[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
