SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. 1 / X /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT / /
OF 1940
Amendment No. 1 / X /
(Check appropriate box or boxes.)
Sparrow Funds - File Nos. 333-59877 and 811-08897
- -------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
225 S. Meramec Avenue, Suite 732 Tower, St. Louis, MO 63105
- ------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (314) 725-6161
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Gerald R. Sparrow, Sparrow Funds, 225 S. Meramec Ave., Ste. 732 Tower,
St. Louis, MO 63105
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
With copy to:
Donald S. Mendelsohn, Brown, Cummins & Brown Co., L.P.A.
3500 Carew Tower, Cincinnati, Ohio 45202
Approximate Date of Proposed Public Offering: October 1, 1998.
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ / on pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares.
Omit from the facing sheet reference to the other Act if the
Registration Statement or amendment is filed under only one of the Acts. Include
the "Approximate Date of Proposed Public Offering" and "Title of Securities
Being Registered" only where securities are being registered under the
Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
Sparrow Funds
CROSS REFERENCE SHEET
FORM N-1A
SPARROW GROWTH FUND
<TABLE>
<S> <C>
ITEM SECTION IN PROSPECTUS
1.............................. Cover Page
2.............................. Summary of Fund Expenses
3.............................. Performance Information
4.............................. The Fund, Investment Objective and Strategies and Risk Considerations, Operation
of the Fund, General Information
5.............................. Operation of the Fund
5A............................. None
6.............................. Cover Page, Dividends and Distributions, Taxes, General Information, How to
Redeem Shares
7.............................. Cover Page, How to Invest in the Fund, Share Price Calculation, Operation of the
Fund, How to Redeem Shares
8.............................. How to Redeem Shares
9.............................. None
13.............................. Investment Objective and Strategies and Risk Considerations
15.............................. General Information
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
10.............................. Cover Page
11.............................. Table of Contents
12.............................. None
13.............................. Additional Information About Fund Investments and Risk Considerations,
Investment Limitations
14.............................. Trustees and Officers
15.............................. Description of the Trust
16.............................. The Investment Adviser, Custodian, Transfer Agent, Accountants, Trustees and
Officers
17.............................. Portfolio Transactions and Brokerage
18.............................. Description of the Trust
19.............................. Determination of Share Price
20.............................. None
21.............................. Distributor
22.............................. Investment Performance
23.............................. Financial Statements
</TABLE>
<PAGE>
SPARROW GROWTH FUND
PROSPECTUS October 1, 1998
225 South Meramec Avenue
Suite 732 Tower
St. Louis, Missouri 63105
For Information, Shareholder Services and Requests:
(888)SCM-FUND
Sparrow Growth Fund (the "Fund") is a diversified, open-end mutual fund
whose investment objective is to provide long term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in a broad range of
common stocks which the Adviser believes have above average prospects for
appreciation, based on a proprietary investment model developed by the Adviser.
The model looks at a variety of factors to select stocks which the Adviser
believes demonstrate strong earnings momentum.
This Prospectus provides the information a prospective investor ought to
know before investing and should be retained for future reference. A Statement
of Additional Information ("SAI") has been filed with the Securities and
Exchange Commission (the "SEC") dated October 1, 1998, which is incorporated
herein by reference and can be obtained without charge by calling the Fund at
the phone number listed above. The SEC maintains a Web Site (http://www.sec.gov)
that contains the Statement of Additional Information, material incorporated by
reference, and other information regarding registrants that file electronically
with the SEC.
Shares of the Fund are not deposits or obligations of any bank, are not
endorsed or guaranteed by any bank, and are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other government
agency, entity, or person. The purchase of Fund shares involves investment
risks, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUMMARY OF FUND EXPENSES
The tables below are provided to assist an investor in understanding the
direct and indirect expenses that an investor may incur as a shareholder in the
Fund. The expense information is based on estimated expenses for the current
fiscal year. The expenses are expressed as a percentage of average net assets.
The Example should not be considered a representation of future Fund performance
or expenses, both of which may vary.
Shareholders should be aware that the Fund, unlike most other mutual funds,
does not pay directly for transfer agency, pricing, custodial, auditing or legal
services, nor does it pay directly any general administrative or other
significant operating expenses. The Adviser pays all of the expenses of the Fund
except brokerage, taxes, interest, fees and expenses of non-interested person
trustees and extraordinary expenses.
<PAGE>
Shareholder Transaction Expenses1
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).....................................5.75%
Maximum Deferred Sales Charge (as a percentage
of the lower of original purchase price or redemption proceeds)2.........NONE
Sales Charge Imposed on Reinvested Dividends..............................NONE
Redemption Fee............................................................NONE
Exchange Fees.............................................................NONE
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees..........................................................2.50%
12b-1 Charges3...........................................................0.00%
Other Expenses4..........................................................0.00%
Total Fund Operating Expenses5.............................................2.50%
1 Processing organizations may impose transactional fees on shareholders (See
"Purchases Without a Sales Charge" for a definite of "processing
organizations.").
2 A deferred sales charge of 1.00% is assessed on redemptions of shares that
were purchased without an initial sales charge because they were purchases of $1
million or more or purchases by qualified retirement plans with at least 200
eligible employees if the redemption occurs within 18 months of purchase.
3 Distribution expenses incurred by the Fund under the 12b-1 Distribution Plan
are paid by the Adviser.
4 The Fund estimates that other expenses (fees and expenses of the trustees who
are not "interested persons" as defined in the Investment Company Act) will be
less than 0.01% of average net assets for the first fiscal year.
5 The Fund's total operating expenses are equal to the management fee paid to
the Adviser because the Adviser pays all operating expenses (except as described
in footnote 4).
Example
You would pay the following expenses on a $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the end of each time period:
1 Year 3 Years
------ -------
$81 $132
THE FUND
Sparrow Growth Fund (the "Fund") was organized as a series of Sparrow
Funds, an Ohio business trust (the "Trust") on July 14, 1998. This prospectus
offers shares of the Fund and each share represents an undivided, proportionate
interest in the Fund. The investment adviser to the Fund is Sparrow Capital
Management Incorporated (the "Adviser").
INVESTMENT OBJECTIVE AND STRATEGIES AND RISK CONSIDERATIONS
The investment objective of the Fund is to provide shareholders with long term
capital appreciation. The Fund seeks to achieve this objective by investing
primarily in a broad range of common stocks which the Adviser believes have
above average prospects for appreciation, based on a proprietary investment
model developed by the Adviser. The model looks at a variety of factors to
select stocks ("core momentum growth stocks") which the Adviser believes
demonstrate strong earnings momentum. Although the Fund may invest in stocks of
all market capitalization ranges, it is anticipated that the majority of the
Fund's investments will be in common stocks of large capitalization companies
(over $10 billion). The Adviser seeks to limit investment risk by diversifying
the Fund's investments across a broad range of economic sectors.
<PAGE>
Although the Fund will invest primarily in common stocks, the Fund may hold
warrants and rights issued in conjunction with common stocks. Warrants are
options to purchase equity securities at a specified price valid for a specific
time period. Rights are similar to warrants, but normally have a short duration
and are distributed by the issuer to its shareholders. The Fund may invest in
foreign equity securities through the purchase of American Depository Receipts.
American Depository Receipts are certificates of ownership issued by a U.S. bank
as a convenience to the investors in lieu of the underlying shares which it
holds in custody. To the extent that the Fund does invest in foreign securities,
such investments may be subject to special risks, such as changes in
restrictions on foreign currency transactions and rates of exchange, and changes
in the administrations or economic and monetary policies of foreign governments.
Equity securities are subject to price fluctuations depending on a variety of
factors, including market, business and economic conditions.
Past Performance of Similar Accounts
The Adviser has been managing equity accounts with investment objectives,
policies and strategies substantially similar to the Fund since January 1996.
The data provided below illustrates the past performance of the Adviser in
managing all such accounts, as compared to the S&P 500. Accounts managed by the
Adviser prior to 1996 have been excluded because the investment strategies used
were significantly different from those of the Fund. The persons responsible for
the performance of the accounts are the same as those responsible for the
investment management of the Fund. As of June 30, 1998, the assets in those
accounts totaled approximately $30 million.
Growth of an initial investment of $10,000 with reinvestment (1)
[Graph with the following plot points:
Sparrow S&P 500
------- -------
December 31, 1995 $10,000 $10,000
December 31, 1996 $12,800 $12,290
December 31, 1997 $17,613 $16,395
June 30, 1998 $23,495 $19,280]
1 Line graph shows value of $10,000 invested on December 31, 1995 and held
through June 30, 1998 compared to the unmanaged Standard & Poor's 500
Index. Please see footnotes and text following the chart below.
<TABLE>
<S> <C> <C> <C>
Core Growth Equity Accounts(1) S&P 500(2)
---------------------------- --------
1998(3) +33.4% + 17.6%
1997 +37.6% + 33.4%
1996 +28.0% + 22.9%
</TABLE>
1 The composite rate of return is weighted using beginning-of-quarter
market values plus weighted cash flows. Performance figures are net of
management fees and all expenses of the accounts, and include the reinvestment
of dividends and capital gains. Total expenses of the other accounts were in
some cases lower than Fund Expenses. To the extent Fund expenses are higher than
expenses of the other accounts, the rate of return for the other accounts would
be reduced. The presentation of the performance composite complies with the
Performance Presentation Standards of the Association for Investment Management
and Research (AIMR-PPS), which differs from and will produce a different result
than the standardized SEC calculation. AIMR was not involved with the
preparation or review of the performance composite.
<PAGE>
2 The S&P 500 Index is a widely recognized, unmanaged index of market
activity based upon the aggregate performance of a selected portfolio of
publicly traded common stocks, including monthly adjustments to reflect the
reinvestment of dividends and other distributions. The Index reflects the total
return of securities comprising the Index, including changes in market prices as
well as accrued investment income, which is presumed to be reinvested.
Performance figures for the Index does not reflect deduction of transaction
costs or expenses, including management fees.
3 1998 percentages represent the rates of return for the 6 month period
ended June 30, 1998.
The performance of the accounts managed by the Adviser does not represent
the historical performance of the Fund and should not be considered indicative
of future performance of the Fund. Results may differ because of, among other
things, differences in brokerage commissions, account expenses, including
management fees (the use of the Fund's expense structure possibly would have
lowered the performance results), the size of positions taken in relation to
account size and diversification of securities, timing of purchases and sales,
and availability of cash for new investments. In addition, the managed accounts
are not subject to certain investment limitations, diversification requirements,
and other restrictions imposed by the Investment Company Act and the Internal
Revenue Code which, if applicable, may have adversely affected the performance
results of the managed accounts composite. The results for different periods may
vary.
For temporary defensive purposes under abnormal market or economic
conditions, the Fund may hold all or a portion of its assets in money market
instruments (high quality income securities with maturities of less than one
year), securities of money market funds or U.S. government repurchase
agreements. The Fund may also invest in such investments at any time to maintain
liquidity or pending selection of investments in accordance with its policies.
If the Fund acquires securities of money market funds, the shareholders of the
Fund will be subject to duplicative management fees. A repurchase agreement is a
short- term investment in which the purchaser (i.e., the Fund) acquires
ownership of a U.S. Government obligation (which may be of any maturity) and the
seller agrees to repurchase the obligation at a future time at a set price,
thereby determining the yield during the purchaser's holding period (usually not
more than seven days from the date of purchase). Any repurchase transaction in
which the Fund engages will require full collateralization of the seller's
obligation during the entire term of the repurchase agreement.
As all investment securities are subject to inherent market risks and
fluctuations in value due to earnings, economic and political conditions and
other factors, the Fund cannot give any assurance that its investment objective
will be achieved. In addition, it should be noted that the Adviser has not
previously managed assets organized as a mutual fund, and the Fund has no
operating history. Rates of total return quoted by the Fund may be higher or
lower than past quotations, and there can be no assurance that any rate of total
return will be maintained. See the Fund's Statement of Additional Information
for a more detailed discussion of the Fund's investment practices.
HOW TO INVEST IN THE FUND
Shares of the Fund are sold on a continuous basis, and you may invest any
amount you choose, as often as you wish, subject to a minimum initial investment
of $10,000($2,000 for qualified retirment accounts)and minimum subsequent
investments of $500 ($250 for qualified retirement accounts).
Initial Purchase
By Mail: You may open an account and make an initial investment through
--------
securities dealers having a sales agreement with Unified Management Corporation,
the Fund's distributor (the "Distributor"). You may also make a direct initial
investment by completing and signing the investment application form which
accompanies this Prospectus and mailing it, in proper form, together with a
check made payable to Sparrow Growth Fund to the P.O. Box listed below. If you
prefer overnight delivery, use the overnight address listed below.
<PAGE>
U.S. mail Overnight
--------- ---------
Sparrow Growth Fund Sparrow Growth Fund
c/o Unified Fund Services, Inc. c/o Unified Fund Services, Inc.
P.O. Box 6110 431 N. Pennsylvania Street
Indianapolis, Indiana 46206-6110 Indianapolis, Indiana 46204
By Wire: To purchase shares of the Fund by wire, call Unified Fund
---------
Services, Inc., the Fund's transfer agent (the "Transfer Agent") at (888)
726-3863 for instructions. Then, you should provide your bank with the following
information for purposes of wiring your investment:
Star Bank, N.A. Cinti/Trust
ABA #0420-0001-3
Attn: Sparrow Growth Fund
D.D.A. # 488921529
Account Name _________________ (write in shareholder name)
For Account # ______________ (write in account number)
Wire orders will be accepted only on a day on which the Fund, the Transfer
Agent and Star Bank, the Fund's custodian (the "Custodian"), are open for
business. A wire purchase will not be considered made until the wired money is
received and the purchase is accepted by the Fund. Any delays which may occur in
wiring money, including delays which may occur in processing by the banks, are
not the responsibility of the Fund or the Transfer Agent. There is presently no
fee for the receipt of wired funds, but the right to charge shareholders for
this service is reserved by the Fund.
Sales Charge
Shares of the Fund are purchased at the public offering price. The public
offering price is the next determined net asset value per share plus a sales
charge as shown in the following table. Certain persons may be entitled to
purchase shares of the Fund without paying a sales commission. See "Purchases
Without a Sales Charge".
Sales Charge as of % of:
<TABLE>
<S> <C> <C> <C>
Public Net
Offering Amount Dealer Reallowance as % of
Amount of Investment Price Invested Public Offering Price
Less than $50,000 5.75% 6.10% 5.25%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 2.50% 2.56% 2.15%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more None None None
</TABLE>
There is no initial sales charge on purchases of $1 million or more, or
purchases by qualified retirement plans with at least 200 eligible employees.
However, a contingent deferred sales charge ("CDSC") of 1% will be imposed if
you redeem these shares within eighteen months of purchase, based on the lower
of the shares' cost and current net asset value. Any shares acquired by
reinvestment of distributions will be redeemed without a CDSC.
<PAGE>
In determining whether a CDSC is payable, the Fund will first redeem shares
not subject to any charge. The CDSC will be waived on redemptions of shares
arising out of the death or post-purchase disability of a shareholder or settlor
of a living trust account, and on redemptions in connection with certain
withdrawals from IRA or other retirement plans. The Distributor receives the
entire amount of any CDSC you pay. See the SAI for additional information about
the CDSC.
Except as stated below, the Distributor pays investment dealers of record
commissions on sales of $1 million or more based on an investor's cumulative
purchases during the one-year period beginning with the date of the initial
purchase at net asset value. Each subsequent one-year measuring period for these
purposes will begin with the first net asset value purchase following the end of
the prior period. Such commissions are paid at the rate of 1.00% of the amount
under $3 million, 0.50% of the next $47 million and 0.25% thereafter.
On sales to qualified retirement plans for which no sales charge was paid
because the plan had at least 200 eligible employees, the Distributor pays
commissions during each one-year measuring period, determined as described
above, at the rate of 1.00% of the first $2 million, 0.80% of the next $1
million, 0.50% of the next $16 million and 0.25% thereafter.
Under certain circumstances, the Distributor may change the reallowance to
dealers and may also compensate dealers out of its own assets. Dealers engaged
in the sale of shares of the Fund may be deemed to be underwriters under the
Securities Act of 1933. The Distributor retains the entire sales charge on all
direct initial investments in the Fund and on all investments in accounts with
no designated dealer of record.
For purposes of determining the applicable sales charge, a "purchaser"
includes an individual, his spouse and their children under the age of 21,
purchasing shares for his or their own account; or a trustee or other fiduciary
purchasing shares for a single fiduciary account although more than one
beneficiary may be involved; or employees of a common employer, provided that
economies of scale are realized through remittances from a single source and
quarterly confirmation of such purchases; or an organized group, provided that
the purchases are made through a central administration, or a single dealer, or
by other means which result in economy of sales effort or expense.
Shares of the Fund are sold on a continuous basis at the public offering
price next determined after receipt of a purchase order by the Trust. Purchase
orders received by dealers prior to 4:00 p.m., Eastern time, on any business day
and transmitted to the Distributor by 5:00 p.m., Eastern time, that day are
confirmed at the public offering price determined as of the close of the regular
session of trading on the New York Stock Exchange on that day. It is the
responsibility of dealers to transmit properly completed orders so that they
will be received by the Distributor by 5:00 p.m., Eastern time. Dealers may
charge a fee for effecting purchase orders. Direct purchase orders received by
4:00 p.m., Eastern time, are confirmed at that day's public offering price.
Direct investments received after 4:00 p.m. and others received from dealers
after 5:00 p.m. are confirmed at the public offering price next determined on
the following business day.
Subsequent Purchases
You may purchase additional shares of the Fund at any time (subject to
minimum investment requirements) through your securities dealer, or directly
from the Fund by mail or wire. If your securities dealer received concessions
for selling shares of the Fund to you, such securities dealer will receive the
concessions described above with respect to additional investments. Each
additional mail purchase request must contain the name of your account and your
account number. Checks should be made payable to the Sparrow Growth Fund and
should be sent to the Transfer Agent, as instructed above. A bank wire should be
sent as outlined above.
<PAGE>
Automatic Investment Plan
You may make regular investments in the Fund with an Automatic Investment
Plan by completing the appropriate section of the account application and
attaching a voided personal check. Investments may be made monthly to allow
dollar-cost averaging by automatically deducting $250 or more from your bank
checking account. You may change the amount of your monthly purchase at any
time.
Purchases Without a Sales Charge
The persons described below may purchase and redeem shares of the Fund
without paying a sales charge. In order to purchase shares without paying a
sales charge, you must notify the Transfer Agent as to which conditions apply.
o Trustees, directors, officers and employees of the Trust, the Adviser and
service providers of the Trust, including members of the immediate family
of such individuals and employee benefit plans of such entities;
o Broker-dealers with selling agreements with the Distributor or otherwise
entitled to be compensated under the Fund's 12b-1 Distribution Plan (and
employees, their immediate family members and employee benefit plans of
such entities);
o Registered representatives (and their immediate family members) of
broker-dealers with selling agreements with the Distributor;
o Tax-qualified plans when proceeds from repayments of loans to participants
are invested (or reinvested) in the Fund;
o Financial planners, registered investment advisers, bank trust departments
and other financial intermediaries with service agreements with the
Distributor (and employees, their immediate family members and employee
benefit plans of such entities);
o Clients (who pay a fee to the relevant administrator or financial
intermediary) of administrators of tax-qualified plans, financial planners,
registered investment advisers, bank trust departments and other financial
intermediaries, provided the administrator or financial intermediary has an
agreement with the Distributor or the Fund for this purpose;
o Clients of the Adviser who were not introduced to the Adviser by a
financial intermediary and, prior to the effective date of the Fund,
executed investment management agreements with the Adviser;
o Separate accounts of insurance companies, provided the insurance company
has an agreement with the Distributor or the Fund for this purpose;
o Participants in wrap account programs, provided the broker-dealer,
registered investment adviser or bank offering the program has an agreement
with the Distributor or the Fund for this purpose.
In addition, shares of the Fund may be purchased at net asset value through
processing organizations (broker-dealers, banks or other financial institutions)
that have a sales agreement or have made special arrangements with the
Distributor. When shares are purchased this way, the processing organization,
rather than its customer, may be the shareholder of record of the shares. The
minimum initial and subsequent investments in the Fund for shareholders who
invest through a processing organization generally will be set by the processing
organization. Processing organizations may also impose other charges and
restrictions in addition to or different from those applicable to investors who
remain the shareholder of record of their shares. Thus, an investor
contemplating investing with the Fund through a processing organization should
read materials provided by the processing organization in conjunction with this
Prospectus.
Right of Accumulation
Any "purchaser" (as defined above) may buy shares of the Fund at a reduced
sales charge by aggregating the dollar amount of the new purchase and the total
net asset value of all shares of the Fund then held by the purchaser and
applying the sales charge applicable to such aggregate. In order to obtain such
discount, the purchaser must provide sufficient information at the time of
purchase to permit verification that the purchase qualifies for the reduced
sales charge. The right of accumulation is subject to modification or
discontinuance at any time with respect to all shares purchased thereafter.
<PAGE>
Letter of Intent
A Letter of Intent for amounts of $50,000 or more provides an opportunity
for an investor to obtain a reduced sales charge by aggregating investments over
a 13 month period, provided that the investor refers to such Letter when placing
orders. For purposes of a Letter of Intent, the "Amount of Investment" as
referred to in the preceding sales charge table includes all purchases of shares
of the Fund over the 13 month period based on the total amount of intended
purchases plus the value of all shares previously purchased and still owned. An
alternative is to compute the 13 month period starting up to 90 days before the
date of execution of a Letter of Intent. Each investment made during the period
receives the reduced sales charge applicable to the total amount of the
investment goal. If the goal is not achieved within the period, the investor
must pay the difference between the sales charges applicable to the purchases
made and the charges previously paid, or an appropriate number of escrowed
shares will be redeemed. Please contact the Transfer Agent to obtain a Letter of
Intent application.
Tax Sheltered Retirement Plans
Since the Fund is oriented to longer term investments, shares of the Fund
may be an appropriate investment medium for tax sheltered retirement plans,
including: individual retirement plans (IRAs); simplified employee pensions
(SEPs); 401(k) plans; qualified corporate pension and profit sharing plans (for
employees); tax deferred investment plans (for employees of public school
systems and certain types of charitable organizations); and other qualified
retirement plans. You should contact Unified Fund Services, Inc. the Transfer
Agent at 888-726-3863 for the procedure to open an IRA or SEP plan, as well as
more specific information regarding these retirement plan options. Consultation
with an attorney or tax adviser regarding these plans is advisable. Custodial
fees for an IRA will be paid by the shareholder by redemption of sufficient
shares of the Fund from the IRA unless the fees are paid directly to the IRA
custodian. You can obtain information about the IRA custodial fees from the
Transfer Agent.
Other Purchase Information
Dividends begin to accrue after you become a shareholder. The Fund does not
issue share certificates. All shares are held in non-certificate form registered
on the books of the Fund and the Fund's Transfer Agent for the account of the
shareholder. The rights to limit the amount of purchases and to refuse to sell
to any person are reserved by the Fund. If your check or wire does not clear,
you will be responsible for any loss incurred by the Fund. If you are already a
shareholder, the Fund can redeem shares from any identically registered account
in the Fund as reimbursement for any loss incurred. You may be prohibited or
restricted from making future purchases in the Fund.
HOW TO REDEEM SHARES
All redemptions will be made at the net asset value determined after the
redemption request has been received by the Transfer Agent in proper order.
Shareholders may receive redemption payments in the form of a check or federal
wire transfer. The proceeds of the redemption may be more or less than the
purchase price of your shares, depending on the market value of the Fund's
securities at the time of your redemption. A broker may charge a transaction fee
for the redemption. Presently, there is no charge for wire redemptions; however,
the Fund reserves the right to charge for this service. Any charges for wire
redemptions will be deducted from the shareholder's Fund account by redemption
of shares.
<PAGE>
By Mail - You may redeem any part of your account in the Fund by mail. Your
request should be addressed to:
Sparrow Growth Fund
c/o Unified Fund Services, Inc.
431 North Pennsylvania Street
Indianapolis, IN 46204-1806
"Proper order" means your request for a redemption must include your letter
of instruction, including the Fund name, account number, account name(s), the
address and the dollar amount or number of shares you wish to redeem. This
request must be signed by all registered share owner(s) in the exact name(s) and
any special capacity in which they are registered. For all redemptions, the Fund
requires that signatures be guaranteed by an "eligible guarantor institution."
Such institutions generally include national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
credit unions and members of a recognized stock exchange. Signature guarantees
are for the protection of shareholders. At the discretion of the Fund or the
Transfer Agent, a shareholder, prior to redemption, may be required to furnish
additional legal documents to insure proper authorization.
By Telephone - You may redeem any part of your account in the Fund by
calling the Transfer Agent at (888) 726-3863. You must first complete the
Optional Telephone Redemption and Exchange section of the investment application
to institute this option. The Fund, the Transfer Agent and the Custodian are not
liable for following redemption or exchange instructions communicated by
telephone that they reasonably believe to be genuine. However, if they do not
employ reasonable procedures to confirm that telephone instructions are genuine,
they may be liable for any losses due to unauthorized or fraudulent
instructions. Procedures employed may include recording telephone instructions
and requiring a form of personal identification from the caller.
The telephone redemption and exchange procedures may be terminated at any
time by the Fund or the Transfer Agent. During periods of extreme market
activity it is possible that shareholders may encounter some difficulty in
telephoning the Fund, although neither the Fund nor the Transfer Agent has ever
experienced difficulties in receiving or in a timely fashion responding to
telephone requests for redemptions or exchanges. If you are unable to reach the
Fund by telephone, you may request a redemption or exchange by mail.
Additional Information - If you are not certain of the requirements for a
redemption please call the Transfer Agent at (888)726-3863. Redemptions
specifying a certain date or share price cannot be accepted and will be
returned. You will be mailed the proceeds on or before the fifth business day
following the redemption. However, payment for redemption made against shares
purchased by check will be made only after the check has cleared, which normally
may take up to fifteen calendar days. Also, when the New York Stock Exchange is
closed (or when trading is restricted) for any reason other than its customary
weekend or holiday closing or under any emergency circumstances, as determined
by the Securities and Exchange Commission, the Fund may suspend redemptions or
postpone payment dates.
Because the Fund incurs certain fixed costs in maintaining shareholder
accounts, the Fund reserves the right to require any shareholder to redeem all
of his or her shares in the Fund on 30 days' written notice if the value of his
or her shares in the Fund is less than $2,500 due to redemption, or such other
minimum amount as the Fund may determine from time to time. An involuntary
redemption constitutes a sale. You should consult your tax adviser concerning
the tax consequences of involuntary redemptions. A shareholder may increase the
value of his or her shares in the Fund to the minimum amount within the 30 day
period. Each share of the Fund is subject to redemption at any time if the Board
of Trustees determines in its sole discretion that failure to so redeem may have
materially adverse consequences to all or any of the shareholders of the Fund.
SHARE PRICE CALCULATION
The value of an individual share in the Fund (the net asset value) is
calculated by dividing the total value of the Fund's investments and other
assets (including accrued income), less any liabilities (including estimated
accrued expenses), by the number of shares outstanding, rounded to the nearest
cent. Net asset value per share is determined as of the close of the New York
Stock Exchange (4:00 p.m., Eastern time) on each day that the exchange is open
for business, and on any other day on which there is sufficient trading in the
Fund's securities to materially affect the net asset value. The net asset value
per share of the Fund will fluctuate.
<PAGE>
Securities which are traded on any exchange or on the NASDAQ
over-the-counter market are valued at the last quoted sale price. Lacking a last
sale price, a security is valued at its last bid price except when, in the
Adviser's opinion, the last bid price does not accurately reflect the current
value of the security. All other securities for which over-the-counter market
quotations are readily available are valued at their last bid price. When market
quotations are not readily available, when the Adviser determines the last bid
price does not accurately reflect the current value or when restricted
securities are being valued, such securities are valued as determined in good
faith by the Adviser, subject to review of the Board of Trustees of the Trust.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service when the
Adviser believes such prices accurately reflect the fair market value of such
securities. A pricing service utilizes electronic data processing techniques
based on yield spreads relating to securities with similar characteristics to
determine prices for normal institutional-size trading units of debt securities
without regard to sale or bid prices. When prices are not readily available from
a pricing service, or when restricted or illiquid securities are being valued,
securities are valued at fair value as determined in good faith by the Adviser,
subject to review of the Board of Trustees. Short term investments in fixed
income securities with maturities of less than 60 days when acquired, or which
subsequently are within 60 days of maturity, are valued by using the amortized
cost method of valuation, which the Board has determined will represent fair
value.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment
income as dividends to its shareholders on an annual basis, and intends to
distribute its net long term capital gains and its net short term capital gains
at least once a year.
Income dividends and capital gain distributions are automatically
reinvested in additional shares at the net asset value per share on the
distribution date. An election to receive a cash payment of dividends and/or
capital gain distributions may be made in the application to purchase shares or
by separate written notice to the Transfer Agent. Shareholders will receive a
confirmation statement reflecting the payment and reinvestment of dividends and
summarizing all other transactions. If cash payment is requested, a check
normally will be mailed within five business days after the payable date. If you
withdraw your entire account, all dividends accrued to the time of withdrawal,
including the day of withdrawal, will be paid at that time. You may elect to
have distributions on shares held in IRAs and 403(b) plans paid in cash only if
you are 59 1/2 years old or permanently and totally disabled or if you otherwise
qualify under the applicable plan.
TAXES
The Fund intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended. By so qualifying,
the Fund will not be subject to federal income taxes to the extent that it
distributes substantially all of its net investment income and any realized
capital gains.
For federal income tax purposes, dividends paid by the Fund from
ordinary income are taxable to shareholders as ordinary income, but may be
eligible in part for the dividends received deduction for corporations. Pursuant
to the Tax Reform Act of 1986 (the "Tax Reform Act"), all distributions of net
short term capital gains to individuals are taxed at the same rate as ordinary
income. All distributions of net capital gains to corporations are taxed at
regular corporate rates. Any distributions designated as being made from net
realized long term capital gains are taxable to shareholders as long term
capital gains regardless of the holding period of the shareholder.
The Fund will mail to each shareholder after the close of the calendar
year a statement setting forth the federal income tax status of distributions
made during the year. Dividends and capital gains distributions may also be
subject to state and local taxes. Shareholders are urged to consult their own
tax advisers regarding specific questions as to federal, state or local taxes
and the tax effect of distributions and withdrawals from the Fund.
<PAGE>
On the application or other appropriate form, the Fund will request the
shareholder's certified taxpayer identification number (social security number
for individuals) and a certification that the shareholder is not subject to
backup withholding. Unless the shareholder provides this information, the Fund
will be required to withhold and remit to the U.S. Treasury 31% of the
dividends, distributions and redemption proceeds payable to the shareholder.
Shareholders should be aware that, under regulations promulgated by the Internal
Revenue Service, the Fund may be fined $50 annually for each account for which a
certified taxpayer identification number is not provided. In the event that such
a fine is imposed with respect to a specific account in any year, the Fund may
make a corresponding charge against the account.
OPERATION OF THE FUND
The Fund is a diversified series of Sparrow Funds, an open-end
management investment company organized as an Ohio business trust on July 14,
1998. The Board of Trustees supervises the business activities of the Fund. Like
other mutual funds, the Fund retains various organizations to perform
specialized services.
The Fund retains Sparrow Capital Management Incorporated, 225 South Meramec
Avenue, Suite 732 Tower, St. Louis, Missouri 63105 (the "Adviser") to manage the
Fund's investments. The Adviser is an independent investment counselor and
registered investment adviser which, together with its affiliated minority owned
investment management firm, Buford, Dickson, Harper & Sparrow Inc., has over $60
million of core momentum growth stock assets under management. Clients primarily
include high net worth individuals and families, but also include a number of
institutional clients such as pension funds. The firm was founded in 1988 and is
100% owned by the President and founder, Gerald R. Sparrow. The sole investment
focus of the firm is "core momentum growth stocks" (as defined in "Investment
Objective and Stsrategies and Risk Considerations"). The investment decisions of
the Fund are made by the Adviser's investment committee, which is primarily
responsible for the day-to-day management of the Fund's portfolio.
The Fund is authorized to pay the Adviser a fee equal to an annual
average rate of 2.50% of its average daily net assets. The Adviser pays all of
the operating expenses of the Fund except brokerage, taxes, interest, fees and
expenses on non-interested person trustees and extraordinary expenses. It should
be noted that most investment companies pay their own operating expenses
directly, while the Fund's expenses, except those specified above, are paid by
the Adviser.
The Fund retains Unified Fund Services, Inc., 431 North Pennsylvania
Street, Indianapolis, Indiana 46204 (the "Administrator") to manage the Fund's
business affairs and provide the Fund with fund accounting and administrative
services, including all regulatory reporting and necessary office equipment,
personnel and facilities. The Fund also retains Unified Fund Services, Inc. (the
"Transfer Agent") to serve as transfer agent, dividend paying agent and
shareholder service agent. For its services as Administrator, Unified Fund
Services, Inc. receives a monthly fee from the Adviser equal to an annual
average rate of 0.10% of the Fund's average daily net assets, subject to an
annual minimum fee of $18,000. The Fund retains Unified Management Corporation,
431 North Pennsylvania Street, Indianapolis, Indiana 46204 (the "Distributor")
to act as the principal distributor of the Fund's shares. The services of the
Administrator, Transfer Agent and Distributor are operating expenses paid by the
Adviser.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., and subject to its obligation of seeking best
qualitative execution, the Adviser may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions.
<PAGE>
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan") under which the Fund is authorized
to incur distribution expenses at a maximum annual rate of 0.50% of the average
daily net assets of the Fund. The Board of Trustees has currently authorized an
annual rate of 0.25%. All distribution expenses incurred by the Fund are paid by
the Adviser pursuant to the Management Agreement between the Fund and Adviser.
The expenses may include, but are not limited to, the following: (a) payments to
securities dealers and others that are engaged in the sale of Shares, that may
be advising shareholders of the Trust regarding the purchase of Fund shares,
that hold shares of the Fund in omnibus accounts or as shareholders of record,
or provide shareholder support or administrative services: (b) costs of
preparing, printing and distributing prospectuses and statements of additional
information and reports of the Fund for recipients other than existing
shareholders of the Fund: (c) costs of formulating and implementing marketing
and promotional activiities; (d) costs of preparing, printing and distributing
sales literature; and (e) costs of implementing and operating the Distribution
Plan. The Plan is designed to promote the sale of shares of the Fund.
GENERAL INFORMATION
Fundamental Policies. The investment limitations set forth in the
Statement of Additional Information as fundamental policies may not be changed
without the affirmative vote of the majority of the outstanding shares of the
Fund. The investment objective of the Fund may be changed without the
affirmative vote of a majority of the outstanding shares of the Fund. Any such
change may result in the Fund having an investment objective different from the
objective which the shareholders considered appropriate at the time of
investment in the Fund.
Fund Turnover. The Fund does not intend to purchase or sell securities
for short term trading purposes. However, if the objective the Fund would be
better served, short-term profits or losses may be realized from time to time.
It is anticipated that portfolio turnover will not exceed 200%. The brokerage
commissions incurred by the Fund will generally be higher than those incurred by
a fund with a lower portfolio turnover rate. The Fund does not anticipate any
adverse tax consequences as a result of its portfolio turnover rate, although
substantial net capital gains could be realized, and any distributions derived
from such gains may be ordinary income for federal tax purposes. Actual holding
period will vary by type of security and market conditions.
Shareholder Rights. Any Trustee of the Trust may be removed by vote of the
shareholders holding not less than two-thirds of the outstanding shares of the
Trust. The Trust does not hold an annual meeting of shareholders. When matters
are submitted to shareholders for a vote, each shareholder is entitled to one
vote for each whole share he owns and fractional votes for fractional shares he
owns. All shares of the Fund have equal voting rights and liquidation rights.
The Declaration of Trust can be amended by the Trustees, except that any
amendment that adversely effects the rights of shareholders must be approved by
the shareholders affected. Prior to the offering made by this Prospectus, Gerald
R. Sparrow purchased for investment all of the outstanding shares of the Fund
and as a result may be deemed to control the Fund.
PERFORMANCE INFORMATION
The Fund may periodically advertise "average annual total return." The
"average annual total return" of the Fund refers to the average annual
compounded rate of return over the stated period that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment. The calculation of "average annual total return"
assumes the reinvestment of all dividends and distributions and the deduction of
the current maximum sales charge from the initial investment.
<PAGE>
The Fund may also advertise performance information (a
"non-standardized quotation") which is calculated differently from "average
annual total return." A non-standardized quotation of total return may be a
cumulative return which measures the percentage change in the value of an
account between the beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains distributions. A
non-standardized quotation may also be an average annual compounded rate of
return over a specified period, which may be a period different
from those specified for "average annual total return." In addition, a
non-standardized quotation may be an indication of the value of a $10,000
investment (made on the date of the initial public offering of the Fund's
shares) as of the end of a specified period. These non-standardized quotations
do not include the effect of the applicable sales charge which, if included,
would reduce the quoted performance. A non-standardized quotation will always be
accompanied by the Fund's "average annual total return" as described above.
The Fund may also include in advertisements data comparing performance
with other mutual funds as reported in non-related investment media, published
editorial comments and performance rankings compiled by independent
organizations and publications that monitor the performance of mutual funds
(such as Lipper Analytical Services, Inc., Morningstar, Inc., Fortune or
Barron's). Performance information may be quoted numerically or may be presented
in a table, graph or other illustration. In addition, Fund performance may be
compared to well-known indices of market performance including the Standard &
Poor's (S&P) 500 Index or the Dow Jones Industrial Average.
The advertised performance data of the Fund is based on historical
performance and is not intended to indicate future performance. Rates of total
return quoted by the Fund may be higher or lower than past quotations, and there
can be no assurance that any rate of total return will be maintained. The
principal value of an investment in the Fund will fluctuate so that a
shareholder's shares, when redeemed, may be worth more or less than the
shareholder's original investment.
<TABLE>
<S> <C>
Investment Adviser Transfer Agent and Administrator
Sparrow Capital Management Incorporated (all purchases and redemptions)
225 South Meramec Avenue Unified Fund Services, Inc.
Suite 732 Tower 431 North Pennsylvania Street
St. Louis, Missouri 63105 Indianapolis, IN 46204-1806
Custodian Auditors
Star Bank, N.A. McCurdy & Associates CPA's, Inc.
312 Walnut Street 27955 Clemens Road
Cincinnati, Ohio 45202 Westlake, Ohio 44145
Legal Counsel Distributor
Brown, Cummins & Brown Co., L.P.A. Unified Management Corporation
3500 Carew Tower, 441 Vine Street 431 N. Pennsylvania Street
Cincinnati, Ohio 45202 Indianapolis, Indiana 46204-1806
</TABLE>
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offering contained in this Prospectus, and if given or made, such
information or representations must not be relied upon as being authorized by
the Fund. This Prospectus does not constitute an offer by the Fund to sell its
shares in any state to any person to whom it is unlawful to make such offer in
such state.
<PAGE>
TABLE OF CONTENTS PAGE
SUMMARY OF FUND EXPENSES.................................................... 2
Shareholder Transaction Expenses................................... 2
Annual Fund Operating Expenses..................................... 2
THE FUND ................................................................... 3
INVESTMENT OBJECTIVE AND STRATEGIES AND RISK CONSIDERATIONS................. 3
HOW TO INVEST IN THE FUND................................................... 5
Initial Purchase................................................... 5
Sales Charge....................................................... 5
Subsequent Purchases............................................... 7
Automatic Investment Plan.......................................... 7
Purchases Without a Sales Charge................................... 7
Right of Accumulation.............................................. 8
Letter of Intent................................................... 8
Tax Sheltered Retirement Plans..................................... 9
Other Purchase Information......................................... 9
HOW TO REDEEM SHARES........................................................ 9
By Mail .......................................................... 9
By Telephone....................................................... 10
Additional Information............................................. 10
SHARE PRICE CALCULATION..................................................... 11
DIVIDENDS AND DISTRIBUTIONS................................................. 11
TAXES ................................................................... 12
OPERATION OF THE FUND....................................................... 12
DISTRIBUTION PLAN........................................................... 13
GENERAL INFORMATION......................................................... 14
Fundamental Policies............................................... 14
Fund Turnover...................................................... 14
Shareholder Rights................................................. 14
PERFORMANCE INFORMATION..................................................... 14
<PAGE>
SPARROW GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1998
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectus of Sparrow Growth Fund dated October
1, 1998. A copy of the Prospectus can be obtained by writing the Transfer Agent
at P.O. Box 6110, Indianapolis, Indiana 46206-6110, or by calling 1-888-SCM-FUND
(888-726-3863).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
DESCRIPTION OF THE TRUST..................................................... 1
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS...................................................... 1
CONTINGENT DEFERRED SALES CHARGES............................................ 2
INVESTMENT LIMITATIONS....................................................... 2
THE INVESTMENT ADVISER....................................................... 4
TRUSTEES AND OFFICERS........................................................ 4
PORTFOLIO TRANSACTIONS AND BROKERAGE......................................... 5
DETERMINATION OF SHARE PRICE................................................. 6
INVESTMENT PERFORMANCE....................................................... 7
CUSTODIAN.................................................................... 8
TRANSFER AGENT............................................................... 8
ACCOUNTANTS.................................................................. 8
DISTRIBUTOR.................................................................. 8
<PAGE>
DESCRIPTION OF THE TRUST
Sparrow Growth Fund (the "Fund") was organized as a series of Sparrow
Funds (the "Trust"). The Trust is an open-end investment company established
under the laws of Ohio by an Agreement and Declaration of Trust dated July 14,
1998 (the "Trust Agreement"). The Trust Agreement permits the Trustees to issue
an unlimited number of shares of beneficial interest of separate series without
par value. The Fund is the only series currently authorized by the Trustees.
Each share of a series represents an equal proportionate interest in
the assets and liabilities belonging to that series with each other share of
that series and is entitled to such dividends and distributions out of income
belonging to the series as are declared by the Trustees. The shares do not have
cumulative voting rights or any preemptive or conversion rights, and the
Trustees have the authority from time to time to divide or combine the shares of
any series into a greater or lesser number of shares of that series so long as
the proportionate beneficial interest in the assets belonging to that series and
the rights of shares of any other series are in no way affected. In case of any
liquidation of a series, the holders of shares of the series being liquidated
will be entitled to receive as a class a distribution out of the assets, net of
the liabilities, belonging to that series. Expenses attributable to any series
are borne by that series. Any general expenses of the Trust not readily
identifiable as belonging to a particular series are allocated by or under the
direction of the Trustees in such manner as the Trustees determine to be fair
and equitable. No shareholder is liable to further calls or to assessment by the
Trust without his or her express consent.
Upon sixty days prior written notice to shareholders, the Fund may make
redemption payments in whole or in part in securities or other property if the
Trustees determine that existing conditions make cash payments undesirable. For
other information concerning the purchase and redemption of shares of the Fund,
see "How to Invest in the Fund" and "How to Redeem Shares" in the Fund's
Prospectus. For a description of the methods used to determine the share price
and value of the Fund's assets, see "Share Price Calculation" in the Fund's
Prospectus.
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS AND RISK
CONSIDERATIONS
This section contains a more detailed discussion of some of the
investments the Fund may make and some of the techniques it may use, as
described in the Prospectus (see "Investment Objective and Strategies and Risk
Considerations").
Repurchase Agreements. A repurchase agreement is a short-term
- ------------------------
investment in which the purchaser (i.e., the Fund) acquires ownership of a U.S.
Government obligation (which may be of any maturity) and the seller agrees to
repurchase the obligation at a future time at a set price, thereby determining
the yield during the purchaser's holding period (usually not more than seven
days from the date of purchase). Any repurchase transaction in which the Fund
engages will require full collateralization of the seller's obligation during
the entire term of the repurchase agreement. In the event of a bankruptcy or
other default of the seller, the Fund could experience both delays in
liquidating the underlying security and losses in value. However, the Fund
intends to enter into repurchase agreements only with the Custodian, other banks
with assets of $1 billion or more and registered securities dealers determined
by the Adviser (subject to review by the Board of Trustees) to be creditworthy.
The Adviser monitors the creditworthiness of the banks and securities dealers
with which the Fund engages in repurchase transactions.
<PAGE>
CONTINGENT DEFERRED SALES CHARGES
A contingent deferred sales charge ("CDSC") of 1.00%, based on the
lower of the shares' cost and current net asset value, will be imposed on
purchases of $1 million or more, or purchases by qualified retirement plans with
at least 200 eligible employees, if the shares are redeemed within eighteen
months of purchase. No CDSC is imposed on shares of any class subject to a CDSC
("CDSC Shares") to the extent that the CDSC Shares redeemed (i) are no longer
subject to the holding period therefor, or (ii) resulted from reinvestment of a
distribution on CDSC Shares. In determining whether the CDSC applied to each
redemption of CDSC Shares, CDSC Shares not subject to a CDSC are redeemed first.
The Fund will waive any CDSC on redemptions, (a) in the case of
individual, joint or Uniform Transfers to Minors Act accounts, in the event of
death or post-purchase disability of a shareholder, (b) for the purpose of
paying benefits pursuant to tax-qualified retirement plans ("Benefit Payments"),
or, (c) in the case of living trust accounts, in the event of death or
post-purchase disability of the settlor of the trust. Benefit payments currently
include, without limitaion, (1) distributions from an IRA due to death or
disability, (2) a return of excess contributions to an IRA or 401(k) plan, and
(3) distributions from retirements plans qualified under Section 401(a) of the
Code or from a 403(b) plan due to death, disability, retirement or separation
from service. These waivers may be changed at any time.
INVESTMENT LIMITATIONS
Fundamental. The investment limitations described below have been
------------
adopted by the Trust with respect to the Fund and are fundamental
("Fundamental"), i.e., they may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. As used in the Prospectus and
this Statement of Additional Information, the term "majority" of the outstanding
shares of the Fund means the lesser of (1) 67% or more of the outstanding shares
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented at such meeting; or
(2) more than 50% of the outstanding shares of the Fund. Other investment
practices which may be changed by the Board of Trustees without the approval of
shareholders to the extent permitted by applicable law, regulation or regulatory
policy are considered non-fundamental ("Non- Fundamental").
1. Borrowing Money. The Fund will not borrow money, except (a) from a
-------------------
bank, provided that immediately after such borrowing there is an asset coverage
of 300% for all borrowings of the Fund; or (b) from a bank or other persons for
temporary purposes only, provided that such temporary borrowings are in an
amount not exceeding 5% of the Fund's total assets at the time when the
borrowing is made. This limitation does not preclude the Fund from entering into
reverse repurchase transactions, provided that the Fund has an asset coverage of
300% for all borrowings and repurchase commitments of the Fund pursuant to
reverse repurchase transactions.
2. Senior Securities. The Fund will not issue senior securities. This
---------------------
limitation is not applicable to activities that may be deemed to involve the
issuance or sale of a senior security by the Fund, provided that the Fund's
engagement in such activities is consistent with or permitted by the Investment
Company Act of 1940, as amended, the rules and regulations promulgated
thereunder or interpretations of the Securities and Exchange Commission or its
staff.
<PAGE>
3. Underwriting. The Fund will not act as underwriter of securities
-------------
issued by other persons. This limitation is not applicable to the extent that,
in connection with the disposition of portfolio securities (including restricted
securities), the Fund may be deemed an underwriter under certain federal
securities laws.
4. Real Estate. The Fund will not purchase or sell real estate. This
---------------
limitation is not applicable to investments in marketable securities which are
secured by or represent interests in real estate. This limitation does not
preclude the Fund from investing in mortgage-related securities or investing in
companies engaged in the real estate business or that have a significant portion
of their assets in real estate (including real estate investment trusts).
5. Commodities. The Fund will not purchase or sell commodities unless
------------
acquired as a result of ownership of securities or other investments. This
limitation does not preclude the Fund from purchasing or selling options or
futures contracts, from investing in securities or other instruments backed by
commodities or from investing in companies which are engaged in a commodities
business or have a significant portion of their assets in commodities.
6. Loans. The Fund will not make loans to other persons, except (a) by
------
loaning portfolio securities, (b) by engaging in repurchase agreements, or (c)
by purchasing nonpublicly offered debt securities. For purposes of this
limitation, the term "loans" shall not include the purchase of a portion of an
issue of publicly distributed bonds, debentures or other securities.
7. Concentration. The Fund will not invest 25% or more of its total
--------------
assets in any particular industry. This limitation is not applicable to
investments in obligations issued or guaranteed by the U.S. government, its
agencies and instrumentalities or repurchase agreements with respect thereto.
With respect to the percentages adopted by the Trust as maximum
limitations on its investment policies and limitations, an excess above the
fixed percentage will not be a violation of the policy or limitation unless the
excess results immediately and directly from the acquisition of any security or
the action taken. This paragraph does not apply to the borrowing policy set
forth in paragraph 1 above.
Notwithstanding any of the foregoing limitations, any investment
company, whether organized as a trust, association or corporation, or a personal
holding company, may be merged or consolidated with or acquired by the Trust,
provided that if such merger, consolidation or acquisition results in an
investment in the securities of any issuer prohibited by said paragraphs, the
Trust shall, within ninety days after the consummation of such merger,
consolidation or acquisition, dispose of all of the securities of such issuer so
acquired or such portion thereof as shall bring the total investment therein
within the limitations imposed by said paragraphs above as of the date of
consummation.
Non-Fundamental. The following limitations have been adopted by the Trust
----------------
with respect to the Fund and are Non-Fundamental (see "Investment Restrictions"
above).
1. Pledging. The Fund will not mortgage, pledge, hypothecate or in any
---------
manner transfer, as security for indebtedness, any assets of the Fund except as
may be necessary in connection with borrowings described in limitation (1)
above. Margin deposits, security interests, liens and collateral arrangements
with respect to transactions involving options, futures contracts, short sales
and other permitted investments and techniques are not deemed to be a mortgage,
pledge or hypothecation of assets for purposes of this limitation.
2. Borrowing. The Fund will not engage in borrowing.
----------
<PAGE>
3. Margin Purchases. The Fund will not purchase securities or evidences
------------------
of interest thereon on "margin." This limitation is not applicable to short term
credit obtained by the Fund for the clearance of purchases and sales or
redemption of securities, or to arrangements with respect to transactions
involving options, futures contracts, short sales and other permitted
investments and techniques.
4. Options. The Fund will not purchase or sell puts, calls, options or
---------
straddles.
5. Loans. The Fund will not loan its portfolio securities.
------
6. Reverse Repurchase Agreements. The Fund will not enter into reverse
------------------------------
repurchase agreements.
THE INVESTMENT ADVISER
The Fund's investment adviser is Sparrow Capital Management
Incorporated (the "Adviser"). Under the terms of the management agreement (the
"Agreement"), the Adviser manages the Fund's investments subject to approval of
the Board of Trustees and pays all of the expenses of the Fund except brokerage,
taxes, interest, fees and expenses of the non-interested person trustees and
extraordinary expenses. As compensation for its management services and
agreement to pay the Fund's expenses, the Fund is obligated to pay the Adviser a
fee computed and accrued daily and paid monthly at an annual rate of 2.50% of
the average daily net assets of the Fund. The Adviser may waive all or part of
its fee, at any time, and at its sole discretion, but such action shall not
obligate the Adviser to waive any fees in the future.
The Adviser retains the right to use the name "Sparrow" in connection
with another investment company or business enterprise with which the Adviser is
or may become associated. The Trust's right to use the name "Sparrow"
automatically ceases ninety days after termination of the Agreement and may be
withdrawn by the Adviser on ninety days written notice.
The Adviser may make payments to banks or other financial institutions
that provide shareholder services and administer shareholder accounts. The
Glass-Steagall Act prohibits banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope of this
prohibition under the Glass-Steagall Act has not been clearly defined by the
courts or appropriate regulatory agencies, management of the Fund believes that
the Glass-Steagall Act should not preclude a bank from providing such services.
However, state securities laws on this issue may differ from the interpretations
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law. If a bank were prohibited
from continuing to perform all or a part of such services, management of the
Fund believes that there would be no material impact on the Fund or its
shareholders. Banks may charge their customers fees for offering these services
to the extent permitted by applicable regulatory authorities, and the overall
return to those shareholders availing themselves of the bank services will be
lower than to those shareholders who do not. The Fund may from time to time
purchase securities issued by banks which provide such services; however, in
selecting investments for the Fund, no preference will be shown for such
securities.
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust are shown
below. Each Trustee who is an "interested person" of the Trust, as defined in
the Investment Company Act of 1940, is indicated by an asterisk.
<PAGE>
<TABLE>
<S> <C> <C>
Name, Age Position Principal Occupations
and Address During Past 5 Years
Gerald R. Sparrow* Trustee, President Director, President and Treasurer of Sparrow Capital
Age: 39 and Treasurer Management Incorporated; President of Buford Dickson Harper
225 S. Meramec Avenue, #732 Sparrow, an advisory company; General partner of Sparrow
St. Louis, MO 63105 Fund L.P., an advisory company.
Alex Ramos* Trustee and Analyst for Sparrow Capital Management Incorporated from
Age: 24 Secretary August 1997 through present.
225 S. Meramec Avenue, #732
St. Louis, MO 63105
Dawn Michele Jones* Trustee Vice President of Sales & Marketing for Sparrow Capital
Age: 36 Management Incorporated; Project Manager for American
225 S. Meramec Avenue, #732 Express, an incentive service company, from June 10, 1998 to
St. Louis, MO 63105 July 10, 1998; Sales executive for Bridge Information Systems,
a financial software company, from April of 1995 through
December, 1997; Consultant for Systems Service Enterprise, a
consulting company, from June, 1993 through June, 1994.
Herschel W. Townsend Trustee Pharmacist for Schnucks, a grocery/pharmacy, from January,
Age: 58 1991 through present.
1589 Sierra Vista Plaza
St. Louis, MO 63138
Donald D. Woodruff Trustee President of Robinson, Inc. a retail (sales of hearing aids)
Age: 42 company from June, 1992 through present.
2526 Woodson Road
St. Louis, MO 63114
</TABLE>
Trustee fees are Trust expenses. The following table estimates the
Trustees' compensation for the first full year of the Trust ending August 31,
1999.
<PAGE>
Total Compensation
from Trust (the Trust is
Name not in a Fund Complex)
Gerald R. Sparrow 0
Alex Ramos 0
Dawn Michele Jones 0
Herschel W. Townsend 0
Donald D. Woodruff 0
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of the Trust,
the Adviser is responsible for the Fund's portfolio decisions and the placing of
the Fund's portfolio transactions. In placing portfolio transactions, the
Adviser seeks the best qualitative execution for the Fund, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer. The Adviser generally seeks favorable prices and commission
rates that are reasonable in relation to the benefits received.
The Adviser is specifically authorized to select brokers or dealers who
also provide brokerage and research services to the Fund and/or the other
accounts over which the Adviser exercises investment discretion and to pay such
brokers or dealers a commission in excess of the commission another broker or
dealer would charge if the Adviser determines in good faith that the commission
is reasonable in relation to the value of the brokerage and research services
provided. The determination may be viewed in terms of a particular transaction
or the Adviser's overall responsibilities with respect to the Trust and to other
accounts over which it exercises investment discretion.
Research services include supplemental research, securities and
economic analyses, statistical services and information with respect to the
availability of securities or purchasers or sellers of securities and analyses
of reports concerning performance of accounts. The research services and other
information furnished by brokers through whom the Fund effects securities
transactions may also be used by the Adviser in servicing all of its accounts.
Similarly, research and information provided by brokers or dealers serving other
clients may be useful to the Adviser in connection with its services to the
Fund. Although research services and other information are useful to the Fund
and the Adviser, it is not possible to place a dollar value on the research and
other information received. It is the opinion of the Board of Trustees and the
Adviser that the review and study of the research and other information will not
reduce the overall cost to the Adviser of performing its duties to the Fund
under the Agreement.
Over-the-counter transactions will be placed either directly with
principal market makers or with broker-dealers, if the same or a better price,
including commissions and executions, is available. Fixed income securities are
normally purchased directly from the issuer, an underwriter or a market maker.
To the extent that the Trust and another of the Adviser's clients seek
to acquire the same security at about the same time, the Trust may not be able
to acquire as large a position in such security as it desires or it may have to
pay a higher price for the security. Similarly, the Trust may not be able to
obtain as large an execution of an order to sell or as high a price for any
particular portfolio security if the other client desires to sell the same
portfolio security at the same time. On the other hand, if the same securities
are bought or sold at the same time by more than one client, the resulting
participation in volume transactions could produce better executions for
the Trust. In the event that more than one client wants to purchase or sell the
same security on a given date, the purchases and sales will normally be made by
random client selection.
<PAGE>
DETERMINATION OF SHARE PRICE
The price (net asset value) of the shares of the Fund is determined as
of 4:00 p.m., Eastern time on each day the Trust is open for business and on any
other day on which there is sufficient trading in the Fund's securities to
materially affect the net asset value. The Trust is open for business on every
day except Saturdays, Sundays and the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. For a description of the methods
used to determine the net asset value (share price), see "Share Price
Calculation" in the Prospectus.
The Fund's Prospectus, in the section "How to Invest in the Fund,"
describes certain types of investors for whom sales charges will be waived. The
Trustees have determined that the Fund incurs no appreciable distribution
expenses in connection with sales to these investors and that it is therefore
appropriate to waive sales charges for these investors.
INVESTMENT PERFORMANCE
"Average annual total return," as defined by the Securities and
Exchange Commission, is computed by finding the average annual compounded rates
of return (over the one, five and ten year periods) that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n=ERV
Where: P = a hypothetical $1,000 initial investment
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
applicable period of the hypothetical $1,000
investment made at the beginning of the
applicable period.
The computation assumes that all dividends and distributions are reinvested at
the net asset value on the reinvestment dates, that the maximum sales load is
deducted from the initial $1,000 and that a complete redemption occurs at the
end of the applicable period. If the Fund has been in existence less than one,
five or ten years, the time period since the date of the initial public offering
of shares will be substituted for the periods stated.
The Fund may also advertise performance information (a
"non-standardized quotation") which is calculated differently from average
annual total return. A non-standardized quotation of total return may be a
cumulative return which measures the percentage change in the value of an
account between the beginning and end of a period, assuming no activity in the
account other than reinvestment of dividends and capital gains distributions. A
non-standardized quotation may also be an average annual compounded rate of
return over a specified period, which may be a period different from those
specified for average annual total return. In addition, a non-standardized
quotation may be an indication of the value of a $10,000 investment (made on the
date of the initial public offering of the Fund's shares) as of the end of a
specified period. These non-standardized quotations do not include the effect of
the applicable sales load which, if included, would reduce the quoted
performance. A non-standardized quotation of total return will always be
accompanied by the Fund's average annual total return as described above.
The Fund's investment performance will vary depending upon market
conditions, the composition of the Fund's portfolio and operating expenses of
the Fund. These factors and possible differences in the methods and time periods
used in calculating non-standardized investment performance should be considered
when comparing the Fund's performance to those of other investment companies or
investment vehicles. The risks associated with the Fund's investment objective,
policies and techniques should also be considered. At any time in the future,
investment performance may be higher or lower than past performance, and there
can be no assurance that any performance will continue.
From time to time, in advertisements, sales literature and information
furnished to present or to prospective shareholders, the performance of the Fund
may be compared to indices of broad groups of unmanaged securities considered to
be representative of or similar to the portfolio holdings of the Fund or
considered to be representative of the stock market in general. The Fund may use
the Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average.
<PAGE>
In addition, the performance of the Fund may be compared to other
groups of mutual funds tracked by any widely used independent research firm
which ranks mutual funds by overall performance, investment objectives and
assets, such as Lipper Analytical Services, Inc. or Morningstar, Inc. The
objectives, policies, limitations and expenses of other mutual funds in a group
may not be the same as those of the Fund. Performance rankings and ratings
reported periodically in national financial publications such as Barron's and
Fortune also may be used.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, is
Custodian of the Fund's investments. The Custodian acts as the Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds at the Fund's request and
maintains records in connection with its duties.
TRANSFER AGENT
Unified Fund Services, Inc., 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, acts as the Fund's transfer agent and, in such
capacity, maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Fund's shares, acts as dividend and distribution disbursing
agent and performs other accounting and shareholder service functions. In
addition, Unified Fund Services, Inc., in its capacity as Fund Administrator,
provides the Fund with certain monthly reports, record-keeping and other
management- related services. For a description of the fees paid by the Adviser
on behalf of the Fund for these administrative services, see "Operation of the
Fund" in the Fund's Prospectus.
ACCOUNTANTS
The firm of McCurdy & Associates CPA's, 27955 Clemens Road, Westlake,
Ohio 44145, has been selected as independent public accountants for the Trust
for the fiscal year ending August 31, 1999. McCurdy & Associates performs an
annual audit of the Fund's financial statements and provides financial, tax and
accounting consulting services as requested.
DISTRIBUTOR
Unified Management Corporation, Inc., 431 North Pennsylvania Street,
Indianapolis, Indiana 46204, is the exclusive agent for distribution of shares
of the Fund. The Distributor is obligated to sell shares of the Fund on a best
efforts basis only against purchase orders for the shares. Shares of the Fund
are offered to the public on a continuous basis.
<PAGE>
FINANCIAL STATEMENTS
SPARROW FUNDS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 16, 1998
Sparrow
Growth Fund
ASSETS:
Cash in Bank $100,000
Total Assets $100,000
LIABILITIES: $ 0
Total Liabilities $ 0
NET ASSETS $100,000
NET ASSETS CONSIST OF:
Capital Paid In $100,000
OUTSTANDING SHARES
Unlimited Number of Shares
Authorized Without Par Value 10,000
NET ASSET VALUE PER SHARE $10
OFFERING PRICE PER SHARE $10
See Accountants' Audit Report
<PAGE>
SPARROW FUNDS
NOTES TO FINANCIAL STATEMENTS
September 16, 1998
1. ORGANIZATION
Sparrow Funds (the "Trust") is an open-end management invest- ment company
organized as a business trust under the laws of the State of Ohio by a
Declaration of Trust dated July 14, 1998. The Declaration of Trust provides
for an unlimited number of authorized shares of beneficial interest without
par value, which may, without shareholder approval, be divided into an
unlimited number of series of such shares, and which presently consist of
one series of shares for the Sparrow Growth Fund (the "Fund").
The Fund uses an independent custodian and transfer agent. No transactions
other than those relating to organizational matters and the sale of 10,000
Shares of the Sparrow Growth Fund have taken place to date.
2. RELATED PARTY TRANSACTIONS
As of September 16, 1998, all of the outstanding shares of the Fund were
owned by Gerald R. Sparrow. A shareholder who beneficially owns, directly
or indirectly, more than 25% of the Fund's voting securities may be deemed
a "control person" (as defined in the 1940 Act) of the Fund. Gerald R.
Sparrow is the President of the Fund.
Sparrow Capital Management Incorporated, the Fund's investment adviser, is
registered as an investment adviser under the Investment Advisers Act of
1940. Sparrow Capital Management Incorporated is owned by Gerald R.
Sparrow.
As compensation for Sparrow Capital Management Incorporated's services
rendered to the Fund, such Fund pays a fee equal to an annual average rate
of 2.50% of its average daily net assets. The adviser pays all of the
operating expenses of the Fund except brokerage fees and commissions,
taxes, interest, fees and expenses on non-interested person trustees and
extraordinary or non-recurring expenses. It should be noted that most
investment companies pay their own operating expenses directly, while the
Fund's expenses, except those specified above, are paid by the Adviser.
3. CAPITAL STOCK AND DISTRIBUTION
At September 16, 1998, an unlimited number of shares were authorized and
paid in capital amounted to $100,000 for the Sparrow Growth Fund.
Transactions in capital stock were as follows:
Shares Sold:
Sparrow Growth Fund 10,000
Shares Redeemed:
Sparrow Growth Fund 0
Net Increase:
Sparrow Growth Fund 10,000
Shares Outstanding:
Sparrow Growth Fund 10,000
<PAGE>
To The Shareholders and Trustees
Sparrow Funds:
We have audited the accompanying statement of assets and liabilities of the
Sparrow Funds (comprised of the Sparrow Growth Fund) as of September 16, 1998.
This financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of September 16, 1998, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the Sparrow
Growth Fund as of September 16, 1998, in conformity with generally accepted
accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
September 16, 1998
<PAGE>
Sparrow Funds
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
(a) Financial Statements
Included in Part A: None
Included in Part B: Statement of Assets and Liabilities as
of September 16, 1998 and Report of Independent Public
Accountants for the Sparrow Growth Fund.
(b) Exhibits
(1) Copy of Registrant's Agreement and Declaration of
Trust, which was filed as an Exhibit to Registrant's
Registration Statement, is hereby incorporated by
reference.
(2) Copy of Registrant's By-Laws, which was filed as an
Exhibit to Registrant's Registration Statement, is
hereby incorporated by refereces.
(3) Voting Trust Agreements - None.
(4) Specimen of Share Certificates - None.
(5) Copy of Registrant's Management Agreement with
its Adviser, Sparrow Capital Management Incorporated,
is filed herewith.
(6) (i) Copy of Registrant's Distribution Agreement is
filed herewith.
(ii) Copy of Registrant's form of Dealer Agreement is
filed herewith.
(7) Bonus, Profit Sharing, Pension or Similar Contracts for
the benefit of Directors or Officers - None.
(8) Copy of Registrant's Agreement with the Custodian is
filed herewith.
(9) Other Material Contracts - None.
(10) Opinion and Consent of Brown, Cummins & Brown Co.,
L.P.A. which was filed as an Exhibit to Registrant's
Registration Statement, is hereby incorporated by
reference.
(11) Consent of independent public accountants is filed
herewith.
(12) Financial Statements Omitted from Item 23 - None
<PAGE>
(13) Copy of Letter of Initial Stockholders is filed
herewith.
(14) Model Plan used in Establishment of any Retirement Plan
- None.
(15) Copy of 12b-1 Distribution Expense Plan is filed
herewith.
(16) Schedule for Computation of Each Performance Quotation
- None.
(17) Financial Data Schedule is filed herewith.
(18) Rule 18f-3 Plan - None.
(19) (i) Power of Attorney for Registrant and Certificate
with respect thereto are filed herewith.
(ii) Powers of Attorney for Trustees and Officers are
filed herewith.
Item 25. Persons Controlled by or Under Common Control with the Registrant
- -------- -----------------------------------------------------------------
None.
Item 26. Number of Holders of Securities (as of September 1, 1998)
- -------- ---------------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
Sparrow Growth Fund 0
Item 27. Indemnification
- -------- ---------------
(a) Article VI of the Registrant's Declaration of Trust
provides for indemnification of officers and Trustees
as follows:
Section 6.4 Indemnification of
Trustees, Officers, etc. Subject to and
except as otherwise provided in the
Securities Act of 1933, as amended, and the
1940 Act, the Trust shall indemnify each of
its Trustees and officers (including persons
who serve at the Trust's request as
directors, officers or trustees of another
organization in which the Trust has any
interest as a shareholder, creditor or
otherwise (hereinafter referred to as a
<PAGE>
"Covered Person") against all liabilities,
including but not limited to amounts paid in
satisfaction of judgments, in compromise or
as fines and penalties, and expenses,
including reasonable accountants' and
counsel fees, incurred by any Covered Person
in connection with the defense or
disposition of any action, suit or other
proceeding, whether civil or criminal,
before any court or administrative or
legislative body, in which such Covered
Person may be or may have been involved as a
party or otherwise or with which such person
may be or may have been threatened, while in
office or thereafter, by reason of being or
having been such a Trustee or officer,
director or trustee, and except that no
Covered Person shall be indemnified against
any liability to the Trust or its
Shareholders to which such Covered Person
would otherwise be subject by reason of
willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of such
Covered Person's office.
Section 6.5 Advances of Expenses.
The Trust shall advance attorneys' fees or
other expenses incurred by a Covered Person
in defending a proceeding to the full extent
permitted by the Securities Act of 1933, as
amended, the 1940 Act, and Ohio Revised Code
Chapter 1707, as amended. In the event any
of these laws conflict with Ohio Revised
Code Section 1701.13(E), as amended, these
laws, and not Ohio Revised Code Section
1701.13(E), shall govern.
Section 6.6 Indemnification Not
Exclusive, etc. The right of indemnification
provided by this Article VI shall not be
exclusive of or affect any other rights to
which any such Covered Person may be
entitled. As used in this Article VI,
"Covered Person" shall include such person's
heirs, executors and administrators. Nothing
contained in this article shall affect any
rights to indemnification to which personnel
of the Trust, other than Trustees and
officers, and other persons may be entitled
by contract or otherwise under law, nor the
power of the Trust to purchase and maintain
liability insurance on behalf of any such
person.
The Registrant may not pay for insurance which
protects the Trustees and officers against
liabilities rising from action involving willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of
their offices.
(b) The Registrant may maintain a standard mutual fund
and investment advisory professional and directors
and officers liability policy. The policy, if
maintained, would provide coverage to the Registrant,
its Trustees and officers, and could cover its
Advisers, among others. Coverage under the policy
would include losses by reason of any act, error,
omission, misstatement, misleading statement, neglect
or breach of duty.
<PAGE>
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the
Registrant pursuant to the provisions of Ohio law and
the Agreement and Declaration of the Registrant or the
By-Laws of the Registrant, or otherwise, the Registrant
has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against
public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the
Trust in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities
being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such
issue.
Item 28. Business and Other Connections of Investment Adviser
- -------- ----------------------------------------------------
A. Sparrow Capital Management Incorporated ("Sparrow"),
225 S. Meramec Ave., Suite 732 Tower, St. Louis, MO
63105, adviser to Sparrow Funds, is a registered
investment adviser.
(1) Sparrow has engaged in no other business during
the past two fiscal years.
(2) The following list sets forth other substantial
business activities of the officers and directors
of Sparrow: None.
Item 29. Principal Underwriters
- -------- ----------------------
(a) Unified Management Corporation, the Registrant's
distributor, acts as distributor for The Star Select
Funds and The Unified Funds, both at 431 North
Pennsylvania Street, Indianapolis, Indiana 46204;
Saratoga Advantage Trust, 1501 Franklin Avenue,
Mineola, NY 11501; the SMT Funds, 620 Woodmere
Avenue, Suite B, Traverse City, MI 49686; and Veredus
Funds, 6900 Bowling Blvd., Suite 250, Louisville, KY
40207.
(b) Information with respect to each director and officer
of Unified Management Corporation is incorporated by
reference to Schedule A of Form BD filed by it under
the Securities Exchange Act of 1934 (File No.
8-23508).
(c) Not applicable.
Item 30. Location of Accounts and Records
- -------- --------------------------------
Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at 225 S. Meramec Ave., Suite 732 Tower, St. Louis,
MO 63105 and/or by the Registrant's Custodian, Star Bank,
N.A., 425 Walnut Street, Cincinnati, Ohio 45202, and/or by the
Registrant's Transfer Agent, Unified Fund Services, Inc., 431
North Pennsylvania Street, Indianapolis, Indiana 46204.
<PAGE>
Item 31. Management Services Not Discussed in Parts A or B
- -------- -------------------------------------------------
None.
Item 32. Undertakings
- -------- ------------
(a) Not Applicable.
(b) The Registrant hereby undertakes to furnish each
person to whom a prospectus is delivered with a copy
of the Registrant's latest annual report to
shareholders, upon request and without charge.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cincinnati, State of Ohio on the 18th day of
September, 1998.
Sparrow Funds
By: /S/
Donald S. Mendlesohn
Attorney -in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Gerald R. Sparrow
President,Treasurer, Trustee,
Cheif Financial Officer
Alex Ramos
Secretary, Trustee
Dawn Michelle Jones
Trustee
Herschel W. Townsend
Trustee
Donald D. Woodruff
Trustee
_/s/_______________________________
Donald S. Mendelsohn
Attorney-in-Fact
September 18, 1998
<PAGE>
EXHIBIT INDEX
PAGE
1. Management Agreement..........................................EX-99.B5
2. Distribution Agreement......................................EX-99.B6.1
3. Form of Dealer Agreement....................................EX-99.B6.2
4. Custody Agreement.............................................EX-99.B8
5. Consent of McCurdy & Associates CPA's........................EX-99.B11
6. Letter of Initial Stockholder................................EX-99.B13
7. 12b-1 Distribution Plan......................................EX-99.B15
8. Financial Data Schedule..........................................EX-27
9. Powers of Attorney...........................................EX-99.POA
MANAGEMENT AGREEMENT
TO: Sparrow Capital Management Incorporated
225 South Meramec Ave., Suite 732 Tower
St. Louis, MO 63105
Dear Sirs:
Sparrow Funds (the "Trust") herewith confirms our agreement with you.
The Trust has been organized to engage in the business of an investment
company. The Trust currently offers one series of shares to investors, Sparrow
Growth Fund (the "Fund").
You have been selected to act as the sole investment adviser of the Fund
and to provide certain other services, as more fully set forth below, and you
are willing to act as such investment adviser and to perform such services under
the terms and conditions hereinafter set forth. Accordingly, the Trust agrees
with you as follows effective upon the date of the execution of this Agreement.
1. ADVISORY SERVICES
You will regularly provide the Fund with such investment advice as you in
your discretion deem advisable and will furnish a continuous investment program
for the Fund consistent with the Fund's investment objectives and policies. You
will determine the securities to be purchased for the Fund, the portfolio
securities to be held or sold by the Fund and the portion of the Fund's assets
to be held uninvested, subject always to the Fund's investment objectives,
policies and restrictions, as each of the same shall be from time to time in
effect, and subject further to such policies and instructions as the Board may
from time to time establish. You will advise and assist the officers of the
Trust in taking such steps as are necessary or appropriate to carry out the
decisions of the Board and the appropriate committees of the Board regarding the
conduct of the business of the Fund.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all operating expenses of the Fund, including the compensation
and expenses of any employees of the Fund and of any other persons rendering any
services to the Fund; clerical and shareholder service staff salaries; office
space and other office expenses; fees and expenses incurred by the Fund in
connection with membership in investment company organizations; legal, auditing
and accounting expenses; expenses of registering shares under federal and state
securities laws, excluding expenses incurred by the Fund in connection with the
organization and initial registration of shares of the Fund; insurance expenses;
fees and expenses of the custodian, transfer agent, dividend disbursing agent,
shareholder service agent, plan agent, administrator, accounting and pricing
services agent and underwriter of the Fund; expenses, including clerical
expenses, of issue, sale, redemption or repurchase of shares of the Fund; the
cost of preparing and distributing reports and notices to shareholders, the cost
of printing or preparing prospectuses and statements of additional information
for delivery to the Fund's current and prospective shareholders; the cost of
printing or preparing stock certificates or any other documents, statements or
reports to shareholders; expenses of shareholders' meetings and proxy
solicitations; advertising, promotion and other expenses incurred directly or
indirectly in connection with the sale or distribution of the Fund's shares
(including expenses incurred pursuant to the Fund's Rule 12b-1 Distribution
Plan); and all other operating expenses not specifically assumed by the Fund.
<PAGE>
The Fund will pay all brokerage fees and commissions, taxes, interest, fees
and expenses of the non-interested person trustees and such extraordinary or
non-recurring expenses as may arise, and litigation to which the Fund may be a
party and indemnification of the Trust's trustees and officers with respect
thereto. You may obtain reimbursement from the Fund, at such time or times as
you may determine in your sole discretion, for any of the expenses advanced by
you, which the Fund is obligated to pay, and such reimbursement shall not be
considered to be part of your compensation pursuant to this Agreement.
3. COMPENSATION OF THE ADVISER
For all of the services to be rendered and payments to be made as provided
in this Agreement, as of the last business day of each month, the Fund will pay
you a fee at the annual rate of 2.50% of the average value of its daily net
assets.
The average value of the daily net assets of the Fund shall be determined
pursuant to the applicable provisions of the Declaration of Trust of the Trust
or a resolution of the Board, if required. If, pursuant to such provisions, the
determination of net asset value of the Fund is suspended for any particular
business day, then for the purposes of this paragraph, the value of the net
assets of the Fund as last determined shall be deemed to be the value of the net
assets as of the close of the business day, or as of such other time as the
value of the Fund's net assets may lawfully be determined, on that day. If the
determination of the net asset value of the Fund has been suspended for a period
including such month, your compensation payable at the end of such month shall
be computed on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month).
4. EXECUTION OF PURCHASE AND SALE ORDERS
In connection with purchases or sales of portfolio securities for the
account of the Fund, it is understood that you will arrange for the placing of
all orders for the purchase and sale of portfolio securities for the account
with brokers or dealers selected by you, subject to review of this selection by
the Board from time to time. You will be responsible for the negotiation and the
allocation of principal business and portfolio brokerage. In the selection of
such brokers or dealers and the placing of such orders, you are directed at all
times to seek for the Fund the best qualitative execution, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), the execution capability, financial responsibility and responsiveness
of the broker or dealer and the brokerage and research services provided by the
broker or dealer.
You should generally seek favorable prices and commission rates that are
reasonable in relation to the benefits received. In seeking best qualitative
execution, you are authorized to select brokers or dealers who also provide
brokerage and research services (as those terms are defined in Section 28(e) of
the Securities Exchange Act of 1934) to the Fund and/or the other accounts over
which you exercise investment discretion. You are authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a Fund portfolio transaction which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if you determine in good faith that the amount of the commission is
reasonable in relation to the value of the brokerage and research services
provided by the executing broker or dealer. The determination may be viewed in
terms of either a particular transaction or your overall responsibilities with
respect to the Fund and to accounts over which you exercise investment
discretion. The Fund and you understand and acknowledge that, although the
information may be useful to the Fund and you, it is not possible to place a
dollar value on such information. The Board shall periodically review the
commissions paid by the Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits to
the Fund.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best qualitative execution as
described above, you may give consideration to sales of shares of the Fund as a
factor in the selection of brokers and dealers to execute Fund portfolio
transactions.
<PAGE>
Subject to the provisions of the Investment Company Act of 1940, as
amended, and other applicable law, you, any of your affiliates or any affiliates
of your affiliates may retain compensation in connection with effecting the
Fund's portfolio transactions, including transactions effected through others.
If any occasion should arise in which you give any advice to clients of yours
concerning the shares of the Fund, you will act solely as investment counsel for
such client and not in any way on behalf of the Fund. Your services to the Fund
pursuant to this Agreement are not to be deemed to be exclusive and it is
understood that you may render investment advice, management and other services
to others, including other registered investment companies.
5. LIMITATION OF LIABILITY OF ADVISER
You may rely on information reasonably believed by you to be accurate and
reliable. Except as may otherwise be required by the Investment Company Act of
1940 or the rules thereunder, neither you nor your shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust in connection with, any error of judgment, mistake of law, any act or
omission connected with or arising out of any services rendered under, or
payments made pursuant to, this Agreement or any other matter to which this
Agreement relates, except by reason of willful misfeasance, bad faith or gross
negligence on the part of any such persons in the performance of your duties
under this Agreement, or by reason of reckless disregard by any of such persons
of your obligations and duties under this Agreement.
Any person, even though also a director, officer, employee, shareholder or
agent of you, who may be or become an officer, director, trustee, employee or
agent of the Trust, shall be deemed, when rendering services to the Trust or
acting on any business of the Trust (other than services or business in
connection with your duties hereunder), to be rendering such services to or
acting solely for the Trust and not as a director, officer, employee,
shareholder or agent of you, or one under your control or direction, even though
paid by you.
6. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall take effect on the date of its execution, and shall
remain in force for a period of two (2) years from the date of its execution,
and from year to year thereafter, subject to annual approval by (i) the Board or
(ii) a vote of a majority (as defined in the Investment Company Act of 1940) of
the outstanding voting securities of the Fund, provided that in either event
continuance is also approved by a majority of the trustees who are not
"interested persons," as defined in the Investment Company Act of 1940, of you
or the Trust, by a vote cast in person at a meeting called for the purpose of
voting such approval.
If the shareholders of the Fund fail to approve the Agreement in the manner
set forth above, upon request of the Board, you will continue to serve or act in
such capacity for the Fund for the period of time pending required approval of
the Agreement, of a new agreement with you or a different adviser or other
definitive action; provided that the compensation to be paid by the Fund to you
for your services to and payments on behalf of the Fund will be equal to the
lesser of your actual costs incurred in furnishing such services and payments or
the amount you would have received under this Agreement for furnishing such
services and payments.
This Agreement may, on sixty days written notice, be terminated with
respect to the Fund, at any time without the payment of any penalty, by the
Board, by a vote of a majority of the outstanding voting securities of the Fund,
or by you. This Agreement shall automatically terminate in the event of its
assignment.
7. USE OF NAME
The Trust and you acknowledge that all rights to the name "Sparrow" belong
to you, and that the Trust is being granted a limited license to use such words
in its Fund name or in any class name. In the event you cease to be the adviser
to the Fund, the Trust's right to the use of the name "Sparrow" shall
automatically cease on the ninetieth day following the termination of this
Agreement. The right to the name may also be withdrawn by you during the term of
this Agreement upon ninety (90) days' written notice by you to the Trust.
Nothing contained herein shall impair or diminish in any respect, your right to
use the name "Sparrow" in the name of, or in connection with, any other business
enterprises with which you are or may become associated. There is no charge to
the Trust for the right to use this name.
<PAGE>
8. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated orally, and no amendment of this Agreement shall be effective until
approved by the Board, including a majority of the trustees who are not
interested persons of you or of the Trust, cast in person at a meeting called
for the purpose of voting on such approval, and (if required under
interpretations of the Act by the Securities and Exchange Commission) by vote of
the holders of a majority of the outstanding voting securities of the series to
which the amendment relates.
9. LIMITATION OF LIABILITY TO TRUST PROPERTY
The term "Sparrow Funds" means and refers to the Trustees from time to time
serving under the Trust's Declaration of Trust as the same may subsequently
thereto have been, or subsequently hereto be, amended. It is expressly agreed
that the obligations of the Trust hereunder shall not be binding upon any of the
trustees, shareholders, nominees, officers, agents or employees of the Trust
personally, but bind only the trust property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery of this Agreement
have been authorized by the trustees and shareholders of the Trust and signed by
officers of the Trust, acting as such, and neither such authorization by such
trustees and shareholders nor such execution and delivery by such officers shall
be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Declaration of Trust. A copy of the Agreement and
Declaration of Trust of the Trust is on file with the Secretary of the State of
Ohio.
10. SEVERABILITY
In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
11. QUESTIONS OF INTERPRETATION
(a) This Agreement shall be governed by the laws of the State of
Ohio.
(b) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a
term or provision of the Investment Company Act of 1940, as
amended (the "Act") shall be resolved by reference to such term
or provision of the Act and to interpretation thereof, if any, by
the United States courts or in the absence of any controlling
decision of any such court, by the Securities and Exchange
Commission or its staff. In addition, where the effect of a
requirement of the Act, reflected in any provision of this
Agreement is revised by rule, regulation, order or interpretation
of the Securities and Exchange Commission, such provision shall
be deemed to incorporate the effect of such rule, regulation,
order or interpretation.
12. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Trust is 225 South
Meramec Ave., Suite 732 Tower, St. Louis, MO 63105, and your address for this
purpose shall be 225 South Meramec Ave., Suite 732 Tower, St. Louis, MO 63105.
13. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
<PAGE>
14. BINDING EFFECT
Each of the undersigned expressly warrants and represents that he has the
full power and authority to sign this Agreement on behalf of the party
indicated, and that his signature will operate to bind the party indicated to
the foregoing terms.
15. CAPTIONS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
upon the date thereof.
Yours very truly,
ATTEST: Sparrow Funds
/s/ By /s/
Gerald R. Sparrow, President
Name/Title: Alex Ramos, Secretary
Dated: September 16, 1998
ACCEPTANCE
The foregoing Agreement is hereby accepted.
ATTEST: Sparrow Capital Management Incorporated
/s/ By /s/
Gerald R. Sparrow, President
Name/Title: Alex Ramos
Dated: September 16, 1998
DISTRIBUTION AGREEMENT
This Agreement made as of September 16, 1998 by and between
The Sparrow Funds (the "Trust"), an Ohio business trust and an open-end
registered investment company, and Unified Management Corporation., a Delaware
corporation ("Distributor").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, Distributor is a broker-dealer registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust and Distributor are desirous of entering into an
agreement providing for the distribution by Distributor of shares of beneficial
interest (the "Shares") of each series of shares of the Trust (the "Series");
NOW, THEREFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. Appointment.
The Trust hereby appoints Distributor as its exclusive agent for the
distribution of the Shares, and Distributor hereby accepts such appointment
under the terms of this Agreement. While this Agreement is in force, the
Trust shall not sell any Shares except on the terms set forth in this
Agreement. Notwithstanding any other provision hereof, the Trust may
terminate, suspend or withdraw the offering of Shares whenever, in its sole
discretion, it deems such action to be desirable.
2. Sale and Repurchase of Shares.
(a) Distributor will have the right, as agent for the Trust, to enter into
dealer agreements with responsible investment dealers, and to sell
Shares to such investment dealers against orders therefor at the public
offering price (as defined in subparagraph 2(d) hereof) stated in the
Trust's effective Registration Statement on Form N-1A under the
Securities Act of 1933, as amended, including the then current
prospectus and statement of additional information (the "Registration
Statement"). Upon receipt of an order to purchase Shares from a dealer
with whom Distributor has a dealer agreement, Distributor will promptly
cause such order to be filled by the Trust.
(b) Distributor will also have the right, as agent for the Trust, to sell
such Shares to the public against orders therefor at the public
offering price.
(c) Distributor will also have the right to take, as agent for the Trust,
all actions which, in Distributor's judgment, are necessary to carry
into effect the distribution of the Shares.
(d) The public offering price for the Shares of each Series shall be the
respective net asset value of the Shares of that Series then in effect,
plus any applicable sales charge determined in the manner set forth in
the Registration Statement or as permitted by the Act and the rules and
regulations of the Securities and Exchange Commission promulgated
thereunder. In no event shall any applicable sales charge exceed the
maximum sales charge permitted by the Rules of the NASD.
(e) The net asset value of the Shares of each Series shall be determined in
the manner provided in the Registration Statement, and when determined
shall be applicable to transactions as provided for in the Registration
Statement. The net asset value of the Shares of each Series shall be
calculated by the Trust or by another entity on behalf of the Trust.
Distributor shall have no duty to inquire into or liability for the
accuracy of the net asset value per Share as calculated.
<PAGE>
(f) On every sale, the Trust shall receive the applicable net asset value
of the Shares promptly, but in no event later than the third business
day following the date on which Distributor shall have received an
order for the purchase of the Shares.
(g) Upon receipt of purchase instructions, Distributor will transmit such
instructions to the Trust or its transfer agent for registration of the
Shares purchased.
(h) Nothing in this Agreement shall prevent Distributor or any affiliated
person (as defined in the Act) of Distributor from acting as
Distributor or distributor for any other person, firm or corporation
(including other investment companies) or in any way limit or restrict
Distributor or any such affiliated person from buying, selling or
trading any securities for its or their own account or for the accounts
of others from whom it or they may be acting; provided, however, that
Distributor expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its
obligations to the Trust under this Agreement.
(i) Distributor, as agent of and for the account of the Trust, may
repurchase the Shares at such prices and upon such terms and conditions
as shall be specified in the Registration Statement.
3. Sale of Shares by the Trust.
The Trust reserves the right to issue any Shares at any time directly to
the holders of Shares ("Shareholders"), to sell Shares to its Shareholders
or to other persons at not less than net asset value and to issue Shares in
exchange for substantially all the assets of any corporation or trust or
for the shares of any corporation or trust.
4. Basis of Sale of Shares.
Distributor does not agree to sell any specific number of Shares.
Distributor, as agent for the Trust, undertakes to sell Shares on a best
efforts basis only against orders therefor.
5. Rules of NASD, etc.
(a) Distributor will conform to the Rules of the NASD and the securities
laws of any jurisdiction in which it sells, directly or indirectly, any
Shares.
(b) Distributor will require each dealer with whom Distributor has a dealer
agreement to conform to the applicable provisions hereof and the
Registration Statement with respect to the public offering price of the
Shares, and neither Distributor nor any such dealers shall withhold the
placing of purchase orders so as to make a profit thereby.
(c) Distributor agrees to furnish to the Trust sufficient copies of any
agreements, plans or other materials it intends to use in connection
with any sales of Shares in adequate time for the Trust to file and
clear them with the proper authorities before they are put in use, and
not to use them until so filed and cleared.
(d) Distributor, at its own expense, will qualify as dealer or broker, or
otherwise, under all applicable state or federal laws required in order
that Shares may be sold in such States as may be mutually agreed upon
by the parties.
(e) Distributor shall not make, or permit any representative, broker or
dealer to make, in connection with any sale or solicitation of a sale
of the Shares, any representations concerning the Shares except those
contained in the then current prospectus and statement of additional
information covering the Shares and in printed information approved by
the Trust as information supplemental to such prospectus and statement
of additional information. Copies of the then effective prospectus and
statement of additional information and any such printed supplemental
information will be supplied by the Trust to Distributor in reasonable
quantities upon request.
<PAGE>
6. Records to be Supplied by Trust.
The Trust shall furnish to Distributor copies of all information, financial
statements and other papers which Distributor may reasonably request for
use in connection with the distribution of the Shares, and this shall
include, but shall not be limited to, one certified copy, upon request by
Distributor, of all financial statements prepared for the Trust by
independent public accountants.
7. Fees and Expenses.
For performing its services under this Agreement, Distributor will receive
from the Trust a minimum fee of $5,000 per year. The portion of sales
charges retained by Distributor after payment of amounts reallowed to
dealers shall be applied against the minimum. The balance of the minimum
fee, if any, shall be paid annually in arrears. The Trust shall promptly
reimburse Distributor for any expenses which are to be paid by the Trust in
accordance with the following paragraph.
In the performance of its obligations under this Agreement, Distributor
will pay only the costs incurred in qualifying as a broker or dealer under
state and federal laws and in establishing and maintaining its
relationships with the dealers selling the Shares. All other costs in
connection with the offering of the Shares will be paid by the Trust in
accordance with agreements between them as permitted by applicable laws,
including the Act and rules and regulations promulgated thereunder. These
costs include, but are not limited to, licensing fees, filing fees, sales
literature review fees, travel and such other expenses as may be incurred
by Distributor on behalf of the Trust.
8. Indemnification of Trust.
Distributor agrees to indemnify and hold harmless the Trust and each person
who has been, is, or may hereafter be a trustee, director, officer,
employee, shareholder or control person of the Trust against any loss,
damage or expense (including the reasonable costs of investigation)
reasonably incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of them may be
a party, which arises out of or is alleged to arise out of or is based upon
any untrue statement or alleged untrue statement of a material fact, or the
omission or alleged omission to state a material fact necessary to make the
statements not misleading, on the part of Distributor or any agent or
employee of Distributor or any other person for whose acts Distributor is
responsible, unless such statement or omission was made in reliance upon
written information furnished by the Trust. Distributor likewise agrees to
indemnify and hold harmless the Trust and each such person in connection
with any claim or in connection with any action, suit or proceeding which
arises out of or is alleged to arise out of Distributor's failure to
exercise reasonable care and diligence with respect to its services, if
any, rendered in connection with investment, reinvestment, automatic
withdrawal and other plans for Shares. The term "expenses" for purposes of
this and the next paragraph includes amounts paid in satisfaction of
judgments or in settlements which are made with Distributor's consent. The
foregoing rights of indemnification shall be in addition to any other
rights to which the Trust or each such person may be entitled as a matter
of law.
<PAGE>
9. Indemnification of Distributor.
The Trust agrees to indemnify and hold harmless Distributor and each person
who has been, is, or may hereafter be a director, officer, employee,
shareholder or control person of Distributor against any loss, damage or
expense (including the reasonable costs of investigation) reasonably
incurred by any of them in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or negligence, including clerical errors and mechanical failures, on
the part of any of such persons in the performance of Distributor's duties
or from the reckless disregard by any of such persons of Distributor's
obligations and duties under this Agreement, for all of which exceptions
Distributor shall be liable to the Trust. The Trust will advance attorneys'
fees or other expenses incurred by any such person in defending a
proceeding, upon the undertaking by or on behalf of such person to repay
the advance if it is ultimately determined that such person is not entitled
to indemnification.
In order that the indemnification provisions contained in this Paragraph 9
shall apply, it is understood that if in any case the Trust may be asked to
indemnify Distributor or any other person or hold Distributor or any other
person harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that Distributor will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification against the Trust. The Trust shall have the option to
defend Distributor and any such person against any claim which may be the
subject of this indemnification, and in the event that the Trust so elects
it will so notify Distributor, and thereupon the Trust shall take over
complete defense of the claim, and neither Distributor nor any such person
shall in such situation initiate further legal or other expenses for which
it shall seek indemnification under this Paragraph 9. Distributor shall in
no case confess any claim or make any compromise in any case in which the
Trust will be asked to indemnify Distributor or any such person except with
the Trust's written consent.
Notwithstanding any other provision of this Agreement, Distributor shall be
entitled to receive and act upon advice of counsel (who may be counsel for
the Trust or its own counsel) and shall be without liability for any action
reasonably taken or thing reasonably done pursuant to such advice, provided
that such action is not in violation of applicable federal or state laws or
regulations.
10. Termination and Amendment of this Agreement.
This Agreement shall automatically terminate, without the payment of any
penalty, in the event of its assignment. This Agreement may be amended only
if such amendment is approved (i) by Distributor, (ii) either by action of
the Board of Trustees of the Trust or at a meeting of the Shareholders of
the Trust by the affirmative vote of a majority of the outstanding Shares,
and (iii) by a majority of the Trustees of the Trust who are not interested
persons of the Trust or of Distributor by vote cast in person at a meeting
called for the purpose of voting on such approval.
Either the Trust or Distributor may at any time terminate this Agreement on
sixty (60) days' written notice delivered or mailed by registered mail,
postage prepaid, to the other party.
11. Effective Period of this Agreement.
This Agreement shall take effect upon its execution and shall remain in
full force and effect for a period of two (2) years from the date of its
execution (unless terminated automatically as set forth in Section 10), and
from year to year thereafter, subject to annual approval (i) by
Distributor, (ii) by the Board of Trustees of the Trust or a vote of a
majority of the outstanding Shares, and (iii) by a majority of the Trustees
of the Trust who are not interested persons of the Trust or of Distributor
by vote cast in person at a meeting called for the purpose of voting on
such approval.
12. New Series.
The terms and provisions of this Agreement shall become automatically
applicable to any additional series of the Trust established during the
initial or renewal term of this Agreement.
<PAGE>
13. Successor Investment Trust.
Unless this Agreement has been terminated in accordance with Paragraph 10,
the terms and provisions of this Agreement shall become automatically
applicable to any investment company which is a successor to the Trust as a
result of reorganization, recapitalization or change of domicile.
14. Limitation of Liability.
It is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees of the Trust and signed by an officer of
the Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Trust.
15. Severability.
In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
16. Questions of Interpretation.
(a) This Agreement shall be governed by the laws of the State of Ohio.
(b) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretation thereof, if any, by the
United States courts or in the absence of any controlling decision of
any such court, by rules, regulations or orders of the Securities and
Exchange Commission issued pursuant to said Act. In addition, where the
effect of a requirement of the Act, reflected in any provision of this
Agreement is revised by rule, regulation or order of the Securities and
Exchange Commission, such provision shall be deemed to incorporate the
effect of such rule, regulation or order.
17. Notices.
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of the Trust for
this purpose shall be 225 S. Meramec, Suite 732, Clayton, Missouri 63105,
and that the address of Distributor for this purpose shall be 431 N.
Pennsylvania St., Indianapolis, Indiana 46204.
IN WITNESS WHEREOF, the Trust and Distributor have each caused this
Agreement to be signed in duplicate on their behalf, all as of the day and
year first above written.
ATTEST: SPARROW GROWTH FUND
/s/ Alex Ramos By: /s/
Name: Gerald R. Sparrow
Its: President
ATTEST: UNIFIED MANAGEMENT CORPORATION
/s/ Carol J. Highsmith By: /s/
Name: Lynn E. Wood
Its: President
By: /s/
Name: Stephen D. Highsmith, Jr.
Its: Sr. Vice President/
Chief Operating Officer
SPARROW GROWTH FUND
Dealer's Agreement
Unified Management Corporation ("Distributor") invites you, as a
selected dealer, to participate as principal in the distribution of shares (the
"Shares") of the Sparrow Growth Fund (the "Fund"), of which it is the exclusive
underwriter. Distributor agrees to sell to you, subject to any limitations
imposed by the Fund, Shares issued by the Fund and to promptly confirm each sale
to you. All sales will be made according to the following terms:
1. All offerings of any of the Shares by you must be made at the public
offering prices, and shall be subject to the conditions of offering, set forth
in the then current prospectus of the Fund (the "Prospectus") and to the terms
and conditions herein set forth, and you agree to comply with all requirements
applicable to you of all applicable laws, including federal and state securities
laws, the rules and regulations of the Securities and Exchange Commission, and
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (the "NASD"), including Section 24 of the Rules of Fair Practice of the
NASD. You will not offer the Shares for sale in any state or other jurisdiction
where they are not qualified for sale under the Blue Sky Laws and regulations of
such state or jurisdiction, or where you are not qualified to act as a dealer.
Upon application to Distributor, Distributor will inform you as to the states or
other jurisdictions in which Distributor believes the Shares may legally be
sold.
2. You hereby authorize Distributor to act as your agent in connection
with all transactions in open accounts in which you are designated as Dealer of
Record. All designations as Dealer of Record, and all authorizations of
Distributor to act as your Agent pursuant thereto, shall cease upon the
termination of this Agreement or upon the investor's instructions to transfer
his open account to another Dealer of Record.
3. Distributor reserves the right to cancel this Agreement at any time
without notice if any Shares shall be offered for sale by you at less than the
then current public offering prices determined by, or for, the Fund.
4. All orders are subject to acceptance or rejection by Distributor in
its sole discretion. The Distributor reserves the right, in its discretion,
without notice, to suspend sales or withdraw the offering of Shares entirely.
5. Payment shall be made to the Fund and shall be received by its
transfer agent within three (3) business days after the acceptance of your order
or such shorter time as may be required by law. With respect to all Shares
ordered by you for which payment has not been received, you hereby assign and
pledge to Distributor all of your right, title and interest in such Shares to
secure payment therefor. You appoint Distributor as your agent to execute and
deliver all documents necessary to effectuate any of the transactions described
in this paragraph. If such payment is not received within the required time
period, Distributor reserves the right, without notice, and at its option,
forthwith (a) to cancel the sale, (b) to sell
<PAGE>
the Shares ordered by you back to the Fund, or (c) to assign your payment
obligation, accompanied by all pledged Shares, to any person. You agree that
Distributor may hold you responsible for any loss, including loss of profit,
suffered by the Fund, its Transfer Agent or Distributor, resulting from your
failure to make payment within the required time period.
6. No person is authorized to make any representations concerning
Shares of the Fund except those contained in the current applicable Prospectus
and Statement of Additional Information and in sales literature issued and
furnished by Distributor supplemental to such Prospectus. Distributor will
furnish additional copies of the current Prospectus and Statement of Additional
Information and such sales literature and other releases and information issued
by Distributor in reasonable quantities upon request.
7. Under this Agreement, you act as principal and are not employed by
Distributor as broker, agent or employee. You are not authorized to act for
Distributor nor to make any representation on its behalf; and in purchasing or
selling Shares hereunder, you rely only upon the current Prospectus and
Statement of Additional Information furnished to you by Distributor from time to
time and upon such written representations as may hereafter be made by
Distributor to you over its signature.
8. You appoint the transfer agent for the Fund as your agent to execute
the purchase transactions of Shares in accordance with the terms and provisions
of any account, program, plan or service established or used by your customers
and to confirm each purchase to your customers on your behalf, and you guarantee
the legal capacity of your customers purchasing such Shares and any co-owners of
such Shares.
9. You will (a) maintain all records required by law relating to
transactions in the Shares, and upon the request of Distributor, or the request
of the Fund, promptly make such records available to Distributor or to the Fund
as are requested, and (b) promptly notify Distributor if you experience any
difficulty in maintaining the records required in the foregoing clause in an
accurate and complete manner. In addition, you will establish appropriate
procedures and reporting forms and schedules, approved by Distributor and by the
Fund, to enable the parties hereto and the Fund to identify all accounts opened
and maintained by your customers.
10. You will be compensated, as of the end of each calendar quarter, by
the Fund at the rate of _____% per annum of the average daily balances of the
accounts for which you are designated as Dealer of Record.
11. Each party hereto represents that it is presently, and, at all
times during the term of this Agreement, will be, a member in good standing of
the NASD and agrees to abide by all its Rules of Fair Practice including, but
not limited to, the following provisions:
(a) You shall not withhold placing customers' orders for any Shares so
as to profit yourself as a result of such withholding. You shall not purchase
any Shares from Distributor other than for investment, except for the purpose of
covering purchase orders already received.
(b) All conditional orders received by Distributor must be at a
specified definite price.
<PAGE>
(c) Neither Distributor, as exclusive underwriter for the Fund, nor you
as principal, shall purchase any Shares from a record holder at a price lower
than the net asset value then quoted by, or for, the Fund. Nothing in this
sub-paragraph shall prevent you from selling Shares for the account of a record
holder to Distributor or the Fund at the net asset value currently quoted by, or
for, the Fund and charging the investor a fair commission for handling the
transaction.
(d) You warrant on behalf of yourself and your registered
representatives and employees that any purchase of Shares at net asset value by
the same pursuant to the terms of the Prospectus of the Fund is for investment
purposes only and not for purposes of resale. Shares so purchased may be resold
only to the Fund.
12. Distributor represents that (a) the Fund is properly registered
pursuant to the Investment Company Act of 1940; (b) that the Fund's Shares are
properly registered under the Securities Act of 1933; (c) that the registration
statement and Prospectus comply in all material respects with the provisions of
the Securities Act of 1933, including the rules and regulations promulgated
thereunder, and do not contain any untrue statement of material fact nor omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and (d) Distributor is not aware of any
investigation commenced by the Securities and Exchange Commission or any other
regulatory or self-regulatory organization, or any proceeding or threatened
proceeding, that concerns the Fund.
13. You agree that you will indemnify Distributor, the Fund, the Fund's
transfer agent, the Fund's investment adviser, and the Fund's custodian and hold
such persons harmless from any claims or assertions relating to the lawfulness
of your participation in this Agreement and the transactions contemplated hereby
or relating to any activities of any persons or entities affiliated with you
which are performed in connection with the discharge of your responsibilities
under this Agreement. If any such claims are asserted, the indemnified parties
shall have the right to engage in their own defense, including the selection and
engagement of legal counsel of their choosing, and all costs of such defense
shall be borne by you.
14. Distributor shall indemnify, defend and hold harmless you and each
of your affiliates, directors, officers, employees and agents and each person
who controls you within the meaning of the Securities Act of 1933, as amended
(collectively, the "Indemnified Parties") from and against any and all losses
insofar as such losses arise out of or are based upon (1) Distributor's
negligence, willful misconduct or violation of applicable law in the performance
of its duties and obligations under the Agreement, (2) any untrue or alleged
untrue statement of a material fact contained in the registration statement,
Prospectus or Statement of Additional Information of the Fund or any promotional
material or other information furnished to the Indemnified Parties, in writing,
for distribution to the shareholders, and (3) any material breach by Distributor
of a representation, warranty or covenant made in this Agreement. Distributor
shall also reimburse the Indemnified Parties for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against such losses. This indemnity provision is in addition to any other
liability which Distributor may otherwise have. Promptly after receipt by an
Indemnified Party of notice of the
<PAGE>
commencement of an investigation, action, claim or proceeding, such Indemnified
Party will, if a claim in respect thereof is to be made against Distributor
under this section, notify Distributor of the commencement thereof, but the
omission so to notify Distributor will not relieve it from any liability which
it may have to any Indemnified Party otherwise than under this section. In case
any such action is brought against any Indemnified Party, and it has notified
Distributor of the commencement thereof, Distributor will be entitled to
participate therein and, to the extent that it may wish, assume the defense
thereof, with counsel satisfactory to such Indemnified Party. After notice from
Distributor of its intention to assume the defense of an action, the Indemnified
Party shall bear the expenses of any additional counsel obtained by it, and
Distributor shall not be liable to such Indemnified Party under this section for
any legal or other expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation. The Indemnified Party may not settle any action without the
written consent of Distributor. Distributor may not settle any action without
the written consent of the Indemnified Party unless such settlement completely
and finally releases the Indemnified Party from any and all liability. In either
event, consent shall not be unreasonably withheld.
15. This Agreement may be assigned by Distributor to an affiliated
entity controlling, controlled by, or under common control with Distributor,
provided, however, that this Agreement will automatically terminate in the event
of its assignment as such term is defined in the Investment Company Act of 1940.
Either party hereto may cancel this Agreement without penalty upon ten days'
written notice. This Agreement may also be terminated at any time without
penalty by the vote of a majority of the members of the Board of Trustees of the
Fund who are not "interested persons" (as such term is defined in the Investment
Company Act of 1940), or by a vote of a majority of the outstanding voting
securities of the Fund on ten days' written notice.
16. All communications to Distributor should be sent to Unified
Management Corporation, 431 N. Pennsylvania St., Indianapolis, Indiana 46204,
Attention: President, or at such other address as Distributor may designate in
writing. Any notice to you shall be duly given if mailed or telegraphed to you
at the address of your principal office, as indicated below in your acceptance
of this Agreement.
17. This Agreement supersedes any other agreement with you relating to
the offer and sale of the Shares, and relating to any other matter discussed
herein.
18. Distributor agrees that the names, addresses and telephone numbers
of all customers of you and your affiliates obtained by virtue of this Agreement
shall remain confidential and shall not be used by Distributor for any purpose
whatsoever except as may be necessary to distribute and administer the Fund. In
no event shall the names, addresses or telephone numbers of customers or
prospective customers of you and your affiliates be furnished by Distributor or
its agents to any other individuals, organizations or institutions except as may
be required by law. This provision shall survive termination of this Agreement.
19. This Agreement shall be binding (i) upon placing your first order
with Distributor for
<PAGE>
the purchase of Shares, or (ii) upon receipt by Distributor in Indianapolis,
Indiana of a counterpart of this Agreement duly accepted and signed by you,
whichever shall occur first. This Agreement shall be construed in accordance
with the laws of the State of Ohio.
20. The undersigned, executing this Agreement on behalf of Dealer,
hereby warrants and represents that he is duly authorized to so execute this
Agreement on behalf of Dealer.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return one copy of this Agreement to the Distributor.
ACCEPTED BY DEALER UNIFIED MANAGEMENT
CORPORATION
By: By:
Name:
Authorized Signature, Position Position:
By:
Type or Print Name
Name:
Position:
Dealer Name
Address
Address
Phone
Date
CUSTODY AGREEMENT
BETWEEN
STAR BANK, N.A.
AND
----------------------
SPARROW FUNDS
<PAGE>
TABLE OF CONTENTS
Definitions 1
ARTICLE II - Appointment; Acceptence; and Furnishing of Documents
II. A. Appointment of Custodian. 5
II. B. Acceptance of Custodian. 5
II. C. Documents to be Furnished. 5
II. D. Notice of Appointment of Dividend and Transfer Agent. 5
ARTICLE III - Receipt of Trust Assets
III. A. Delivery of Moneys. 6
III. B. Delivery of Securities. 6
III. C. Payments for Shares. 6
III. D. Duties Upon Receipt. 7
ARTICLE IV - Disbursement of Trust Assets
IV. A. Declaration of Dividends by Trust. 7
IV. B. Segregation of Redemption Proceeds. 7
IV. C. Disbursements of Custodian. 8
IV. D. Payment of Custodian Fees. 8
ARTICLE V - Custody of Trust Assets
V. A. Separate Accounts for Each Fund. 8
V. B. Segregation of Non-Cash Assets. 9
V. C. Securities in Bearer and Registered Form. 9
V. D. Duties of Custodian as to Securities. 9
V. E. Certain Actions Upon Written Instructions. 10
V. F. Custodian to Deliver Proxy Materials. 11
V. G. Custodian to Deliver Tender Offer Information. 11
V. H. Custodian to Deliver Security and Transaction Information. 12
ARTICLE VI - Purchase and Sale of Securities
VI. A. Purchase of Securities. 12
VI. B. Sale of Securities. 13
VI. C. Delivery Versus Payment for Purchases and Sales. 14
VI. D. Payment on Settlement Date. 14
<PAGE>
VI. E. Segregated Accounts. 14
VI. F. Advances for Settlement. 16
ARTICLE VII - Trust Indebtedness
VII. A. Borrowings. 17
VII. B. Advances. 18
ARTICLE VIII - Concerning the Custodian
VIII. A. Limitations on Liability of Custodian. 18
VIII. B. Actions not Required by Custodian. 20
VIII. C. No Duty to Collect Amounts Due From Dividend and Transfer Agent. 21
VIII. D. No Enforcement Actions. 21
VIII. E. Authority to Use Agents and Sub-Custodians. 22
VIII. F. No Duty to Supervise Investments. 22
VIII. G. All Records Confidential. 23
VIII. H. Compensation of Custodian. 23
VIII. I. Reliance Upon Instructions. 23
VIII. J. Books and Records. 24
VIII. K. Internal Accounting Control Systems. 24
VIII. L. No Management of Assets by Custodian. 24
VIII. M. Assistance to Trust. 25
ARTICLE IX - Termination
IX. A. Termination. 25
IX. B. Failure to Designate Successor Trustee. 26
ARTICLE X - Force Majeure
ARTICLE XI - Miscellaneous
XI. A. Designation of Authorized Persons. 27
XI. B. Limitation of Personal Liability. 27
XI. C. Authorization By Board. 28
XI. D. Custodian's Consent to Use of Its Name. 28
XI. E. Notices to Custodian. 29
XI. F. Notices to Trust. 29
XI. G. Amendments In Writing. 29
XI. H. Successors and Assigns. 29
<PAGE>
XI. I. Governing Law. 29
XI. J. Jurisdiction. 30
XI. K. Counterparts. 30
XI. L. Headings. 30
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
<PAGE>
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the _____ day of
__________, 1998, by and between Sparrow Funds, an Ohio business trust (the
"Trust") and Star Bank, National Association, (the "Custodian"), a national
banking association having its principal office at 425 Walnut Street,
Cincinnati, Ohio, 45202.
WHEREAS, the Trust and the Custodian desire to enter into this
Agreement to provide for the custody and safekeeping of the assets of the Trust
as required by the Act (as hereafter defined).
THEREFORE, in consideration of the mutual promises hereinafter set
forth, the Trust and the Custodian agree as follows:
Definitions
- -----------
The following words and phrases, when used in this Agreement, unless
the context otherwise requires, shall have the following meanings:
Act - the Investment Company Act of 1940, as amended.
-----
1934 Act - the Securities and Exchange Act of 1934, as amended.
---------
Authorized Person - any person, whether or not any such person is an
---------- --------
officer or employee of the Trust, who is duly authorized by the Board of
Trustees of the Trust to give Oral Instructions and Written Instructions on
behalf of the Trust or any Fund, and named in Appendix A attached hereto and as
amended from time to time by resolution of the Board of Trustees, certified by
an Officer, and received by the Custodian.
Board of Trustees - the Trustees from time to time serving under the
-----------------
Trust's Agreement and Declaration of Trust, as from time to time amended.
Book-Entry System - a federal book-entry system as provided in Subpart
-----------------
O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of 31 CFT Part 350, or
in such book-entry regulations of federal agencies as are substantially in the
form of Subpart O.
Business Day - any day recognized as a settlement day by The New York Stock
--------------
Exchange, Inc. and any other day for which the Trust computes the net asset
value of Shares of any fund.
Depository - The Depository Trust Company ("DTC"), a limited purpose
------------
trust company, its successor(s) and its nominee(s). Depository shall include any
other clearing agency registered with the SEC under Section 17A of the 1934 Act
which acts as a system for the central handling of Securities where all
Securities of any particular class or series of an issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of the Securities provided that the Custodian
shall have received a copy of a resolution of the Board of Trustees, certified
by an Officer, specifically approving the use of such clearing agency as a
depository for the Funds.
Dividend and Transfer Agent - the dividend and transfer agent
--------------------------------
appointed, from time to time, pursuant to a written agreement between the
dividend and transfer agent and the Trust.
Foreign Securities - a) securities issued and sold primarily outside of the
------------------
United States by a foreign government, a national of any foreign country, or a
trust or other organization incorporated or organized under the laws of any
foreign country or; b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
<PAGE>
Fund - each series of the Trust listed in Appendix B and any additional
-----
series added pursuant to Proper Instructions. A series is individually referred
to as a "Fund" and collectively referred to as the "Funds."
Money Market Security - debt obligations issued or guaranteed as to
------------------------
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
NASD - the National Association of Securities Dealers, Inc.
------
Officer - the Chairman, President, Secretary, Treasurer, any Vice
---------
President, Assistant Secretary or Assistant Treasurer of the Trust.
Oral Instructions - instructions orally transmitted to and received by the
-----------------
Custodian from an Authorized Person (or from a person that the Custodian
reasonably believes in good faith to be an Authorized Person) and confirmed by
Written Instructions in such a manner that such Written Instructions are
received by the Custodian on the Business Day immediately following receipt of
such Oral Instructions.
Proper Instructions - Oral Instructions or Written Instructions. Proper
---------------------
Instructions may be continuing Written Instructions when deemed appropriate by
both parties.
Prospectus - the Trust's then currently effective prospectus and
-----------
Statement of Additional Information, as filed with and declared effective from
time to time by the Securities and Exchange Commission.
Security or Securities - Money Market Securities, common stock, preferred
-----------------------
stock, options, financial futures, bonds, notes, debentures, corporate debt
securities, mortgages, bank certificates of deposit, bankers' acceptances,
mortgage-backed securities or other obligations and any certificates, receipts,
warrants, or other instruments or documents representing rights to receive,
purchase, or subscribe for the same or evidencing or representing any other
rights or interest therein, or any similar property or assets, including
securities of any registered investment company, that the Custodian has the
facilities to clear and to service.
SEC - the Securities and Exchange Commission of the United States of
----
America.
Shares - with respect to a Fund, the units of beneficial interest
-------
issued by the Trust on account of such Fund.
Trust - the business trust organized under the laws of Ohio which is an
------
open-end diversified management investment company registered under the Act.
Written Instructions - communications in writing actually received by
---------------------
the Custodian from an Authorized Person. A communication in writing includes a
communication by facsimile, telex or between electro-mechanical or electronic
devices (where the use of such devices have been approved by resolution of the
Board of Trustees and the resolution is certified by an Officer and delivered to
the Custodian). All written communications shall be directed to the Custodian,
attention: Mutual Fund Custody Department.
<PAGE>
ARTICLE II
Appointment; Acceptance; and Furnishing of Documents
----------------------------------------------------
II. A. Appointment of Custodian. The Trust hereby constitutes and appoints
the Custodian as custodian of all Securities and cash owned by the Trust at any
time during the term of this Agreement.
II. B. Acceptance of Custodian. The Custodian hereby accepts appointment as
such custodian and agrees to perform the duties thereof as hereinafter set
forth.
II. C. Documents to be Furnished. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement, to the Custodian by the Trust:
1. A copy of the Declaration of Trust of the Trust
certified by the Secretary.
2. A copy of the By-Laws of the Trust certified by the Secretary.
3. A copy of the resolution of the Board of Trustees of the Trust
appointing the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the Trust setting forth
the names and signatures of all Authorized Persons.
II. D. Notice of Appointment of Dividend and Transfer Agent. The Trust
agrees to notify the Custodian in writing of the appointment, termination or
change in appointment of any Dividend and Transfer Agent.
ARTICLE III
Receipt of Trust Assets
III. A. Delivery of Moneys. During the term of this Agreement, the Trust
will deliver or cause to be delivered to the Custodian all moneys to be held by
the Custodian for the account of any Fund. The Custodian shall be entitled to
reverse any deposits made on any Fund's behalf where such deposits have been
entered and moneys are not finally collected within 30 days of the making of
such entry.
III. B. Delivery of Securities. During the term of this Agreement, the
Trust will deliver or cause to be delivered to the Custodian all Securities to
be held by the Custodian for the account of any Fund. The Custodian will not
have any duties or responsibilities with respect to such Securities until
actually received by the Custodian. The Custodian is hereby authorized by the
Trust, acting on behalf of the Fund, to actually deposit any assets of the Fund
in the Book-Entry System or in a Depository, provided, however, that the
Custodian shall always be accountable to the Trust for the assets of the Fund so
deposited. Assets deposited in the Book-Entry System or the Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including but not limited to accounts in which the Custodian acts in
a fiduciary or representative capacity.
III. C. Payments for Shares. As and when received, the Custodian shall
deposit to the account(s) of a Fund any and all payments for Shares of that Fund
issued or sold from time to time as they are received from the Trust's
distributor or Dividend and Transfer Agent or from the Trust itself.
III. D. Duties Upon Receipt. The Custodian shall not be responsible for any
Securities, moneys or other assets of any Fund until actually received.
<PAGE>
ARTICLE IV
Disbursement of Trust Assets
----------------------------
IV. A. Declaration of Dividends by Trust. The Trust shall furnish to
the Custodian a copy of the resolution of the Board of Trustees of the Trust,
certified by the Trust's Secretary, either (i) setting forth the date of the
declaration of any dividend or distribution in respect of Shares of any Fund of
the Trust, the date of payment thereof, the record date as of which the Fund
shareholders entitled to payment shall be determined, the amount payable per
share to Fund shareholders of record as of that date, and the total amount to be
paid by the Dividend and Transfer Agent on the payment date, or (ii) authorizing
the declaration of dividends and distributions in respect of Shares of a Fund on
a daily basis and authorizing the Custodian to rely on Written Instructions
setting forth the date of the declaration of any such dividend or distribution,
the date of payment thereof, the record date as of which the Fund shareholders
entitled to payment shall be determined, the amount payable per share to Fund
shareholders of record as of that date, and the total amount to be paid by the
Dividend and Transfer Agent on the payment date.
On the payment date specified in the resolution or Written Instructions
described above, the Custodian shall segregate such amounts from moneys held for
the account of the Fund so that they are available for such payment.
IV. B. Segregation of Redemption Proceeds. Upon receipt of Proper
Instructions so directing it, the Custodian shall segregate amounts necessary
for the payment of redemption proceeds to be made by the Dividend and Transfer
Agent from moneys held for the account of the Fund so that they are available
for such payment.
IV. C. Disbursements of Custodian. Upon receipt of a Certificate directing
payment and setting forth the name and address of the person to whom such
payment is to be made, the amount of such payment, the name of the Fund from
which payment is to be made, and the purpose for which payment is to be made,
the Custodian shall disburse amounts as and when directed from the assets of
that Fund. The Custodian is authorized to rely on such directions and shall be
under no obligation to inquire as to the propriety of such directions.
IV. D. Payment of Custodian Fees. Upon receipt of Written Instructions
directing payment, the Custodian shall disburse moneys from the assets of the
Trust in payment of the Custodian's fees and expenses as provided in Article
VIII hereof.
ARTICLE V
Custody of Trust Assets
-----------------------
V. A. Separate Accounts for Each Fund. As to each Fund, the Custodian shall
open and maintain a separate bank account or accounts in the United States in
the name of the Trust coupled with the name of such Fund, subject only to draft
or order by the Custodian acting pursuant to the terms of this Agreement, and
shall hold all cash received by it from or for the account of the Fund, other
than cash maintained by the Fund in a bank account established and used by the
Fund in accordance with Rule 17f-3 under the Act. Moneys held by the Custodian
on behalf of a Fund may be deposited by the Custodian to its credit as Custodian
in the banking department of the Custodian. Such moneys shall be deposited by
the Custodian in its capacity as such, and shall be withdrawable by the
Custodian only in such capacity.
V. B. Segregation of Non-Cash Assets. All Securities and non-cash property
-------------------------------
held by the Custodian for the account of a Fund (other than Securities
maintained in a Depository or Book-entry System) shall be physically segregated
from other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
<PAGE>
V. C. Securities in Bearer and Registered Form. All Securities held
-------------------------------------------------
which are issued or issuable only in bearer form, shall be held by the Custodian
in that form; all other Securities held for the Fund may be registered in the
name of the Custodian, any sub-custodian appointed in accordance with this
Agreement, or the nominee of any of them. The Trust agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to hold, or deliver in
proper form for transfer, any Securities that it may hold for the account of any
Fund and which may, from time to time, be registered in the name of a Fund.
V. D. Duties of Custodian as to Securities. Unless otherwise instructed by
-------------------------------------------
the Trust, with respect to all Securities held for the Trust, the Custodian
shall on a timely basis (concerning items 1 and 2 below, as defined in the
Custodian's Standards of Service Guide, as amended from time to time, annexed
hereto as Appendix D):
1.) Collect all income due and payable with respect to such
Securities;
2.) Present for payment and collect amounts payable upon all
Securities which may mature or be called, redeemed, or retired, or
otherwise become payable;
3.) Surrender interim receipts or Securities in temporary form for
Securities in definitive form; and
4.) Execute, as Custodian, any necessary declarations or certificates
of ownership under the Federal income tax laws or the laws or regulations
of any other taxing authority, including any foreign taxing authority, now
or hereafter in effect.
V. E. Certain Actions Upon Written Instructions. Upon receipt of a Written
------------------------------------------------
Instructions and not otherwise, the Custodian shall:
1.) Execute and deliver to such persons as may be designated in such
Written Instructions proxies, consents, authorizations, and any other
instruments whereby the authority of the Trust as beneficial owner of any
Securities may be exercised;
2.) Deliver any Securities in exchange for other Securities or cash issued
or paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation, or recapitalization of any corporation, or the exercise of any
conversion privilege;
3.) Deliver any Securities to any protective committee, reorganization
committee, or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization, or sale of assets of any corporation,
and receive and hold under the terms of this Agreement such certificates of
deposit, interim receipts or other instruments or documents as may be issued to
it to evidence such delivery;
4.) Make such transfers or exchanges of the assets of any Fund an take such
other steps as shall be stated in the Written Instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Trust; and
5.) Deliver any Securities held for any Fund to the depository agent for
tender or other similar offers.
V. F. Custodian to Deliver Proxy Materials. The Custodian shall
------------------------------------------------
promptly deliver to the Trust all notices, proxy material and executed but
unvoted proxies pertaining to shareholder meetings of Securities held by any
Fund. The Custodian shall not vote or authorize the voting of any Securities or
give any consent, waiver or approval with respect thereto unless so directed by
Written Instructions.
<PAGE>
V. G. Custodian to Deliver Tender Offer Information. The Custodian shall
-----------------------------------------------------
promptly deliver to the Trust all information received by the Custodian and
pertaining to Securities held by any Fund with respect to tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Appendix D. If the Trust desires
to take action with respect to any tender offer, exchange offer or other similar
transaction, the Trust shall notify the Custodian at least five Business Days
prior to the date on which the Custodian is to take such action. The Trust will
provide or cause to be provided to the Custodian all relevant information for
any Security which has unique put/option provisions at least five Business Days
prior to the beginning date of the tender period.
V. H. Custodian to Deliver Security and Transaction Information. On
-------------------------------------------------------------------
each Business Day that the Federal Reserve Bank is open, the Custodian shall
furnish the Trust with a detailed statement of monies held for the Fund under
this Agreement and with confirmations and a summary of all transfers to or from
the account of the Fund. At least monthly and from time to time, the Custodian
shall furnish the Trust with a detailed statement of the Securities held for the
Fund under this Agreement. Where Securities are transferred to the account of
the Fund without physical delivery, the Custodian shall also identify as
belonging to the Fund a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Book-Entry System or the Depository.
With respect to information provided by this section, it shall not be necessary
for the Custodian to provide notice as described by Article XI Section F.
Notices to Trust; it shall be sufficient to communicate by such means as shall
be mutually agreeable to the Trust and the Custodian.
ARTICLE VI
Purchase and Sale of Securities
VI. A. Purchase of Securities. Promptly after each purchase of Securities
by the Trust, the Trust shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Proper Instructions, specifying with respect to each such purchase the;
1.) name of the issuer and the title of the Securities,
2.) the number of shares, principal amount purchased (and accrued
interest, if any) or other units purchased,
3.) date of purchase and settlement,
4.) purchase price per unit,
5.) total amount payable,
6.) name of the person from whom, or the broker through which, the
purchase was made,
7.) the name of the person to whom such amount is payable, and
8.) the Fund for which the purchase was made.
The Custodian shall, against receipt of Securities purchased by or for the
Trust, pay out of the moneys held for the account of such Fund the total amount
specified in the Written Instructions, or Oral Instructions, if applicable, to
the person named therein. The Custodian shall not be under any obligation to pay
out moneys to cover the cost of a purchase of Securities for a Fund, if in the
relevant Fund custody account there is insufficient cash available to the Fund
for which such purchase was made. With respect to any repurchase agreement
transaction for the Funds, the Custodian shall assure that the collateral
reflected on the transaction advice is received by the Custodian.
VI. B. Sale of Securities. Promptly after each sale of Securities by a
---------------------
Fund, the Trust shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, Written Instructions, and (ii)
with respect to each sale of Money Market Securities, Proper Instructions,
specifying with respect to each such sale the:
<PAGE>
1.) name of the issuer and the title of the Securities,
2.) number of shares, principal amount sold (and accrued
interest, if any) or other units sold,
3.) date of sale and settlement,
4.) sale price per unit,
5.) total amount receivable,
6.) name of the person to whom, or the broker through which, the
sale was made,
7.) name of the person to whom such Securities are to be
delivered, and
8.) Fund for which the sale was made.
The Custodian shall deliver the Securities against receipt of the total amount
specified in the Written Instructions, or Oral Instructions, if applicable.
VI. C. Delivery Versus Payment for Purchases and Sales. Purchases and sales
--------------------------------------------------
of Securities effected by the Custodian will be made on a delivery versus
payment basis. The Custodian may, in its sole discretion, upon receipt of
Written Instructions, elect to settle a purchase or sale transaction in some
other manner, but only upon receipt of acceptable indemnification from the Fund.
VI. D. Payment on Settlement Date. On contractual settlement date, the
----------------------------
account of the Fund will be charged for all purchased Securities settling on
that day, regardless of whether or not delivery is made. Likewise, on
contractual settlement date, proceeds from the sale of Securities settling that
day will be credited to the account of the Fund, irrespective of delivery.
VI. E. Segregated Accounts. The Custodian shall, upon receipt of Proper
----------------------
Instructions so directing it, establish and maintain a segregated account or
accounts for and on behalf of a Fund. Cash and/or Securities may be transferred
into such account or accounts for specific purposes, to-wit:
1.) in accordance with the provision of any agreement among the Trust,
the Custodian, and a broker-dealer registered under the 1934 Act, and also
a member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities
exchange, the Commodity Futures Trading Commission, any registered contract
market, or any similar organization or organizations requiring escrow or
other similar arrangements in connection with transactions by the Fund;
2.) for purposes of segregating cash or Securities in connection with
options purchased, sold, or written by the Fund or commodity futures
contracts or options thereon purchased or sold by the Fund;
3.) for the purpose of compliance by the Fund with the procedures
required for reverse repurchase agreements, firm commitment agreements,
standby commitment agreements, short sales, or any other securities by Act
Release No. 10666, or any subsequent release or releases or rule of the SEC
relating to the maintenance of segregated accounts by registered investment
companies;
4.) for the purpose of segregating collateral for loans of Securities
made by the Fund; and
5.) for other proper corporate purposes, but only upon receipt of, in
addition to Proper Instructions, a copy of a resolution of the Board of
Trustees, certified by an Officer, setting forth the purposes of such
segregated account.
Each segregated account established hereunder shall be established and
maintained for a single Fund only. All Proper Instructions relating to a
segregated account shall specify the Fund involved.
<PAGE>
VI. F. Advances for Settlement. Except as otherwise may be agreed upon by
the parties hereto, the Custodian shall not be required to comply with any
Written Instructions to settle the purchase of any Securities on behalf of a
Fund unless there is sufficient cash in the account(s) pertaining to such Fund
at the time or to settle the sale of any Securities from such an account(s)
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such Securities exceeds the amount of cash in the
account(s) at the time of such purchase, the Custodian may, in its sole
discretion, advance the amount of the difference in order to settle the purchase
of such Securities. The amount of any such advance shall be deemed a loan from
the Custodian to the Trust payable on demand and bearing interest accruing from
the date such loan is made up to but not including the date such loan is repaid
at the rate per annum customarily charged by the Custodian on similar loans.
ARTICLE VII
Trust Indebtedness
------------------
VII. A. Borrowings. In connection with any borrowings by the Trust, the
-----------
Trust will cause to be delivered to the Custodian by a bank or broker requiring
Securities as collateral for such borrowings (including the Custodian if the
borrowing is from the Custodian), a notice or undertaking in the form currently
employed by such bank or broker setting forth the amount of collateral. The
Trust shall promptly deliver to the Custodian Written Instructions specifying
with respect to each such borrowing: (a) the name of the bank or broker, (b) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note duly endorsed by the Trust, or a loan
agreement, (c) the date, and time if known, on which the loan is to be entered
into, (d) the date on which the loan becomes due and payable, (e) the total
amount payable to the Trust on the borrowing date, and (f) the description of
the Securities securing the loan, including the name of the issuer, the title
and the number of shares or other units or the principal amount. The Custodian
shall deliver on the borrowing date specified in the Written Instructions the
required collateral against the lender's delivery of the total loan amount then
payable, provided that the same conforms to that which is described in the
Written Instructions. The Custodian shall deliver, in the manner directed by the
Trust, such Securities as additional collateral, as may be specified in Written
Instructions, to secure further any transaction described in this Article VII.
The Trust shall cause all Securities released from collateral status to be
returned directly to the Custodian and the Custodian shall receive from time to
time such return of collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such collateral in its
possession, subject to all rights therein given to the lender because of the
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
VII. B. Advances. With respect to any advances of cash made by the
----------
Custodian to or for the benefit of a Fund for any purpose which results in the
Fund incurring an overdraft at the end of any Business Day, such advance shall
be repayable immediately upon demand made by the Custodian at any time.
<PAGE>
ARTICLE VIII
Concerning the Custodian
------------------------
VIII. A. Limitations on Liability of Custodian. Except as otherwise
-------------------------------------------
provided herein, the Custodian shall not be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, except for any such loss or damage arising out of its negligence or
willful misconduct. The Trust, on behalf of the Fund and only from assets of the
Fund (or insurance purchased by the Trust with respect to its liabilities on
behalf of the Fund hereunder), shall defend, indemnify and hold harmless the
Custodian and its directors, officers, employees and agents with respect to any
loss, claim, liability or cost (including reasonable attorneys' fees) arising or
alleged to arise from or relating to the Trust's duties hereunder or any other
action or inaction of the Trust or its Trustees, officers, employees or agents,
except such as may arise from the negligent action, omission, willful misconduct
or breach of this Agreement by the Custodian, its directors, officers, employees
or agents.. The Custodian shall defend, indemnify and hold harmless the Trust
and its trustees, officers, employees or agents with respect to any loss, claim,
liability or cost (including reasonable attorneys' fees) arising or alleged to
arise from or relating to the Custodian's duties as specifically set forth in
this agreement with respect to the Fund hereunder or any other action or
inaction of the Custodian or its directors, officers, employees, agents,
nominees, or Sub-Custodians as to the Fund, except such as may arise from the
negligent action, omission or willful misconduct of the Trust, its trustees,
officers, employees, or agents. The Custodian may, with respect to questions of
law apply for and obtain the advice and opinion of counsel to the Trust at the
expense of the Fund, or of its own counsel at its own expense, and shall be
fully protected with respect to anything done or omitted by it in good faith in
conformity with the advice or opinion of counsel to the Trust, and shall be
similarly protected with respect to anything done or omitted by it in good faith
in conformity with advice or opinion of its counsel, unless counsel to the Fund
shall, within a reasonable time after being notified of legal advice received by
the Custodian, have a differing interpretation of such question of law. The
Custodian shall be liable to the Trust for any proximate loss or damage
resulting from the use of the Book-Entry System or any Depository arising by
reason of any negligence, misfeasance or misconduct on the part of the Custodian
or any of its employees, agents, nominees or Sub-Custodians, but not for any
special, incidental, consequential, or punitive damages; provided, however, that
nothing contained herein shall preclude recovery by the Trust, on behalf of the
Fund, of principal and of interest to the date of recovery on Securities
incorrectly omitted from the Fund's account or penalties imposed on the Trust,
in connection with the Fund, for any failures to deliver Securities. In any case
in which one party hereto may be asked to indemnify the other or hold the other
harmless, the party from whom indemnification is sought (the "Indemnifying
Party") shall be advised of all pertinent facts concerning the situation in
question, and the party claiming a right to indemnification (the "Indemnified
Party") will use reasonable care to identify and notify the Indemnifying Party
promptly concerning any situation which presents or appears to present a claim
for indemnification against the Indemnifying Party. The Indemnifying Party shall
have the option to defend the Indemnified Party against any claim which may be
the subject of the indemnification, and in the event the Indemnifying Party so
elects, such defense shall be conducted by counsel chosen by the Indemnifying
Party and satisfactory to the Indemnified Party and the Indemnifying Party will
so notify the Indemnified Party and thereupon such Indemnifying Party shall take
over the complete defense of the claim and the Indemnifying Party shall sustain
no further legal or other expenses in such situation for which indemnification
has been sought under this paragraph, except the expenses of any additional
counsel retained by the Indemnified Party. In no case shall any party claiming
the right to indemnification confess any claim or make any compromise in any
case in which the other party has been asked to indemnify such party (unless
such confession or compromise is made with such other party's prior written
consent. The provisions of this section VIII. A. shall survive the termination
of this Agreement.
<PAGE>
VIII. B. Actions not Required by Custodian. Without limiting the generality
-----------------------------------
of the foregoing, the Custodian, acting in the capacity of Custodian hereunder,
shall be under no obligation to inquire into, and shall not be liable for:
1.) The validity of the issue of any Securities purchased by or for
the account of any Fund, the legality of the purchase thereof, or the
propriety of the amount paid therefor;
2.) The legality of the sale of any Securities by or for the account
of any Fund, or the propriety of the amount for which the same are sold;
3.) The legality of the issue or sale of any Shares of any Fund, or
the sufficiency of the amount to be received therefor;
4.) The legality of the redemption of any Shares of any Fund, or the
propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend by the
Trust in respect of Shares of any Fund;
6.) The legality of any borrowing by the Trust on behalf of the Trust
or any Fund, using Securities as collateral;
7.) Whether the Trust or a Fund is in compliance with the 1940 Act,
the regulations thereunder, the provisions of the Trust's charter documents
or by-laws, or its investment objectives and policies as then in effect.
VIII. C. No Duty to Collect Amounts Due From Dividend and Transfer Agent.
------------------------------------------------------------------
The Custodian shall not be under any duty or obligation to take action to effect
collection of any amount due to the Trust from any Dividend and Transfer Agent
of the Trust nor to take any action to effect payment or distribution by any
Dividend and Transfer Agent of the Trust of any amount paid by the Custodian to
any Dividend and Transfer Agent of the Trust in accordance with this Agreement.
VIII. D. No Enforcement Actions. Notwithstanding Section D of Article V,
-------------------------
the Custodian shall not be under any duty or obligation to take action, by legal
means or otherwise, to effect collection of any amount, if the Securities upon
which such amount is payable are in default, or if payment is refused after due
demand or presentation, unless and until (i) it shall be directed to take such
action by Written Instructions and (ii) it shall be assured to its satisfaction
(including prepayment thereof) of reimbursement of its costs and expenses in
connection with any such action.
VIII. E. Authority to Use Agents and Sub-Custodians. The Trust acknowledges
--------------------------------------------
and hereby authorizes the Custodian to hold Securities through its various
agents described in Appendix C annexed hereto. In addition, the Trust
acknowledges that the Custodian may appoint one or more financial institutions,
as agent or agents or as sub-custodian or sub-custodians, including, but not
limited to, banking institutions located in foreign countries, for the purpose
of holding Securities and moneys at any time owned by the Fund. The Custodian
shall not be relieved of any obligation or liability under this Agreement in
connection with the appointment or activities of such agents or sub-custodians.
Any such agent or sub-custodian shall be qualified to serve as such for assets
of investment companies registered under the Act. The Funds shall reimburse the
Custodian for all costs incurred by the Custodian in connection with opening
accounts with any such agents or sub-custodians. Upon request, the Custodian
shall promptly forward to the Trust any documents it receives from any agent or
sub-custodian appointed hereunder which may assist trustees of registered
investment companies to fulfill their responsibilities under Rule 17f-5 of the
Act.
VIII. F. No Duty to Supervise Investments. The Custodian shall not be under
---------------------------------
any duty or obligation to ascertain whether any Securities at any time delivered
to or held by it for the account of the Trust are such as properly may be held
by the Trust under the provisions of the Declaration of Trust and the Trust's
By-Laws.
<PAGE>
VIII. G. All Records Confidential. The Custodian shall treat all records
---------------------------
and other information relating to the Trust and the assets of all Funds as
confidential and shall not disclose any such records or information to any other
person unless (i) the Trust shall have consented thereto in writing or (ii) such
disclosure is compelled by law.
VIII. H. Compensation of Custodian. The Custodian shall be entitled to
---------------------------
receive and the Trust agrees to pay to the Custodian, for the Fund's account
from the Fund's assets only, such compensation as shall be determined pursuant
to Appendix E attached hereto, or as shall be determined pursuant to amendments
to Appendix E as approved by the Custodian and the Trust. The Custodian shall be
entitled to charge against any money held by it for the accounts of the Fund the
amount of any loss, damage, liability or expense, including counsel fees, for
which it shall be entitled to reimbursement under the provisions of this
Agreement as determined by agreement of the Custodian and the Trust or by the
final order of any court or arbitrator having jurisdiction and as to which all
rights of appeal shall have expired. The expenses which the Custodian may charge
against the account of a Fund include, but are not limited to, the expenses of
agents or Sub-Custodians incurred in settling transactions involving the
purchase and sale of Securities of the Fund.
VIII. I. Reliance Upon Instructions. The Custodian shall be entitled to
---------------------------
rely upon any Proper Instructions if such reliance is made in good faith. The
Trust agrees to forward to the Custodian Written Instructions confirming Oral
Instructions in such a manner so that such Written Instructions are received by
the Custodian, whether by hand delivery, telex, facsimile or otherwise, on the
same Business Day on which such Oral Instructions were given. The Trust agrees
that the failure of the Custodian to receive such confirming instructions shall
in no way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Trust. The Trust agrees that the Custodian
shall incur no liability to the Trust for acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions.
VIII. J. Books and Records. The Custodian will (i) set up and maintain
-------------------
proper books of account and complete records of all transactions in the accounts
maintained by the Custodian hereunder in such manner as will meet the
obligations of the Fund under the Act, with particular attention to Section 31
thereof and Rules 3la-1 and 3la-2 thereunder and those records are the property
of the Trust, and (ii) preserve for the periods prescribed by applicable Federal
statute or regulation all records required to be so preserved. All such books
and records shall be the property of the Trust, and shall be available, upon
request, for inspection by duly authorized officers, employees or agents of the
Trust and employees of the SEC.
VIII. K. Internal Accounting Control Systems. The Custodian shall send to
-------------------------------------
the Trust any report received on the systems of internal accounting control of
the Custodian, or its agents or sub-custodians, as the Trust may reasonably
request from time to time.
VIII. L. No Management of Assets by Custodian. The Custodian performs only
-------------------------------------
the services of a custodian and shall have no responsibility for the management,
investment or reinvestment of the Securities or other assets from time to time
owned by any Fund. The Custodian is not a selling agent for Shares of any Fund
and performance of its duties as custodian shall not be deemed to be a
recommendation to any Fund's depositors or others of Shares of the Fund as an
investment. The Custodian shall have no duties or obligations whatsoever except
such duties and obligations as are specifically set forth in this Agreement, and
no covenant or obligation shall be implied in this Agreement against the
Custodian.
<PAGE>
VIII. M. Assistance to Trust. The Custodian shall take all reasonable
---------------------
action, that the Trust may from time to time request, to assist the Trust in
obtaining favorable opinions from the Trust's independent accountants, with
respect to the Custodian's activities hereunder, in connection with the
preparation of the Fund's Form N- IA, Form N-SAR, or other annual reports to the
SEC.
VIII. N. Grant of Security Interest. The Trust hereby pledges to and grants
---------------------------
the Custodian a security interest in the assets of any Fund to secure the
payment of any liabilities of the Fund to the Custodian for money borrowed from
the Custodian. This pledge is in addition to any other pledge of collateral by
the Trust to the Custodian.
ARTICLE IX
Termination
-----------
IX. A. Termination. Either party hereto may terminate this Agreement for
--------------
any reason by giving to the other party a notice in writing specifying the date
of such termination, which shall be not less than ninety (90) days after the
date of giving of such notice. If such notice is given by the Trust, it shall be
accompanied by a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary of the Trust, electing to terminate this Agreement
and designating a successor custodian or custodians each of which shall be a
bank or trust company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. In the event such notice is given by the
Custodian, the Trust shall, on or before the termination date, deliver to the
Custodian a copy of a resolution of the Board of Trustees of the Trust,
certified by the Secretary, designating a successor custodian or custodians to
act on behalf of the Trust. In the absence of such designation by the Trust, the
Custodian may designate a successor custodian which shall be a bank or trust
company having not less than $100,000,000 aggregate capital, surplus, and
undivided profits. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian, provided that it has received a notice of
acceptance by the successor custodian, shall deliver, on that date, directly to
the successor custodian all Securities and monies then owned by the Fund and
held by it as Custodian. Upon termination of this Agreement, the Trust shall pay
to the Custodian on behalf of the Trust such compensation as may be due as of
the date of such termination. The Trust agrees on behalf of the Trust that the
Custodian shall be reimbursed for its reasonable costs in connection with the
termination of this Agreement.
IX. B. Failure to Designate Successor Trustee. If a successor custodian is
-----------------------------------------
not designated by the Trust, or by the Custodian in accordance with the
preceding paragraph, or the designated successor cannot or will not serve, the
Trust shall, upon the delivery by the Custodian to the Trust of all Securities
(other than Securities held in the Book-Entry System which cannot be delivered
to the Trust) and moneys then owned by the Trust, be deemed to be the custodian
for the Trust, and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with respect to
Securities held in the Book-Entry System, which cannot be delivered to the
Trust, which shall be held by the Custodian in accordance with this Agreement.
<PAGE>
ARTICLE X
Force Majeure
-------------
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; labor
disputes; acts of civil or military authority; governmental actions; or
inability to obtain labor, material, equipment or transportation; provided,
however, that the Custodian, in the event of a failure or delay, shall use its
best efforts to ameliorate the effects of any such failure or delay.
ARTICLE XI
Miscellaneous
-------------
XI. A. Designation of Authorized Persons. Appendix A sets forth the names
-----------------------------------
and the signatures of all Authorized Persons as of this date, as certified by
the Secretary of the Trust. The Trust agrees to furnish to the Custodian a new
Appendix A in form similar to the attached Appendix A, if any present Authorized
Person ceases to be an Authorized Person or if any other or additional
Authorized Persons are elected or appointed. Until such new Appendix A shall be
received, the Custodian shall be fully protected in acting under the provisions
of this Agreement upon Oral Instructions or signatures of the then current
Authorized Persons as set forth in the last delivered Appendix A.
XI. B. Limitation of Personal Liability. No recourse under any obligation
---------------------------------
of this Agreement or for any claim based thereon shall be had against any
organizer, shareholder, officer, trustee, past, present or future as such, of
the Trust or of any predecessor or successor, either directly or through the
Trust or any such predecessor or successor, whether by virtue of any
constitution, statute or rule of law or equity, or by the enforcement of any
assessment or penalty or otherwise; it being expressly agreed and understood
that this Agreement and the obligations thereunder are enforceable solely
against the assets of the Trust, and that no such personal liability whatever
shall attach to, or is or shall be incurred by, the organizers, shareholders,
officers, or trustees of the Trust or of any predecessor or successor, or any of
them as such, because of the obligations contained in this Agreement or implied
therefrom and that any and all such liability is hereby expressly waived and
released by the Custodian as a condition of, and as a consideration for, the
execution of this Agreement.
XI. C. Authorization By Board. The obligations set forth in this
-------------------------
Agreement as having been made by the Trust have been made by the Board of
Trustees, acting as such Trustees for and on behalf of the Trust, pursuant to
the authority vested in them under the laws of the State of Ohio, the
Declaration of Trust and the By-Laws of the Trust. This Agreement has been
executed by Officers of the Trust as officers, and not individually, and the
obligations contained herein are not binding upon any of the Trustees, Officers,
agents or holders of shares, personally, but bind only the Trust and then only
to the extent of the assets of the Trust.
<PAGE>
XI. D. Custodian's Consent to Use of Its Name. The Trust shall obtain
----------------------------------------
the Custodian's consent prior to the publication and/or dissemination or
distribution, of the Prospectus and any other documents (including advertising
material) specifically mentioning the Custodian (other than merely by name and
address).
XI. E. Notices to Custodian. Any notice or other instrument in writing,
---------------------
authorized or required by this Agreement to be given to the Custodian, shall be
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its offices at Star Bank Center, 425 Walnut .Street, M. L. 6118, Cincinnati,
Ohio 45202, attention Mutual Fund Custody Department, or at such other place as
the Custodian may from time to time designate in writing.
XI. F. Notices to Trust. Any notice or other instrument in writing,
------------------
authorized or required by this Agreement to be given to the Trust shall be
sufficiently given when delivered to the Trust or on the second Business Day
following the time such notice is deposited in the U.S. mail postage prepaid and
addressed to the Trust at its office at 225 South Meramec Avenue, Suite 732
Tower, St. Louis, Missouri 63105 or at such other place as the Trust may from
time to time designate in writing.
XI. G. Amendments In Writing. This Agreement, with the exception of the
----------------------
Appendices, may not be amended or modified in any manner except by a written
agreement executed by both parties with the same formality as this Agreement,
and authorized and approved by a resolution of the Board of Trustees of the
Trust.
XI. H. Successors and Assigns. This Agreement shall extend to and shall be
-----------------------
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Trust or
by the Custodian, and no attempted assignment by the Trust or the Custodian
shall be effective without the written consent of the other party hereto.
XI. I. Governing Law. This Agreement shall be construed in accordance with
--------------
the laws of the State of Ohio.
XI. J. Jurisdiction. Any legal action, suit or proceeding to be
---------------
instituted by either party with respect to this Agreement shall be brought by
such party exclusively in the courts of the State of Ohio or in the courts of
the United States for the Southern District of Ohio, and each party, by its
execution of this Agreement, irrevocably (i) submits to such jurisdiction and
(ii) consents to the service of any process or pleadings by first class U.S.
mail, postage prepaid and return receipt requested, or by any other means from
time to time authorized by the laws of such jurisdiction.
XI. K. Counterparts. This Agreement may be executed in any number of
--------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
<PAGE>
XI. L. Headings. The headings of paragraphs in this Agreement are for
----------
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year first above written.
WITNESS: TRUST:
Sparrow Funds
/s/ Alex Ramos By: /s/
Gerald R. Sparrow, President
WITNESS: CUSTODIAN:
Star Bank, N.A.
/s/Lynette C. Gibson By:/s/Marsha A. Croxton
Title: Sr. Vice President
<PAGE>
APPENDIX A
Authorized Persons Specimen Signatures
Chairman: __________________ _____________________________
President: Gerald R. Sparrow /s/__________________________
Secretary: Alex Ramos /s/__________________________
Treasurer: Gerald R. Sparrow /s/__________________________
Senior Vice
President: __________________ _____________________________
Assistant
Secretary: _________________ _____________________________
Assistant
Treasurer: __________________ _____________________________
Adviser Employees: __________________ _____________________________
------------------ -----------------------------
Transfer Agent/Fund Accountant
Employees: Linda Lawson /s/__________________________
Mike Durham /s/__________________________
Stacey Stone /s/__________________________
------------------ -----------------------------
* Authority restricted; does not include: _____________________________________
<PAGE>
APPENDIX B
Series of the Trust
Sparrow Growth Fund
<PAGE>
APPENDIX C
Agents of the Custodian
The following agents are employed currently by Star Bank, N.A. for
securities processing and control ...
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bankers Trust Company
16 Wall Street
New York, NY 10005
(For Foreign Securities and certain non-DTC eligible Securities)
<PAGE>
APPENDIX D
Standards of Service Guide
Star Bank, N.A.
Standards of Service Guide
Star Bank, N.A. is committed to providing superior quality service to all
customers and their agents at all times. We have compiled this guide as a tool
for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to complete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's Reorg Source,
Financial Information, Inc., XCITEK, DTC Important Notices, and the Wall Street
Journal.
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond Source,
Kenny Information Systems, Standard & Poor's Corporation, and DTC Important
Notices. Star Bank will not notify clients of optional put opportunities.
Any securities delivered free to Star Bank or its agents must be received
three (3) business days prior to any payment or settlement in order for the Star
Bank standards of service to apply.
Should you have any questions regarding the information contained in this
guide, please feel free to contact your account representative.
The information contained in this Standards of Service Guide is subject to
change. Should any changes be made Star Bank will provide you with an updated
copy of its Standards of Service Guide.
<PAGE>
<TABLE>
<S> <C> <C>
Star Bank Security Settlement Standards
Transaction Type Instructions Deadlines* Delivery Instructions
- --------------------------------- --------------------------------------------------- -------------------------------
DTC - Clearing House Funds 11:00 A.M. on Settlement Date DTC Participant #2219
For Account#_____________
DTC - Same Day Funds Settlement 12:30 P.M. on Settlement Date DTC Participant #2219
For Account #____________
Federal Reserve Bank of Cinti/Trust
Federal Reserve Book Entry 1:00 P.M. on Settlement Date for Star Bank, N.A. ABA# 042000013
For Account #_____________
Federal Reserve Bank of Cinti/Spec
Federal Reserve Book Entry 1:00 P.M. on Settlement Date for Star Bank, N.A. ABA# 042000013
(Repurchase Agreement Collateral Only) For Account #_____________
PTC Securities 12:00 P.M. on Settlement Date (for Deliveries PTC For Account BTRST/CUST
(GNMA Book Entry) by 5:00 P.M. on Settlement Date minus 1 Sub Account: Star Bank, N.A. #090334
10:00 A.M. EST on Settlement Date Bankers Trust Company
Physical Securities (for Deliveries, by 4:00 P.M. on Settlement 16 Wall Street 4th Floor, Window 43
Date minus 1) for Star Bank Account #090334
Bankers Trust Company
CEDEL/EURO-CLEAR 4:00 P.M. on Settlement Date minus 3 Euroclear # 91648
For Star Bank Account #090334
Cash Wire Transfer 3:00 P.M. Star Bank,N.A. Cinti/Trust ABA# 042000013
Credit Account #9901877
Further Credit to ___________
Account # _______________
* All times listed are Cincinnati time.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Star Bank Payment Standards
Security Type Income Principal
- ----------------------------------------- ---------------- ---------------
Equities Payable Date + 1
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date + 1 Payable Date
Federal Reserve Bank Book Entry* Payable Date Payable Date
CMOs *
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 2 Payable Date + 2
SBA Loan Certificates When Received When Received
Unit Investment Trust Certificates* Payable Date + 1 Payable Date + 1
Certificates of Deposit* Payable Date + 1 Payable Date + 1
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 2 Payable Date + 2
</TABLE>
NOTE: If a payable date falls on a weekend or bank holiday, payment will be
made on the immediately following business day.
<PAGE>
<TABLE>
<S> <C> <C>
Star Bank Corporate Reorganization Standards
Deadline for Client Transaction
Type of Action Notification to Client Instructions
to Star Bank Posting
- ------------------------- -------------------------------------- ---------------------------------------- -------------
Rights, Warrants, Later of 10 business days prior to 5 business days prior to expiration Upon receipt
and Optional Mergers expiration or receipt of notice
Mandatory Puts with Later of 10 business days prior to 5 business days prior to expiration Upon receipt
Option to Retain expiration or receipt of notice
Class Actions 10 business days prior to expiration 5 business days prior to expiration Upon receipt
date
Voluntary Tenders,
Exchanges, Later of 10 business days prior to 5 business days prior to expiration Upon receipt
and Conversions expiration or receipt of notice
Mandatory Puts, Defaults,
Liquidations, Bankruptcies, At posting of funds or securities
Stock Splits, Mandatory received None Upon receipt
Exchanges
Full and Partial Calls Later of 10 business days prior to None Upon receipt
expiration or receipt of notice
NOTE: Fractional shares/par amounts resulting from any of the above will be sold.
</TABLE>
<PAGE>
Star Bank N.A.
Proposed domestic Custody Fee Schedule for Sparrow Capital Management, Inc.
Star Bank N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. Portfolio Transaction Fees:
---------------------------
(a) For each repurchase agreement transaction $7.00
(b) For each portfolio transaction processed
through DTC or Federal Reserve $9.00
(c) For each portfolio transaction processed through
our New York custodian $25.00
(d) For each GNMA/Amortized Security Purchase $16.00
(e) For each GNMA Prin/Int Paydown, GNMA Sales $8.00
(f) For each option/future contract written, exercised
or expired $40.00
(g) For each Cedel/Euro clear transaction $80.00
(h) For each Disbursement (Fund expenses only) $5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange:
II. Market Value Fee
----------------
Based upon an annual rate of: Million
----------------------------- -------
.0003 (3 Basis Points) on First $20
.0002 (2 Basis Points) on Next $20
.00015 (1.5 Basis Points) on Balance
III. Monthly Minimum Fee-Per Fund $250.00
-----------------------------
IV. Out-of-Pocket Expenses
----------------------
The only out-of-pocket expenses charged to your account will be
shipping fees or transfer fees.
V. IRA Documents
-------------
Per Shareholder/year to hold each IRA Document $8.00
VI. Earnings Credits
----------------
On a monthly basis any earnings credits generated from uninvested
custody balances will be applied against any cash management service
fees generated. Earnings credits are based on a Cost of Funds Tiered
Earnings Credit Rate.
Revised September 11, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Pre-effective Amendment No. 1 to the Registration Statement for the Sparrow
Funds of all references to our firm included in or made a part of this
Amendment.
McCurdy & Associates CPA's, Inc.
September 16, 1998
September 16, 1998
Sparrow Funds
225 S. Meramec Avenue, Suite 732
St. Louis, Missouri 63105
Gentlemen:
The undersigned hereby purchases 10,000 shares of Sparrow Growth Fund at
$10.00 per share, representing a total investment of $100,000 in the shares of
the series of Sparrow Funds. The undersigned hereby represents that (i) such
purchase is for investment purposes, and (ii) the undersigned has no present
intention of redeeming or selling said shares.
/S/ Gerald R. Sparrow
Gerald R. Sparrow
SPARROW FUNDS
DISTRIBUTION PLAN
WHEREAS, Sparrow Funds, an Ohio business trust (the "Trust"), engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue an unlimited number of shares
of beneficial interest without par value (the "Shares"), which may be divided
into one or more series of Shares ("Series"); and
WHEREAS, the Trust currently offers one Series, Sparrow Growth Fund (the
"Fund"); and
WHEREAS, the Trustees of the Trust as a whole, and the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of this Plan or in any
agreement relating hereto (the "Qualified Trustees"), having determined, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under state law and under Section 36(a) and (b) of the 1940 Act, that there is a
reasonable likelihood that this Plan will benefit the Fund and its shareholders,
have approved this Plan by votes cast in person at a meeting called for the
purpose of voting hereon and on any agreements related hereto;
NOW THEREFORE, the Trust hereby adopts this Plan for the Fund, subject
to shareholder approval, in accordance with Rule 12b-1 under the 1940 Act, on
the following terms and conditions:
1. Distribution Activities. Subject to the supervision of the
------------------------- Trustees of the Trust, the Trust may,
directly or indirectly, engage in any activities related to the
distribution of Shares of the Fund, which activities may include, but
are not limited to, the following: (a) payments, including incentive
compensation, to securities dealers or other financial intermediaries,
financial institutions, investment advisors and others that are
engaged in the sale of Shares, or that may be advising shareholders of
the Trust regarding the purchase, sale or retention of Shares; (b)
payments, including incentive compensation, to securities dealers or
other financial intermediaries, financial institutions, investment
advisors and others that hold Shares for shareholders in omnibus
accounts or as shareholders of record or provide shareholder support
or administrative services to the Fund and its shareholders; (c)
expenses of maintaining personnel (including personnel of
organizations with which the Trust has entered into agreements related
to this Plan) who engage in or support distribution of Shares or who
render shareholder support services, including, but not limited to,
allocated overhead, office space and equipment, telephone facilities
and expenses, answering routine inquiries regarding the Trust,
processing shareholder transactions, and providing such other
shareholder services as the Trust may reasonably request; (d) costs of
preparing, printing and distributing prospectuses and statements of
additional information and reports of the Fund for recipients other
than existing shareholders of the Fund; (e) costs of formulating and
implementing marketing and promotional activities, including, but not
limited to, sales seminars, direct mail promotions and television,
radio, newspaper, magazine and other mass media advertising; (f) costs
of preparing, printing and distributing sales literature; (g) costs of
obtaining such information, analyses and reports with respect to
marketing and promotional activities as the Trust may, from time to
time, deem advisable; and (h) costs of implementing and operating this
Plan. The Trust is authorized to engage in the activities listed
above, and in any other activities related to the distribution of
Shares, either directly or through other persons with which the Trust
has entered into agreements related to this Plan.
<PAGE>
2. Maximum Expenditures. The expenditures to be made by the Trust
--------------------- pursuant to this Plan and the basis upon which
payment of such expenditures will be made shall be determined by the
Trustees of the Trust, but in no event may such expenditures exceed in
any fiscal year an amount calculated at the rate of 0.50% of the
average daily net asset value of the Fund. Such payments for
distribution activities may be made directly by the Trust or the
Trust's investment adviser may pay such expenses and obtain
reimbursement from the Trust.
3. Term and Termination. (a) This Plan shall become effective upon
----------------------- approval by a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund.
(b) Unless terminated as herein provided, this Plan shall continue in
effect for one year from the effective date and shall continue in
effect for successive periods of one year thereafter, but only so long
as each such continuance is specifically approved by votes of a
majority of both (i) the Trustees of the Trust and (ii) the Qualified
Trustees, cast in person at a meeting called for the purpose of voting
on such approval.
(c) This Plan may be terminated at any time by the vote of a majority
of the qualified Trustees or by vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Fund. If this
Plan is terminated, the Fund will not be required to make any payments
for expenses incurred after the date of termination.
4. Amendments. All material amendments to this Plan must be approved in
-----------
the manner provided for annual renewal of this Plan in Section 3(b)
hereof. In addition, this Plan may not be amended to materially
increase the amount of expenditures provided for in Section 2 hereof
unless such amendment is approved by a vote of the majority of the
outstanding voting securities of the Fund (as defined in the 1940
Act).
5. Selection and Nomination of Trustees. While this Plan is in
---------------------------------------- effect, the selection and
nomination of Trustees who are not interested persons (as defined in
the 1940 Act) of the Trust shall be committed to the discretion of the
Trustees who are not interested persons of the Trust.
6. Quarterly Reports. The Treasurer of the Trust shall provide to
------------------ the Trustees and the Trustees shall review, at
least quarterly, a written report of the amounts expended pursuant to
this Plan and any related agreement and the purposes for which such
expenditures were made.
7. Recordkeeping. The Trust shall preserve copies of this Plan
--------------- and any related agreement and all reports made
pursuant Section 6 hereof, for a period of not less than six years
from the date of this Plan, the agreements or such reports, as the
case may be, the first two years in an easily accessible place.
8. Limitation of Liability. A copy of the Agreement and
---------------------------- Declaration of Trust of the Trust, as
amended, is on file with the Secretary of the State of Ohio and notice
is hereby given that this Plan is executed on behalf of the Trustees
of the Trust as trustees and not individually and that the obligations
of this instrument are not binding upon the Trustees, the shareholders
of the Trust individually or the assets or property of any other
series of the Trust, but are binding only upon the assets and property
of the Fund.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Sparrow Growth Fund
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> Aug-31-1999
<PERIOD-START> Sep-16-1998
<PERIOD-END> Sep-16-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 100000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100000
<SHARES-COMMON-STOCK> 10000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100000
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, SPARROW FUNDS, a business trust organized under the laws of
the State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is the President, Treasurer, Chief Financial
Officer and a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of September, 1998.
/S/
GERALD R. SPARROW
President, Treasurer, Chief
Financial Officer and Trustee
STATE OF Missouri )
) ss:
COUNTY OF St. Louis )
Before me, a Notary Public, in and for said county and state,
personally appeared GERALD R. SPARROW, known to me to be the person described in
and who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 16th day of September, 1998.
Patti Conger
Notary Public
My commission expires: 1/22/2001
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, SPARROW FUNDS, a business trust organized under the laws of
the State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is the Secretary and a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of September, 1998.
/S/
ALEX RAMOS
Secretary and Trustee
STATE OF Missouri )
) ss:
COUNTY OF St. Louis )
Before me, a Notary Public, in and for said county and state,
personally appeared ALEX RAMOS, known to me to be the person described in and
who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 16th day of September, 1998.
Patti Conger
Notary Public
My commission expires: 1/22/2001
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, SPARROW FUNDS, a business trust organized under the laws of
the State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of September, 1998.
/S/
HERSCHEL W. TOWNSEND, Trustee
STATE OF Missouri )
) ss:
COUNTY OF St. Louis )
Before me, a Notary Public, in and for said county and state,
personally appeared HERSCHEL W. TOWNSEND, known to me to be the person described
in and who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 16th day of September, 1998.
Patti Conger
Notary Public
My commission expires: 1/22/2001
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, SPARROW FUNDS, a business trust organized under the laws of
the State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of September, 1998.
/S/
DONALD D. WOODRUFF, Trustee
STATE OF Missouri )
) ss:
COUNTY OF St. Louis )
Before me, a Notary Public, in and for said county and state,
personally appeared DONALD D. WOODRUFF, known to me to be the person described
in and who executed the foregoing instrument, and who acknowledged to me that he
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 16th day of September, 1998.
Patti Conger
Notary Public
My commission expires: 1/22/2001
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, SPARROW FUNDS, a business trust organized under the laws of
the State of Ohio (hereinafter referred to as the "Trust"), periodically files
amendments to its Registration Statement with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
WHEREAS, the undersigned is a Trustee of the Trust;
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, her attorneys for her and
in her name, place and stead, and in her office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as she
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand this 16
day of September, 1998.
/S/
DAWN M. JONES, Trustee
STATE OF Missouri )
) ss:
COUNTY OF St. Louis )
Before me, a Notary Public, in and for said county and state,
personally appeared DAWN M. JONES, known to me to be the person described in and
who executed the foregoing instrument, and who acknowledged to me that she
executed and delivered the same for the purposes therein expressed.
WITNESS my hand and official seal this 16th day of September, 1998.
Patti Conger
Notary Public
My commission expires: 1/22/2001
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, SPARROW FUNDS, a business trust organized under the laws of
the State of
Ohio (hereinafter referred to as the "Trust"), periodically files amendments to
its Registration Statement with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 and the Investment Company Act of 1940,
as amended; and
NOW, THEREFORE, the undersigned hereby constitutes and appoints JAMES
R. CUMMINS and DONALD S. MENDELSOHN, and each of them, his attorneys for him and
in his name, place and stead, and in his office and capacity in the Trust, to
execute and file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and necessary
to be done in and about the premises as fully to all intents and purposes as he
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the Trust has caused its name to be subscribed
hereto by the President this 16th day of September, 1998.
ATTEST: SPARROW FUNDS
/S/ By: /S/
Alex Ramos, Secretary Gerald R. Sparrow, President
STATE OF Missouri )
) ss:
COUNTY OF St. Louis )
Before me, a Notary Public, in and for said county and state,
personally appeared Gerald R. Sparrow, President and Alex Ramos, Secretary, who
represented that they are duly authorized in the premises, and who are known to
me to be the persons described in and who executed the foregoing instrument, and
they duly acknowledged to me that they executed and delivered the same for the
purposes therein expressed.
WITNESS my hand and official seal this 16th day of September, 1998.
Patti Conger
Notary Public
My commission expires: 1/22/2001
<PAGE>
CERTIFICATE
The undersigned, Secretary of Sparrow Funds, hereby certifies that the
following resolution was duly adopted by a majority of the Board of Trustees at
a meeting held on Sept 16 1998, and is in full force and effect:
"WHEREAS, Sparrow Funds, a business trust organized under the
laws of the State of Ohio (hereinafter referred to as the
"Trust"), periodically files amendments to its Registration
Statement with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended;
NOW, THEREFORE, the undersigned hereby constitutes and appoints
JAMES R. CUMMINS and DONALD S. MENDELSOHN, and each of them, its
attorneys for it and in its name, place and stead, to execute and
file any Amendment or Amendments to the Trust's Registration
Statement, hereby giving and granting to said attorneys full
power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the
premises as fully to all intents and purposes as it might or
could do if personally present at the doing thereof, hereby
ratifying and confirming all that said attorneys may or shall
lawfully do or cause to be done by virtue hereof."
Dated: Sept 16, 1998 /S/
Alex Ramos, Secretary
Sparrow Funds
