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Securities and Exchange Commission (“Commission”).
Notice of application under section 17(b) of the Investment Company Act of 1940 (“Act”) for an exemption from section 17(a) of the Act.
Summary of Application: Applicants request an order to permit the proposed reorganizations of the following series of The Catholic Funds, Inc. (“CFI”): The Catholic Equity Income Fund (“Equity Income Fund”) with and into The Catholic Equity Fund (“New Equity Fund”); The Catholic Large-Cap Growth Fund (“Large-Cap Growth Fund”) with Start Printed Page 11726and into the New Equity Fund; and The Catholic Disciplined Capital Appreciation Fund (“Capital Appreciation Fund” and, together with the Equity Income Fund and the Capital Appreciation Fund, the “Existing Funds”) with and into the New Equity Fund. Because of certain affiliations, applicants may not rely on rule 17a-8 under the Act.
Applicants: CFI and Catholic Financial Services Corporation (“CFSC”).
Filing Dates: The application was filed on February 4, 2002. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on April 1, 2002, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons may request notification of a hearing by writing to the Commission's Secretary.
Secretary, Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. Applicants, c/o Fredrick G. Lautz, Esq., Quarles & Brady LLP, 411 East Wisconsin Avenue, Milwaukee, WI 53202.Start Further Info
FOR FURTHER INFORMATION CONTACT:
John L. Sullivan, Senior Counsel, at (202) 942-0681, or Todd F. Kuehl, Branch Chief, at (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation).End Further Info End Preamble Start Supplemental Information
The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 20549-0102 (tel. 202-942-8090).
1. CFI, a Maryland corporation, is registered under the Act as an open-end management investment company and currently offers several series, including the Existing Funds (and together with the New Equity Fund, the “Funds”). The New Equity Fund is a newly designated series of CFI. CFSC, a Wisconsin corporation, is registered under the Investment Advisers Act of 1940 and is the investment adviser to the Funds. As of December 31, 2001, Catholic Knights and Catholic Order of Foresters, both of which are non-profit organizations, each owned beneficially and of record more than 5% (and in some cases, more than 25%) of the outstanding voting securities of each Existing Fund.
2. On February 14, 2002, the board of directors of CFI (“Board”), including a majority of the directors who are not “interested persons,” as defined in section 2(a)(19) of the Act (“Independent Directors”), unanimously approved separate Agreements and Plans of Reorganization and Liquidation (each, a “Plan”), whereby each of the Existing Funds would be consolidated with and into the New Equity Fund. In each of these reorganization transactions (a “Reorganization”), the relevant Existing Fund would transfer substantially all of its assets, net of its liabilities, to the New Equity Fund in exchange solely for shares of the New Equity Fund. In each Reorganization, shareholders of the relevant Existing Fund will receive shares of the New Equity Fund having an aggregate net asset value equal to the aggregate net asset value of the Existing Fund's shares. The value of the assets of each Fund will be determined in the manner set forth in each Fund's then-current prospectus and statement of additional information. Immediately after the exchange, each Existing Fund would liquidate and distribute the shares of the New Equity Fund received in the exchange to its shareholders pro rata.
3. Applicants state that the Board has determined that the investment objective, program and policies of the Funds are sufficiently similar to make an investment in the New Equity Fund an appropriate substitute investment for shareholders of the Existing Funds. Each Existing Fund offers one class of shares, Class A, and the New Equity Fund will offer three classes of shares, only one of which, Class A, will be issued in the Reorganizations. In connection with the Reorganizations, shareholders of each Existing Fund will receive the corresponding Class A shares of the New Equity Fund. No sales charge will be imposed on shares of The New Equity Fund issued to shareholders of the Existing Funds in the Reorganizations. CSFC has committed to pay all costs incurred by an Existing Fund in connection with each Reorganization.
4. The Board, including a majority of the Independent Directors, determined that the Reorganizations are in the best interests of the New Equity Fund and the Existing Funds and that the interests of the shareholders of the Existing Funds would not be diluted by the Reorganizations. In approving the Reorganizations, the Board considered various factors, including, among others: (a) The investment objectives and policies of the Existing Funds and the New Equity Fund; (b) the terms and conditions of each Plan; (c) the tax-free nature of the Reorganizations; and (d) the expense ratios of the Existing Funds and the New Equity Fund.
5. The consummation of each Reorganization is subject to a number of conditions, including, among others: (a) Approval of the Plan by the affirmative vote of a majority of the outstanding voting securities of the relevant Existing Fund; (b) receipt by CFI of an opinion from its legal counsel that the relevant Reorganization will not result in recognition of income, gain or loss for federal income tax purposes by the New Equity Fund, the relevant Existing Fund or the shareholders of the relevant Existing Fund, and (c) applicants receive from the Commission an exemption from section 17(a) of the Act for the Reorganizations. Each Plan also provides that, prior to completion of the Reorganization to which it relates, the relevant Existing Fund shall have declared and paid dividends and other distributions, effectively distributing to its shareholders substantially all investment company taxable income and all net capital gains for all taxable years ending on or before the date of the relevant Reorganization. Each Plan may be terminated by the Board. Applicants agree not to make any material changes to a Plan that would affect the application without prior approval of the Commission or its staff.
6. CFI began mailing definitive proxy statements/prospectuses for each of the three separate Reorganizations on March 1, 2002. The definitive proxy statements/prospectuses were filed with the Commission on March 6, 2002. Special meetings of shareholders of each of the Existing Funds are scheduled for April 2, 2002.
Applicants' Legal Analysis
1. Section 17(a) of the Act generally prohibits an affiliated person of a registered investment company, or an affiliated person of such a person, acting as principal, from selling any security to, or purchasing any security from, the company. Section 2(a)(3) of the Act defines an “affiliated person” of another person to include, among others: (a) Any person directly or indirectly owning, controlling, or holding with power to vote 5% or more of the outstanding voting securities of the other person; (b) any person 5% or more Start Printed Page 11727of whose securities are directly or indirectly owned, controlled, or held with power to vote by the other person; and (c) any person directly or indirectly controlling, controlled by, or under common control with the other person.
2. Section 2(a)(9) of the 1940 Act defines “control” in part to mean “the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Any person who owns beneficially, either directly or through one or more controlled companies, more than 25 per centum of the voting securities of any company shall be presumed to control such company.”
3. Rule 17a-8 under the Act exempts from the prohibitions of section 17(a) mergers, consolidations, or purchases or sales of substantially all of the assets of registered investment companies that are affiliated persons, or affiliated persons of an affiliated person, solely by reason of having a common investment adviser, common directors/trustees, and/or common officers, provided that certain conditions set forth in the rule are satisfied.
4. Applicants believe that they may not rely on rule 17a-8 in connection with the Reorganizations because the Existing Funds and the New Equity Fund may be deemed to be affiliated by reasons other than having a common investment adviser, common directors/trustees, and/or common officers. Each Existing Fund and the New Equity Fund may be deemed affiliated persons since they are under the common control of CFSC. Additionally, the Existing Funds may be deemed affiliated persons since they are under the common control of Catholic Knights, which beneficially owns more than 25% of the outstanding voting securities of each Existing Fund.
5. Section 17(b) of the Act provides that the Commission may exempt a transaction from the provisions of section 17(a) if evidence establishes that the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and that the proposed transaction is consistent with the policy of each registered investment company concerned and with the general purposes of the Act.
6. Applicants request an order under section 17(b) of the Act exempting them from section 17(a) to the extent necessary to complete the Reorganizations. Applicants submit that the Reorganizations satisfy the standards of section 17(b). Applicants state that the Reorganizations will be based on the relative net asset values of the Existing Funds and New Equity Fund's shares. Applicants also state that the investment objective and policies of the Funds are substantially similar. Applicants state that the Board, including the Independent Directors, has made the requisite determinations that the participation of each Existing Fund in the respective Reorganization is in the best interests of each Existing Fund and the New Equity Fund and that such participation will not dilute the interests of the existing shareholders of each Existing Fund.Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland,
[FR Doc. 02-6255 Filed 3-14-02; 8:45 am]
BILLING CODE 8010-01-P