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:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| 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 October 16, 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 the Seven Gables Inn, 26 North Meramac Avenue, Clayton, Missouri
63105, on October 16, 2000 at 6:30 p.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, 2001.
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 September 18, 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
September 25, 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 (317)266-8756,
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 October 16, 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 Seven Gables Inn, 26
North Meramac Avenue, Clayton Missouri, 63105, on October 16, 2000 at 6:30 p.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 September 27, 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>
1 Pursuant 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:
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
Under the Current Agreement, for the fiscal year ended August 31, 2000, the
Fund paid management fees of $176,309 to the Adviser. Under the Proposed
Agreement, the Fund would have paid management fees of $123,416 to the Adviser,
a reduction of 30%. However, total annual Fund operating expenses would have
been reduced only by 10% because of the additional distribution 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 agreement. 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 objectives 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 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 of Trustees may from time to time establish. The Proposed 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 committees 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 organizational 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 indemnification 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 Adviser
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 advice, 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, 431 North
Pennsylvania Street, Indianapolis, Indiana 46204. The Fund's administrator is
Unified Fund Services, Inc., 431 North Pennsylvania Street, Indianapolis,
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 "interested 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 October 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 information about the Adviser. The Trustees also
reviewed comparative information 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 Approval 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 independent 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 independent 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 independent accountant.
The Board Of Trustees Of The Trust, Including The Disinterested Trustees,
Unanimously Recommends That The Fund's Shareholders Vote For Ratification 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 represented 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 executed 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 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 September 18, 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 483,208 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 submitted 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 represented 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 outstanding shares.
Name and Address of Amount Percent
Beneficial Owner Beneficially Owned Of Class
------------------ -------------------- -----------
Gerald R. Sparrow 61,205.46 12.66%
Donald J. Zugmaier 35,183.74 7.28%
Michael Rehkemper 35,967.69 7.44%
Rehkemper & Son, Inc. 24,299.69 5.03%
As of the Record Date, the officers and Trustees as a group beneficially
owned 13.95% less than of the shares of the Fund.
SHAREHOLDER PROPOSALS
----------------------
The Trust has not received any shareholder proposals to be considered for
presentation at the Meeting. Under the proxy rules of the Securities 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 request 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 presented at
the Meeting other than as set forth above. However, if any other matters
properly come before the meeting that the Trust did not have notice of a
reasonable time prior to the mailing of this Proxy Statement, the holders of the
proxy will vote the shares represented by the proxy on such matters in
accordance with their best judgment, and discretionary authority to do so is
included in the proxy.
BY ORDER OF THE BOARD OF TRUSTEES
Alex Ramos
Secretary
Dated: September 25, 2000
Please date and sign the enclosed proxy and return it promptly in the enclosed
reply envelope or fax it to (317) 266-8756.
<PAGE>
SPARROW FUNDS
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
OF THE SPARROW GROWTH FUND
TO BE HELD OCTOBER 16, 2000
The undersigned shareholder of the Sparrow Growth Fund (the "Fund"), a portfolio
of Sparrow Funds (the "Trust"), does hereby appoint Mark S. Thompson and Alex
Ramos, and each of them, as attorneys-in-fact and proxies of the undersigned,
each with the full power of substitution, to attend the Special Meeting of
Shareholders of the Fund to be held on October 16, 2000, at the Seven Gables
Inn, 26 North Meramac Avenue, Clayton, MO at 6:30 p.m. Central Standard Time,
and at all adjournments thereof, and to vote the shares held in the name of the
undersigned on the record date for said meeting, for the Proposal specified
below. Said attorneys-in-fact shall vote in accordance with their best judgment
as to any other matter.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST. THE BOARD OF
TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL LISTED BELOW. THE
SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED BELOW, OR FOR IF NO CHOICE
IS INDICATED.
TO VOTE, PLEASE DATE, SIGN BELOW, AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
Note: Please sign exactly as your name(s) appear(s) hereon. Joint owners should
each sign personally. When signing as custodian, attorney, executor,
administrator, trustee, etc., please give your full title as such. If the
account is registered in the name of a corporation, partnership or other entity,
a duly authorized individual must sign on its behalf and give his or her title.
|X| PLEASE MARK VOTES AS IN THIS EXAMPLE
The Proposal:
I. To approve a new management agreement with Sparrow Capital Management
Incorporated (the "Adviser").
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
II. To ratify the selection of McCurdy & Associates CPA's as independent
accountants for the Fund for the fiscal year ending August 31, 2001.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
III. To transact other business, not currently contemplated, that may
properly come before the meeting or any adjournment(s) thereof.
Please be sure to sign and date this Proxy.
Shareholder sign here_________________________________________ Date ___________
Co-owner sign here ___________________________________________
<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 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, 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 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
(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 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 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 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 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 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.
Subject to the provisions of the 1940 Act, 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 1940 Act or the rules
thereunder, neither you nor your shareholders, members, 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, 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 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 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 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 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.
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 1940 Act by the Securities and Exchange 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 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) 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 Securities 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 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 Avenue, Suite 732 Tower, St. Louis, MO 63105, and your address 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 constitute 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 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:
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
