[QUARLES & BRADY LLP LETTERHEAD]
April 2, 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 Disciplined Capital Appreciation Fund (the "Capital
Appreciation 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 Capital Appreciation Fund
shareholders in liquidation of the Capital Appreciation Fund. The transactions
will occur pursuant to The Catholic Disciplined Capital Appreciation Fund Plan
of Reorganization and Liquidation (the "Plan"), dated as of January 7, 2002,
executed by The Catholic Funds on behalf of the Capital Appreciation 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 January 30, 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 Capital Appreciation
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 Capital Appreciation 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 Capital Appreciation 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 Capital Appreciation Fund
on the distribution of the Equity Fund Shares to the Capital Appreciation 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 Capital Appreciation Fund in
exchange solely for the Equity Fund Shares;
(v) No gain or loss will be recognized by the Capital Appreciation Fund
Shareholders upon the liquidation of the Capital Appreciation Fund and the
related surrender of their shares of the Capital Appreciation Fund in exchange
for the Equity Fund Shares;
(vi) The Equity Fund's basis in the assets acquired from the Capital
Appreciation Fund will be the same as the basis of those assets in the hands of
the Capital Appreciation Fund immediately prior to the Reorganization;
(vii) The holding period of the assets of the Capital Appreciation Fund
received by the Equity Fund in the Reorganization will include the period during
which such assets were held by the Capital Appreciation Fund;
(viii) The basis of the Equity Fund Shares received by each Capital
Appreciation Fund Shareholder in connection with the Reorganization will be the
same as the Capital Appreciation Fund Shareholder's basis in his or her Capital
Appreciation Fund Shares immediately prior to the Reorganization;
(ix) The holding period of the Equity Fund Shares received by each Capital
Appreciation Fund Shareholder in connection with the Reorganization will include
such Capital Appreciation Fund Shareholder's holding period of his or her
Capital Appreciation Fund Shares held immediately prior to the Reorganization,
provided that such Capital Appreciation Fund Shares were held by such Capital
Appreciation 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 Capital Appreciation 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 Capital Appreciation 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,
/s/ Quarles & Brady LLP
-------------------------
Quarles & Brady LLP
Enclosures
The Catholic Disciplined Capital Appreciation Fund
The Catholic Equity Fund
The Catholic Funds, Inc.
1100 West Wells Street
Milwaukee, Wisconsin 53095
April 2, 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
Disciplined Capital Appreciation 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 Disciplined Capital Appreciation Fund (the "Capital Appreciation
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 Disciplined Capital Appreciation Fund Plan of
Reorganization and Liquidation (the "Plan"), dated as of January 7, 2002,
executed by The Catholic Funds on behalf of the Capital Appreciation 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 Capital Appreciation 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 Capital Appreciation
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 Capital Appreciation 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 Capital Appreciation 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 Capital Appreciation 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 Capital
Appreciation Fund shareholder will be approximately equal to the fair market
value of the Capital Appreciation Fund stock surrendered in the exchange.
7. The fair market value of the Capital Appreciation 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
Capital Appreciation Fund immediately prior to the transaction. For purposes of
this representation, amounts used by the Capital Appreciation 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 Capital Appreciation Fund's business as an open
end investment company) made by the Capital Appreciation Fund immediately
preceding the transfer will be included as assets of the Capital Appreciation
Fund held immediately prior to the Reorganization.
8. During the 5-year period ending on the effective date of the
Reorganization, (i) neither the Capital Appreciation 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 Capital Appreciation Fund will have acquired
Capital Appreciation Fund stock with consideration other than Equity Fund stock
or Capital Appreciation Fund stock, and (ii) no distributions will have been
made with respect to Capital Appreciation Fund stock (other than normal,
regular, dividend distributions made pursuant to the Capital Appreciation 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 Capital
Appreciation Fund's tax treatment as a regulated investment company; and (b)
redemptions by the Capital Appreciation 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 Capital
Appreciation 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 Capital Appreciation Fund stock with consideration other than Equity
Fund Stock.
11. There is no plan or intention by the Capital Appreciation Fund
shareholders who own 5% or more of the stock of the Capital Appreciation 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 Capital
Appreciation 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 Capital Appreciation 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 Capital
Appreciation Fund as of the same date. Shares of the Capital Appreciation Fund
stock and shares of the Equity Fund held by the Capital Appreciation 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 Capital Appreciation Fund, or (ii) use a
significant portion of the historic business assets acquired from the Capital
Appreciation 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 Capital Appreciation 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 Capital Appreciation Fund. Otherwise the Equity
Fund has no plan or intention to sell or otherwise dispose of any of the assets
of the Capital Appreciation Fund acquired in the Reorganization.
13. The Equity Fund will assume none of the liabilities of the Capital
Appreciation Fund, nor will any of the Capital Appreciation Fund assets be
subject to any liabilities.
14. The shareholders of the Capital Appreciation Fund and the Equity Fund
will each pay their own expenses, if any, incurred in connection with the
Reorganization.
15. The Capital Appreciation Fund and/or its investment adviser will pay
the Capital Appreciation 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 Capital Appreciation Fund or The Catholic
Funds will be separate consideration for, or allocable to, any of his or her
Capital Appreciation Fund shares; none of the shares of the Equity Fund received
by any such shareholder of the Capital Appreciation 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 Capital
Appreciation 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
Capital Appreciation 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 Capital
Appreciation 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 Disciplined Capital
Appreciation Fund and
The Catholic Equity Fund
By: /s/ Theodore F. Zimmer
-----------------------------
Theodore F. Zimmer, President