_______________, 2002
Board of Directors
The Catholic Funds, Inc.
110 West Wells Street
Milwaukee WI 53233
Re: Tax Opinion for Registration Statement on Form N-14
Ladies and Gentlemen:
We are acting as counsel to The Catholic Funds, Inc., a Maryland
corporation ("The Catholic Funds"), in connection with the proposed transfer of
the assets of The Catholic Equity Income Fund (the "Equity Income Fund"), a
series of The Catholic Funds, to The Catholic Equity Fund (the "Equity Fund"),
another series of The Catholic Funds, solely in exchange for Equity Fund shares
to be distributed to the Equity Income Fund shareholders in liquidation of the
Equity Income Fund. The transactions will occur pursuant to The Catholic Equity
Income Fund Plan of Reorganization and Liquidation (the "Plan"), dated as of
_______________, 2002, executed by The Catholic Funds on behalf of the Equity
Income Fund and the Equity Fund. The Plan is attached as Appendix A to the Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus") relating to the
Reorganization which is a part of the Registration Statement under the
Securities Act of 1933 on Form N-14 (the "Registration Statement"), filed by The
Catholic Funds on _______________, 2002, with the Securities and Exchange
Commission. This opinion is rendered pursuant to Section 3.9 of the Plan.
Capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Plan.
In rendering our opinion, we have examined the Registration Statement and
the Plan and have, with your permission, relied upon, and assumed as correct
,(i) the factual information contained in the Registration Statement; (ii) the
representations and covenants contained in the Plan; (iii) the factual
representations made by The Catholic Funds on behalf of the Equity Income Fund
and the Equity Fund contained in the representation letter of The Catholic Funds
dated the date hereof and attached hereto as Exhibit A; and (iv) such other
materials as we have deemed necessary or appropriate as a basis for our opinion.
On the basis of the information, representations and covenants contained in
the foregoing materials and assuming the Reorganization is consummated in the
manner described in the Plan and the Proxy Statement/Prospectus included in the
Registration Statement, we are of the opinion that:
(i) The Reorganization will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the Equity Income Fund and the Equity Fund will each be a "party to" the
Reorganization within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by the Equity Income Fund upon the
transfer of substantially all of its assets to the Equity Fund in exchange
solely for the Equity Fund Shares;
(iii) No gain or loss will be recognized by the Equity Income Fund on the
distribution of the Equity Fund Shares to the Equity Income Fund Shareholders;
(iv) No gain or loss will be recognized by the Equity Fund upon the receipt
by it of substantially all of the assets of the Equity Income Fund in exchange
solely for the Equity Fund Shares;
(v) No gain or loss will be recognized by the Equity Income Fund
Shareholders upon the liquidation of the Equity Income Fund and the related
surrender of their shares of the Equity Income Fund in exchange for the Equity
Fund Shares;
(vi) The Equity Fund's basis in the assets acquired from the Equity Income
Fund will be the same as the basis of those assets in the hands of the Equity
Income Fund immediately prior to the Reorganization;
(vii) The holding period of the assets of the Equity Income Fund received
by the Equity Fund in the Reorganization will include the period during which
such assets were held by the Equity Income Fund;
(viii) The basis of the Equity Fund Shares received by each Equity Income
Fund Shareholder in connection with the Reorganization will be the same as the
Equity Income Fund Shareholder's basis in his or her Equity Income Fund Shares
immediately prior to the Reorganization;
(ix) The holding period of the Equity Fund Shares received by each Equity
Income Fund Shareholder in connection with the Reorganization will include such
Equity Income Fund Shareholder's holding period of his or her Equity Income Fund
Shares held immediately prior to the Reorganization, provided that such Equity
Income Fund Shares were held by such Equity Income Fund Shareholder as a capital
asset as of the Effective Time;
(x) The Equity Fund will succeed to and take into account as of the
Effective Time the items of the Equity Income Fund described in Section 381(c)
of the Code, subject to the conditions and limitations specified in Sections
381(b) and (c), 382, 383 and 384 of the Code, and the applicable Treasury
Regulations thereunder.
(xi) The discussion in the Proxy Statement/Prospectus under the captions
"Synopsis - Federal Tax Consequences and "The Proposed Reorganization - Federal
Tax Considerations," to the extent it constitutes summaries of legal matters or
legal conclusions, is accurate in all material respects.
This opinion expresses our views only as to federal income tax laws in
effect as of the date hereof, including the Code, applicable Treasury
Regulations, published rulings and administrative practices of the Internal
Revenue Service (the "Service") and court decisions. This opinion represents our
best legal judgment as to the matters addressed herein, but is not binding on
the Service or the courts. Furthermore, the legal authorities upon which we rely
are subject to change either prospectively or retroactively. Any change in such
authorities or any change in the facts or representations, or any past or future
actions by The Catholic Funds, the Equity Income Fund, or the Equity Fund
contrary to such representations might adversely affect the conclusions stated
herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name under the
captions "Synopsis - Federal Tax Consequences" and "The Proposed Reorganization
- - Federal Tax Considerations" in the Proxy Statement/Prospectus included in the
Registration Statement.
Very truly yours,
------------------------
Quarles & Brady LLP
The Catholic Equity Income Fund
The Catholic Equity Fund
The Catholic Funds, Inc.
1100 West Wells Street
Milwaukee, Wisconsin 53095
_______________, 2002
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee WI 53202-4497
Re: Tax Opinion with Respect to the Acquisition of the Assets of The
Catholic Equity Income Fund, a Series of The Catholic Funds,
Inc., by The Catholic Equity Fund, a Series of The Catholic
Funds, Inc.
Ladies and Gentlemen:
We have requested your opinion with respect to certain federal income tax
questions in connection with the proposed acquisition of the assets of The
Catholic Equity Income Fund (the "Equity Income Fund"), a series of The Catholic
Funds, Inc. ("The Catholic Funds"), by the Catholic Equity Fund (the "Equity
Fund"), another series of The Catholic Funds, pursuant to the Catholic Equity
Income Fund Plan of Reorganization and Liquidation (the "Plan"), dated as of
_______________, 2002, executed by The Catholic Funds on behalf of the Equity
Income Fund and the Equity Fund. Capitalized terms not otherwise defined herein
have the meanings ascribed to them in the Plan. In order to assist you in
rendering your opinion, The Catholic Funds, on behalf of the Equity Income Fund
and the Equity Fund, makes the following representations to you with the
understanding that you will rely on these representations in rendering your
opinion:
1. The Catholic Funds is a diversified, open-end management investment
company and registered as such with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act").
2. Each series of The Catholic Funds (including the Equity Income Fund and
Equity Fund) is a segregated portfolio of assets, the beneficial interests in
which are owned by the holders of a class or series of voting stock of The
Catholic Funds that is preferred over all other classes or series in respect to
such portfolio of assets.
3. The Catholic Funds is a regulated investment company within the meaning
of Section 851 of the Internal Revenue Code of 1986, as amended (the "Code").
4. The Equity Income Fund has been eligible to elect and has elected to be
taxed as a regulated investment company as defined in Sections 851 through 855
of the Code, and for all of its taxable periods, has qualified, and in the case
of the Equity Income Fund's last short taxable period ending on the effective
date of the Reorganization, will qualify for the special tax treatment afforded
regulated investment companies under Sections 851 through 855 of the Code. The
Equity Fund will elect to be taxed as a regulated investment company as defined
in Sections 851 through 855 of the Code for its first taxable period, which
includes the date of the Reorganization, and will qualify for the special tax
treatment afforded regulated investment companies under Sections 851 through 855
of the Code.
5. The Equity Income Fund will distribute the stock it receives in the
transaction, and its other properties (if any) and liquidate pursuant to the
Plan.
6. The fair market value of the Equity Fund stock received by each Equity
Income Fund shareholder will be approximately equal to the fair market value of
the Equity Income Fund stock surrendered in the exchange.
7. The fair market value of the Equity Income Fund assets transferred to
the Equity Fund in exchange for the Equity Fund stock will be approximately
equal to the fair market value of such Equity Fund stock. The Equity Fund will
acquire at least 90% of the fair market value of the net assets and at least 70%
of the fair market value of the gross assets held by the Equity Income Fund
immediately prior to the transaction. For purposes of this representation,
amounts used by the Equity Income Fund to pay its Reorganization expenses, and
all redemptions and distributions (except for regular normal distributions and
regular normal redemptions pursuant to the 1940 Act and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of the
Equity Income Fund's business as an open end investment company) made by the
Equity Income Fund immediately preceding the transfer will be included as assets
of the Equity Income Fund held immediately prior to the Reorganization.
8. During the 5-year period ending on the effective date of the
Reorganization, (i) neither the Equity Income Fund nor any person related (as
defined in Treasury Regulations, Section 1.368-1(e)(3) without regard to Section
1.368-1(e)(3)(i)(A)) to the Equity Income Fund will have acquired Equity Income
Fund stock with consideration other than Equity Fund stock or Equity Income Fund
stock, and (ii) no distributions will have been made with respect to Equity
Income Fund stock (other than normal, regular, dividend distributions made
pursuant to the Equity Income Fund's historic dividend paying practice), either
directly or through any transaction, agreement, or arrangement with any other
person, except for: (a) distributions described in Sections 852 and 4982 of the
Code, as required for the Equity Income Fund's tax treatment as a regulated
investment company; and (b) redemptions by the Equity Income Fund of its stock
in the ordinary course of its business as an open-end investment company
pursuant to Section 22(e) of the 1940 Act.
9. There is no plan or intention for the Equity Fund or any person related
(as defined in Treasury Regulations, Section 1.386-1(e)(3)) to the Equity Fund,
to acquire during the 5-year period beginning on the effective date of the
Reorganization with consideration other than Equity Fund stock, Equity Fund
stock furnished in exchange for a proprietary interest in the Equity Income Fund
in the Reorganization either directly or through a transaction, agreement, or
arrangement with any other person, other than redemptions by the Equity Fund in
the ordinary course of its business as an open-end investment company pursuant
to Section 22(e) of the 1940 Act.
10. During the 5-year period ending on the effective date of the
Reorganization, neither the Equity Fund nor any person related (as defined in
Treasury Regulations, Section 1.386- (e) (3)) to the Equity Fund will have
acquired Equity Income Fund stock with consideration other than Equity Fund
Stock.
11. There is no plan or intention by the Equity Income Fund shareholders
who own 5% or more of the stock of the Equity Income Fund, and to the best
knowledge of the management of The Catholic Funds there is no plan or intention
on the part of the other shareholders of the Equity Income Fund, to cause the
Equity Fund to redeem a number of shares of the Equity Fund stock received in
the Reorganization that would reduce the ownership by the shareholders of the
Equity Income Fund of the Equity Fund stock to a number of shares having a
value, as of the date of the Reorganization, of less than 50% of the value of
all the formerly outstanding stock of the Equity Income Fund as of the same
date. Shares of the Equity Income Fund stock and shares of the Equity Fund held
by the Equity Income Fund shareholders and redeemed prior to or subsequent to
the Reorganization will be considered in making this representation.
12. Following the Reorganization the Equity Fund will either (i) continue
the historic business of the Equity Income Fund, or (ii) use a significant
portion of the historic business assets acquired from the Equity Income Fund in
its business, except that: (A) a portion of these historic assets may be sold or
otherwise disposed of in the ordinary course of the Equity Fund's business and
to the extent necessary to maintain its status as a series of an open-end
investment company under the 1940 Act; and (B) the Equity Fund may sell assets
received in the Reorganization and will reinvest the proceeds consistent with
its investment objectives and policies, provided that after taking into account
sales of assets by the Equity Income Fund prior to the Reorganization for the
purpose of meeting the investment objectives and policies of the Equity Fund,
the Equity Fund will hold at least 34% of the historic business assets of the
Equity Income Fund. Otherwise the Equity Fund has no plan or intention to sell
or otherwise dispose of any of the assets of the Equity Income Fund acquired in
the Reorganization.
13. The Equity Fund will assume none of the liabilities of the Equity
Income Fund, nor will any of the Equity Income Fund assets be subject to any
liabilities.
14. The shareholders of the Equity Income Fund and the Equity Fund will
each pay their own expenses, if any, incurred in connection with the
Reorganization.
15. The Equity Income Fund and/or its investment adviser will pay the
Equity Income Fund's Reorganization expenses, and the Equity Fund and/or its
investment adviser will pay the Equity Fund's Reorganization expenses.
16. None of the compensation received by any shareholder of The Catholic
Funds who is also an employee of the Equity Income Fund or The Catholic Funds
will be separate consideration for, or allocable to, any of his or her Equity
Income Fund shares; none of the shares of the Equity Fund received by any such
shareholder of the Equity Income Fund pursuant to the Agreement will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any such shareholder of the Equity Income Fund will be for
services actually rendered and will be commensurate with amounts paid to third
parties bargaining at arms-length for similar services.
17. Neither The Catholic Funds nor any portfolio thereof (including the
Equity Income Fund and the Equity Fund) is under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
18. There is no intercorporate indebtedness existing between the Equity
Income Fund and the Equity Fund that was issued, acquired, or will be settled at
a discount.
We understand that your opinion will be expressly conditioned on the
premise that all of the facts, representations, and assumptions upon which you
are relying, whether contained herein or in the documents you have been
provided, are accurate and complete, and will be accurate and complete at all
relevant times. We further understand that your opinion will be subject to the
qualifications and limitations set forth in your opinion letter.
Very truly yours,
THE CATHOLIC FUNDS, INC.
On Behalf Of
The Catholic Equity Income Fund and
The Catholic Equity Fund
By:
____________________________
Allan G. Lorge, President