<PAGE> 1
[CARDINAL FUNDS LOGO]
January 26, 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 Agreement and Plan of
Reorganization and Liquidation is described in the accompanying Combined
Prospectus/Proxy Statement and will be addressed at a Special Meeting of
Shareholders on March 15, 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 proposed reorganization 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.
Please read the accompanying materials carefully. For more details regarding the
proposed reorganization, direct any questions you may have to the Treasurer of
TCFI, Mr. James Schrack, at (800) 282-9446. IT IS VERY IMPORTANT THAT YOU
COMPLETE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE.
Thank you for your support and investment in The Cardinal Fund Inc.
Sincerely,
/s/ Frank W. Siegel
FRANK W. SIEGEL, CFA
President
The Cardinal Fund Inc.
P.S. YOUR VOTE IS VERY IMPORTANT TO US. PLEASE COMPLETE, SIGN, DATE AND RETURN
THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 2
Rule 497(c)
Registration No. 33-64907
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 MARCH 15, 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, March 15, 1996, at 9:30
A.M. (Eastern Time) concurrently with the annual meetings of three of the other
funds of the Cardinal family of funds, at The Athletic Club of Columbus, 136
East Broad Street, Columbus, Ohio 43215. The Meeting is being called for the
following purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation (the
"Plan") for TCFI, and the transactions contemplated thereby, which include
(a) the transfer of all of the assets of TCFI to The Cardinal Fund (the
"Acquiring Fund"), a series 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;
2. To approve an amendment to TCFI's fundamental investment policies by
deleting its policy with respect to related party transactions;
3. To fix the number of directors of TCFI at ten;
4. To elect ten directors of TCFI to hold office for the ensuing year and
until their successors are elected and qualified;
5. 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; 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 22,
1996, as the record date for the determination of shareholders of TCFI 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 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. 1. 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 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
January 26, 1996 Secretary
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.
<PAGE> 3
COMBINED PROSPECTUS/PROXY STATEMENT
January 26, 1996
<TABLE>
<S> <C>
The Cardinal Fund, a series
of The Cardinal Fund Inc.
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
</TABLE>
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
Athletic Club of Columbus, 136 East Broad Street, Columbus, Ohio 43215, on
Friday, March 15, 1996, beginning at 9:30 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.
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 10, 1996, is incorporated by reference in this Combined Prospectus/Proxy
Statement and accompanies this Combined Prospectus/Proxy Statement.
TCFI's Prospectus dated January 19, 1996, 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.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL............................................................................... 1
APPROVAL OF THE PLAN -- ISSUE 1....................................................... 2
Summary............................................................................. 2
Special Considerations and Risk Factors............................................. 6
The Proposed Transaction............................................................ 9
Comparison of Investment Objectives, Policies and Restrictions...................... 12
Investment Restrictions............................................................. 13
Additional Comparative Information.................................................. 15
DELETION OF TCFI'S FUNDAMENTAL POLICY REGARDING RELATED PARTY TRANSACTIONS -- ISSUE
2................................................................................... 20
FIXING THE NUMBER OF DIRECTORS AND ELECTION OF
DIRECTORS -- ISSUES 3 AND 4......................................................... 20
Compensation Table.................................................................. 23
Other Executive Officers............................................................ 24
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS -- ISSUE 5....................... 24
MISCELLANEOUS......................................................................... 24
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION..................... A-1
</TABLE>
<PAGE> 5
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, March 15, 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 22, 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
17,841,144 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 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
on or about February 1, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding. The
Acquiring Fund does not have and will not have immediately prior to 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
1
<PAGE> 6
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.
APPROVAL OF THE PLAN -- ISSUE 1
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 10, 1996, and the
Prospectus of TCFI dated January 19, 1996.
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 with and 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 Investment Company Act of 1940, as amended (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 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.
2
<PAGE> 7
<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 offering price)....... 4.50% 4.50% 4.50%
Annual Fund Expenses (as a percentage of average net
assets)
Investment Advisory Fees.......................... .60%(1) .50% .60%(1)
Rule 12b-1 Fees After Fee Waiver.................. 0(1) 0 0(1)
Other Expenses.................................... .21(2) .20 .21(2)
----- ----- -----
Total Fund Operating Expenses..................... .81%(1) .70% .81%(1)
===== ===== =====
</TABLE>
- ---------------
(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.
EXAMPLE
<TABLE>
<S> <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:
</TABLE>
<TABLE>
<CAPTION>
ACQUIRING ACQUIRING FUND ON
FUND(1) TCFI A PRO FORMA BASIS*
--------- ---- ------------------
<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
</TABLE>
- ---------------
* 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.
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, 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
3
<PAGE> 8
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,
with and 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 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."
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
4
<PAGE> 9
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 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>
AS A PERCENTAGE
SALES CHARGE OF OFFERING PRICE
AS A PERCENTAGE ---------------------
OF THE NET SALES DEALER'S
AMOUNT OF 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.
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
5
<PAGE> 10
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 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 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
6
<PAGE> 11
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, 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
7
<PAGE> 12
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 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.
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.
8
<PAGE> 13
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 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 2
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
9
<PAGE> 14
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.
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 Trustees 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 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.
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<PAGE> 15
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.
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:
OPERATING EXPENSE RATIOS
<TABLE>
<CAPTION>
TCFI ACQUIRING FUND
- ----- --------------
<S> <C>
0.70% 0.81%*
</TABLE>
- ---------------
* 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%.
11
<PAGE> 16
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 will have no assets or
liabilities or commence operations immediately prior to the consummation of the
Reorganization. THEREFORE, NO PRO FORMA INFORMATION GIVING EFFECT TO THE
REORGANIZATION IS PROVIDED.
THE CARDINAL FUND INC.
<TABLE>
<S> <C>
Net assets................................................................... $ 226,181,233
Shares outstanding........................................................... 17,099,016
Net asset value per share.................................................... $13.23
</TABLE>
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,
12
<PAGE> 17
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 also invest in
foreign securities including ADRs.
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.
(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.
13
<PAGE> 18
(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 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 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
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
14
<PAGE> 19
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 and Chicago Stock Exchanges, 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
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?"
15
<PAGE> 20
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. TCFI increased 14.8% during fiscal
year ended September 30, 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 TCFI's assets
throughout the year, this concentration was obviously not enough for TCFI 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 TCFI's first few month's results.
Over the past twelve months, TCFI 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, TCFI's 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 TCFI's holdings were 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, TCFI's holdings compare favorably to the market when viewed in context
of management's disciplines and philosophy.
<TABLE>
<CAPTION>
TCFI* 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 management was not satisfied with its past year's relative investment
performance, management was pleased to see nearer term results compare more
favorably. As management looks to the future, management remains dedicated to
keeping TCFI's shares performing for shareholders' benefit.
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 TCFI investment includes the relevant fund
expenses and sales load,
16
<PAGE> 21
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 ENDED
SEPTEMBER 30, 1995:
--------------------------------
ONE FIVE TEN
YEAR YEAR YEAR
RETURN RETURN RETURN
------ ------ ------
<S> <C> <C> <C>
TCFI........................................................... 9.63% 13.25% 12.15%
==== ===== =====
</TABLE>
- ---------------
* Returns include all relevant fund expenses and sales load.
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 management investment 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.
17
<PAGE> 22
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.
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 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 section 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.
18
<PAGE> 23
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. The
Acquiring Fund is one of six series of the Group. The other five series of the
Group are Cardinal Government Obligations Fund, Cardinal Government Securities
Money Market Fund, Cardinal Tax Exempt Money Market Fund, Cardinal Balanced Fund
and Cardinal Aggressive Growth Fund.
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 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
19
<PAGE> 24
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 January 19, 1996,
which is incorporated herein by reference, and in TCFI's Statement of Additional
Information dated January 19, 1996. 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 10, 1996, which accompanies this Combined Prospectus Proxy
Statement and Statement of Additional Information dated January 10, 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 26, 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 2
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 2 IS NOT APPROVED, SUCH
FUNDAMENTAL POLICY WILL REMAIN IN EFFECT AND THE REORGANIZATION WILL NOT BE
CONSUMMATED.
FIXING THE NUMBER OF DIRECTORS AND ELECTION OF
DIRECTORS -- ISSUES 3 AND 4
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
20
<PAGE> 25
director to hold office until the next annual meeting and until his successor is
elected and qualified. Each of the nominees is a member of the present Board of
Directors of TCFI and, except for Mr. Allen, each 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) BENEFICIALLY
DIRECTORSHIPS WITH OTHER PUBLICLY HELD A DIRECTOR OF OWNED AS OF % OF CLASS
COMPANIES(B) TCFI SINCE 1/22/96 AT 1/22/96
- -------------------------------------------------- ------------- ------------------ -------------
<S> <C> <C> <C>
H. KEITH ALLEN--Age 54--Chairman(c) and 1995 18,707 0.10%
Director(d)(f)*
Chief Operating Officer, Secretary, Treasurer
and a Director of The Ohio Company (investment
banking).
FRANK W. SIEGEL--Age 43--President(c) and 1994 750 0.00%
Director(d)(f)*
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 1,967 0.01%
Principal, Whitfield Robert Associates
(construction consulting firm).
JOHN B. GERLACH, JR.--Age 41--Director(e) 1993 589 0.00%
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 1,950 0.01%
President of The Columbus Foundation
(philanthropic public foundation).
DAVID L. NELSON--Age 65--Director(d)(e) 1971 6,029 0.03%
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>
21
<PAGE> 26
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH TCFI SHARES OF TCFI
PRINCIPAL OCCUPATION(A) BENEFICIALLY
DIRECTORSHIPS WITH OTHER PUBLICLY HELD A DIRECTOR OF OWNED AS OF % OF CLASS
COMPANIES(B) TCFI SINCE 1/22/96 AT 1/22/96
- -------------------------------------------------- ------------- ------------------ -------------
<S> <C> <C> <C>
C. A. PETERSON--Age 69--Director* 1966 58,456 0.33%
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 12,095 0.07%
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 7,525 0.04%
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 115,000 0.64%
(including 13 persons).
</TABLE>
- --------------------------------------------------------------------------------
(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 1940 Act.
- --------------------------------------------------------------------------------
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.
During the fiscal year ended September 30, 1995, TCFI's Board of Directors held
four meetings.
22
<PAGE> 27
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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION FROM
COMPENSATION TCFI AND
NAME AND POSITION 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
Joseph H. Stegmayer $2,000 $ 10,000
Director and Member of Audit and
Nominating Committees
</TABLE>
- ---------------
* 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.
23
<PAGE> 28
OTHER EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the other
executive officers of TCFI:
<TABLE>
<CAPTION>
NAME PRINCIPAL AN OFFICER OF
(POSITION WITH TCFI) AGE OCCUPATION(1) THE TCFI SINCE
- -------------------- ---- ------------------ --------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1983
(Treasurer) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
</TABLE>
- ---------------
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
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 5
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 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.
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 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 and by third party proxy solicitors.
24
<PAGE> 29
SUBSTANTIAL SHAREHOLDERS. As of January 22, 1996, the following persons, to the
knowledge of TCFI, were the shareholders owning beneficially five percent or
more of the Shares of TCFI:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------------- -------------------- ----------------
<S> <C> <C>
The Ohio Company 1,079,389* 6.05%
155 East Broad Street
Columbus, Ohio 43215
</TABLE>
- ---------------
* For its own account and as trustee for various pension plans and trusts.
As of the close of business on January 22, 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 22, 1996, there were 2,159,510 issued and
outstanding shares of the Group, of which 1,267,732 were shares of Cardinal
Balanced Fund and 891,778 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 10, 1996, is incorporated by reference in this
Combined Prospectus/Proxy Statement. In addition, TCFI's Prospectus dated
January 19, 1996, is incorporated by reference in 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 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.
25
<PAGE> 30
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 31
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 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.
A-1
<PAGE> 32
(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) 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(l).
(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.
(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.
A-2
<PAGE> 33
(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 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-3
<PAGE> 34
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.
(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
A-4
<PAGE> 35
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 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
A-5
<PAGE> 36
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 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-6
<PAGE> 37
(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 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
A-7
<PAGE> 38
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 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 Valuation Time
and described in Section 1(c) hereof in connection with the transactions
contemplated by this Agreement.
A-8
<PAGE> 39
(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 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
A-9
<PAGE> 40
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-10
<PAGE> 41
[CARDINAL FUNDS LOGO]
January 26, 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
Agreement and Plan of Reorganization and Liquidation is described in the
accompanying Combined Prospectus/Proxy Statement and will be addressed at the
Annual Meeting of Shareholders on March 15, 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 proposed reorganization 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. James Schrack, at (800) 282-9446. IT IS VERY IMPORTANT THAT YOU
COMPLETE AND RETURN THE PROXY CARD AS SOON AS POSSIBLE.
Thank you for your support and investment in Cardinal Government Obligations
Fund.
Sincerely,
/s/ Frank W. Siegel
FRANK W. SIEGEL, CFA
President
Cardinal Government Obligations Fund
P.S. YOUR VOTE IS VERY IMPORTANT TO US. PLEASE COMPLETE, SIGN, DATE AND RETURN
THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 42
Rule 497(c)
Registration No. 33-64907
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 MARCH 15, 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,
March 15, 1996, at 9:30 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 Athletic Club of Columbus, 136 East Broad Street, Columbus, Ohio 43215.
The Meeting is being called for the following purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation (the
"Plan") for the Trust, and the transactions contemplated thereby, which
include (a) the transfer of all of the assets of the Trust to Cardinal
Government Obligations Fund (the "Acquiring Fund"), a series 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;
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; 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
22, 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 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 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 26, 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.
<PAGE> 43
COMBINED PROSPECTUS/PROXY STATEMENT
January 26, 1996
<TABLE>
<S> <C>
Cardinal Government Obligations Fund, Cardinal Government Obligations Fund
a series of 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
</TABLE>
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 Athletic Club of Columbus, 136 East Broad Street,
Columbus, Ohio 43215, on Friday, March 15, 1996, beginning at 9:30 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
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
<PAGE> 44
below. The Prospectus of the Acquiring Fund relating to its shares, dated
January 10, 1996, is incorporated by reference in this Combined Prospectus/Proxy
Statement and accompanies this Combined Prospectus/Proxy Statement.
The Trust's Prospectus dated January 19, 1996, 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.
<PAGE> 45
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL............................................................................... 1
APPROVAL OF THE PLAN -- ISSUE 1....................................................... 2
Summary............................................................................. 2
Special Considerations and Risk Factors............................................. 6
The Proposed Transaction............................................................ 10
Comparison of Investment Objectives, Policies and Restrictions...................... 13
Investment Restrictions............................................................. 14
Additional Comparative Information.................................................. 15
ELECTION OF TRUSTEES -- ISSUE 2....................................................... 20
Compensation Table.................................................................. 23
Other Executive Officers............................................................ 24
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS -- ISSUE 3....................... 24
MISCELLANEOUS......................................................................... 25
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION..................... A-1
</TABLE>
<PAGE> 46
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 47
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, March 15, 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 22, 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
18,026,288 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 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
on or about February 1, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding. The
Acquiring Fund does not have and will not have immediately prior to 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
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<PAGE> 48
the quorum, but are not treated as either "against votes" or "for votes" in any
other matter except as otherwise provided by law.
APPROVAL OF THE PLAN -- ISSUE 1
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 10, 1996, and the
Prospectus of the Trust dated January 19, 1996.
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 with and into other 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 Investment Company Act of 1940, as amended (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 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.
2
<PAGE> 49
<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 offering price)... 4.50% 4.50% 4.50%
Annual Fund Expenses (as a percentage of average
net assets)
Investment Advisory Fees...................... .50% .50% .50%
Rule 12b-1 Fees After Fee Waiver.............. 0(1) 0 0(1)
Other Expenses................................ .24(2) .26 .24(2)
---- ---- ----
Total Fund Operating Expenses............ .74%(1) .76% .74%(1)
==== ==== ====
</TABLE>
- ---------------
(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>
<CAPTION>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return ACQUIRING ACQUIRING FUND ON
and (2) redemption at the end of each period: 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
</TABLE>
- ---------------
* 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.
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, 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, with and
into a separate portfolio of the Group, and will allow the shareholders of the
Trust to realize certain
3
<PAGE> 50
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
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 futures 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 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. 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.
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 The Ohio Company, as the
4
<PAGE> 51
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 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>
AS A PERCENTAGE
SALES CHARGE OF OFFERING PRICE
AS A PERCENTAGE ---------------------
OF THE NET SALES DEALER'S
AMOUNT OF SINGLE TRANSACTIONS 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 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.
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
5
<PAGE> 52
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 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
6
<PAGE> 53
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 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 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.
7
<PAGE> 54
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 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 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
8
<PAGE> 55
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.
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.
9
<PAGE> 56
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 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 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
10
<PAGE> 57
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 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;
11
<PAGE> 58
(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 Reorganization and ending September 30, 1996, after giving
effect to the Reorganization:
<TABLE>
<CAPTION>
OPERATING EXPENSE RATIOS
TRUST ACQUIRING FUND
- ------ --------------
<S> <C>
0.76% 0.74%*
</TABLE>
- ---------------
* 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 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 immediately prior to the consummation of the
Reorganization. THEREFORE, NO PRO FORMA FINANCIAL INFORMATION GIVING EFFECT TO
THE REORGANIZATION IS PROVIDED.
12
<PAGE> 59
CARDINAL GOVERNMENT OBLIGATIONS FUND
<TABLE>
<S> <C>
Net assets................................................................... $151,710,671
Shares outstanding........................................................... 18,543,620
Net asset value per share.................................................... $8.18
</TABLE>
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 "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.
13
<PAGE> 60
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
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's 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.
(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.
14
<PAGE> 61
(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 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 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 management investment companies like the Trust since 1980.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York and Chicago Stock Exchanges, 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,
15
<PAGE> 62
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.
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. When management communicated with
shareholders at the end of the Trust's 1994 fiscal year, 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, management made adjustments in the Trust's portfolio of
mortgage-backed securities by extending the average life of the portfolio which
allowed the Trust 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 Trust
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.
16
<PAGE> 63
As management looks ahead, the projections for the domestic economy remain
optimistic, but the outlook for some of the United States' 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. Management's efforts will
be directed toward maintaining a portfolio with a low level of price volatility
to assure the preservation of the Trust's capital while continuing to provide as
high a dividend payout as is possible.
RETURN ON A $10,000 INVESTMENT
The Salomon Mortgage Fund Index is considered to be a broad based market index
for the purpose of the following presentation. The value of the Trust's
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 10,000 9,550
30-Sep-86 10,410 10,088
30-Sep-87 10,608 10,170
30-Sep-88 12,199 11,486
30-Sep-89 13,541 12,498
30-Sep-90 14,881 13,752
30-Sep-91 17,307 15,549
30-Sep-92 19,245 16,929
30-Sep-93 20,573 17,746
30-Sep-94 20,368 17,698
30-Sep-95 23,117 19,698
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
FOR THE PERIODS ENDED
SEPTEMBER 30, 1995:
--------------------------------------
ONE FIVE SINCE
YEAR YEARS FEBRUARY 3, 1986**
----- ----- ------------------
<S> <C> <C> <C>
Cardinal Government Obligations Fund.................... 6.29% 6.47% 7.27%
===== ===== =====
<FN>
- ---------------
* Returns include all relevant fund expenses and sales load.
** Date of commencement of operations.
</TABLE>
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
17
<PAGE> 64
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 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 section in the
Acquiring Fund's Prospectus entitled "WHO MANAGES MY INVESTMENT IN THE
FUND? -- Distribution Plan."
18
<PAGE> 65
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.
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
a plurality of the Shares 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
19
<PAGE> 66
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
January 19, 1996, which is incorporated herein by reference, and in the Trust's
Statement of Additional Information dated January 19, 1996. 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 10, 1996, which accompanies this Combined Prospectus Proxy
Statement and Statement of Additional Information dated January 10, 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 26, 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.
ELECTION OF TRUSTEES -- ISSUE 2
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. Each of the nominees is a member of the
present Board of Trustees of the Trust and, except for Mr. Allen, each 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.
20
<PAGE> 67
<TABLE>
<CAPTION>
SHARES OF
TRUST
NAME, AGE, POSITION WITH THE TRUST A TRUSTEE OF BENEFICIALLY
PRINCIPAL OCCUPATION(A) THE TRUST OWNED AS OF % OF CLASS
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(B) SINCE 1/22/96 AT 1/22/96
- ---------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
H. KEITH ALLEN--Age 54--Chairman(c) and 1995 13,635 0.08%
Trustee(d)(f)*
Chief Operating Officer, Secretary, Treasurer and
a Director of The Ohio Company (investment
banking).
FRANK W. SIEGEL--Age 43--President(c) and 1994 -- --
Trustee(d)(f)*
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 22,195 0.12%
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 274 0.00%
President of The Columbus Foundation
(philanthropic public foundation).
DAVID L. NELSON--Age 65--Trustee(d)(e) 1985 2,768 0.02%
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).
</TABLE>
21
<PAGE> 68
<TABLE>
<CAPTION>
SHARES OF
TRUST
NAME, AGE, POSITION WITH THE TRUST A TRUSTEE OF BENEFICIALLY
PRINCIPAL OCCUPATION(A) THE TRUST OWNED AS OF % OF CLASS
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(B) SINCE 1/22/96 AT 1/22/96
- ---------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
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.
JOSEPH H. STEGMAYER--Age 44--Trustee(d)(e) 1986 5,816 0.03%
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 44,688 0.25%
(including 5 persons).
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
(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 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.
22
<PAGE> 69
During the fiscal year ended September 30, 1995, the Trust's Board of Trustees
held four meetings.
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>
TOTAL
COMPENSATION
FROM THE
NAME AND AGGREGATE TRUST
POSITION WITH THE COMPENSATION AND THE FUND
TRUST* FROM THE TRUST 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>
23
<PAGE> 70
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM THE
NAME AND AGGREGATE TRUST
POSITION WITH THE COMPENSATION AND THE FUND
TRUST* FROM THE TRUST COMPLEX**
- ----------------------- ------------------------- -------------
<S> <C> <C>
Joseph H. Stegmayer $2,000 $10,000
Trustee and Member of
Audit and Nominating
Committees
</TABLE>
- ---------------
* 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>
AN OFFICER OF
NAME PRINCIPAL THE TRUST
(POSITION WITH TRUST) AGE OCCUPATION(1) SINCE
- ----------------------- --------- ------------------------- -------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1985
(Treasurer) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
</TABLE>
- ---------------
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
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 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.
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.
24
<PAGE> 71
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 and by third party
proxy solicitors.
SUBSTANTIAL SHAREHOLDERS. As of January 22, 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 22, 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 22, 1996, there were 2,159,510 issued and
outstanding shares of the Group, of which 1,267,732 were shares of Cardinal
Balanced Fund and 891,778 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 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 10, 1996, is incorporated by reference in this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
January 19, 1996, is incorporated by reference in 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.
25
<PAGE> 72
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<PAGE> 73
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.
(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
A-1
<PAGE> 74
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.
(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(l).
(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.
(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
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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 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
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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 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.
(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
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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.
(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.
(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
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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 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
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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 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 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
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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 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
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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 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.
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(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.
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-10
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[CARDINAL FUNDS LOGO]
January 26, 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
Agreement and Plan of Reorganization and Liquidation is described in the
accompanying Combined Prospectus/Proxy Statement and will be addressed at the
Annual Meeting of Shareholders on March 15, 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 proposed reorganization 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.
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 AS SOON AS POSSIBLE.
Thank you for your support and investment in Cardinal Government Securities
Trust.
Sincerely,
/s/ Frank W. Siegel
FRANK W. SIEGEL, CFA
President
Cardinal Government Securities Trust
P.S. YOUR VOTE IS VERY IMPORTANT TO US. PLEASE COMPLETE, SIGN, DATE AND RETURN
THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 85
Rule 497(c)
Registration No. 33-64907
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 MARCH 15, 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,
March 15, 1996, at 9:30 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 Athletic Club of Columbus, 136 East Broad Street,
Columbus, Ohio 43215. The Meeting is being called for the following purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation (the
"Plan") for the Trust, and the transactions contemplated thereby, which
include (a) the transfer of all of the assets of the Trust to Cardinal
Government Securities Money Market Fund (the "Acquiring Fund"), a series 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;
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; 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
22, 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 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 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 26, 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.
<PAGE> 86
COMBINED PROSPECTUS/PROXY STATEMENT
January 26, 1996
<TABLE>
<S> <C>
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
</TABLE>
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 Athletic Club of Columbus, 136 East
Broad Street, Columbus, Ohio 43215 on Friday, March 15, 1996, beginning at 9:30
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 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.
<PAGE> 87
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 10, 1996,
is incorporated by reference in this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
The Trust's Prospectus dated January 19, 1996, 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.
<PAGE> 88
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL............................................................................... 1
APPROVAL OF THE PLAN -- ISSUE 1....................................................... 2
Summary............................................................................. 2
Special Considerations and Risk Factors............................................. 5
The Proposed Transaction............................................................ 6
Comparison of Investment Objectives, Policies and Restrictions...................... 9
Investment Restrictions............................................................. 9
Additional Comparative Information.................................................. 11
ELECTION OF TRUSTEES -- ISSUE 2....................................................... 14
Compensation Table.................................................................. 17
Other Executive Officers............................................................ 18
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS -- ISSUE 3....................... 18
MISCELLANEOUS......................................................................... 18
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION..................... A-1
</TABLE>
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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, March 15, 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 22, 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
485,533,531 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 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
on or about February 1, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding. The
Acquiring Fund does not have and will not have immediately prior to 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.
1
<PAGE> 91
APPROVAL OF THE PLAN -- ISSUE 1
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 10, 1996, and the
Prospectus of the Trust dated January 19, 1996.
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 with and 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 Investment Company Act of 1940, as amended (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 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
offering price).................................. 0% 0% 0%
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(1)
--- --- ---
Total Fund Operating Expenses................. .79% .81% .79%
=== === ===
</TABLE>
- ---------------
(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.
2
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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 ACQUIRING FUND ON
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
</TABLE>
- ---------------
* 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, 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, with and
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 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
3
<PAGE> 93
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 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. 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.
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%.
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.
4
<PAGE> 94
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.
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 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
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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.
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
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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 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, 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
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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 Reorganization and ending September 30, 1996, after giving
effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<CAPTION>
TRUST ACQUIRING 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
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<PAGE> 98
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 immediately prior to the consummation of the
Reorganization. THEREFORE, NO PRO FORMA FINANCIAL INFORMATION GIVING EFFECT TO
THE REORGANIZATION IS PROVIDED.
CARDINAL GOVERNMENT SECURITIES TRUST
<TABLE>
<S> <C>
Net assets................................................................... $445,373,567
Shares outstanding........................................................... 445,373,567
Net asset value per share.................................................... $1.00
</TABLE>
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.
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.
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<PAGE> 99
(2) The Trust may not 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 will
not purchase portfolio securities. The Acquiring Fund has a similar policy
except its policy provides that the Acquiring Fund may not borrow money or issue
senior securities, except that the Acquiring 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 the Acquiring Fund's total assets
at the time of such borrowing and except as permitted pursuant to an exemption
from the 1940 Act. The Acquiring Fund will not purchase securities while its
borrowings (including reverse repurchase agreements and dollar roll agreements)
exceed 5% of its total assets.
(3) 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."
(4) 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.
(5) 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 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 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.
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<PAGE> 100
ADDITIONAL COMPARATIVE INFORMATION
SERVICE ARRANGEMENTS AND FEE
THE TRUST
Pursuant to the laws of the Commonwealth 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 Amended 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., 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 management investment
companies like the Trust since 1980.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York and Chicago Stock Exchanges, 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 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.
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<PAGE> 101
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.
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 section 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.
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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.
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 as a Fund, and not in the aggregate
with other
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<PAGE> 103
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 January 19, 1996, which is incorporated herein by reference, and in the
Trust's Statement of Additional Information dated January 19, 1996. 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 10, 1996, which accompanies this Combined Prospectus/Proxy
Statement and Statement of Additional Information dated January 10, 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 26, 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.
ELECTION OF TRUSTEES -- ISSUE 2
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. Each of the nominees is a member of the
present Board of Trustees of the Trust and, except for Mr. Allen, each 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.
14
<PAGE> 104
<TABLE>
<CAPTION>
SHARES OF
TRUST
NAME, AGE, POSITION WITH THE TRUST A TRUSTEE OF BENEFICIALLY
PRINCIPAL OCCUPATION(A) THE TRUST OWNED AS OF % OF CLASS
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(B) SINCE 1/22/96 AT 1/22/96
- ---------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
H. KEITH ALLEN--Age 54--Chairman(c) and 1995 17,112 0.00%
Trustee(d)(f)*
Chief Operating Officer, Secretary, Treasurer
and a Director of The Ohio Company (investment
banking).
FRANK W. SIEGEL--Age 43--President(c) and Trustee 1994 -- --
(d)(f)*
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 92,757 0.02%
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 152,708 0.03%
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 3,170 0.00%
President of The Columbus Foundation
(philanthropic public foundation).
DAVID L. NELSON--Age 65--Trustee(d)(e) 1983 128,897 0.03%
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 210,888 0.04%
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 1980 59,941 0.01%
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 -- Trustee(d)(e) 1986 342,220 0.07%
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).
</TABLE>
15
<PAGE> 105
<TABLE>
<CAPTION>
SHARES OF
TRUST
NAME, AGE, POSITION WITH THE TRUST A TRUSTEE OF BENEFICIALLY
PRINCIPAL OCCUPATION(A) THE TRUST OWNED AS OF % OF CLASS
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(B) SINCE 1/22/96 AT 1/22/96
- ---------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
All Trustees and Officers of the Trust as a group -- 1,006,188 0.21%
(including 11 persons).
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
(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 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.
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.
16
<PAGE> 106
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM THE TRUST
NAME AND COMPENSATION AND THE FUND
POSITION WITH THE TRUST* FROM THE TRUST COMPLEX**
---------------------------------- -------------- ------------------
<S> <C> <C>
H. Keith Allen
Chairman, Trustee and
Member of Executive and
Nominating Committees $0 $0
Gordon B. Carson
Trustee and Member of
Executive Committee $2,400 $ 12,000
John B. Gerlach
Trustee and Member of
Audit Committee $2,600 $ 13,000
Michael J. Knilans
Trustee and Member of
Executive Committee $2,400 $ 12,000
James I. Luck
Trustee $2,400 $ 12,000
David L. Nelson
Trustee and Member of
Audit and Nominating
Committees $2,600 $ 13,000
C.A. Peterson
Trustee $2,400 $ 12,000
Lawrence H. Rogers, II
Trustee $2,400 $ 12,000
Frank W. Siegel
Trustee, President and
Member of Nominating
and Executive Committees $ 0 $ 0
Joseph H. Stegmayer
Trustee and Member of
Audit and Nominating
Committees $2,000 $ 10,000
</TABLE>
- ---------------
* 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.
17
<PAGE> 107
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
TRUST) AGE OCCUPATION(1) THE TRUST SINCE
- -------------------- --- ------------------ -----------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1983
(Treasurer) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
</TABLE>
- ---------------
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
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 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 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.
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 and by third party
proxy solicitors.
18
<PAGE> 108
SUBSTANTIAL SHAREHOLDERS. As of January 22, 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
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------------- -------------------- ----------------
<S> <C> <C>
The Ohio Company 44,960,405* 9.26%
155 East Broad Street
Columbus, Ohio 43215
</TABLE>
- ---------------
* For its own account and as trustee for various pension plans and trusts.
As of the close of business on January 22, 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 22, 1996, there were 2,159,510 issued and
outstanding shares of the Group, of which 1,267,732 were shares of Cardinal
Balanced Fund and 891,778 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 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 10, 1996, is incorporated by reference in this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
January 19, 1996, is incorporated by reference in 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.
19
<PAGE> 109
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 110
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:
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
A-1
<PAGE> 111
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.
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(l).
(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.
(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
A-2
<PAGE> 112
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 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
A-3
<PAGE> 113
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 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
provisions of the 1933 Act, 1934 Act and 1940 Act and the rules and
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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 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
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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."
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 change in
the financial position of CGST since September 30, 1995, other
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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
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
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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 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,
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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 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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(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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[CARDINAL FUNDS LOGO]
January 26, 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 Agreement
and Plan of Reorganization and Liquidation is described in the accompanying
Combined Prospectus/Proxy Statement and will be addressed at the Annual Meeting
of Shareholders on March 15, 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 proposed reorganization 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.
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 AS SOON AS POSSIBLE.
Thank you for your support and investment in Cardinal Tax Exempt Money Trust.
Sincerely,
/s/ Frank W. Siegel
FRANK W. SIEGEL, CFA
President
Cardinal Tax Exempt Money Trust
P.S. YOUR VOTE IS VERY IMPORTANT TO US. PLEASE COMPLETE, DATE AND RETURN THE
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE> 121
Rule 497(c)
Registratio No. 33-64907
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 MARCH 15, 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, March
15, 1996, at 9:30 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 Athletic Club of Columbus, 136 East Broad Street, Columbus, Ohio
43215. The Meeting is being called for the following purposes:
1. To approve an Agreement and Plan of Reorganization and Liquidation (the
"Plan") for the Trust, and the transactions contemplated thereby, which
include (a) the transfer of all of the assets of the Trust to Cardinal Tax
Exempt Money Market Fund (the "Acquiring Fund"), a series 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;
2. To fix the number of trustees of the Trust at ten;
3. To elect ten trustees of the Trust to hold office for the ensuing year
and until their successors are elected and qualified;
4. 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; 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
22, 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 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 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
January 26, 1996 Secretary
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.
<PAGE> 122
COMBINED PROSPECTUS/PROXY STATEMENT
January 26, 1996
<TABLE>
<S> <C>
Cardinal Tax Exempt Money Market Fund, Cardinal Tax Exempt Money Trust
a series of 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
</TABLE>
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 Athletic Club of Columbus, 136 East Broad Street,
Columbus, Ohio 43215 on Friday, March 15, 1996, beginning at 9:30 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 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.
<PAGE> 123
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 10, 1996,
is incorporated by reference in this Combined Prospectus/Proxy Statement and
accompanies this Combined Prospectus/Proxy Statement.
The Trust's Prospectus dated January 19, 1996, 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.
<PAGE> 124
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL............................................................................... 1
APPROVAL OF THE PLAN -- ISSUE 1....................................................... 2
Summary............................................................................. 2
Special Considerations and Risk Factors............................................. 5
The Proposed Transaction............................................................ 7
Comparison of Investment Objectives, Policies and Restrictions...................... 10
Investment Restrictions............................................................. 11
Additional Comparative Information.................................................. 12
FIXING THE NUMBER OF TRUSTEES AND ELECTION OF TRUSTEES -- ISSUES 2 AND 3.............. 16
Compensation Table.................................................................. 18
Other Executive Officers............................................................ 19
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS -- ISSUE 4....................... 19
MISCELLANEOUS......................................................................... 20
EXHIBIT A -- AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION..................... A-1
</TABLE>
<PAGE> 125
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, March 15, 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 22, 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
75,444,612 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 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
on or about February 1, 1996.
As of the Record Date, the Acquiring Fund had no shares outstanding. The
Acquiring Fund does not have, and will not have immediately prior to 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.
1
<PAGE> 126
APPROVAL OF THE PLAN -- ISSUE 1
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 10, 1996, and the
Prospectus of the Trust dated January 19, 1996.
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 with and 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 Investment Company Act of 1940, as amended (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 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 offering 0% 0% 0%
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(1)
--- --- ---
Total Fund Operating Expenses .82% .83% .82%
=== === ===
</TABLE>
- ---------------
(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.
2
<PAGE> 127
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 ACQUIRING FUND ON
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>
- ---------------
* 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, 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, with and 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.
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
3
<PAGE> 128
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 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. 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.
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 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
4
<PAGE> 129
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, 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 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
5
<PAGE> 130
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 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:
6
<PAGE> 131
(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 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 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.
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<PAGE> 132
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 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;
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<PAGE> 133
(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 Reorganization and ending September 30, 1996, after giving
effect to the Reorganization:
OPERATING EXPENSE RATIOS
<TABLE>
<CAPTION>
TRUST ACQUIRING 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 immediately
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<PAGE> 134
prior to the consummation of the Reorganization. THEREFORE, NO PRO FORMA
FINANCIAL INFORMATION GIVING EFFECT TO THE REORGANIZATION IS PROVIDED.
CARDINAL TAX EXEMPT MONEY TRUST
<TABLE>
<S> <C>
Net assets.................................................................... $64,779,828
Shares outstanding............................................................ 64,779,828
Net asset value per share..................................................... $1.00
</TABLE>
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.
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
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<PAGE> 135
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 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.
The Acquiring Fund has a somewhat similar policy except its policy provides that
the Acquiring Fund may not borrow money or issue senior securities, except that
the Acquiring 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 the Acquiring Fund's total assets at the time of such borrowing
and except as permitted pursuant to an exemption from the 1940 Act. The
Acquiring Fund will not purchase securities while its borrowings (including
reverse repurchase agreements and dollar roll agreements) exceed 5% of its total
assets.
(3) 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.
(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.
(5) 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.
(6) 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
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<PAGE> 136
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 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 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 management investment companies like the Trust since 1980.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York and Chicago Stock Exchanges, 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.
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<PAGE> 137
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 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 section 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
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<PAGE> 138
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 section 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.
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
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<PAGE> 139
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 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 January 19, 1996, which is incorporated herein by reference, and in the
Trust's Statement of Additional Information dated
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<PAGE> 140
January 19, 1996. 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 10, 1996, which accompanies this Combined Prospectus/Proxy
Statement, and Statement of Additional Information dated January 10, 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 26, 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.
FIXING THE NUMBER OF TRUSTEES AND ELECTION OF TRUSTEES -- ISSUES 2 AND 3
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. Each
of the nominees is a member of the present Board of Trustees of the Trust and,
except for Mr. Allen, each 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>
SHARES OF
TRUST
NAME, AGE, POSITION WITH THE TRUST A TRUSTEE OF BENEFICIALLY
PRINCIPAL OCCUPATION(A) THE TRUST OWNED AS OF % OF CLASS
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(B) SINCE 1/22/96 AT 1/22/96
- ---------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
H. KEITH ALLEN--Age 54--Chairman(c) and 1995 16,487 0.02%
Trustee(d)(f)*
Chief Operating Officer, Secretary, Treasurer and
a Director of The Ohio Company (investment
banking).
FRANK W. SIEGEL--Age 43--President(c) and Trustee 1994 28,096 0.04%
(d)(f)*
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 456 0.00%
President and a Director of Lancaster Colony
Corporation (diversified consumer products) since
1994; formerly Executive Vice President, Secretary
and a Director of Lancaster Colony.
</TABLE>
16
<PAGE> 141
<TABLE>
<CAPTION>
SHARES OF
TRUST
NAME, AGE, POSITION WITH THE TRUST A TRUSTEE OF BENEFICIALLY
PRINCIPAL OCCUPATION(A) THE TRUST OWNED AS OF % OF CLASS
DIRECTORSHIPS WITH OTHER PUBLICLY HELD COMPANIES(B) SINCE 1/22/96 AT 1/22/96
- ---------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
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 24,206 0.03%
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 166,432 0.22%
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.
JOSEPH H. STEGMAYER--Age 44--Trustee(d)(e) 1983 5,499 0.01%
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 241,176 0.32%
(including 6 persons).
</TABLE>
- --------------------------------------------------------------------------------
(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 1940 Act.
- --------------------------------------------------------------------------------
17
<PAGE> 142
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.
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 TOTAL COMPENSATION
NAME AND COMPENSATION FROM THE TRUST AND
POSITION WITH THE TRUST* FROM THE TRUST 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
</TABLE>
18
<PAGE> 143
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
NAME AND COMPENSATION FROM THE TRUST AND
POSITION WITH THE TRUST* FROM THE TRUST THE FUND COMPLEX**
- ------------------------- -------------- -------------------
<S> <C> <C>
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>
- ---------------
* 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.
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
TRUST) AGE OCCUPATION(1) THE TRUST SINCE
- -------------------- --- ------------------ -----------------
<S> <C> <C> <C>
James M. Schrack II 37 Vice President 1983
(Treasurer) The Ohio Company
Karen J. Hipsher 50 Employee 1994
(Secretary) The Ohio Company
</TABLE>
- ---------------
(1) Principal occupation reflects the principal responsibility of each
individual during the past five years.
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 4
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.
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.
19
<PAGE> 144
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 and by third party
proxy solicitors.
SUBSTANTIAL SHAREHOLDERS. As of January 22, 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 PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS
- --------------------- -------------------- --------
<S> <C> <C>
The Ohio Company 4,654,933* 6.17%
155 East Broad Street
Columbus, Ohio 43215
</TABLE>
- ---------------
*As trustee for various trusts.
As of the close of business on January 22, 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 22, 1996, there were 2,159,510 issued and
outstanding shares of the Group, of which 1,267,732 were shares of Cardinal
Balanced Fund and 891,778 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 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 10, 1996, is incorporated by reference in this
Combined Prospectus/Proxy Statement. In addition, the Trust's Prospectus dated
January 19, 1996, is incorporated by reference in 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.
20
<PAGE> 145
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<PAGE> 146
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) 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
A-1
<PAGE> 147
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 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(l).
(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
A-2
<PAGE> 148
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.
(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 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
A-3
<PAGE> 149
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.
(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.
(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
A-4
<PAGE> 150
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.
(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.
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(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 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.
(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
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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 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 ByLaws, 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
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<PAGE> 153
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
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 trustees and shareholders of CTEMT in the manner required by
law.
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(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
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.
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(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 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> 156
THE CARDINAL FUND INC.
This Proxy is Solicited on Behalf of the Board of
Directors of TCFI
[ LOGO ]
The undersigned hereby appoints H. Keith Allen,
C A R D I N A L F U N D S Frank W. Siegel and Gordon B. Carson, and each of
PROXY SERVICES them, with full power of sustitution, proxies to
P.0. BOX 9150 vote and act with respect to all Shares of THE
FARMINGDALE, NY 11736-8807 CARDINAL FUND INC. ("TCFI"), which the
undersigned is entitled to vote, at the Special
Meeting of Shareholders of TCFI to be held
Friday, March 15, 1996, at The Athletic Club of
Columbus at 136 East Broad Street, Columbus, Ohio
at 9:30 A.M. E.S.T. and at any and all
adjournments thereof, on the following proposals
and any other matters that may properly come
before the Meeting.
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 judgement 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 26, 1996, and the Combined
Prospectus/Proxy Statement attached thereto.
(Please sign legibly exactly as the name is printed above or as it appears on
your stock certificate.) If the certificate or certificates 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.
<TABLE>
<CAPTION>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS [X] TCFI KEEP THIS PORTION FOR YOUR RECORDS
- -----------------------------------------------------------------------------------------------------------------------------------
THE CARDINAL FUND INC. DETACH AND RETURN THIS PORTION ONLY
__________
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<S> <C> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN 1. Approval of the Agreement and Plan of FOR AGAINST ABSTAIN 2. Approval of an amendment to
[ ] [ ] [ ] Reorganization and Liquidation by and [ ] [ ] [ ] TCFI's fundamental investment
The Cardinal Group and TCFI policies by deleting its policy
providing for the transfer of all of with respect to related party
the assets of TCFI to The Cardinal transactions.
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.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 3. Fixing the number of directors at ten.
WITHHOLD FOR ALL
FOR ALL ALL EXCEPT
[ ] [ ] [ ] 4. Election of Directors: 01) H. Keith Allen, 02) Frank W. Siegel, 03) Gordon B. Carson,
04) John B. Garlach, Jr., 05) Michael J. Knilans, 06) James I. Luck, 07) David L. Nelson,
08) C. A. Peterson, 09) Lawrence H. Rogers II, 10) Joseph H. Stegmayer
-----------------------------------------------------------------------------------------
To withhold authority to vote for any one or more nominees, mark the "For All Except" box
and write the nominee's number on the line provided above.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 5. The ratification of the selection of KPMG Peat Marwick LLP as independent certified public
accountants for the fiscal year ending September 30, 1996.
----------------------------------- -------------------------------------- ----------------
SIGNATURE SIGNATURE DATE
</TABLE>
<PAGE> 157
CARDINAL GOVERNMENT OBLIGATIONS FUND
This Proxy is Solicited on Behalf of the Board of
Trustees of the Trust
[ LOGO ]
The undersigned hereby appoints H. Keith Allen,
C A R D I N A L F U N D S Frank W. Siegel and Gordon B. Carson, and each of
PROXY SERVICES them, with full power of sustitution, proxies to
P.0. BOX 9150 vote and act with respect to all Shares of
FARMINGDALE, NY 11736-8807 CARDINAL GOVERNMENT OBLIGATIONS FUND (the
"Trust"), which the undersigned is entitled to
vote, at the Annual Meeting of Shareholders of
the Trust to be held Friday, March 15, 1996, at
The Athletic Club of Columbus at 136 East Broad
Street, Columbus, Ohio at 9:30 A.M. E.S.T. and at
any and all adjournments thereof, on the
following proposals and any other matters that
may properly come before the Meeting.
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 judgement 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 26, 1996, and the Combined
Prospectus/Proxy Statement attached thereto.
(Please sign legibly exactly as the name is printed above or as it appears on
your stock certificate.) If the certificate or certificates 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.
<TABLE>
<CAPTION>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS [X] GOF KEEP THIS PORTION FOR YOUR RECORDS
- -----------------------------------------------------------------------------------------------------------------------------------
CARDINAL GOVERNMENT OBLIGATIONS FUND DETACH AND RETURN THIS PORTION ONLY
__________
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<S> <C> <C> <C>
FOR AGAINST ABSTAIN 1. 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 Obligations Fund of The Cardinal Group in exchange 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 the Trust.
WITHHOLD FOR ALL
FOR ALL ALL EXCEPT
[ ] [ ] [ ] 2. Election of Trustees: 01) H. Keith Allen, 02) Frank W. Siegel, 03) Gordon B. Carson,
04) John B. Garlach, Jr., 05) Michael J. Knilans, 06) James I. Luck, 07) David L. Nelson,
08) C. A. Peterson, 09) Lawrence H. Rogers II, 10) Joseph H. Stegmayer
-----------------------------------------------------------------------------------------
To withhold authority to vote for any one or more nominees, mark the "For All Except" box
and write the nominee's number on the line provided above.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 3. The ratification of the selection of KPMG Peat Marwick LLP as independent certified public
accountants for the fiscal year ending September 30, 1996.
----------------------------------- -------------------------------------- ----------------
SIGNATURE SIGNATURE DATE
</TABLE>
<PAGE> 158
CARDINAL GOVERNMENT SECURITIES TRUST
This Proxy is Solicited on Behalf of the Board of
Trustees of the Trust
[ LOGO ]
The undersigned hereby appoints H. Keith Allen,
C A R D I N A L F U N D S Frank W. Siegel and Gordon B. Carson, and each of
PROXY SERVICES them, with full power of sustitution, proxies to
P.0. BOX 9150 vote and act with respect to all Shares of
FARMINGDALE, NY 11736-8807 CARDINAL GOVERNMENT SECURITIES TRUST (the
"Trust"), which the undersigned is entitled to
vote, at the Annual Meeting of Shareholders of
the Trust to be held Friday, March 15, 1996, at
The Athletic Club of Columbus at 136 East Broad
Street, Columbus, Ohio at 9:30 A.M. E.S.T. and at
any and all adjournments thereof, on the
following proposals and any other matters that
may properly come before the Meeting.
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 judgement 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 26, 1996, and the Combined
Prospectus/Proxy Statement attached thereto.
(Please sign legibly exactly as the name is printed above.) If the Shares
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.
<TABLE>
<CAPTION>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS [X] GST KEEP THIS PORTION FOR YOUR RECORDS
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CARDINAL GOVERNMENT SECURITIES TRUST DETACH AND RETURN THIS PORTION ONLY
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FOR AGAINST ABSTAIN 1. 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 in exchange 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 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 the Trust.
WITHHOLD FOR ALL
FOR ALL ALL EXCEPT
[ ] [ ] [ ] 2. Election of Trustees: 01) H. Keith Allen, 02) Frank W. Siegel, 03) Gordon B. Carson,
04) John B. Garlach, Jr., 05) Michael J. Knilans, 06) James I. Luck, 07) David L. Nelson,
08) C. A. Peterson, 09) Lawrence H. Rogers II, 10) Joseph H. Stegmayer
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To withhold authority to vote for any one or more nominees, mark the "For All Except" box
and write the nominee's number on the line provided above.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 3. The ratification of the selection of KPMG Peat Marwick LLP as independent certified public
accountants for the fiscal year ending September 30, 1996.
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SIGNATURE SIGNATURE DATE
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<PAGE> 159
CARDINAL TAX EXEMPT MONEY TRUST
This Proxy is Solicited on Behalf of the Board of
Trustees of the Trust
[ LOGO ]
The undersigned hereby appoints H. Keith Allen,
C A R D I N A L F U N D S Frank W. Siegel and Gordon B. Carson, and each of
PROXY SERVICES them, with full power of sustitution, proxies to
P.0. BOX 9150 vote and act with respect to all Shares of
FARMINGDALE, NY 11736-8807 CARDINAL TAX EXEMPT MONEY TRUST (the "Trust"),
which the undersigned is entitled to vote, at
the Annual Meeting of Shareholders of the Trust
to be held Friday, March 15, 1996, at The
Athletic Club of Columbus at 136 East Broad
Street, Columbus, Ohio at 9:30 A.M. E.S.T. and at
any and all adjournments thereof, on the
following proposals and any other matters that
may properly come before the Meeting.
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 judgement 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 26, 1996, and the Combined
Prospectus/Proxy Statement attached thereto.
(Please sign legibly exactly as the name is printed above.) If the Shares
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.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS [X] TEMT KEEP THIS PORTION FOR YOUR RECORDS
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CARDINAL TAX EXEMPT MONEY TRUST DETACH AND RETURN THIS PORTION ONLY
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FOR AGAINST ABSTAIN 1. 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
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 the Trust.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 2. Fixing the number of trustees at ten.
WITHHOLD FOR ALL
FOR ALL ALL EXCEPT
[ ] [ ] [ ] 3. Election of Trustees: 01) H. Keith Allen, 02) Frank W. Siegel, 03) Gordon B. Carson,
04) John B. Garlach, Jr., 05) Michael J. Knilans, 06) James I. Luck, 07) David L. Nelson,
08) C. A. Peterson, 09) Lawrence H. Rogers II, 10) Joseph H. Stegmayer
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To withhold authority to vote for any one or more nominees, mark the "For All Except" box
and write the nominee's number on the line provided above.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 4. The ratification of the selection of KPMG Peat Marwick LLP as independent certified public
accountants for the fiscal year ending September 30, 1996.
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SIGNATURE SIGNATURE DATE
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<PAGE> 160
Rule 497(c)
Registration No. 33-64907
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 26, 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 January
26, 1996, and the Statement of Additional Information for the Acquiring Funds
dated January 10, 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 26, 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 26,
1996.
