[Federal Register Volume 60, Number 250 (Friday, December 29, 1995)]
[Notices]
[Pages 67371-67373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31512]



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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-21619; 812-9870]


The Cardinal Group, et al.; Notice of Application

December 22, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC.'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: The Cardinal Group (``Cardinal''), Cardinal Fund, Inc. 
(``Old-CFI''), Cardinal Government Obligations Fund (``Old-CGOF''), 
Cardinal Government Securities Trust (``Old-CGST''), Cardinal Tax 
Exempt Money market Trust (``Old-CTEMT'') (collectively, Old-CFI, Old-
CGOF, Old-CGST, and Old-CTEMT are the ``Acquired Funds''), the Ohio 
Company (``TOC''), and Cardinal Management Corp. (``CMC'').

RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act 
to exempt applicants from the provisions of section 17(a).

SUMMARY OF APPLICATION: Applicants seek an order to permit applicants 
to effectuate a reorganization between the Acquired Funds and Cardinal.

FILING DATE: The application was filed on December 4, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on January 17, 
1996, and should be accompanied by proof of service on applicants, in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549. Applicants, 155 East Broad Street, Columbus, Ohio 43215.


[[Page 67372]]

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or C. David 
Messman, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Cardinal and the Acquired Funds are registered under the Act as 
open-end management investment companies. Cardinal currently offer two 
series. In connection with the reorganization described below, Cardinal 
has created and plans to offer shares of four additional series, the 
Cardinal Fund (``New-CFI''), Cardinal Government Obligations Fund, 
(``New-CGOF''), Cardinal Government Securities Trust, and Cardinal Tax 
Exempt Money Market Fund (collectively, the ``Acquiring Series''). TOC 
and its affiliates beneficially own, as of November 30, 1995, 6% of the 
outstanding common shares of Old-CFI, 9.1% of the outstanding shares of 
Old-CGST, and 7.5% of the outstanding shares of Old-CTEMT.
    2. TOC serves as investment adviser for Old-CFI and as principal 
underwriter for Cardinal and the Acquired Funds. CMC serves as 
investment adviser for Cardinal, including each Acquiring Series, Old-
CGOF, Old-CGST, and Old-CTEMT. CMC is a wholly-owned subsidiary of TOC.
    3. Cardinal has adopted a distribution and shareholder service plan 
pursuant to rule 12b-1 under the Act. New-CFI and New-CGOF have elected 
to be covered by the distribution and shareholder service plan. Old-CFI 
and Old-CGOF have not adopted a distribution plan pursuant to rule 12b-
1. Old-CFI and Old-CGOF also charge a contingent deferred sales load as 
will New-CFI and New-CGOF.
    4. The board of trustees or directors of Cardinal and the Acquired 
Funds (the ``Boards'') have approved agreements and plans of 
reorganization and liquidation providing for the transfer of all of the 
assets of each of the Acquired Funds to the Acquiring Series in 
exchange for Acquiring Series shares. The reorganization is subject to 
the assumption by the Acquiring Series of all of the liabilities of 
each of the Acquired Funds.
    5. As a result of the reorganization, shareholders of each Acquired 
Fund will receive, in exchange for his or her shares of an Acquired 
Fund, shares of the corresponding Acquiring Series with an aggregate 
value equal to the value of such shareholder's shares of the Acquired 
Fund, calculated as of the close of business on the business day 
immediately prior to the closing for each fund. Each Acquired Fund will 
liquidate and distribute shares of the Acquiring Series to their 
respective shareholders after the relevant closing.
    6. The Boards, including the members who are not ``interested 
persons'' as such term is defined by the Act, have concluded that the 
reorganizations would be in the best interest of the Acquired Funds and 
Cardinal and of the shareholders, respectively, of the Acquiring Series 
and the Acquired Funds, and that the interests of the existing 
shareholders of the respective funds will not be diluted as a 
consequence thereof. In making this determination, the Boards 
considered a number of factors, including the business objectives and 
purposes of the reorganization; compatibility of the investment 
objectives, policies, and restrictions of the respective Acquiring 
Series and Acquired Fund; the expense ratios of the Acquiring Series 
and the Acquired Funds; and the anticipated benefits to shareholders of 
the Acquiring Series and to the Acquiring Series' service providers.
    7. Each Acquired Fund's participation in the proposed 
reorganization is subject to approval by the holders of the outstanding 
shares of that Acquired Fund. Approval will be solicited pursuant to a 
prospectus/proxy statement, which will be mailed to shareholders of the 
Acquired Funds. None of the agreements conditions the completion of the 
reorganization on the favorable vote of the shareholders of the other 
Acquired Funds.
    8. The expenses of each reorganization are to be paid by TOC, 
except that each of the Acquiring Series will be responsible for its 
own organization costs and each Acquired Fund will be responsible for 
the portion of the proxy solicitation and other costs associated with 
its annual or special meeting of shareholders.
    9. The consummation of each reorganization is subject to certain 
conditions, including that the parties shall have received from the SEC 
the order requested herein, and the receipt of an opinion of tax 
counsel to the effect that upon consummation of each reorganization and 
the transfer of substantially all the assets of each Acquired Fund, no 
gain or loss will be recognized by the Acquired or Acquiring Series or 
their shareholders as a result of the reorganization. Applicants will 
not make any material changes adversely affecting the rights of 
shareholders that affect the application without the prior approval of 
the SEC staff.

Applicants' Legal Analysis

    1. Section 17(a) of the Act provides, in pertinent part, that it is 
unlawful for any affiliated person of a registered investment company, 
or any affiliated person of such an affiliated person, acting as 
principal, knowingly to sell or purchase securities to or from such 
registered company.
    2. Section 2(a)(3) of the Act defines the term ``affiliated 
person'' of another person to include, in pertinent part, (a) any 
person directly or indirectly owning, controlling, or holding with 
power to vote 5% or more of the outstanding voting securities of such 
other person, (b) any person 5% or more of the outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote, by such other person, (c) any person directly or 
indirectly controlling, controlled by, or under common control with 
such other person, and (d) if such other person is an investment 
company, any investment adviser thereof.
    3. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons solely by reason of having a common investment 
adviser, common directors, and/or common officers, provided that 
certain conditions set forth in the rule are satisfied. TOC and its 
affiliates own more than 5% of the outstanding shares of each of Old-
CFI, Old-CGST, and Old-CTEMT. Accordingly, these funds and Cardinal may 
be affiliated persons for reasons in addition to having common 
directors and officers and a common and/or affiliated investment 
adviser.
    4. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the prohibitions of section 17(a) if evidence 
establishes that the terms of the proposed transactions, including the 
consideration to be paid, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of the registered investment 
company concerned and with the general purposes of the Act.
    5. Applicants believe that the reorganizations are consistent with 
the policies and purposes of the Act. In addition, applicants state 
that the exchange of assets will be based on each fund's relative net 
asset values and that no sales charge or contingent deferred 

[[Page 67373]]
sales charge will be incurred by shareholders of the Acquired Funds in 
connection with their acquisition of Acquiring Series shares. Further, 
applicants state that the Boards, including the non-interested members, 
have concluded that the reorganization is in the best interest of the 
shareholders of the Acquired Fund. In addition, the investment 
objectives, policies, and restrictions of the Acquiring Series are 
substantially similar to those of the Acquired Funds and that the 
differences reflect either the desire for uniformity among the 
different series of Cardinal, to reflect more current regulations, and/
or for easier operation.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-31512 Filed 12-28-95; 8:45 am]
BILLING CODE 8010-01-M