Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SPARROW FUNDS
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction com-
puted pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
_
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
SPARROW GROWTH FUND
225 South Meramec Avenue
Suite 732 Tower
St. Louis Missouri, 63105
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held [ ], 2000
Dear Shareholders:
The Board of Trustees of the Sparrow Funds (the "Trust"), an open-end
management investment company organized as an Ohio business trust, has
called a special meeting of the shareholders of the Sparrow Growth Fund (the
"Fund"), to be held at 225 South Meramec Avenue, Suite 732 Tower, St. Louis,
Missouri, 63105, on [ ], 2000 at [ ] a.m., Central Standard Time, for the
following purposes:
1. Approval or disapproval of a new management agreement for the Fund
with Sparrow Capital Management Incorporated (the "Adviser") that
provides that the Adviser will not pay for any 12b-1 distribution
expenses or borrowing costs (including interest and dividend ex-
pense on securities sold short) of the Fund. No increase in the
management fee of the Fund is proposed.
2. Ratification of the selection of McCurdy & Associates CPAs, Inc. as
the independent accountants for the Fund for the fiscal year ending
August 31, 2000.
3. Transaction of such other business as may properly come before the
meeting or any adjournments thereof.
Shareholders of record at the close of business on [ ], 2000 are
entitled to notice of, and to vote at, the special meeting and any ad-
journment(s) or postponement(s) thereof.
By Order of the Board of Trustees
ALEX RAMOS
Secretary
St. Louis, Missouri
[ ], 2000
YOUR VOTE IS IMPORTANT
To assure your representation at the meeting, please complete the enclosed proxy
and return it promptly in the accompanying envelope or fax it to
[( ) - ], whether or not you expect to be present at the meeting. If
you attend the meeting, you may revoke your proxy and vote your shares in
person.
<PAGE>
SPARROW GROWTH FUND
225 South Meramec Avenue
Suite 732 Tower
St. Louis Missouri, 63105
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
To Be Held [ ], 2000
INTRODUCTION
This Proxy Statement is furnished in connection with the solic-
itation of proxies by the Board of Trustees of The Sparrow Funds (the "Trust"),
on behalf of the Sparrow Growth Fund (the Fund) for use at the Special Meet-
ing of Shareholders of the Fund (the "Meeting") to be held at the offices of
Sparrow Capital Management Incorporated located at 225 South Meramec Avenue,
Suite 732 Tower, St. Louis, Missouri, 63105 on [ ], 2000 at [ ]a.m.,
Central Standard Time, and at any and all adjournments thereof. The Notice
of Meeting, Proxy Statement and accompanying form of proxy will first
be mailed to shareholders on or about [ ], 2000.
The Fund currently has one class of shares. On August 30, 2000, the
Board of Trustees considered introducing a new class of shares for the Fund,
intended for distribution through broker-dealers and other financial inter-
mediaries, with no sales load but subject to a higher level of Rule 12b-1 dis-
tribution expenses. The new class of shares of the Fund will have a dis-
tribution plan (a 12b-1 Distribution Plan or Plan) pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the 1940 Act)
substantially similar to the 12b-1 Distribution Plan of the existing class,
except that the Plan for the new class will provide for a higher level of dis-
tribution expenses. The Plan for the new class will provide flexibility
to the new class of shares in the distribution of its shares because the class
will be able to compensate third parties for selling its shares.
The current management agreement with Sparrow Capital Management In-
corporated (the Adviser) obligates the Adviser to pay all 12b-1 distribution
expenses with respect to the Fund. To enable the new class of the Fund to adopt
a 12b-1 Distribution Plan and pay its own 12b-1 distribution expenses, the
current management agreement for the Fund with the Adviser must be revised to
make clear that any class with a 12b-1 Distribution Plan will pay for that
class's 12b-1 distribution expenses. You should note that the proposed
change in the management agreement will result in decreased shareholder expenses
for the existing class.
Shareholders of the Fund are being asked to consider the following:
(1) Approval of a new management agreement with Sparrow Capital
Management Incorporated.
(2) Ratification of the selection of McCurdy & Associates CPA's,
Inc. as independent accountants for the Fund for the fiscal
year ending August 31, 2001.
(3) Transaction of such other business, not currently con-
templated, that may properly come before the meeting or any
adjournment(s) thereof.
The Trust will supply without cost, upon written request, a copy of the
Funds' most recent Annual and Semi-Annual Report, which includes financial
and other information about the Funds. Such request should be directed to
Mr. Gerald R. Sparrow, President and Treasurer of the Sparrow Funds, 225 South
Meramec Avenue, Suite 732 Tower, St. Louis, Missouri 63105, telephone number
(888) 727-3301.
PROPOSALS
I. APPROVAL OF NEW MANAGEMENT AGREEMENT
The Current Management Agreement
Sparrow Capital Management Incorporated (the Adviser) currently
serves as the investment adviser to the Fund. The current management agreement
between the Trust, on behalf of the Fund, and the Adviser (the Current
Agreement) is dated September 16, 1998. It was approved by the shareholders
of the Fund as the initial management agreement on October 5, 1998.
Under the terms of the Current Agreement, the Adviser manages the
Fund's investments, subject to the approval of the Board of Trustees, and
pays all operating expenses of the Fund except brokerage, taxes, interest,
fees and expenses of non-interested person trustees and extraordinary
expenses. In this regard, it should be noted that most investment
companies pay their own operating expenses directly, while the Fund's ex-
penses, except those specified above, are paid by the Adviser. Under the
Current Agreement, as compensation for the Adviser's management services and
agreement to pay the Fund's expenses, the Fund pays the Adviser an annual fee
of 2.50% of the Fund's average daily net assets.
The Proposed Management Agreement
At the August 30, 2000 Board of Trustees meeting, the Adviser recommended to
the Trustees that an additional class of shares be added to the Fund. The
Trustees agreed with the Adviser that an additional class, to be designated
"Class C", would improve the Fund's ability to attract additional investors by
offering an alternative to the existing shares sold with a front end sales
charge. As proposed, the Class C shareholders would not pay a front end
sales charge. Rather, Class C shareholders would pay an ongoing dis-
tribution fee pursuant to Rule 12b-1, and a contingent deferred sales
charge if the shares are sold within one year of being purchased. The Rule
12b-1 Distribution Plan currently in existence authorizes the Fund to incur
distribution expenses at a maximum annual rate of 0.50% of the average daily
net assets of the Fund. All distribution expenses incurred by the Fund are
currently paid by the Adviser pursuant to the Current Agreement between the Fund
and the Adviser.
To accomplish the objectives of the proposed Class C, the Adviser has
recommended that the Current Agreement be revised so that the Adviser is no
longer obligated to pay distribution expenses incurred pursuant to a Rule 12b-1
Distribution Plan.
At its August 30, 2000 meeting, the Board of Trustees considered and
approved, subject to approval by the shareholders of the Fund, a proposed new
management agreement for the Fund (the "Proposed Agreement") that incorporates
such revision. The benefit of the Proposed Agreement is that it will allow the
Fund to introduce a new class of shares with flexibility in its distribution
arrangements, and any resulting increase in the assets of the Fund should allow
for better portfolio management and assist the Fund in seeking to achieve its
investment objective.
The Proposed Agreement is materially the same as the Current
Agreement, except for two revisions. The first revision is adding a pro-
vision that makes clear that each class will pay for any 12b-1 distribution
expenses associated with the distribution of shares of that class. However,
to avoid increasing shareholder expenses, the Adviser has agreed to lower
its management fee to 1.75%, thereby decreasing total annual Fund operating
expenses for the existing class from 2.50% to 2.25%, as demonstrated in the
table below.
<TABLE>
<S> <C> <C> <C> <C> <C>
Shareholder Fees Under the Current Shareholder Fees Under the Proposed
Agreement Agreement
Management Fees 2.50% 1.75%
Distribution Expenses 0.00%1 0.50%
Other Expenses 0.00% 0.00%
Total Annual Fund Operating Expenses
2.50% 2.25%
</TABLE>
1Pursuant to the Current Agreement, distribution expenses incurred by the Fund
are paid by the Adviser.
Example:
The example below is intended to help you compare the cost of in-
vesting in the Fund under the Current Agreement with the cost of investing in
the Fund under the Proposed Agreement. The example uses the following as-
sumptions: a $10,000 initial investment for the time periods indicated, re-
investment of dividends and distributions, 5% annual total return, constant
operating expenses, and sale of all shares at the end of each time period.
Although your actual expenses may be different, based on these assumptions
your costs will be:
<TABLE>
<S> <C> <C> <C> <C>
Current Agreement
1 year 3 years 5 years 10 years
$851 $1464 $2164 $4370
Proposed Agreement
1 year 3 years 5 years 10 years
$798 $1261 $1749 $3085
</TABLE>
Under the Current Agreement, for the fiscal year ended August
31, 2000, the Fund paid management fees of $[ ]to the Adviser. Under the
Proposed Agreement, the Fund would have paid management fees of $[ ] to
the Adviser, a reduction of 30%. However, total annual Fund operating
expenses would have been reduced only by 10% because of the additional dis-
tribution expenses that would have been paid by the Fund under the Proposed
Agreement.
The second revision to the Current Agreement is a clarification
that all borrowing costs, which includes interest and dividend expense on
securities sold short, are paid by the Fund. The Proposed Agreement also
will have a different date of effectiveness, termination and execution, and
includes other non-material changes. The form of the Proposed Agreement for
the Fund is attached hereto as Exhibit A. You should read the form of agree-
ment. The description in this Proxy Statement of the Proposed Agreement is
only a summary.
The Proposed Agreement provides that the Adviser will provide the
Fund with such investment advice as it deems advisable, furnish a continuous
investment program for the Fund consistent with the Fund's investment ob-
jectives and policies, and 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 in-
vestment objectives, policies and restrictions, as each of the same shall be
from time to time in effect, and subject further to such policies and in-
structions as the Board of Trustees may from time to time establish. The Pro-
posed Agreement also provides that the Adviser 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 of Trustees and the appropriate com-
mittees of the Board of Trustees regarding the conduct of the business of the
Fund.
Except as described above with respect to payment by a class of its
12b-1 distribution expenses and the clarification with respect to borrowing
costs, the Proposed Agreement is the same as the Current Agreement with re-
gard to payment of expenses, in that the Adviser pays all of the org-
anizational and operating expenses of the Fund except for brokerage fees
and commissions, taxes, borrowing costs, fees and expenses of the non-
interested person trustees, and extraordinary or non-recurring expenses as
may arise, including litigation to which the Fund may be a party and indem-
nification of the Trust's trustees and officers with respect thereto.
In connection with purchases or sales of portfolio securities for
the account of the Fund, the Adviser 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 the Adviser, subject to review of these
selections by the Board of Trustees from time to time. The Adviser is re-
sponsible for the negotiation and allocation of principal business and
portfolio brokerage. In the selection of such brokers or dealers and the
placing of such orders, the Adviser must at all times seek for the Fund the
best qualitative execution, taking into account such factors as price (in-
cluding 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. In seeking best
qualitative execution, the Adviser is 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 the Adviser exercises investment discretion. The
Proposed Agreement also authorizes the Adviser 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 the Ad-
viser determines 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 the overall responsibilities
of the Adviser with respect to the Fund and to accounts over which the Adviser
exercises investment discretion. The Fund and the Adviser understand and
acknowledge that, although the information may be useful to the Fund and the
Adviser, it is not possible to place a dollar value on such information. The
Board of Trustees periodically reviews 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, the Adviser 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.
Subject to the provisions of the 1940 Act, and other applicable law,
the Adviser, any of its affiliates or any affiliates of its 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 the Adviser gives any advice to its clients
concerning the shares of the Fund, it will act solely as investment counsel
for such client and not in any way on behalf of the Fund. The Adviser's
services to the Fund pursuant to the Agreement are not to be deemed to be
exclusive and it is understood that the Adviser may render investment ad-
vice, management and other services to others, including other registered
investment companies.
The Proposed Agreement provides that the Adviser and its share-
holders, members, officers, directors, employees, agents, control persons
or affiliates of any thereof shall not be liable for 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 ser-
vices rendered under, or payments made pursuant to, the Proposed Agreement or
any other matter to which the Agreement relates, except by reason of willful
misfeasance, bad faith or gross negligence on the part of any such persons in
the performance of the Adviser's duties under the Proposed Agreement, or by
reason of reckless disregard by any of such persons of the Adviser's ob-
ligations and duties under the Proposed Agreement.
Under the Proposed Agreement, the Trust and the Adviser acknowledge
that all rights to the name "Sparrow " belong to the Adviser 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 the Adviser ceases to be the adviser to the
Fund, the Trust's rights to the use of the name "Sparrow" with respect to the
Fund will automatically cease on the ninetieth day following the
termination of the Proposed Agreement. The use of the name may also be
withdrawn by the Adviser during the term of the Proposed Agreement upon
ninety (90) days' written notice by the Adviser to the Trust. Nothing con-
tained in the Agreement impairs, or diminishes in any respect, the Adviser's
right to use the name "Sparrow" in the name of, or in connection with, any
other business enterprises with which the Adviser is or may become associated.
There is no charge to the Trust for the right to use the name.
No provisions of the Proposed Agreement may be changed, waived,
discharged or terminated orally, and no amendment of the Agreement is
effective until approved by the Board of Trustees, including a majority of the
Trustees who are not interested persons of the Adviser or of the Trust, cast
in person at a meeting called for the purpose of voting on such approval, and
(if required under current interpretations of the 1940 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.
The Proposed Agreement will become effective on the date the share-
holders of the Fund approve the Proposed Agreement. The Proposed Agreement
will continue in effect for two years from its effective date, and may con-
tinue thereafter on a year-to-year basis, subject to approval by the Trust-
ees of the Trust or the vote of the holders of a majority of the outstanding
shares of the Fund (as defined in the 1940 Act), and also, in either event by a
vote of the majority of the disinterested Trustees of the Trust in accordance
with the 1940 Act and pursuant to the terms and conditions of the Proposed
Agreement. The Proposed Agreement may be terminated upon sixty days written
notice by the Board of Trustees of the Trust, by a vote of a majority of the
outstanding voting securities of the Fund, or by the Adviser.
If the Proposed Agreement is not approved by the shareholders, Sparrow
Capital Management Incorporated will continue to act as the adviser of the
Fund pursuant to the Current Agreement.
Information Regarding The Adviser
Sparrow Capital Management Incorporated, 225 South Meramec Avenue,
Suite 732 Tower, St. Louis, Missouri 63105, has acted as investment adviser
to the Fund since it commenced operations in 1998. The adviser is an in-
dependent investment counselor and registered investment adviser which, to-
gether with its affiliated minority owned investment management firm, Buford,
Dickson, Harper & Sparrow Inc., has over $150 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, Treasurer and founder, Gerald R. Sparrow, who is also the
sole director. The mailing address for Mr. Sparrow is 225 South Meramec Avenue,
Suite 732 Tower, St. Louis, Missouri 63105.
Information Regarding the Distributor and Administrator
The Fund's underwriter is Unified Management Corporation, Inc., 431
North Pennsylvania Street, Indianapolis, Indiana 46204. The Fund's admin-
istrator is Unified Fund Services, Inc., 431 North Pennsylvania Street, In-
dianapolis, Indiana 46204.
Evaluation of the Proposed Management Agreements by the Board of Trustees
The Board of Trustees has determined that it is desirable to approve
the Proposed Agreement so that current classes or new classes of shares of the
Fund established in the future can elect to adopt a 12b-1 Distribution
Plan. A 12b-1 Distribution Plan allows a class of shares flexibility in the
distribution of its shares because it can compensate third parties for
selling its shares. The Board of Trustees anticipates that this increased
distribution of shares and the resulting increase in the assets of the ap-
plicable Fund should lead to more effective portfolio management for a
Fund because it will allow the Fund to achieve more diversification of its
portfolio. The Board of Trustees also believes that the Proposed Agreement
will enable the Trust to continue to obtain for the Funds advisory services of
high quality at costs that it deems appropriate and reasonable, and that ap-
proval of the Proposed Agreement is in the best interests of the Trust and the
shareholders of the Funds. Finally, The Board of Trustees believes that the
reduced management fee in the Proposed Agreement benefits the current share-
holders by reducing their total expenses. Gerald R. Sparrow and Alex Ramos,
trustees of the Trust, may benefit indirectly from payments received by the
Adviser under the Proposed Agreement because of their relationships with the
Fund's Adviser. Mr. Sparrow is the President and Treasurer and Mr. Ramos is
an analyst of the Adviser. In addition, Mr. Sparrow may benefit directly
from payments received by the Adviser under the Proposed Agreement as he is
the sole shareholder of the Adviser.
At a meeting of the Board of Trustees held on August 30, 2000 the
Board of Trustees, including a majority of the Trustees who are not "in-
terested persons," as defined in the 1940 Act (the "Disinterested Trustees"),
evaluated the Proposed Agreement for the Fund. In evaluating the Proposed
Agreement, the Board of Trustees, including the Disinterested Trustees,
relied in part on information about the Adviser that was supplied at the Oct-
ober 27, 1999 Board of Trustees meeting, when the Board of Trustees last
approved the renewal of the Current Agreement. The information provided to
the Board of Trustees at the October 27, 1999 meeting included financial in-
formation about the Adviser. The Trustees also reviewed comparative in-
formation on the Fund's performance and considered information regarding expense
ratios of comparable funds.
Based on its review, the Board of Trustees believes that the terms
of the Proposed Agreement are fair to, and in the best interests of, the
Trust and the Fund's shareholders. Accordingly, the Board of Trustees, in-
cluding the Disinterested Trustees, unanimously recommends approval by the
shareholders of the Proposed Agreement. In making this recommendation, the
Trustees primarily evaluated (i) the experience, reputation, qualifications
and background of the Adviser's investment personnel, (ii) the nature and
quality of operations and services that the Adviser will continue to provide
the Fund with a reduced fee rate, (iii) the benefits of continuity in ser-
vices to be provided by the Adviser under the Proposed Agreement, (iv) the
ability of the Adviser to retain and attract qualified personnel, and (v) the
ownership of the Adviser.
The Trustees also gave careful consideration to factors deemed
relevant to the Trust and the Fund, including, but not limited to: (1) the
performance of the Fund since commencement of its operations; (2) the distinct
investment objective and policies of the Fund, (3) that the compensation to
be paid under the Proposed Agreement will be less than the rate paid under
the Current Agreement; (4) that the terms of the Proposed Agreement are sub-
stantially similar to the terms of the Current Agreement, except for the
above-described revisions providing that the Fund will pay for 12b-1 dis-
tribution expenses associated with the distribution of its shares, the
clarification concerning borrowing costs and different effective, termination
and execution dates; (5) the financial condition of the Adviser, and (6) the
commitment of the Adviser to pay or reimburse the Trust for certain operating
expenses of the Fund.
The Board Of Trustees Of The Trust, Including The Disinterested
Trustees, Unanimously Recommends That The Fund's Shareholders Vote For Ap-
proval Of The Proposed Agreement.
II. RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The 1940 Act requires every registered investment company to be
audited at least once a year by independent accountants selected by the Board
of Trustees, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act). The 1940 Act also requires that the
selection be submitted for ratification by the shareholders at their next
meeting following the selection.
Under this proposal, shareholders of the Fund are asked to ratify
the Board of Trustees' unanimous selection of McCurdy & Associates CPA's,
Inc. ("McCurdy & Associates") as the Fund's independent accountants for the
fiscal year ending August 31, 2001. McCurdy & Associates has been the Fund's in-
dependent accountant since its inception. At that time, the Board of Trustees
unanimously selected McCurdy & Associates as the independent accountant for the
Fund based on its industry experience and depth of expertise. At a meeting on
August 30, 2000 the Board of Trustees again selected McCurdy & Associates as in-
dependent accountants for the Fund.
McCurdy & Associates representatives are not expected to be
present at the meeting. Unless otherwise instructed, the proxies will vote
for the ratification of the selection of McCurdy & Associates as the Fund's in-
dependent accountant.
The Board Of Trustees Of The Trust, Including The Disinterested
Trustees, Unanimously Recommends That The Fund's Shareholders Vote For Rat-
ification Of the Selection Of the Independent Accountants.
THE PROXY
The Board of Trustees solicits proxies so that each shareholder
has the opportunity to vote on the proposals to be considered at the
Meeting. A proxy card for voting your shares is enclosed. The shares rep-
resented by each valid proxy received in time will be voted at the meeting as
specified. If no specification is made, the shares represented by a duly ex-
ecuted proxy will be voted (i) for approval of the new management agreement
with Sparrow Capital Management Incorporated., (ii) for ratification of the
independent public accountants, and (iii) at the discretion of the proxy
holders, in accordance with the recommendations of the Board of Trustees, if
any, on any other matter that may come before the meeting that the Trust did
not have notice of a reasonable time prior to the mailing of this Proxy
Statement. You may revoke your proxy at any time before it is exercised by
(i) signing and delivering a subsequently dated proxy card, (ii) sending
written notice to the President of the Trust revoking your proxy, or (iii)
attending and voting in person at the Meeting.
VOTING SECURITIES AND VOTING
The Board of Trustees has fixed the close of business on
[ ], 2000 as the record date for determining the shareholders entitled
to notice of and to vote at the Meeting or any adjournment(s) thereof (the
"Record Date"). There were[ ] shares of beneficial
interest of the Fund issued and outstanding as of the Record Date.
Only shareholders of record on the Record Date are entitled to vote
at the Meeting. Each holder of shares is entitled to one (1) vote per share
held, and fractional votes for fractional shares held, on any matter sub-
mitted to a vote at the Meeting. The presence, in person or by proxy, of the
holders of at least a majority of the shares entitled to vote of the Fund is
necessary to constitute a quorum at the Meeting for the Fund.
An affirmative vote of the holders of a majority of the outstanding
shares of the Fund is required for the approval of the Proposed Agreement. As
defined in the 1940 Act, a majority of the outstanding shares means the vote of
(1) 67% or more of the voting shares present at the meeting, if the holders
of more than 50% of the outstanding shares are present in person or rep-
resented by proxy, or (ii) more than 50% of the outstanding voting shares,
whichever is less. "Broker non-votes" and abstentions will be considered
present for purposes of determining the existence of a quorum and the number
of shares represented at the meeting, but since they are not affirmative
votes for any proposal, they will have the same effect as a vote against the
proposal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of the Record Date,
with respect to each person (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) known
by the Trust to be the beneficial owner of more than 5% of the Fund's out-
standing shares.
Name and Address of Amount Percent
Beneficial Owner Beneficially Owned Of Class
[As of the Record Date, each Trustee and Officer of the Trust ben-
eficially owned less than 1% of the outstanding shares of the Fund, and all
Trustees and Officers of the Trust as a group beneficially owned less than
1% of the outstanding shares of the Fund.]
SHAREHOLDER PROPOSALS
The Trust has not received any shareholder proposals to be con-
sidered for presentation at the Meeting. Under the proxy rules of the Sec-
urities and Exchange Commission, shareholder proposals may, under certain
conditions, be included in the Trust's proxy statement and proxy for a
particular meeting. Under these rules, proposals submitted for inclusion
in the Trust's proxy materials must be received by the Trust a reasonable
time before the solicitation is made. The fact that the Trust receives a
shareholder proposal in a timely manner does not insure its inclusion in its
proxy materials, because there are other requirements in the proxy rules re-
lating to such inclusion. You should be aware that annual meetings of shar-
holders are not required as long as there is no particular requirement under
the 1940 Act which must be met by convening such a shareholder meeting. Any
shareholder proposal should be sent to Mr. Alex Ramos, Secretary, 225 South
Meramec Avenue, Suite 732 Tower, St. Louis, Missouri, 63105.
COST OF SOLICITATION
The cost of preparing and mailing this Proxy Statement, the
accompanying Notice of Special Meeting and Proxy and any additional material
relating to the meeting and the cost of soliciting proxies will be borne
by the Adviser. In addition to solicitation by mail, the Adviser will re-
quest banks, brokers and other custodial nominees and fiduciaries to supply
proxy material to the beneficial owners of shares of whom they have
knowledge, and will reimburse them for their expenses in so doing. Certain
officers and employees of the Trust and the Adviser may solicit proxies in
person or by telephone, facsimile transmission or mail, for which they will
not receive any special compensation.
OTHER MATTERS
The Trust's Board of Trustees knows of no other matters to be pre-
sented at the Meeting other than as set forth above. However, if any other
matters properly come before the meeting, the holders of the proxy will vote
the shares represented by the proxy on such matters in accordance with their
best judgment, in accordance with the recommendations of the Board of Trust-
ees, if any, and discretionary authority to do so is included in the proxy.
BY ORDER OF THE BOARD OF TRUSTEES
Alex Ramos
Secretary
Dated: [ ], 2000
Please date and sign the enclosed proxy and return it promptly in the enclosed
reply envelope or fax it to ( ) - .
[insert proxy card]
<PAGE>
Exhibit A
MANAGEMENT AGREEMENT
TO: Sparrow Capital Management Incorporated
225 South Meramec Avenue, Suite 732 Tower
St. Louis, MO 63105
Dear Sirs:
The Sparrow Funds (the "Trust") herewith confirms our agreement with
you.
The Trust has been organized to engage in the business of an inves-
ment 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 ob-
jectives 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 por-
tion 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 in-
structions 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 com-
mittees 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, including 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 pre-
paring 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 (excluding expenses which the Fund is authorized to pay pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the"1940
Act")); and all other operating expenses not specifically assumed by the Fund.
The Fund will pay all brokerage fees and commissions, taxes,
borrowing costs (such as (a) interest and (b) dividend expenses on securities
sold short), fees and expenses of the non-interested person trustees and such
extraordinary or non-recurring expenses as may arise, including litigation to
which the Fund may be a party and indemnification of the Trust's trustees and
officers with respect thereto. The Fund will also pay expenses which it is
authorized to pay pursuant to Rule 12b-1 under the 1940 Act. 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 1.75% 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 sus-
pended for any particular business day, then for the purposes of this par-
agraph, 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 comp-
ensation 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 neg-
otiation 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 re-
sponsibility 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 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 re-
search services provided by the executing broker or dealer. The de-
termination 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 qual-
itative 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 ex-
ecute Fund portfolio transactions.
Subject to the provisions of the 1940 Act, and other ap-
plicable 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 oc-
casion should arise in which you give any advice to clients of yours con-
cerning 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 ser-
vices 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 1940
Act or the rules thereunder, neither you nor your shareholders, members, of-
ficers, 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,
member, 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, member, 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 ex-
ecution, 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 of the outstanding voting sec-
urities of the Fund, provided that in either event continuance is also approved
by a majority of the trustees who are not interested persons of you or the
Trust, by a vote cast in person at a meeting called for the purpose of voting
such approval.
This Agreement may, on sixty days written notice, be ter-
minated 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 ter-
minate 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 con-
nection with, any other business enterprises with which you are or may be-
come associated. There is no charge to the Trust for the right to use this
name.
8. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, dis-
charged 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 1940 Act by the Securities and Ex-
change Commission or its staff) 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 prop-
erty 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) For the purpose of this Agreement, the terms "majority
of the outstanding voting securities," "control" and "interested person"
shall have their respective meanings as defined in the 1940 Act and rules and
regulations thereunder, subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission under the 1940 Act; and the
term "brokerage and research services" shall have the meaning given in the Sec-
urities Exchange Act of 1934.
(c) 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 1940 Act shall be resolved by reference to such term or
provision of the 1940 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 1940 Act, reflected in any provision
of this Agreement, is revised by rule, regulation, order or interpretation of
the Securities and Exchange Commission or its staff, such provision shall be
deemed to incorporate the effect of such rule, regulation, order or in-
terpretation.
12. NOTICES
Any notices under this Agreement shall be in writing, ad-
dressed 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 fur-
ther notice to the other party, it is agreed that the address of the Trust is
225 South Meramec Avenue, Suite 732 Tower, St. Louis, MO 63105, and your ad-
dress for this purpose shall be 225 South Meramec Avenue, 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 con-
stitute one and the same instrument.
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 in-
dicated 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 con-
tract upon the date thereof.
Yours very truly,
ATTEST:
The Sparrow Funds
By: _______________________________ By:_________________________________
Name/Title: Gerald R. Sparrow, President
Dated: ___________, 2000
ACCEPTANCE
The foregoing Agreement is hereby accepted.
ATTEST:
Sparrow Capital Management Incorporated
By:_________________________________ By:________________________
Name/Title: Gerald R. Sparrow, President
Dated: ___________, 2000
