SPARROW GROWTH FUND
- -------------------
SCHEDULE OF INVESTMENTS
- -----------------------
As of February 28, 1999 (Unaudited)
Number Market
of Shares Value
--------- -----
Common Stocks - 97.55%
- ----------------------
Banks - 14.67%
Fifth Third Bancorp 2,175 $143,686
Providian Financial Corp. 1,245 127,146
State Street Corp. 1,825 139,955
Biological Products - 4.41%
Amgen Inc. * 990 123,626
Computers/Technology - 17.48%
Dell Computer Corp. * 1,500 120,188
EMC Corp. * 1,240 126,945
Intel Corporation 965 115,740
Microsoft Corp. * 845 126,856
Drugs & Healthcare - 9.74%
Cardinal Health Inc. 1,861 134,341
Pfizer Incorporated 1,050 138,534
Financial Services - 8.16%
Kansas City Southn Inds. Inc. 4,890 228,608
Food & Beverage - 5.14%
Safeway Inc. * 2,495 144,086
Oil & Natural Gas - 4.50%
Enron Corp. (Oregon) 1,940 126,100
Number Market
of Shares Value
--------- -----
Other Consumer Goods - 14.36%
Costco Companies Inc. * 1,710 $137,334
General Electric Company 1,240 124,387
Procter & Gamble Company 1,570 140,515
Retail - 10.00%
Best Buy Inc. * 1,490 138,197
Wal Mart Stores Inc. 1,640 141,655
Telecommunications -9.09%
BellSouth Corp. 2,760 127,650
Lucent Technology 1,250 126,953
-------
Total Common Stocks
(Cost $2,477,572) 2,732,502
---------
Money Market - 7.31%
Star Treasury Money Market
(Cost $204,632) 204,632
-------
Total Investments
(Cost $2,682,204) 2,937,134
Other Assets and Liabilities, Net - (4.86%) (136,090)
- ------------------------------------------- ---------
Net Assets - 100% $2,801,044
==========
*Non-income producing security.
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPARROW GROWTH FUND
- -------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------
As of February 28, 1999 (Unaudited)
ASSETS:
Investments, at value (cost $2,682,204) ................. $ 2,937,134
Cash..................................................... 28,000
Receivables:
Dividends ......................................... 1,015
Interest........................................... 394
Fund shares sold................................... 942
-----------
Total assets ......................................... 2,967,485
LIABILITIES:
Payable Investment Purchases ........................... 161,548
Accrued Management Fees ................................ 4,893
---------
Total liabilities ....................................... 166,441
-------
NET ASSETS ................................................... $ 2,801,044
==========
Net assets consist of:
Paid-in capital ......................................... 2,502,812
Undistributed net investment income loss................. (8,593)
Net realized gain on investments ........................ 51,895
Net unrealized appreciation on investments .............. 254,930
-------
Net assets ................................................... $ 2,801,044
==========
Shares of capital stock
outstanding (no par value,
unlimited shares authorized)............................. 208,962
Shares:
Net asset value and offering and redemption price per share (based on net
assets of $2,801,044 and 208,962 shares of beneficial interest
outstanding).................................................. $13.40
Offering price per share (NAV/94.25%)......................... $14.22
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPARROW GROWTH FUND
- -------------------
STATEMENT OF OPERATIONS
- -----------------------
For the six months-ended February 28, 1999 (Unaudited)
INVESTMENT INCOME:
Interest ................................................ $ 1,911
Dividends ............................................... 2,752
-------
Total investment income ............................ 4,663
-------
EXPENSES:
Management Expense ..................................... 13,256
------
Total expenses ...................................... 13,256
------
NET INVESTMENT LOSS ......................................... (8,593)
---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized appreciation on investments................. 51,895
Net change in unrealized
appreciation on investments ........................ 254,930
---------
Net gain on investments ................................. 306,825
---------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $ 298,232
==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPARROW GROWTH FUND
- -------------------
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------
For the six months-ended February 28, 1999 (Unaudited)
INCREASE IN NET ASSETS
Operations:
Net investment loss..................................... $ (8,593)
Net realized appreciation on investments................. 51,895
Net change in unrealized appreciation on investments 254,930
---------
Increase in net assets from operations .................. 298,232
----------
Capital share transactions:
Proceeds from shares sold ............................... 2,404,431
Cost of shares repurchased............................... (1,619)
Net increase in net assets from
capital share transactions ......................... 2,402,812
TOTAL INCREASE IN NET ASSETS ................................. 2,701,044
----------
NET ASSETS:
Beginning of period ..................................... 100,000
End of period............................................ $ 2,801,044
===========
OTHER INFORMATION:
Share transactions:
Sold .................................................... 209,087
Repurchased ............................................. (125)
----
NET INCREASE IN SHARES OUTSTANDING ........................... 208,962
=========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SPARROW GROWTH FUND
- -------------------
FINANCIAL HIGHLIGHTS (Unaudited)
- --------------------------------
1998(a)
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.......................... $ 10.00
Loss from investment operations:
Net investment income loss............................... (0.09)
Net realized and unrealized
gain on investments................................. 3.49
----
Total from investment operations.............................. 3.40
Less distributions:
Distributions from net
investment income .................................. 0.00
----
Distributions from net realized
gains on investments............................. 0.00
----
Total distributions .......................................... 0.00
----
Net asset value, end of period ............................... $ 13.40
=====
TOTAL RETURN ................................................. 34.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period ............................... $2,801,044
Ratio of expenses to average net assets (b).............. 2.41%
Ratio of net investment income to average net assets (b). (1.57)%
Portfolio turnover ...................................... 50.13%
(a) For the six months-ended February 28, 1999
(b) Annualized.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - General
The Sparrow Growth Fund (the "Fund") was organized as a series of Sparrow Funds,
an Ohio business trust (the "Trust") on July 14, 1998. The investment adviser to
the Fund is Sparrow Capital Management Incorporated (the "Adviser"). The
investment objective 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.
Note 2 - Significant Accounting Policies
The following is a summary of the significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles.
A) Security Valuations
The value of an individual share in the Fund (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 regular trading on the floor of the
New York Stock Exchange (currently 4:00 p.m., Eastern time); on each day that
the exchange is open for business and 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. 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 by the Board of Trustees of the Trust.
B) Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. The cost of
securities sold is determined using the first-in-first-out method. Interest
income is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date.
C) Dividends and Distributions to Shareholders
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.)
(Unaudited)
C) Dividends and Distributions to Shareholders (cont.)
Income dividend and capital gain distributions are automatically reinvested in
additional shares at net asset value per share on the distribution date, unless
the shareholder has elected to receive payment in cash.
D) Federal Income 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 deductions 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. Net realized
gains or losses may differ for financial and tax reporting purposes for the Fund
primarily as a result of losses from wash sales which are not recognized for tax
purposes until the corresponding shares are sold.
E) Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3 - Agreements and Other Transactions with Affiliates
The Fund retains Sparrow Capital Management Incorporated, (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 $100 million of core momentum growth stock assets under
management. 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 Strategies and
Risk Considerations" in the Fund's Prospectus). 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 of
non-interested person trustees and extraordinary expenses.
The Fund retains Unified Fund Services, Inc., (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 Mangement
Corporation, (the "Distributor") to act as the principal
<PAGE>
NOTES TO FINANCIAL STATEMENTS (cont.)
(Unaudited)
Note 3 - Agreements and Other Transactions with Affiliates (cont.)
distributor of the Fund's shares. The services of the Administrator, Transfer
Agent and Distributor are operating expenses paid by the Adviser.
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 activities; (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.
Note 4- Investment Transactions
For the period ended February 28, 1999, the cost of purchases and proceeds from
sales, excluding short-term investments, were $3,058,760 and $633,083
respectively.
Note 5- Unrealized Appreciation (Depreciation)
At February 28, 1999, the composition of gross unrealized appreciation
(depreciation) of investment securities is as follows:
Appreciation Depreciation Net Appreciation
The Sparrow Growth Fund $ 258,572 ($3,642) $ 254,930
Note 6- Year 2000
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Adviser, Administrator or other service providers to the Fund do not
properly process and calculate date-related information and data from January 1,
2000. This is commonly known as the "Year 2000 Issue". The Adviser and
Administrator have taken steps that they believe are reasonably designed to
address the Year 2000 Issue with respect to computer systems that are used and
to obtained reasonable assurances that comparable steps are being taken by the
Fund's major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund. In
addition, the Adviser cannot make any assurances that the Year 2000 issue will
not affect the companies in which the Fund invests or worldwide markets and
economies.
