any share certificates and powers. The Fund reserves the
right to delay payment for the redemption of Shares where such Shares were
purchased with other than immediately available funds, but only until the
purchase payment has cleared (which may take fifteen or more days from the date
the purchase payment is received by the Fund). The purchase of Fund Shares by
wire transfer of federal funds would avoid any such delay.
11
<PAGE> 14
The Fund may suspend the right of redemption or may delay payment during any
period the determination of net asset value is suspended. See "HOW IS NET ASSET
VALUE CALCULATED?".
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Shares of the Fund having a total value of $10,000 or
more at the current offering price, you may elect to redeem your Shares monthly
or quarterly in amounts of $50 or more, pursuant to the Fund's Systematic
Withdrawal Plan. Please contact The Ohio Company for the necessary form.
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The net asset value of the Fund is determined once daily as of 4:00 P.M.,
Columbus, Ohio time, on each business day the New York Stock Exchange is open
for business and on any other day (other than a day on which no Shares of the
Fund are tendered for redemption and no order to purchase any Shares of the Fund
is received) where there is sufficient trading in the Fund's portfolio
securities that the net asset value might be materially affected by changes in
the value of the portfolio securities. The net asset value per share of the Fund
is computed by dividing the sum of the value of the Fund's portfolio securities
plus any cash and other assets (including interest and dividends accrued but not
received) minus all liabilities (including estimated accrued expenses) by the
total number of Shares then outstanding.
Portfolio securities which are traded on United States stock exchanges are
valued at the last sale price on such an exchange as of the time of valuation on
the day the securities are being valued. Securities traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as one or the other may be quoted by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") as of
the time of valuation on the day the securities are being valued. The Fund uses
one or more pricing services to provide such market prices. Securities and other
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund.
Determination of the net asset value may be suspended at times when (a) trading
on the New York Stock Exchange is restricted or such Exchange is closed for
other than customary weekend and holiday closings, (b) an emergency as
determined by the Securities and Exchange Commission exists making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable, or (c) the Securities and Exchange Commission has by order
permitted such suspension.
- --------------------------------------------------------------------------------
DOES THE FUND PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
The Fund intends to qualify as a "regulated investment company" under the Code
for so long as such qualification is in the best interest of the Fund's
shareholders. Qualification as a regulated investment company under the Code
requires, among other things, that the regulated investment company distribute
to its shareholders at least 90% of its investment company taxable income. The
Fund contemplates declaring as dividends 100% of the Fund's investment company
taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. If distributions
during a calendar year were less than the required amount, the Fund would be
subject to a nondeductible excise tax equal to 4% of the deficiency.
12
<PAGE> 15
- --------------------------------------------------------------------------------
WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
It is expected that the Fund will distribute annually to shareholders all or
substantially all of the Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends received deduction, if any, received by the
Fund bear to its gross income.
Distribution by the Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to shareholders as long-term capital gain in
the year in which it is received, regardless of how long the shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a Share is reduced below the shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Fund and its shareholders. Potential
investors in the Fund are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
Cardinal Management Corp. will inform shareholders at least annually of the
amount and nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE FUND?
- --------------------------------------------------------------------------------
Except where shareholder action is required by law, all of the authority of the
Fund is exercised under the direction of the Fund's Board of Directors, which is
empowered to elect officers and contract with and provide for the compensation
of agents, consultants and other professionals to assist and advise in the
operation of the Fund.
INVESTMENT ADVISER
The Fund has entered into an Investment Advisory Agreement with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, an investment banking firm
organized in 1925. The Ohio Company is a member of the New York Stock Exchange,
the Midwest Stock Exchange, other regional stock exchanges and the National
Association of Securities Dealers, Inc. Through its wholly-owned subsidiary,
Cardinal Management Corp., The Ohio Company also acts as investment adviser to
Cardinal Government Securities Trust, Cardinal Tax Exempt Money Trust, Cardinal
Government Obligations Fund, Cardinal Balanced Fund and Cardinal Aggressive
Growth Fund. Descendants of H.P. and R.F. Wolfe, deceased, and members of their
families, through their possession of a majority of a voting stock, may be
considered controlling persons of The Ohio Company.
In its capacity as investment adviser, and subject to the ultimate authority of
the Fund's Board of Directors, The Ohio Company is responsible for the overall
management of the Fund's business affairs. Since 1989,
13
<PAGE> 16
John L. Schlater has been primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Schlater has been a portfolio manager with and an
officer of The Ohio Company since 1986.
For the Fund's fiscal year ended September 30, 1994, The Ohio Company received
compensation for its services provided under the Investment Advisory Agreement
of .5% of average net daily assets of the Fund during such year. The Ohio
Company may, however, periodically waive all or a portion of its advisory fee
with respect to the Fund to increase the net income available for distribution
as dividends. The waiver of such fee will cause the yield of the Fund to be
higher than it would otherwise be in the absence of such a waiver.
TRANSFER AGENT
The Fund has entered into an Administration Agreement with Cardinal Management
Corp., 215 East Capital Street, Columbus, Ohio 43215, pursuant to which Cardinal
Management Corp. has agreed to act as the Fund's transfer agent, dividend
disbursing agent and administrator of plans of the Fund. In consideration of
such services, the Fund has agreed to pay Cardinal Management Corp. an annual
fee, paid monthly, equal to $18 per shareholder account plus out-of-pocket
expenses.
DISTRIBUTOR
The Fund has entered into a Distributor's Contract with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Fund
continuously will be offered on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. Walter R. Chambers is an officer and
director of both the Fund and The Ohio Company. Frank W. Siegel and John L.
Schlater are each an officer and director of the Fund and an officer of The Ohio
Company. James M. Schrack II is an officer of both the Fund and The Ohio
Company.
CUSTODIAN
The Fund has appointed The Fifth Third Bank ("Fifth Third") 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In such capacity, Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Fund.
- --------------------------------------------------------------------------------
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
- --------------------------------------------------------------------------------
ACH PROCESSING
The Fund now offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Shares and/or electronically transfer distributions
paid on Fund Shares, in addition to the other methods described in this
Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Shareholders of the Fund may, provided the amount to be exchanged meets the
applicable minimum investment requirements and the exchange is made in states
where it is legally authorized, exchange Shares of the Fund for shares of:
Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation
of capital (upon the payment of the
applicable sales charge);
14
<PAGE> 17
Cardinal Balanced Fund,
a fund seeking current income
and long-term growth of both capital and
income (upon the payment of the
applicable sales charge);
Cardinal Government Obligations Fund,
a fund investing in securities issued
or guaranteed by the U.S. Government
or its agencies or instrumentalities
(upon the payment of the appropriate sales charge);
Cardinal Government Securities Trust,
a U.S. Government securities money market fund
(without payment of any sales charge); or
Cardinal Tax Exempt Money Trust,
a tax-free money market fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, (i) exchanges by Qualifying Plans, for whom The Ohio
Company serves as either a trustee or an investment adviser, of Fund Shares for
shares of a Cardinal Load Fund may be completed without the payment of a sales
charge, and (ii) exchanges of Fund Shares by all other shareholders for shares
of a Cardinal Load Fund may be completed upon the payment of a sales charge
equal to the difference, if any, between the sales charge payable upon purchase
of shares of such Cardinal Load Fund and the sales charge previously paid on the
Fund Shares to be exchanged.
The foregoing exchange privilege may be exercised only once in each calendar
quarter and must be made by written or telephonic authorization. A shareholder
should notify The Ohio Company of his desire to make an exchange, and The Ohio
Company will furnish, as necessary, a prospectus and an application form to open
the account. Cardinal Management Corp., as transfer agent, will require that any
written authorization of an exchange include a signature guarantee as described
above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail." However, a
signature guarantee will not be required if the exchange is requested to be made
within the same account or into an existing account of the shareholder held in
the same name or names and in the same capacity as the account from which the
exchange is to be made. Shareholders may also authorize an exchange of shares of
the Fund by telephone. Neither the Fund nor any of its service providers will be
liable for any loss, damages, expense or cost arising out of any telephone
exchange authorization to the extent and subject to the requirements set forth
under "HOW MAY I REDEEM MY SHARES? -- Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
However, a shareholder may not include any sales charge on Shares of the Fund
for purposes of calculating the gain or loss realized upon an exchange of those
securities within 90 days of their purchase.
The Fund may at any time modify or terminate the foregoing exchange privilege.
The Fund, however, will give shareholders of the Fund 60 days' advance written
notice of any such modification or termination.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
The Fund has authorized 30,000,000 shares of Common Stock, without par value,
and all of a single class. Holders of Shares are entitled to one vote or
fraction thereof for each Share or fraction held. As provided by Ohio law, a
shareholder is entitled at any election of directors to cumulate his votes,
which means that a shareholder may give one director a total number of votes
equal to the number of Shares owned times the number of directors to be elected,
or distribute his votes on the same principle among two or more
15
<PAGE> 18
directors. All Shares, when issued, are fully paid and nonassessable and have no
preemptive rights. Each outstanding Share or fraction thereof is entitled to
participate on a pro rata basis in dividends, distributions and net assets upon
liquidation. The Fund's Shares carry redemption rights as described under the
caption "HOW MAY I REDEEM MY SHARES?".
Unless a shareholder expressly requests otherwise, dividends and capital gain
distributions will be reinvested in Shares of the Fund and not paid in cash.
- --------------------------------------------------------------------------------
WHO PROVIDES SHAREHOLDER REPORTS?
- --------------------------------------------------------------------------------
The Fund will provide shareholders monthly a summary statement describing any
purchases and sales of Shares of the Fund and dividend and capital gain
distributions.
Holders of Shares should direct all inquiries concerning such matters to
Cardinal Management Corp., 155 East Broad Street, Columbus, Ohio 43215.
16
<PAGE> 19
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 20
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 21
Investment Adviser and 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
<PAGE> 22
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
------
<S> <C>
KEY FEATURES................................ 2
PROSPECTUS HIGHLIGHTS....................... 3
FEE TABLE................................... 4
FINANCIAL HIGHLIGHTS........................ 5
WHAT IS THE FUND?........................... 6
WHAT ARE THE INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND?................. 6
HOW DO I PURCHASE SHARES OF THE FUND?....... 7
MAY MY TAX SHELTERED RETIREMENT PLAN INVEST
IN THE FUND?.............................. 9
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?... 9
ARE THERE ANY SPECIAL PURCHASE PROGRAMS FOR
CERTAIN RETIREMENT PLANS?................. 10
WHAT DISTRIBUTIONS WILL I RECEIVE?.......... 10
HOW MAY I REDEEM MY SHARES?................. 11
HOW IS NET ASSET VALUE CALCULATED?.......... 12
DOES THE FUND PAY FEDERAL INCOME TAX?....... 12
WHAT ABOUT MY TAXES?........................ 13
WHO MANAGES MY INVESTMENT IN THE FUND?...... 13
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?................................. 14
WHAT ARE MY RIGHTS AS A
SHAREHOLDER?.............................. 15
WHO PROVIDES SHAREHOLDER REPORTS?........... 16
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE SUCH AN
OFFER IN SUCH JURISDICTION.
----------------------
PROSPECTUS
----------------------
February 1, 1995
THE OHIO COMPANY
THE
CARDINAL
FUND INC.
[LOGO]
<PAGE> 23
CARDINAL GOVERNMENT OBLIGATIONS FUND
SUPPLEMENT DATED DECEMBER 11, 1995,
TO PROSPECTUS DATED FEBRUARY 1, 1995
Capitalized terms used in this Supplement have the meaning assigned to them
in the Prospectus.
The Fund has entered into an Agreement and Plan of Reorganization and
Liquidation, dated as of December 1, 1995 (the "Plan"), with The Cardinal Group,
an Ohio business trust (the "Group"). Pursuant to the Plan, Cardinal Government
Obligations Fund, a series of the Group (the "Acquiring Fund"), would acquire
all of the assets of the Fund in exchange for the assumption of all of the
Fund's liabilities and a number of full and fractional shares of the Acquiring
Fund having an aggregate net asset value equal to the Fund's net assets (the
"Reorganization"). The Fund would then be liquidated, and the shares of the
Acquiring Fund would be distributed to Fund shareholders.
The Reorganization is subject to certain regulatory approvals and to
approval by the shareholders of the Fund at the Annual Shareholders Meeting
currently expected to be held in February, 1996. If the shareholders approve the
Reorganization, it is expected that the Reorganization would be effected on or
about March 31, 1996; however, the Reorganization may be effected on such
earlier or later date as the Group and the Fund may determine. There can be no
assurance that the Reorganization will take place when or as currently proposed.
The following paragraph is added to the cover page of this Prospectus:
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN
THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
The Prospectus Supplement supersedes in its entirety the prospectus
supplement dated February 22, 1995.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS
FOR FUTURE REFERENCE
<PAGE> 24
PROSPECTUS
- --------------------------------------------------------------------------------
[LOGO]
CARDINAL GOVERNMENT OBLIGATIONS FUND
Cardinal Government Obligations Fund (the "Fund") is a diversified, open-end,
management investment company. The investment objective of the Fund is to
maximize safety of capital and, consistent with such objective, earn the highest
available current income obtainable from government securities. The current
income earned from such government securities may not be as great as the current
income earned on lower quality securities which have less liquidity and greater
risk of nonpayment. There can be no assurance that the Fund's objective will be
achieved.
- --------------------------------------------------------------------------------
For further information regarding the Fund or for assistance
in opening an account or redeeming shares, please call:
In Columbus 464-5512 (opening accounts and further information)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed to the Fund
at its principal office:
155 East Broad Street
Columbus, Ohio 43215
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing in the Fund. This Prospectus
should be retained for future reference. A Statement of Additional Information
respecting the Fund dated February 1, 1995, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. Such Statement
is available upon request without charge from the Fund at the above address or
by calling the phone numbers provided above.
Investors should read and retain this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OHIO COMPANY
The date of this Prospectus is February 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 25
- --------------------------------------------------------------------------------
KEY FEATURES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
HIGH CURRENT YIELDS............ The Fund seeks the highest available current income
attainable from government securities, consistent with
its policy of protecting principal.
MONTHLY DISTRIBUTIONS.......... Monthly distributions are automatically reinvested in
additional shares of the Fund without charge or may be
received in cash. (See page 4.)
LOW INITIAL INVESTMENT......... An investor can acquire shares of a high quality
portfolio of government securities with a smaller
investment than would be needed to purchase a similar
portfolio directly. (See page 11.)
PROFESSIONAL MANAGERS.......... The Fund's portfolio is fully managed by professional
portfolio managers. (See page 17.)
FLEXIBILITY.................... You may switch once each calendar quarter from one mutual
fund to another within the Cardinal Group of Funds as
your personal circumstances or market conditions dictate.
(See page 18.)
ACH PROCESSING................. Investors may use Automated Clearing House ("ACH")
processing for subsequent purchases of shares,
redemptions, and/or distributions paid. (See page 18.)
</TABLE>
2
<PAGE> 26
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHARES OFFERED................. Shares of beneficial interest of the Fund (the "Shares")
are of one class equal to all other shares and are
without par value. (See page 19.)
OFFERING PRICE AND
SALES CHARGE................. The public offering price is equal to net asset value per
share plus a sales charge equal to 4.50% of the public
offering price (4.71% of net amount invested), reduced on
investments of $100,000 or more (see page 11) and waived
if purchasers are Qualifying Plans for whom The Ohio
Company serves as a trustee or investment adviser. (See
page 14.)
MINIMUM PURCHASE............... $1,000 minimum initial investment and $50 minimum subse-
quent investments. (See page 11.)
TYPE OF COMPANY................ Diversified, open-end, management investment company,
commonly known as a mutual fund. Organized as an Ohio
business trust on November 15, 1985. (See page 7.)
INVESTMENT OBJECTIVE........... To maximize safety of capital and, consistent with such
objective, earn the highest available current income
obtainable from government securities. (See page 7.)
INVESTMENT POLICIES............ The Fund invests in obligations issued or guaranteed by
the U.S. Government and repurchase agreements secured by
securities of the U.S. Government. Under present market
conditions, the Fund expects to invest a substantial
amount of its portfolio in Ginnie Mae certificates. These
investments entail certain risks. (See pages 7 through
11.)
RISK FACTORS AND SPECIAL An investment in a mutual fund such as the Fund involves
CONSIDERATIONS............... a certain amount of risk and may not be suitable for all
investors. Some investment policies of the Fund may
entail certain risks. (See "WHAT ARE THE INVESTMENT
OBJECTIVE AND POLICIES OF THE FUND?" on pages 7 through
11.)
INVESTMENT ADVISER............. The Fund has entered into an Investment Advisory and
Management Agreement with Cardinal Management Corp., a
wholly-owned subsidiary of The Ohio Company (the "Ad-
viser"). The Adviser currently provides investment
advisory services for Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, Cardinal Balanced
Fund and Cardinal Aggressive Growth Fund. (See page 17.)
MANAGEMENT FEE................. The annual rate is .5% of the average daily net assets of
the Fund. (See page 17.)
DISTRIBUTIONS.................. Dividends are declared daily and distributions are
generally made monthly as the Fund shall determine.
Long-term capital gains, if any, are distributed
annually. (See page 14.)
REDEMPTION..................... At net asset value per share, without charge, except that
broker-dealers may charge a service fee for assisting in
a redemption. (See page 14.)
TRANSFER AGENT................. Cardinal Management Corp. (See page 17.)
</TABLE>
3
<PAGE> 27
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................... 0%
Deferred Sales Load
(as a percentage of original purchase price or redemption
proceeds, as applicable)..................................... 0%
Redemption Fees
(as a percentage of amount redeemed, if applicable).......... 0%
Exchange Fee................................................... $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................ .50%
12b-1 Fees..................................................... .00
Other Expenses................................................. .25
--------
Total Fund Operating Expenses.................................. .75%
========
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period: ............... $ 52 $ 68 $ 85 $134
</TABLE>
The purpose of the above table is to assist a potential purchaser of the Fund's
Shares in understanding the various costs and expenses that an investor in the
Fund will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN THE
FUND?" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of the Fund. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 28
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the eight fiscal
years ended September 30, 1994, and the period from February 3, 1986, through
September 30, 1986, have been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon together with certain financial statements, are
contained in the Fund's Statement of Additional Information and which may be
obtained by Shareholders and prospective investors.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period..... $ 8.63 $ 8.95 $ 8.99 $ 8.71 $ 8.71 $ 8.82 $ 8.60 $ 9.39
Income from investment
operations:
Net investment income... .66 .74 .80 .81 .84 .84 .86 .90
Net gains or losses on
securities (both
realized and
unrealized)........... (.68) (.32) (.04) .28 -- (.11) .22 (.80)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............ (.02) .42 .76 1.09 .84 .73 1.08 .10
-------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net
investment income).... (.65) (.74) (.80) (.81) (.84) (.84) (.86) (.89)
Distributions (from
capital gains)........ -- -- -- -- -- -- -- --
Returns of capital...... -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Distributions..... (.65) (.74) (.80) (.81) (.84) (.84) (.86) (.89)
Net asset value, End of
period.................... $ 7.96 $ 8.63 $ 8.95 $ 8.99 $ 8.71 $ 8.71 $ 8.82 $ 8.60
========= ========= ========= ========= ========= ========= ========= =========
Total Return................ (0.27%) 4.83% 8.87% 13.07% 10.03% 8.81% 12.94% .82%
Ratios/Supplemental Data:
Net assets, End of period
(000) omitted............. $169,529 $208,883 $172,139 $128,569 $114,890 $118,958 $146,745 $147,491
Ratio of expenses to average
net assets**.............. 0.75% 0.73% 0.76% 0.76% 0.76% 0.73% 0.74% 0.49%
Ratio of net investment
income to average net
assets**.................. 7.88% 8.32% 8.89% 9.20% 9.55% 9.73% 9.64% 10.03%
Portfolio Turnover Rate..... 21.95% 24.94% 17.15% 34.81% 30.90% .92% 5.76% 45.71%
<CAPTION>
PERIOD FROM
FEBRUARY 3,
1986 (DATE OF
COMMENCEMENT
OF OPERATIONS)
THROUGH
SEPTEMBER 30,
1986*
---------------
<S> <C>
Net asset value,
Beginning of period..... $ 9.53
Income from investment
operations:
Net investment income... .59
Net gains or losses on
securities (both
realized and
unrealized)........... (.11)
---------------
Total from investment
operations............ .48
---------------
Less Distributions:
Dividends (from net
investment income).... (.59)
Distributions (from
capital gains)........ --
Returns of capital...... (.03)
---------------
Total Distributions..... (.62)
Net asset value, End of
period.................... $ 9.39
===============
Total Return................ 5.63%(a)
Ratios/Supplemental Data:
Net assets, End of period
(000) omitted............. $ 129,629
Ratio of expenses to average
net assets**.............. 0.87%
Ratio of net investment
income to average net
assets**.................. 9.37%
Portfolio Turnover Rate..... 0%
</TABLE>
- ---------------
*Fund operations commenced February 3, 1986. Through February 3, 1986, the only
transaction of the Fund was its initial capitalization through the sale of
10,493 Shares for $100,000 to Cardinal Management Corp., the investment
adviser to the Fund.
**Percentages for less than twelve month periods are annualized.
(a) This total return figure reflects aggregate total return instead of average
annual total return. Aggregate total return is calculated similarly to average
annual total return except that the return figure is aggregated over the
relevant period instead of annualized.
See notes to financial statements appearing in the Fund's Statement Of
Additional Information.
------------------------
5
<PAGE> 29
Pursuant to a Revolving Credit Agreement between the Fund and The Fifth Third
Bank dated April 10, 1992 (the "Loan Agreement"), the Fund may borrow money from
The Fifth Third Bank for temporary purposes, such as to accommodate abnormally
heavy redemption requests, and only in an amount not exceeding 5% of the value
of the Fund's total assets at the time of borrowing. The table below sets forth
certain information concerning the Loan Agreement.
<TABLE>
<CAPTION>
AVERAGE AVERAGE NUMBER AVERAGE
AMOUNT OF DEBT AMOUNT OF DEBT OF FUND'S SHARES AMOUNT OF
YEAR ENDED OUTSTANDING AT OUTSTANDING OUTSTANDING DEBT PER SHARE
SEPTEMBER 30, END OF PERIOD DURING THE PERIOD DURING THE PERIOD DURING THE PERIOD
- ---------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
1994 $0 $16,422 22,745,526 $0.0007220
1993 $0 $20,118 21,714,427 $0.0009265
</TABLE>
From time to time the Fund advertises "yield," "average annual total return" and
"cumulative return." SUCH YIELD FIGURES AND TOTAL RETURN FIGURES ARE BASED UPON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a 30-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment over a one-month period assuming reinvestment at a constant rate of
all income so generated is assumed to be generated for 12 consecutive one-month
periods. The "yield" of the Fund assumes the deduction of the maximum applicable
sales charge from the investment. If the sales charge were not deducted, the
yield of the Fund would be higher.
The average annual total return figures advertised by the Fund refer to the
return generated by an investment in the Fund over one- and five-year periods
and the period during which the Fund has been in operation (which periods will
be stated on the advertisement). The return over a period equates the amount of
an initial investment in the Fund to the amount redeemable at the end of that
period assuming that any dividends and distributions earned by an investment in
the Fund are reinvested. The return also assumes that the maximum applicable
sales charge is deducted from the initial investment at the time of investment.
The cumulative return advertised refers to the total return on a hypothetical
investment over the relevant period and equates the amount of an initial
investment in the Fund to the amount redeemable at the end of that period
assuming that any dividends and distributions are immediately reinvested and the
maximum sales charge is deducted from the initial investment at the time of
investment. If the sales charge were not deducted, the average annual total
return advertised would be higher.
In addition, from time to time the Fund may include in its sales literature and
shareholder reports a quote of the current "distribution" rate for the Fund. A
distribution rate is simply a measure of the level of dividends distributed for
a specified period and is computed by dividing the total amount of dividends per
share paid by the Fund during the past 12 months by a current maximum offering
price. It differs from yield, which is a measure of the income actually earned
by the Fund's investments, and from total return, which is a measure of the
income actually earned by, plus the effect of any realized and unrealized
appreciation or depreciation of, such investments during a stated period. A
distribution rate is, therefore, not intended to be a complete measure of
performance. A distribution rate may sometimes be greater than yield since, for
instance, it may include short-term and possibly long-term gains (which may be
non-recurring), may not include the effect of amortization of bond premiums and
does not reflect unrealized gains or losses.
Investors may also judge the performance of the Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard &
Poor's Corporation and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., and CDA Investment Technologies, Inc. Comparisons may also be
made to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, The Columbus Dispatch, Business Week,
Consumer Reports, and U.S.A. Today. In addition to performance information,
general
6
<PAGE> 30
information about the Fund that appears in a publication such as those mentioned
above may be included in advertisements and in reports to shareholders.
Further information about the performance of the Fund is contained in the Fund's
Annual Report to Shareholders which may be obtained without charge by contacting
the Fund at the telephone numbers set forth on the cover page of this
Prospectus.
- --------------------------------------------------------------------------------
WHAT IS THE FUND?
- --------------------------------------------------------------------------------
The Fund was organized on November 15, 1985, as a business trust under the laws
of the State of Ohio and is registered and operates as a diversified, open-end,
management investment company as defined in the Investment Company Act of 1940
and as commonly known as a mutual fund. The Trustees of the Fund have divided
its beneficial ownership into an unlimited number of transferable units called
Shares, which will be offered and sold to the public through The Ohio Company,
principal underwriter of the Fund's Shares. The proceeds from such sale, net of
the applicable sales charge, will be invested by the Fund as set forth below.
The Fund is designed for individuals, corporations, fiduciaries, and
institutions who wish to invest for current income in a diversified,
professionally managed portfolio of securities issued by the U.S. Government and
securities directly guaranteed by the full faith and credit of the U.S.
Government -- without having to become involved in the detailed accounting and
safekeeping procedures normally associated with direct investment in these
securities.
- --------------------------------------------------------------------------------
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?
- --------------------------------------------------------------------------------
The Fund's investment objective is to maximize safety of capital and, consistent
with such objective, earn the highest available current income obtainable from
government securities. The current income earned from such government securities
may not be as great as the current income earned on lower quality securities
which have less liquidity and greater risk of nonpayment.
The Fund's investment objective is a fundamental policy of the Fund, which means
that it may be changed only with the approval of a majority of the Fund's
Shares. A majority of the Fund's Shares means the favorable vote, at an annual
or special meeting, of shareholders holding the lesser of (a) 67% or more of the
Shares at such meeting, if holders of more than 50% of the outstanding Shares
are represented in person or by proxy, and (b) more than 50% of the outstanding
Shares. There can be no assurance that the investment objective can be met.
The value of the Fund's portfolio securities, and therefore the Fund's net asset
value per share, may increase or decrease due to various factors, principally
changes in prevailing interest rates. Generally, a rise in interest rates will
result in a decrease in the Fund's net asset value per share, while a drop in
interest rates will result in an increase in the Fund's net asset value per
share.
Under normal market conditions, the Fund will invest substantially all, but in
no event less than 65% of the value of its total assets, in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S.
Government Securities"). The Fund may also invest, under normal market
conditions, in the fixed income instruments described below and in repurchase
agreements. It may also engage in the options transactions described below.
The Fund may, for daily cash management purposes, invest in high quality money
market securities and in repurchase agreements. In addition, the Fund may
invest, without limit, in any combination of U.S. Government Securities, money
market securities and repurchase agreements when, in the opinion of the Adviser,
it is determined that a temporary defensive position is warranted based upon
current market
7
<PAGE> 31
conditions. The Fund may also invest in securities of other investment
companies, as described more fully below.
The types of U.S. Government Securities invested in by the Fund will include
obligations issued by or guaranteed as to payment of principal and interest by
the full faith and credit of the U.S. Treasury, such as Treasury bills, notes,
bonds and certificates of indebtedness, and obligations issued or guaranteed by
the agencies or instrumentalities of the U.S. Government, but not supported by
such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
Certain securities held by the Fund may have mortgage obligations backing such
securities, including among others, conventional thirty year fixed rate mortgage
obligations, graduated payment mortgage obligations, fifteen year mortgage
obligations and adjustable rate mortgage obligations. All of these mortgage
obligations can be used to create pass-through securities. A pass-through
security is created when mortgage obligations are pooled together and undivided
interests in the pool or pools are sold. The cash flow from the mortgage
obligations is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
Prepayments occur when the holder of an individual mortgage obligation prepays
the remaining principal before the mortgage obligation's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgage obligations vary, it
is not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayment rates are important
because of their effect on the yield and price of the securities. Accelerated
prepayments have an adverse impact on yields for pass-through certificates
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is true
for pass-through certificates purchased at a discount. The Fund may purchase
mortgage-related securities at a premium or at a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
Certain debt securities such as, but not limited to, mortgage backed securities,
as well as securities subject to prepayment of principal prior to the stated
maturity date, are expected to be repaid prior to their stated maturity dates.
As a result, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of calculating the Fund's
weighted average portfolio maturity, the effective maturity of such securities
will be used.
Under present market conditions, the Fund expects to invest a substantial amount
of its portfolio in Ginnie Mae certificates, which are mortgage-backed
securities representing part ownership in a specific pool of mortgage loans
insured by the Federal Housing Administration or Farmers Home Administration or
guaranteed by the Veterans Administration. Should market or economic conditions
warrant, this practice may be changed in the discretion of the Fund's Adviser.
Ginnie Mae guarantees the timely payment of monthly installments of principal
and interest on its certificates, when due, whether or not payments are
8
<PAGE> 32
received on the underlying mortgage loans, and the full faith and credit of the
United States is pledged to the timely payment by Ginnie Mae of such principal
and interest.
Although the mortgage loans in the pool underlying a Ginnie Mae certificate will
have maturities of up to thirty years, the actual average life of the Ginnie Mae
certificates typically will be substantially less because the mortgage loans
will be subject to normal principal amortization and may be prepaid prior to
maturity. Prepayment rates vary widely and may be affected by changes in market
interest rates. In periods of falling interest rates, the rate of prepayment
tends to increase, thereby shortening the actual average life of the Ginnie Mae
certificates and shortening the period of time over which income at the higher
rate is received. Conversely, when interest rates are rising, the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
Ginnie Mae certificates and extending the period of time over which income at
the lower rates is received. Accordingly, it is not possible to accurately
predict the average life of a particular pool. Standard practice is to treat
Ginnie Mae certificates as having effective maturities of twelve years.
Reinvestment of principal payments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest payments and prepayments of principal at current rates, Ginnie Mae
certificates can be less effective than typical bonds of similar maturities at
maintaining yields during periods of declining interest rates.
The Fund may enter into repurchase agreements, which are transactions through
which an investor (such as the Fund) purchases a security (known as the
"underlying security") from a financial institution, such as a well-established
securities dealer or a bank which is a member of the Federal Reserve System
which the Fund's Adviser deems creditworthy under guidelines approved by the
Fund's Board of Trustees. At the time of purchase, the bank or securities dealer
agrees to repurchase the underlying securities at the same price, plus specified
interest. Repurchase agreements are generally for a short period of time, often
less than a week. The Fund will not enter into a repurchase agreement with a
maturity of more than seven days if, as a result, more than 10% of the value of
its total assets would then be invested in such repurchase agreements. The Fund
will only enter into a repurchase agreement where (i) the underlying securities
are of the type which the Fund's investment guidelines would allow it to
purchase directly, (ii) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (iii) payment for the underlying securities is made
only upon physical delivery or evidence of book-entry transfer to the account of
the custodian or a bank acting as agent. The Fund's Adviser will be responsible
for monitoring such requirements. In the event of a bankruptcy or other default
of a seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a) possible
decline in the value of the underlying security during the period while the Fund
seeks to enforce its rights thereto; (b) possible subnormal levels of income and
lack of access to income during this period; and (c) expenses of enforcing its
rights. Under the Investment Company Act of 1940, as amended (the "1940 Act"),
repurchase agreements are considered to be loans by the Fund.
The Fund may from time to time write covered call options on securities in its
portfolio. The Fund will realize a premium when it writes an option. The Fund
will write only covered call options, which means that in each instance the Fund
will continue to own the underlying security for as long as it remains obligated
as the writer of the option. The purchaser of the call option has the right to
purchase the underlying security at the agreed upon price, even though that
price may be less than the value of the security at the time the option is
exercised. The Fund would then suffer a loss equal to the excess, if any, of the
security's appreciation in value over the premium received for writing the
option. To facilitate closing purchase transactions (described below), the Fund
will ordinarily write only call options for which a secondary market exists on a
national securities exchange or in the over-the-counter market.
In order to realize a profit, to prevent an underlying security from being
called or to unfreeze an underlying security (thereby permitting its sale or the
writing of a new option on the security prior to the option's expiration), the
Fund may engage in a closing purchase transaction. The Fund will incur a loss if
the cost of the closing purchase transaction, plus transaction costs, exceeds
the premium received upon writing the original option. To effect a closing
purchase transaction, the Fund would purchase, prior to the exercise of
9
<PAGE> 33
an option that it has written, an option of the same series as that on which it
desires to terminate its obligation. There can be no assurance that the Fund
will be able to effect a closing purchase transaction at a time when it wishes
to do so. When the Fund cannot effect a closing purchase transaction, it will
not be able to sell the underlying security unless the option expires without
exercise. Upon expiration of the option, the Fund would continue to bear market
risk in that security. The obligation of the Fund to deliver securities upon the
exercise of a covered call option which it has written terminates upon the
effectuation of a closing purchase transaction.
The Fund may use covered call option strategies as a means of increasing the
total return on the portfolio and also as a means of providing limited
protection against decreases in market value. The Fund will engage in this
activity, if at all, only to the extent permitted by the most stringent
applicable state regulations governing the writing of covered call options in
states where the Fund is selling its Shares. The aggregate value of securities
underlying outstanding options will not exceed 25% of the net assets of the
Fund.
The Fund may purchase put and call options on interest rate futures contracts
which are traded on a United States exchange or board of trade as a hedge
against changes in interest rates, and may enter into closing transactions with
respect to such options to terminate existing positions. An interest rate
futures contract provides for the future sale by one party and purchase by the
other party of a certain amount of a specific financial instrument (debt
security) at a specified price, date, time and place. An option on an interest
rate futures contract, as contrasted with the direct investment in such a
contract, gives the purchaser the right, in return for the premium paid, to
assume a position in an interest rate futures contract at a specified exercise
price at any time prior to the expiration date of the option. The Fund may
purchase put options on interest rate futures contracts to hedge its portfolio
securities against the risk of rising interest rates, and may purchase call
options on interest rate futures contracts to hedge against a decline in
interest rates. The Fund will write put or call options on interest rate futures
contracts only as part of closing purchase transactions to terminate its option
positions, and there is no guarantee that such closing transactions can be
effected. There can be no assurance that there will be a correlation between
price movements in the options on interest rate futures, on the one hand, and
price movements in the Fund's portfolio securities which are the subject of the
hedge, on the other hand. In addition, the Fund's purchase of put or call
options will be based upon predictions as to anticipated interest rate trends,
which could prove to be inaccurate. The Fund will purchase put or call options
on interest rate futures contracts only as a hedge against changes in the value
of securities in the Fund's portfolio that may result from market conditions,
and not for speculative purposes. The potential loss related to the purchase of
an option on interest rate futures contracts is limited to the premium paid for
the option. Options are considered to be derivatives. A derivative is generally
defined as an instrument whose value is based upon, or derived from, some
underlying index, reference rate (e.g., interest rates), security, commodity or
other asset. The Fund will not invest more than 5% of its total assets at any
one time in premiums paid for call options and put options.
Although, except as set forth above, the Fund does not intend to engage in
short-term trading of portfolio securities as a means of achieving its
investment objective, it may sell portfolio securities without regard to the
length of time they have been held whenever such sale will, in the Adviser's
opinion, strengthen the Fund's position and contribute to its investment
objective. Brokerage commissions are not normally charged on the purchase or
sale of securities issued or guaranteed by the U.S. Government, but such
transactions may involve costs in the form of spreads between bid and asked
prices.
The Fund may also invest up to 10% of the value of its total assets in the
securities of other investment companies subject to the limitations set forth in
the 1940 Act. The Fund intends to invest in money market mutual funds for
purposes of short-term cash management. The Fund's investment in such other
investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on the Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Statement of
Additional Information.
10
<PAGE> 34
In addition to the Fund's investment objective, the Fund has established a
number of other fundamental policies, changeable only with the approval of a
majority of the Fund's Shares, all of which are described in the Fund's
Statement Of Additional Information, including policies prohibiting (i) the
investment of more than 10% of the value of the Fund's total assets in
repurchase agreements maturing in more than seven days, (ii) borrowing money,
except from banks as a temporary measure for extraordinary or emergency
purposes, and then only in amounts not exceeding 5% of the value of the Fund's
total assets, (iii) mortgaging, pledging or otherwise encumbering any portfolio
security except as may be necessary in connection with permissible borrowings,
in which case the mortgaging, pledging or encumbering cannot exceed 5% of the
Funds's assets, (iv) investing in covered call options where the aggregate value
of the securities underlying the options exceeds 25% of the net assets of the
Fund, and (v) investing more than 5% of the Fund's assets in premiums paid on
put and call options. Except for the investment objective and the matters
described as fundamental policies in the Statement Of Additional Information,
all other practices of the Fund are not fundamental policies.
- --------------------------------------------------------------------------------
HOW DO I PURCHASE SHARES OF THE FUND?
- --------------------------------------------------------------------------------
GENERAL
The Fund's Shares may be purchased at the public offering price, described
below, through The Ohio Company, principal distributor of the Fund's Shares, at
its address and telephone number set forth on the cover page of this Prospectus,
and through other broker-dealers who are members of the National Association of
Securities Dealers, Inc. and have sales agreements with The Ohio Company. A
purchase will become effective upon receipt by The Ohio Company of an order and
payment of the public offering price.
Subsequent purchases of Shares of the Fund may be made by ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below.
Certificates reflecting ownership of the Fund's Shares will not be issued unless
specifically requested by the purchaser. In order to facilitate redemptions, it
is expected that most shareholders will not elect to receive certificates.
The minimum initial investment is $1,000. Subsequent investments must be in
amounts of at least $50.
Due to the high cost of maintaining accounts, the Fund reserves the right to
redeem involuntarily Shares in any account at the then current net asset value
if at any time redemptions have reduced a shareholder's total investment to a
net asset value below $500. A shareholder will be notified in writing that the
value of the account is less than $500 and allowed 30 days to increase the
account to $500 before the redemption is processed. Proceeds of redemptions so
processed, including dividends declared to the date of redemption, will be
promptly paid to the shareholder. Shares of the Fund may be redeemed through a
securities dealer, investment adviser, agent or other fiduciary which may charge
a fee for its services in connection with the redemption. No redemption charge
is imposed by the Fund or by The Ohio Company, the Fund's principal distributor.
PUBLIC OFFERING PRICE
The public offering price of Shares of the Fund is the net asset value per share
next determined after receipt by The Ohio Company of an order and payment, plus
a sales charge as follows:
11
<PAGE> 35
<TABLE>
<CAPTION>
SALES CHARGE
AS A AS A PERCENTAGE
PERCENTAGE OF OFFERING PRICE
OF THE NET -----------------------------
AMOUNT OF AMOUNT SALES DEALER'S
SINGLE TRANSACTION INVESTED CHARGE CONCESSION
- ------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Less than $100,000.................................... 4.71% 4.50% 4.00%
$100,000 but less than $250,000....................... 3.63 3.50 3.00
$250,000 but less than $500,000....................... 2.56 2.50 2.00
$500,000 but less than $1,000,000..................... 1.52 1.50 1.00
$1,000,000 or more.................................... 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the computation
of net asset value per share.)
The above charges on investments of $100,000 or more are applicable to purchases
made at one time by an individual, or an individual, his spouse and their
children not of legal age, or a trustee, guardian or other like fiduciary of
certain single trust estates or certain single fiduciary accounts.
No sales charge is imposed on purchases of Shares by officers, trustees, and
employees of the Fund or by full-time employees of the Adviser or The Ohio
Company, who have been such for at least 90 days or by qualified retirement
plans for such persons.
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Shares of the Fund on the
periodic basis you select. Confirmation of your purchase of Fund Shares will be
provided by the Fund. The debit of your checking account will be reflected in
the checking account statement you receive from your financial institution.
Please contact The Ohio Company for the appropriate form.
- --------------------------------------------------------------------------------
MAY MY TAX SHELTERED RETIREMENT PLAN INVEST IN THE FUND?
- --------------------------------------------------------------------------------
Shares of the Fund qualify for purchase in connection with the following tax
sheltered retirement plans:
-- Individual Retirement Account ("IRAs") plans
-- Simplified Employee Pension Plans
-- 403(b)(7) Custodial Plans sponsored by certain tax exempt employers
-- Pension, profit-sharing and 401(k) plans qualifying under Section 401(a)
of the Internal Revenue Code
The Ohio Company offers a wide range of services to assist employers in reducing
the cost and complexity of utilizing any of the above retirement programs. These
services include:
Consulting services
Prototype plan documents
Low-cost recordkeeping and IRS reporting
On-going employee educational programs
Investment consultation
Trust services
12
<PAGE> 36
Please contact your local office of The Ohio Company or call 1-800-237-2169
(inside Ohio) or 1-800-237-2170 (outside Ohio) to obtain complete information
regarding The Ohio Company's retirement plan services.
- --------------------------------------------------------------------------------
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
- --------------------------------------------------------------------------------
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to purchase
$100,000 or more of Shares of the Fund and of any fund of The Cardinal Group or
of The Cardinal Fund Inc., other members of the Cardinal family of funds which
are sold with a sales charge (collectively, the "Cardinal Load Funds"), during
any 13-month period you may sign a letter of intention to that effect obtained
from The Ohio Company and pay the reduced sales charge applicable to the total
amount of shares to be so purchased. The 13-month period during which the Letter
of Intention is in effect will begin on the date of the earliest purchase to be
included. In addition, trustees, guardians or other like fiduciaries of single
trust estates or certain single fiduciary accounts may take advantage of the
quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase the full
amount indicated. Shares purchased with the first 5% of such amount will be held
in escrow (while remaining registered in your name) to secure payment of the
highest sales charge applicable to the shares actually purchased. If the full
amount indicated is not purchased, such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. Dividends on escrowed
shares, whether paid in cash or reinvested in additional shares of the
applicable Cardinal Load Fund, are not subject to escrow. The escrowed shares
will not be available for disposal by you until all purchases pursuant to the
letter of intention have been made or the higher sales charge has been paid.
When the full amount indicated has been purchased, the escrow will be released.
To the extent that you purchase more than the dollar amount indicated on the
Letter of Intention and qualify for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in sales charge will be, as you instruct, either
delivered to you in cash or used to purchase additional shares of the Cardinal
Load Fund designated by you subject to the rate of sales charge applicable to
the actual amount of the aggregate purchases. This program, however, may be
modified or eliminated at any time or from time to time by the Fund without
notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the privilege of
combining "concurrent purchases" of Shares of the Fund and of one or more of the
other Cardinal Load Funds. For example, if you concurrently purchase Shares of
the Fund at the total public offering price of $50,000 and shares of another
Cardinal Load Fund at the total public offering price of $50,000, the sales
charge would be that applicable to a $100,000 purchase as shown in the table
above. "Concurrent purchases," as described above, shall include the combined
purchases of you, your spouse and your children not of legal age. To receive the
applicable public offering price pursuant to this privilege, you must, at the
time of purchase, give The Ohio Company sufficient information to permit
confirmation of qualification. This privilege, however, may be modified or
eliminated at any time or from time to time by the Fund without notice thereof.
RIGHTS OF ACCUMULATION
After your initial purchase of Shares, you may also be eligible to pay a reduced
sales charge for your subsequent purchases of Shares where the total public
offering price of Shares then being purchased plus the then aggregate current
net asset value of Shares of the Fund and of shares of any Cardinal Load Fund
held in your account equals $100,000 or more. You would be able to purchase
Shares at the public offering price applicable to the total of (a) the total
public offering price of the Shares of the Fund then being
13
<PAGE> 37
purchased plus (b) the then current net asset value of Shares of the Fund and of
shares of any other Cardinal Load Fund held in your account. For purposes of
determining the aggregate current net asset value of shares held in your
account, you may include shares then owned by your spouse and children not of
legal age.
You may obtain additional information about the foregoing special purchase
method from The Ohio Company. You are responsible for notifying The Ohio Company
at the time of purchase when purchases may be accumulated to take advantage of
the reduced sales charge. This program, however, may be modified or eliminated
at any time or from time to time by the Fund without notice.
- --------------------------------------------------------------------------------
ARE THERE ANY SPECIAL PURCHASE PROGRAMS FOR CERTAIN RETIREMENT PLANS?
- --------------------------------------------------------------------------------
No sales charge is imposed on purchases of Shares of the Fund by trusts
qualifying under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and by deferred compensation plans of state and local governments
and tax-exempt organizations qualifying under Section 403(b) or Section 457 of
the Code (collectively, "Qualifying Plans"), so long as The Ohio Company serves
as either a trustee or investment adviser for the applicable Qualifying Plans.
- --------------------------------------------------------------------------------
WHAT DISTRIBUTIONS WILL I RECEIVE?
- --------------------------------------------------------------------------------
The net income of the Fund is declared daily as a dividend to Shareholders of
the Fund at the close of business on the day of declaration, and such dividends
are generally paid monthly. Dividends consisting of long-term capital gains
normally will be distributed only once annually. Dividends and distributions
will be paid only in additional Shares and not in cash; except, however, that
for dividends and distributions of $10 or more, a shareholder may specifically
request that such amounts be paid to him in cash. Dividends are expected to be
distributed on a monthly basis.
Shareholders may elect to receive cash distributions by using ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below.
- --------------------------------------------------------------------------------
HOW MAY I REDEEM MY SHARES?
- --------------------------------------------------------------------------------
Investors may redeem Shares of the Fund at the net asset value per share next
determined following the receipt by the Fund's transfer agent, Cardinal
Management Corp., 215 East Capital Street, Columbus, Ohio 43215, of the
following: (a) written or telephonic notice to redeem, as described more fully
below, and (b) for Shares represented by certificates, either the share
certificates, properly endorsed, or properly executed stock powers. See "HOW IS
NET ASSET VALUE CALCULATED?", below, for a description of when net asset value
is determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem and any share certificates or stock powers to
Cardinal Management Corp. without charge. Other broker-dealers may assist a
shareholder in redeeming his shares and may charge a fee for such services.
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Fund by submitting a written
request therefor to Cardinal Management Corp., the Fund's Transfer Agent at 215
East Capital Street, Columbus, Ohio 43215. Cardinal Management Corp. will
request a signature guarantee by an eligible guarantor institution as described
below. However, a signature guarantee will not be required if (1) the redemption
check is payable to the Shareholder(s) of record, and (2) the redemption check
is mailed to the Shareholder(s) at the address of
14
<PAGE> 38
record, provided, however, that the address of record has not been changed
within the preceding 15 days. For purposes of this policy, an "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Exchange Act of 1934.
Cardinal Management Corp. reserves the right to reject any signature guarantee
if (1) it has reason to believe that the signature is not genuine or (2) it has
reason to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Fund by calling the Fund at the
telephone numbers set forth on the front of this Prospectus. The Shareholder may
direct that the redemption proceeds be mailed to the address of record or
another address.
Neither the Fund nor its service providers will be liable for any loss, damages,
expense or cost arising out of any telephone redemption effected in accordance
with the Fund's telephone redemption procedures, acting upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurances that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. These
procedures may include recording all phone conversations, sending confirmations
to Shareholders within 72 hours of the telephone transaction, and verification
of account name and account number or tax identification number. If, due to
temporary adverse conditions, investors are unable to effect telephone
transactions, Shareholders may also redeem their Shares by mail as described
above.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? -- ACH Processing" below.
The Fund will make payment for redeemed Shares as promptly as practicable but in
no event more than seven days after receipt by Cardinal Management Corp. of the
foregoing notice and any share certificates and powers. The Fund reserves the
right to delay payment for the redemption of Shares where such Shares were
purchased with other than immediately available funds, but only until the
purchase payment has cleared (which may take fifteen or more days from the date
the purchase payment is received by the Fund). The purchase of Fund Shares by
wire transfer of federal funds would avoid any such delay.
The Fund may suspend the right of redemption or may delay payment during any
period the determination of net asset value is suspended. See "HOW IS NET ASSET
VALUE CALCULATED?".
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Shares of the Fund having a total value of $25,000 or
more at the current offering price, you may elect to redeem your Shares monthly
or quarterly in amounts of $50 or more, pursuant to the Fund's Systematic
Withdrawal Plan. Please contact The Ohio Company for the appropriate form.
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The net asset value of the Fund is determined once daily as of 4:00 P.M.,
Columbus, Ohio time, on each business day the New York Stock Exchange is open
for business and on any other day (other than a day on which no Shares of the
Fund are tendered for redemption and no order to purchase any Shares of the Fund
is received) where there is sufficient trading in the Fund's portfolio
securities that the Fund's net asset value per share might be materially
affected by changes in the value of its portfolio securities. The net asset
value per share of the Fund is computed by dividing the sum of the value of the
Fund's portfolio securities plus
15
<PAGE> 39
any cash and other assets (including interest accrued but not received) minus
all liabilities (including estimated accrued expenses) by the total number of
Shares then outstanding.
Portfolio securities for which over-the-counter market quotations are readily
available are valued at the bid price. The Fund uses one or more pricing
services to provide such market quotations. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Fund.
Determination of the net asset value may be suspended at times when (a) trading
on the New York Stock Exchange is restricted or such Exchange is closed for
other than customary weekend and holiday closings, (b) an emergency as
determined by the Securities and Exchange Commission exists making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable, or (c) the Securities and Exchange Commission has by order
permitted such suspension.
- --------------------------------------------------------------------------------
DOES THE FUND PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
The Fund intends to qualify as a "regulated investment company" under the Code
for so long as such qualification is in the best interest of the Fund's
shareholders. Qualification as a regulated investment company under the Code
requires, among other things, that the regulated investment company distribute
to its shareholders at least 90% of its investment company taxable income. The
Fund contemplates declaring as dividends 100% of the Fund's investment company
taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. If distributions
during a calendar year were less than the required amount, the Fund would be
subject to a nondeductible excise tax equal to 4% of the deficiency.
- --------------------------------------------------------------------------------
WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
It is expected that the Fund will distribute annually to shareholders all or
substantially all of the Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends received deduction, if any, received by the
Fund bear to its gross income.
Distribution by the Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to shareholders as long-term capital gain in
the year in which it is received, regardless of how long the shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a Share is reduced below the shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or
16
<PAGE> 40
distributions. All or a portion of such dividends or distributions, although in
effect a return of capital, is subject to tax.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Fund and its shareholders. Potential
investors in the Fund are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
Cardinal Management Corp. will inform shareholders at least annually of the
amount and nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE FUND?
- --------------------------------------------------------------------------------
Pursuant to the laws of Ohio and the Fund's Declaration of Trust, the
responsibility for the management of the Fund is vested in its Board of Trustees
which, among other things, is empowered by the Fund's Declaration Of Trust to
elect officers of the Fund and contract with and provide for the compensation of
agents, consultants and other professionals to assist and advise in such
management.
INVESTMENT ADVISER AND MANAGER
The Fund has entered into an Investment Advisory and Management Agreement
("Investment Advisory Agreement") with Cardinal Management Corp., an Ohio
corporation (the "Adviser"), 155 East Broad Street, Columbus, Ohio 43215, in
which the Adviser has agreed to serve as the Fund's investment adviser and
manager. In such capacity, and subject to the ultimate authority of the Fund's
Board of Trustees, the Adviser has agreed regularly to provide the Fund with
investment advice, including management of the Fund's portfolio securities, and
overall management of the Fund's affairs. Since the Fund's inception, John R.
Carle has been primarily responsible for the day-to-day management of the Fund's
portfolio. Mr. Carle has been a portfolio manager with the Adviser and/or The
Ohio Company since 1971.
The Adviser was organized in March, 1980, and currently provides investment
advisory services to Cardinal Government Securities Trust, Cardinal Tax Exempt
Money Trust, Cardinal Balanced Fund and Cardinal Aggressive Growth Fund. The
Adviser is a wholly-owned subsidiary of The Ohio Company, an Ohio corporation.
The Ohio Company is an investment banking firm organized in 1925 and serves as
the principal underwriter for each of the foregoing funds and as the investment
adviser and principal underwriter for The Cardinal Fund Inc. The Ohio Company is
a member of the New York Stock Exchange, Midwest Stock Exchange, other regional
stock exchanges and the National Association of Securities Dealers, Inc.
As compensation for the investment advice and overall management, the Fund will
pay the Adviser a monthly fee, accrued daily, based on an annual rate of .5% of
the average daily net asset value of the Fund. The Adviser may, however,
periodically waive all or a portion of its advisory fee with respect to the Fund
to increase the net income of the Fund available for distribution as dividends.
The waiver of such fee will cause the yield of the Fund to be higher than it
would otherwise be in the absence of such a waiver.
ACCOUNTING SERVICES AND TRANSFER AGENT
The Fund has entered into an Accounting Services Agreement with the Adviser
pursuant to which the Adviser has agreed to maintain and keep current the books,
accounts, records, journals and other records of original entry relating to the
business of the Fund and to calculate the Fund's net asset value on a daily
basis. In consideration of such services, the Fund has agreed to pay the Adviser
a fee monthly based on the average monthly net asset value of the Fund.
The Fund has also entered into an Administration Agreement with the Adviser
pursuant to which the Adviser has agreed to act as the Fund's transfer agent,
dividend disbursing agent and administrator of plans
17
<PAGE> 41
of the Fund. In consideration of such services the Fund has agreed to pay the
Adviser an annual fee, paid monthly, equal to $21 per shareholder account, plus
the Adviser's out-of-pocket expenses.
DISTRIBUTOR
The Fund has entered into a Distributor's Contract with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Fund
continuously will be offered on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. Walter R. Chambers is an officer and
trustee/director of both the Fund and The Ohio Company. Frank W. Siegel and John
R. Carle, each an officer and trustee of the Fund, are officers of The Ohio
Company. John L. Schlater, a trustee of the Fund, is an officer of The Ohio
Company. David C. Will and James M. Schrack II are officers of both the Fund and
The Ohio Company.
CUSTODIAN
The Fund has appointed The Fifth Third Bank ("Fifth Third") 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In such capacity Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Fund.
- --------------------------------------------------------------------------------
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
- --------------------------------------------------------------------------------
ACH PROCESSING
The Fund now offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Shares and/or electronically transfer distributions
paid on Fund Shares, in addition to the other methods described in this
Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contract your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Shareholders of the Fund may, provided the amount to be exchanged meets the
applicable minimum investment requirements and the exchange is made in states
where it is legally authorized, exchange Shares of the Fund for shares of:
Cardinal Aggressive Growth Fund, an equity fund seeking
appreciation of capital (upon the payment of the applicable sales
charge);
Cardinal Balanced Fund, a fund seeking current income and
long-term growth of both capital and income (upon the payment of
the applicable sales charge);
The Cardinal Fund Inc., an equity fund seeking long-term growth
of capital and income (upon the payment of the applicable sales
charge);
Cardinal Government Securities Trust, a U.S. Government
securities money market fund (without payment of any sales
charge); or
Cardinal Tax Exempt Money Trust, a tax-free money market fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, (i) exchanges by Qualifying Plans, for whom The Ohio
Company serves as either a trustee or an investment
18
<PAGE> 42
adviser, of Fund Shares for shares of a Cardinal Load Fund may be completed
without the payment of a sales charge, and (ii) exchanges of Fund Shares by all
other shareholders for shares of a Cardinal Load Fund may be completed upon the
payment of a sales charge equal to the difference, if any, between the sales
charge payable upon purchase of shares of such Cardinal Load Fund and the sales
charge previously paid on the Fund Shares to be exchanged.
The foregoing exchange privilege may be exercised only once in each calendar
quarter and must be made by written or telephonic authorization. A shareholder
should notify The Ohio Company of his desire to make an exchange, and The Ohio
Company will furnish, as necessary, a prospectus and an application form to open
the account. Cardinal Management Corp., as transfer agent, will require that any
written authorization of an exchange include a signature guarantee as described
above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail." However, a
signature guarantee will not be required if the exchange is requested to be made
within the same account or into an existing account of the shareholder held in
the same name or names and in the same capacity as the account from which the
exchange is to be made. Shareholders may also authorize an exchange of shares of
the Fund by telephone. Neither the Fund nor any of its service providers will be
liable for any loss, damages, expense or cost arising out of any telephone
exchange authorization to the extent and subject to the requirements set forth
under "HOW MAY I REDEEM MY SHARES? -- Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
However, a shareholder may not include any sales charge on Shares of the Fund
for purposes of calculating the gain or loss realized upon an exchange of those
Shares within 90 days of their purchase.
The Fund may, at any time, modify or terminate the foregoing exchange privilege.
The Fund, however, will give shareholders of the Fund 60 days' advance written
notice of any such modification or termination.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
Shares of the Fund, upon their issuance, are fully paid and nonassessable, are
of one class equal to all other Shares and are without par value. Certificates
representing Shares will not be issued unless specifically requested in writing
upon subscription. Ownership records of Shares will be maintained by the Fund's
transfer agent, Cardinal Management Corp.
Shareholders have equal voting rights on all matters submitted for shareholder
vote. The Declaration of Trust limits the matters requiring a shareholder vote
to the election or removal of Trustees, approval of certain contracts of the
Fund such as the Investment Advisory and Management Agreement with the Adviser
and the Distributor's Contract with The Ohio Company, approval of the
termination or reorganization of the Fund, approval of certain amendments to the
Declaration Of Trust and certain other matters described in such Declaration.
Under certain circumstances where Trustees have failed upon written request to
give notice of a meeting to consider matters requiring a shareholder vote,
shareholders holding at least 25% of the Fund's outstanding Shares may call and
give notice of such a meeting and thereafter a shareholder meeting will be held
to consider such matters.
- --------------------------------------------------------------------------------
WHO PROVIDES SHAREHOLDER REPORTS?
- --------------------------------------------------------------------------------
The Fund will provide shareholders monthly a summary statement describing any
purchases and sales of Shares of the Fund and dividend and capital gain
distributions.
Holders of Shares should direct all inquiries concerning such matters to
Cardinal Management Corp., 155 East Broad Street, Columbus, Ohio 43215.
19
<PAGE> 43
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 44
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 45
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
<PAGE> 46
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
-----
<S> <C>
Key Features............................ 2
Prospectus Highlights................... 3
Fee Table............................... 4
Financial Highlights.................... 5
What is the Fund?....................... 7
What Are the Investment Objective and
Policies of the Fund?................. 7
How Do I Purchase Shares
of the Fund?.......................... 11
May My Tax Sheltered Retirement Plan
Invest in the Fund?................... 12
How May I Qualify for Quantity
Discounts?............................ 13
Are There Any Special Purchase Programs
for Certain Retirement Plans?......... 14
What Distributions Will I Receive?...... 14
How May I Redeem My Shares?............. 14
How is Net Asset Value Calculated?...... 15
Does the Fund Pay Federal Income Tax?... 16
What About My Taxes?.................... 16
Who Manages My Investment in the
Fund?................................. 17
What Other Shareholder Programs Are
Provided?............................. 18
What Are My Rights as a Shareholder?.... 19
Who Provides Shareholder Reports?....... 19
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
----------------------
PROSPECTUS
----------------------
February 1, 1995
THE OHIO COMPANY
CARDINAL
GOVERNMENT
OBLIGATIONS
FUND
[LOGO]
<PAGE> 47
CARDINAL GOVERNMENT SECURITIES TRUST
SUPPLEMENT DATED DECEMBER 11, 1995,
TO PROSPECTUS DATED FEBRUARY 1, 1995
Capitalized terms used in this Supplement have the meaning assigned to them
in the Prospectus.
The Trust has entered into an Agreement and Plan of Reorganization and
Liquidation, dated as of December 1, 1995 (the "Plan"), with The Cardinal Group,
an Ohio business trust (the "Group"). Pursuant to the Plan, Cardinal Government
Securities Money Market Fund, a series of the Group (the "Acquiring Fund"),
would acquire all of the assets of the Trust in exchange for the assumption of
all of the Trust's liabilities and a number of full and fractional shares of the
Acquiring Fund having an aggregate net asset value equal to the Trust's net
assets (the "Reorganization"). The Trust would then be liquidated, and the
shares of the Acquiring Fund would be distributed to Trust shareholders.
The Reorganization is subject to certain regulatory approvals and to
approval by the shareholders of the Trust at the Annual Shareholders Meeting
currently expected to be held in February, 1996. If the shareholders approve the
Reorganization, it is expected that the Reorganization would be effected on or
about March 31, 1996; however, the Reorganization may be effected on such
earlier or later date as the Group and the Trust may determine. There can be no
assurance that the Reorganization will take place when or as currently proposed.
The following paragraph is added to the cover page of this Prospectus:
THE SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN
THE TRUST INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
The second sentence of the first paragraph under the heading "CHECK-WRITING
REDEMPTION PROCEDURE" on page 13 of the Prospectus is deleted and is replaced
with the following:
These checks may be made payable to the order of any person in any amount
not less than $250.
The second sentence of the second paragraph under the heading
"CHECK-WRITING REDEMPTION PROCEDURE" on page 13 of the Prospectus is deleted.
The following two sentences are added at the end of the second paragraph
under the heading "WHO MANAGES MY INVESTMENT IN THE TRUST? -- Investment Adviser
and Manager" on pages 14 and 15 of the Prospectus:
As of December 22, 1995, John R. Carle will be primarily responsible for
the day-to-day management of the Trust's portfolio. Mr. Carle has been a
portfolio manager with the Adviser and/or The Ohio Company since 1971 and
has more than 28 years of investment management experience.
The Prospectus Supplement supersedes in its entirety the prospectus
supplement dated February 22, 1995.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS
FOR FUTURE REFERENCE
<PAGE> 48
PROSPECTUS
- --------------------------------------------------------------------------------
[LOGO]
CARDINAL GOVERNMENT SECURITIES TRUST
Cardinal Government Securities Trust (the "Trust") is a no-load, diversified,
open-end management investment company with an investment objective of
maximizing current income while preserving capital and maintaining liquidity.
The Trust seeks to attain its objectives by investing in U.S. Treasury bills,
notes and bonds, other obligations issued or guaranteed by the United States,
its agencies or instrumentalities, and repurchase agreements relating to such
obligations. All obligations purchased by the Trust will mature in thirteen
months or less. There can be no assurance that the Trust's objective will be
achieved.
THE INVESTMENT DESCRIBED IN THIS PROSPECTUS IS NOT INSURED OR GUARANTEED BY THE
UNITED STATES GOVERNMENT. THE TRUST INTENDS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT NET ASSET VALUE
WILL NOT VARY.
The Trust is designed for institutions and individuals who desire current income
that reflects prevailing interest rates for short-term investments together with
a high degree of liquidity and the security of a portfolio invested only in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements collateralized by such obligations.
- --------------------------------------------------------------------------------
For further information regarding the Trust or for assistance
in opening an account or redeeming shares, please call:
In Columbus 464-5512 (opening accounts and further information)
464-5511 (redeeming shares)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed to the Trust
at its principal office:
155 East Broad Street
Columbus, Ohio 43215
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing in the Trust. This
Prospectus should be retained for future reference. A Statement of Additional
Information respecting the Trust, dated February 1, 1995, has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
Such Statement is available upon request without charge from the Trust at the
above address or by calling the phone numbers provided above.
Investors should read and retain this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OHIO COMPANY
The date of this Prospectus is February 1, 1995
- --------------------------------------------------------------------------------
<PAGE> 49
- --------------------------------------------------------------------------------
KEY FEATURES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
HIGH CURRENT YIELD.............The Trust seeks the maximum yield available through
investment in U.S. Government securities. (See pages 6 and
7.)
HIGH DEGREE OF SAFETY..........The investor obtains a high degree of safety due to the
fact the Trust invests solely in obligations issued or
guaranteed by the U.S. Government and its agencies and
instrumentalities, including U.S. Government obligations
subject to repurchase agreements. (See pages 6 and 7.)
MONTHLY DISTRIBUTIONS..........Monthly distributions are automatically reinvested in
additional shares of the Trust without charge or may be
received in cash. (See pages 4 and 10.)
INSTANT LIQUIDITY..............Through the free check writing privilege or telephone
transfer of funds, all or part of an investor's shares may
be redeemed on any business day at the net asset value
without charge. (See page 12.)
LOW INITIAL INVESTMENT.........An investor can acquire shares of a high quality portfolio
of government securities with a smaller investment than
would be needed to purchase a similar portfolio directly.
(See page 8.)
PROFESSIONAL MANAGERS..........The Trust's portfolio is fully managed by professional
portfolio managers. (See page 14.)
FLEXIBILITY....................You may switch once each calendar quarter from one mutual
fund to another within the Cardinal Group of Funds as your
personal circumstances or market conditions dictate. Under
certain circumstances, however, a sales charge may be im-
posed on exchanges for shares of The Cardinal Fund Inc.,
Cardinal Government Obligations Fund, Cardinal Balanced
Fund and Cardinal Aggressive Growth Fund. (See pages 15
and 16.)
MAXIMUM YIELD..................As there is no sales charge to reduce the yield, investors
receive the maximum yield on their investment. Service
fees and charges have not been considered. (See pages 8
and 14.)
ACH PROCESSING.................Investors may use Automated Clearing House ("ACH")
processing for subsequent purchases of shares,
redemptions, and/or distributions paid. (See page 15.)
</TABLE>
2
<PAGE> 50
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHARES OFFERED.................The Trust is authorized to issue an unlimited number of
full and fractional shares of beneficial interest, all of
one class, with a par value of $.01 per share (the
"Shares"). (See page 6.)
OFFERING PRICE.................The public offering price is equal to net asset value per
share next determined after order. The Trust intends to
use its best efforts, under normal circumstances, to
maintain a constant net asset value of $1.00 per share.
There can be no assurance that it will be able to maintain
such a net asset value. There is no sales charge. (See
pages 8 and 13.)
MINIMUM PURCHASE...............$1,000 minimum initial investment and $100 minimum subse-
quent investments, although such minimums may be waived
under certain circumstances. (See page 8.)
TYPE OF COMPANY................No-load, diversified, open-end management investment com-
pany, commonly known as a mutual fund, established under
Pennsylvania law by a Declaration of Trust dated March 21,
1980. (See page 6.)
INVESTMENT OBJECTIVE...........To maximize current income while maintaining liquidity and
preserving capital. There is no assurance that such
objective will be achieved. (See page 6.)
INVESTMENT POLICIES............The Trust invests in obligations issued or guaranteed by
the U.S. Government and its agencies, and
instrumentalities, and repurchase agreements secured by
obligations of the U.S. Government or its agencies or
instrumentalities. These investments entail certain risks.
(See page 7.)
INVESTMENT ADVISER.............The Trust has entered into an Investment Advisory and Man-
agement Agreement with Cardinal Management Corp., a
wholly-owned subsidiary of The Ohio Company ("the Ad-
viser"). Cardinal Management Corp. also acts as investment
adviser for Cardinal Tax Exempt Money Trust and Cardinal
Government Obligations Fund, Cardinal Balanced Fund and
Cardinal Aggressive Growth Fund. (See page 14.)
MANAGEMENT FEE.................The annual rate is .5% of the average daily net assets of
the Trust. (See pages 14 and 15.)
DISTRIBUTIONS..................Distributions from net investment income are credited to
the shareholder's account daily and are automatically
reinvested in additional Shares of the Trust monthly
unless a cash dividend option is selected. (See page 10.)
REDEMPTION.....................At net asset value per share, without charge, except that
broker-dealers may charge a service fee for assisting in a
redemption. The Trust may require a redemption of shares
if the value of the account is less than $500. (See page
11.)
TRANSFER AGENT.................Cardinal Management Corp. (See page 15.)
</TABLE>
3
<PAGE> 51
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 0%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................... 0%
Deferred Sales Load
(as a percentage of original purchase price or
redemption proceeds, as applicable).......................... 0%
Redemption Fees
(as a percentage of amount redeemed, if applicable).......... 0%
Exchange Fee................................................... $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................ .50%
12b-1 Fees..................................................... .00
Other Expenses................................................. .35
-------
Total Fund Operating Expenses............................. .85%
=======
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time
period......................................... $9 $27 $47 $105
</TABLE>
The purpose of the above table is to assist a potential purchaser of the Trust's
Shares in understanding the various costs and expenses that an investor in the
Trust will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN THE
TRUST?" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of the Trust. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 52
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the ten fiscal years
ended September 30, 1994, have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon, together with certain financial
statements, is contained in the Trust's Statement of Additional Information and
which may be obtained by shareholders and prospective investors.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income............................. .03 .02 .04 .06 .08
Net gains or losses on securities (both realized
and unrealized)................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Total from investment operations.................. .03 .02 .04 .06 .08
--------- --------- --------- --------- ---------
Less Distributions:
Dividends (from net investment income)............ (0.3) (.02) (.04) (.06) (.08)
Distributions (from capital gains)................ -- -- -- -- --
Returns of capital................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions............................... (.03) (.02) (.04) (.06) (.08)
Net asset value, End of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total Return........................................ 2.84%(1) 2.41% 3.58% 6.20% 7.97%
Net assets, End of period (000) omitted............. $ 367,516 $ 402,758 $ 472,521 $ 567,841 $ 592,343
Ratio of expenses to average net assets............. 0.85% 0.79% 0.76% 0.72% 0.73%
Ratio of net investment income to average net
assets............................................ 2.94% 2.38% 3.52% 6.03% 7.69%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1989 1988 1987 1986 1985
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income............................. .09 .07 .06 .07 .08
Net gains or losses on securities (both realized
and unrealized)................................. -- -- -- -- --
--------- --------- --------- --------- ---------
Total from investment operations.................. .09 .07 .06 .07 .08
--------- --------- --------- --------- ---------
Less Distributions:
Dividends (from net investment income)............ (.09) (.07) (.06) (.07) (.08)
Distributions (from capital gains)................ -- -- -- -- --
Returns of capital................................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions............................... (.09) (.07) (.06) (.07) (.08)
Net asset value, End of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total Return........................................ 8.88% 6.81% 5.99% 7.09% 8.57%
Net assets, End of period (000) omitted............. $ 533,266 $ 411,887 $ 422,595 $ 408,681 $ 406,808
Ratio of expenses to average net assets............. 0.72% 0.73% 0.72% 0.80% 0.80%
Ratio of net investment income to average net
assets............................................ 8.54% 6.61% 5.83% 6.87% 8.25%
</TABLE>
- ---------------
(1) Without the $1,151,186 capital contribution as discussed in Note 2 to the
financial statements appearing in the Trust's Statement of Additional
Information, the 1994 total return would have been 2.55%.
See notes to financial statements appearing in the Trust's Statement of
Additional Information.
- ---------------------------------------
Pursuant to a Revolving Credit Agreement between the Trust and The Fifth Third
Bank dated April 10, 1992 (the "Loan Agreement"), the Trust may borrow money
from The Fifth Third Bank for temporary or emergency non-investment purposes,
such as to accommodate abnormally heavy redemption requests,
5
<PAGE> 53
and only in an amount not exceeding 10% of the value of the Trust's total assets
at the time of borrowing. The table below sets forth certain information
concerning the Loan Agreement.
<TABLE>
<CAPTION>
AVERAGE AVERAGE NUMBER AVERAGE
AMOUNT OF DEBT AMOUNT OF DEBT OF TRUST'S SHARES AMOUNT OF
YEAR ENDED OUTSTANDING AT OUTSTANDING OUTSTANDING DEBT PER SHARE
SEPTEMBER 30, END OF PERIOD DURING THE PERIOD DURING THE PERIOD DURING THE PERIOD
- ---------------- ------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1994 $0 $ 5,977 385,137,301 $0.0000155
1993 $0 $ 449 437,639,426 $0.0000010
</TABLE>
From time to time the Trust may advertise its "yield" or "annualized yield" and
its "effective yield". BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" or "annualized
yield" of the Trust refers to the income generated by an investment in the Trust
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the Trust is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" or "annualized yield" because of the compounding effect
of this assumed reinvestment.
Investors may also judge the performance of the Trust by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard &
Poor's Corporation and to data prepared by Lipper Analytical Services, Inc. and
CDA Investment Technologies, Inc. Comparisons may also be made to indices or
data published in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts, a
nationally recognized money market fund reporting service, Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, The Columbus
Dispatch, Business Week, Consumer Reports and U.S.A. Today. In addition to
performance information, general information about the Trust that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
- --------------------------------------------------------------------------------
WHAT IS THE TRUST?
- --------------------------------------------------------------------------------
The Trust is a diversified open-end management investment company established
under Pennsylvania law by a Declaration of Trust dated March 21, 1980. The
Declaration of Trust, as amended to date, permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, all of
one class, with par value of $.01 per share, and authorizes the Trustees to
issue separate series of shares differing only in certain specified respects.
The Trustees have not currently authorized separate series of shares. Each Share
offered hereunder represents an equal pro rata interest in the Trust's common
portfolio. Upon liquidation, shareholders are entitled to share pro rata in the
net assets of the Trust available for distribution to shareholders. Shares are
freely transferable, have no preemptive or conversion rights and are redeemable
as set forth herein under "HOW MAY I REDEEM MY SHARES?" Shares are fully paid
and nonassessable, except as set forth under "SHAREHOLDER AND TRUSTEE LIABILITY"
in the Statement of Additional Information. 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 this
Prospectus.
- --------------------------------------------------------------------------------
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE TRUST?
- --------------------------------------------------------------------------------
The investment objective of the Trust is to maximize current income while
preserving capital and maintaining liquidity. There can be no assurance that the
objective of the Trust will be achieved. The investment objective with respect
to the Trust is a fundamental policy and as such may not be changed without a
vote of the holders of a majority of the outstanding Shares of the Trust.
6
<PAGE> 54
The Trust seeks to attain its investment objective by investing in U.S. Treasury
bills, notes and bonds, other obligations issued or guaranteed by the United
States, its agencies or instrumentalities and repurchase agreements relating to
such obligations. The Trust will not invest in contracts for forward delivery of
securities (so-called "futures"). The Trust will purchase only obligations
having maturities, from the date of purchase, of 13 months or less. Current
income earned on such securities may not be as great as current income that
could be earned on lower quality securities that have less liquidity and/or a
greater risk of non-payment or securities that have a longer term.
Notwithstanding any of the foregoing, the Trust, as a money market fund subject
to Rule 2a-7 of the Investment Company Act of 1940 (the "1940 Act"), must invest
exclusively in United States dollar-denominated instruments which the Trustees
of the Trust and the Trust's investment adviser determine present minimal credit
risks and which at the time of acquisition are rated by one or more appropriate
nationally recognized statistical rating organizations ("NRSRO") (e.g. Standard
& Poor's Corporation and Moody's Investors Service, Inc.) in one of the two
highest rating categories for short-term debt obligations or, if unrated, are
deemed to be of comparable quality. In addition, the dollar-weighted average
maturity of the obligations in the Trust may not exceed 90 days.
Subject to the foregoing limitations and in order to achieve its investment
objective, the Trust expects to invest in the following types of securities.
Direct obligations issued by the U.S. Treasury include bills, notes and bonds
which differ from each other only in interest rates, maturities and times of
issuance; Treasury bills have a maturity of one year or less; Treasury notes
have maturities of one to ten years and Treasury bonds generally have maturities
of greater than ten years.
Examples of obligations issued by agencies or instrumentalities of the U.S.
Government include, among others, securities issued by the General Services
Administration, Federal Housing Administration, Farmers Home Administration,
Government National Mortgage Association, Federal Home Loan Banks, Federal
Intermediate Credit Banks, Federal Land Banks, Federal Home Loan Mortgage
Corporation, Central Bank for Cooperatives, Maritime Administration, The
Tennessee Valley Authority, Washington, D.C. Armory Board, Export-Import Bank of
the United States, the International Bank for Reconstruction and Development,
Federal National Mortgage Association and Student Loan Marketing Association.
Certain of such U.S. Government obligations may have variable or floating rates
of interest. The Trust intends to invest in variable and floating rate
instruments whose market value, upon reset of the interest rate, will
approximate par value because their interest rates will be tied to short-term
market rates. Some obligations issued or guaranteed by U.S. Government agencies
or instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by U.S. Treasury guarantees; and others, such as those issued
by Federal Home Loan Banks, by the right of the issuer to borrow from the
Treasury. In addition, some obligations of U.S. Government agencies or
instrumentalities, such as those issued by the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase certain obligations of the agency or instrumentality and others,
such as those issued by the Student Loan Marketing Association, are supported
solely by the credit of the issuing agency or instrumentality itself. No
assurance can be given that the U.S. Government will provide financial support
to such U.S. Government sponsored agencies or instrumentalities in the future,
since it is not obligated to do so by law. The Trust will invest in such
securities only when it is satisfied that the credit risk with respect to the
issuer is minimal.
A repurchase agreement is an instrument under which the purchaser acquires
ownership of the obligation but the seller agrees, at the time of the sale, to
repurchase the obligation at a specified time and price. Although the securities
subject to a repurchase agreement might bear maturities of more than one year,
the settlement date for repurchase agreements entered into by the Trust cannot
be more than seven days after the date of purchase. The resale price reflects
the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the purchased security. Under the
1940 Act, repurchase agreements are considered to be loans by the Trust. The
Trust will only enter into a repurchase agreement where (i) the underlying
securities are of the type which the Trust's investment guidelines
7
<PAGE> 55
would allow it to purchase directly, (ii) the market value of the underlying
security, including interest accrued, will be at all times equal to or exceed
the value of the repurchase agreement, and (iii) payment for the underlying
securities is made only upon physical delivery or evidence of book-entry
transfer to the account of the custodian or a bank acting as agent. The Adviser
will be responsible for continuously monitoring such requirements. In the event
of a bankruptcy or other default of a seller of a repurchase agreement, the
Trust could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying security
during the period while the Trust seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights.
The Trust may also invest up to 10% of the value of its total assets in the
securities of other investment companies subject to the limitations set forth in
the 1940 Act. The Trust intends to invest for purposes of short-term cash
management in other money market mutual funds. The Trust's investment in such
other investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on the Trust's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments --Securities of Other Investment Companies" in the Trust's Statement
of Additional Information.
The Trust cannot borrow money except from banks for temporary or emergency
non-investment purposes, such as to accommodate abnormally heavy redemption
requests, and then only in an amount not exceeding 10% of the value of the
Trust's total assets at the time of borrowing. The Trust cannot pledge, mortgage
or hypothecate its assets except to secure borrowing for temporary or emergency
non-investment purposes and then only in an amount not exceeding the lesser of
any applicable limitation under state law or 15% of its assets.
The Trust's investment objective and fundamental policies may not be changed
without approval of holders of a majority of the outstanding Shares of the
Trust.
- --------------------------------------------------------------------------------
HOW DO I PURCHASE SHARES OF THE TRUST?
- --------------------------------------------------------------------------------
Shares of the Trust are sold on a continuing basis without a sales charge at the
net asset value next determined after an order is received by The Ohio Company,
155 East Broad Street, Columbus, Ohio 43215, the Trust's principal underwriter,
and federal funds (monies credited to a member bank's account in a Federal
Reserve Bank) are received by The Ohio Company as hereinafter provided. The
minimum initial investment for individuals is $1,000 and subsequent investments
must be in amounts of at least $100. The Trust may, at its discretion, waive the
subsequent investment minimum for purchases effected through the automatic
reinvestment of distributions from unit investment trusts sponsored by The Ohio
Company, and may waive both the initial and subsequent investment minimums for
purchases effected with cash balances in brokerage accounts of customers of The
Ohio Company. Institutions may place orders for any number of individual
accounts with a minimum initial purchase of $1,000 for each individual account.
Subsequent purchases may be made in minimum amounts of $100 for each individual
account. Shares of the Trust may be purchased through a securities dealer,
investment adviser, agent or other fiduciary which may charge a fee for its
services in connection with the purchase. No sales charge is imposed by the
Trust or by The Ohio Company.
Each new investor must complete an Application Form and send it to the Trust at
the indicated address either prior to or concurrently with the transmittal of
funds by wire or mail.
All Shares purchased will be credited to shareholder accounts after receipt of
an order and federal funds by The Ohio Company, at the net asset value next
determined. The Trust currently determines net asset value and enters purchases
and redemptions of its shares as of 4:00 p.m. Eastern Time on each day that the
New York Stock Exchange is open for business ("Business Day"). If a properly
completed order and federal funds (or other immediately available funds) are
received at or prior to 12:00 noon Eastern Time on a Business Day, then the
purchase will be entered as of 4:00 p.m. Eastern Time on that day and dividends
will
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<PAGE> 56
commence on that day. If either federal funds (or other immediately available
funds) or the completed purchase order are received after 12:00 noon Eastern
Time (but prior to 4:00 p.m. Eastern Time) Shares will be credited to the
shareholder's account as of 4:00 p.m. Eastern Time on that day but will not earn
dividends until the following day.
The Trust reserves the right to reject any order to purchase its Shares.
Certificates representing Shares of the Trust will not be issued. All Shares
purchased are confirmed to the investor and credited to the investor's account
on the Trust's books maintained by Cardinal Management Corp. The investor will
have the same rights and ownership with respect to such Shares as if
certificates had been issued.
PURCHASE BY FEDERAL FUNDS WIRE
Investments in Shares of the Trust may be made by wire transfer of federal
funds, avoiding delays of the mail and the normal check clearance process
described below. An investor may telephone the Trust (464-5511 from Columbus,
Ohio; (800) 282-9446, toll free from other Ohio locations; or (800) 848-7734,
toll free from outside Ohio) prior to wire transfer of its investment to advise
the Trust of the investment and, if a new investor, to obtain an account number.
If an investor does not telephone the Trust for wire instructions and the
investor's wire transfer does not include sufficient information, such purchase
will be delayed until the proper information is received. An investor must
instruct its bank to "wire transfer" the investment immediately to:
The Huntington National Bank
Account Number 01891688407
Routing Number 044000024
17 South High Street
Columbus, Ohio 43215
Attn: Cardinal Government Securities Trust
[Include Trust Account Number and Name of Account
Holder]
Funds transmitted by wire will be invested in Shares of the Trust at the net
asset value next computed after receipt thereof as follows. Investment will
occur on the same day as the transfer of funds so long as federal funds are
received by The Ohio Company prior to 12:00 noon Eastern Time on any Business
Day. Federal funds received by The Ohio Company after 12:00 noon Eastern Time
will not be invested until the next Business Day. Dividends will accrue on the
day a purchase is effected only if federal funds are received by The Ohio
Company by 12:00 noon Eastern Time. A bank may charge for its services in
effecting wire transfers of funds.
Subsequent purchases of Shares of the Trust may be made by ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below.
PURCHASE BY MAIL
Investment in Shares of the Trust may be made by mail by sending a check or
other negotiable bank draft payable to the order of "Cardinal Government
Securities Trust" together with, in the case of an initial purchase, an
Application Form to:
Cardinal Government Securities Trust
155 East Broad Street
Columbus, Ohio 43215
Money transmitted by check drawn on a member of the Federal Reserve System will
normally be converted to federal funds and invested in Shares of the Trust
within one Business Day following receipt by The Ohio Company. Checks drawn on
non-member banks may take considerably longer. Cardinal Management Corp. or the
Trust will attempt to notify the investor upon receipt of the latter type of
check as to the possible delay and to arrange for a better means of transmittal
of funds. THE TRUST STRONGLY RECOMMENDS THAT INVESTORS OF SUBSTANTIAL AMOUNTS
USE FEDERAL FUNDS TO PURCHASE SHARES.
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<PAGE> 57
AUTOMATIC INVESTMENT PLAN
The Trust has made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Shares of the Trust on the
periodic basis you select. Confirmation of your purchase of Trust Shares will be
provided by the Trust. The debit of your checking account will be reflected in
the checking account statement you receive from your financial institution.
Please contact The Ohio Company for the appropriate form.
- --------------------------------------------------------------------------------
MAY MY TAX SHELTERED RETIREMENT PLAN INVEST IN THE TRUST?
- --------------------------------------------------------------------------------
Shares of the Trust qualify for purchase in connection with the following tax
sheltered retirement plans:
-- Individual retirement account ("IRAs") plans.
-- Simplified Employee Pension Plans.
-- 403(b)(7) Custodial Plans sponsored by certain tax-exempt employers.
-- Pension, profit-sharing and 401(k) plans qualifying under Section 401(a)
of the Internal Revenue Code.
The Ohio Company offers a wide range of services to assist employers in reducing
the cost and complexity of utilizing any of the above retirement programs. These
services include:
Consulting services
Prototype plan documents
Low-cost recordkeeping and IRS reporting
On-going employee educational programs
Investment consultation
Trust services
Please contact your local office of The Ohio Company or call 1-800-237-2169
(inside Ohio) or 1-800-237-2170 (outside Ohio) to obtain complete information
regarding The Ohio Company's retirement plan services.
- --------------------------------------------------------------------------------
WHAT DISTRIBUTIONS WILL I RECEIVE?
- --------------------------------------------------------------------------------
The Trust's net income is declared as a dividend and accrued on each Business
Day, immediately prior to the determination of the Trust's net asset value at
4:00 p.m. Eastern Time. Net interest income (from the time of the immediately
preceding declaration) consists of interest accrued on the portfolio of the
Trust (including accrued discount earned and premium amortized), plus realized
net short-term capital gains (losses) due to portfolio transactions (if any),
less the accrued expenses of the Trust applicable to that dividend period. The
Trust does not expect to realize any long-term capital gains due to its policy
of investing in securities maturing in 13 months or less.
All dividends of net income are credited to each shareholder's account daily and
automatically reinvested in additional Shares of the Trust at the net asset
value on the last Business Day of each month. Shareholders, however, may elect
to receive monthly the dividends of $10 or more declared on their Shares in cash
by checking the appropriate box on the Account Information Form or by otherwise
notifying Cardinal Management Corp. in writing. In addition, investors may
obtain cash at any time without charge by redeeming Shares at net asset value.
If the entire account of a shareholder is withdrawn, all dividends accrued to
the time of withdrawal will be paid at that time.
Shareholders may elect to receive cash distributions by using ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below.
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<PAGE> 58
Should the Trust incur or anticipate any extraordinary expense or loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Trustees would at that time consider whether
to adhere to the present dividend policy described above or to revise it in
light of the then-prevailing circumstances. For example, if the Trust's net
asset value per share were reduced, or expected to be reduced, below $1.00, the
Trustees might suspend further dividend accruals until the net asset value
returned to $1.00. Thus, extraordinary expenses or losses or depreciation may
result in no dividends being accrued for the period during which an investor
holds Shares as well as a redemption price lower than the purchase price for
such Shares.
- --------------------------------------------------------------------------------
HOW MAY I REDEEM MY SHARES?
- --------------------------------------------------------------------------------
Investors may redeem Shares of the Trust on any Business Day at the net asset
value next determined following receipt by the Trust's transfer agent, Cardinal
Management Corp., 215 East Capital Street, Columbus, Ohio 43215, of a written or
telephonic notice to redeem, or by check, each as more fully described below.
See "HOW IS NET ASSET VALUE CALCULATED?" below, for a description of when net
asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem to Cardinal Management Corp. without charge. Other
broker-dealers may assist a shareholder in redeeming his Shares and may charge a
fee for such services.
Proceeds of redemption requests received by Cardinal Management Corp. in proper
form before (1) 4:00 p.m. Eastern Time for shareholders who are customers of The
Ohio Company and who have submitted their redemption request through their
broker at The Ohio Company or (2) 12:00 noon Eastern Time for all other
redemption requests, will be sent by mail on the next Business Day or, if the
expedited redemption option is available, by federal funds wire on the next
Business Day for use on that day.
The Trust reserves the right to delay payment for the redemption of Shares where
such Shares were purchased with other than immediately available funds, but only
until the purchase payment has cleared (which may take fifteen or more days from
the date the purchase payment is received by the Trust). The purchase of Trust
Shares by wire transfer of federal funds would avoid any such delay.
The Trust may suspend the right of redemption or may delay payment during any
period the determination of net asset value is suspended. See "HOW IS NET ASSET
VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Trust reserves the right to
redeem involuntarily Shares in any account at the then current net asset value
if at any time redemptions have reduced a shareholder's total investment to a
net asset value below $500. A shareholder will be notified in writing that the
value of the account is less than $500 and allowed not less than 30 days to
increase the account to $500 before the redemption is processed. Proceeds of
redemptions so processed, including dividends declared to the date of
redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Trust by submitting a written
request therefor to Cardinal Management Corp., the Trust's transfer agent at 215
East Capital Street, Columbus, Ohio 43215. Cardinal Management Corp. will
request a signature guarantee by an eligible guarantor institution as described
below. However, a signature guarantee will not be required if (1) the redemption
check is payable to the Shareholder(s) of record, and (2) the redemption check
is mailed to the Shareholder(s) at the address of record, provided, however,
that the address of record has not been changed within the preceding 15 days.
For purposes of this policy, an "eligible guarantor institution" shall include
banks, brokers, dealers, credit unions, securities exchanges and associations,
clearing agencies and savings associations as those terms are defined in the
Securities Exchange Act of 1934. Cardinal Management Corp. reserves the right to
reject any
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<PAGE> 59
signature guarantee if (1) it has reason to believe that the signature is not
genuine or (2) it has reason to believe that the transaction would otherwise be
improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Trust by calling the Trust at the
telephone numbers set forth on the front of this Prospectus. The Shareholder may
direct that the redemption proceeds be mailed to the address of record or
another address.
Neither the Trust nor its service providers will be liable for any loss,
damages, expense or cost arising out of any telephone redemption effected in
accordance with the Trust's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Trust will employ procedures
designed to provide reasonable assurances that instructions by telephone are
genuine; if these procedures are not followed, the Trust or its service
providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, Shareholders may also redeem their
Shares by mail as described above.
EXPEDITED REDEMPTION
Any investor may elect to use the expedited redemption procedure by designating
on the Account Information Form submitted at the time of initial investment the
name of a commercial bank and account number to receive proceeds of redemption.
If this election is made, requests for redemption may be made by mail or by
telephone as described above.
An investor may elect to have redemption proceeds sent by federal funds wire to
the designated U.S. bank account if the proceeds are $1,000 or more. Otherwise,
proceeds will be sent by mail. No signature guarantee will be required of
investors electing this procedure. Requests to change bank or account
designations may only be made in writing to the Trust with the type of signature
guarantee and other documentation specified under "Redemption by Mail" above. To
participate in this procedure, an investor must complete the expedited
redemption portion of the Account Information Form or notify the Trust at any
time after making an initial investment.
An investor may also elect to have redemption proceeds sent by federal funds
wire to The Ohio Company, the Trust's distributor, if the proceeds are $500 or
more. If the investor elects to have federal funds so wired, the investor may
pick up a check at The Ohio Company's main office at 155 East Broad Street,
Columbus, Ohio or The Ohio Company will mail a check to the investor's address
of record. The Trust may, at its discretion, waive the minimum redemption
requirement for redemptions effected to cover debit balances in brokerage
accounts of customers of The Ohio Company.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? -- ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
As a shareholder, you may elect to redeem your Shares monthly or quarterly in
amounts of $50 or more, pursuant to the Trust's Systematic Withdrawal Plan.
Please contact The Ohio Company for the appropriate form.
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<PAGE> 60
CHECK-WRITING REDEMPTION PROCEDURE
Cardinal Management Corp., as Transfer Agent for the Trust, will provide any
shareholder who so requests with a supply of checks, imprinted with the
shareholder's name, which may be drawn against the Trust's account maintained by
The Fifth Third Bank (the "Bank"), for redemption of Trust Shares. These checks
may be made payable to the order of any person in any amount not less than $500.
To participate in this procedure, an investor must complete the Check-Writing
Redemption Form available from Cardinal Management Corp. When a check is
presented to the Bank for payment, Cardinal Management Corp. (as your agent)
will cause the Trust to redeem sufficient Shares in your account to cover the
amount of the check. Shares continue earning daily dividends until the day on
which the check is presented to the Bank for payment. Cancelled checks will be
returned to you. Due to the delay caused by the requirement that redemptions be
priced at the next computed net asset value, the Bank will only accept for
payment checks presented through normal bank clearing channels. Shareholders
should not attempt to withdraw the full amount of an account or to close out an
account by using this procedure.
No charge will be made to a shareholder for participation in the check-writing
redemption procedure or for the clearance of any checks. A charge of $10.00 per
check will be deducted from the shareholder's account if any check is returned
due to insufficient funds or if any check is written for less than $500.
In order to stop payment on a check, the shareholder must notify the Trust in
writing before the check has been presented to the Bank for payment. A charge of
$8.50 will be deducted from the shareholder's account for each stop payment
order.
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The Trust's net asset value per share is currently determined as of 4:00 p.m.
Eastern Time on each Business Day, and on such other days on which there is a
sufficient degree of trading in the Trust's portfolio securities that the
Trust's net asset value might be materially affected by changes in the value of
the portfolio securities. Net asset value per share is computed by dividing the
total value of the assets of the Trust, less its liabilities, by the total
number of Shares outstanding. Expenses and fees of the Trust, including the
management fee, are accrued daily and taken into account for the purpose of
determining the net asset value.
The Board of Trustees has adopted a policy requiring the Trust to use its best
efforts, under normal circumstances, to maintain a constant net asset value of
$1.00 per share. The Trust values its portfolio securities by the amortized cost
method which involves valuing a security at its cost and thereafter accruing any
discount or premium at a constant rate to maturity. The Trust will normally
include any accrued discount or premium in its daily dividend and will thereby
keep constant the value of the Trust's assets and, consequently, its net asset
value per share. This method does not take into account unrealized capital gains
or losses or the effect of fluctuating interest rates.
- --------------------------------------------------------------------------------
DOES THE TRUST PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
The Trust intends to qualify as a "regulated investment company" under the Code
for so long as such qualification is in the best interest of the Trust's
shareholders. Qualification as a regulated investment company under the Code
requires, among other things, that the regulated investment company distribute
to its shareholders at least 90% of its investment company taxable income. The
Trust contemplates declaring as dividends 100% of the Trust's investment company
taxable income (before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be
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<PAGE> 61
distributed during the next calendar year. If distributions during a calendar
year were less than the required amount, the Trust would be subject to a
nondeductible excise tax equal to 4% of the deficiency.
- --------------------------------------------------------------------------------
WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
It is expected that the Trust will distribute annually to shareholders all or
substantially all of the Trust's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to shareholders for federal income tax
purposes, even if paid in additional Shares of the Trust and not in cash. Since
all of the Trust's net investment income is expected to be derived from earned
interest and short-term capital gains, it is anticipated that no part of any
distribution will be eligible for the dividends received deduction for
corporations. The Trust does not expect to realize any long-term capital gains
and, therefore, does not foresee paying any "capital gains dividends" as
described in the Code. However, if the Trust were to realize any long-term
capital gains, distribution by the Trust of the excess of any such net long-term
capital gain over net short-term capital loss is taxable to shareholders as
long-term capital gain in the year in which it is received, regardless of how
long the shareholder has held the Shares. Such distributions are not eligible
for the dividends-received deduction.
Even though a substantial portion of distributions of net income will be
attributable to interest on U.S. Government obligations, which may be exempt
from state or local tax if received directly by a shareholder, shareholders of
the Trust may be subject to state and local taxes with respect to their
ownership of Trust Shares or distributions from the Trust.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Trust and its shareholders. Potential
investors in the Trust are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
Cardinal Management Corp. will inform shareholders at least annually of the
amount and nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE TRUST?
- --------------------------------------------------------------------------------
Pursuant to the laws of Pennsylvania and the Trust's Declaration of Trust, the
responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Declaration of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants and other professionals to assist and advise
in such management.
INVESTMENT ADVISER AND MANAGER
The Adviser, located at 155 East Broad Street, Columbus, Ohio 43215, is a
wholly-owned subsidiary of The Ohio Company. The Adviser also acts as the
investment adviser to Cardinal Tax Exempt Money Trust ("CTEMT"), Cardinal
Government Obligations Fund ("CGOF"), Cardinal Balanced Fund ("CBF") and
Cardinal Aggressive Growth Fund ("CAGF") and as dividend and transfer agent for
The Cardinal Fund Inc., another open-end, diversified management investment
company ("CFI"), CTEMT, CGOF, CBF, CAGF and the Trust. The Ohio Company is a
member of the New York Stock Exchange, Inc., the Midwest Stock Exchange, Inc.,
other regional exchanges and the National Association of Securities Dealers,
Inc. In addition to acting as the principal underwriter for the Trust, CTEMT,
CGOF, CBF and CAGF, The Ohio Company acts as investment adviser and principal
underwriter for CFI and as the sponsor of various series of separate unit
investment trusts.
Pursuant to the Investment Advisory Contract, the Adviser manages the investment
and reinvestment of the assets 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. Since the Trust's
inception, Hannibal L.
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<PAGE> 62
Godwin III has been primarily responsible for the day-to-day management of the
Trust's portfolio. Mr. Godwin has been a portfolio manager with the Adviser
and/or The Ohio Company since 1981.
The Adviser performs and bears the cost of research, statistical analysis and
continuous supervision of the investment portfolio of the Trust and furnishes
office facilities and certain clerical and administrative services to the Trust.
In addition, the Adviser bears all promotional expenses, including the costs of
printing and distributing prospectuses utilized for promotional purposes. All
other expenses are borne by the Trust.
For the year ended September 30, 1994, the Adviser received as compensation for
its investment advisory services .5% of average daily net assets of the Trust.
The Adviser has, however, and may in the future periodically waive all or a
portion of its advisory fee with respect to the Trust to increase the net income
of the Trust available for distributions as dividends. The waiver of such fee
will cause the yield of the Trust to be higher than it would otherwise be in the
absence of such waiver.
DIVIDEND AND TRANSFER AGENT
Cardinal Management Corp., 215 East Capital Street, Columbus, Ohio 43215, has
been selected to act as the Trust's Dividend and Transfer Agent. Cardinal
Management Corp. is also the Trust's investment adviser.
DISTRIBUTOR
The Trust has entered into a Distributor's Contract with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Trust
continuously will be offered on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. Walter R. Chambers is an officer and
trustee/director of both the Trust and The Ohio Company. Frank W. Siegel and
Hannibal L. Godwin III, each an officer and trustee of the Trust, are officers
of The Ohio Company. John L. Schlater is a trustee of the Trust and an officer
of The Ohio Company. David C. Will and James M. Schrack II are officers of both
the Trust and The Ohio Company.
CUSTODIAN
The Trust has appointed The Fifth Third Bank ("Fifth Third") 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Trust's custodian. In such capacity Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Trust.
- --------------------------------------------------------------------------------
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
- --------------------------------------------------------------------------------
ACH PROCESSING
The Trust now offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Shares and/or electronically transfer distributions
paid on Trust Shares, in addition to the other methods described in this
Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Investors may, provided the amount to be exchanged meets the applicable minimum
investment requirements and the exchange is made in states where it is legally
authorized, exchange Shares of the Trust for shares of:
Cardinal Tax Exempt Money Trust, a tax-free money market fund
(without payment of any sales charge);
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<PAGE> 63
Cardinal Aggressive Growth Fund, an equity fund seeking
appreciation of capital (upon the payment of the applicable sales
charge);
Cardinal Balanced Fund, a fund seeking current income and
long-term growth of both capital and income (upon the payment of
the applicable sales charge);
The Cardinal Fund Inc., an equity fund (upon payment of
applicable sales charge); or
Cardinal Government Obligations Fund, a U.S. Government bond fund
(upon payment of applicable sales charge).
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, exchanges of Trust Shares for shares of CFI, CGOF, CBF or
CAGF (individually, a "Cardinal Load Fund") generally may be completed upon the
payment of a sales charge equal to the sales charge payable upon purchase of
shares of that Cardinal Load Fund. If, however, the Shares of Trust to be
exchanged were acquired as a result of an exchange of shares of the Cardinal
Load Fund, the sales charge to be paid on the present exchange may be reduced by
the sales charge previously paid.
The foregoing exchange privilege may be exercised only once in each calendar
quarter and must be made by written or telephonic authorization. A shareholder
should notify The Ohio Company of his desire to make an exchange, and The Ohio
Company will furnish, as necessary, a prospectus and an application form to open
the account. Cardinal Management Corp., as transfer agent, will require that any
written authorization of an exchange include a signature guarantee as described
above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail." However, a
signature guarantee will not be required if the exchange is requested to be made
within the same account or into an existing account of the shareholder held in
the same name or names and in the same capacity as the account from which the
exchange is to be made. Shareholders may also authorize an exchange of shares of
the Trust by telephone. Neither the Trust nor any of its service providers will
be liable of any loss, damages, expense or cost arising out of any telephone
exchange authorization to the extent and subject to the requirements set forth
under "HOW MAY I REDEEM MY SHARES? -- Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
The Trust may, at any time, modify or terminate the foregoing exchange
privilege. The Trust, however, will give shareholders of the Trust 60 days
advance written notice of any such modification or termination.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
Each Share is entitled to one vote (and fractional shares to proportionate
fractional votes) in the election of Trustees and on other matters submitted to
the vote of shareholders. Voting rights are not cumulative, so that the holders
of more than 50% of the Shares voting in the election of Trustees have the power
to elect all of the Trustees of the Trust. Whenever the approval of a majority
of the outstanding Shares of the Trust is required in connection with
shareholder approvals of the Investment Advisory Contract, the Distribution
Contract or changes in the investment objective and policies or the investment
restrictions of the Trust, a "majority" shall mean the vote of (i) 67% or more
of the Shares of the Trust present at a meeting, if the holders of more than 50%
of the outstanding Shares are present in person or by proxy, or (ii) more than
50% of the outstanding Shares of the Trust, whichever is less.
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<PAGE> 64
- --------------------------------------------------------------------------------
WHAT SHAREHOLDER REPORTS WILL I RECEIVE?
- --------------------------------------------------------------------------------
An account summary will be furnished to each shareholder monthly and will
include information as to all purchases, redemptions and income dividends paid
during the preceding month. Financial statements of the Trust will be furnished
to shareholders semiannually.
Holders of Shares should direct all inquiries concerning such matters to
Cardinal Management Corp., 155 East Broad Street, Columbus, Ohio 43215.
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<PAGE> 66
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
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
<PAGE> 67
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
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<S> <C>
Key Features................................ 2
Prospectus Highlights....................... 3
Fee Table................................... 4
Financial Highlights........................ 5
What is the Trust?.......................... 6
What Are the Investment Objective and
Policies of the Trust?.................... 6
How Do I Purchase Shares of the Trust?...... 8
May My Tax Sheltered Retirement Plan Invest
in the Trust?............................. 10
What Distributions Will I Receive?.......... 10
How May I Redeem My Shares?................. 11
How is Net Asset Value Calculated?.......... 13
Does the Trust Pay Federal Income Tax?...... 13
What About My Taxes?........................ 14
Who Manages My Investment in the Trust?..... 14
What Other Shareholder Programs Are
Provided?................................. 15
What Are My Rights as a Shareholder?........ 16
What Shareholder Reports Will I Receive?.... 17
</TABLE>
------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WASHINGTON, D.C., UNDER THE SECURITIES ACT OF 1933, AND
TO WHICH REFERENCE IS MADE.
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE TO THE
TRUST'S STATEMENT OF ADDITIONAL INFORMATION; AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE TRUST. THE TRUST IS REGISTERED AS AN OPEN-END MANAGEMENT
INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940. SUCH REGISTRATION
DOES NOT IMPLY THAT THE TRUST OR ANY OF ITS SHARES HAVE BEEN GUARANTEED,
SPONSORED, RECOMMENDED OR APPROVED BY THE UNITED STATES OR ANY STATE OR ANY
AGENCY OR OFFICER THEREOF.
------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
----------------------
PROSPECTUS
----------------------
February 1, 1995
THE OHIO COMPANY
CARDINAL
GOVERNMENT
SECURITIES
TRUST
[LOGO]
<PAGE> 68
CARDINAL TAX EXEMPT MONEY TRUST
SUPPLEMENT DATED DECEMBER 11, 1995,
TO PROSPECTUS DATED FEBRUARY 1, 1995
Capitalized terms used in this Supplement have the meaning assigned to them
in the Prospectus.
The Trust has entered into an Agreement and Plan of Reorganization and
Liquidation, dated as of December 1, 1995 (the "Plan"), with The Cardinal Group,
an Ohio business trust (the "Group"). Pursuant to the Plan, Cardinal Tax Exempt
Money Market Fund, a series of the Group (the "Acquiring Fund"), would acquire
all of the assets of the Trust in exchange for the assumption of all of the
Trust's liabilities and a number of full and fractional shares of the Acquiring
Fund having an aggregate net asset value equal to the Trust's net assets (the
"Reorganization"). The Trust would then be liquidated, and the shares of the
Acquiring Fund would be distributed to Trust shareholders.
The Reorganization is subject to certain regulatory approvals and to
approval by the shareholders of the Trust at the Annual Shareholders Meeting
currently expected to be held in February, 1996. If the shareholders approve the
Reorganization, it is expected that the Reorganization would be effected on or
about March 31, 1996; however, the Reorganization may be effected on such
earlier or later date as the Group and the Trust may determine. There can be no
assurance that the Reorganization will take place when or as currently proposed.
The following paragraph is added to the cover page of this Prospectus:
THE SHARES OF THE TRUST ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED
BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN
THE FUND INVOLVES CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
The second sentence of the first paragraph under the heading "CHECK-WRITING
REDEMPTION PROCEDURE" on page 14 of the Prospectus is deleted and is replaced
with the following:
These checks may be made payable to the order of any person in any amount
not less than $250.
The second sentence of the second paragraph under the heading
"CHECK-WRITING REDEMPTION PROCEDURE" on page 14 of the Prospectus is deleted.
The following two sentences are added at the end of the second paragraph
under the heading "WHO MANAGES MY INVESTMENT IN THE TRUST? -- Investment Adviser
and Manager" on page 16 of the Prospectus:
As of December 22, 1995, David C. Will will be primarily responsible for
the day-to-day management of the Trust's portfolio. Mr. Will has been a
Vice President of The Ohio Company and the Adviser since 1990 and has more
than 25 years of investment management experience.
This Prospectus Supplement supersedes in its entirety the prospectus
supplement dated February 22, 1995.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS
FOR FUTURE REFERENCE
<PAGE> 69
PROSPECTUS
- --------------------------------------------------------------------------------
[LOGO]
CARDINAL TAX EXEMPT MONEY TRUST
Cardinal Tax Exempt Money Trust (the "Trust") is a no-load, diversified,
open-end management investment company. The Trust has an investment objective of
maximizing current income exempt from federal income tax while preserving
capital and maintaining liquidity. The Trust seeks to attain its objective
through professional management of a high-grade portfolio of short-term
municipal bonds and notes, tax-exempt commercial paper and tax-exempt short-term
discount notes, some of which may be secured by the full faith and credit of the
U.S. Government. All obligations purchased by the Trust will mature, or be
deemed to mature, in 397 days (13 months) or less or will have interest rates
adjusted in accordance with established indexes (e.g. the prime rate) not less
frequently than semi-annually. There can be no assurance that the Trust's
objective will be achieved.
THE INVESTMENT DESCRIBED IN THIS PROSPECTUS IS NOT INSURED OR GUARANTEED BY THE
UNITED STATES GOVERNMENT. THE TRUST SEEKS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT NET ASSET VALUE WILL NOT
VARY.
The Trust is designed for institutions and individuals who desire current income
exempt from federal income tax that reflects prevailing interest rates for
short-term tax-exempt investments together with a high degree of liquidity.
- --------------------------------------------------------------------------------
For further information regarding the Trust or for assistance
in opening an account or redeeming shares, please call:
In Columbus 464-5512 (opening accounts and further information)
464-5511 (redeeming shares)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed to the Trust
at its principal office:
155 East Broad Street
Columbus, Ohio 43215
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing in the Trust. This
Prospectus should be retained for future reference. A Statement of Additional
Information respecting the Trust, dated February 1, 1995, has been filed with
the Securities and Exchange Commission and is incorporated herein by reference.
Such Statement is available upon request without charge from the Trust at the
above address or by calling the phone numbers provided above.
Investors should read and retain this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE OHIO COMPANY
The date of this Prospectus is February 1, 1995.
- --------------------------------------------------------------------------------
<PAGE> 70
- --------------------------------------------------------------------------------
KEY FEATURES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TAX ADVANTAGES.................The Trust seeks to invest in securities which are free of
federal income tax, and in turn, pass through to the
investor tax free income. State and local taxes have not
been considered. (See page 7.)
HIGH CURRENT YIELDS............The Trust seeks the maximum yield available through
investment in securities which earn attractive rates of
return free of federal income tax. (See page 7.)
MONTHLY DISTRIBUTIONS..........Monthly distributions are automatically reinvested in
additional shares of the Trust without charge or may be
received in cash. (See pages 4 and 12.)
INSTANT LIQUIDITY..............Through the free check writing privilege or telephone
transfer of funds, all or part of an investor's shares may
be redeemed on any business day at the net asset value
without charge. (See pages 13 and 14.)
LOW INITIAL INVESTMENT.........An investor can acquire shares of a high quality portfolio
of tax exempt securities with a smaller investment than
would be needed to purchase a similar portfolio directly.
(See page 10.)
PROFESSIONAL MANAGERS..........The Trust's portfolio is fully managed by professional
portfolio managers. (See page 16.)
FLEXIBILITY....................You may switch once each calendar quarter from one mutual
fund to another within the Cardinal Group of Funds as your
personal circumstances or market conditions dictate. Under
certain circumstances, however, a sales charge may be im-
posed on exchanges for shares of The Cardinal Fund Inc.,
Cardinal Government Obligations Fund, Cardinal Balanced
Fund and Cardinal Aggressive Growth Fund. (See page 17.)
MAXIMUM YIELD..................As there is no sales charge to reduce the yield, investors
receive the maximum yield on their investment. Service
fees and charges have not been considered. (See pages 4
and 16.)
ACH PROCESSING.................Investors may use Automated Clearing House ("ACH")
processing for subsequent purchases of shares,
redemptions, and/or distributions paid. (See page 17.)
</TABLE>
2
<PAGE> 71
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHARES OFFERED.................The Trust is authorized to issue an unlimited number of
full and fractional shares of beneficial interest, all of
one class, with a par value of $.10 per share (the
"Shares"). (See page 6.)
OFFERING PRICE.................The public offering price is equal to net asset value per
share next determined after order. The Trust intends to
use its best efforts, under normal circumstances, to
maintain a constant net asset value of $1.00 per share.
There can be no assurance that it will be able to maintain
such a net asset value. There is no sales charge. (See
pages 10 and 14.)
MINIMUM PURCHASE...............$1,000 minimum initial investment and $100 minimum subse-
quent investments, although such minimums may be waived
under certain circumstances. (See page 10.)
TYPE OF COMPANY................No-load, diversified, open-end management investment com-
pany, established under Ohio law by a Declaration of Trust
dated January 13, 1983. (See page 6.)
INVESTMENT OBJECTIVE...........To maximize current income exempt from federal income tax
while preserving capital and maintaining liquidity. There
is no assurance that such objective will be achieved. (See
page 7.)
INVESTMENT POLICIES............The Trust invests in short-term tax exempt securities
including, but not limited to, bond anticipation notes,
construction loan notes, project notes, revenue
anticipation notes and tax anticipation notes as well as
municipal bonds and participations therein. These
investments entail certain risks. (See pages 7 through
10.)
INVESTMENT ADVISER.............The Trust has entered into an investment advisory and man-
agement agreement with Cardinal Management Corp., a
wholly-owned subsidiary of The Ohio Company. Cardinal
Management Corp. also acts as investment adviser for
Cardinal Government Securities Trust, Cardinal Government
Obligations Fund, Cardinal Balanced Fund and Cardinal
Aggressive Growth Fund. (See page 16.)
MANAGEMENT FEE.................The annual rate is .5% of the average daily net assets of
the Trust. (See page 16.)
DISTRIBUTIONS..................Distributions from net investment income are credited to
the shareholder's account daily and are automatically
reinvested in additional Shares of the Trust monthly,
unless a cash dividend option is selected. (See pages 11
and 12.)
REDEMPTION.....................At net asset value per share without charge, except that
broker-dealers may charge a service fee for assisting in a
redemption. The Trust may require a redemption of Shares
if the value of the account is less than $500. (See page
12.)
TRANSFER AGENT.................Cardinal Management Corp. (See page 16.)
</TABLE>
3
<PAGE> 72
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 0%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................... 0%
Deferred Sales Load
(as a percentage of original purchase price or redemption
proceeds, as applicable)..................................... 0%
Redemption Fees
(as a percentage of amount redeemed, if applicable).......... 0%
Exchange Fee................................................... $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees................................................ .50%
12b-1 Fees..................................................... .00
Other Expenses................................................. .26
-------
Total Fund Operating Expenses............................. .76%
=======
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each period:...... $8 $24 $42 $94
</TABLE>
The purpose of the above table is to assist a potential purchaser of the Trust's
Shares in understanding the various costs and expenses that an investor in the
Trust will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN THE
TRUST?" for a more complete discussion of the shareholder transaction expenses
and annual operating expenses of the Trust. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 73
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the ten fiscal years
ended September 30, 1994, have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon together with certain financial
statements, are contained in the Trust's Statement of Additional Information and
which may be obtained by shareholders and prospective investors.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income............................. .02 .02 .03 .04 .05
Net gains or losses on securities (both realized
and unrealized)................................. -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment operations.................. .02 .02 .03 .04 .05
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income)............ (.02) (.02) (.03) (.04) (.05)
Distributions (from capital gains)................ -- -- -- -- --
Returns of capital................................ -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions............................... (.02) (.02) (.03) (.04) (.05)
Net asset value, End of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return........................................ 1.78% 1.81% 2.62% 4.40% 5.41%
Ratios/Supplemental Data:
Net assets, End of period (000) omitted............. $ 80,531 $ 91,159 $ 70,054 $ 85,488 $ 82,988
Ratio of expenses to average net assets............. 0.76% 0.77% 0.76% 0.72% 0.76%
Ratio of net investment income to average net
assets............................................ 1.78% 1.80% 2.59% 4.31% 5.26%
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income............................. .06 .04 .04 .04 .05
Net gains or losses on securities (both realized
and unrealized)................................. -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment operations.................. .06 .04 .04 .04 .05
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income)............ (.06) (.04) (.04) (.04) (.05)
Distributions (from capital gains)................ -- -- -- -- --
Returns of capital................................ -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions............................... (.06) (.04) (.04) (.04) (.05)
Net asset value, End of period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return........................................ 5.95% 4.53% 3.62% 4.47% 4.93%
Ratios/Supplemental Data:
Net assets, End of period (000) omitted............. $ 82,031 $ 61,771 $ 63,848 $ 67,816 $ 34,653
Ratio of expenses to average net assets............. 0.72% 0.75% 0.71% 0.76% 0.75%
Ratio of net investment income to average net
assets............................................ 5.79% 4.44% 3.56% 4.38% 4.82%
</TABLE>
See notes to financial statements appearing in the Trust's Statement of
Additional Information.
- ---------------------------------------
Pursuant to a Revolving Credit Agreement between the Trust and The Fifth Third
Bank dated April 10, 1992 (the "Loan Agreement"), the Trust may borrow money
from The Fifth Third Bank for temporary or emergency non-investment purposes,
such as to accommodate abnormally heavy redemption requests,
5
<PAGE> 74
and only in an amount not exceeding 5% of the value of the Trust's total assets
at the time of borrowing. The table below sets forth certain information
concerning the Loan Agreement.
<TABLE>
<CAPTION>
AVERAGE NUMBER
AMOUNT OF DEBT AVERAGE AMOUNT OF OF TRUST'S SHARES AVERAGE AMOUNT
YEAR ENDED OUTSTANDING AT DEBT OUTSTANDING OUTSTANDING OF DEBT PER SHARE
SEPTEMBER 30, END OF PERIOD DURING THE PERIOD DURING THE PERIOD DURING THE PERIOD
- ---------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
1994 $0 $19,159 85,845,213 $.0002232
1993 $0 $6,439 80,606,522 $.0000799
1992 $0 $ 637 88,243,903 $.0000072
</TABLE>
From time to time the Trust may advertise its "yield" or "annualized yield," its
"effective yield," its "tax equivalent yield" and its "tax equivalent effective
yield." ALL YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "yield" or "annualized yield" of the Trust
refers to the income generated by an investment in the Trust over a seven-day
period (which period will be stated in the advertisement). This income is then
"annualized". That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Trust
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" or "annualized yield" because of the compounding effect of this
assumed reinvestment. The "tax-equivalent yield" demonstrates the taxable yield
necessary to produce an after-tax yield equivalent to that of the Trust. The
"tax-equivalent effective yield" is calculated similarly to the "tax-equivalent
yield" but, when annualized, the income earned by an investment in the Trust is
assumed to be reinvested. The "tax-equivalent effective yield" will be slightly
higher than the "tax-equivalent yield" because of the compounding effect of this
assumed reinvestment.
Investors may also judge the performance of the Trust by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard &
Poor's Corporation and to data prepared by Lipper Analytical Services, Inc. and
CDA Investment Technologies, Inc. Comparisons may also be made to indices or
data published in Donoghue's MONEY FUND REPORT of Holliston, Massachusetts, a
nationally recognized money market fund reporting service, Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, The Columbus
Dispatch, Business Week, Consumer Reports and U.S.A. Today. In addition to
performance information, general information about the Trust that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
- --------------------------------------------------------------------------------
WHAT IS THE TRUST?
- --------------------------------------------------------------------------------
The Trust is a diversified open-end management investment company established
under Ohio law by a Declaration of Trust dated January 13, 1983. The Declaration
of Trust permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest, all of one class, with par value of
$.10 per share, and authorizes the Trustees to issue separate series of shares
differing only in certain specified respects. The Trustees have not currently
authorized separate series of shares. Each Share offered hereunder represents an
equal pro rata interest in the Trust's common portfolio. Upon liquidation,
shareholders are entitled to share pro rata in the net assets of the Trust
available for distribution to shareholders. Shares are freely transferable, have
no preemptive or conversion rights and are redeemable as set forth herein under
"HOW MAY I REDEEM MY SHARES?" Shares issued pursuant to the terms of the
Declaration of Trust are fully paid and nonassessable. Any additional series of
shares must be issued in compliance with the Investment Company Act of 1940, as
amended, and must not constitute a security that is senior to the Shares offered
pursuant to this Prospectus.
6
<PAGE> 75
- --------------------------------------------------------------------------------
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE TRUST?
- --------------------------------------------------------------------------------
The investment objective of the Trust is to maximize current income exempt from
federal income tax while preserving capital and maintaining liquidity. The
investment objective with respect to the Trust is a fundamental policy and as
such may not be changed without a vote of the holders of a majority of the
outstanding Shares of the Trust.
As a money market fund, the Trust invests exclusively in United States
dollar-denominated instruments which the Trustees of the Trust and the Trust's
investment adviser determine present minimal credit risks and which at the time
of acquisition are rated by one or more appropriate nationally recognized
statistical rating organizations ("NRSRO") (e.g., Standard & Poor's Corporation
and Moody's Investors Service, Inc.) in one of the two highest rating categories
for short-term debt obligations or, if unrated, are of comparable quality. All
securities or instruments in which the Trust invests have, or are deemed to
have, remaining maturities of 397 calendar days (thirteen months) or less. The
dollar-weighted average maturity of the obligations in the Trust will not exceed
90 days.
As a matter of policy, under normal market conditions, the Trust will invest at
least 80% of its net assets in a diversified portfolio of Municipal Securities
(as defined below), the interest on which is both exempt from federal income tax
and not treated as a preference item for purposes of the federal alternative
minimum tax. Subject to the foregoing limitations and in order to achieve its
investment objective, the Trust expects to invest in the following types of
securities.
The Trust may invest in bond anticipation notes, construction loan notes,
project notes, revenue anticipation notes and tax anticipation notes, as well as
municipal bonds and participation interests therein, including industrial
development revenue bonds and pollution control revenue bonds (collectively,
"Municipal Securities"). The Trust may also acquire "stand-by commitments" with
respect to Municipal Securities held in its portfolio. Under a "stand-by
commitment" a dealer agrees to purchase, at the Trust's option, specified
Municipal Securities at a specified price which ordinarily is substantially the
same as the value of the underlying Municipal Security.
Specific types of Municipal Securities which the Trust may purchase include bond
anticipation notes, construction loan notes, project notes, revenue anticipation
notes and tax anticipation notes which, in each case (1) are backed by the full
faith and credit of the United States, (2) are rated MIG-1 or MIG-2, or
subsequent equivalents by Moody's Investors Service, Inc. ("Moody's") or (3) if
the notes are not rated, are, as determined by Cardinal Management Corp., the
Trust's adviser (the "Adviser") in accordance with guidelines established by the
Board of Trustees, of a quality equivalent to MIG-1 or MIG-2. The Trust may also
invest in municipal bonds and participation interests therein, including
industrial development revenue bonds and pollution control revenue bonds, which
(1) are rated Aaa or Aa by Moody's, (2) are rated AAA or AA by Standard & Poor's
Corporation ("S&P") or (3) if not rated, have, in the opinion of the Adviser
determined in accordance with guidelines established by the Board of Trustees,
essentially the same characteristics and quality as bonds having the above
ratings. In addition, the Trust may purchase other types of tax-exempt Municipal
Securities such as short-term discount notes. These investments must (1) be
rated Prime-1 or Prime-2 by Moody's or (2) if not rated, possess equivalent
characteristics and quality in the opinion of the Adviser determined in
accordance with guidelines established by the Board of Trustees.
As of December 31, 1994, the Trust was 100% invested in Municipal Securities
rated AAA or AA (bonds), SP-1 (notes) or A-1 (variable rate demand obligations)
by S&P, or Aaa or Aa (bonds), MIG-1 (notes) or VMIG-I (variable rate demand
obligations) by Moody's. Current income earned on such Municipal Securities may
not be as great as current income that could be earned on lower quality
securities that have less liquidity and/or a greater risk of nonpayment or
securities that have a longer term.
The Trust has invested and intends to continue to invest more than 25% of its
assets in certain variable or floating rate demand Municipal Securities,
including participation interests therein. The value of such securities may
change with changes in interest rates generally. However, the variable or
floating rate nature of such securities should reduce, to the extent the Trust
is invested in such securities, the degree of
7
<PAGE> 76
fluctuation in the value of portfolio investments. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation and the risk
of potential capital depreciation is less than would be the case with a
portfolio composed entirely of fixed income securities. The portfolio may
contain variable or floating rate demand securities on which stated minimum or
maximum rates set by state law limit the degree to which interest on such
securities may fluctuate; to the extent it does, increases or decreases in value
may be somewhat greater than would be the case without such limits. Because the
adjustment of interest rates on the variable or floating rate demand securities
is made in relation to movements of the applicable indexes (e.g. the prime
rate), such securities are not comparable to longer-term fixed rate securities.
Accordingly, interest rates on such securities may be higher or lower than
current market rates for fixed rate obligations of comparable quality with
similar maturities. The Trust, however, will only acquire variable or floating
rate securities the interest rates on which are determined by reference to other
short-term market rates of interest. The Trust will attempt to achieve a balance
of variable or floating and fixed rate securities such that under normal
circumstances the net asset value of the Trust can be maintained at $1.00 per
share while the highest possible yield can be returned to investors. To the
extent the Trust's portfolio is invested in variable or floating rate
securities, yield can be expected to decline in periods of falling interest
rates more rapidly than if the Trust's portfolio is invested solely in
longer-term fixed rate securities. Conversely, yield, under the same
circumstances, can be expected to increase more rapidly in periods of rising
interest rates. Such instruments may be considered to be derivatives. A
derivative is generally defined as an instrument whose value is based upon, or
derived from, some underlying index, reference rate (e.g., interest rates),
security, commodity or other asset. As stated above, the Fund has no limit as to
the percentage of its total assets that may be invested in such variable or
floating rate securities.
Variable rate demand Municipal Securities in which the Trust invests may be
supported by bank letters of credit or comparable guarantees of financial
institutions. To the extent that 25% or more of the Trust's assets are invested
in variable rate demand Municipal Securities supported by such letters of credit
or guarantees, the Trust may be deemed to be concentrated in the banking
industry. (See "Certain Factors.")
In addition, the Trust may enter into commitments to purchase Municipal
Securities on a "when-issued" basis. Pursuant to such commitments, delivery and
payment for the Municipal Securities normally takes place at a date after the
commitment to purchase although the payment obligation and the coupon rate have
been established before the time the Trust enters into the commitment. The
settlement date usually occurs within one week of the purchase of notes and
within one month of the purchase of bonds. At the time the Trust makes such a
commitment to purchase a Municipal Security, it will record the transaction and
reflect the value of the obligation in determining its net asset value. No
interest accrues to the Trust until delivery and payment take place. The
Custodian will maintain on a daily basis a separate Trust account consisting of
cash or liquid debt securities with a value at least equal to the amount of the
Trust's commitments to purchase when-issued obligations.
Municipal Securities purchased on a when-issued basis or held in the Trust's
portfolio are subject to changes in market value based not only upon the
public's perception of the credit worthiness of the issuer but also upon changes
in the level of interest rates. Such changes in value will generally result in
both changing in value in the same way, i.e. both appreciating when interest
rates decline and depreciating when interest rates rise. Therefore, if to
achieve higher interest income the Trust remains substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a greater possibility that the market value of the Trust's assets will
vary from $1.00 per share. (See "HOW IS NET ASSET VALUE CALCULATED?") In
addition, the Trust may, when it purchases Municipal Securities on a when-issued
basis, obtain on the settlement date, Municipal Securities yielding higher or
lower rates of interest than are otherwise available. However, the Trust does
not believe that under normal circumstances its net asset value or income will
be affected by its purchase of Municipal Securities on a when-issued basis.
TAXABLE MONEY MARKET SECURITIES
Under normal operating circumstances, Trust assets will be managed with a view
towards producing only income that is exempt from federal income taxation.
However, the Trust may invest up to 20% of its assets in "temporary
investments," that is, money market instruments consisting of marketable
obligations issued
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or guaranteed by the U.S. Government, its agencies or instrumentalities, deposit
obligations of banks and savings and loans which are members of the Federal
Deposit Insurance Corporation ("FDIC"), bankers' acceptances, high-grade
commercial paper guaranteed or issued by domestic corporations and instruments
(including repurchase agreements) secured by such obligations.
A repurchase agreement is an instrument under which the purchaser acquires
ownership of the obligation but the seller agrees, at the time of sale, to
repurchase the obligation at a mutually agreed upon time and price. The resale
price reflects an agreed upon market rate of interest which is unrelated to the
coupon rate or maturity of the purchased security. Repurchase agreements are
considered under the Investment Company Act of 1940, as amended (the "1940 Act")
to be loans made by the Trust. The Trust will only enter into a repurchase
agreement where (i) the underlying securities are of the type which the Trust's
investment guidelines would allow it to purchase directly, (ii) the market value
of the underlying security, including interest accrued, will be at all times
equal to or exceed the value of the repurchase agreement, and (iii) payment for
the underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent.
The Adviser will be responsible for continuously monitoring such requirements.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Trust could experience both delays in liquidating the underlying
securities and losses, including: (a) possible decline in the value of the
underlying security during the period while the Trust seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights.
The Trust will not enter into repurchase agreements in violation of the 1940
Act. The Trust may not enter into a repurchase agreement if, as a result
thereof, more than 10% of its total assets would be subject to repurchase
agreements maturing in more than seven days.
LOANS AND LOAN PARTICIPATIONS
The Trust may, for temporary or emergency non-investment purposes, such as to
accommodate abnormally heavy redemption requests, borrow money in an amount not
exceeding 5% of the value of the Trust's total assets at the time of borrowing.
The Trust may also acquire participations in privately negotiated loans to
municipal borrowers, provided that the interest received by the Trust is exempt,
in the opinion of bond counsel to the municipal borrower, from federal income
tax. Loan participations are loans subject to the Trust's investment
restrictions applicable to these activities. (See "INVESTMENT LIMITATIONS" in
the Statement of Additional Information.)
INVESTMENT COMPANY SECURITIES
The Trust may also invest up to 10% of the value of its total assets in the
securities of other investment companies subject to the limitations set forth in
the 1940 Act. The Trust intends to invest in money market mutual funds for
purposes of short-term cash management. The Trust's investment in such other
investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on the Trust's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Trust's
Statement of Additional Information.
CERTAIN FACTORS
Naturally, there can be no assurance that the Trust will achieve its investment
objective or be able continuously to maintain a net asset value per share of
$1.00. The characteristics of short-term Municipal Securities are such that the
price stability and liquidity of the Trust may not be equal to that of a money
market fund which exclusively invests in short-term taxable money market
securities. While the Adviser believes that the purchase of variable rate demand
Municipal Securities will facilitate maintaining a $1.00 per share net asset
value, the Trust is still expected to have a significantly longer average
maturity than a
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general purpose taxable money market fund with the result that the pricing of
its portfolio will tend to be more subject to short-term interest rate
fluctuations.
In addition, the Trust expects that substantially all the demand rights of the
Trust with respect to variable rate demand Municipal Securities will be
supported by letters of credit of major commercial banks. Trust investors should
be aware that banks are subject to extensive governmental regulation which may
limit both the amounts and type of loans and other financial commitments which
may be made and interest rates and fees which may be charged. The profitability
of this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations under a letter of credit.
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HOW DO I PURCHASE SHARES OF THE TRUST?
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GENERAL
Shares of the Trust are sold on a continuing basis without a sales charge at the
net asset value next determined after an order is received by The Ohio Company,
the Trust's principal underwriter, and federal funds (monies credited to a
member bank's account in a Federal Reserve Bank) are received by The Ohio
Company as hereinafter provided. The minimum initial investment is $1,000 and
subsequent investments must be in amounts of at least $100. The Trust may, at
its discretion, waive the subsequent investment minimum for purchases effected
through the automatic reinvestment of distributions from unit investment trusts
sponsored by The Ohio Company, and may waive both the initial and subsequent
investment minimums for purchases effected with cash balances in brokerage
accounts of customers of The Ohio Company. Shares of the Trust may be purchased
through a securities dealer, investment adviser, agent or other fiduciary which
may charge a fee for its services in connection with the purchase. No sales
charge is imposed by the Trust or by The Ohio Company.
Each new investor must complete an Application Form and send it to the Trust at
the indicated address either prior to or concurrently with the transmittal of
funds by wire or mail.
All Shares purchased will be credited to shareholder accounts after receipt of
an order and federal funds by The Ohio Company, at the net asset value next
determined. The Trust currently determines net asset value and enters purchases
and redemptions of its Shares as of 4:00 p.m. Eastern time on each day that the
New York Stock Exchange is open for business ("Business Day"). If a properly
completed order and federal funds (or other immediately available funds) are
received at or prior to 12:00 noon Eastern time on a Business Day, then the
purchase will be entered as of 4:00 p.m. Eastern time on that day and dividends
will commence on that day. If either federal funds (or other immediately
available funds) or the completed purchase order are received after 12:00 noon
Eastern time (but prior to 4:00 p.m. Eastern time) Shares will be credited to
the shareholder's account as of 4:00 p.m. Eastern time on that day but will not
earn dividends until the following day. The Trust reserves the right to reject
any order to purchase its Shares. Certificates representing Shares of the Trust
will not be issued. All Shares purchased are confirmed to the investor and
credited to the investor's account on the Trust's books maintained by Cardinal
Management Corp. The investor will have the same rights and ownership with
respect to such Shares as if certificates had been issued.
PURCHASE BY FEDERAL FUNDS WIRE
Investments in Shares of the Trust may be made by wire transfer of federal
funds, avoiding delays of the mail and the normal check clearance process
described below. An investor may telephone the Trust (464-5511 from Columbus,
Ohio; (800) 282-9446, toll free from other Ohio locations; or (800) 848-7734,
toll free from outside Ohio) prior to wire transfer of its investment to advise
the Trust of the investment and, if a new investor, to obtain an account number.
If an investor does not telephone the Trust for wire
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instructions and the investor's wire transfer does not include sufficient
information, such purchase will be delayed until the proper information is
received. An investor must instruct its bank to "wire transfer" the investment
immediately to:
The Huntington National Bank
Account Number 01891688407
Routing Number 044000024
17 South High Street
Columbus, Ohio 43215
Attn: Cardinal Tax Exempt Money Trust
[Include Trust Account Number and Name of Account
Holder]
Funds transmitted by wire will be invested in Shares of the Trust at the net
asset value next computed after receipt thereof as follows. Investment will
occur on the same day as the transfer of funds so long as federal funds are
received by The Ohio Company prior to 12:00 noon Eastern Time on any Business
Day. Federal funds received by The Ohio Company after 12:00 noon Eastern Time
will not be invested until the next Business Day. Dividends will accrue on the
day a purchase is effected only if federal funds are received by The Ohio
Company by 12:00 noon Eastern Time. A bank may charge for its services in
effecting wire transfers of funds.
Subsequent purchases of Shares of the Trust may be made by ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below.
PURCHASE BY MAIL
Investment in Shares of the Trust may be made by mail by sending a check or
other negotiable bank draft payable to the order of "Cardinal Tax Exempt Money
Trust" together with, in the case of an initial purchase, an Application Form
to:
Cardinal Tax Exempt Money Trust
155 East Broad Street
Columbus, Ohio 43215
Money transmitted by check drawn on a member of the Federal Reserve System will
normally be converted to federal funds and invested in Shares of the Trust
within one Business Day following receipt by The Ohio Company. Checks drawn on
non-member banks may take considerably longer. Cardinal Management Corp. or the
Trust will attempt to notify the investor upon receipt of the latter type of
check as to the possible delay and to arrange for a better means of transmittal
of funds. THE TRUST STRONGLY RECOMMENDS THAT INVESTORS OF SUBSTANTIAL AMOUNTS
USE FEDERAL FUNDS TO PURCHASE SHARES.
AUTOMATIC INVESTMENT PLAN
The Trust has made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Shares of the Trust on the
periodic basis you select. Confirmation of your purchase of Trust Shares will be
provided by the Trust. The debit to your checking account will be reflected in
the checking account statement you receive from your financial institution.
Please contact The Ohio Company for the appropriate form.
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WHAT DISTRIBUTIONS WILL I RECEIVE?
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The Trust's net income is declared as a dividend and accrued on each Business
Day, immediately prior to the determination of the Trust's net asset value at
4:00 p.m. Eastern Time. Net interest income (from the time of the immediately
preceding declaration) consists of interest accrued on the portfolio of the
Trust (including accrued discount earned and premium amortized), plus realized
net short-term capital gains (losses) due to portfolio transactions (if any),
less the accrued expenses of the Trust applicable to that
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dividend period. While the Trust does not expect to realize any long-term
capital gains due to its policy of investing in securities maturing in 13 months
or less, any net long-term gain is expected to be distributed in January of the
fiscal year following realization. Long-term capital gains, if any, will be paid
in additional Shares of the Trust unless the shareholder elects to receive cash.
All dividends of net income are credited to each shareholder's account daily and
automatically reinvested in additional Shares of the Trust at the net asset
value on the last Business Day of each month. Shareholders, however, may elect
to receive monthly the dividends of $10 or more declared on their Shares in cash
by checking the appropriate box on the Account Information Form or by otherwise
notifying Cardinal Management Corp. in writing. In addition, investors may
obtain cash at any time without charge by redeeming Shares at net asset value.
If the entire account of a shareholder is withdrawn, all dividends accrued to
the time of withdrawal will be paid at that time.
Shareholders may elect to receive cash distributions by using ACH processing as
described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below.
Should the Trust incur or anticipate any extraordinary expense or loss or
depreciation which would adversely affect its net asset value per share or
income for a particular period, the Trustees would at that time consider whether
to adhere to the present dividend policy described above or to revise it in
light of the then-prevailing circumstances. For example, if the Trust's net
asset value per share were reduced, or expected to be reduced, below $1.00, the
Trustees might suspend further dividend accruals until the net asset value
returned to $1.00. Thus, extraordinary expenses or losses or depreciation may
result in no dividends being accrued for the period during which an investor
holds Shares as well as a redemption price lower than the purchase price for
such Shares.
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HOW MAY I REDEEM MY SHARES?
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Investors may redeem Shares of the Trust on any Business Day at the net asset
value next determined following receipt by the Trust's transfer agent, Cardinal
Management Corp., 215 East Capital Street, Columbus, Ohio 43215, of a written or
telephonic notice to redeem, or by check, each as more fully described below.
See "HOW IS NET ASSET VALUE CALCULATED?" below, for a description of when net
asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem to Cardinal Management Corp. without charge. Other
broker-dealers may assist a shareholder in redeeming his Shares and may charge a
fee for such services.
Proceeds of redemption requests received by Cardinal Management Corp. in proper
form before (1) 4:00 p.m. Eastern Time for shareholders who are customers of The
Ohio Company and who have submitted their redemption request through their
broker at The Ohio Company or (2) 12:00 noon Eastern Time for all other
redemption requests, will be sent by mail on the next Business Day or, if the
expedited redemption option is available, by federal funds wire on the next
Business Day for use on that day.
The Trust reserves the right to delay payment for the redemption of Shares where
such Shares were purchased with other than immediately available funds, but only
until the purchase payment has cleared (which may take fifteen or more days from
the date the purchase payment is received by the Trust). The purchase of Trust
Shares by wire transfer of federal funds would avoid any such delay.
The Trust may suspend the right of redemption or may delay payment during any
period the determination of net asset value is suspended. See "HOW IS NET ASSET
VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Trust reserves the right to
redeem involuntarily Shares in any account at the then current net asset value
if at any time redemptions have reduced a shareholder's total investment to a
net asset value below $500. A shareholder will be notified in writing that the
value of the account is less than $500 and allowed not less than 30 days to
increase the account to $500 before the
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redemption is processed. Proceeds of redemptions so processed, including
dividends declared to the date of redemption, will be promptly paid to the
shareholder.
REDEMPTION BY MAIL
Shareholders may elect to redeem Shares of the Trust by submitting a written
request therefor to Cardinal Management Corp., the Trust's transfer agent at 215
East Capital Street, Columbus, Ohio 43215. Cardinal Management Corp. will
request a signature guarantee by an eligible guarantor institution as described
below. However, a signature guarantee will not be required if (1) the redemption
check is payable to the Shareholder(s) of record, and (2) the redemption check
is mailed to the Shareholder(s) at the address of record, provided, however,
that the address of record has not been changed within the preceding 15 days.
For purposes of this policy, an "eligible guarantor institution" shall include
banks, brokers, dealers, credit unions, securities exchanges and associations,
clearing agencies and savings associations as those terms are defined in the
Securities Exchange Act of 1934. Cardinal Management Corp. reserves the right to
reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine or (2) it has reason to believe that the transaction
would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may elect to redeem Shares of the Trust by calling the Trust at the
telephone numbers set forth on the front of this Prospectus. The Shareholder may
direct that the redemption proceeds be mailed to the address of record or
another address.
Neither the Trust nor its service providers will be liable for any loss,
damages, expense or cost arising out of any telephone redemption effected in
accordance with the Trust's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Trust will employ procedures
designed to provide reasonable assurances that instructions by telephone are
genuine; if these procedures are not followed, the Trust or its service
providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to Shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, Shareholders may also redeem their
Shares by mail as described above.
EXPEDITED REDEMPTION
Any investor may elect to use the expedited redemption procedure by designating
on the Account Information Form submitted at the time of initial investment the
name of a commercial bank and account number to receive proceeds of redemption.
If this election is made, requests for redemption may be made by mail or by
telephone as described above.
An investor may elect to have redemption proceeds sent by federal funds wire to
the designated U.S. bank account if the proceeds are $1,000 or more. Otherwise,
proceeds will be sent by mail. No signature guarantee will be required of
investors electing this procedure. Requests to change bank or account
designations may only be made in writing to the Trust with the type of signature
guarantee and other documentation specified under "Redemption by Mail" above. To
participate in this procedure, an investor must complete the expedited
redemption portion of the Account Information Form or notify the Trust at any
time after making an initial investment.
An investor may also elect to have redemption proceeds sent by federal funds
wire to The Ohio Company, the Trust's distributor, if the proceeds are $500 or
more. If the investor elects to have federal funds so wired, the investor may
pick up a check at The Ohio Company's main office at 155 East Broad Street,
Columbus, Ohio or The Ohio Company will mail a check to the investor's address
of record. The Trust may, at its discretion, waive the minimum redemption
requirement for redemptions effected to cover debit balances in brokerage
accounts of customers of The Ohio Company.
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AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
As a shareholder, you may elect to redeem your Shares monthly or quarterly in
amounts of $50 or more, pursuant to the Trust's Systematic Withdrawal Plan.
Please contact The Ohio Company for the appropriate form.
CHECK-WRITING REDEMPTION PROCEDURE
Cardinal Management Corp., as Transfer Agent for the Trust, will provide any
shareholder who so requests with a supply of checks, imprinted with the
shareholder's name, which may be drawn against the Trust's account maintained by
The Fifth Third Bank (the "Bank"), for redemption of Trust Shares. These checks
may be made payable to the order of any person in any amount not less than $500.
To participate in this procedure, an investor must complete the Check-Writing
Redemption Form available from Cardinal Management Corp. When a check is
presented to the Bank for payment, Cardinal Management Corp. (as your agent)
will cause the Trust to redeem sufficient Shares in your account to cover the
amount of the check. Shares continue earning daily dividends until the day on
which the check is presented to the Bank for payment. Cancelled checks will be
returned to you. Due to the delay caused by the requirement that redemptions be
priced at the next computed net asset value, the Bank will only accept for
payment checks presented through normal bank clearing channels. Shareholders
should not attempt to withdraw the full amount of an account or to close out an
account by using this procedure.
No charge will be made to a shareholder for participation in the check-writing
redemption procedure or for the clearance of any checks. A charge of $10.00 per
check will be deducted from the shareholder's account if any check is returned
due to insufficient funds or if any check is written for less than $500.
In order to stop payment on a check, the shareholder must notify the Trust in
writing before the check has been presented to the Bank for payment. A charge of
$8.50 will be deducted from the shareholder's account for each stop payment
order.
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HOW IS NET ASSET VALUE CALCULATED?
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The net asset value per share of the Trust is currently determined as of 4:00
p.m. Eastern Time on each Business Day (and at such other time or times as the
Board of Trustees may determine). The net asset value per share is computed by
dividing the total value of the assets of the Trust, less its liabilities, by
the total number of Shares outstanding.
The Board of Trustees has adopted a policy requiring the Trust to use its best
efforts, under normal circumstances, to maintain a constant net asset value of
$1.00 per Share. The Trust values its portfolio securities by the amortized cost
method which involves valuing a security at its cost and thereafter accruing any
discount or premium at a constant rate to maturity. The Trust will normally
include any accrued discount or premium in its daily dividend and will thereby
keep constant the value of the Trust's assets and, consequently, its net asset
value per share. This method does not take into account unrealized capital gains
or losses or the effect of fluctuating interest rates.
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DOES THE TRUST PAY FEDERAL INCOME TAX?
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The Trust intends to qualify as a "regulated investment company" under the Code
for so long as such qualification is in the best interest of the Trust's
shareholders. Qualification as a regulated investment
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<PAGE> 83
company under the Code requires, among other things, that the regulated
investment company distribute to its shareholders at least 90% of its investment
company taxable income and 90% of its exempt interest income. The Trust
contemplates declaring as dividends 100% of the Trust's investment company
taxable income (before deduction of dividends paid) and 100% of its exempt
interest income.
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. If distributions
during a calendar year were less than the required amount, the Trust would be
subject to a nondeductible excise tax equal to 4% of the deficiency.
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WHAT ABOUT MY TAXES?
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FEDERAL TAXES
The Trust will distribute substantially all of its net investment income and net
capital gains to shareholders. Dividends derived from interest earned on
Municipal Securities the interest on which is excluded from gross income for
federal income tax purposes, including insurance proceeds representing maturing
interest on defaulted Municipal Securities the interest on which would be so
excluded, constitute "exempt-interest dividends" when designated as such by the
Trust and will be excluded from gross income for federal income tax purposes.
However, interest excluded from gross income for federal income tax purposes
that is received by individuals and corporations on certain municipal
obligations issued on or after August 8, 1986, to finance certain private
activities will be treated as a tax preference item in computing the alternative
minimum tax. It is likely that exempt-interest dividends received by
shareholders from the Trust will also be treated as tax preference items in
computing the alternative minimum tax to the extent, if any, that distributions
by the Trust are attributable to interest earned by the Trust on such
obligations. Also, a portion of all other interest excluded from gross income
for federal income tax purposes earned by a corporation may be subject to the
alternative minimum tax as a result of the inclusion in alternative minimum
taxable income of 75% of the excess of adjusted current earnings over adjusted
net book income preference alternative minimum taxable income.
Distributions, if any, derived from capital gains will generally be taxable to
shareholders as capital gains for federal income tax purposes to the extent so
designated by the Trust. Dividends, if any, derived from sources other than
interest excluded from gross income for federal income tax purposes and capital
gains will be taxable to shareholders as ordinary income for federal income tax
purposes whether or not reinvested in additional Shares. Shareholders not
subject to federal income tax on their income will not, of course, be required
to pay federal income tax on any amounts distributed to them. The Trust
anticipates that substantially all of its dividends will be excluded from gross
income for federal income tax purposes and will notify each shareholder annually
of the tax status of all distributions.
If a shareholder receives an exempt-interest dividend with respect to any Share
and such Share is held by the shareholder for six months or less, any loss on
the sale or exchange of such Share will be disallowed to the extent of the
amount of such exempt-interest dividend. In certain limited instances, the
portion of Social Security benefits that may be subject to federal income
taxation, may be affected by the amount of tax-exempt interest income, including
exempt-interest dividends, received by a shareholder.
STATE AND LOCAL TAXES
Under state or local law, distributions of net investment income may be taxable
to shareholders as dividend income even though a substantial portion of such
distribution may be derived from interest excluded from gross income for federal
income tax purposes that, if received directly, would be exempt from such income
taxes. The Trust will report to its shareholders annually after the close of its
taxable year the percentage and
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source, on a state-by-state basis, of interest income earned on Municipal
Securities held by the Trust during the preceding year.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Trust and its shareholders. Potential
investors in the Trust are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
Cardinal Management Corp. will inform shareholders at least annually of the
amount and nature of such income and capital gains.
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WHO MANAGES MY INVESTMENT IN THE TRUST?
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Pursuant to the laws of Ohio and the Trust's Declaration of Trust, the
responsibility for the management of the Trust is vested in its Board of
Trustees which, among other things, is empowered by the Trust's Declaration Of
Trust to elect officers of the Trust and contract with and provide for the
compensation of agents, consultants and other professionals to assist and advise
in such management.
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), located at 155 East Broad Street,
Columbus, Ohio 43215, is a wholly-owned subsidiary of The Ohio Company and is
also the investment adviser to Cardinal Government Securities Trust ("CGST"),
Cardinal Government Obligations Fund ("CGOF"), Cardinal Balanced Fund ("CBF")
and Cardinal Aggressive Growth Fund ("CAGF"). The Adviser also acts as dividend
and transfer agent for The Cardinal Fund Inc., another open-end diversified
management investment company ("CFI"), CGST, CGOF, CBF, CAGF and the Trust. The
Ohio Company is a member of the New York Stock Exchange, Inc., the Midwest Stock
Exchange, Inc., other regional exchanges and the National Association of
Securities Dealers, Inc. In addition to acting as the principal underwriter for
the Trust, CGST, CGOF, CBF and CAGF, The Ohio Company acts as investment adviser
and principal underwriter for CFI, and as the sponsor of various series of
separate unit investment trusts.
Pursuant to the Investment Advisory Contract, the Adviser manages the investment
and reinvestment of the assets 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. Since the Trust's
inception, Hannibal L. Godwin III has been primarily responsible for the
day-to-day management of the Trust's portfolio. Mr. Godwin has been a portfolio
manager with the Adviser and/or The Ohio Company since 1981.
As compensation for its services to the Trust, the Adviser receives monthly from
the Trust a management fee at the annual rate of .5% of the average daily net
assets of the Trust. The Adviser may, however, periodically waive all or a
portion of its advisory fee with respect to the Trust to increase the net income
of the Trust available for distribution as dividends. The waiver of such fee
will cause the yield of the Trust to be higher than it would otherwise be in the
absence of such a waiver.
DIVIDEND AND TRANSFER AGENT
Cardinal Management Corp., 215 East Capital Street, Columbus, Ohio 43215, has
been selected to act as the Trust's Dividend and Transfer Agent. Cardinal
Management Corp. is also the Trust's investment adviser.
DISTRIBUTOR
The Trust has entered into a Distributor's Contract with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Trust
continuously will be offered on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. Walter R. Chambers is an officer and
trustee/director of both the Trust and The Ohio Company. Frank W. Siegel and
Hannibal L. Godwin III, each an officer and trustee of the Trust, are officers
of The Ohio Company. John L. Schlater, a trustee of the
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Trust, is an officer of The Ohio Company. David C. Will and James M. Schrack II
are officers of both the Trust and The Ohio Company.
CUSTODIAN
The Trust has appointed The Fifth Third Bank ("Fifth Third") 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Trust's custodian. In such capacity Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Trust.
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WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
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ACH PROCESSING
The Trust now offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Shares and/or electronically transfer distributions
paid on Trust Shares, in addition to the other methods described in this
Prospectus. ACH provides a method by which funds may be automatically
transferred to or from an authorized bank account at a Federal Reserve member
bank that is an ACH member. Please contact your representative if you are
interested in ACH processing.
EXCHANGE PRIVILEGE
Investors may, provided the amount to be exchanged meets the applicable minimum
investment requirements and the exchange is made in states where it is legally
authorized, exchange Shares of the Trust for shares of:
Cardinal Government Securities Trust, a short-term U.S.
Government securities fund (without payment of any sales charge);
Cardinal Aggressive Growth Fund, an equity fund seeking
appreciation of capital (upon the payment of the applicable sales
charge);
Cardinal Balanced Fund, a fund seeking current income and
long-term growth of both capital and income (upon the payment of
the applicable sales charge);
The Cardinal Fund Inc., an equity fund (upon payment of
applicable sales charge); or
Cardinal Government Obligations Fund, a U.S. Government bond fund
(upon payment of applicable sales charge).
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, exchanges of Trust Shares for shares of CFI, CGOF, CBF or
CAGF (individually, a "Cardinal Load Fund") generally may be completed upon the
payment of a sales charge equal to the sales charge payable upon purchase of
shares of that Cardinal Load Fund. If, however, the Shares of Trust to be
exchanged were acquired as a result of an exchange of shares of a Cardinal Load
Fund, the sales charge to be paid on the present exchange may be reduced by the
sales charge previously paid.
The foregoing exchange privilege may be exercised only once in each calendar
quarter and must be made by written or telephonic authorization. A shareholder
should notify The Ohio Company of his desire to make an exchange, and The Ohio
Company will furnish, as necessary, a prospectus and an application form to open
the account. Cardinal Management Corp., as transfer agent, will require that any
written authorization of an exchange include a signature guarantee as described
above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail." However, a
signature guarantee will not be required if the exchange is requested to be made
within the same account or into an existing account of the shareholder
17
<PAGE> 86
held in the same name or names and in the same capacity as the account from
which the exchange is to be made. Shareholders may also authorize an exchange of
shares of the Trust by telephone. Neither the Trust nor any of its service
providers will be liable of any loss, damages, expense or cost arising out of
any telephone exchange authorization to the extent and subject to the
requirements set forth under "HOW MAY I REDEEM MY SHARES? -- Redemption by
telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
The Trust may, at any time, modify or terminate the foregoing exchange
privilege. The Trust, however, will give shareholders of the Trust 60 days
advance written notice of any such modification or termination.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
Each Share is entitled to one vote (and fractional Shares to proportionate
fractional votes) in the election of Trustees and on other matters submitted to
the vote of shareholders. Voting rights are not cumulative, so that the holders
of more than 50% of the Shares voting in the election of Trustees have the power
to elect all of the Trustees of the Trust. Whenever the approval of a majority
of the outstanding Shares of the Trust is required in connection with
shareholder approvals of the Investment Advisory Contract, the Distribution
Contract or changes in the investment objective and policies or the investment
restrictions of the Trust, a "majority" shall mean the vote of (i) 67% or more
of the Shares of the Trust present at a meeting, if the holders of more than 50%
of the outstanding Shares are present in person or by proxy, or (ii) more than
50% of the outstanding Shares of the Trust, whichever is less.
- --------------------------------------------------------------------------------
WHAT SHAREHOLDER REPORTS WILL I RECEIVE?
- --------------------------------------------------------------------------------
An account summary will be furnished to each shareholder monthly and will
include information as to all purchases, redemptions and income dividends paid
with respect to the preceding month. Financial statements of the Trust will be
furnished to shareholders semiannually.
Holders of Shares should direct all inquiries concerning such matters to
Cardinal Management Corp., 155 East Broad Street, Columbus, Ohio 43215.
18
<PAGE> 87
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
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
<PAGE> 88
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
------
<S> <C>
Key Features................................ 2
Prospectus Highlights....................... 3
Fee Table................................... 4
Financial Highlights........................ 5
What is the Trust?.......................... 6
What Are the Investment Objective and
Policies of the Trust?.................... 7
How Do I Purchase Shares of the Trust?...... 10
What Distributions Will I Receive?.......... 11
How May I Redeem My Shares?................. 12
How is Net Asset Value Calculated?.......... 14
Does the Trust Pay Federal Income Tax?...... 14
What About My Taxes?........................ 15
Who Manages My Investment in the Trust?..... 16
What Other Shareholder Programs Are
Provided?................................. 17
What Are My Rights as a Shareholder?........ 18
What Shareholder Reports Will I Receive?.... 18
</TABLE>
------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WASHINGTON, D.C., UNDER THE SECURITIES ACT OF 1933, AND
TO WHICH REFERENCE IS MADE.
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRUST. THE TRUST IS REGISTERED AS AN OPEN-END MANAGEMENT INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. SUCH REGISTRATION DOES NOT IMPLY THAT
THE TRUST OR ANY OF ITS SHARES HAVE BEEN GUARANTEED, SPONSORED, RECOMMENDED OR
APPROVED BY THE UNITED STATES OR ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
----------------------
PROSPECTUS
----------------------
February 1, 1995
THE OHIO COMPANY
CARDINAL
TAX EXEMPT
MONEY
TRUST
[LOGO]
<PAGE> 89
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL FUND INC.
The Cardinal Fund Inc. (the "Fund") is a diversified, open-end
management investment company. The primary investment objective of the Fund is
to achieve long-term growth of capital and income through selective
participation in the long-term progress of American businesses and industries.
The policy of the Fund is generally to invest in equity securities. Current
income, while a factor in portfolio selection, is secondary to the Fund's
primary objective.
_______________________________________________________
For further information regarding the Fund or for assistance
in opening an account or redeeming shares, please call:
In Columbus 464-5512 (opening accounts and further information)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
_____________________________________________________
This Statement Of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of the Fund, dated February
1, 1995, which has been filed with the Securities and Exchange Commission.
This Statement of Additional Information is incorporated by reference in its
entirety into the Prospectus. The Prospectus is available upon request without
charge from the Fund at the above address or by calling the phone numbers
provided above.
FEBRUARY 1, 1995
<PAGE> 90
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
THE CARDINAL FUND INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Additional Information on Portfolio Instruments . . . . . . . . . . . . . B-1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-5
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-5
PRINCIPAL SHAREHOLDERS OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . B-8
THE ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-8
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-9
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT . . . . . . . . . . . . . . . . . . . B-10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . B-11
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-12
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-14
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-15
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
LEGAL COUNSEL AND INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . B-16
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
</TABLE>
-i-
<PAGE> 91
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL FUND INC.
The Cardinal Fund Inc. (the "Fund") is an open-end management
investment company. Much of the information contained in this Statement of
Additional Information expands upon subjects discussed in the Prospectus of the
Fund. Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of the Fund should be made without first reading the
Prospectus of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities issued by other investment companies. The Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will
be invested in the securities of any one investment company; (b) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund. As a shareholder of another investment company, the Fund would bear,
along with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that the Fund bears directly in connection with its own
operations. Investment companies in which the Fund may invest may also impose
a sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by the Fund and, therefore, will be borne directly by shareholders.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund
would acquire securities from member banks of the Federal Reserve System and
registered broker-dealers which the Adviser deems creditworthy under guidelines
approved by the Fund's Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain at all times the value of
collateral held pursuant to the agreement at not less than the repurchase price
B-1
<PAGE> 92
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that the Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Board of
Trustees of the Fund believes that, under the regular procedures normally in
effect for custody of the Fund's securities subject to repurchase agreements
and under federal laws, a court of competent jurisdiction would rule in favor
of the Fund if presented with the question. Securities subject to repurchase
agreements will be held by the Fund's custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements
are considered to be loans by the Fund under the 1940 Act.
Investment Restrictions
- -----------------------
The Fund deems the following to be matters of fundamental policy and
as such to be matters which the Fund will not change unless the changed policy
is otherwise lawful and is approved by holders of the majority of the
outstanding Shares of the Fund (defined as the vote, at an annual or special
meeting of shareholders of the Fund, of the lesser 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 are present or represented by proxy, or (b)
more than 50% of the outstanding voting securities of the Fund):
The Fund will not:
(1) borrow money or issue senior securities, except that the Fund may
borrow from banks or enter into reverse repurchase agreements or
dollar roll agreements for temporary purposes in amounts up to 10% of
the value of its total assets at the time of such borrowing and except
as permitted pursuant to an exemption from the 1940 Act. The Fund
will not purchase securities while its borrowings (including reverse
repurchase agreements and dollar roll agreements) exceed 5% of its
total assets;
(2) make short sales of securities, except to the extent that the same
shall be owned by the Fund (i.e., short sales "against the box") or
purchase securities on margin;
(3) write, purchase or sell puts, calls, or combinations thereof;
(4) underwrite the securities of other issuers, except insofar as the Fund
may technically be deemed an underwriter under the
B-2
<PAGE> 93
Securities Act of 1933 in connection with the disposition of portfolio
securities;
(5) purchase securities subject to restrictions on disposition under the
Securities Act of 1933 if at the time of acquisition more than 5% of
the total assets of the Fund would be invested in such securities;
(6) concentrate more than 25% of the value of the total assets of the Fund
(determined at the date of acquisition) in any particular industry;
(7) 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;
(8) purchase or sell commodities, commodity contracts or futures
contracts;
(9) make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment
objective and policies, make time deposits with financial institutions
and enter into repurchase agreements;
(10) purchase the securities of any issuer if such purchase would cause
more than 5% of the Fund's total assets upon such purchase to be
invested in the securities of any one issuer (not including the
government of the United States or corporations which are the
instrumentalities of the United States);
(11) mortgage, pledge or hypothecate any assets to a greater extent than
15% of its gross assets taken at cost;
(12) purchase the securities of any issuer if such purchase would cause the
Fund to hold (i) more than 10% of the voting securities of such
issuer, (ii) more than 10% of all debt securities of such issuer taken
as a class, or (iii) more than 10% of all equity securities of such
issuer preferred in any way over the common stock of such issuer taken
as a class;
(13) purchase securities of enterprises which have a record of less than
three years' continuous operation, if such purchase would cause more
than 5% of the total assets of the Fund to be invested in the
securities of such enterprises;
(14) purchase or retain any securities of an issuer if, to the knowledge of
the Fund, the officers and directors of the Fund or the officers and
directors of its investment adviser individually owning more than 1/2
of 1% of the securities of
B-3
<PAGE> 94
such issuer together own beneficially more than 5% of the securities
of such issuer;
(15) purchase any securities from or sell any securities to (other than
stock issued by the Fund) officers or directors of the Fund, any
person or organization furnishing managerial or advisory services to
the Fund, or related classes of persons as principals;
(16) invest in companies for the purpose of exercising control or
management thereof; or
(17) change its classification as a "management company" under Section 4 of
the Investment Company Act of 1940 or change its subclassifications as
an "open-end company" or as a "diversified company" under Section 5 of
the Investment Company Act of 1940.
The following additional investment restriction may be changed without
the majority vote of the outstanding Shares of the Fund.
The Fund may not:
(1) purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or
reorganization, and (b) to the extent permitted by the 1940 Act or
pursuant to any exemptions therefrom.
If a percentage restriction or requirement set forth above is met at
the time of investment, a later failure to comply with the restriction or
requirement resulting from a change in the value of securities held by the Fund
will not be considered a violation of the policy.
The Fund has represented to the California Department of Corporations
that, in order to comply with applicable regulations, it will acquire or retain
securities of other open-end management investment companies if such
investments are made in open-end management investment companies sold with no
sales commission and the Fund's investment adviser waives its management fee
with respect to such investments. The Fund intends to comply with this
undertaking for so long as the Fund has its shares registered for sale in the
State of California or such representation is required by the California
Department of Corporations.
In addition, the Fund has represented to the Texas State Securities
Board that the Fund will (1) limit its investment in warrants, valued at the
lower of cost or market, to 5% or less of the value of the Fund's net assets,
provided that included within that amount, but not to exceed 2% of the Fund's
net assets, may be warrants which are not listed on the New York or American
Stock Exchanges and that warrants acquired by the Fund in units or
B-4
<PAGE> 95
attached to securities may be deemed to be without value, and (2) not invest in
oil, gas or other mineral leases.
Portfolio Turnover
- ------------------
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation
excludes all securities whose remaining maturities at the time of the
acquisition were one year or less.
The portfolio turnover rate for the Fund for the two fiscal years
ended September 30, 1994 and 1993, were 23.20% and 11.11%, respectively. The
portfolio turnover rate for the Fund may vary greatly from year to year as well
as within a particular year, and may also be affected by cash requirements for
redemptions of Shares. Portfolio turnover will not be a limiting factor in
making investment decisions.
MANAGEMENT OF THE FUND
The directors and officers of the Fund, together with their addresses
and principal business occupations and other affiliations during the last five
years, are shown below. Each person named as a director also serves as a
trustee of Cardinal Government Securities Trust, Cardinal Tax Exempt Money
Trust, Cardinal Government Obligations Fund, and The Cardinal Group. Each
director who is an "interested person" of the Fund, as that term is defined in
the Investment Company Act of 1940, is indicated by an asterisk.
<TABLE>
<CAPTION>
Name and Position(s) Held Principal Occupation(s)
Business Address with Fund During Past 5 Years
- ---------------- ---------------- ----------------------
<S> <C> <C>
Gordon B. Carson Director, Member of Principal, Whitfield Robert
5413 Gardenbrook Drive Executive Committee Associates (construction consulting
Midland, Michigan 48642 firm) since 1988; formerly, Vice
President of Michigan Molecular
Institute (polymer science research
institute).
*Walter R. Chambers Chairman and Director, Chairman, President, Chief
155 East Broad Street Member of Executive and Executive Officer and a Director of
Columbus, Ohio 43215 Nominating Committees The Ohio Company (investment
banking); prior thereto, Senior
Executive Vice President of The
Ohio Company.
</TABLE>
B-5
<PAGE> 96
<TABLE>
<S> <C> <C>
John B. Gerlach, Jr. Director, Member of Audit Since 1994, President and a
37 West Broad Street Committee Director of Lancaster Colony
Columbus, Ohio 43215 Corporation (diversified consumer
products); prior thereto, Executive
Vice President, Secretary and a
Director of Lancaster Colony
Corporation.
Michael J. Knilans Director, Member of Chairman, Ohio Bureau of Workers'
1119 Kingsdale Terrace Executive Committee Compensation.
Columbus, Ohio 43220
James I. Luck Director President, The Columbus Foundation
1234 East Broad Street (philanthropic public foundation).
Columbus, Ohio 43205
David L. Nelson Director, Member of Audit Vice President, Customer
18 James Lane and Nominating Committees Satisfaction, Industry Segment, and
Stamford, CT 06903 former President, ABB Process
Automation Business of Asea Brown
Boveri, Inc. (designer and
manufacturer of process automation
systems for basic industries);
former President, Process
Automation Business, of Combustion
Engineering, Inc. (designer and
manufacturer of process automation
systems for basic industries).
*C. A. Peterson Director Retired; Chartered Financial
150 E. Wilson Bridge Rd. Analyst, former Senior Executive
Worthington, Ohio 43085 Vice President and Director of The
Ohio Company (investment banking).
Lawrence H. Rogers II Director Self-employed author; former Vice
4600 Drake Road Chairman, Motor Sports Enterprises,
Cincinnati, Ohio 45243 Inc.
*John L. Schlater Executive Vice President Chartered Financial Analyst and
155 East Broad Street and Director Senior Vice President, The Ohio
Columbus, Ohio 43215 Company (investment banking).
*Frank W. Siegel President and Director, Senior Vice President, The Ohio
155 East Broad Street Member of Executive and Company (investment banking);
Columbus, Ohio 43215 Nominating Committees former Vice President, Keystone
Group (mutual fund management/
administration); former Senior Vice
President, Trust Advisory Group
(mutual fund consulting).
</TABLE>
B-6
<PAGE> 97
<TABLE>
<S> <C> <C>
Joseph H. Stegmayer Director, Member of Audit President and a Director of Clayton
724 Hampton Roads Dr. and Nominating Committees Homes, Inc. (manufactured homes);
Knoxville, TN 37922-4071 former Vice President, Treasurer,
Chief Financial Officer and a
Director of Worthington Industries,
Inc. (specialty steel and plastics
manufacturer).
David C. Will Vice President Vice President of The Ohio Company
155 East Broad Street (investment banking); formerly
Columbus, Ohio 43215 Senior Portfolio Manager,
Huntington National Bank, Trust
Investments.
Karen J. Hipsher Secretary Executive Secretary of The Ohio
155 East Broad Street Company (investment banking).
Columbus, Ohio 43215
James M. Schrack II Treasurer Vice President and Trust Officer of
155 East Broad Street The Ohio Company (investment
Columbus, Ohio 43215 banking).
Bruce E. McKibben Assistant Treasurer Since April, 1992, Employee of The
155 East Broad Street Ohio Company (investment banking;
Columbus, Ohio 43215 prior thereto, student at The Ohio
State University.
Rodney L. Ruehle Assistant Employee of The Ohio Company
155 East Broad Street Treasurer (investment banking).
Columbus, Ohio 43215
</TABLE>
As of November 30, 1994, all directors and officers of the Fund as a
group owned fewer than one percent of the Shares of the Fund then outstanding.
Pursuant to the ultimate authority of the Board of Directors of the
Fund, the Executive Committee is responsible for the general management of the
affairs of the Fund. These transactions are reported to and reviewed by the
Board of Directors.
Messrs. Chambers, Siegel, Schlater, Godwin and Will are Chairman,
President and a director, Vice President and a director, Vice President and a
director, a Vice President, and a Vice President, respectively, of Cardinal
Management Corp., the transfer agent for and provider of accounting services to
the Fund. The compensation of directors and officers of the Fund who are
employed by The Ohio Company is paid by The Ohio Company. Directors' fees
(currently $500 per meeting attended, $500 annual retainer and $500 per audit
committee meeting attended) plus expenses are paid by the Fund, except that
Messrs. Chambers, Siegel and Schlater receive no
B-7
<PAGE> 98
fees from the Fund. The aggregate amount of compensation and expenses paid to
the directors during the fiscal year ended September 30, 1994, was $19,695.
PRINCIPAL SHAREHOLDERS OF THE FUND
There were no persons known to the Fund to be the beneficial owners of
more than 5% of the Fund's outstanding Shares as of November 22, 1994.
THE ADVISER
The Fund has entered into an Investment Advisory Agreement with The
Ohio Company, an investment banking firm organized in 1925, pursuant to which
The Ohio Company furnishes the Fund with continuous investment advice,
research, statistical services and certain administrative support such as
providing and paying for all officers and employees of the Fund, office space
and supplies. As compensation for such services, facilities and expenses The
Ohio Company receives a quarterly fee, accrued daily, based on an annual rate
of .5% of the daily net asset value of the Fund. For the Fund's three fiscal
years ended September 30, 1994, 1993 and 1992, fees earned by The Ohio Company
under the Investment Advisory Agreement were $1,325,607, $1,370,536 and
$1,221,225, respectively.
Under the Investment Advisory Agreement, if expenses (including the
adviser's fee but excluding interest and taxes) exceed 1-1/2% per annum of the
average daily net asset value for any fiscal year of the Fund, The Ohio Company
shall bear the excess.
The Investment Advisory Agreement also provides that the advisory fee
payable pursuant to such Agreement shall be reduced by the amount of brokerage
commissions derived by The Ohio Company, as adviser, on orders executed by it
for the Fund on a stock exchange of which such Adviser is a member.
Descendants of H. P. and R. F. Wolfe, deceased, and members of their
families, through their possession of a majority of the voting stock, may be
considered controlling persons of The Ohio Company. Walter R. Chambers is an
officer and director of both the Fund and The Ohio Company. Frank W. Siegel is
an officer and director of the Fund and an officer of The Ohio Company. John
L. Schlater is a director of the Fund and an officer of The Ohio Company.
Hannibal L. Godwin III and James M. Schrack II are officers of both the Fund
and The Ohio Company.
B-8
<PAGE> 99
PORTFOLIO TRANSACTIONS
Subject to the policies established by the Board of Directors of the
Fund, The Ohio Company, as Investment Adviser, is responsible for the Fund's
portfolio decisions and the placing of the Fund's portfolio transactions. In
executing such transactions, The Ohio Company seeks to obtain the best net
results for the Fund taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulties
of execution and operational facilities of the firm involved and the firm's
risk in positioning a block of securities. While The Ohio Company generally
seeks reasonably competitive commission rates, for the reasons stated in the
prior sentence, the Fund will not necessarily be paying the lowest commission
or spread available. For the Fund's three fiscal years ended September 30,
1994, 1993 and 1992, total brokerage fees paid by the Fund were $188,616,
$101,220 and $82,395, respectively, none of which was paid to The Ohio Company.
The Ohio Company may consider provision of research, statistical and
other information to the Fund or the Adviser in the selection of qualified
broker-dealers who effect portfolio transactions for the Fund so long as The
Ohio Company's ability to obtain the best net results for portfolio
transactions of the Fund is not diminished. Such research services include
supplemental research, securities and economic analyses, and statistical
services and information with respect to the availability of securities or
purchasers or sellers of securities. Such research services may also be useful
to The Ohio Company in connection with its services to other clients.
Similarly, research services provided by brokers serving such other clients may
be useful to The Ohio Company in connection with its services to the Fund.
Although this information is useful to the Fund and The Ohio Company, except as
described below, it is not possible to place a dollar value on it. It is the
opinion of the Board of Directors and The Ohio Company that the review and
study of this information will not reduce the overall cost to The Ohio Company
of performing its duties to the Fund under the Investment Advisory Agreement.
The Fund has authorized The Ohio Company to place brokerage transactions
through Pershing and Company, a division of Donaldson, Lufkin & Jenrette, in
return for Lipper Data information prepared for the Fund's Directors relating
to information on fees and expenses of other mutual funds. In addition, during
the fiscal year ended September 30, 1994, The Ohio Company, on behalf of the
Fund, directed some brokerage transactions to Columbine Capital in return for
the provision of research services. The amount of such transactions and
related commissions were $10,758,000 and $23,588, respectively. Such brokerage
transactions with both Pershing and Company and Columbine Capital are subject
to the requirements as to price and execution as described above. The Fund is
not authorized to pay brokerage commissions which are in excess of those which
B-9
<PAGE> 100
another qualified broker would charge solely by reason of brokerage and
research services provided.
Investment decisions for the Fund are made independently from those
for any other investment company or account managed by The Ohio Company. Any
such other investment company or account may also invest in the same securities
as the Fund. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and another investment
company or account, the transaction will be averaged as to price and available
investments will be allocated as to amount in a manner which The Ohio Company
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained by the
Fund. To the extent permitted by law, The Ohio Company may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for other investment companies or accounts in order to obtain best
execution. As provided by the Investment Advisory Agreement, in making
investment recommendations for the Fund, The Ohio Company will not inquire or
take into consideration whether an issuer of securities proposed for purchase
or sale by the Fund is a customer of The Ohio Company or its subsidiaries or
affiliates and, in dealing with its customers, The Ohio Company or its
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Fund.
The Fund did not during the fiscal year ended September 30, 1994, hold
any securities of its regular brokers or dealers, as defined in Rule 10b-1
under the 1940 Act, or their parent companies.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Fund has entered into an Administration Agreement with Cardinal
Management Corp., a wholly-owned subsidiary of The Ohio Company, pursuant to
which Cardinal Management Corp. has agreed to act as the Fund's transfer agent,
dividend disbursing agent and administrator of plans for the Fund. In
consideration of such services the Fund has agreed to pay Cardinal Management
Corp. monthly an annual fee equal to $18 per shareholder account plus
out-of-pocket expenses. For the last three fiscal years ended September 30,
1994, Cardinal Management Corp. received $327,423, $297,199 and $224,908,
respectively, for services to the Fund pursuant to such Agreement.
B-10
<PAGE> 101
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's Shares may be purchased at the public offering price
through The Ohio Company, principal underwriter of the Fund's Shares, at its
address and number set forth on the cover page of this Statement of Additional
Information, and through other broker-dealers who are members of the National
Association of Securities Dealers, Inc. and have sales agreements with The Ohio
Company.
Based upon the value of the Fund's portfolio securities and other
assets and the number of outstanding Shares as of the fiscal year ended
September 30, 1994, the net asset value and redemption price per share was
$12.73. The total offering price per share was $13.54 per share (net asset
value / .94, assuming the then current maximum sales charge of 6.00% of the
offering price). The total offering price is reduced on sales of $100,000 or
more. Effective February 1, 1995, the maximum sales charge has been lowered to
4.50% of the offering price.
The net asset value of the Fund is determined once daily as of 4:00
P.M., Columbus, Ohio time, (a) on each business day the New York Stock Exchange
is open for business and a purchase order has been received by the Fund, (b) on
each such business day when a redemption request is received, and (c) at such
other times as there is a sufficient degree of trading in the Fund's portfolio
securities that the net asset value might be materially affected by changes in
the value of the portfolio securities. The net asset value per share of the
Fund is computed by dividing the sum of the value of the Fund's portfolio
securities plus any cash and other assets (including interest and dividends
accrued but not received) minus all liabilities (including estimated accrued
expenses) by the total number of shares then outstanding.
Portfolio securities which are traded on United States stock exchanges
are valued at the last sale price on such an exchange as of the time of
valuation on the day the securities are being valued. Securities traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as one or the other may be quoted by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") as of
the time of valuation on the day the securities are being valued. The Fund
uses one or more pricing services to provide such market prices. Securities
and other assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors of the Fund.
The Fund may suspend the determination of the net asset value, the
right of redemption or postpone the date of payment for Shares during any
period when (a) trading on the New York Stock Exchange (the "Exchange") is
restricted by applicable rules and regulations of the Securities and Exchange
Commission, (b) the Exchange is
B-11
<PAGE> 102
closed for other than customary weekend and holiday closings, (c) an emergency
exists as a result of which (i) disposal by the Fund of portfolio securities
owned by it is not reasonably practicable or (ii) it is not reasonably
practicable for the Fund to determine the fair value of its net assets, or (d)
the Securities and Exchange Commission has by order permitted such suspension.
TAXES
The Fund intends to qualify as a "regulated investment company" under
the Code for so long as such qualification is in the best interest of the
Fund's shareholders. In order to qualify as a regulated investment company,
the Fund must, among other things: derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities, or currencies; derive less than 30% of its gross income from the
sale or other disposition of stock, securities, options, future contracts or
foreign currencies held less than three months; and diversify its investments
within certain prescribed limits. In addition, to utilize the tax provisions
specially applicable to regulated investment companies, the Fund must
distribute to its shareholders at least 90% of its investment company taxable
income for the year. In general, the Fund's investment company taxable income
will be its taxable income subject to certain adjustments and excluding the
excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although the Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities. In addition, if
for any taxable year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to federal tax at regular
B-12
<PAGE> 103
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable to shareholders to the
extent of earnings and profits, and would be eligible for the dividends
received deduction for corporations.
It is expected that the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal
income tax purposes, even if paid in additional Shares of the Fund and not in
cash.
Distribution by the Fund of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term
capital gain in the year in which it is received, regardless of how long the
shareholder has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax
rates of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on capital gains of
individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss
each year to offset ordinary income. Excess net capital loss may be carried
forward to future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%.
Further, a corporation's federal taxable income in excess of $15 million is
subject to an additional tax equal to 3% of taxable income over $15 million,
but not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset
capital gains and excess net capital loss may be carried back three years and
forward five years.
B-13
<PAGE> 104
Certain corporations are entitled to a 70% dividends received
deduction for distributions from certain domestic corporations. The Fund will
designate the portion of any distributions which qualify for the 70% dividends
received deduction. The amount so designated may not exceed the amount
received by the Fund for its taxable year that qualifies for the dividends
received deduction.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends paid to any shareholder who
has provided either an incorrect tax identification number or no number at all,
or who is subject to withholding by the Internal Revenue Service for failure
properly to include on his return payments of interest or dividends.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of the Fund. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Fund or its shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of the Fund are urged to consult
their tax advisers with specific reference to their own tax situation. In
addition, the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the
date of the Prospectus and this Statement of Additional Information; such laws
and regulations may be changed by legislative or administrative action.
PERFORMANCE INFORMATION
For the one-, five- and ten-year periods ended September 30, 1994, and
the period from September 30, 1975 to September 30, 1994, the average annual
total returns for the Fund were (1.27)%, 7.04, 12.53%, and 14.91%,
respectively. For the one-, five- and ten-year periods ended September 30,
1994, and the period from September 30, 1975 to September 30, 1994, the
cumulative return figures for the Fund were (1.27)%, 40.49%, 225.73% and
1303.15%, respectively. Each quotation of average annual total return was
computed by finding the average annual compounded rate of return over that
period which would equate the value of an initial amount of $1,000 invested in
the Fund equal to the ending redeemable value, according to the following
formula:
P(T + 1)n = ERV
Where: P = a hypothetical initial payment of $1,000, T = average
annual total return, n = number of years, and ERV = ending redeemable value of
a hypothetical $1,000 payment at the beginning of the period at the end of the
period for which average annual
B-14
<PAGE> 105
total return is being calculated assuming a complete redemption. The
calculation of average annual total return assumes the deduction of the current
maximum applicable sales charge (4.5%) from the initial investment of $1,000,
assumes the reinvestment of all dividends and distributions at the price stated
in the then effective Prospectus on the reinvestment dates during the period
and includes all recurring fees that are charged to all Shareholder accounts
assuming the Fund's average account size. Cumulative return is computed by
using average annual return, as calculated above, for each year of the relevant
period to determine the total return on a hypothetical initial investment of
$1,000 over such period.
Investors may also judge the performance of the Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and, Standard
& Poor's Corporation and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and CDA Investment Technologies, Inc. Comparisons may also
be made to indices or data published in Money Magazine, Forbes, Barron's, The
Wall Street Journal, The New York Times, The Columbus Dispatch, Business Week,
U.S.A. Today and Consumer Reports. In addition to performance information,
general information about the Fund that appears in a publication such as those
mentioned above may be included in advertisements and in reports to
shareholders.
DISTRIBUTOR
The Ohio Company serves as the principal underwriter of Shares of the
Fund. In such capacity, and pursuant to a Distributor's Contract with the
Fund, Shares of the Fund continuously are offered on a best efforts basis by
The Ohio Company and dealers selected by The Ohio Company. Pursuant to the
Distributor's Contract, expenses of printing prospectuses and other selling
literature are borne by The Ohio Company. All other expenses of the Fund,
including taxes, fees and commissions, expenses of registering and qualifying
Shares for sale, charges of custodians, transfer agents and registrars and
auditing and legal fees and expenses are borne by the Fund.
For the Fund's three fiscal years ended September 30, 1994, 1993 and
1992, commissions paid The Ohio Company under the Distributor's Contract with
respect to the sale of Fund shares, after discounts to dealers, were $427,597,
$1,218,578 and $1,408,406, respectively.
B-15
<PAGE> 106
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263
has been selected to serve as the Fund's custodian. In such capacity the
custodian will hold or arrange for the holding of all portfolio securities and
other assets of the Fund.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Certain legal matters as to the issuance of the Shares offered hereby
have been passed upon by Baker & Hostetler, 65 East State Street, Columbus,
Ohio 43215. The Fund has selected KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as independent auditors for the Fund. The financial
statements of the Fund included in this Statement of Additional Information
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Fund is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve
supervision by the Securities and Exchange Commission of the management or
policies of the Fund.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized
to give any information or make any representation other than those contained
in the Prospectus and this Statement of Additional Information.
B-16
<PAGE> 107
FINANCIAL STATEMENTS
THE CARDINAL FUND INC.
SEPTEMBER 30, 1994
B-17
<PAGE> 108
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCKS 92.71%
AEROSPACE/DEFENSE 3.37%
Harris Corporation......................................................... 118,200 $ 5,747
Raytheon Company........................................................... 40,000 2,565
-------
8,312
-------
APPAREL/RETAILERS 2.01%
Jacobson Stores............................................................ 124,100 1,598
May Department Stores...................................................... 85,000 3,347
-------
4,945
-------
AUTOMOTIVE MANUFACTURING 1.69%
Ford Motor Company......................................................... 150,000 4,162
-------
AUTOMOTIVE PARTS 3.86%
Amcast Industrial.......................................................... 125,000 2,891
Cooper Tire & Rubber....................................................... 200,200 4,680
Simpson Industries......................................................... 150,000 1,950
-------
9,521
-------
CENTRAL STATE BANKS 5.48%
Banc One Corp.............................................................. 100,500 3,002
Huntington Bancshares...................................................... 217,855 3,949
KeyCorp.................................................................... 215,000 6,558
-------
13,509
-------
CHEMICALS/COMMODITY 6.77%
Akzo Nobel N.V............................................................. 130,214 7,682
Dow Chemical............................................................... 115,000 8,999
-------
16,681
-------
CLOTHING/FABRICS 1.16%
Oxford Industries.......................................................... 111,900 2,853
-------
COMPUTER/INFORMATION 0.71%
Hewlett-Packard............................................................ 20,000 1,748
-------
</TABLE>
(continued)
B-18
<PAGE> 109
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
CONGLOMERATES 8.31%
Hanson PLC................................................................. 270,000 $ 4,894
Johnson Controls........................................................... 100,000 4,975
Tenneco Inc................................................................ 125,500 5,538
Textron, Inc............................................................... 100,000 5,087
-------
20,494
-------
CONSUMER SERVICES 0.38%
Scotts Company A........................................................... 60,000 930
-------
CONTAINERS/PACKAGING 0.43%
Liqui-Box Corp............................................................. 30,390 1,062
-------
DIVERSIFIED FINANCIAL SERVICES 1.65%
Beneficial Corp............................................................ 100,000 4,075
-------
DIVERSIFIED INDUSTRIAL 5.07%
Minnesota Mining & Manufacturing........................................... 100,000 5,525
Myers Industries........................................................... 165,275 2,851
Quixote Corp............................................................... 160,800 2,814
Raven Industries........................................................... 70,050 1,313
-------
12,503
-------
EASTERN BANKS 1.41%
BB&T Financial............................................................. 120,000 3,480
-------
ELECTRIC 1.63%
Northern States Power...................................................... 95,000 4,014
-------
ELECTRICAL COMPONENTS 4.74%
Asea Brown-Broveri......................................................... 55,300 3,912
General Electric........................................................... 161,400 7,767
-------
11,679
-------
FOODS 2.20%
Curtice-Burns Foods........................................................ 55,925 1,042
Goodmark Foods............................................................. 174,000 2,523
Super Food Services........................................................ 160,800 1,849
-------
5,414
-------
</TABLE>
(continued)
B-19
<PAGE> 110
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- -------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
FOREST PRODUCTS 0.91%
Potlatch Corp.............................................................. 54,500 $ 2,248
-------
GAS 2.42%
Peoples Energy............................................................. 170,300 4,470
Williams Companies......................................................... 50,000 1,500
-------
5,970
-------
HEALTH-CARE PROVIDERS 0.96%
Humana Inc................................................................. 100,400 2,372
-------
HEAVY MACHINERY 0.29%
Monarch Machine Tool....................................................... 73,800 710
-------
INDUSTRIAL COMMERCIAL SERVICES 1.16%
Graphic Industries......................................................... 100,300 1,078
New England Business Services.............................................. 100,500 1,784
-------
2,862
-------
INSURANCE -- LIFE 2.04%
Equitable of Iowa.......................................................... 140,000 5,040
-------
INTEGRATED OILS 7.83%
Mobil Corp................................................................. 85,000 6,726
Royal Dutch Petroleum...................................................... 65,000 6,979
Texaco Inc................................................................. 90,000 5,591
-------
19,296
-------
OIL FIELD EQUIPMENT SERVICES 1.10%
Schlumberger Limited....................................................... 50,000 2,719
-------
OTHER NONFERROUS METALS 2.62%
Worthington Industries..................................................... 300,776 6,467
-------
PAPER 3.02%
Federal Paper Board........................................................ 114,800 3,616
Kimberly-Clark............................................................. 65,000 3,819
-------
7,435
-------
</TABLE>
(continued)
B-20
<PAGE> 111
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS 4.53%
American Home Products.................................................... 86,000 $ 5,160
Bristol-Myers Squibb...................................................... 85,480 4,904
Abbott Laboratories....................................................... 35,000 1,098
--------
11,162
--------
PROPERTY/CASUALTY 3.18%
Cincinnati Financial...................................................... 150,000 7,838
--------
SEMICONDUCTORS 0.57%
Motorola, Inc............................................................. 26,600 1,403
--------
SPECIALTY/RETAILERS 1.87%
Limited Inc............................................................... 200,000 3,925
Wolohan Lumber............................................................ 40,000 680
--------
4,605
--------
TELEPHONE 5.65%
GTE Corporation........................................................... 189,716 5,763
MCI Communications........................................................ 75,000 1,922
Telefonos de Mexico, S.A.................................................. 100,000 6,250
--------
13,935
--------
TOBACCO 3.72%
Philip Morris Companies................................................... 150,000 9,169
--------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S.
GOVERNMENT OBLIGATIONS 7.14%
Daiwa Securities Inc., 4.65%, dated 9/27/94, due 10/04/94................. 7,000 7,000
Kidder, Peabody & Co., 4.65%, dated 9/29/94, due 10/06/94................. 8,000 8,000
Fifth Third Bank, 4.60%, dated 9/30/94, due 10/03/94...................... 2,600 2,600
--------
TOTAL REPURCHASE AGREEMENTS (COST $17,600)........................... 17,600
--------
TOTAL INVESTMENTS (COST $195,431) 99.85%............................. $246,213
=========
</TABLE>
See accompanying notes to financial statements.
B-21
<PAGE> 112
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
ASSETS
<TABLE>
<S> <C>
Investments in securities, at value (cost $195,431)................................... $246,213
Cash.................................................................................. 87
Receivable for investment securities sold............................................. 676
Dividends and interest receivable..................................................... 972
Receivable for Fund shares sold....................................................... 70
Other assets.......................................................................... 118
--------
Total assets................................................................ 248,136
--------
LIABILITIES
Payable for Fund shares redeemed...................................................... 1,333
Accrued investment management and transfer agent fees (note 3)........................ 157
Other accrued expenses................................................................ 64
--------
Total liabilities........................................................... 1,554
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 19,373,221 outstanding no par value shares of beneficial
interest (authorized 30,000,000).................................................... $246,582
=========
NET ASSET VALUE PER SHARE............................................................. $ 12.73
=========
</TABLE>
See accompanying notes to financial statements.
B-22
<PAGE> 113
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends.................................................................... $ 7,508
Interest..................................................................... 732
-------
Total income....................................................... 8,240
-------
EXPENSES:
Investment management fees (note 3).......................................... 1,326
Transfer agent fees and expenses (note 3).................................... 327
-------
Total affiliated expenses.......................................... 1,653
-------
Custodian fees............................................................... 29
Professional fees............................................................ 70
Reports to shareholders...................................................... 47
Directors' fees.............................................................. 20
Registration fees............................................................ 13
Other expenses............................................................... 57
-------
Total non-affiliated expenses...................................... 236
-------
Total expenses..................................................... 1,889
-------
Net investment income.............................................. 6,351
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized gain from security transactions................................. 17,362
Decrease in unrealized gain on investments................................... (14,821)
-------
Net realized gain and decrease in unrealized gain on investments... 2,541
-------
Net increase in net assets from operations......................... $ 8,892
========
</TABLE>
See accompanying notes to financial statements.
B-23
<PAGE> 114
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 6,351 $ 6,762
Net realized gain from security transactions.................... 17,362 5,955
Increase (decrease) in unrealized gain on investments........... (14,821) 5,776
------------- -------------
Net increase in net assets from operations.................... 8,892 18,493
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.33 and $.29 per share,
respectively)................................................. (6,601) (6,221)
Distribution of net realized gains from security transactions
($.28 and $.62 per share, respectively)....................... (6,006) (12,604)
------------- -------------
Total distributions to shareholders........................... (12,607) (18,825)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares............................... 14,876 32,283
Net asset value of Fund shares issued in connection with
reinvestment of distributions to shareholders................. 11,831 17,783
------------- -------------
26,707 50,066
Cost of Fund shares redeemed.................................... (58,535) (29,001)
------------- -------------
Increase (decrease) in net assets derived from capital share
transactions............................................... (31,828) 21,065
------------- -------------
Net increase (decrease) in net assets......................... (35,543) 20,733
NET ASSETS -- beginning of period............................... 282,125 261,392
------------- -------------
NET ASSETS -- end of period (undistributed net investment income
of $20 and $269, respectively)................................ $ 246,582 $ 282,125
============== ==============
</TABLE>
See accompanying notes to financial statements.
B-24
<PAGE> 115
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Cardinal Fund Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as a diversified, open-end management investment company. 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 for investment companies.
Security Valuation--Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at the last sale price. If no quotations are available, portfolio
securities are valued in good faith by the Board of Directors to reflect their
fair value.
Security Transactions and Investment Income--Security transactions are accounted
for on the trade date and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. In determining the net
realized gain or loss on securities sold, the cost of the securities has been
determined on the first-in, first-out (FIFO) cost basis. It is the Fund'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.
Distributions to Shareholders--Distributions and dividends are recorded by the
Fund on the record date. Income dividends are declared quarterly and any capital
gain distribution is declared annually.
Federal Income Taxes--No provision has been made for Federal taxes on the Fund's
income, since it is the policy of the Fund 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.
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities during
the year ended September 30, 1994 aggregated $47,842,357 and $73,744,784,
respectively.
During the year ended September 30, 1994 the Fund realized on a FIFO cost basis
a net capital gain of $17,361,805 and $17,372,034 for book and tax purposes,
respectively.
At September 30, 1994, the book cost of investment securities was $195,431,327
and the tax cost was $195,287,683. The difference between book and tax cost is
attributable to securities acquired in the 1975 acquisition of the Ohio Capital
Fund, Inc. and remaining in the Fund's portfolio with a book cost of $242,011
and a tax cost of $98,367.
As of September 30, 1994, for tax purposes, gross unrealized gains and gross
unrealized losses on investment securities were $54,918,824 and $4,136,858
respectively; resulting in a net unrealized gain of $50,781,966.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, The Ohio Company (the Adviser), with whom
certain officers and directors of the Fund are affiliated is allowed an annual
fee of 0.5% of the average daily net assets of the Fund. For the year ended the
Fund paid or accrued $1,325,607 for investment management services. The Adviser
has agreed that if the aggregate expenses of the Fund, as defined, for any
fiscal year exceed the
(continued)
B-25
<PAGE> 116
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
expense limitation of any state having jurisdiction over the Fund, the Adviser
will refund to the Fund, or otherwise bear, such excess. This limitation did not
affect the calculation of the management fee during the year ended September 30,
1994. In addition to providing management and advisory services, The Ohio
Company pays the compensation of all officers and employees of the Fund and
provides office space and certain related facilities required by the Fund.
The Ohio Company, acting as the General Distributor and Dealer, reported to the
Fund that it received commissions after discounts to dealers from the sale of
shares of the Fund of $427,597 for the year ended September 30, 1994. Cardinal
Management Corp., a wholly-owned subsidiary of The Ohio Company, provides
transfer agent services to the Fund. Transfer agent service fees are based on a
monthly charge per shareholder account plus out-of-pocket expenses. For the year
ended September 30, 1994 the Fund paid or accrued $327,423 for transfer agent
services provided by Cardinal Management Corp.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1994. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Fund. 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 Fund and its
officers and directors has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Fund is a deposit of $28,588, for the initial capital of ICI
Mutual. The Fund is also committed to provide $85,764 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $56,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
(5) -- CAPITAL STOCK
At September 30, 1994, there were 30,000,000 shares of no par value capital
stock authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $178,469,082
Accumulated net realized gains on investments...................................... 17,311,123
Unrealized gain on investments..................................................... 50,781,966
Undistributed net investment income................................................ 19,545
------------
Net assets......................................................................... $246,581,716
=============
</TABLE>
(continued)
B-26
<PAGE> 117
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Shares sold........................................................ 1,161,378 2,540,431
Shares issued in connection with reinvestment of distributions
to shareholders.................................................. 936,172 1,409,202
Shares repurchased................................................. (4,580,169) (2,275,063)
---------- ----------
Net increase (decrease)............................................ (2,482,619) 1,674,570
Shares outstanding:
Beginning of period................................................ 21,855,840 20,181,270
---------- ----------
End of period...................................................... 19,373,221 21,855,840
========== ==========
</TABLE>
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(6) - Dividends and Distributions
See caption "Financial Highlights" in the Prospectus for the Financial
Highlights with respect to the Fund for each of the years in the ten-year period
ended September 30, 1994.
B-27
<PAGE> 118
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
The Cardinal Fund Inc.:
We have audited the accompanying statement of assets and liabilities of The
Cardinal Fund Inc., including the statement of investments, as of September 30,
1994, 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 Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1994, by correspondence with the custodian. For payables for
investment securities purchased as of September 30, 1994, we performed
appropriate alternative 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
Cardinal Fund Inc. as of September 30, 1994, 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 18, 1994
B-28
<PAGE> 119
STATEMENT OF ADDITIONAL INFORMATION
CARDINAL GOVERNMENT OBLIGATIONS FUND
Cardinal Government Obligations Fund, known as Cardinal Government
Guaranteed Fund prior to February 1, 1991, (the "Fund") is a diversified,
open-end, management investment company. The investment objective of the Fund
is to maximize safety of capital and, consistent with such objective, earn the
highest available current income obtainable from government securities. The
current income earned from such government securities may not be as great as
the current income earned on lower quality securities which have less liquidity
and greater risk of non-payment.
_____________________________________
For further information regarding the Fund or for assistance in
opening an account or redeeming shares, please call:
In Columbus 464-5512 (opening accounts and further information)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of the Fund, dated February
1, 1995, which has been filed with the Securities and Exchange Commission.
This Statement of Additional Information is incorporated by reference in its
entirety into the Prospectus. The Prospectus is available upon request without
charge from the Fund at the above address or by calling the phone numbers
provided above.
FEBRUARY 1, 1995
<PAGE> 120
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . B-1
Additional Information on Portfolio Instruments . . . . . . . . . B-1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . B-5
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . B-8
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . B-8
PRINCIPAL SHAREHOLDERS OF THE FUND . . . . . . . . . . . . . . . . . . . . B-11
THE ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-11
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . B-12
ACCOUNTING SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-14
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT . . . . . . . . . . . . . . . B-14
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . B-14
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-15
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . B-18
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
LEGAL COUNSEL AND INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . B-20
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
</TABLE>
-i-
<PAGE> 121
STATEMENT OF ADDITIONAL INFORMATION
CARDINAL GOVERNMENT OBLIGATIONS FUND
Cardinal Government Obligations Fund (the "Fund") is an open-end
management investment company. Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
Prospectus of the Fund. Capitalized terms not defined herein are defined in
the Prospectus. No investment in Shares of the Fund should be made without
first reading the Prospectus of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objectives and
policies of the Funds as set forth in their respective Prospectuses.
U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Obligations of certain agencies and instrumentalities of
the U.S. Government are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so by law.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities issued by other investment companies. The Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will
be invested in the securities of any one investment company; (b) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund. As a shareholder of another investment company, the Fund would bear,
along with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that the Fund bears directly in connection with its own
operations. Investment companies in which the Fund may invest may also impose
a sales or distribution charge in connection with the purchase or redemption of
their shares and
B-1
<PAGE> 122
other types of commissions or charges. Such charges will be payable by the
Fund and, therefore, will be borne directly by shareholders.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Fund
would acquire securities from member banks of the Federal Reserve System and
registered broker-dealers which the Adviser deems creditworthy under guidelines
approved by the Fund's Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain at all times the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Fund would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that the Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Board of
Trustees of the Fund believes that, under the regular procedures normally in
effect for custody of the Fund's securities subject to repurchase agreements
and under federal laws, a court of competent jurisdiction would rule in favor
of the Fund if presented with the question. Securities subject to repurchase
agreements will be held by the Fund's custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements
are considered to be loans by the Fund under the 1940 Act.
OPTIONS. In order to maximize its total return, the Fund may from time
to time engage in the writing of call options on a national securities exchange
or in the over-the-counter market. A call option gives its holder the right to
buy, and obliges the writer to sell, a specified underlying security at a
stated exercise price at any time prior to the option's expiration date. The
Fund will write only covered call options -- that is, the Fund will own the
securities subject to option throughout the period of its obligation as option
writer -- and will ordinarily write only options for which a secondary trading
market exists. It will deposit the underlying security in escrow until the
exercise or expiration of the option (or such time as the Fund enters into a
closing purchase transaction).
Options written by the Fund will normally have expiration dates
between one and six months from the date written. The
B-2
<PAGE> 123
exercise price of the options may be below ("in-the-money"), equal to
("at-the-money"), or above ("out-of-the-money") the current market values of
the underlying securities at the times the options are written. The Fund may
engage in buy-and-write transactions, in which the Fund simultaneously
purchases a security and writes a call option thereon. When a call option is
written against a security subsequent to the purchase of that security, the
resulting combined position is also referred to as a buy-and-write.
Buy-and-write transactions using in-the- money call options may be utilized
when it is expected that the price of the underlying security will remain flat
or decline moderately during the option period. In such a transaction, the
Fund's maximum gain will be the premium received from writing the option
reduced by any excess of the price paid by the Fund for the underlying security
over the exercise price. Buy-and-write transactions using at-the-money call
options may be utilized when it is expected that the price of the underlying
security will remain flat or advance moderately during the option period. In
such a transaction, the Fund's gain will be limited to the premiums received
from writing the option. Buy-and-write transactions using out- of-money call
options may be utilized when it is expected that the premiums received from
writing the call option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. In any of the
foregoing situations, if the market price of the underlying security declines,
the amount of such decline will be offset wholly or in part by the premium
received and the Fund may or may not realize a loss.
The writing of a covered call option will result in the payment of a
premium to the Fund. If the value of the underlying security appreciates, it
is likely that the option holder will exercise its option and call the security
away from the Fund. The Fund would then suffer an economic loss equal to the
excess, if any, of the underlying security's appreciation in value over the
premium it received for writing the option.
When the Fund writes covered call options on GNMA Certificates, the
GNMA Certificates that it holds as cover may, because of scheduled amortization
or unscheduled prepayments, cease to be sufficient cover. The Fund will
compensate by purchasing an appropriate additional amount of GNMA Certificates.
The Fund may purchase put or call options on interest rate futures
contracts solely for the purpose of hedging against changes in the value of its
portfolio securities due to changes in interest rates.
Options on interest rate futures contracts are similar to options on
securities, except that an option on an interest rate futures contract gives
the purchaser the right, in return for the premium paid, to assume a position
in an interest rate futures
B-3
<PAGE> 124
contract (rather than to purchase securities) at a specified exercise price at
any time prior to the expiration date of the option. A call option gives the
purchaser of such option the right to buy, and obliges its writer to sell, a
specified underlying futures contract at a stated exercise price at any time
prior to the expiration date of the option. A purchaser of a put option has
the right to sell, and the writer has the obligation to buy, such contract at
the exercise price during the option period. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement
will be made entirely in cash equal to the difference between the exercise
price of the option and the closing price of the interest rate futures contract
on the expiration date. The potential loss related to the purchase of an
option on interest rate futures contracts is limited to the premium paid for
the option (plus transaction costs). Because the value of the option is fixed
at the point of sale, there are no daily cash payments to reflect changes in
the value of the underlying contract; however, the value of the option does
change daily and that change is reflected in the net asset value of the Fund.
The purchase of put options on interest rate futures contracts is
analogous to the purchase of protective puts on debt securities so as to hedge
a portfolio of debt securities against the risk of rising interest rates. The
Fund may purchase put options on interest rate futures contracts if Adviser
anticipates a rise in interest rates. Because of the inverse relationship
between trends in interest rates and the values of debt securities, a put
option on such a contract becomes more valuable as interest rates rise. By
purchasing put options on interest rate futures contracts at a time when
Adviser expects interest rates to rise, the Fund would seek to realize a profit
to offset the loss in value of its portfolio securities, without the need to
sell such securities.
The Fund may purchase call options on interest rate futures contracts
if Adviser anticipates a decline in interest rates. Historically, unscheduled
prepayments on mortgage-backed securities (such as GNMA Certificates) have
increased in periods of declining interest rates, as mortgagors have sought to
refinance at lower interest rates. As a result, were the Fund to purchase such
securities at a premium prior to a period of declining interest rates, the
subsequent prepayments at par would reduce the yield on such securities by
magnifying the effect of the premium in relationship to the principal amount of
securities, and might, under extreme circumstances, result in a loss to the
Fund. This effect might not be offset by any appreciation in value in a debt
security normally attributable to the interest rate decline. To protect itself
against the possible erosion of principal on securities purchased at a
premium, the Fund may purchase call options on interest rate futures. The
option would increase in value as interest rates declined, thereby tending to
offset any reductions of the yield on portfolio securities purchased at a
B-4
<PAGE> 125
premium resulting from the effect of prepayments on the amortization of such
premiums.
The Fund may sell put and call options on interest rate futures only
as part of closing sales transactions to terminate its options positions.
There is no guarantee that such closing transactions can be effected.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on interest rate futures
contracts. The Fund's purchase of put or call options will be based upon
predictions of interest rate trends and predictions of the prepayment
experience of mortgage-backed securities, and such predictions may prove to be
inaccurate. Even if such predictions are correct, there may be an imperfect
correlation between the change in the value of the options and of the Fund's
portfolio securities.
Investment Restrictions
- -----------------------
The Fund deems the matters listed in numbered paragraphs (1) through
(15) to be matters of fundamental policy and as such to be matters which the
Fund will not change unless the changed policy is otherwise lawful and is
approved by holders of the majority of the outstanding Shares of the Fund
(defined as the vote, at an annual or special meeting of shareholders of the
Fund, of the lesser 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
are present or represented by proxy, or (b) more than 50% of the outstanding
voting securities of the Fund):
The Fund may not:
(1) Diversification. Purchase securities of any one issuer, 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 the value of the Fund's total
assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the
issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations.
There is no limit to the percentage of assets that may be
invested in U.S. Treasury bills, notes, or other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
(2) Restricted or Illiquid Securities. (i) Purchase securities
with legal or contractual restrictions on resale (restricted
securities), (ii) purchase illiquid securities, (iii) purchase
securities without readily available market quotations, or
(iv) invest more than 10%
B-5
<PAGE> 126
of the value of its total assets in repurchase agreements
maturing in more than seven days;
(3) Real Estate. Purchase or sell real estate (although it may
purchase securities secured by real estate or interests
therein);
(4) Commodities. Purchase or sell commodities or commodity
contracts;
(5) Oil and Gas Programs. Purchase participation or other direct
interests in oil, gas, or other mineral exploration or
development programs;
(6) Purchases on Margin. Purchase securities on margin, except
for use of short-term credit necessary for clearance of
purchases of portfolio securities;
(7) Loans. Make loans, although the Fund may enter into
repurchase agreements;
(8) Senior Securities and Borrowing. Borrow money or issue senior
securities, except that the Fund may borrow from banks or
enter into reverse repurchase agreements or dollar roll
agreements for temporary purposes in amounts up to 10% of the
value of its total assets at the time of such borrowing and
except as permitted pursuant to an exemption from the 1940
Act. The Fund will not purchase securities while its
borrowings (including reverse repurchase agreements and dollar
roll agreements) exceed 5% of its total assets;
(9) Mortgaging. Mortgage, pledge, hypothecate or, in any other
manner, transfer as security for indebtedness any security
owned by a Fund, except as may be necessary in connection with
permissible borrowings, in which event such mortgaging,
pledging or hypothecating may not exceed 5% of a Fund's
assets, valued at cost and except that the deposit of assets
in escrow in connection with writing covered call options will
not be deemed to be the mortgage, pledge, hypothecation or
transfer of assets as security described above;
(10) Underwriting. Underwrite securities issued by other persons,
except: to the extent that a Fund may be deemed to be an
underwriter within the meaning of the Securities Act of 1933
in connection with the purchase of government securities
directly from the issuer in accordance with the Fund's
investment objective, program and restrictions;
B-6
<PAGE> 127
(11) Portfolio Securities by Officers and Directors. Purchase or
retain the securities of any issuer if, to the knowledge of
the Fund's management, those officers and trustees of the
Fund, and of its investment adviser, who each owns
beneficially more than .5% of the outstanding securities of
such issuer, together own beneficially more than 5% of such
securities;
(12) Puts, Calls, Etc. Invest in puts, calls, straddles, spreads,
or any combination thereof, except as follows: (a) the Fund
may write covered call options and enter into closing purchase
transactions with respect to such options so long as the
securities underlying outstanding options will not at any one
time exceed 25% of the assets of the Fund, and (b) the Fund
may purchase options in interest rate futures contracts so
long as not more than 5% of the Fund's assets are at any one
time invested in the premiums paid for such options;
(13) Concentration of Investments. Concentrate more than 25% of
the value of the assets of the Fund in investments in any
particular industry;
(14) Short Sales. Engage in any short sales; or
(15) Classification. Change its classification as a "management
company" under Section 4 of the Investment Company Act of 1940
or change its subclassifications as an "open-end company" or
as a "diversified company" under Section 5 of the Investment
Company Act of 1940.
The following additional investment restriction may be changed without
the majority vote of the outstanding Shares of the Fund.
The Fund may not:
(1) Purchase the securities of other investment companies, except
(a) in connection with a merger, consolidation, acquisition or
reorganization, and (b) to the extent permitted by the 1940
Act or pursuant to any exemptions therefrom.
The Fund has represented to the California Department of Corporations
that, in order to comply with applicable regulations, it will acquire or retain
securities of other open-end management investment companies if such
investments are made in open-end management investment companies sold with no
sales commission and the Fund's investment adviser waives its management fee
with respect to such investments. The Fund intends to comply with this
undertaking for so long as the Fund has its shares registered for sale in the
State of California or such representation is required by the California
Department of Corporations.
B-7
<PAGE> 128
If a percentage restriction or requirement set forth above is met at
the time of investment, a later failure to comply with the restriction or
requirement resulting from a change in the value of securities held by the Fund
will not be considered a violation of the policy.
Portfolio Turnover
- ------------------
The portfolio turnover rate for the Fund is calculated by dividing the
lesser of the Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The calculation
excludes all securities whose remaining maturities at the time of acquisition
were one year or less.
The portfolio turnover rate for the Fund for the two fiscal years
ended September 30, 1994, and 1993, were 21.95% and 24.94%, respectively. The
portfolio turnover rate for the Fund may vary greatly from year to year as well
as within a particular year, and may also be affected by cash requirements for
redemptions of Shares. Portfolio turnover will not be a limiting factor in
making investment decisions.
MANAGEMENT OF THE FUND
The trustees and officers of the Fund, together with their addresses
and principal business occupations and other affiliations during the last five
years, are shown below. Except for Mr. Carle, each person named as a trustee
also serves as a director or trustee of The Cardinal Fund Inc., Cardinal
Government Securities Trust, Cardinal Tax Exempt Money Trust, and The Cardinal
Group. Each trustee who is an "interested person" of the Fund, as that term is
defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Name and Position(s) Held Principal Occupation(s)
Business Address with Fund during Past 5 Years
- ---------------- ---------------- ----------------------
<S> <C> <C>
*John R. Carle Executive Vice President Charter Financial Analyst,
155 East Broad Street and Trustee Executive Vice President of The
Columbus, Ohio 43215 Ohio Company (investment banking).
Gordon B. Carson Trustee, Member of Principal, Whitfield Robert
5413 Gardenbrook Drive Executive Committee Associates (construction consulting
Midland, Michigan 48642 firm) since 1988; formerly, Vice
President of Michigan Molecular
Institute (polymer science research
institute).
</TABLE>
B-8
<PAGE> 129
<TABLE>
<S> <C> <C>
*Walter R. Chambers Chairman and Trustee, Chairman, President, Chief
155 East Broad Street Member of Executive and Executive Officer and a Director of
Columbus, Ohio 43215 Nominating Committees The Ohio Company (investment
banking); formerly Senior Executive
Vice President of The Ohio Company.
John B. Gerlach, Jr. Trustee, Member of Audit Since 1994, President and a
37 West Broad Street Committee Director of Lancaster Colony
Columbus, Ohio 43215 Corporation (diversified consumer
products); prior thereto, Executive
Vice President, Secretary and a
Director of Lancaster Colony
Corporation.
Michael J. Knilans Trustee, Member of Chairman, Ohio Bureau of Workers'
1119 Kingsdale Terrace Executive Committee Compensation.
Columbus, Ohio 43220
James I. Luck Trustee President, The Columbus Foundation
1234 East Broad Street (philanthropic public foundation).
Columbus, Ohio 43205
David L. Nelson Trustee, Member of Vice President, Customer
18 James Lane Nominating and Audit Satisfaction Industry Segment, and
Stamford, CT 06903 Committees former President, ABB Process
Automation Business, of Asea Brown
Boveri, Inc. (designer and
manufacturer of process automation
systems for basic industries);
former President, Process
Automation Business, of Combustion
Engineering, Inc. (designer and
manufacturer of process automation
systems for basic industries).
*C. A. Peterson Trustee Retired; Chartered Financial
150 E. Wilson Bridge Rd. Analyst, former Senior Executive
Worthington, Ohio 43085 Vice President and Director of The
Ohio Company (invest-ment banking).
Lawrence H. Rogers II Trustee Self-employed author; former Vice
4600 Drake Road Chairman, Motor Sports Enterprises,
Cincinnati, Ohio 45243 Inc.
*John L. Schlater Trustee Chartered Financial Analyst and
155 East Broad Street Senior Vice President, The Ohio
Columbus, Ohio 43215 Company (investment banking).
</TABLE>
B-9
<PAGE> 130
<TABLE>
<S> <C> <C>
*Frank W. Siegel President and Trustee, Senior Vice President, The Ohio
155 East Broad Street Member of Executive and Company (investment banking);
Columbus, Ohio 43215 Nominating Committees former Vice President, Keystone
Group (mutual fund management/
administration); former Senior Vice
President, Trust Advisory Group
(mutual fund consulting).
Joseph H. Stegmayer Trustee, Member of Audit President and a Director of Clayton
724 Hampton Roads Dr. and Nominating Committees Homes, Inc. (manufactured homes);
Knoxville, TN 37922-4071 former Vice President, Treasurer,
Chief Financial Officer and a
Director of Worthington Industries,
Inc. (specialty steel and plastics
manufacturer).
David C. Will Vice President Vice President of The Ohio Company;
155 East Broad Street formerly Senior Portfolio Manager,
Columbus, Ohio 43215 Huntington National Bank, Trust
Investments.
Karen J. Hipsher Secretary Executive Secretary of The Ohio
155 East Broad Street Company (investment banking).
Columbus, Ohio 43215
James M. Schrack II Treasurer Vice President and Trust
155 East Broad Street Officer of The Ohio Company
Columbus, Ohio 43215 (investment banking).
Bruce E. McKibben Assistant Since April, 1992, Employee of The
155 East Broad Street Treasurer Ohio Company (investment banking);
Columbus, Ohio 43215 prior thereto, student at The Ohio
State University.
Rodney L. Ruehle Assistant Treasurer Employee of The Ohio Company
155 East Broad Street (investment banking).
Columbus, Ohio 43215
</TABLE>
As of November 30, 1994, all trustees and officers of the Fund as a
group owned fewer than one percent of the Shares of the Fund then outstanding.
Subject to the ultimate authority of the Board of Trustees of the Fund,
the Executive Committee is responsible for the general management of the affairs
of the Fund.
Messrs. Chambers, Siegel, Schlater, Godwin and Will are Chairman,
President and a director,
B-10
<PAGE> 131
Vice President and a director, Vice President and a director, a Vice President,
and a Vice President, respectively, of Cardinal Management Corp., the
Investment Adviser and Manager, transfer agent and provider of accounting
services of and for the Fund. The compensation of trustees and officers of the
Fund who are employed by The Ohio Company is paid by The Ohio Company.
Trustees' fees (currently $500 per meeting attended) plus expenses are paid by
the Fund, except that Messrs. Chambers, Siegel, Schlater and Carle receive no
fees from the Fund. The aggregate amount of compensation and expenses paid to
the trustees during the fiscal year ended September 30, 1994, was $18,664.
PRINCIPAL SHAREHOLDERS OF THE FUND
There were no persons known to the Fund to be the beneficial owners of
more than 5% of the Fund's outstanding shares as of November 22, 1994.
THE ADVISER
The Fund has entered into an Investment Advisory and Management
Agreement (the "Investment Advisory Agreement") with Cardinal Management Corp.,
an Ohio corporation (the "Adviser"), 155 East Broad Street, Columbus, Ohio
43215, in which Adviser has agreed to serve as the Fund's investment adviser
and manager. In such capacity, and subject to the ultimate authority of the
Fund's Board of Trustees, the Adviser has agreed regularly to provide the Fund
with investment advice, including management of the Fund's portfolio
securities, and overall management of the Fund's affairs. The Adviser was
organized in March, 1980, and currently provides investment advisory services
to Cardinal Government Securities Trust, Cardinal Tax Exempt Money Trust,
Cardinal Balanced Fund and Cardinal Aggressive Growth Fund. The Adviser is a
wholly-owned subsidiary of The Ohio Company, an Ohio corporation. The Ohio
Company is an investment banking firm organized in 1925 and serves as the
principal underwriter for each of the foregoing funds and as the investment
adviser and principal underwriter for The Cardinal Fund Inc. The Ohio Company
is a member of the New York Stock Exchange, Midwest Stock Exchange, other
regional stock exchanges and the National Association of Securities Dealers.
The Adviser will be responsible for the payment of clerical and
shareholder service staff salary, office space and other office expenses, the
compensation and expenses of any persons rendering any services to the Fund who
are officers, directors, stockholders or employees of the Adviser or The Ohio
Company, and any advertising and promotion expenses.
As compensation for the investment advice and overall management, the
Fund will pay the Adviser a monthly fee, accrued daily,
B-11
<PAGE> 132
based on an annual rate of .5% of the daily net asset value of the Fund. For
the fiscal years ended September 30, 1994, 1993 and 1992, the Adviser earned
$947,139, $972,887 and $732,778, respectively, under the Investment Advisory
Agreement. In order to reduce the expenses of the Fund and to improve its
total return to shareholders, the Adviser, at its option may waive some part or
all of the fees to which it is entitled under its Investment Advisory Agreement
with the Fund.
The Adviser has agreed to reimburse the Fund (up to the amount of the
fees received by the Adviser) for the aggregate expenses of the Fund during any
fiscal year which exceed the limits prescribed by any state in which the shares
of the Fund are registered for sale. Currently, the most stringent limitation
provides that annual expenses of the Fund, including investment advisory and
management fees but excluding interest, taxes, brokerage commissions and
extraordinary expenses, shall not exceed two and one-half percent of the first
thirty million dollars of the Fund's average net assets, two percent of the
next seventy million dollars of the Fund's average net assets and one and
one-half percent of the Fund's remaining average net assets.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser, subject to
the policies established by the Board of Trustees of the Fund and in accordance
with the Fund's investment restrictions and policies, is responsible for the
Fund's portfolio decisions and the placing of the Fund's portfolio
transactions. Purchases and sales of portfolio securities which are debt
securities usually are principal transactions in which such portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions in the
over-the-counter market are generally principal transactions with dealers.
With respect to the over-the-counter market, the Fund, where possible, will
deal directly with dealers who make a market in the securities involved except
in those circumstances where better price and execution are available
elsewhere. For the last three fiscal years ended September 30, 1994, the Fund
paid no brokerage commissions.
In executing such transactions, the Adviser seeks to obtain the best
net results for the Fund taking into account such factors as price (including
the applicable brokerage commission or dealer spread), size of order,
difficulties of execution and operational facilities of the firm involved and
the firm's risk in positioning a block of securities. While the Adviser
generally seeks reasonably competitive commission rates, for the reasons stated
in
B-12
<PAGE> 133
the prior sentence, the Fund will not necessarily be paying the lowest
commission or spread available.
The Adviser may consider provision of research, statistical and other
information to the Fund or the Adviser in the selection of qualified
broker-dealers who effect portfolio transactions for the Fund so long as the
Adviser's ability to obtain the best net results for portfolio transactions of
the Fund is not diminished. Such research services include supplemental
research, securities and economic analyses, and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Such research services may also be useful to the
Adviser in connection with its services to other clients. Similarly, research
services provided by brokers serving such other clients may be useful to the
Adviser in connection with its services to the Fund. Although this information
is useful to the Fund and the Adviser, it is not possible to place a dollar
value on it. It is the opinion of the Board of Trustees and the Adviser that
the review and study of this information will not reduce the overall cost to
the Adviser of performing its duties to the Fund under the Investment Advisory
Agreement. The Fund is not authorized to pay brokerage commissions which are
in excess of those which another qualified broker would charge solely by reason
of brokerage and research services provided.
Investment decisions for the Fund are made independently from those
for any other investment company or account managed by the Adviser. Any such
other investment company or account may also invest in the same securities as
the Fund. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Fund and another investment
company or account, the transaction will be averaged as to price, and available
investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained by the
Fund. To the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other investment companies or accounts in order to obtain best execution. In
making investment recommendations for the Fund, the Adviser will not inquire or
take into consideration whether an issuer of securities proposed for purchase
or sale by the Fund is a customer of the Adviser, its parent or its
subsidiaries or affiliates and, in dealing with its customers, the Adviser, its
parent, subsidiaries and affiliates will not inquire or take into consideration
whether securities of such customers are held by the Fund.
The Fund did not during the fiscal year ended September 30, 1994, hold
securities of its regular brokers or dealers, as defined in Rule 10b-1 under
the 1940 Act, or their parent companies.
B-13
<PAGE> 134
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving its investment objective, it may
sell portfolio securities without regard to the length of time they have been
held whenever such sale will in the Adviser's opinion strengthen the Fund's
position and contribute to its investment objective. Such could be the case
during periods of rapid fluctuations of interest rates in portfolio securities.
ACCOUNTING SERVICES
The Fund has entered into an Accounting Services Agreement with the
Adviser pursuant to which the Adviser has agreed to maintain and keep current
the books, accounts, records, journals and other records of original entry
relating to the business of the Fund and to calculate the Fund's net asset
value on a daily basis. In consideration of such services, the Fund has agreed
to pay monthly to the Adviser a fee based on the average monthly net asset
value of the Fund. For the last three fiscal years ended September 30, 1994,
the Adviser received $44,111, $43,375 and $39,764, respectively, for services
to the Fund pursuant to such agreement.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Fund has entered into an Administration Agreement with the Adviser
pursuant to which the Adviser has agreed to act as the Fund's transfer agent,
dividend disbursing agent and administrator of plans for the Fund. In
consideration of such services, the Fund has agreed to pay the Adviser an
annual fee paid monthly, equal to $21 per shareholder account plus the
Adviser's out-of-pocket expenses. For the last three fiscal years ended
September 30, 1994, the Adviser received $211,560, $209,799 and $169,467,
respectively, for services to the Fund pursuant to such agreement.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund's Shares may be purchased at the public offering price
through The Ohio Company, principal underwriter of the Fund's Shares, at its
address and number set forth on the cover page of this Statement of Additional
Information, and through other broker-dealers who are members of the National
Association of Securities Dealers, Inc. and have sales agreements with The Ohio
Company.
Based upon the value of the Fund's portfolio securities and other
assets and the number of outstanding Shares as of the fiscal year end September
30, 1994, the net asset value and redemption price per share was $7.96. The
total offering price per share was $8.34 per share (net asset value divided
by .9550, assuming the then current
B-14
<PAGE> 135
maximum sales charge of 4.50% of the offering price). The total offering price
is reduced on sales of $100,000 or more.
The net asset value of the Fund is determined once daily as of 4:00
P.M., Columbus, Ohio time, (a) on each business day the New York Stock Exchange
is open for business and on any other day there is sufficient trading in the
Fund's portfolio securities that the Fund's net asset value per share might be
materially affected by changes in the value of its portfolio securities. The
net asset value per share of the Fund is computed by dividing the sum of the
value of the Fund's portfolio securities plus any cash and other assets
(including interest and dividends accrued but not received) minus all
liabilities (including estimated accrued expenses) by the total number of
shares then outstanding.
Portfolio securities for which over-the-counter quotations are readily
available are valued at the bid price. The Fund uses one or more pricing
services to provide such market quotations. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Fund.
The Fund may suspend the determination of the net asset value, the
right of redemption or postpone the date of payment for Shares during any
period when (a) trading on the New York Stock Exchange (the "Exchange") is
restricted by applicable rules and regulations of the Securities and Exchange
Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) an emergency exists as a result of which (i) disposal of
portfolio securities owned by the Fund is not reasonably practical or (ii) it
is not reasonably practical for the Fund to determine the fair value of its net
assets, or (d) the Securities and Exchange Commission has by order permitted
such suspension.
TAXES
The Fund intends to qualify as a "regulated investment company" under
the Code for so long as such qualification is in the best interest of the
Fund's shareholders. In order to qualify as a regulated investment company,
the Fund must, among other things: derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities, or currencies; derive less than 30% of its gross income from the
sale or other disposition of stock, securities, options, future contracts or
foreign currencies held less than three months; and diversify its investments
within certain prescribed limits. In addition, to utilize the tax provisions
specially applicable to regulated investment companies, the Fund
B-15
<PAGE> 136
must distribute to its shareholders at least 90% of its investment company
taxable income for the year. In general, the Fund's investment company taxable
income will be its taxable income subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although the Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, the Fund
may be subject to the tax laws of such states or localities. In addition, if
for any taxable year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to federal tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions
would be taxable to shareholders to the extent of earnings and profits, and
would be eligible for the dividends received deduction for corporations.
It is expected that the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal
income tax purposes, even if paid in additional Shares of the Fund and not in
cash.
Distribution by the Fund of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term
capital gain in the year in which it is received, regardless of how long the
shareholder has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
Federal taxable income of individuals is subject to graduated tax
rates of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized
B-16
<PAGE> 137
deductions for individuals with gross income in excess of certain threshold
amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on capital gains of
individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss
each year to offset ordinary income. Excess capital loss may be carried
forward to future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%.
Further, a corporation's federal taxable income in excess of $15 million is
subject to an additional tax equal to 3% of taxable income over $15 million,
but not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset
capital gains and excess capital losses may be carried back three years and
forward five years.
Certain corporations are entitled to a 70% dividends received
deduction for distributions from certain domestic corporations. The Fund will
designate the portion of any distributions which qualify for the 70% dividends
received deduction. The amount so designated may not exceed the amount
received by the Fund for its taxable year that qualifies for the dividends
received deduction.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends paid to any shareholder who
has provided either an incorrect tax identification number or no number at all,
or who is subject to withholding by the Internal Revenue Service for failure
properly to include on his return payments of interest or dividends.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of the Fund. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Fund or its shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of the Fund are urged to consult
their tax advisers with specific reference to their own tax situation. In
addition, the tax discussion in the Prospectus and this Statement of Additional
Information is based on
B-17
<PAGE> 138
tax laws and regulations which are in effect on the date of the Prospectus and
this Statement of Additional Information; such laws and regulations may be
changed by legislative or administrative action.
Shareholders should consult their tax advisers to assess the general
state and local tax consequences of investing in the Fund and, in particular,
to determine whether dividends paid that represent interest derived from U.S.
government securities is exempt from applicable state and local income taxes.
PERFORMANCE INFORMATION
For the 30-day period ended September 30, 1994, the Fund's yield was
6.55%. Such yield is computed by dividing the net investment income per Share
earned during that period by the maximum offering price per Share on the last
day of the period, according to the following formula:
a - b
YIELD = 2[(------- + 1) to the 6th power - 1]
cd
Where: a = dividends and interest earned during the period; b =
expenses accrued for the period (net of reimbursements); c = the average daily
number of Shares outstanding during the period that were entitled to receive
dividends; and d = the maximum offering price per Share on the last day of the
period. Expenses accrued during the period include all recurring fees that are
charged to all Shareholder accounts in proportion to the length of the base
period and assuming the Fund's average account size. The yield computation
assumes the then applicable maximum initial sales charge is deducted from the
investment in the Fund.
For the one-year and five-year periods ended September 30, 1994, and
the period from the commencement of the Fund's operation (February 3, 1986) to
September 30, 1994, the average annual total returns for the Fund were (4.76)%,
6.22%, and 6.81%, respectively. For the one- and five- periods ended September
30, 1994, and the period from commencement of the Fund's operations (February
3, 1986) to September 30, 1994, the cumulative return figures for the Fund were
(4.76)%, 35.24% and 76.97%, respectively. Each quotation of average annual
total return was computed by finding the average annual compounded rate of
return over that period which would equate the value of an initial amount of
$1,000 invested in the Fund to the ending redeemable value, according to the
following formula:
P(T + 1)n = ERV
Where: P = a hypothetical initial payment of $1,000, T = average
annual total return, n = number of years over which total
B-18
<PAGE> 139
return is being calculated and ERV = ending redeemable value of the
hypothetical $1,000 initial payment at the end of the period for which average
annual total return is being calculated assuming a complete redemption. The
calculation of average annual total return assumes the deduction of the then
applicable maximum sales charge from the initial investment of $1,000, assumes
the reinvestment of all dividends and distributions at the price stated in the
then effective Prospectus on the reinvestment dates during the period and
includes all recurring fees that are charged to all Shareholder accounts
assuming the Fund's average account size. Cumulative return is computed by
using average annual return, as calculated above, for each year of the relevant
period to determine the total return on a hypothetical initial investment of
$1,000 over such period.
In addition, as described in the Fund's Prospectus, from time to time
the Fund may include in its sales literature and shareholder reports a quote of
a current "distribution" rate. For the 12-month period ended September 30,
1994, the Fund's distribution rate was 7.73%. The current distribution rate is
computed by dividing the total amount of dividends per share paid by the Fund
during the past twelve months by a current maximum offering price. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout, or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid over the period such changed
policies were in effect, rather than using the dividends during the past twelve
months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as premium income from option writing,
short-term capital gains and net equalization credits and is calculated over a
different period of time.
Investors may also judge the performance of the Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard
& Poor's Corporation and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., and CDA Investment Technologies, Inc. Comparisons may also
be made to indices or data published in Money Magazine, Forbes, Barron's, The
Wall Street Journal, The New York Times, The Columbus Dispatch, Business Week,
Consumer Reports and U.S.A. Today. In addition to performance information,
general information about the Fund that appears in a publication such as those
mentioned above may be included in advertisements and in reports to
shareholders.
B-19
<PAGE> 140
DISTRIBUTOR
The Ohio Company serves as the principal underwriter of Shares of the
Fund. In such capacity, and pursuant to a Distributor's Contract with the
Fund, shares of the Fund continuously are offered on a best efforts basis by
The Ohio Company and dealers selected by The Ohio Company. Pursuant to the
Distributor's Contract, expenses of printing prospectuses and other selling
literature are borne by The Ohio Company.
For the Fund's fiscal years ended September 30, 1994, 1993 and 1992,
The Ohio Company was paid $424,187, $1,218,578 and $1,803,068, respectively, in
commissions after discounts to dealers under the Distributor's Contract.
CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263
has been selected to serve as the Fund's custodian. In such capacity the
custodian will hold or arrange for the holding of all portfolio securities and
other assets of the Fund.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Certain legal matters as to the issuance of the shares offered hereby
have been passed upon by Baker & Hostetler, 65 East State Street, Columbus,
Ohio 43215. The Fund has selected KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as independent auditors for the Fund. The financial
statements of the Fund included in this Statement of Additional Information
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
Shareholders have neither any preemptive rights to subscribe for
additional Shares nor any cumulative voting rights.
The Fund is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve
supervision by the Securities and Exchange Commission of the management or
policies of the Fund.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
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<PAGE> 141
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized
to give any information or make any representation other than those contained
in the Prospectuses and this Statement of Additional Information.
B-21
<PAGE> 142
FINANCIAL STATEMENTS
CARDINAL GOVERNMENT OBLIGATIONS FUND
SEPTEMBER 30, 1994
B-22
<PAGE> 143
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PRINCIPAL VALUE
SECURITIES AMOUNT (NOTE 1)
- ---------- -------- ---------
<S> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS 0.66%
U.S. Treasury Notes, 7.75% maturing 2/15/2001 $ 400 $ 407
U.S. Treasury Notes, 8.00% maturing 10/15/1996 700 718
-------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS 1,100 1,125
-------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS 98.88%
GNMA I Notes, 8.50% maturing 5/15/2016 through 8/15/2017 13,134 13,138
GNMA I Notes, 8.75% maturing 12/15/2016 through 6/15/2017 1,239 1,255
GNMA I Notes, 9.00% maturing 5/15/2016 through 4/15/2021 26,900 27,622
GNMA I Notes, 9.50% maturing 4/15/2016 through 3/15/2020 2,443 2,568
GNMA I Notes, 10.00% maturing 12/15/2017 through 11/15/2020 1,182 1,268
GNMA I Notes, 11.00% maturing 1/15/2010 through 6/15/2020 8,734 9,700
GNMA I Notes, 11.50% maturing 10/15/2010 through 3/15/2016 1,859 2,092
GNMA I Notes, 12.00% maturing 1/15/2013 through 7/15/2015 1,599 1,817
GNMA I PL Notes, 7.00% maturing 8/15/1995 through 3/15/2029 19,263 16,893
GNMA I PL Notes, 7.125% maturing 1/15/2024 929 823
GNMA I PL Notes, 7.25% maturing 5/15/2022 through 1/15/2031 5,210 4,650
GNMA I PL Notes, 7.875% maturing 7/15/2023 828 781
GNMA I PL Notes, 8.00% maturing 9/15/2023 1,410 1,374
GNMA I PL Notes, 8.125% maturing 5/15/2029 2,006 1,948
GNMA I PL Notes, 8.20% maturing 10/15/2012 692 688
GNMA I PL Notes, 8.25% maturing 7/15/2027 2,822 2,748
GNMA I PL Notes, 8.50% maturing 1/15/2023 through 9/15/2029 5,584 5,521
GNMA I PL Notes, 9.00% maturing 10/15/2021 1,810 1,814
GNMA I PL Notes, 9.50% maturing 1/15/2019 through 8/15/2022 1,319 1,344
GNMA I PL Notes, 9.55% maturing 11/15/1994 2,862 2,776
GNMA I PL Notes, 9.75% maturing 12/15/2025 1,888 1,942
GNMA I PL Notes, 10.00% maturing 10/15/1012 through 3/15/2024 6,735 6,920
GNMA I PL Notes, 10.25% maturing 12/15/2022 1,654 1,704
GNMA I PL Notes, 10.50% maturing 7/15/2014 1,056 1,105
GNMA I PL Notes, 11.00% maturing 9/15/2006 1,125 1,173
GNMA II Notes, 8.50% maturing 6/20/2017 through 11/20/2017 1,180 1,170
GNMA II Notes, 9.00% maturing 10/20/2015 through 10/20/2019 12,988 13,159
GNMA II Notes, 9.25% maturing 10/20/2016 220 225
GNMA II Notes, 9.50% maturing 1/20/2016 through 12/20/2022 6,792 7,034
GNMA II Notes, 10.00% maturing 1/20/2014 through 12/20/2021 13,830 14,591
GNMA II Notes, 10.50% maturing 9/20/2013 through 9/20/2019 2,857 3,062
GNMA II Notes, 11.00% maturing 10/20/2013 through 1/20/2021 3,846 4,165
GNMA GPM I Notes, 9.00% maturing 5/15/2009 through 6/15/2009 1,516 1,529
GNMA GPM I Notes, 9.25% maturing 5/15/2016 through 8/15/2021 701 714
GNMA GPM I Notes, 9.75% maturing 5/15/2020 through 9/15/2021 1,174 1,213
GNMA GPM I Notes, 10.00% maturing 2/15/2010 through 11/15/2013 1,162 1,213
GNMA GPM I Notes, 10.25% maturing 8/15/2020 386 407
GNMA GPM I Notes, 10.75% maturing 12/15/2017 through 7/15/2020 661 709
GNMA GPM I Notes, 11.50% maturing 1/15/2013 through 7/15/2013 491 531
GNMA GPM I Notes, 13.50% maturing 2/15/2011 through 10/15/2012 464 510
GNMA GPM II Notes, 10.25% maturing 8/20/2016 through 9/20/2018 726 760
GNMA GPM II Notes, 10.75% maturing 2/20/2018 265 280
GNMA MH I Notes, 9.75% maturing 12/15/2012 1,339 1,394
Fed. Home Loan Mtg. Corp., 8.50% maturing 4/01/2007 1,283 1,308
-------- ---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 166,164 167,638
-------- ---------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT OBLIGATIONS 1.48%
Fifth Third Bank, 4.60%, dated 9/30/94, due 10/03/94 2,500 2,500
-------- ---------
TOTAL REPURCHASE AGREEMENTS 2,500 2,500
-------- ---------
TOTAL INVESTMENTS (COST $179,072) 101.02% $169,764 $171,263
======== =========
</TABLE>
GNMA -- Government National Mortgage Association
GPM -- Graduated Payment Mortgage
PL -- Project Loan
MH -- Mobile Home
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-23
<PAGE> 144
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $179,072)........................... $ 171,263
Cash.......................................................................... 95
Interest receivable........................................................... 1,378
Receivable for Fund shares sold............................................... 58
Other assets.................................................................. 115
---------
Total assets........................................................ 172,909
---------
LIABILITIES
Payable for investment securities purchased................................... 1,900
Dividends payable............................................................. 491
Payable for Fund shares redeemed.............................................. 846
Accrued investment management, accounting and transfer agent fees (note 3).... 96
Other accrued expenses........................................................ 47
---------
Total liabilities................................................... 3,380
---------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS--applicable to 21,285,926 outstanding no par value shares of
beneficial interest (unlimited number of shares authorized)................. $ 169,529
=========
NET ASSET VALUE PER SHARE..................................................... $ 7.96
=========
</TABLE>
See accompanying notes to financial statements.
B-24
<PAGE> 145
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................................... $16,253
-------
EXPENSES:
Investment management fees (note 3).............................................. 947
Transfer agent fees and expenses (note 3)........................................ 212
Accounting fees (note 3)......................................................... 44
-------
Total affiliated expenses............................................ 1,203
-------
Custodian fees................................................................... 32
Professional fees................................................................ 60
Reports to shareholders.......................................................... 36
Directors' fees.................................................................. 19
Registration fees................................................................ 13
Other expenses................................................................... 48
-------
Total non-affiliated expenses........................................ 208
-------
Total expenses....................................................... 1,411
-------
Net investment income................................................ 14,842
-------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 2):
Net realized loss from security transactions..................................... (5,070)
Decrease in unrealized gain on investments....................................... (10,125)
-------
Net realized loss and decrease in unrealized gain on investments..... (15,195)
-------
Net decrease in net assets from operations........................... $ (353)
========
</TABLE>
See accompanying notes to financial statements.
B-25
<PAGE> 146
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................ $ 14,842 $ 16,125
Net realized loss from security transactions......................... (5,070) (4,708)
Decrease in unrealized gain on investments........................... (10,125) (2,568)
-------- --------
Net increase (decrease) in net assets from operations........... (353) 8,849
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.65 and $.74 per share,
respectively)...................................................... (14,708) (16,221)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares.................................... 12,690 57,184
Net asset value of Fund shares issued in connection with reinvestment
of distributions to shareholders................................... 8,662 9,948
-------- --------
21,352 67,132
Cost of Fund shares redeemed......................................... (45,645) (23,016)
-------- --------
Increase (decrease) in net assets derived from capital share
transactions................................................... (24,293) 44,116
-------- --------
Net increase (decrease) in net assets........................... (39,354) 36,744
NET ASSETS--beginning of period...................................... 208,883 172,139
-------- --------
NET ASSETS--end of period (overdistributed net investment income of
$2 and $135, respectively)......................................... $169,529 $208,883
========= =========
</TABLE>
See accompanying notes to financial statements.
B-26
<PAGE> 147
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Government Obligations Fund (the "Fund") is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated November 15, 1985 and is registered under the Investment Company Act of
1940. 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 for investment
companies.
Security Valuation -- Portfolio securities for which over-the-counter market
quotations are readily available are valued at the bid price. If no quotations
are available, portfolio securities are valued in good faith by the Board of
Trustees of the Fund to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
recorded on the trade date. Interest income is recorded on the accrual basis.
Premiums and discounts are recognized as realized gains or losses from security
transactions as securities are sold or as principal reductions are received. In
determining the net realized gain or loss on securities sold, the cost of the
securities has been determined on first-in, first-out (FIFO) cost basis.
Federal Income Taxes -- No provision has been made for Federal taxes on the
Fund's income, since it is the policy of the Fund 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, at net asset value, in additional shares of the Fund.
(2) -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of U.S. government agency obligations (excluding short-term
obligations) during the year ended September 30, 1994 aggregated $73,365,364 and
$41,446,743, respectively.
As of September 30, 1994, gross unrealized gains and gross unrealized losses on
investment securities were $730,592 and $8,539,723, respectively; resulting in a
net unrealized loss of $7,809,131 on investment securities with a cost basis of
$179,072,149.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Fund. CMC has agreed that if the aggregate expenses of the Fund,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Fund, CMC will refund to the Fund, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the year ended September 30, 1994.
(continued)
B-27
<PAGE> 148
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
CMC also serves the Fund 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 Fund. For the year ended September 30, 1994 the Fund paid or
accrued $211,560 and $44,111 for transfer agent and fund accounting services,
respectively.
The Ohio Company, sole shareholder of CMC, acting as distributor for the Fund,
reported that it received commissions after discounts to dealers from the sale
of shares of the Fund of $424,187 for the year ended September 30, 1994.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1994. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Fund. 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 Fund 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 Fund is a deposit of $30,644, for the initial capital of ICI
Mutual. The Fund is also committed to provide $91,932 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $61,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
(5) -- CAPITAL STOCK
At September 30, 1994, there were an unlimited number of shares of no par value
capital stock authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $ 198,994,906
Accumulated net realized loss on investments....................................... (21,655,428)
Unrealized loss on investments..................................................... (7,809,131)
Overdistributed net investment income.............................................. (1,581)
-------------
Net assets......................................................................... $ 169,528,766
=============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Shares sold.......................................................... 1,514,461 6,465,446
Shares issued in connection with reinvestment of distributions to
shareholders....................................................... 1,045,107 1,129,022
----------- -----------
2,559,568 7,594,468
Shares repurchased................................................... (5,478,768) (2,613,070)
----------- -----------
Net increase (decrease).............................................. (2,919,200) 4,981,398
Shares outstanding:
Beginning of period.................................................. 24,205,126 19,223,728
----------- -----------
End of period........................................................ 21,285,926 24,205,126
========== ==========
</TABLE>
B-28
<PAGE> 149
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------
(6) -- DIVIDENDS AND DISTRIBUTIONS
See caption "FINANCIAL HIGHLIGHTS" in the Prospectus for the Financial
Highlights with respect to the Fund for each of the years in the eight-year
period ended September 30, 1994, and the period from February 3, 1986 (date of
commencement of operations), through September 30, 1986.
B-29
<PAGE> 150
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Government Obligations Fund:
We have audited the accompanying statement of assets and liabilities of Cardinal
Government Obligations Fund, including the statement of investments, as of
September 30, 1994, 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 Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1994, by correspondence with the custodian. For payables for
investment securities purchased as of September 30, 1994, we performed
appropriate alternative 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 Obligations Fund as of September 30, 1994, 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 18, 1994
B-30
<PAGE> 151
STATEMENT OF ADDITIONAL INFORMATION
CARDINAL GOVERNMENT SECURITIES TRUST
Cardinal Government Securities Trust (the "Trust") is a no-load,
diversified, open-end management investment company with an investment
objective of maximizing current income while preserving capital and maintaining
liquidity. The Trust seeks to attain its objective by investing in U.S.
Treasury bills, notes and bonds, other obligations issued or guaranteed by the
United States, its agencies or instrumentalities, and repurchase agreements
relating to such obligations. All obligations purchased by the Trust will
mature, or be deemed to mature, in thirteen months or less. There can be no
assurance that the Trust's objective will be achieved.
The Trust is designated for institutions and individuals who desire
current income that reflects prevailing interest rates for short-term
investments together with a high degree of liquidity and the security of a
portfolio investing in obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, and repurchase agreements collateralized by
such obligations.
_____________________________________
For further information regarding the Trust or for assistance in
opening an account or redeeming shares, please call:
In Columbus 464-5512 (opening accounts and further information)
464-5511 (redeeming shares)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed to the Trust
at its principal office:
155 East Broad Street
Columbus, Ohio 43215
______________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus of the Trust, dated February
1, 1995, which has been filed with the Securities and Exchange Commission.
This Statement of Additional Information is incorporated by reference in its
entirety into the Prospectus. The Prospectus is available upon request without
charge from the Trust at the above address or by calling the phone numbers
provided above.
FEBRUARY 1, 1995
<PAGE> 152
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Additional Information on Portfolio Instruments . . . . . . . . . . . . . . . . . . . . . . . B-2
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-4
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-5
PRINCIPAL SHAREHOLDERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-7
THE ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-7
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-9
ACCOUNTING SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-11
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-11
LEGAL COUNSEL AND INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-12
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-12
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-12
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
State and Local Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
YIELD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
</TABLE>
- i -
<PAGE> 153
STATEMENT OF ADDITIONAL INFORMATION
CARDINAL GOVERNMENT SECURITIES TRUST
Cardinal Government Securities Trust (the "Trust") is an open-end
management investment company. Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
Prospectus of the Trust. Capitalized terms not defined herein are defined in
the Prospectus. No investment in Shares of the Trust should be made without
first reading the Prospectus of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
General
- -------
The Trustees have adopted a policy requiring that the Trust use its
best efforts to maintain a constant net asset value of $1.00 per share. The
Trust values its portfolio securities on the basis of the amortized cost
valuation method. The valuation of the Trust's portfolio securities based upon
their amortized cost and the maintenance of the Trust's per share net asset
value of $1.00 is permitted based on the Trust's adherence to certain
conditions. The Trust has agreed to maintain a dollar-weighted average
portfolio maturity of 90 days or less, in accordance with Rule 2a-7 of the 1940
Act, and purchase only obligations having, or deemed to have, maturities from
the date of purchase of thirteen months or less. In addition, the Trustees
have agreed to establish procedures designed to stabilize, to the extent
reasonably possible, the Trust's per share price, as computed for the purpose
of sales and redemptions, at $1.00. There is no assurance that the Trust will
at all times be able to maintain a constant net asset value of $1.00 per share.
(See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Determination of Net
Asset Value.")
Changes in short-term interest rates may affect the value of the
portfolio of the Trust. An increase in interest rates will generally reduce
the value of the portfolio and a decline in interest rates will generally
increase the value of the portfolio. The impact of such changes in prevailing
interest rates is generally minimized due to the short average life of the
portfolio and, under the investment policies described above, such interest
rate changes should not cause, under normal circumstances, changes in net asset
value per share. If abnormally high redemption requests should require an
untimely sale of portfolio securities, the Trust intends to use its limited
borrowing powers to avoid such dispositions to the extent practicable. (See
"Investment Restrictions" below.)
B-1
<PAGE> 154
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
REPURCHASE AGREEMENTS. Securities held by the Trust may be subject to
repurchase agreements. Under the terms of a repurchase agreement, the Trust
would acquire securities from member banks of the Federal Reserve System and
registered broker-dealers which the Adviser deems creditworthy under guidelines
approved by the Trust's Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by the Trust plus
interest negotiated on the basis of current short-term rates, which may be more
or less than the rate on the underlying portfolio securities. The seller under
a repurchase agreement will be required to maintain at all times the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligation or become insolvent, the Trust would suffer a loss to the extent
that the proceeds from a sale of the underlying portfolio securities were less
than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Trust were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that the Trust
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to retain the underlying securities, although the Board of
Trustees of the Trust believes that, under the regular procedures normally in
effect for custody of the Trust's securities subject to repurchase agreements
and under federal laws, a court of competent jurisdiction would rule in favor
of the Trust if presented with the question. Securities subject to repurchase
agreements will be held by the Trust's custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements
are considered to be loans by the Trust under the 1940 Act.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Trust may invest in
securities issued by other investment companies. The Trust currently intends
to limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will
be invested in the securities of any one investment company; (b) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Trust. As a shareholder of another investment company, the Trust would bear,
along with other shareholders, its pro rata portion of that company's expenses,
including advisory and other expenses that the Trust bears directly in
connection with its own operations. Investment companies in which the Trust
may invest may also impose a distribution charge in connection with the
purchase or redemption of their shares and other types of commissions or
charges. Such charges will be
B-2
<PAGE> 155
payable by the Trust and, therefore, will be borne directly by shareholders.
Investment Restrictions
- -----------------------
The Trust has adopted certain restrictions upon its investment
objective and policies which provide that the Trust may not:
(1) Purchase securities or make any investments other than those
described under "Investment Objective and Policies" in the
Prospectus (there is no limit upon the amount of the Trust's
assets which may be invested in the securities of any one
issuer of permitted obligations);
(2) Borrow money except from banks for temporary or emergency
non-investment purposes, such as to accommodate abnormally
heavy redemption requests, and then only in an amount not
exceeding 10% of the value of the Trust's total assets at the
time of borrowing; provided that so long as any borrowings
exceed 5% of the value of the Trust's total assets, the Trust
shall not purchase portfolio securities;
(3) Pledge, mortgage or hypothecate its assets, except that to
secure borrowings permitted for temporary or emergency non-
investment purposes, the Trust may pledge securities having a
market value at the time of pledge not exceeding 15% of its
total assets (so long as certain state law restrictions are
applicable, the market value of securities subject to any such
pledge will not exceed 10% of the market value of the Trust's
total assets);
(4) Make loans, other than by entering into repurchase agreements
to the extent allowed herein and through the purchase of other
obligations in accordance with its investment objective and
policies;
(5) Effect short sales of securities;
(6) Act as an underwriter of securities;
(7) Enter into a repurchase agreement maturing in more than seven
days or knowingly purchase securities which are subject to
restrictions on resale or for which there is no readily
available market if, as a result, more than 10% of the value
of the Trust's total assets at the time would be invested in
such securities;
(8) Purchase or sell real estate, real estate mortgage loans,
commodities or commodities contracts or oil and gas interests;
or
B-3
<PAGE> 156
(9) Purchase the securities of issuers conducting their principal
business activity in the same industry if as a result of such
purchase more than 25% of its total assets would be invested
in the securities of issuers in that industry; provided that
such limitation shall not apply to the purchase of securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The following additional investment restriction may be changed without
the majority vote of the outstanding Shares of the Trust. The Trust may not:
(1) Purchase securities of other investment companies, except (a)
in connection with a merger, consolidation, acquisition or
reorganization, and (b) to the extent permitted by the 1940
Act or pursuant to any exemptions therefrom.
The Trust has represented to the California Department of Corporations
that, in order to comply with applicable regulations, it will acquire or retain
securities of other open-end management investment companies if such
investments are made in open-end management investment companies sold with no
sales commission and the Trust's investment adviser waives its management fee
with respect to such investments. The Trust intends to comply with this
undertaking for so long as the Trust has its shares registered for sale in the
State of California or such representation is required by the California
Department of Corporations.
If a percentage restriction is adhered to at the time the relevant
action is taken, a later increase or decrease in percentage resulting from a
change in market value of an investment or in total assets will not be deemed
to result in a violation of the restriction.
Portfolio Turnover
- ------------------
The portfolio turnover rate for the Trust is calculated by dividing
the lesser of the Trust's purchases or sales of portfolio securities for the
year by the monthly average value of the Trust's portfolio securities. The
Securities and Exchange Commission requires that the calculation exclude all
securities whose remaining maturities at the time of acquisition were one year
or less.
Because the Trust intends to invest almost entirely in securities with
maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover with respect to the Trust is expected to be zero percent for
regulatory purposes.
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MANAGEMENT OF THE TRUST
The trustees and officers of the Trust, together with their addresses
and principal business occupations and other affiliations during the last five
years, are shown below. Except for Mr. Godwin, each person named as a Trustee
also serves as a trustee of Cardinal Tax Exempt Money Trust, Cardinal
Government Obligations Fund and The Cardinal Group and as a director of The
Cardinal Fund Inc. Mr. Godwin is also a Trustee of Cardinal Tax Exempt Money
Trust. Each trustee who is an "interested person" of the Trust, as that term
is defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Name and Positions Held Principal Occupation
Business Address with Registrant During Past 5 Years
---------------- --------------- -------------------
<S> <C> <C>
Gordon B. Carson Trustee, Member of Executive Principal, Whitfield Robert
5413 Gardenbrook Drive Committee Associates (construction consulting
Midland, Michigan 48642 firm); formerly Vice President of
Michigan Molecular Institute,
Midland, Michigan (polymer science
research institute).
*Walter R. Chambers Chairman and Chairman, President, Chief Executive
155 East Broad Street Trustee, Member of Executive Officer and a Director of The Ohio
Columbus, Ohio 43215 and Nominating Committees Company (investment banking);
formerly Senior Executive Vice
President of The Ohio Company.
John B. Gerlach, Jr. Trustee, Member of Audit Since 1994, President and a Director
37 West Broad Street Committee of Lancaster Colony Corporation
Columbus, Ohio 43215 (diversified consumer products);
prior thereto, Executive Vice
President, Secretary and a Director
of Lancaster Colony Corporation.
*Hannibal L. Godwin III Trustee and Senior Vice President of The Ohio
155 East Broad Street Executive Vice Company (investment banking).
Columbus, Ohio 43215 President
Michael J. Knilans Trustee, Member of Executive Chairman, Ohio Bureau of Workers'
1119 Kingsdale Terrace Committee Compensation.
Columbus, Ohio 43220
James I. Luck Trustee President, The Columbus Foundation
1234 East Broad Street (philanthropic public foundation).
Columbus, Ohio 43205
</TABLE>
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<TABLE>
<S> <C> <C>
David L. Nelson Trustee, Member of Audit and Vice President, Customer
18 James Lane Nominating Committees Satisfaction, Industry Segment, and
Stamford, CT 06903 former President, ABB Process
Automation Business, of Asea Brown
Boveri, Inc. (designer and
manufacturer of process automation
systems for basic industries);
former President, Process Automation
Business, of Combustion Engineering,
Inc. (designer and manufacturer of
process automation systems for basic
industries).
*C. A. Peterson Trustee Retired; Chartered Financial
150 E. Wilson Bridge Rd. Analyst, former Senior Executive
Worthington, Ohio 43085 Vice President and Director of The
Ohio Company (investment banking).
Lawrence H. Rogers II Trustee Self-employed author; former Vice
4600 Drake Road Chairman of Motor Sports
Cincinnati, Ohio 45243 Enterprises, Inc.
*John L. Schlater Trustee Chartered Financial Analyst and
155 East Broad Street Senior Vice President, The Ohio
Columbus, Ohio 43215 Company (investment banking).
*Frank W. Siegel President and Trustee, Senior Vice President, The Ohio
155 East Broad Street Member of Company (investment banking); former
Columbus, Ohio 43215 Executive and Nominating Vice President, Keystone Group
Committees (mutual fund management/
administration); former Senior Vice
President, Trust Advisory Group
(mutual fund consulting).
Joseph H. Stegmayer Trustee, Member of Audit and President and a Director of Clayton
724 Hampton Roads Drive Nominating Committees Homes, Inc. (manufactured homes);
Knoxville, TN 37922-4071 former Vice President, Treasurer,
Chief Financial Officer and a
Director of Worthington Industries,
Inc. (specialty steel and plastics
manufacturer).
David C. Will Vice President Vice President of The Ohio Company;
155 East Broad Street formerly Senior Portfolio Manager,
Columbus, Ohio 43215 Huntington National Bank, Trust
Investments.
</TABLE>
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<TABLE>
<S> <C> <C>
James M. Schrack II Treasurer Trust Officer and Vice President of
155 East Broad Street The Ohio Company (investment
Columbus, Ohio 43215 banking).
Bruce E. McKibben Assistant Treasurer Since April, 1992, Employee of The
155 East Broad Street Ohio Company (investment banking);
Columbus, Ohio 43215 prior thereto, student at The Ohio
State University.
Rodney L. Ruehle Assistant Treasurer Employee of The Ohio Company
155 East Broad Street (investment banking).
Columbus, Ohio 43215
Karen J. Hipsher Secretary Executive Secretary of The Ohio
155 East Broad Street Company (investment banking).
Columbus, Ohio 43215
</TABLE>
As of November 30, 1994, all trustees and officers of the Trust as a
group owned fewer than one percent of the Shares of the Trust.
Subject to the ultimate authority and direction of the Board of
Trustees of the Trust, the Executive Committee will exercise the powers of the
Trustees during the intervals between meetings of the Trustees.
Messrs. Chambers, Siegel, Schlater, Godwin and Will are Chairman,
President and a director, Vice President and a director, Vice President and a
director, a Vice President and a Vice President, respectively, of the Adviser.
The compensation of trustees and officers of the Trust who are employed by The
Ohio Company is paid by The Ohio Company. Trustees' fees (currently $500 per
meeting attended, $500 annual retainer and $500 per audit committee meeting
attended) plus expenses are paid by the Trust, except that Messrs. Chambers,
Siegel, Schlater and Godwin receive no fees from the Trust. The aggregate
amount of compensation and expenses paid to the Trustees during the fiscal year
ended September 30, 1994, was $22,174.
PRINCIPAL SHAREHOLDERS OF THE TRUST
There were no persons known to the Trust to be the beneficial owners
of more than 5% of the Trust's outstanding Shares as of November 22, 1994.
THE ADVISER
The Trust has entered into an Investment Advisory Contract with
Cardinal Management Corp. (the "Adviser"). Pursuant to the Investment Advisory
Contract, the Adviser has agreed to provide investment advisory and management
services as described in the Prospectus. As compensation for such services to
the Trust, the Adviser receives monthly from the Trust a management fee at the
annual rate of 1/2 of 1% of the average daily net assets of the Trust. Such
fee accrues daily. The Adviser performs and bears the
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<PAGE> 160
cost of research, statistical analysis and continuous supervision of the
investment portfolio of the Trust and furnishes office facilities and certain
clerical and administrative services to the Trust. In addition, the Adviser
provides dividend, transfer agency and fund accounting services to the Trust.
The aggregate amount of investment management fees earned by the
Adviser during the fiscal years ended September 30, 1994, 1993 and 1992, was
$1,978,541, $2,227,209 and $2,616,244, respectively. To offset capital losses
incurred by the Trust for the fiscal year ended September 30, 1994, the Adviser
contributed $1,151,168 to the Trust. This amount was equal to the investment
management, transfer agent and fund accounting fees for the period from May 1,
1994, through September 30, 1994.
The Adviser has agreed that if the aggregate expenses of the Trust
(including fees pursuant to the Investment Advisory Contract, but excluding
taxes, interest, brokerage fees and, where permitted under the expense
limitations imposed by state securities administrators, extraordinary expenses)
for any fiscal year exceed 2% of the first $10 million of the Trust's average
net assets, 1 1/2% of the next $30 million of the Trust's average net assets,
and 1% of the Trust's remaining average net assets, or 1 1/2% of average net
assets, whichever is less, the Adviser will refund to the Trust, or otherwise
bear, such excess. The Adviser was not obligated to refund or pay any expenses
of the Trust for the fiscal years ended September 30, 1994, 1993 and 1992 as a
result of such expense limitations.
The Adviser is a wholly owned subsidiary of The Ohio Company, an
investment banking firm organized in 1925. Descendants of H. P. and R. F.
Wolfe, deceased, and members of their families, through their possession of a
majority of the voting stock, may be considered controlling persons of The Ohio
Company. Walter R. Chambers is an officer and director of The Ohio Company.
Frank W. Siegel, John L. Schlater, Hannibal L. Godwin and James M. Schrack II
are each an officer of The Ohio Company.
The Investment Advisory Contract was last approved by a majority of
both the trustees and those trustees who are not "interested persons" (as
defined in the 1940 Act) of either the Trust or the Adviser at a meeting held
for such purpose on January 20, 1995, and was last approved by the shareholders
of the Trust at the annual meeting of shareholders of the Trust held on January
11, 1983.
The Investment Advisory Contract will continue in force from year to
year if specifically approved at least annually by the Board of Trustees of the
Trust or by the vote of a majority of the Trustees who are not "interested
persons" of any party to such Contract, cast in person at a meeting called for
such purpose. The Contract may be terminated by either party, at any time,
without penalty, upon sixty days' written notice, and will automatically
terminate in the event of its assignment. Termination will not
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affect the right of the Adviser to receive payments on any unpaid balance of
the compensation earned prior to termination.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser, subject to
the policies established by the Board of Trustees of the Trust and in
accordance with the Trust's investment restrictions and policies, is
responsible for the Trust's portfolio decisions and the placing of the Trust's
portfolio transactions. Purchases and sales of portfolio securities which are
debt securities usually are principal transactions in which such portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and asked price. Transactions in the
over-the-counter market are generally principal transactions with dealers.
With respect to the over-the-counter market, the Trust, where possible, will
deal directly with dealers who make a market in the securities involved except
in those circumstances where better price and execution are available
elsewhere.
In executing such transactions, the Adviser seeks to obtain the best
net results for the Trust taking into account such factors as price (including
the applicable brokerage commission or dealer spread), size of order,
difficulties of execution and operational facilities of the firm involved and
the firm's risk in positioning a block of securities. While the Adviser
generally seeks reasonably competitive commission rates, for the reasons stated
in the prior sentence, the Trust will not necessarily be paying the lowest
commission or spread available. For the past three fiscal years, the Trust has
paid no brokerage commissions.
The Adviser may consider provision of research, statistical and other
information to the Trust or the Adviser in the selection of qualified
broker-dealers who effect portfolio transactions for the Trust so long as the
Adviser's ability to obtain the best net results for portfolio transactions of
the Trust is not diminished. Such research services include supplemental
research, securities and economic analyses, and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Such research services may also be useful to the
Adviser in connection with its services to other clients. Similarly, research
services provided by brokers serving such other clients may be useful to the
Adviser in connection with its services to the Trust. Although this
information is useful to the Trust and the Adviser, it is not possible to place
a dollar value on it. It is the opinion of the Board of Trustees and the
Adviser that the review and study of this information will not reduce the
overall cost to the Adviser of performing its duties to the Trust under the
Investment Advisory Contract. The Trust is not
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<PAGE> 162
authorized to pay brokerage commissions which are in excess of those which
another qualified broker would charge solely by reason of brokerage and
research services provided.
Investment decisions for the Trust are made independently from those
for any other investment company or account managed by the Adviser. Any such
other investment company or account may also invest in the same securities as
the Trust. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Trust and another investment
company or account, the transaction will be averaged as to price and available
investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Trust and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Trust or the size of the position obtained by the
Trust. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for the Trust with those to be sold or
purchased for other investment companies or accounts in order to obtain best
execution. As provided by the Investment Advisory Agreement, in making
investment recommendations for the Trust, the Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or
sale by the Trust is a customer of the Adviser, its parent or its subsidiaries
or affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Trust.
The Trust did not during the fiscal year ended September 30, 1994,
hold any securities of its regular brokers or dealers, as defined in Rule 10b-1
under the 1940 Act, or their parent companies.
ACCOUNTING SERVICES
The Trust has entered into an Accounting Services Agreement with the
Adviser pursuant to which the Adviser has agreed to maintain and keep current
the books, accounts, records, journals and other records of original entry
relating to the business of the Trust and to calculate the Trust's net asset
value on a daily basis. In consideration of such services, the Trust has
agreed to pay monthly to the Adviser a fee based on the average monthly net
asset value of the Trust. For the last three fiscal years ended September 30,
1994, the Adviser received $54,818, $59,614 and $67,928, respectively, for its
services to the Trust pursuant to such Agreement. As described above under
"THE ADVISER," a portion of such fees were contributed to the Trust by the
Adviser.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Trust has entered into an Administration Agreement with the
Adviser pursuant to which the Adviser has agreed to act as the
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Trust's transfer agent, dividend disbursing agent and administrator of plans
for the Trust. In consideration of such services, the Trust has agreed to pay
the Adviser an annual fee paid monthly, equal to $21 per shareholder account
plus the Adviser's out-of-pocket expenses. For the last three fiscal years
ended September 30, 1994, the Adviser received $999,507, $918,214 and $958,526,
respectively, for its services to the Trust pursuant to such Agreement. As
described above under "THE ADVISER," a portion of such fees were contributed to
the Trust by the Adviser.
DISTRIBUTOR
The Ohio Company, with principal offices located at 155 East Broad
Street, Columbus, Ohio 43215, serves as the Trust's principal underwriter and,
in connection therewith, is available to receive purchase orders and redemption
requests relating to Shares of the Trust and to transmit such orders and
requests to the Trust's custodian. The Ohio Company does not receive any
compensation from the Trust or charge any fees to investors for its services
rendered as principal underwriter of the Trust's Shares.
The Distribution Contract was last approved by both the trustees and
those trustees who are not "interested persons" (as defined in the 1940 Act) of
either the Trust or The Ohio Company at a meeting held for such purpose on
January 20, 1995, and was last approved by the shareholders of the Trust at the
annual meeting of shareholders of the Trust held on January 11, 1983.
The Distribution Contract will continue in effect from year to year if
specifically approved at least annually by the Board of Trustees of the Trust
or by the vote of a majority of the outstanding Shares of the Trust. In either
event, the Distribution Contract must also be approved by vote of a majority of
the trustees who are not "interested persons" of any party to the Distribution
Contract, cast in person at a meeting called for such purpose. The
Distribution Contract will automatically terminate in the event of its
assignment.
CUSTODIAN
The Fifth Third Bank (the "Bank"), 38 Fountain Square, Cincinnati,
Ohio 45263, has been selected to act as Custodian of the portfolio securities
and cash of the Trust. The Bank has no part in determining the investment
policies of the Trust or in deciding which securities are to be purchased or
sold by the Trust. The Trust may enter into repurchase agreements with the
Bank and may purchase or sell securities from or to the Bank.
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<PAGE> 164
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Certain legal matters as to the issuance of the Shares offered hereby
have been passed upon by Baker & Hostetler, 65 East State Street, Columbus,
Ohio 43215. The Trust has selected KPMG Peat Marwick LLP, Two Nationwide
Plaza, Columbus, Ohio 43215, as independent auditors for the Trust. The
financial statements of the Trust included in this Statement of Additional
Information have been included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, given upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust's Shares may be purchased at the public offering price and
are sold on a continuous basis through The Ohio Company, principal underwriter
of the Trust's Shares, at its address and number set forth on the cover page of
this Statement of Additional Information, and through other broker-dealers who
are members of the National Association of Securities Dealers, Inc. and have
sales agreements with The Ohio Company.
The Trust may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists
as a result of which (i) disposal by the Trust of securities owned by it is not
reasonably practical or (ii) it is not reasonably practical for the Trust to
determine the fair value of its net assets.
Use of the check-writing redemption procedure will be subject to the
rules and regulations of The Fifth Third Bank (the "Bank") governing checking
accounts. Neither the Bank nor the Trust shall incur any liability to a
participating shareholder under this procedure for not honoring a check that
exceeds the value of Shares in a shareholder's account, for honoring checks
properly drafted, for effecting redemptions pursuant to payment thereof or for
returning checks not accepted for payment. This procedure may be terminated at
any time by the Trust, the Bank or the participating shareholder. A
shareholder participating in the check-writing redemption procedure has not
established a checking or other account with the Bank for the purpose of
Federal Deposit Insurance or otherwise.
Determination of Net Asset Value
- --------------------------------
The Trust values its portfolio securities on the basis of the
amortized cost valuation method, which involves valuing an instrument at its
cost and thereafter assuming a constant
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amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. While
this method provides certainty in valuation, it may result in periods during
which the value of the Trust's portfolio securities, as determined by the
amortized cost method, is higher or lower than the price the Trust would
receive if it sold the securities. During periods of declining interest rates,
the daily yield on Shares of the Trust computed as described above may tend to
be higher than a like computation made by a fund with market prices and
estimates of market prices for all of its portfolio securities. Thus, if the
use of the amortized cost method by the Trust resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in the Trust would
be able to obtain a somewhat higher yield than would result from investment in
a fund utilizing solely market values, and existing investors in the Trust
would receive less investment income. The converse would apply in a period of
rising interest rates.
The valuation of the Trust's portfolio securities based upon their
amortized cost and the maintenance of the Trust's per share net asset value of
$1.00 is permitted based on the Trust's adherence to certain conditions,
including maintaining a dollar-weighted average portfolio maturity of 90 days
or less and purchasing only portfolio securities having remaining maturities or
397 days or less. The Trustees have also established procedures designed to
stabilize, to the extent reasonably possible, the Trust's net asset value per
share, as computed for the purpose of sales and redemptions, at $1.00. Such
procedures include review of the Trust's portfolio holdings by the Trustees at
such intervals as they may deem appropriate to determine whether the Trust's
net asset value calculated by using available market quotations deviates from
$1.00 per share and, if so, whether such deviation is unfair to existing
shareholders. In the event the Trustees determine that such a deviation
exists, they have agreed to take such corrective action as they deem necessary
and appropriate, including selling portfolio securities prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations instead of using the amortized cost basis.
TAXES
Federal Taxes
- -------------
The Trust intends to qualify as a "regulated investment company" under
the Code for so long as such qualification is in the best interest of the
Trust's shareholders. In order to qualify as a regulated investment company,
the Trust must, among other things: derive at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of securities or foreign currencies, or
other income derived with respect to its business of investing in such stock,
securities, or currencies; derive less than 30% of its gross
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income from the sale or other disposition of stock, securities, options, future
contracts or foreign currencies held less than three months; and diversify its
investments within certain prescribed limits. In addition, to utilize the tax
provisions specially applicable to regulated investment companies, the Trust
must distribute to its shareholders at least 90% of its investment company
taxable income for the year. In general, the Trust's investment company
taxable income will be its taxable income subject to certain adjustments and
excluding the excess of any net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of
their ordinary income for the calendar year plus 98% of their capital gain net
income for the one-year period ending on October 31 of such calendar year. The
balance of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Trust would be subject to a non-deductible excise tax equal to 4% of the
deficiency.
Although the Trust expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, the
Trust may be subject to the tax laws of such states or localities. In
addition, if for any taxable year the Trust does not qualify for the special
tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of earnings and
profits, and would be eligible for the dividends received deduction for
corporations.
It is expected that the Trust will distribute annually to shareholders
all or substantially all of the Trust's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal
income tax purposes, even if paid in additional Shares of the Trust and not in
cash. The Trust does not expect to realize any long-term capital gains and,
therefore, does not foresee paying any "capital gains dividends" as described
in the Code. However, if the Trust were to realize any long-term capital
gains, distribution by the Trust of the excess of any such net long-term
capital gain over net short-term capital loss is taxable to shareholders as
long-term capital
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gain in the year in which it is received, regardless of how long the
shareholder has held the Shares.
Federal taxable income of individuals is subject to graduated tax
rates of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on capital gains of
individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss
each year to offset ordinary income. Excess capital loss may be carried
forward to future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%.
Further, a corporation's federal taxable income in excess of $15 million is
subject to an additional tax equal to 3% of taxable income over $15 million,
but not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset
capital gains and excess capital losses may be carried back three years and
forward five years.
Certain corporations are entitled to a 70% dividends received
deduction for distributions from certain domestic corporations. Because all of
the Trust's net investment income is expected to be derived from interest and
short-term capital gains, it is anticipated that no distributions from the
Trust will qualify for the dividends received deduction. However, to the
extent the Trust would have any such distributions, the Trust will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by the
Trust for its taxable year that qualifies for the dividends received deduction.
The Trust will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends paid to any shareholder who
has provided either an incorrect tax identification number or no number at all,
or who is subject to withholding by the Internal Revenue Service for failure
properly to include on his return payments of interest or dividends.
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State and Local Taxes
- ---------------------
Shareholders of the Trust may be subject to state and local taxes with
respect to their ownership of Trust Shares or distributions from the Trust.
Under the laws of some jurisdictions, distributions of net investment income
may be taxable to shareholders as dividend income even though a substantial
portion of such distributions may be attributable to interest on U.S.
Government obligations which, if received directly, may be exempt from such
income taxes. Each shareholder should consult its tax adviser about the tax
status of distributions from the Trust in the relevant state and locality.
General
- -------
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of the Trust. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Trust or its
Shareholders and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential purchasers of Shares of the Trust are
urged to consult their tax advisers with specific reference to their own tax
situation. In addition, the tax discussion in the Prospectus and this
Statement of Additional Information is based on tax laws and regulations which
are in effect on the date of the Prospectus and this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action.
Shareholders should consult their tax advisers to assess the general
state and local tax consequences of investing in the Trust and, in particular,
to determine whether dividends paid that represent interest derived from U.S.
government securities is exempt from applicable state and local income taxes.
YIELD
The current (average annualized) yield of the Trust for any seven-day
period is calculated by dividing the average daily net income per Share earned
by the Trust during the seven-day calendar period by the Trust's average price
per Share over the same period and annualizing this quotient on a 365-day
basis. For purposes of this calculation, the daily net income reflects
dividends declared on the original Share and dividends declared on any Shares
purchased with dividends on that Share. Capital changes that are excluded from
the calculation are realized gains and losses from the sale of securities as
well as unrealized appreciation and depreciation with respect to the Trust's
portfolio. The yield of
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the Trust for the seven-day period ended September 30, 1994, was 3.53%.
The effective or compounded yield of the Trust for any seven-day
period is computed by adding the number one to the daily net income per Share
earned by the Trust during the seven-day calendar period, raising the sum to a
power equal to 365 divided by seven, and subtracting the number one from the
result. The effective or compounded yield of the Trust for the seven-day
period ended September 30, 1994, was 3.60%.
Investors may judge the performance of the Trust by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard
& Poor's Corporation, and to data prepared by Lipper Analytical Services, Inc.,
a widely recognized independent service which monitors the performance of
mutual funds, CDA Investment Technologies, Inc., and the Consumer Price Index.
Comparisons may also be made to indices or data published in Donoghue's MONEY
FUND REPORT of Holliston, Massachusetts, a nationally recognized money market
fund reporting service, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The Columbus Dispatch, The New York Times, Business Week, Consumer
Reports and U.S.A. Today.
Current and effective yields will fluctuate from time to time and
should not be considered representative of future results. Yield is a function
of general economic and money market conditions, portfolio quality and
maturity, type of portfolio instruments and operating expenses. Yield
information may be useful in reviewing the Trust's performance and comparing an
investment in Shares of the Trust with other investment alternative. However,
yield on Shares of the Trust fluctuates unlike yields on bank deposits or other
instruments that pay a fixed yield for a stated period of time.
ADDITIONAL INFORMATION
Shareholder and Trustee Liability
- ---------------------------------
The Trust is an entity of the type commonly known as a "business
trust." Shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for the obligations of the Trust. The
Declaration of Trust provides that shareholders shall not be subject to any
personal liability for the acts or obligations of the Trust and that every
agreement, obligations or instrument entered into or executed by the Trust
shall contain a provision to the effect that the shareholders are not
personally liable thereunder. The Trust has been advised by counsel that no
personal liability will attach to the shareholders
B-17
<PAGE> 170
when such a provision is utilized, except possibly in a few jurisdictions.
With respect to all types of claims, contract claims where shareholder
liability is not negated, claims for taxes and certain statutory liabilities, a
shareholder may be held personally liable for obligations of the Trust.
However, upon payment of any such liability, the shareholder will be entitled
to reimbursement from the general assets of the Trust. The Trust is covered by
insurance which the Trustees consider adequate to cover foreseeable tort
claims. The Declaration of Trust provides for indemnification out of Trust
property of any shareholder held personally liable solely by reason of his
being or having been a shareholder. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. Thus, the risk of financial loss to a shareholder on account
of shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations.
The Declaration of Trust further 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 for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties. It also provides that all
persons having any claim against the Trustees or the Trust shall look solely to
the Trust's property for payment. The Trust may enter into repurchase
agreements with the Bank and may purchase or sell securities from or to the
Bank.
The Trust is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve
supervision by the Securities and Exchange Commission of the management or
policies of the Trust.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized
to give any information or make any representation other than those contained
in the Prospectus and this Statement of Additional Information.
B-18
<PAGE> 171
FINANCIAL STATEMENTS
CARDINAL GOVERNMENT SECURITIES TRUST
SEPTEMBER 30, 1994
B-19
<PAGE> 172
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
SECURITIES DATE AMOUNT (NOTE 1)
- ---------- --------- --------- ---------
<S> <C> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS 54.36%
U.S. Treasury Bills.................................................... 10/06/94 $ 50,000 $ 49,982
U.S. Treasury Bills.................................................... 10/06/94 50,000 49,982
U.S. Treasury Bills.................................................... 10/06/94 30,000 29,990
U.S. Treasury Bills.................................................... 10/13/94 20,000 19,977
U.S. Treasury Bills.................................................... 10/20/94 25,000 24,950
U.S. Treasury Bills.................................................... 11/03/94 25,000 24,906
--------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS........................... 200,000 199,787
--------- ---------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT AND
FEDERAL AGENCY OBLIGATIONS 46.04%
Kidder, Peabody & Co., 5.36%, dated 9/30/94............................ 10/03/94 49,000 49,000
Paine Webber Inc., 5.20%, dated 9/30/94................................ 10/03/94 49,000 49,000
Smith Barney Shearson, 4.98%, dated 9/30/94............................ 10/03/94 48,000 48,000
Merrill Lynch Securities, 4.90%, dated 9/30/94......................... 10/03/94 20,000 20,000
Fifth Third Bank, 4.60%, dated 9/30/94................................. 10/03/94 3,200 3,200
--------- ---------
TOTAL REPURCHASE AGREEMENTS........................................ 169,200 169,200
--------- ---------
TOTAL INVESTMENTS AT AMORTIZED COST 100.40%........................ $ 369,200 $ 368,987
======== ========
</TABLE>
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-20
<PAGE> 173
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $ 368,987
Cash............................................................................. 67
Interest receivable.............................................................. 90
Other assets..................................................................... 320
---------
Total assets......................................................... 369,464
---------
LIABILITIES
Payable for Trust shares redeemed................................................ 1,813
Payable for shareholder distributions............................................ 17
Accrued investment management, accounting and transfer agent fees (note 2)....... 34
Other accrued expenses........................................................... 84
---------
Total liabilities.................................................... 1,948
---------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 367,516,480 outstanding $.01 par value shares of
beneficial interest (unlimited number of shares authorized).................... $ 367,516
=========
NET ASSET VALUE PER SHARE........................................................ $1.00
=========
</TABLE>
See accompanying notes to financial statements.
B-21
<PAGE> 174
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................................. $ 14,982
--------
EXPENSES:
Investment management fees (note 2).................................. 1,978
Transfer agent fees and expenses (note 2)............................ 1,000
Accounting fees (note 2)............................................. 55
--------
Total affiliated expenses.................................. 3,033
--------
Custodian fees....................................................... 35
Professional fees.................................................... 86
Reports to shareholders.............................................. 62
Trustees' fees....................................................... 22
Registration fees.................................................... 26
Other expenses....................................................... 103
--------
Total non-affiliated expenses.............................. 334
--------
Total expenses............................................. 3,367
--------
Net investment income...................................... 11,615
--------
REALIZED LOSS ON INVESTMENTS:
Realized loss from security transactions............................. (1,463)
--------
Net increase in net assets from operations................. $ 10,152
========
</TABLE>
See accompanying notes to financial statements.
B-22
<PAGE> 175
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 11,615 $ 10,941
Net realized loss from security transactions.................... (1,463) 0
------------ ------------
Net increase in net assets from operations................. 10,152 10,941
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:.............................
Total distributions to shareholders............................. (11,303) (10,941)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares.................................... 987,709 1,011,128
Reinvestment of distributions to shareholders................... 11,027 10,654
Cost of shares redeemed......................................... (1,033,978) (1,091,545)
------------ ------------
Decrease in net assets derived from capital share
transactions............................................. (35,242) (69,763)
------------ ------------
FROM CAPITAL CONTRIBUTIONS (NOTE 2):
Capital contributed by Cardinal Management Corp................. 1,151 0
------------ ------------
Net decrease in net assets................................. (35,242) (69,763)
NET ASSETS -- beginning of period............................... 402,758 472,521
------------ ------------
NET ASSETS -- end of period..................................... $ 367,516 $ 402,758
============ ============
</TABLE>
See accompanying notes to financial statements.
B-23
<PAGE> 176
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
(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, 1994.
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, 1994 the Trust paid or
accrued $999,508 and $54,818 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)
B-24
<PAGE> 177
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
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, 1994 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, 1994. 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, 1994, 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.................................................................... $ 368,667,666
Accumulated net realized loss on investments....................................... (1,463,438)
Undistributed net investment income................................................ 312,252
-------------
Net assets......................................................................... $ 367,516,480
=============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
---------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Shares sold..................................................... 987,708,658 1,011,128,520
Shares issued in connection with reinvestment of distributions
to shareholders............................................... 11,026,622 10,653,583
-------------- --------------
998,735,280 1,021,782,103
Shares repurchased.............................................. (1,033,976,922) (1,091,544,710)
-------------- --------------
Net decrease.................................................... (35,241,642) (69,762,607)
Shares outstanding:
Beginning of period............................................. 402,758,122 472,520,729
-------------- --------------
End of period................................................... 367,516,480 402,758,122
============== ==============
</TABLE>
B-25
<PAGE> 178
CARDINAL GOVERNMENT SECURITIES TRUST
- -----------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- -----------------------------------------------------------------------
(5) -- DIVIDENDS AND DISTRIBUTIONS
See caption "FINANCIAL HIGHLIGHTS" in the Prospectus for the Financial
Highlights with respect to the Trust for each of the years in the ten-year
period ended September 30, 1994.
B-26
<PAGE> 179
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
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, including the statement of investments, as of
September 30, 1994, 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 confirmation of securities owned as of
September 30, 1994, by correspondence with the custodian. For payables for
investment securities purchased as of September 30, 1994, we performed
appropriate alternative 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, 1994, 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 18, 1994
B-27
<PAGE> 180
STATEMENT OF ADDITIONAL INFORMATION
CARDINAL TAX EXEMPT MONEY TRUST
Cardinal Tax Exempt Money Trust (the "Trust") is a no-load,
diversified, open-end management investment company with an investment
objective of maximizing current income exempt from federal income tax while
preserving capital and maintaining liquidity. The Trust seeks to attain its
objective through professional management of a high-grade portfolio of
short-term municipal bonds and notes, tax-exempt commercial paper and
tax-exempt short-term discount notes, some of which may be secured by the full
faith and credit of the U.S. Government. All obligations purchased by the
Trust will mature, or be deemed to mature, in 397 days (13 months) or less or
will have interest rates adjusted in accordance with established indexes (e.g.
the prime rate) not less frequently than semi-annually. There can be no
assurance that the Trust's objective will be achieved.
The Trust is designed for institutions and individuals who desire
current income exempt from federal income tax that reflects prevailing interest
rates for short-term tax-exempt investments together with a high degree of
liquidity.
_________________________________________
For further information regarding the Trust or for assistance
in opening an account or redeeming shares, please call
In Columbus 464-5512 (opening accounts and further information)
464-5511 (redeeming shares)
From other Ohio locations (800) 282-9446 toll free
From outside Ohio (800) 848-7734 toll free
Inquiries may also be made by mail addressed to the Trust
at its principal office:
155 East Broad Street
Columbus, Ohio 43215
The Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of the Trust, dated February 1,
1995, which has been filed with the Securities and Exchange Commission. This
Statement of Additional Information is incorporated by reference in its
entirety into the Prospectus. The Prospectus is available upon request without
charge from the Trust at the above address or by calling the phone numbers
provided above.
FEBRUARY 1, 1995
<PAGE> 181
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Additional Information on Portfolio Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-10
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-13
PRINCIPAL SHAREHOLDERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
THE ADVISER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-16
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-17
ACCOUNTING SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-19
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
LEGAL COUNSEL AND INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-21
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
YIELD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-26
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-27
Shareholder and Trustee Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-27
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-29
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
<PAGE> 182
STATEMENT OF ADDITIONAL INFORMATION
CARDINAL TAX EXEMPT MONEY TRUST
Cardinal Tax Exempt Money Trust (the "Trust") is an open-end
management investment company. Much of the information contained in this
Statement of Additional Information expands upon subjects discussed in the
Prospectus of the Trust. Capitalized terms not defined herein are defined in
the Prospectus. No investment in Shares of the Trust should be made without
first reading the Prospectus of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust invests primarily in high grade short-term Municipal
Securities which at the time of investment have, or are deemed to have,
remaining maturities of 397 days (13 months) or less or which have variable
rates, demand features and quality characteristics which permit the Trust to
treat them as maturing in 397 days or less. The dollar weighted average
portfolio will have a maturity of less than 90 days. See "ADDITIONAL PURCHASE
AND REDEMPTION INFORMATION -- Determination of Net Asset Value."
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
GENERAL. The term "Municipal Securities", as used in this Statement of
Additional Information means debt obligations issued by or on behalf of any
state, territory or possession of the United States or the District of Columbia
or their political subdivisions, agencies or instrumentalities, and
participation interests therein, the interest on which is, in the opinion of
counsel for the issuer, wholly exempt from federal income taxation. See
"Municipal Securities" below.
Specific types of Municipal Securities which the Trust may purchase
include bond anticipation notes, construction loan notes, project notes,
revenue anticipation notes and tax anticipation notes which, in each case (1)
are backed by the full faith and credit of the United States, (2) are rated MIG
1 or MIG 2, or subsequent equivalents by Moody's Investors Service, Inc.
("Moody's") or (3) if the notes are not rated, are, as determined by Cardinal
Management Corp., the Trust's adviser (the "Adviser") in accordance with
guidelines established by the Board of Trustees, of a quality equivalent to MIG
1 or MIG 2.
The Trust may also invest in municipal bonds and participation
interests therein, including industrial development revenue bonds and pollution
control revenue bonds, which are (1) rated Aaa or Aa
B-1
<PAGE> 183
by Moody's, (2) rated AAA or AA by Standard & Poor's Corporation ("S&P") or (3)
if not rated, have, in the opinion of the Adviser determined in accordance with
the guidelines established by the Board of Trustees, essentially the same
characteristics and quality as bonds having the above ratings.
In addition, the Trust may purchase other types of tax-exempt
MunicipalSecurities such as short-term discount notes. These investments must
be (1) rated Prime-1 or Prime-2 by Moody's or (2) if not rated, possess
equivalent characteristics and quality in the opinion of the Adviser determined
in accordance with guidelines established by the Board of Trustees.
The Appendix contains a description of the ratings set forth above.
The Trust may acquire participations in privately negotiated loans to
municipal borrowers, provided that the Trust has received an opinion from bond
counsel to the municipal borrower that the interest received by the Trust is
exempt from federal income tax and the loans are otherwise in accordance with
the Trust's investment objective and restrictions.
The Trust may invest more than 25% of its net assets in (i) Municipal
Securities whose issuers are in the same state, (ii) Municipal Securities the
interest upon which is paid solely from revenues of similar projects and (iii)
industrial development and pollution control revenue bonds which are not
variable rate demand Municipal Securities, i.e., Municipal Securities which are
related in such a way that an economic, business or political development or
change affecting one such Municipal Security would also affect the other
Municipal Securities; for example, Municipal Securities the interest on which
is paid from revenues of similar type projects or Municipal Securities whose
issuers are located in the same state. The District of Columbia, each state,
each of its political subdivisions, agencies, instrumentalities and
authorities, and each multi-state agency of which a state is a member, is a
separate "issuer" as that term is used in this Statement of Additional
Information. The identification of the "issuer" depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is supported
only by the assets and revenues of the subdivision, such subdivision would be
deemed to be the sole "issuer." Similarly, in the case of an industrial
development or pollution control revenue bond, if that bond is supported only
by the assets and revenues of the nongovernmental user, then such
nongovernmental user would be deemed to be the sole "issuer." If, however, in
either case, the creating government or some other entity guarantees a
security, such a guarantee would be considered a separate security and must be
separately valued.
B-2
<PAGE> 184
The Municipal Securities described herein represent those which the
Trust currently expects to purchase. However, several new types of municipal
bonds and notes, particularly those with shorter maturities, have been
introduced in recent years and the Adviser believes that other types of
municipal bonds and notes may be offered in the future. Therefore, in order to
preserve maximum flexibility in seeking to attain its investment objective, the
Trust has determined not to limit its purchase to the types of Municipal
Securities described herein, although it will purchase only municipal
obligations which have the credit characteristics described herein. In
addition, the Trust may not purchase any municipal bonds or notes having
characteristics or terms that are inconsistent with the investment objective or
investment policies of the Trust.
Subsequent to the Trust's purchase of a security, it may be assigned a
lower rating or cease to be rated. In such an event the Adviser is required to
promptly reassess the credit quality of such security. If such security no
longer presents minimal credit risks or if the security is deemed to be an
"Unrated Security" or a "Second-Tier Security," within the meaning of Rule 2a-7
of the Investment Company Act of 1940 (the "1940 Act"), and receives a rating
by any nationally recognized statistical rating organization below the second
highest rating category, the Adviser is generally required to sell such
security within five business days of becoming aware of such an event.
MUNICIPAL SECURITIES. Municipal Securities which may be purchased by
the Trust currently can be divided into two basic groups: Municipal Notes and
Municipal Bonds.
Municipal Notes generally provide capital for short-term needs and
have maturities of one year or less. They include:
1. PROJECT NOTES. Project notes are sold through the
Department of Housing and Urban Development to raise funds for
federally sponsored urban renewal, neighborhood development and
housing programs. In low-income housing, proceeds from project notes
are chiefly used for construction financing prior to permanent
financing. In urban renewal the funds have generally been used for
land acquisition and site improvements. (No new urban renewal
projects are currently being undertaken as that program has been
superseded by the Community Block Grant Program contained in the
Housing and Community Development Act of 1974.) Project notes are
issued by public bodies created under the laws of one of the states,
territories or U.S. possessions and are referred to as Local Issuing
Agencies. Project Notes generally range in maturity from three months
to one year. While they are the primary obligations of the public
housing agencies or the local urban renewal agencies which have issued
them, they are also secured by the full faith and credit of the U.S.
Government. Payment
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by the United States pursuant to its full faith and credit obligation
does not impair the tax-exempt character of the income from project
notes.
2. TAX ANTICIPATION NOTES. Tax anticipation notes are issued
by state and local governments in anticipation of collection of taxes
to finance the current operations of such governments. The notes are
generally payable only from tax collections and often only from the
proceeds of the specific tax levy whose collection they anticipate.
3. REVENUE ANTICIPATION NOTES. Revenue anticipation notes
are issued by governmental entities in anticipation of revenues to be
received later in the then current fiscal year.
4. BOND ANTICIPATION NOTES. Bond anticipation notes are
issued in anticipation of a later issuance of bonds and are usually
payable from the proceeds of the sale of the bonds anticipated or of
renewal notes.
5. CONSTRUCTION LOAN NOTES. Construction loan notes, issued
to provide construction financing for specific projects, are often
redeemed after the projects are completed and accepted with funds
obtained from the Federal Housing Administration under "Fannie Mae"
(Federal National Mortgage Association) or "Ginnie Mae" (Government
National Mortgage Association).
6. TAX-EXEMPT COMMERCIAL PAPER. Tax-exempt commercial paper
is issued by state and local governments and agencies thereof to
finance seasonal working capital needs or in anticipation of longer
term financing. The stated maturity is 365 days or less.
Municipal Bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They
are generally classified as either "general obligation" or "revenue" bonds and
frequently have maturities in excess of one year at the time of issuance,
although issues having variable interest rates with demand features may permit
the Trust to treat them as having maturities of less than 397 days. See
"Determination of Net Asset Value" herein and "HOW IS NET ASSET VALUE
CALCULATED?" in the Prospectus.
1. GENERAL OBLIGATION BONDS. General obligation bonds
are issued by states, counties, regional districts, cities, towns and
school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer
system construction, repair or improvement. Payment of these bonds is
secured by a pledge of the issuer's full faith and credit and taxing
(usually property tax) power.
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2. REVENUE BONDS. Revenue bonds are payable solely from
the revenues generated from the operations of the facility or
facilities being financed or from other non-tax sources. These bonds
are often secured by debt service reserve funds, rent subsidies and/or
mortgage collateral to finance the construction of housing, highways,
bridges, tunnels, hospitals, university and college buildings, port
and airport facilities, and electric, water, gas and sewer systems.
3. INDUSTRIAL DEVELOPMENT REVENUE AND PRIVATE ACTIVITY BONDS.
Industrial development revenue bonds and private activity bonds are
usually issued by local government bodies or their authorities to
provide funding for industrial facilities, privately operated housing,
health care facilities, airports, docks and mass commuting facilities,
certain water and sewage facilities, qualified hazardous waste
facilities and high speed innercity rail facilities. Under prior law,
these bonds also were issued to finance commercial facilities, sports
facilities, convention and trade show facilities and pollution control
facilities. Payment of principal and interest on such bonds is not
secured by the taxing power of the governmental body. Rather, payment
is dependent solely upon the ability of the users of the facilities
financed by the bonds to meet their financial obligations and the
pledge, if any, of the real and personal property financed by such
bonds as security for payment.
Legislation to restrict or eliminate the federal income tax exemption
for interest on certain Municipal Securities has been enacted periodically in
the recent past and additional legislation may be enacted in the future. This
legislation may adversely affect the availability of Municipal Securities for
the Trust's portfolio. If any such legislation has a materially adverse effect
on the Trust's ability to achieve its investment objective, the Trust will
re-evaluate its investment objective and submit to its shareholders for
approval necessary changes in the objective and policies of the Trust.
VARIABLE RATE DEMAND MUNICIPAL SECURITIE. Variable rate demand
Municipal Securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days' notice either from the issuer or by drawing on a bank
letter of credit or comparable guarantee issued with respect to such security.
The issuer of a variable rate demand security may have a corresponding right to
prepay in its discretion the outstanding principal of the instrument plus
accrued interest upon notice comparable to that required for the holder to
demand payment.
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The variable rate demand Municipal Securities in which the Trust may
invest are payable on demand on not more than seven calendar days' notice. The
terms of the securities must provide that interest rates are adjustable at
intervals ranging from weekly up to semi-annually. The adjustments are based
upon the prime rate of a bank or other appropriate interest rate adjustment
index as provided in the respective instruments. The variable rate demand
securities purchased by the Trust are subject to the quality characteristics
for Municipal Securities described above and in the Appendix to this Statement
of Additional Information. While these securities are expected to have
maturities in excess of one year, the Adviser will determine at least monthly
that such securities are of high quality. The Trustees have instructed the
Adviser to exercise its right to demand payment of principal and accrued
interest thereon, if a variable rate demand security held by the Trust no
longer meets the quality standards of the Trust, unless, of course, the
security can be sold for a greater amount in the market.
The principal and accrued interest payable to the Trust on demand will
be supported by an irrevocable letter of credit or comparable guarantee of a
financial institution (generally a commercial bank) whose short-term taxable
debt meets the quality criteria for investment by the Trust in Municipal
Securities, except in cases where the security itself meets the credit criteria
of the Trust without such letter of credit or comparable guarantee. Thus,
although a variable rate demand security may be unrated, the Trust will have at
all times an alternate high quality credit source to draw upon for payment with
respect to such security.
The variable rate demand securities which the Trust may purchase
include participation interests in variable rate securities. Such
participation interests will have, as part of the participation agreement
between the Trust and the selling financial institution, a demand feature which
permits the Trust to demand payment from the seller of the principal amount of
the Trust's participation plus accrued interest thereon. This demand feature
always will be supported by a letter of credit or comparable guarantee provided
by the selling financial institution. Such financial institution will retain a
service and a letter of credit fee, and a fee for issuing commitments to
purchase on demand, in an amount equal to the excess of the interest paid on
the variable rate security in which the Trust has a participation interest over
the negotiated yield at which the participation interest was purchased by the
Trust. Accordingly, the Trust will purchase such participation interests only
when the yield to the Trust, net of such fees, is equal to or greater than the
yield then available on other variable rate demand securities or short-term
fixed rate tax exempt securities of comparable quality and where the fees are
reasonable in relation to the services provided by the financial institution
and the security and liquidity provided by the letter of credit or guarantee.
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TAXABLE MONEY MARKET SECURITIES. The Trust may invest up to 20% of its
assets in taxable money market instruments when the Adviser deems such
investments to be in the best interests of shareholders. However, under normal
circumstances, the Trust will be managed with a view towards producing only
income that is exempt from federal income taxes. Permissible taxable
investments are as follows:
1. U.S. GOVERNMENT OBLIGATIONS. Obligations issued by the
U.S. Government include bills, notes and bonds of the U.S. Treasury,
which differ only in their interest rates, maturities and times of
issuance: Treasury bills have a maturity of one year or less,
Treasury notes have maturities of one to ten years and Treasury bonds
generally have maturities of greater than ten years. Obligations
issued by agencies or instrumentalities of the U.S. Government
include, among others, securities issued by General Services
Administration, Federal Housing Administration, Farmers Home
Administration, Government National Mortgage Association, Federal Home
Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks,
Federal Home Loan Mortgage Corporation, Central Bank for Cooperatives,
Maritime Administration, The Tennessee Valley Authority, Washington,
D.C. Armory Board, Export-Import Bank of the United States, the
International Bank for Reconstruction and Development, Federal
National Mortgage Association and Student Loan Marketing Association.
Some obligations issued or guaranteed by U.S. Government agencies or
instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others by U.S. Treasury guarantees; and others, such as
those issued by Federal Home Loan Banks, by the right of the issuer to
borrow from the Treasury. In addition, some obligations of U.S.
Government agencies or instrumentalities, such as those issued by the
Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase certain
obligations of the agency or instrumentality; and others, such as
those issued by the Student Loan Marketing Association, are supported
solely by the credit of the issuing agency or instrumentality itself.
No assurance can be given that the U.S. Government will provide
financial support to such U.S. Government sponsored agencies or
instrumentalities in the future, since it is not obligated to do so by
law. The Trust will invest in such securities only when it is
satisfied that the credit risk with respect to the issuer is minimal.
2. OBLIGATIONS OF BANKS AND SAVINGS AND LOANS. Investments
in obligations of banks and savings and loans are limited to (1)
certificates of deposit issued by domestic banks with assets in excess
of five hundred million dollars, (2) certificates of deposit or other
deposit obligations of savings and loans with assets in excess of five
hundred million dollars, and (3) bankers' acceptances and letters of
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credit guaranteed by banks meeting the above criteria. Bankers'
acceptances and letters of credit are short-term credit instruments
used to finance the import, export, transfer or storage of goods.
They are termed "accepted" when a bank guarantees their payment at
maturity. Obligations issued or guaranteed by Federal Deposit
Insurance Corporation ("FDIC") member institutions are not necessarily
guaranteed by the FDIC. Deposit obligations of domestic banks and
savings and loans are insured by the FDIC up to a maximum of $100,000,
which limitation applies to all funds which the Trust may have on
deposit at any one bank or savings and loan. Bankers' acceptances and
letters of credit are not so insured.
3. COMMERCIAL PAPER. Permissible commercial paper
investments of the Trust consist of obligations rated Prime-1 or
Prime-2, or A-1 or A-2, or their subsequent equivalents, by Moody's or
S&P or unrated commercial paper issued by companies with an unsecured
debt issue outstanding which is rated Aa or better by Moody's or AA or
better by S&P. These ratings are described in the Appendix.
Commercial paper constitutes unsecured indebtedness of business or
banking firms issued to finance their short-term financial needs.
The Trust may also invest in repurchase agreements. Repurchase
agreements are described in detail in the Prospectus.
REVERSE REPURCHASE AGREEMENT. The Trust is permitted to enter into
reverse repurchase agreements for temporary or emergency non-investment
purposes in an amount not exceeding (together with other borrowings) 5% of the
value of the Trust's assets at the time of entering into the agreement. The
Trust, however, has not entered into such agreements in the past and does not
intend to enter into such agreements in the foreseeable future.
STAND-BY COMMITMENTS. Pursuant to an exemptive order which the Trust
has received under the 1940 Act the Trust may also acquire "stand-by
commitments" with respect to Municipal Securities held in its portfolio. Under
a "stand-by commitment," a dealer agrees to purchase, at the Trust's option,
specified Municipal Securities at a specified price. "Stand-by commitments"
are the equivalent of a "put" option acquired by the Trust with respect to
particular Municipal Securities held in its portfolio.
The amount payable to the Trust upon its exercise of a "stand-by
commitment" will normally be (i) the Trust's acquisition cost of the Municipal
Securities (excluding any accrued interest which the Trust paid on their
acquisition), less any amortized market premium or plus any amortized market or
original issue discount during the period the Trust owned the securities, plus
(ii) all interest accrued on the Municipal Securities since the last interest
payment date during the period such obligations are owned by the Trust.
"Stand-by commitments" which may be acquired by the Trust will be
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exercisable by the Trust at any time prior to the underlying security's
maturity. Absent unusual circumstances, the Trust will value the underlying
Municipal Securities on an amortized cost basis. Accordingly, the amount
payable by a dealer during the time a "stand-by commitment" is exercisable is
substantially the same as the value of the underlying Municipal Securities.
The Trust's right to exercise "stand-by commitments" must be unconditional and
unqualified. A "stand-by commitment" is not transferable by the Trust,
although the Trust may sell the underlying Municipal Securities to a third
party at any time.
The Trust expects that "stand-by commitments" will generally be
available without the payment of any direct or indirect consideration.
However, if necessary and advisable, the Trust may pay for "stand-by
commitments" either separately in cash or by paying a higher price for
Municipal Securities which are acquired subject to such a commitment (thus
reducing the yield to maturity otherwise available for the same securities).
The total amount paid in either manner for outstanding "stand-by commitments"
held in the Trust's portfolio may not exceed 1/2 of 1% of the value of the
Trust's total assets calculated immediately after each "stand-by commitment" is
acquired.
The Trust intends to enter into "stand-by commitments" only with
dealers, banks and broker-dealers which in the opinion of the Adviser to the
Trust present minimum credit risks. The Trust's reliance upon the credit of
these dealers, banks and broker-dealers is secured by the value of the
underlying Municipal Securities that are subject to the commitment. However,
the failure of a party to honor a "stand-by commitment" to the Trust could have
an adverse impact on the liquidity of the Trust during periods of rising
interest rates.
The Trust intends to acquire "stand-by commitments" solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The acquisition of a "stand-by commitment"
will not affect the valuation or maturity of the underlying Municipal
Securities which will continue to be valued in accordance with the amortized
cost method. "Stand-by commitments" acquired by the Trust will be valued at
zero in determining net asset value. Where the Trust pays directly or
indirectly for a "stand-by commitment," its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
the Trust. "Stand-by commitments" will not affect the average weighted
maturity of the Trust's portfolio.
WHEN-ISSUED SECURITIES. When payment is made for when-issued
securities, the Trust will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would normally not expect to do so, from sale of the when-issued
securities themselves (which may have a market value greater or less than the
Trust's obligation).
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Sale of securities to meet such obligations would involve a greater potential
for the realization of capital gains, which could cause the Trust to realize
income not exempt from federal income taxation. The Trust intends to make
commitments to purchase Municipal Securities with the intention of actually
acquiring such obligations, but the Trust may sell the obligations before the
settlement date if it is advisable or necessary as a matter of investment
strategy.
SECURITIES OF OTHER INVESTMENT COMPANIE. The Trust may invest in
securities issued by other investment companies. The Trust currently intends
to limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will
be invested in the securities of any one investment company; (b) not more than
10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Trust. As a shareholder of another investment company, the Trust would bear,
along with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that the Trust bears directly in connection with its own
operations. Investment companies in which the Trust may invest may also impose
a sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by the Trust and, therefore, will be borne directly by shareholders.
INVESTMENT RESTRICTIONS
In addition to the investment objective of the Trust, which may not be
changed without approval of shareholders owning a majority of the outstanding
Trust Shares (as defined under "WHAT IS THE TRUST?" in the Prospectus), the
Trust had adopted the following investment restrictions and limitations which
may not be changed without similar shareholder approval. The Trust may not:
(1) purchase securities, if as a result of such purchase
more than 5% of its total assets would be invested in the securities
of any one issuer (other than securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, which securities
include project notes for purposes of this restriction), except that
up to 25% of the value of the Trust's assets may be invested without
regard to this 5% limitation (for purposes of this test, the
non-governmental user of facilities financed by industrial development
or pollution control revenue bonds and a bank issuing a letter of
credit or comparable guarantee supporting a variable rate demand
municipal security is considered to be the issuer);
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(2) purchase the securities of issuers conducting their
principal business activity in the same industry if as a result of
such purchase more than 25% of its total assets would be invested in
the securities of issuers in that industry; provided that such
limitation shall not apply to the purchase of Municipal Securities,
securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, or securities issued by domestic branches of
domestic banks (the only securities issued by domestic branches of
domestic banks that the Trust contemplates investing in are variable
rate demand Municipal Securities supported by letters of credit or
guarantees issued by domestic branches of domestic banks);
(3) borrow money or enter into reverse repurchase
agreements except for temporary or emergency non-investment purposes,
such as to accommodate abnormally heavy redemption requests, and then
only in an amount not exceeding 5% of the value of the Trust's total
assets at the time of borrowing;
(4) pledge, mortgage or hypothecate its assets, except
that to secure borrowing permitted by (3) above, it may pledge
securities having a market value at the time of pledge not exceeding
15% of the Trust's total assets; provided, however, so long as certain
state law restrictions are applicable, the market value of securities
subject to any such pledge will not exceed 10% of the market value of
the Trust's total assets;
(5) underwrite any securities issued by others;
(6) purchase or sell real estate, although the Trust may
invest in Municipal Securities or temporary investments secured by
interests in real estate;
(7) purchase or sell commodities, commodity contracts or
oil and gas interests;
(8) make loans, other than by entering into repurchase
agreements and through the purchase of participation in privately
negotiated loans and portions of publicly issued debt obligations that
are in accordance with its investment objective and policies;
provided, however, that the Trust may not enter into a repurchase
agreement if, as a result thereof, more than 10% of its total assets
would be subject to repurchase agreements maturing in more than seven
days;
(9) sell securities short or purchase any securities on
margin, except for such short term credits as are necessary for the
clearance of portfolio transactions;
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(10) write, purchase or sell put or call options, except
to the extent that securities subject to a demand obligation or
stand-by commitment may be acquired;
(11) purchase or retain securities of any issuer for the
Trust's portfolio if those officers and Trustees of the Trust or
officers and Directors of its Adviser, who individually beneficially
own more than 1/2 of 1% of the outstanding securities of such issuer,
together beneficially own more than 5% of such outstanding securities;
(12) invest in companies for the purposes of exercising
control or management of another company;
(13) purchase from or sell to any of its officers or
Trustees or the officers or Directors of the Adviser, portfolio
securities of the Trust;
(14) purchase securities subject to legal or contractual
restrictions on the resale thereof ("restricted securities") if such
purchase would cause more than 10% of the Trust's assets (including
repurchase agreements maturing in more than seven days) to be invested
in restricted securities and other securities that are not readily
marketable;
(15) purchase securities which are not Municipal
Securities and the income from which is subject to federal income tax,
if such purchase would cause more than 20% of the Trust's total assets
to be invested in such securities; or
(16) purchase securities of other investment companies, except
(a) in connection with a merger, consolidation, acquisition or
reorganization, and (b) to the extent permitted by the 1940 Act or
pursuant to any exemptions therefrom.
The Trust has represented to the California Department of Corporations
that, in order to comply with applicable regulations, it will acquire or retain
securities of other open-end management investment companies if such
investments are made in open-end management investment companies sold with no
sales commission and the Trust's investment adviser waives its management fee
with respect to such investments. The Trust intends to comply with this
undertaking for so long as the Trust has its shares registered for sale in the
State of California or such representation is required by the California
Department of Corporations.
If a percentage restriction or limitation is adhered to at the time of
investment, a later increase or decrease in percentage resulting from a change
in values or net assets will not be considered a violation thereof.
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PORTFOLIO TURNOVER
The portfolio turnover rate for the Trust is calculated by dividing
the lesser of the Trust's purchases or sales of portfolio securities for the
year by the monthly average value of the Trust's portfolio securities. The
Securities and Exchange Commission requires that the calculation exclude all
securities whose remaining maturities at the time of acquisition were one year
or less.
Because the Trust intends to invest entirely in securities with
maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover with respect to the Trust is expected to be zero percent for
regulatory purposes.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The trustees and officers of the Trust, together with their addresses
and principal business occupations and other affiliations during the last five
years, are shown below. Each person named as Trustee (except for Mr. Godwin)
also serves as a trustee of Cardinal Government Securities Trust, Cardinal
Government Obligations Fund and The Cardinal Group, and as a director of The
Cardinal Fund Inc. Mr. Godwin also serves as a trustee of Cardinal Government
Securities Trust. Each trustee who is an "interested person" of the Trust, as
that term is defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Name and Positions Held Principal Occupation
Business Address with Registrant During Past 5 Years
---------------- --------------- -------------------
<S> <C> <C>
Gordon B. Carson Trustee, Member of Executive Principal, Whitfield Robert
5413 Gardenbrook Drive Committee Associates (construction consulting
Midland, Michigan 48642 firm) since 1988; formerly, Vice
President of Michigan Molecular
Institute, Midland, Michigan
(polymer science research
institute).
*Walter R. Chambers Chairman and Chairman, President, Chief Executive
155 East Broad Street Trustee, Member of Executive Officer and a Director of The Ohio
Columbus, Ohio 43215 and Nominating Committees Company (investment banking);
formerly, Senior Executive Vice
President of The Ohio Company.
</TABLE>
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<TABLE>
<S> <C> <C>
John B. Gerlach, Jr. Trustee, Member of Audit Since 1994, President and a Director
37 West Broad Street Committee of Lancaster Colony Corporation
Columbus, Ohio 43215 (diversified consumer products);
prior thereto, Executive Vice
President, Secretary and a Director
of Lancaster Colony Corporation.
*Hannibal L. Godwin III 155 East Trustee and Executive Vice Senior Vice President of The Ohio
Broad Street President Company (investment banking).
Columbus, Ohio 43215
Michael J. Knilans Trustee, Member of Executive Chairman, Ohio Bureau of Workers'
1119 Kingsdale Terrace Committee Compensation.
Columbus, Ohio 43220
James I. Luck Trustee President, The Columbus Foundation
1234 East Broad Street (philanthropic public foundation).
Columbus, Ohio 43205
David L. Nelson Trustee, Member of Audit and Vice President, Customer
18 James Lane Nominating Committees Satisfaction, Industry Segment, and
Stamford, CT 06903 former President, ABB Process
Automation Business, of Asea Brown
Boveri, Inc. (designer and
manufacturer of process automation
systems for basic industries);
formerly President, Process
Automation Business of Combustion
Engineering, Inc. (designer and
manufacturer of process automation
systems for basic industries).
*C.A. Peterson Trustee Retired; Chartered Financial
150 E. Wilson Bridge Rd. Analyst, former Senior Executive
Worthington, Ohio 43085 Vice President and Director of The
Ohio Company (investment banking).
</TABLE>
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<TABLE>
<S> <C> <C>
Lawrence H. Rogers II Trustee Self-employed author; former Vice
4600 Drake Road Chairman of Motor Sports
Cincinnati, Ohio 45243 Enterprises, Inc.
*John L. Schlater Trustee Chartered Financial Analyst and
155 East Broad Street Senior Vice President, The Ohio
Columbus, Ohio 43215 Company (investment banking).
*Frank W. Siegel President and Trustee, Senior Vice President, The Ohio
155 Broad Street Member of Executive Company (investment banking); former
Columbus, Ohio 43215 and Nominating Committees Vice President, Keystone Group
(mutual fund management/
administration); former Senior Vice
President, Trust Advisory Group
(mutual fund consulting).
Joseph H. Stegmayer Trustee, Member of Audit and President and a Director of Clayton
724 Hampton Roads Drive Nominating Committees Homes, Inc. (manufactured homes);
Knoxville, TN 37922-4071 former Vice President, Treasurer,
Chief Financial Officer and a
Director of Worthington Industries,
Inc. (specialty steel and plastics
manufacturer).
David C. Will Vice President Vice President of The Ohio Company;
155 East Broad Street formerly Senior Portfolio Manager,
Columbus, Ohio 43215 Huntington National Bank, Trust
Investments.
James M. Schrack II Treasurer Trust Officer and Vice President of
155 East Broad Street The Ohio Company (investment
Columbus, Ohio 43215 banking).
Bruce E. McKibben Assistant Treasurer Since April, 1992, Employee of The
155 East Broad Street Ohio Company (investment banking);
Columbus, Ohio 43215 prior thereto, student at The Ohio
State University.
Rodney L. Ruehle Assistant Treasurer Employee of The Ohio Company
155 East Broad Street (investment banking).
Columbus, Ohio 43215
Karen J. Hipsher Secretary Executive Secretary of The Ohio
155 East Broad Street Company (investment banking).
Columbus, Ohio 43215
</TABLE>
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As of November 30, 1994, all trustees and officers of the Trust as a
group owned fewer than one percent of the Shares of the Trust then outstanding.
Subject to the ultimate authority and direction of the Board of
Trustees of the Trust, the Executive Committee will exercise the powers of the
Trustees during the intervals between meetings of the Trustees.
Messrs. Chambers, Siegel, Schlater, Godwin and Will are Chairman,
President and a director, Vice President and a director, Vice President and a
director, a Vice President and a Vice President, respectively, of the Adviser.
The compensation of trustees and officers of the Trust who are employed by The
Ohio Company is paid by The Ohio Company. Trustees' fees (currently $500 per
meeting attended, $500 annual retainer and $500 per audit committee meeting
attended) plus expenses are paid by the Trust, except that Messrs. Chambers,
Siegel, Schlater and Godwin receive no fees from the Trust. The aggregate
amount of compensation and expenses paid to the trustees during the fiscal year
ended September 30, 1994, was $16,885.
PRINCIPAL SHAREHOLDERS OF THE TRUST
The following is the only person known to the Trust to be the
beneficial owner of more than 5% of the Trust's outstanding Shares as of
November 22, 1994: The Dispatch Printing Company, 40 South Third Street,
Columbus, Ohio 43215 - 19.26%.
THE ADVISER
The Trust has entered into an Investment Advisory Contract with
Cardinal Management Corp. (the "Adviser"). Pursuant to the Investment Advisory
Contract, the Adviser has agreed to provide investment advisory and management
services as described in the Prospectus. As compensation for such services to
the Trust, the Adviser receives monthly from the Trust a management fee at the
annual rate of 1/2 of 1% of the average daily net assets of the Trust. Such
fee accrues daily. The Adviser performs and bears the cost of research,
statistical analysis and continuous supervision of the investment portfolio of
the Trust and furnishes office facilities and certain clerical and
administrative services to the Trust. In addition, the Adviser provides
dividend, transfer agency and fund accounting services to the Trust.
The aggregate amount of investment management fees earned by the
Adviser during the fiscal years ended September 30, 1994, 1993 and 1992, was
$449,777, $449,464 and $437,167, respectively.
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Pursuant to the Investment Advisory Contract, if the aggregate
expenses of the Trust (including fees pursuant to the Investment Advisory
Contract, but excluding taxes, interest, brokerage fees, commissions and
extraordinary expenses) for any fiscal year exceed 1% of average net assets,
the Adviser is to refund to the Trust, or otherwise bear, such excess. The
Adviser was not obligated to refund or pay any expenses of the Trust for the
three fiscal years ended September 30, 1994.
The Adviser is a wholly owned subsidiary of The Ohio Company, an
investment banking firm organized in 1925. Descendants of H.P. and R.F. Wolfe,
deceased, and members of their families, through their possession of a majority
of the voting stock, may be considered controlling persons of The Ohio Company.
Walter R. Chambers is an officer and director of The Ohio Company. Frank W.
Siegel, John L. Schlater, Hannibal L. Godwin and James M. Schrack II are each
an officer of The Ohio Company.
The Investment Advisory Contract was last approved by a majority of
both the trustees and those trustees who are not "interested persons" (as
defined in the 1940 Act) of either the Trust or the Adviser of the Trust at a
meeting held for such purposes on January 20, 1995, and was last approved by
the shareholders of the Trust on April 9, 1984. The Investment Advisory
Contract will continue in force from year to year if specifically approved at
least annually by the Board of Trustees of the Trust or by the vote of a
majority of the outstanding Shares of the Trust. In either event, the Contract
must also be approved by vote of a majority of the Trustees who are not
"interested persons" of any party to such Contract, cast in person at a meeting
called for such purpose. The Contract may be terminated by either party, at
any time, without penalty, upon sixty days' written notice, and will
automatically terminate in the event of its assignment. Termination will not
affect the right of the Adviser to receive payments on any unpaid balance of
the compensation earned prior to termination.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Contract, the Adviser, subject to
the policies established by the Board of Trustees of the Trust and in
accordance with the Trust's investment restrictions and policies, is
responsible for the Trust's portfolio decisions and the placing of the Trust's
portfolio transactions. Purchases and sales of portfolio securities which are
debt securities usually are principal transactions in which such portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities generally include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
may include the spread between the bid and
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asked price. Transactions in the over-the-counter market are generally
principal transactions with dealers. With respect to the over-the- counter
market, the Trust, where possible, will deal directly with dealers who make a
market in the securities involved except in those circumstances where better
price and execution are available elsewhere.
In executing such transactions, the Adviser seeks to obtain the best
net results for the Trust taking into account such factors as price (including
the applicable brokerage commission or dealer spread), size of order,
difficulties of execution and operational facilities of the firm involved and
the firm's risk in positioning a block of securities. While the Adviser
generally seeks reasonably competitive commission rates, for the reasons stated
in the prior sentence, the Trust will not necessarily be paying the lowest
commission or spread available. For the past three fiscal years, the Trust has
paid no brokerage commissions.
The Adviser may consider provision of research, statistical and other
information to the Trust or the Adviser in the selection of qualified
broker-dealers who effect portfolio transactions for the Trust so long as the
Adviser's ability to obtain the best net results for portfolio transactions of
the Trust is not diminished. Such research services include supplemental
research, securities and economic analyses, and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Such research services may also be useful to the
Adviser in connection with its services to other clients. Similarly, research
services provided by brokers serving such other clients may be useful to the
Adviser in connection with its services to the Trust. Although this
information is useful to the Trust and the Adviser, it is not possible to place
a dollar value on it. It is the opinion of the Board of Trustees and the
Adviser that the review and study of this information will not reduce the
overall cost to the Adviser of performing its duties to the Trust under the
Investment Advisory Contract. The Trust is not authorized to pay brokerage
commissions which are in excess of those which another qualified broker would
charge solely by reason of brokerage and research services provided.
Investment decisions for the Trust are made independently from those
for any other investment company or account managed by the Adviser. Any such
other investment company or account may also invest in the same securities as
the Trust. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Trust and another investment
company or account, the transaction will be averaged as to price and available
investments will be allocated as to amount in a manner which the Adviser
believes to be equitable to the Trust and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Trust or the size of the position obtained by the
Trust. To the extent
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permitted by law, the Adviser may aggregate the securities to be sold or
purchased for the Trust with those to be sold or purchased for other investment
companies or accounts in order to obtain best execution. As provided by the
Investment Advisory Agreement, in making investment recommendations for the
Trust, the Adviser will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by the Trust is a customer
of the Adviser, its parent or its subsidiaries or affiliates and, in dealing
with its customers, the Adviser, its parent, subsidiaries and affiliates will
not inquire or take into consideration whether securities of such customers are
held by the Trust.
The Trust did not during the fiscal year ended September 30, 1994,
hold any securities of its regular brokers or dealers, as defined in Rule 10b-1
under the 1940 Act, or their parent companies.
ACCOUNTING SERVICES
The Trust has entered into an Accounting Services Agreement with the
Adviser pursuant to which the Adviser has agreed to maintain and keep current
the books, accounts, records, journals and other records of original entry
relating to the business of the Trust and to calculate the Trust's net asset
value on a daily basis. In consideration of such services, the Trust has
agreed to pay monthly to the Adviser a fee based on the average monthly net
asset value of the Trust. For the last three fiscal years ended September 30,
1994, the Adviser received $19,928, $19,819 and $19,351, respectively, for its
services to the Trust pursuant to such Agreement.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Trust has entered into an Administration Agreement with the
Adviser pursuant to which the Adviser has agreed to act as the Trust's transfer
agent and dividend disbursing agent and to perform certain check redemption
services for the Trust. In consideration of such services, the Trust has
agreed to pay the Adviser an annual fee paid monthly, equal to $21 per
shareholder account plus the Adviser's out-of-pocket expenses. For the last
three fiscal years ended September 30, 1994, the Adviser received $75,550,
$75,017 and $79,928, respectively, for its services to the Trust pursuant to
such Agreement.
DISTRIBUTOR
The Ohio Company, with principal offices located at 155 East Broad
Street, Columbus, Ohio 43215, serves as the Trust's principal underwriter and,
in connection therewith, is available to receive
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purchase orders and redemption requests relating to Shares of the Trust and to
transmit such orders and requests to the Trust's custodian. The Ohio Company
does not receive any compensation from the Trust or charge any fees to
investors for its services rendered as principal underwriter of the Trust's
Shares.
The Distribution Contract was last approved by both the Trustees and
those Trustees who are not "interested persons" (as defined in the 1940 Act) of
either the Trust or The Ohio Company at a meeting held for such purpose on
January 20, 1995, and was last approved by the shareholders of the Trust on
April 9, 1984. The Distribution Contract will continue in effect from year to
year if specifically approved at least annually by the Board of Trustees of the
Trust or by the vote of a majority of the outstanding Shares of the Trust. In
either event, the Distribution Contract must also be approved by vote of a
majority of the Trustees who are not "interested persons" of any party to the
Distribution Contract, cast in person at a meeting called for such purpose.
The Distribution Contract will automatically terminate in the event of its
assignment.
CUSTODIAN
The Fifth Third Bank (the "Bank"), 38 Fountain Square, Cincinnati,
Ohio 45263, has been selected to act as Custodian of the portfolio securities
and cash of the Trust. The Bank has no part in determining the investment
policies of the Trust or in deciding which securities are to be purchased or
sold by the Trust. The Trust may enter into repurchase agreements with the
Bank and may purchase or sell securities from or to the Bank.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Certain legal matters as to the issuance of the Shares offered hereby
have been passed upon by Baker & Hostetler, 65 East State Street, Columbus,
Ohio 43215. The Trust has selected KPMG Peat Marwick LLP, Two Nationwide
Plaza, Columbus, Ohio 43215, as independent auditors for the Trust. The
financial statements of the Trust included in this Statement of Additional
Information have been included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, given upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Trust's Shares may be purchased at the public offering price and
are sold on a continuous basis through The Ohio Company, principal underwriter
of the Trust's Shares, at its address and number set forth on the cover page of
this Statement of Additional
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Information, and through other broker-dealers who are members of the National
Association of Securities Dealers, Inc. and have sales agreements with The Ohio
Company.
The Trust may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (c) an emergency exists
as a result of which (i) disposal by the Trust of securities owned by it is not
reasonably practical or (ii) it is not reasonably practical for the Trust to
determine the fair value of its net assets.
Use of the check-writing redemption procedure will be subject to the
rules and regulations of The Fifth Third Bank (the "Bank") governing checking
accounts. Neither the Bank nor the Trust shall incur any liability to a
participating shareholder under this procedure for not honoring a check that
exceeds the value of Shares in a shareholder's account, for honoring checks
properly drafted, for effecting redemptions pursuant to payment thereof or for
returning checks not accepted for payment. This procedure may be terminated at
any time by the Trust, the Bank or the participating shareholder. A
shareholder participating in the check-writing redemption procedure has not
established a checking or other account with the Bank for the purposes of
Federal Deposit Insurance or otherwise.
DETERMINATION OF NET ASSET VALUE
The Trust values its portfolio securities using the amortized cost
valuation method. This method involves valuing a security at its cost and
thereafter accruing any discount or premium at a constant rate to maturity. By
declaring these accruals to the Trust's shareholders in the daily dividend, the
value of the Trust's assets, and, thus, its net asset value per share, will
generally remain constant. Although this method provides certainty in
valuation, it may result in periods during which the value of the Trust's
securities, as determined by amortized cost, is higher or lower than the price
the Trust would receive if it sold the securities. During such periods, the
yield on Shares of the Trust may differ somewhat from that obtained in a
similar fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
securities. For example, if the use of amortized cost by the Trust resulted in
a lower aggregate portfolio value on a particular day, a prospective investor
in the Trust would be able to obtain a somewhat higher yield than would result
from investment in a similar fund utilizing solely market values, and existing
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investors in the Trust would receive less investment income. The converse
would apply in a period of rising interest rates.
The valuation of the Trust's portfolio securities based upon their
amortized cost and the maintenance of the Trust's per share net asset value of
$1.00 is permitted based on the Trust's adherence to certain conditions,
including maintaining a dollar-weighted average portfolio maturity of 90 days
or less and purchasing only portfolio securities having remaining maturities of
397 days or less. The Board of Trustees has also established procedures
designed to stabilize, to the extent reasonably possible, the Trust's net asset
value per share, as computed for the purpose of sales and redemptions, at
$1.00. Such procedures include review of the Trust's portfolio holdings by the
Board of Trustees at such intervals as it may deem appropriate to determine
whether the Trust's net asset value calculated by using available market
quotations deviates from $1.00 per Share and, if so, whether such deviation may
result in material dilution or may be otherwise unfair to existing
shareholders. These procedures also include a review by the Adviser in
accordance with policies established by the Board of Trustees not less
frequently than monthly of the quality of certain Municipal Securities having
variable interest rates and demand features that permit the Trust to calculate
the maturity of such obligations to a point in time prior to their stated
maturity. In the event the Board of Trustees determines that deviation in net
asset value exists, the Board of Trustees will take such corrective action as
it deems necessary and appropriate, which action might include redemption of
Shares in kind, selling portfolio securities prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity, withholding
dividends, reduction of the number of Shares outstanding (i.e. the declaration
of a negative dividend) or establishing a net asset value per share by using
available market quotations.
TAXES
The Trust has qualified and intends to remain qualified for the
special tax treatment accorded regulated investment companies under the
Internal Revenue Code of 1986, as amended (the "Code"). The Code permits a
regulated investment company which invests in Municipal Securities the interest
on which is excluded from gross income for federal income tax purposes to pay
to its shareholders "exempt-interest dividends," which are excluded from gross
income for federal income tax purposes, if at the close of each quarter at
least 50 percent of the value of its total assets consist of Municipal
Securities.
In order to qualify as a regulated investment company, the Trust must,
among other things: derive at least 90% of its gross income from dividends,
interest, payments with respect to
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securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income derived with respect to its business of
investing in such stock, securities, or currencies; derive less than 30% of its
gross income from the sale or other disposition of stock, securities, options,
future contracts or foreign currencies held less than three months; and
diversify its investments within certain prescribed limits. In addition, to
utilize the tax provisions specifically applicable to regulated investment
companies, the Trust must distribute to its shareholders at least 90% of its
investment company taxable income for the year and at least 90% of its interest
income that is excluded from gross income for federal income tax purposes, net
of certain deductions. In general, the Trust's investment company taxable
income will be its taxable income subject to certain adjustments and excluding
the excess of any net long-term capital gain for the taxable year over the net
short-term capital loss, if any, for such year.
An exempt-interest dividend is any dividend or part thereof (other
than a capital gain dividend) paid by the Trust that is derived from interest
received by the Trust that is excluded from gross income for federal income tax
purposes, net of certain deductions, provided the dividend is designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than sixty days after the close of the Trust's taxable year. The percentage of
the total dividends paid by the Trust during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during such year. Exempt-interest dividends shall be treated by the
Trust's shareholders as items of interest excludable from their gross income
for Federal income tax purposes under Section 103(a) of the Code. However, a
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain the exclusion under Section 103(a) of the Code
if such shareholder is a "substantial user" or a "related person" to such user
under Section 147(a) of the Code with respect to any of the Municipal
Securities held by the Trust. If a shareholder receives an exempt-interest
dividend with respect to any Share and such Share is held by the shareholder
for six months or less, any loss on the sale or exchange of such Share shall be
disallowed to the extent of the amount of such exempt-interest dividend.
If the distributions from the Trust are less than the sum of 98% of
the Trust's ordinary income for a calendar year plus 98% of the Trust's capital
gain net income for the one-year period ending on October 31 of the calendar
year, the Trust will be subject to a non- deductible 4% excise tax on the
deficit. The Trust does not intend to incur any excise tax and may make
special distributions to shareholders in order to avoid such tax.
In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry Trust Shares is not deductible
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for federal income tax purposes if the Trust distributes exempt-interest
dividends during the shareholder's taxable year. A shareholder of the Trust
that is a financial institution may not deduct interest expense attributable to
indebtedness incurred or continued to purchase or carry Shares of the Trust if
the Trust distributes exempt-interest dividends during the shareholder's
taxable year (except that 80% in the case of interest expense attributable to
tax-exempt obligations acquired after December 31, 1982, and prior to August 7,
1986 may be deducted). Certain federal income tax deductions of property and
casualty insurance companies holding Shares of the Trust and receiving
exempt-interest dividends may also be adversely affected. In certain limited
instances, the portion of Social Security benefits received by a shareholder
which may be subject to federal income tax may be affected by the amount of
tax-exempt interest income, including exempt-interest dividends received by
shareholders of the Trust.
In the unlikely event the Trust realizes long-term capital gains, the
Trust intends to distribute any realized net long-term capital gains annually.
If the Trust distributes such gains, the Trust will have no tax liability with
respect to such gains, and the distributions will be taxable to shareholders as
long-term capital gains regardless of how long the shareholders have held Trust
Shares. Any such distributions will be designated as a capital gain dividend
in a written notice mailed by the Trust to the shareholders not later than
sixty days after the close of the Trust's taxable year. It should be noted,
however, that capital gains are taxed like ordinary income except that net
capital gains of individuals are subject to a maximum federal income tax rate
of 28%. Net capital gains are the excess of net long-term capital gains over
net short-term capital losses. Any net short-term capital gains are taxed at
ordinary income tax rates. If a shareholder receives a capital gain dividend
with respect to any Share and then sells the Share before he has held it for
more than six months, any loss on the sale of the Share is treated as long-term
capital loss to the extent of the capital gain dividend received.
Interest earned by individuals and corporations on certain municipal
obligations issued on or after August 8, 1986, to finance certain private
activities will be treated as a tax preference item in computing the
alternative minimum tax. It is likely that exempt-interest dividends received
by shareholders from the Trust will also be treated as tax preference items in
computing the alternative minimum tax to the extent that distributions by the
Trust are attributable to such obligations. Also, a portion of all other
interest excluded from gross income for federal income tax purposes earned by a
corporation may be subject to the alternative minimum tax as a result of the
inclusion in alternative minimum taxable income of 75% of the excess of
adjusted current earnings and profits over pre-book alternative minimum taxable
income.
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Adjusted current earnings and profits would include exempt-interest dividends
distributed by the Trust to corporate shareholders.
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income", which would include a portion of the exempt-interest dividends
distributed by the Trust to such corporation, and exempt-interest dividends
distributed to certain foreign corporations doing business in the United States
could be subject to a branch profits tax imposed by Section 884 of the Code.
The Trust may acquire variable rate demand Municipal Securities and
"stand-by commitments" or "puts" from bond and municipal securities dealers.
See "INVESTMENT OBJECTIVE AND POLICIES - Stand-By Commitments." With respect
to each such acquisition, an opinion of counsel will be issued that the Trust
will be treated for federal income tax purposes as the owner of the Municipal
Securities acquired subject to such demand features or to such stand-by
commitments and that the interest on the Municipal Securities will be excluded
from the gross income of the Trust for federal income tax purposes. The
purchase prices of Municipal Securities subject to stand-by commitments must be
allocated between such securities and stand-by commitments based upon their
respective fair-market values.
Distributions of exempt-interest dividends by the Trust may be subject
to state and local taxes even though a substantial portion of such
distributions may be derived from interest on obligations which, if received
directly, would be exempt from such taxes. The Trust will report to its
shareholders annually after the close of its taxable year the percentage and
source, on a state-by-state basis, of interest income earned on municipal
obligations held by the Trust during the preceding year. Shareholders are
advised to consult their tax advisers concerning the application of state and
local taxes.
The Trust may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any shareholder, and the proceeds of any redemption or the values of any
exchanges of Shares of the Trust, if such shareholder (1) fails to furnish the
Trust with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Trust that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Trust and its shareholders. No attempt
is made to present a detailed explanation
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of the federal income tax treatment of the Trust or its shareholders, and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential investors in the Trust are urged to consult their tax
advisers with specific reference to their own tax situation.
Information as to the federal income tax status of all distributions
will be mailed annually to each shareholder.
YIELD
The current (average annualized) yield of the Trust for any seven-day
period is calculated by dividing the average daily net income per Share earned
by the Trust during the seven-day calendar period by the Trust's average price
per Share over the same period and annualizing this quotient on a 365 day
basis. For purposes of this calculation, the daily net income reflects
dividends declared on the original Share and dividends declared on any Shares
purchased with dividends on that Share. Capital changes that are excluded from
the calculation are realized gains and losses from the sale of securities as
well as unrealized appreciation and depreciation with respect to the Trust's
portfolio. The yield of the Trust for the seven-day period ended September 30,
1994, was 2.69%.
The effective or compounded yield of the Trust for any seven-day
period is computed by adding the number one to the daily net income per Share
earned by the Trust during the seven-day calendar period, raising the sum to a
power equal to 365 divided by seven, and subtracting the number one from the
result. The effective or compounded yield of the Trust for the seven-day
period ended September 30, 1994, was 2.72%.
For the base period, the tax-equivalent yield of the Trust was 4.45%
(using a federal income tax rate of 39.6%) and its tax-equivalent effective
yield was 4.51% (using a federal income tax rate of 39.6%). The Trust's
tax-equivalent yield was computed by dividing that portion of the Trust's yield
which is tax-exempt by 1 minus the stated income tax rate and adding the result
to that portion, if any, of the Trust's yield that is not tax-exempt. The
Trust's tax-equivalent effective yield was computed by dividing that portion of
the effective yield which is tax-exempt by 1 minus the stated income tax rate
and adding to that result the portion, if any, of the Trust's effective yield
that is not tax-exempt.
Investors may judge the performance of the Trust by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard
& Poor's Corporation, and to data prepared by Lipper Analytical Services,
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Inc., a widely recognized independent service which monitors the performance of
mutual funds, CDA Investment Technologies, Inc. and the Consumer Price Index.
Comparisons may also be made to indices or data published in Donoghue's MONEY
FUND REPORT of Holliston, Massachusetts, a nationally recognized money market
fund reporting service, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, The Columbus Dispatch, Consumer
Reports and U.S.A. Today.
Current and effective yields will fluctuate from time to time and
should not be considered representative of future results. Yield is a function
of general economic and money market conditions, portfolio quality and
maturity, type of portfolio instruments and operating expenses. Yield
information may be useful in reviewing the Trust's performance and comparing an
investment in Shares of the Trust with other investment alternatives. However,
yield on shares of the Trust fluctuates unlike yields on bank deposits or other
instruments that pay a fixed yield for a stated period of time.
ADDITIONAL INFORMATION
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is an entity of the type commonly known as a "business
trust" and is organized under Chapter 1746 of the Ohio Revised Code which
limits the liability of its shareholders to the assets of the Trust. The
Declaration of Trust also provides that shareholders shall not be subject to
any personal liability for the acts or obligations of the Trust and that every
agreement, obligation or instrument entered into or executed by the Trust shall
contain a provision to the effect that the shareholders are not personally
liable thereunder. The Trust has been advised by counsel that courts in
jurisdictions other than Ohio should apply Ohio law in determining the
liability of shareholders of the Trust and that shareholder liability
accordingly will be limited to the assets of the Trust.
The Declaration of Trust further 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 for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties. It also provides that all
persons having any claim against the Trustees or the Trust shall look solely to
the Trust's property for payment.
The Trust is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve
supervision by the Securities and Exchange Commission of the management or
policies of the Trust.
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The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission. Copies of such information may be
obtained from the Securities and Exchange Commission upon payment of the
prescribed fee.
The Prospectus and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized
to give any information or make any representation other than those contained
in the Prospectuses and this Statement of Additional Information.
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FINANCIAL STATEMENTS
CARDINAL TAX EXEMPT MONEY TRUST
SEPTEMBER 30, 1994
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CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PRINCIPAL VALUE
SECURITIES MATURITY DATE AMOUNT (NOTE 1)
- ------------------------------------------------------------------- ------------- --------- --------
<S> <C> <C> <C>
MUNICIPAL SECURITIES 104.20%
Alexandria, Virginia, VRN, currently 3.85% 12/01/2016 $ 1,700 $ 1,700
Arapahoe County, Colorado Capital Improvement, ARN, currently 3.90% 8/31/2026 4,890 4,890
Ashtabula County, Ohio Brighton Manor Project, VRN, currently 3.65% 12/01/2016 2,200 2,200
Becker, Minnesota, PCRB, currently 3.30% 10/26/1994 4,100 4,100
Birmingham, Michigan, VRN, currently 3.925% 12/01/2018 1,000 1,000
Clark County, Nevada, IRB, currently 3.85% 11/01/2020 2,900 2,900
Clermont County, Ohio, Hospital, VRN, currently 3.50% 12/01/2015 1,345 1,345
Cornell, Michigan, VRN, currently 3.00% 3/01/2015 3,100 3,100
Erie County, Ohio Brighton Manor Project, VRN, currently 3.65% 11/01/2016 600 600
Florida Housing Agency, VRN, currently 3.65% 12/01/2011 2,000 2,000
Grand Prairie, Texas Housing Finance Authority, VRN, currently
3.50% 6/01/2010 1,800 1,800
Hillsborough County, Florida, VRN, currently 3.75% 9/01/2025 3,300 3,300
Hockley County, Texas, PCRB, currently 3.50% 3/01/2014 1,750 1,750
Lincoln County, Wyoming, PCRB, currently 3.65% 11/01/2014 4,000 4,000
Lisle, Illinois, VRN, currently 3.60% 12/15/2015 2,500 2,500
Long Beach, California, VRN, currently 3.05% 10/19/1994 4,000 4,000
Los Angeles, California Airport, VRN, currently 3.75% 12/01/2024 600 600
Louisiana Public Facilities Authority, VRN, currently 3.50% 10/01/2022 1,000 1,000
Lynchburg, Virginia, Hospital Facilities, VRN, currently 3.70% 12/01/2025 600 600
Maine Health and Higher Education, VRN, currently 3.70% 12/01/2025 790 790
Marion County, West Virginia Waste Disposal, RB, currently 3.65% 10/01/2017 4,200 4,200
Montgomery, Alabama, BMC Special Care, VRN, currently 3.70% 12/01/2030 2,670 2,670
New York State Environmental Facilities Corp., VRN, currently 3.75% 11/01/2014 1,000 1,000
Ohio, Higher Education, RB, currently 3.75% 12/01/2006 1,355 1,355
Ohio, Higher Education, (Oberlin College), RB, currently 3.50% 10/01/2015 3,000 3,000
Ohio, State of, Economic Development, VRN, currently 3.80% 10/01/1998 1,000 1,000
Platte County, Wyoming, VRN, currently 3.65% 9/26/1996 2,500 2,500
Private College and University, Georgia, RB, currently 3.20% 10/01/2015 3,000 3,000
Sandusky County, Ohio Brighton Manor Project, IRB, currently 3.65% 12/01/2016 500 500
Scioto County, Ohio, Hospital, VRN, currently 3.70% 12/01/2025 3,100 3,100
Springfield, Illinois, Union Square Project, RB, currently 3.85% 9/01/2005 300 300
Springfield, Illinois, Second and Adams Project, RB, currently
3.85% 12/01/2015 1,260 1,260
Vermont Education and Health, VRB, currently 3.70% 12/01/2025 3,350 3,350
Washington State General Obligation Bonds, currently 2.60% 10/03/1994 1,500 1,500
Washington State General Obligation Bonds, currently 2.60% 10/03/1994 3,000 3,000
Washington State Fin. Commiss. Rev., RB, currently 3.60% 1/01/2010 4,000 4,000
West Feliciana, Louisiana, VRN, currently 3.75% 12/01/2015 4,000 4,000
--------- --------
TOTAL INVESTMENTS AT AMORTIZED COST $83,910 $83,910
======= ========
ARN -- Adjustable Rate Notes
VRN -- Variable Rate Notes
IRB -- Variable Rate Industrial Revenue Bonds
RB -- Variable Rate Revenue Bonds
VRB -- Variable Rate Bonds
PCRB -- Variable Rate Pollution Control Revenue Bonds
</TABLE>
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-30
<PAGE> 212
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $83,910
Cash............................................................................. 702
Interest receivable.............................................................. 286
Receivable for Trust shares sold................................................. 15
Other assets..................................................................... 52
-----------------
Total assets........................................................... 84,965
-----------------
LIABILITIES
Payable for Trust shares redeemed................................................ 350
Payable for investment securities purchased...................................... 4,000
Payable for shareholder distributions............................................ 8
Accrued investment management, accounting and transfer agent fees (note 2)....... 45
Other accrued expenses........................................................... 31
-----------------
Total liabilities...................................................... 4,434
-----------------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 80,531,046 outstanding $.10 par value shares of
beneficial interest (unlimited number of shares authorized).................... $80,531
=================
NET ASSET VALUE PER SHARE........................................................ $ 1.00
=================
</TABLE>
See accompanying notes to financial statements.
B-31
<PAGE> 213
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................................. $2,282
------
EXPENSES:
Investment management fees (note 2)...................................... 450
Transfer agent fees and expenses (note 2)................................ 75
Accounting fees (note 2)................................................. 20
------
Total affiliated expenses...................................... 545
------
Custodian fees........................................................... 8
Professional fees........................................................ 47
Reports to shareholders.................................................. 24
Trustees' fees........................................................... 17
Registration fees........................................................ 15
Other expenses........................................................... 25
------
Total non-affiliated expenses.................................. 136
------
Total expenses................................................. 681
------
Net increase in net assets from operations..................... $1,601
======
</TABLE>
See accompanying notes to financial statements.
B-32
<PAGE> 214
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net increase in net assets from operations...................... $ 1,601 $ 1,590
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders............................. (1,601) (1,590)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares.................................... 164,948 190,272
Reinvestment of distributions to shareholders................... 1,510 1,499
Cost of shares redeemed......................................... (177,086) (170,666)
-------- --------
Increase (decrease) in net assets derived from capital share
transactions............................................... (10,628) 21,105
-------- --------
Net increase (decrease) in net assets......................... (10,628) 21,105
NET ASSETS -- beginning of period............................... 91,159 70,054
-------- --------
NET ASSETS -- end of period..................................... $ 80,531 $ 91,159
========= =========
</TABLE>
See accompanying notes to financial statements.
B-33
<PAGE> 215
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Tax Exempt Money Trust (the Trust) is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated January 13, 1983 and is registered under the Investment Company Act of
1940. 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.
Variable Rate Demand Municipal Securities--Variable and adjustable rate demand
municipal securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance, plus accrued interest, at
redemption dates provided by contract upon a specified number of days notice
either from the issuer or by drawing on a bank letter of credit or comparable
guarantee issued with respect to such security. The interest rates shown for
variable rate securities are the rates in effect on September 30, 1994.
Security Transactions and Investment Income--Security transactions are recorded
on the trade date. Interest income is recorded on the accrual basis.
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, 1994.
(continued)
B-34
<PAGE> 216
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1994
CMC also serves as the Trust's 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, 1994 the Trust paid or
accrued $75,550 and $19,928 for transfer agent and fund accounting services,
respectively.
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, 1994 the Trust
incurred no expenses relating to the distribution of its shares.
(3) -- COMMITMENTS AND CONTINGENCIES
The Trust has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1994. 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 $13,291 for the initial capital of ICI
Mutual. The Trust is also committed to provide $39,873 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $27,000 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
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------------------------
1994 1993
------------ -------------
<S> <C> <C>
Shares sold..................................................... 164,947,710 190,272,577
Shares issued in connection with reinvestment of distributions
to shareholders............................................... 1,509,540 1,499,173
------------ -------------
166,457,250 191,771,750
Shares repurchased.............................................. (177,085,583) (170,666,036)
------------ -------------
Net increase (decrease)......................................... (10,628,333) 21,105,714
Shares outstanding:
Beginning of period............................................. 91,159,379 70,053,665
------------ -------------
End of period................................................... 80,531,046 91,159,379
============= ==============
</TABLE>
B-35
<PAGE> 217
CARDINAL TAX EXEMPT MONEY TRUST
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- ---------------------------------------------------------------------------
(5) - Dividends and Distributions
See caption "FINANCIAL HIGHLIGHTS" in the Prospectus for the Financial
Highlights with respect to the Trust for each of the years in the ten-year
period ended September 30, 1994.
B-36
<PAGE> 218
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Tax Exempt Money Trust:
We have audited the accompanying statement of assets and liabilities of Cardinal
Tax Exempt Money Trust, including the statement of investments, as of September
30, 1994, 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 confirmation of securities owned as of
September 30, 1994, by correspondence with the custodian. For payables for
investment securities purchased as of September 30, 1994, we performed
appropriate alternative 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 Tax Exempt Money Trust as of September 30, 1994, 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 18, 1994
10
B-37
<PAGE> 219
APPENDIX
RATINGS OF PERMISSIBLE INVESTMENTS
Set forth below are excerpts from Moody's Investors Service and
Standard & Poor's Corporation ratings of obligations that are permissible
investments for the Trust.
COMMERCIAL PAPER RATING. Commercial paper ratings of Standard &
Poor's Corporation ("S&P") are current assessments of the likelihood of timely
payment of debts having original maturities of no more than 365 days.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted A-1+. Commercial
paper rated A-2 by S&P indicates that capacity for timely payment on issues is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternative liquidity is maintained.
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
CORPORATE DEBT RATINGS. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong. Debt rated AA has a
very strong capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree.
To provide more detailed indications of credit quality, the ratings of
AA may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the two highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an
A-1
<PAGE> 220
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Moody's applies numerical modifiers (1, 2, and 3) with respect to
bonds rated Aa. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category.
Municipal Obligations Ratings
The following summarizes the two highest ratings used by Moody's for
state and municipal short-term obligations. Obligations bearing MIG-1 and
VMIG-1 designations are of the best quality, enjoying strong protection by
established cash flows, superior liquidity support or demonstrated broadbased
access to the market for refinancing. Obligations rated "MIG-2" or "VMIG-2"
denote high quality with ample margins of protection although not so large as
in the preceding rating group.
S&P SP-1 and SP-2 municipal note ratings (the two highest ratings
assigned) are described as follows:
"SP-1": Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation.
"SP-2": Satisfactory capacity to pay principal and interest.
The following summarizes the two highest ratings used by Moody's for
state and municipal bonds:
"Aaa": Bonds judged to be of the best quality. They carry
the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
A-2
<PAGE> 221
"Aa": Bonds judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
The following summarizes the two highest ratings used by S&P for state
and municipal bonds:
"AAA": Debt which has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
"AA": Debt which has a very strong capacity to pay
interest and repay principal and differs from the higher rated
issues only in small degree.
DEFINITIONS OF CERTAIN MONEY MARKET INSTRUMENTS
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
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.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds, and
issues of agencies and instrumentalities of the U.S. Government, provided such
obligations
A-3
<PAGE> 222
are guaranteed as to payment of principal and interest by the full faith and
credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, the Export-Import Bank of the United States, the
Tennessee Valley Authority, the Farmers Home Administration, the Federal Home
Loan Banks, the Federal Intermediate Credit Banks, the Federal Farm Credit
Banks, the Federal Land Banks, the Federal Housing Administration, the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, and
the Student Loan Marketing Association. Some of these obligations, such as
those of the Government National Mortgage Association and the Export-Import
Bank of the United States, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Student Loan Marketing Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks, are supported only by the credit of the instrumentality. No assurance
can be given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
A-4
<PAGE> 223
- ----------------------------------------------------------
- ---------------------------------------------------------
INVESTMENT ADVISER AND 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
------------------------
This report has been prepared for the information of shareholders of The
Cardinal Fund Inc. and is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective Prospectus.
- ---------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ---------------------------------------------------------
[LOGO]
THE
CARDINAL
FUND INC.
-------------------------
ANNUAL REPORT
-------------------------
SEPTEMBER 30, 1995
THE OHIO COMPANY
- ---------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 224
DEAR CARDINAL SHAREHOLDER:
- --------------------------------------------------------------------------------
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>
1
<PAGE> 225
- --------------------------------------------------------------------------------
On behalf of The Cardinal Fund, Inc. Directors and Officers, we are pleased to
present our September 30, 1995 Annual Report which contains audited financial
statements, including the portfolio of investments.
The Cardinal Fund, Inc. increased 14.8% during fiscal year, 1995. This is in
comparison to a gain of 23.1% for the average growth and income fund as tracked
by Lipper Analytical Services, Inc. As the stock market rebounded from a
sluggish previous year, technology issues led the advances. Although technology
stocks represented roughly 5% of the Fund's assets throughout the year, this
concentration was obviously not enough for the Fund to keep pace with the
market. Additionally, the underperformance in the first fiscal quarter of this
year, due to holdings of financial and cyclical issues, hindered the Funds first
few month's results.
Over the past twelve months, the Fund benefited from strong performance in
technology stocks such as Hewlett Packard, Intel, and Tektronics. Also
benefitting performance were holdings in bank and finance related issues such as
Bank One, Huntington, and Beneficial.
In contrast, our holdings in energy, insurance, and certain industrial issues,
while up, did not outperform the indices. Slower economic activity and concerns
over pricing held back gains with a number of these issues.
New to the portfolio's holdings are a diverse group of stocks. Additions during
the past year included Mylan Labs, Coastal Corporation, U.S. Healthcare, Compaq
Computers, Marsh & McLennan, and Dun & Bradstreet. All are strong financially
and hold large market share positions in their respective industries.
Combined, The Cardinal Fund's holdings compare favorably to the market when
viewed in context of our disciplines and philosophy.
<TABLE>
<CAPTION>
THE CARDINAL FUND, INC.* S&P 500
------------------------ -------
<S> <C> <C>
Earnings Per Share growth**.................. 9.0% 10.7%
Dividends Per Share growth**................. 6.2% 2.1%
Price/Latest 12 Month Earnings............... 14.7X 16.7X
Dividend Yield............................... 3.1% 2.5%
</TABLE>
* Dollar-weighted Average for portfolio.
** Compounded annual rate for latest five years.
While we are not satisfied with our past year's relative investment performance,
we are pleased to see nearer term results compare more favorably. As we look to
the future, we remain dedicated to keeping The Cardinal Fund, Inc. shares
performing for your benefit.
We appreciate your confidence and are looking forward to fiscal year, 1996.
H. Keith Allen Frank W. Siegel John L. Schlater
Chairman President Vice President
As portfolio manager for The Cardinal Fund Inc., John L. Schlater is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Schlater
has 18 years of investment management experience and has served as portfolio
manager for The Cardinal Fund Inc. since 1989.
<PAGE> 226
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
RETURN ON A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
The S&P 500 Index is considered to be a broad based market index for the purpose
of this presentation. The value of The Cardinal Fund Inc. investment includes
the relevant fund expenses and sales load, whereas, the value of the investment
in the S&P 500 Index does not. Past performance is not predictive of future
performance.
<TABLE>
<CAPTION>
Measurement Period The Cardinal
(Fiscal Year Covered) S&P 500 Fund Inc.
<S> <C> <C>
30-Sep-85 10000 9550
30-Sep-86 13170 12659
30-Sep-87 18886 15824
30-Sep-88 16544 15277
30-Sep-89 21987 18644
30-Sep-90 19942 16142
30-Sep-91 26144 21556
30-Sep-92 29020 24800
30-Sep-93 32793 26531
30-Sep-94 34006 27428
30-Sep-95 44070 31487
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
FOR THE PERIODS ENDING SEPTEMBER 30,
1995:
-------------------------------------
ONE YEAR FIVE YEAR TEN YEAR
RETURN RETURN RETURN
-------- --------- --------
<S> <C> <C> <C>
The Cardinal Fund Inc............................. 9.63% 13.25% 12.15%
========= ========= ========
</TABLE>
* Returns include all relevant fund expenses and sales load.
3
<PAGE> 227
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK 91.28%
AEROSPACE/DEFENSE 3.33%
Harris Corporation........................................................ 75,200 $ 4,127
Raytheon Company.......................................................... 40,000 3,400
--------
7,527
--------
APPAREL/RETAILERS 2.69%
Jacobson Stores, Incorporated............................................. 79,000 770
May Department Stores Company............................................. 110,000 4,813
Shopko Stores, Incorporated............................................... 40,000 495
--------
6,078
--------
AUTOMOTIVE MANUFACTURING 1.79%
Ford Motor Company........................................................ 130,000 4,046
--------
AUTOMOTIVE PARTS 2.01%
Amcast Industrial Corporation............................................. 109,800 2,114
Cooper Tire & Rubber Company.............................................. 100,200 2,430
--------
4,544
--------
BEVERAGES 0.69%
Anheuser-Busch Companies Incorporated..................................... 25,000 1,559
--------
CENTRAL STATES BANKS 7.46%
Banc One Corporation...................................................... 130,500 4,763
Huntington Bancshares Incorporated........................................ 203,747 4,585
KeyCorp................................................................... 220,000 7,535
--------
16,883
--------
COMMODITY CHEMICALS 4.38%
Akzo Nobel N.V............................................................ 70,214 4,221
ARCO Chemical Company..................................................... 25,000 1,219
Dow Chemical Company...................................................... 60,000 4,470
--------
9,910
--------
</TABLE>
(continued)
4
<PAGE> 228
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
COMPUTERS 2.84%
Compaq Computer Corporation*.............................................. 70,000 $ 3,386
Tektronix Incorporated.................................................... 51,600 3,044
--------
6,430
--------
CONGLOMERATES 8.14%
Johnson Controls, Incorporated............................................ 100,000 6,325
Tenneco, Incorporated..................................................... 150,500 6,961
Textron, Incorporated..................................................... 75,000 5,118
--------
18,404
--------
CONSUMER SERVICES 0.59%
Scotts Company, Class A*.................................................. 60,000 1,328
--------
CONTAINERS/PACKAGING 0.40%
Liqui-Box Corporation..................................................... 30,390 900
--------
DIVERSIFIED FINANCIAL SERVICES 2.43%
Beneficial Corp........................................................... 105,000 5,486
--------
DIVERSIFIED INDUSTRIALS 3.45%
Minnesota Mining & Manufacturing Company.................................. 70,000 3,955
Myers Industries, Incorporated............................................ 181,802 2,772
Raven Industries, Incorporated............................................ 60,050 1,081
--------
7,808
--------
ELECTRIC 1.90%
Northern States Power Company............................................. 95,000 4,311
--------
ELECTRICAL COMPONENTS 6.59%
Asea Brown-Boveri, Incorporated........................................... 50,300 5,024
General Electric Company.................................................. 120,400 7,675
Houston Industries, Incorporated.......................................... 50,000 2,206
--------
14,905
--------
</TABLE>
*Non-income producing (continued)
5
<PAGE> 229
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FOOD 2.40%
GoodMark Foods, Incorporated.............................................. 184,000 $ 3,404
Super Food Services, Incorporated......................................... 160,800 2,030
--------
5,434
--------
GAS 1.03%
Williams Companies Incorporated........................................... 60,000 2,340
--------
HEALTHCARE PROVIDERS 0.78%
U.S. HealthCare, Incorporated............................................. 50,000 1,769
--------
INDUSTRIAL SERVICES 1.57%
Graphic Industries, Incorporated.......................................... 123,500 1,266
New England Business Services, Incorporated............................... 110,500 2,279
--------
3,545
--------
INSURANCE 2.38%
Equitable of Iowa Companies............................................... 50,300 1,861
Marsh & McLennan Companies Incorporated................................... 40,000 3,515
--------
5,376
--------
INTEGRATED OILS 9.42%
Mobil Corporation......................................................... 75,000 7,471
Royal Dutch Petroleum Company............................................. 60,000 7,365
Texaco Incorporated....................................................... 100,000 6,463
--------
21,299
--------
MEDICAL SUPPLIES 0.43%
Fisher Scientific International, Incorporated............................. 30,000 971
--------
OTHER NONFERROUS METALS 2.24%
Worthington Industries, Incorporated...................................... 275,776 5,067
--------
PAPER 2.54%
Federal Paper Board Company............................................... 89,800 3,446
Union Camp Corporation.................................................... 40,000 2,305
--------
5,751
--------
</TABLE>
(continued)
6
<PAGE> 230
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
PHARMACEUTICALS 2.32%
American Home Products Corporation........................................ 50,000 $ 4,244
Mylan Laboratories, Incorporated.......................................... 50,000 1,000
--------
5,244
--------
PIPELINES 0.52%
Coastal Corporation....................................................... 35,000 1,177
--------
PROPERTY/CASUALTY INSURERS 3.91%
Cincinnati Financial Corporation.......................................... 162,750 8,850
--------
PUBLISHING 0.77%
Dun and Bradstreet Corporation............................................ 30,000 1,736
--------
SPECIALTY/RETAILERS 2.71%
Limited, Incorporated..................................................... 200,000 3,800
Stanley Works............................................................. 35,000 1,518
Sun Television and Appliances............................................. 70,000 429
Wolohan Lumber Company.................................................... 34,000 387
--------
6,134
--------
TELEPHONE 5.15%
GTE Corporation........................................................... 189,716 7,446
Sprint Corporation........................................................ 120,000 4,200
--------
11,646
--------
TOBACCO 2.77%
Philip Morris Companies, Incorporated..................................... 75,000 6,263
--------
TRANSPORTATION 1.65%
GATX Corporation.......................................................... 72,300 3,742
--------
TOTAL COMMON STOCK (COST $147,559,806)............................... 206,463
--------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S.
GOVERNMENT OBLIGATIONS 7.30%
Fifth Third Bank, 6.25%, dated 9/29/95, due 10/02/95...................... 16,500
--------
TOTAL REPURCHASE AGREEMENTS (COST $16,500,000)....................... 16,500
--------
TOTAL INVESTMENTS (COST $164,059,806) 98.58%......................... $222,963
=========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 231
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<S> <C>
Investments in securities, at value (cost $164,060)................................... $222,963
Cash.................................................................................. 206
Receivable for investment securities sold............................................. 2,999
Dividends and interest receivable..................................................... 825
Receivable for Fund shares sold....................................................... 102
Other assets.......................................................................... 111
--------
Total assets................................................................ 227,206
--------
LIABILITIES
Payable for Fund shares redeemed...................................................... 660
Accrued investment management and transfer agent fees (note 3)........................ 314
Other accrued expenses................................................................ 51
--------
Total liabilities........................................................... 1,025
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 17,099,016 outstanding no par value shares of beneficial
interest (authorized 30,000,000).................................................... $226,181
=========
NET ASSET VALUE PER SHARE............................................................. $ 13.23
=========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 232
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends.............................................................................. $ 7,504
Interest............................................................................... 847
-------
Total income................................................................. 8,351
-------
EXPENSES:
Investment management fees (note 3).................................................... 1,159
Transfer agent fees and expenses (note 3).............................................. 256
-------
Total affiliated expenses.................................................... 1,415
-------
Custodian fees......................................................................... 25
Professional fees...................................................................... 60
Reports to shareholders................................................................ 37
Directors' fees........................................................................ 21
Registration fees...................................................................... 6
Other expenses......................................................................... 64
-------
Total non-affiliated expenses................................................ 213
-------
Total expenses............................................................... 1,628
-------
Net investment income........................................................ 6,723
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized gain from security transactions........................................... 17,719
Increase in unrealized gain on investments............................................. 8,122
-------
Net realized gain and increase in unrealized gain on investments............. 25,841
-------
Net increase in net assets from operations................................... $32,564
========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 233
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 6,723 $ 6,351
Net realized gain from security transactions.................... 17,719 17,362
Increase (decrease) in unrealized gain on investments........... 8,122 (14,821)
------------- -------------
Net increase in net assets from operations.................... 32,564 8,892
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.35 and $.33 per share,
respectively)................................................. (6,566) (6,601)
Distribution of net realized gains from security transactions
($.83 and $.28 per share, respectively)....................... (15,750) (6,006)
------------- -------------
Total distributions to shareholders........................... (22,316) (12,607)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares............................... 8,266 14,876
Net asset value of Fund shares issued in connection with
reinvestment of distributions to shareholders................. 20,894 11,831
------------- -------------
29,160 26,707
Cost of Fund shares redeemed.................................... (59,809) (58,535)
------------- -------------
Decrease in net assets derived from capital share
transactions............................................... (30,649) (31,828)
------------- -------------
Net decrease in net assets.................................... (20,401) (35,543)
NET ASSETS -- beginning of period............................... 246,582 282,125
------------- -------------
NET ASSETS -- end of period (undistributed net investment income
of $176 and $20, respectively)................................ $ 226,181 $ 246,582
============== ==============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 234
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Cardinal Fund Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as a diversified, open-end management investment company. 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 for investment companies.
Security Valuation--Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at the last sale price. If no quotations are available, portfolio
securities are valued in good faith by the Board of Directors to reflect their
fair value.
Security Transactions and Investment Income--Security transactions are accounted
for on the trade date and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. In determining the net
realized gain or loss on securities sold, the cost of the securities has been
determined on the first-in, first-out (FIFO) cost basis. It is the Fund'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.
Distributions to Shareholders--Distributions and dividends are recorded by the
Fund on the record date. Income dividends are declared quarterly and any capital
gain distribution is declared annually.
Federal Income Taxes--No provision has been made for Federal taxes on the Fund's
income, since it is the policy of the Fund 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.
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities
(excluding short-term obligations) during the year ended September 30, 1995
aggregated $43,227,000 and $91,217,776, respectively.
During the year ended September 30, 1995 the Fund realized on a FIFO cost basis
a net capital gain of $17,719,277 and $17,777,501 for book and tax purposes,
respectively.
At September 30, 1995, the book cost of investment securities was $164,059,806
and the tax cost was $164,085,672. The difference between book and tax cost is
attributable to securities acquired in the 1975 acquisition of the Ohio Capital
Fund, Inc. and remaining in the Fund's portfolio with a book cost of $68,235 and
a tax cost of $38,594.
As of September 30, 1995, for tax purposes, gross unrealized gains and gross
unrealized losses on investment securities were $60,316,804 and $1,439,149
respectively; resulting in a net unrealized gain of $58,877,655.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, The Ohio Company (the Adviser), with whom
certain officers and directors of the Fund are affiliated is allowed an annual
fee of 0.5% of the average daily net assets of the Fund. For the year ended the
Fund paid or accrued $1,158,534 for investment management services. The Adviser
has agreed that if the aggregate expenses of the Fund, as defined, for any
fiscal year exceed the
(continued)
11
<PAGE> 235
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
expense limitation of any state having jurisdiction over the Fund, the Adviser
will refund to the Fund, or otherwise bear, such excess. This limitation did not
affect the calculation of the management fee during the year ended September 30,
1995. In addition to providing management and advisory services, The Ohio
Company pays the compensation of all officers and employees of the Fund and
provides office space and certain related facilities required by the Fund.
The Ohio Company, acting as the General Distributor and Dealer, reported to the
Fund that it received commissions after discounts to dealers from the sale of
shares of the Fund of $170,827 for the year ended September 30, 1995. Cardinal
Management Corp., a wholly-owned subsidiary of The Ohio Company, provides
transfer agent services to the Fund. Transfer agent service fees are based on a
monthly charge per shareholder account plus out-of-pocket expenses. For the year
ended September 30, 1995 the Fund paid or accrued $255,882 for transfer agent
services provided by Cardinal Management Corp.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 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 Fund. 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 Fund and its
officers and directors has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Fund is a deposit of $28,588, for the initial capital of ICI
Mutual. The Fund is also committed to provide $85,764 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $56,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
(5) -- CAPITAL STOCK
At September 30, 1995, there were 30,000,000 shares of no par value capital
stock authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $147,820,440
Accumulated net realized gains on investments...................................... 19,280,863
Unrealized gain on investments..................................................... 58,903,521
Undistributed net investment income................................................ 176,409
------------
Net assets......................................................................... $226,181,233
=============
</TABLE>
(continued)
12
<PAGE> 236
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Shares sold........................................................ 677,512 1,161,378
Shares issued in connection with reinvestment of distributions
to shareholders.................................................. 1,830,954 936,172
Shares repurchased................................................. (4,782,671) (4,580,169)
---------- ----------
Net decrease....................................................... (2,274,205) (2,482,619)
Shares outstanding:
Beginning of period................................................ 19,373,221 21,855,840
---------- ----------
End of period...................................................... 17,099,016 19,373,221
========== ==========
</TABLE>
(6) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Directors approved an Agreement and Plan of
Reorganization and Liquidation between the Fund and The Cardinal Group ("TCG").
The plan calls for the transfer of all assets and liabilities of the Fund 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 Fund and TCG. Shareholder approval will be sought and is
needed to ratify the transaction.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning............. $ 12.73 $ 12.91 $ 12.95 $ 11.88 $ 9.28
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................ 0.36 0.31 0.32 0.35 0.35
Net realized and unrealized gains
(losses) on investments............ 1.32 0.12 0.55 1.37 2.70
-------- -------- -------- -------- --------
Total from investment operations....... 1.68 0.43 0.87 1.72 3.05
-------- -------- -------- -------- --------
Less distributions:
Dividends............................ (0.35) (0.33) (0.29) (0.36) (0.38)
Capital gain distribution............ (0.83) (0.28) (0.62) (0.29) (0.07)
-------- -------- -------- -------- --------
Total distributions.................... (1.18) (0.61) (0.91) (0.65) (0.45)
-------- -------- -------- -------- --------
Net Asset Value, ending................ $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total return........................... 14.84% 3.38% 6.98% 15.05% 33.54%
======== ======== ======== ======== ========
Net assets, ending (000)............... $226,181 $246,581 $282,125 $261,392 $221,428
======== ======== ======== ======== ========
Ratio of expenses to average net
assets............................... 0.70% 0.72% 0.68% 0.67% 0.67%
======== ======== ======== ======== ========
Ratio of net investment income to
average net assets................... 2.89% 2.40% 2.46% 2.83% 3.15%
======== ======== ======== ======== ========
Portfolio turnover rate................ 19.78% 23.20% 11.11% 6.22% 33.27%
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 237
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
The Cardinal Fund Inc.:
We have audited the accompanying statement of assets and liabilities of The
Cardinal Fund Inc. (the Fund), 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 Fund'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 The
Cardinal Fund Inc. 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
- --------------------------------------------------------------------------------
TEN-YEAR DISTRIBUTION HISTORY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE DISTRIBUTION
NET ASSET -------------------------
PERIOD VALUE PER FROM FROM REALIZED
ENDING SHARE INCOME CAPITAL GAINS
- ----------------------------------------------------- --------- ------ -------------
<S> <C> <C> <C>
9/30/95.............................................. $ 13.23 $0.35 $0.83
9/30/94.............................................. 12.73 0.33 0.28
9/30/93.............................................. 12.91 0.29 0.62
9/30/92.............................................. 12.95 0.36 0.29
9/30/91.............................................. 11.88 0.38 0.07
9/30/90.............................................. 9.28 0.53 0.49
9/30/89.............................................. 11.75 0.39 0.38
9/30/88.............................................. 10.38 0.47 0.43
9/30/87.............................................. 11.73 0.28 0.72
9/30/86.............................................. 10.35 0.23 0.56
</TABLE>
14
<PAGE> 238
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 239
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 240
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 241
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>
<PAGE> 242
- ----------------------------------------------------------
- ---------------------------------------------------------
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
------------------------
This report has been prepared for the information of shareholders of Cardinal
Government Obligations Fund and is not authorized for distribution to
prospective investors unless preceded or accompanied by an effective Prospectus.
- ---------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ---------------------------------------------------------
[LOGO]
CARDINAL
GOVERNMENT
OBLIGATIONS
FUND
-------------------------
ANNUAL REPORT
-------------------------
SEPTEMBER 30, 1995
THE OHIO COMPANY
- ---------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 243
DEAR CARDINAL SHAREHOLDER:
- --------------------------------------------------------------------------------
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>
1
<PAGE> 244
- --------------------------------------------------------------------------------
On behalf of the Cardinal Government Obligations Fund Trustees and Officers, we
are pleased to present our September 30, 1995 Annual Report which contains
audited financial statements including the portfolio of investments.
When we communicated with you at the end of our 1994 fiscal year, your
management felt that 1995 would be a good year for the fixed-income markets as
the economy was projected to make a soft landing, and inflation would remain
under control. With that outlook, we made adjustments in your Fund's portfolio
of mortgage-backed securities by extending the average life of the portfolio
which allowed the Fund to more fully participate in the expected market rally.
As anticipated, interest rates fell sharply, and the past 12 months have indeed
been one of the best periods on record for the fixed-income markets. The
Cardinal Government Obligations Fund participated in the market rally and
produced a total return of 11.27%, while gaining $0.22 in net asset value per
share during the year that ended September 30, 1995.
As we look ahead, the projections for the domestic economy remain optimistic,
but the outlook for some of our major trading partners is less than rosy. In the
near term, inflation should remain under control. Longer term, there are some
troublesome signs appearing, mainly in those sectors of the global economy where
commodity prices have increased steadily over the past few years. Additionally,
there are continuing concerns about the Japanese banking system because of the
heavy concentration of questionable real estate loans in those institutions. Our
efforts will be directed toward maintaining a portfolio with a low level of
price volatility to assure the preservation of the Fund's capital while
continuing to provide as high a dividend payout as is possible.
We thank you for your continuing support and look forward to assisting you in
meeting the challenges the future is sure to bring.
H. Keith Allen Frank W. Siegel John R. Carle
Chairman President Executive Vice President
As portfolio manager for Cardinal Government Obligations Fund, John R. Carle is
primarily responsible for the day-to-day management of the Fund's portfolio. Mr.
Carle has 28 years of investment management experience and has been the
portfolio manager for Cardinal Government Obligations Fund since its inception
in 1986.
<PAGE> 245
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
RETURN ON A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
The Salomon Mortgage Fund Index is considered to be a broad based market index
for the purpose of this presentation. The value of the Cardinal Government
Obligations Fund investment includes the relevant fund expenses and sales load,
whereas, the value of the investment in the Salomon Mortgage Fund Index does
not. Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
Cardinal
Salomon Government
Measurement Period Mortgage Fund Obligations
(Fiscal Year Covered) Index Fund
<S> <C> <C>
03-Feb-86 10000 9550
30-Sep-86 10410 10088
30-Sep-87 10608 10170
30-Sep-88 12199 11486
30-Sep-89 13541 12498
30-Sep-90 14881 13752
30-Sep-91 17307 15549
30-Sep-92 19245 16929
30-Sep-93 20573 17746
30-Sep-94 20368 17698
30-Sep-95 23117 19698
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
FOR THE PERIODS ENDING SEPTEMBER 30,
1995:
-------------------------------------
SINCE
ONE FIVE FEBRUARY 3,
YEAR YEARS 1986**
---- ---- -----------------
<S> <C> <C> <C>
Cardinal Government Obligations Fund............... 6.29% 6.47% 7.27%
==== ==== =================
</TABLE>
* Returns include all relevant fund expenses and sales load.
** Date of commencement of operations.
3
<PAGE> 246
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
SECURITIES AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------- -------- ---------
<S> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS 1.35%
U.S. Treasury Notes, 6.50% maturing 8/15/05................................. $ 2,000 $ 2,050
-------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS.............................. 2,000 2,050
-------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS 99.44%
GNMA I PL Notes, 8.00% maturing 9/15/23 through 8/15/35..................... 4,692 4,757
GNMA I PL Notes, 8.15% maturing 1/15/24..................................... 2,334 2,411
GNMA I PL Notes, 8.25% maturing 11/15/96 through 11/15/34................... 11,903 12,171
GNMA I PL Notes, 8.50% maturing 6/15/22 through 12/15/30.................... 8,868 9,223
GNMA I PL Notes, 8.75% maturing 8/15/24 through 4/15/25..................... 3,614 3,777
GNMA I PL Notes, 9.00% maturing 10/15/21 through 12/15/34................... 7,997 8,336
GNMA I PL Notes, 9.25% maturing 3/15/30 through 2/15/33..................... 1,658 1,746
GNMA I PL Notes, 9.50% maturing 1/15/19 through 8/15/22..................... 1,309 1,343
GNMA I PL Notes, 9.75% maturing 12/15/25.................................... 1,879 1,981
GNMA I PL Notes, 10.25% maturing 2/15/17 through 12/15/22................... 1,644 1,705
GNMA I PL Notes, 10.50% maturing 7/15/14.................................... 1,039 1,080
GNMA I Notes, 8.00% maturing 10/15/24 through 5/15/25....................... 3,880 3,992
GNMA I Notes, 8.50% maturing 5/15/16 through 8/15/17........................ 11,463 12,032
GNMA I Notes, 8.75% maturing 12/15/16 through 1/15/25....................... 1,916 2,021
GNMA I Notes, 9.00% maturing 5/15/16 through 4/15/21........................ 23,411 24,837
GNMA I Notes, 9.50% maturing 4/15/16 through 3/15/20........................ 2,106 2,259
GNMA I Notes, 11.00% maturing 1/15/10 through 6/15/20....................... 6,775 7,605
GNMA II Notes, 9.00% maturing 10/20/15 through 10/20/19..................... 10,629 11,170
GNMA II Notes, 9.50% maturing 1/20/16 through 12/20/22...................... 5,331 5,649
GNMA II Notes, 10.00% maturing 1/20/14 through 12/20/21..................... 11,416 12,401
GNMA II Notes, 10.50% maturing 9/20/13 through 9/20/19...................... 2,421 2,639
GNMA II Notes, 11.00% maturing 10/20/13 through 1/20/21..................... 2,806 3,074
Fed. Home Loan Mtg. Corp., 7.00% maturing 9/01/10........................... 3,055 3,067
Fed. Home Loan Mtg. Corp., 7.50% maturing 5/01/09 through 6/01/10........... 5,318 5,414
Fed. Home Loan Mtg. Corp., 8.00% maturing 11/01/09 through 7/01/10.......... 6,000 6,171
-------- ---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.............................. 143,464 150,861
-------- ---------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT OBLIGATIONS 0.66%
Fifth Third Bank, 6.25%, dated 9/29/95, due 10/02/95........................ 1,000 1,000
-------- ---------
TOTAL REPURCHASE AGREEMENTS........................................... 1,000 1,000
-------- ---------
TOTAL INVESTMENTS (COST $152,787) 101.45%............................. $146,464 $153,911
======== =========
</TABLE>
GNMA -- Government National Mortgage Association
PL -- Project Loan
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
4
<PAGE> 247
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $152,787)........................... $ 153,911
Cash.......................................................................... 338
Interest receivable........................................................... 1,101
Receivable for Fund shares sold............................................... 23
Other assets.................................................................. 112
---------
Total assets........................................................ 155,485
---------
LIABILITIES
Payable for investment securities purchased................................... 3,094
Dividends payable............................................................. 405
Payable for Fund shares redeemed.............................................. 152
Accrued investment management, accounting and transfer agent fees (note 3).... 83
Other accrued expenses........................................................ 40
---------
Total liabilities................................................... 3,774
---------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS--applicable to 18,543,620 outstanding no par value shares of
beneficial interest (unlimited number of shares authorized)................. $ 151,711
=========
NET ASSET VALUE PER SHARE..................................................... $ 8.18
=========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 248
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................................... $13,679
-------
EXPENSES:
Investment management fees (note 3).............................................. 784
Transfer agent fees and expenses (note 3)........................................ 174
Accounting fees (note 3)......................................................... 41
-------
Total affiliated expenses............................................ 999
-------
Custodian fees................................................................... 47
Professional fees................................................................ 51
Reports to shareholders.......................................................... 33
Directors' fees.................................................................. 19
Registration fees................................................................ 7
Other expenses................................................................... 50
-------
Total non-affiliated expenses........................................ 207
-------
Total expenses....................................................... 1,206
-------
Net investment income................................................ 12,473
-------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 2):
Net realized loss from security transactions..................................... (4,514)
Increase in unrealized gain on investments....................................... 8,934
-------
Net realized loss and increase in unrealized gain on investments..... 4,420
-------
Net increase in net assets from operations........................... $16,893
========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 249
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................ $ 12,473 $ 14,842
Net realized loss from security transactions......................... (4,514) (5,070)
Increase (decrease) in unrealized gain on investments................ 8,934 (10,125)
-------- --------
Net increase (decrease) in net assets from operations........... 16,893 (353)
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.64 and $.65 per share,
respectively)...................................................... (12,572) (14,708)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares.................................... 5,355 12,690
Net asset value of Fund shares issued in connection with reinvestment
of distributions to shareholders................................... 7,272 8,662
-------- --------
12,627 21,352
Cost of Fund shares redeemed......................................... (34,766) (45,645)
-------- --------
Decrease in net assets derived from capital share
transactions................................................... (22,139) (24,293)
-------- --------
Net decrease in net assets...................................... (17,818) (39,354)
NET ASSETS--beginning of period...................................... 169,529 208,883
-------- --------
NET ASSETS--end of period (overdistributed net investment income of
$100 and $2, respectively)......................................... $151,711 $169,529
========= =========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 250
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Government Obligations Fund (the "Fund") is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated November 15, 1985 and is registered under the Investment Company Act of
1940. 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 for investment
companies.
Security Valuation -- Portfolio securities for which over-the-counter market
quotations are readily available are valued at the bid price. If no quotations
are available, portfolio securities are valued in good faith by the Board of
Trustees of the Fund to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
recorded on the trade date. Interest income is recorded on the accrual basis.
Premiums and discounts are recognized as realized gains or losses from security
transactions as securities are sold or as principal reductions are received. In
determining the net realized gain or loss on securities sold, the cost of the
securities has been determined on first-in, first-out (FIFO) cost basis.
Federal Income Taxes -- No provision has been made for Federal taxes on the
Fund's income, since it is the policy of the Fund 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, at net asset value, in additional shares of the Fund.
(2) -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of U.S. government agency obligations (excluding short-term
obligations) during the year ended September 30, 1995 aggregated $57,596,492 and
$60,730,057, respectively.
As of September 30, 1995, gross unrealized gains and gross unrealized losses on
investment securities were $2,136,800 and $1,012,380, respectively; resulting in
a net unrealized gain of $1,124,420 on investment securities with a cost basis
of $152,786,945.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Fund. CMC has agreed that if the aggregate expenses of the Fund,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Fund, CMC will refund to the Fund, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the year ended September 30, 1995.
(continued)
8
<PAGE> 251
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
CMC also serves the Fund 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 Fund. For the year ended September 30, 1995 the Fund paid or
accrued $174,394 and $40,879 for transfer agent and fund accounting services,
respectively.
The Ohio Company, sole shareholder of CMC, acting as distributor for the Fund,
reported that it received commissions after discounts to dealers from the sale
of shares of the Fund of $147,536 for the year ended September 30, 1995.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 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 Fund. 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 Fund 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 Fund is a deposit of $30,644, for the initial capital of ICI
Mutual. The Fund is also committed to provide $91,932 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $61,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
(5) -- CAPITAL STOCK
At September 30, 1995, there were an unlimited number of shares of no par value
capital stock authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $ 173,076,183
Accumulated net realized loss on investments....................................... (22,389,694)
Unrealized gain on investments..................................................... 1,124,420
Overdistributed net investment income.............................................. (100,238)
-------------
Net assets......................................................................... $ 151,710,671
=============
</TABLE>
For tax purposes, the accumulated net realized loss on investments (capital loss
carryforwards) of approximately $22,800,000 expire throughout the next eight
years. Approximately $3,800,000 of capital loss carryforwards expired during the
year ended September 30, 1995. The Fund will not declare any capital gain
distributions until the carryforwards have been offset or expired.
9
<PAGE> 252
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Shares sold.......................................................... 669,572 1,514,461
Shares issued in connection with reinvestment of distributions to
shareholders....................................................... 908,617 1,045,107
----------- -----------
1,578,189 2,559,568
Shares repurchased................................................... (4,320,495) (5,478,768)
----------- -----------
Net decrease......................................................... (2,742,306) (2,919,200)
Shares outstanding:
Beginning of period.................................................. 21,285,926 24,205,126
----------- -----------
End of period........................................................ 18,543,620 21,285,926
========== ==========
</TABLE>
(6) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Trustees approved an Agreement and Plan of
Reorganization and Liquidation between the Fund and The Cardinal Group ("TCG").
The plan calls for the transfer of all assets and liabilities of the Fund 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 Fund and TCG. Shareholder approval will be sought and is
needed to ratify the transaction.
10
<PAGE> 253
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning.............. $ 7.96 $ 8.63 $ 8.95 $ 8.99 $ 8.71
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.64 0.66 0.74 0.80 0.81
Net realized and unrealized gains
(losses) on securities............. 0.22 (0.68) (0.32) (0.04) 0.28
-------- -------- -------- -------- --------
Total from investment operations........ 0.86 (0.02) 0.42 0.76 1.09
-------- -------- -------- -------- --------
Less distributions:
Dividends............................. (0.64) (0.65) (0.74) (0.80) (0.81)
-------- -------- -------- -------- --------
Net Asset Value, ending................. $ 8.18 $ 7.96 $ 8.63 $ 8.95 $ 8.99
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total return............................ 11.27% (0.27%) 4.83% 8.87% 13.07%
========= ========= ========= ========= =========
Net assets, ending (000)................ $151,711 $169,529 $208,883 $172,139 $128,569
========= ========= ========= ========= =========
Ratio of expenses to average net
assets................................ 0.76% 0.75% 0.73% 0.76% 0.76%
========= ========= ========= ========= =========
Ratio of net investment income to
average net assets.................... 7.93% 7.88% 8.32% 8.89% 9.20%
========= ========= ========= ========= =========
Portfolio turnover rate................. 36.71% 21.95% 24.94% 17.15% 34.81%
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 254
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Government Obligations Fund:
We have audited the accompanying statement of assets and liabilities of Cardinal
Government Obligations Fund (the Fund), 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 Fund'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 Obligations Fund 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
12
<PAGE> 255
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 256
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>
<PAGE> 257
- ----------------------------------------------------------
- ---------------------------------------------------------
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
------------------------
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.
- ---------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ---------------------------------------------------------
[LOGO]
CARDINAL
GOVERNMENT
SECURITIES
TRUST
-------------------------
ANNUAL REPORT
-------------------------
SEPTEMBER 30, 1995
THE OHIO COMPANY
- ---------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 258
DEAR CARDINAL SHAREHOLDER:
- --------------------------------------------------------------------------------
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>
1
<PAGE> 259
- --------------------------------------------------------------------------------
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 Frank W. Siegel Hannibal L. Godwin
Chairman President Vice President
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.
<PAGE> 260
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
SECURITIES DATE AMOUNT (NOTE 1)
- ----------------------------------------------------------------------- --------- --------- ---------
<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
--------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS......................... 155,000 153,634
--------- ---------
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
--------- ---------
TOTAL REPURCHASE AGREEMENTS...................................... 293,500 293,500
--------- ---------
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.
3
<PAGE> 261
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $ 447,134
Cash............................................................................. 401
Interest receivable.............................................................. 291
Other assets..................................................................... 314
---------
Total assets......................................................... 448,140
---------
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
---------
Total liabilities.................................................... 2,766
---------
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.
4
<PAGE> 262
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................................. $ 23,311
--------
EXPENSES:
Investment management fees (note 2).................................. 2,032
Transfer agent fees and expenses (note 2)............................ 842
Accounting fees (note 2)............................................. 53
--------
Total affiliated expenses.................................. 2,927
--------
Custodian fees....................................................... 34
Professional fees.................................................... 90
Reports to shareholders.............................................. 65
Trustees' fees....................................................... 25
Registration fees.................................................... 9
Other expenses....................................................... 151
--------
Total non-affiliated expenses.............................. 374
--------
Total expenses............................................. 3,301
--------
Net increase in net assets from operations................. $ 20,010
========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 263
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 20,010 $ 11,615
Net realized loss from security transactions.................... 0 (1,463)
----------- ------------
Net increase in net assets from operations................. 20,010 10,152
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders............................. (20,010) (11,303)
----------- ------------
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)
----------- ------------
Increase (decrease) in net assets derived from capital
share transactions....................................... 77,858 (35,242)
----------- ------------
FROM CAPITAL CONTRIBUTIONS (NOTE 2):
Capital contributed by Cardinal Management Corp................. 0 1,151
----------- ------------
Net increase (decrease) in net assets...................... 77,858 (35,242)
NET ASSETS -- beginning of period............................... 367,516 402,758
----------- ------------
NET ASSETS -- end of period..................................... $ 445,374 $ 367,516
========== ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 264
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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)
7
<PAGE> 265
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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
------------
Net assets....................................................................... $445,373,567
=============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------------------
1995 1994
------------- --------------
<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
------------- --------------
1,071,832,710 998,735,280
Shares repurchased.............................................. (993,975,623) (1,033,976,922)
------------- --------------
Net increase (decrease)......................................... 77,857,087 (35,241,642)
Shares outstanding:
Beginning of period............................................. 367,516,480 402,758,122
------------- --------------
End of period................................................... 445,373,567 367,516,480
============= ==============
</TABLE>
8
<PAGE> 266
(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.
9
<PAGE> 267
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<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.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
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
10
<PAGE> 268
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 269
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 270
[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 271
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>
<PAGE> 272
- ----------------------------------------------------------
- ---------------------------------------------------------
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
------------------------
This report has been prepared for the information of shareholders of Cardinal
Tax Exempt Money Trust and is not authorized for distribution to prospective
investors unless preceded or accompanied by an effective Prospectus.
- ---------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ---------------------------------------------------------
[LOGO]
CARDINAL
TAX EXEMPT
MONEY
TRUST
-------------------------
ANNUAL REPORT
-------------------------
SEPTEMBER 30, 1995
THE OHIO COMPANY
- ---------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 273
DEAR CARDINAL SHAREHOLDER:
- --------------------------------------------------------------------------------
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>
1
<PAGE> 274
- --------------------------------------------------------------------------------
On behalf of the Trustees and Officers of your Trust, we are pleased to present
our September 30, 1995 Annual Report which includes audited financial statements
as well as the portfolio of investments.
During the third quarter of this year, a bond market rally began when the
Federal Reserve lowered the federal funds target rate one quarter of a point at
their July meeting. However, economic data released shortly thereafter indicated
that the economy was doing better than expected and was unlikely to slide into
any type of recession.
The strength of the economy has continued to surprise everyone on the upside.
Data on industrial production, new and existing home sales, gross domestic
product, etc., has been very strong and, quite possibly, this performance may be
stronger on the surface than underneath. But we believe the Fed is now focused
on the threat of inflation and will not be inclined to lower rates again until
they are convinced we have a much slower economy than is currently indicated.
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 in 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 3.02%, up very
nicely from 1.78% the previous year. The portfolio is currently structured with
a relatively short average maturity because the yield curve is very flat, and it
does not really pay to extend maturities.
We continue to pursue an objective of maximizing current income exempt from
federal income tax while preserving capital and maintaining liquidity.
Thank you for your continued support and interest. We look forward to serving
you in the future.
H. Keith Allen Frank W. Siegel Hannibal L. Godwin
Chairman President Vice President
As portfolio manager for Cardinal Tax Exempt Money 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 Tax Exempt Money Trust since its inception in
1983.
<PAGE> 275
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
2A-7* FINAL PRINCIPAL VALUE
SECURITIES MATURITY MATURITY AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------ --------- --------- --------- --------
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES 98.95%
Ashtabula County, Ohio, Brighton Manor Project, VRN, currently 4.60%.......... 10/04/95 12/01/16 $ 2,200 $ 2,200
Connecticut Development (Light & Power Co.), VRN, currently 4.40%............. 10/04/95 9/01/28 3,400 3,400
Cornell Township, Michigan, Economic Development, IRB, currently 3.80%........ 10/02/95 3/01/15 3,100 3,100
Erie County, Ohio, Brighton Manor Project, VRN, currently 4.60%............... 10/04/95 11/01/16 600 600
Florida Housing Agency, VRN, currently 4.35%.................................. 10/04/95 12/01/11 3,400 3,400
Grand Prairie, Texas Housing Finance Authority, VRN, currently 4.35%.......... 10/04/95 6/01/10 1,800 1,800
Greater East Texas Higher Education, VRN, currently 4.30%..................... 10/05/95 9/01/02 2,300 2,300
Hillsborough County, Florida, VRN, currently 4.50%............................ 10/02/95 9/01/25 3,300 3,300
Hockley County, Texas, PCRB, currently 3.65%.................................. 3/01/96 3/01/14 1,750 1,750
Jackson County, Mississippi, PCRB, currently 4.40%............................ 10/02/95 12/01/16 1,800 1,800
Jackson County, Mississippi, PCRB, currently 4.40%............................ 10/02/95 6/01/23 300 300
Lincoln County, Wyoming, PCRB, currently 4.60%................................ 10/02/95 11/01/14 3,000 3,000
Lisle, Illinois, VRN, currently 4.30%......................................... 10/05/95 12/15/25 2,500 2,500
Louisiana Public Facilities Authority (Kenner Hotels), IRB, currently 4.60%... 10/02/95 12/01/15 2,000 2,000
Louisiana Public Facilities Authority, VRN, currently 4.35%................... 10/04/95 10/01/22 1,000 1,000
Marion County, West Virginia Waste Disposal, RB, currently 4.55%.............. 10/04/95 10/01/17 1,000 1,000
Marion County, West Virginia Waste Disposal, RB, currently 4.50%.............. 10/04/95 10/01/17 2,200 2,200
Marion County, West Virginia Waste Disposal, RB, currently 4.50%.............. 10/04/95 10/01/17 1,000 1,000
Muldrow, Oklahoma Public Wks. Authority, IRB, currently 4.45%................. 10/03/95 2/01/15 3,000 3,000
New York City Municipal Water Finance Agency, VRN, currently 4.60%............ 10/02/95 6/15/23 2,000 2,000
New York State Energy Research & Development Authority, VRN, currently
4.10%....................................................................... 10/04/95 6/01/27 3,000 3,000
Ohio, Higher Education, RB, currently 4.40%................................... 10/05/95 12/01/06 1,280 1,280
Platte County, Wyoming, VRN, currently 4.60%.................................. 10/02/95 7/01/14 1,800 1,800
Port of Anacortes, Washington, IRB, currently 3.50%........................... 10/05/95 6/15/19 3,000 3,000
Private College & University, Georgia, RB, currently 3.60%.................... 10/16/95 10/01/15 3,000 3,000
Saint Charles, Louisiana, PCRB, currently 4.20%............................... 10/04/95 6/01/05 3,200 3,200
Sandusky County, Ohio, Brighton Manor Project, IRB, currently 4.60%........... 10/04/95 12/01/16 500 500
Springfield, Illinois, Second and Adams Project, RB, currently 4.45%.......... 10/03/95 12/01/15 1,170 1,170
Washington State Fin. Commiss. Rev., RB, currently 4.55%...................... 10/03/95 1/01/10 4,000 4,000
West Feliciana, Louisiana, VRN, currently 4.50%............................... 10/02/95 12/01/15 1,500 1,500
--------- --------
TOTAL INVESTMENTS AT AMORTIZED COST 98.95%.................................. $64,100 $64,100
======== =========
</TABLE>
VRN -- Variable Rate Notes
IRB -- Variable Rate Industrial Revenue Bonds
RB -- Variable Rate Revenue Bonds
PCRB -- Variable Rate Pollution Control Revenue Bonds
* Rule 2a-7, of the Investment Company Act of 1940, defines maturity as the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand.
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
3
<PAGE> 276
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $64,100
Cash............................................................................. 974
Interest receivable.............................................................. 228
Receivable for Trust shares sold................................................. 2
Other assets..................................................................... 55
-----------------
Total assets........................................................... 65,359
-----------------
LIABILITIES
Payable for Trust shares redeemed................................................ 510
Payable for shareholder distributions............................................ 9
Accrued investment management, accounting and transfer agent fees (note 2)....... 35
Other accrued expenses........................................................... 25
-----------------
Total liabilities...................................................... 579
-----------------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 64,779,828 outstanding $.10 par value shares of
beneficial interest (unlimited number of shares authorized).................... $64,780
=================
NET ASSET VALUE PER SHARE........................................................ $ 1.00
=================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 277
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................................. $2,608
------
EXPENSES:
Investment management fees (note 2)...................................... 344
Transfer agent fees and expenses (note 2)................................ 63
Accounting fees (note 2)................................................. 17
------
Total affiliated expenses...................................... 424
------
Custodian fees........................................................... 17
Professional fees........................................................ 41
Reports to shareholders.................................................. 30
Trustees' fees........................................................... 17
Registration fees........................................................ 8
Other expenses........................................................... 28
------
Total non-affiliated expenses.................................. 141
------
Total expenses................................................. 565
------
Net increase in net assets from operations..................... $2,043
======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 278
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net increase in net assets from operations...................... $ 2,043 $ 1,601
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders............................. (2,043) (1,601)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares.................................... 154,643 164,948
Reinvestment of distributions to shareholders................... 1,917 1,510
Cost of shares redeemed......................................... (172,311) (177,086)
-------- --------
Decrease in net assets derived from capital share
transactions............................................... (15,751) (10,628)
-------- --------
Net decrease in net assets.................................... (15,751) (10,628)
NET ASSETS -- beginning of period............................... 80,531 91,159
-------- --------
NET ASSETS -- end of period..................................... $ 64,780 $ 80,531
========= =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 279
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Tax Exempt Money Trust (the Trust) is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated January 13, 1983 and is registered under the Investment Company Act of
1940. 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.
Variable Rate Demand Municipal Securities--Variable and adjustable rate demand
municipal securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance, plus accrued interest, at
redemption dates provided by contract upon a specified number of days notice
either from the issuer or by drawing on a bank letter of credit or comparable
guarantee issued with respect to such security. The interest rates shown for
variable rate securities are the rates in effect on September 30, 1995.
Security Transactions and Investment Income--Security transactions are recorded
on the trade date. Interest income is recorded on the accrual basis.
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 as the Trust's 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 $62,542 and $17,235 for transfer agent and fund accounting services,
respectively.
(continued)
7
<PAGE> 280
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 relating to the distribution of its shares.
(3) -- COMMITMENTS AND CONTINGENCIES
The Trust has an available $5,000,000 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 $13,291 for the initial capital of ICI
Mutual. The Trust is also committed to provide $39,873 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $27,000 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
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------------------------
1995 1994
------------ -------------
<S> <C> <C>
Shares sold..................................................... 154,643,119 164,947,710
Shares issued in connection with reinvestment of distributions
to shareholders............................................... 1,916,504 1,509,540
------------ -------------
156,559,623 166,457,250
Shares repurchased.............................................. (172,310,841) (177,085,583 )
------------ -------------
Net decrease.................................................... (15,751,218) (10,628,333 )
Shares outstanding:
Beginning of period............................................. 80,531,046 91,159,379
------------ -------------
End of period................................................... 64,779,828 80,531,046
============= ==============
</TABLE>
(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.
8
<PAGE> 281
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<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................... 0.03 0.02 0.02 0.03 0.04
Less distributions:
Dividends............................... (0.03) (0.02) (0.02) (0.03) (0.04)
--------- --------- --------- --------- ---------
Net Asset Value, ending................... $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ==========
Ratios/Supplemental Data:
Total return.............................. 3.02% 1.78% 1.81% 2.62% 4.40%
========== ========== ========== ========== ==========
Net assets, ending (000).................. $64,780 $80,531 $91,159 $70,054 $85,488
========== ========== ========== ========== ==========
Ratio of expenses to average net assets... 0.83% 0.76% 0.77% 0.76% 0.72%
========== ========== ========== ========== ==========
Ratio of net investment income to average
net assets.............................. 2.99% 1.78% 1.80% 2.59% 4.31%
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Tax Exempt Money Trust:
We have audited the accompanying statement of assets and liabilities of Cardinal
Tax Exempt Money 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 Tax Exempt Money 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
9
<PAGE> 282
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>
<PAGE> 1
EXHIBIT (17) (d)
<PAGE> 2
[ARTICLE] 6
[RESTATED]
[CIK] 0000017493
[NAME] THE CARDINAL FUND INC.
[SERIES]
[NUMBER] 0
[NAME] 0
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1995
[PERIOD-START] OCT-01-1994
[PERIOD-END] SEP-30-1995
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 222,963
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 3,926
[ASSETS-OTHER] 111
[OTHER-ITEMS-ASSETS] 206
[TOTAL-ASSETS] 227,206
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,025
[TOTAL-LIABILITIES] 1,025
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 147,820
[SHARES-COMMON-STOCK] 17,099
[SHARES-COMMON-PRIOR] 19,373
[ACCUMULATED-NII-CURRENT] 176
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 19,281
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 58,904
[NET-ASSETS] 226,181
[DIVIDEND-INCOME] 7,504
[INTEREST-INCOME] 847
[OTHER-INCOME] 0
[EXPENSES-NET] 1,628
[NET-INVESTMENT-INCOME] 6,723
[REALIZED-GAINS-CURRENT] 17,719
[APPREC-INCREASE-CURRENT] 8,122
[NET-CHANGE-FROM-OPS] 32,564
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 6,566
[DISTRIBUTIONS-OF-GAINS] 15,750
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 8,266
[NUMBER-OF-SHARES-REDEEMED] 59,809
[SHARES-REINVESTED] 20,894
[NET-CHANGE-IN-ASSETS] (20,401)
[ACCUMULATED-NII-PRIOR] 20
[ACCUMULATED-GAINS-PRIOR] 17,311
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,159
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,628
[AVERAGE-NET-ASSETS] 232,976
[PER-SHARE-NAV-BEGIN] 12.73
[PER-SHARE-NII] 0.36
[PER-SHARE-GAIN-APPREC] 1.32
[PER-SHARE-DIVIDEND] 0.35
[PER-SHARE-DISTRIBUTIONS] 0.83
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.23
[EXPENSE-RATIO] 0.70%
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 3
[ARTICLE] 6
[CIK] 0000783413
[NAME] CARDINAL GOVERNMENT OBLIGATIONS FUND
[SERIES]
[NUMBER] 0
[NAME] 0
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1995
[PERIOD-START] OCT-01-1994
[PERIOD-END] SEP-30-1995
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 153,911
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 1,124
[ASSETS-OTHER] 112
[OTHER-ITEMS-ASSETS] 338
[TOTAL-ASSETS] 155,485
[PAYABLE-FOR-SECURITIES] 3,094
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 680
[TOTAL-LIABILITIES] 3,774
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 173,076
[SHARES-COMMON-STOCK] 18,544
[SHARES-COMMON-PRIOR] 21,286
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 100
[ACCUMULATED-NET-GAINS] (22,390)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,124
[NET-ASSETS] 151,711
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 13,679
[OTHER-INCOME] 0
[EXPENSES-NET] 1,206
[NET-INVESTMENT-INCOME] 12,473
[REALIZED-GAINS-CURRENT] (4,514)
[APPREC-INCREASE-CURRENT] 8,934
[NET-CHANGE-FROM-OPS] 16,893
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 12,572
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 5,355
[NUMBER-OF-SHARES-REDEEMED] 34,766
[SHARES-REINVESTED] 7,272
[NET-CHANGE-IN-ASSETS] (17,818)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (21,655)
[OVERDISTRIB-NII-PRIOR] 2
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 784
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,206
[AVERAGE-NET-ASSETS] 157,936
[PER-SHARE-NAV-BEGIN] 7.96
[PER-SHARE-NII] 0.64
[PER-SHARE-GAIN-APPREC] 0.22
[PER-SHARE-DIVIDEND] 0.64
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 8.18
[EXPENSE-RATIO] 0.76%
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 4
[ARTICLE] 6
[RESTATED]
[CIK] 0000315779
[NAME] CARDINAL GOVERNMENT SECURITIES TRUST
[SERIES]
[NUMBER] 0
[NAME] 0
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1995
[PERIOD-START] OCT-01-1994
[PERIOD-END] SEP-30-1995
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 447,134
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 291
[ASSETS-OTHER] 314
[OTHER-ITEMS-ASSETS] 401
[TOTAL-ASSETS] 448,140
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 2,766
[TOTAL-LIABILITIES] 2,766
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 446,525
[SHARES-COMMON-STOCK] 445,374
[SHARES-COMMON-PRIOR] 367,516
[ACCUMULATED-NII-CURRENT] 312
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1,463)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 445,374
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 23,311
[OTHER-INCOME] 0
[EXPENSES-NET] 3,301
[NET-INVESTMENT-INCOME] 20,010
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 20,010
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 20,010
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,052,266
[NUMBER-OF-SHARES-REDEEMED] 993,975
[SHARES-REINVESTED] 19,567
[NET-CHANGE-IN-ASSETS] 77,858
[ACCUMULATED-NII-PRIOR] 312
[ACCUMULATED-GAINS-PRIOR] (1,463)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,032
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,301
[AVERAGE-NET-ASSETS] 405,544
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0.05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.81%
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 5
[ARTICLE] 6
[RESTATED]
[CIK] 0000716313
[NAME] CARDINAL TAX EXEMPT MONEY TRUST
[SERIES]
[NUMBER] 0
[NAME] 0
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1995
[PERIOD-START] OCT-01-1994
[PERIOD-END] SEP-30-1995
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 64,100
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 230
[ASSETS-OTHER] 55
[OTHER-ITEMS-ASSETS] 974
[TOTAL-ASSETS] 65,359
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 579
[TOTAL-LIABILITIES] 579
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 64,780
[SHARES-COMMON-STOCK] 64,780
[SHARES-COMMON-PRIOR] 80,531
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 64,780
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 2,608
[OTHER-INCOME] 0
[EXPENSES-NET] 565
[NET-INVESTMENT-INCOME] 2,043
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 2,043
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2,043
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 154,643
[NUMBER-OF-SHARES-REDEEMED] 172,311
[SHARES-REINVESTED] 1,917
[NET-CHANGE-IN-ASSETS] (15,751)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 344
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 565
[AVERAGE-NET-ASSETS] 68,530
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0.03
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.83%
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
