REVISED CODE OF ETHICS
SPARROW FUNDS
SPARROW CAPITAL MANAGEMENT INCORPORATED
(Adopted April 26, 2000)
I. Statement of General Principles
This Code of Ethics has been adopted by Sparrow Funds (the "Trust") and
Sparrow Capital Management Incorporated (the "Adviser")for the purpose
of instructing all employees, officers, directors and trustees of the
Trust and/or the Adviser in their ethical obligations and to provide
rules for their personal securities transactions. All such employees,
officers, directors and trustees owe a fiduciary duty to the Trust and
its shareholders. A fiduciary duty means a duty of loyalty, fairness
and good faith towards the Trust and its shareholders, and the
obligation to adhere not only to the specific provisions of this Code
but to the general principles that guide the Code. These general
principles are:
o The duty at all times to place the interests of the Trust and its
shareholders first;
o The requirement that all personal securities transactions be conducted
in a manner consistent with the Code of Ethics and in such a manner as
to avoid any actual or potential conflict of interest or any abuse of
any individual's position of trust and responsibility; and
o The fundamental standard that such employees, officers, directors and
trustees should not take inappropriate advantage of their positions,
or of their relationship with the Trust or its shareholders.
It is imperative that the personal trading activities of the employees,
officers, directors and trustees of the Trust and the Adviser,
respectively, be conducted with the highest regard for these general
principles in order to avoid any possible conflict of interest, any
appearance of a conflict, or activities that could lead to disciplinary
action. This includes executing transactions through or for the benefit
of a third party when the transaction is not in keeping with the
general principles of this Code.
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All personal securities transactions must also comply with the
Securities & Exchange Commission's Rule 17j-1. Under this rule, no
Employee may:
o employ any device, scheme or artifice to defraud the Trust or any of
its shareholders;
o make to the Trust or any of its shareholders any untrue statement of a
material fact or omit to state to such client a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
o engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Trust or any of its
shareholders; or
o engage in any manipulative practice with respect to the Trust or any
of its shareholders.
II. Definitions
A. Beneficial Interest: ownership or any benefits of ownership, including
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the opportunity to directly or indirectly profit or otherwise obtain
financial benefits from any interest in a security.
B. Compliance Officer: Mark Thompson, or with respect to Mark Thompson,
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Gerald R. Sparrow.
C. Disinterested Trustees: trustees whose affiliation with the Trust is
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solely by reason of being a trustee of the Trust.
D. Employee Account: each account in which an Employee or a member of his
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or her family has any direct or indirect Beneficial Interest or over
which such person exercises control or influence, including, but not
limited to, any joint account, partnership, corporation, trust or
estate. An Employee's family members include the Employee's spouse,
minor children, any person living in the home of the Employee and any
relative of the Employee (including in-laws) to whose support an
Employee directly or indirectly contributes.
E. Employees: the employees, officers, and trustees of the Trust and the
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employees, officers, and directors of the Adviser.
F. Exempt Transactions: transactions which are 1) effected in an amount
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or in a manner over which the Employee has no direct or indirect
influence or control, 2) pursuant to a systematic dividend
reinvestment plan, systematic cash purchase plan or systematic
withdrawal plan, 3) in connection with the exercise or sale of rights
to purchase additional securities from an issuer and granted by such
issuer pro-rata to all holders of a class of its securities, 4) in
connection with the call by the issuer of a preferred stock or bond,
5) pursuant to the exercise by a second party of a put or call option,
6) closing transactions no more than five business days prior to the
expiration of a related put or call option, 7) with respect to
registered open-end investment companies, 8) inconsequential to any
Fund because the transaction is very unlikely to affect a highly
liquid market or because the security is clearly not related
economically to any securities that a Fund may purchase or sell, 9)
involving shares of a security of a company with a market
capitalization in excess of $500 million.
G. Funds: any series of the Trust.
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H. Related Entity: a partnership or other entity 1) in which persons
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unaffiliated with the Adviser or any Employee (and not otherwise
subject to this Code) participate and 2) to which the Adviser or an
Employee acts as adviser, general partner or other fiduciary.
I. Related Securities: securities issued by the same issuer or issuer
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under common control, or when either security gives the holder any
contractual rights with respect to the other security, including
options, warrants or other convertible securities.
J. Securities: any note, stock, treasury stock, bond, debenture, evidence
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of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate,
pre-organization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit
for a security, fractional undivided interest in oil, gas or other
mineral rights, or, in general, any interest or instrument commonly
known as a "security," or any certificate or interest or participation
in temporary or interim certificate for, receipt for, guarantee of, or
warrant or right to subscribe to or purchase (including options) any
of the foregoing; except for the following: 1) securities issued by
the government of the United States, 2) bankers' acceptances, 3) bank
certificates of deposit, 4) commercial paper, and 5) shares of
registered open-end investment companies.
K. Securities Transaction: the purchase or sale, or any action to
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accomplish the purchase or sale, of a Security for an Employee
Account. The term Securities Transaction does not include transactions
executed by the Adviser for the benefit of unaffiliated persons, such
as investment advisory and brokerage clients.
III. Personal Investment Guidelines
A. Personal Accounts
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1. The Personal Investment Guidelines in this Section III do
not apply to Exempt Transactions. Employees must remember
that regardless of the transaction's status as exempt or not
exempt, the Employee's fiduciary obligations remain
unchanged.
2. While trustees of the Trust are subject at all times to the
fiduciary obligations described in this Code, the Personal
Investment Guidelines and Compliance Procedures in Sections
III and IV of this Code apply to Disinterested Trustees only
if the trustee knew, or in the ordinary course of fulfilling
the duties of that position, should have known, that during
the fifteen days immediately preceding or after the date of
the trustee's transaction that the same Security or a
Related Security was or was to be purchased or sold for a
Fund or that such purchase or sale for a Fund was being
considered, in which case such Sections apply only to such
transaction.
3. A Securities Transaction effected on behalf of a Related
Entity is subject to this Code because the Adviser or an
Employee has an interest in the Related Entity. While the
Adviser and each Employee is subject at all times to the
fiduciary obligations described in this Code, paragraph 4 of
this Section III does not apply to a Securities Transaction
effected on behalf of a Related Entity.
4. Except as provided in paragraph 3 of this Section III,
Employees may not execute a Securities Transaction on a day
during which a purchase or sell order in that same Security
or a Related Security is pending for a Fund. Securities
Transactions executed in violation of this prohibition shall
be unwound or, if not possible or practical, the Employee
must disgorge to the Fund the value received by the Employee
due to any favorable price differential received by the
Employee. For example, if the Employee buys 100 shares at
$10 per share, and the Fund buys 1000 shares at $11 per
share, the Employee will pay $100 (100 shares x $1
differential) to the Fund.
5. In connection with the acquisition of any security in an
initial public offering or private placement, the Employee
must pre-clear the acquisition with the Compliance Officer.
The Compliance Officer will take into account, among other
factors, whether the investment opportunity should be
reserved for a Fund, and whether the opportunity is being
offered to the Employee by virtue of the Employee's position
with the Trust or the Adviser. If the acquisition is
authorized, the Compliance Officer will retain a record of
the authorization and the rationale supporting the
authorization. Employees who have been authorized to acquire
securities in a private placement will, in connection
therewith, be required to disclose that investment if and
when the Employee takes part in any subsequent investment in
the same issuer. In such circumstances, the determination to
purchase Securities of that issuer on behalf of a Fund will
be subject to an independent review by personnel of the
Adviser with no personal interest in the issuer.
B. Other Restrictions
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1. Employees are prohibited from serving on the boards of
directors of publicly traded companies, absent prior
authorization by the Compliance Officer. The consideration
of prior authorization will be based upon a determination
that the board service will be consistent with the interests
of the Trust and the Funds' shareholders. In the event that
board service is authorized, Employees serving as directors
will be isolated from other Employees making investment
decisions with respect to the securities of the company in
question.
2. No Employee may accept from a customer or vendor an amount
in excess of $50 per year in the form of gifts or
gratuities, or as compensation for services. If there is a
question regarding receipt of a gift, gratuity or
compensation, it is to be reviewed by the Compliance
Officer.
IV. Compliance Procedures
A. Employee Disclosure and Certification
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1. Within ten (10) days of commencement of employment with the Trust
or the Adviser, each Employee must certify that he or she has
read and understands this Code and recognizes that he or she is
subject to it, and must disclose the following information as of
the date the person became an Employee: a) the title, number of
shares and principal amount of each Security in which the
Employee has a Beneficial Interest when the person became an
Employee, and b) the name of any broker, dealer or bank with whom
the Employee maintained a trading account when the person became
an Employee, and the date the report is submitted.
2. Annually, each Employee must certify that he or she has read and
understands this Code and recognizes that he or she is subject to
it, that he or she has complied with the requirements of this
Code and has disclosed or reported all personal Securities
Transactions required to be disclosed or reported pursuant to the
requirements of this Code. In addition, each Employee shall
annually provide the following information (as of a date no more
than 30 days before the report is submitted): a) the title,
number of shares and principal amount of each Security in which
the Employee had any Beneficial Interest, b) the name of any
broker, dealer or bank with whom the Employee maintains an
account in which any Securities are held for the direct or
indirect benefit of the Employee, and 3) the date the report is
submitted.
B. Compliance
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1. The Compliance Officer shall institute procedures to review the
reports required by this Section IV. The Compliance Officer shall
identify all Employees, inform those persons of their reporting
obligations, and maintain a record of all current and former
Employees.
2. All Employees must provide copies of all broker confirmations and
periodic account statements to the Compliance Officer. Each
Employee must report, no later than ten (10) days after the close
of each calendar quarter, on the Securities Transaction Report
form provided by the Trust or the Adviser, all transactions in
which the Employee acquired any direct or indirect Beneficial
Interest in a Security, including Exempt Transactions but
excluding transactions effected on behalf of a Related Entity,
and certify that he or she has reported all transactions required
to be disclosed pursuant to the requirements of this Code. The
report shall also identify any trading account established by the
Employee during the quarter with a broker, dealer or bank.
3. The Compliance Officer will, on a quarterly basis, check the
trading confirmations provided by brokers to verify that the
Employee has not violated the Code.
4. If an Employee violates this Code, the Compliance Officer will
report the violation to management personnel of the Trust and the
Adviser for appropriate remedial action which, in addition to the
actions specifically delineated in other sections of this Code,
may include a reprimand of the Employee, or suspension or
termination of the Employee's relationship with the Trust and/or
the Adviser.
5. The management personnel of the Trust will prepare an annual
report to the Trust's board of trustees that summarizes existing
procedures and any changes in the procedures made during the past
year and certify to the Trust's Board of Trustees that the
Adviser and the Trust have each adopted procedures reasonably
necessary to prevent Employees from violating this Code. The
report will describe any issues existing under this Code since
the last report, including without limitation, information about
any material violations of this Code, any significant remedial
action during the past year and any recommended procedural or
substantive changes to this Code based on management's experience
under this Code, evolving industry practices or legal
developments. The Adviser will provide the Disinterested Trustees
with quarterly reports which disclose all Securities Transactions
effected on behalf of a Related Entity if the Fund sold or
purchased the same Security or Related Security on the same day.
The report will disclose, for the Fund transaction and the
Related Entity transaction, the name of the broker, number of
shares, commission and price paid.
