UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT ON REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-09177
THE CATHOLIC FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1100 WEST WELLS STREET
MILWAUKEE, WISCONSIN 53233
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
DANIEL STEININGER, ESQ., PRESIDENT
THE CATHOLIC FUNDS, INC.
1100 WEST WELLS STREET
MILWAUKEE, WISCONSIN 53233
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO:
FREDRICK G. LAUTZ, ESQ.
QUARLES & BRADY LLP
411 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 278-6500
DATE OF FISCAL YEAR END: SEPTEMBER 30, 2006
DATE OF REPORTING PERIOD: SEPTEMBER 30, 2006
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-
CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS
(THE CATHOLIC FUNDS(R) LOGO)
GIVING VOICE TO CATHOLIC VALUESSM
THE CATHOLIC EQUITY FUND
ANNUAL REPORT
SEPTEMBER 30, 2006
The Catholic Funds
1-877-222-2402
THANK YOU FOR CALLING THE CATHOLIC FUNDS.
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2 Letter to Shareholders
3 The Catholic Equity Fund
7 Allocation of Portfolio Assets
8 Schedule of Investments
12 Schedule of Futures Contracts
13 Statement of Assets & Liabilities
14 Statement of Operations
15 Statements of Changes in Net Assets
16 Financial Highlights
19 Notes to Financial Statements
26 Report of Independent Registered Public Accounting Firm
27 Directors and Officers
Letter to Shareholders
Dear Shareholders:
The past twelve months has been very exciting for The Catholic Funds, Inc.
We've extended the depth of our Advisory Committee, changed our sub-adviser and
achieved performance that follows our philosophy.
The first and most gratifying change is that we now have The Most Reverend
Timothy M. Dolan, Archbishop of Milwaukee on our Advocacy Advisory Board. His
presence brings reassurances that our investment policies are in fact following
the United States Conference of Catholic Bishops investment guidelines!
On February 1, 2006, we replaced our sub-advisor with Ziegler Capital
Management. The strategy that Ziegler has been spearheading is intended to
increase assets and attract more investors. We will continue to exclude
companies that aid in the practice of abortion and then try to obtain a total
return over time from dividends and capital gains that exceeds, before deducting
operating expenses, the total return of the S&P 500 Index.
Below are details on how your investment has put your Catholic values into
action.
DIALOGUE AND RESOLUTIONS
In the 2005-06 advocacy year, we addressed three main issues; Human Rights,
Treatment of Workers and Excessive CEO Compensation. In collaboration with
other faith-based institutions, we attempted dialogue with all companies to
discuss issues pertaining to Catholic values prior to filing resolutions.
First of all, we would like to thank management at Caterpillar for committing to
give us the opportunity to participate in the writing of the company's
sustainability report. Because of this commitment, we withdrew from filing a
resolution.
HUMAN RIGHTS - Chevron has been linked to human rights abuse accusations
including: Pollution Resulting In Health Problems, History of Violence Against
Non-Violent Opposition and Execution, Torture, Rape and Forced Labor. After two
years of dialog with Chevron, The Catholic Equity Fund co-filed with advocacy
partners on a resolution asking that Chevron adopt a comprehensive, transparent,
verifiable human rights policy and report to shareholders on the plan for
implementation by October 2006.
Halliburton's Code of Business Conduct does not address major human rights areas
such as freedom of association, forced labor, and equal pay for equal work.
After dialog with Halliburton stalled, The Catholic Equity Fund co-filed with
advocacy partners on a resolution asking that Halliburton review its policies
related to human rights, assess where additional policies should be adopted, and
report its finding by December 2006.
TREATMENT OF WORKERS - After dialogue failed, we co-filed resolutions for the
following companies, Apple Computer, Dell Computer, Hewlett-Packard, Motorola
and Wal-Mart.
EXCESSIVE CEO COMPENSATION - After dialogue failed, we filed resolutions with
the following companies, Cendant, Exxon Mobil, Honeywell, Merrill Lynch, AT&T
and Wells Fargo.
As always, you can find more information about Proxy Voting and Resolutions on
our website - www.CatholicFunds.com.
/s/Daniel J. Steininger
Daniel J. Steininger
Chairman and President, The Catholic Funds
The Catholic Church has not sponsored or endorsed The Catholic Equity fund nor
approved or disapproved of the Fund as an investment.
The Catholic Equity Fund is distributed through Catholic Financial Services
Corporation, 1100 W. Wells St., Milwaukee, WI 53233, (414) 278-6550. Member
NASD and SIPC.
"S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc., and has been
licensed for use by The Catholic Equity Fund. The Catholic Equity Fund is not
sponsored, endorsed, sold or promoted by Standard and Poor's and Standard and
Poor's makes no representation regarding the advisability of investing in the
Fund. An investment cannot be made directly in the index.
The Catholic Equity Fund
MANAGEMENT:
The Fund is managed by a team of professionals employed by its subadviser,
Ziegler Capital Management, LLC. Those professionals include, among others,
Brian K. Andrew, Donald J. Nesbitt, and Mikhail I. Alkhazov.
Mr. Brian K. Andrew joined Ziegler in 1994 after spending seven years working as
an analyst and portfolio manager for bank trust and investment advisory firms.
He was also a managing director and partner in a private investment advisory
firm. Mr. Andrew is currently the president of Ziegler Capital Management and
serves on Ziegler's management committee, as well as Ziegler Wealth Management's
equity and fixed income committees.
Prior to joining Ziegler, he created an investment program to manage indentured
funds, managed municipal funds and monies for organizations in the health care
and senior living industry. He has experience crafting investment policies and
educating organizational management and boards regarding those policies and
their implementation.
Mr. Andrew received his B.S. in Business/Finance from the University of
Minnesota. He has also earned his Chartered Financial Analyst (CFA), and
Certified Cash Manager (CCM) designations. He is a member of the Milwaukee
Investment Analyst Society, the CFA Institute and the Treasury Management
Association. Mr. Andrew currently serves as the President for the Great Lakes
Hemophilia Foundation. He has also been active in the establishment of a
Community Development Authority board for a local Milwaukee municipality where
he most recently served as the Board's Vice Chair. He has also been active in
adult education teaching investment topics through the University of Wisconsin,
Milwaukee, Center for Financial Training and the American Bankers Association.
He has also taught undergraduate courses in finance at Concordia University.
Mr. Donald J. Nesbitt, Chief Investment Officer of Ziegler Capital Management,
joined Ziegler in early 2002 after having spent nearly four years at Qwest
Communication's pension plan in Denver, Colorado, where he managed $6 billion of
equities, using research-enhanced, quantitative approaches. Prior to joining
Qwest, Mr. Nesbitt spent nine years at the Illinois Teachers' Retirement System
where, as Director of Investments, he was responsible for the management of $20
billion across various asset classes.
Mr. Nesbitt holds a B.S. in economics from Saint Cloud State University, St.
Cloud, Minnesota, and a M.S. in financial analysis from the University of
Wisconsin-Milwaukee. He holds a Chartered Financial Analyst (CFA) designation
and has been actively involved with the CFA Institute. Mr. Nesbitt has also
instructed investment courses at the University of Illinois-Springfield and has
spoken at numerous industry conferences on the topics of enhanced equity
management and derivative investment strategies.
Mikhail I. Alkhazov, CFA, is an Assistant Vice President and Portfolio Manager
for Ziegler Capital Management. He joined Ziegler Investment Services Group in
2002, having served as a research analyst at B.C. Ziegler and Company for the
two previous years. He currently serves as a Portfolio Manager and Equity
Analyst, supporting the quantitative investment research process. Mr. Alkhazov
graduated magna cum laude from the University of Wisconsin-Milwaukee with
undergraduate degrees in Accounting and in Finance. He holds a Chartered
Financial Analyst (CFA) designation and additionally holds Series 7, 66, and 55
licenses.
MARKET COMMENTARY
For the twelve months ended September 30, 2006, the Catholic Equity Fund (the
"Fund") produced a total return of 10.83% (Class A without sales load), compared
to a return of the S&P 500 Composite Stock Price Index ("Index") of 10.79%. The
primary differences between the Fund's performance and the Index's return were
due to expenses and certain securities that were in the Index, but excluded from
the Fund, due to the sanctity of life screen. The management approach for the
Fund was modified from a passive to an enhanced-index approach in February 2006,
in an effort to offset performance shortfall from the exclusionary constraints
and the Fund's expenses. Ziegler Capital Management was retained with that
mandate as the new subadviser.
The Fund recorded a gain for the year ended September 30, 2006, but its progress
over that period was irregular, as the market hit a speed bump during the second
quarter of 2006 due to investors' fear of "stagflation" brought on by a slowing
economy and higher energy prices. However, investor sentiment improved in the
third quarter, as falling energy prices and strong corporate earnings helped
propel equity markets higher. In addition, equity returns varied across market
capitalization segments, with larger issues enjoying better relative performance
compared with smaller issues over the year-to-date period.
The industries that provided the greatest contribution to return were
financials, industrials and consumer staples. The financial services companies
represent the largest allocation to any particular sector within the Fund and
these stocks benefited from the Federal Reserve's pause in interest rate hikes
at mid-year. Investors seemed to have hedged their bets against a slowing
economy by purchasing the traditionally defensive consumer staples stocks, while
also responding to the positive earnings reports from the industrial sector. The
telecommunication services and materials sectors experienced strong relative
returns, but both of these sectors have a relatively low (about 3.0%)
representation in the Fund, which diminished their effects on the Fund's total
performance. Industries that detracted from the Fund's performance were
information technology, energy and utilities.
Looking ahead, we believe that stable interest rates can support current, if not
higher, market multiples, but earnings growth will provide the key for equity
market prospects as we move into 2007. A maturing economic expansion will
probably begin to pressure corporate earnings growth, but we feel that profits
will continue to expand and support equity prices. With moderating economic
growth, a vigilant Fed and stable interest rates, we are optimistic that U.S.
stocks will produce reasonable returns, particularly with those companies that
are able to exhibit steady, high-quality growth characteristics being more
readily sought out by investors.
For more complete information about The Catholic Funds, fees, expenses,
potential risks, and other information, call toll-free (877) 222-2402 or visit
our website at www.CatholicFunds.com. You should read the prospectus carefully
and consider the Fund's investment objectives, risks, and charges and expenses
carefully before you invest or send money.
THE CATHOLIC EQUITY FUND - CLASS A
GROWTH OF A $10,000 INVESTMENT
The Catholic Equity The Catholic Equity
Date Fund - Class A Fund - Class A w/load S&P 500 Index
---- ------------------- --------------------- -------------
5/3/99 $10,000 $9,497 $10,000
6/30/99 $10,290 $9,772 $10,158
9/30/99 $9,690 $9,202 $9,523
12/31/99 $10,855 $10,308 $10,940
3/31/2000 $11,155 $10,594 $11,191
6/30/2000 $10,945 $10,394 $10,894
9/30/2000 $10,965 $10,413 $10,789
12/31/2000 $10,302 $9,783 $9,944
3/31/2001 $9,338 $8,868 $8,765
6/30/2001 $10,000 $9,497 $9,278
9/30/2001 $8,464 $8,038 $7,917
12/31/2001 $9,385 $8,913 $8,762
3/31/2002 $9,334 $8,864 $8,787
6/30/2002 $8,044 $7,640 $7,609
9/30/2002 $6,632 $6,298 $6,295
12/31/2002 $7,208 $6,845 $6,826
3/31/2003 $6,962 $6,611 $6,611
6/30/2003 $8,019 $7,616 $7,629
9/30/2003 $8,204 $7,791 $7,830
12/31/2003 $9,163 $8,702 $8,784
3/31/2004 $9,298 $8,830 $8,933
6/30/2004 $9,453 $8,977 $9,086
9/30/2004 $9,246 $8,781 $8,917
12/31/2004 $10,112 $9,603 $9,740
3/31/2005 $9,882 $9,385 $9,531
6/30/2005 $9,997 $9,494 $9,661
9/30/2005 $10,362 $9,841 $10,009
12/31/2005 $10,580 $10,047 $10,218
3/31/2006 $11,106 $10,547 $10,648
6/30/2006 $10,937 $10,387 $10,495
9/30/2006 $11,495 $10,917 $11,089
AVERAGE ANNUAL RETURNS
September 30, 2006
Since Inception
1 Year 5 Year Inception Date
------ ------ --------- ---------
Class A (without sales load) 10.94% 6.31% 1.90% 5/3/99
Class A (with sales load) 5.42% 5.24% 1.19% 5/3/99
S&P 500 Index 10.79% 6.97% 1.40% 5/3/99
Class D (without sales load) n/a n/a n/a 4/12/06
Class D (with sales load) n/a n/a n/a 4/12/06
S&P 500 Index n/a n/a n/a 4/12/06
Class I (without sales load) 11.18% n/a 5.29% 4/3/02
Class I (with sales load) 10.83% n/a 5.29% 4/3/02
S&P 500 Index 10.79% 6.97% 5.77% 4/3/02
Past performance is not an indication of future results. Investment return and
principal value will fluctuate, and shares, when redeemed, may be worth more or
less than their original cost. At various times, the Fund's adviser waived its
management fees and/or reimbursed Fund expenses. Had the adviser not done so,
the Fund's total return would have been lower.
Class A share performance categories shown for periods prior to 4/3/02 are for
the Catholic Equity Fund's predecessor fund, The Catholic Disciplined Capital
Appreciation Fund. Class D shares were first available on 2/1/06 and Class I
shares were first available on 4/2/02.
Class A performance has been restated to reflect the maximum sales charge of
5%. Class D and I performances would reflect the maximum contingent sales
charge (CDSC) of 1.00% and 0.35%, respectively, terminating on the anniversary
date of your purchase of shares for Class I shares and 18 months after the date
of purchase for Class D shares.
The S&P 500 is an unmanaged index comprised of 500 common stocks representative
of the stock market as a whole. It is not possible to invest directly in an
index.
Current performance maybe lower or higher than the performance data quoted.
Performance data current to the most recent month-end can be found at our
website, www.CatholicFunds.com.
September 30, 2006
Ticker Symbols Net Asset Values
-------------- ------------------
Equity A CTHQX $10.92
Equity D CTHTX $10.29
Equity I CTHRX $10.94
TOP 10 HOLDINGS
September 30, 2006
Percentage
of
Rank Ticker Security Name Net Assets
---- ------ ------------- ----------
1 GE General Electric Company 3.93%
2 C Citigroup Inc. 3.65%
3 XOM Exxon Mobil Corporation 3.41%
4 MSFT Microsoft Corporation 2.52%
5 JNJ Johnson & Johnson 2.40%
6 AIG American International
Group, Inc. 2.29%
7 PG The Procter & Gamble Company 1.92%
8 VZ Verizon Communications 1.83%
9 JPM JPMorgan Chase & Co. 1.81%
10 CVX ChevronTexaco Corporation 1.80%
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and exchange fees;
and (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from April 1, 2006, to September 30, 2006.
ACTUAL EXPENSES
For each class, the first line of the table below provides information about
actual account values and actual expenses. You may use the information in this
line, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the first line under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
For each class, the second line of the table below provides information about
hypothetical account values and hypothetical expenses based on the Fund's actual
expense ratio and an assumed rate of return of 5% per year before expenses,
which is not the Fund's actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expense you paid for the period. You may use this information to compare the
ongoing costs of investing in the Fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table for each class is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different funds. In
addition, if these transaction costs were included, your costs would have been
higher.
EXPENSE EXAMPLES
Expenses Paid
Beginning Account Ending Account During Period1<F1> Annualized
Value (4/1/2006) Value (9/30/2006) (4/1/2006 to 9/30/2006) Expense Ratio
----------------- ----------------- ----------------------- -------------
Class A Actual $1,000.00 $1,035.10 $4.34 0.85%
Class A Hypothetical
(5% return before expenses) $1,000.00 $1,020.81 $4.31 0.85%
Class D Actual $1,000.00 $1,029.00 $8.14 1.60%
Class D Hypothetical
(5% return before expenses) $1,000.00 $1,017.05 $8.09 1.60%
Class I Actual $1,000.00 $1,036.00 $3.06 0.60%
Class I Hypothetical
(5% return before expenses) $1,000.00 $1,022.06 $3.04 0.60%
1<F1> Expenses are equal to the Fund's annualized expense ratio multiplied by
the average account value over the period, multiplied by the number of
days in the most recent half-year/365 days (to reflect the one-half year
period).
ALLOCATION OF PORTFOLIO ASSETS
(Calculated as a Percentage of Net Assets1<F2>)
Financials2<F3> 22.72%
Information Technology2<F3> 14.65%
Health Care2<F3> 11.98%
Consumer Discretionary2<F3> 11.62%
Industrials2<F3> 9.94%
Consumer Staples2<F3> 9.63%
Energy2<F3> 9.53%
Telecommunication Services2<F3> 4.91%
Materials2<F3> 2.84%
Utilities2<F3> 2.04%
Futures Contracts 0.11%
First American Prime Obligation 0.06%
1<F2> Total Net Assets on September 30, 2006 were $58,624,225
2<F3> Sectors based on Global Industry Classification Standard (GICS(R))
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2006
THE CATHOLIC EQUITY FUND
Common Stocks (99.86%) Shares Value
- ---------------------- ------ -----
Consumer Discretionary - 11.62%
AutoNation, Inc. (a)<F4> 10,790 $225,511
Carnival Corporation (b)<F5> 2,600 122,278
Comcast Corporation -
Class A (a)<F4> 16,960 624,976
Darden Restaurants, Inc. 7,625 323,834
eBay Inc. (a)<F4> 5,300 150,308
Federated Department
Stores, Inc. 8,350 360,803
The Goodyear Tire &
Rubber Company (a)<F4> 5,500 79,750
Harley-Davidson, Inc. 2,800 175,700
The Home Depot, Inc. 17,690 641,616
J.C. Penney Company,
Inc. - Holding Company 4,900 335,111
Jack in the Box, Inc. (a)<F4> 3,500 182,630
Kohl's Corporation (a)<F4> 1,750 113,610
Limited Brands 9,160 242,648
Lowe's Companies, Inc. 5,590 156,855
McDonald's Corporation 2,200 86,064
Newell Rubbermaid Inc. 10,155 287,590
News Corporation -
Class A 11,235 220,768
Omnicom Group Inc. 2,390 223,704
Payless Shoesource,
Inc. (a)<F4> 4,200 104,580
Starbucks
Corporation (a)<F4> 10,600 360,930
Target Corporation 2,570 141,993
Time Warner Inc. 32,520 592,840
TRW Automotive
Holdings Corp. (a)<F4> 2,985 71,849
Univision Communications
Inc. - Class A (a)<F4> 1,795 61,640
Vail Resorts, Inc. (a)<F4> 3,900 156,078
Viacom Inc (a)<F4> 5,610 208,580
The Walt Disney
Company 10,400 321,464
Whirlpool Corporation 2,400 201,864
Wyndham Worldwide
Corp. (a)<F4> 1,420 39,717
-----------
6,815,291
-----------
Consumer Staples - 9.63%
Altria Group, Inc. 12,820 981,371
Anheuser-Busch
Companies, Inc. 1,700 80,767
Archer-Daniels-
Midland Company 1,900 71,972
Avon Products, Inc. 1,980 60,707
The Coca-Cola Company 17,615 787,038
Colgate-Palmolive
Company 1,300 80,730
CVS Corporation 3,630 116,596
Kellogg Company 5,035 249,333
Kimberly-Clark
Corporation 1,300 84,968
The Kroger Co. 19,680 455,395
The Pepsi Bottling
Group, Inc. 4,200 149,100
PepsiCo, Inc. 9,635 628,780
The Procter & Gamble
Company 18,155 1,125,247
Safeway Inc. 6,700 203,345
Wal-Mart Stores, Inc. 11,545 569,399
-----------
5,644,748
-----------
Energy - 9.53%
Anadarko Petroleum
Corporation 6,300 276,129
ChevronTexaco
Corporation 16,280 1,055,921
ConocoPhillips 7,294 434,212
Devon Energy
Corporation 1,495 94,409
Exxon Mobil Corporation 29,780 1,998,238
Halliburton Company 4,900 139,405
Hess Corp. 3,200 132,544
Marathon Oil Corporation 900 69,210
National-Oilwell
Varco Inc. (a)<F4> 1,100 64,405
Occidental Petroleum
Corporation 5,200 250,172
Schlumberger Limited (b)<F5> 8,760 543,383
Valero Energy
Corporation 3,105 159,814
Veritas DGC, Inc. (a)<F4> 3,810 250,774
Weatherford
International Ltd. (a)<F4>(b)<F5> 2,900 120,988
-----------
5,589,604
-----------
Financials - 22.72%
The Allstate Corporation 2,545 159,648
American Express
Company 8,980 503,598
American Financial
Group Inc. 4,780 224,325
American International
Group, Inc. 20,270 1,343,090
Ameriprise Financial Inc. 3,115 146,094
Aon Corporation 3,500 118,545
Bank of America
Corporation 10,915 584,717
The Bank of New York
Company, Inc. 3,490 123,057
The Bear Stearns
Companies Inc. 1,370 191,937
CapitalSource, Inc. 2,250 58,095
Citigroup Inc. 43,100 2,140,777
Comerica Incorporated 2,530 144,008
Countrywide Financial
Corporation 2,943 103,123
Fannie Mae 5,495 307,225
The Goldman Sachs
Group, Inc. 3,400 575,178
Highwoods
Properties, Inc. 4,500 167,445
JPMorgan Chase & Co. 22,590 1,060,826
Lehman Brothers
Holdings Inc. 5,200 384,072
Lincoln National
Corporation 3,600 223,488
Loews Corporation 2,290 86,791
Merrill Lynch & Co., Inc. 2,400 187,728
MetLife, Inc. 1,500 85,020
MoneyGram
International, Inc. 3,500 101,710
Morgan Stanley 3,300 240,603
Principal Financial
Group, Inc. 12,420 674,158
Prudential Financial, Inc. 2,200 167,750
PS Business Parks, Inc. 1,900 114,570
Rayonier, Inc. 6,100 230,580
Realogy Corp. (a)<F4> 1,775 40,257
The St. Paul Travelers
Companies, Inc. 2,956 138,607
U.S. Bancorp 21,040 698,949
Wachovia Corporation 13,959 778,912
Washington Mutual, Inc. 10,100 439,047
Wells Fargo & Company 21,370 773,167
-----------
13,317,097
-----------
Health Care - 11.98%
Abbott Laboratories 10,495 509,637
Aetna Inc. 4,700 185,885
Baxter International Inc. 10,445 474,830
Biovail Corp. (b)<F5> 3,600 54,864
Boston Scientific
Corporation (a)<F4> 7,500 110,925
Bristol-Myers Squibb
Company 10,045 250,321
Cardinal Health, Inc. 770 50,620
Caremark Rx, Inc. 1,455 82,455
CIGNA Corporation 1,100 127,952
Dade Behring
Holdings, Inc. 1,835 73,694
Eli Lilly and Company 9,630 548,910
Fisher Scientific
International Inc. (a)<F4> 2,470 193,253
Gilead Sciences, Inc. (a)<F4> 3,000 206,100
Johnson & Johnson 21,670 1,407,250
King Pharmaceuticals,
Inc. (a)<F4> 6,300 107,289
Laboratory Corporation
of America Holdings (a)<F4> 4,560 298,999
McKesson Corporation 1,445 76,180
Medtronic, Inc. 9,520 442,109
Merck & Co. Inc. 16,840 705,596
Schering-Plough
Corporation 6,065 133,976
UnitedHealth Group
Incorporated 4,100 201,720
WellPoint Inc. (a)<F4> 4,430 341,331
Wyeth 8,600 437,224
-----------
7,021,120
-----------
Industrials - 9.94%
Albany International
Corp. 4,145 131,894
The Boeing Company 5,355 422,242
Burlington Northern
Santa Fe Corporation 3,360 246,758
Caterpillar Inc. 2,800 184,240
Continental Airlines,
Inc. (a)<F4> 2,300 65,113
Cooper Industries
Ltd. - Class A (b)<F5> 1,420 121,013
Crane Co. 2,635 110,143
CSX Corporation 12,000 393,960
Emerson Electric Co. 1,000 83,860
FedEx Corp. 700 76,076
General Electric
Company 65,260 2,303,678
Honeywell International
Inc. 3,500 143,150
Norfolk Southern
Corporation 3,900 171,795
SPX Corp. 7,795 416,565
Textron Inc. 4,500 393,750
United Technologies
Corporation 4,975 315,166
Waste Management, Inc. 6,700 245,756
-----------
5,825,159
-----------
Information Technology - 14.65%
Advanced Micro
Devices, Inc. (a)<F4> 4,670 116,049
Agere Systems, Inc. (a)<F4> 4,120 61,512
Analog Devices, Inc. 3,300 96,987
Apple Computer, Inc. (a)<F4> 5,465 420,969
Applied Materials, Inc. 10,200 180,846
Cadence Design
Systems, Inc. (a)<F4> 8,860 150,266
Ceridian Corp. (a)<F4> 6,900 154,284
Cisco Systems, Inc. (a)<F4> 34,480 793,040
Computer Sciences
Corporation (a)<F4> 4,560 223,987
Corning Incorporated (a)<F4> 7,000 170,870
Earthlink, Inc. (a)<F4> 23,775 172,844
Electronic Data
Systems Corporation 8,705 213,447
EMC Corporation (a)<F4> 11,220 134,416
First Data Corporation 1,800 75,600
Google, Inc. (a)<F4> 1,000 401,900
Hewlett-Packard
Company 22,462 824,131
Imation Corp. 2,110 84,716
Intel Corporation 17,800 366,146
Lexmark International,
Inc. (a)<F4> 2,490 143,573
Maxim Integrated
Products, Inc. 3,400 95,438
Microsoft Corporation 54,030 1,476,640
Motorola, Inc. 12,230 305,750
NCR Corporation (a)<F4> 3,000 118,440
ON Semiconductor
Corp. (a)<F4> 24,900 146,412
Oracle Corporation (a)<F4> 30,855 547,368
QUALCOMM Inc. 7,575 275,351
Research In Motion
Ltd. (a)<F4>(b)<F5> 935 95,987
Sybase, Inc. (a)<F4> 4,005 97,081
Vishay Intertechnology,
Inc. (a)<F4> 15,100 212,004
Western Digital Corp. (a)<F4> 5,000 90,500
Yahoo! Inc. (a)<F4> 13,500 341,280
-----------
8,587,834
-----------
Materials - 2.84%
Alcoa Inc. 3,800 106,552
Alpha Natural
Resources, Inc. (a)<F4> 2,570 40,503
E.I. du Pont de Nemours
and Company 1,900 81,396
International Paper
Company 8,430 291,931
Newmont Mining
Corporation 1,700 72,675
Pactiv Corporation (a)<F4> 2,720 77,302
Phelps Dodge Corporation 2,200 186,340
PPG Industries, Inc. 3,750 251,550
Praxair, Inc. 3,015 178,367
Sonoco Products Co. 2,660 89,483
Temple-Inland Inc. 3,580 143,558
Valspar Corp. 5,500 146,300
-----------
1,665,957
-----------
Telecommunication Services - 4.91%
AT&T, Inc. 28,330 $922,425
BellSouth Corporation 11,745 502,099
Qwest Communications
International Inc. (a)<F4> 7,685 67,013
Sprint Corporation 18,400 315,560
Verizon Communications
Inc. 28,902 1,073,131
-----------
2,880,228
-----------
Utilities - 2.04%
Duke Energy Corp 2,600 78,520
Edison International 6,970 290,231
FirstEnergy Corp. 6,965 389,065
PG&E Corporation 5,880 244,902
TECO Energy, Inc. 12,210 191,086
-----------
1,193,804
-----------
TOTAL COMMON STOCKS
(COST $51,173,738) 58,540,842
-----------
Short-Term Principal
Investments (0.06%) Amount
- ------------------- ---------
First American Prime
Obligations - Class Y,
4.890%, 12/31/2055 $34,060 34,060
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $34,060) 34,060
-----------
TOTAL INVESTMENTS - 99.92%
(COST $51,207,798) 58,574,902
OTHER ASSETS IN
EXCESS OF LIABILITIES - 0.08% 49,323
-----------
TOTAL NET ASSETS -
100.00% $58,624,225
-----------
-----------
(a)<F4> Non-income producing security.
(b)<F5> Foreign-issued security.
The accompanying Notes to Financial Statements are an integral part of this
schedule.
SCHEDULE OF FUTURES CONTRACTS
SEPTEMBER 30, 2006
THE CATHOLIC EQUITY FUND
Unrealized
Futures Contracts Purchased Contracts Appreciation
- --------------------------- --------- ------------
S&P 500 Index E-mini Futures Contracts
Expiring December 2006 (Underlying Face Amount
at Market Value $67,270) 1 $1,765
------
TOTAL FUTURES CONTRACTS PURCHASED $1,765
------
------
The accompanying Notes to Financial Statements are an integral part of this
schedule.
STATEMENT OF ASSETS & LIABILITIES
SEPTEMBER 30, 2006
The Catholic
Equity Fund
------------
ASSETS
- ------
Investments, at cost $51,207,798
-----------
Investments, at value $58,574,902
Receivable from investments sold 6,980
Dividend receivable 67,719
Interest receivable 341
Receivable for Fund shares sold 34,089
Receivable from Adviser 23,129
Other assets 21,396
-----------
TOTAL ASSETS 58,728,556
-----------
LIABILITIES
- -----------
Payable for Fund shares redeemed 7,858
Payable to broker 95
Accrued expenses and other liabilities 96,378
-----------
TOTAL LIABILITIES 104,331
-----------
NET ASSETS $58,624,225
-----------
-----------
NET ASSETS CONSIST OF:
- ----------------------
Paid in capital $51,700,916
Undistributed net investment income 511,664
Undistributed net realized loss on investments
sold and futures contracts (957,224)
Net unrealized appreciation on:
Investments 7,367,104
Futures contracts 1,765
-----------
NET ASSETS $58,624,225
-----------
-----------
CLASS A SHARES
- --------------
Net assets $13,117,558
Shares authorized ($0.001 par value) 100,000,000(1)<F6>
Shares issued and outstanding 1,201,685
Net asset value, redemption price
and minimum offering price per share $10.92
Maximum offering price per share ($10.92/0.95) $11.49
CLASS D SHARES
- --------------
Net assets $11,241
Shares authorized ($0.001 par value) 100,000,000(1)<F6>
Shares issued and outstanding 1,092
Net asset value, redemption price
and offering price per share $10.29
CLASS I SHARES
- --------------
Net assets $45,495,426
Shares authorized ($0.001 par value) 100,000,000(1)<F6>
Shares issued and outstanding 4,160,018
Net asset value, redemption price
and offering price per share $10.94
(1)<F6> Represents authorized shares of the Fund. Authorized shares are not
allotted to the separate classes.
The accompanying Notes to Financial Statements are an integral part of these
statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2006
The Catholic
Equity Fund
------------
INVESTMENT INCOME
- -----------------
Dividend income $999,066
Interest income 18,227
Other income 798
----------
TOTAL INCOME 1,018,091
----------
EXPENSES
- --------
Investment advisory fees (Note 3) 266,827
Legal fees 109,592
Transfer agent fees and expenses 76,284
Portfolio accounting fees 57,563
Custody fees 43,504
Advocacy expenses 40,422
Insurance fees 37,642
Printing and postage expenses 36,930
Federal and state registration fees 34,320
Audit fees 30,720
Directors' fees and expenses 10,506
12b-1 fees - Class A 28,385
12b-1 fees - Class C (Note 1) 5,576
12b-1 fees - Class D 47
Other 9,804
----------
TOTAL EXPENSES 788,122
----------
Less waivers and reimbursements by adviser (473,108)
----------
NET EXPENSES 315,014
----------
NET INVESTMENT INCOME 703,077
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
- -------------------------------------------
Net realized gain on:
Investments 3,395,322
Futures contracts 11,573
Net change in unrealized appreciation on:
Investments 1,408,214
Futures contracts 6,915
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 4,822,024
----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $5,525,101
----------
----------
The accompanying Notes to Financial Statements are an integral part of these
statements.
STATEMENTS OF CHANGES IN NET ASSETS
THE CATHOLIC EQUITY FUND
For the Year Ended September 30,
--------------------------------
2006 2005
---- ----
OPERATIONS
- ----------
Net investment income $703,077 $593,944
Net realized gain on investments
and futures contracts 3,406,895 56,189
Net change in unrealized appreciation
on investments and futures contracts 1,415,129 3,458,313
----------- -----------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 5,525,101 4,108,446
----------- -----------
DISTRIBUTIONS TO CLASS A SHAREHOLDERS
- -------------------------------------
Distributions from net investment income (74,946) (78,529)
DISTRIBUTIONS TO CLASS C SHAREHOLDERS
- -------------------------------------
Distributions from net investment income (13,207) (16,732)
DISTRIBUTIONS TO CLASS D SHAREHOLDERS
- -------------------------------------
Distributions from net investment income -- --
DISTRIBUTIONS TO CLASS I SHAREHOLDERS
- -------------------------------------
Distributions from net investment income (472,442) (313,225)
----------- -----------
CHANGE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS (560,595) (408,486)
----------- -----------
CAPITAL SHARE TRANSACTIONS
- --------------------------
Proceeds from shareholder purchases 16,624,390 5,329,443
Net asset value of shares issued to shareholders
in payment of distributions declared 396,138 396,620
Cost of shares redeemed (3,156,191) (1,661,397)
----------- -----------
CHANGE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS 13,864,337 4,064,666
----------- -----------
CHANGE IN NET ASSETS $18,828,843 $7,764,626
----------- -----------
----------- -----------
NET ASSETS, BEGINNING OF PERIOD $39,795,382 $32,030,756
----------- -----------
----------- -----------
NET ASSETS, END OF PERIOD $58,624,225 $39,795,382
----------- -----------
----------- -----------
UNDISTRIBUTED NET INVESTMENT INCOME $511,664 $387,297
----------- -----------
----------- -----------
The accompanying Notes to Financial Statements are an integral part of these
statements.
FINANCIAL HIGHLIGHTS
THE CATHOLIC EQUITY FUND - CLASS A
For the Year Ended September 30,
---------------------------------------------------------------------------------
2006(2)<F8> 2005(2)<F8> 2004(2)<F8> 2003(2)<F8> 2002(2)<F8>
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE,
BEGINNING OF YEAR $9.93 $8.95 $7.99 $6.48 $8.43
------ ----- ----- ----- -----
Net investment income 0.10 0.13 0.08 0.04 0.06
Net realized and unrealized
gain (loss) on investments 0.98 0.95 0.93 1.49 (1.83)
------ ----- ----- ----- -----
TOTAL FROM
INVESTMENT OPERATIONS 1.08 1.08 1.01 1.53 (1.77)
------ ----- ----- ----- -----
Distributions from net
investment income (0.09) (0.10) (0.05) (0.02) --
Distributions from net realized gain -- -- -- -- (0.18)
------ ----- ----- ----- -----
TOTAL DISTRIBUTIONS (0.09) (0.10) (0.05) (0.02) (0.18)
------ ----- ----- ----- -----
NET ASSET VALUE,
END OF YEAR $10.92 $9.93 $8.95 $7.99 $6.48
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Total return(1)<F7> 10.94% 12.07% 12.70% 23.71% (21.65)%
SUPPLEMENTAL DATA AND RATIOS
- ----------------------------
Net assets, end of year $13,117,558 $8,451,198 $6,868,111 $4,683,756 $2,865,775
Ratio of expenses
to average net assets:
Before expense waivers
and reimbursements 1.66% 1.89% 1.94% 2.44% 2.48%
After expense waivers
and reimbursements 0.78%(6)<F12> 0.64%(5)<F11> 0.95% 0.95% 1.23%
Ratio of net investment income
(loss) to average net assets:
Before expense waivers
and reimbursements 0.25% 0.20% (0.22)% (0.66)% (0.94)%
After expense waivers
and reimbursements 1.13% 1.45% 0.77% 0.83% 0.31%
Portfolio turnover rate 87.63%(7)<F13> 5.31% 1.88% 9.46%(3)<F9> 31.23%(4)<F10>
(1)<F7> Based on net asset value, which does not reflect the sales charge.
(2)<F8> Information for the period ended October 1, 2001 through April 2,
2002 reflects the operations of The Catholic Disciplined Capital
Appreciation Fund. Information for the period April 3, 2002 through
September 30, 2006 reflects the operations of The Catholic Equity
Fund. (Note 1)
(3)<F9> Portfolio turnover rate excludes purchases and sales from merger of
The Catholic Values Investment Trust and The Catholic Equity Fund.
(4)<F10> Portfolio turnover reflects the operations of the Catholic Equity
Fund for the period April 3, 2002 through September 30, 2002.
(5)<F11> On November 15, 2004, the adviser voluntarily increased its expense
reimbursements and fee waivers to the Fund, thereby decreasing its
expense ratio from 0.95% to 0.60%.
(6)<F12> On February 1, 2006, the adviser adjusted its expense reimbursements
and fee waivers to the Fund, thereby increasing its expense ratio
from 0.60% to 0.85% on an annual basis.
(7)<F13> On February 1, 2006, the adviser changed the Fund's investment
objective from an S&P 500 Index strategy to an enhanced index
strategy, per Board approval.
The accompanying Notes to Financial Statements are an integral part of these
statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
THE CATHOLIC EQUITY FUND - CLASS D
For the
Period Ended
September 30,
2006(1)<F14>
-------------
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00
------
Net investment income 0.00
Net realized and unrealized gain on investments 0.29
------
TOTAL FROM INVESTMENT OPERATIONS 0.29
------
Distributions from net investment income --
------
TOTAL DISTRIBUTIONS --
------
NET ASSET VALUE,
END OF PERIOD $10.29
------
------
Total return 2.90%(2)<F15>
RATIOS TO AVERAGE NET ASSETS
- ----------------------------
Net assets, end of period $11,241
Ratio of expenses to average net assets:
Before expense waivers and reimbursements(3)<F16> 2.38%
After expense waivers and reimbursements(3)<F16> 1.59%
Ratio of net investment income (loss) to average net assets:
Before expense waivers and reimbursements(3)<F16> (0.51)%
After expense waivers and reimbursements(3)<F16> 0.28%
Portfolio turnover rate 87.63%(4)<F17>
(1)<F14> Reflects operations for the period from April 12, 2006 (commencement
of operations), to September 30, 2006.
(2)<F15> Not annualized.
(3)<F16> Computed on an annual basis.
(4)<F17> On February 1, 2006, the adviser changed the Fund's investment
objective from an S&P 500 Index strategy to an enhanced index
strategy, per Board approval.
The accompanying Notes to Financial Statements are an integral part of these
statements.
FINANCIAL HIGHLIGHTS (CONTINUED)
THE CATHOLIC EQUITY FUND - CLASS I
For the
For the Year Ended September 30, Period Ended
-------------------------------------------------------- September 30,
2006 2005 2004 2003 2002(1)<F18>
---- ---- ---- ---- ------------
NET ASSET VALUE,
BEGINNING OF PERIOD $9.95 $8.96 $8.00 $6.49 $9.02
------ ----- ----- ----- -----
Net investment income 0.10 0.16 0.09 0.07 0.02
Net realized and unrealized
gain (loss) on investments 1.00 0.95 0.94 1.49 (2.55)
------ ----- ----- ----- -----
TOTAL FROM
INVESTMENT OPERATIONS 1.10 1.11 1.03 1.56 (2.53)
------ ----- ----- ----- -----
Distributions from net
investment income (0.11) (0.12) (0.07) (0.05) --
TOTAL DISTRIBUTIONS (0.11) (0.12) (0.07) (0.05) --
------ ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $10.94 $9.95 $8.96 $8.00 $6.49
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Total return 11.18% 12.41% 12.89% 24.19% (28.05)%(2)<F19>
RATIOS TO AVERAGE NET ASSETS
- ----------------------------
Net assets, end of period $45,495,426 $27,824,251 $21,818,191 $18,540,009 $9,831,101
Ratio of expenses
to average net assets:
Before expense waivers
and reimbursements 1.41% 1.64% 1.69% 2.19% 2.55%(3)<F20>
After expense waivers
and reimbursements 0.53%(6)<F23> 0.39%(5)<F22> 0.70% 0.70% 0.70%(3)<F20>
Ratio of net investment income
(loss) to average net assets:
Before expense waivers
and reimbursements 0.50% 0.45% 0.03% (0.41)% (0.82)%(3)<F20>
After expense waivers
and reimbursements 1.38% 1.70% 1.02% 1.08% 1.03%(3)<F20>
Portfolio turnover rate 87.63%(7)<F24> 5.31% 1.88% 9.46%(4)<F21> 31.23%(2)<F19>
(1)<F18> Reflects operations for the period from April 3, 2002 (commencement
of operations), to September 30, 2002.
(2)<F19> Not annualized.
(3)<F20> Computed on an annualized basis.
(4)<F21> Portfolio turnover rate excludes purchases and sales from the merger
of The Catholic Values Investment Trust and The Catholic Equity
Fund.
(5)<F22> On November 15, 2004, the adviser voluntarily increased its expense
reimbursements and fee waivers to the Fund, thereby decreasing its
expense ratio from 0.70% to 0.35%.
(6)<F23> On February 1, 2006, the adviser adjusted its expense reimbursements
and fee waivers to the Fund, thereby increasing its expense ratio
from 0.35% to 0.60%.
(7)<F24> On February 1, 2006, the adviser changed the Fund's investment
objective from an S&P 500 Index strategy to an enhanced index
strategy, per Board approval.
The accompanying Notes to Financial Statements are an integral part of these
statements.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
1. ORGANIZATION
- ---------------
The Catholic Funds, Inc. (the "Company") was incorporated on December 16, 1998,
as a Maryland Corporation, and is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended. The
Company consists of one diversified series, the Catholic Equity Fund (the
"Fund"). At the close of business on April 2, 2002, the Fund acquired, through
a non-taxable reorganization, substantially all of the net assets of the
Catholic Equity Income, Large-Cap Growth and Disciplined Capital Appreciation
Funds. The Catholic Disciplined Capital Appreciation Fund ("Disciplined Capital
Appreciation Fund") was deemed to be the accounting survivor of the
reorganization.
In 2002, the Company designated three classes of Fund shares: Class A, Class C
and Class I. All outstanding shares of the Disciplined Capital Appreciation
Fund were redesignated as Class A shares effective on March 25, 2002. On
February 1, 2006, pursuant to a Plan of Reorganization and Liquidation approved
by the Class C shareholders, Class C shares were liquidated and holders of Class
C shares received, as liquidation proceeds, Class A shares having a net asset
value equal to the net asset value of their Class C shares at the time of the
liquidation. Effective on February 1, 2006, the Company designated a new class
of Fund shares known as Class D shares.
As a result of these transactions, the Fund currently has three classes of
shares: Class A, Class D and Class I. The three classes differ principally in
their respective distribution expenses and arrangements as well as their
respective sales and redemption fee arrangements. All classes of shares have
identical rights to earnings, assets and voting privileges, except for class
specific expenses and exclusive rights to vote on matters affecting only
individual classes.
Class A shares are subject to an initial maximum sales charge of 5.00% imposed
at the time of purchase. The sales charge declines as the amount purchased
increases in accordance with the Fund's prospectus. Class D shares became
effective on February 1, 2006 and were first sold on April 12, 2006. Class D
shares are subject to a contingent deferred sales charge ("CDSC") for
redemptions made within 18 months of purchase, in accordance with the Fund's
prospectus. The CDSC is 1.00% of the lesser of the original purchase price or
the value of shares being redeemed. Class I shares became effective on March
25, 2002 and were first sold on April 3, 2002. Class I shares are subject to a
CDSC for redemptions made within one year of purchase, in accordance with the
Fund's prospectus. The CDSC is 0.35% of the lesser of the original purchase
price or the value of shares being redeemed.
The Fund is managed by Catholic Financial Services Corporation (the "Adviser").
At the close of business on May 22, 2003, the Fund acquired, through a non-
taxable reorganization, substantially all of the net assets of The Catholic
Values Investment Trust Equity Fund ("CVIT").
2. SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------
The following is a summary of significant accounting policies consistently
followed by the Funds in preparation of their financial statements. These
policies are in conformity with accounting principles generally accepted in the
United States of America (i.e., GAAP).
A) INVESTMENT VALUATION
Securities listed on the NASDAQ National Market are valued at the NASDAQ
Official Closing Price ("NOCP"). Other securities traded on the national
securities exchange are valued at the last sales price on the exchange where
primarily traded. Exchange-traded securities for which there were no
transactions that day are valued at the latest bid prices. Securities traded on
only over-the-counter markets other than NASDAQ are valued at the latest bid
prices. Debt securities (other than short-term obligations) are valued at
prices furnished by a pricing service, subject to review by the Funds' Adviser.
Short-term obligations (maturing within 60 days) are valued on an amortized cost
basis, which approximates market value. Securities for which quotations are not
readily available and other assets are valued at fair value as determined in
good faith by the Adviser under the supervision of the Board of Directors.
Securities not currently traded or those for which the NOCP, last sales price or
bid price, as the case may be, is deemed unreliable are valued at fair value as
determined in good faith under procedures approved by the Board of Directors.
If the event occurs that will affect the value of a Fund's portfolio securities
before the NAV has been calculated, the security will generally be priced using
a fair value procedure. The Board has adopted specific procedures for valuing
portfolio securities and delegated the responsibility of fair value
determinations to a Valuation Committee. Some of the factors that may be
considered by the Valuation Committee in determining fair value are fundamental
analytical data relating to the investment; the nature and duration of any
restriction on the disposition; trading in similar securities of the same issuer
or comparable companies; information from broker-dealers; and an evaluation of
the forces that influence the market in which the securities are purchased or
sold.
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. Management has recently begun to evaluate the application
of the statement to the Fund, and is not in a position at this time to evaluate
the significance of its impact, if any, on the Fund's financial statements.
B) STOCK INDEX FUTURES CONTRACTS
The Fund may purchase and sell stock index futures contracts. Upon entering
into a contract, the Fund deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains and losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. As
collateral for futures contracts, the Fund is required under the 1940 Act to
maintain assets consisting of cash, cash equivalents or liquid securities. The
Fund's exposure on a futures contract is equal to the amount paid for the
contract by the Fund.
C) FEDERAL INCOME TAXES
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code necessary to qualify as a regulated investment company and to make
the requisite distributions of income and capital gains to its shareholders
sufficient to relieve it from all or substantially all federal income taxes.
Therefore, no federal income tax provision has been recorded.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more likely than not" of being sustained by the applicable tax authority. A tax
position that meets the more likely than not threshold is measured to determine
the amount of benefit or expense to recognize in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006 and is to be applied to all open tax years as of the effective date. At
this time, management is evaluating the implications of FIN 48 and whether it
will have any impact on the Funds' financial statements.
D) DISTRIBUTIONS TO SHAREHOLDERS
The Fund will distribute any net investment income and any net realized long or
short-term capital gains at least annually. Distributions from net realized
gains for book purposes may include short-term capital gains. All short-term
capital gains are included in ordinary income for tax purposes. Distributions
to shareholders are recorded on the ex-dividend date. The Fund may also pay a
special distribution at the end of the calendar year to comply with federal tax
requirements.
The tax character of distributions paid during the years ended September 30,
2006 and 2005 were as follows:
Equity Fund
-------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Ordinary Income $560,595 $408,486
Long-term Capital Gains -- --
Due to inherent differences in the recognition of income, expenses and realized
gains/losses under GAAP and federal income tax purposes, permanent differences
between book and tax basis of reporting have been identified and appropriately
reclassified on the Statements of Assets and Liabilities. As a result of these
permanent differences, undistributed investment income decreased by $16,798 and
undistributed net realized loss on investments sold and futures contracts
decreased by $16,798.
As of September 30, 2006, the Fund had net capital loss carryforwards of
$871,838 that will expire in varying amounts through 2010 ($757,547 in 2008,
$108,803 in 2009, $5,488 in 2010). To the extent the Fund realizes future net
capital gains, those gains will be offset by any unused capital loss
carryforwards, subject to certain IRS limitations.
As of September 30, 2006, the components of capital on a tax basis were as
follows:
Cost of investments $51,718,799
-----------
-----------
Gross unrealized appreciation $ 8,800,848
Gross unrealized depreciation (1,942,980)
-----------
Net unrealized appreciation/depreciation $ 6,857,868
-----------
-----------
Undistributed ordinary income $ 511,664
Undistributed long-term capital gain 427,380
-----------
Total distributable earnings $ 939,044
-----------
-----------
Other accumulated gain/losses $ (873,603)
-----------
Total accumulated earnings/losses $ 6,923,309
-----------
-----------
The Fund designates 100% of dividends declared from net investment income during
the fiscal year ended September 30, 2006 as qualified income under Jobs and
Growth Tax Relief Reconciliation Act of 2003 (unaudited).
For corporate shareholders in the Fund, the percentage of ordinary dividend
income distributed for the year ended September 30, 2006, which is designated as
qualifying for the dividends-received deduction, is 100% (unaudited).
For foreign shareholders in the Fund, for the year ended September 30, 2006,
2.31% of the ordinary distributions paid by The Catholic Equity Fund qualify as
interest related dividends under the Internal Revenue Code Section 871(k)(1)(c)
(unaudited).
E) EXPENSES
The Fund is charged for those expenses that are directly attributable to it,
such as investment advisory and custody fees. Expenses that are not directly
attributable to any class of shares of the Equity Fund are allocated between
each class' respective net assets when appropriate. Fees paid under the
Distribution Plan (the "Plan") are borne by the specific class of shares of the
Equity Fund to which the Distribution Plan applies.
F) OTHER
For financial reporting purposes, investment transactions are accounted for on
the trade date. The Fund determines the gain or loss realized from investment
transactions by comparing the original cost of the security lot sold with the
net sale proceeds.
Income Recognition - Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Income and realized and unrealized gains or
losses on investments are allocated to each class of shares based on its
relative net assets. All discounts and premiums are amortized on the effective
interest method for tax and financial reporting purposes.
The preparation of financial statements in conformity with accounting principles
generally accepted in the Untied States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
3. INVESTMENT ADVISORY AND OTHER AGREEMENTS WITH RELATED PARTIES
- ----------------------------------------------------------------
The Fund has entered into an agreement with the Adviser, with whom certain
Officers and Directors of the Fund are affiliated, to furnish investment
advisory services to the Fund. The terms of the agreement are as follows:
The Fund pays the Adviser a monthly fee at the annual rate of 0.50% of the
Fund's average daily net assets. Pursuant to a voluntary reimbursement and fee
waiver, the Adviser waived its management fee and/or reimbursed the Fund's
operating expenses (exclusive of brokerage, interest, taxes and extraordinary
expenses) to ensure that the Fund's operating expenses did not exceed 0.60%,
0.85% and 0.35% of the average daily net assets of Fund - Class A, Class C and
Class I shares, respectively, through January 31, 2006. Pursuant to an expense
cap agreement, the Adviser contractually committed to waive its management fee
and/or reimburse the Fund's operating expenses (exclusive of brokerage,
interest, taxes and extraordinary expenses) to ensure that the Fund's operating
expenses would not exceed 1.00%, 1.75% and 0.60% of the average daily net assets
of Fund - Class A, Class D and Class I shares, respectively, from February 1,
2006 through the end of the Fund's current fiscal year end September 30, 2006.
During that period, the Advisor voluntarily reimbursed expenses in an additional
amount sufficient to cap the expense ratios of the three classes at an
annualized rate of 0.85% for Class A shares, 1.60% for Class D shares and 0.60%
for Class I shares.
Until January 31, 2006, Mellon Equity Associates, LLP ("Mellon") served as sub-
adviser to the Fund. The annual rates of the fees, payable from fees paid to
the Adviser, as a percent of average daily net assets under the sub-advisory
agreement were as follows: 0.12% on the first $50 million; 0.06% of the Fund's
average daily net assets in excess of $50 million.
As of February 1, 2006, pursuant to shareholder approval, the Adviser entered
into a sub-advisory agreement with Ziegler Capital Management, LLC ("ZCM"). The
annual rates of the fees, payable from fees paid to the Adviser, as a percent of
average daily net assets under the sub-advisory agreement are as follows: 0.20%
on the first $250 million of the Fund's average daily net assets; 0.18% of the
Fund's average daily net assets above $250 million and up to $500 million; and
0.15% of the Fund's average daily net assets in excess of $500 million.
For the year ended September 30, 2006, expenses of $473,108 were reimbursed by
the Adviser. The Adviser may terminate or adjust the waiver and expense
reimbursement at any time after September 30, 2006.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. Under the Plan, the Fund may pay
annually up to 0.25% and 1.00% of its net assets associated with Class A and
Class D shares, respectively, to finance certain activities relating to the
distribution of its shares to investors. For the year ended September 30, 2006,
12b-1 distribution expenses of $28,385 and $47 were paid with respect to Class A
and Class D shares, respectively. These expenses were remitted to the Adviser,
who also serves as distributor for the shares of the Fund.
The Adviser also received sales charges from the sale of Class A shares of
$30,474 for the year ended September 30, 2006. There were no CDSC paid to the
Adviser for the redemption of Class D or Class I shares during the year ended
September 30, 2006. Sales charges are not an expense of the Fund and are not
included in the financial statements of the Fund.
4. CAPITAL SHARE TRANSACTIONS
- -----------------------------
Transactions of shares of the Fund were as follows:
THE CATHOLIC EQUITY FUND - CLASS A SHARES
For the Year Ended For the Year Ended
September 30, 2006 September 30, 2005
-------------------------- --------------------------
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $1,184,896 114,488 $1,545,817 162,985
Shares transferred from
Class C reorganization
and liquidation (Note 1) 3,535,673 347,657 -- --
Shares issued to holders in
reinvestment of distributions 69,964 6,927 72,993 7,517
Shares redeemed (1,234,902) (118,592) (828,294) (86,835)
---------- -------- ---------- -------
NET INCREASE $3,555,631 350,480 $790,516 83,667
---------- -------- ---------- -------
---------- -------- ---------- -------
THE CATHOLIC EQUITY FUND - CLASS C SHARES
For the Year Ended For the Year Ended
September 30, 2006(1)<F25> September 30, 2005
-------------------------- --------------------------
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $83,658 8,376 $245,364 21,908
Shares transferred from
Class C reorganization
and liquidation (Note 1) (3,535,673) (347,006) -- --
Shares issued to holders in
reinvestment of distributions 12,605 1,246 15,991 1,649
Shares redeemed (178,142) (17,943) (447,457) (43,891)
----------- -------- --------- -------
NET DECREASE $(3,617,552) (355,327) $(186,102) (20,334)
----------- -------- --------- -------
----------- -------- --------- -------
(1)<F25> Class C shares were liquidated as of January 24, 2006.
THE CATHOLIC EQUITY FUND - CLASS D SHARES
For the Year Ended
September 30, 2006
--------------------------
Amount Shares
------ ------
Shares sold $11,000 1,092
Shares issued to holders in
reinvestment of distributions -- --
Shares redeemed -- --
------- -----
NET INCREASE $11,000 1,092
------- -----
------- -----
THE CATHOLIC EQUITY FUND - CLASS I SHARES
For the Year Ended For the Year Ended
September 30, 2006 September 30, 2005
-------------------------- --------------------------
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $15,344,836 1,498,620 $3,538,262 372,855
Shares issued to holders in
reinvestment of distributions 313,569 31,047 307,636 31,682
Shares redeemed (1,743,147) (166,691) (385,646) (41,969)
----------- --------- ---------- -------
NET INCREASE $13,915,258 1,362,976 $3,460,252 362,568
----------- --------- ---------- -------
----------- --------- ---------- -------
5. INVESTMENT TRANSACTIONS
- --------------------------
The aggregate purchases and sales of securities, excluding short-term
investments for the Fund, for the year ended September 30, 2006 were $60,767,843
and $46,064,214 respectively. There were no purchases and sales of U.S.
government securities for the Fund.
Transactions in futures contracts for the year ended September 30, 2006 were as
follows:
Equity Fund
------------------------------------
Number of Aggregate Face
Contracts Value of Contracts
--------- ------------------
Outstanding at beginning of year 8 $ 745,730
Contracts opened 29 2,108,225
Contracts closed (36) (2,788,450)
--- -----------
Outstanding at end of year 1 $ 65,505
--- -----------
--- -----------
6. GUARANTEES AND INDEMNIFICATIONS
- ----------------------------------
In the normal course of business, the Fund enters into contracts with service
providers that contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown as this would involve future claims
against the Fund that have not yet occurred. Based on experience, the Fund
expects the risk of loss to be remote.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE CATHOLIC FUNDS, INC.
To the Board of Directors and Shareholders
of The Catholic Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Catholic Equity Fund
(constituting The Catholic Funds, Inc., hereinafter referred to as the "Fund")
at September 30, 2006, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 15, 2006
DIRECTORS AND OFFICERS (UNAUDITED)
THE CATHOLIC FUNDS, INC.
Number of
Portfolios Other
Position(s) Term of Office in Complex Directorships
Name, Address and Held with and Length of Principal Occupation(s) Overseen by Held by
Date of Birth CFI Time Served During Past 5 Years Director Director
- ----------------- ----------- -------------- ----------------------- ----------- -------------
INDEPENDENT DIRECTORS:
- ----------------------
Thomas A. Bausch, PhD Director Indefinite, Professor of Management, 1 None
1100 W. Wells St. until successor Marquette University since 1978.
Milwaukee, WI 53233 elected.
06/06/1938
Since 1999
J. Michael Borden Director Indefinite, Chief Executive Officer, 1 Trustee,
1100 W. Wells St. until successor HUFCOR since 1978. Jefferson Fund
Milwaukee, WI 53233 elected. Group
12/21/1936 Mutual Funds
Since 1999
Daniel R. Doucette Director Indefinite, President and CEO Milwaukee 1 None
1100 W. Wells St. until successor Insurance since 1989.
Milwaukee, WI 53233 elected.
09/03/1949
Since 1999
Thomas J. Munninghoff Director Indefinite, CPA-Munninghoff, Lange and Co. 1 None
1100 W. Wells St. until successor (Accounting Firm) since 1983.
Milwaukee, WI 53233 elected.
08/27/1947
Since 1999
Conrad L. Sobczak Director Indefinite, Retired; President and CEO, 1 None
1100 W. Wells St. until successor Family Health Systems
Milwaukee, WI 53233 elected. (1987 to 1998).
10/20/1938
Since 1999
Bernard E. Reidy Director Indefinite, Delegate, Administration and 1 None
1100 W. Wells St. until successor Finance, Archdiocese of New York
Milwaukee, WI 53233 elected. Investment Consultant, Advisors
03/24/1942 One (2004 to 2005)
Since 2005 Registered Representative, Jefferson
Pilot Securities (2001 to 2004)
Amelia E. Macareno Director Indefinite, Senior Vice President Commercial 1 None
1100 W. Wells St. until successor Lending, Merchants & Manufacturers
Milwaukee, WI 53233 elected. Bancorporation, Inc.
10/05/1958
Since 2005
INTERESTED DIRECTORS:
- ---------------------
Daniel J. Steininger(1)<F26> Director, Indefinite, CEO-Catholic Knights 1 None
1100 W. Wells St. Chairman of until successor since 1981.
Milwaukee, WI 53233 the Board, elected
05/01/1945 President
Since 1999
Allan G. Lorge(1)<F26> Director, Indefinite, CFO-Catholic Knights 1 None
1100 W. Wells St. Vice President, until successor since 1986.
Milwaukee, WI 53233 Secretary, Chief elected
12/09/1949 Financial Officer
and Chief Since 1999
Compliance
Officer
OFFICERS:
- ---------
Mark Forbord Controller One year term, Senior Financial Analyst- n/a n/a
1100 W. Wells St. Subject to election Catholic Knights
Milwaukee, WI 53233 by Board of Directors Since 1995.
01/21/1954 or until successor
is elected.
Since 1999
Jeffrey J. Bauman Treasurer One year term, Chief Investment Officer, n/a n/a
1100 W. Wells St. subject to election Catholic Knights since 2006.
Milwaukee, WI 53233 by Board of
06/23/1973 Directors or until
successor is elected.
Since 2006
Additional information about the Fund's directors is available in the Statement
of Additional Information and is available, without charge, upon request, by
calling 1-877-222-2402.
(1)<F26> Messrs. Steininger and Lorge are considered to be "interested persons"
(as defined in the 1940 Act) of The Catholic Funds, Inc. by virtue of
their positions with Catholic Knights and Catholic Financial Services
Corporation.
A NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained in this annual report for The
Catholic Funds, Inc., the matters discussed in these reports may constitute
forward-looking statements made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. These include any adviser, subadviser
and/or portfolio manager prediction, assessment, analysis or outlook for
individual securities, industries, market sectors and/or markets. These
statements involve risks and uncertainties. In addition to general risks
described for the Fund in the current prospectus, other factors bearing on these
reports include the accuracy of the forecasts and predictions and the
appropriateness of the investment strategies designed by the adviser, any
subadviser or portfolio manager to implement their strategies efficiently and
effectively. Any one or more of these factors, as well as other risks affecting
the securities markets and investment instruments generally, could cause the
actual results of the Fund to differ materially as compared to benchmarks
associated with the Fund.
BOARD OF DIRECTORS
- ------------------
Daniel Steininger,
Chairman of the Board
Thomas Bausch
J. Michael Borden
Daniel Doucette
Allan Lorge
Amelia Macareno
Thomas Munninghoff
Bernard Reidy
Conrad Sobczak
OFFICERS
- --------
Daniel Steininger, President
Allan Lorge,
Vice President, Secretary, Chief Financial
Officer and Chief Compliance Officer
Jeffrey Bauman, Treasurer
Mark Forbord, Controller
INVESTMENT ADVISER
- ------------------
Catholic Financial Services Corporation
1100 West Wells Street
Milwaukee, WI 53233
SUBADVISER
- ----------
Ziegler Capital Management, LLC
250 East Wisconsin Avenue, Suite 2000
Milwaukee, WI 53202
LEGAL COUNSEL
- -------------
Quarles & Brady LLP
CUSTODIAN
- ---------
U.S. Bank, N.A.
TRANSFER AGENT
- --------------
U.S. Bancorp Fund Services, LLC
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- ---------------------------------------------
PricewaterhouseCoopers LLP
SHAREHOLDER SERVICES
- --------------------
The Catholic Funds
c/o U.S. Bancorp Fund Services, LLC
615 East Michigan Street
P.O. Box 710
Milwaukee, WI 53201-0701
THE CATHOLIC
FRATERNAL ALLIANCE
- ------------------
Catholic Knights
Daniel Steininger, President
1100 West Wells Street
Milwaukee, WI 53233
Catholic Order of Foresters
David E. Huber, High Chief Ranger
355 Shuman Boulevard
P.O. Box 3012
Naperville, IL 60566-7012
Catholic Union of Texas (The KJT)
Elo J. Goerig, President
P.O. Box 297
LaGrange, TX 78945
The Fund's Statement of Additional Information contains additional information
about the Fund's Directors and is available without charge upon request by
calling 1-877-222-2402.
The Fund's Proxy Voting Policies and Procedures are available without charge
upon request by calling 1-877-222-2402, on the Fund's website,
www.catholicfunds.com, or on the SEC's website, at www.sec.gov. Information
--------------------- -----------
regarding how the Fund voted proxies relating to portfolio securities during the
twelve months ended June 30, 2006 is available, without charge, upon request, on
or through the Fund's website, at www.catholicfunds.com, and on the SEC's
---------------------
website, at www.sec.gov.
-----------
The Fund files a complete schedule of portfolio holdings for the first and third
quarters of each fiscal year with the SEC on Form N-Q. The Form N-Q will be
available without charge, upon request, by calling 1-877-222-2402, on the Fund's
website, at www.catholicfunds.com, and on the SEC's website, at www.sec.gov.
--------------------- -----------
You may also review and copy the Form N-Q for the Fund at the SEC's Public
Reference Room in Washington, DC. You may get information about the operation
of the Public Reference Room by calling 1-800-SEC-0330.
This report is intended for shareholders of The Catholic Funds. It is
not authorized for distribution to prospective investors unless preceded
or accompanied by a current prospectus. The Catholic Church has not
sponsored or endorsed The Catholic Funds nor approved or disapproved
of the Funds as an investment.
(CATHOLIC FINANCIAL SERVICES CORPORATION LOGO)
GIVING VOICE TO CATHOLIC VALUES
1100 West Wells Street o Milwaukee, WI 53233
1-414-278-6550
Member NASD and SIPC
The Catholic Funds are not available in all states.
ITEM 2. CODE OF ETHICS
As of the end of the period covered by this Report on Form N-CSR, the
Registrant has adopted a Code of Ethics that applies to the Registrant's
principal executive officer, principal financial officer and principal
accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant's Board of Directors has determined that the Registrant has
at least one audit committee financial expert serving on its Audit Committee.
Thomas Munninghoff, a director of the Registrant since its commencement of
operations in 1999, has been determined to be an audit committee financial
expert and he is "independent" within the meaning of Item 3(a)(2) of Form N-CSR.
Mr. Munninghoff is the President and Audit Principal for the accounting firm of
Munninghoff, Lange & Co., with which he has served in various capacities since
1983. Mr. Munninghoff is a Certified Public Accountant.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth information as to the fees billed to the
Registrant for audit, audit-related, tax and other services and products
provided by PricewaterhouseCoopers LLP, the Registrant's principal accountant,
for each of the last two fiscal years.
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
2005 2006
---- ----
Audit Fees(1)<F27> $21,400 $23,000
Audit-Related Fees(2)<F28> $ -0- $ -0-
Tax Fees(3)<F29> $ 3,800 $ 4,100
All Other Fees(4)<F30> $ -0- $ -0-
------- -------
TOTAL $25,200 $27,100
------- -------
------- -------
(1)<F27> This category relates to professional services rendered by the
principal accountant for the audit of the Registrant's annual
financial statements or services that are normally provided by the
accountant in connection with statutory and regulatory filings or
engagements for those fiscal years.
(2)<F28> This category relates to assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the Registrant's financial statements and are not
reported under "Audit Fees" above.
(3)<F29> This category relates to professional services rendered by the
principal accountant for tax compliance, tax advice and tax
planning. For 2005 and 2006, PricewaterhouseCoopers LLP assisted
in the preparation of tax returns for the Registrant and also
reviewed the Registrant's dividend calculation to assure compliance
with Subchapter M of the Internal Revenue Code of 1986.
(4)<F30> This category relates to products and services provided by the
principal accountant other than those reported under "Audit Fees,"
"Audit-Related Fees," and "Tax Fees" above.
PricewaterhouseCoopers LLP did not bill any amounts over the last two
fiscal years for services or products provided to Catholic Financial Services
Corporation ("CFSC"), the Registrant's investment advisor, or any entity
controlling, controlled by or under common control with CFSC that provides
ongoing services for the Registrant.
The audit committee of the Registrant's Board of Directors selected
PricewaterhouseCoopers LLP and approved all of the audit and non-audit services
that were provided and the fees that were paid in each of 2005 and 2006. The
audit committee of the Registrant's Board of Directors has not adopted any pre-
approval policies and procedures (as described in paragraph (c)(7) of Rule 2-01
of Regulation S-X) regarding the provision of audit or non-audit services to the
Registrant. The audit committee itself must approve all such services in
advance. No non-audit services were provided to the Registrant with respect to
the past two fiscal years pursuant to a waiver from the pre-approval requirement
that were subsequently approved by the audit committee under para-
graph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to this Registrant, insofar as the Registrant is not a
"listed issuer" within the meaning of Rule 10A-3 under the Securities Exchange
Act of 1934.
ITEM 6. SCHEDULE OF INVESTMENTS
The Schedule of Investments in securities of unaffiliated issuers is
included in the Registrant's Annual Report to Shareholders dated as of
September 30, 2006 provided under Item 1 of this Report.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable to this Registrant, insofar as the Registrant is not a
closed-end management investment company.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable to this Registrant, insofar as the Registrant is not a
closed-end management investment company.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable to this Registrant, insofar as the Registrant is not a
closed-end management investment company.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable insofar as the Registrant has not made any material changes
to the procedures by which shareholders may recommend nominees to the
registrant's board of directors since the Registrant's Board of Directors
adopted the resolution disclosed in the Registrant's semi-annual report on Form
N-CSR for the period ended March 31, 2004.
ITEM 11. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Within 90 days prior to the
----------------------------------
filing of this Report on Form N-CSR, the Registrant's President (Principal
Executive Officer) and its Chief Financial Officer (Principal Financial Officer)
reviewed the Registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) of the Investment Company Act of 1940) and evaluated their
effectiveness. Based on their evaluation, such officers determined that the
disclosure controls and procedures adequately ensure that information required
to be disclosed by the Registrant in this Report on Form N-CSR is recorded,
processed, summarized and reported within the time periods required by the
Securities and Exchange Commission's rules and forms.
(b) Change in Internal Controls. There were no changes in the
---------------------------
Registrant's internal control over financial reporting (as defined in Rule 30a-
3(d) under the Investment Company Act of 1940) that occurred during the second
fiscal quarter of the period covered by this Report that have materially
affected, or are reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS
The following exhibits are attached to this Form N-CSR:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
12(a)(1) The Code of Ethics for the Registrant's Principal
Executive Officer, Principal Financial Officer, and
Principal Accounting Officers referred to in Item 2
was filed as Exhibit 12(a)(1) to the Registrant's
Certified Shareholder Report on Form N-CSR filed on
December 2, 2003, and is incorporated herein by
reference.
12(a)(2)(A) Certification of Principal Executive Officer
Required by Section 302 of the Sarbanes-Oxley Act of
2002 is filed herewith
12(a)(2)(B) Certification of Principal Financial Officer
Required by Section 302 of the Sarbanes-Oxley Act of
2002 is filed herewith
12(b) Certification of Chief Executive Officer and Chief
Financial Officer Required by Section 906 of the
Sarbanes-Oxley Act of 2002 is furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on this 4th
day of December, 2006.
THE CATHOLIC FUNDS, INC.
By: /s/ Daniel Steininger
----------------------------
Daniel Steininger, President
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
this 4th day of December, 2006.
By: /s/ Daniel Steininger
----------------------------
Daniel Steininger, President
(Principal Executive Officer)
By: /s/ Allan G. Lorge
-------------------------------
Allan G. Lorge, Vice President,
Secretary and Chief Financial
Officer (Principal Financial Officer)