[Federal Register Volume 67, Number 51 (Friday, March 15, 2002)]
[Notices]
[Pages 11725-11727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6255]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25456; 812-12771]


The Catholic Funds, Inc., et al.; Notice of Application

March 11, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 17(b) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 17(a) of 
the Act.

-----------------------------------------------------------------------

    Summary of Application: Applicants request an order to permit the 
proposed reorganizations of the following series of The Catholic Funds, 
Inc. (``CFI''): The Catholic Equity Income Fund (``Equity Income 
Fund'') with and into The Catholic Equity Fund (``New Equity Fund''); 
The Catholic Large-Cap Growth Fund (``Large-Cap Growth Fund'') with

[[Page 11726]]

and into the New Equity Fund; and The Catholic Disciplined Capital 
Appreciation Fund (``Capital Appreciation Fund'' and, together with the 
Equity Income Fund and the Capital Appreciation Fund, the ``Existing 
Funds'') with and into the New Equity Fund. Because of certain 
affiliations, applicants may not rely on rule 17a-8 under the Act.
    Applicants: CFI and Catholic Financial Services Corporation 
(``CFSC'').
    Filing Dates: The application was filed on February 4, 2002. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on April 1, 2002, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609. Applicants, c/o Fredrick G. Lautz, Esq., Quarles & Brady 
LLP, 411 East Wisconsin Avenue, Milwaukee, WI 53202.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Todd F. Kuehl, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. CFI, a Maryland corporation, is registered under the Act as an 
open-end management investment company and currently offers several 
series, including the Existing Funds (and together with the New Equity 
Fund, the ``Funds''). The New Equity Fund is a newly designated series 
of CFI. CFSC, a Wisconsin corporation, is registered under the 
Investment Advisers Act of 1940 and is the investment adviser to the 
Funds. As of December 31, 2001, Catholic Knights and Catholic Order of 
Foresters, both of which are non-profit organizations, each owned 
beneficially and of record more than 5% (and in some cases, more than 
25%) of the outstanding voting securities of each Existing Fund.
    2. On February 14, 2002, the board of directors of CFI (``Board''), 
including a majority of the directors who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (``Independent 
Directors''), unanimously approved separate Agreements and Plans of 
Reorganization and Liquidation (each, a ``Plan''), whereby each of the 
Existing Funds would be consolidated with and into the New Equity Fund. 
In each of these reorganization transactions (a ``Reorganization''), 
the relevant Existing Fund would transfer substantially all of its 
assets, net of its liabilities, to the New Equity Fund in exchange 
solely for shares of the New Equity Fund. In each Reorganization, 
shareholders of the relevant Existing Fund will receive shares of the 
New Equity Fund having an aggregate net asset value equal to the 
aggregate net asset value of the Existing Fund's shares. The value of 
the assets of each Fund will be determined in the manner set forth in 
each Fund's then-current prospectus and statement of additional 
information. Immediately after the exchange, each Existing Fund would 
liquidate and distribute the shares of the New Equity Fund received in 
the exchange to its shareholders pro rata.
    3. Applicants state that the Board has determined that the 
investment objective, program and policies of the Funds are 
sufficiently similar to make an investment in the New Equity Fund an 
appropriate substitute investment for shareholders of the Existing 
Funds. Each Existing Fund offers one class of shares, Class A, and the 
New Equity Fund will offer three classes of shares, only one of which, 
Class A, will be issued in the Reorganizations. In connection with the 
Reorganizations, shareholders of each Existing Fund will receive the 
corresponding Class A shares of the New Equity Fund. No sales charge 
will be imposed on shares of The New Equity Fund issued to shareholders 
of the Existing Funds in the Reorganizations. CSFC has committed to pay 
all costs incurred by an Existing Fund in connection with each 
Reorganization.
    4. The Board, including a majority of the Independent Directors, 
determined that the Reorganizations are in the best interests of the 
New Equity Fund and the Existing Funds and that the interests of the 
shareholders of the Existing Funds would not be diluted by the 
Reorganizations. In approving the Reorganizations, the Board considered 
various factors, including, among others: (a) The investment objectives 
and policies of the Existing Funds and the New Equity Fund; (b) the 
terms and conditions of each Plan; (c) the tax-free nature of the 
Reorganizations; and (d) the expense ratios of the Existing Funds and 
the New Equity Fund.
    5. The consummation of each Reorganization is subject to a number 
of conditions, including, among others: (a) Approval of the Plan by the 
affirmative vote of a majority of the outstanding voting securities of 
the relevant Existing Fund; (b) receipt by CFI of an opinion from its 
legal counsel that the relevant Reorganization will not result in 
recognition of income, gain or loss for federal income tax purposes by 
the New Equity Fund, the relevant Existing Fund or the shareholders of 
the relevant Existing Fund, and (c) applicants receive from the 
Commission an exemption from section 17(a) of the Act for the 
Reorganizations. Each Plan also provides that, prior to completion of 
the Reorganization to which it relates, the relevant Existing Fund 
shall have declared and paid dividends and other distributions, 
effectively distributing to its shareholders substantially all 
investment company taxable income and all net capital gains for all 
taxable years ending on or before the date of the relevant 
Reorganization. Each Plan may be terminated by the Board. Applicants 
agree not to make any material changes to a Plan that would affect the 
application without prior approval of the Commission or its staff.
    6. CFI began mailing definitive proxy statements/prospectuses for 
each of the three separate Reorganizations on March 1, 2002. The 
definitive proxy statements/prospectuses were filed with the Commission 
on March 6, 2002. Special meetings of shareholders of each of the 
Existing Funds are scheduled for April 2, 2002.

Applicants' Legal Analysis

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, acting as principal, from selling any security to, or 
purchasing any security from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include, among 
others: (a) Any person directly or indirectly owning, controlling, or 
holding with power to vote 5% or more of the outstanding voting 
securities of the other person; (b) any person 5% or more

[[Page 11727]]

of whose securities are directly or indirectly owned, controlled, or 
held with power to vote by the other person; and (c) any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person.
    2. Section 2(a)(9) of the 1940 Act defines ``control'' in part to 
mean ``the power to exercise a controlling influence over the 
management or policies of a company, unless such power is solely the 
result of an official position with such company. Any person who owns 
beneficially, either directly or through one or more controlled 
companies, more than 25 per centum of the voting securities of any 
company shall be presumed to control such company.''
    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, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors/trustees, and/or common officers, provided that certain 
conditions set forth in the rule are satisfied.
    4. Applicants believe that they may not rely on rule 17a-8 in 
connection with the Reorganizations because the Existing Funds and the 
New Equity Fund may be deemed to be affiliated by reasons other than 
having a common investment adviser, common directors/trustees, and/or 
common officers. Each Existing Fund and the New Equity Fund may be 
deemed affiliated persons since they are under the common control of 
CFSC. Additionally, the Existing Funds may be deemed affiliated persons 
since they are under the common control of Catholic Knights, which 
beneficially owns more than 25% of the outstanding voting securities of 
each Existing Fund.
    5. Section 17(b) of the Act provides that the Commission may exempt 
a transaction from the provisions of section 17(a) if evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid or received, 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 each 
registered investment company concerned and with the general purposes 
of the Act.
    6. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) to the extent necessary to complete 
the Reorganizations. Applicants submit that the Reorganizations satisfy 
the standards of section 17(b). Applicants state that the 
Reorganizations will be based on the relative net asset values of the 
Existing Funds and New Equity Fund's shares. Applicants also state that 
the investment objective and policies of the Funds are substantially 
similar. Applicants state that the Board, including the Independent 
Directors, has made the requisite determinations that the participation 
of each Existing Fund in the respective Reorganization is in the best 
interests of each Existing Fund and the New Equity Fund and that such 
participation will not dilute the interests of the existing 
shareholders of each Existing Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6255 Filed 3-14-02; 8:45 am]
BILLING CODE 8010-01-P