<PAGE> 1
As filed with the Securities
and Exchange Commission on October 28, 1996
1933 Act Registration No. 33-59984
1940 Act File No. 811-7588
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 9 [X]
THE CARDINAL GROUP
(Exact Name of Registrant as Specified in Charter)
155 East Broad Street, Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: 614/464-5511
Frank W. Siegel, 155 East Broad Street, Columbus, Ohio 43215
(Name and Address of Agent for Service)
Copy to: Charles H. Hire, Esq.
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Approximate Date of Proposed Public Offering:
Immediately, upon effectiveness
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date), pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
X this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
The Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940. On November 21, 1995, the Registrant filed its Rule 24f-2 Notice
with respect to the fiscal year ended September 30, 1995.
<PAGE> 2
THE CARDINAL FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
Three Funds of
The Cardinal Group
Investor Shares
Cross Reference Sheet Required By
Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
---------------------------- ------------------------
<S> <C>
1.(a)(i) ............................. Cover Page
(ii) ............................. Cover Page
(iii) ............................. Cover Page
(iv) ............................. Cover Page
(v) ............................. Cover Page
(vi) ............................. *
(vii)............................. *
(b) ................................ *
2.(a)(i) ............................. "Fee Table"
(ii) ............................. *
(b) ................................ "Prospectus Highlights"
(c) ................................ "Prospectus Highlights"
3.(a) ................................ "Financial Highlights"
(b) ................................ *
(c) ................................ "Performance Information"
(d) ................................ "Performance Information"
4.(a)(i)(A) .......................... "What Are The Funds?"
(i)(B) .......................... "What Are The Funds?"
(ii) ............................. "What Are The Investment
Objectives And Policies
Of The Funds?"
(ii)(A) .......................... *
(ii)(B)(1) ....................... "What Are The Investment
Objectives And Policies
Of The Funds?"
(ii)(B)(2) ....................... *
(ii)(C) .......................... "What Are The Investment
Objectives And Policies
Of The Funds?"
(ii)(D) .......................... "What Are The Investment
Objectives And Polices Of
The Funds?"
</TABLE>
- --------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- i -
<PAGE> 3
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
---------------------------- ------------------------
<S> <C>
(b)(i) ............................... "What Are The Investment
Objectives And Policies
Of The Funds?"
(ii) ............................. "What Are The Investment
Objectives And Policies
Of The Funds?"
(c) ................................ "What Are The Investment
Objectives and Policies
Of The Funds?"
5.(a) ................................ "Who Manages My
Investment In The Funds?"
(b)(i) ............................. "Who Manages My
Investment In The Funds?"
(b)(ii) ............................ "Who Manages My
Investment In The Funds?"
(b)(iii) ........................... "Who Manages My
Investment In The Funds?"
(c) ................................ "Who Manages My
Investment In The Funds?"
(d) ................................ "Who Manages My
Investment In The Funds?"
(e) ................................ "Who Manages My
Investment In The Funds?"
(f) ................................ "Who Manages My
Investment In The Funds?"
(g)(i)(A) .......................... *
(g)(i)(B) .......................... *
(g)(i)(C) .......................... *
(g)(ii) ............................ *
5A.(a) ................................ *
(b) ................................ *
(c) ................................ *
6.(a) ................................ "What Are My Rights As A
Shareholder?"
(b) ................................ "What Are My Rights As A
Shareholder?"
(c) ................................ *
(d) ................................ "What Are My Rights As A
Shareholder?"
(e) ................................ "What Are My Rights As A
Shareholder?"; "Who
Provides Shareholder
Reports?"
(f) ................................ "What Distributions Will
I Receive?"
</TABLE>
- --------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- ii -
<PAGE> 4
<TABLE>
<S> <C>
(g) ................................ "Do The Funds Pay Federal
Income Tax?"; "What About
My Taxes?"
(h) ................................ Cover Page; "What Are My
Rights As a Shareholder?"
7.(a) ................................ "How Do I Purchase
Investor Shares Of The
Funds?"
(b) ................................ "How Do I Purchase
Investor Shares Of The
Funds?"; "How Is Net
Asset Value Calculated?"
(c) ................................ "How May I Qualify For
Quantity Discounts?"
(d) ................................ "How Do I Purchase
Investor Shares Of The
Funds?"
(e) ................................ "Who Manages My
Investment In The Funds?"
(f) ................................ "Who Manages My
Investment In The Funds?"
8.(a) ................................ "How May I Redeem My
Investor Shares?"
(b) ................................ "How May I Redeem My
Investor Shares?"
(c) ................................ "How May I Redeem My
Investor Shares?"
(d) ................................ "How May I Redeem My
Investor Shares?"
9. .................................. *
</TABLE>
- ------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- iii -
<PAGE> 5
PROSPECTUS ___________________________________________________________________
[LOGO]
THE CARDINAL FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
INVESTOR SHARES
The Cardinal Fund, Cardinal Balanced Fund (the "Balanced Fund") and Cardinal
Aggressive Growth Fund (the "Aggressive Growth Fund") (together called the
"Funds" or individually a "Fund") are three separate diversified investment
funds of The Cardinal Group (the "Group"), an open-end, management investment
company. The Trustees of the Group have divided each Fund's beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund offers multiple classes of Shares.
The Cardinal Fund's investment objectives are long-term growth of capital and
income. Current income is a secondary objective. The Cardinal Fund seeks to
achieve its objectives through selective participation in the long-term progress
of businesses and industries. The policy of The Cardinal Fund is generally to
invest in equity securities.
The Balanced Fund's investment objectives are current income and long-term
growth of both capital and income.
The Aggressive Growth Fund's investment objective is appreciation of capital.
The Aggressive Growth Fund intends to invest primarily in common stocks and
securities convertible into common stocks.
There can be no assurance that any of the Funds' investment objectives will be
achieved.
THE SHARES OF THE FUNDS 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 A FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION REGARDING THE FUNDS OR FOR ASSISTANCE
IN OPENING AN ACCOUNT OR REDEEMING SHARES, PLEASE CALL (800) 282-9446 TOLL FREE.
INQUIRIES MAY ALSO BE MADE BY MAIL ADDRESSED
TO THE GROUP AT ITS PRINCIPAL OFFICE:
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
- --------------------------------------------------------------------------------
The Prospectus relates only to one class of Shares of The Cardinal Fund, the
Balanced Fund and the Aggressive Growth Fund -- Investor Shares. Investor Shares
of each of the Funds are offered to the public. Each Fund also offers
Institutional Shares to certain qualified institutions. Interested persons who
wish to obtain prospectuses of Cardinal Government Obligations Fund, Cardinal
Government Securities Money Market Fund or Cardinal Tax Exempt Money Market
Fund, the other funds of the Group, or of the Institutional Shares of the Funds
should contact The Ohio Company. Additional information about the Funds,
contained in a Statement of Additional Information dated October 31, 1996, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. Such Statement is available upon request without charge
from the Group at the above address or by calling the phone number provided
above.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing in any of the Funds. This
Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[THE OHIO COMPANY LOGO]
The date of this Prospectus is December 2, 1996.
- --------------------------------------------------------------------------------
<PAGE> 6
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES.......... THE CARDINAL FUND seeks long-term growth of capital and
income. Current income is a secondary objective. (See
page 9.)
THE BALANCED FUND seeks current income and long-term
growth of both capital and income. (See page 9.)
THE AGGRESSIVE GROWTH FUND seeks appreciation of capital.
(See page 9.)
INVESTMENT POLICIES............ THE CARDINAL FUND generally invests in equity securities
which are growth oriented. (See page 9.)
Under normal market conditions, the BALANCED FUND will
invest in common stocks, preferred stocks, fixed income
securities and securities convertible into common stocks.
At least 25% of the value of the Balanced Fund's assets
will be invested in fixed income senior securities. (See
pages 9 through 12.)
The AGGRESSIVE GROWTH FUND will invest primarily in
common stocks and securities convertible into common
stocks of growth-oriented companies. (See page 12.)
DIVIDENDS...................... Dividends and capital gains distributions are made with
such frequency as the Group shall determine. Generally,
dividends are declared quarterly and long-term capital
gains, if any, are declared annually. Such dividends and
distributions may be invested in additional Shares of
such Fund at no charge. (See page 20.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS............... An investment in a mutual fund such as any of the Funds
involves a certain amount of risk and may not be suitable
for all investors. Some investment policies of the Funds
may entail certain risks. (See "WHAT ARE THE INVESTMENT
OBJECTIVES AND POLICIES OF THE FUNDS? -- Risk Factors and
Investment Techniques" on pages 13 through 16.)
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
PURCHASES...................... There is a minimum initial investment of $1,000 with
subsequent minimums of $50. (See page 17.) Purchases are
made at the public offering price which is equal to net
asset value per share plus a sales charge. This charge is
equal to 4.50% of the public offering price (4.71% of net
amount invested) reduced on investments of $100,000 or
more (see page 18).
REDEMPTIONS.................... Shares can be redeemed at net asset value per share
without charge, if redeemed through the Funds'
distributor, The Ohio Company. (See page 21.)
INVESTMENT ADVISER AND
MANAGER...................... Cardinal Management Corp. (the "Adviser"), a wholly-owned
subsidiary of The Ohio Company, is the Funds' investment
adviser. The Adviser also serves as investment adviser
for Cardinal Government Obligations Fund, Cardinal
Government Securities Money Market Fund and Cardinal Tax
Exempt Money Market Fund (collectively, with the Funds,
the "Cardinal Funds"). (See page 25.)
</TABLE>
3
<PAGE> 8
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTOR SHARES OF
-----------------------------------
THE AGGRESSIVE
CARDINAL BALANCED GROWTH
FUND FUND FUND
-------- ----------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price)(1)...................................... 4.50% 4.50% 4.50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees............................................ .60% .75% .75%
12b-1 Fees................................................. .25 .25 .25
Other Expenses............................................. .21 .88 1.21
---- ---- ----
Total Fund Operating Expenses...................... 1.06% 1.88% 2.21%
==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment in Investor Shares,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Cardinal Fund....................... $ 55 $ 77 $101 $168
Balanced Fund........................... $ 63 $101 $142 $255
Aggressive Growth Fund.................. $ 66 $111 $158 $288
<FN>
(1) The sales charge may be eliminated or reduced under certain circumstances.
See "HOW DO I PURCHASE INVESTOR SHARES OF THE FUNDS?" below.
</TABLE>
The information set forth in the foregoing Fee Table and Example relates only to
Investor Shares of the Funds. Each of the Funds also offers another class of
Shares known as Institutional Shares. The two classes of Shares of the Funds are
subject to the same expenses except that Institutional Shares are not subject to
a Rule 12b-1 fee and are not sold with a sales charge but are subject to an
administrative services fee.
The purpose of the above table is to assist a potential purchaser of a Fund's
Investor Shares in understanding the various costs and expenses that an investor
in the Fund will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN
THE FUNDS?" for a more complete discussion of the shareholder transaction
expenses and annual operating expenses of the Funds. The example and expenses
above reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
4
<PAGE> 9
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the ten fiscal years
ended September 30, 1995 through 1986, with respect to The Cardinal Fund, and
the two fiscal years ended September 30, 1995 and 1994, and the period from June
24, 1993, through September 30, 1993, with respect to the Balanced Fund and the
Aggressive Growth Fund, have been audited by KPMG Peat Marwick LLP, independent
auditors, whose reports thereon, together with certain financial statements, are
contained in the Funds' Statement of Additional Information and may be obtained
by shareholders and prospective investors.
The financial information for the period ended March 31, 1996, has not been
audited.
The following Financial Highlights for The Cardinal Fund reflect the operations
of The Cardinal Fund Inc. ("TCFI"), The Cardinal Fund's predecessor. On May 1,
1996, The Cardinal Fund acquired all of the assets and liabilities of TCFI and
is deemed to have succeeded to the financial and performance history of TCFI.
Effective October 31, 1996, the Board of Trustees of the Group reclassified each
Fund's outstanding Shares into Investor Shares. The financial information
provided below and in the Statement of Additional Information is for periods
prior to such reclassification.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH PERIOD
THE CARDINAL FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, 1996 ----------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, Beginning of period.... $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88 $ 9.28
Income from investment operations:
Net investment income................. .14 .36 .31 .32 .35 .35
Net gains or losses on securities
(both realized and unrealized)...... 1.26 1.32 .12 .55 1.37 2.70
-------- -------- -------- -------- -------- --------
Total from investment operations...... 1.40 1.68 .43 .87 1.72 3.05
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment
income)............................. (.15) (.35) (.33) (.29) (.36) (.38)
Distributions (from capital gains).... (1.08) (.83) (.28) (.62) (.29) (.07)
Returns of capital.................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions................... (1.23) (1.18) (.61) (.91) (.65) (.45)
Net asset value, End of period.......... $ 13.40 $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88
======== ======== ======== ======== ======== ========
Total Return**.......................... 11.07% 14.84% 3.38% 6.98% 15.05% 33.54%
Ratios/Supplemental Data:
Net assets, End of period (000)
omitted............................. $233,895 $226,181 $246,581 $282,125 $261,392 $221,428
Ratio of expenses to average net
assets.............................. 0.69%+ 0.70% 0.72% 0.68% 0.67% 0.67%
Ratio of net investment income to
average
net assets.......................... 2.08%+ 2.89% 2.40% 2.46% 2.83% 3.15%
Portfolio Turnover Rate............... 28.74%+ 19.78% 23.20% 11.11% 6.22% 33.27%
</TABLE>
5
<PAGE> 10
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1990 1989 1988 1987 1986
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, Beginning of period................... $ 11.75 $ 10.38 $ 11.73 $ 10.35 $ 8.55
Income from investment operations:
Net investment income................................ .42 .41 .37 .33 .22
Net gains or losses on securities (both realized and
unrealized)........................................ (1.87) 1.73 (.82) 2.05 2.37
-------- -------- -------- -------- --------
Total from investment operations..................... (1.45) 2.14 (.45) 2.38 2.59
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income)............... (.53) (.39) (.47) (.28) (.23)
Distributions (from capital gains)................... (.49) (.38) (.43) (.72) (.56)
Returns of capital................................... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions.................................. (1.02) (.77) (.90) (1.00) (.79)
Net asset value, End of period......................... $ 9.28 $ 11.75 $ 10.38 $ 11.73 $ 10.35
======== ======== ======== ======== ========
Total Return**......................................... (13.42)% 22.04% (3.46)% 25.00% 32.56%
Ratios/Supplemental Data:
Net assets, End of period (000) omitted.............. $168,184 $174,156 $130,978 $136,619 $ 84,972
Ratio of expenses to average net assets.............. 0.74% 0.70% 0.73% 0.75% 0.89%
Ratio of net investment income to average net
assets............................................. 3.98% 3.93% 3.77% 3.32% 3.12%
Portfolio Turnover Rate.............................. 27.10% 23.20% 12.3% 13.2% 10.3%
<FN>
- ---------------
* The Information included in the Financial Highlights for the Cardinal Fund
has been restated to reflect a three-for-two stock split made on January
11, 1990.
** The total return figure does not reflect the imposition of the maximum
front-end sales load.
+ Annualized.
</TABLE>
6
<PAGE> 11
THE BALANCED FUND
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1993
YEARS ENDED SEPTEMBER (DATE OF COMMENCEMENT
SIX MONTHS ENDED 30, OF OPERATIONS)
MARCH 31, 1996 --------------------- THROUGH
(UNAUDITED) 1995 1994 SEPTEMBER 30, 1993*
---------------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, Beginning of period....... $ 11.52 $ 9.90 $ 10.13 $ 10.00
-------- ------- ------- -------
Income from investment operations:
Net investment income.................... 0.20 0.34 0.23 0.02
Net gains or losses on securities
(both realized and unrealized)......... 0.48 1.67 (0.20) 0.12
-------- ------- ------- -------
Total from investment operations......... 0.68 2.01 0.03 0.14
-------- ------- ------- -------
Less Distributions:
Dividends (from net investment income)... (0.21) (0.35) (0.23) (0.01)
Distributions (from capital gains)....... (0.39) (0.04) (0.03) --
Returns of capital....................... -- -- -- --
-------- ------- ------- -------
Total Distributions...................... (0.60) (0.39) (0.26) (0.01)
-------- ------- ------- -------
Net asset value, End of period............. $ 11.60 $ 11.52 $ 9.90 $ 10.13
======== ======= ======= ======= =
Ratios/Supplemental Data:
Total Return****........................... 6.02%*** 20.76%*** 0.37% 1.40%**
Net assets, End of period (000)
omitted................................ $ 14,681 $14,535 $13,973 $10,811
Ratio of expenses to average net
assets................................. 1.63%***+ 1.94%*** 2.07% 0.70%
Ratio of net investment income to average
net assets............................. 3.50%***+ 3.24%*** 2.44% 0.35%
Portfolio Turnover Rate.................. 10.61%+ 37.62% 59.09% 60.67%
<FN>
- ---------------
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate total
return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of
annualized.
*** Effective September 15, 1995, The Ohio Company began waiving payments under
the Distribution and Shareholder Service Plan. Had the payments been
charged, (1) the total return, ratio of expenses to average net assets and
ratio of net investment income to average net assets for the six months
ended March 31, 1996 would have been 5.90%, 1.78% and 3.38%, respectively,
and (2) the 1995 total return, ratio of expenses to average net assets, and
ratio of net investment income to average net assets would have been
20.75%, 1.95%, and 3.23%, respectively.
**** The total return figure does not reflect the imposition of the maximum
front-end sales load.
+ Annualized.
</TABLE>
THE AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1993
YEARS ENDED SEPTEMBER (DATE OF COMMENCEMENT
SIX MONTHS ENDED 30, OF OPERATIONS)
MARCH 31, 1996 --------------------- THROUGH
(UNAUDITED) 1995 1994 SEPTEMBER 30, 1993*
---------------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
Net asset value, Beginning of period....... $ 12.37 $ 9.94 $ 10.47 $ 10.00
-------- ------- ------- -------
Income (Loss) from investment operations:
Net investment loss...................... (0.09) (0.10) (0.13) (0.03)
Net gains or losses on securities
(both realized and unrealized)......... (0.10) 2.53 (0.36) 0.50
-------- ------- ------- -------
Total from investment operations......... (0.20) 2.43 (0.49) 0.47
-------- ------- ------- -------
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 24, 1993
YEARS ENDED SEPTEMBER (DATE OF COMMENCEMENT
SIX MONTHS ENDED 30, OF OPERATIONS)
MARCH 31, 1996 --------------------- THROUGH
(UNAUDITED) 1995 1994 SEPTEMBER 30, 1993*
---------------- ------- ------- ---------------------
<S> <C> <C> <C> <C>
Less Distributions:
Dividends (from net investment loss)..... -- -- -- --
Distributions (from capital gains)....... (0.90) -- (0.04) --
Returns of capital....................... -- -- -- --
-------- ------- ------- -------
Total Distributions...................... (0.90) 0 (0.04) 0
-------- ------- ------- -------
Net asset value, End of period............. $ 11.27 $ 12.37 $ 9.94 $ 10.47
======== ======= ======= ========
Ratios/Supplemental Data:
Total Return****........................... (1.48%)*** 24.35%*** (4.74%) 4.70%**
Net assets, End of period (000)
omitted................................ $ 9,834 $10,434 $ 9,460 $ 6,320
Ratio of expenses to average net
assets................................. 1.96%***+ 2.24%*** 2.51% 0 .91%
Ratio of net investment loss to average
net assets............................. (1.41%)***+ (0.92%)*** (1.50%) (0.53%)
Portfolio Turnover Rate.................. 17.13% 80.35% 95.70% 31.15%
<FN>
- ---------------
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate total
return is calculated similarly to average annual total return except that
the return figure is aggregated over the relevant period instead of
annualized.
*** Effective September 15, 1995, The Ohio Company began waiving payments under
the Distribution and Shareholder Service Plan. Had the payments been
charged, (1) the total return, ratio of expenses to average net assets and
ratio of net investment income to average net assets for the six months
ended March 31, 1996, would have been (1.61%), 2.09% and (1.54%),
respectively, and (2) the 1995 total return, ratio of expenses to average
net assets, and ratio of net investment loss to average net assets would
have been 24.34%, 2.25%, and (0.93%), respectively.
**** The total return figure does not reflect the imposition of the maximum
front-end sales load.
+ Annualized.
</TABLE>
See notes to financial statements appearing in the Funds' Statement of
Additional Information.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time each Fund may advertise its average annual total return,
cumulative total return and/or yield. SUCH TOTAL RETURN FIGURES AND YIELD
FIGURES ARE BASED UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The average annual total return advertised by a Fund refers
to the return generated by an investment in a class of Shares of that Fund over
certain specified periods since the establishment of such Fund. The average
annual total return over a period equates the amount of an initial investment in
the Fund to the amount redeemable at the end of that period assuming that any
dividends and distributions earned by an investment in the Fund are immediately
reinvested and the maximum applicable sales charge (currently 4.5% with respect
to Investor Shares only) is deducted from the initial investment at the time of
investment. Such figure is then annualized. The cumulative total return
advertised refers to the total return on a hypothetical investment over the
relevant period and equates the amount of an initial investment in the Fund to
the amount redeemable at the end of that period assuming that any dividends and
distributions are immediately reinvested and the maximum sales charge, if any,
is deducted from the initial investment. Yield will be computed by dividing a
Fund's net investment income per share earned during a recent one-month period
by such Fund's per share maximum offering price (reduced by any undeclared
earned income expected to be paid shortly as a dividend) on the last day of the
period and annualizing the result. If the sales charge were not deducted, the
average annual total return, cumulative total return and yield advertised would
be higher.
In addition, from time to time the Balanced Fund may include in its sales
literature and shareholder reports a quote of the current "distribution" rate
for such Fund. A distribution rate is simply a measure of the level of dividends
distributed for a specified period and is computed by dividing the total amount
of dividends
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per share paid by the Balanced Fund during the past 12 months by a current
maximum offering price. It differs from yield, which is a measure of the income
actually earned by the Balanced Fund's investments, and from total return, which
is a measure of the income actually earned by, plus the effect of any realized
and unrealized appreciation or depreciation of, such investments during a stated
period. A distribution rate is, therefore, not intended to be a complete measure
of performance. A distribution rate may sometimes be greater than yield since,
for instance, it may include short-term and possibly long-term gains (which may
be non-recurring), may not include the effect of amortization of bond premiums
and does not reflect unrealized gains or losses.
Investors may also judge the performance of any class of Shares of a Fund by
comparing or referencing its performance to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Corporation, and to data prepared by
Lipper Analytical Services, Inc. and Morningstar, Inc. Comparisons may also be
made to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, The Columbus Dispatch, Business Week, U.S.A.
Today and Consumer Reports. In addition to performance information, general
information about a Fund that appears in a publication such as those mentioned
above may be included in advertisements and in reports to shareholders.
Further information about the performance of each class of Shares of a Fund is
contained in that Fund's Annual Report to Shareholders which may be obtained
without charge by contacting the Group at the telephone number set forth on the
cover page of this Prospectus. Performance quotations will be computed
separately for Investor and Institutional Shares. Because of differences in the
fees and/or expenses borne by Institutional and Investor Shares, the net yield
and total return on each class can be expected, at any given time, to differ
from the net yield and total return of the other class.
- --------------------------------------------------------------------------------
WHAT ARE THE FUNDS?
- --------------------------------------------------------------------------------
Each Fund is one separate diversified investment fund of the Group, which was
organized on March 23, 1993, as an Ohio business trust. The Group is registered
and operates as an open-end management investment company as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The Cardinal Fund
was organized for the purposes of acquiring all of the assets and liabilities of
TCFI to effect a reorganization of TCFI from a stand alone investment company to
a separate series of the Group (the "Reorganization"). The Reorganization was
effected as of May 1, 1996.
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WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
- --------------------------------------------------------------------------------
IN GENERAL
The investment objectives of The Cardinal Fund are to achieve long-term growth
of capital and income. Current income is a secondary objective. The Cardinal
Fund seeks to achieve its objectives through selective participation in the
long-term progress of businesses and industries.
The investment objectives of the Balanced Fund are to seek current income and
long-term growth of both capital and income. The Balanced Fund intends to invest
based on combined considerations of risk, income and capital enhancement.
The investment objective of the Aggressive Growth Fund is to seek appreciation
of capital. The Aggressive Growth Fund will invest primarily in common stocks
and securities convertible into common stocks of growth oriented companies.
The investment objectives of each Fund are fundamental policies and as such may
not be changed without a vote of the holders of a majority of the outstanding
Shares of that Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?"). No Fund is intended to provide a complete and balanced
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investment program for an investor. There can be no assurance that the
investment objectives of any Fund will be achieved.
THE CARDINAL FUND
The policy of The Cardinal Fund is generally to invest in equity securities of
companies which, in the opinion of the Adviser, are growth oriented. The
securities purchased by The Cardinal Fund are traded in either established
over-the-counter markets or on national exchanges and are issued by companies
having a market capitalization of at least $10 million. This policy of normally
investing in equity securities believed to have a potential for long-term
capital appreciation means that the assets of The Cardinal Fund will generally
be subject to greater risk than may be involved in securities which do not have
such growth characteristics. It is recognized, however, that there may be times
when, as a temporary, defensive measure, The Cardinal Fund's equity position
should be reduced. At such times, and otherwise for cash management purposes,
The Cardinal 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 BALANCED FUND
Under normal market conditions the Fund will invest in common stocks, preferred
stocks, fixed income securities and securities convertible into common stocks
(i.e., warrants, rights, convertible preferred stock, fixed rate preferred stock
and convertible fixed-income securities). At least 25% of the value of the
Balanced Fund's assets will be invested in fixed income senior securities. For
purposes of compliance with such 25% limitation, only that portion of any
convertible senior security attributable to its fixed income characteristics
will be used. By investing primarily in common stocks the Balanced Fund will
pursue its objectives of long-term growth of both capital and income. However,
the Balanced Fund, through its fixed-income and convertible securities as well
as the dividend attributes of certain of its common and preferred stock holdings
will place considerable emphasis on generating current income.
The common and preferred stocks and securities convertible into common stocks
will be selected if the Adviser believes that such securities can contribute to
the Balanced Fund's objectives of providing current income and growth in income
and/or long-term growth of capital. The Balanced Fund will invest in the common
and preferred stocks and securities convertible into common stocks of domestic
issuers and foreign issuers (subject to the limitations described below), with
market capitalizations of not less than $10 million and which are traded either
in established over-the-counter markets or on national exchanges.
The Adviser will select convertible securities primarily upon its evaluation
that the underlying common stocks meet the criteria for selection of common
stocks as described above. The Balanced Fund may invest up to 10% of its net
assets in non-investment grade convertible debt securities rated no lower than
"B" by an appropriate nationally recognized statistical rating organization (an
"NRSRO") or in unrated securities which are deemed by the Adviser to be of
comparable quality. Non-investment grade securities are commonly referred to as
high yield or high risk securities. High yield, high risk securities are
generally riskier than higher quality securities and are subject to more credit
risk, including risk of default, and volatility than higher quality securities.
In addition, such securities have less liquidity and experience more price
fluctuation than higher quality securities.
Convertible debt securities which are rated "B" by Moody's Investor Services
("Moody's") generally lack characteristics of a desirable investment, since the
assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small. Debt rated "B" by
Standard & Poor's Corporation ("S&P") is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. In the event that a
convertible debt security's rating falls below a "B" by the appropriate NRSROs,
the Adviser will reevaluate the security in order to determine
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<PAGE> 15
whether to sell or convert, if possible, such security. In such an event,
however, the Balanced Fund would not be required to liquidate such security if
it would suffer a loss on the sale of such security.
The Balanced Fund's fixed income senior securities consist of bonds, debentures,
notes, zero-coupon securities, mortgage-related securities, obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, high quality commercial paper and
bankers' acceptances. The Balanced Fund may also invest in repurchase
agreements.
The Balanced Fund expects to invest in a variety of bills, notes and bonds
issued by the U.S. Treasury, differing in their interest rates, maturities, and
times of issuance, as well as "stripped" U.S. Treasury obligations such as
Treasury Receipts issued by the U.S. Treasury representing either future
interest or principal payments, and other obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities. Stripped securities
are issued at a discount to their "face value" and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. Certain of such U.S.
Government obligations may have variable or floating rates of interest, whose
value on the adjustment of its interest rate can reasonably be expected to
approximate its par value. However, in the event the interest rate of such
security is tied to an index or interest rate that may from time to time lag
behind other market interest rates, there is the risk that such security's
market value, upon adjustment of its interest rate, will not approximate its par
value. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks 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 Balanced Fund
will invest in the obligations of such agencies or instrumentalities only when
the Adviser believes that the credit risk with respect thereto is minimal.
The Balanced Fund also expects to invest in bonds, notes and debentures of U.S.
corporate issuers. Such obligations, in the case of debentures, will represent
unsecured promises to pay, in the case of notes and bonds, may be secured by
mortgages on real property or security interests in personal property and will
in most cases differ in their interest rates, maturities and times of issuance.
The Balanced Fund will invest only in corporate fixed income senior securities
which are rated at the time of purchase within the four highest rating groups
assigned by an appropriate NRSRO (which are considered to be investment grade)
or, if unrated, which the Adviser deems present attractive opportunities and are
of comparable quality. For a description of the rating symbols of the NRSROs,
see the Appendix to the Statement of Additional Information. For a discussion of
debt securities rated within the fourth highest rating group assigned by an
NRSRO, see "Risk Factors and Investment Techniques -- General" below.
Under normal market conditions, the Balanced Fund may hold up to 10% of the
value of its total assets in short-term obligations (with maturities of 12
months or less) consisting of domestic commercial paper, bankers' acceptances,
certificates of deposit and time deposits of U.S. banks and repurchase
agreements. The Balanced Fund may also invest in securities of other investment
companies, as further described below, and in income participation loans.
The Balanced Fund may invest in obligations of the Export-Import Bank of the
United States, in U.S. dollar denominated international securities for which the
primary trading market is in the United States ("Yankee Securities"), or for
which the primary trading market is abroad ("Eurodollar Securities"), and in
Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
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<PAGE> 16
The Balanced Fund may also invest in mortgage-related securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities or by
nongovernmental entities which are rated, at the time of purchase, within the
four highest bond rating categories assigned by an appropriate NRSRO, or, if
unrated, which the Adviser deems present attractive opportunities and are of
comparable quality. Under normal market conditions, the Balanced Fund's
investment in mortgage-related securities will not exceed 25% of the value of
its total assets. Such mortgage-related securities 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-
throughs 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 obligations are repaid. The opposite
is true for pass-throughs purchased at a discount. The Balanced Fund may
purchase mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
Also included among the mortgage-related securities that the Balanced Fund may
purchase are collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs"). CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association, and their income streams. Certain CMOs and REMICs are
issued by private issuers. Such securities may be eligible for purchase by the
Balanced Fund if (1) the issuer has obtained an exemptive order from the
Securities and Exchange Commission regarding purchases by investment companies
of equity interests of other investment companies or (2) such purchase is within
the limitations imposed by Section 12 of the 1940 Act.
The Balanced Fund may also invest in asset-backed securities such as
Certificates of Automobile Receivables ("CARS") and Certificates of Amortized
Revolving Debts ("CARDS"), each of which must be rated at the time of purchase
within the four highest rating groups assigned by Moody's or S&P. For a
description of the fourth highest rating group, see "Risk Factors and Investment
Techniques" below.
The amount invested in stocks, bonds and short-term obligations may be varied
from time to time, depending upon the Adviser's assessment of business, economic
and market conditions, including any potential advantage of price shifts between
the stock market and the bond market. The Balanced Fund reserves the right to
hold short-term securities in whatever proportion deemed desirable for temporary
defensive periods during adverse market conditions as determined by the Adviser.
However, to the extent that the Balanced Fund is so invested, its investment
objectives may not be achieved during that time.
THE AGGRESSIVE GROWTH FUND
In determining the securities to be purchased by the Aggressive Growth Fund,
emphasis will be placed on securities of companies which, in the opinion of the
Adviser, are growth oriented and exhibit the potential
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<PAGE> 17
for above-average growth in earnings. The securities to be purchased by the
Aggressive Growth Fund are traded either in established over-the-counter markets
or on national exchanges and are issued by companies having a market
capitalization of at least $10 million.
The Adviser will select convertible securities primarily upon its evaluation
that the underlying common stocks meet the criteria for selection of common
stocks as described above. The Aggressive Growth Fund may invest up to 10% of
its net assets in non-investment grade convertible debt securities rated no
lower than B by an appropriate nationally recognized statistical rating
organization (an "NRSRO") or in unrated securities which are deemed by the
Adviser to be of comparable quality. Non-investment grade securities are
commonly referred to as high yield or high risk securities. High yield, high
risk securities are generally riskier than higher quality securities and are
subject to more credit risk, including risk of default, and volatility than
higher quality securities. In addition, such securities may have less liquidity
and experience more price fluctuation than higher quality securities.
Convertible debt securities which are rated B by Moody's Investor Services
generally lack characteristics of a desirable investment, since the assurance of
interest and principal payments or maintenance of other terms of the contract
over any long period of time may be small. Debt rated B by Standard & Poor's
Corporation is regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. In the event that a convertible debt security's
rating falls below a "B" by the appropriate NRSROs, the Adviser will reevaluate
the security in order to determine whether to sell or convert, if possible, such
security. In such an event, however, the Aggressive Growth Fund would not be
required to liquidate such security if it would suffer a loss on the sale of
such security.
The Aggressive Growth Fund will, under normal market conditions, be invested
fully in common stocks and securities convertible into common stocks and may
engage in the investment techniques more fully described below. However, for
cash management purposes the Adviser may invest a portion of the Aggressive
Growth Fund's assets in short-term fixed income securities, consisting of
commercial paper, bankers' acceptances, certificates of deposit, obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, demand and time deposits of domestic banks, repurchase
agreements and securities of other investment companies, as described below.
During temporary defensive periods, as determined by the Adviser, the Aggressive
Growth Fund may hold up to 100% of its total assets in such short-term, fixed
income securities. However, to the extent that the Aggressive Growth Fund is so
invested, the Aggressive Growth Fund is not pursuing and may not achieve its
investment objective.
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in any of the Funds entails
certain risks. As funds investing primarily in common stocks, each Fund is
subject to stock market risk, i.e., the possibility that stock prices in general
will decline over short or even extended periods.
Since the Funds, to different degrees, also invest or may invest in bonds,
investors in a Fund, to the extent so invested, are also exposed to bond market
risk, i.e., fluctuations in the market value of bonds. Bond prices are
influenced primarily by changes in the level of interest rates. When interest
rates rise, the prices of bonds generally fall; conversely, when interest rates
fall, bond prices generally rise. While bonds normally fluctuate less in price
than stock, there have been in the recent past extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices.
Current income by its nature always contributes positively to total return.
Therefore, the current income expected to be generated from an investment in the
Balanced Fund will counterbalance to some degree the adverse price fluctuations
of the securities held by the Balanced Fund. The effective result should
therefore be lower total return volatility for the Balanced Fund than a fund
which does not provide such current income.
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The Aggressive Growth Fund is intended for investors who can accept the higher
risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Aggressive Growth Fund does not anticipate
any significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Aggressive Growth Fund. The securities of less
seasoned companies may have limited marketability and may be subject to more
abrupt or erratic market movements over time than securities of more seasoned
companies or the market as a whole.
The Balanced Fund may invest in certain variable or floating rate government
securities and, as described below, each Fund may invest in put and call options
and futures. 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. No Fund will not invest more than 10% of its total
assets in any such derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to repurchase
agreements. Under the terms of the repurchase agreement, a Fund would acquire
securities from a financial institution such as a well-established securities
dealer or a bank which is a member of the Federal Reserve System which the
Adviser deems creditworthy under guidelines approved by the Group's Board of
Trustees. At the time of purchase, the bank or securities dealer agrees to
repurchase the underlying securities from that Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. A 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 at all times be 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 such Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Balanced Fund may also
purchase securities on a when-issued or delayed-delivery basis. The Balanced
Fund will engage in when-issued and delayed-delivery transactions only for the
purpose of acquiring portfolio securities consistent with its investment
objectives and policies, not for investment leverage, although such transactions
represent a form of leveraging. When-issued securities are securities purchased
for delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. The Balanced Fund
will not pay for such securities or start earning interest on them until they
are received. When the Balanced 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 Balanced Fund relies on the seller to
complete the transaction; the seller's failure to do so may cause the Balanced
Fund to miss a price or yield considered to be advantageous.
The Balanced 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 Balanced Fund's liquidity and the ability of
the investment adviser to manage it might be adversely affected.
MEDIUM-GRADE SECURITIES. As described above, the Balanced Fund may invest in
debt securities within the fourth highest rating group assigned by an NRSRO,
(e.g. BBB or Baa by S&P and Moody's, respectively) and comparable unrated
securities. These types of debt securities are considered by Moody's to have
some speculative characteristics, and are more vulnerable to changes in economic
conditions, higher interest
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<PAGE> 19
rates or adverse issuer-specific developments which are more likely to lead to a
weaker capacity to make principal and interest payments than comparable higher
rated debt securities.
Should subsequent events cause the rating of a debt security purchased by the
Balanced Fund to fall below BBB or Baa, as the case may be, the Adviser will
consider such an event in determining whether the Balanced Fund should continue
to hold that security. In no event, however, would the Balanced Fund be required
to liquidate any such portfolio security where the Balanced Fund would suffer a
loss on the sale of such security.
FOREIGN SECURITIES. Each 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. A Fund will acquire securities issued
by foreign issuers only when the Adviser believes that the risks associated with
such investments are minimal.
RESTRICTED SECURITIES. Securities in which the Balanced Fund may invest include
securities issued by corporations without registration under the Securities Act
of 1933, as amended (the "1933 Act"), in reliance on the exemption from such
registration afforded by Section 3(a)(3) thereof, and securities issued in
reliance on the so-called "private placement" exemption from registration which
is afforded by Section 4(2) of the 1933 Act ("Section 4(2) securities"). Section
4(2) securities are restricted as to disposition under the Federal securities
laws, and generally are sold to institutional investors such as the Balanced
Fund who agree that they are purchasing the securities for investment and not
with a view to public distribution. Any resale must also generally be made in an
exempt transaction. Section 4(2) securities are normally resold to other
institutional investors through or with the assistance of the issuer or
investment dealers who make a market in such Section 4(2) securities, thus
providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group, the
Adviser may determine Section 4(2) securities to be liquid if such securities
are eligible for resale under Rule 144A under the 1933 Act and are readily
saleable. Rule 144A permits the Balanced Fund to purchase securities which have
been privately placed and resell such securities to certain qualified
institutional buyers, such as the Balanced Fund, without restriction. For
purposes of determining whether a Rule 144A security is readily saleable, and
therefore liquid, the Adviser must consider, among other things, the frequency
of trades and quotes for the security, the number of dealers willing to purchase
or sell the security and the number of potential purchasers, dealer undertakings
to make a market in the security, and the nature of the security and marketplace
trades of such security. However, investing in Rule 144A securities, even if
such securities are initially determined to be liquid, could have the effect of
increasing the level of the Balanced Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities.
PUT AND CALL OPTIONS. Subject to its investment policies and for purposes of
hedging against market risks related to its portfolio securities, each 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. A Fund will purchase put options
only on securities in which the Fund may otherwise invest. Each Fund may also
engage in writing call options from time to time as the Adviser deems
appropriate. Each Fund will write only covered call options (options on
securities
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owned by that Fund). In order to close out a call option it has written, a Fund
will enter into a "closing purchase transaction" -- the purchase of a call
option on the same security with the same exercise price and expiration date as
the call option which the Fund previously has written. When a portfolio security
subject to a call option is sold, such Fund will effect a closing purchase
transaction to close out any existing call option on that security. If the Fund
is unable to effect a closing purchase transaction, it will not be able to sell
the underlying security until the option expires or the Fund delivers the
underlying security upon exercise. Under normal market conditions, it is not
expected that the underlying value of portfolio securities subject to such
options would exceed 25% of the net assets of a Fund.
Each 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,
a Fund will write only covered index call options. Through the writing or
purchase of index options a 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 a Fund owns or intends to purchase probably
will not correlate perfectly with movements in the level of an index and,
therefore, a 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. A 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. Each 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.
Each 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, a Fund can seek through the
sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for such Fund than might later be available in the
market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of a 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 a Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain each 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 such Fund's ability to hedge effectively
against interest rate
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<PAGE> 21
and/or market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
INVESTMENT COMPANY SECURITIES. Each 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. Each Fund intends to invest in the
securities of other investment companies which, in the opinion of the Adviser,
will assist such Fund in achieving its objectives and in money market mutual
funds for purposes of short-term cash management. A Fund's investment in such
other investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on each Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Group's
Statement of Additional Information.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of that Fund (as defined
below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
Each Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or its agencies
or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of their parents; and
(c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements or dollar roll
agreements for temporary purposes in amounts up to 10% of the value of
its total assets at the time of such borrowing and except as permitted
pursuant to an exemption from the 1940 Act. The Fund will not purchase
securities while its borrowings (including reverse repurchase agreements
and dollar roll agreements) exceed 5% of its total assets.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment
objectives and policies, make time deposits with financial institutions
and enter into repurchase agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of a Fund.
Each Fund will not:
1. Purchase or otherwise acquire any securities, if as a result, more than
15% of the Fund's net assets would be invested in securities that are
illiquid.
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<PAGE> 22
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HOW DO I PURCHASE INVESTOR SHARES OF THE FUNDS?
- --------------------------------------------------------------------------------
GENERAL
Each Fund's Investor Shares may be purchased at the public offering price, as
described below under "Public Offering Price," through The Ohio Company,
principal underwriter of the Funds' Investor Shares, at its address and
telephone number set forth on the cover page of this Prospectus, and through
other broker-dealers who are members of the National Association of Securities
Dealers, Inc. and have sales agreements with The Ohio Company.
Subsequent purchases of Investor Shares of a Fund may be made by ACH processing
as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -- ACH
Processing" below. In addition, if an Account Information Form has previously
been received by The Ohio Company, Investor Shares may also be purchased by
wiring funds to the Funds' custodian. Prior to wiring any such funds and in
order to ensure that wire orders are invested properly, you must call The Ohio
Company to obtain the necessary instructions and information.
The minimum initial investment for individuals is $1,000, except the initial
investment for an applicant investing by means of the Automatic Investment Plan,
as described below, must be at least $50. Subsequent investments must be in
amounts of at least $50.
The Group reserves the right to reject any order for the purchase of Investor
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Investor
Shares owned by you and the number of Investor Shares being held in safekeeping
by Cardinal Management Corp., as the Funds' transfer agent (the "Transfer
Agent"), for your account. Certificates representing Investor Shares will not be
issued.
PUBLIC OFFERING PRICE
The public offering price of Investor Shares of each Fund is the net asset value
per share (see "HOW IS NET ASSET VALUE CALCULATED?") next determined after
receipt by The Ohio Company, its agents or broker-dealers with whom it has an
agreement, of an order and payment, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AS A OF OFFERING PRICE
PERCENTAGE ------------------------
AMOUNT OF OF THE NET SALES DEALER'S
SINGLE TRANSACTION AMOUNT INVESTED CHARGE CONCESSION
--------------------------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000................................. 4.71% 4.50% 4.00%
$100,000 but less than $250,000.................... 3.63 3.50 3.00
$250,000 but less than $500,000.................... 2.56 2.50 2.00
$500,000 but less than $1,000,000.................. 1.52 1.50 1.00
$1,000,000 or more................................. 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the computation
of net asset value per share.)
The above charges on investments of $100,000 or more are applicable to purchases
made at one time by an individual, or an individual, his spouse and their
children not of legal age, or a trustee, guardian or other like fiduciary of
certain single trust estates or certain single fiduciary accounts.
No sales charge is imposed on purchases of Shares by (1) officers, trustees, and
employees of the Group, or (2) full-time employees of The Ohio Company or the
Adviser who have been such for at least 90 days or by qualified retirement plans
for such persons. The Ohio Company may change or eliminate the
18
<PAGE> 23
foregoing waivers at any time. The Ohio Company may also periodically waive all
or a portion of the sales charge for all investors with respect to a Fund.
From time to time, The Ohio Company, from its own resources, may also provide
additional compensation to securities dealers in connection with sales of shares
of the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Cardinal
Funds and other dealer-sponsored programs or events. In some instances, this
compensation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of shares
of the Cardinal Funds. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Securities
dealers may not use sales of a Fund's Shares to qualify for this compensation to
the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. In addition, The Ohio Company may make ongoing payments to brokerage firms,
financial institutions (including banks) and others to facilitate the
administration and servicing of shareholder accounts. None of the aforementioned
additional compensation is paid for by any Fund or its shareholders.
AUTOMATIC INVESTMENT PLAN
The Funds have made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Investor Shares of the Fund
specified by you on the periodic basis you select. Confirmation of your purchase
of such Fund's Investor Shares will be provided by the Transfer Agent. The debit
of your checking account will be reflected in the checking account statement you
receive from your financial institution. Please contact The Ohio Company for the
appropriate form.
- --------------------------------------------------------------------------------
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
- --------------------------------------------------------------------------------
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to purchase
$100,000 or more of Investor Shares of a Fund and of Investor Shares of any
other Cardinal Fund sold with a sales charge (a "Cardinal Load Fund") during any
13-month period you may sign a letter of intention to that effect obtained from
The Ohio Company and pay the reduced sales charge applicable to the total amount
of Investor Shares to be so purchased. The 13-month period during which the
Letter of Intention is in effect will begin on the date of the earliest purchase
to be included. In addition, trustees, guardians or other like fiduciaries of
single trust estates or certain single fiduciary accounts may take advantage of
the quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase the full
amount indicated. Investor Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in your name) to secure
payment of the higher sales charge applicable to the Investor Shares actually
purchased. If the full amount indicated is not purchased, such escrowed Investor
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Investor Shares, whether paid in cash or
reinvested in additional Investor Shares of the applicable Cardinal Load Fund,
are not subject to escrow. The escrowed Investor Shares will not be available
for disposal by you until all purchases pursuant to the letter of intention have
been made or the higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released. To the extent that
you purchase more than the dollar amount indicated on the Letter of Intention
and qualify for a further reduced sales charge, the sales charge will be
adjusted for the entire amount purchased at the end of the 13-month period. The
difference in sales charge will be, as you instruct, either delivered to you in
cash or used to
19
<PAGE> 24
purchase additional Investor Shares of the Cardinal Load Fund designated by you
subject to the rate of sales charge applicable to the actual amount of the
aggregate purchases. This program, however, may be modified or eliminated at any
time or from time to time by the Group without notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the privilege of
combining "concurrent purchases" of Investor Shares of a Fund and of one or more
of the other Cardinal Load Funds. For example, if you concurrently purchase
Investor Shares of the Balanced Fund at the total public offering price of
$50,000 and Investor Shares of another Cardinal Load Fund at the total public
offering price of $50,000, the sales charge paid by you would be that applicable
to a $100,000 purchase as shown in the table above. "Concurrent purchases," as
described above, shall include the combined purchases of Investor Shares of you,
your spouse and your children not of legal age. To receive the applicable public
offering price pursuant to this privilege, you must, at the time of purchase,
give The Ohio Company sufficient information to permit confirmation of
qualification. This privilege, however, may be modified or eliminated at any
time or from time to time by the Group without notice thereof.
RIGHTS OF ACCUMULATION
After your initial purchase of Investor Shares you may also be eligible to pay a
reduced sales charge for your subsequent purchases of Investor Shares where the
total public offering price of Investor Shares then being purchased plus the
then aggregate current net asset value of Investor Shares of such Fund and of
Investor Shares of any Cardinal Load Fund held in your account equals $100,000
or more. You would be able to purchase Investor Shares at the public offering
price applicable to the total of (a) the total public offering price of the
Investor Shares of the Fund then being purchased plus (b) the then current net
asset value of Investor Shares of such Fund and of Investor Shares of any other
Cardinal Load Fund held in your account. For purposes of determining the
aggregate current net asset value of Investor Shares held in your account, you
may include Investor Shares then owned by your spouse and children not of legal
age.
You may obtain additional information about the foregoing special purchase
method from The Ohio Company. You are responsible for notifying The Ohio Company
at the time of purchase when purchases may be accumulated to take advantage of
the reduced sales charge. This program, however, may be modified or eliminated
at any time or from time to time by the Group without notice thereof.
- --------------------------------------------------------------------------------
WHAT DISTRIBUTIONS WILL I RECEIVE?
- --------------------------------------------------------------------------------
Dividends and distributions shall be made with such frequency (long term capital
gains normally will be distributed only once annually) and in such amounts as
the Group from time to time shall determine and shall be paid from net income
and net realized capital gains of the Funds. It is the policy of each Fund to
distribute, at least annually, substantially all of its net investment income
and to distribute annually any net realized capital gains. Unless a shareholder
specifically requests otherwise in writing to the Transfer Agent, dividends and
distributions will be made only in additional full and fractional Investor
Shares of a Fund and not in cash. Dividends are paid in cash not later than
seven days after a shareholder's complete redemption of his Investor Shares in a
Fund.
Each Fund's net investment income available for distribution to the holders of
Investor Shares will be reduced by the amount of Rule 12b-1 fees paid out under
the Plan described below.
Shareholders may also elect to receive dividends and distributions in cash by
using ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? -- ACH Processing" below.
20
<PAGE> 25
- --------------------------------------------------------------------------------
HOW MAY I REDEEM MY INVESTOR SHARES?
- --------------------------------------------------------------------------------
Investors may redeem Investor Shares of a Fund on any Business Day at the net
asset value per Investor Share next determined following receipt by the Transfer
Agent, 215 East Capital Street, Columbus, Ohio 43215, of written or telephonic
notice to redeem, as described more fully below. See "HOW IS NET ASSET VALUE
CALCULATED?", below, for a description of when net asset value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem to the Transfer Agent without charge. Other
broker-dealers may assist a shareholder in redeeming his Investor Shares and may
charge a fee for such services.
The Group will make payment for redeemed Investor Shares as promptly as
practicable but in no event more than seven days after receipt by the Transfer
Agent of the foregoing notice. The Group reserves the right to delay payment for
the redemption of Investor Shares where such Investor Shares were purchased with
other than immediately available funds, but only until the purchase payment has
cleared (which may take fifteen or more days from the date the purchase payment
is received by the applicable Fund). The purchase of Investor Shares by wire
transfer of federal funds would avoid any such delay.
The Group intends to pay cash for all Investor Shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Group may make
payment wholly or partly in readily marketable portfolio securities at their
then market value equal to the redemption price. In such cases, an investor may
incur brokerage costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment during any
period the determination of net asset value is suspended. See "HOW IS NET ASSET
VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the right to
redeem, at net asset value, involuntarily Shares in any account at the then
current net asset value if at any time redemptions (but not as a result of a
decrease in the market price of such Shares or the deduction of any sales
charge) have reduced a shareholder's total investment in a Fund to a net asset
value below $500. A shareholder will be notified in writing that the value of
Fund Shares in the account is less than $500 and allowed not less than 30 days
to increase his investment in such Fund to $500 before the redemption is
processed. Proceeds of redemptions so processed, including dividends declared to
the date of redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Investor Shares of a Fund by submitting a written
request therefor to the Transfer Agent, at 215 East Capital Street, Columbus,
Ohio 43215. The Transfer Agent will request a signature guarantee by an eligible
guarantor institution as described below. However, a signature guarantee will
not be required if (1) the redemption check is payable to the shareholder(s) of
record, and (2) the redemption check is mailed to the shareholder(s) at the
address of record, provided, however, that the address of record has not been
changed within the preceding 15 days. For purposes of this policy, an "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Exchange Act of 1934.
The Transfer Agent reserves the right to reject any signature guarantee if (1)
it has reason to believe that the signature is not genuine or (2) it has reason
to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Investor Shares of a Fund by calling the Group at the
telephone number set forth on the front of this Prospectus. The shareholder may
direct that the redemption proceeds be mailed to the address of record.
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<PAGE> 26
Neither the Group, the Funds nor their service providers will be liable for any
loss, damages, expense or cost arising out of any telephone redemption effected
in accordance with the Group's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Group will employ procedures
designed to provide reasonable assurances that instructions by telephone are
genuine; if these procedures are not followed, the Group, the Funds or their
service providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, shareholders may also redeem their
Investor Shares by mail as described above.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Investor Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? -- ACH Processing" below.
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Investor Shares of a Fund having a total value of
$10,000 or more at the current net asset value, you may elect to redeem your
Investor Shares monthly or quarterly in amounts of $50 or more, pursuant to the
Group's Systematic Withdrawal Plan. Please contact The Ohio Company for the
appropriate form.
- --------------------------------------------------------------------------------
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
- --------------------------------------------------------------------------------
ACH PROCESSING
The Group offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Investor Shares and/or electronically transfer
distributions paid on Investor Shares, in addition to the other methods
described in this Prospectus. ACH provides a method by which funds may be
automatically transferred to or from an authorized bank account at a Federal
Reserve member bank that is an ACH member. Please contact your representative if
you are interested in ACH processing.
EXCHANGE PRIVILEGE
Holders of Investor Shares of a Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized, exchange at respective net asset values,
Investor Shares of any Fund for Investor Shares of another Fund (upon the
payment of the appropriate sales charge) or for:
Investor Shares of
Cardinal Government Obligations Fund,
a fund investing in securities issued
or guaranteed by the U.S. Government
(upon the payment of the appropriate
sales charge);
Shares of Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund
(without payment of any sales charge); or
Shares of Cardinal Tax Exempt Money Market Fund,
a tax-free money market fund
(without payment of any sales charge).
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<PAGE> 27
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, (i) exchanges by holders of Investor Shares, for whom the
sales charge has been waived, for Investor Shares of a Cardinal Load Fund may be
completed without the payment of a sales charge, and (ii) exchanges of Investor
Shares by all other shareholders for Investor Shares of a Cardinal Load Fund may
be completed upon the payment of a sales charge equal to the difference, if any,
between the sales charge payable upon purchase of Investor Shares of such
Cardinal Load Fund and the sales charge previously paid on the Investor Shares
to be exchanged.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is requested
to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of a Fund by telephone. Neither the Group, the Funds nor
any of their service providers will be liable for any loss, damages, expense or
cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
However, a shareholder may not include any sales charge on Investor Shares of a
Fund for purposes of calculating the gain or loss realized upon an exchange of
those Investor Shares within 90 days of their purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Funds 60 days'
advance written notice of any such modification or termination.
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The net asset value of each Fund is determined once daily as of 4:00 P.M.
Eastern Time, on each Business Day. A "Business Day" is a day on which the New
York Stock Exchange is open for business and any other day (other than a day on
which no Shares of such Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which there is a sufficient
degree of trading in a Fund's portfolio securities that the net asset value
might be materially affected by changes in the value of the portfolio
securities. The net asset value per share of each class of shares of a Fund is
computed by dividing the sum of the value of that Fund's portfolio securities
plus any cash and other assets (including interest and dividends accrued but not
received) allocable to such class minus all liabilities (including estimated
accrued expenses) allocable to such class by the total number of Shares of that
class of such Fund then outstanding.
The net asset value per share will fluctuate as the value of the investment
portfolio of a Fund changes.
Portfolio securities which are traded on United States stock exchanges are
valued at the last sale price on such an exchange as of the time of valuation on
the day the securities are being valued. Securities traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as one or the other may be quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") as of
the time of valuation on the day the securities are being valued. The Group uses
one or more pricing services to provide such market quotations. Securities and
other assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees of the Group.
Determination of the net asset value may be suspended at times when (a) trading
on the New York Stock Exchange is restricted by applicable rules and regulations
of the Commission, (b) the New York Stock Exchange is closed for other than
customary weekend and holiday closings, (c) an emergency exists as a
23
<PAGE> 28
result of which disposal by the Group of portfolio securities owned by the Fund
or valuation of net assets of the Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
- --------------------------------------------------------------------------------
DO THE FUNDS PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
Each of the funds of the Group, including the Funds, is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Code for so long as such qualification is in the
best interest of that fund's shareholders. Qualification as a regulated
investment company under the Code requires, among other things, that the
regulated investment company distribute to its shareholders at least 90% of its
investment company taxable income. Each Fund contemplates declaring as dividends
100% of such Fund's investment company taxable income (before deduction of
dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year(regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. If distributions
during a calendar year were less than the required amount, the Fund would be
subject to a nondeductible excise tax equal to 4% of the deficiency.
- --------------------------------------------------------------------------------
WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
It is expected that each Fund will distribute annually to shareholders all or
substantially all of that Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends received deduction, if any, received by a
Fund bear to its gross income.
Distribution by a Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to shareholders as long-term capital gain in
the year in which it is received, regardless of how long the shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a Share is reduced below the shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
Foreign taxes may be imposed on a Fund by foreign countries with respect to its
income from foreign securities. Since less than 50% in value of each Fund's
total assets at the end of its fiscal year are expected to be invested in stock
or securities of foreign corporations, no Fund will be entitled under the Code
to pass through to its shareholders their pro rata share of the foreign taxes
paid by such Fund. These taxes will be taken as a deduction by that Fund.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Funds and their shareholders. Potential
investors in the Funds are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
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<PAGE> 29
The Transfer Agent will inform shareholders at least annually of the amount and
nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE FUNDS?
- --------------------------------------------------------------------------------
Except where shareholder action is required by law, all of the authority of the
Group is exercised under the direction of the Group's Trustees, who are elected
by the shareholders of the Group's funds and who are empowered to elect officers
and contract with and provide for the compensation of agents, consultants and
other professionals to assist and advise in its day-to-day operations. The Group
will be managed in accordance with its Declaration of Trust and the laws of Ohio
governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. However, no
officer or employee of the Adviser or The Ohio Company receives any compensation
from the Group for acting as a Trustee of the Group. The officers of the Group
receive no compensation directly from the Group for performing the duties of
their offices. The Adviser receives fees from the Group for acting as investment
adviser and manager and as dividend and transfer agent and for providing certain
fund accounting services. The Ohio Company receives no fees under its
Distribution Agreement with the Group but, with respect to Investor Shares only,
may retain all or a portion of the sales charge and receives fees under the
Distribution Plan discussed below.
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street, Columbus, Ohio
43215, a wholly owned subsidiary of The Ohio Company, is the investment adviser
and manager of each of the Funds. The Adviser is also the investment adviser and
manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York Stock 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. The Ohio Company serves as the principal underwriter for each of the
Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate authority of
the Group's Board of Trustees, the Adviser, in accordance with the Funds'
investment objectives and policies, manages each Fund, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. Since the Reorganization with respect to The Cardinal Fund and since
December 22, 1995, with respect to TCFI, The Cardinal Fund's predecessor, and
since August 1995 with respect to the Aggressive Growth Fund, John Bevilacqua
has been primarily responsible for the day-to-day management of the portfolio of
such Funds. 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. Since the Balanced Fund's inception,
Barry G. McMahon has been primarily responsible for the day-to-day management of
the Balanced Fund's portfolio. Mr. McMahon has been a portfolio manager with the
Adviser since 1992. Prior thereto, Mr. McMahon was a portfolio manager with
Columbus Mutual Life Insurance Company.
In addition, pursuant to the Investment Advisory Agreement, the Adviser
generally assists in all aspects of each Fund's administration and operation.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Group with respect to the Funds, the Adviser
receives a fee from the Funds, computed daily and paid monthly at the following
annual rates: with respect to The Cardinal Fund, 0.60% of such Fund's average
daily net assets; and with respect to both the Balanced Fund and the Aggressive
Growth Fund, 0.75% of such Funds' average daily net assets. While in the opinion
of the staff of the Commission such fees with respect to the Balanced Fund and
the Aggressive Growth Fund are higher than the advisory fee paid by
25
<PAGE> 30
most mutual funds, the Group's Board of Trustees believes them to be comparable
to advisory fees paid by many funds having similar objectives and policies.
The Adviser may periodically waive all or a portion of its advisory fee with
respect to a Fund to increase the net income of such Fund available for
distribution as dividends. The waiver of such fee will cause the return and/or
yield of such Fund to be higher than it would otherwise be in the absence of
such a waiver.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting Agreement with
Cardinal Management Corp. (the "Transfer Agent"), 215 East Capital Street,
Columbus, Ohio 43215, pursuant to which the Transfer Agent has agreed to act as
the Funds' transfer agent and dividend disbursing agent. In consideration of
such services, each Fund has agreed to pay the Transfer Agent an annual fee,
paid monthly, equal to $18 per shareholder account plus out-of-pocket expenses.
In addition, the Transfer Agent provides certain fund accounting services for
the Funds. The Transfer Agent receives a fee from each Fund for such services
equal to a fee computed daily and paid periodically at an annual rate of .03% of
that Fund's average daily net assets of up to $100 million and .01% of such
Fund's average daily net assets in excess of $100 million.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Funds
will be offered continuously on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. H. Keith Allen is an officer and trustee
of the Group and an officer and director of The Ohio Company. Frank W. Siegel is
an officer and trustee of the Group and an officer of The Ohio Company. James M.
Schrack II is an officer of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of its
services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Funds. The Trustees reserve the right to allocate certain
other expenses, which can reasonably be identified as relating to a particular
class, solely to such class, including Investor Shares, as they deem appropriate
("Class Expenses"). Such expenses include (a) transfer agency fees identified as
being attributable to a specific class; (b) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(c) Blue Sky registration fees incurred by a class of shares; (d) SEC
registration fees incurred by a class; (e) expenses of administrative personnel
and services as required to support the shareholders of a specific class; (f)
litigation or other legal expenses and audit or other accounting expenses
relating solely to one class; (g) trustees' fees or expenses incurred as a
result of issues relating to one class; and (h) shareholder meeting costs that
relate to a specific class.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a Distribution
and Shareholder Service Plan with respect to its Investor Shares (the "Plan"),
under which each Fund is authorized to pay The Ohio Company, as such Fund's
principal underwriter, a periodic amount calculated at an annual rate not to
exceed twenty-five one-hundredths of one percent (.25%) of the average daily net
asset value of the Investor Shares of that Fund. Such amount may be used by The
Ohio Company to pay broker-dealers (including The Ohio Company), banks and other
institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between The Ohio Company
and the Participating Organization or for distribution assistance and/or
shareholder service provided by The Ohio Company pursuant to an agreement
between The Ohio Company and the Group. Under the Plan, a Participating
Organization may include The Ohio Company, its subsidiaries, and its affiliates.
The Ohio
26
<PAGE> 31
Company may from time to time waive all or a portion of the fees payable to it
pursuant to the Plan. Any such waiver will cause the total return and yield of
the Investor Shares of a Fund to be higher than they would otherwise be absent
such a waiver.
As authorized by the Plan, The Ohio Company has entered into a Rule 12b-1
Agreement with the Group pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Investor Shares of the
Funds purchased and held by The Ohio Company for the accounts of its customers
and Investor Shares of the Funds purchased and held by customers of The Ohio
Company directly, including, but not limited to, answering shareholder questions
concerning the Funds, providing information to shareholders on their investments
in Investor Shares of a 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 Investor Shares held during the period in customer accounts for
which The Ohio Company has provided services under this Agreement. Such fees
paid by the Group will be borne solely by the Investor Shares of the applicable
Fund. Such fee may exceed the actual costs incurred by The Ohio Company in
providing such services.
In addition, The Ohio Company may enter into, from time to time, other Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Funds' 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 Funds.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
The Group was organized as an Ohio business trust on March 23, 1993. The Group
currently consists of six funds. The shares of each of the funds of the Group,
other than the two money market funds, Cardinal Government Securities Money
Market Fund ("CGSMMF") and Cardinal Tax Exempt Money Market Fund ("CTEMMF"), are
currently offered in two separate classes: Investor A Shares, otherwise referred
to as Investor Shares, and Investor Y Shares, otherwise referred to as
Institutional Shares. CGSMMF and CTEMMF each only have one class of shares. Each
share represents an equal proportional interest in a fund with other shares of
the same fund, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that fund as are declared at the
discretion of the Trustees.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by series except as otherwise expressly required
by law. For example, shareholders of The Cardinal 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 Cardinal 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 investment advisory agreement as it relates to The Cardinal Fund or any of
The Cardinal Fund's fundamental policies.
Overall responsibility for the management of the Funds is vested in the Board of
Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUNDS?" Individual
Trustees are elected by the shareholders of the Group and may be removed by the
Board of Trustees or shareholders in accordance with the provisions of the
Declaration of Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL
INFORMATION -- Miscellaneous" in the Statement of Additional Information for
further information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve the investment advisory agreement and to satisfy certain other
27
<PAGE> 32
requirements. To the extent that such a meeting is not required, the Group does
not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding shares" of a Fund means the affirmative
vote, at a meeting of shareholders duly called, of the lesser of (a) 67% or more
of the votes of shareholders of that Fund present at a meeting at which the
holders of more than 50% of the votes attributable to shareholders of record of
the Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the Transfer
Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or by calling
(800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Funds and annual financial reports audited by
independent auditors.
28
<PAGE> 33
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying
Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 34
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS HIGHLIGHTS....................... 2
FEE TABLE................................... 4
FINANCIAL HIGHLIGHTS........................ 5
PERFORMANCE INFORMATION..................... 8
WHAT ARE THE FUNDS?......................... 9
WHAT ARE THE INVESTMENT OBJECTIVES AND
POLICIES OF THE FUNDS?.................... 9
HOW DO I PURCHASE INVESTOR SHARES OF THE
FUNDS?.................................... 18
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?... 19
WHAT DISTRIBUTIONS WILL I RECEIVE?.......... 20
HOW MAY I REDEEM MY INVESTOR SHARES?........ 21
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?................................. 22
HOW IS NET ASSET VALUE CALCULATED?.......... 23
DO THE FUNDS PAY FEDERAL INCOME TAX?........ 24
WHAT ABOUT MY TAXES?........................ 24
WHO MANAGES MY INVESTMENT IN THE FUNDS?..... 25
WHAT ARE MY RIGHTS AS A SHAREHOLDER?........ 27
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS, THE ADVISER, OR THE OHIO COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUNDS OR BY THE OHIO COMPANY TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUNDS TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
================================================================================
================================================================================
----------------------
PROSPECTUS
----------------------
December 2, 1996
[THE OHIO COMPANY LOGO]
THE
CARDINAL
FUND
CARDINAL
BALANCED
FUND
CARDINAL
AGGRESSIVE
GROWTH FUND
INVESTOR SHARES
[LOGO]
================================================================================
<PAGE> 35
THE CARDINAL FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
Three Funds of
The Cardinal Group
INSTITUTIONAL SHARES
Cross Reference Sheet Required By
Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
---------------------------- ------------------------
<S> <C>
1.(a)(i) ............................. Cover Page
(ii) ............................. Cover Page
(iii) ............................. Cover Page
(iv) ............................. Cover Page
(v) ............................. Cover Page
(vi) ............................. *
(vii)............................. *
(b) ................................ *
2.(a)(i) ............................. "Fee Table"
(ii) ............................. *
(b) ................................ "Prospectus Highlights"
(c) ................................ "Prospectus Highlights"
3.(a) ................................ "Financial Highlights"
(b) ................................ *
(c) ................................ "Performance Information"
(d) ................................ "Performance Information"
4.(a)(i)(A) .......................... "What Are The Funds?"
(i)(B) .......................... "What Are The Funds?"
(ii) ............................. "What Are The Investment Objectives
And Policies Of The Funds?"
(ii)(A) .......................... *
(ii)(B)(1) ....................... "What Are The Investment Objectives
And Policies Of The Funds?"
(ii)(B)(2) ....................... *
(ii)(C) .......................... "What Are The Investment Objectives
And Policies Of The Funds?"
(ii)(D) .......................... "What Are The Investment Objectives
And Polices Of The Funds?"
(b)(i) ............................. "What Are The Investment Objectives
And Policies Of The Funds?"
(ii) ............................. "What Are The Investment Objectives
And Policies Of The Funds?"
(c) ................................ "What Are The Investment Objectives
and Policies Of The Funds?"
5.(a) ................................ "Who Manages My Investment In The
Funds?"
(b)(i) ............................. "Who Manages My Investment In The
Funds?"
(b)(ii) ............................ "Who Manages My Investment In The
Funds?"
</TABLE>
- --------------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- i -
<PAGE> 36
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
---------------------------- ------------------------
<S> <C>
(b)(iii) ........................... "Who Manages My Investment In The
Funds?"
(c) ................................ "Who Manages My Investment In The
Funds?"
(d) ................................ "Who Manages My Investment In The
Funds?"
(e) ................................ "Who Manages My Investment In The
Funds?"
(f) ................................ "Who Manages My Investment In The
Funds?"
(g)(i)(A) .......................... *
(g)(i)(B) .......................... *
(g)(i)(C) .......................... *
(g)(ii) ............................ *
5A.(a) ................................ *
(b) ................................ *
(c) ................................ *
6.(a) ................................ "What Are My Rights As A
Shareholder?"
(b) ................................ "What Are My Rights As A
Shareholder?"
(c) ................................ *
(d) ................................ "What Are My Rights As A
Shareholder?"
(e) ................................ "What Are My Rights As A
Shareholder?"; "Who Provides
Shareholder Reports?"
(f) ................................ "What Distributions Will I Receive?"
(g) ................................ "Do The Funds Pay Federal Income
Tax?"; "What About My Taxes?"
(h) ................................ Cover Page; "What Are My Rights As A
Shareholder?"
7.(a) ................................ "How Do I Purchase Institutional
Shares Of The Funds?"
(b) ................................ "How Do I Purchase Institutional
Shares Of The Funds?"; "How Is Net
Asset Value Calculated?"
(c) ................................ *
(d) ................................ "How Do I Purchase Institutional
Shares Of The Funds?"
(e) ................................ "Who Manages My Investment In The
Funds?"
(f) ................................ "Who Manages My Investment In The
Funds?"
8.(a) ................................ "How May I Redeem My Institutional
Shares?"
(b) ................................ "How May I Redeem My Institutional
Shares?"
(c) ................................ "How May I Redeem My Institutional
Shares?"
(d) ................................ "How May I Redeem My Institutional
Shares?"
9. .................................. *
</TABLE>
- --------------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- ii -
<PAGE> 37
PROSPECTUS
THE CARDINAL FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
INSTITUTIONAL SHARES
The Cardinal Fund, Cardinal Balanced Fund (the "Balanced Fund") and
Cardinal Aggressive Growth Fund (the "Aggressive Growth Fund") (together called
the "Funds" or individually a "Fund") are three separate diversified investment
funds of The Cardinal Group (the "Group"), an open-end, management investment
company. The Trustees of the Group have divided each Fund's beneficial ownership
into an unlimited number of transferable units called shares (the "Shares").
Each Fund offers multiple classes of Shares.
The Cardinal Fund seeks as its investment objectives long-term growth
of capital and income. Current income is a secondary objective. The Cardinal
Fund seeks to achieve its objectives through selective participation in the
long-term progress of businesses and industries. The policy of The Cardinal Fund
is generally to invest in equity securities.
The Balanced Fund seeks as its investment objectives current income and
long-term growth of both capital and income.
The Aggressive Growth Fund seeks as its investment objective
appreciation of capital. The Aggressive Growth Fund intends to invest primarily
in common stocks and securities convertible into common stocks.
There can be no assurance that any of the Funds' investment objectives
will be achieved.
THE SHARES OF THE FUNDS 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 A FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
For further information regarding the Funds or
for assistance in opening an account or redeeming
Shares, please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed
to the Group at its principal office:
155 East Broad Street
Columbus, Ohio 43215
<PAGE> 38
The Prospectus relates only to one class of Shares of The Cardinal
Fund, the Balanced Fund and the Aggressive Growth Fund -- Institutional Shares.
Institutional Shares of each Fund are offered to banks, broker-dealers, savings
and loan associations, trust companies (including The Ohio Company), qualified
investment advisers and certain other financial institutions acting in a
fiduciary capacity on behalf of their customers or beneficiaries. Each Fund also
offers Investor Shares to the public. Interested persons who wish to obtain
prospectuses of Cardinal Government Obligations Fund, Cardinal Government
Securities Money Market Fund or Cardinal Tax Exempt Money Market Fund, the other
funds of the Group, or of the Investor Shares of the Funds, should contact The
Ohio Company. Additional information about the Funds, contained in a Statement
Of Additional Information dated October 31, 1996, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. Such
Statement is available upon request without charge from the Group at the above
address or by calling the phone number provided above.
This Prospectus sets forth concisely the information about the Funds
that a prospective investor ought to know before investing in any of the Funds.
This Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION")
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE OHIO COMPANY
The date of this Prospectus is December 2, 1996.
- 2 -
<PAGE> 39
PROSPECTUS HIGHLIGHTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES............................. For the CARDINAL FUND, long-term
growth of capital and income.
Current income is a secondary
objective. (See page __.)
For the BALANCED FUND, current
income and long-term growth of
both capital and income. (See
page __.)
For the AGGRESSIVE GROWTH FUND,
appreciation of capital. (See
page --.)
INVESTMENT POLICIES............................... The CARDINAL FUND generally
invests in equity securities
which are growth oriented. (See
pages __ and --.)
Under normal market conditions,
the BALANCED FUND will invest in
common stocks, preferred stocks,
fixed income securities and
securities convertible into
common stocks. At least 25% of
the value of the Balanced Fund's
assets will be invested in fixed
income senior securities. (See
pages __ through --.)
The AGGRESSIVE GROWTH FUND will
invest primarily in common stocks
and securities convertible into
common stocks of growth-oriented
companies. (See pages ___ and
___.)
DIVIDENDS......................................... Dividends and capital gains
distributions are made with such
frequency as the Group shall deter-
mine. Generally, dividends are
declared quarterly and long-term
capital gains, if any, are declared
annually. Such dividends and
distributions may be invested in
additional Shares of such Fund at no
charge. (See page __.)
RISK FACTORS AND SPECIAL
</TABLE>
- 3 -
<PAGE> 40
<TABLE>
<S> <C>
CONSIDERATIONS................................. An investment in a mutual fund
such as any of the Funds involves
a certain amount of risk and may
not be suitable for all
investors. Some investment
policies of the Funds may entail
certain risks. (See "WHAT ARE THE
INVESTMENT OBJECTIVES AND
POLICIES OF THE FUNDS? -- Risk
Factors and Investment
Techniques" on pages ___ through
___.)
PURCHASES......................................... Purchases are made at the public
offering price which is equal to
net asset value per share. (See
page --.)
REDEMPTIONS....................................... Shares can be redeemed at net
asset value per share without
charge, if redeemed through the
Funds' distributor, The Ohio
Company. (See page __.)
INVESTMENT ADVISER AND
MANAGER........................................ Cardinal Management Corp. (the
"Adviser"), a wholly-owned subsi-
diary of The Ohio Company, is the
Funds' investment adviser. The
Adviser also serves as investment
adviser for Cardinal Government
Obligations Fund, Cardinal
Government Securities Money
Market Fund and Cardinal Tax
Exempt Money Market Fund
(collectively, with the Funds,
the "Cardinal Funds"). (See page
__.)
</TABLE>
- 4 -
<PAGE> 41
FEE TABLE
<TABLE>
<CAPTION>
Institutional Shares of
The Aggressive
Cardinal Balanced Growth
Fund Fund Fund
-------- -------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed
on Purchases (as a
percentage of offering
price) 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets
Management Fees .60% .75% .75%
12b-1 Fees None None None
Administrative Services Fees .25 .25 .25
Other Expenses .21 .88 1.21
---- ---- ----
Total Fund Operating
Expenses 1.06% 1.88% 2.21%
==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Cardinal Fund $11 $34 $ 58 $129
Balanced Fund $19 $59 $102 $220
Aggressive Growth Fund $22 $69 $118 $254
</TABLE>
The information set forth in the foregoing Fee Table and Example
relates only to Institutional Shares of the Funds. Each of the Funds also offers
another class of Shares known as Investor Shares. The two classes of Shares of
the Funds are subject to the same expenses except that the Investor Shares are
not subject to an administrative services fee but are subject to a Rule 12b-1
fee and are sold with a front-end sales charge.
The purpose of the above table is to assist a potential purchaser of a
Fund's Shares in understanding the various costs and expenses that an investor
in the Fund will bear directly or
- 5 -
<PAGE> 42
indirectly. See "WHO MANAGES MY INVESTMENT IN THE FUNDS?" for a more complete
discussion of the shareholder transaction expenses and annual operating expenses
of the Funds. The example and expenses above reflect current fees. THE FOREGOING
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights with respect to each of the ten
fiscal years ended September 30, 1995 through 1986, with respect to The Cardinal
Fund, and the two fiscal years ended September 30, 1995 and 1994, and the period
from June 24, 1993, through September 30, 1993, with respect to the Balanced
Fund and the Aggressive Growth Fund, have been audited by KPMG Peat Marwick LLP,
independent auditors, whose reports thereon, together with certain financial
statements, are contained in the Funds' Statement of Additional Information and
may be obtained by shareholders and prospective investors.
The financial information for the period ended March 31, 1996, has not
been audited.
The following Financial Highlights for the Cardinal Fund reflect the
operations of The Cardinal Fund Inc. ("TCFI"), the Cardinal Fund's predecessor.
On May 1, 1996, The Cardinal Fund acquired all of the assets and liabilities of
TCFI and is deemed to have succeeded to the financial and performance history of
TCFI.
Effective October 31, 1996, the Board of Trustees of the Group
reclassified each Fund's outstanding Shares into Investor Shares. The financial
information provided below and in the Statement of Additional Information is for
periods prior to such reclassification.
- 6 -
<PAGE> 43
Financial Highlights for Each Share of Beneficial Interest
Outstanding Throughout Each Period
THE CARDINAL FUND
<TABLE>
<CAPTION>
Six Months
Ended March Years Ended September 30,
31, 1996
Unaudited 1995 1994 1993 1992 1991
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88 $ 9.28
Income from investment
operations:
Net investment income .14 .36 .31 .32 .35 .35
Net gains or losses
on securities
(both realized
and unrealized) 1.26 1.32 .12 .55 1.37 2.70
-------- -------- -------- -------- -------- --------
Total from investment
operations 1.40 1.68 .43 .87 1.72 3.05
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net
investment income) (.15) (.35) (.33) (.29) (.36) (.38)
Distributions (from
capital gains) (1.08) (.83) (.28) (.62) (.29) (.07)
Returns of Capital -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions (1.23) (1.18) (.61) (.91) (.65) (.45)
-------- -------- -------- -------- -------- --------
Net asset value, End
of period $ 13.40 $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88
======== ======== ======== ======== ======== ========
Total Return** 11.07% 14.84% 3.38% 6.98% 15.05% 33.54%
Ratios/Supplemental Data:
Net assets, End of
period (000) omitted $233,895 $226,181 $246,581 $282,125 $261,392 $221,428
Ratio of expenses to
average net assets 0.69%+ 0.70% 0.72% 0.68% 0.67% 0.67%
Ratio of net investment
income to average
net assets 2.08%+ 2.89% 2.40% 2.46% 2.83% 3.15%
Portfolio Turnover Rate 28.74%+ 19.78% 23.20% 11.11% 6.22% 33.27%
</TABLE>
- 7 -
<PAGE> 44
<TABLE>
<CAPTION>
Years Ended September 30,
1990 1989 1988 1987 1986
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 11.75 $ 10.38 $ 11.73 $ 10.35 $ 8.55
Income from investment
operations:
Net investment income .42 .41 .37 .33 .22
Net gains or losses
on securities
(both realized
and unrealized) (1.87) 1.73 (.82) 2.05 2.37
-------- -------- -------- -------- --------
Total from investment
operations (1.45) 2.14 (.45) 2.38 2.59
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net
investment income) (.53) (.39) (.47) (.28) (.23)
Distributions (from
capital gains) (.49) (.38) (.43) (.72) (.56)
Returns of Capital -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (1.02) (.77) (.90) (1.00) (.79)
-------- -------- -------- -------- --------
Net asset value, End
of period $ 9.28 $ 11.75 $ 10.38 $ 11.73 $ 10.35
======== ======== ======== ======== ========
Total Return** (13.42)% 22.04% (3.46)% 25.00% 32.56%
Ratios/Supplemental Data:
Net assets, End of
period (000) omitted $168,184 $174,156 $130,978 $136,619 $ 84,972
Ratio of expenses to
average net assets 0.74% 0.70% 0.73% 0.75% 0.89%
Ratio of net investment
income to average
net assets 3.98% 3.93% 3.77% 3.32% 3.12%
Portfolio Turnover Rate 27.10% 23.20% 12.3 % 13.2 % 10.3 %
</TABLE>
* The Information included in the Financial Highlights for the Cardinal
Fund has been restated to reflect a three-for-two stock split made on
January 11, 1990.
** The total return figure does not reflect the imposition of the
maximum front-end sales load.
+ Annualized.
- 8 -
<PAGE> 45
THE BALANCED FUND
<TABLE>
<CAPTION>
Years Ended
Six Months September 30, Period from June 24, 1993
Ended March 31, (date of commencement of
1996 operations) through
(Unaudited) 1995 1994 September 30, 1993*
--------------- ---- ---- --------------------------
<S> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 11.52 $ 9.90 $ 10.13 $ 10.00
Income from investment
operations:
Net investment income 0.20 0.34 0.23 0.02
Net gains or losses
on securities
(both realized
and unrealized) 0.48 1.67 (0.20) 0.12
------- ------- ------- -------
Total from investment
operations 0.68 2.01 0.03 0.14
------- ------- ------- -------
Less Distributions:
Dividends (from net
investment income) (0.21) (0.35) (0.23) (0.01)
Distributions (from
capital gains) (0.39) (0.04) (0.03) --
Returns of capital -- -- -- --
------- ------- ------- -------
Total Distributions (0.60) (0.39) (0.26) (0.01)
------- ------- ------- -------
Net asset value, End
of period $ 11.60 $ 11.52 $ 9.90 $ 10.13
======= ======= ======= =======
Ratios/Supplemental Data:
Total Return**** 6.02%*** 20.76% 0.37% 1.40%**
Net assets, End of
period (000) omitted $14,681 $14,535 $13,973 $10,811
Ratio of expenses to
average net assets 1.63%***+ 1.94%*** 2.07% 0.70%
Ratio of net investment
income to average
net assets 3.50%***+ 3.24%*** 2.44% 0.35%
Portfolio Turnover Rate 10.61%+ 37.62% 59.09% 60.67%
</TABLE>
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate
total return is calculated similarly to average annual total return
except that the return figure is aggregated over the relevant period
instead of annualized.
*** Effective September 15, 1995, The Ohio Company began waiving
payments under the Distribution and Shareholder Service Plan. Had the
payments been charged, (1) the total return, ratio of expenses to
average net assets and ratio of net investment income to average net
assets for the six months ended March 31, 1996 would have been 5.90%,
1.78% and 3.38%, respectively, and (2) the 1995 total return, ratio of
expenses to average net assets, and ratio of net investment income to
average net assets would have been 20.75%, 1.95%, and 3.23%,
respectively.
**** The total return figure does not reflect the imposition of the
maximum front-end sales load.
+ Annualized.
- 9 -
<PAGE> 46
THE AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
Six Months Years Ended Period from June 24, 1993
Ended March 31, September 30, (date of commencement of
1996 operations) through
(Unaudited) 1995 1994 September 30, 1993*
--------------- ---- ---- -------------------------
<S> <C> <C> <C> <C>
Income from investment
operations:
Net investment loss (0.09) (0.10) (0.13) (0.03)
Net gains or losses
on securities
(both realized
and unrealized) (0.10) 2.53 (0.36) 0.50
------ ------- ------ ------
Total from investment
operations (0.20) 2.43 (0.49) 0.47
------ ------- ------ ------
Less Distributions:
Dividends (from net
investment income) -- -- -- --
Distributions (from
capital gains) (0.90) -- (0.04) --
Returns of capital -- -- -- --
------ ------- ------ ------
Total Distributions (0.90) 0.00 (0.04) 0.00
------ ------- ------ ------
Net asset value, End
of period $11.27 $12.37 $9.94 $10.47
====== ======= ====== ======
Ratios/Supplemental Data:
Total Return**** (1.48%)*** 24.35% (4.74%) 4.70%**
Net assets, End of
period (000) omitted $9,834 $10,434 $9,460 $6,320
Ratio of expenses to
average net assets 1.96%***+ 2.24%*** 2.51% 0.91%
Ratio of net investment
loss to average
net assets (1.41%)***+ (0.92%)*** (1.50%) (0.53%)
Portfolio Turnover Rate 17.13%+ 80.35% 95.70% 31.15%
</TABLE>
* Commencement of operations.
** This total return figure reflects aggregate total return. Aggregate
total return is calculated similarly to average annual total return
except that the return figure is aggregated over the relevant period
instead of annualized.
*** Effective September 15, 1995, The Ohio Company began waiving
payments under the Distribution and Shareholder Service Plan. Had the
payments been charged, (1) the total return, ratio of expenses to
average net assets and ratio of net investment income to average net
assets for the six months ended March 31, 1996, would have been
(1.61%), 2.09% and (1.54%), respectively, and (2) the 1995 total
return, ratio
- 10 -
<PAGE> 47
of expenses to average net assets, and ratio of net investment loss to
average net assets would have been 24.34%, 2.25%, and (0.93%),
respectively.
**** The total return figure does not reflect the imposition of the
maximum front-end sales load.
+ Annualized.
See notes to financial statements appearing in the Funds' Statement of
Additional Information.
PERFORMANCE INFORMATION
From time to time each Fund may advertise its average annual total
return, cumulative total return and/or yield. SUCH TOTAL RETURN FIGURES AND
YIELD FIGURES ARE BASED UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The average annual total return advertised by a
Fund refers to the return generated by an investment in a class of Shares of
that Fund over certain specified periods since the establishment of such Fund.
The average annual total return over a period equates the amount of an initial
investment in the Fund to the amount redeemable at the end of that period
assuming that any dividends and distributions earned by an investment in the
Fund are immediately reinvested and the maximum applicable sales charge (if any)
is deducted from the initial investment at the time of investment. Such figure
is then annualized. The cumulative total return advertised refers to the total
return on a hypothetical investment over the relevant period and equates the
amount of an initial investment in the Fund to the amount redeemable at the end
of that period assuming that any dividends and distributions are immediately
reinvested and the maximum sales charge, if any, is deducted from the initial
investment. Yield will be computed by dividing a Fund's net investment income
per share earned during a recent one-month period by such Fund's per share
maximum offering price (reduced by any undeclared earned income expected to be
paid shortly as a dividend) on the last day of the period and annualizing the
result. If the sales charge, if any, were not deducted, the average annual total
return, cumulative total return and yield advertised would be higher.
In addition, from time to time the Balanced Fund may include in its
sales literature and shareholder reports a quote of the current "distribution"
rate for such Fund. A distribution rate is simply a measure of the level of
dividends distributed for a specified period and is computed by dividing the
total amount of dividends per share paid by the Balanced Fund during the past 12
months by a current maximum offering price. It differs from yield, which is a
measure of the income actually earned by the Balanced Fund's investments, and
from total return, which is a measure of the income actually earned by, plus the
effect of any realized and unrealized appreciation or depreciation of, such
investments during a stated period. A distribution rate is, therefore, not
intended to be a complete measure of performance. A distribution rate may
- 11 -
<PAGE> 48
sometimes be greater than yield since, for instance, it may include short-term
and possibly long-term gains (which may be non-recurring), may not include the
effect of amortization of bond premiums and does not reflect unrealized gains or
losses.
Investors may also judge the performance of any class of Shares of a
Fund by comparing or referencing its performance to the performance of other
mutual funds or mutual fund portfolios with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Corporation, and to data prepared by
Lipper Analytical Services, Inc., Morningstar, Inc. and CDA Investment
Technologies, Inc. Comparisons may also be made to indices or data published in
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
The Columbus Dispatch, Business Week, U.S.A. Today and Consumer Reports. In
addition to performance information, general information about a Fund that
appears in a publication such as those mentioned above may be included in
advertisements and in reports to shareholders.
Further information about the performance of each class of Shares of a
Fund is contained in that Fund's Annual Report to Shareholders which may be
obtained without charge by contacting the Group at the telephone number set
forth on the cover page of this Prospectus. Performance quotations will be
computed separately for Investor and Institutional Shares. Because of
differences in the fees and/or expenses borne by Investor and Institutional
Shares, the net yield and total return on each such class can be expected, at
any given time, to differ from the net yield and total return of such other
class.
WHAT ARE THE FUNDS?
Each Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Cardinal
Fund was organized for the purposes of acquiring all of the assets and
liabilities of TCFI to effect a reorganization of TCFI from a stand alone
investment company to a separate series of the Group (the "Reorganization"). The
Reorganization was effected as of May 1, 1996.
- 12 -
<PAGE> 49
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUNDS?
IN GENERAL
The investment objectives of the Cardinal Fund are to achieve long-term
growth of capital and income. Current income is a secondary objective. The
Cardinal Fund seeks to achieve its objectives through selective participation in
the long-term progress of businesses and industries.
The investment objectives of the Balanced Fund are to seek current
income and long-term growth of both capital and income. The Balanced Fund
intends to invest based on combined considerations of risk, income and capital
enhancement.
The investment objective of the Aggressive Growth Fund is to seek
appreciation of capital. The Aggressive Growth Fund will invest primarily in
common stocks and securities convertible into common stocks of growth oriented
companies.
The investment objectives of each Fund are fundamental policies and as
such may not be changed without a vote of the holders of a majority of the
outstanding Shares of that Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?"). No Fund is intended to provide a complete and balanced
investment program for an investor. There can be no assurance that the
investment objectives of any Fund will be achieved.
THE CARDINAL FUND
The policy of the Cardinal Fund is generally to invest in equity
securities of companies which, in the opinion of the Adviser, are growth
oriented. The securities purchased by the Cardinal Fund are traded in either
established over-the-counter markets or on national exchanges and are issued by
companies having a market capitalization of at least $10 million. This policy of
normally investing in equity securities believed to have a potential for
long-term capital appreciation means that the assets of the Cardinal Fund will
generally be subject to greater risk than may be involved in securities which do
not have such growth characteristics. It is recognized, however, that there may
be times when, as a temporary, defensive measure, the Cardinal Fund's equity
position should be reduced. At such times, and otherwise for cash management
purposes, the Cardinal 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 BALANCED FUND
Under normal market conditions the Fund will invest in common stocks,
preferred stocks, fixed income securities and securities
- 13 -
<PAGE> 50
convertible into common stocks (i.e., warrants, rights, convertible preferred
stock, fixed rate preferred stock and convertible fixed-income securities). At
least 25% of the value of the Balanced Fund's assets will be invested in fixed
income senior securities. For purposes of compliance with such 25% limitation,
only that portion of any convertible senior security attributable to its fixed
income characteristics will be used. By investing primarily in common stocks the
Balanced Fund will pursue its objectives of long-term growth of both capital and
income. However, the Balanced Fund, through its fixed-income and convertible
securities as well as the dividend attributes of certain of its common and
preferred stock holdings will place considerable emphasis on generating current
income.
The common and preferred stocks and securities convertible into common
stocks will be selected if the Adviser believes that such securities can
contribute to the Balanced Fund's objectives of providing current income and
growth in income and/or long-term growth of capital. The Balanced Fund will
invest in the common and preferred stocks and securities convertible into common
stocks of domestic issuers and foreign issuers (subject to the limitations
described below), with market capitalizations of not less than $10 million and
which are traded either in established over-the-counter markets or on national
exchanges.
The Adviser will select convertible securities primarily upon its
evaluation that the underlying common stocks meet the criteria for selection of
common stocks as described above. The Balanced Fund may invest up to 10% of its
net assets in non-investment grade convertible debt securities rated no lower
than B by an appropriate nationally recognized statistical rating organization
(an "NRSRO") or in unrated securities which are deemed by the Adviser to be of
comparable quality. Non-investment grade securities are commonly referred to as
high yield or high risk securities. High yield, high risk securities are
generally riskier than higher quality securities and are subject to more credit
risk, including risk of default, and volatility than higher quality securities.
In addition, such securities have less liquidity and experience more price
fluctuation than higher quality securities.
Convertible debt securities which are rated B by Moody's Investor
Services ("Moody's") generally lack characteristics of a desirable investment,
since the assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small. Debt rated B by
Standard & Poor's Corporation ("S&P") is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. In the event that a
convertible debt security's rating falls below a "B" by the appropriate NRSROs,
the Adviser will reevaluate the security in
- 14 -
<PAGE> 51
order to determine whether to sell or convert, if possible, such security. In
such an event, however, the Balanced Fund would not be required to liquidate
such security if it would suffer a loss on the sale of such security.
The Balanced Fund's fixed income senior securities consist of bonds,
debentures, notes, zero-coupon securities, mortgage-related securities,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, high quality
commercial paper and bankers' acceptances. The Balanced Fund may also invest in
repurchase agreements.
The Balanced Fund expects to invest in a variety of bills, notes and
bonds issued by the U.S. Treasury, differing in their interest rates,
maturities, and times of issuance, as well as "stripped" U.S. Treasury
obligations such as Treasury Receipts issued by the U.S. Treasury representing
either future interest or principal payments, and other obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. Stripped
securities are issued at a discount to their "face value" and may exhibit
greater price volatility than ordinary debt securities because of the manner in
which their principal and interest are returned to investors. Certain of such
U.S. Government obligations may have variable or floating rates of interest,
whose value on the adjustment of its interest rate can reasonably be expected to
approximate its par value. However, in the event the interest rate of such
security is tied to an index or interest rate that may from time to time lag
behind other market interest rates, there is the risk that such security's
market value, upon adjustment of its interest rate, will not approximate its par
value. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the Export-
Import Bank of the United States, are supported by the full faith and credit of
the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Student Loan Marketing Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks 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 Balanced Fund
will invest in the obligations of such agencies or instrumentalities only when
the Adviser believes that the credit risk with respect thereto is minimal.
The Balanced Fund also expects to invest in bonds, notes and debentures
of U.S. corporate issuers. Such obligations, in the case of debentures, will
represent unsecured promises to pay, in the case of notes and bonds, may be
secured by mortgages on real property or security interests in personal property
and will in
- 15 -
<PAGE> 52
most cases differ in their interest rates, maturities and times of
issuance.
The Balanced Fund will invest only in corporate fixed income senior
securities which are rated at the time of purchase within the four highest
rating groups assigned by an appropriate NRSRO (which are considered to be
investment grade) or, if unrated, which the Adviser deems present attractive
opportunities and are of comparable quality. For a description of the rating
symbols of the NRSROs, see the Appendix to the Statement of Additional
Information. For a discussion of debt securities rated within the fourth highest
rating group assigned by an NRSRO, see "Risk Factors and Investment Techniques
- -- General" below.
Under normal market conditions, the Balanced Fund may hold up to 10% of
the value of its total assets in short-term obligations (with maturities of 12
months or less) consisting of domestic commercial paper, bankers' acceptances,
certificates of deposit and time deposits of U.S. banks and repurchase
agreements. The Balanced Fund may also invest in securities of other investment
companies, as further described below, and in income participation loans.
The Balanced Fund may invest in obligations of the Export-Import Bank
of the United States, in U.S. dollar denominated international securities for
which the primary trading market is in the United States ("Yankee Securities"),
or for which the primary trading market is abroad ("Eurodollar Securities"), and
in Canadian Bonds and bonds issued by institutions organized for a specific
purpose, such as the World Bank and the European Economic Community, by two or
more sovereign governments ("Supranational Agency Bonds").
The Balanced Fund may also invest in mortgage-related securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or by
nongovernmental entities which are rated, at the time of purchase, within the
four highest bond rating categories assigned by an appropriate NRSRO, or, if
unrated, which the Adviser deems present attractive opportunities and are of
comparable quality. Under normal market conditions, the Balanced Fund's
investment in mortgage-related securities will not exceed 25% of the value of
its total assets. Such mortgage-related securities 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
- 16 -
<PAGE> 53
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-throughs 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
obligations are repaid. The opposite is true for pass-throughs purchased at a
discount. The Balanced Fund may purchase mortgage-related securities at a
premium or a discount. Reinvestment of principal payments may occur at higher or
lower rates than the original yield on such securities. Due to the prepayment
feature and the need to reinvest payments and prepayments of principal at
current rates, mortgage-related securities can be less effective than typical
bonds of similar maturities at maintaining yields during periods of declining
interest rates.
Also included among the mortgage-related securities that the Balanced
Fund may purchase are collateralized mortgage obligations ("CMOs") and real
estate mortgage investment conduits ("REMICs"). CMOs may be collateralized by
whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation or the Federal National
Mortgage Association, and their income streams. Certain CMOs and REMICs are
issued by private issuers. Such securities may be eligible for purchase by the
Balanced Fund if (1) the issuer has obtained an exemptive order from the
Securities and Exchange Commission regarding purchases by investment companies
of equity interests of other investment companies or (2) such purchase is within
the limitations imposed by Section 12 of the 1940 Act.
The Balanced Fund may also invest in asset-backed securities such as
Certificates of Automobile Receivables ("CARS") and Certificates of Amortized
Revolving Debts ("CARDS"), each of which must be rated at the time of purchase
within the four highest rating groups assigned by Moody's or S&P. For a
description of the fourth highest rating group, see "Risk Factors and Investment
Techniques" below.
The amount invested in stocks, bonds and short-term obligations may be
varied from time to time, depending upon the Adviser's assessment of business,
economic and market conditions, including any potential advantage of price
shifts between the stock market and the bond market. The Balanced Fund reserves
the right
- 17 -
<PAGE> 54
to hold short-term securities in whatever proportion deemed desirable for
temporary defensive periods during adverse market conditions as determined by
the Adviser. However, to the extent that the Balanced Fund is so invested, its
investment objectives may not be achieved during that time.
THE AGGRESSIVE GROWTH FUND
In determining the securities to be purchased by the Aggressive Growth
Fund, emphasis will be placed on securities of companies which, in the opinion
of the Adviser, are growth oriented and exhibit the potential for above-average
growth in earnings. The securities to be purchased by the Aggressive Growth Fund
are traded either in established over-the-counter markets or on national
exchanges and are issued by companies having a market capitalization of at least
$10 million.
The Adviser will select convertible securities primarily upon its
evaluation that the underlying common stocks meet the criteria for selection of
common stocks as described above. The Aggressive Growth Fund may invest up to
10% of its net assets in non-investment grade convertible debt securities rated
no lower than B by an appropriate nationally recognized statistical rating
organization (an "NRSRO") or in unrated securities which are deemed by the
Adviser to be of comparable quality. Non-investment grade securities are
commonly referred to as high yield or high risk securities. High yield, high
risk securities are generally riskier than higher quality securities and are
subject to more credit risk, including risk of default, and volatility than
higher quality securities. In addition, such securities may have less liquidity
and experience more price fluctuation than higher quality securities.
Convertible debt securities which are rated B by Moody's Investor
Services generally lack characteristics of a desirable investment, since the
assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small. Debt rated B by Standard
& Poor's Corporation is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. In the event that a convertible debt
security's rating falls below a "B" by the appropriate NRSROs, the Adviser will
reevaluate the security in order to determine whether to sell or convert, if
possible, such security. In such an event, however, the Aggressive Growth Fund
would not be required to liquidate such security if it would suffer a loss on
the sale of such security.
The Aggressive Growth Fund will, under normal market conditions, be
invested fully in common stocks and securities
- 18 -
<PAGE> 55
convertible into common stocks and may engage in the investment techniques more
fully described below. However, for cash management purposes the Adviser may
invest a portion of the Aggressive Growth Fund's assets in short-term fixed
income securities, consisting of commercial paper, bankers' acceptances,
certificates of deposit, obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, demand and time deposits of domestic
banks, repurchase agreements and securities of other investment companies, as
described below. During temporary defensive periods, as determined by the
Adviser, the Aggressive Growth Fund may hold up to 100% of its total assets in
such short-term, fixed income securities. However, to the extent that the
Aggressive Growth Fund is so invested, the Aggressive Growth Fund is not
pursuing and may not achieve its investment objective.
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in any of the Funds
entails certain risks. As funds investing primarily in common stocks, each Fund
is subject to stock market risk, i.e., the possibility that stock prices in
general will decline over short or even extended periods.
Since the Funds, to different degrees, also invest or may invest in
bonds, investors in a Fund, to the extent so invested, are also exposed to bond
market risk, i.e., fluctuations in the market value of bonds. Bond prices are
influenced primarily by changes in the level of interest rates. When interest
rates rise, the prices of bonds generally fall; conversely, when interest rates
fall, bond prices generally rise. While bonds normally fluctuate less in price
than stock, there have been in the recent past extended periods of cyclical
increases in interest rates that have caused significant declines in bond
prices.
Current income by its nature always contributes positively to total
return. Therefore, the current income expected to be generated from an
investment in the Balanced Fund will counterbalance to some degree the adverse
price fluctuations of the securities held by the Balanced Fund. The effective
result should therefore be lower total return volatility for the Balanced Fund
than a fund which does not provide such current income.
The Aggressive Growth Fund is intended for investors who can accept the
higher risks involved in seeking potentially higher capital appreciation through
investments in growth oriented companies. A growth oriented company typically
invests most of its net income in its enterprise and does not pay out much, if
any, in dividends. Accordingly, the Aggressive Growth Fund does not anticipate
any significant distributions to shareholders from net investment income, and
potential investors should be in a financial position to forego current income
from their investment in the Aggressive Growth Fund. The securities of less
seasoned companies
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may have limited marketability and may be subject to more abrupt or erratic
market movements over time than securities of more seasoned companies or the
market as a whole.
The Balanced Fund may invest in certain variable or floating rate
government securities and, as described below, each Fund may invest in put and
call options and futures. 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. No Fund will not invest more than 10% of its
total assets in any such derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, a Fund would
acquire securities from a financial institution such as a well-established
securities dealer or a bank which is a member of the Federal Reserve System
which the Adviser deems creditworthy under guidelines approved by the Group's
Board of Trustees. At the time of purchase, the bank or securities dealer agrees
to repurchase the underlying securities from that Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. A 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 at all times be 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 such Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Balanced Fund may
also purchase securities on a when-issued or delayed-delivery basis. The
Balanced Fund will engage in when-issued and delayed-delivery transactions only
for the purpose of acquiring portfolio securities consistent with its investment
objectives and policies, not for investment leverage, although such transactions
represent a form of leveraging. When-issued securities are securities purchased
for delivery beyond the normal settlement date at a stated price and yield and
thereby involve a risk that the yield obtained in the transaction will be less
than those available in the market when delivery takes place. The Balanced Fund
will not pay for such securities or start earning interest on them until they
are received. When the Balanced 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-
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delivery transactions, the Balanced Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause the Balanced Fund to miss a
price or yield considered to be advantageous.
The Balanced 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 Balanced Fund's liquidity and
the ability of the investment adviser to manage it might be adversely affected.
MEDIUM-GRADE SECURITIES. As described above, the Balanced Fund may
invest in debt securities within the fourth highest rating group assigned by an
NRSRO, (e.g. BBB or Baa by S&P and Moody's, respectively) and comparable unrated
securities. These types of debt securities are considered by Moody's to have
some speculative characteristics, and are more vulnerable to changes in economic
conditions, higher interest rates or adverse issuer-specific developments which
are more likely to lead to a weaker capacity to make principal and interest
payments than comparable higher rated debt securities.
Should subsequent events cause the rating of a debt security purchased
by the Balanced Fund to fall below BBB or Baa, as the case may be, the Adviser
will consider such an event in determining whether the Balanced Fund should
continue to hold that security. In no event, however, would the Balanced Fund be
required to liquidate any such portfolio security where the Balanced Fund would
suffer a loss on the sale of such security.
FOREIGN SECURITIES. Each 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
record-keeping 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. A Fund will acquire securities issued
by foreign issuers only when
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<PAGE> 58
the Adviser believes that the risks associated with such investments are
minimal.
RESTRICTED SECURITIES. Securities in which the Balanced Fund may invest
include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), in reliance on the
exemption from such registration afforded by Section 3(a)(3) thereof, and
securities issued in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) securities"). Section 4(2) securities are restricted as to disposition
under the Federal securities laws, and generally are sold to institutional
investors such as the Balanced Fund who agree that they are purchasing the
securities for investment and not with a view to public distribution. Any resale
must also generally be made in an exempt transaction. Section 4(2) securities
are normally resold to other institutional investors through or with the
assistance of the issuer or investment dealers who make a market in such Section
4(2) securities, thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Group,
the Adviser may determine Section 4(2) securities to be liquid if such
securities are eligible for resale under Rule 144A under the 1933 Act and are
readily saleable. Rule 144A permits the Balanced Fund to purchase securities
which have been privately placed and resell such securities to certain qualified
institutional buyers, such as the Balanced Fund, without restriction. For
purposes of determining whether a Rule 144A security is readily saleable, and
therefore liquid, the Adviser must consider, among other things, the frequency
of trades and quotes for the security, the number of dealers willing to purchase
or sell the security and the number of potential purchasers, dealer undertakings
to make a market in the security, and the nature of the security and marketplace
trades of such security. However, investing in Rule 144A securities, even if
such securities are initially determined to be liquid, could have the effect of
increasing the level of the Balanced Fund's illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities.
PUT AND CALL OPTIONS. Subject to its investment policies and for
purposes of hedging against market risks related to its portfolio securities,
each 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. A Fund will purchase
put options only on securities in which the Fund may otherwise invest. Each Fund
may also engage in writing call options from time to time as the Adviser deems
appropriate. Each Fund will write only covered call options (options on
securities owned by that Fund). In order to close out a call option it has
written, a Fund will enter into a "closing purchase transaction" --
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<PAGE> 59
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option which the Fund previously has written.
When a portfolio security subject to a call option is sold, such Fund will
effect a closing purchase transaction to close out any existing call option on
that security. If the Fund is unable to effect a closing purchase transaction,
it will not be able to sell the underlying security until the option expires or
the Fund delivers the underlying security upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio securities
subject to such options would exceed 25% of the net assets of a Fund.
Each 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, a Fund will write only covered index call options. Through the
writing or purchase of index options a 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 a Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, a 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. A 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. Each 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.
Each 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, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio
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<PAGE> 60
securities. When interest rates are expected to fall or market values are
expected to rise, a Fund, through the purchase of such contracts, can attempt to
secure better rates or prices for such Fund than might later be available in the
market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of a 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
a Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each 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 such Fund's ability to
hedge effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
INVESTMENT COMPANY SECURITIES. Each 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. Each Fund intends to
invest in the securities of other investment companies which, in the opinion of
the Adviser, will assist such Fund in achieving its objectives and in money
market mutual funds for purposes of short-term cash management. A Fund's
investment in such other investment companies may result in the duplication of
fees and expenses, particularly investment advisory fees. For a further
discussion of the limitations on each Fund's investments in other investment
companies, see "INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on
Portfolio Instruments -- Securities of Other Investment Companies" in the
Group's Statement of Additional Information.
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<PAGE> 61
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
Each Fund will not:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer, or the Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such limitations.
There is no limit to the percentage of assets that may be invested in
U.S. Treasury bills, notes, or other obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that: (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
or dollar roll agreements for temporary purposes in amounts up to 10%
of the value of its total assets at the time of such borrowing and
except as permitted pursuant to an exemption from the 1940 Act. The
Fund will not purchase securities while its borrowings (including
reverse repurchase agreements and dollar roll agreements) exceed 5% of
its total assets.
4. Make loans, except that the Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its
investment objectives and policies, make time deposits with financial
institutions and enter into repurchase agreements.
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<PAGE> 62
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of a Fund.
Each Fund will not:
1. Purchase or otherwise acquire any securities, if as a
result, more than 15% of the Fund's net assets would be invested in
securities that are illiquid.
HOW DO I PURCHASE INSTITUTIONAL SHARES OF THE FUNDS?
GENERAL
Each Fund's Institutional Shares are continuously offered and may be
purchased through procedures established by The Ohio Company, principal
underwriter of the Funds' Shares, in connection with accounts for which banks,
broker-dealers, savings and loan associations, trust companies (including The
Ohio Company), qualified investment advisers and certain other financial
institutions serve in a fiduciary capacity on behalf of customers or
beneficiaries (collectively, "Financial Institutions"). Normally, Financial
Institutions will hold Institutional Shares of record for their customers or
beneficiaries. With respect to Institutional Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
to The Ohio Company and to deliver funds for the purchase thereof on a timely
basis. Beneficial ownership of Institutional Shares of the Funds may be recorded
by the Financial Institutions and reflected in the account statements provided
to their customers.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part. The applicable Financial Institution
will receive a confirmation of each new transaction in its account. Certificates
representing Shares will not be issued.
Institutional Shares are purchased at the net asset value per share
(see "HOW IS NET ASSET VALUE CALCULATED?") next determined after receipt by The
Ohio Company or its agents of an order and payment. There is no sales charge
imposed in connection with the purchase of Institutional Shares of any Fund.
Depending upon the terms of a particular account, a Financial Institution may
charge customer account fees for services provided in connection with an
investment in a Fund. Information concerning these services and any charges may
be obtained from such Financial Institution. This Prospectus should be read in
conjunction with any such information so received.
From time to time, The Ohio Company, from its own resources, may
provide compensation to securities dealers in connection with sales of shares of
the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection
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<PAGE> 63
with conferences, sales or training programs for their employees, seminars for
the public, advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Cardinal Funds and other dealer-sponsored
programs or events. In some instances, this compensation may be made available
only to certain securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Cardinal Funds.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Securities dealers may not
use sales of a Fund's Shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. In addition, The Ohio
Company may make ongoing payments to brokerage firms, financial institutions
(including banks) and others to facilitate the administration and servicing of
shareholder accounts. None of the aforementioned additional compensation is paid
for by any Fund or its shareholders.
WHAT DISTRIBUTIONS WILL I RECEIVE?
Dividends and distributions shall be made with such frequency (long
term capital gains normally will be distributed only once annually) and in such
amounts as the Group from time to time shall determine and shall be paid from
net income and net realized capital gains of the Funds. It is the policy of each
Fund to distribute, at least annually, substantially all of its net investment
income and to distribute annually any net realized capital gains. Unless a
shareholder specifically requests otherwise in writing to the Transfer Agent,
dividends and distributions will be made only in additional full and fractional
Institutional Shares of a Fund and not in cash. Dividends are paid in cash not
later than seven days after a shareholder's complete redemption of his
Institutional Shares in a Fund.
Each Fund's net investment income available for distribution to the
holders of Institutional Shares will be reduced by the amount of administrative
services fees paid under the Services Plan described below.
HOW MAY I REDEEM MY INSTITUTIONAL SHARES?
Investors may redeem Institutional Shares of a Fund on any Business Day
at the net asset value per Institutional Share next determined following receipt
by the Transfer Agent, 215 East Capital Street, Columbus, Ohio 43215, of written
or telephonic notice to redeem, as described more fully below. See "HOW IS NET
ASSET VALUE CALCULATED?", below, for a description of when net asset value is
determined.
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<PAGE> 64
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his Institutional
Shares and may charge a fee for such services.
The Group will make payment for redeemed Institutional Shares as
promptly as practicable but in no event more than seven days after receipt by
the Transfer Agent of the foregoing notice. The Group reserves the right to
delay payment for the redemption of Institutional Shares where such
Institutional Shares were purchased with other than immediately available funds,
but only until the purchase payment has cleared (which may take fifteen or more
days from the date the purchase payment is received by the applicable Fund). The
purchase of Institutional Shares by wire transfer of federal funds would avoid
any such delay.
The Group intends to pay cash for all Institutional Shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Group may
make payment wholly or partly in readily marketable portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment
during any period the determination of net asset value is suspended. See "HOW IS
NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem, at net asset value, involuntarily Shares in any account at the
then current net asset value if at any time redemptions (but not as a result of
a decrease in the market price of such Shares or the deduction of any sales
charge) have reduced a shareholder's total investment in a Fund to a net asset
value below $500. A shareholder will be notified in writing that the value of
Fund Shares in the account is less than $500 and allowed not less than 30 days
to increase his investment in such Fund to $500 before the redemption is
processed. Proceeds of redemptions so processed, including dividends declared to
the date of redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Institutional Shares of a Fund by submitting a
written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however, that the address of
record has not been changed within the preceding 15 days. For purposes of this
policy, an "eligible
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<PAGE> 65
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Exchange Act of 1934.
The Transfer Agent reserves the right to reject any signature guarantee if (1)
it has reason to believe that the signature is not genuine or (2) it has reason
to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Institutional Shares of a Fund by calling the
Group at the telephone number set forth on the front of this Prospectus. The
shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Funds nor their service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Group's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Group will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Group, the
Funds or their service providers may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures may include recording
all phone conversations, sending confirmations to shareholders within 72 hours
of the telephone transaction, and verification of account name and account
number or tax identification number. If, due to temporary adverse conditions,
investors are unable to effect telephone transactions, shareholders may also
redeem their Institutional Shares by mail as described above.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Group offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Institutional Shares and/or electronically
transfer distributions paid on Institutional Shares, in addition to the other
methods described in this Prospectus. ACH provides a method by which funds may
be automatically transferred to or from an authorized bank account at a Federal
Reserve member bank that is an ACH member. Please contact your representative if
you are interested in ACH processing.
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<PAGE> 66
EXCHANGE PRIVILEGE
Holders of Institutional Shares of a Fund may, provided the amount to
be exchanged meets the applicable minimum investment requirements and the
exchange is made in states where it is legally authorized, exchange, at
respective net asset values, Institutional Shares of any Fund for Institutional
Shares of another Fund or for:
Institutional Shares of Cardinal
Government Obligations Fund, a fund
investing in securities issued or
guaranteed by the U.S. Government;
Shares of Cardinal Government Securities
Money Market Fund, a U.S. Government securities
money market fund; or
Shares of Cardinal Tax Exempt Money Market Fund, a tax-free money
market fund.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is requested
to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of a Fund by telephone. Neither the Group, the Funds nor
any of their service providers will be liable for any loss, damages, expense or
cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
In the event the status of a shareholder or the capacity in which a
shareholder holds his Institutional Shares changes such that he is no longer
eligible to purchase or hold Institutional Shares of a Fund, then such
Institutional Shares will be automatically exchanged for Investor Shares of such
Fund at respective net asset values.
For tax purposes, an exchange is treated as a redemption and a new
purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Funds 60 days'
advance written notice of any such modification or termination.
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HOW IS NET ASSET VALUE CALCULATED?
The net asset value of each Fund is determined once daily as of 4:00
P.M. Eastern Time, on each Business Day. A "Business Day" is a day on which the
New York Stock Exchange is open for business and any other day (other than a day
on which no Shares of such Fund are tendered for redemption and no order to
purchase any Shares of that Fund is received) during which there is a sufficient
degree of trading in a Fund's portfolio securities that the net asset value
might be materially affected by changes in the value of the portfolio
securities. The net asset value per share of each class of a Fund is computed by
dividing the sum of the value of that Fund's portfolio securities plus any cash
and other assets (including interest and dividends accrued but not received)
allocable to such class minus all liabilities (including estimated accrued
expenses) allocable to such class by the total number of Shares of that class of
such Fund then outstanding.
The net asset value per share will fluctuate as the value of the
investment portfolio of a Fund changes.
Portfolio securities which are traded on United States stock exchanges
are valued at the last sale price on such an exchange as of the time of
valuation on the day the securities are being valued. Securities traded in the
over-the-counter market are valued at either the mean between the bid and ask
prices or the last sale price as one or the other may be quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") as of
the time of valuation on the day the securities are being valued. The Group uses
one or more pricing services to provide such market quotations. Securities and
other assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Trustees of the Group.
Determination of the net asset value may be suspended at times when (a)
trading on the New York Stock Exchange is restricted by applicable rules and
regulations of the Commission, (b) the New York Stock Exchange is closed for
other than customary weekend and holiday closings, (c) an emergency exists as a
result of which disposal by the Group of portfolio securities owned by the Fund
or valuation of net assets of the Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
DO THE FUNDS PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Funds, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Code for so long as such qualification
is in the best interest of that fund's shareholders. Qualification as a
regulated investment company under the Code requires, among other things, that
the
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regulated investment company distribute to its shareholders at least 90% of its
investment company taxable income. Each Fund contemplates declaring as dividends
100% of such Fund's investment company taxable income (before deduction of
dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
WHAT ABOUT MY TAXES?
It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash. The
dividends-received deduction for corporations will apply to the aggregate of
such ordinary income distributions in the same proportion as the aggregate
dividends eligible for the dividends received deduction, if any, received by a
Fund bear to its gross income.
Distribution by a Fund of the excess of net long-term capital gain over
net short-term capital loss is taxable to shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a Share is reduced below the shareholder's
cost of that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
- 32 -
<PAGE> 69
Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
each Fund's total assets at the end of its fiscal year are expected to be
invested in stock or securities of foreign corporations, no Fund will be
entitled under the Code to pass through to its shareholders their pro rata share
of the foreign taxes paid by such Fund. These taxes will be taken as a deduction
by that Fund.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Funds and their
shareholders. Potential investors in the Funds are urged to consult their tax
advisers concerning the application of federal, state and local taxes as such
laws and regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
WHO MANAGES MY INVESTMENT IN THE FUNDS?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's Trustees,
who are elected by the shareholders of the Group's funds and who are empowered
to elect officers and contract with and provide for the compensation of agents,
consultants and other professionals to assist and advise in its day-to-day
operations. The Group will be managed in accordance with its Declaration of
Trust and the laws of Ohio governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting as
investment adviser and manager and as dividend and transfer agent and for
providing certain fund accounting services. The Ohio Company receives no fees
under its Distribution Agreement with the Group with respect to Institutional
Shares of the Funds, but may receive fees under the Administrative Services Plan
discussed below.
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of each of the Funds. The Adviser is also the
investment adviser and manager of each of the other Cardinal Funds.
- 33 -
<PAGE> 70
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock 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. The Ohio Company serves as the principal underwriter for
each of the Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Funds' investment objectives and policies, manages each Fund, and makes
decisions with respect to and places orders for all purchases and sales of its
portfolio securities. Since the Reorganization with respect to the Cardinal Fund
and since December 22, 1995, with respect to TCFI, the Cardinal Fund's
predecessor, and since August 1995 with respect to the Aggressive Growth Fund,
John Bevilacqua has been primarily responsible for the day-to-day management of
the portfolio of such Funds. 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. Since the
Balanced Fund's inception, Barry G. McMahon has been primarily responsible for
the day-to-day management of the Balanced Fund's portfolio. Mr. McMahon has been
a portfolio manager with the Adviser since 1992. Prior thereto, Mr. McMahon was
a portfolio manager with Columbus Mutual Life Insurance Company.
In addition, pursuant to the Investment Advisory Agreement, the Adviser
generally assists in all aspects of each Fund's administration and operation.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Group with respect to the Funds, the
Adviser receives a fee from the Funds, computed daily and paid monthly at the
following annual rates: with respect to the Cardinal Fund, 0.60% of such Fund's
average daily net assets; and with respect to both the Balanced Fund and the
Aggressive Growth Fund, 0.75% of such Funds' average daily net assets. While in
the opinion of the staff of the Commission such fees with respect to the
Balanced Fund and the Aggressive Growth Fund are higher than the advisory fee
paid by most mutual funds, the Group's Board of Trustees believes them to be
comparable to advisory fees paid by many funds having similar objectives and
policies.
The Adviser may periodically waive all or a portion of its advisory fee
with respect to a Fund to increase the net income of such Fund available for
distribution as dividends. The waiver of such fee will cause the return and/or
yield of such Fund to be higher than it would otherwise be in the absence of
such a waiver.
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<PAGE> 71
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement with Cardinal Management Corp. (the "Transfer Agent"), 215 East
Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer Agent has
agreed to act as the Funds' transfer agent and dividend disbursing agent. In
consideration of such services, each Fund has agreed to pay the Transfer Agent
an annual fee, paid monthly, equal to $18 per shareholder account plus
out-of-pocket expenses. In addition, the Transfer Agent provides certain fund
accounting services for the Funds. The Transfer Agent receives a fee from each
Fund for such services equal to a fee computed daily and paid periodically at an
annual rate of .03% of that Fund's average daily net assets of up to $100
million and .01% of such Fund's average daily net assets in excess of $100
million.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Funds will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an officer
and trustee of the Group and an officer and director of The Ohio Company. Frank
W. Siegel is an officer and trustee of the Group and an officer of The Ohio
Company. James M. Schrack II is an officer of both the Group and The Ohio
Company. The Ohio Company receives no compensation under the Distributor's
Contract with respect to distribution of the Institutional Shares of the Funds.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Funds. The Trustees reserve the right to allocate certain
other expenses, which can reasonably be identified as relating to a particular
class, solely to such class, including Institutional Shares, as they deem
appropriate ("Class Expenses"). Such expenses include (a) transfer agency fees
identified as being attributable to a specific class; (b) printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxy statements to current shareholders of a specific
class; (c) Blue Sky registration fees incurred by a class of shares; (d) SEC
registration fees incurred by a class; (e) expenses of administrative personnel
and services as required to support the shareholders of a specific class; (f)
litigation or other legal expenses and audit or other accounting expenses
relating solely to one class; (g) trustees' fees or expenses incurred as a
result of issues relating to one class; and (h) shareholder meeting costs that
relate to a specific class.
- 35 -
<PAGE> 72
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan with respect to
each Fund's Institutional Shares (the "Services Plan") pursuant to which each
Fund is authorized to pay compensation to Financial Institutions, which may
include The Ohio Company, which agree to provide certain ministerial, record
keeping and/or administrative support services for their customers, account
holders or beneficiaries (collectively, "customers") who are the beneficial or
record owner of Institutional Shares of a Fund. In consideration for such
services, a Financial Institution receives a fee from such Fund, computed daily
and paid monthly, at an annual rate of up to .25% of the average daily net asset
value of Institutional Shares of that Fund owned beneficially or of record by
such Financial Institution's customers for whom the Financial Institution
provides such services.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Financial Institutions receiving such
compensation to perform certain ministerial, record keeping and/or
administrative support services with respect to the beneficial or record owners
of Institutional Shares of the Funds, such as processing dividend and
distribution payments from the Fund on behalf of customers, providing periodic
statements to customers showing their positions in the Institutional Shares of
that Fund, providing sub-accounting with respect to Institutional Shares
beneficially owned by such customers and providing customers with a service that
invests the assets of their accounts in Institutional Shares of a Fund pursuant
to specific or pre-authorized instructions.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with The Ohio Company pursuant to which The Ohio Company has
agreed to provide certain administrative support services in connection with
Institutional Shares of the Funds owned of record or beneficially by its
customers for whom The Ohio Company provides fiduciary or trust services. Such
administrative support services may include, but are not limited to, (i)
processing dividend and distribution payments from the Fund on behalf of
customers; (ii) providing periodic statements to its customers showing their
positions in the Institutional Shares; (iii) arranging for bank wires; (iv)
responding to routine customer inquiries relating to services performed by The
Ohio Company; (v) providing sub-accounting with respect to the Institutional
Shares beneficially owned by The Ohio Company's customers or the information
necessary for sub-accounting; (vi) if required by law, forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
its customers; (vii) aggregating and processing purchase, exchange, and
redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the
- 36 -
<PAGE> 73
Institutional Shares pursuant to specific or pre-authorized instructions. In
consideration of such services, the Group, on behalf of each Fund, has agreed to
pay The Ohio Company a monthly fee, computed at the annual rate of twenty-five
one-hundredths of one percent (.25%) of the average aggregate net asset value of
Institutional Shares of that Fund held during the period by customers for whom
The Ohio Company has provided services under the Servicing Agreement. Any fees
paid by a Fund to Financial Institutions under the Services Plan will be borne
solely by the Institutional Shares of that Fund.
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Funds' 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 Funds.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23, 1993.
The Group currently consists of six funds. The shares of each of the funds of
the Group, other than the two money market funds, Cardinal Government Securities
Money Market Fund ("CGSMMF") and Cardinal Tax Exempt Money Market Fund
("CTEMMF"), are currently offered in two separate classes: Investor A Shares,
otherwise referred to as Investor Shares, and Investor Y Shares, otherwise
referred to as Institutional Shares. CGSMMF and CTEMMF each only have one class
of shares. Each share represents an equal proportional interest in a fund with
other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that fund as
are declared at the discretion of the Trustees.
Shareholders are entitled to one vote for each dollar of value invested
and a proportionate fractional vote for any fraction of a dollar invested, and
will vote in the aggregate and not by series except as otherwise expressly
required by law. For example, shareholders of The Cardinal 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 Cardinal 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 investment advisory agreement as it relates to The Cardinal Fund or any of
The Cardinal Fund's fundamental policies.
Overall responsibility for the management of the Funds is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUNDS?"
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of
- 37 -
<PAGE> 74
Trustees or shareholders in accordance with the provisions of the Declaration of
Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL INFORMATION -
Miscellaneous" in the Statement of Additional Information for further
information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group does not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call
a special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. Determinations by the Board of Trustees of
the Group as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
a Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding shares" of a Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser of
(a) 67% or more of the votes of shareholders of that Fund present at a meeting
at which the holders of more than 50% of the votes attributable to shareholders
of record of the Fund are represented in person or by proxy, or (b) the holders
of more than 50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the
Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or
by calling (800) 282-9446.
- 38 -
<PAGE> 75
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Funds and annual financial reports audited by
independent auditors.
- 39 -
<PAGE> 76
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
- 40 -
<PAGE> 77
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS HIGHLIGHTS........................................................................................... 3
FEE TABLE....................................................................................................... 5
FINANCIAL HIGHLIGHTS............................................................................................ 6
PERFORMANCE INFORMATION......................................................................................... 11
WHAT ARE THE FUNDS?............................................................................................. 12
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUNDS?............................................................................. 13
HOW DO I PURCHASE INSTITUTIONAL
SHARES OF THE FUNDS?................................................................................... 26
WHAT DISTRIBUTIONS WILL I RECEIVE?.............................................................................. 27
HOW MAY I REDEEM MY INSTITUTIONAL
SHARES?................................................................................................ 27
WHAT OTHER SHAREHOLDER PROGRAMS
ARE PROVIDED?.......................................................................................... 29
HOW IS NET ASSET VALUE CALCULATED?.............................................................................. 31
DO THE FUNDS PAY FEDERAL INCOME TAX?............................................................................ 31
WHAT ABOUT MY TAXES?............................................................................................ 32
WHO MANAGES MY INVESTMENT
IN THE FUNDS?.......................................................................................... 33
WHAT ARE MY RIGHTS AS A SHAREHOLDER?............................................................................ 37
</TABLE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Funds, the Adviser, or The Ohio Company. This
Prospectus does not constitute an offer by the Funds or by The Ohio Company to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful for the Funds to make
such an offer in such jurisdiction.
PROSPECTUS
December 2, 1996
THE OHIO COMPANY
THE CARDINAL FUND
CARDINAL
BALANCED FUND
CARDINAL AGGRESSIVE
GROWTH FUND
INSTITUTIONAL SHARES
[LOGO]
CARDINAL FUNDS
- 41 -
<PAGE> 78
CARDINAL GOVERNMENT OBLIGATIONS FUND
One Fund of The Cardinal Group
Investor Shares
Cross Reference Sheet Required By
Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
---------------------------- ------------------------
<S> <C>
1.(a)(i) ............................. Cover Page
(ii) ............................. Cover Page
(iii) ............................. Cover Page
(iv) ............................. Cover Page
(v) ............................. Cover Page
(vi) ............................. *
(vii)............................. *
(b) ................................ *
2.(a)(i) ............................. "Fee Table"
(ii) ............................. *
(b) ................................ "Prospectus Highlights"
(c) ................................ "Prospectus Highlights"
3.(a) ................................ "Financial Highlights"
(b) ................................ *
(c) ................................ "Performance Information"
(d) ................................ "Performance Information"
4.(a)(i)(A) .......................... "What Is The Fund?"
(i)(B) .......................... "What Is The Fund?"
(ii) ............................. "What Are The Investment
Objectives And Policies
Of The Fund?"
(ii)(A) .......................... *
(ii)(B)(1) ....................... "What Are The Investment
Objectives And Policies
Of The Fund?"
(ii)(B)(2) ....................... *
(ii)(C) .......................... "What Are The Investment
Objectives And Policies
Of The Fund?"
(ii)(D) .......................... "What Are The Investment
Objectives And Policies Of
The Fund?"
(b)(i) ............................. "What Are The Investment
Objectives And Policies
Of The Fund?"
</TABLE>
- --------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- i -
<PAGE> 79
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
---------------------------- ------------------------
<S> <C>
(ii) ................................ "What Are The Investment
Objectives And Policies
Of The Fund?"
(c) ................................ "What Are The Investment
Objectives and Policies
Of The Fund?"
5.(a) ................................ "Who Manages My
Investment In The Fund?"
(b)(i) ............................. "Who Manages My
Investment In The Fund?"
(b)(ii) ............................ "Who Manages My
Investment In The Fund?"
(b)(iii) ........................... "Who Manages My
Investment In The Fund?"
(c) ................................ "Who Manages My
Investment In The Fund?"
(d) ................................ "Who Manages My
Investment In The Fund?"
(e) ................................ "Who Manages My
Investment In The Fund?"
(f) ................................ "Who Manages My
Investment In The Fund?"
(g)(i)(A) .......................... *
(g)(i)(B) .......................... *
(g)(i)(C) .......................... *
(g)(ii) ............................ *
5A.(a)................................ *
(b) ................................ *
(c) ................................ *
6.(a) ................................ "What Are My Rights As A
Shareholder?"
(b) ................................ "What Are My Rights As A
Shareholder?"
(c) ................................ *
(d) ................................ "What Are My Rights As A
Shareholder?"
(e) ................................ "What Are My Rights As A
Shareholder?"; "Who
Provides Shareholder
Reports?"
(f) ................................ "What Distributions Will
I Receive?"
(g) ................................ "Does The Fund Pay
Federal Income Tax?";
"What About My Taxes?"
</TABLE>
- --------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- ii -
<PAGE> 80
<TABLE>
<S> <C>
(h) ................................ Cover Page; "What Are My
Rights as a Shareholder?"
7.(a) ................................ "How Do I Purchase
Investor Shares Of The
Fund?"
(b) ................................ "How Do I Purchase
Investor Shares Of The
Fund?"; "How Is Net Asset
Value Calculated?"
(c) ................................ "How May I Qualify For
Quantity Discounts?"
(d) ................................ "How Do I Purchase
Investor Shares Of The
Fund?"
(e) ................................ "Who Manages My
Investment In The Fund?"
(f) ................................ "Who Manages My
Investment In The Fund?"
8.(a) ................................ "How May I Redeem My
Investor Shares?"
(b) ................................ "How May I Redeem My
Investor Shares?"
(c) ................................ "How May I Redeem My
Investor Shares?"
(d) ................................ "How May I Redeem My
Investor Shares?"
9. .................................. *
</TABLE>
- -----------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- iii -
<PAGE> 81
PROSPECTUS____________________________________________________________________
[LOGO]
CARDINAL GOVERNMENT OBLIGATIONS FUND
INVESTOR SHARES
Cardinal Government Obligations Fund (the "Fund") is a diversified investment
fund of The Cardinal Group (the "Group"), an open-end, management investment
company. The Trustees of the Group have divided the Fund's beneficial ownership
into an unlimited number of transferable units called shares (the "Shares"). The
Fund offers multiple classes of Shares.
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
There can be no assurance that the Fund's investment objectives will be
achieved.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION REGARDING THE
FUND OR FOR ASSISTANCE IN OPENING AN
ACCOUNT OR REDEEMING SHARES, PLEASE CALL
(800) 282-9446 TOLL FREE.
INQUIRIES MAY ALSO BE MADE BY MAIL ADDRESSED
TO THE FUND AT ITS PRINCIPAL OFFICE:
155 EAST BROAD STREET
COLUMBUS, OHIO 43215
- --------------------------------------------------------------------------------
The Prospectus relates only to one class of Shares of Cardinal Government
Obligations Fund -- Investor Shares. Investor Shares of the Fund are offered to
the public. The Fund also offers Institutional Shares to certain qualified
institutions. Interested persons who wish to obtain prospectuses of The Cardinal
Fund, Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, Cardinal
Government Securities Money Market Fund or Cardinal Tax Exempt Money Market
Fund, the other funds of the Group, or of the Institutional Shares of the Fund
should contact The Ohio Company. Additional information about the Fund,
contained in a Statement Of Additional Information dated October 31, 1996, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. Such Statement is available upon request without charge
from the Fund at the above address or by calling the phone number provided
above.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing in the Fund. This Prospectus
should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[THE OHIO COMPANY LOGO]
The date of this Prospectus is December 2, 1996.
- --------------------------------------------------------------------------------
<PAGE> 82
- --------------------------------------------------------------------------------
PROSPECTUS HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES.......... The Fund seeks to maximize safety of capital and,
consistent with such objective, earn the highest
available current income obtainable from government
securities. (See page 7.)
INVESTMENT POLICIES............ Under normal market conditions, the Fund invests
substantially all but in no event less than 65% of its
total assets in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and
repurchase agreements secured by securities of the U.S.
Government. Under present market conditions, the Fund
expects to invest a substantial amount of its portfolio
in Ginnie Mae certificates. These investments entail
certain risks. (See pages 7 and 8.)
CURRENT INCOME................. Dividends are declared daily and distributions are
generally made monthly as the Group shall determine.
Long-term capital gains, if any, are distributed
annually. (See page 14.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS............... An investment in a mutual fund such as the Fund involves
a certain amount of risk and may not be suitable for all
investors. Some investment policies of the Fund may
entail certain risks. (See "WHAT ARE THE INVESTMENT
OBJECTIVES AND POLICIES OF THE FUND? -- Risk Factors and
Investment Techniques" on pages 8 through 11.)
PURCHASES...................... There is a minimum initial investment of $1,000 with
subsequent minimums of $50. (See page 11.) Purchases are
made at the public offering price which is equal to net
asset value per share plus a sales charge. This charge is
equal to 4.50% of the public offering price (4.71% of net
amount invested) reduced on investments of $100,000 or
more (see page 12).
REDEMPTIONS.................... Shares can be redeemed at net asset value per share
without charge, if redeemed through the Fund's
distributor, The Ohio Company. (See page 14.)
INVESTMENT ADVISER AND
MANAGER...................... Cardinal Management Corp. (the "Adviser"), a wholly-owned
subsidiary of The Ohio Company, is the Fund's investment
adviser. The Adviser also serves as investment adviser
for The Cardinal Fund, Cardinal Government Securities
Money Market Fund, Cardinal Tax Exempt Money Market Fund,
Cardinal Balanced Fund and Cardinal Aggressive Growth
Fund (collectively, with the Fund, the "Cardinal Funds").
(See page 19.)
</TABLE>
2
<PAGE> 83
- --------------------------------------------------------------------------------
FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTOR SHARES
-----------------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)(1).......................................................... 4.50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees..................................................... .50%
12b-1 Fees.......................................................... .25
Other Expenses...................................................... .25
--------
Total Fund Operating Expenses.................................. 1.00%
=========
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period:................ $ 55 $ 75 $ 98 $162
<FN>
(1) The sales charge may be eliminated or reduced under certain circumstances.
See "HOW DO I PURCHASE INVESTOR SHARES OF THE FUND?" below.
</TABLE>
The information set forth in the foregoing Fee Table and Example relates only to
Investor Shares of the Fund. The Fund also offers another class of Shares known
as Institutional Shares. The two classes of Shares of the Fund are subject to
the same expenses except that Institutional Shares are not subject to a Rule
12b-1 fee and are not sold with a sales charge but are subject to an
administrative services fee.
The purpose of the above table is to assist a potential purchaser of the Fund's
Investor Shares in understanding the various costs and expenses that an investor
in the Fund will bear directly or indirectly. See "WHO MANAGES MY INVESTMENT IN
THE FUND?" for a more complete discussion of the shareholder transaction
expenses and annual operating expenses of the Fund. The example and expenses
above reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
3
<PAGE> 84
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following Financial Highlights with respect to each of the nine fiscal years
ended September 30, 1995 through 1987, and the period from February 3, 1986,
through September 30, 1986, have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon together with certain financial
statements, are contained in the Fund's statement of Additional Information and
which may be obtained by shareholders and prospective investors.
The financial information for the period ended March 31, 1996, has not been
audited.
The following Financial Highlights reflect the operations of Cardinal Government
Obligations Fund ("CGOF"), the Fund's predecessor. On May 1, 1996, the Fund
acquired all of the assets and liabilities of CGOF and is deemed to have
succeeded to the financial and performance history of CGOF.
Effective October 31, 1996, the Board of Trustees of the Group reclassified the
Fund's outstanding Shares into Investor Shares. The financial information
provided below and in the Statement of Additional Information is for periods
prior to such reclassification.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, 1996 -------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990
---------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, Beginning of
period............................. $ 8.18 $ 7.96 $ 8.63 $ 8.95 $ 8.99 $ 8.71 $ 8.71
Income from investment operations:
Net investment income.............. .31 .64 .66 .74 .80 .81 .84
Net gains or losses on securities
(both realized and unrealized)... (.02) .22 (.68) (.32) (.04) .28 --
--------- -------- -------- -------- -------- -------- --------
Total from investment operations... .29 .86 (.02) .42 .76 1.09 .84
--------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment
income).......................... (.33) (.64) (.65) (.74) (.80) (.81) (.84)
Distributions (from capital
gains)........................... -- -- -- -- -- -- --
Returns of capital................. -- -- -- -- -- -- --
--------- -------- -------- -------- -------- -------- --------
Total Distributions................ (.33) (.64) (.65) (.74) (.80) (.81) (.84)
Net asset value, End of period....... $ 8.14 $ 8.18 $ 7.96 $ 8.63 $ 8.95 $ 8.99 $ 8.71
========= ========= ========= ========= ========= ========= =========
Total Return***...................... 3.33% 11.27% (0.27%) 4.83% 8.87% 13.07% 10.03%
Ratios/Supplemental Data:
Net assets, End of period (000)
omitted.......................... $144,406 $151,711 $169,529 $208,883 $172,139 $128,569 $114,890
Ratio of expenses to average net
assets**......................... 0.77% 0.76% 0.75% 0.73% 0.76% 0.76% 0.76%
Ratio of net investment income to
average net assets**............. 7.39% 7.93% 7.88% 8.32% 8.89% 9.20% 9.55%
Portfolio Turnover Rate............ 13.78% 36.71% 21.95% 24.94% 17.15% 34.81% 30.90%
</TABLE>
4
<PAGE> 85
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 3, 1986
(DATE OF
COMMENCEMENT OF
YEARS ENDED SEPTEMBER 30, OPERATIONS)
---------------------------------------------- THROUGH SEPTEMBER
1989 1988 1987 30, 1986*
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Net asset value, Beginning of period................... $ 8.82 $ 8.60 $ 9.39 $ 9.53
Income from investment operations:
Net investment income................................ .84 .86 .90 .59
Net gains or losses on securities (both realized and
unrealized)........................................ (.11) .22 (.80) (.11)
---------- ---------- ---------- --------
Total from investment operations..................... .73 1.08 .10 .48
---------- ---------- ---------- --------
Less Distributions:
Dividends (from net investment income)............... (.84) (.86) (.89) (.59)
Distributions (from capital gains)................... -- -- -- --
Returns of capital................................... -- -- -- (.03)
---------- ---------- ---------- --------
Total Distributions.................................. (.84) (.86) (.89) (.62)
Net asset value, End of period......................... $ 8.71 $ 8.82 $ 8.60 $ 9.39
========== ========== ========== ========
Total Return***...................................... 8.81% 12.94% .82% 5.63%(a)
Ratios/Supplemental Data:
Net assets, End of period (000) omitted.............. $118,958 $146,745 $147,491 $129,629
Ratio of expenses to average net assets**............ 0.73% 0.74% 0.49% 0.87%
Ratio of net investment income to average net
assets**........................................... 9.73% 9.64% 10.03% 9.37%
Portfolio Turnover Rate.............................. .92% 5.76% 45.71% 0%
- ---------------
<FN>
* CGOF's operations commenced February 3, 1986. Through February 3, 1986, the
only transaction of CGOF was its initial capitalization through the sale of
10,493 Shares for $100,000 to Cardinal Management Corp., the investment
adviser to CGOF.
** Percentages for less than twelve month periods are annualized.
*** The total return figure does not reflect the imposition of the maximum
front-end sales load.
(a) This total return figure reflects aggregate total return instead of average
annual total return. Aggregate total return is calculated similarly to
average annual total return except that the return figure is aggregated over
the relevant period instead of annualized.
</TABLE>
See notes to financial statements appearing in the Fund's Statement Of
Additional Information.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its average annual total return,
cumulative return and/or yield. SUCH RETURN AND YIELD FIGURES ARE BASED UPON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
average annual total return advertised by the Fund refers to the return
generated by an investment in a class of Shares of the Fund over certain
specified periods since the establishment of the Fund (including the term of
CGOF's operations). The average annual total return over a period equates the
amount of an initial investment in the Fund to the amount redeemable at the end
of that period assuming that any dividends and distributions earned by an
investment in the Fund are immediately reinvested and the maximum applicable
sales charge (currently 4.5% with respect to Investor Shares only) is deducted
from the initial investment at the time of investment. Such figure is then
annualized. The cumulative return advertised refers to the total return on a
hypothetical investment over the relevant period and equates the amount of an
initial investment in the Fund to the amount redeemable at the end of that
period assuming that any dividends and distributions are immediately reinvested
and the maximum sales charge, if any, is deducted from the initial investment.
Yield will be computed by dividing the Fund's net investment income per share
earned during a recent one-
5
<PAGE> 86
month period by the Fund's per share maximum offering price (reduced by any
undeclared earned income expected to be paid shortly as a dividend) on the last
day of the period and annualizing the result. If the sales charge were not
deducted, the average annual total return, cumulative return and yield
advertised would be higher.
In addition, from time to time the Fund may include in its sales literature and
shareholder reports a quote of the current "distribution" rate for the Fund. A
distribution rate is simply a measure of the level of dividends distributed for
a specified period and is computed by dividing the total amount of dividends per
share paid by the Fund during the past 12 months by a current maximum offering
price. It differs from yield, which is a measure of the income actually earned
by the Fund's investments, and from total return, which is a measure of the
income actually earned by, plus the effect of any realized and unrealized
appreciation or depreciation of, such investments during a stated period. A
distribution rate is, therefore, not intended to be a complete measure of
performance. A distribution rate may sometimes be greater than yield since, for
instance, it may include short-term and possibly long-term gains (which may be
non-recurring), may not include the effect of amortization of bond premiums and
does not reflect unrealized gains or losses.
Investors may also judge the performance of any class of Shares of the Fund by
comparing or referencing its performance to the performance of other mutual
funds or mutual fund portfolios with comparable investment objectives and
policies through various mutual fund or market indices such as those prepared by
Dow Jones & Co., Inc. and Standard & Poor's Corporation, and to data prepared by
Lipper Analytical Services, Inc. and Morningstar, Inc. Comparisons may also be
made to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, The Columbus Dispatch, Business Week, U.S.A.
Today and Consumer Reports. In addition to performance information, general
information about the Fund that appears in a publication such as those mentioned
above may be included in advertisements and in reports to shareholders.
Further information about the performance of each class of Shares of the Fund is
contained in an Annual Report to Shareholders which may be obtained without
charge by contacting the Group at the telephone number set forth on the cover
page of this Prospectus. Performance quotations will be computed separately for
Investor and Institutional Shares. Because of differences in the fees and/or
expenses borne by Investor and Institutional Shares, the net yield and total
return on each class can be expected, at any given time, to differ from the net
yield and total return of the other class.
- --------------------------------------------------------------------------------
WHAT IS THE FUND?
- --------------------------------------------------------------------------------
The Fund is one separate diversified investment fund of the Group, which was
organized on March 23, 1993, as an Ohio business trust. The Group is registered
and operates as an open-end management investment company as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund was
organized for the purpose of acquiring all of the assets and liabilities of CGOF
to effect a reorganization of CGOF from a stand-alone investment company to a
separate series of the Group (the "Reorganization"). The Reorganization was
effected as of May 1, 1996.
The Fund is designed for individuals, corporations, fiduciaries, and
institutions who wish to invest for current income in a diversified,
professionally managed portfolio of securities issued by the U.S. Government and
securities directly guaranteed by the full faith and credit of the U.S.
Government -- without having to become involved in the detailed accounting and
safekeeping procedures normally associated with direct investment in these
securities.
- --------------------------------------------------------------------------------
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUND?
- --------------------------------------------------------------------------------
IN GENERAL
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income
6
<PAGE> 87
earned from such government securities may not be as great as the current income
earned on lower quality securities which have less liquidity and greater risk of
nonpayment.
The Fund's investment objectives are a fundamental policy of the Fund, which
means that they may be changed only with the approval of a majority of the
outstanding Shares of the Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?"). There can be no assurance that the investment objectives of the
Fund will be achieved.
Under normal market conditions, the Fund will invest substantially all, but in
no event less than 65% of the value of its total assets, in obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S.
Government Securities"). The Fund may also invest, under normal market
conditions, in the fixed income instruments described below and in repurchase
agreements. It may also engage in the options transactions described below.
The Fund may, for daily cash management purposes, invest in high quality money
market securities and in repurchase agreements. In addition, the Fund may
invest, without limit, in any combination of U.S. Government Securities, money
market securities and repurchase agreements when, in the opinion of the Adviser,
it is determined that a temporary defensive position is warranted based upon
current market conditions. The Fund may also invest in securities of other
investment companies, as described more fully below.
The types of U.S. Government Securities invested in by the Fund will include
obligations issued by or guaranteed as to payment of principal and interest by
the full faith and credit of the U.S. Treasury, such as Treasury bills, notes,
bonds and certificates of indebtedness, and obligations issued or guaranteed by
the agencies or instrumentalities of the U.S. Government, but not supported by
such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association ("Ginnie Mae") and the Export-Import Bank of the United
States, are supported by the full faith and credit of the U.S. Treasury; others,
such as those of the Federal National Mortgage Association, are supported by the
right of the issuer to borrow from the Treasury; others are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored agencies or
instrumentalities if it is not obligated to do so by law. The Fund will invest
in the obligations of such agencies or instrumentalities only when the Adviser
believes that the credit risk with respect thereto is minimal.
Certain securities held by the Fund may have mortgage obligations backing such
securities, including among others, conventional thirty year fixed rate mortgage
obligations, graduated payment mortgage obligations, fifteen year mortgage
obligations and adjustable rate mortgage obligations. All of these mortgage
obligations can be used to create pass-through securities. A pass-through
security is created when mortgage obligations are pooled together and undivided
interests in the pool or pools are sold. The cash flow from the mortgage
obligations is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
Prepayments occur when the holder of an individual mortgage obligation prepays
the remaining principal before the mortgage obligation's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgage obligations vary, it
is not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayment rates are important
because of their effect on the yield and price of the securities. Accelerated
prepayments have an adverse impact on yields for pass-through certificates
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligation is repaid. The opposite is true
for pass-through certificates purchased at a discount. The Fund may purchase
mortgage-related securities at a premium or at a discount. Reinvestment of
principal
7
<PAGE> 88
payments may occur at higher or lower rates than the original yield on such
securities. Due to the prepayment feature and the need to reinvest payments and
prepayments of principal at current rates, mortgage-related securities can be
less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
Certain debt securities such as, but not limited to, mortgage backed securities,
as well as other securities subject to prepayment of principal prior to the
stated maturity date, are expected to be repaid prior to their stated maturity
dates. As a result, the effective maturity of these securities is expected to be
shorter than the stated maturity. For purposes of calculating the Fund's
weighted average portfolio maturity, the effective maturity of such securities
will be used.
Under present market conditions, the Fund expects to invest a substantial amount
of its portfolio in Ginnie Mae certificates, which are mortgage-backed
securities representing part ownership in a specific pool of mortgage loans
insured by the Federal Housing Administration or Farmers Home Administration or
guaranteed by the Veterans Administration. Should market or economic conditions
warrant, this practice may be changed at the discretion of the Adviser. Ginnie
Mae guarantees the timely payment of monthly installments of principal and
interest on its certificates, when due, whether or not payments are received on
the underlying mortgage loans, and the full faith and credit of the United
States is pledged to the timely payment by Ginnie Mae of such principal and
interest.
Although the mortgage loans in the pool underlying a Ginnie Mae certificate will
have maturities of up to thirty years, the actual average life of the Ginnie Mae
certificates typically will be substantially less because the mortgage loans
will be subject to normal principal amortization and may be prepaid prior to
maturity. Prepayment rates vary widely and may be affected by changes in market
interest rates and general economic conditions. In periods of falling interest
rates, the rate of prepayment tends to increase, thereby shortening the actual
average life of the Ginnie Mae certificates and shortening the period of time
over which income at the higher rate is received. Conversely, when interest
rates are rising, the rate of prepayment tends to decrease, thereby lengthening
the actual average life of the Ginnie Mae certificates and extending the period
of time over which income at the lower rates is received. Accordingly, it is not
possible to accurately predict the average life of a particular pool. Standard
practice is to treat Ginnie Mae certificates as having effective maturities of
twelve years. Reinvestment of principal payments may occur at higher or lower
rates than the original yield on the certificates. Due to the prepayment feature
and the need to reinvest payments and prepayments of principal at current rates,
Ginnie Mae certificates can be less effective than typical bonds of similar
maturities at maintaining yields during periods of declining interest rates.
RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in the Fund entails certain
risks. The value of the Fund's portfolio securities, and therefore the Fund's
net asset value per share, may increase or decrease due to various factors,
principally changes in prevailing interest rates. Generally, a rise in interest
rates will result in a decrease in the Fund's net asset value per share, while a
drop in interest rates will result in an increase in the Fund's net asset value
per share.
The Fund may invest in put and call options and futures, as described below.
Such instruments are considered to be "derivatives." A derivative is generally
defined as an instrument whose value is based upon, or derived from, some
underlying index, reference rate (e.g., interest rates), security, commodity or
other asset. The Fund will not invest more than 10% of its total assets in such
derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to repurchase
agreements. Under the terms of the repurchase agreement, the Fund would acquire
securities from a financial institution such as a well-established securities
dealer or a bank which is a member of the Federal Reserve System which the
Adviser deems creditworthy under guidelines approved by the Group's Board of
Trustees. At the time of purchase, the bank or securities dealer agrees to
repurchase the underlying securities from the Fund at a
8
<PAGE> 89
specified time and price. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the underlying security. The Fund will only enter into a repurchase
agreement where (i) the underlying securities are of the type which the Fund's
investment policies would allow it to purchase directly, (ii) the market value
of the underlying security, including interest accrued, will be at all times
equal to or exceed the value of the repurchase agreement, and (iii) payment for
the underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund may also purchase
securities on a when-issued or delayed-delivery basis. The Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objectives and policies, not
for investment leverage, although such transactions represent a form of
leveraging. When-issued securities are securities purchased for delivery beyond
the normal settlement date at a stated price and yield and thereby involve a
risk that the yield obtained in the transaction will be less than those
available in the market when delivery takes place. The Fund will not pay for
such securities or start earning interest on them until they are received. When
the Fund agrees to purchase such securities, its custodian will set aside cash
or liquid securities equal to the amount of the commitment in a separate
account. Securities purchased on a when-issued basis are recorded as an asset
and are subject to changes in the value based upon changes in the general level
of interest rates. In when-issued and delayed-delivery transactions, the Fund
relies on the seller to complete the transaction; the seller's failure to do so
may cause the Fund to miss a price or yield considered to be advantageous.
The Fund's commitments to purchase when-issued securities will not exceed 25% of
the value of its total assets absent unusual market conditions. In the event
that its commitments to purchase when-issued securities ever exceed 25% of the
value of its assets, the Fund's liquidity and the ability of the Adviser to
manage it might be adversely affected.
PUT AND CALL OPTIONS. Subject to its investment policies and for purposes of
hedging against market risks related to its portfolio securities, the Fund may
purchase put and call options on securities. Purchasing options is a specialized
investment technique that entails a substantial risk of a complete loss of the
amounts paid as premiums to writers of options. The Fund will purchase put
options only on securities in which the Fund may otherwise invest. The Fund may
also engage in writing call options from time to time as the Adviser deems
appropriate. The Fund will write only covered call options (options on
securities owned by the Fund). In order to close out a call option it has
written, the Fund will enter into a "closing purchase transaction" -- the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which the Fund previously has written. When a
portfolio security subject to a call option is sold, the Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If the Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or the
Fund delivers the underlying security upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio securities
subject to such options would exceed 25% of the net assets of the Fund.
The Fund, as part of its option transactions, also may purchase index put and
call options and write index options. As with options on individual securities,
the Fund will write only covered index call options. Through the writing or
purchase of index options the Fund can achieve many of the same objectives as
through the use of options on individual securities. Options on securities
indices are similar to options on a security except that, rather than the right
to take or make delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option.
Price movements in securities which the Fund owns or intends to purchase
probably will not correlate perfectly with movements in the level of an index
and, therefore, the Fund bears the risk of a loss on an
9
<PAGE> 90
index option that is not completely offset by movements in the price of such
securities. Because index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific securities, cannot provide in advance for, or cover, its
potential settlement obligations by acquiring and holding the underlying
securities. The Fund may be required to segregate assets or provide an initial
margin to cover index options that would require it to pay cash upon exercise.
FUTURES CONTRACTS. The Fund may also enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities or an index, purchase or sell options on any such futures
contracts and engage in related closing transactions. A futures contract on a
securities index is an agreement obligating either party to pay, and entitling
the other party to receive, while the contract is outstanding, cash payments
based on the level of a specified securities index.
The Fund may engage in such futures contracts in an effort to hedge against
market risks. For example, when interest rates are expected to rise or market
values of portfolio securities are expected to fall, the Fund can seek through
the sale of futures contracts to offset a decline in the value of its portfolio
securities. When interest rates are expected to fall or market values are
expected to rise, the Fund, through the purchase of such contracts, can attempt
to secure better rates or prices for the Fund than might later be available in
the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of the Fund's total assets, and the
value of securities that are the subject of such futures and options (both for
receipt and delivery) may not exceed one-third of the market value of the Fund's
total assets. Futures transactions will be limited to the extent necessary to
maintain the Fund's qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities. The Fund
may lose the expected benefit of futures transactions if interest rates or
securities prices move in an unanticipated manner. Such unanticipated changes
may also result in poorer overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of the Fund's futures
positions may not prove to be perfectly or even highly correlated with the value
of its portfolio securities, limiting the Fund's ability to hedge effectively
against interest rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of the value
of its total assets in the securities of other investment companies subject to
the limitations set forth in the 1940 Act. The Fund intends to invest in the
securities of other investment companies which, in the opinion of the Adviser,
will assist the Fund in achieving its objectives and in money market mutual
funds for purposes of short-term cash management. The Fund's investment in such
other investment companies may result in the duplication of fees and expenses,
particularly investment advisory fees. For a further discussion of the
limitations on the Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Fund's Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be changed
only by a vote of a majority of the outstanding Shares of the Fund (as defined
below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
10
<PAGE> 91
The Fund will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
if, immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in such issuer, or the Fund would
hold more than 10% of the outstanding voting securities of the issuer,
except that up to 25% of the value of the Fund's total assets may be
invested without regard to such limitations. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes,
or other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of
the Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements secured by obligations of the U.S. Government or its agencies
or instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of their parents; and
(c) utilities will be divided according to their services. For example,
gas, gas transmission, electric and gas, electric, and telephone will
each be considered a separate industry.
3. Borrow money or issue senior securities, except that the Fund may borrow
from banks or enter into reverse repurchase agreements or dollar roll
agreements for temporary purposes in amounts up to 10% of the value of
its total assets at the time of such borrowing and except as permitted
pursuant to an exemption from the 1940 Act. The Fund will not purchase
securities while its borrowings (including reverse repurchase agreements
and dollar roll agreements) exceed 5% of its total assets.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment
objectives and policies, make time deposits with financial institutions
and enter into repurchase agreements.
The following additional investment restriction may be changed without the vote
of a majority of the outstanding Shares of the Fund. The Fund shall not:
1. Purchase or otherwise acquire any securities, if as a result, more than
15% of the Fund's net assets would be invested in securities that are illiquid.
- --------------------------------------------------------------------------------
HOW DO I PURCHASE INVESTOR SHARES OF THE FUND?
- --------------------------------------------------------------------------------
GENERAL
The Fund's Investor Shares may be purchased at the public offering price, as
described below under "Public Offering Price," through The Ohio Company,
principal underwriter of the Fund's Investor Shares, at its address and
telephone number set forth on the cover page of this Prospectus, and through
other broker-dealers who are members of the National Association of Securities
Dealers, Inc. and have sales agreements with The Ohio Company.
Subsequent purchases of Investor Shares of the Fund may be made by ACH
processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED? -
ACH Processing" below. In addition, if an Account Information Form has
previously been received by The Ohio Company, Investor Shares may also be
purchased by wiring funds to the Fund's custodian. Prior to wiring any such
funds and in order to ensure that wire orders are invested properly, you must
call The Ohio Company to obtain the necessary instructions and information.
The minimum initial investment for individuals is $1,000, except the initial
investment for an applicant investing by means of the Automatic Investment Plan,
as described below, must be at least $50. Subsequent investments must be in
amounts of at least $50.
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<PAGE> 92
The Group reserves the right to reject any order for the purchase of Investor
Shares in whole or in part. You will receive a confirmation of each new
transaction in your account, which will also show the total number of Investor
Shares owned by you and the number of Investor Shares being held in safekeeping
by Cardinal Management Corp., as the Fund's transfer agent (the "Transfer
Agent"), for your account. Certificates representing Investor Shares will not be
issued.
PUBLIC OFFERING PRICE
The public offering price of Investor Shares of the Fund is the net asset value
per share (see "HOW IS NET ASSET VALUE CALCULATED?") next determined after
receipt by The Ohio Company, its agents or broker-dealers with whom it has an
agreement, of an order and payment, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE
AS A OF OFFERING PRICE
PERCENTAGE ------------------------
AMOUNT OF OF THE NET SALES DEALER'S
SINGLE TRANSACTION AMOUNT INVESTED CHARGE CONCESSION
--------------------------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000................................. 4.71% 4.50% 4.00%
$100,000 but less than $250,000.................... 3.63 3.50 3.00
$250,000 but less than $500,000.................... 2.56 2.50 2.00
$500,000 but less than $1,000,000.................. 1.52 1.50 1.00
$1,000,000 or more................................. 0.50 0.50 0.40
</TABLE>
(See "HOW IS NET ASSET VALUE CALCULATED?" for a description of the computation
of net asset value per share.)
The above charges on investments of $100,000 or more are applicable to purchases
made at one time by an individual, or an individual, his spouse and their
children not of legal age, or a trustee, guardian or other like fiduciary of
certain single trust estates or certain single fiduciary accounts.
No sales charge is imposed on purchases of Shares by (1) officers, trustees, and
employees of the Group, or (2) full-time employees of The Ohio Company or the
Adviser who have been such for at least 90 days or by qualified retirement plans
for such persons. The Ohio Company may change or eliminate the foregoing waivers
at any time. The Ohio Company may also periodically waive all or a portion of
the sales charge for all investors with respect to the Fund.
From time to time, The Ohio Company, from its own resources, may also provide
additional compensation to securities dealers in connection with sales of shares
of the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Cardinal
Funds and other dealer-sponsored programs or events. In some instances, this
compensation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of shares
of the Cardinal Funds. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Securities
dealers may not use sales of the Fund's Shares to qualify for this compensation
to the extent such may be prohibited by the laws of any state or any
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. In addition, The Ohio Company may make ongoing payments to brokerage firms,
financial institutions (including banks) and others to facilitate the
administration and servicing of shareholder accounts. None of the aforementioned
additional compensation is paid for by the Fund or its shareholders.
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<PAGE> 93
AUTOMATIC INVESTMENT PLAN
The Fund has made arrangements to enable you to make automatic monthly or
quarterly investments, in the minimum amount of $50 per transaction, from your
checking account. Assuming the cooperation of your financial institution, your
checking account therein will be debited to purchase Investor Shares of the Fund
on the periodic basis you select. Confirmation of your purchase of the Fund's
Investor Shares will be provided by the Transfer Agent. The debit of your
checking account will be reflected in the checking account statement you receive
from your financial institution. Please contact The Ohio Company for the
appropriate form.
- --------------------------------------------------------------------------------
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?
- --------------------------------------------------------------------------------
LETTER OF INTENTION
If you (including your spouse and children not of legal age) intend to purchase
$100,000 or more of Investor Shares of the Fund and of Investor Shares of any
other Cardinal Fund sold with a sales charge (a "Cardinal Load Fund") during any
13-month period you may sign a letter of intention to that effect obtained from
The Ohio Company and pay the reduced sales charge applicable to the total amount
of Investor Shares to be so purchased. The 13-month period during which the
Letter of Intention is in effect will begin on the date of the earliest purchase
to be included. In addition, trustees, guardians or other like fiduciaries of
single trust estates or certain single fiduciary accounts may take advantage of
the quantity discounts pursuant to a letter of intention.
A letter of intention is not a binding obligation upon you to purchase the full
amount indicated. Investor Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in your name) to secure
payment of the higher sales charge applicable to the Investor Shares actually
purchased. If the full amount indicated is not purchased, such escrowed Investor
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Investor Shares, whether paid in cash or
reinvested in additional Investor Shares of the applicable Cardinal Load Fund,
are not subject to escrow. The escrowed Investor Shares will not be available
for disposal by you until all purchases pursuant to the letter of intention have
been made or the higher sales charge has been paid. When the full amount
indicated has been purchased, the escrow will be released. To the extent that
you purchase more than the dollar amount indicated on the Letter of Intention
and qualify for a further reduced sales charge, the sales charge will be
adjusted for the entire amount purchased at the end of the 13-month period. The
difference in sales charge will be, as you instruct, either delivered to you in
cash or used to purchase additional Investor Shares of the Cardinal Load Fund
designated by you subject to the rate of sales charge applicable to the actual
amount of the aggregate purchases. This program, however, may be modified or
eliminated at any time or from time to time by the Group without notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, you have the privilege of
combining "concurrent purchases" of Investor Shares of the Fund and of one or
more of the other Cardinal Load Funds. For example, if you concurrently purchase
Investor Shares of the Fund at the total public offering price of $50,000 and
Investor Shares of another Cardinal Load Fund at the total public offering price
of $50,000, the sales charge paid by you would be that applicable to a $100,000
purchase as shown in the table above. "Concurrent purchases," as described
above, shall include the combined purchases of Investor Shares of you, your
spouse and your children not of legal age. To receive the applicable public
offering price pursuant to this privilege, you must, at the time of purchase,
give The Ohio Company sufficient information to permit confirmation of
qualification. This privilege, however, may be modified or eliminated at any
time or from time to time by the Group without notice thereof.
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<PAGE> 94
RIGHTS OF ACCUMULATION
After your initial purchase of Investor Shares you may also be eligible to pay a
reduced sales charge for your subsequent purchases of Investor Shares where the
total public offering price of Investor Shares then being purchased plus the
then aggregate current net asset value of Investor Shares of the Fund and of
Investor Shares of any Cardinal Load Fund held in your account equals $100,000
or more. You would be able to purchase Investor Shares at the public offering
price applicable to the total of (a) the total public offering price of the
Investor Shares of the Fund then being purchased plus (b) the then current net
asset value of Investor Shares of the Fund and of Investor Shares of any other
Cardinal Load Fund held in your account. For purposes of determining the
aggregate current net asset value of Investor Shares held in your account, you
may include Investor Shares then owned by your spouse and children not of legal
age.
You may obtain additional information about the foregoing special purchase
method from The Ohio Company. You are responsible for notifying The Ohio Company
at the time of purchase when purchases may be accumulated to take advantage of
the reduced sales charge. This program, however, may be modified or eliminated
at any time or from time to time by the Group without notice thereof.
- --------------------------------------------------------------------------------
WHAT DISTRIBUTIONS WILL I RECEIVE?
- --------------------------------------------------------------------------------
A dividend consisting of net income is declared daily to Shareholders of the
Fund at the close of business on the day of declaration, and such dividends are
generally paid monthly. Dividends consisting of long-term capital gains normally
will be distributed only once annually. Dividends and distributions will be paid
only in additional Investor Shares and not in cash; except, however, that for
dividends and distributions of $10 or more, a shareholder may specifically
request that such amounts be paid to him in cash. Dividends are paid in cash not
later than seven days after a shareholder's complete redemption of his Investor
Shares in the Fund.
The Fund's net investment income available for distribution to the holders of
Investor Shares will be reduced by the amount of Rule 12b-1 fees paid out under
the Plan described below.
Shareholders may also elect to receive dividends and distributions in cash by
using ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
- --------------------------------------------------------------------------------
HOW MAY I REDEEM MY INVESTOR SHARES?
- --------------------------------------------------------------------------------
Investors may redeem Investor Shares of the Fund on any Business Day at the net
asset value per Investor Share next determined following the receipt by the
Transfer Agent, 215 East Capital Street, Columbus, Ohio 43215, of written or
telephonic notice to redeem, as described more fully below. See "HOW IS NET
ASSET VALUE CALCULATED?", below, for a description of when net asset value is
determined.
As requested, The Ohio Company, on behalf of a shareholder, will forward the
foregoing notice to redeem to the Transfer Agent without charge. Other
broker-dealers may assist a shareholder in redeeming his Investor Shares and may
charge a fee for such services.
The Group will make payment for redeemed Investor Shares as promptly as
practicable but in no event more than seven days after receipt by the Transfer
Agent of the foregoing notice. The Group reserves the right to delay payment for
the redemption of Investor Shares where such Investor Shares were purchased with
other than immediately available funds, but only until the purchase payment has
cleared (which may take fifteen or more days from the date the purchase payment
is received by the Fund). The purchase of Investor Shares by wire transfer of
federal funds would avoid any such delay.
The Group intends to pay cash for all Investor Shares redeemed, but, under
abnormal conditions which make payment in cash unwise, the Group may make
payment wholly or partly in readily marketable
14
<PAGE> 95
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.
The Group may suspend the right of redemption or may delay payment during any
period the determination of net asset value is suspended. See "HOW IS NET ASSET
VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the right to
redeem, at net asset value, involuntarily Shares in any account at the then
current net asset value if at any time redemptions (but not as a result of a
decrease in the market price of such Shares or the deduction of any sales
charge) have reduced a shareholder's total investment in the Fund to a net asset
value below $500. A shareholder will be notified in writing that the value of
Fund Shares in the account is less than $500 and allowed not less than 30 days
to increase his investment in the Fund to $500 before the redemption is
processed. Proceeds of redemptions so processed, including dividends declared to
the date of redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Investor Shares of the Fund by submitting a written
request therefor to the Transfer Agent, at 215 East Capital Street, Columbus,
Ohio 43215. The Transfer Agent will request a signature guarantee by an eligible
guarantor institution as described below. However, a signature guarantee will
not be required if (1) the redemption check is payable to the shareholder(s) of
record, and (2) the redemption check is mailed to the shareholder(s) at the
address of record, provided, however, that the address of record has not been
changed within the preceding 15 days. For purposes of this policy, an "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in the Securities Exchange Act of 1934.
The Transfer Agent reserves the right to reject any signature guarantee if (1)
it has reason to believe that the signature is not genuine or (2) it has reason
to believe that the transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Investor Shares of the Fund by calling the Group at the
telephone number set forth on the front of this Prospectus. The shareholder may
direct that the redemption proceeds be mailed to the address of record.
Neither the Group, the Fund nor its service providers will be liable for any
loss, damages, expense or cost arising out of any telephone redemption effected
in accordance with the Group's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Group will employ procedures
designed to provide reasonable assurances that instructions by telephone are
genuine; if these procedures are not followed, the Group, the Fund or its
service providers may be liable for any losses due to unauthorized or fraudulent
instructions. These procedures may include recording all phone conversations,
sending confirmations to shareholders within 72 hours of the telephone
transaction, and verification of account name and account number or tax
identification number. If, due to temporary adverse conditions, investors are
unable to effect telephone transactions, shareholders may also redeem their
Investor Shares by mail as described above.
AUTOMATIC WITHDRAWAL
Shareholders may elect to have the proceeds from redemptions of Shares
transmitted to an authorized bank account at a Federal Reserve member bank
through ACH processing as described under "WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED? - ACH Processing" below.
15
<PAGE> 96
SYSTEMATIC WITHDRAWAL PLAN
If you are the owner of Investor Shares of the Fund having a total value of
$25,000 or more at the current net asset value, you may elect to redeem your
Investor Shares monthly or quarterly in amounts of $50 or more, pursuant to the
Fund's Systematic Withdrawal Plan. Please contact The Ohio Company for the
appropriate form.
- --------------------------------------------------------------------------------
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
- --------------------------------------------------------------------------------
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to make
subsequent purchases, redeem Investor Shares and/or electronically transfer
distributions paid on Investor Shares, in addition to the other methods
described in this Prospectus. ACH provides a method by which funds may be
automatically transferred to or from an authorized bank account at a Federal
Reserve member bank that is an ACH member. Please contact your representative if
you are interested in ACH processing.
EXCHANGE PRIVILEGE
Holders of Investor Shares of the Fund may, provided the amount to be exchanged
meets the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized, exchange, at respective net asset values,
Investor Shares of the Fund for:
Investor Shares of Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of
capital (upon the payment of the applicable sales charge);
Investor Shares of Cardinal Balanced Fund,
a fund seeking current income and long-term
growth of both capital and income (upon
the payment of the applicable sales charge);
Investor Shares of The Cardinal Fund,
an equity fund seeking long-term growth
of capital and income (upon the payment of
the applicable sales charge);
Shares of Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund
(without payment of any sales charge); or
Shares of Cardinal Tax Exempt Money Market Fund,
a tax-free money market fund
(without payment of any sales charge).
Notwithstanding the foregoing and subject to the limitations contained in the
following paragraph, (i) exchanges by holders of Investor Shares, for whom the
sales charge has been waived, for Investor Shares of a Cardinal Load Fund may be
completed without the payment of a sales charge, and (ii) exchanges of Investor
Shares by all other shareholders for Investor Shares of a Cardinal Load Fund may
be completed upon the payment of a sales charge equal to the difference, if any,
between the sales charge payable upon purchase of Investor Shares of such
Cardinal Load Fund and the sales charge previously paid on the Investor Shares
to be exchanged.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
16
<PAGE> 97
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is requested
to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of the Fund by telephone. Neither the Group, the Fund nor
any of its service providers will be liable for any loss, damages, expense or
cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
For tax purposes, an exchange is treated as a redemption and a new purchase.
However, a shareholder may not include any sales charge on Investor Shares of
the Fund for purposes of calculating the gain or loss realized upon an exchange
of those Investor Shares within 90 days of their purchase.
The Group may, at any time, modify or terminate the foregoing exchange
privilege. The Group, however, will give shareholders of the Fund 60 days'
advance written notice of any such modification or termination.
- --------------------------------------------------------------------------------
HOW IS NET ASSET VALUE CALCULATED?
- --------------------------------------------------------------------------------
The net asset value of the Fund is determined once daily as of 4:00 P.M. Eastern
Time, on each Business Day. A "Business Day" is a day on which the New York
Stock Exchange is open for business and any other day (other than a day on which
no Shares of the Fund are tendered for redemption and no order to purchase any
Shares of the Fund is received) during which there is a sufficient degree of
trading in the Fund's portfolio securities that the net asset value might be
materially affected by changes in the value of the portfolio securities. The net
asset value per share of each class of the Fund is computed by dividing the sum
of the value of the Fund's portfolio securities plus any cash and other assets
(including interest and dividends accrued but not received) allocable to such
class minus all liabilities (including estimated accrued expenses) allocable to
such class by the total number of Shares of that class then outstanding.
The net asset value per share will fluctuate as the value of the investment
portfolio of the Fund changes.
Portfolio securities for which over-the-counter market quotations are readily
available are valued at the bid price. The Fund uses one or more pricing
services to provide such market quotations. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Group.
Determination of the net asset value may be suspended at times when (a) trading
on the New York Stock Exchange is restricted by applicable rules and regulations
of the Commission, (b) the New York Stock Exchange is closed for other than
customary weekend and holiday closings, (c) an emergency exists as a result of
which disposal by the Group of portfolio securities owned by the Fund or
valuation of net assets of the Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
- --------------------------------------------------------------------------------
DOES THE FUND PAY FEDERAL INCOME TAX?
- --------------------------------------------------------------------------------
Each of the funds of the Group, including the Fund, is treated as a separate
entity for federal income tax purposes and intends to qualify as a "regulated
investment company" under the Code for so long as such qualification is in the
best interest of that fund's shareholders. Qualification as a regulated
investment company under the Code requires, among other things, that the
regulated investment company distribute to its shareholders at least 90% of its
investment company taxable income. The Fund contemplates declaring as dividends
100% of the Fund's investment company taxable income (before deduction of
dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment companies that
do not distribute in each calendar year (regardless of whether they otherwise
have a non-calendar taxable year) an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be
17
<PAGE> 98
distributed during the next calendar year. If distributions during a calendar
year were less than the required amount, the Fund would be subject to a
nondeductible excise tax equal to 4% of the deficiency.
- --------------------------------------------------------------------------------
WHAT ABOUT MY TAXES?
- --------------------------------------------------------------------------------
It is expected that the Fund will distribute annually to shareholders all or
substantially all of the Fund's net ordinary income and net realized capital
gains and that such distributed net ordinary income and distributed net realized
capital gains will be taxable income to shareholders for federal income tax
purposes, even if paid in additional Shares of the Fund and not in cash. Since
all of the Fund's net investment income is expected to be derived from earned
interest and short-term capital gains, it is anticipated that no part of any
distribution will be eligible for the dividends-received deduction for
corporations.
Distribution by the Fund of the excess of net long-term capital gain over net
short-term capital loss is taxable to shareholders as long-term capital gain in
the year in which it is received, regardless of how long the shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
If the net asset value of a Share is reduced below the shareholder's cost of
that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
The foregoing is intended only as a brief summary of some of the important tax
considerations generally affecting the Fund and its shareholders. Potential
investors in the Fund are urged to consult their tax advisers concerning the
application of federal, state and local taxes as such laws and regulations
affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the amount and
nature of such income and capital gains.
- --------------------------------------------------------------------------------
WHO MANAGES MY INVESTMENT IN THE FUND?
- --------------------------------------------------------------------------------
Except where shareholder action is required by law, all of the authority of the
Group is exercised under the direction of the Group's Trustees, who are elected
by the shareholders of the Group's funds and who are empowered to elect officers
and contract with and provide for the compensation of agents, consultants and
other professionals to assist and advise it in its day-to-day operations. The
Group will be managed in accordance with its Declaration of Trust and the laws
of Ohio governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their expenses in
connection with each meeting of the Board of Trustees they attend. However, no
officer or employee of the Adviser or The Ohio Company receives any compensation
from the Group for acting as a Trustee of the Group. The officers of the Group
receive no compensation directly from the Group for performing the duties of
their offices. The Adviser receives fees from the Group for acting as investment
adviser and manager and as dividend and transfer agent and for providing certain
fund accounting services. The Ohio Company receives no fees under its
Distribution Agreement with the Group but, with respect to Investor Shares only,
may retain all or a portion of the sales charge and receives fees under the
Distribution Plan discussed below.
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<PAGE> 99
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street, Columbus, Ohio
43215, a wholly owned subsidiary of The Ohio Company, is the investment adviser
and manager of the Fund. The Adviser is also the investment adviser and manager
of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a member of
the New York Stock 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. The Ohio Company serves as principal underwriter for each of the
Cardinal Funds.
In its capacity as investment adviser, and subject to the ultimate authority of
the Group's Board of Trustees, the Adviser, in accordance with the Fund's
investment objectives and policies, manages the Fund, and makes decisions with
respect to and places orders for all purchases and sales of its portfolio
securities. Since the inception of CGOF (the Fund's predecessor) and since the
Reorganization with respect to the Fund, John R. Carle has been primarily
responsible for the day-to-day management of such Funds' portfolios. Mr. Carle
has been a portfolio manager with the Adviser and/or The Ohio Company since
1971. In addition, pursuant to the Investment Advisory Agreement, the Adviser
generally assists in all aspects of the Fund's administration and operation.
For the services provided and expenses assumed pursuant to its investment
advisory agreement with the Group with respect to the Fund, the Adviser receives
a fee from the Fund, computed daily and paid monthly at the annual rate of .50%
of average net daily assets of the Fund. The Adviser may, however, periodically
waive all or a portion of its advisory fee with respect to the Fund to increase
the net income of the Fund available for distribution as dividends. The waiver
of such fee will cause the yield of the Fund to be higher than it would
otherwise be in the absence of such a waiver.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting Agreement with
Cardinal Management Corp. (the "Transfer Agent"), 215 East Capital Street,
Columbus, Ohio 43215, pursuant to which the Transfer Agent has agreed to act as
the Fund's transfer agent and dividend disbursing agent. In consideration of
such services, the Fund has agreed to pay the Transfer Agent an annual fee, paid
monthly, equal to $21 per shareholder account plus out-of-pocket expenses. In
addition, the Transfer Agent provides certain fund accounting services for the
Fund. The Transfer Agent receives a fee from the Fund for such services equal to
a fee computed daily and paid periodically at an annual rate of .03% of the
Fund's average daily net assets of up to $100 million and .01% of the Fund's
average daily net assets in excess of $100 million.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio Company, 155
East Broad Street, Columbus, Ohio 43215, pursuant to which Shares of the Fund
will be offered continuously on a best efforts basis by The Ohio Company and
dealers selected by The Ohio Company. H. Keith Allen is an officer and trustee
of the Group and an officer and director of The Ohio Company. Frank W. Siegel is
an officer and trustee of the Group and an officer of The Ohio Company. James M.
Schrack II is an officer of both the Group and The Ohio Company.
EXPENSES
The Adviser bears all expenses in connection with the performance of its
services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund. The Trustees reserve the right to allocate certain other
expenses, which can reasonably be identified as relating to a particular class,
solely to such class, including Investor Shares, as they deem appropriate
("Class Expenses"). Such expenses include (a) transfer agency
19
<PAGE> 100
fees identified as being attributable to a specific class; (b) printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxy statements to current shareholders
of a specific class; (c) Blue Sky registration fees incurred by a class of
shares; (d) SEC registration fees incurred by a class; (e) expenses of
administrative personnel and services as required to support the shareholders of
a specific class; (f) litigation or other legal expenses and audit or other
accounting expenses relating solely to one class; (g) trustees' fees or expenses
incurred as a result of issues relating to one class; and (h) shareholder
meeting costs that relate to a specific class.
DISTRIBUTION PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Group has adopted a Distribution
and Shareholder Service Plan with respect to its Investor Shares (the "Plan"),
under which the Fund is authorized to pay The Ohio Company, as the Fund's
principal underwriter, a periodic amount calculated at an annual rate not to
exceed twenty-five one-hundredths of one percent (.25%) of the average daily net
asset value of the Investor Shares of the Fund. Such amount may be used by The
Ohio Company to pay broker-dealers (including The Ohio Company), banks and other
institutions (a "Participating Organization") for distribution and/or
shareholder service assistance pursuant to an agreement between The Ohio Company
and the Participating Organization or for distribution assistance and/or
shareholder service provided by The Ohio Company pursuant to an agreement
between The Ohio Company and the Group. Under the Plan, a Participating
Organization may include The Ohio Company, its subsidiaries, and its affiliates.
The Ohio Company may from time to time waive all or a portion of the fees
payable to it pursuant to the Plan. Any such waiver will cause the total return
and yield of the Investor Shares of the Fund to be higher than it would
otherwise be absent such a waiver.
As authorized by the Plan, The Ohio Company has entered into a Rule 12b-1
Agreement with the Group pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Investor Shares of the
Fund purchased and held by The Ohio Company for the accounts of its customers
and Investor Shares of the Fund purchased and held by customers of The Ohio
Company directly, including, but not limited to, answering shareholder questions
concerning the Fund, providing information to shareholders on their investments
in the Investor Shares of the Fund and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration of such services the Group has agreed to pay The Ohio
Company a monthly fee, computed at the annual rate of .25% of the average
aggregate net asset value of Investor Shares held during the period in customer
accounts for which The Ohio Company has provided services under this Agreement.
Such fees paid by the Group will be borne solely by the Investor Shares of the
Fund. Such fee may exceed the actual costs incurred by The Ohio Company in
providing such services.
In addition, The Ohio Company may enter into, from time to time, other Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain shareholder services such as those described above.
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In such capacity, Fifth
Third will hold or arrange for the holding of all portfolio securities and other
assets acquired and owned by the Fund.
- --------------------------------------------------------------------------------
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
- --------------------------------------------------------------------------------
The Group was organized as an Ohio business trust on March 23, 1993. The Group
currently consists of six funds. The shares of each of the funds of the Group,
other than the two money market funds, Cardinal Government Securities Money
Market Fund ("CGSMMF") and Cardinal Tax Exempt Money Market Fund ("CTEMMF"), are
currently offered in two separate classes: Investor A Shares, otherwise referred
to as Investor Shares, and Investor Y Shares, otherwise referred to as
Institutional Shares. CGSMMF and
20
<PAGE> 101
CTEMMF each have only one class of shares. Each share represents an equal
proportional interest in a fund with other shares of the same fund, and is
entitled to such dividends and distributions out of the income earned on the
assets belonging to that fund as are declared at the discretion of the Trustees.
Shareholders are entitled to one vote for each dollar of value invested and a
proportionate fractional vote for any fraction of a dollar invested, and will
vote in the aggregate and not by series except as otherwise expressly required
by law. For example, shareholders of the Fund will vote in the aggregate with
other shareholders of the Group with respect to the election of trustees and
ratification of the selection of independent accountants. However, shareholders
of the Fund will vote as a fund, and not in the aggregate with other
shareholders of the Group, for purposes of approval of amendments to the
investment advisory agreement as it relates to the Fund or any of the Fund's
fundamental policies.
Overall responsibility for the management of the Fund is vested in the Board of
Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?" Individual
Trustees are elected by the shareholders of the Group and may be removed by the
Board of Trustees or shareholders in accordance with the provisions of the
Declaration of Trust and By-Laws of the Group and Ohio law. See "ADDITIONAL
INFORMATION - Miscellaneous" in the Statement of Additional Information for
further information.
An annual or special meeting of shareholders to conduct necessary business is
not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, approve the investment advisory agreement and to satisfy certain other
requirements. To the extent that such a meeting is not required, the Group does
not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a fund" means the consideration received by the fund upon
the issuance or sale of shares in that fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Group not readily identified as belonging to a particular fund
that are allocated to the fund by the Group's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Group as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Fund means the affirmative
vote, at a meeting of shareholders duly called, of the lesser of (a) 67% or more
of the votes of shareholders of the Fund present at a meeting at which the
holders of more than 50% of the votes attributable to shareholders of record of
the Fund are represented in person or by proxy, or (b) the holders of more than
50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the Transfer
Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or by calling
(800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
21
<PAGE> 102
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying
Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
<PAGE> 103
- ------------------------------------------------------
- ------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS HIGHLIGHTS....................... 2
FEE TABLE................................... 3
FINANCIAL HIGHLIGHTS........................ 4
PERFORMANCE INFORMATION..................... 5
WHAT IS THE FUND?........................... 6
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?................. 6
HOW DO I PURCHASE INVESTOR SHARES
OF THE FUND?.............................. 11
HOW MAY I QUALIFY FOR QUANTITY DISCOUNTS?... 13
WHAT DISTRIBUTIONS WILL I RECEIVE?.......... 14
HOW MAY I REDEEM MY INVESTOR SHARES?........ 14
WHAT OTHER SHAREHOLDER PROGRAMS ARE
PROVIDED?................................. 16
HOW IS NET ASSET VALUE CALCULATED?.......... 17
DOES THE FUND PAY FEDERAL INCOME TAX?....... 17
WHAT ABOUT MY TAXES?........................ 18
WHO MANAGES MY INVESTMENT IN THE FUND?...... 18
WHAT ARE MY RIGHTS AS A
SHAREHOLDER?.............................. 20
</TABLE>
------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE OHIO COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE OHIO COMPANY TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
----------------------
PROSPECTUS
----------------------
December 2, 1996
[THE OHIO COMPANY LOGO]
CARDINAL
GOVERNMENT
OBLIGATIONS FUND
INVESTOR SHARES
[CARDINAL GROUP LOGO]
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE> 104
CARDINAL GOVERNMENT OBLIGATIONS FUND
One Fund of The Cardinal Group
INSTITUTIONAL SHARES
Cross Reference Sheet Required By
Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
<S> <C>
1.(a)(i) ............................. Cover Page
(ii) ............................. Cover Page
(iii) ............................. Cover Page
(iv) ............................. Cover Page
(v) ............................. Cover Page
(vi) ............................. *
(vii)............................. *
(b) ................................ *
2.(a)(i) ............................. "Fee Table"
(ii) ............................. *
(b) ................................ "Prospectus Highlights"
(c) ................................ "Prospectus Highlights"
3.(a) ................................ "Financial Highlights"
(b) ................................ *
(c) ................................ "Performance Information"
(d) ................................ "Performance Information"
4.(a)(i)(A) .......................... "What Is The Fund?"
(i)(B) .......................... "What Is The Fund?"
(ii) ............................. "What Are The Investment Objectives
And Policies Of The Fund?"
(ii)(A) .......................... *
(ii)(B)(1) ....................... "What Are The Investment Objectives
And Policies Of The Fund?"
(ii)(B)(2) ....................... *
(ii)(C) .......................... "What Are The Investment Objectives
And Policies Of The Fund?"
(ii)(D) .......................... "What Are The Investment Objectives
And Polices Of The Fund?"
(b)(i) ............................. "What Are The Investment Objectives
And Policies Of The Fund?"
(ii) ............................. "What Are The Investment Objectives
And Policies Of The Fund?"
(c) ................................ "What Are The Investment Objectives
and Policies Of The Fund?"
5.(a) ................................ "Who Manages My Investment In The
Fund?"
(b)(i) ............................. "Who Manages My Investment In The
Fund?"
(b)(ii) ............................ "Who Manages My Investment In The
Fund?"
</TABLE>
- --------------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- i -
<PAGE> 105
<TABLE>
<CAPTION>
Part A of Form N-1A Item No. Caption(s) in Prospectus
<S> <C>
(b)(iii) ........................... "Who Manages My Investment In The
Fund?"
(c) ................................ "Who Manages My Investment In The
Fund?"
(d) ................................ "Who Manages My Investment In The
Fund?"
(e) ................................ "Who Manages My Investment In The
Fund?"
(f) ................................ "Who Manages My Investment In The
Fund?"
(g)(i)(A) .......................... *
(g)(i)(B) .......................... *
(g)(i)(C) .......................... *
(g)(ii) ............................ *
5A.(a) ................................ *
(b) ................................ *
(c) ................................ *
6.(a) ................................ "What Are My Rights As A
Shareholder?"
(b) ................................ "What Are My Rights As A
Shareholder?"
(c) ................................ *
(d) ................................ "What Are My Rights As A
Shareholder?"
(e) ................................ "What Are My Rights As A
Shareholder?"; "Who Provides
Shareholder Reports?"
(f) ................................ "What Distributions Will I Receive?"
(g) ................................ "Does The Fund Pay Federal Income
Tax?"; "What About My Taxes?"
(h)................................. Cover Page; "What Are My Rights As A
Shareholder?"
7.(a) ................................ "How Do I Purchase Institutional
Shares Of The Fund?"
(b) ................................ "How Do I Purchase Institutional
Shares Of The Fund?"; "How Is Net
Asset Value Calculated?"
(c) ................................ *
(d) ................................. "How Do I Purchase Institutional
Shares Of The Fund?"
(e) ................................. "Who Manages My Investment In The
Fund?"
(f) ................................. "Who Manages My Investment In The
Fund?"
8.(a) ................................. "How May I Redeem My Institutional
Shares?"
(b) ................................. "How May I Redeem My Institutional
Shares?"
(c) ................................. "How May I Redeem My Institutional
Shares?"
(d) ................................. "How May I Redeem My Institutional
Shares?"
9. ................................... *
</TABLE>
- --------------------
*Indicates items which are omitted or inapplicable or answer to which is in
the negative and omitted from Prospectus.
- ii -
<PAGE> 106
PROSPECTUS
CARDINAL GOVERNMENT OBLIGATIONS FUND
INSTITUTIONAL SHARES
Cardinal Government Obligations Fund (the "Fund") is a diversified
investment fund of The Cardinal Group (the "Group"), an open-end, management
investment company. The Trustees of the Group have divided the Fund's beneficial
ownership into an unlimited number of transferable units called shares (the
"Shares"). The Fund offers multiple classes of Shares.
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
There can be no assurance that the Fund's investment objectives will be
achieved.
THE SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK, NOR ARE SUCH SHARES FEDERALLY INSURED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES
CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
For further information regarding the Fund or for
assistance in opening an account or redeeming Shares,
please call (800) 282-9446 toll free.
Inquiries may also be made by mail addressed
to the Fund at its principal office:
155 East Broad Street
Columbus, Ohio 43215
The Prospectus relates only to one class of Shares of Cardinal
Government Obligations Fund - Institutional Shares. Institutional Shares of the
Fund are offered to banks, broker-dealers, savings and loan associations, trust
companies (including The Ohio Company), qualified investment advisers and
certain other financial institutions acting in a fiduciary capacity on behalf of
their customers or beneficiaries. The Fund also offers Investor Shares of the
public. Interested persons who wish to obtain prospectuses of The Cardinal Fund,
Cardinal Balanced Fund, Cardinal Aggressive Growth Fund, Cardinal Government
Securities Money Market Fund or
- 1 -
<PAGE> 107
Cardinal Tax Exempt Money Market Fund, the other funds of the Group, or of the
Investor Shares of the Funds, should contact The Ohio Company. Additional
information about the Fund, contained in a Statement Of Additional Information
dated October 31, 1996, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. Such Statement is available
upon request without charge from the Fund at the above address or by calling the
phone number provided above.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor ought to know before investing in the Fund. This
Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION")
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE OHIO COMPANY
The date of this Prospectus is December 2, 1996.
- 2 -
<PAGE> 108
<TABLE>
<CAPTION>
PROSPECTUS HIGHLIGHTS
<S> <C>
INVESTMENT OBJECTIVES............................. The Fund seeks to maximize safety of
capital and, consistent with such
objective, earn the highest avail-
able current income obtainable from
government securities. (See page
--.)
INVESTMENT POLICIES............................... Under normal market conditions, the
Fund invests substantially all but
in no event less than 65% of its
total assets in obligations issued
or guaranteed by the U.S.
Government, its agencies or
instrumentalities and repurchase
agreements secured by securities of
the U.S. Government. Under present
market conditions, the Fund expects
to invest a substantial amount of
its portfolio in Ginnie Mae
certificates. These investments
entail certain risks. (See page
--.)
CURRENT INCOME.................................... Dividends are declared daily and
distributions are generally made
monthly as the Group shall deter-
mine. Long-term capital gains, if
any, are distributed annually. (See
page__.)
RISK FACTORS AND SPECIAL
CONSIDERATIONS................................ An investment in a mutual fund such
as the Fund involves a certain
amount of risk and may not be
suitable for all investors. Some
investment policies of the Fund may
entail certain risks. (See "WHAT
ARE THE INVESTMENT OBJECTIVES AND
POLICIES OF THE FUND? -- Risk
Factors and Investment Techniques"
on pages ___ through ___.)
PURCHASES......................................... Purchases are made at the public
offering price which is equal to net
asset value per share.
</TABLE>
- 3 -
<PAGE> 109
<TABLE>
<S> <C>
REDEMPTIONS....................................... Shares can be redeemed at net asset
value per share without
charge, if redeemed through
the Fund's distributor, The
Ohio Company. (See page
__.)
INVESTMENT ADVISER AND
MANAGER...................................... Cardinal Management Corp. (the
"Adviser"), a wholly-owned subsi-
diary of The Ohio Company, is the
Fund's investment adviser. The
Adviser also serves as investment
adviser for The Cardinal Fund,
Cardinal Government Securities Money
Market Fund, Cardinal Tax Exempt
Money Market Fund, Cardinal Balanced
Fund and Cardinal Aggressive Growth
Fund (collectively, with the Fund,
the "Cardinal Funds"). (See page
--.)
</TABLE>
- 4 -
<PAGE> 110
FEE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Institutional Shares
--------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 0%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .50%
12b-1 Fees None
Administrative Services Fee .25
Other Expenses .25
----
Total Fund Operating Expenses 1.00%
====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period: $10 $32 $55 $122
</TABLE>
The information set forth in the foregoing Fee Table and Example
relates only to Institutional Shares of the Fund. The Fund also offers another
class of Shares known as Investor Shares. The two classes of Shares of the Fund
are subject to the same expenses except that the Investor Shares are not subject
to an administrative services fee but are subject to a Rule 12b-1 fee and are
sold with a front-end sales charge.
The purpose of the above table is to assist a potential purchaser of
the Fund's Shares in understanding the various costs and expenses that an
investor in the Fund will bear directly or indirectly. See "WHO MANAGES MY
INVESTMENT IN THE FUND?" for a more complete discussion of the shareholder
transaction expenses and annual operating expenses of the Fund. The example and
expenses above reflect current fees. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights with respect to each of the nine
fiscal years ended September 30, 1995 through 1987, and the period from February
3, 1986, through September 30, 1986, have been audited by KPMG Peat Marwick LLP,
independent auditors, whose report thereon together with certain financial
statements, are contained in the Fund's Statement Of Additional Information and
which may be obtained by shareholders and prospective investors.
- 5 -
<PAGE> 111
The financial information for the period ended March 31, 1996, has not
been audited.
The following Financial Highlights reflect the operations of Cardinal
Government Obligations Fund ("CGOF"), the Fund's predecessor. On May 1, 1996,
the Fund acquired all of the assets and liabilities of CGOF and is deemed to
have succeeded to the financial and performance history of CGOF.
Effective October 31, 1996, the Board of Trustees of the Group
reclassified the Fund's outstanding Shares into Investor Shares. The financial
information provided below and in the Statement of Additional Information is for
periods prior to such reclassification.
FINANCIAL HIGHLIGHTS FOR EACH SHARE OF BENEFICIAL
INTEREST OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
Six Months
Ended
March 31,
1996
(Unaudited) 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, $8.18 $7.96 $8.63 $8.95 $8.99 $8.71 $8.71
Beginning of period
Income from investment operations:
Net investment income .31 .64 .66 .74 .80 .81 .84
Net gains or losses
on securities
(both realized
and unrealized) (.02) .22 (.68) (.32) (.04) .28 --
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations .29 .86 (.02) .42 .76 1.09 .84
-------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net
investment income) (.33) (.64) (.65) (.74) (.80) (.81) (.84)
Distributions (from
capital gains) -- -- -- -- -- -- --
Returns of capital -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions (.33) (.64) (.65) (.74) (.80) (.81) (.84)
Net asset value, End
of period $8.14 $8.18 $7.96 $8.63 $8.95 $8.99 $8.71
======== ======== ======== ======== ======== ======== ========
Total Return*** 3.33% 11.27% (0.27%) 4.83% 8.87% 13.07% 10.03%
Ratios/Supplemental Data:
Net Assets, End of
period (000) omitted $144,406 $151,711 $169,529 $208,883 $172,139 $128,569 $114,890
Ratio of expenses to
average net assets** 0.77% 0.76% 0.75% 0.73% 0.76% 0.76% 0.76%
Ratio of net investment
income to average
net assets** 7.39% 7.93% 7.88% 8.32% 8.89% 9.20% 9.55%
Portfolio Turnover Rate 13.78% 36.71% 21.95% 24.94% 17.15% 34.81% 30.90%
</TABLE>
- 6 -
<PAGE> 112
<TABLE>
<CAPTION>
Period From
Years Ended February 3, 1986
September 30, (date of commencement
of operations) through
1989 1988 1987 September 30, 1986*
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 8.82 $ 8.60 $ 9.39 $ 9.53
Income from investment
operations:
Net investment income .84 .86 .90 .59
Net gains or losses
on securities
(both realized
and unrealized) (.11) .22 (.80) (.11)
----------- ----------- ----------- -----------
Total from investment
operations .73 1.08 .10 .48
----------- ----------- ----------- -----------
Less Distributions:
Dividends (from net
investment income) (.84) (.86) (.89) (.59)
Distributions (from
capital gains) -- -- -- --
Returns of capital -- -- -- (.03)
----------- ----------- ----------- -----------
Total Distributions (.84) (.86) (.89) (.62)
Net asset value, End
of period $ 8.71 $ 8.82 $ 8.60 $ 9.39
=========== =========== =========== ===========
Total Return*** 8.81% 12.94% .82% 5.63%(a)
Ratios/Supplemental Data:
Net assets, End of $ 118,958 $ 146,745 $ 147,491 $ 129,629
period (000) omitted
Ratio of expenses to
average net assets** 0.73% 0.74% 0.49% 0.87%
Ratio of net investment
income to average
net assets** 9.73% 9.64% 10.03% 9.37%
Portfolio Turnover Rate .92% 5.76% 45.71% 0%
</TABLE>
*CGOF's operations commenced February 3, 1986. Through February 3,
1986, the only transaction of CGOF was its initial capitalization through the
sale of 10,493 Shares for $100,000 to Cardinal Management Corp., the investment
adviser to CGOF.
**Percentages for less than twelve month periods are
annualized.
***The total return figure does not reflect the imposition of the
maximum front-end sales load.
(a) This total return figure reflects aggregate total return instead of
average annual total return. Aggregate total return is calculated similarly to
average annual total return except that the return figure is aggregated over the
relevant period instead of annualized.
See notes to financial statements appearing in the Fund's Statement Of
Additional Information.
- 7 -
<PAGE> 113
PERFORMANCE INFORMATION
From time to time the Fund may advertise its average annual total
return, cumulative return and/or yield. SUCH RETURN AND YIELD FIGURES ARE BASED
UPON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
The average annual total return advertised by the Fund refers to the return
generated by an investment in the Fund over certain specified periods since the
establishment of the Fund (including the term of CGOF's operations). The average
annual total return over a period equates the amount of an initial investment in
a class of Shares of the Fund to the amount redeemable at the end of that period
assuming that any dividends and distributions earned by an investment in the
Fund are immediately reinvested and the maximum applicable sales charge (if any)
is deducted from the initial investment at the time of investment. Such figure
is then annualized. The cumulative return advertised refers to the total return
on a hypothetical investment over the relevant period and equates the amount of
an initial investment in the Fund to the amount redeemable at the end of that
period assuming that any dividends and distributions are immediately reinvested
and the maximum sales charge, if any, is deducted from the initial investment.
Yield will be computed by dividing the Fund's net investment income per share
earned during a recent one-month period by the Fund's per share maximum offering
price (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. If the sales
charge, if any, were not deducted, the average annual total return, cumulative
return and yield advertised would be higher.
In addition, from time to time the Fund may include in its sales
literature and shareholder reports a quote of the current "distribution" rate
for the Fund. A distribution rate is simply a measure of the level of dividends
distributed for a specified period and is computed by dividing the total amount
of dividends per share paid by the Fund during the past 12 months by a current
maximum offering price. It differs from yield, which is a measure of the income
actually earned by the Fund's investments, and from total return, which is a
measure of the income actually earned by, plus the effect of any realized and
unrealized appreciation or depreciation of, such investments during a stated
period. A distribution rate is, therefore, not intended to be a complete measure
of performance. A distribution rate may sometimes be greater than yield since,
for instance, it may include short-term and possibly long-term gains (which may
be non-recurring), may not include the effect of amortization of bond premiums
and does not reflect unrealized gains or losses.
Investors may also judge the performance of any class of Shares of the
Fund by comparing or referencing its performance to the performance of other
mutual funds or mutual fund portfolios with comparable investment objectives and
policies through various
- 8 -
<PAGE> 114
mutual fund or market indices such as those prepared by Dow Jones & Co., Inc.
and Standard & Poor's Corporation, and to data prepared by Lipper Analytical
Services, Inc., Morningstar, Inc. and CDA Investment Technologies, Inc.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, The Columbus
Dispatch, Business Week, U.S.A. Today and Consumer Reports. In addition to
performance information, general information about the Fund that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
Further information about the performance of each class of Shares of
the Fund is contained in an Annual Report to Shareholders which may be obtained
without charge by contacting the Group at the telephone number set forth on the
cover page of this Prospectus. Performance quotations will be computed
separately for Investor and Institutional Shares. Because of differences in the
fees and/or expenses borne by Investor and Institutional Shares, the net yield
and total return on each such class can be expected, at any given time, to
differ from the net yield and total return of such other class.
WHAT IS THE FUND?
The Fund is one separate diversified investment fund of the Group,
which was organized on March 23, 1993, as an Ohio business trust. The Group is
registered and operates as an open-end management investment company as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund was
organized for the purpose of acquiring all of the assets and liabilities of CGOF
to effect a reorganization of CGOF from a stand-alone investment company to a
separate series of the Group (the "Reorganization"). The Reorganization was
effected as of May 1, 1996.
The Fund is designed for individuals, corporations, fiduciaries, and
institutions who wish to invest for current income in a diversified,
professionally managed portfolio of securities issued by the U.S. Government and
securities directly guaranteed by the full faith and credit of the U.S.
Government -- without having to become involved in the detailed accounting and
safekeeping procedures normally associated with direct investment in these
securities.
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WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?
IN GENERAL
The Fund's investment objectives are to maximize safety of capital and,
consistent with such objective, earn the highest available current income
obtainable from government securities. The current income earned from such
government securities may not be as great as the current income earned on lower
quality securities which have less liquidity and greater risk of nonpayment.
The Fund's investment objectives are a fundamental policy of the Fund,
which means that they may be changed only with the approval of a majority of the
outstanding Shares of the Fund (as defined below under "WHAT ARE MY RIGHTS AS A
SHAREHOLDER?). There can be no assurance that the investment objectives of the
Fund will be achieved.
Under normal market conditions, the Fund will invest substantially all,
but in no event less than 65% of the value of its total assets, in obligations
issued or guaranteed by the U.S. Government or its agencies or instrumentalities
("U.S. Government Securities"). The Fund may also invest, under normal market
conditions, in the fixed income instruments described below and in repurchase
agreements. It may also engage in the options transactions described below.
The Fund may, for daily cash management purposes, invest in high
quality money market securities and in repurchase agreements. In addition, the
Fund may invest, without limit, in any combination of U.S. Government
Securities, money market securities and repurchase agreements when, in the
opinion of the Adviser, it is determined that a temporary defensive position is
warranted based upon current market conditions. The Fund may also invest in
securities of other investment companies, as described more fully below.
The types of U.S. Government Securities invested in by the Fund will
include obligations issued by or guaranteed as to payment of principal and
interest by the full faith and credit of the U.S. Treasury, such as Treasury
bills, notes, bonds and certificates of indebtedness, and obligations issued or
guaranteed by the agencies or instrumentalities of the U.S. Government, but not
supported by such full faith and credit. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association ("Ginnie Mae") and the Export-Import Bank of the United
States, are supported by the full faith and credit of the U.S. Treasury; others,
such as those of the Federal
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National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government sponsored agencies or instrumentalities if it is not
obligated to do so by law. The Fund will invest in the obligations of such
agencies or instrumentalities only when the Adviser believes that the credit
risk with respect thereto is minimal.
Certain securities held by the Fund may have mortgage obligations
backing such securities, including among others, conventional thirty year fixed
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-through certificates purchased at a premium (i.e., a price in excess of
principal amount) and may involve additional risk of loss of principal because
the premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-through certificates purchased at a
discount. The Fund may purchase mortgage-related securities at a premium or at a
discount. Reinvestment of principal payments may occur at higher or lower rates
than the original yield on such securities. Due to the prepayment feature and
the need to reinvest payments and prepayments of principal at current rates,
mortgage-related securities can be less effective than typical bonds of similar
maturities at maintaining yields during periods of declining interest rates.
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Certain debt securities such as, but not limited to, mortgage backed
securities, as well as other securities subject to prepayment of principal prior
to the stated maturity date, are expected to be repaid prior to their stated
maturity dates. As a result, the effective maturity of these securities is
expected to be shorter than the stated maturity. For purposes of calculating the
Fund's weighted average portfolio maturity, the effective maturity of such
securities will be used.
Under present market conditions, the Fund expects to invest a
substantial amount of its portfolio in Ginnie Mae certificates, which are
mortgage-backed securities representing part ownership in a specific pool of
mortgage loans insured by the Federal Housing Administration or Farmers Home
Administration or guaranteed by the Veterans Administration. Should market or
economic conditions warrant, this practice may be changed at the discretion of
the Adviser. Ginnie Mae guarantees the timely payment of monthly installments of
principal and interest on its certificates, when due, whether or not payments
are received on the underlying mortgage loans, and the full faith and credit of
the United States is pledged to the timely payment by Ginnie Mae of such
principal and interest.
Although the mortgage loans in the pool underlying a Ginnie Mae
certificate will have maturities of up to thirty years, the actual average life
of the Ginnie Mae certificates typically will be substantially less because the
mortgage loans will be subject to normal principal amortization and may be
prepaid prior to maturity. Prepayment rates vary widely and may be affected by
changes in market interest rates and general economic conditions. In periods of
falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the Ginnie Mae certificates and shortening
the period of time over which income at the higher rate is received. Conversely,
when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the Ginnie Mae certificates and
extending the period of time over which income at the lower rates is received.
Accordingly, it is not possible to accurately predict the average life of a
particular pool. Standard practice is to treat Ginnie Mae certificates as having
effective maturities of twelve years. Reinvestment of principal payments may
occur at higher or lower rates than the original yield on the certificates. Due
to the prepayment feature and the need to reinvest payments and prepayments of
principal at current rates, Ginnie Mae certificates can be less effective than
typical bonds of similar maturities at maintaining yields during periods of
declining interest rates.
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RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL. Like any investment program, an investment in the Fund entails
certain risks. The value of the Fund's portfolio securities, and therefore the
Fund's net asset value per share, may increase or decrease due to various
factors, principally changes in prevailing interest rates. Generally, a rise in
interest rates will result in a decrease in the Fund's net asset value per
share, while a drop in interest rates will result in an increase in the Fund's
net asset value per share.
The Fund may invest in put and call options and futures, as described
below. Such instruments are considered to be "derivatives." A derivative is
generally defined as an instrument whose value is based upon, or derived from,
some underlying index, reference rate (e.g., interest rates), security,
commodity or other asset. The Fund will not invest more than 10% of its total
assets in such derivatives at any one time.
REPURCHASE AGREEMENTS. Securities held by the Fund may be subject to
repurchase agreements. Under the terms of the repurchase agreement, the Fund
would acquire securities from a financial institution such as a well-established
securities dealer or a bank which is a member of the Federal Reserve System
which the Adviser deems creditworthy under guidelines approved by the Group's
Board of Trustees. At the time of purchase, the bank or securities dealer agrees
to repurchase the underlying securities from the Fund at a specified time and
price. The resale price reflects the purchase price plus an agreed upon market
rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. The Fund will only enter into a repurchase agreement where
(i) the underlying securities are of the type which the Fund's investment
policies would allow it to purchase directly, (ii) the market value of the
underlying security, including interest accrued, will be at all times equal to
or exceed the value of the repurchase agreement, and (iii) payment for the
underlying securities is made only upon physical delivery or evidence of
book-entry transfer to the account of the Fund's custodian or a bank acting as
agent. The Adviser will be responsible for continuously monitoring such
requirements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Fund may also
purchase securities on a when-issued or delayed-delivery basis. The Fund will
engage in when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objectives and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued securities are securities purchased for delivery
beyond the normal settlement date at a stated price and yield and thereby
involve a risk that the yield obtained in the transaction will be less than
those available in the market when
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<PAGE> 119
delivery takes place. The Fund will not pay for such securities or start earning
interest on them until they are received. When the Fund agrees to purchase such
securities, its custodian will set aside cash or liquid securities equal to the
amount of the commitment in a separate account. Securities purchased on a
when issued basis are recorded as an asset and are subject to changes in the
value based upon changes in the general level of interest rates. In when-issued
and delayed-delivery transactions, the Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause the Fund to miss a price or
yield considered to be advantageous.
The Fund's commitments to purchase when-issued securities will not
exceed 25% of the value of its total assets absent unusual market conditions. In
the event that its commitments to purchase when-issued securities ever exceed
25% of the value of its assets, the Fund's liquidity and the ability of the
Adviser to manage it might be adversely affected.
PUT AND CALL OPTIONS. Subject to its investment policies and for
purposes of hedging against market risks related to its portfolio securities,
the Fund may purchase put and call options on securities. Purchasing options is
a specialized investment technique that entails a substantial risk of a complete
loss of the amounts paid as premiums to writers of options. The Fund will
purchase put options only on securities in which the Fund may otherwise invest.
The Fund may also engage in writing call options from time to time as the
Adviser deems appropriate. The Fund will write only covered call options
(options on securities owned by the Fund). In order to close out a call option
it has written, the Fund will enter into a "closing purchase transaction" -- the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which the Fund previously has written. When a
portfolio security subject to a call option is sold, the Fund will effect a
closing purchase transaction to close out any existing call option on that
security. If the Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the option expires or the
Fund delivers the underlying security upon exercise. Under normal market
conditions, it is not expected that the underlying value of portfolio securities
subject to such options would exceed 25% of the net assets of the Fund.
The Fund, as part of its option transactions, also may purchase index
put and call options and write index options. As with options on individual
securities, the Fund will write only covered index call options. Through the
writing or purchase of index options the Fund can achieve many of the same
objectives as through the use of options on individual securities. Options on
securities indices are similar to options on a security except
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that, rather than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the securities index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
Price movements in securities which the Fund owns or intends to
purchase probably will not correlate perfectly with movements in the level of an
index and, therefore, the Fund bears the risk of a loss on an index option that
is not completely offset by movements in the price of such securities. Because
index options are settled in cash, a call writer cannot determine the amount of
its settlement obligations in advance and, unlike call writing on specific
securities, cannot provide in advance for, or cover, its potential settlement
obligations by acquiring and holding the underlying securities. The Fund may be
required to segregate assets or provide an initial margin to cover index options
that would require it to pay cash upon exercise.
FUTURES CONTRACTS. The Fund may also enter into contracts for the
future delivery of securities and futures contracts based on a specific
security, class of securities or an index, purchase or sell options on any such
futures contracts and engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The Fund may engage in such futures contracts in an effort to hedge
against market risks. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, the Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, the Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed five percent of the Fund's total
assets, and the value of securities that are the subject of such futures and
options (both for receipt and delivery)
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may not exceed one-third of the market value of the Fund's total assets. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover contracts that would require it to purchase
securities. The Fund may lose the expected benefit of futures transactions if
interest rates or securities prices move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if the
Fund had not entered into any futures transactions. In addition, the value of
the Fund's futures positions may not prove to be perfectly or even highly
correlated with the value of its portfolio securities, limiting the Fund's
ability to hedge effectively against interest rate and/or market risk and giving
rise to additional risks. There is no assurance of liquidity in the secondary
market for purposes of closing out futures positions.
INVESTMENT COMPANY SECURITIES. The Fund may also invest up to 10% of
the value of its total assets in the securities of other investment companies
subject to the limitations set forth in the 1940 Act. The Fund intends to invest
in the securities of other investment companies which, in the opinion of the
Adviser, will assist the Fund in achieving its objectives and in money market
mutual funds for purposes of short-term cash management. The Fund's investment
in such other investment companies may result in the duplication of fees and
expenses, particularly investment advisory fees. For a further discussion of the
limitations on the Fund's investments in other investment companies, see
"INVESTMENT OBJECTIVES AND POLICIES -- Additional Information on Portfolio
Instruments -- Securities of Other Investment Companies" in the Fund's Statement
of Additional Information.
INVESTMENT RESTRICTIONS
The Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of the Fund (as
defined below under "WHAT ARE MY RIGHTS AS A SHAREHOLDER?").
The Fund will not:
1. Purchase securities of any one issuer, other than
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested in such
issuer, or the Fund would hold more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the
Fund's total assets
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may be invested without regard to such limitations. There is no limit
to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of
the value of the Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided that: (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services.
For example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry.
3. Borrow money or issue senior securities, except that the
Fund may borrow from banks or enter into reverse repurchase agreements
or dollar roll agreements for temporary purposes in amounts up to 10%
of the value of its total assets at the time of such borrowing and
except as permitted pursuant to an exemption from the 1940 Act. The
Fund will not purchase securities while its borrowings (including
reverse repurchase agreements and dollar roll agreements) exceed 5% of
its total assets.
4. Make loans, except that the Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its
investment objectives and policies, make time deposits with financial
institutions and enter into repurchase agreements.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of the Fund. The Fund will not:
1. Purchase or otherwise acquire any securities, if as a
result, more than 15% of the Fund's net assets would be invested
in securities that are illiquid.
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HOW DO I PURCHASE INSTITUTIONAL SHARES OF THE FUND?
GENERAL
The Fund's Institutional Shares are continuously offered and may be
purchased through procedures established by The Ohio Company, principal
underwriter of the Fund's Shares, in connection with accounts for which banks,
broker-dealers, savings and loan associations, trust companies (including The
Ohio Company), qualified investment advisers and certain other financial
institutions serve in a fiduciary capacity on behalf of customers or
beneficiaries (collectively, "Financial Institutions"). Normally, Financial
Institutions will hold Institutional Shares of record for their customers or
beneficiaries. With respect to Institutional Shares so sold, it is the
responsibility of the holder of record to transmit purchase or redemption orders
to The Ohio Company and to deliver funds for the purchase thereof on a timely
basis. Beneficial ownership of Institutional Shares of the Fund may be recorded
by the Institutions and reflected in the account statements provided to their
customers.
The Group reserves the right to reject any order for the purchase of
Institutional Shares in whole or in part. The applicable Financial Institution
will receive a confirmation of each new transaction in its account. Certificates
representing Shares will not be issued.
Institutional Shares are purchased at the net asset value per share
(see "HOW IS NET ASSET VALUE CALCULATED?") next determined after receipt by The
Ohio Company or its agents of an order and payment. There is no sales charge
imposed in connection with the purchase of Institutional Shares of the Fund.
Depending upon the terms of a particular account, a Financial Institution may
charge customer account fees for services provided in connection with an
investment in the Fund. Information concerning these services and any charges
may be obtained from such Financial Institution. This Prospectus should be read
in conjunction with any such information so received.
From time to time, The Ohio Company, from its own resources, may
provide compensation to securities dealers in connection with sales of shares of
the Cardinal Funds. Such compensation will include financial assistance to
securities dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising, sales campaigns
and/or shareholder services and programs regarding one or more of the Cardinal
Funds and other dealer-sponsored programs or events. In some instances, this
compensation may be made available only to certain securities dealers whose
representatives have sold or are expected to sell significant amounts of shares
of the Cardinal
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<PAGE> 124
Funds. Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Securities dealers may not
use sales of the Fund's Shares to qualify for this compensation to the extent
such may be prohibited by the laws of any state or any self-regulatory agency,
such as the National Association of Securities Dealers, Inc. In addition, The
Ohio Company may make ongoing payments to brokerage firms, financial
institutions (including banks) and others to facilitate the administration and
servicing of shareholder accounts. None of the aforementioned additional
compensation is paid for by the Fund or its shareholders.
WHAT DISTRIBUTIONS WILL I RECEIVE?
A dividend consisting of net income is declared daily to Shareholders
of the Fund at the close of business on the day of declaration, and such
dividends are generally paid monthly. Dividends consisting of long-term capital
gains normally will be distributed only once annually. Dividends and
distributions will be paid only in additional Institutional Shares and not in
cash; except, however, that for dividends and distributions of $10 or more, a
shareholder may specifically request that such amounts be paid to him in cash.
Dividends are paid in cash not later than seven days after a shareholder's
complete redemption of his Institutional Shares in the Fund.
The Fund's net investment income available for distribution to the
holders of Institutional Shares will be reduced by the amount of administrative
services fees paid under the Services Plan described below.
HOW MAY I REDEEM MY INSTITUTIONAL SHARES?
Investors may redeem Institutional Shares of the Fund on any Business
Day at the net asset value per Institutional Share next determined following the
receipt by the Transfer Agent, 215 East Capital Street, Columbus, Ohio 43215, of
written or telephonic notice to redeem, as described more fully below. See "HOW
IS NET ASSET VALUE CALCULATED?", below, for a description of when net asset
value is determined.
As requested, The Ohio Company, on behalf of a shareholder, will
forward the foregoing notice to redeem to the Transfer Agent without charge.
Other broker-dealers may assist a shareholder in redeeming his Institutional
Shares and may charge a fee for such services.
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<PAGE> 125
The Group will make payment for redeemed Institutional Shares as
promptly as practicable but in no event more than seven days after receipt by
the Transfer Agent of the foregoing notice. The Group reserves the right to
delay payment for the redemption of Institutional Shares where such
Institutional Shares were purchased with other than immediately available funds,
but only until the purchase payment has cleared (which may take fifteen or more
days from the date the purchase payment is received by the Fund). The purchase
of Fund Institutional Shares by wire transfer of federal funds would avoid any
such delay.
The Group intends to pay cash for all Institutional Shares redeemed,
but, under abnormal conditions which make payment in cash unwise, the Group may
make payment wholly or partly in readily marketable portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
The Group may suspend the right of redemption or may delay payment
during any period the determination of net asset value is suspended. See "HOW IS
NET ASSET VALUE CALCULATED?".
Due to the high cost of maintaining accounts, the Group reserves the
right to redeem, at net asset value, involuntarily Shares in any account at the
then current net asset value if at any time redemptions (but not as a result of
a decrease in the market price of such Shares or the deduction of any sales
charge) have reduced a shareholder's total investment in the Fund to a net asset
value below $500. A shareholder will be notified in writing that the value of
Fund Shares in the account is less than $500 and allowed not less than 30 days
to increase his investment in the Fund to $500 before the redemption is
processed. Proceeds of redemptions so processed, including dividends declared to
the date of redemption, will be promptly paid to the shareholder.
REDEMPTION BY MAIL
Shareholders may redeem Institutional Shares of the Fund by submitting
a written request therefor to the Transfer Agent, at 215 East Capital Street,
Columbus, Ohio 43215. The Transfer Agent will request a signature guarantee by
an eligible guarantor institution as described below. However, a signature
guarantee will not be required if (1) the redemption check is payable to the
shareholder(s) of record, and (2) the redemption check is mailed to the
shareholder(s) at the address of record, provided, however, that the address of
record has not been changed within the preceding 15 days. For purposes of this
policy, an "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in the
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<PAGE> 126
Securities Exchange Act of 1934. The Transfer Agent reserves the right to reject
any signature guarantee if (1) it has reason to believe that the signature is
not genuine or (2) it has reason to believe that the transaction would otherwise
be improper.
REDEMPTION BY TELEPHONE
Shareholders may redeem Institutional Shares of the Fund by calling the
Group at the telephone number set forth on the front of this Prospectus. The
shareholder may direct that the redemption proceeds be mailed to the address of
record.
Neither the Group, the Fund nor its service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Group's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Group will employ
procedures designed to provide reasonable assurances that instructions by
telephone are genuine; if these procedures are not followed, the Group, the Fund
or its service providers may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures may include recording all phone
conversations, sending confirmations to shareholders within 72 hours of the
telephone transaction, and verification of account name and account number or
tax identification number. If, due to temporary adverse conditions, investors
are unable to effect telephone transactions, shareholders may also redeem their
Institutional Shares by mail as described above.
WHAT OTHER SHAREHOLDER PROGRAMS ARE PROVIDED?
ACH PROCESSING
The Fund offers ACH privileges. Investors may use ACH processing to
make subsequent purchases, redeem Institutional Shares and/or electronically
transfer distributions paid on Institutional Shares, in addition to the other
methods described in this Prospectus. ACH provides a method by which funds may
be automatically transferred to or from an authorized bank account at a Federal
Reserve member bank that is an ACH member. Please contact your representative if
you are interested in ACH processing.
EXCHANGE PRIVILEGE
Holders of Institutional Shares of the Fund may, provided the amount to
be exchanged meets the applicable minimum investment requirements and the
exchange is made in states where it is legally
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authorized, exchange, at respective net asset values, Institutional
Shares of the Fund for:
Institutional Shares of Cardinal Aggressive Growth Fund,
an equity fund seeking appreciation of capital;
Institutional Shares of Cardinal Balanced Fund, a fund seeking current
income and long-term growth of both capital and income;
Institutional Shares of The Cardinal Fund, an equity fund seeking
long-term growth of capital and income;
Shares of Cardinal Government Securities Money Market Fund,
a U.S. Government securities money market fund; or
Shares of Cardinal Tax Exempt Money Market Fund, a tax-free money
market fund.
The foregoing exchange privilege must be made by written or telephonic
authorization. A shareholder should notify The Ohio Company of his desire to
make an exchange, and The Ohio Company will furnish, as necessary, a prospectus
and an application form to open the account. The Transfer Agent will require
that any written authorization of an exchange include a signature guarantee as
described above under "HOW MAY I REDEEM MY SHARES? -- Redemption by mail."
However, a signature guarantee will not be required if the exchange is requested
to be made within the same account or into an existing account of the
shareholder held in the same name or names and in the same capacity as the
account from which the exchange is to be made. Shareholders may also authorize
an exchange of Shares of the Fund by telephone. Neither the Group, the Fund nor
any of its service providers will be liable for any loss, damages, expense or
cost arising out of any telephone exchange authorization to the extent and
subject to the requirements set forth under "HOW MAY I REDEEM MY SHARES? --
Redemption by telephone" above.
In the event the status of a shareholder or the capacity in which a
shareholder holds Institutional Shares changes such that he is no longer
eligible to purchase or hold Institutional Shares of the Fund, then such
Institutional Shares will be automatically exchanged for Investor Shares of the
Fund at respective net asset value per share.
For tax purposes, an exchange is treated as a redemption and a new
purchase.
The Group may, at any time, modify or terminate the foregoing
exchange privilege. The Group, however, will give shareholders of
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the Fund 60 days' advance written notice of any such modification
or termination.
HOW IS NET ASSET VALUE CALCULATED?
The net asset value of the Fund is determined once daily as of 4:00
P.M. Eastern Time, on each Business Day. A "Business Day" is a day on which the
New York Stock Exchange is open for business and any other day (other than a day
on which no Shares of the Fund are tendered for redemption and no order to
purchase any Shares of the Fund is received) during which there is a sufficient
degree of trading in the Fund's portfolio securities that the net asset value
might be materially affected by changes in the value of the portfolio
securities. The net asset value per share of each class of Shares of the Fund is
computed by dividing the sum of the value of the Fund's portfolio securities
plus any cash and other assets (including interest and dividends accrued but not
received) allocable to such class minus all liabilities (including estimated
accrued expenses) allocable to such class by the total number of Shares of that
Class then outstanding.
The net asset value per share will fluctuate as the value of the
investment portfolio of the Fund changes.
Portfolio securities for which over-the-counter market quotations are
readily available are valued at the bid price. The Fund uses one or more pricing
services to provide such market quotations. Securities and other assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Group.
Determination of the net asset value may be suspended at times when (a)
trading on the New York Stock Exchange is restricted by applicable rules and
regulations of the Commission, (b) the New York Stock Exchange is closed for
other than customary weekend and holiday closings, (c) an emergency exists as a
result of which disposal by the Group of portfolio securities owned by the Fund
or valuation of net assets of the Fund is not reasonably practicable, or (d) the
Commission has by order permitted such suspension.
DOES THE FUND PAY FEDERAL INCOME TAX?
Each of the funds of the Group, including the Fund, is treated as a
separate entity for federal income tax purposes and intends to qualify as a
"regulated investment company" under the Code for so long as such qualification
is in the best interest of that fund's shareholders. Qualification as a
regulated investment company under the Code requires, among other things, that
the regulated investment company distribute to its shareholders at least 90% of
its investment company taxable income. The Fund contemplates
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<PAGE> 129
declaring as dividends 100% of the Fund's investment company taxable income
(before deduction of dividends paid).
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a nondeductible excise tax equal to 4% of the
deficiency.
WHAT ABOUT MY TAXES?
It is expected that the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
Since all of the Fund's net investment income is expected to be derived from
earned interest and short-term capital gains, it is anticipated that no part of
any distribution will be eligible for the dividends-received deduction for
corporations.
Distribution by the Fund of the excess of net long-term capital gain
over net short-term capital loss is taxable to shareholders as long-term capital
gain in the year in which it is received, regardless of how long the shareholder
has held the Shares. Such distributions are not eligible for the
dividends-received deduction.
If the net asset value of a Share is reduced below the shareholder's
cost of that Share by the distribution of income or gain realized on the sale of
securities, the distribution is a return of invested principal, although taxable
as described above.
Prior to purchasing Shares, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but have
not been paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of Shares prior to the record
date will have the effect of reducing the per share net asset value of the
Shares by the amount of the dividends or distributions. All or a portion of such
dividends or distributions, although in effect a return of capital, is subject
to tax.
The foregoing is intended only as a brief summary of some of the
important tax considerations generally affecting the Fund and
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<PAGE> 130
its shareholders. Potential investors in the Fund are urged to consult their tax
advisers concerning the application of federal, state and local taxes as such
laws and regulations affect their own tax situation.
The Transfer Agent will inform shareholders at least annually of the
amount and nature of such income and capital gains.
WHO MANAGES MY INVESTMENT IN THE FUND?
Except where shareholder action is required by law, all of the
authority of the Group is exercised under the direction of the Group's Trustees,
who are elected by the shareholders of the Group's funds and who are empowered
to elect officers and contract with and provide for the compensation of agents,
consultants and other professionals to assist and advise it in its day-to-day
operations. The Group will be managed in accordance with its Declaration of
Trust and the laws of Ohio governing business trusts.
The Trustees of the Group receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of the Adviser or The Ohio Company receives any
compensation from the Group for acting as a Trustee of the Group. The officers
of the Group receive no compensation directly from the Group for performing the
duties of their offices. The Adviser receives fees from the Group for acting as
investment adviser and manager and as dividend and transfer agent and for
providing certain fund accounting services. The Ohio Company receives no fees
under its Distribution Agreement with the Group with respect to Institutional
Shares of the Fund but may receive fees under the Administrative Services Plan
discussed below.
INVESTMENT ADVISER AND MANAGER
Cardinal Management Corp. (the "Adviser"), 155 East Broad Street,
Columbus, Ohio 43215, a wholly owned subsidiary of The Ohio Company, is the
investment adviser and manager of the Fund. The Adviser is also the investment
adviser and manager of each of the other Cardinal Funds.
The Ohio Company, an investment banking firm organized in 1925, is a
member of the New York Stock 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. The Ohio Company serves as principal underwriter for each
of the Cardinal Funds.
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<PAGE> 131
In its capacity as investment adviser, and subject to the ultimate
authority of the Group's Board of Trustees, the Adviser, in accordance with the
Fund's investment objectives and policies, manages the Fund, and makes decisions
with respect to and places orders for all purchases and sales of its portfolio
securities. Since the inception of CGOF (the Fund's predecessor), John R. Carle
has been primarily responsible for the day-to-day management of CGOF's
portfolio. It is expected that, upon consummation of the Reorganization, Mr.
Carle will be the portfolio manager for the Fund. Mr. Carle has been a portfolio
manager with the Adviser and/or The Ohio Company since 1971. In addition,
pursuant to the Investment Advisory Agreement, the Adviser generally assists in
all aspects of the Fund's administration and operation.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Group with respect to the Fund, the
Adviser receives a fee from the Fund, computed daily and paid monthly at the
annual rate of .50% of average net daily assets of the Fund. The Adviser may,
however, periodically waive all or a portion of its advisory fee with respect to
the Fund to increase the net income of the Fund available for distribution as
dividends. The waiver of such fee will cause the yield of the Fund to be higher
than it would otherwise be in the absence of such a waiver.
DIVIDEND AND TRANSFER AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement with Cardinal Management Corp. (the "Transfer Agent"), 215 East
Capital Street, Columbus, Ohio 43215, pursuant to which the Transfer Agent has
agreed to act as the Fund's transfer agent and dividend disbursing agent. In
consideration of such services, the Fund has agreed to pay the Transfer Agent an
annual fee, paid monthly, equal to $21 per shareholder account plus
out-of-pocket expenses. In addition, the Transfer Agent provides certain fund
accounting services for the Fund. The Transfer Agent receives a fee from the
Fund for such services equal to a fee computed daily and paid periodically at an
annual rate of .03% of the Fund's average daily net assets of up to $100 million
and .01% of the Fund's average daily net assets in excess of $100 million.
DISTRIBUTOR
The Group has entered into a Distributor's Contract with The Ohio
Company, 155 East Broad Street, Columbus, Ohio 43215, pursuant to which Shares
of the Fund will be offered continuously on a best efforts basis by The Ohio
Company and dealers selected by The Ohio Company. H. Keith Allen is an officer
and trustee of the Group and an officer and director of The Ohio Company. Frank
W. Siegel is an officer and trustee of the Group and an officer of The Ohio
Company. James M. Schrack II is an officer of both the Group and The Ohio
Company. The Ohio Company receives no compensation under
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<PAGE> 132
the Distributor's Contract with respect to distribution of the
Institutional Shares of the Fund.
EXPENSES
The Adviser bears all expenses in connection with the performance of
its services as investment adviser, manager, transfer agent and fund accountant
other than the cost of securities (including brokerage commissions, if any)
purchased for the Fund. The Trustees reserve the right to allocate certain other
expenses, which can reasonably be identified as relating to a particular class,
solely to such class, including Institutional Shares as they deem appropriate
("Class Expense"). Such expense include (a) transfer agency fees identified as
being attributable to a specific class; (b) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(c) Blue Sky registration fees incurred by a class of shares; (d) SEC
registration fees incurred by a class; (e) expenses of administrative personnel
and services as required to support the shareholders of a specific class; (f)
litigation or other legal expenses and audit or other accounting expenses
relating solely to one class; (g) trustees' fees or expenses incurred as a
result of issues relating to one class; and (h) shareholder meeting costs that
relate to a specific class.
ADMINISTRATIVE SERVICES PLAN
The Group has adopted an Administrative Services Plan with respect to
the Fund's Institutional Shares (the "Services Plan") pursuant to which the Fund
is authorized to pay compensation to Financial Institutions, which may include
The Ohio Company, which agree to provide certain ministerial, record keeping
and/or administrative support services for their customers, account holders or
beneficiaries (collectively, "customers") who are the beneficial or record owner
of Institutional Shares of the Fund. In consideration for such services, a
Financial Institution receives a fee from the Fund, computed daily and paid
monthly, at an annual rate of up to .25% of the average daily net asset value of
Institutional Shares of the Fund owned beneficially or of record by such
Financial Institution's customers for whom the Financial Institution provides
such services.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Financial Institutions receiving such
compensation to perform certain ministerial, record keeping and/or
administrative support services with respect to the beneficial or record owners
of Institutional Shares of the Fund, such as processing dividend and
distribution payments from the Fund on behalf of customers, providing periodic
statements to customers showing their positions in the Institutional Shares of
the Fund,
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<PAGE> 133
providing sub-accounting with respect to Institutional Shares beneficially owned
by such customers and providing customers with a service that invests the assets
of their accounts in Institutional Shares of the Fund pursuant to specific or
pre-authorized instructions.
As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with The Ohio Company pursuant to which The Ohio Company has
agreed to provide certain administrative support services in connection with
Institutional Shares of the Fund owned of record or beneficially by its
customers for whom The Ohio Company provides fiduciary or trust services. Such
administrative support services may include, but are not limited to, (i)
processing dividend and distribution payments from the Fund on behalf of
customers; (ii) providing periodic statements to its customers showing their
positions in the Institutional Shares; (iii) arranging for bank wires; (iv)
responding to routine customer inquiries relating to services performed by The
Ohio Company; (v) providing sub-accounting with respect to the Institutional
Shares beneficially owned by The Ohio Company's customers or the information
necessary for sub-accounting; (vi) if required by law, forwarding shareholder
communications from the Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
its customers; (vii) aggregating and processing purchase, exchange, and
redemption requests from customers and placing net purchase, exchange, and
redemption orders for customers; and (viii) providing customers with a service
that invests the assets of their account in the Institutional Shares pursuant to
specific or pre-authorized instructions. In consideration of such services, the
Group, on behalf of the Fund, has agreed to pay The Ohio Company a monthly fee,
computed at the annual rate of twenty-five one-hundredths of one percent (.25%)
of the average aggregate net asset value of Institutional Shares of the Fund
held during the period by customers for whom The Ohio Company has provided
services under the Servicing Agreement. Any fees paid by the Fund to Financial
Institutions under the Services Plan will be borne solely by the Institutional
Shares of the Fund.
CUSTODIAN
The Group has appointed The Fifth Third Bank ("Fifth Third"), 38
Fountain Square Plaza, Cincinnati, Ohio 45263, as the Fund's custodian. In such
capacity, Fifth Third will hold or arrange for the holding of all portfolio
securities and other assets acquired and owned by the Fund.
WHAT ARE MY RIGHTS AS A SHAREHOLDER?
The Group was organized as an Ohio business trust on March 23,
1993. The Group currently consists of six funds. The shares of
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<PAGE> 134
each of the funds of the Group, other than the two money market funds, Cardinal
Government Securities Money Market Fund ("CGSMMF") and Cardinal Tax Exempt Money
Market Fund ("CTEMMF"), are currently offered in two separate classes: Investor
A Shares, otherwise referred to as Investor Shares, and Investor Y Shares,
otherwise referred to as Institutional Shares. CGSMMF and CTEMMF each only have
one class of shares. Each share represents an equal proportional interest in a
fund with other shares of the same fund, and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that fund as
are declared at the discretion of the Trustees.
Shareholders are entitled to one vote for each dollar of value invested
and a proportionate fractional vote for any fraction of a dollar invested, and
will vote in the aggregate and not by series except as otherwise expressly
required by law. For example, shareholders of the Fund will vote in the
aggregate with other shareholders of the Group with respect to the election of
trustees and ratification of the selection of independent accountants. However,
shareholders of the Fund will vote as a fund, and not in the aggregate with
other shareholders of the Group, for purposes of approval of amendments to the
investment advisory agreement as it relates to the Fund or any of the Fund's
fundamental policies.
Overall responsibility for the management of the Fund is vested in the
Board of Trustees of the Group. See "WHO MANAGES MY INVESTMENT OF THE FUND?"
Individual Trustees are elected by the shareholders of the Group and may be
removed by the Board of Trustees or shareholders in accordance with the
provisions of the Declaration of Trust and By-Laws of the Group and Ohio law.
See "ADDITIONAL INFORMATION - Miscellaneous" in the Statement of Additional
Information for further information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, approve the investment advisory agreement and to satisfy
certain other requirements. To the extent that such a meeting is not required,
the Group does not intend to have an annual or special meeting.
The Group has represented to the Commission that the Trustees will call
a special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Group and that the Group will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Group), by majority vote,
has the power to remove one or more Trustees.
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<PAGE> 135
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a fund" means the consideration received by
the fund upon the issuance or sale of shares in that fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Group not readily identified as
belonging to a particular fund that are allocated to the fund by the Group's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. Determinations by the Board of Trustees of
the Group as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
the Fund are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of the Fund means
the affirmative vote, at a meeting of shareholders duly called, of the lesser of
(a) 67% or more of the votes of shareholders of the Fund present at a meeting at
which the holders of more than 50% of the votes attributable to shareholders of
record of the Fund are represented in person or by proxy, or (b) the holders of
more than 50% of the outstanding votes of shareholders of the Fund.
Shareholders should direct all inquiries concerning such matters to the
Transfer Agent in writing to 215 East Capital Street, Columbus, Ohio 43215, or
by calling (800) 282-9446.
Shareholders will receive unaudited semi-annual reports describing the
investment operations of the Fund and annual financial reports audited by
independent auditors.
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<PAGE> 136
Investment Adviser and Manager
Cardinal Management Corp.
155 East Broad Street
Columbus, Ohio 43215
Distributor
The Ohio Company
155 East Broad Street
Columbus, Ohio 43215
Transfer Agent and Dividend Paying Agent
Cardinal Management Corp.
215 East Capital Street
Columbus, Ohio 43215
Custodian
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Legal Counsel
Baker & Hostetler
65 East State Street
Columbus, Ohio 43215
Independent Auditors
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
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<PAGE> 137
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS HIGHLIGHTS........................................................................................... 3
FEE TABLE....................................................................................................... 5
FINANCIAL HIGHLIGHTS............................................................................................ 5
PERFORMANCE INFORMATION......................................................................................... 8
WHAT IS THE FUND?............................................................................................... 9
WHAT ARE THE INVESTMENT OBJECTIVES
AND POLICIES OF THE FUND?.............................................................................. 10
HOW DO I PURCHASE INSTITUTIONAL
SHARES OF THE FUND?.................................................................................... 18
WHAT DISTRIBUTIONS WILL I RECEIVE?.............................................................................. 19
HOW MAY I REDEEM MY INSTITUTIONAL
SHARES?................................................................................................ 19
WHAT OTHER SHAREHOLDER PROGRAMS
ARE PROVIDED?.......................................................................................... 21
HOW IS NET ASSET VALUE CALCULATED?.............................................................................. 23
DOES THE FUND PAY FEDERAL INCOME TAX?........................................................................... 23
WHAT ABOUT MY TAXES?............................................................................................ 24
WHO MANAGES MY INVESTMENT IN THE FUND?.......................................................................... 25
WHAT ARE MY RIGHTS AS A SHAREHOLDER?............................................................................ 28
</TABLE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Adviser, or The Ohio Company. This
Prospectus does not constitute an offer by the Fund or by The Ohio Company to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful for the Fund to make
such an offer in such jurisdiction.
PROSPECTUS
December 2, 1996
THE OHIO COMPANY
CARDINAL
GOVERNMENT
OBLIGATIONS FUND
INSTITUTIONAL SHARES
[LOGO]
CARDINAL FUNDS
- 32 -
<PAGE> 138
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL FUND
CARDINAL GOVERNMENT OBLIGATIONS FUND
CARDINAL GOVERNMENT SECURITIES MONEY MARKET FUND
CARDINAL TAX EXEMPT MONEY MARKET FUND
CARDINAL BALANCED FUND
CARDINAL AGGRESSIVE GROWTH FUND
SIX INVESTMENT PORTFOLIOS OF
THE CARDINAL GROUP
The Cardinal Fund ("TCF"), Cardinal Government Obligations Fund
("CGOF"), Cardinal Government Securities Money Market Fund ("CGSMMF"), Cardinal
Tax Exempt Money Market Fund ("CTEMMF"), Cardinal Balanced Fund ("CBF") and
Cardinal Aggressive Growth Fund ("CAGF") (collectively, the "Funds" and
individually a "Fund") are each a separate diversified, investment portfolio of
The Cardinal Group, an open-end, management investment company (the "Group").
The investment objectives of TCF are long-term growth of capital and income.
Current income is a secondary objective. The investment objectives of CGOF are
to maximize safety of capital and, consistent with such objective, earn the
highest available current income obtainable from government securities. The
investment objectives of CGSMMF are to maximize current income while preserving
capital and maintaining liquidity. The investment objectives of CTEMMF are to
maximize current income exempt from federal income tax while preserving capital
and maintaining liquidity. The investment objectives of CBF are current income
and long-term growth of both capital and income. The investment objective of
CAGF is appreciation of capital.
-------------------------------------------------------
For further information regarding the Funds or for assistance
in opening an account or redeeming Shares, please call (800)
282-9446 toll free.
Inquiries may also be made by mail addressed to the Group at
its principal office:
155 East Broad Street
Columbus, Ohio 43215
This Statement Of Additional Information is not a prospectus and
should be read in conjunction with the Prospectuses of TCF, CGOF, CBF and CAGF,
each dated as of October 31, 1996, and the Prospectus of CGSMMF and CTEMMF dated
as of May 1, 1996, as supplemented to date, which have been filed with the
Securities and Exchange Commission. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectuses. The
Prospectuses are available upon request without charge from the Group at the
above address or by calling the phone number provided above.
December 2, 1996
<PAGE> 139
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE CARDINAL GROUP......................................... B-1
INVESTMENT OBJECTIVES AND POLICIES......................... B-1
Additional Information on Portfolio Instruments... B-1
Investment Restrictions........................... B-15
Portfolio Turnover................................ B-19
MANAGEMENT OF THE GROUP.................................... B-20
PRINCIPAL SHAREHOLDERS OF THE GROUP........................ B-24
THE ADVISER................................................ B-24
PORTFOLIO TRANSACTIONS..................................... B-26
TRANSFER AND DIVIDEND AGENT AND FUND ACCOUNTANT............ B-29
EXPENSES .................................................. B-30
THE DISTRIBUTOR............................................ B-32
CUSTODIAN.................................................. B-35
LEGAL COUNSEL AND INDEPENDENT AUDITORS..................... B-35
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............. B-35
Determination of Net Asset Value.................. B-37
TAXES .................................................. B-38
ADDITIONAL INFORMATION..................................... B-42
Description of Shares............................. B-42
Vote of a Majority of the Outstanding Shares...... B-43
Miscellaneous..................................... B-43
PERFORMANCE INFORMATION.................................... B-45
Yield ......................................... B-45
Calculation of Total Return....................... B-45
Performance Comparisons........................... B-47
FINANCIAL STATEMENTS....................................... B-48
APPENDIX .................................................. A-1
</TABLE>
<PAGE> 140
STATEMENT OF ADDITIONAL INFORMATION
THE CARDINAL GROUP
The Cardinal Group (the "Group") is an open-end management investment
company which currently offers six separate diversified investment portfolios,
each with different investment objectives.
This Statement of Additional Information contains information about The
Cardinal Fund ("TCF"), Cardinal Government Obligations Fund ("CGOF"), Cardinal
Government Securities Money Market Fund ("CGSMMF"), Cardinal Tax Exempt Money
Market Fund ("CTEMMF"), Cardinal Balanced Fund ("CBF") and Cardinal Aggressive
Growth Fund ("CAGF") (collectively, the "Funds" and individually a "Fund").
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of the respective
Fund. Capitalized terms not defined herein are defined in the Prospectuses. No
investment in Shares of a Fund should be made without first reading the
Prospectus of that Fund.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and
policies of the Funds as set forth in their respective Prospectuses.
Bank Obligations. As described in its respective Prospectus, CTEMMF,
CBF and CAGF may each invest in bank obligations consisting of bankers'
acceptances, certificates of deposit and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by such Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, assets in excess
of $100,000,000 (as of the date of their most recently published financial
statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of deposit
and time deposits will be those of domestic banks and savings and loan
associations, if at the time of investment the depository institution has assets
in excess of $100,000,000 (as of the date of its most recently published
B-1
<PAGE> 141
financial statements), or (b) the principal amount of the instrument is insured
in full by the Federal Deposit Insurance Corporation.
Commercial Paper. Commercial paper in which each of the Funds, other
than CGSMMF, may invest consists of unsecured promissory notes issued by
corporations. Except as noted below with respect to variable amount master
demand notes, issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Such Funds will invest only in commercial paper which is rated at the
time of purchase within the two highest rating groups assigned by one or more
appropriate NRSROs, or if unrated, which the Adviser determines to be of
comparable quality. For a description of the rating symbols of the NRSROs, see
the Appendix.
U.S. Government Obligations. CGOF and CGSMMF invest in, and TCF,
CTEMMF, CBF and CAGF may invest in, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Obligations of certain agencies
and instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the issuer to
borrow from the Treasury; others are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; and still others are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to do
so by law.
Municipal Securities. Municipal Securities which may be purchased by
CTEMMF currently can be divided into two basic groups: Municipal Notes and
Municipal Bonds.
Municipal Notes generally provide capital for short-term needs and have
maturities of one year or less. They include:
1. Project Notes. Project notes are sold through the
Department of Housing and Urban Development to raise funds for
federally sponsored urban renewal, neighborhood development and housing
programs. In low-income housing, proceeds from project notes are
chiefly used for construction financing prior to permanent financing.
In urban renewal the funds have generally been used for land
acquisition and site improvements. (No new urban renewal projects are
currently being undertaken as that program has been superseded by the
Community Block Grant Program contained in the Housing and Community
Development Act of 1974.) Project notes are issued by public bodies
created under the laws of one of the states, territories or U.S.
possessions and are referred to as Local Issuing Agencies. Project
Notes generally range in maturity
B-2
<PAGE> 142
from three months to one year. While they are the primary obligations
of the public housing agencies or the local urban renewal agencies
which have issued them, they are also secured by the full faith and
credit of the U.S. Government. Payment by the United States pursuant to
its full faith and credit obligation does not impair the tax-exempt
character of the income from project notes.
2. Tax Anticipation Notes. Tax anticipation notes are issued
by state and local governments in anticipation of collection of taxes
to finance the current operations of such governments. The notes are
generally payable only from tax collections and often only from the
proceeds of the specific tax levy whose collection they anticipate.
3. Revenue Anticipation Notes. Revenue anticipation notes are
issued by governmental entities in anticipation of revenues to be
received later in the then current fiscal year.
4. Bond Anticipation Notes. Bond anticipation notes are issued
in anticipation of a later issuance of bonds and are usually payable
from the proceeds of the sale of the bonds anticipated or of renewal
notes.
5. Construction Loan Notes. Construction loan notes, issued to
provide construction financing for specific projects, are often
redeemed after the projects are completed and accepted with funds
obtained from the Federal Housing Administration under "Fannie Mae"
(Federal National Mortgage Association) or "Ginnie Mae" (Government
National Mortgage Association).
6. Tax-Exempt Commercial Paper. Tax-exempt commercial paper is
issued by state and local governments and agencies thereof to finance
seasonal working capital needs or in anticipation of longer term
financing. The stated maturity is 365 days or less.
Municipal Bonds are usually issued to obtain funds for various public
purposes, to refund outstanding obligations, to meet general operating expenses
or to obtain funds to lend to other public institutions and facilities. They are
generally classified as either "general obligation" or "revenue" bonds and
frequently have maturities in excess of one year at the time of issuance,
although issues having variable interest rates with demand features may permit
CTEMMF to treat them as having maturities of less than 397 days. See "ADDITIONAL
PURCHASE AND REDEMPTION INFORMATION -Determination of Net Asset Value" herein
and "HOW IS NET ASSET VALUE CALCULATED?" in CTEMMF's Prospectus.
1. General Obligation Bonds. General obligation bonds are
issued by states, counties, regional districts, cities,
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towns and school districts for a variety of purposes including mass
transportation, highway, bridge, school, road, and water and sewer
system construction, repair or improvement. Payment of these bonds is
secured by a pledge of the issuer's full faith and credit and taxing
(usually property tax) power.
2. Revenue Bonds. Revenue bonds are payable solely from the
revenues generated from the operations of the facility or facilities
being financed or from other non-tax sources. These bonds are often
secured by debt service reserve funds, rent subsidies and/or mortgage
collateral to finance the construction of housing, highways, bridges,
tunnels, hospitals, university and college buildings, port and airport
facilities, and electric, water, gas and sewer systems.
3. Industrial Development Revenue and Private Activity Bonds.
Industrial development revenue bonds and private activity bonds are
usually issued by local government bodies or their authorities to
provide funding for industrial facilities, privately operated housing,
health care facilities, airports, docks and mass commuting facilities,
certain water and sewage facilities, qualified hazardous waste
facilities and high speed inner-city rail facilities. Under prior law,
these bonds also were issued to finance commercial facilities, sports
facilities, convention and trade show facilities and pollution control
facilities. Payment of principal and interest on such bonds is not
secured by the taxing power of the governmental body. Rather, payment
is dependent solely upon the ability of the users of the facilities
financed by the bonds to meet their financial obligations and the
pledge, if any, of the real and personal property financed by such
bonds as security for payment.
Legislation to restrict or eliminate the federal income tax exemption
for interest on certain Municipal Securities has been enacted periodically in
the recent past and additional legislation may be enacted in the future. This
legislation may adversely affect the availability of Municipal Securities for
CTEMMF's portfolio. If any such legislation has a materially adverse effect on
CTEMMF's ability to achieve its investment objectives, CTEMMF will re-evaluate
its investment objectives and submit to its shareholders for approval necessary
changes in the objectives and policies of CTEMMF.
The Municipal Securities described above represent those which CTEMMF
currently expects to purchase. However, several new types of municipal bonds and
notes, particularly those with shorter maturities, have been introduced in
recent years and the Adviser believes that other types of municipal bonds and
notes may be offered in the future. Therefore, in order to preserve maximum
flexibility in seeking to attain its investment objectives, CTEMMF
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has determined not to limit its purchase to the types of Municipal Securities
described herein, although it will purchase only municipal obligations which
have the credit characteristics described herein. In addition, CTEMMF may not
purchase any municipal bonds or notes having characteristics or terms that are
inconsistent with the investment objectives or investment policies of CTEMMF.
Subsequent to CTEMMF's purchase of a security, it may be assigned a
lower rating or cease to be rated. In such an event the Adviser is required to
promptly reassess the credit quality of such security. If such security no
longer presents minimal credit risks or if the security is deemed to be an
"Unrated Security" or a "Second-Tier Security," within the meaning of Rule 2a-7
of the 1940 Act, and receives a rating by any NRSRO below the second highest
rating category, the Adviser is generally required to sell such security within
five business days of becoming aware of such an event.
Variable Rate Demand Municipal Securities. Variable rate demand
Municipal Securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days' notice either from the issuer or by drawing on a bank
letter of credit or comparable guarantee issued with respect to such security.
The issuer of a variable rate demand security may have a corresponding right to
prepay in its discretion the outstanding principal of the instrument plus
accrued interest upon notice comparable to that required for the holder to
demand payment.
The terms of the securities must provide that interest rates are
adjustable at intervals ranging from weekly up to semi-annually. The adjustments
are based upon the prime rate of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The variable rate
demand securities purchased by CTEMMF are subject to the quality characteristics
for Municipal Securities described above. While these securities are expected to
have maturities in excess of one year, the Adviser will determine at least
monthly that such securities are of high quality. The Trustees have instructed
the Adviser to exercise its right to demand payment of principal and accrued
interest thereon, if a variable rate demand security held by CTEMMF no longer
meets the quality standards of CTEMMF, unless, of course, the security can be
sold for a greater amount in the market.
The principal and accrued interest payable to CTEMMF on demand will be
supported by an irrevocable letter of credit or comparable guarantee of a
financial institution (generally a commercial bank) whose short-term taxable
debt meets the quality criteria for investment by CTEMMF in Municipal
Securities, except in cases where
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the security itself meets the credit criteria of CTEMMF without such letter of
credit or comparable guarantee. Thus, although a variable rate demand security
may be unrated, CTEMMF will have at all times an alternate high quality credit
source to draw upon for payment with respect to such security.
The variable rate demand securities which CTEMMF may purchase include
participation interests in variable rate securities. Such participation
interests will have, as part of the participation agreement between CTEMMF and
the selling financial institution, a demand feature which permits CTEMMF to
demand payment from the seller of the principal amount of CTEMMF's participation
plus accrued interest thereon. This demand feature always will be supported by a
letter of credit or comparable guarantee provided by the selling financial
institution. Such financial institution will retain a service and a letter of
credit fee, and a fee for issuing commitments to purchase on demand, in an
amount equal to the excess of the interest paid on the variable rate security in
which CTEMMF has a participation interest over the negotiated yield at which the
participation interest was purchased by CTEMMF. Accordingly, CTEMMF will
purchase such participation interests only when the yield to CTEMMF, net of such
fees, is equal to or greater than the yield then available on other variable
rate demand securities or short-term fixed rate tax exempt securities of
comparable quality and where the fees are reasonable in relation to the services
provided by the financial institution and the security and liquidity provided by
the letter of credit or guarantee.
Concentration. CTEMMF may invest more than 25% of its net assets in (i)
Municipal Securities whose issuers are in the same state, (ii) Municipal
Securities, the interest upon which is paid solely from revenues of similar
projects and (iii) industrial development and pollution control revenue bonds
which are not variable rate demand Municipal Securities, i.e., Municipal
Securities which are related in such a way that an economic, business or
political development or change affecting one such Municipal Security would also
affect the other Municipal Securities; for example, Municipal Securities the
interest on which is paid from revenues of similar type projects or Municipal
Securities whose issuers are located in the same state. Provided, however, that
prior to CTEMMF's so investing its net assets CTEMMF will amend its Prospectus
to disclose such practice. The District of Columbia, each state, each of its
political subdivisions, agencies, instrumentalities and authorities, and each
multi-state agency of which a state is a member, is a separate "issuer" as that
term is used in this Statement of Additional Information and in CTEMMF's
investment restrictions contained in its Prospectus. The identification of the
"issuer" depends on the terms and conditions of the security. When the assets
and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is supported only by the assets and revenues of the
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subdivision, such subdivision would be deemed to be the sole "issuer."
Similarly, in the case of an industrial development or pollution control revenue
bond, if that bond is supported only by the assets and revenues of the
nongovernmental user, then such nongovernmental user would be deemed to be the
sole "issuer." If, however, in either case, the creating government or some
other entity guarantees a security, such a guarantee would be considered a
separate security and must be separately valued.
When-Issued and Delayed-Delivery Securities. CGOF, CGSMMF, CTEMMF and
CBF may each purchase securities on a "when-issued" or "delayed-delivery" basis
(i.e., for delivery beyond the normal settlement date at a stated price and
yield). When a Fund agrees to purchase securities on a "when-issued" or
"delayed-delivery" basis, such Fund's custodian will set aside in a separate
account cash or liquid portfolio securities equal to the amount of the
commitment. Normally, the custodian will set aside portfolio securities to
satisfy the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of such Fund's
commitment. It may be expected that a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, such Fund's liquidity and the ability of the Adviser
to manage it might be affected in the event its commitments to purchase
"when-issued" or "delayed-delivery" securities ever exceeded 25% of the value of
its assets. Under normal market conditions, however, neither CGOF's, CGSMMF's,
CTEMMF's nor CBF's commitments to purchase "when-issued" or "delayed-delivery"
securities will exceed 25% of the value of its assets.
When such a Fund engages in "when-issued" or "delayed-delivery"
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in that Fund's incurring a loss or missing the
opportunity to obtain a price considered to be advantageous. CGOF, CGSMMF,
CTEMMF and CBF will engage in "when-issued" or "delayed-delivery" transactions
only for the purpose of acquiring portfolio securities consistent with such
Fund's investment objectives and policies and not for investment leverage.
Mortgage-related Securities. CBF may, consistent with its investment
objectives and policies, invest in mortgage-related securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. CBF may,
in addition, invest in mortgage-related securities issued by nongovernmental
entities; provided, however, that to the extent CBF purchases mortgage-related
securities from such issuers which may, solely for purposes of Section 12 of the
1940 Act, be deemed to be investment
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companies, CBF's investment in such securities will be subject to the
limitations on its investment in investment company securities set forth below
in its investment restrictions.
Mortgage-related securities, for purposes of CBF's Prospectus and this
Statement of Additional Information, represent pools of mortgage loans assembled
for sale to investors by various governmental agencies such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. Although certain mortgage-related securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If CBF purchases a mortgage-related
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates or
prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security 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 period of time
over which income at the lower rate is received. For these and other reasons, a
mortgage-related security's average maturity may be shortened or lengthened as a
result of interest rate fluctuations and, therefore, it is not possible to
predict accurately the security's return to CBF. In addition, regular payments
received in respect of mortgage-related securities include both interest and
principal. No assurance can be given as to the return CBF will receive when
these amounts are reinvested.
CBF may invest in mortgage-related securities which are collateralized
mortgage obligations structured on pools of mortgage pass-through certificates
or mortgage loans. Collateralized mortgage obligations will be purchased only if
rated in the four highest bond rating categories assigned by an appropriate
NRSRO or, if unrated, which the Adviser deems to present attractive
opportunities and are of comparable quality.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of
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the United States. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs").
FHLMC is a corporate instrumentality of the United States, created pursuant to
an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed by the United States or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by FHLMC. FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the underlying
mortgage loans. When FHLMC does not guarantee timely payment of principal, FHLMC
may remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable.
Other Asset-Backed Securities. CBF may also invest in interests in
pools of receivables, such as motor vehicle installment purchase obligations
(known as Certificates of Automobile Receivables or CARS) and credit card
receivables (known as Certificates of Amortizing Revolving Debts or CARDS). Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities may also be debt instruments which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain time period by a letter of credit issued by a financial institution
(such as a bank or insurance company) unaffiliated with the issuers of such
securities. Non-mortgage backed securities will be purchased by CBF only when
rated in one of the four highest rating categories by an appropriate NRSRO at
the time of purchase.
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The development of these asset-backed securities is at an early state compared
to mortgage backed securities. While the market for asset-backed securities is
becoming increasingly liquid, the market for mortgage backed securities issued
by certain private organization and non-mortgage backed securities is not as
well developed. The Adviser will limit purchases of asset-backed securities to
securities that are deemed to be readily marketable by the Adviser at the time
of purchase.
Asset-backed securities held by CBF arise through the grouping by
governmental, government-related and private organizations of loans, receivables
and other assets originated by various lenders. Interests in pools of these
assets differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Instead, asset-backed securities provide periodic payments
which generally consist of both interest and principal payments.
The estimated life of an asset-backed security may vary with the
prepayment experience with respect to the underlying debt instruments. The rate
of such prepayments, and hence the life of an asset-backed security, will be a
function of current market interest rates and other economic and demographic
factors. Since prepayment experience can vary, asset-backed securities may be a
less effective vehicle for locking in high long-term yields.
Securities of Other Investment Companies. Each Fund may invest in
securities issued by other investment companies. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by such Fund. As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of that company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that such Fund bears directly in connection with its own operations.
Investment companies in which TCF, CGOF, CBF and CAGF may invest may also impose
a sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by such Fund and, therefore, will be borne directly by shareholders.
Income Participation Loans. CBF may make or acquire participation in
privately negotiated loans to borrowers. Frequently, such loans have variable
interest rates and may be backed by a bank letter of credit; in other cases they
may be unsecured. Such transactions may provide an opportunity to achieve
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higher yields than those that may be available from other securities offered and
sold to the general public.
Privately arranged loans, however, will generally not be rated by a
credit rating agency and will normally be liquid, if at all, only through a
provision requiring repayment following demand by the lender. Such loans made by
CBF may have a demand provision permitting such Fund to require repayment within
seven days. Participation in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are not readily marketable, they will be subject to CBF's 15% limitation on
investments in illiquid securities. Recovery of an investment in any such loan
that is illiquid and payable on demand will depend on the ability of the
borrower to meet an obligation for full repayment of principal and payment of
accrued interest within the demand period, normally seven days or less (unless
such Fund determines that a particular loan issue, unlike most such loans, has a
readily available market). As it deems appropriate, the Group's Board of
Trustees will establish procedures to monitor the credit standing of each such
borrower, including its ability to honor contractual payment obligations.
CBF will purchase income participation loans only if such instruments
are, in the opinion of the Adviser, of comparable quality to securities rated
within the four highest rating groups assigned by an applicable NRSRO.
Repurchase Agreements. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities from member banks of the Federal Reserve System
and registered broker-dealers which the Adviser deems creditworthy under
guidelines approved by the Group's Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price. The repurchase price would generally equal the price paid by the Fund
plus interest negotiated on the basis of current short-term rates, which may be
more or less than the rate on the underlying portfolio securities. The seller
under a repurchase agreement will be required to maintain at all times the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses, including: (a)
possible decline in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto; (b) possible subnormal
levels of income and lack of access to income during this period; and (c)
expenses of enforcing its rights. Additionally, there is no controlling legal
precedent confirming that the Fund would be entitled, as against a claim by such
seller or its receiver or trustee in bankruptcy, to retain the underlying
securities, although the Board of Trustees of the Group believes that, under
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the regular procedures normally in effect for custody of the Fund's securities
subject to repurchase agreements and under federal laws, a court of competent
jurisdiction would rule in favor of the Group if presented with the question.
Securities subject to repurchase agreements will be held by the Group's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a Fund
under the 1940 Act.
Reverse Repurchase Agreements. CTEMMF is permitted to enter into
reverse repurchase agreements for temporary or emergency non-investment purposes
in an amount not exceeding (together with other borrowings) 5% of the value of
CTEMMF's assets at the time of entering into the agreement. CTEMMF, however, has
not entered into such agreements in the past and does not intend to enter into
such agreements in the foreseeable future.
Foreign Investment. Investment in foreign securities is subject to
special investment risks that differ in some respects from those related to
investments in securities of U.S. domestic issuers. Since investments in the
securities of foreign issuers may involve currencies of foreign countries, a
Fund may be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations and may incur costs in connection with
conversions between various currencies.
Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Securities of
many foreign companies are less liquid and more volatile than securities of
comparable U.S. companies.
In addition, with respect to certain foreign countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a Fund's investments
in those countries. Moreover, individual foreign economies may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
TCF, CBF and CAGF will acquire such securities only when the Adviser
believes the risks associated with such investments are minimal.
Options Trading. Each of TCF, CGOF, CBF and CAGF may purchase put and
call options. A call option gives the purchaser of the option the right to buy,
and a writer has the obligation to sell, the underlying security at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market
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price of the security. The premium paid to the writer is consideration for
undertaking the obligations under the option contract. A put option gives the
purchaser the right to sell the underlying security at the stated exercise price
at any time prior to the expiration date of the option, regardless of the market
price of the security. Put and call options purchased by such Funds will be
valued at the last sale price, or in the absence of such a price, at the mean
between bid and asked price.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by the Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be subsequently marked-to-market to
reflect the current value of the option written. The current value of the traded
option is the last sale price or, in the absence of a sale, the average of the
closing bid and asked prices. If an option expires on the stipulated expiration
date or if the Fund enters into a closing purchase transaction, it will realize
a gain (or a loss if the cost of a closing purchase transaction exceeds the net
premium received when the option is sold) and the deferred credit related to
such option will be eliminated. If an option is exercised, the Fund may deliver
the underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received and the Fund will
realize a gain or loss.
TCF and CGOF may also purchase or sell index options. Index options (or
options on securities indices) are similar in many respects to options on
securities except that an index option gives the holder the right to receive,
upon exercise, cash instead of securities, if the closing level of the
securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
Medium-Grade Debt Securities. As stated in the Prospectus for CBF, CBF
may invest in securities within the four highest rating groups assigned by an
appropriate NRSRO (e.g. S&P and Moody's), including securities rated BBB by S&P
or Baa by Moody's or, if unrated, judged by the Adviser to be of comparable
quality ("Medium-Grade Securities").
As with other fixed-income securities, Medium-Grade Securities are
subject to credit risk and market risk. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit risk relates
to the ability of the issuer to make payments of principal and interest.
Medium-Grade Securities are considered by Moody's to have speculative
characteristics.
Medium-Grade Securities are generally subject to greater credit risk
than comparable higher-rated securities because issuers
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are more vulnerable to economic downturns, higher interest rates or adverse
issuer-specific developments. In addition, the prices of Medium-Grade Securities
are generally subject to greater market risk and therefore react more sharply to
changes in interest rates. The value and liquidity of Medium-Grade Securities
may be diminished by adverse publicity and investor perceptions.
Because certain Medium-Grade Securities are traded only in markets
where the number of potential purchasers and sellers, if any, is limited, the
ability of CBF to sell such securities at their fair value either to meet
redemption requests or to respond to changes in the financial markets may be
limited.
Particular types of Medium-Grade Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities may react more
strongly to changes in interest rates than the prices of other Medium-Grade
Securities. Some Medium-Grade Securities in which CBF may invest may be subject
to redemption or call provisions that may limit increases in market value that
might otherwise result from lower interest rates while increasing the risk that
CBF may be required to reinvest redemption or call proceeds during a period of
relatively low interest rates.
The credit ratings issued by NRSROs are subject to various limitations.
For example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade Securities. In certain circumstances,
the ratings may not reflect in a timely fashion adverse developments affecting
an issuer. For these reasons, the Adviser conducts its own independent credit
analysis of Medium-Grade Securities.
Futures Contracts. As discussed in the Prospectuses of the TCF, CGOF,
CBF and CAGF, each of those Funds may enter into futures contracts. This
investment technique is designed primarily to hedge against anticipated future
changes in market conditions which otherwise might adversely affect the value of
securities which a Fund holds or intends to purchase. For example, when interest
rates are expected to rise or market values of portfolio securities are expected
to fall, a Fund can seek through the sale of futures contracts to offset a
decline in the value of its portfolio securities. When interest rates are
expected to fall or market values are expected to rise, a Fund, through the
purchase of such contracts, can attempt to secure better rates or prices for the
Fund than might later be available in the market when it effects anticipated
purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
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Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid high grade debt obligations, to cover its performance under such
contracts. A Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with the value of its portfolio
securities, limiting the Fund's ability to hedge effectively against interest
rate and/or market risk and giving rise to additional risks. There is no
assurance of liquidity in the secondary market for purposes of closing out
futures positions.
Regulatory Restrictions. To the extent required to comply with
Securities and Exchange Commission Release No. IC-10666, when purchasing a
futures contract or writing a put option, a Fund will maintain in a segregated
account cash or liquid high-grade securities equal to the value of such
contracts.
To the extent required to comply with Commodity Futures Trading
Commission Regulation 4.5 and thereby avoid being classified as a "commodity
pool operator," a Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of such Fund's total assets. A Fund will not engage in
transactions in financial futures contracts or options thereon for speculation,
but only to attempt to hedge against changes in market conditions affecting the
values of securities which such Fund holds or intends to purchase. When futures
contracts or options thereon are purchased to protect against a price increase
on securities intended to be purchased later, it is anticipated that at least
25% of such intended purchases will be completed. When other futures contracts
or options thereon are purchased, the underlying value of such contracts will at
all times not exceed the sum of: (1) accrued profit on such contracts held by
the broker; (2) cash or high quality money market instruments set aside in an
identifiable manner; and (3) cash proceeds from investments due in 30 days.
Investment Restrictions
Each Fund's investment objectives are fundamental policies and as such
may not be changed without a vote of the holders of a majority of that Fund's
outstanding Shares. In addition, the following investment restrictions of the
Funds may be changed only by a vote of a majority of the outstanding Shares of a
Fund (as defined under "ADDITIONAL INFORMATION - Vote of a Majority of the
Outstanding Shares" in this Statement of Additional Information).
B-15
<PAGE> 155
In addition to the investment restrictions set forth in their
respective Prospectuses, each of TCF, CGOF, CBF and CAGF may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities and except as may
be necessary to make margin payments in connection with derivative securities
transactions;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction).
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current Prospectus of the Fund.
In addition, CGOF may not:
1. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; or
2. Mortgage, pledge, hypothecate or, in any other manner, transfer as
security for indebtedness any security owned by a Fund, except as may be
necessary in connection with permissible borrowings, in which event such
mortgaging, pledging or hypothecating may not exceed 5% of the Fund's assets,
valued at cost and except that the deposit of assets in escrow in connection
with writing covered call options will not be deemed to be the mortgage, pledge,
hypothecation or transfer of assets as security described above.
CGSMMF will not:
1. Pledge, mortgage or hypothecate its assets, except that to secure
borrowings permitted for temporary or emergency non-investment purposes, the
Trust may pledge securities having a market value at the time of pledge not
exceeding 15% of its total assets (so long as certain state law restrictions are
applicable, the market value of securities subject to any such pledge will not
exceed 10% of the market value of the Trust's total assets);
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
B-16
<PAGE> 156
3. Purchase or sell real estate or real estate mortgage loans;
4. Purchase commodities or commodities contracts;
5. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs; or
6. Purchase securities on margin, except for use of short- term credit
necessary for clearance of purchases of portfolio securities.
CTEMMF will not:
1. Pledge, mortgage or hypothecate its assets, except that to secure
permitted borrowings it may pledge securities having a market value at the time
of pledge not exceeding 15% of the Trust's total assets; provided, however, so
long as certain state law restrictions are applicable, the market value of
securities subject to any such pledge will not exceed 10% of the market value of
the Trust's total assets;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities";
3. Purchase or sell real estate, although the Trust may invest in
Municipal Securities or temporary investments secured by interests in real
estate;
4. Purchase or sell commodities or commodity contracts;
5. Purchase securities on margin, except for use of short- term credit
necessary for clearance of purchases of portfolio securities;
6. Write, purchase or sell put or call options, except to the extent
that securities subject to a demand obligation or stand- by commitment may be
acquired;
7. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; or
8. Purchase securities which are not Municipal Securities and the
income from which is subject to federal income tax, if such purchase would cause
more than 20% of the Trust's total assets to be invested in such securities.
The following additional investment restrictions may be changed without
the majority vote of the outstanding Shares of any of the Funds. Each Fund may
not:
B-17
<PAGE> 157
1. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act or pursuant to any exemptions therefrom;
2. Engage in any short sales;
3. Invest more than 15% of the Fund's total assets in securities which
are restricted as to disposition; or
4. Purchase or retain securities of any issuer if the officers and
trustees of the Group and the officers and directors of its investment adviser,
who each owns beneficially more than 1/2 of 1% of the outstanding securities of
such issuer, together own beneficially more than 5% of such securities.
In addition, each of TCF, CBF and CAGF has the following nonfundamental
investment restrictions: each such Fund may not (1) mortgage or hypothecate the
Fund's assets in excess of one-third of the Fund's total assets, (2) purchase
participations or direct interests in oil, gas or other mineral exploration or
development programs (although investments by the Fund in marketable securities
of companies engaged in such activities are not prohibited by this restriction),
or (3) invest more than 10% of the Fund's total assets in securities of issuers
which, together with any predecessors, have a record of less than three years'
continuous operation.
If a percentage restriction or requirement set forth above is met at
the time of investment, a later increase or decrease in such percentage
resulting from a change in net asset value will not be considered a violation of
the policy. However, should a change in net asset value or other external events
cause a Fund's investments in illiquid securities to exceed the limitation in
its non-fundamental policy as set forth in its Prospectus, the Fund will act to
cause the aggregate amount of illiquid securities to come within such limit as
soon as reasonably practicable. In such an event, however, the Fund would not be
required to liquidate any portfolio securities where the Fund would suffer a
loss on the sale of such securities.
The Group has represented to the California Department of Corporations
on behalf of each of the Funds that, in order to comply with applicable
regulations, each Fund may acquire or retain securities of other open-end
management investment companies only if such investments are made in open-end
management investment companies sold with no sales commission and the Fund's
investment adviser waives its management fee with respect to such investments.
The Group intends to comply with this undertaking with respect to a Fund for so
long as such Fund has its Shares registered for sale in the State of California
or such representation is required by the California Department of Corporations.
B-18
<PAGE> 158
The Group has represented to the Texas State Securities Board on behalf
of each of TCF, CBF and CAGF that each such Fund will limit its investments in
warrants, valued at the lower of cost or market, to no more than 5% of the value
of its net assets. Included within such amount (but not in excess of 2% of the
value of such Fund's net assets) are warrants which are not listed on the New
York or American Stock Exchanges. For purposes of this limitation, warrants
acquired in units or attached to other securities will be deemed to be without
value. The Group has also represented to the Texas State Securities Board on
behalf of each of CBF and CAGF that neither Fund may purchase or sell interests
in real estate limited partnerships, although investments in readily marketable
interests in real estate investment trusts or readily marketable securities of
companies or limited partnerships which invest in real estate are not
prohibited.
The Group intends to comply with these representations on behalf of a
Fund for so long as such Fund has its Shares registered for sale in the state to
which such representations were made.
Portfolio Turnover
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of that Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The Commission requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition were one year or less.
Because CGSMMF and CTEMMF intend to invest entirely in securities with
maturities of less than one year and because the Commission requires such
securities to be excluded from the calculation of portfolio turnover rate, the
portfolio turnover with respect to each of CGSMMF and CTEMMF is expected to be
zero percent for regulatory purposes. For each of the other Funds, the portfolio
turnover rates for the fiscal years ended September 30, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
Fund 1995 1994
---- ---- ----
<S> <C> <C>
TCF(1) 19.78% 23.20%
CGOF(1) 36.71% 21.95%
CBF 37.62% 59.09%
CAGF 80.35% 95.70%
</TABLE>
- ----------------------------
(1) Includes periods prior to the effective date of the Reorganization.
B-19
<PAGE> 159
For such Funds, the portfolio turnover rate may vary greatly from year
to year as well as within a particular year, and may also be affected by cash
requirements for redemptions of Shares. Portfolio turnover will not be a
limiting factor in making investment decisions.
MANAGEMENT OF THE GROUP
The trustees and officers of the Group, together with their addresses
and principal business occupations and other affiliations during the last five
years, are shown below. Each person named as a trustee also served as a director
of TCFI and as a trustee of CGST, CTEMT and Cardinal Government Obligations
Fund, CGOF's predecessor, prior to the Reorganization. Each trustee who is an
"interested person" of the Group, as that term is defined in the 1940 Act, is
indicated by an asterisk.
<TABLE>
<CAPTION>
Name, Business Position(s) Held Principal Occupation(s)
Address and Age with the Group During Past 5 Years
- --------------- ---------------- -----------------------
<S> <C> <C>
*H. Keith Allen Chairman and Chief Operating Officer,
155 East Broad Street Trustee, Member of Secretary, Treasurer and
Columbus, Ohio 43215 Executive, a Director of The Ohio
Age: 54 Nominating and Company (investment
Investment Com- banking); formerly Senior
mittees Executive Vice President
of The Ohio Company.
Gordon B. Carson Trustee, Member of Principal, Whitfield
5413 Gardenbrook Drive Executive Commit- Robert Associates (con-
Midland, Michigan 48642 tee struction consulting
Age: 84 firm).
John B. Gerlach, Jr. Trustee, Member of Since 1994, President and
37 West Broad Street Audit Committee a Director of Lancaster
Columbus, Ohio 43215 Colony Corporation
Age: 41 (diversified consumer
products); prior thereto,
Executive Vice President,
Secretary and a Director
of Lancaster Colony
Corporation.
Michael J. Knilans Trustee, Member of From November, 1989 to
1119 Kingsdale Terrace Executive Commit- August, 1995, Member of
Columbus, Ohio 43220 tee the Ohio Bureau of
Age: 68 Workers' Compensation and
Chairman from 1992
through August, 1995.
James I. Luck Trustee President, The Columbus
1234 East Broad Street Foundation (philanthropic
Columbus, Ohio 43205 public foundation).
Age: 50
</TABLE>
B-20
<PAGE> 160
<TABLE>
<S> <C> <C>
David L. Nelson Trustee, Member of Chairman of the Board of
295 Whispering Way Audit and Nominat- Directors of Herman
Holland, Michigan ing Committees Miller, Inc. (furniture
49424-6635 manufacturer); former
Age: 65 Vice President, Customer
Support, Americas Region,
and Vice President,
Customer Satisfaction,
Industry Segment, of Asea
Brown Boveri, Inc. (de-
signer and manufacturer
of process automation
systems for basic indus-
tries).
*C. A. Peterson Trustee Chartered Financial
150 E. Wilson Bridge Rd. Analyst, former Senior
Worthington, Ohio 43085 Executive Vice President
Age: 69 and Director of The Ohio
Company (investment
banking).
Lawrence H. Rogers II Trustee Self-employed author;
4600 Drake Road former Vice Chairman,
Cincinnati, Ohio 45243 Motor Sports Enterprises,
Age: 74 Inc.
*Frank W. Siegel President and Chartered Financial
155 East Broad Street Trustee, Member of Analyst and Senior Vice
Columbus, Ohio 43215 Executive and President, The Ohio
Age: 43 Nominating Commit- Company (investment
tees banking); former Vice
President, Keystone Group
(mutual fund
management/adminis-
tration); former Senior
Vice President, Trust
Advisory Group (mutual
fund consulting).
Joseph H. Stegmayer Trustee, Member of President and a Director
724 Hampton Roads Dr. Audit and Nomi- of Clayton Homes, Inc.
Knoxville, TN 37922-4071 nating Committees (manufactured homes);
Age: 44 former Vice President,
Treasurer, Chief
Financial Officer and a
Director of Worthington
Industries, Inc.
(specialty steel and
plastics manufacturer).
Karen J. Hipsher Secretary Executive Secretary, The
155 East Broad Street Ohio Company (investment
Columbus, Ohio 43215 banking).
Age: 50
James M. Schrack II Treasurer Vice President and Trust
155 East Broad Street Officer of The Ohio
Columbus, Ohio 43215 Company (investment
Age: 37 banking).
</TABLE>
B-21
<PAGE> 161
<TABLE>
<S> <C> <C>
Bruce E. McKibben Assistant Employee of The Ohio
155 East Broad Street Treasurer Company (investment
Columbus, Ohio 43215 banking).
Age: 26
</TABLE>
As of July 24, 1996, all trustees and officers of the Group as a group
owned fewer than one percent of the Shares of each Fund then outstanding.
Pursuant to the ultimate authority of the Board of Trustees of the
Group, the Executive Committee is responsible for the general management of the
affairs of the Group. This Committee's actions are reported to and reviewed by
the Board of Trustees.
Messrs. Allen and Siegel are Chairman, President and a director, and
Vice President and a director, respectively, of the Adviser, and Mr. Schrack is
a Vice President of the Adviser. The compensation of trustees and officers of
the Group who are employed by The Ohio Company is paid by The Ohio Company.
Trustees' fees plus expenses are paid by the Group, except that Messrs. Allen
and Siegel receive no fees from the Group.
The following table sets forth information regarding all compensation
paid by the Group to its Trustees for their services as trustees during the
fiscal year ended September 30, 1995. The Group has no pension or retirement
plans.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name and Position Compensation From the Group and
With the Group* From the Group the Fund Complex**
- --------------- -------------- ------------------
<S> <C> <C>
H. Keith Allen $ 0 $ 0
Chairman, Trustee and
Member of Executive,
Nominating and
Investment Committees
Gordon B. Carson $2,000 $12,000
Trustee and Member of
Executive Committee
John B. Gerlach $2,000 $13,000
Trustee and Member of
Audit Committee
Michael J. Knilans $2,000 $12,000
Trustee and Member of
Executive Committee
James I. Luck $2,000 $12,000
Trustee
</TABLE>
B-22
<PAGE> 162
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name and Position Compensation From the Group and
With the Group* From the Group the Fund Complex**
- --------------- -------------- ------------------
<S> <C> <C>
David L. Nelson $2,000 $13,000
Trustee and Member of
Audit and Nominating
Committees
C.A. Peterson $2,000 $12,000
Trustee
Lawrence H. Rogers, II $2,000 $12,000
Trustee
Frank W. Siegel $ 0 $ 0
Trustee, President and
Member of Executive and
Nominating Committees
Joseph H. Stegmayer $1,500 $10,000
Trustee and Member of
Audit and Nominating
Committees
</TABLE>
- ----------------------
*During the fiscal year ended September 30, 1995, John L. Schlater, a
former officer of The Ohio Company and the Adviser, had served as a trustee of
the Group but no longer does so as of the date hereof. Mr. Schlater did not
receive any compensation from the Group or the Fund Complex.
**For purposes of this Table, Fund Complex means one or more mutual
funds, including the Group, which have a common investment adviser or affiliated
investment advisers or which hold themselves out to the public as being related.
B-23
<PAGE> 163
PRINCIPAL SHAREHOLDERS OF THE GROUP
As of July 24, 1996, the following are the only persons known to the
Group who own 5% or more of TCF's, CGSMMF's or CTEMMF's shares:
<TABLE>
<CAPTION>
Name and Address of 5% Percentage
Fund or more Beneficial Owner Owned
- ---- ------------------------ ----------
<S> <C> <C>
TCF The Ohio Company(1) 6.24%
155 East Broad Street
Columbus, Ohio 43215
CGSMMF The Ohio Company(1) 9.17%
155 East Broad Street
Columbus, Ohio 43215
CTEMMF The Ohio Company(1) 5.96%
155 East Broad Street
Columbus, Ohio 43215
</TABLE>
- -----------------
(1) Either directly or in its capacity as a trustee of certain plans or
trusts.
There were no persons known to the Group to be the beneficial owner of
more than 5% of any other Fund's Shares or of the total number of the Group's
Shares outstanding as of July 24, 1996.
THE ADVISER
The Group has entered into an Investment Advisory and Management
Agreement dated as of June 18, 1993, as amended January 10, 1996 (the
"Investment Advisory Agreement"), with Cardinal Management Corp. (the
"Adviser"). Pursuant to the Investment Advisory Agreement, the Adviser has
agreed to provide investment advisory and management services as described in
the Prospectuses of the Funds. As compensation for such services, facilities and
expenses, the Adviser receives a fee (1) from each of CGOF, CGSMMF and CTEMMF,
computed and accrued daily and paid monthly, based on an annual rate of .50% of
the daily net asset value of that Fund; (2) from TCF, computed and accrued daily
and paid monthly, based on an annual rate of 0.60% of the daily net asset value
of TCF; and (3) from each of CBF and CAGF, computed and accrued daily and paid
B-24
<PAGE> 164
monthly, based on an annual rate of .75% of the daily net asset value of that
Fund.
Prior to the effective date of the Reorganization, the Adviser provided
investment advisory and management services to Cardinal Government Obligations
Fund, CGST and CTEMT and received a fee at the same annual rate for such
services as described above for CGOF, CGSMMF and CTEMMF, respectively. The Ohio
Company, prior to the effective date of the Reorganization, provided investment
advisory services to TCFI, and received a fee for such services based on an
annual rate of .50% of the daily net value of such Fund.
For the fiscal years ended September 30, 1995, 1994, and 1993, the
investment advisory fees incurred by each of the Funds (including their
respective predecessors prior to the Reorganization) were as follows:
<TABLE>
<CAPTION>
Fees Incurred for Year Ended September 30,
Fund 1995 1994 1993
- ---- ---- ---- ----
<S> <C> <C> <C>
TCF $1,158,534 $1,325,607 $1,370,536
CGOF 783,803 947,139 972,887
CGSMMF 2,031,367 1,978,541 2,227,209
CTEMMF 344,000 449,777 449,464
CBF 101,585 103,264 11,128(1)
CAGF 71,508 66,792 5,058(1)
</TABLE>
- -----------------------
(1) Commenced operations June 24, 1993.
The Adviser is a wholly owned subsidiary of The Ohio Company, an
investment banking firm organized in 1925. Descendants of H. P. and R. F. Wolfe,
deceased, and members of their families, through their possession of a majority
of the voting stock, may be considered controlling persons of The Ohio Company.
H. Keith Allen is an officer and director of The Ohio Company. Frank W. Siegel
and James M. Schrack II are each officers of The Ohio Company.
Unless sooner terminated, the Investment Advisory Agreement with respect
to a Fund continues for successive one-year periods ending June 18 of each year
if such continuance is approved at least annually by the Group's Board of
Trustees or by vote of a majority of the outstanding Shares of that Fund (as
defined under "ADDITIONAL INFORMATION -- Vote of a Majority of the Outstanding
Shares" below), and a majority of the Trustees who are not parties to the
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Investment Advisory Agreement by votes cast in person at a
meeting called for such
B-25
<PAGE> 165
purpose. The Investment Advisory Agreement is terminable as to a Fund at any
time on 60 days' written notice without penalty by the Trustees, by vote of a
majority of the outstanding Shares of that Fund, or by the Adviser. The
Investment Advisory Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Investment Advisory Agreement provides that the Adviser shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Group in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith, or negligence on the part of the Adviser in the
performance of its duties, or from negligent disregard by the Adviser of its
duties and obligations thereunder.
PORTFOLIO TRANSACTIONS
Pursuant to the Investment Advisory Agreement, the Adviser, subject to
the policies established by the Board of Trustees of the Group and in accordance
with the Funds' investment restrictions and policies, is responsible for each
Fund's portfolio decisions and the placing of the Funds' portfolio transactions.
Purchases and sales of portfolio securities which are debt securities usually
are principal transactions in which such portfolio securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Group, where possible, will deal directly with
dealers who make a market in the securities involved except in those
circumstances where better price and execution are available elsewhere.
For the fiscal years ended September 30, 1995, 1994 and 1993, the
brokerage fees incurred by each of TCF (including its predecessor, TCFI, prior
to the Reorganization), CBF and CAGF are set forth in the following table. None
of those commissions were paid to The Ohio Company, and during such periods,
none of CGOF, CGSMMF or CTEMMF (nor any of their predecessors prior to the
Reorganization) incurred any brokerage commissions.
B-26
<PAGE> 166
<TABLE>
<CAPTION>
Brokerage Commissions Incurred
for Year Ended September 30,
Fund 1995 1994 1993
- ---- ---- ---- ----
<S> <C> <C> <C>
TCF $215,180 $188,616 $101,220
CBF 20,490 18,285 3,260(1)
CAGF 22,011 20,634 7,530(1)
</TABLE>
- --------------------
(1) Commenced operations June 24, 1993.
In executing such transactions, the Adviser seeks to obtain the best net
results for a Fund taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulties
of execution and operational facilities of the firm involved and the firm's risk
in positioning a block of securities. While the Adviser generally seeks
reasonably competitive commission rates, for the reasons stated in the prior
sentence, a Fund will not necessarily be paying the lowest commission or spread
available.
The Adviser may consider provision of research, statistical and other
information to the Group, a Fund or the Adviser in the selection of qualified
broker-dealers who effect portfolio transactions for a Fund so long as the
Adviser's ability to obtain the best net results for portfolio transactions of
that Fund is not diminished. Such research services include supplemental
research, securities and economic analyses, and statistical services and
information with respect to the availability of securities or purchasers or
sellers of securities. Such research services may also be useful to the Adviser
in connection with its services to other clients. Similarly, research services
provided by brokers serving such other clients may be useful to the Adviser in
connection with its services to a Fund. Although this information is useful to a
Fund and the Adviser, except as described below, it is not possible to place a
dollar value on it. It is the opinion of the Board of Trustees and the Adviser
that the review and study of this information will not reduce the overall cost
to the Adviser of performing its duties to the Funds under the Investment
Advisory Agreement. The Adviser, on behalf of the Funds, may direct brokerage
transactions to Columbine Research in return for the provision of research
services. For the fiscal year ended September 30, 1995, the amount of such
transactions and related commissions on behalf of The Cardinal Fund Inc.,
predecessor to TCF, were $2,631,275 and $4,400, respectively. Such brokerage
transactions are subject to the requirements as to price and execution as
described above. The Group is not authorized to pay brokerage commissions which
are in excess of those which another
B-27
<PAGE> 167
qualified broker would charge solely by reason of brokerage and research
services provided.
As of April 7, 1996, the Adviser and The Ohio Company entered into an
agreement with Baseline Financial whereby the Adviser will direct brokerage
transactions to Baseline Financial in part as compensation for certain research
services. Such services include fundamental and technical portfolio management
information with respect to equity securities.
In addition, the Group has authorized the Adviser to place brokerage
transactions through Pershing and Company, a division of Donaldson, Lufkin &
Jenrette, in return for Lipper Data information prepared for the Group's
Trustees relating to information on fees and expenses of other mutual funds.
However, such brokerage transactions are subject to the requirements as to
execution and price described above.
Investment decisions for a Fund are made independently from those for
another Fund of the Group or any other investment company or account managed by
the Adviser. Any such other Funds, investment company or account may also invest
in the same securities as a Fund. When a purchase or sale of the same security
is made at substantially the same time on behalf of one Fund and another Fund,
investment company or account, the transaction will be averaged as to price and
available investments will be allocated as to amount in a manner which the
Adviser believes to be equitable to the Fund and such other Fund, investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
by that Fund. To the extent permitted by law, the Adviser may aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other funds or for other investment companies or accounts in order to obtain
best execution. As provided by the Investment Advisory Agreement, in making
investment recommendations for the Group, the Adviser will not inquire or take
into consideration whether an issuer of securities proposed for purchase or sale
by the Group is a customer of the Adviser, its parent or its subsidiaries or
affiliates and, in dealing with its customers, the Adviser, its parent,
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Group.
During the fiscal year ended September 30, 1995, none of the Funds,
except CBF, held any securities of its regular brokers or dealers, as defined in
Rule 10b-1 under the 1940 Act, or their parent companies. During each year, CBF
held commercial paper of Ford Motor Credit Corp., CIGNA Corp., Sears Acceptance
Corp. and General Motors Acceptance Corp, each of which is a regular dealer for
CBF. As of September 30, 1995, CBF held $500,000 of commercial paper of each
such dealer.
B-28
<PAGE> 168
Pursuant to Investment Advisory Agreement, the Adviser also serves as
general manager and administrator to each of the Funds. The Adviser assists in
supervising all operations of each Fund (other than those performed by The Fifth
Third Bank under the Custodian Agreement and by the Adviser under the Transfer
Agency and Fund Accounting Agreement).
The Adviser has agreed to maintain office facilities; furnish
statistical and research data, clerical, certain bookkeeping services and
stationery and office supplies; prepare the periodic reports to the Commission
on Form N-SAR or any replacement forms therefor; compile data for, prepare for
execution by each Fund and file all of a Fund's federal and state tax returns
and required tax filings other than those required to be made by each Fund's
custodian and Transfer Agent; prepare compliance filings pursuant to state
securities laws with the advice of the Group's counsel; assist to the extent
requested by the Group with the Group's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statement (on Form N-1A
or any replacement therefor); compile data for, prepare and file timely Notices
to the Commission required pursuant to Rule 24f-2 under the 1940 Act; keep and
maintain the financial accounts and records of each Fund, including calculation
of daily expense accruals; and generally assist in all aspects of each Fund's
operations.
TRANSFER AND DIVIDEND AGENT AND FUND ACCOUNTANT
The Group has entered into a Transfer Agency and Fund Accounting
Agreement dated as of June 18, 1993, as amended as of January 10, 1996 (the
"Transfer Agency Agreement"), with the Transfer Agent, pursuant to which the
Transfer Agent has agreed to act as the transfer agent, dividend disbursing
agent and administrator of plans for each Fund and to provide certain fund
accounting services for each Fund. Pursuant to the Transfer Agency Agreement,
the Transfer Agent, among other things, performs the following services in
connection with each Fund's shareholders of record: maintenance of shareholder
records for the Fund's shareholders of record; processing shareholder purchase
and redemption orders; processing transfers and exchanges of shares of the Group
on the shareholder files and records; processing dividend payments and
reinvestment; and assistance in the mailing of shareholder reports and proxy
solicitation materials. In consideration of such services each Fund has agreed
to pay the Transfer Agent monthly an annual fee equal to $18 (for TCF, CBF and
CAGF) or $21 (for CGOF, CGSMMF and CTEMMF) per shareholder account plus
out-of-pocket expenses.
In addition, the Transfer Agency provides certain fund accounting
services to each of the Funds, including maintaining the accounting books and
records for each Fund, including journals containing an itemized daily record of
all purchases and sales of portfolio securities, all receipts and disbursements
of cash and
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all other debits and credits, general and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received, and other required separate ledger
accounts; maintaining a monthly trial balance of all ledger accounts; performing
certain accounting services for each Fund, including calculation of the net
asset value per share, calculation of the dividend and capital gain
distributions, if any, and of yield, reconciliation of cash movements with such
Fund's custodian, affirmation to that Fund's custodian of all portfolio trades
and cash settlements, verification and reconciliation with that Fund's custodian
of all daily trade activity; providing certain reports; obtaining dealer
quotations, prices from a pricing service or matrix prices on all portfolio
securities in order to mark the portfolio to the market; and preparing an
interim balance sheet, statement of income and expense, and statement of changes
in net assets for each Fund. In consideration for such services, each Fund has
agreed to pay the Transfer Agent a fee, computed daily and paid periodically at
an annual rate of .03% of such Fund's average daily net assets of up to $100
million and .01% of such Fund's average daily net assets in excess of $100
million.
For the fiscal years ended September 30, 1995, 1994 and 1993, the fees
incurred by each of the Funds (including their respective predecessors prior to
the Reorganization) for transfer agency and fund accounting services provided by
the Transfer Agent were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
Fund 1995 1994 1993
- ---- ---- ---- ----
<S> <C> <C> <C>
TCF $255,882(1) $ 327,423(1) $297,199(1)
CGOF 215,273 255,671 253,174
CGSMMF 895,470 1,054,325 977,828
CTEMMF 79,777 95,478 94,836
CBF 25,950 25,266 3,536(2)
CAGF 25,079 25,671 3,184(2)
</TABLE>
- ------------------
(1) TCFI, as predecessor to TCF, did not incur any fund accounting fees.
(2) Commenced operations June 23, 1993.
EXPENSES
If total expenses borne by a Fund in any fiscal year exceed expense
limitations imposed by applicable state securities
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regulations, the Adviser will reimburse that Fund by the amount of such excess.
As of the date of this Statement of Additional Information, the most restrictive
expense limitation applicable to the Funds limit each Fund's aggregate annual
expenses, including management and advisory fees but excluding interest, taxes,
brokerage commissions, and certain other expenses, to 2 1/2% of the first $30
million of a Fund's average net assets, 2% of the next $70 million of such
Fund's average net assets, and 1 1/2% of such Fund's remaining average net
assets. Any expense reimbursements will be estimated daily and reconciled and
paid on a monthly basis.
ADMINISTRATIVE SERVICES PLAN
As described in the Prospectuses of TCF, CGOF, CBF and CAGF with respect
to their Institutional Shares, the Group has also adopted an Administrative
Services Plan with respect to Institutional Shares (the "Services Plan") under
which each such Fund is authorized to pay banks, broker-dealers, savings and
loan associations, trust companies (including The Ohio Company), qualified
investment advisers and certain other financial institutions which serve in a
fiduciary capacity on behalf of customers or beneficiaries (collectively,
"Financial Institutions"), to provide certain ministerial, record keeping, and
administrative support services to their customers who own of record or
beneficially Institutional Shares in a Fund. Payments to such Financial
Institutions are made pursuant to Servicing Agreements between the Group and the
Financial Institution. The Services Plan authorizes each of TCF, CGOF, CBF and
CAGF to make payments to Service Organizations in an amount, on an annual basis,
of up to 0.25% of the average daily net asset value of the Institutional Shares
that Fund. The Services Plan has been approved by the Board of Trustees of the
Group, including a majority of the Trustees who are not interested persons of
the Group (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Services Plan or in any Servicing
Agreements thereunder (the "Disinterested Trustees"). The Services Plan may be
terminated as to a Fund by a vote of a majority of the Disinterested Trustees.
The Trustees review quarterly a written report of the amounts expended pursuant
to the Services Plan and the purposes for which such expenditures were made. The
Services Plan may be amended by a vote of the Trustees, provided that any
material amendments also require the vote of a majority of the Disinterested
Trustees. For so long as the Services Plan is in effect, selection and
nomination of those Disinterested Trustees shall be committed to the discretion
of the Group's Disinterested Trustees. All Servicing Agreements may be
terminated at any time without the payment of any penalty by a vote of a
majority of the Disinterested Trustees. The Services Plan will continue in
effect for successive one-year periods, provided that each such continuance is
specifically approved by a majority of the Board of Trustees, including a
majority of the Disinterested Trustees.
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As authorized by the Services Plan, the Group has entered into a
Servicing Agreement with The Ohio Company pursuant to which The Ohio Company has
agreed to provide certain administrative support services in connection with
Institutional Shares of the Funds owned of record or beneficially by its
customers for whom The Ohio Company serves as a fiduciary. Such administrative
support services may include, but are not limited to, (i) processing dividend
and distribution payments from a Fund on behalf of customers; (ii) providing
periodic statements to its customers showing their positions in the
Institutional Shares; (iii) arranging for bank wires; (iv) responding to routine
customer inquiries relating to services performed by The Ohio Company; (v)
providing sub-accounting with respect to the Institutional Shares beneficially
owned by The Ohio Company's customers or the information necessary for
sub-accounting; (vi) if required by law, forwarding shareholder communications
from a Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to its
customers; (vii) aggregating and processing purchase, exchange, and redemption
requests from customers and placing net purchase, exchange, and redemption
orders for customers; and (viii) providing customers with a service that invests
the assets of their account in the Institutional Shares pursuant to specific or
pre-authorized instructions. In consideration of such services, the Group, on
behalf of each of TCF, CGOF, CBF and CAGF, 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 Institutional Shares of that Fund held during the period by
customers for whom The Ohio Company has provided services under the Servicing
Agreement.
THE DISTRIBUTOR
The Ohio Company serves as agent for the Funds in the distribution of
their Shares pursuant to a Distribution Agreement dated June 18, 1993, as
amended as of October 1, 1996 (the "Distribution Agreement"). Unless otherwise
terminated, the Distribution Agreement remains in effect for successive annual
periods ending on June 18 if approved at least annually (i) by the Group's Board
of Trustees or by the vote of a majority of the outstanding shares of the Group,
and (ii) by the vote of a majority of the Trustees of the Group who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement may be terminated in the event of any assignment, as defined in the
1940 Act.
In its capacity as Distributor, The Ohio Company solicits orders for the
sale of Shares, advertises and pays the costs of advertising, office space and
the personnel involved in such activities. The Distributor receives no
compensation from the Group under the Distribution Agreement, but may receive
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compensation under the Distribution and Shareholder Service Plan described below
with respect to sales of Investor Shares of TCF, CGOF, CBF and CAGF and retain
all or a portion of the sales charges with respect to its sales of Shares of
TCF, CGOF, CBF and CAGF.
For the fiscal years ended September 30, 1995, 1994 and 1993,
commissions paid to The Ohio Company with respect to the sale of Shares of TCF,
CGOF (and their respective predecessors), CBF and CAGF, after discounts to
dealers, were $439,190, $1,264,115 and $4,250,912, respectively.
As described in the Prospectus, the Group has adopted a Distribution and
Shareholder Service Plan with respect to Investor Shares (the "12b-1 Plan")
pursuant to Rule 12b-1 under the 1940 Act under which each of TCF, CGOF, CBF and
CAGF (collectively, the "12b-1 Funds" and individually a "12b-1 Fund") is
authorized to pay The Ohio Company, with respect to such Fund's Investor Shares,
for payments The Ohio Company makes to broker-dealers, including The Ohio
Company, banks and other institutions (with all of the foregoing organizations
being referred to as "Participating Organizations") for providing distribution
or shareholder service assistance or for distribution assistance and/or
shareholder service provided by The Ohio Company pursuant to an agreement
between The Ohio Company and the Group. Payments to such Participating
Organizations may be made pursuant to agreements entered into with The Ohio
Company. The 12b-1 Plan authorizes each 12b-1 Fund to make payments to The Ohio
Company in an amount not in excess, on an annual basis, of 0.25% of the average
daily net asset value of the Investor Shares of that 12b-1 Fund.
As required by Rule 12b-1, the 12b-1 Plan was approved by the initial
sole shareholder of each 12b-1 Fund and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of that 12b-1 Fund and
who have no direct or indirect financial interest in the operation of the 12b-1
Plan (the "Independent Trustees"). The 12b-1 Plan may be terminated as to a
12b-1 Fund by vote of a majority of the Independent Trustees, or by vote of
majority of the outstanding Investor Shares of that 12b-1 Fund. Any change in
the 12b-1 Plan that would materially increase the distribution cost to a 12b-1
Fund requires Investor shareholder approval. The Trustees review quarterly a
written report of such costs and the purposes for which such costs have been
incurred. The 12b-1 Plan may be amended by vote of the Trustees, including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose. For so long as the 12b-1 Plan is in effect, selection and
nomination of those Trustees who are not interested persons of the Group shall
be committed to the discretion of such disinterested persons. All agreements
with any person relating to the implementation of the 12b-1 Plan with respect to
a 12b-1 Fund may be terminated at any time on 60 days' written notice without
payment of any penalty, by vote of a
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<PAGE> 173
majority of the Independent Trustees or by a vote of the majority of the
outstanding Investor Shares of such 12b-1 Fund.
The 12b-1 Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by a vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
The Board of Trustees has a duty to request and evaluate such information as may
be reasonably necessary for them to make an informed determination of whether
the 12b-1 Plan should be implemented or continued. In addition the Trustees in
approving the 12b-1 Plan must determine that there is a reasonable likelihood
that the 12b-1 Plan will benefit the 12b-1 Funds and their Investor
Shareholders.
The Board of Trustees of the Group believes that the 12b-1 Plan is in
the best interests of the 12b-1 Funds since it encourages Fund growth and
retention of Fund assets. As a 12b-1 Fund grows in size, certain expenses, and
therefore total expenses per Share, may be reduced and overall performance per
Share may be improved.
As authorized by the 12b-1 Plan, the Group has entered into a Rule 12b-1
Agreement with The Ohio Company pursuant to which The Ohio Company has agreed to
provide certain shareholder services in connection with Investor Shares of a
12b-1 Fund purchased and held by The Ohio Company for the accounts of its
customers and Investor Shares of a 12b-1 Fund purchased and held by customers of
The Ohio Company directly, including, but not limited to, answering Shareholder
questions concerning the 12b-1 Funds, providing information to Shareholders on
their investments in the 12b-1 Funds and providing such personnel and
communication equipment as is necessary and appropriate to accomplish such
matters. In consideration of such services the Group, on behalf of each 12b-1
Fund, has agreed to pay The Ohio Company a monthly fee, computed at the annual
rate of .25% of the average aggregate net asset value of Investor Shares of that
12b-1 Fund held during the period in customer accounts for which The Ohio
Company has provided services under this Agreement. For the fiscal year ended
September 30, 1995, fees earned by The Ohio Company under this Rule 12b-1
Agreement, with respect to CBF, were $32,534, and, with respect to CAGF, were
$22,594. Payments made under the 12b-1 Plan by a 12b-1 Fund will be borne solely
by the Investor Shareholders of that Fund.
In addition, The Ohio Company may enter into, from time to time, Rule
12b-1 Agreements with selected dealers pursuant to which such dealers will
provide certain Shareholder services including, but not limited to, those
discussed above.
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CUSTODIAN
The Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263,
has been selected to serve as the Funds' custodian pursuant to the Custody
Agreement dated June 18, 1993, as amended as of January 10, 1996. In such
capacity the custodian will hold or arrange for the holding of all portfolio
securities and other assets of the Funds.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Baker & Hostetler, 65 East State Street, Columbus, Ohio 43215, is
counsel to the Group and will pass upon the legality of the Shares offered
thereby. The Group has selected KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215, as independent auditors for the Funds. The financial
statements of the Funds (or their respective predecessors) included in this
Statement of Additional Information have been included herein in reliance upon
the report of KPMG Peat Marwick LLP, independent auditors, given upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
As of October 1, 1996, the Board of Trustees of the Group reclassified
the issued and outstanding Shares of TCF, CGOF, CBF and CAGF as Investor A
Shares, otherwise known as Investor Shares. The Board of Trustees also
authorized the issuance of Investor Y Shares, otherwise referred to as
Institutional Shares. Investor Shares and Institutional Shares of a Fund
represent the same interest in the underlying portfolio securities of that Fund
and are subject to the same expenses and fees, except that Investor Shares are
sold subject to a front-end sales charge and subject to fees payable under the
Rule 12b-1 Plan described above. Institutional Shares are sold at net asset
value without any front-end sales charge and are not subject to a Rule 12b-1 fee
but are subject to fees payable under the Administrative Services Plan described
above.
The Funds' Shares are sold on a continuous basis through The Ohio
Company, principal underwriter of the Funds' Shares, at its address and number
set forth on the cover page of this Statement of Additional Information.
Investor Shares of each of TCF, CGOF, CBF and CAGF and shares of CGSMMF and
CTEMMF may also be purchased through other broker-dealers who are members of the
National Association of Securities Dealers, Inc. and have sales agreements with
The Ohio Company. Institutional Shares of TCF, CGOF, CBF and CAGF, may also be
purchased at net asset value through procedures established by The Ohio Company
in connection with the requirements of accounts for which banks, broker-dealers,
savings and loan associations, trust companies (including The Ohio Company),
qualified investment
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advisers and certain other financial institutions serve in a fiduciary capacity
on behalf of customers or beneficiaries (collectively, "Financial
Institutions").
Based upon the value of TCF's portfolio securities and other assets and
the number of outstanding shares as of the fiscal period ended March 31, 1996,
the net asset value and redemption price per share was $13.40. The total
offering price per share was $14.03 per share (net asset value / .9550, assuming
the then current maximum sales charge of 4.5% of the offering price).
Based upon the value of CGOF's portfolio securities and other assets and
the number of outstanding shares as of the fiscal period ended March 31, 1996,
the net asset value and redemption price per share was $8.14. The total offering
price per share was $8.52 per share (net asset value / .9550, assuming the then
current maximum sales charge of 4.50% of the offering price).
Based upon the value of CBF's portfolio securities and other assets and
the number of outstanding Shares as of the fiscal period ended March 31, 1996,
the net asset value and redemption price per share was $11.60. The total
offering price per share was $12.15 per share (net asset value / .955, assuming
the then current maximum sales charge of 4.50% of the offering price).
Based upon the value of CAGF's portfolio securities and other assets and
the number of outstanding Shares as of the fiscal period ended March 31, 1996,
the net asset value and redemption price per share was $11.27. The total
offering price per share was $11.80 per share (net asset value / .955, assuming
the then current maximum sales charge of 4.50% of the offering price).
The Group may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Commission, (b) the Exchange is closed for other than customary weekend and
holiday closings, (c) the Commission has by order permitted such suspension, or
(d) an emergency exists as a result of which (i) disposal by the Group of
securities owned by it is not reasonably practical or (ii) it is not reasonably
practical for the Group to determine the fair value of its net assets.
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Use of the check-writing redemption procedure by shareholders of CGSMMF
and CTEMMF will be subject to the rules and regulations of The Fifth Third Bank
(the "Bank") governing checking accounts. Neither the Bank nor the Group shall
incur any liability to a participating shareholder under this procedure for not
honoring a check that exceeds the value of Shares in a shareholder's account,
for honoring checks properly drafted, for effecting redemptions pursuant to
payment thereof or for returning checks not accepted for payment. This procedure
may be terminated at any time by the Group, the Bank or the participating
shareholder. A shareholder participating in the check-writing redemption
procedure has not established a checking or other account with the Bank for the
purposes of Federal Deposit Insurance or otherwise.
Determination of Net Asset Value
The Group values the portfolio securities of CGSMMF and CTEMMF
(collectively, the "Money Market Funds" and individually a "Money Market Fund")
using the amortized cost valuation method. This method involves valuing a
security at its cost and thereafter accruing any discount or premium at a
constant rate to maturity. By declaring these accruals to the Money Market
Funds' shareholders in the daily dividend, the value of a Money Market Fund's
assets, and, thus, its net asset value per share, will generally remain
constant. Although this method provides certainty in valuation, it may result in
periods during which the value of a Money Market Fund's securities, as
determined by amortized cost, is higher or lower than the price the Money Market
Fund would receive if it sold the securities. During such periods, the yield on
Shares of the Money Market Fund may differ somewhat from that obtained in a
similar fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
securities. For example, if the use of amortized cost by a Money Market Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Money Market Fund would be able to obtain a somewhat higher
yield than would result from investment in a similar fund utilizing solely
market values, and existing investors in the Money Market Fund would receive
less investment income.
The valuation of the Money Market Funds' portfolio securities based upon
their amortized cost and the maintenance of the Money Market Funds' per share
net asset value of $1.00 is permitted based on the Money Market Funds' adherence
to certain conditions, including maintaining a dollar-weighted average portfolio
maturity of 90 days or less and purchasing only portfolio securities having
remaining maturities of 397 days or less. The Board of Trustees has also
established procedures designed to stabilize, to the extent reasonably possible,
the Money Market Funds' net asset value per share, as computed for the purpose
of sales and redemptions, at $1.00. Such procedures include review of the Money
Market Funds' portfolio holdings by the Board of Trustees at such intervals as
it
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may deem appropriate to determine whether the Money Market Funds' net asset
value calculated by using available market quotations deviates from $1.00 per
Share and, if so, whether such deviation may result in material dilution or may
be otherwise unfair to existing shareholders. These procedures also include a
review by the Adviser in accordance with policies established by the Board of
Trustees not less frequently than monthly of the quality of certain Municipal
Securities having variable interest rates and demand features that permit CTEMMF
to calculate the maturity of such obligations to a point in time prior to their
stated maturity. In the event the Board of Trustees determines that deviation in
net asset value exists, the Board of Trustees will take such corrective action
as it deems necessary and appropriate, which action might include redemption of
Shares in kind, selling portfolio securities prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity, withholding
dividends, reduction of the number of Shares outstanding (i.e. the declaration
of a negative dividend) or establishing a net asset value per share by using
available market quotations.
TAXES
General. Each Fund intends to qualify as a "regulated investment
company" under the Code for so long as such qualification is in the best
interest of that Fund's shareholders. In order to qualify as a regulated
investment company, a Fund must, among other things: derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or foreign
currencies, or other income derived with respect to its business of investing in
such stocks, securities, or currencies; derive less than 30% of its gross income
from the sale or other disposition of stocks, securities, options, future
contracts or foreign currencies held less than three months; and diversify its
investments within certain prescribed limits. In addition, to utilize the tax
provisions specially applicable to regulated investment companies, a Fund must
distribute to its shareholders at least 90% of its investment company taxable
income for the year. In general, a Fund's investment company taxable income will
be its taxable income subject to certain adjustments and excluding the excess of
any net long-term capital gain for the taxable year over the net short-term
capital loss, if any, for such year.
A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the
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required amount, such Fund would be subject to a non-deductible excise tax equal
to 4% of the deficiency.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its shareholders). In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.
It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional Shares of the Fund and not in cash.
Distribution by a Fund of the excess of net long-term capital gain over
net short-term capital loss is taxable to shareholders as long-term capital gain
in the year in which it is received, regardless of how long the shareholder has
held the Shares. Such distributions are not eligible for the dividends-received
deduction.
Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the marginal tax rate may be in excess
of 39.6%, because adjustments reduce or eliminate the benefit of the personal
exemption and itemized deductions for individuals with gross income in excess of
certain threshold amounts.
Capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on capital gains of
individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
to future years.
Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in
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excess of $100,000 but lower than $335,000, a maximum marginal tax rate of 39%
may result. Federal taxable income of corporations in excess of $10 million is
subject to a tax rate of 35%. Further, a corporation's federal taxable income in
excess of $15 million is subject to an additional tax equal to 3% of taxable
income over $15 million, but not more than $100,000.
Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.
Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
A Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends paid to any shareholder who has
provided either an incorrect tax identification number or no number at all, or
who is subject to withholding by the Internal Revenue Service for failure
properly to include on his return payments of interest or dividends.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of a Fund. No attempt has been made to present a detailed explanation
of the federal income tax treatment of a Fund or its shareholders and this
discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectuses and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectuses and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
Specific Information Regarding CTEMMF. An exempt-interest dividend is
any dividend or part thereof (other than a capital gain dividend) paid by CTEMMF
that is derived from interest received by CTEMMF that is excluded from gross
income for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice mailed
to shareholders not later than sixty days after the close of CTEMMF's taxable
year. The percentage of the total dividends paid by CTEMMF during any taxable
year that qualifies as exempt-interest dividends will be the same for all
shareholders receiving dividends during such year. Exempt-interest dividends
shall be treated by CTEMMF's shareholders as items of interest excludable from
their
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gross income for Federal income tax purposes under Section 103(a) of the
Code. However, a shareholder is advised to consult his tax adviser with respect
to whether exempt-interest dividends retain the exclusion under Section 103(a)
of the Code if such shareholder is a "substantial user" or a "related person" to
such user under Section 147(a) of the Code with respect to any of the Municipal
Securities held by CTEMMF. If a shareholder receives an exempt-interest dividend
with respect to any Share and such Share is held by the shareholder for six
months or less, any loss on the sale or exchange of such Share shall be
disallowed to the extent of the amount of such exempt-interest dividend.
In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry Shares of CTEMMF is not deductible for federal
income tax purposes if CTEMMF distributes exempt-interest dividends during the
shareholder's taxable year. A shareholder of CTEMMF that is a financial
institution may not deduct interest expense attributable to indebtedness
incurred or continued to purchase or carry Shares of CTEMMF if CTEMMF
distributes exempt-interest dividends during the shareholder's taxable year
(except that 80% in the case of interest expense attributable to tax-exempt
obligations acquired after December 31, 1982, and prior to August 7, 1986 may be
deducted). Certain federal income tax deductions of property and casualty
insurance companies holding Shares of CTEMMF and receiving exempt-interest
dividends may also be adversely affected. In certain limited instances, the
portion of Social Security benefits received by a shareholder which may be
subject to federal income tax may be affected by the amount of tax-exempt
interest income, including exempt-interest dividends received by shareholders of
CTEMMF.
In the unlikely event CTEMMF realizes long-term capital gains, CTEMMF
intends to distribute any realized net long-term capital gains annually. If
CTEMMF distributes such gains, CTEMMF will have no tax liability with respect to
such gains, and the distributions will be taxable to shareholders as long-term
capital gains regardless of how long the shareholders have held the Shares. Any
such distributions will be designated as a capital gain dividend in a written
notice mailed by CTEMMF to the shareholders not later than sixty days after the
close of CTEMMF's taxable year. It should be noted, however, that capital gains
are taxed like ordinary income except that net capital gains of individuals are
subject to a maximum federal income tax rate of 28%. Net capital gains are the
excess of net long-term capital gains over net short-term capital losses. Any
net short-term capital gains are taxed at ordinary income tax rates. If a
shareholder receives a capital gain dividend with respect to any Share and then
sells the Share before he has held it for more than six months, any loss on the
sale of the Share is treated as long-term capital loss to the extent of the
capital gain dividend received.
Interest earned by individuals and corporations on certain municipal
obligations issued on or after August 8, 1986, to finance
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certain private activities will be treated as a tax preference item in computing
the alternative minimum tax. It is likely that exempt-interest dividends
received by shareholders from CTEMMF will also be treated as tax preference
items in computing the alternative minimum tax to the extent that distributions
by CTEMMF are attributable to such obligations. Also, a portion of all other
interest excluded from gross income for federal income tax purposes earned by a
corporation may be subject to the alternative minimum tax as a result of the
inclusion in alternative minimum taxable income of 75% of the excess of adjusted
current earnings and profits over pre-book alternative minimum taxable income.
Adjusted current earnings and profits would include exempt-interest dividends
distributed by CTEMMF to corporate shareholders.
For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income," which would include a portion of the exempt-interest dividends
distributed by CTEMMF to such corporation, and exempt-interest dividends
distributed to certain foreign corporations doing business in the United States
could be subject to a branch profits tax imposed by Section 884 of the Code.
Distributions of exempt-interest dividends by CTEMMF may be subject to
state and local taxes even though a substantial portion of such distributions
may be derived from interest on obligations which, if received directly, would
be exempt from such taxes. CTEMMF will report to its shareholders annually after
the close of its taxable year the percentage and source, on a state-by-state
basis, of interest income earned on municipal obligations held by CTEMMF during
the preceding year. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
ADDITIONAL INFORMATION
Description of Shares
The Group is an Ohio business trust. The Group was organized on March
23, 1993, and the Group's Declaration of Trust was filed with the Secretary of
State of Ohio on March 23, 1993. The Declaration of Trust authorizes the Board
of Trustees to issue an unlimited number of Shares, which are units of
beneficial interest, without par value. The Group presently has six series of
Shares, which represent interests in each series of the Group. The Shares of
each of the Funds of the Group, other than the Money Market Funds, are divided
into four separate classes: Investor A Shares, Investor B Shares, Investor C
Shares and Investor Y Shares, which are otherwise referred to as Institutional
Shares, although currently Investor B and C Shares are not being offered. Shares
of the Money Market Funds are being offered only in one class. The
B-42
<PAGE> 182
Group's Declaration of Trust authorizes the Board of Trustees to divide or
redivide any unissued Shares of the Group into one or more additional series by
setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting power, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the respective Prospectus
and this Statement of Additional Information, a Fund's Shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the Group,
shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Fund, of any general assets not
belonging to any particular Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Group shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by the matter. For purposes of determining whether the
approval of a majority of the outstanding shares of a series will be required in
connection with a matter, a series will be deemed to be affected by a matter
unless it is clear that the interests of each series in the matter are
identical, or that the matter does not affect any interest of the series. Under
Rule 18f-2, the approval of any amendment to the Investment Advisory Agreement
or any change in investment policy submitted to shareholders would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, Rule 18f-2 also provides that
the ratification of independent public accountants and the election of Trustees
may be effectively acted upon by shareholders of the Group voting without regard
to series.
Vote of a Majority of the Outstanding Shares
As used in the Prospectuses and this Statement of Additional
Information, "vote of a majority of the outstanding Shares" of the Group or a
Fund, means the affirmative vote, at an annual or special meeting of
shareholders duly called, of the lesser of (a) 67% or more of the votes of
shareholders of the Group or that Fund present at such meeting at which the
holders of more than 50% of the votes attributable to the shareholders of record
of the Group or that Fund are represented in person or by proxy, or (b) the
holders of more than 50% of the outstanding votes of shareholders of the Group
or such Fund.
B-43
<PAGE> 183
Miscellaneous
Individual Trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals. Generally,
shareholders owning not less than 20% of the outstanding shares of the Group
entitled to vote may cause the Trustees to call a special meeting. However, the
Group has represented to the Commission that the Trustees will call a special
meeting for the purpose of considering the removal of one or more Trustees upon
written request therefor from shareholders owning not less than 10% of the
outstanding votes of the Group entitled to vote and that the Group will assist
in communications with other shareholders as required by 16(c) of the 1940 Act.
At such a meeting, a quorum of shareholders (constituting a majority of votes
attributable to all outstanding shares of the Group), by majority vote, has the
power to remove one or more Trustees.
The Group is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Group.
The Prospectuses and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the Commission
upon payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectuses and this Statement of Additional Information.
B-44
<PAGE> 184
PERFORMANCE INFORMATION
The following performance information as of March 31, 1996, for TCF and
CGOF, and as of September 30, 1995 for CGSMMF and CTEMMF includes the
performance of their respective predecessor funds for periods prior to the
effective date of the Reorganization. TCF and CGOF are subject to certain
additional fees that, if such fees had been imposed prior to the Reorganization,
would have affected such Funds' performance. In addition, the following
performance information is for periods prior to the reclassification of TCF's,
CGOF's, CBF's and CAGF's shares.
Yields
For the 30-day period ended March 31, 1996, the yields of CGOF and CBF
were 6.56% and 4.77%, respectively. The yields of CGOF and CBF are computed by
annualizing net investment income per share for a recent 30-day period and
dividing that amount by a Share's maximum offering price (as of the date hereof,
4.5%) (reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last trading day of that period. Net investment income will
reflect amortization of any market value premium or discount of fixed income
securities (except for obligations backed by mortgages or other assets) and may
include recognition of a pro rata portion of the stated dividend rate of
dividend paying portfolio securities. The yield of CGOF and CBF will vary from
time to time depending upon market conditions, the composition of such Fund's
portfolio and operating expenses of the Group allocated to that Fund. These
factors and possible differences in the methods used in calculating yield should
be considered when comparing such a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of CGOF's and CBF's Shares and to
the relative risks associated with the investment objectives and policies of
those Funds.
For the seven-day period ended March 31, 1996, the current yields for
CGSMMF and CTEMMF were 4.68% and 2.44%, respectively, and their effective yields
were 4.79% and 2.47%, respectively. The current (average annualized) yield of
CGSMMF and CTEMMF for any seven-day period is calculated by dividing the average
daily net income per Share earned by that Fund during the seven-day calendar
period by such Fund's average price per Share over the same period and
annualizing this quotient on a 365 day basis. For purposes of this calculation,
the daily net income reflects dividends declared on the original Share and
dividends declared on any Shares purchased with dividends on that Share. Capital
changes that are excluded from the calculation are realized gains and losses
from the sale of securities as well as unrealized appreciation and depreciation
with respect to the Fund's portfolio.
B-45
<PAGE> 185
The effective or compounded yield of CGSMMF and CTEMMF for any seven-day
period is computed by adding the number one to the daily net income per Share
earned by such Fund during the seven-day calendar period, raising the sum to a
power equal to 365 divided by seven, and subtracting the number one from the
result.
For the seven-day period ended March 31, 1996, the tax equivalent yield
and the tax equivalent effective yield for CTEMMF were 3.53% and 3.58%,
respectively. CTEMMF's tax-equivalent yield is computed by dividing that portion
of CTEMMF's yield which is tax-exempt by 1 minus the stated income tax rate and
adding the result to that portion, if any, of CTEMMF's yield that is not
tax-exempt. CTEMMF's tax-equivalent effective yield is computed by dividing that
portion of the effective yield which is tax-exempt by 1 minus the stated income
tax rate and adding to that result the portion, if any, of CTEMMF's effective
yield that is not tax-exempt.
Calculation of Total Return
For the one year, five year and ten year periods ended March 31, 1996,
and the respective periods from commencement of operations to March 31, 1996,
the average annual returns and cumulative total returns for TCF, CGOF, CBF and
CAGF were as follows:
<TABLE>
<CAPTION>
Average Annual Cumulative
-------------- ----------
Since Since
Fund 1 Year 5 Year 10 Year Inception 1 Year 5 Year 10 Year Inception
---- ------ ------ ------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TCF(1) 18.82% 10.71% 10.25% 15.11% 18.82% 66.33% 165.36% 1689.48%
CGOF(2) 5.02% 5.87% 7.17% 7.24% 5.02% 33.70% 99.94% 103.47%
CBF(3) 15.83% -- -- 8.22% 15.83% -- -- 24.45%
CAGF(3) 9.60% -- -- 5.23% 9.60% -- -- 16.70%
</TABLE>
- ------------------------
(1) Commenced operations May 30, 1975.
B-46
<PAGE> 186
(2) Commenced operations February 3, 1986.
(3) Commenced operations June 23, 1993.
Each quotation of average annual total return will be computed by
finding the average annual compounded rate of return over that period which
would equate the value of an initial amount of $1,000 invested in a Fund equal
to the ending redeemable value, according to the following formula:
P(T + 1)(n) (raise to the nth power) = ERV
Where: P = a hypothetical initial payment of $1,000, T = average annual
total return, n = number of years, and ERV = ending redeemable value of a
hypothetical $1,000 payment at the beginning of the period at the end of the
period for which average annual total return is being calculated assuming a
complete redemption. The calculation of average annual total return assumes the
deduction of the maximum sales charge from the initial investment of $1,000,
assumes the reinvestment of all dividends and distributions at the price stated
in the then effective Prospectus on the reinvestment dates during the period and
includes all recurring fees that are charged to all shareholder accounts
assuming such Fund's average account size. Cumulative return is computed by
using average annual total return, as calculated above, for each year of the
relevant period to determine the total return on a hypothetical initial
investment of $1,000 over such period.
In addition, as described in their respective Prospectuses, from time to
time CGOF and CBF may include in their sales literature and shareholder reports
a quote of a current "distribution" rate. For the 12-month period ended March
31, 1996, CGOF's and CBF's distribution rates were 7.27% and 3.46%,
respectively. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past twelve months by
a current maximum offering price. Under certain circumstances, such as when
there has been a change in the amount of dividend payout, or a fundamental
change in investment policies, it might be appropriate to annualize the
dividends paid over the period such changed policies were in effect, rather than
using the dividends during the past twelve months. The current distribution rate
differs from the current yield computation because it may include distributions
to shareholders from sources other than dividends and interest, such as premium
income from option writing, short-term capital gains and net equalization
credits and is calculated over a different period of time.
At any time in the future, yields and total return may be higher or
lower than past yields and total return and there can be no assurance that any
historical results will continue. Investors in the Funds are specifically
advised that Share prices of TCF, CGOF, CBF and CAGF expressed as the net asset
values per share, will vary just as yields and total return will vary.
Performance Comparisons
Investors may also judge the performance of a Fund by comparing its
performance to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies through various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and, Standard
& Poor's Corporation and to data prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc. and CDA Investment Technologies, Inc. Comparisons may also be
made to indices or data published in Donoghue's MONEY FUND REPORT of Holliston,
Massachusetts, a nationally recognized money market fund reporting service,
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
The Columbus Dispatch, Business Week, U.S.A. Today and Consumer Reports. In
addition to performance information, general information about the Funds that
appears in a publication such as those mentioned above may be included in
advertisements and in reports to shareholders.
B-47
<PAGE> 187
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
B-48
<PAGE> 188
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK 95.68%
AEROSPACE/DEFENSE 3.74%
Harris Corporation........................................................ 75,200 $ 4,653
Raytheon Company.......................................................... 80,000 4,100
--------
8,753
--------
AUTOMOTIVE PARTS 1.10%
Cooper Tire & Rubber Company.............................................. 100,200 2,580
--------
BEVERAGES 2.13%
Anheuser-Busch Companies Incorporated..................................... 25,000 1,684
Coca Cola Company......................................................... 40,000 3,305
--------
4,989
--------
CENTRAL STATES BANKS 9.21%
Banc One Corporation...................................................... 143,550 5,114
Charter One Financial..................................................... 100,000 3,375
Huntington Bancshares Incorporated........................................ 190,747 4,554
KeyCorp................................................................... 220,000 8,498
--------
21,541
--------
COMMODITY CHEMICALS 2.74%
ARCO Chemical Company..................................................... 40,000 2,075
Dow Chemical Company...................................................... 50,000 4,344
--------
6,419
--------
COMMUNICATIONS 1.15%
DSC Communications........................................................ 100,000 2,700
--------
COMPUTERS 3.67%
Compaq Computer Corporation*.............................................. 70,000 2,704
Hewlett Packard........................................................... 35,000 3,290
Tektronix Incorporated.................................................... 80,000 2,600
--------
8,594
--------
(continued)
</TABLE>
B-49
<PAGE> 189
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
CONGLOMERATES 9.35%
Johnson Controls, Incorporated............................................ 100,000 $ 7,463
Tenneco, Incorporated..................................................... 150,500 8,409
Textron, Incorporated..................................................... 75,000 6,000
--------
21,872
--------
CONSUMER SERVICES 1.54%
H&R Block Incorporated.................................................... 100,000 3,613
--------
DIVERSIFIED FINANCIAL SERVICES 2.59%
Beneficial Corp........................................................... 105,000 6,051
--------
DIVERSIFIED INDUSTRIALS 1.94%
Minnesota Mining & Manufacturing Company.................................. 70,000 4,541
--------
DIVERSIFIED TECHNOLOGY 2.18%
Texas Instruments......................................................... 100,000 5,088
--------
ELECTRICAL COMPONENTS 7.51%
Asea Brown-Boveri, Incorporated........................................... 45,000 4,646
General Electric Company.................................................. 120,400 9,376
Kent Electric............................................................. 100,000 3,538
--------
17,560
--------
*Non-income producing (continued)
</TABLE>
B-50
<PAGE> 190
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FOOD 0.01%
Earthgrain................................................................ 1,000 $ 30
--------
GAS 1.29%
Williams Companies Incorporated........................................... 60,000 3,023
--------
HEALTHCARE PROVIDERS 1.18%
U.S. HealthCare, Incorporated............................................. 60,000 2,753
--------
INDUSTRIAL SERVICES 0.64%
New England Business Services, Incorporated............................... 90,000 1,508
--------
INSURANCE 2.99%
American International Group.............................................. 30,000 2,809
Marsh & McLennan Companies Incorporated................................... 45,000 4,179
--------
6,988
--------
INTEGRATED OILS 10.71%
Mobil Corporation......................................................... 75,000 8,691
Royal Dutch Petroleum Company............................................. 55,000 7,769
Texaco Incorporated....................................................... 100,000 8,600
--------
25,059
--------
MEDICAL SUPPLIES 0.57%
Fisher Scientific International, Incorporated............................. 35,000 1,339
--------
OTHER NONFERROUS METALS 2.34%
Worthington Industries, Incorporated...................................... 275,776 5,481
--------
PAPER 1.62%
Boise Cascade............................................................. 90,000 3,780
--------
PHARMACEUTICALS 2.62%
American Home Products Corporation........................................ 40,000 4,335
Mylan Laboratories, Incorporated.......................................... 85,000 1,785
--------
6,120
--------
(continued)
</TABLE>
B-51
<PAGE> 191
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
PROPERTY/CASUALTY INSURERS 4.29%
Cincinnati Financial Corporation.......................................... 158,288 $ 10,031
--------
PUBLISHING 1.64%
Dun and Bradstreet Corporation............................................ 30,000 1,819
Gannett Company Incorporated.............................................. 30,000 2,018
--------
3,836
--------
SEMICODUCTOR & RELATED 4.50%
Atmel Corporation......................................................... 90,000 2,295
Intel Corporation......................................................... 75,000 4,266
Motorola.................................................................. 75,000 3,975
--------
10,536
--------
SOFTWARE AND PROCESSING 3.35%
Microsoft Incorporated.................................................... 50,000 5,156
Novell.................................................................... 200,000 2,675
--------
7,831
--------
SPECIALTY/RETAILERS 0.88%
The Limited, Incorporated................................................. 108,780 2,067
--------
TELEPHONE 5.36%
GTE Corporation........................................................... 160,000 7,020
Sprint Corporation........................................................ 120,000 4,560
360 Communications Company................................................ 40,000 955
--------
12,535
--------
TOBACCO 2.81%
Philip Morris Companies, Incorporated..................................... 75,000 6,581
--------
TOTAL COMMON STOCK (COST $157,117,639)............................... 223,796
--------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S.
GOVERNMENT OBLIGATIONS 4.06%
Paine Webber, 5.50%, dated 3/29/96, due 4/01/96........................... 9,500
--------
TOTAL REPURCHASE AGREEMENTS (COST $9,500,000)........................ 9,500
--------
TOTAL INVESTMENTS (COST $166,617,639) 99.74%......................... $233,296
========
</TABLE>
See accompanying notes to financial statements.
B-52
<PAGE> 192
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- -------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
ASSETS
<S> <C>
Investments in securities, at value (cost $166,618)................................... $233,296
Cash.................................................................................. 539
Receivable for investment securities sold............................................. 24
Dividends and interest receivable..................................................... 525
Receivable for Fund shares sold....................................................... 13
Other assets.......................................................................... 111
--------
Total assets................................................................ 234,508
--------
LIABILITIES
Payable for Fund shares redeemed...................................................... 210
Payable for investment securities purchased........................................... 24
Accrued investment management and transfer agent fees (note 3)........................ 307
Other accrued expenses................................................................ 72
--------
Total liabilities........................................................... 613
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 17,451,068 outstanding no par value shares of beneficial
interest (authorized 30,000,000).................................................... $233,895
========
NET ASSET VALUE PER SHARE............................................................. $ 13.40
========
</TABLE>
See accompanying notes to financial statements.
B-53
<PAGE> 193
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- -------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<S> <C>
INVESTMENT INCOME:
Dividends.............................................................................. $ 2,699
Interest............................................................................... 483
-------
Total income................................................................. 3,182
-------
EXPENSES:
Investment management fees (note 3).................................................... 574
Transfer agent fees and expenses (note 3).............................................. 111
-------
Total affiliated expenses.................................................... 685
-------
Custodian fees......................................................................... 13
Professional fees...................................................................... 34
Reports to shareholders................................................................ 21
Directors' fees........................................................................ 10
Registration fees...................................................................... 8
Other expenses......................................................................... 22
-------
Total non-affiliated expenses................................................ 108
-------
Total expenses............................................................... 793
-------
Net investment income........................................................ 2,389
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized gain from security transactions........................................... 14,422
Increase in unrealized gain on investments............................................. 7,775
-------
Net realized gain and increase in unrealized gain on investments............. 22,197
-------
Net increase in net assets from operations................................... $24,586
=======
</TABLE>
See accompanying notes to financial statements.
B-54
<PAGE> 194
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- ------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 2,389 $ 6,723
Net realized gain from security transactions.................... 14,422 17,719
Increase in unrealized gain on investments...................... 7,775 8,122
--------- ---------
Net increase in net assets from operations.................... 24,586 32,564
--------- ---------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.15 and $.35 per share,
respectively)................................................. (2,548) (6,566)
Distribution of net realized gains from security transactions
($1.08 and $.83 per share, respectively)...................... (18,120) (15,750)
--------- ---------
Total distributions to shareholders........................... (20,668) (22,316)
--------- ---------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares............................... 4,348 8,266
Net asset value of Fund shares issued in connection with
reinvestment of distributions to shareholders................. 19,158 20,894
--------- ---------
23,506 29,160
Cost of Fund shares redeemed.................................... (19,710) (59,809)
--------- ---------
Increase (decrease) in net assets derived from capital share
transactions............................................... 3,796 (30,649)
--------- ---------
Net increase (decrease) in net assets......................... 7,714 (20,401)
NET ASSETS -- beginning of period............................... 226,181 246,582
--------- ---------
NET ASSETS -- end of period (undistributed net investment income
of $17 and $176, respectively)................................ $233,895 $ 226,181
========= =========
</TABLE>
See accompanying notes to financial statements.
B-55
<PAGE> 195
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Cardinal Fund Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as a diversified, open-end management investment company. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles for investment companies.
Security Valuation--Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at the last sale price. If no quotations are available, portfolio
securities are valued in good faith by the Board of Directors to reflect their
fair value.
Security Transactions and Investment Income--Security transactions are accounted
for on the trade date and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. In determining the net
realized gain or loss on securities sold, the cost of the securities has been
determined on the first-in, first-out (FIFO) cost basis. It is the Fund's policy
for its Custodian, or a third-party bank, to take possession of all securities
pledged as collateral for repurchase agreements and monitor the market value of
the collateral to ensure that it remains sufficient to cover the repurchase
agreements.
Distributions to Shareholders--Distributions and dividends are recorded by the
Fund on the record date. Income dividends are declared quarterly and any capital
gain distribution is declared annually.
Federal Income Taxes--No provision has been made for Federal taxes on the Fund's
income, since it is the policy of the Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to make
sufficient distributions of taxable income and capital gains within the required
time to relieve it from all, or substantially all, Federal income taxes.
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities
(excluding short-term obligations) during the six months ended March 31, 1996
aggregated $66,192,225 and $71,056,133, respectively.
During the six months ended March 31, 1996 the Fund realized on a FIFO cost
basis a net capital gain of $14,421,742 and $14,438,096 for book and tax
purposes, respectively.
At March 31, 1996, the book cost of investment securities was $166,617,639 and
the tax cost was $166,598,146. The difference between book and tax cost is
attributable to securities acquired in the 1975 acquisition of the Ohio Capital
Fund, Inc. and remaining in the Fund's portfolio with a book cost of $56,857 and
a tax cost of $37,364.
As of March 31, 1996, for tax purposes, gross unrealized gains and gross
unrealized losses on investment securities were $68,069,424 and $1,390,684
respectively; resulting in a net unrealized gain of $66,678,740.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, The Ohio Company (the Adviser), with whom
certain officers and directors of the Fund are affiliated is allowed an annual
fee of 0.5% of the average daily net assets of the Fund. For the six months
ended the Fund paid or accrued $574,213 for investment management services. The
Adviser has agreed that if the aggregate expenses of the Fund, as defined, for
any fiscal year exceed
(continued)
B-56
<PAGE> 196
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
the expense limitation of any state having jurisdiction over the Fund, the
Adviser will refund to the Fund, or otherwise bear, such excess. This limitation
did not affect the calculation of the management fee during the six months ended
March 31, 1996. In addition to providing management and advisory services, The
Ohio Company pays the compensation of all officers and employees of the Fund and
provides office space and certain related facilities required by the Fund.
The Ohio Company, acting as the General Distributor and Dealer, reported to the
Fund that it received commissions after discounts to dealers from the sale of
shares of the Fund of $80,028 for the six months ended March 31, 1996. Cardinal
Management Corp., a wholly-owned subsidiary of The Ohio Company, provides
transfer agent services to the Fund. Transfer agent service fees are based on a
monthly charge per shareholder account plus out-of-pocket expenses. For the six
months ended March 31, 1996 the Fund paid or accrued $105,862 for transfer agent
services provided by Cardinal Management Corp.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at March 31, 1996. When used, borrowings under this
arrangement are secured by portfolio securities and can be used only for short
term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Fund and its
officers and directors has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Fund is a deposit of $28,588, for the initial capital of ICI
Mutual. The Fund is also committed to provide $85,764 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $56,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
(5) -- CAPITAL STOCK
At March 31, 1996, there were 30,000,000 shares of no par value capital stock
authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $151,616,367
Accumulated net realized gains on investments...................................... 15,583,064
Unrealized gain on investments..................................................... 66,678,740
Undistributed net investment income................................................ 16,648
------------
Net assets......................................................................... $233,894,819
============
(continued)
</TABLE>
B-57
<PAGE> 197
<TABLE>
<CAPTION>
THE CARDINAL FUND INC.
- ---------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
Transactions in capital stock were as follows:
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
Shares sold........................................................ 330,681 677,512
Shares issued in connection with reinvestment of distributions
to shareholders.................................................. 1,493,286 1,830,954
Shares repurchased................................................. (1,471,915) (4,782,671)
---------- ------------
Net decrease....................................................... 352,052 (2,274,205)
Shares outstanding:
Beginning of period.............................................. 17,099,016 19,373,221
---------- ------------
End of period.................................................... 17,451,068 17,099,016
========== ============
</TABLE>
(6) -- SUBSEQUENT EVENT
On March 29, 1996 shareholders approved an Agreement and Plan of Reorganization
between the Group and The Cardinal Fund Inc., Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, and Cardinal Government Obligations Fund
(collectively the "Old Funds"). With shareholder approval of this plan, the
transfer of all assets and liabilities of the Old Funds to the newly created
Group was made on May 1, 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each period:
SIX MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, ------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning.................................... $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88 $ 9.28
--------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income....................................... 0.14 0.36 0.31 0.32 0.35 0.35
Net realized and unrealized gains (losses) on investments... 1.26 1.32 0.12 0.55 1.37 2.70
--------- -------- -------- -------- -------- --------
Total from investment operations.............................. 1.40 1.68 0.43 0.87 1.72 3.05
--------- -------- -------- -------- -------- --------
Less distributions:
Dividends................................................... (0.15) (0.35) (0.33) (0.29) (0.36) (0.38)
Capital gain distribution................................... (1.08) (0.83) (0.28) (0.62) (0.29) (0.07)
--------- -------- -------- -------- -------- --------
Total distributions........................................... (1.23) (1.18) (0.61) (0.91) (0.65) (0.45)
--------- -------- -------- -------- -------- --------
Net Asset Value, ending....................................... $ 13.40 $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88
========= ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total return.................................................. 11.07% 14.84% 3.38% 6.98% 15.05% 33.54%
========= ======== ======== ======== ======== ========
Net assets, ending (000)...................................... $233,895 $226,181 $246,581 $282,125 $261,392 $221,428
========= ======== ======== ======== ======== ========
Ratio of expenses to average net assets....................... 0.69% 0.70% 0.72% 0.68% 0.67% 0.67%
========= ======== ======== ======== ======== ========
Ratio of net investment income to average net assets.......... 2.08% 2.89% 2.40% 2.46% 2.83% 3.15%
========= ======== ======== ======== ======== ========
Portfolio turnover rate....................................... 28.74% 19.78% 23.20% 11.11% 6.22% 33.27%
========= ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
B-58
<PAGE> 198
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK 91.28%
AEROSPACE/DEFENSE 3.33%
Harris Corporation........................................................ 75,200 $ 4,127
Raytheon Company.......................................................... 40,000 3,400
--------
7,527
--------
APPAREL/RETAILERS 2.69%
Jacobson Stores, Incorporated............................................. 79,000 770
May Department Stores Company............................................. 110,000 4,813
Shopko Stores, Incorporated............................................... 40,000 495
--------
6,078
--------
AUTOMOTIVE MANUFACTURING 1.79%
Ford Motor Company........................................................ 130,000 4,046
--------
AUTOMOTIVE PARTS 2.01%
Amcast Industrial Corporation............................................. 109,800 2,114
Cooper Tire & Rubber Company.............................................. 100,200 2,430
--------
4,544
--------
BEVERAGES 0.69%
Anheuser-Busch Companies Incorporated..................................... 25,000 1,559
--------
CENTRAL STATES BANKS 7.46%
Banc One Corporation...................................................... 130,500 4,763
Huntington Bancshares Incorporated........................................ 203,747 4,585
KeyCorp................................................................... 220,000 7,535
--------
16,883
--------
COMMODITY CHEMICALS 4.38%
Akzo Nobel N.V............................................................ 70,214 4,221
ARCO Chemical Company..................................................... 25,000 1,219
Dow Chemical Company...................................................... 60,000 4,470
--------
9,910
--------
</TABLE>
(continued)
B-59
<PAGE> 199
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
COMPUTERS 2.84%
Compaq Computer Corporation*.............................................. 70,000 $ 3,386
Tektronix Incorporated.................................................... 51,600 3,044
--------
6,430
--------
CONGLOMERATES 8.14%
Johnson Controls, Incorporated............................................ 100,000 6,325
Tenneco, Incorporated..................................................... 150,500 6,961
Textron, Incorporated..................................................... 75,000 5,118
--------
18,404
--------
CONSUMER SERVICES 0.59%
Scotts Company, Class A*.................................................. 60,000 1,328
--------
CONTAINERS/PACKAGING 0.40%
Liqui-Box Corporation..................................................... 30,390 900
--------
DIVERSIFIED FINANCIAL SERVICES 2.43%
Beneficial Corp........................................................... 105,000 5,486
--------
DIVERSIFIED INDUSTRIALS 3.45%
Minnesota Mining & Manufacturing Company.................................. 70,000 3,955
Myers Industries, Incorporated............................................ 181,802 2,772
Raven Industries, Incorporated............................................ 60,050 1,081
--------
7,808
--------
ELECTRIC 1.90%
Northern States Power Company............................................. 95,000 4,311
--------
ELECTRICAL COMPONENTS 6.59%
Asea Brown-Boveri, Incorporated........................................... 50,300 5,024
General Electric Company.................................................. 120,400 7,675
Houston Industries, Incorporated.......................................... 50,000 2,206
--------
14,905
--------
</TABLE>
*Non-income producing (continued)
B-60
<PAGE> 200
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
FOOD 2.40%
GoodMark Foods, Incorporated.............................................. 184,000 $ 3,404
Super Food Services, Incorporated......................................... 160,800 2,030
--------
5,434
--------
GAS 1.03%
Williams Companies Incorporated........................................... 60,000 2,340
--------
HEALTHCARE PROVIDERS 0.78%
U.S. HealthCare, Incorporated............................................. 50,000 1,769
--------
INDUSTRIAL SERVICES 1.57%
Graphic Industries, Incorporated.......................................... 123,500 1,266
New England Business Services, Incorporated............................... 110,500 2,279
--------
3,545
--------
INSURANCE 2.38%
Equitable of Iowa Companies............................................... 50,300 1,861
Marsh & McLennan Companies Incorporated................................... 40,000 3,515
--------
5,376
--------
INTEGRATED OILS 9.42%
Mobil Corporation......................................................... 75,000 7,471
Royal Dutch Petroleum Company............................................. 60,000 7,365
Texaco Incorporated....................................................... 100,000 6,463
--------
21,299
--------
MEDICAL SUPPLIES 0.43%
Fisher Scientific International, Incorporated............................. 30,000 971
--------
OTHER NONFERROUS METALS 2.24%
Worthington Industries, Incorporated...................................... 275,776 5,067
--------
PAPER 2.54%
Federal Paper Board Company............................................... 89,800 3,446
Union Camp Corporation.................................................... 40,000 2,305
--------
5,751
--------
</TABLE>
(continued)
B-61
<PAGE> 201
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
------- --------
<S> <C> <C>
COMMON STOCK (CONTINUED)
PHARMACEUTICALS 2.32%
American Home Products Corporation........................................ 50,000 $ 4,244
Mylan Laboratories, Incorporated.......................................... 50,000 1,000
--------
5,244
--------
PIPELINES 0.52%
Coastal Corporation....................................................... 35,000 1,177
--------
PROPERTY/CASUALTY INSURERS 3.91%
Cincinnati Financial Corporation.......................................... 162,750 8,850
--------
PUBLISHING 0.77%
Dun and Bradstreet Corporation............................................ 30,000 1,736
--------
SPECIALTY/RETAILERS 2.71%
Limited, Incorporated..................................................... 200,000 3,800
Stanley Works............................................................. 35,000 1,518
Sun Television and Appliances............................................. 70,000 429
Wolohan Lumber Company.................................................... 34,000 387
--------
6,134
--------
TELEPHONE 5.15%
GTE Corporation........................................................... 189,716 7,446
Sprint Corporation........................................................ 120,000 4,200
--------
11,646
--------
TOBACCO 2.77%
Philip Morris Companies, Incorporated..................................... 75,000 6,263
--------
TRANSPORTATION 1.65%
GATX Corporation.......................................................... 72,300 3,742
--------
TOTAL COMMON STOCK (COST $147,559,806)............................... 206,463
--------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S.
GOVERNMENT OBLIGATIONS 7.30%
Fifth Third Bank, 6.25%, dated 9/29/95, due 10/02/95...................... 16,500
--------
TOTAL REPURCHASE AGREEMENTS (COST $16,500,000)....................... 16,500
--------
TOTAL INVESTMENTS (COST $164,059,806) 98.58%......................... $222,963
=========
</TABLE>
See accompanying notes to financial statements.
B-62
<PAGE> 202
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<S> <C>
Investments in securities, at value (cost $164,060)................................... $222,963
Cash.................................................................................. 206
Receivable for investment securities sold............................................. 2,999
Dividends and interest receivable..................................................... 825
Receivable for Fund shares sold....................................................... 102
Other assets.......................................................................... 111
--------
Total assets................................................................ 227,206
--------
LIABILITIES
Payable for Fund shares redeemed...................................................... 660
Accrued investment management and transfer agent fees (note 3)........................ 314
Other accrued expenses................................................................ 51
--------
Total liabilities........................................................... 1,025
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 17,099,016 outstanding no par value shares of beneficial
interest (authorized 30,000,000).................................................... $226,181
=========
NET ASSET VALUE PER SHARE............................................................. $ 13.23
=========
</TABLE>
See accompanying notes to financial statements.
B-63
<PAGE> 203
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends.............................................................................. $ 7,504
Interest............................................................................... 847
-------
Total income................................................................. 8,351
-------
EXPENSES:
Investment management fees (note 3).................................................... 1,159
Transfer agent fees and expenses (note 3).............................................. 256
-------
Total affiliated expenses.................................................... 1,415
-------
Custodian fees......................................................................... 25
Professional fees...................................................................... 60
Reports to shareholders................................................................ 37
Directors' fees........................................................................ 21
Registration fees...................................................................... 6
Other expenses......................................................................... 64
-------
Total non-affiliated expenses................................................ 213
-------
Total expenses............................................................... 1,628
-------
Net investment income........................................................ 6,723
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized gain from security transactions........................................... 17,719
Increase in unrealized gain on investments............................................. 8,122
-------
Net realized gain and increase in unrealized gain on investments............. 25,841
-------
Net increase in net assets from operations................................... $32,564
========
</TABLE>
See accompanying notes to financial statements.
B-64
<PAGE> 204
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 6,723 $ 6,351
Net realized gain from security transactions.................... 17,719 17,362
Increase (decrease) in unrealized gain on investments........... 8,122 (14,821)
------------- -------------
Net increase in net assets from operations.................... 32,564 8,892
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.35 and $.33 per share,
respectively)................................................. (6,566) (6,601)
Distribution of net realized gains from security transactions
($.83 and $.28 per share, respectively)....................... (15,750) (6,006)
------------- -------------
Total distributions to shareholders........................... (22,316) (12,607)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares............................... 8,266 14,876
Net asset value of Fund shares issued in connection with
reinvestment of distributions to shareholders................. 20,894 11,831
------------- -------------
29,160 26,707
Cost of Fund shares redeemed.................................... (59,809) (58,535)
------------- -------------
Decrease in net assets derived from capital share
transactions............................................... (30,649) (31,828)
------------- -------------
Net decrease in net assets.................................... (20,401) (35,543)
NET ASSETS -- beginning of period............................... 246,582 282,125
------------- -------------
NET ASSETS -- end of period (undistributed net investment income
of $176 and $20, respectively)................................ $ 226,181 $ 246,582
============== ==============
</TABLE>
See accompanying notes to financial statements.
B-65
<PAGE> 205
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Cardinal Fund Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as a diversified, open-end management investment company. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles for investment companies.
Security Valuation--Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at the last sale price. If no quotations are available, portfolio
securities are valued in good faith by the Board of Directors to reflect their
fair value.
Security Transactions and Investment Income--Security transactions are accounted
for on the trade date and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. In determining the net
realized gain or loss on securities sold, the cost of the securities has been
determined on the first-in, first-out (FIFO) cost basis. It is the Fund's policy
for its Custodian, or a third-party bank, to take possession of all securities
pledged as collateral for repurchase agreements and monitor the market value of
the collateral to ensure that it remains sufficient to cover the repurchase
agreements.
Distributions to Shareholders--Distributions and dividends are recorded by the
Fund on the record date. Income dividends are declared quarterly and any capital
gain distribution is declared annually.
Federal Income Taxes--No provision has been made for Federal taxes on the Fund's
income, since it is the policy of the Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to make
sufficient distributions of taxable income and capital gains within the required
time to relieve it from all, or substantially all, Federal income taxes.
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities
(excluding short-term obligations) during the year ended September 30, 1995
aggregated $43,227,000 and $91,217,776, respectively.
During the year ended September 30, 1995 the Fund realized on a FIFO cost basis
a net capital gain of $17,719,277 and $17,777,501 for book and tax purposes,
respectively.
At September 30, 1995, the book cost of investment securities was $164,059,806
and the tax cost was $164,085,672. The difference between book and tax cost is
attributable to securities acquired in the 1975 acquisition of the Ohio Capital
Fund, Inc. and remaining in the Fund's portfolio with a book cost of $68,235 and
a tax cost of $38,594.
As of September 30, 1995, for tax purposes, gross unrealized gains and gross
unrealized losses on investment securities were $60,316,804 and $1,439,149
respectively; resulting in a net unrealized gain of $58,877,655.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, The Ohio Company (the Adviser), with whom
certain officers and directors of the Fund are affiliated is allowed an annual
fee of 0.5% of the average daily net assets of the Fund. For the year ended the
Fund paid or accrued $1,158,534 for investment management services. The Adviser
has agreed that if the aggregate expenses of the Fund, as defined, for any
fiscal year exceed the
(continued)
B-66
<PAGE> 206
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
expense limitation of any state having jurisdiction over the Fund, the Adviser
will refund to the Fund, or otherwise bear, such excess. This limitation did not
affect the calculation of the management fee during the year ended September 30,
1995. In addition to providing management and advisory services, The Ohio
Company pays the compensation of all officers and employees of the Fund and
provides office space and certain related facilities required by the Fund.
The Ohio Company, acting as the General Distributor and Dealer, reported to the
Fund that it received commissions after discounts to dealers from the sale of
shares of the Fund of $170,827 for the year ended September 30, 1995. Cardinal
Management Corp., a wholly-owned subsidiary of The Ohio Company, provides
transfer agent services to the Fund. Transfer agent service fees are based on a
monthly charge per shareholder account plus out-of-pocket expenses. For the year
ended September 30, 1995 the Fund paid or accrued $255,882 for transfer agent
services provided by Cardinal Management Corp.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1995. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Fund and its
officers and directors has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Fund is a deposit of $28,588, for the initial capital of ICI
Mutual. The Fund is also committed to provide $85,764 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $56,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
(5) -- CAPITAL STOCK
At September 30, 1995, there were 30,000,000 shares of no par value capital
stock authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $147,820,440
Accumulated net realized gains on investments...................................... 19,280,863
Unrealized gain on investments..................................................... 58,903,521
Undistributed net investment income................................................ 176,409
------------
Net assets......................................................................... $226,181,233
=============
</TABLE>
(continued)
B-67
<PAGE> 207
THE CARDINAL FUND INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Shares sold........................................................ 677,512 1,161,378
Shares issued in connection with reinvestment of distributions
to shareholders.................................................. 1,830,954 936,172
Shares repurchased................................................. (4,782,671) (4,580,169)
---------- ----------
Net decrease....................................................... (2,274,205) (2,482,619)
Shares outstanding:
Beginning of period................................................ 19,373,221 21,855,840
---------- ----------
End of period...................................................... 17,099,016 19,373,221
========== ==========
</TABLE>
(6) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Directors approved an Agreement and Plan of
Reorganization and Liquidation between the Fund and The Cardinal Group ("TCG").
The plan calls for the transfer of all assets and liabilities of the Fund to a
series of TCG with the same basic investment objectives and restrictions. The
Trustees have determined that this action is in the best interests of the
shareholders of the Fund and TCG. Shareholder approval will be sought and is
needed to ratify the transaction.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning............. $ 12.73 $ 12.91 $ 12.95 $ 11.88 $ 9.28
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................ 0.36 0.31 0.32 0.35 0.35
Net realized and unrealized gains
(losses) on investments............ 1.32 0.12 0.55 1.37 2.70
-------- -------- -------- -------- --------
Total from investment operations....... 1.68 0.43 0.87 1.72 3.05
-------- -------- -------- -------- --------
Less distributions:
Dividends............................ (0.35) (0.33) (0.29) (0.36) (0.38)
Capital gain distribution............ (0.83) (0.28) (0.62) (0.29) (0.07)
-------- -------- -------- -------- --------
Total distributions.................... (1.18) (0.61) (0.91) (0.65) (0.45)
-------- -------- -------- -------- --------
Net Asset Value, ending................ $ 13.23 $ 12.73 $ 12.91 $ 12.95 $ 11.88
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total return........................... 14.84% 3.38% 6.98% 15.05% 33.54%
======== ======== ======== ======== ========
Net assets, ending (000)............... $226,181 $246,581 $282,125 $261,392 $221,428
======== ======== ======== ======== ========
Ratio of expenses to average net
assets............................... 0.70% 0.72% 0.68% 0.67% 0.67%
======== ======== ======== ======== ========
Ratio of net investment income to
average net assets................... 2.89% 2.40% 2.46% 2.83% 3.15%
======== ======== ======== ======== ========
Portfolio turnover rate................ 19.78% 23.20% 11.11% 6.22% 33.27%
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
B-68
<PAGE> 208
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors
The Cardinal Fund Inc.:
We have audited the accompanying statement of assets and liabilities of The
Cardinal Fund Inc. (the Fund), including the statement of investments, as of
September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Cardinal Fund Inc. as of September 30, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 17, 1995
B-69
<PAGE> 209
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
SECURITIES AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------- -------- ---------
<S> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS .70%
U.S. Treasury Notes, 6.50% maturing 8/15/05................................. $ 1,000 $ 1,007
-------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS.............................. 1,000 1,007
-------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS 101.16%
GNMA I PL Notes, 7.375% maturing 1/15/98.................................... 2,613 2,604
GNMA I PL Notes, 7.75% maturing 4/15/97..................................... 1,264 1,283
GNMA I PL Notes, 8.00% maturing 11/15/97 through 8/15/35.................... 7,660 7,832
GNMA I PL Notes, 8.15% maturing 1/15/24..................................... 2,325 2,413
GNMA I PL Notes, 8.25% maturing 3/15/97 through 11/15/34.................... 8,077 8,331
GNMA I PL Notes, 8.50% maturing 6/15/22 through 12/15/30.................... 8,837 9,202
GNMA I PL Notes, 8.75% maturing 8/15/24..................................... 1,927 2,019
GNMA I PL Notes, 9.00% maturing 10/15/21 through 12/15/34................... 7,980 8,324
GNMA I PL Notes, 9.25% maturing 3/15/30 through 2/15/33..................... 1,655 1,747
GNMA I PL Notes, 9.50% maturing 1/15/19 through 8/15/22..................... 1,303 1,370
GNMA I PL Notes, 10.25% maturing 12/15/22................................... 1,638 1,731
GNMA I PL Notes, 10.50% maturing 7/15/14.................................... 1,030 1,095
GNMA I Notes, 8.00% maturing 5/15/22 through 5/15/25........................ 6,517 6,659
GNMA I Notes, 8.50% maturing 5/15/16 through 8/15/17........................ 10,302 10,823
GNMA I Notes, 8.75% maturing 12/15/16 through 1/15/25....................... 1,754 1,853
GNMA I Notes, 9.00% maturing 5/15/16 through 4/15/21........................ 21,129 22,607
GNMA I Notes, 11.00% maturing 1/15/10 through 6/15/20....................... 5,701 6,415
GNMA II Notes, 8.00% maturing 5/20/22 through 12/20/25...................... 2,894 12,942
GNMA II Notes, 9.00% maturing 10/20/15 through 10/20/19..................... 9,723 10,330
GNMA II Notes, 9.50% maturing 7/20/16 through 12/20/22...................... 4,742 5,098
GNMA II Notes, 10.00% maturing 9/20/13 through 9/20/19...................... 10,065 10,782
Fed Home Loan Mtg. Corp., 7.00% maturing 7/01/10 through 3/01/11............ 15,793 15,783
Fed Home Loan Mtg. Corp., 7.50% maturing 5/01/09 through 6/01/10............ 4,755 4,831
-------- ---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.............................. 139,684 146,076
-------- ---------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT OBLIGATIONS 1.39%
Fifth Third Bank, 5.25%, dated 3/29/96, due 4/01/96......................... 2,000 2,000
-------- ---------
TOTAL REPURCHASE AGREEMENTS........................................... 2,000 2,000
-------- ---------
TOTAL INVESTMENTS (COST $148,106) 103.24%............................. $142,684 $149,083
======== =========
</TABLE>
GNMA -- Government National Mortgage Association
PL -- Project Loan
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-70
<PAGE> 210
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $148,106)........................... $ 149,083
Cash.......................................................................... 491
Interest receivable........................................................... 999
Receivable for Fund shares sold............................................... 13
Other assets.................................................................. 110
---------
Total assets........................................................ 150,696
---------
LIABILITIES
Payable for investment securities purchased................................... 5,449
Dividends payable............................................................. 388
Payable for Fund shares redeemed.............................................. 312
Accrued investment management, accounting and transfer agent fees (note 3).... 79
Other accrued expenses........................................................ 62
---------
Total liabilities................................................... 6,290
---------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS--applicable to 17,730,206 outstanding no par value shares of
beneficial interest (unlimited number of shares authorized)................. $ 144,406
=========
NET ASSET VALUE PER SHARE..................................................... $ 8.14
=========
</TABLE>
See accompanying notes to financial statements.
B-71
<PAGE> 211
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................................... $ 6,055
-------
EXPENSES:
Investment management fees (note 3).............................................. 370
Transfer agent fees and expenses (note 3)........................................ 76
Accounting fees (note 3)......................................................... 20
-------
Total affiliated expenses............................................ 466
-------
Custodian fees................................................................... 21
Professional fees................................................................ 28
Reports to shareholders.......................................................... 17
Directors' fees.................................................................. 11
Registration fees................................................................ 9
Other expenses................................................................... 17
-------
Total non-affiliated expenses........................................ 103
-------
Total expenses....................................................... 569
-------
Net investment income................................................ 5,486
-------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 2):
Net realized loss from security transactions..................................... (251)
Decrease in unrealized gain on investments....................................... (148)
-------
Net realized loss and decrease in unrealized gain on investments..... (399)
-------
Net increase in net assets from operations........................... $ 5,087
========
</TABLE>
See accompanying notes to financial statements.
B-72
<PAGE> 212
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................ $ 5,486 $ 12,473
Net realized loss from security transactions......................... (251) (4,514)
Increase (decrease) in unrealized gain on investments................ (148) 8,934
---------- -------------
Net increase (decrease) in net assets from operations........... 5,087 16,893
---------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.62 per share).............. (5,606) (12,572)
---------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares.................................... 2,954 5,355
Net asset value of Fund shares issued in connection with reinvestment
of distributions to shareholders................................... 3,213 7,272
---------- -------------
6,167 12,627
Cost of Fund shares redeemed......................................... (12,953) (34,766)
---------- -------------
Decrease in net assets derived from capital share
transactions................................................... (6,786) (22,139)
---------- -------------
Net decrease in net assets...................................... (7,305) (17,818)
NET ASSETS--beginning of period...................................... 151,711 169,529
---------- -------------
NET ASSETS--end of period (overdistributed net investment income of
$220 and $100, respectively)....................................... $ 144,406 $ 151,711
========== ==============
</TABLE>
See accompanying notes to financial statements.
B-73
<PAGE> 213
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Government Obligations Fund (the "Fund") is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated November 15, 1985 and is registered under the Investment Company Act of
1940. The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
Security Valuation -- Portfolio securities for which over-the-counter market
quotations are readily available are valued at the bid price. If no quotations
are available, portfolio securities are valued in good faith by the Board of
Trustees of the Fund to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
recorded on the trade date. Interest income is recorded on the accrual basis.
Premiums and discounts are recognized as realized gains or losses from security
transactions as securities are sold or as principal reductions are received. In
determining the net realized gain or loss on securities sold, the cost of the
securities has been determined on first-in, first-out (FIFO) cost basis.
Federal Income Taxes -- No provision has been made for Federal taxes on the
Fund's income, since it is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income and capital gains within the
required time to relieve it from all, or substantially all, Federal income
taxes.
Dividends to Shareholders -- Dividends are declared and accrued daily and (for
those shareholders not electing cash distribution of dividends) automatically
reinvested monthly, at net asset value, in additional shares of the Fund.
(2) -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of U.S. government agency obligations (excluding short-term
obligations) during the six months ended March 31, 1996 aggregated $29,027,039
and $20,444,083, respectively.
As of March 31, 1996, gross unrealized gains and gross unrealized losses on
investment securities were $1,406,165 and $429,352, respectively; resulting in a
net unrealized gain of $976,813 on investment securities with a cost basis of
$148,106,461.
(continued)
B-74
<PAGE> 214
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Fund. CMC has agreed that if the aggregate expenses of the Fund,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Fund, CMC will refund to the Fund, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the six months ended March 31, 1996.
CMC also serves the Fund as transfer agent and fund accountant. Transfer agent
service fees are based on a monthly charge per shareholder account plus
out-of-pocket expenses. Accounting service fees are based on the monthly average
net assets of the Fund. For the six months ended March 31, 1996 the Fund paid or
accrued $67,578 and $19,702 for transfer agent and fund accounting services,
respectively.
The Ohio Company, sole shareholder of CMC, acting as distributor for the Fund,
reported that it received commissions after discounts to dealers from the sale
of shares of the Fund of $76,661 for the six months ended March 31, 1996.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at March 31, 1996. When used, borrowings under this
arrangement are secured by portfolio securities and can be used only for short
term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Fund and its
officers and trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Fund is a deposit of $30,644, for the initial capital of ICI
Mutual. The Fund is also committed to provide $91,932 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $61,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
B-75
<PAGE> 215
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(5) -- CAPITAL STOCK
At March 31, 1996, there were an unlimited number of shares of no par value
capital stock authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $ 169,089,436
Accumulated net realized loss on investments....................................... (25,439,643)
Unrealized gain on investments..................................................... 976,813
Overdistributed net investment income.............................................. (220,404)
-------------
Net assets......................................................................... $ 144,406,202
=============
</TABLE>
For tax purposes, the accumulated net realized loss on investments (capital loss
carryforwards) of approximately $22,800,000 expire throughout the next eight
years. Approximately $980,364 of capital loss carryforwards expired during the
six months ended March 31, 1996. The Fund will not declare any capital gain
distributions until the carryforwards have been offset or expired.
(6) -- SUBSEQUENT EVENT
On March 29, 1996 shareholders approved an Agreement and Plan of Reorganization
between the Group and The Cardinal Fund Inc., Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, and Cardinal Government Obligations Fund
(collectively the "Old Funds"). With shareholder approval of this plan, the
transfer of all assets and liabilities of the Old Funds to the newly created
Group was made on May 1, 1996.
B-76
<PAGE> 216
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
On March 29, 1996, a special meeting of shareholders of the Fund was held for
the purpose of voting on the following matters:
1. Approve Agreement and Plan of Reorganization
The results were as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED
- ----------- ------------- ---------------
<S> <C> <C>
9,699,689 365,693 543,944
</TABLE>
2. To elect ten Directors of the Fund:
The Results were as follows:
<TABLE>
<CAPTION>
DIRECTORS VOTES FOR VOTES ABSTAINED
- ----------------------- ---------- ---------------
<S> <C> <C>
H. Keith Allen 10,395,548 213,778
Frank W. Siegel 10,383,614 225,712
Gordon B. Carson 10,346,761 262,565
John B. Gerlach, Jr. 10,350,972 258,354
Michael J. Knilans 10,389,815 219,511
James I. Luck 10,392,211 217,115
David L. Nelson 10,387,385 221,941
C. A. Peterson 10,380,990 228,336
Lawrence H. Rogers, II 10,381,066 228,260
Joseph H. Stegmayer 10,389,969 219,357
</TABLE>
3. To ratify the selection of KPMG Peat Marwick LLP as independent
auditors for the Fund for the fiscal year ending September 30, 1996.
The results were as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES ABSTAINED
- ----------- ------------- ---------------
<S> <C> <C>
10,164,713 61,015 383,598
</TABLE>
B-77
<PAGE> 217
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
Shares sold.......................................................... 360,416 669,572
Shares issued in connection with reinvestment of distributions to
shareholders....................................................... 391,965 908,617
---------- -------------
752,381 1,578,189
Shares repurchased................................................... (1,565,795) (4,320,495)
---------- -------------
Net decrease......................................................... (813,414) (2,742,306)
Shares outstanding:
Beginning of period.................................................. 18,543,620 21,285,926
---------- -------------
End of period........................................................ 17,730,206 18,543,620
========== ==============
</TABLE>
B-78
<PAGE> 218
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
MARCH YEARS ENDED SEPTEMBER 30,
31, -----------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning.............. $ 8.18 $ 7.96 $ 8.63 $ 8.95 $ 8.99
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. .31 0.64 0.66 0.74 0.80
Net realized and unrealized gains
(losses) on securities............. (.02) 0.22 (0.68) (0.32) (0.04)
-------- -------- -------- -------- --------
Total from investment operations........ .29 0.86 (0.02) 0.42 0.76
-------- -------- -------- -------- --------
Less distributions:
Dividends............................. (.33) (0.64) (0.65) (0.74) (0.80)
-------- -------- -------- -------- --------
Net Asset Value, ending................. $ 8.14 $ 8.18 $ 7.96 $ 8.63 $ 8.95
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total return............................ 3.33% 11.27% (0.27%) 4.83% 8.87%
========= ========= ========= ========= =========
Net assets, ending (000)................ $144,406 $151,711 $169,529 $208,883 $172,139
========= ========= ========= ========= =========
Ratio of expenses to average net
assets................................ .77% 0.76% 0.75% 0.73% 0.76%
========= ========= ========= ========= =========
Ratio of net investment income to
average net assets.................... 7.39% 7.93% 7.88% 8.32% 8.89%
========= ========= ========= ========= =========
Portfolio turnover rate................. 13.78% 36.71% 21.95% 24.94% 17.15%
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
B-79
<PAGE> 219
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL VALUE
SECURITIES AMOUNT (NOTE 1)
- ---------------------------------------------------------------------------- -------- ---------
<S> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS 1.35%
U.S. Treasury Notes, 6.50% maturing 8/15/05................................. $ 2,000 $ 2,050
-------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS.............................. 2,000 2,050
-------- ---------
U.S. GOVERNMENT AGENCY OBLIGATIONS 99.44%
GNMA I PL Notes, 8.00% maturing 9/15/23 through 8/15/35..................... 4,692 4,757
GNMA I PL Notes, 8.15% maturing 1/15/24..................................... 2,334 2,411
GNMA I PL Notes, 8.25% maturing 11/15/96 through 11/15/34................... 11,903 12,171
GNMA I PL Notes, 8.50% maturing 6/15/22 through 12/15/30.................... 8,868 9,223
GNMA I PL Notes, 8.75% maturing 8/15/24 through 4/15/25..................... 3,614 3,777
GNMA I PL Notes, 9.00% maturing 10/15/21 through 12/15/34................... 7,997 8,336
GNMA I PL Notes, 9.25% maturing 3/15/30 through 2/15/33..................... 1,658 1,746
GNMA I PL Notes, 9.50% maturing 1/15/19 through 8/15/22..................... 1,309 1,343
GNMA I PL Notes, 9.75% maturing 12/15/25.................................... 1,879 1,981
GNMA I PL Notes, 10.25% maturing 2/15/17 through 12/15/22................... 1,644 1,705
GNMA I PL Notes, 10.50% maturing 7/15/14.................................... 1,039 1,080
GNMA I Notes, 8.00% maturing 10/15/24 through 5/15/25....................... 3,880 3,992
GNMA I Notes, 8.50% maturing 5/15/16 through 8/15/17........................ 11,463 12,032
GNMA I Notes, 8.75% maturing 12/15/16 through 1/15/25....................... 1,916 2,021
GNMA I Notes, 9.00% maturing 5/15/16 through 4/15/21........................ 23,411 24,837
GNMA I Notes, 9.50% maturing 4/15/16 through 3/15/20........................ 2,106 2,259
GNMA I Notes, 11.00% maturing 1/15/10 through 6/15/20....................... 6,775 7,605
GNMA II Notes, 9.00% maturing 10/20/15 through 10/20/19..................... 10,629 11,170
GNMA II Notes, 9.50% maturing 1/20/16 through 12/20/22...................... 5,331 5,649
GNMA II Notes, 10.00% maturing 1/20/14 through 12/20/21..................... 11,416 12,401
GNMA II Notes, 10.50% maturing 9/20/13 through 9/20/19...................... 2,421 2,639
GNMA II Notes, 11.00% maturing 10/20/13 through 1/20/21..................... 2,806 3,074
Fed. Home Loan Mtg. Corp., 7.00% maturing 9/01/10........................... 3,055 3,067
Fed. Home Loan Mtg. Corp., 7.50% maturing 5/01/09 through 6/01/10........... 5,318 5,414
Fed. Home Loan Mtg. Corp., 8.00% maturing 11/01/09 through 7/01/10.......... 6,000 6,171
-------- ---------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.............................. 143,464 150,861
-------- ---------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT OBLIGATIONS 0.66%
Fifth Third Bank, 6.25%, dated 9/29/95, due 10/02/95........................ 1,000 1,000
-------- ---------
TOTAL REPURCHASE AGREEMENTS........................................... 1,000 1,000
-------- ---------
TOTAL INVESTMENTS (COST $152,787) 101.45%............................. $146,464 $153,911
======== =========
</TABLE>
GNMA -- Government National Mortgage Association
PL -- Project Loan
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-80
<PAGE> 220
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $152,787)........................... $ 153,911
Cash.......................................................................... 338
Interest receivable........................................................... 1,101
Receivable for Fund shares sold............................................... 23
Other assets.................................................................. 112
---------
Total assets........................................................ 155,485
---------
LIABILITIES
Payable for investment securities purchased................................... 3,094
Dividends payable............................................................. 405
Payable for Fund shares redeemed.............................................. 152
Accrued investment management, accounting and transfer agent fees (note 3).... 83
Other accrued expenses........................................................ 40
---------
Total liabilities................................................... 3,774
---------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS--applicable to 18,543,620 outstanding no par value shares of
beneficial interest (unlimited number of shares authorized)................. $ 151,711
=========
NET ASSET VALUE PER SHARE..................................................... $ 8.18
=========
</TABLE>
See accompanying notes to financial statements.
B-81
<PAGE> 221
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest......................................................................... $13,679
-------
EXPENSES:
Investment management fees (note 3).............................................. 784
Transfer agent fees and expenses (note 3)........................................ 174
Accounting fees (note 3)......................................................... 41
-------
Total affiliated expenses............................................ 999
-------
Custodian fees................................................................... 47
Professional fees................................................................ 51
Reports to shareholders.......................................................... 33
Directors' fees.................................................................. 19
Registration fees................................................................ 7
Other expenses................................................................... 50
-------
Total non-affiliated expenses........................................ 207
-------
Total expenses....................................................... 1,206
-------
Net investment income................................................ 12,473
-------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 2):
Net realized loss from security transactions..................................... (4,514)
Increase in unrealized gain on investments....................................... 8,934
-------
Net realized loss and increase in unrealized gain on investments..... 4,420
-------
Net increase in net assets from operations........................... $16,893
========
</TABLE>
See accompanying notes to financial statements.
B-82
<PAGE> 222
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................................................ $ 12,473 $ 14,842
Net realized loss from security transactions......................... (4,514) (5,070)
Increase (decrease) in unrealized gain on investments................ 8,934 (10,125)
-------- --------
Net increase (decrease) in net assets from operations........... 16,893 (353)
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distributions of net investment income ($.64 and $.65 per share,
respectively)...................................................... (12,572) (14,708)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares.................................... 5,355 12,690
Net asset value of Fund shares issued in connection with reinvestment
of distributions to shareholders................................... 7,272 8,662
-------- --------
12,627 21,352
Cost of Fund shares redeemed......................................... (34,766) (45,645)
-------- --------
Decrease in net assets derived from capital share
transactions................................................... (22,139) (24,293)
-------- --------
Net decrease in net assets...................................... (17,818) (39,354)
NET ASSETS--beginning of period...................................... 169,529 208,883
-------- --------
NET ASSETS--end of period (overdistributed net investment income of
$100 and $2, respectively)......................................... $151,711 $169,529
========= =========
</TABLE>
See accompanying notes to financial statements.
B-83
<PAGE> 223
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Government Obligations Fund (the "Fund") is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated November 15, 1985 and is registered under the Investment Company Act of
1940. The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
Security Valuation -- Portfolio securities for which over-the-counter market
quotations are readily available are valued at the bid price. If no quotations
are available, portfolio securities are valued in good faith by the Board of
Trustees of the Fund to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
recorded on the trade date. Interest income is recorded on the accrual basis.
Premiums and discounts are recognized as realized gains or losses from security
transactions as securities are sold or as principal reductions are received. In
determining the net realized gain or loss on securities sold, the cost of the
securities has been determined on first-in, first-out (FIFO) cost basis.
Federal Income Taxes -- No provision has been made for Federal taxes on the
Fund's income, since it is the policy of the Fund to comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income and capital gains within the
required time to relieve it from all, or substantially all, Federal income
taxes.
Dividends to Shareholders -- Dividends are declared and accrued daily and (for
those shareholders not electing cash distribution of dividends) automatically
reinvested monthly, at net asset value, in additional shares of the Fund.
(2) -- PURCHASES AND SALES OF SECURITIES
Purchases and sales of U.S. government agency obligations (excluding short-term
obligations) during the year ended September 30, 1995 aggregated $57,596,492 and
$60,730,057, respectively.
As of September 30, 1995, gross unrealized gains and gross unrealized losses on
investment securities were $2,136,800 and $1,012,380, respectively; resulting in
a net unrealized gain of $1,124,420 on investment securities with a cost basis
of $152,786,945.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Fund, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Fund. CMC has agreed that if the aggregate expenses of the Fund,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Fund, CMC will refund to the Fund, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the year ended September 30, 1995.
(continued)
B-84
<PAGE> 224
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
CMC also serves the Fund as transfer agent and fund accountant. Transfer agent
service fees are based on a monthly charge per shareholder account plus
out-of-pocket expenses. Accounting service fees are based on the monthly average
net assets of the Fund. For the year ended September 30, 1995 the Fund paid or
accrued $174,394 and $40,879 for transfer agent and fund accounting services,
respectively.
The Ohio Company, sole shareholder of CMC, acting as distributor for the Fund,
reported that it received commissions after discounts to dealers from the sale
of shares of the Fund of $147,536 for the year ended September 30, 1995.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1995. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Fund and its
officers and trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Fund is a deposit of $30,644, for the initial capital of ICI
Mutual. The Fund is also committed to provide $91,932 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $61,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Fund's
participation in ICI Mutual. This amount is not available for investment.
(5) -- CAPITAL STOCK
At September 30, 1995, there were an unlimited number of shares of no par value
capital stock authorized and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................... $ 173,076,183
Accumulated net realized loss on investments....................................... (22,389,694)
Unrealized gain on investments..................................................... 1,124,420
Overdistributed net investment income.............................................. (100,238)
-------------
Net assets......................................................................... $ 151,710,671
=============
</TABLE>
For tax purposes, the accumulated net realized loss on investments (capital loss
carryforwards) of approximately $22,800,000 expire throughout the next eight
years. Approximately $3,800,000 of capital loss carryforwards expired during the
year ended September 30, 1995. The Fund will not declare any capital gain
distributions until the carryforwards have been offset or expired.
B-85
<PAGE> 225
CARDINAL GOVERNMENT OBLIGATIONS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Shares sold.......................................................... 669,572 1,514,461
Shares issued in connection with reinvestment of distributions to
shareholders....................................................... 908,617 1,045,107
----------- -----------
1,578,189 2,559,568
Shares repurchased................................................... (4,320,495) (5,478,768)
----------- -----------
Net decrease......................................................... (2,742,306) (2,919,200)
Shares outstanding:
Beginning of period.................................................. 21,285,926 24,205,126
----------- -----------
End of period........................................................ 18,543,620 21,285,926
========== ==========
</TABLE>
(6) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Trustees approved an Agreement and Plan of
Reorganization and Liquidation between the Fund and The Cardinal Group ("TCG").
The plan calls for the transfer of all assets and liabilities of the Fund to a
series of TCG with the same basic investment objectives and restrictions. The
Trustees have determined that this action is in the best interests of the
shareholders of the Fund and TCG. Shareholder approval will be sought and is
needed to ratify the transaction.
B-86
<PAGE> 226
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning.............. $ 7.96 $ 8.63 $ 8.95 $ 8.99 $ 8.71
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.64 0.66 0.74 0.80 0.81
Net realized and unrealized gains
(losses) on securities............. 0.22 (0.68) (0.32) (0.04) 0.28
-------- -------- -------- -------- --------
Total from investment operations........ 0.86 (0.02) 0.42 0.76 1.09
-------- -------- -------- -------- --------
Less distributions:
Dividends............................. (0.64) (0.65) (0.74) (0.80) (0.81)
-------- -------- -------- -------- --------
Net Asset Value, ending................. $ 8.18 $ 7.96 $ 8.63 $ 8.95 $ 8.99
========= ========= ========= ========= =========
Ratios/Supplemental Data:
Total return............................ 11.27% (0.27%) 4.83% 8.87% 13.07%
========= ========= ========= ========= =========
Net assets, ending (000)................ $151,711 $169,529 $208,883 $172,139 $128,569
========= ========= ========= ========= =========
Ratio of expenses to average net
assets................................ 0.76% 0.75% 0.73% 0.76% 0.76%
========= ========= ========= ========= =========
Ratio of net investment income to
average net assets.................... 7.93% 7.88% 8.32% 8.89% 9.20%
========= ========= ========= ========= =========
Portfolio turnover rate................. 36.71% 21.95% 24.94% 17.15% 34.81%
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
B-87
<PAGE> 227
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Government Obligations Fund:
We have audited the accompanying statement of assets and liabilities of Cardinal
Government Obligations Fund (the Fund), including the statement of investments,
as of September 30, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cardinal Government Obligations Fund as of September 30, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 17, 1995
B-88
<PAGE> 228
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
SECURITIES DATE AMOUNT (NOTE 1)
- ---------- --------- --------- ---------
<S> <C> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS 15.26%
U.S. Treasury Bills.................................................... 04/04/96 $ 20,000 $ 19,991
U.S. Treasury Bills.................................................... 04/18/96 20,000 19,950
U.S. Treasury Bills.................................................... 05/30/96 35,000 34,703
--------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS......................... 75,000 74,644
--------- ---------
U.S. GOVERNMENT-SPONSORED ENTERPRISES AND FEDERAL AGENCY OBLIGATIONS
15.33%
Federal Farm Credit Notes, 5.125%...................................... 06/03/96 20,000 20,000
Federal Farm Credit Notes, 5.26%....................................... 07/01/96 20,000 20,000
Student Loan Marketing Association Floating Rate Note, 5.32%........... 08/08/96 10,000 10,000
Student Loan Marketing Association Floating Rate Note, 5.27%........... 09/12/96 25,000 25,000
--------- ---------
TOTAL U.S. GOVERNMENT-SPONSORED ENTERPRISES AND
FEDERAL AGENCY OBLIGATIONS.................................... 75,000 75,000
--------- ---------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT AND
FEDERAL AGENCY OBLIGATIONS 73.99%
Smith Barney Shearson, 5.28%, dated 3/26/96............................ 04/02/96 84,000 84,000
Paine Webber Inc., 5.55%, dated 3/29/96................................ 04/01/96 74,000 74,000
Merrill Lynch Securities, 5.44%, dated 3/27/96......................... 04/03/96 58,000 58,000
Fifth Third Bank, 5.25%, dated 3/29/96................................. 04/01/96 5,000 5,000
Daiwa Securities, 5.45%, dated 3/28/96................................. 04/04/96 58,000 58,000
Nikko Securities, 5.43%, dated 3/25/96................................. 04/01/96 83,000 83,000
--------- ---------
TOTAL REPURCHASE AGREEMENTS...................................... 362,000 362,000
--------- ---------
TOTAL INVESTMENTS AT AMORTIZED COST 104.58%...................... $ 512,000 $ 511,644
======== ========
</TABLE>
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-89
<PAGE> 229
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $ 511,644
Cash............................................................................. 114
Interest receivable.............................................................. 508
Other assets..................................................................... 310
---------
Total assets......................................................... 512,576
---------
LIABILITIES
Payable for Trust shares redeemed................................................ 2,955
Payable for investment securities purchased...................................... 20,000
Accrued investment management, accounting and transfer agent fees (note 2)....... 247
Other accrued expenses........................................................... 116
---------
Total liabilities.................................................... 23,318
---------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 489,257,858 outstanding $.01 par value shares of
beneficial interest (unlimited number of shares authorized).................... $ 489,258
=========
NET ASSET VALUE PER SHARE........................................................ $1.00
=========
</TABLE>
See accompanying notes to financial statements.
B-90
<PAGE> 230
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................. $ 13,196
--------
EXPENSES:
Investment management fees (note 2).................................. 1,175
Transfer agent fees and expenses (note 2)............................ 413
Accounting fees (note 2)............................................. 30
--------
Total affiliated expenses.................................. 1,618
--------
Custodian fees....................................................... 16
Professional fees.................................................... 47
Reports to shareholders.............................................. 33
Trustees' fees....................................................... 10
Registration fees.................................................... 20
Other expenses....................................................... 46
--------
Total non-affiliated expenses.............................. 172
--------
Total expenses............................................. 1,790
--------
Net increase in net assets from operations................. $ 11,406
========
</TABLE>
See accompanying notes to financial statements.
B-91
<PAGE> 231
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 11,406 $ 20,010
---------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders............................. (11,406 ) (20,010)
---------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares.................................... 642,907 1,052,266
Reinvestment of distributions to shareholders................... 11,186 19,567
Cost of shares redeemed......................................... (610,209 ) (993,975)
---------- -------------
Increase (decrease) in net assets derived from capital
share transactions....................................... 43,884 77,858
---------- -------------
Net increase (decrease) in net assets...................... 43,884 77,858
NET ASSETS -- beginning of period............................... 445,374 367,516
---------- -------------
NET ASSETS -- end of period..................................... $ 489,258 $ 445,374
========== ==============
</TABLE>
See accompanying notes to financial statements.
B-92
<PAGE> 232
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Government Securities Trust (the Trust) is a diversified, open-end
investment company created under the laws of Pennsylvania by a Declaration of
Trust dated March 21, 1980 and is registered under the Investment Company Act of
1940. According to the terms of the Declaration of Trust, Trust investments must
be obligations (or collateralized by obligations) of the U.S. Government or
agencies thereof. The following is a summary of significant accounting policies
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
Security Valuation -- Securities are valued at amortized cost which approximates
fair value (premiums and discounts are amortized on a straight-line basis). The
use of this method requires the Trust to maintain a dollar-weighted average
portfolio maturity of 90 days or less and purchase only securities having a
remaining maturity of thirteen months or less.
Security Transactions and Investment Income -- Security transactions are
recorded on the trade date. Interest income is recorded on the accrual basis. It
is the Trust's policy for its Custodian or a third-party bank to take possession
of all securities pledged as collateral for repurchase agreements and monitor
the market value of the collateral to ensure that it remains sufficient to cover
the repurchase agreements.
Federal Income Taxes -- No provision has been made for Federal taxes on the
Trust's income, since it is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to make sufficient distributions of taxable income and capital
gains within the required time to relieve it from all, or substantially all,
Federal income taxes.
Dividends to Shareholders -- Dividends are declared and accrued daily and (for
those shareholders not electing cash distribution of dividends) automatically
reinvested monthly in additional shares from the sum of net investment income
and net realized short-term gains.
(2) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Trust, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Trust. CMC has agreed that if the aggregate expenses of the Trust,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Trust, CMC will refund to the Trust, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the six months ended March 31, 1996.
CMC also serves the Trust as transfer agent and fund accountant. Transfer agent
service fees are based on a monthly charge per shareholder account plus
out-of-pocket expenses. Accounting service fees are based on the monthly average
net assets of the Trust. For the six months ended March 31, 1996 the Trust paid
or accrued $325,216 and $30,047 for transfer agent and fund accounting services,
respectively.
(continued)
B-93
<PAGE> 233
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
The Ohio Company, sole shareholder of CMC, serves as the Trust's distributor
and, in connection therewith receives purchase orders and redemption requests
relating to Trust shares. During the six months ended March 31, 1996 the Trust
incurred no expenses related to the distribution of its shares.
(3) -- COMMITMENTS AND CONTINGENCIES
The Trust has an available $6,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at March 31, 1996. When used, borrowings under this
arrangement are secured by portfolio securities and can be used only for short
term needs of the Trust. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Trust and its
officers and trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Trust is a deposit of $87,459 for the initial capital of ICI
Mutual. The Trust is also committed to provide $262,377 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $175,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Trust's
participation in ICI Mutual. This amount is not available for investment.
(4) -- CAPITAL STOCK
At March 31, 1996, there were an unlimited number of $.01 par value shares of
capital stock and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................. $490,409,044
Accumulated net realized loss on investments..................................... (1,463,438)
Undistributed net investment income.............................................. 312,252
------------
Net assets....................................................................... $489,257,858
=============
</TABLE>
(continued)
B-94
<PAGE> 234
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH, 31, SEPTEMBER 30,
1996 1995
------------- --------------
<S> <C> <C>
Shares sold..................................................... 642,906,701 1,052,265,662
Shares issued in connection with reinvestment of distributions
to shareholders............................................... 11,186,120 19,567,048
------------- --------------
654,092,821 1,071,832,710
Shares repurchased.............................................. (610,208,530) (993,975,623)
------------- --------------
Net increase.................................................... 43,884,291 77,857,087
Shares outstanding:
Beginning of period............................................. 445,373,567 367,516,480
------------- --------------
End of period................................................... 489,257,858 445,373,567
============= ==============
</TABLE>
(5) -- SUBSEQUENT EVENT
On March 29, 1996 shareholders approved an Agreement and Plan of Reorganization
between the Group and The Cardinal Fund Inc., Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, and Cardinal Government Obligations Fund
(collectively the "Old Funds"). With shareholder approval of this plan, the
transfer of all assets and liabilities of the Old Funds to the newly created
Group was made on May 1, 1996.
B-95
<PAGE> 235
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, --------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income.................... 0.02 0.05 0.03 0.02 0.04 0.06
Less distributions:
Dividends................................ (0.02) (0.05) (0.03) (0.02) (0.04) (0.06)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, ending.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total return............................... 4.94% 4.98% 2.84% 2.41% 3.58% 6.20%
========= ======== ======== ======== ======== ========
Net assets, ending (000)................... $489,258 $ 445,374 $ 367,516 $ 402,758 $ 472,521 $ 567,841
========= ======== ======== ======== ======== ========
Ratio of expenses to average net assets.... 0.76% 0.81% 0.85% 0.79% 0.76% 0.72%
========= ======== ======== ======== ======== ========
Ratio of net investment income to average
net assets............................... 4.83% 4.92% 2.94% 2.38% 3.52% 6.03%
========= ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
B-96
<PAGE> 236
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
MATURITY PRINCIPAL VALUE
SECURITIES DATE AMOUNT (NOTE 1)
- ----------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
DIRECT U.S. GOVERNMENT OBLIGATIONS 34.50%
U.S. Treasury Bills.................................................... 10/19/95 $ 40,000 $ 39,894
U.S. Treasury Bills.................................................... 11/02/95 20,000 19,904
U.S. Treasury Bills.................................................... 11/16/95 20,000 19,864
U.S. Treasury Bills.................................................... 12/07/95 35,000 34,660
U.S. Treasury Bills.................................................... 01/18/96 20,000 19,687
U.S. Treasury Bills.................................................... 02/08/96 20,000 19,625
--------- ---------
TOTAL DIRECT U.S. GOVERNMENT OBLIGATIONS......................... 155,000 153,634
--------- ---------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT AND
FEDERAL AGENCY OBLIGATIONS 65.90%
Smith Barney Shearson, 5.80%, dated 9/25/95............................ 10/02/95 80,000 80,000
Paine Webber Inc., 5.80%, dated 9/25/95................................ 10/02/95 93,000 93,000
Merrill Lynch Securities, 6.35%, dated 9/29/95......................... 10/02/95 39,000 39,000
Fifth Third Bank, 6.25%, dated 9/29/95................................. 10/02/95 6,500 6,500
Fifth Third Bank, 5.75%, dated 9/26/95................................. 10/03/95 75,000 75,000
--------- ---------
TOTAL REPURCHASE AGREEMENTS...................................... 293,500 293,500
--------- ---------
TOTAL INVESTMENTS AT AMORTIZED COST 100.40%...................... $ 448,500 $ 447,134
======== ========
</TABLE>
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-97
<PAGE> 237
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $ 447,134
Cash............................................................................. 401
Interest receivable.............................................................. 291
Other assets..................................................................... 314
---------
Total assets......................................................... 448,140
---------
LIABILITIES
Payable for Trust shares redeemed................................................ 2,360
Payable for shareholder distributions............................................ 26
Accrued investment management, accounting and transfer agent fees (note 2)....... 274
Other accrued expenses........................................................... 106
---------
Total liabilities.................................................... 2,766
---------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 445,373,567 outstanding $.01 par value shares of
beneficial interest (unlimited number of shares authorized).................... $ 445,374
=========
NET ASSET VALUE PER SHARE........................................................ $1.00
=========
</TABLE>
See accompanying notes to financial statements.
B-98
<PAGE> 238
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................. $ 23,311
--------
EXPENSES:
Investment management fees (note 2).................................. 2,032
Transfer agent fees and expenses (note 2)............................ 842
Accounting fees (note 2)............................................. 53
--------
Total affiliated expenses.................................. 2,927
--------
Custodian fees....................................................... 34
Professional fees.................................................... 90
Reports to shareholders.............................................. 65
Trustees' fees....................................................... 25
Registration fees.................................................... 9
Other expenses....................................................... 151
--------
Total non-affiliated expenses.............................. 374
--------
Total expenses............................................. 3,301
--------
Net increase in net assets from operations................. $ 20,010
========
</TABLE>
See accompanying notes to financial statements.
B-99
<PAGE> 239
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................................... $ 20,010 $ 11,615
Net realized loss from security transactions.................... 0 (1,463)
----------- ------------
Net increase in net assets from operations................. 20,010 10,152
----------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders............................. (20,010) (11,303)
----------- ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares.................................... 1,052,266 987,709
Reinvestment of distributions to shareholders................... 19,567 11,027
Cost of shares redeemed......................................... (993,975) (1,033,978)
----------- ------------
Increase (decrease) in net assets derived from capital
share transactions....................................... 77,858 (35,242)
----------- ------------
FROM CAPITAL CONTRIBUTIONS (NOTE 2):
Capital contributed by Cardinal Management Corp................. 0 1,151
----------- ------------
Net increase (decrease) in net assets...................... 77,858 (35,242)
NET ASSETS -- beginning of period............................... 367,516 402,758
----------- ------------
NET ASSETS -- end of period..................................... $ 445,374 $ 367,516
========== ============
</TABLE>
See accompanying notes to financial statements.
B-100
<PAGE> 240
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Government Securities Trust (the Trust) is a diversified, open-end
investment company created under the laws of Pennsylvania by a Declaration of
Trust dated March 21, 1980 and is registered under the Investment Company Act of
1940. According to the terms of the Declaration of Trust, Trust investments must
be obligations (or collateralized by obligations) of the U.S. Government or
agencies thereof. The following is a summary of significant accounting policies
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
Security Valuation -- Securities are valued at amortized cost which approximates
fair value (premiums and discounts are amortized on a straight-line basis). The
use of this method requires the Trust to maintain a dollar-weighted average
portfolio maturity of 90 days or less and purchase only securities having a
remaining maturity of thirteen months or less.
Security Transactions and Investment Income -- Security transactions are
recorded on the trade date. Interest income is recorded on the accrual basis. It
is the Trust's policy for its Custodian or a third-party bank to take possession
of all securities pledged as collateral for repurchase agreements and monitor
the market value of the collateral to ensure that it remains sufficient to cover
the repurchase agreements.
Federal Income Taxes -- No provision has been made for Federal taxes on the
Trust's income, since it is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to make sufficient distributions of taxable income and capital
gains within the required time to relieve it from all, or substantially all,
Federal income taxes.
Dividends to Shareholders -- Dividends are declared and accrued daily and (for
those shareholders not electing cash distribution of dividends) automatically
reinvested monthly in additional shares from the sum of net investment income
and net realized short-term gains.
(2) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Trust, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Trust. CMC has agreed that if the aggregate expenses of the Trust,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Trust, CMC will refund to the Trust, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the year ended September 30, 1995.
CMC also serves the Trust as transfer agent and fund accountant. Transfer agent
service fees are based on a monthly charge per shareholder account plus
out-of-pocket expenses. Accounting service fees are based on the monthly average
net assets of the Trust. For the year ended September 30, 1995 the Trust paid or
accrued $842,187 and $53,283 for transfer agent and fund accounting services,
respectively.
To offset capital losses incurred by the Trust, CMC contributed $1,151,186 to
the Trust during the year ended September 30, 1994. The amount contributed was
equal to the investment management, transfer agent service and the fund
accounting fees for the period from May 1, 1994 through September 30, 1994.
(continued)
B-101
<PAGE> 241
CARDINAL GOVERNMENT SECURITIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
The Ohio Company, sole shareholder of CMC, serves as the Trust's distributor
and, in connection therewith receives purchase orders and redemption requests
relating to Trust shares. During the year ended September 30, 1995 the Trust
incurred no expenses related to the distribution of its shares.
(3) -- COMMITMENTS AND CONTINGENCIES
The Trust has an available $6,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1995. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Trust. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Trust and its
officers and trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Trust is a deposit of $87,459 for the initial capital of ICI
Mutual. The Trust is also committed to provide $262,377 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $175,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Trust's
participation in ICI Mutual. This amount is not available for investment.
(4) -- CAPITAL STOCK
At September 30, 1995, there were an unlimited number of $.01 par value shares
of capital stock and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................. $446,524,753
Accumulated net realized loss on investments..................................... (1,463,438)
Undistributed net investment income.............................................. 312,252
------------
Net assets....................................................................... $445,373,567
=============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------------------
1995 1994
------------- --------------
<S> <C> <C>
Shares sold..................................................... 1,052,265,662 987,708,658
Shares issued in connection with reinvestment of distributions
to shareholders............................................... 19,567,048 11,026,622
------------- --------------
1,071,832,710 998,735,280
Shares repurchased.............................................. (993,975,623) (1,033,976,922)
------------- --------------
Net increase (decrease)......................................... 77,857,087 (35,241,642)
Shares outstanding:
Beginning of period............................................. 367,516,480 402,758,122
------------- --------------
End of period................................................... 445,373,567 367,516,480
============= ==============
</TABLE>
B-102
<PAGE> 242
(5) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Trustees approved an Agreement and Plan of
Reorganization and Liquidation between the Trust and The Cardinal Group ("TCG").
The plan calls for the transfer of all assets and liabilities of the Trust to a
series of TCG with the same basic investment objectives and restrictions. The
Trustees have determined that this action is in the best interests of the
shareholders of the Trust and TCG. Shareholder approval will be sought and is
needed to ratify the transaction.
B-103
<PAGE> 243
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income................................ 0.05 0.03 0.02 0.04 0.06
Less distributions:
Dividends............................................ (0.05) (0.03) (0.02) (0.04) (0.06)
--------- --------- --------- --------- ---------
Net Asset Value, ending................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Total return*.......................................... 4.98% 2.84% 2.41% 3.58% 6.20%
======== ======== ======== ======== ========
Net assets, ending (000)............................... $ 445,374 $ 367,516 $ 402,758 $ 472,521 $ 567,841
======== ======== ======== ======== ========
Ratio of expenses to average net assets................ 0.81% 0.85% 0.79% 0.76% 0.72%
======== ======== ======== ======== ========
Ratio of net investment income to average net assets... 4.92% 2.94% 2.38% 3.52% 6.03%
======== ======== ======== ======== ========
</TABLE>
* Without the capital contribution discussed in note 2, the 1994 total return
would have been 2.55%.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Government Securities Trust:
We have audited the accompanying statement of assets and liabilities of Cardinal
Government Securities Trust (the Trust), including the statement of investments,
as of September 30, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cardinal Government Securities Trust as of September 30, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 17, 1995
B-104
<PAGE> 244
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
2A-7* FINAL PRINCIPAL VALUE
SECURITIES MATURITY MATURITY AMOUNT (NOTE 1)
- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES 98.95%
Alaska Industrial Development Authority, IRB, currently 3.30%................. 4/05/96 6/01/10 $ 2,200 $ 2,200
Albuquerque New Mexico Hospital Revenue, RB, currently 3.35%.................. 4/05/96 5/15/22 2,500 2,500
Ashtabula County, Ohio Brighton Manor Project, VRN, currently 3.65%........... 4/05/96 12/01/16 2,200 2,200
Clackamas County, Oregon Kaiser Permanent, VRN, currently 3.40%............... 10/01/96 4/01/14 2,175 2,175
Connecticut Development (Light & Power Co.), VRN, currently 3.30%............. 4/05/96 9/01/28 3,400 3,400
Cornell Township, Michigan, Economic Development, IRB, currently 3.15%........ 5/07/96 3/01/15 3,100 3,100
Erie County, Ohio, Brighton Manor Project, VRN, currently 3.65%............... 4/05/96 11/01/16 600 600
Grand Prairie, Texas Housing Finance Authority, VRN, currently 3.30%.......... 4/05/96 6/01/10 1,800 1,800
Greater East Texas Higher Education, VRN, currently 3.35%..................... 4/05/96 9/01/02 2,300 2,300
Hockley County, Texas, PCRB, currently 4.50%.................................. 9/01/96 3/01/14 1,750 1,750
Houston, Texas TAN, currently 4.50%........................................... 6/27/96 6/27/96 1,000 1,000
Indiana Secondary Educational Loans, currently 3.50%.......................... 4/05/96 12/01/14 1,000 1,000
Lincoln County, Wyoming, PCRB, currently 3.80%................................ 4/01/96 11/01/14 3,000 3,000
Lisle, Illinois, VRN, currently 3.30%......................................... 4/05/96 12/15/25 2,500 2,500
Louisiana Public Facilities Authority (Kenner Hotels), IRB, currently 3.85%... 4/01/96 12/01/15 2,000 2,000
Louisiana Public Facilities Authority, VRN, currently 3.30%................... 4/05/96 10/01/22 1,000 1,000
Marion County, West Virginia Waste Disposal, RB, currently 3.50%.............. 4/05/96 10/01/17 1,000 1,000
Marion County, West Virginia Waste Disposal, RB, currently 3.50%.............. 4/05/96 10/01/17 2,200 2,200
Muldrow, Oklahoma Public Wks. Authority, IRB, currently 3.55%................. 4/05/96 2/01/15 3,000 3,000
New York City Municipal Water Finance Agency, VRN, currently 3.80%............ 4/01/96 6/15/23 1,100 1,100
New York City Municipal Water Finance Agency, VRN, currently 3.70%............ 4/01/96 6/15/24 900 900
New York State Energy Research & Development Authority, VRN, currently
3.15%....................................................................... 4/05/96 6/01/27 3,000 3,000
North Carolina Medical Care Commission, VRN, currently 3.85%.................. 4/05/96 5/01/21 2,600 2,600
Ohio Air Quality Development Authority, USX Corporation, PCRB, currently
3.30%....................................................................... 5/01/96 11/01/15 1,010 1,010
Ohio, Higher Education, RB, currently 3.50%................................... 4/05/96 12/01/06 1,200 1,200
Palm Beach, Florida TAN currently 4.50%....................................... 9/27/96 9/27/96 2,000 2,013
Pennsylvania TAN (State of) currently 4.50%................................... 6/28/96 6/28/96 1,500 1,500
Platte County, Wyoming Series 84B, PCR, currently 3.85%....................... 4/01/96 7/01/14 1,800 1,800
Port of Anacortes, Washington, IRB, currently 3.15%........................... 4/10/96 6/15/19 3,000 3,000
Richmond, Virginia Revenue Series A, RAN, currently 4.00%..................... 6/28/96 6/28/96 1,000 1,001
Sandusky County, Ohio, Brighton Manor, VRN, currently 3.65%................... 4/05/96 12/01/16 500 500
Springfield, Illinois, Second and Adams Project, RB, currently 4.45%.......... 4/05/96 12/01/15 1,140 1,140
Texas State RFDG-Veterans Housing Assistance, VRN, currently 3.30%............ 4/05/96 12/01/16 3,000 3,000
Washington State Fin. Commiss. Rev., RB, currently 3.35%...................... 4/05/96 1/01/10 4,000 4,000
West Feliciana, Louisiana, VRN, currently 3.80%............................... 4/01/96 12/01/15 500 500
York County, South Carolina PCR, currently 3.25%.............................. 9/15/96 9/15/14 2,000 2,000
-------- -------
TOTAL INVESTMENTS AT AMORTIZED COST 98.95%.................................. $69,942 $67,935
======== =======
<FN>
RAN -- Revenue Anticipation Note
TAN -- Tax Anticipation Notes
VRN -- Variable Rate Notes
IRB -- Variable Rate Industrial Revenue Bonds
RB -- Variable Rate Revenue Bonds
PCRB -- Variable Rate Pollution Control Revenue Bonds
* Rule 2a-7, of the Investment Company Act of 1940, defines maturity as the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand.
</TABLE>
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-105
<PAGE> 245
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $67,935
Interest receivable.............................................................. 325
Receivable for investments sold.................................................. 2,030
Other assets..................................................................... 56
-------
Total assets........................................................... 70,346
-------
LIABILITIES
Payable for Trust shares redeemed................................................ 221
Payable for investment securities purchased...................................... 2,175
Accrued investment management, accounting and transfer agent fees (note 2)....... 36
Other accrued expenses........................................................... 39
-------
Total liabilities...................................................... 2,471
-------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 67,874,714 outstanding $.10 par value shares of
beneficial interest (unlimited number of shares authorized).................... $67,875
=======
NET ASSET VALUE PER SHARE........................................................ $ 1.00
=======
</TABLE>
See accompanying notes to financial statements.
B-106
<PAGE> 246
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................. $1,247
------
EXPENSES:
Investment management fees (note 2)...................................... 173
Transfer agent fees and expenses (note 2)................................ 32
Accounting fees (note 2)................................................. 9
------
Total affiliated expenses...................................... 214
------
Custodian fees........................................................... 7
Professional fees........................................................ 22
Reports to shareholders.................................................. 15
Trustees' fees........................................................... 10
Registration fees........................................................ 15
Other expenses........................................................... 10
------
Total non-affiliated expenses.................................. 79
------
Total expenses................................................. 293
------
Net increase in net assets from operations..................... $ 954
======
</TABLE>
See accompanying notes to financial statements.
B-107
<PAGE> 247
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net increase in net assets from operations.......................... $ 954 $ 2,043
---------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders................................. (954) (2,043)
---------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares........................................ 87,125 154,643
Reinvestment of distributions to shareholders....................... 901 1,917
Cost of shares redeemed............................................. (84,931) (172,311)
---------- -------------
Increase (decrease) in net assets derived from capital share
transactions................................................... 3,095 (15,751)
---------- -------------
Net increase (decrease) in net assets............................. 3,095 (15,751)
NET ASSETS -- beginning of period................................... 64,780 80,531
---------- -------------
NET ASSETS -- end of period......................................... $ 67,875 $ 64,780
========== ==============
</TABLE>
See accompanying notes to financial statements.
B-108
<PAGE> 248
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Tax Exempt Money Trust (the Trust) is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated January 13, 1983 and is registered under the Investment Company Act of
1940. The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
Security Valuation--Securities are valued at amortized cost which approximates
fair value (premiums and discounts are amortized on a straight-line basis). The
use of this method requires the Trust to maintain a dollar-weighted average
portfolio maturity of 90 days or less and purchase only securities having a
remaining maturity of thirteen months or less.
Variable Rate Demand Municipal Securities--Variable and adjustable rate demand
municipal securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance, plus accrued interest, at
redemption dates provided by contract upon a specified number of days notice
either from the issuer or by drawing on a bank letter of credit or comparable
guarantee issued with respect to such security. The interest rates shown for
variable rate securities are the rates in effect on March 31, 1996.
Security Transactions and Investment Income--Security transactions are recorded
on the trade date. Interest income is recorded on the accrual basis.
Federal Income Taxes--No provision has been made for Federal taxes on the
Trust's income, since it is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to make sufficient distributions of taxable income and capital
gains within the required time to relieve it from all, or substantially all,
Federal income taxes.
Dividends to Shareholders--Dividends are declared and accrued daily and (for
those shareholders not electing cash distribution of dividends) automatically
reinvested monthly in additional shares from the sum of net investment income
and net realized short-term gains.
(2) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Trust, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Trust. CMC has agreed that if the aggregate expenses of the Trust,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Trust, CMC will refund to the Trust, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the six months ended March 31, 1996.
CMC also serves as the Trust's transfer agent and fund accountant. Transfer
agent service fees are based on a monthly charge per shareholder account plus
out-of-pocket expenses. Accounting service fees are based on the monthly average
net assets of the Trust. For the six months ended March 31, 1996 the Trust paid
or accrued $26,500 and $8,510 for transfer agent and fund accounting services,
respectively.
(continued)
B-109
<PAGE> 249
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
The Ohio Company, sole shareholder of CMC, serves as the Trust's distributor
and, in connection therewith receives purchase orders and redemption requests
relating to Trust shares. During the six months ended March 31, 1996 the Trust
incurred no expenses relating to the distribution of its shares.
(3) -- COMMITMENTS AND CONTINGENCIES
The Trust has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at March 31, 1996. When used, borrowings under this
arrangement are secured by portfolio securities and can be used only for short
term needs of the Trust. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Trust and its
officers and trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Trust is a deposit of $13,291 for the initial capital of ICI
Mutual. The Trust is also committed to provide $39,873 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $27,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Trust's
participation in ICI Mutual. This amount is not available for investment.
(4) -- CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
Shares sold.......................................................... 87,125,329 154,643,119
Shares issued in connection with reinvestment of distributions to
shareholders....................................................... 900,507 1,916,504
----------- -------------
88,025,836 156,559,623
Shares repurchased................................................... (84,930,950) (172,310,841)
----------- -------------
Net increase (decrease).............................................. 3,094,886 (15,751,218)
Shares outstanding:
Beginning of period.................................................. 64,779,828 80,531,046
----------- -------------
End of period........................................................ 67,874,714 64,779,828
=========== =============
</TABLE>
(5) -- SUBSEQUENT EVENT
On March 29, 1996 shareholders approved an Agreement and Plan of Reorganization
between the Group and The Cardinal Fund Inc., Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, and Cardinal Government Obligations Fund
(collectively the "Old Funds"). With shareholder approval of this plan, the
transfer of all assets and liabilities of the Old Funds to the newly created
Group was made on May 1, 1996.
B-110
<PAGE> 250
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, ---------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning................ $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income................... 0.01 0.03 0.02 0.02 0.03
Less distributions:
Dividends............................... (0.01) (0.03) (0.02) (0.02) (0.03)
--------- --------- --------- --------- ---------
Net Asset Value, ending................... $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ==========
Ratios/Supplemental Data:
Total return.............................. 2.73% 3.02% 1.78% 1.81% 2.62%
========== ========== ========== ========== ==========
Net assets, ending (000).................. $67,875 $64,780 $80,531 $91,159 $70,054
========== ========== ========== ========== ==========
Ratio of expenses to average net assets... 0.84% 0.83% 0.76% 0.77% 0.76%
========== ========== ========== ========== ==========
Ratio of net investment income to average
net assets.............................. 2.75% 2.99% 1.78% 1.80% 2.59%
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
B-111
<PAGE> 251
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
2A-7* FINAL PRINCIPAL VALUE
SECURITIES MATURITY MATURITY AMOUNT (NOTE 1)
- ------------------------------------------------------------------------------ --------- --------- --------- --------
<S> <C> <C> <C> <C>
MUNICIPAL SECURITIES 98.95%
Ashtabula County, Ohio, Brighton Manor Project, VRN, currently 4.60%.......... 10/04/95 12/01/16 $ 2,200 $ 2,200
Connecticut Development (Light & Power Co.), VRN, currently 4.40%............. 10/04/95 9/01/28 3,400 3,400
Cornell Township, Michigan, Economic Development, IRB, currently 3.80%........ 10/02/95 3/01/15 3,100 3,100
Erie County, Ohio, Brighton Manor Project, VRN, currently 4.60%............... 10/04/95 11/01/16 600 600
Florida Housing Agency, VRN, currently 4.35%.................................. 10/04/95 12/01/11 3,400 3,400
Grand Prairie, Texas Housing Finance Authority, VRN, currently 4.35%.......... 10/04/95 6/01/10 1,800 1,800
Greater East Texas Higher Education, VRN, currently 4.30%..................... 10/05/95 9/01/02 2,300 2,300
Hillsborough County, Florida, VRN, currently 4.50%............................ 10/02/95 9/01/25 3,300 3,300
Hockley County, Texas, PCRB, currently 3.65%.................................. 3/01/96 3/01/14 1,750 1,750
Jackson County, Mississippi, PCRB, currently 4.40%............................ 10/02/95 12/01/16 1,800 1,800
Jackson County, Mississippi, PCRB, currently 4.40%............................ 10/02/95 6/01/23 300 300
Lincoln County, Wyoming, PCRB, currently 4.60%................................ 10/02/95 11/01/14 3,000 3,000
Lisle, Illinois, VRN, currently 4.30%......................................... 10/05/95 12/15/25 2,500 2,500
Louisiana Public Facilities Authority (Kenner Hotels), IRB, currently 4.60%... 10/02/95 12/01/15 2,000 2,000
Louisiana Public Facilities Authority, VRN, currently 4.35%................... 10/04/95 10/01/22 1,000 1,000
Marion County, West Virginia Waste Disposal, RB, currently 4.55%.............. 10/04/95 10/01/17 1,000 1,000
Marion County, West Virginia Waste Disposal, RB, currently 4.50%.............. 10/04/95 10/01/17 2,200 2,200
Marion County, West Virginia Waste Disposal, RB, currently 4.50%.............. 10/04/95 10/01/17 1,000 1,000
Muldrow, Oklahoma Public Wks. Authority, IRB, currently 4.45%................. 10/03/95 2/01/15 3,000 3,000
New York City Municipal Water Finance Agency, VRN, currently 4.60%............ 10/02/95 6/15/23 2,000 2,000
New York State Energy Research & Development Authority, VRN, currently
4.10%....................................................................... 10/04/95 6/01/27 3,000 3,000
Ohio, Higher Education, RB, currently 4.40%................................... 10/05/95 12/01/06 1,280 1,280
Platte County, Wyoming, VRN, currently 4.60%.................................. 10/02/95 7/01/14 1,800 1,800
Port of Anacortes, Washington, IRB, currently 3.50%........................... 10/05/95 6/15/19 3,000 3,000
Private College & University, Georgia, RB, currently 3.60%.................... 10/16/95 10/01/15 3,000 3,000
Saint Charles, Louisiana, PCRB, currently 4.20%............................... 10/04/95 6/01/05 3,200 3,200
Sandusky County, Ohio, Brighton Manor Project, IRB, currently 4.60%........... 10/04/95 12/01/16 500 500
Springfield, Illinois, Second and Adams Project, RB, currently 4.45%.......... 10/03/95 12/01/15 1,170 1,170
Washington State Fin. Commiss. Rev., RB, currently 4.55%...................... 10/03/95 1/01/10 4,000 4,000
West Feliciana, Louisiana, VRN, currently 4.50%............................... 10/02/95 12/01/15 1,500 1,500
--------- --------
TOTAL INVESTMENTS AT AMORTIZED COST 98.95%.................................. $64,100 $64,100
======== =========
</TABLE>
VRN -- Variable Rate Notes
IRB -- Variable Rate Industrial Revenue Bonds
RB -- Variable Rate Revenue Bonds
PCRB -- Variable Rate Pollution Control Revenue Bonds
* Rule 2a-7, of the Investment Company Act of 1940, defines maturity as the
longer of the period remaining until the next readjustment of the interest
rate or the period remaining until the principal amount can be recovered
through demand.
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-112
<PAGE> 252
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities at amortized cost...................................... $64,100
Cash............................................................................. 974
Interest receivable.............................................................. 228
Receivable for Trust shares sold................................................. 2
Other assets..................................................................... 55
-----------------
Total assets........................................................... 65,359
-----------------
LIABILITIES
Payable for Trust shares redeemed................................................ 510
Payable for shareholder distributions............................................ 9
Accrued investment management, accounting and transfer agent fees (note 2)....... 35
Other accrued expenses........................................................... 25
-----------------
Total liabilities...................................................... 579
-----------------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
NET ASSETS -- applicable to 64,779,828 outstanding $.10 par value shares of
beneficial interest (unlimited number of shares authorized).................... $64,780
=================
NET ASSET VALUE PER SHARE........................................................ $ 1.00
=================
</TABLE>
See accompanying notes to financial statements.
B-113
<PAGE> 253
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................................. $2,608
------
EXPENSES:
Investment management fees (note 2)...................................... 344
Transfer agent fees and expenses (note 2)................................ 63
Accounting fees (note 2)................................................. 17
------
Total affiliated expenses...................................... 424
------
Custodian fees........................................................... 17
Professional fees........................................................ 41
Reports to shareholders.................................................. 30
Trustees' fees........................................................... 17
Registration fees........................................................ 8
Other expenses........................................................... 28
------
Total non-affiliated expenses.................................. 141
------
Total expenses................................................. 565
------
Net increase in net assets from operations..................... $2,043
======
</TABLE>
See accompanying notes to financial statements.
B-114
<PAGE> 254
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net increase in net assets from operations...................... $ 2,043 $ 1,601
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Total distributions to shareholders............................. (2,043) (1,601)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sale of shares.................................... 154,643 164,948
Reinvestment of distributions to shareholders................... 1,917 1,510
Cost of shares redeemed......................................... (172,311) (177,086)
-------- --------
Decrease in net assets derived from capital share
transactions............................................... (15,751) (10,628)
-------- --------
Net decrease in net assets.................................... (15,751) (10,628)
NET ASSETS -- beginning of period............................... 80,531 91,159
-------- --------
NET ASSETS -- end of period..................................... $ 64,780 $ 80,531
========= =========
</TABLE>
See accompanying notes to financial statements.
B-115
<PAGE> 255
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Tax Exempt Money Trust (the Trust) is a diversified, open-end
investment company created under the laws of Ohio by a Declaration of Trust
dated January 13, 1983 and is registered under the Investment Company Act of
1940. The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
Security Valuation--Securities are valued at amortized cost which approximates
fair value (premiums and discounts are amortized on a straight-line basis). The
use of this method requires the Trust to maintain a dollar-weighted average
portfolio maturity of 90 days or less and purchase only securities having a
remaining maturity of thirteen months or less.
Variable Rate Demand Municipal Securities--Variable and adjustable rate demand
municipal securities are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the securities and permit the holder to
demand payment of the unpaid principal balance, plus accrued interest, at
redemption dates provided by contract upon a specified number of days notice
either from the issuer or by drawing on a bank letter of credit or comparable
guarantee issued with respect to such security. The interest rates shown for
variable rate securities are the rates in effect on September 30, 1995.
Security Transactions and Investment Income--Security transactions are recorded
on the trade date. Interest income is recorded on the accrual basis.
Federal Income Taxes--No provision has been made for Federal taxes on the
Trust's income, since it is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to make sufficient distributions of taxable income and capital
gains within the required time to relieve it from all, or substantially all,
Federal income taxes.
Dividends to Shareholders--Dividends are declared and accrued daily and (for
those shareholders not electing cash distribution of dividends) automatically
reinvested monthly in additional shares from the sum of net investment income
and net realized short-term gains.
(2) -- TRANSACTIONS WITH AFFILIATES
As investment manager for the Trust, Cardinal Management Corp. (CMC), an
affiliated company, is allowed an annual fee of 0.5% of the average daily net
assets of the Trust. CMC has agreed that if the aggregate expenses of the Trust,
as defined, for any fiscal year exceed the expense limitation of any state
having jurisdiction over the Trust, CMC will refund to the Trust, or otherwise
bear, such excess. This limitation did not affect the calculation of the
management fee during the year ended September 30, 1995.
CMC also serves as the Trust's transfer agent and fund accountant. Transfer
agent service fees are based on a monthly charge per shareholder account plus
out-of-pocket expenses. Accounting service fees are based on the monthly average
net assets of the Trust. For the year ended September 30, 1995 the Trust paid or
accrued $62,542 and $17,235 for transfer agent and fund accounting services,
respectively.
(continued)
B-116
<PAGE> 256
CARDINAL TAX EXEMPT MONEY TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
The Ohio Company, sole shareholder of CMC, serves as the Trust's distributor
and, in connection therewith receives purchase orders and redemption requests
relating to Trust shares. During the year ended September 30, 1995 the Trust
incurred no expenses relating to the distribution of its shares.
(3) -- COMMITMENTS AND CONTINGENCIES
The Trust has an available $5,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1995. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Trust. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
Fidelity Bond and Errors and Omissions insurance coverage for the Trust and its
officers and trustees has been obtained through ICI Mutual Insurance Company
(ICI Mutual), an industry-sponsored mutual insurance company. Included in other
assets of the Trust is a deposit of $13,291 for the initial capital of ICI
Mutual. The Trust is also committed to provide $39,873 should ICI Mutual
experience the need for additional capital contributions.
Included in other assets is a $27,000 certificate of deposit which
collateralizes a standby letter of credit in connection with the Trust's
participation in ICI Mutual. This amount is not available for investment.
(4) -- CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------------------------
1995 1994
------------ -------------
<S> <C> <C>
Shares sold..................................................... 154,643,119 164,947,710
Shares issued in connection with reinvestment of distributions
to shareholders............................................... 1,916,504 1,509,540
------------ -------------
156,559,623 166,457,250
Shares repurchased.............................................. (172,310,841) (177,085,583 )
------------ -------------
Net decrease.................................................... (15,751,218) (10,628,333 )
Shares outstanding:
Beginning of period............................................. 80,531,046 91,159,379
------------ -------------
End of period................................................... 64,779,828 80,531,046
============= ==============
</TABLE>
(5) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Trustees approved an Agreement and Plan of
Reorganization and Liquidation between the Trust and The Cardinal Group ("TCG").
The plan calls for the transfer of all assets and liabilities of the Trust to a
series of TCG with the same basic investment objectives and restrictions. The
Trustees have determined that this action is in the best interests of the
shareholders of the Trust and TCG. Shareholder approval will be sought and is
needed to ratify the transaction.
B-117
<PAGE> 257
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning................ $1.00 $1.00 $1.00 $1.00 $1.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income................... 0.03 0.02 0.02 0.03 0.04
Less distributions:
Dividends............................... (0.03) (0.02) (0.02) (0.03) (0.04)
--------- --------- --------- --------- ---------
Net Asset Value, ending................... $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ==========
Ratios/Supplemental Data:
Total return.............................. 3.02% 1.78% 1.81% 2.62% 4.40%
========== ========== ========== ========== ==========
Net assets, ending (000).................. $64,780 $80,531 $91,159 $70,054 $85,488
========== ========== ========== ========== ==========
Ratio of expenses to average net assets... 0.83% 0.76% 0.77% 0.76% 0.72%
========== ========== ========== ========== ==========
Ratio of net investment income to average
net assets.............................. 2.99% 1.78% 1.80% 2.59% 4.31%
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Tax Exempt Money Trust:
We have audited the accompanying statement of assets and liabilities of Cardinal
Tax Exempt Money Trust (the Trust), including the statement of investments, as
of September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cardinal Tax Exempt Money Trust as of September 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 17, 1995
B-118
<PAGE> 258
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK 44.27%
American Express Company............................................................ 8,000 $ 395
American Health Properties.......................................................... 10,000 225
Arco Chemical Company............................................................... 7,500 389
Banc One Corporation................................................................ 6,600 235
C-Cor Electronics*.................................................................. 5,000 78
Cinergy Corporation................................................................. 7,500 225
Commerce Bancshares Incorporated.................................................... 5,513 192
Consolidated Papers................................................................. 5,000 281
Dow Chemical Company................................................................ 4,500 391
Excel Industries Incorporated....................................................... 15,000 171
Ford Motor Company.................................................................. 4,898 168
Forest Laboratories*................................................................ 3,000 146
GTE Corporation..................................................................... 5,000 219
IntelCom Group Incorporated*........................................................ 15,000 266
Masland Corporation................................................................. 5,000 88
Mellon Bank Corporation............................................................. 5,000 276
Monsanto Company.................................................................... 3,500 537
Mutual Risk Management.............................................................. 5,000 207
National Semiconductor Company*..................................................... 7,500 104
Neogen*............................................................................. 10,000 59
Novell Incorporated*................................................................ 10,000 134
PNC Bank Corporation................................................................ 6,000 185
Progress Software Corporation*...................................................... 10,000 150
SIGCORP Incorporated................................................................ 6,000 209
Structural Dynamics Research*....................................................... 5,000 169
Tribune Company..................................................................... 5,000 329
Trinova Corporation................................................................. 6,000 191
Universal Foods Corporation......................................................... 4,000 153
U.S. Healthcare Incorporated........................................................ 5,000 229
Viewlogic Systems Incorporated*..................................................... 9,000 99
-----------
TOTAL COMMON STOCK (COST $5,080,588).............................................. 6,499
-----------
CONVERTIBLE PREFERRED STOCK 4.03%
California Federal Bank............................................................. 6,000 156
Glendale Federal, 8.75%, Series E................................................... 4,000 191
U.S. Surgical, Series A............................................................. 7,500 245
-----------
TOTAL CONVERTIBLE PREFERRED STOCK (COST $505,949)................................. 591
-----------
PREFERRED STOCK 8.48%
American General Capital, 8.45%..................................................... 7,500 193
American Health Psychiatric Group Preferred......................................... 8,250 136
Chase Manhattan Corporation, 8.40%, Cumulative Series M............................. 7,500 194
Enron Capital Resources, 9.00%, Series A, LP........................................ 6,000 157
Textron Capital I, 7.92%............................................................ 7,500 183
Time Warner Capital I, 8.875%....................................................... 7,500 189
Utilicorp Capital, 8.875%........................................................... 7,500 193
-----------
TOTAL PREFERRED STOCK (COST $1,235,713)........................................... 1,245
-----------
*Non-income producing
(continued)
</TABLE>
B-119
<PAGE> 259
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS 6.79%
Ashland Oil, Inc., 6.75%, due 7-01-2014............................................. 150,000 $ 153
Beverly Enterprises, 7.625%, due 3-15-2003.......................................... 100,000 93
Big B Incorporated, 6.50%, due 3-15-2003............................................ 150,000 151
Enserch Corporation, 6.375%, due 4-01-2002.......................................... 150,000 150
Gran Care Incorporated, 6.50%, due 1-15-2003........................................ 100,000 93
Magna International, 5.00%, due 10-15-2002.......................................... 200,000 208
Repap Entertainment, 8.50%, due 8-01-1997........................................... 150,000 149
-----------
TOTAL CONVERTIBLE CORPORATE BONDS (COST $997,061)................................. 997
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS 7.92%
GNMA I # 368080, 7.00%, due 11-15-2008.............................................. 261,856 263
GNMA I # 251959, 7.50%, due 6-15-2023............................................... 259,124 260
GNMA II # 1213, 7.50%, due 6-20-2023................................................ 319,384 318
GNMA II # 1268, 8.00%, due 7-20-2023................................................ 315,381 321
-----------
TOTAL U.S. GOVERNMENT AGENCIES (COST $1,211,881).................................. 1,162
-----------
CORPORATE BONDS 16.37%
American Airlines, Series 91A, 10.18%, due 1-02-2013................................ 250,000 284
Consumers Power Co., 7.50%, due 6-01-2002........................................... 300,000 306
Dole Foods Inc., 7.00%, due 5-15-2003............................................... 200,000 199
Duquesne Light, 6.625%, due 6-15-2004............................................... 300,000 288
General Motors Acceptance Corp., 7.00%, due 9-15-2002............................... 200,000 202
Kemper Corp., 6.875%, due 9-15-2003................................................. 250,000 247
Pulte Homes Corp., 7.00%, due 12-15-2003............................................ 150,000 144
Tele-Communications Inc., 7.25%, due 8-01-2005...................................... 250,000 246
Time Warner, 7.25%, due 9-01-2008................................................... 250,000 241
U.S. West Capital, 6.31%, 11-01-2005................................................ 250,000 248
-----------
TOTAL CORPORATE BONDS (COST $2,382,485)........................................... 2,403
-----------
COMMERCIAL PAPER 11.24%
Cigna Corporation, 5.42%, due 4-01-1996............................................. 400,000 400
IBM Corporation, 5.38%, due 4-01-1996............................................... 500,000 500
Ford Motor Credit Corporation, 5.45%, due 4-03-1996................................. 750,000 750
-----------
TOTAL COMMERCIAL PAPER (COST $1,650,000).......................................... 1,650
-----------
TOTAL INVESTMENTS (COST $13,063,678) 99.10%....................................... $ 14,548
===========
</TABLE>
GNMA -- Government National Mortgage Association
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-120
<PAGE> 260
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $13,064)............................... $ 14,548
Cash............................................................................. 57
Receivable for Fund shares sold.................................................. 12
Interest receivable.............................................................. 68
Dividends receivable............................................................. 24
Prepaid expenses................................................................. 6
Deferred organizational cost..................................................... 22
--------
Total assets........................................................... 14,737
--------
LIABILITIES
Payable for Fund shares redeemed................................................. 6
Accrued investment management, shareholder service, accounting and transfer agent
fees (note 3).................................................................. 12
Other accrued expenses........................................................... 38
--------
Total liabilities...................................................... 56
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 1,265,920 outstanding no par value shares of
beneficial interest (unlimited number of shares authorized).................... $ 14,681
========
NET ASSET VALUE PER SHARE........................................................ $ 11.60
========
</TABLE>
See accompanying notes to financial statements.
B-121
<PAGE> 261
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................................ $ 160
Interest......................................................................... 215
-------
Total income................................................................ 375
-------
EXPENSES:
Investment management fees (note 3).............................................. 54
Transfer agent fees and expenses (note 3)........................................ 11
Shareholder service fees (note 3)................................................ 0
Accounting fees (note 3)......................................................... 3
-------
Total affiliated expenses.............................................. 68
-------
Custodian fees................................................................... 5
Professional fees................................................................ 14
Reports to shareholders.......................................................... 11
Directors' fees.................................................................. 5
Registration fees................................................................ 8
Other expenses................................................................... 3
Amortization of organizational cost (note 1)..................................... 5
-------
Total non-affiliated expenses.......................................... 51
-------
Total expenses......................................................... 119
-------
Net investment income.................................................. 256
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized gain from security transactions..................................... 544
Increase in unrealized gain on investments....................................... 59
-------
Net realized gain and increase in unrealized gain on investments............ 603
-------
Net increase in net assets from operations.................................. $ 859
======
</TABLE>
See accompanying notes to financial statements.
B-122
<PAGE> 262
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income............................................ $ 256 $ 441
Net realized gain from security transactions..................... 544 307
Increase (decrease) in unrealized gain on investments............ 59 1,810
---------- -------------
Net increase in net assets from operations.................. 859 2,558
---------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distribution of net investment income ($.21 and $.35 per share,
respectively).................................................. (260) (453)
Distribution of net realized gains from security transactions
($.39 and $.04 per share, respectively)........................ (483) (49)
---------- -------------
Total distributions to shareholders......................... (743) (502)
---------- -------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sales of Fund shares............................... 1,300 1,485
Net asset value of Fund shares issued in connection with
reinvestment of distributions to shareholders.................. 687 458
---------- -------------
1,987 1,943
Cost of Fund shares redeemed..................................... (1,957) (3,437)
---------- -------------
Increase (decrease) in net assets derived from capital share
transactions............................................... 30 (1,494)
---------- -------------
Net increase (decrease) in net assets....................... 146 562
NET ASSETS -- beginning of period................................ 14,535 13,973
---------- -------------
NET ASSETS -- end of period ((over) undistributed net investment
income, of ($1) and $3, respectively).......................... $ 14,681 $14,535
========== ==============
</TABLE>
See accompanying notes to financial statements.
B-123
<PAGE> 263
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Balanced Fund (the "Fund") is one of two portfolios of The Cardinal
Group (the "Group"), a diversified open-end management investment company
established as an Ohio Business Trust on March 23, 1993. The Group currently
consists of Cardinal Aggressive Growth Fund and Cardinal Balanced Fund. Before
June 24, 1993 the Fund had no operations other than those relating to
organizational matters, including the issuance of 5,000 shares of beneficial
interest for cash at $10.00 per share on June 4, 1993 to Cardinal Management
Corp. ("CMC"), the Group's investment adviser. The following is a summary of
significant accounting policies followed by the Fund in preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles for investment companies.
Security Valuation -- Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at either the mean between the bid and ask prices or the last sale price.
If no quotations are available, portfolio securities are valued in good faith by
the Board of Trustees to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and includes,
when applicable, the pro rata amortization of premium or accretion of discount.
In determining the net realized gain or loss on securities sold, the cost of the
securities will be determined by the first-in, first-out (FIFO) basis. It is the
Group's policy for its Custodian, or a third-party bank, to take possession of
all securities pledged as collateral for repurchase agreements and monitor the
market value of the collateral to ensure that it remains sufficient to cover the
repurchase agreements.
Deferred Organizational Cost -- Costs incurred with the organization and
registration of the Fund have been deferred and are being amortized on a
straight-line basis over a 60 month period from the commencement of public
offering of its shares. In the event that any of the initial shares of the Fund
are redeemed by the Fund's investment adviser or any subsequent holders thereof
during the 60 month amortization period, the Fund will reduce the redemption
proceeds otherwise payable by any unamortized organizational costs of the Fund
in the same proportion as the number of initial shares of the Fund being
redeemed bears to the number of initial shares of the Fund outstanding at the
time of redemption.
Distributions to Shareholders -- Distributions and dividends will be recorded on
the record date. The Fund intends to declare income dividends quarterly and any
capital gain distributions annually.
Federal Income Tax -- The Fund intends to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to make
sufficient distributions of taxable income and capital gains within the required
time to relieve it from all, or substantially all, Federal income taxes.
(continued)
B-124
<PAGE> 264
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities
(excluding short-term obligations) during the six months ended March 31, 1996
aggregated $1,507,313 and $1,547,416, respectively.
During the six months ended March 31, 1996 the Fund realized on a FIFO cost
basis a net capital gain of $545,292 for both book and tax purposes.
As of March 31, 1996, for both book and tax purposes, gross unrealized gains and
gross unrealized losses on investment securities were $1,759,340 and $274,823,
respectively; resulting in a net unrealized gain of $1,484,517.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment adviser for the Fund, CMC, an affiliated company, is allowed an
annual fee of 0.75% of the average daily net assets of the Fund. CMC has agreed
that if the aggregate expenses of the Fund, as defined, for any fiscal year
exceed the expense limitation of any state having jurisdiction over the Fund,
CMC will refund to the Fund, or otherwise bear, such excess. This limitation did
not affect the calculation of the management fee during the period ended March
31, 1996. CMC also serves the Fund as transfer agent and fund accountant. Under
the terms of the Group's Transfer Agency and Fund Accounting Agreement, the
transfer agent is entitled to receive fees based on a monthly charge per
shareholder account plus out-of-pocket expenses and the fund accountant is
entitled to receive fees based on a percentage of the average net assets of the
Fund. For the period ended March 31, 1996 the Fund paid or accrued $10,823 and
$2,629 for transfer agent and fund accounting services, respectively.
The Ohio Company ("TOC") serves the Group as distributor. TOC receives fees from
the Fund for providing services under the Distribution and Shareholder Service
Plan (the "Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940.
Under the Plan, the Fund pays TOC a fee not to exceed, on an accrual basis,
0.25% of the average daily net assets of the Fund for payments it makes to
banks, broker/dealers, including TOC, and other institutions for providing
shareholder services. TOC waived shareholder service fees for the six months
ended March 31, 1996. The Ohio Company reported to the Fund that it had received
commissions after discounts to dealers from the sale of shares of the Fund of
$19,032 for the six months ended March 31, 1996.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $2,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at March 31, 1996. When used, borrowings under this
arrangement are secured by portfolio securities and can be used only for short
term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
(continued)
B-125
<PAGE> 265
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(5) -- CAPITAL STOCK
At March 31, 1996, there were an unlimited number of no par value shares of
capital stock and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital............................................................... $ 12,745,976
Accumulated net realized gain on investments.................................. 451,301
Unrealized gain on investments................................................ 1,484,517
Overdistributed net investment income......................................... (1,046)
------------
Net assets.................................................................... $ 14,680,748
============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
Shares sold.......................................................... 113,193 140,750
Shares issued in connection with reinvestment of distributions
to shareholders.................................................... 60,687 44,785
----------- -------------
173,880 185,535
Shares repurchased................................................... (169,687) (335,102)
----------- -------------
Net increase (decrease).............................................. 4,193 (149,567)
Shares outstanding:
Beginning of period.................................................. 1,261,727 1,411,294
----------- -------------
End of period........................................................ 1,265,920 1,261,727
========= ===========
</TABLE>
(6) -- SUBSEQUENT EVENT
On March 29, 1996 shareholders approved an Agreement and Plan of Reorganization
between the Group and The Cardinal Fund Inc., Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, and Cardinal Government Obligations Fund
(collectively the "Old Funds"). With shareholder approval of this plan, the
transfer of all assets and liabilities of the Old Funds to the newly created
Group was made on May 1, 1996.
B-126
<PAGE> 266
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
PERIOD
FROM JUNE
SIX MONTHS YEARS ENDED 24, 1993*
ENDED SEPTEMBER 30, THROUGH
MARCH 31, -------------------------- SEPTEMBER
1996 1995 1994 30, 1993
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, beginning.............................. $ 11.52 $ 9.90 $ 10.13 $ 10.00
---------- ---------- ---------- ---------
Income from investment operations:
Net investment income................................. 0.20 0.34 0.23 0.02
Net realized and unrealized gain (loss) on
securities.......................................... 0.48 1.67 (0.20) 0.12
---------- ---------- ---------- ---------
Total from investment operations........................ 0.68 2.01 0.03 0.14
---------- ---------- ---------- ---------
Less distributions:
Dividends............................................. (0.21) (0.35) (0.23) (0.01)
Capital gain distribution............................. (0.39) (0.04) (0.03) 0
---------- ---------- ---------- ---------
Total distributions..................................... (0.60) (0.39) (0.26) (0.01)
---------- ---------- ---------- ---------
Net Asset Value, ending................................. $ 11.60 $ 11.52 $ 9.90 $ 10.13
========= ======= ======= ========
Ratios/Supplemental Data:
Total return (aggregate return for period)**............ 6.02% 20.76% 0.37% 1.40%
========= ======= ======= ========
Net assets, ending (000)................................ $ 14,681 $ 14,535 $ 13,973 $10,811
========= ======= ======= ========
Ratio of expenses to average net assets**............... 1.63% 1.94% 2.07% 0.70%
========= ======= ======= ========
Ratio of net investment income to average net
assets**.............................................. 3.50% 3.24% 2.44% 0.35%
========= ======= ======= ========
Portfolio turnover rate................................. 10.61% 37.62% 59.09% 60.67%
========= ======= ======= ========
<FN>
*Commencement of operations
**Effective September 15, 1995, The Ohio Company began waiving payments under
the Distribution and Shareholder Service Plan. Had the payments been charged,
total return, the ratio of expenses to average net assets, and the ratio of
net investment income to average net assets would have been 5.90%, 1.78%, and
3.38%, respectively.
</TABLE>
See accompanying notes to financial statements.
B-127
<PAGE> 267
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK 44.23%
America West Airlines Class B*...................................................... 12,000 $ 186
American Express Company............................................................ 8,000 355
American Health Properties.......................................................... 10,000 216
Arco Chemical Company............................................................... 7,500 366
Banc One Corporation................................................................ 8,000 292
Cinergy Corporation................................................................. 10,000 279
Commerce Bancshares Incorporated.................................................... 5,250 207
Dow Chemical Company................................................................ 4,500 335
Excel Industries Incorporated....................................................... 15,000 210
Forest Laboratories*................................................................ 3,000 133
GTE Corporation..................................................................... 7,500 294
Glendale Federal Savings Bank*...................................................... 5,000 82
IntelCom Group Incorporated*........................................................ 15,000 191
Mellon Bank Corporation............................................................. 7,500 335
Monsanto Company.................................................................... 3,500 353
Mutual Risk Management.............................................................. 5,000 197
National Semiconductor Company*..................................................... 5,000 138
J.C. Penney Company Incorporated.................................................... 6,000 298
Progress Software Corporation*...................................................... 4,000 268
Reliastar Financial Corporation..................................................... 1,000 41
Southern Indiana Gas and Electric................................................... 6,000 202
Structural Dynamics Research*....................................................... 15,000 278
Tribune Company..................................................................... 5,000 332
Trinova Corporation................................................................. 6,000 202
Universal Foods Corporation......................................................... 4,000 139
U.S. Healthcare Incorporated........................................................ 5,000 177
Viewlogic Systems Incorporated*..................................................... 4,000 56
Willamette Industries Incorporated.................................................. 4,000 267
-----------
TOTAL COMMON STOCK (COST $4,982,002).............................................. 6,429
-----------
CONVERTIBLE PREFERRED STOCK 3.24%
California Federal Bank............................................................. 6,000 145
Ford Motor Company, 8.40%, Series A................................................. 1,500 154
Glendale Federal, 8.75%, Series E................................................... 4,000 172
-----------
TOTAL CONVERTIBLE PREFERRED STOCK (COST $471,349)................................. 471
-----------
PREFERRED STOCK 5.95%
American General Capital, 8.45%..................................................... 7,500 189
American Health Psychiatric Group Preferred......................................... 8,250 134
Chase Manhattan Corporation, 8.40%, Cumulative Series M............................. 7,500 193
Enron Capital Resources, 9.00%, Series A, LP........................................ 6,000 157
Utilicorp Capital, 8.875%........................................................... 7,500 192
-----------
TOTAL PREFERRED STOCK (COST $864,463)............................................. 865
-----------
*Non-income producing
(continued)
</TABLE>
B-128
<PAGE> 268
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
--------- -----------
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS 6.02%
Ashland Oil, Inc., 6.75%, due 7-01-2014............................................. 150,000 $ 147
Beverly Enterprises, 7.625%, due 3-15-2003.......................................... 100,000 98
Cabot Medical Co., 7.50%, due 3-01-1999............................................. 100,000 101
Enserch Corporation, 6.375%, due 4-01-2002.......................................... 150,000 147
Federated Department Stores, 9.72%, due 2-15-2004................................... 150,000 151
Gran Care Incorporated, 6.50%, due 1-15-2003........................................ 100,000 95
Masco Corporation, 5.25%, due 2-15-2012............................................. 150,000 136
-----------
TOTAL CONVERTIBLE CORPORATE BONDS (COST $888,296)................................. 875
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS 8.41%
GNMA I # 368080, 7.00%, due 11-15-2008.............................................. 268,378 271
GNMA I # 251959, 7.50%, due 6-15-2023............................................... 260,649 263
GNMA II # 1213, 7.50%, due 6-20-2023................................................ 337,135 338
GNMA II # 1268, 8.00%, due 7-20-2023................................................ 343,197 351
-----------
TOTAL U.S. GOVERNMENT AGENCIES (COST $1,268,259).................................. 1,223
-----------
CORPORATE BONDS 14.90%
American Airlines, Series 91A, 10.18%, due 1-02-2013................................ 250,000 289
Consumers Power Co., 7.50%, due 6-01-2002........................................... 300,000 306
Dole Foods Inc., 7.00%, due 5-15-2003............................................... 200,000 198
First USA Bank, Wilmington, 5.75%, due 1-15-1999.................................... 300,000 293
General Motors Acceptance Corp., 7.00%, due 9-15-2002............................... 200,000 204
Kemper Corp., 6.875%, due 9-15-2003................................................. 250,000 246
Pulte Homes Corp., 7.00%, due 12-15-2003............................................ 150,000 143
Tele-Communications Inc., 7.25%, due 8-01-2005...................................... 250,000 244
Time Warner, 7.25%, due 9-01-2008................................................... 250,000 243
-----------
TOTAL CORPORATE BONDS (COST $2,129,904)........................................... 2,166
-----------
COMMERCIAL PAPER 13.76%
Ford Motor Credit Corporation, 5.75%, due 10-02-1995................................ 500,000 500
Sears Acceptance Corporation, 5.74%, due 10-03-1995................................. 500,000 500
General Motors Acceptance Corporation, 5.80%, due 10-04-1995........................ 500,000 500
Cigna Corporation, 5.88%, due 10-10-1995............................................ 500,000 500
-----------
TOTAL COMMERCIAL PAPER (COST $1,999,839).......................................... 2,000
-----------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT OBLIGATIONS 3.10%
The Fifth Third Bank, 5.95%, dated 9-29-95, due 10-04-95............................ 450,000 450
-----------
TOTAL REPURCHASE AGREEMENTS (COST $450,000)....................................... 450
-----------
TOTAL INVESTMENTS (COST $13,054,112) 99.61%....................................... $ 14,479
===========
</TABLE>
GNMA -- Government National Mortgage Association
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-129
<PAGE> 269
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $13,054)............................... $ 14,479
Cash............................................................................. 42
Receivable for Fund shares sold.................................................. 113
Interest receivable.............................................................. 56
Dividends receivable............................................................. 16
Prepaid expenses................................................................. 7
Deferred organizational cost..................................................... 27
--------
Total assets........................................................... 14,740
--------
LIABILITIES
Payable for investment securities purchased...................................... 125
Payable for Fund shares redeemed................................................. 47
Accrued investment management, shareholder service, accounting and transfer agent
fees (note 3).................................................................. 14
Other accrued expenses........................................................... 19
--------
Total liabilities...................................................... 205
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 1,261,727 outstanding no par value shares of
beneficial interest (unlimited number of shares authorized).................... $ 14,535
========
NET ASSET VALUE PER SHARE........................................................ $ 11.52
========
</TABLE>
See accompanying notes to financial statements.
B-130
<PAGE> 270
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................................ $ 245
Interest......................................................................... 461
-------
Total income................................................................ 706
-------
EXPENSES:
Investment management fees (note 3).............................................. 102
Transfer agent fees and expenses (note 3)........................................ 26
Shareholder service fees (note 3)................................................ 32
Accounting fees (note 3)......................................................... 5
-------
Total affiliated expenses.............................................. 165
-------
Custodian fees................................................................... 13
Professional fees................................................................ 26
Reports to shareholders.......................................................... 21
Directors' fees.................................................................. 8
Registration fees................................................................ 13
Other expenses................................................................... 9
Amortization of organizational cost (note 1)..................................... 10
-------
Total non-affiliated expenses.......................................... 100
-------
Total expenses......................................................... 265
-------
Net investment income.................................................. 441
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized gain from security transactions..................................... 307
Increase in unrealized gain on investments....................................... 1,810
-------
Net realized gain and increase in unrealized gain on investments............ 2,117
-------
Net increase in net assets from operations.................................. $ 2,558
======
</TABLE>
See accompanying notes to financial statements.
B-131
<PAGE> 271
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................................................... $ 441 $ 335
Net realized gain from security transactions.............................. 307 158
Increase (decrease) in unrealized gain on investments..................... 1,810 (462)
-------- --------
Net increase in net assets from operations........................... 2,558 31
-------- --------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distribution of net investment income ($.35 and $.23 per share,
respectively)........................................................... (453) (333)
Distribution of net realized gains from security transactions ($.04 and
$.03 per share, respectively)........................................... (49) (36)
-------- --------
Total distributions to shareholders.................................. (502) (369)
-------- --------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sales of Fund shares........................................ 1,485 5,251
Net asset value of Fund shares issued in connection with reinvestment of
distributions to shareholders........................................... 458 335
-------- --------
1,943 5,586
Cost of Fund shares redeemed.............................................. (3,437) (2,086)
-------- --------
Increase (decrease) in net assets derived from capital share
transactions........................................................ (1,494) 3,500
-------- --------
Net increase in net assets........................................... 562 3,162
NET ASSETS -- beginning of period......................................... 13,973 10,811
-------- --------
NET ASSETS -- end of period (undistributed net investment income of $3 and
$15, respectively)...................................................... $ 14,535 $ 13,973
======== ========
</TABLE>
See accompanying notes to financial statements.
B-132
<PAGE> 272
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Balanced Fund (the "Fund") is one of two portfolios of The Cardinal
Group (the "Group"), a diversified open-end management investment company
established as an Ohio Business Trust on March 23, 1993. The Group currently
consists of Cardinal Aggressive Growth Fund and Cardinal Balanced Fund. Before
June 24, 1993 the Fund had no operations other than those relating to
organizational matters, including the issuance of 5,000 shares of beneficial
interest for cash at $10.00 per share on June 4, 1993 to Cardinal Management
Corp. ("CMC"), the Group's investment adviser. The following is a summary of
significant accounting policies followed by the Fund in preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles for investment companies.
Security Valuation -- Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at either the mean between the bid and ask prices or the last sale price.
If no quotations are available, portfolio securities are valued in good faith by
the Board of Trustees to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and includes,
when applicable, the pro rata amortization of premium or accretion of discount.
In determining the net realized gain or loss on securities sold, the cost of the
securities will be determined by the first-in, first-out (FIFO) basis. It is the
Group's policy for its Custodian, or a third-party bank, to take possession of
all securities pledged as collateral for repurchase agreements and monitor the
market value of the collateral to ensure that it remains sufficient to cover the
repurchase agreements.
Deferred Organizational Cost -- Costs incurred with the organization and
registration of the Fund have been deferred and are being amortized on a
straight-line basis over a 60 month period from the commencement of public
offering of its shares. In the event that any of the initial shares of the Fund
are redeemed by the Fund's investment adviser or any subsequent holders thereof
during the 60 month amortization period, the Fund will reduce the redemption
proceeds otherwise payable by any unamortized organizational costs of the Fund
in the same proportion as the number of initial shares of the Fund being
redeemed bears to the number of initial shares of the Fund outstanding at the
time of redemption.
Distributions to Shareholders -- Distributions and dividends will be recorded on
the record date. The Fund intends to declare income dividends quarterly and any
capital gain distributions annually.
Federal Income Tax -- The Fund intends to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to make
sufficient distributions of taxable income and capital gains within the required
time to relieve it from all, or substantially all, Federal income taxes.
(continued)
B-133
<PAGE> 273
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities
(excluding short-term obligations) during the period ended September 30, 1995
aggregated $4,318,959 and $6,447,176, respectively.
During the period ended September 30, 1995 the Fund realized on a FIFO cost
basis a net capital gain of $306,446 for both book and tax purposes.
As of September 30, 1995, for both book and tax purposes, gross unrealized gains
and gross unrealized losses on investment securities were $1,612,056 and
$186,699, respectively; resulting in a net unrealized gain of $1,425,357.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment adviser for the Fund, CMC, an affiliated company, is allowed an
annual fee of 0.75% of the average daily net assets of the Fund. CMC has agreed
that if the aggregate expenses of the Fund, as defined, for any fiscal year
exceed the expense limitation of any state having jurisdiction over the Fund,
CMC will refund to the Fund, or otherwise bear, such excess. This limitation did
not affect the calculation of the management fee during the period ended
September 30, 1995. CMC also serves the Fund as transfer agent and fund
accountant. Under the terms of the Group's Transfer Agency and Fund Accounting
Agreement, the transfer agent is entitled to receive fees based on a monthly
charge per shareholder account plus out-of-pocket expenses and the fund
accountant is entitled to receive fees based on a percentage of the average net
assets of the Fund. For the period ended September 30, 1995 the Fund paid or
accrued $25,950 and $4,697 for transfer agent and fund accounting services,
respectively.
The Ohio Company ("TOC") serves the Group as distributor. TOC receives fees from
the Fund for providing services under the Distribution and Shareholder Service
Plan (the "Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940.
Under the Plan, the Fund pays TOC a fee not to exceed, on an accrual basis,
0.25% of the average daily net assets of the Fund for payments it makes to
banks, broker/dealers, including TOC, and other institutions for providing
shareholder services. The Fund paid or accrued shareholder service fees of
$32,534 for the period ended September 30, 1995. The Ohio Company reported to
the Fund that it had received commissions after discounts to dealers from the
sale of shares of the Fund of $66,772 for the period ended September 30, 1995.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $2,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1995. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
(continued)
B-134
<PAGE> 274
CARDINAL BALANCED FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(5) -- CAPITAL STOCK
At September 30, 1995, there were an unlimited number of no par value shares of
capital stock and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital............................................................... $12,716,361
Accumulated net realized gain on investments.................................. 390,571
Unrealized gain on investments................................................ 1,425,357
Undistributed net investment income........................................... 3,201
-----------
Net assets.................................................................... $14,535,490
============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Shares sold.......................................................... 140,750 519,358
Shares issued in connection with reinvestment of distributions
to shareholders.................................................... 44,785 33,364
----------- -----------
185,535 552,722
Shares repurchased................................................... (335,102) (208,912)
----------- -----------
Net increase (decrease).............................................. (149,567) 343,810
Shares outstanding:
Beginning of period.................................................. 1,411,294 1,067,484
----------- -----------
End of period........................................................ 1,261,727 1,411,294
========== ==========
</TABLE>
(6) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Trustees approved an Agreement and Plan of
Reorganization and Liquidation between the Group and The Cardinal Fund Inc.,
Cardinal Government Securities Trust, Cardinal Tax Exempt Money Trust, and
Cardinal Government Obligations Fund (collectively the "Old Funds"). The plan
calls for the transfer of all assets and liabilities of each of the Old Funds to
newly created series of the Group with the same basic investment objectives and
restrictions. The Trustees have determined that this action is in the best
interests of the shareholders of the Old Funds and the Group. Shareholders of
the Old Funds must approve the transaction before any transfer can take place.
B-135
<PAGE> 275
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
PERIOD
FROM JUNE
YEARS ENDED 24, 1993*
SEPTEMBER 30, THROUGH
---------------------- SEPTEMBER
1995 1994 30, 1993
-------- -------- ---------
<S> <C> <C> <C>
Net Asset Value, beginning............................................ $ 9.90 $ 10.13 $ 10.00
-------- -------- ---------
Income from investment operations:
Net investment income............................................... 0.34 0.23 0.02
Net realized and unrealized gain (loss) on securities............... 1.67 (0.20) 0.12
-------- -------- ---------
Total from investment operations...................................... 2.01 0.03 0.14
-------- -------- ---------
Less distributions:
Dividends........................................................... (0.35) (0.23) (0.01)
Capital gain distribution........................................... (0.04) (0.03) 0
-------- -------- ---------
Total distributions................................................... (0.39) (0.26) (0.01)
-------- -------- ---------
Net Asset Value, ending............................................... $ 11.52 $ 9.90 $ 10.13
======= ======= ========
Ratios/Supplemental Data:
Total return (aggregate return for period)**.......................... 20.76% 0.37% 1.40%
======= ======= ========
Net assets, ending (000).............................................. $ 14,535 $ 13,973 $10,811
======= ======= ========
Ratio of expenses to average net assets**............................. 1.94% 2.07% 0.70%
======= ======= ========
Ratio of net investment income to average net assets**................ 3.24% 2.44% 0.35%
======= ======= ========
Portfolio turnover rate............................................... 37.62% 59.09% 60.67%
======= ======= ========
<FN>
*Commencement of operations
**Effective September 15, 1995, The Ohio Company began waiving payments under
the Distribution and Shareholder Service Plan. Had the payments been charged,
total return, the ratio of expenses to average net assets, and the ratio of
net investment income to average net assets would have been 20.75%, 1.95%, and
3.23%, respectively.
</TABLE>
See accompanying notes to financial statements.
B-136
<PAGE> 276
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Balanced Fund:
We have audited the accompanying statement of assets and liabilities of Cardinal
Balanced Fund (the Fund), including the statement of investments, as of
September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the periods
indicated herein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cardinal Balanced Fund as of September 30, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
periods indicated herein, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 17, 1995
B-137
<PAGE> 277
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
-------- ----------
<S> <C> <C>
COMMON STOCK 99.30%
APPAREL RETAILERS 1.37%
Ann Taylor Stores Corporation*...................................... 7,500 $ 135
----------
ADVANCED MEDICAL DEVICES 2.14%
Biomet, Inc.*....................................................... 15,000 210
----------
BIO TECHNOLOGY 5.99%
Matrix Pharmaceuticals*............................................. 14,000 324
Vertex Pharmaceuticals*............................................. 10,000 265
----------
589
----------
BROADCASTING 3.61%
Westcott Communications*............................................ 20,000 355
----------
COMMERCIAL SERVICES 4.44%
Medaphis Corporation*............................................... 9,000 437
----------
COMMUNICATIONS 21.05%
Airtouch Communications*............................................ 10,000 311
Arch Communications Group*.......................................... 10,000 231
BroadBand Technologies*............................................. 10,000 255
DSC Communications Corp.*........................................... 8,000 216
MFS Communications Co., Inc.*....................................... 6,500 405
Motorola, Inc....................................................... 5,000 265
Tellabs, Inc.*...................................................... 8,000 387
----------
2,070
----------
COMPUTERS/INFORMATION 10.95%
Compaq Computer Corp.*.............................................. 9,000 348
E M C Corporation*.................................................. 11,000 241
Hewlett Packard..................................................... 3,000 282
Microsoft Corporation*.............................................. 2,000 206
----------
1,077
----------
CONSUMER SERVICES 6.85%
Banta Corporation................................................... 9,000 241
Block, H&R, Inc..................................................... 7,000 253
Cort Business Services*............................................. 10,000 180
----------
674
----------
DIVERSIFIED FINANCIAL SERVICES 2.29%
LeCroy Corporation*................................................. 5,000 73
Texas Instruments................................................... 3,000 153
----------
225
----------
</TABLE>
*Non-income producing
(continued)
B-138
<PAGE> 278
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
COMMON STOCK (CONTINUED)
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
-------- ------------
<S> <C> <C>
ELECTRICAL COMPONENTS 3.89%
GenRad, Inc.*...................................................... 30,000 $ 383
------------
HEALTH-CARE PROVIDERS 5.09%
Humana, Inc.*...................................................... 10,000 251
Maxicare Healthplans, Inc.*........................................ 10,000 249
------------
501
------------
PHARMACEUTICALS 3.20%
Mylan Laboratories, Inc............................................ 15,000 315
------------
SEMICONDUCTORS 15.35%
Advanced Micro Devices*............................................ 9,000 155
Analog Devices, Inc.*.............................................. 12,000 336
Atmel Corporation*................................................. 10,000 255
Integrated Device Technologies*.................................... 25,000 284
Intel Corporation.................................................. 5,000 284
National Semiconductor*............................................ 14,000 194
------------
1,509
------------
SOFTWARE/PROCESSING 12.58%
Computer Sciences Corp.*........................................... 4,500 317
Optical Data Systems Corp.*........................................ 10,000 205
Silicon Graphics Incorporated*..................................... 10,000 250
SpaceTec IMC*...................................................... 15,000 233
Sybase Incorporated*............................................... 10,000 233
------------
1,237
------------
TOBACCO .51%
Philip Morris Sept. 95 puts*....................................... 5,000 50
------------
TOTAL INVESTMENTS (COST $8,824,074) 99.30%....................... $ 9,765
==========
</TABLE>
*Non-income producing
Cost also represents cost for Federal income tax purposes.
See accompanying notes to financial statements.
B-139
<PAGE> 279
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $8,824)................................ $ 9,765
Cash............................................................................. 79
Receivable for Fund shares sold.................................................. 5
Dividends receivable............................................................. 4
Deferred organizational cost..................................................... 22
Prepaid expenses................................................................. 6
--------
Total assets................................................................ 9,881
--------
LIABILITIES
Payable for fund shares redeemed................................................. 2
Accrued investment management, shareholder service, accounting and transfer agent
fees (note 3).................................................................. 9
Other accrued expenses........................................................... 36
--------
Total liabilities........................................................... 47
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 872,531 outstanding no par value shares of beneficial
interest (unlimited number of shares authorized)............................... $ 9,834
========
NET ASSET VALUE PER SHARE........................................................ $ 11.27
========
</TABLE>
See accompanying notes to financial statements.
B-140
<PAGE> 280
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................................ $ 12
Interest............................................................................. 15
--------
Total income............................................................. 27
--------
EXPENSES:
Investment management fees (note 3).................................................. 37
Transfer agent fees and expenses (note 3)............................................ 11
Shareholder service fees (note 3).................................................... 0
Accounting fees (note 3)............................................................. 3
--------
Total affiliated expenses................................................ 51
--------
Custodian fees....................................................................... 3
Professional fees.................................................................... 13
Reports to shareholders.............................................................. 12
Directors' fees...................................................................... 5
Registration fees.................................................................... 8
Other expenses....................................................................... 1
Amortization of organizational cost (note 1)......................................... 5
--------
Total non-affiliated expenses............................................ 47
--------
Total expenses........................................................... 98
--------
Net loss from investment activities...................................... (71)
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized loss from security transactions......................................... (13)
Decrease in unrealized gain on investment............................................ (70)
--------
Net realized loss and decrease in unrealized gain on investments......... (83)
--------
Net decrease in net assets from operations............................... $ (154)
========
</TABLE>
See accompanying notes to financial statements.
B-141
<PAGE> 281
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net loss from investment activities............................... $ (71) $ (86)
Net realized gain (loss) from security transactions............... (13) 999
Increase (decrease) in unrealized gain on investments............. (70) 1,158
---------- -------------
Net increase (decrease) in net assets from operations........... (154) 2,071
---------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distribution of net realized gains from security transactions
($.90 and $0.00 per share, respectively)........................ (743) 0
---------- -------------
Total distributions to shareholders.......................... (743) 0
---------- -------------
Proceeds from sale of Fund shares................................. 1,267 1,809
Net asset value of Fund shares issued in connection with
reinvestment of distributions to shareholders................... 721 0
---------- -------------
1,988 1,809
Cost of Fund shares redeemed...................................... (1,691) (2,906)
---------- -------------
Increase (decrease) in net assets derived from capital share
transactions................................................. 297 (1,097)
---------- -------------
Net increase (decrease) in net assets........................... (600) 974
NET ASSETS -- beginning of period................................. 10,434 9,460
---------- -------------
NET ASSETS -- end of period (undistributed net investment loss of
$312 and $113, respectively).................................... $ 9,834 $10,434
========== ==============
</TABLE>
See accompanying notes to financial statements.
B-142
<PAGE> 282
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Aggressive Growth Fund (the "Fund") is one of two portfolios of The
Cardinal Group (the "Group"), a diversified open-end management investment
company established as an Ohio Business Trust on March 23, 1993. The Group
currently consists of Cardinal Aggressive Growth Fund and Cardinal Balanced
Fund. Before June 24, 1993 the Fund had no operations other than those relating
to organizational matters, including the issuance of 5,000 shares of beneficial
interest for cash at $10.00 per share on June 4, 1993 to Cardinal Management
Corp. ("CMC"), the Group's investment adviser. The following is a summary of
significant accounting policies followed by the Fund in preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles for investment companies.
Security Valuation -- Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at either the mean between the bid and ask prices or the last sale price.
If no quotations are available, portfolio securities are valued in good faith by
the Board of Trustees to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and includes,
when applicable, the pro rata amortization of premium or accretion of discount.
In determining the net realized gain or loss on securities sold, the cost of the
securities is determined by the first-in, first-out (FIFO) basis. It is the
Group's policy for its Custodian, or a third-party bank, to take possession of
all securities pledged as collateral for repurchase agreements and monitor the
market value of the collateral to ensure that it remains sufficient to cover the
repurchase agreements.
Deferred Organizational Cost -- Costs incurred with the organization and
registration of the Fund have been deferred and are being amortized on a
straight-line basis over a 60 month period from the commencement of public
offering of its shares. In the event that any of the initial shares of the Fund
are redeemed by the Fund's investment adviser or any subsequent holders thereof
during the 60 month amortization period, the Fund will reduce the redemption
proceeds otherwise payable by any unamortized organizational costs of the Fund
in the same proportion as the number of initial shares of the Fund being
redeemed bears to the number of initial shares of the Fund outstanding at the
time of redemption.
Distributions to Shareholders -- Distributions and dividends will be recorded on
the record date. The Fund intends to declare income dividends quarterly and any
capital gain distributions annually.
Federal Income Tax -- The Fund intends to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to make
sufficient distributions of taxable income and capital gains within the required
time to relieve it from all, or substantially all, Federal income taxes.
(continued)
B-143
<PAGE> 283
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities
(excluding short-term obligations) during the six months ended March 31, 1996
aggregated $3,292,283 and $1,709,936, respectively.
During the six months ended March 31, 1996 the Fund realized on a FIFO cost
basis a net capital loss of $12,736 for both book and tax purposes.
As of March 31, 1996, for both book and tax purposes, gross unrealized gains and
gross unrealized losses on investment securities were $1,711,894 and $771,280,
respectively; resulting in a net unrealized gain of $940,614.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment adviser for the Fund, CMC, an affiliated company, is allowed an
annual fee of 0.75% of the average daily net assets of the Fund. CMC has agreed
that if the aggregate expenses of the Fund, as defined, for any fiscal year
exceed the expense limitation of any state having jurisdiction over the Fund,
CMC will refund to the Fund, or otherwise bear, such excess. This limitation did
not affect the calculation of the management fee during the six months ended
March 31, 1996. CMC also serves the Fund as transfer agent and fund accountant.
Under the terms of the Group's Transfer Agency and Fund Accounting Agreement,
the transfer agent is entitled to receive fees based on a monthly charge per
shareholder account plus out-of-pocket expenses and the fund accountant is
entitled to receive fees based on a percentage of the average net assets of the
Fund. For the six months ended March 31, 1996 the Fund paid or accrued $10,795
and $1,788 for transfer agent and fund accounting services, respectively.
The Ohio Company ("TOC") serves the Group as distributor. TOC receives fees from
the Fund for providing services under the Distribution and Shareholder Service
Plan (the "Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940.
Under the Plan, the Fund pays TOC a fee not to exceed, on an accrual basis,
0.25% of the average daily net assets of the Fund for payments it makes to
banks, broker/dealers, including TOC, and other institutions for providing
shareholder services. TOC waived shareholder service fees for the six months
ended March 31, 1996. The Ohio Company reported to the Fund that it had received
commissions after discounts to dealers from the sale of shares of the Fund of
$11,729 for the six months ended March 31, 1996.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $2,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at March 31, 1996. When used, borrowings under this
arrangement are secured by portfolio securities and can be used only for short
term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
(continued)
B-144
<PAGE> 284
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
MARCH 31, 1996 (UNAUDITED)
(5) -- CAPITAL STOCK
At March 31, 1996, there were an unlimited number of no par value shares of
capital stock and the capital amounts were as follows:
<TABLE>
<S> <C> <C>
Paid in capital.................................................................. $ 8,916,038
Accumulated net realized gain on investments..................................... 289,550
Unrealized gain on investments................................................... 940,614
Undistributed net investment loss................................................ (312,360)
-------------
Net assets....................................................................... $ 9,833,842
==============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
Shares sold......................................................... 109,482 160,511
Shares issued in connection with reinvestment of distributions to
shareholders...................................................... 66,252 0
---------- -------------
175,734 160,511
Shares repurchased.................................................. (147,011) (268,141)
---------- -------------
Net increase (decrease)............................................. 28,723 (107,630)
Shares outstanding:
Beginning of period................................................. 843,808 951,438
---------- -------------
End of period....................................................... 872,531 843,808
========== ==============
</TABLE>
(6) -- SUBSEQUENT EVENT
On March 29, 1996 shareholders approved an Agreement and Plan of Reorganization
between the Group and The Cardinal Fund Inc., Cardinal Government Securities
Trust, Cardinal Tax Exempt Money Trust, and Cardinal Government Obligations Fund
(collectively the "Old Funds"). With shareholder approval of this plan, the
transfer of all assets and liabilities of the Old Funds to the newly created
Group was made on May 1, 1996.
B-145
<PAGE> 285
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
SIX PERIOD FROM
MONTHS YEARS ENDED JUNE 24, 1993*
ENDED SEPTEMBER 30, THROUGH
MARCH 31, ---------------------- SEPTEMBER 30,
1996 1995 1994 1993
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning........................ $ 12.37 $ 9.94 $ 10.47 $ 10.00
--------- --------- --------- ---------------
Income from investment operations:
Net investment loss............................. (0.09) (0.10) (0.13) (0.03)
Net realized and unrealized gain (loss) on
securities................................... (0.10) 2.53 (0.36) 0.50
--------- --------- --------- ---------------
Total from investment operations.................. (0.20) 2.43 (0.49) 0.47
--------- --------- --------- ---------------
Less distributions:
Capital gain distribution....................... (0.90) 0.00 (0.04) 0.00
--------- --------- --------- ---------------
Total distributions............................... (0.90) 0.00 (0.04) 0.00
--------- --------- --------- ---------------
Net Asset Value, ending........................... $ 11.27 $ 12.37 $ 9.94 $ 10.47
========== ======== ======== ===============
Ratios/Supplemental Data:
Total return (aggregate return for period)**...... (1.48%) 24.35% (4.74%) 4.70%
========== ======== ======== ===============
Net assets, ending (000).......................... $ 9,834 $ 10,434 $ 9,460 $ 6,320
========== ======== ======== ===============
Ratio of expenses to average net assets**......... 1.96% 2.24% 2.51% 0.91%
========== ======== ======== ===============
Ratio of net investment loss to average net
assets**........................................ (1.41%) (0.92%) (1.50%) (0.53%)
========== ======== ======== ===============
Portfolio turnover rate........................... 17.13% 80.35% 95.70% 31.15%
========== ======== ======== ===============
</TABLE>
*Commencement of operations
**Effective September 15, 1995, The Ohio Company began waiving payments under
the Distribution and Shareholder Service Plan. Had the payments been charged,
total return, the ratio of expenses to average net assets, and the ratio of
net investment loss to average net assets would have been (1.61)%, 2.09%, and
(1.54)%, respectively.
See accompanying notes to financial statements.
B-146
<PAGE> 286
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (MARKET VALUE IN THOUSANDS)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
-------- ----------
<S> <C> <C>
COMMON STOCK 79.22%
ADVANCED MEDICAL DEVICES 2.48%
Biomet, Inc.*....................................................... 15,000 $ 259
----------
BIO TECHNOLOGY 6.43%
Alkermes, Inc.*..................................................... 8,000 52
Cytel Corporation*.................................................. 15,000 105
Magainin Pharmaceuticals*........................................... 12,000 131
Matrix Pharmaceuticals*............................................. 14,000 196
Vertex Pharmaceuticals*............................................. 10,000 187
----------
671
----------
BROADLINE RETAILERS 2.66%
Consolidated Stores Corp.*.......................................... 12,000 278
----------
COMMERCIAL SERVICES 1.61%
Medaphis Corporation*............................................... 6,000 168
----------
COMMUNICATIONS 20.49%
Airtouch Communications*............................................ 10,000 306
Arch Communications Group*.......................................... 10,000 262
BroadBand Technologies*............................................. 5,000 108
DSC Communications Corp.*........................................... 4,000 237
General DataComm Industries*........................................ 12,500 184
MFS Communications Co., Inc.*....................................... 9,000 394
Metricom, Inc.*..................................................... 11,000 248
Motorola, Inc....................................................... 3,000 229
Tellabs, Inc.*...................................................... 4,000 169
----------
2,137
----------
COMPUTERS/INFORMATION 5.47%
Compaq Computer Corp.*.............................................. 9,000 435
E M C Corporation*.................................................. 7,500 136
----------
571
----------
CONSUMER SERVICES 4.99%
Banta Corporation................................................... 6,000 255
Block, H&R, Inc..................................................... 7,000 266
----------
521
----------
DIVERSIFIED FINANCIAL SERVICES 3.25%
Bear Stearns Companies, Inc......................................... 15,750 339
----------
EDUCATIONAL 1.45%
Westcott Communications, Inc.*...................................... 10,000 151
----------
<FN>
*Non-income producing
</TABLE>
(continued)
B-147
<PAGE> 287
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
COMMON STOCK (CONTINUED)
<TABLE>
<CAPTION>
FACE/ MARKET
SHARES VALUE
-------- ------------
<S> <C> <C>
ELECTRICAL COMPONENTS 0.92%
GenRad, Inc.*...................................................... 10,000 $ 96
------------
HEALTH-CARE PROVIDERS 4.39%
Humana, Inc.*...................................................... 10,000 201
Mariner Health Group, Inc.*........................................ 5,000 71
Maxicare Healthplans, Inc.*........................................ 10,000 186
------------
458
------------
INTEGRATED OILS 2.32%
Triton Energy Corp.*............................................... 5,000 242
------------
PHARMACEUTICALS 2.87%
Mylan Laboratories, Inc............................................ 15,000 300
------------
SEMICONDUCTORS 11.47%
Advanced Micro Devices*............................................ 9,000 262
Analog Devices, Inc.*.............................................. 8,000 277
Intel Corporation.................................................. 4,500 270
National Semiconductor*............................................ 14,000 387
------------
1,196
------------
SOFTWARE/PROCESSING 8.42%
Computer Sciences Corp.*........................................... 4,500 290
Optical Data Systems Corp.*........................................ 6,000 234
Sybase Incorporated*............................................... 10,000 321
Telescan, Inc.*.................................................... 5,000 34
------------
879
------------
TOTAL COMMON STOCK (COST $7,254,464)............................. 8,266
------------
REPURCHASE AGREEMENTS, FULLY COLLATERALIZED BY U.S. GOVERNMENT
OBLIGATIONS 16.29%
Fifth Third Bank, 5.75%, dated 9/28/95, due 10/02/95............... 1,700,000 1,700
------------
TOTAL REPURCHASE AGREEMENTS (COST $1,700,000).................... 1,700
------------
TOTAL INVESTMENTS (COST $8,954,464) 95.51%....................... $ 9,966
==========
<FN>
*Non-income producing
Cost also represents cost for Federal income tax purposes.
</TABLE>
See accompanying notes to financial statements.
B-148
<PAGE> 288
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $8,954)................................ $ 9,966
Cash............................................................................. 375
Receivable for Fund shares sold.................................................. 125
Dividends receivable............................................................. 6
Interest receivable.............................................................. 1
Deferred organizational cost..................................................... 27
Prepaid expenses................................................................. 7
--------
Total assets................................................................ 10,507
--------
LIABILITIES
Payable for investment securities purchased...................................... 45
Accrued investment management, shareholder service, accounting and transfer agent
fees (note 3).................................................................. 11
Other accrued expenses........................................................... 17
--------
Total liabilities........................................................... 73
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS -- applicable to 843,808 outstanding no par value shares of beneficial
interest (unlimited number of shares authorized)............................... $ 10,434
========
NET ASSET VALUE PER SHARE........................................................ $ 12.37
========
</TABLE>
See accompanying notes to financial statements.
B-149
<PAGE> 289
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................................ $ 71
Interest......................................................................... 58
--------
Total income......................................................... 129
--------
EXPENSES:
Investment management fees (note 3).............................................. 71
Transfer agent fees and expenses (note 3)........................................ 25
Shareholder service fees (note 3)................................................ 23
Accounting fees (note 3)......................................................... 3
--------
Total affiliated expenses............................................ 122
--------
Custodian fees................................................................... 10
Professional fees................................................................ 23
Reports to shareholders.......................................................... 23
Directors' fees.................................................................. 8
Registration fees................................................................ 14
Other expenses................................................................... 5
Amortization of organizational cost (note 1)..................................... 10
--------
Total non-affiliated expenses........................................ 93
--------
Total expenses....................................................... 215
--------
Net loss from investment activities.................................. (86)
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 2):
Net realized gain from security transactions..................................... 999
Increase in unrealized gain on investments....................................... 1,158
--------
Net realized gain and increase in unrealized gain on investments..... 2,157
--------
Net increase in net assets from operations........................... $ 2,071
========
</TABLE>
See accompanying notes to financial statements.
B-150
<PAGE> 290
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS (AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
FROM OPERATIONS:
Net loss from investment activities......................................... $ (86) $ (136)
Net realized gain from security transactions................................ 999 118
Increase (decrease) in unrealized gain on investments....................... 1,158 (444)
-------- -------
Net increase (decrease) in net assets from operations..................... 2,071 (462)
-------- -------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Distribution of net realized gains from security transactions ($0 and $.04
per share, respectively).................................................. 0 (30)
-------- -------
Total distributions to shareholders.................................... 0 (30)
-------- -------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5):
Proceeds from sale of Fund shares........................................... 1,809 5,108
Net asset value of Fund shares issued in connection with reinvestment of
distributions to shareholders............................................. 0 30
-------- -------
1,809 5,138
Cost of Fund shares redeemed................................................ (2,906) (1,506)
-------- -------
Increase (decrease) in net assets derived from capital share
transactions........................................................... (1,097) 3,632
-------- -------
Net increase in net assets................................................ 974 3,140
NET ASSETS -- beginning of period........................................... 9,460 6,320
-------- -------
NET ASSETS -- end of period (undistributed net investment loss of $113 and
$113, respectively)....................................................... $ 10,434 $ 9,460
======== ======
</TABLE>
See accompanying notes to financial statements.
B-151
<PAGE> 291
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(1) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Aggressive Growth Fund (the "Fund") is one of two portfolios of The
Cardinal Group (the "Group"), a diversified open-end management investment
company established as an Ohio Business Trust on March 23, 1993. The Group
currently consists of Cardinal Aggressive Growth Fund and Cardinal Balanced
Fund. Before June 24, 1993 the Fund had no operations other than those relating
to organizational matters, including the issuance of 5,000 shares of beneficial
interest for cash at $10.00 per share on June 4, 1993 to Cardinal Management
Corp. ("CMC"), the Group's investment adviser. The following is a summary of
significant accounting policies followed by the Fund in preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles for investment companies.
Security Valuation -- Investments listed or traded on a national securities
exchange are valued at the last sale price or, if there has been no recent sale,
at the last bid price. Investments traded in the over-the-counter market are
valued at either the mean between the bid and ask prices or the last sale price.
If no quotations are available, portfolio securities are valued in good faith by
the Board of Trustees to reflect their fair value.
Security Transactions and Investment Income -- Security transactions are
accounted for on the trade date and dividend income is recorded on the
ex-dividend date. Interest income is recorded on the accrual basis and includes,
when applicable, the pro rata amortization of premium or accretion of discount.
In determining the net realized gain or loss on securities sold, the cost of the
securities is determined by the first-in, first-out (FIFO) basis. It is the
Group's policy for its Custodian, or a third-party bank, to take possession of
all securities pledged as collateral for repurchase agreements and monitor the
market value of the collateral to ensure that it remains sufficient to cover the
repurchase agreements.
Deferred Organizational Cost -- Costs incurred with the organization and
registration of the Fund have been deferred and are being amortized on a
straight-line basis over a 60 month period from the commencement of public
offering of its shares. In the event that any of the initial shares of the Fund
are redeemed by the Fund's investment adviser or any subsequent holders thereof
during the 60 month amortization period, the Fund will reduce the redemption
proceeds otherwise payable by any unamortized organizational costs of the Fund
in the same proportion as the number of initial shares of the Fund being
redeemed bears to the number of initial shares of the Fund outstanding at the
time of redemption.
Distributions to Shareholders -- Distributions and dividends will be recorded on
the record date. The Fund intends to declare income dividends quarterly and any
capital gain distributions annually.
Federal Income Tax -- The Fund intends to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to make
sufficient distributions of taxable income and capital gains within the required
time to relieve it from all, or substantially all, Federal income taxes.
(continued)
B-152
<PAGE> 292
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(2) -- PURCHASES AND SALES OF SECURITIES
The cost of purchases and proceeds from sales of investment securities
(excluding short-term obligations) during the period ended September 30, 1995
aggregated $6,912,244 and $10,041,187, respectively.
During the period ended September 30, 1995 the Fund realized on a FIFO cost
basis a net capital gain of $999,587 for both book and tax purposes.
As of September 30, 1995, for both book and tax purposes, gross unrealized gains
and gross unrealized losses on investment securities were $1,268,610 and
$257,136, respectively; resulting in a net unrealized gain of $1,011,474.
(3) -- TRANSACTIONS WITH AFFILIATES
As investment adviser for the Fund, CMC, an affiliated company, is allowed an
annual fee of 0.75% of the average daily net assets of the Fund. CMC has agreed
that if the aggregate expenses of the Fund, as defined, for any fiscal year
exceed the expense limitation of any state having jurisdiction over the Fund,
CMC will refund to the Fund, or otherwise bear, such excess. This limitation did
not affect the calculation of the management fee during the period ended
September 30, 1995. CMC also serves the Fund as transfer agent and fund
accountant. Under the terms of the Group's Transfer Agency and Fund Accounting
Agreement, the transfer agent is entitled to receive fees based on a monthly
charge per shareholder account plus out-of-pocket expenses and the fund
accountant is entitled to receive fees based on a percentage of the average net
assets of the Fund. For the period ended September 30, 1995 the Fund paid or
accrued $25,079 and $3,255 for transfer agent and fund accounting services,
respectively.
The Ohio Company ("TOC") serves the Group as distributor. TOC receives fees from
the Fund for providing services under the Distribution and Shareholder Service
Plan (the "Plan") pursuant to Rule 12b-1 of the Investment Company Act of 1940.
Under the Plan, the Fund pays TOC a fee not to exceed, on an accrual basis,
0.25% of the average daily net assets of the Fund for payments it makes to
banks, broker/dealers, including TOC, and other institutions for providing
shareholder services. The Fund paid or accrued shareholder service fees of
$22,594 for the period ended September 30, 1995. The Ohio Company reported to
the Fund that it had received commissions after discounts to dealers from the
sale of shares of the Fund of $54,055 for the period ended September 30, 1995.
(4) -- COMMITMENTS AND CONTINGENCIES
The Fund has an available $2,000,000 line of credit with its custodian, Fifth
Third Bank, which was unused at September 30, 1995. When used, borrowings under
this arrangement are secured by portfolio securities and can be used only for
short term needs of the Fund. No compensating balances are required and the
arrangement bears an interest rate of 106% of the custodian's prime lending
rate.
(continued)
B-153
<PAGE> 293
CARDINAL AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
(5) -- CAPITAL STOCK
At September 30, 1995, there were an unlimited number of no par value shares of
capital stock and the capital amounts were as follows:
<TABLE>
<S> <C>
Paid in capital.................................................................. $ 8,618,852
Accumulated net realized gain on investments..................................... 916,812
Unrealized gain on investments................................................... 1,011,474
Undistributed net investment loss................................................ (112,926)
---------------
Net assets....................................................................... $10,434,212
===============
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
------------------------
1995 1994
--------- ---------
<S> <C> <C>
Shares sold............................................................. 160,511 499,598
Shares issued in connection with reinvestment of distributions to
shareholders.......................................................... 0 2,836
--------- ---------
160,511 502,434
Shares repurchased...................................................... (268,141) (154,659)
--------- ---------
Net increase (decrease)................................................. (107,630) 347,775
Shares outstanding:
Beginning of period..................................................... 951,438 603,663
--------- ---------
End of period........................................................... 843,808 951,438
========= =========
</TABLE>
(6) -- SUBSEQUENT EVENT
On November 13, 1995 the Board of Trustees approved an Agreement and Plan of
Reorganization and Liquidation between the Group and The Cardinal Fund Inc.,
Cardinal Government Securities Trust, Cardinal Tax Exempt Money Trust, and
Cardinal Government Obligations Fund (collectively the "Old Funds"). The plan
calls for the transfer of all assets and liabilities of each of the Old Funds to
newly created series of the Group with the same basic investment objectives and
restrictions. The Trustees have determined that this action is in the best
interests of the shareholders of the Old Funds and the Group. Shareholders of
the Old Funds must approve the transaction before any transfer can take place.
B-154
<PAGE> 294
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED JUNE 24, 1993*
SEPTEMBER 30, THROUGH
---------------------- SEPTEMBER 30,
1995 1994 1993
-------- -------- ---------------
<S> <C> <C> <C>
Net Asset Value, beginning.............................. $ 9.94 $ 10.47 $ 10.00
-------- -------- ---------------
Income from investment operations:
Net investment loss................................... (0.10) (0.13) (0.03)
Net realized and unrealized gain (loss) on
securities......................................... 2.53 (0.36) 0.50
-------- -------- ---------------
Total from investment operations........................ 2.43 (0.49) 0.47
-------- -------- ---------------
Less distributions:
Capital gain distribution............................. 0 (0.04) 0
-------- -------- ---------------
Total distributions..................................... 0 (0.04) 0
-------- -------- ---------------
Net Asset Value, ending................................. $ 12.37 $ 9.94 $ 10.47
======== ======== ===============
Ratios/Supplemental Data:
Total return (aggregate return for period)**............ 24.35% (4.74%) 4.70%
======== ======== ===============
Net assets, ending (000)................................ $ 10,434 $ 9,460 $ 6,320
======== ======== ===============
Ratio of expenses to average net assets**............... 2.24% 2.51% 0.91%
======== ======== ===============
Ratio of net investment loss to average net assets**.... (0.92%) (1.50%) (0.53%)
======== ======== ===============
Portfolio turnover rate................................. 80.35% 95.70% 31.15%
======== ======== ===============
<FN>
*Commencement of operations
**Effective September 15, 1995, The Ohio Company began waiving payments under
the Distribution and Shareholder Service Plan. Had the payments been charged,
total return, the ratio of expenses to average net assets, and the ratio of
net investment loss to average net assets would have been 24.34%, 2.25%, and
(0.93%), respectively.
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees
Cardinal Aggressive Growth Fund:
We have audited the accompanying statement of assets and liabilities of Cardinal
Aggressive Growth Fund (the Fund), including the statement of investments, as of
September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the periods
indicated herein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
September 30, 1995, by confirmation with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Cardinal Aggressive Growth Fund as of September 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the periods indicated herein, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
November 17, 1995
B-155
<PAGE> 295
APPENDIX
Commercial Paper Ratings. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debts having original maturities of no more than 365 days. Commercial paper
rated A-1 by S&P indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted A-1+. Commercial paper rated A-2
by S&P indicates that capacity for timely payment on issues is strong. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated Prime-2 (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variations.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained.
Commercial paper rated F-1 by Fitch Investors Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-2 by Fitch is regarded as having an assurance of timely
payment only slightly less than the strongest rating, i.e., F-1.
The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
Corporate Debt Ratings. A S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and to repay principal and differs from the
highest rated issues only in small degree. Debt rated A has a strong capacity to
pay interest and repay principal although it is somewhat more susceptible to
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Debt
rated BB and
A-1
<PAGE> 296
B is regard as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the lease degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions. Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
The following summarizes the six highest ratings used by Moody's for
corporate debt. Bonds that are rated Aaa by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
that are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities. Bonds that are
rated A by Moody's possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Bonds that
are rated Baa by Moody's are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds that are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
A-2
<PAGE> 297
B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Moody's applies numerical modifiers (1, 2, and 3) with respect to bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category.
The following summarizes the six highest long-term debt ratings by Duff.
Debt rated AAA has the highest credit quality. The risk factors are negligible
being only slightly more than for risk-free U.S. Treasury debt. Debt rated AA
has a high credit quality and protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions. Debt rated A
has protection factors that are average but adequate. However, risk factors are
more variable and greater in periods of economic stress. Debt rated BBB has
below average protection factors but is still considered sufficient for prudent
investment. However, there is considerable variability in risk during economic
cycles. Debt rated BB is below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category. Debt rated B is below
investment grade and possesses risk that obligations will not be met when due.
Financial protection factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists for frequent
changes in the rating within this category or into a higher or lower rating
grade.
To provide more detailed indications of credit quality, the ratings from
AA to B may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the six highest long-term debt ratings by Fitch
(except for AAA ratings, plus or minus signs are used with a rating symbol to
indicate the relative position of the credit within the rating category). Bonds
rated AAA are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issues is generally
A-3
<PAGE> 298
rated "F-1+." Bonds rated as A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings for these bonds will fall
below investment grade is higher than for bonds with higher ratings. Bonds rated
BB are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements. Bonds rated B are
considered highly speculative. While bonds in this class are currently meeting
debt service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout the life of the
issue.
The following summarizes IBCA's six highest long-term debt ratings.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly. Obligations
rated AA are those for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic, or financial conditions may increase investment
risk albeit not very significantly. Obligations rated A are those for which
there is a low expectation of investment risk. Capacity for timely repayment of
principal and interest is strong, although adverse changes in business, economic
or financial conditions may lead to increased investment risk. Obligations rated
BBB are those for which there is currently a low expectation of investment risk.
Capacity for timely repayment of principal and interest is adequate, although
adverse changes in business, economic, or financial conditions are more likely
to lead to increased investment risk than for obligations in other categories.
Obligations rated BB are those for which there is a possibility of investment
risk developing. Capacity for timely repayment of principal and interest exists,
but is susceptible over time to adverse changes in business, economic or
financial conditions. Obligations rated B are those for which investment risk
exists. Timely repayment of principal and interest is not sufficiently protected
against adverse changes in business, economic or financial conditions.
A-4
<PAGE> 299
The following summarizes Thomson's description of its six highest
long-term debt ratings (Thomson may include a plus (+) or minus (-) designation
to indicate where within the respective category the issue is placed). AAA is
the highest category and indicates that the ability to repay principal and
interest on a timely basis is very high. AA is the second highest category and
indicates a superior ability to repay principal and interest on a timely basis
with limited incremental risk versus issues rated in the highest category. A is
the third highest category and indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB is the lowest investment grade category and indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than obligations
with higher ratings. While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations. Issuer rated B show a higher degree of uncertainty and
therefore greater likelihood of default that higher-rated issuers. Adverse
developments could well negatively affect the payment of interest and principal
on a timely basis.
Definitions of Certain Money Market Instruments
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less than
nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include
A-5
<PAGE> 300
Treasury bills, notes and bonds, and issues of agencies and instrumentalities of
the U.S. Government, provided such obligations are guaranteed as to payment of
principal and interest by the full faith and credit of the U.S. Government.
U.S. Government Agency and Instrumentality Obligations
Obligations of the U.S. Government include Treasury bills, certificates
of indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Export-Import Bank of the United States, the Tennessee Valley Authority, the
Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks, are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
A-6
<PAGE> 301
Registration Statement
of
THE CARDINAL GROUP
on
Form N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
(i) Cardinal Balanced Fund
Financial Highlights
(ii) Cardinal Aggressive Growth Fund
Financial Highlights
(iii) The Cardinal Fund
Financial Highlights
(iv) Cardinal Government Obligations Fund
Financial Highlights
(v) Cardinal Government Securities Money Market Fund
Financial Highlights
(vi) Cardinal Tax Exempt Money Market Fund
Financial Highlights
Included in Part B:
(i) Cardinal Balanced Fund
-- Statement of Investments
March 31, 1996 (Unaudited)
-- Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
-- Statement of Operations for the period ended
March 31, 1996 (Unaudited)
<PAGE> 302
-- Statement of Changes in Net Assets for the
period ended March 31, 1996 (unaudited) and
the years ended September 30, 1995 and 1994
-- Notes to Financial Statements
March 31, 1996 (Unaudited)
-- Financial Highlights for the period ended
March 31, 1996 (unaudited) and the years
ended September 30, 1995 and 1994 and the
period from June 24, 1993 (commencement of
operations) through September 30, 1993.
-- Statement of Investments
September 30, 1995
-- Statement of Assets and Liabilities
September 30, 1995
-- Statement of Operations for the year ended
September 30, 1995
-- Statement of Changes in Net Assets for the
years ended September 30, 1995 and 1994
-- Notes to Financial Statements
September 30, 1995
-- Financial Highlights for the years ended
September 30, 1995 and 1994 and the period
from June 24, 1993 (commencement of
operations) through September 30, 1993.
-- Independent Auditors' Report dated
November 17, 1995
(ii) Cardinal Aggressive Growth Fund
-- Statement of Investments
March 31, 1996 (Unaudited)
-- Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
-- Statement of Operations for the period ended
March 31, 1996 (Unaudited)
-- Statement of Changes in Net Assets for the
period ended March 31, 1996 (unaudited) and
the years ended September 30, 1995 and 1994
C-2
<PAGE> 303
-- Notes to Financial Statements
March 31, 1996 (Unaudited)
-- Financial Highlights for the period ended
March 31, 1996 (unaudited) and the years
ended September 30, 1995 and 1994 and the
period from June 24, 1993 (commencement of
operations) through September 30, 1993.
-- Statement of Investments
September 30, 1995
-- Statement of Assets and Liabilities
September 30, 1995
-- Statement of Operations for the year ended
September 30, 1995
-- Statement of Changes in Net Assets for the
years ended September 30, 1995 and 1994
-- Notes to Financial Statements
September 30, 1995
-- Financial Highlights for the years ended
September 30, 1995 and 1994 and the period
from June 24, 1993 (commencement of
operations) through September 30, 1993.
-- Independent Auditors' Report dated November
17, 1995
(iii) The Cardinal Fund
-- Statement of Investments
March 31, 1996 (Unaudited)
-- Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
-- Statement of Operations for the period ended
March 31, 1996 (Unaudited)
-- Statement of Changes in Net Assets for the
period ended March 31, 1996 (unaudited) and
the years ended September 30, 1995 and 1994
-- Notes to Financial Statements
March 31, 1996 (Unaudited)
C-3
<PAGE> 304
-- Financial Highlights for the period ended
March 31, 1996 (unaudited) and the years
ended September 30, 1995, 1994, 1993, 1992
and 1991.
-- Statement of Investments
September 30, 1995
-- Statement of Assets and Liabilities
September 30, 1995
-- Statement of Operations for the year ended
September 30, 1995
-- Statement of Changes in Net Assets for the
years ended September 30, 1995 and 1994
-- Notes to Financial Statements
September 30, 1995
-- Financial Highlights for the years ended
September 30, 1995, 1994, 1993, 1992 and
1991.
-- Independent Auditors' Report dated
November 17, 1995
(iv) Cardinal Government Obligations Fund
-- Statement of Investments
March 31, 1996 (Unaudited)
-- Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
-- Statement of Operations for the period ended
March 31, 1996 (Unaudited)
-- Statement of Changes in Net Assets for the
period ended March 31, 1996 (unaudited) and
the years ended September 30, 1995 and 1994
-- Notes to Financial Statements
March 31, 1996 (Unaudited)
-- Financial Highlights for the period ended
March 31, 1996 (unaudited) and the years
ended September 30, 1995, 1994, 1993, 1992
and 1991.
-- Statement of Investments
September 30, 1995
-- Statement of Assets and Liabilities
September 30, 1995
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-- Statement of Operations for the year ended
September 30, 1995
-- Statement of Changes in Net Assets for the
years ended September 30, 1995 and 1994
-- Notes to Financial Statements
September 30, 1995
-- Financial Highlights for the years ended
September 30, 1995, 1994, 1993, 1992 and
1991.
-- Independent Auditors' Report dated
November 17, 1995
(v) Cardinal Government Securities Money Market
Fund
-- Statement of Investments
March 31, 1996 (Unaudited)
-- Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
-- Statement of Operations for the period ended
March 31, 1996 (Unaudited)
-- Statement of Changes in Net Assets for the
period ended March 31, 1996 (unaudited) and
the years ended September 30, 1995 and 1994
-- Notes to Financial Statements
March 31, 1996 (Unaudited)
-- Financial Highlights for the period ended
March 31, 1996 (unaudited) and the years
ended September 30, 1995, 1994, 1993, 1992
and 1991.
-- Statement of Investments
September 30, 1995
-- Statement of Assets and Liabilities
September 30, 1995
-- Statement of Operations for the year ended
September 30, 1995
-- Statement of Changes in Net Assets for the
years ended September 30, 1995 and 1994
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-- Notes to Financial Statements
September 30, 1995
-- Financial Highlights for the years ended
September 30, 1995, 1994, 1993, 1992 and
1991.
-- Independent Auditors' Report dated
November 17, 1995
(vi) Cardinal Tax Exempt Money Market Fund
-- Statement of Investments
March 31, 1996 (Unaudited)
-- Statement of Assets and Liabilities
March 31, 1996 (Unaudited)
-- Statement of Operations for the period ended
March 31, 1996 (Unaudited)
-- Statement of Changes in Net Assets for the
period ended March 31, 1996 (unaudited) and
the years ended September 30, 1995 and 1994
-- Notes to Financial Statements
March 31, 1996 (Unaudited)
-- Financial Highlights for the period ended
March 31, 1996 (unaudited) and the years
ended September 30, 1995, 1994, 1993, 1992
and 1991.
-- Statement of Investments
September 30, 1995
-- Statement of Assets and Liabilities
September 30, 1995
-- Statement of Operations for the year ended
September 30, 1995
-- Statement of Changes in Net Assets for the
years ended September 30, 1995 and 1994
-- Notes to Financial Statements
September 30, 1995
-- Financial Highlights for the years ended
September 30, 1995, 1994, 1993, 1992 and
1991.
-- Independent Auditors' Report dated
November 17, 1995
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<PAGE> 307
(vii) All required financial statements are
included in Part B hereof. All other
financial statements and schedules are
inapplicable.
(b) Exhibits
(1) (a) Declaration of Trust, dated as of
March 23, 1993, is incorporated by
reference to Exhibit (1)(a) of Post-
Effective Amendment No. 3 to
Registrant's Registration Statement
on Form N-1A (No. 33-59984) filed on
October 27, 1995.
(b) Amendment to Declaration of Trust as
adopted October 20, 1995, is
incorporated by reference to Exhibit
(1)(b) of Post-Effective Amendment
No. 3 to Registrant's Registration
Statement on Form N-1A (No.
33-59984) filed on October 27, 1995.
(c) Amendment to Declaration of Trust as
adopted July 19, 1996, is
incorporated by reference to
Exhibit (1)(c) of Post-Effective
Amendment No. 6 to Registrant's
Registration Statement on Form N-1A
(No. 33-59984) filed on August 2,
1996.
(2) By-Laws are incorporated by reference to
Exhibit (2) of Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form
N-1A (No. 33-59984) filed on October 27, 1995.
(3) None.
(4) None.
(5) Investment Advisory and Management Agreement
dated as of June 18, 1993, as amended as of
January 10, 1996, between Registrant and
Cardinal Management Corp. is incorporated by
reference to Exhibit (5) of Post-Effective
Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (No. 33-59984) filed
on April 26, 1996.
(6) (a) Distribution Agreement dated as
of June 18, 1993, as proposed to be
amended as of October 1, 1996,
between Registrant and The Ohio
Company is incorporated by
reference to Exhibit (6)(a) of
Post-Effective Amendment No. 6 to
Registrant's Registration Statement
on Form N-1A (No. 33-59984) filed
on August 2, 1996.
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<PAGE> 308
(b) Form of revised Selected Dealer
Agreement is incorporated by
reference to Exhibit (6)(b) of
Post-Effective Amendment No. 6
to Registrant's Registration
Statement on Form N-1A
(No. 33-59984) filed on August 2,
1996.
(7) None.
(8) Custody Agreement dated as of June 18, 1993,
as amended as of January 10, 1996, between
Registrant and The Fifth Third Bank is
incorporated by reference to Exhibit (8) of
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A (No. 33-59984) filed on April 26,
1996.
(9) (a) Transfer Agency and Fund Accounting
Agreement dated as of June 18, 1993,
as amended as of January 10, 1996,
between Registrant and Cardinal
Management Corp. is incorporated by
reference to Exhibit (9) of
Post-Effective Amendment No. 6 to
Registrant's Registration Statement
on Form N-1A (No. 33-59984) filed on
April 26, 1996.
(b) Proposed Institutional Class
Administrative Services Plan is
incorporated by reference to
Exhibit (9)(b) of Post-Effective
Amendment No. 6 to Registrant's
Registration Statement on Form N-1A
(No. 33-59984) filed on August 2,
1996.
(c) Form of proposed Servicing Agreement
pursuant to Administrative Services
Plan is incorporated by reference
to Exhibit (9)(c) of Post-Effective
Amendment No. 6 to Registrant's
Registration Statement on Form N-1A
(No. 33-59984) filed on August 2,
1996.
(10) Opinion of Counsel with respect to shares of
Cardinal Balanced Fund and Cardinal
Aggressive Growth Fund registered pursuant
to section 24(e)(1) of the Investment
Company Act of 1940 is incorporated by
reference to Exhibit (10) of Post-Effective
Amendment No. 4 to Registrant's Registration
Statement on Form N-1A (No. 33-59984) filed
on January 19, 1996. Opinion of Counsel with
respect to shares of The Cardinal Fund,
Cardinal Government Obligations Fund,
Cardinal Government Securities Money Market
Fund and Cardinal Tax Exempt Money Market
Fund is incorporated by reference to Exhibit
(10) of Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form
N- 1A (No. 33-59984) filed on October 27,
1995. An Opinion of Counsel with
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<PAGE> 309
respect to the Shares of Cardinal Balanced
Fund and Cardinal Aggressive Growth Fund was
filed with Registrant's Notice filed on
November 21, 1995, pursuant to Rule 24f-2.
(11) Consent of KPMG Peat Marwick LLP.
(12) None.
(13) Purchase Agreement dated June 4, 1993,
between Registrant and Cardinal Management
Corp. is incorporated by reference to
Exhibit (13) of Post-Effective Amendment No.
3 to Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on October
27, 1995.
(14) None.
(15) (a) Rule 12b-1 Plan as proposed to be
amended is incorporated by
reference to Exhibit (15)(a) of
Post-Effective Amendment No. 6
to Registrant's Registration
Statement on Form N-1A
(No. 33-59984) filed on August 2,
1996.
(b) Rule 12b-1 Agreement dated June 18,
1993, as proposed to be amended as
of October 1, 1996, between
Registrant and The Ohio Company (a
related agreement under the Rule
12b-1 Plan) is incorporated by
reference to Exhibit (15)(b) of
Post-Effective Amendment No. 6
to Registrant's Registration
Statement on Form N-1A
(No. 33-59984) filed on August 2,
1996.
(c) Proposed form of revised Selected
Dealer Agreement (a related
agreement under the Rule 12b-1
Plan) is incorporated by
reference to Exhibit (15)(c) of
Post-Effective Amendment No. 6
to Registrant's Registration
Statement on Form N-1A
(No. 33-59984) filed on August 2,
1996.
(16) (a) Computation of Performance
Quotations for Cardinal Balanced
Fund is incorporated by reference to
Exhibit (16)(a) of Post-Effective
Amendment No. 2 to Registrant's
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<PAGE> 310
Registration Statement on Form N-1A
(File No. 33-59984) filed on
December 1, 1994.
(b) Computation of Performance
Quotations for Cardinal Aggressive
Growth Fund is incorporated by
reference to Exhibit (16)(b) of
Post-Effective Amendment No. 2 to
Registrant's Registration Statement
on Form N-1A (File No. 33-59984)
filed on December 1, 1994.
(c) Computation of Performance
Quotations for The Cardinal Fund is
incorporated by reference to Exhibit
(16)(c) of Post-Effective Amendment
No. 5 to Registrant's Registration
Statement on Form N-1A (No.
33-59984) filed on April 26, 1996.
(d) Computation of Performance
Quotations for Cardinal Government
Obligations Fund is incorporated by
reference to Exhibit (16)(d) of
Post-Effective Amendment No. 5 to
Registrant's Registration Statement
on Form N-1A (No. 33-59984) filed on
April 26, 1996.
(e) Computation of Performance
Quotations for Cardinal Government
Securities Money Market Fund is
incorporated by reference to Exhibit
(16)(e) of Post-Effective Amendment
No. 5 to Registrant's Registration
Statement on Form N-1A (No.
33-59984) filed on April 26, 1996.
(f) Computation of Performance
Quotations for Cardinal Tax Exempt
Money Market Fund is incorporated by
reference to Exhibit (16)(f) of
Post-Effective Amendment No. 5 to
Registrant's Registration Statement
on Form N-1A (No. 33-59984) filed on
April 26, 1996.
(18) Rule 18f-3 Plan as adopted July 19, 1996 is
incorporated by reference to Exhibit (18)
of Post-Effective Amendment No. 6 to
Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on
August 2, 1996.
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<PAGE> 311
(19) (a) Consent of Baker & Hostetler.
(b) Powers of Attorney of H. Keith
Allen, Gordon B. Carson, John B.
Gerlach, Jr., Michael J. Knilans,
James I. Luck, David L. Nelson, C.
A. Peterson, John L. Schlater, Frank
W. Siegel, Joseph H. Stegmayer,
Lawrence H. Rogers II and James M.
Schrack, II are incorporated by
reference to Exhibit (19)(b) of
Post- Effective Amendment No. 3 to
Registrant's Registration Statement
on Form N-1A (No. 33-59984) filed on
October 27, 1995.
(27) Financial Data Schedules.
Item 25. Persons Controlled Or Under Common Control With
Registrant
None
Item 26. Number Of Holders Of Securities
The following table sets forth as of July 24, 1996, the number
of record holders of each series of shares of Registrant:
<TABLE>
<CAPTION>
Number of
Title of Series Record Holders
--------------- --------------
<S> <C>
Cardinal Balanced Fund 1,154
Cardinal Aggressive Growth Fund 1,169
The Cardinal Fund 11,090
Cardinal Government Obligations
Fund 5,832
Cardinal Government Securities
Money Market Fund 52,602
Cardinal Tax Exempt Money Market
Fund 3,222
</TABLE>
Item 27. Indemnification
Article VI, Section 6.4 of the Registrant's Declaration of
Trust, filed as Exhibit 1 hereto, provides for the
indemnification of Registrant's Trustees and officers.
Indemnification of the Group's principal underwriter,
custodian, investment adviser and manager, and transfer agent
is provided for, respectively, in Section 1.11 of the
Distribution Agreement filed as Exhibit 6(a) hereto, Section
8.1 of the Custody Agreement filed as Exhibit 8 hereto,
Section 6 of the Investment Advisory and
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<PAGE> 312
Management Agreement filed as Exhibit 5 hereto, and Section 10
of the Transfer Agency and Fund Accounting Agreement filed as
Exhibit 9(a) hereto. As of the effective date of this
Registration Statement, the Group will have obtained from a
major insurance carrier a trustees' and officers' liability
policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its trustees, officers,
employees or agents against any liability to which such person
would otherwise be subject by reason of his willful
misfeasance, bad faith, or gross negligence in the performance
of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his office or under his
agreement with Registrant. Registrant will comply with Rule
484 under the Securities Act of 1933 and Release 11330 under
the Investment Company Act of 1940 in connection with any
indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person
of Registrant in the successful defense of any action, suit,
or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Information with respect to Cardinal Management Corp. and its
officers and directors as set forth under the captions "WHO
MANAGES MY INVESTMENT IN THE FUND(S)?" contained in
Prospectuses and "MANAGEMENT OF THE GROUP" contained in the
Statement of Additional Information which are a part of this
Registration Statement is hereby incorporated herein by
reference.
To the knowledge of Registrant, none of the directors or
officers of Cardinal Management Corp., except those set
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<PAGE> 313
forth below, is or has been at any time during the past two
fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature. Set forth
below are the names, principal businesses and addresses of
those businesses of the directors and officers of Cardinal
Management Corp. who are or have been engaged in any other
business, profession, vocation or employment of a substantial
nature during the past two fiscal years.
<TABLE>
<CAPTION>
Officer or Director
of Cardinal Name and Address Nature of
Management Corp. of Business Connection
- ---------------- ---------------- ----------
<S> <C> <C>
H. Keith Allen The Ohio Company Chief Operating
155 East Broad Street Officer, Secretary
Columbus, Ohio 43215 and Director
Ad Management Corp. Secretary/Treasurer
155 East Broad Street and Director
Columbus, Ohio 43215
Cardinal Financial Secretary/Treasurer
Management Corp. and Director
155 East Broad Street
Columbus, Ohio 43215
Midwest Parking, Inc. Secretary/Treasurer
155 East Broad Street and Director
Columbus, Ohio 43215
Insurance Ohio Company Secretary/Treasurer
Agency and Director
155 East Broad Street
Columbus, Ohio 43215
Ohio Equities Inc. Secretary/Treasurer
395 East Broad Street and Director
Columbus, Ohio 43215
</TABLE>
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<PAGE> 314
<TABLE>
<CAPTION>
Officer or Director
of Cardinal Name and Address Nature of
Management Corp. of Business Connection
- ------------------- ---------------- ----------
<S> <C> <C>
The Cardinal Fund Inc. Director and Chairman
155 East Broad Street
Columbus, Ohio 43215
Cardinal Tax Exempt Trustee and Chairman
Money Trust
155 East Broad Street
Columbus, Ohio 43215
Cardinal Government Trustee and Chairman
Obligations Fund
155 East Broad Street
Columbus, Ohio 43215
Cardinal Government Trustee and Chairman
Securities Trust
155 East Broad Street
Columbus, Ohio 43215
The Cardinal Group Trustee and Chairman
155 East Broad Street
Columbus, Ohio 43215
Frank W. Siegel The Ohio Company Senior Vice President
155 East Broad Street
Columbus, Ohio 43215
The Cardinal Fund Inc. President and
155 East Broad Street Director
Columbus, Ohio 43215
Cardinal Tax Exempt President and Trustee
Money Trust
155 East Broad Street
Columbus, Ohio 43215
Cardinal Government President and Trustee
Obligations Fund
155 East Broad Street
Columbus, Ohio 43215
Cardinal Government President and Trustee
Securities Trust
155 East Broad Street
Columbus, Ohio 43215
The Cardinal Group President and Trustee
155 East Broad Street
Columbus, Ohio 43215
Keystone Group Vice President
200 Berkeley Street
Boston, Massachusetts 02116
</TABLE>
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<PAGE> 315
<TABLE>
<S> <C> <C>
Trust Advisory Group Senior Vice President
1 Morningstar Drive North
Westport, Connecticut 06880
</TABLE>
Item 29. Principal Underwriter
(a) The Ohio Company acts as principal underwriter for
Registrant. The Ohio Company also acts as Sponsor
of Cardinal Tax-Exempt Bond Trust, First through
Thirty-Fifth Series (there is no Thirteenth Series of
this Trust) and as Sponsor of Cardinal GNMA Trust,
First, Second and Third Series. The Ohio Company
participates as a member of various underwriting and
selling groups and as agent of other investment
companies. It executes orders for the purchase and
sale of securities of investment companies and, from
time to time, sells securities to such companies in
its capacity as a broker-dealer in securities.
(b) The Officers and Directors of The Ohio Company and
their positions with Registrant are as follows:
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- ---------------------
<S> <C> <C>
John F. Wolfe Chairman of the Board,
34 South Third Street President and Chief Exec.
Columbus, Ohio 43215 Officer and Director
William C. Wolfe Director
34 South Third Street
Columbus, Ohio 43215
H. Keith Allen Chief Operating Officer, Chairman and Trustee
155 East Broad Street Senior Executive Vice
Columbus, Ohio 43215 President, Secretary and
Director
John P. Campbell Senior Executive Vice
155 East Broad Street President and Director
Columbus, Ohio 43215
Daniel A. Fronk Senior Executive Vice
155 East Broad Street President and Director
Columbus, Ohio 43215
Curtis E. Stumpf Senior Executive Vice
155 East Broad Street President, Director and
Columbus, Ohio 43215 General Sales Manager
</TABLE>
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<PAGE> 316
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- ---------------------
<S> <C> <C>
Martin H. Vogtsberger Senior Executive Vice
155 East Broad Street President and Director
Columbus, Ohio 43215
Thomas A. Brownfield Senior Vice President
155 East Broad Street
Columbus, Ohio 43215
James A. Francis Senior Vice President/
155 East Broad Street Compliance
Columbus, Ohio 43215
Jerry L. Greene Senior Vice President/
155 East Broad Street Accounting and Treasurer
Columbus, Ohio 43215
Kenneth S. Koralewski Senior Vice President &
155 East Broad Street Manager, Municipal
Columbus, Ohio 43215 Syndicate & Trading
Curtis D. Milner Senior Vice President
155 East Broad Street
Columbus, Ohio 43215
Frank W. Siegel Senior Vice President President and Trustee
155 East Broad Street
Columbus, Ohio 43215
Thomas G. Terry Senior Vice President/OTC
155 East Broad Street Trading
Columbus, Ohio 43215
George E. Tootle, Jr. Senior Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
G. Douglas Voelz Senior Vice President
155 East Broad Street
Columbus, Ohio 43215
John C. Adams Vice President/Public
155 East Broad Street Finance-Negotiated
Columbus, Ohio 43215
William N. Anderson Vice President/NYSE Floor
155 East Broad Street Broker
Columbus, Ohio 43215
Gary E. Baird Vice President/Sales
155 East Broad Street
Columbus, Ohio 43215
John Bevilacqua Vice President/Asset
155 East Broad Street Management
Columbus, Ohio 43215
Gordon L. Brookhart Vice President/Personal
155 East Broad Street Financial Planning
Columbus, Ohio 43215
</TABLE>
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<PAGE> 317
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- ---------------------
<S> <C> <C>
James W. Carey Vice President/Corporate
155 East Broad Street Finance
Columbus, Ohio 43215
John R. Carle Vice President/Cardinal
155 East Broad Street Government Obligations Fund
Columbus, Ohio 43215
Robert A. Corea Vice President/Corporate
155 East Broad Street Finance
Columbus, Ohio 43215
William J. Denehy Vice President/Corporate Bond
155 East Broad Street Trading
Columbus, Ohio 43215
Albert W. Erickson, III Vice President/Public
155 East Broad Street Finance-Negotiated
Columbus, Ohio 43215
Michael Goodman Vice President/Municipal
155 East Broad Street Trading
Columbus, Ohio 43215
Douglas W. Hindenlang Vice President/OTC Trading
155 East Broad Street
Columbus, Ohio 43215
Jon P. Jones Vice President/Municipal
155 East Broad Street Trading
Columbus, Ohio 43215
Mark E. Koprucki Vice President/Research
155 East Broad Street
Columbus, Ohio 43215
Matthew E. Lee Vice President/OTC Trading
155 East Broad Street
Columbus, Ohio 43215
Ellwood W. Lewis Vice President/Asset
155 East Broad Street Management
Columbus, Ohio 43215
Barry G. McMahon Vice President/Asset
155 East Broad Street Management
Columbus, Ohio 43215
</TABLE>
C-17
<PAGE> 318
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- ---------------------
<S> <C> <C>
John R. Merrell Vice President/Sales
155 East Broad Street
Columbus, Ohio 43215
Joseph A. Miner Vice President/Asset
155 East Broad Street Management
Columbus, Ohio 43215
Thomas E. Murphy Vice President/Corporate
155 East Broad Street Finance
Columbus, Ohio 43215
C. Thomas Pfister Vice President/Public
155 East Broad Street Finance - Negotiated
Columbus, Ohio 43215
Larry J. Rapp Vice President/Manager,
155 East Broad Street Technical Services
Columbus, Ohio 43215
Kara L. Rider Vice President/Municipal
155 East Broad Street Trading
Columbus, Ohio 43215
James M. Schrack II Vice President/Trust and Treasurer
155 East Broad Street Trust Officer
Columbus, Ohio 43215
Richard H. Stillman Vice President/Public
155 East Broad Street Finance-Negotiated
Columbus, Ohio 43215
Mary T.E. Taylor Vice President/Trust Officer
155 East Broad Street
Columbus, Ohio 43215
Michael S. Tedesco Vice President/Municipal
155 East Broad Street Trading
Columbus, Ohio 43215
James W. Trapp Vice President/Sales
155 East Broad Street
Columbus, Ohio 43215
William T. Weldon Vice President/Operations
155 East Broad Street
Columbus, Ohio 43215
David C. Will Vice President/Asset
155 East Broad Street Management
Columbus, Ohio 43215
Rodney A. Yeager
155 East Broad Street Vice President/Tele-
Columbus, Ohio 43215 communications
Mark E. Backes Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
</TABLE>
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<PAGE> 319
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- ---------------------
<S> <C> <C>
David E. Brown Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
Roger W. Butler Assistant Vice President/
155 East Broad Street Compliance
Columbus, Ohio 43215
Scott E. Decker Assistant Vice President/
155 East Broad Street Trust-Internal Auditor
Columbus, Ohio 43215
Dave G. Duncan Assistant Vice President/
155 East Broad Street Syndicate
Columbus, Ohio 43215
Carolyn A. Garner Assistant Vice President
155 East Broad Street
Columbus, Ohio 43215
Charles H. Graves, Sr. Assistant Vice
155 East Broad Street President/Sales
Columbus, Ohio 43215
Ronald G. Hall Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
Helen J. Huntington Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
Kent E. Irwin Assistant Vice President/
155 East Broad Street Mutual Fund Coordinator
Columbus, Ohio 43215
Donna M. Knapp Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
Lawrence W. Landenberger Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
</TABLE>
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<PAGE> 320
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- ---------------------
<S> <C> <C>
Virginia L. McCargish Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
Kevin P. Morrow Assistant Vice President/
155 East Broad Street Research
Columbus, Ohio 43215
Richard D. Oltean Assistant Vice President/
155 East Broad Street Trust - Qualified Plans
Columbus, Ohio 43215
Mark Ostroske Assistant Vice President/
155 East Broad Street Asset Management
Columbus, Ohio 43215
Daniel S. Peters Assistant Vice President/
155 East Broad Street Municipal Trading
Columbus, Ohio 43215
E. Eugene Robinson Assistant Vice President/
155 East Broad Street Research
Columbus, Ohio 43215
Michael C. Roney Assistant Vice President/
155 East Broad Street Asset Management
Columbus, Ohio 43215
David A. Seely, Jr. Assistant Vice President/
155 East Broad Street Operations
Columbus, Ohio 43215
Susan H. Shaw Assistant Vice President/
155 East Broad Street National Syndicate
Columbus, Ohio 43215
William J. Terlesky Assistant Vice President/
155 East Broad Street Municipal Trading
Columbus, Ohio 43215
Ronald J. Trubisky Assistant Vice President/
155 East Broad Street Corporate Bond Trading
Columbus, Ohio 43215
Douglas J. Walouke Assistant Vice President/
155 East Broad Street Corporate Bond Trading
Columbus, Ohio 43215
Richard J. Wayman Assistant Vice President/
155 East Broad Street Research
Columbus, Ohio 43215
Lori A. Wells Assistant Vice President/
155 East Broad Street Technical Services
Columbus, Ohio 43215
</TABLE>
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<PAGE> 321
Item 30. Location of Accounts and Records
(1) Cardinal Management Corp., 155 East Broad Street,
Columbus, Ohio 43215 (records relating to its functions as
investment adviser and manager, Declaration of Trust,
By-Laws and Minute Books).
(2) The Ohio Company, 155 East Broad Street, Columbus, Ohio
43215 (records relating to its function as distributor).
(3) Cardinal Management Corp., 215 East Capital Street,
Columbus, Ohio 43215 (records relating to its functions as
dividend and transfer agent and fund accountant).
(4) The Fifth Third Bank, 38 Fountain Square Plaza,
Cincinnati, Ohio 45263 (records relating to its
functions as custodian).
Item 31. Management Services
None.
Item 32. Undertakings
None.
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<PAGE> 322
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Columbus and State of Ohio on the 28th day of
October, 1996.
THE CARDINAL GROUP
By /s/ Frank W. Siegel
-------------------------------
Frank W. Siegel, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Frank W. Siegel President (Principal October 28, 1996
- --------------------------
Frank W. Siegel Executive Officer) October 28, 1996
/s/*H. Keith Allen Chairman and Trustee October 28, 1996
- --------------------------
H. Keith Allen
/s/*Gordon B. Carson Trustee October 28, 1996
- --------------------------
Gordon B. Carson
/s/*John B. Gerlach, Jr Trustee October 28, 1996
- --------------------------
John B. Gerlach, Jr
/s/*Michael J. Knilans Trustee October 28, 1996
- --------------------------
Michael J. Knilans
/s/*James I. Luck Trustee October 28, 1996
- --------------------------
James I. Luck
/s/*David L. Nelson Trustee October 28, 1996
- --------------------------
David L. Nelson
/s/*C. A. Peterson Trustee October 28, 1996
- --------------------------
C. A. Peterson
/s/*Lawrence H. Rogers II Trustee October 28, 1996
- --------------------------
Lawrence H. Rogers II
/s/*Joseph H. Stegmayer Trustee October 28, 1996
- --------------------------
Joseph H. Stegmayer
</TABLE>
C-22
<PAGE> 323
<TABLE>
<S> <C> <C>
/s/ James M. Schrack II Treasurer (Principal October 28, 1996
- --------------------------
James M. Schrack II Financial and Accounting
Officer)
*By/s/James M. Schrack II October 28, 1996
- --------------------------
James M. Schrack II
Attorney-In-Fact
</TABLE>
C-23
<PAGE> 324
EXHIBIT INDEX
Exhibit No. Description Page
(1)(a) Declaration of Trust, dated as of March
23, 1993, was filed as Exhibit (1)(a) of
Post-Effective Amendment No. 3 to
Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on October
27, 1995.
(b) Amendment to Declaration of Trust as
adopted October 20, 1995, was filed as
Exhibit (1)(b) of Post-Effective
Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on October 27, 1995.
(c) Amendment to Declaration of Trust as
adopted July 19, 1996, was filed as
Exhibit (1)(c) of Post-Effective Amendment No. 6
to Registrant's Registration Statement on Form
N-1A (No. 33-59984) filed on August 2, 1996.
(2) By-Laws were filed as Exhibit (2) of
Post-Effective Amendment No. 3 to
Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on October
27, 1995.
(3) None
(4) None
(5) Investment Advisory and Management
Agreement dated as of June 18, 1993, as
amended as of January 10, 1996, between
Registrant and Cardinal Management Corp.
was filed as Exhibit (5) of Post-
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on April 26, 1996.
(6)(a) Distribution Agreement dated as of June
18, 1993, as proposed to be amended as of
October 1, 1996, between Registrant and
The Ohio Company was filed as Exhibit (6)(a)
of Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form
N-1A (No. 33-59984) filed on August 2, 1996.
(b) Form of revised Selected Dealer
Agreement was filed as Exhibit (6)(b) of Post-
Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A
(No. 33-59984) filed on August 2, 1996.
<PAGE> 325
(7) None
<PAGE> 326
Exhibit No. Description Page
(8) Custody Agreement dated as of June 18,
1993, as amended as of January 10, 1996,
between Registrant and The Fifth Third
Bank was filed as Exhibit (8) of Post-
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on April 26, 1996.
(9)(a) Transfer Agency and Fund Accounting
Agreement dated as of June 18, 1993, as
amended as of January 10, 1996, between
Registrant and Cardinal Management Corp.
was filed as Exhibit (9) of Post-
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on April 26, 1996.
(b) Proposed Institutional Class
Administrative Services Plan was filed as
Exhibit (9)(b) of Post-Effective Amendment No. 6
to Registrant's Registration Statement on Form
N-1A (No. 33-59984) filed on August 2, 1996.
(c) Form of proposed Servicing Agreement
pursuant to Administrative Services Plan was
filed as Exhibit (9)(c) of Post-Effective
Amendment No. 6 to Registrant's Registration
Statement on Form N-1A (No. 33-59984) filed on
August 2, 1996.
(10) Opinion of Counsel with respect to shares
of Cardinal Balanced Fund and Cardinal
Aggressive Growth Fund registered
pursuant to Section 24(e)(1) of the Investment
Company Act of 1940 was filed as Exhibit
(10) of Post-Effective Amendment No. 4 to
Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on
January 19, 1996. Opinion of Counsel
with respect to shares of The Cardinal
Fund, Cardinal Government Obligations
Fund, Cardinal Government Securities
Money Market Fund and Cardinal Tax Exempt
Money Market Fund was filed as Exhibit
(10) of Post-Effective Amendment No. 3 to
Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on October
27, 1995. An Opinion of Counsel with
respect to the Shares of Cardinal
Balanced Fund and Cardinal Aggressive
Growth Fund was filed with Registrant's
Notice filed on November 21, 1995,
pursuant to Rule 24f-2.
<PAGE> 327
(11) Consent of KPMG Peat Marwick LLP.
Exhibit No. Description Page
(12) None
(13) Purchase Agreement dated June 4, 1993,
between Registrant and Cardinal Management
Corp. was filed as Exhibit (13) of Post-
Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on October 27, 1995.
(14) None
(15)(a) Rule 12b-1 Plan as proposed to be
amended was filed as Exhibit (15)(a) of Post-
Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A
(No. 33-59984) filed on August 2, 1996.
(b) Rule 12b-1 Agreement dated June 18, 1993, as
prposed to be amended as of October 1, 1996,
between Registrant and The Ohio Company
(a related agreement under the
Rule 12b-1 Plan) was filed as Exhibit (15)(b)
of Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form
N-1A (No. 33-59984) filed on August 2, 1996.
(c) Form of revised Selected Dealer Agreement
(a related agreement under the Rule 12b-1
Plan) was filed as Exhibit (15)(c) of Post-
Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A
(No. 33-59984) filed on August 2, 1996.
(16)(a) Computation of Performance Quotations for
Cardinal Balanced Fund was filed as
Exhibit (16)(a) to Post-Effective
Amendment No. 2 to Registrant's
Registration Statement on December 1,
1994.
(b) Computation of Performance Quotations for
Cardinal Aggressive Growth Fund was filed
as Exhibit (16)(a) to Post-Effective
Amendment No. 2 to Registrant's
Registration Statement on December 1,
1994.
<PAGE> 328
(c) Computation of Performance Quotations for
The Cardinal Fund was filed as Exhibit
(16)(c) of Post-Effective Amendment No. 5
to Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on April
26, 1996.
(d) Computation of Performance Quotations for
Cardinal Government Obligations Fund was
filed as Exhibit (16)(d) of Post-
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on April 26, 1996.
<PAGE> 329
Exhibit No. Description Page
(e) Computation of Performance Quotations for
Cardinal Government Securities Money
Market Fund was filed as Exhibit (16)(e)
of Post-Effective Amendment No. 5 to
Registrant's Registration Statement on
Form N-1A (No. 33-59984) filed on April
26, 1996.
(f) Computation of Performance Quotations for
Cardinal Tax Exempt Money Market Fund was
filed as Exhibit (16)(f) of Post-
Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on April 26, 1996.
(18) Rule 18f-3 Plan as adopted July 19, 1996,
was filed as Exhibit (18) of Post-Effective
Amendment No. 6 to Registrant's Registration
Statement on Form N-1A (No. 33-59984) filed on
August 2, 1996.
(19)(a) Consent of Baker & Hostetler.
(b) Powers of Attorney of H. Keith Allen,
Gordon B. Carson, John B. Gerlach, Jr.,
Michael J. Knilans, James I. Luck,
David L. Nelson, C. A. Peterson, John L.
Schlater, Frank W. Siegel, Joseph H.
Stegmayer, Lawrence H. Rogers II and
James M. Schrack, II were filed as
Exhibit (19)(b) of Post-Effective
Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (No.
33-59984) filed on October 27, 1995.
(27) Financial Data Schedules.
<PAGE> 330
Filed with the Securities and Exchange Commission
October 28, 1996
1933 Act Registration No. 33-59984
1940 Act File No. 811-7588
EXHIBITS TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 8 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
Amendment No. 9 /X/
The Cardinal Group
(Exact Name of Registrant as Specified in Charter)
155 East Broad Street
Columbus, Ohio 43215
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(614) 464-5511
<PAGE> 1
EXHIBIT (11)
<PAGE> 2
CONSENT OF KPMG PEAT MARWICK LLP
To the Board of Trustees
The Cardinal Group:
We consent to the use of our reports dated November 17, 1995, included
herein and to the references to our firm under the heading "Financial
Highlights" in the Prospectuses and under the heading "Legal Counsel and
Independent Auditors" in the Statement Of Additional Information.
Columbus, Ohio
October 28, 1996 KPMG PEAT MARWICK LLP
<PAGE> 1
EXHIBIT (19)(a)
<PAGE> 2
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
firm under the caption of "LEGAL COUNSEL AND INDEPENDENT AUDITORS" included in
or made a part of the Registration Statement on Form N-1A, filed under the
Securities Act of 1933, as amended, of The Cardinal Group.
BAKER & HOSTETLER
Columbus, Ohio
October 28, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 1,012
<ASSETS-OTHER> 110
<OTHER-ITEMS-ASSETS> 491
<TOTAL-ASSETS> 150,696
<PAYABLE-FOR-SECURITIES> 5,449
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<OTHER-ITEMS-LIABILITIES> 841
<TOTAL-LIABILITIES> 6,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169,089
<SHARES-COMMON-STOCK> 17,730
<SHARES-COMMON-PRIOR> 18,534
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 220
<ACCUMULATED-NET-GAINS> (25,440)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 977
<NET-ASSETS> 144,406
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,055
<OTHER-INCOME> 0
<EXPENSES-NET> 569
<NET-INVESTMENT-INCOME> 5,486
<REALIZED-GAINS-CURRENT> (251)
<APPREC-INCREASE-CURRENT> (148)
<NET-CHANGE-FROM-OPS> 5,087
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<DISTRIBUTIONS-OF-INCOME> 5,606
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,954
<NUMBER-OF-SHARES-REDEEMED> 12,953
<SHARES-REINVESTED> 3,213
<NET-CHANGE-IN-ASSETS> (7,305)
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<ACCUMULATED-GAINS-PRIOR> 25,026
<OVERDISTRIB-NII-PRIOR> 36
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 569
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<PER-SHARE-NII> .31
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<INTEREST-INCOME> 1,247
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<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .48
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<PER-SHARE-DISTRIBUTIONS> (.39)
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<TABLE> <S> <C>
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<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
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<INVESTMENTS-AT-COST> 9,765
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 9
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 101
<TOTAL-ASSETS> 9,881
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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</TABLE>
