<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996.
REGISTRATION NO. 33-56546
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
[X]
PRE-EFFECTIVE AMENDMENT NO. 4
POST-EFFECTIVE AMENDMENT NO. [_]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 3
(CHECK APPROPRIATE BOX OR BOXES) [X]
SANTA BARBARA GROUP OF MUTUAL FUNDS, INC.
(FORMERLY THE ASCHER FUNDS, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
333 SOUTH GRAND AVENUE, SUITE 4075, LOS ANGELES, CALIFORNIA 90071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER: (213) 628-2907
STEVEN W. ARNOLD
333 SOUTH GRAND AVENUE, SUITE 4075
LOS ANGELES, CALIFORNIA 90071
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
ROBERT A. GRAHAM, JR., ESQ. PAUL F. ROYE, ESQ.
LAW OFFICES OF ROBERT A. GRAHAM, JR. DECHERT PRICE & RHOADS
41 E. FOOTHILL BLVD., SUITE 106 1500 K STREET, N.W., SUITE 500
ARCADIA, CA 91006 WASHINGTON, D.C. 20005
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant intends to file the notice required by Rule 24f-2 with
respect to its fiscal year ending March 31, 1997 on or before May 31, 1997.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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- -------------------------------------------------------------------------------
<PAGE>
THE STARBUCK TISDALE GROWTH AND INCOME FUND
CROSS-REFERENCE SHEET
REQUIRED BY RULE 404 UNDER THE SECURITIES ACT OF 1933
PART A
<TABLE>
<CAPTION>
ITEM HEADING
---- -------
<C> <S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Fund Expenses
3. Condensed Financial Information................... Not Applicable
4. General Description of Registrant................. The Fund; Investment Objective
and Policies; Other Investment
Policies and Their Related Risks
5. Management of the Fund............................ Management of the Company and the
Fund; Brokerage Commissions;
Other Information
6. Capital Stock and Other Securities................ Other Information; Taxation;
Dividends and Distributions
7. Purchase of Securities Being Offered.............. Purchase of Shares; Net Asset
Value
8. Redemption or Repurchase.......................... Redemption of Shares
9. Pending Legal Proceedings......................... Not Applicable
PART B
10. Cover Page........................................ Cover Page
11. Table of Contents................................. Table of Contents
12. General Information and History................... Not Applicable
13. Investment Objectives and Policies................ Investment Objective and Policies
and Associated Risks; Investment
Restrictions
14. Management of the Fund............................ Directors and Officers;
Investment Advisory and Other
Services
15. Control Persons and Principal..................... Not Applicable Holders of
Securities
16. Investment Advisory and Other Services............ Investment Advisory
17. Brokerage Allocation and Other Practices.......... Brokerage Allocation and
Portfolio Transactions
18. Capital Stock and Other Securities................ Other Information--Part A
19. Purchase, Redemption and Pricing of Securities
Being Offered.................................... Purchases, Redemption and Pricing
of Shares
20. Tax Status........................................ Tax Status
21. Underwriters...................................... Distribution of Fund Shares
22. Financial Statements.............................. Financial Statements
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
THE STARBUCK TISDALE GROWTH AND INCOME FUND
333 South Grand Avenue, Suite 4075
Los Angeles, California 90071
Telephone No. (213) 628-2907
The Starbuck Tisdale Growth and Income Fund (the "Fund") is currently the sole
series of shares issued by The Santa Barbara Group of Mutual Funds, Inc. (the
"Company"), an open-end management investment company. The Fund's investment
objective is to provide shareholders with long-term capital appreciation and
reasonable current income. It seeks to achieve this objective by investing
primarily in a diversified portfolio of equity securities of companies that
have demonstrated superior prospects for long term earnings growth, increasing
cash flow returns on corporate assets and financial stability. Income is an
important consideration in the selection of investments and the Investment
Adviser will seek to minimize volatility (below that of the S&P 500) in
managing the Fund's portfolio. The Fund may invest in fixed income securities
to increase the Fund's overall return, reduce volatility of performance, and
protect portfolio value when bond yields are attractive relative to inflation
and individual stock price valuations. There can be no assurance that the
Fund's investment objective will be achieved. The net asset value per share of
the Fund will fluctuate in response to changes in market conditions and other
factors.
The Fund will be managed by SBG Capital Management, Inc (the "Fund Manager").
To provide primary investment advice to the Fund, SBG Capital Management has
entered into a Sub-Investment Advisory Contract with Starbuck, Tisdale &
Associates (the "Investment Adviser"). As of August 31, 1996, Starbuck Tisdale
& Associates, Inc. managed over $400 million of assets of institutional and
individual clients. Of this amount, approximately 65% was invested in equity
securities. See "Investment Adviser."
Under the Fund's Variable Pricing System, investors may select Class Y or Class
C shares, each with a public offering price that reflects different sales
charges and expense levels. See "Variable Pricing System," "Purchase of
Shares," and "Redemption of Shares." Class Y shares are offered at net asset
value without an initial or contingent deferred sales charge, and are available
only to institutional investors (as defined herein) with an initial investment
in the Fund of $25,000, and to Directors, officers and employees of the
Company, the Investment Adviser, or Fund Manager and the Distributor, as well
as private advisory clients of the Investment Adviser or Fund Manager. Class C
shares are offered at net asset value without an initial sales charge, but
subject to an annual Distribution and Service fee. See "Purchase of Shares."
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund, including expenses. Please retain it
for future reference. A Statement of Additional Information, dated October ,
1996 containing additional and more detailed information about the Fund has
been filed with the Securities and Exchange Commission and is hereby
incorporated by reference into this Prospectus. It is available without charge
and may be obtained by writing or calling the Fund at 333 South Grand Avenue,
Los Angeles, California 90071/(805) SB FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is October , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
PROSPECTUS 1
FUND EXPENSES 3
Example 4
VARIABLE PRICING SYSTEM 4
Differences Among the Classes 4
Factors to Consider in Choosing a Class of Shares 5
Sales Charges 5
Ongoing Annual Expenses 5
Other Information 5
THE FUND 5
INVESTMENT OBJECTIVE AND POLICIES 6
OTHER INVESTMENT POLICIES AND THEIR RELATED RISKS 8
Commercial Paper 8
Repurchase Agreements 8
Borrowing 8
Lending of Portfolio Securities 9
MANAGEMENT OF THE COMPANY AND THE FUND 9
Fund Manager 9
Investment Adviser 9
Advisory Agreements 10
Administrator 11
DISTRIBUTOR 11
PURCHASE OF SHARES 12
REDEMPTION OF SHARES 13
Involuntary Redemption 14
Contingent Deferred Sales Charge--Class C Shares 14
NET ASSET VALUE 15
DIVIDENDS AND DISTRIBUTIONS 15
BROKERAGE COMMISSIONS 15
TAXATION 16
General Tax Information 16
Other Tax Laws 16
OTHER INFORMATION 16
Description of Shares 16
Performance Information 17
Custodian, Dividend Disbursing Agent, Transfer Agent and Registrar 17
Legal Matters 17
Financial Statements and Experts 17
Shareholder Inquiries 17
Voting Rights 17
</TABLE>
<PAGE>
FUND EXPENSES
The following expense table lists the costs and expenses that an investor will
incur either directly or indirectly as a shareholder of the Fund based on the
Fund's operating expenses.
<TABLE>
<CAPTION>
Class Y Class C
-------- --------
<S> <C> <C>
Shareholder Transaction Expenses:
Maximum Initial Sales Charge None None
(as a percentage of offering price)
Maximum contingent deferred sales charge None 1.00%/1/
(as a percentage of redemption proceeds)
Exchange Fee $5.00 $5.00
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management fees 1.00%/2/ 1.00%/2/
12b-1 fees None 1.00%/3/
Other Expenses 0.50%/4/ 0.50%/4/
-------- --------
(after expense reimbursements)
Total Fund Operating Expenses 1.50% 2.50%
</TABLE>
/1/ Investments in Class C shares are not subject to an initial sales charge;
however, a contingent deferred sales charge of 1% is imposed in the event of
certain redemption transactions within one year following such investments.
See "Redemption of Shares."
/2/ The Fund Manager and Investment Adviser have agreed to voluntarily waive
their Management Fees to the extent necessary to prevent the Total Operating
Expenses from exceeding 1.50% for Class Y shares and 2.50% for Class C Shares.
Absent such waivers the total operating expenses for Class Y Shares and Class
C shares would be 2.50% and 3.50% respectfully.
/3/ Long term shareholders may pay more than the economic equivalent of the
maximum front end sales charge permitted by the National Association of
Securities Dealers.
/4/ Fees may be greater than 1.50% based upon actual expenses incurred by the
Fund. See "Investment Advisory Agreement."
The nature of the services for which the Fund is obligated to pay management
fees is described under "Management of the Company and the Fund." "Other
expenses" in the above table are estimated and include fees for shareholder
services, custodial fees, legal and accounting fees, printing costs,
registration fees, fees for any portfolio valuation service, the cost of
regulatory compliance, the costs associated with maintaining the Fund's legal
existence and the costs involved in communicating with shareholders. The
Fund's Fund Manager and Investment Adviser will voluntarily waive their
management fee to the extent necessary to prevent the Fund's Management Fees
and Other Expenses from exceeding 1.50% during the current fiscal year and to
prevent total operating expenses from exceeding any applicable state
limitation on mutual fund expenses. After a substantial period, the Service
and Distribution fees, applicable to the Class C shares, may total more than
the maximum sales expenses that would have been permissible if imposed
entirely as an initial sales charge.
3
<PAGE>
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect
to an investment in the Fund. These amounts are based on payment by the Fund
of operating expenses at the levels set forth in the above table, and are also
based upon the following assumptions:
A shareholder would pay the following expenses on a $1,000 investment, (1)
assuming 5% annual return and (2) redemption at the end of the following time
periods:
<TABLE>
<CAPTION>
1 year 3 years
------ -------
<S> <C> <C>
Class Y shares $15.00 $47.00
Class C shares $25.00 $78.00
</TABLE>
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses and actual expenses may be greater or lesser than those shown.
The example assumes a 5% annual rate of return pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of future performance of the Fund.
VARIABLE PRICING SYSTEM
Differences Among the Classes
The primary distinctions among the classes of the Fund's shares are in their
sales charge structures and ongoing expenses, as summarized in the table
below. Each class has distinct advantages and disadvantages for different
investors, and investors may choose the class that best suits their
circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
Initial (as a % of average
Sales Charge daily net assets) Other Information
------------ ------------------ -----------------
<S> <C> <C> <C>
Class Y None None Minimum investment
of $25,000
required, available
only to
institutional
investors
Class C None Service fee of Shares subject to
0.25%; distribution contingent deferred
fee of 0.75% sales charge of 1%
for shares redeemed
within 1 year from
date of purchase
</TABLE>
4
<PAGE>
Factors to Consider in Choosing a Class of Shares
In deciding which class of shares to purchase, investors should consider the
cost of sales charges, together with the cost of the ongoing annual expenses
described below, as well as any other relevant facts and circumstances.
Institutional Investors should purchase Class Y shares if the applicable
minimum investment can be met.
Sales Charges
Class Y and Class C shareholders pay no initial or contingent deferred sales
charges except as noted below. Thus, the entire amount of Class Y or C
shareholder's purchase price is immediately invested in the Fund. Class C
shares, are subject to a 1% contingent deferred sales charge if redeemed
within one year of the date of purchase.
Ongoing Annual Expenses
Class C shares pay an annual 12b-1 service fee of 0.25% of average daily net
assets. Class C shares pay an annual 12b-1 distribution fee of 0.75% of
average daily net assets. An investor should consider both ongoing annual
expenses in estimating the costs of investing in the Class C shares of the
Fund shares over other available investments.
Expenses borne by classes may differ slightly in the event that other class-
specific expenses, such as transfer agency fees, printing and postage expenses
related to shareholder reports, prospectuses and proxies, and securities
registration fees, are allocated to a specific class. The example set forth
above under "Fund Expenses" shows the cumulative expenses an investor would
pay over periods of one and three years on a hypothetical investment in each
class of Fund shares, assuming an annual return of 5%.
Other Information
Investors should understand that distribution fees are intended to compensate
Ascher/Decision Services, Inc., principal underwriter of the Fund's shares,
for distribution services.
See "Distributor, " "Purchase of Shares," and "Redemption of Shares" for a
more complete description of the sales charges, service fees and distribution
fees applicable to the Class C shares of the Fund.
THE FUND
The Starbuck Tisdale Growth and Income Fund (the "Fund") is currently the sole
series of shares issued by The Santa Barbara Group of Mutual Funds, Inc. (the
"Company"), a diversified open-end management investment company. The Fund was
incorporated under the laws of the State of Maryland on December 30, 1992, and
has registered under the Investment Company Act of 1940,
5
<PAGE>
as amended (the "1940 Act"). The Fund's principal office is located at 333
South Grand Avenue, Suite 4075, Los Angeles, California 90071.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide shareholders with long-term
capital appreciation and reasonable current income. It seeks to achieve this
objective by investing primarily in a diversified portfolio of equity
securities of companies that have demonstrated superior prospects for long-
term earnings growth, increasing cash flow returns on corporate assets,
financial stability, and lower price per share volatility. Equity securities
include common and preferred stocks and securities convertible into or
exchangeable for common stocks, such as convertible preferred stocks,
convertible debentures or warrants. Income is an important consideration in
the selection of investments and the Investment Adviser will seek to minimize
volatility (below that of the S&P 500) in managing the Fund's portfolio. The
Fund may invest in fixed income securities to increase the Fund's overall
return, reduce volatility of performance, and protect portfolio value when
bond yields are attractive relative to inflation and individual stock price
valuations.
Under normal market conditions, the Fund will invest a minimum of 65% of its
total assets in income producing equity and convertible securities. The Fund
may also invest in fixed income securities, including obligations of the
United States Government, its agencies and instrumentalities, corporate debt,
preferred stocks, and warrants when, in the view of the Investment Adviser,
such investments are consistent with meeting the Fund's investment objective.
Fixed income securities purchased by the Fund must be rated at least
investment grade or better (within the four highest rating categories of
Standard & Poor's Corporation ("S&P") or Moody's Investor Service, Inc.
("Moody's") or, if unrated, be of comparable quality as determined by the
Investment Adviser. These rating limitations apply at the time of acquisition
of the securities. If the rating of a security is downgraded after purchase,
the Fund may continue to hold such security if deemed appropriate by the
investment adviser. Up to 15% of the Fund's total assets may be held in the
form of convertible debt which is unrated by S&P or Moody's.
The Fund's investment in equity securities will emphasize companies that have
a history of profit growth and dividend increases. Equity investments will be
concentrated primarily in larger capitalized companies. The Fund will also
invest in small and medium capital companies which are believed to exhibit
good prospects for long term appreciation.
The analysis used in the selection of investments in equity securities takes
into account the prospects for future growth and a company's competitive
leadership. The analysis also includes measures of profitability, such as a
company's ability to manage its business effectively by increasing cash flow
returns on corporate assets. In addition, economic valuations will be
considered relative to other companies with respect to assets, and expected
dividend and earnings growth.
Equity investments will be oriented towards long term holding periods as
opposed to short term market timing or trading. Under normal market
conditions, the Fund expects to be fully invested
6
<PAGE>
and management will not try to time market swings. During periods of rising
inflation rates, the Fund may reduce its exposure to longer-term, fixed-income
securities, if any, and possibly equities to some degree.
Convertible securities may be emphasized in growth oriented companies where
there are no dividends paid on the common shares, or the current dividend
yields are low.
The Investment Adviser uses a bottom-up approach which focuses on the
fundamentals of individual stocks. This process leads to further analysis of
other opportunities in an industry group. At the same time, the investment
adviser is sensitive to the overall economics of an industry or sector and
will avoid groups with weak fundamentals.
No more than 5% of the Fund's assets, taken at market value at the time of
purchase, will be invested in the securities of any one company and the Fund
will own no more than 10% of any one company's outstanding voting securities.
No further investment will be made in any given industry group, if upon making
the proposed investment, 25% or more of the Fund's total assets will be
invested in such industry group.
The Fund may invest up to 15% of the value of its total assets in equity
securities of foreign issuers through sponsored or unsponsored American
Depositary Receipts ("ADRs") listed on a domestic securities exchange or
included in the NASDAQ National Market System. Ownership of unsponsored ADRs
may not entitle the Fund to material financial, or other reports from the
issuer, to which it would be entitled as the owner of sponsored ADRs. Dividend
payments on such securities may be subject to foreign withholding taxes and
other foreign taxes may apply. The investment by the Fund in foreign
securities involves considerations not typically associated with investing in
securities of domestic companies, including unfavorable changes in currency
rates and exchange control regulations, reduced and less reliable information
about issuers and markets, different accounting standards, illiquidity of
securities and markets, local economic or political instability and greater
market risk in general.
The Fund may invest up to 35% of its total assets in obligations of the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities"),
and money market instruments. The Fund could invest up to 100% of its assets
in U.S. Government securities and money market instruments for temporary
defensive purposes. The money market instruments in which the Fund may invest
are U.S. Government Securities, commercial paper, repurchase agreements, and
certificates of deposit and banker's acceptances issued by domestic branches
of U.S. banks having total assets in excess of $1 billion that are members of
the Federal Deposit Insurance Corporation. Debt securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities. The market value of the Fund's debt securities will change in
response to changes in interest rates or the relative financial strengths of
each issuer.
The Fund intends to purchase and hold securities for long-term capital
appreciation and does not expect to trade for short-term gain. Accordingly, it
is anticipated that the annual portfolio turnover rate normally will not
exceed 40%.
7
<PAGE>
The Fund's investment objective is a fundamental policy and may not be changed
without the authorization of the holders of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). The Fund's
investment policies may be changed by the Company's Board of Directors without
shareholder approval.
OTHER INVESTMENT POLICIES AND THEIR RELATED RISKS
The Fund has adopted certain other policies as set forth below. For more
detailed information on the Fund's investment techniques and the associated
risks, see "Investment Objective and Policies and Associated Risks" in the
Statement of Additional Information.
Commercial Paper
The Fund may invest in commercial paper which, at the date of investment, is
rated A-2 or higher by Standard & Poor's Corporation or Prime-2 or higher by
Moody's Investor's Service, Inc. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by bank holding companies,
corporations and finance companies.
Repurchase Agreements
The Fund may, from time to time, enter into "repurchase agreements" pertaining
to the securities in which it may invest with securities dealers or member
banks of the Federal Reserve System. A repurchase agreement is considered a
loan and arises when a buyer such as the Fund purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-upon future
date, normally one day or a few days later. The resale price is greater than
the purchase price, reflecting an agreed-upon interest rate which is effective
for the period of time the buyer's money is invested in the security and which
is related to the current market rate rather than the coupon rate on the
purchased security. Such agreements permit the Fund to keep all of its assets
at work while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. In the event of a vendor's bankruptcy, the Fund might be
delayed in, or prevented from, selling the collateral for the Fund's benefit.
Borrowing
The Fund is authorized to borrow money in amounts up to 5% of the value of its
total assets at the time of such borrowing for temporary purposes. However,
the Fund is authorized to borrow money up to 33 1/3 of its assets, as
permitted by the 1940 Act, for the purpose of meeting redemption requests.
Borrowing by the Fund creates an opportunity for greater total return but, at
the same time, increases exposure to capital risk. In addition, borrowed funds
are subject to interest costs that may offset or exceed the return earned on
the borrowed funds. However, the Fund will not purchase portfolio securities
while borrowings exceed 5% of the Fund's total assets. For more detailed
information with respect to the risks associated with borrowing, see the
heading "Borrowing" in the Statement of Additional Information.
8
<PAGE>
Lending of Portfolio Securities
To enhance the return on its portfolio, the Fund may lend securities in its
portfolio representing up to 25% of its total assets, taken at market value,
to securities firms and financial institutions, provided that each loan is
secured continuously by collateral in the form of cash, high quality money
market instruments or short-term U.S. Government securities adjusted daily to
have a market value at least equal to or higher than the current market value
of the securities loaned. The risk in lending portfolio securities, as with
other extensions of credit, consists of possible delay in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially.
MANAGEMENT OF THE COMPANY AND THE FUND
The business and affairs of the Company are managed under the direction of the
Board of Directors. Information about the Company's Directors and executive
officers may be found in the Statement of Additional Information.
Fund Manager
SBG Capital Management, Inc. (the "Fund Manager") will manage the Fund's
business affairs and has entered into an Investment Advisory Agreement with
The Fund. Its principal office is located at 333 South Grand Avenue, Suite
4075, Los Angeles, California 90071. A Sub-Investment Advisory Agreement (the
"Sub-advisory Agreement") has been entered into between the Fund Manager and
Starbuck, Tisdale & Associates, Inc. (the "Investment Adviser") who will
provide the primary and ongoing investment advice to the Fund. Neither the
Fund Manager nor the Investment Adviser have previously served as an
investment adviser to a registered investment company. Stephen Y. Ascher and
Steven A. Arnold own controling interests in the Fund Manager.
Investment Adviser
The Investment Adviser was founded in 1933 and was subsequently incorporated
in December, 1961. The Investment Adviser is located at 111 West Micheltorena
Street, Suite 210, Santa Barbara, California 93101. As of August 31, 1996, the
Investment Adviser managed $400 million of assets for various institutional
clients, including pension and profit sharing plans, foundations and
companies, as well as high net worth individuals. In addition, the Investment
Adviser has entered into wrap fee agreements with approximately three
securities firms and provides investment advisory services to individuals
through the wrap fee agreements.
The following Portfolio Managers share responsibility in managing the Fund's
portfolio:
L. David Tisdale, CFA--President and majority owner of Starbuck, Tisdale &
Associates is a native Californian who graduated from San Diego State
University in 1958 with a BA in Economics. He started with the Investment
Adviser in August of 1966. In 1968 he obtained his Chartered Financial Analyst
(CFA) designation and in 1976 he gained the Chartered Investment Counselor
(C.I.C.) designation. Prior to joining Starbuck, Tisdale, he managed bank
assets and trust investments for San Diego Trust & Savings Bank.
9
<PAGE>
Donn V. Tognazzini--Executive President and Director of Starbuck, Tisdale &
Associates since December of 1986. Before joining the firm, he was Vice
President and Manager for First Boston Corporation in Zurich and later for
Bache, Halsey, Shields in Geneva. Mr. Tognazzini received his B.A. from
Stanford in 1956 and his MBA from Harvard in 1960. He is the portfolio manager
for approximately 75 accounts and also is active in new business development
and client contact. Mr. Tognazzini is a minority owner of the Investment
Adviser.
Jon S. Bull, CFA--Executive Vice President was President and CEO of Santa
Barbara Capital Management (formerly Argus Investment Management) when it
merged with Starbuck Tisdale & Associates. Educated at the University of
California, Irvine, he is a Chartered Financial Analyst and a Chartered
Investment Counselor. He is a portfolio manager, and a member of the firm's
Investment Committee. Mr. Bull has twenty years experience in investment
management.
Todd D. Sullivan, CFA--Vice President and Portfolio Manager has been with
Starbuck, Tisdale & Associates since 1989. Formerly with Santa Barbara Savings
& Loan, he held a supervisory position in the Investment Operations
Department. He has a B.S. degree in Finance from California State University
at Long Beach and is a Chartered Financial Analyst.
Robin P. Purcell, CFA--Vice President joined Starbuck, Tisdale & Associates in
1995 as a portfolio manager. Prior to joining the firm, she was Vice President
of Santa Barbara Capital Management, where she served as an analyst and
portfolio manager. She received her B.A. in Business Economics from University
of California at Santa Barbara, is a Chartered Financial Analyst and a
Chartered Investment Counselor. Ms. Purcell has over 11 years experience in
investment management.
Advisory Agreements
Under the terms of an Investment Advisory Agreement with the Company on behalf
of the Fund, (the "Advisory Agreement"), the Fund Manager furnishes continuing
investment supervision to the Fund and is responsible for the management of
the Fund's portfolio. The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment Adviser, subject to
review by the Board of Directors. The Investment Adviser, pursuant to the Sub-
Advisory Agreement, makes the day-to-day decisions with regard to the Fund.
The Fund Manager and Investment Adviser furnish office space, equipment and
personnel in connection with the performance of their responsibilities. The
Fund pays all other expenses incurred in the operation of the Fund including,
but not limited to, brokerage and commission expenses; interest charges; fees
and expenses of legal counsel and independent auditors; the
10
<PAGE>
Fund's organizational and offering expenses, whether or not advanced by the
Fund Manager; taxes and governmental fees; cost of share certificates and any
other expenses (including clerical expenses) of issuance, sale or repurchase
of the Fund's shares; membership fees in trade associations; expenses of
registering and qualifying shares of the Fund for sale under federal and state
securities laws; expenses of printing and distributing reports, notices and
proxy materials to existing shareholders; expenses of annual and special
shareholders meetings; expenses of filing reports and other documents with
governmental agencies; charges and expenses of the Fund's Administrator,
custodian and registrar, transfer agent and dividend disbursing agent;
distribution and service fees; expenses of disbursing dividends and
distributions; compensation of the Fund's officers, directors and employees
who are not affiliated with the Fund Manager, Investment Adviser or
Administrator; travel expenses of Directors of the Company for attendance at
Board meetings; insurance expenses; indemnification and other expenses not
expressly provided for in the Advisory Agreement; and any extraordinary
expenses of a nonrecurring nature.
The Fund Manager and Investment Adviser have agreed that if in any fiscal year
the aggregate expenses of the Fund (including advisory and administrative
fees, but generally excluding 12b-1 fees, interest, taxes, brokerage and
extraordinary expenses) exceed the expense limitation of any state having
jurisdiction over the Fund, the Fund Manager and the Investment Adviser will,
to the extent required by law, reduce their fees from the Fund by the amount
of such excess expense, such amount to be allocated between them in the
proportions that the respective fees bear to the aggregate of such fees paid
by the Fund.
For its services, the Fund Manager will receive from the Fund a monthly fee at
an annual rate of 0.95% of the Fund's average daily net assets. The Fund
Manager pays the Investment Adviser a monthly fee at an annual rate of 0.50%
of the Fund's average daily net assets. The adviser fees payable by the Fund
are higher than the rate payable by most mutual Funds.
Administrator
Under the terms of an administration agreement between SEI Financial
Management Corporation (the "Administrator") and the Fund (the "Administration
Agreement"), the Administrator performs or arranges for the performance of the
administrative services (i.e., services other than investment advice and
related portfolio activities) necessary for the operation of the Fund. For the
services rendered to the Fund, the Fund will pay the Administrator a fee equal
on an annual basis of 0.15% of the Fund's average daily net assets, reduced to
0.125% of such net assets in excess of $50 million, and further reduced to
0.10% of such net assets in excess of $100 million. The principal address of
the Administrator is 680 E. Swedesford Road, Wayne, Pennsylvannia 19087-1658.
DISTRIBUTOR
Pursuant to a Distribution Agreement with the Fund dated September 17, 1996
Ascher/Decision Services, Inc. (the "Distributor"), located at 333 South Grand
Avenue, Suite 4075, Los Angeles,
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California 90071, is the principal underwriter of the Fund's shares. The
Distributor is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc.
The Fund has adopted a Service and Distribution Plan (the "Plan") with respect
to its Class C shares, pursuant to which it uses its assets to finance
activities relating to the distribution of its shares to investors and
provision of certain shareholder services. Under the Plan, the Distributor is
paid a service fee at an annual rate of 0.25%, and a distribution fee at an
annual rate of 0.75%, of the value of average daily net assets of the Class C
shares.
Under the Plan, the Distributor uses the service fees primarily to compensate
securities dealers (which may include the Distributor itself) and other
financial institutions and organizations (collectively, the "Service
Organizations") who provide shareholder services for the Fund. These services
include, among other things, processing new shareholder account applications,
preparing and transmitting to the Fund's Transfer Agent computer processable
tapes of all transactions by customers and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund.
The Plan pertaining to Class C shares permits payments to be made by the Fund
to the Distributor for expenditures incurred by it in connection with the
distribution of Fund shares to investors and provision of certain shareholder
services including but not limited to the payment of compensation, including
incentive compensation to Service Organizations to obtain various distribution
related services for the Fund. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature, and other
promotional activities on behalf of the Fund. In addition, the Plan authorizes
payment by the Fund of the cost of preparing, printing and distributing Fund
Prospectuses and Statements of Additional Information to prospective investors
and of implementing and operating the Plan. Distribution expenses also include
an allocation of overhead of the Distributor and accruals for interest on the
amount of distribution expenses that exceed distribution fees received by the
Distributor.
Payments under the Plan are not tied exclusively to the distributions and/or
shareholder services expenses actually incurred by the Distributor and the
payments may exceed distribution and/or service expenses actually incurred.
The Company's Board of Directors evaluates the Plan on a regular basis.
PURCHASE OF SHARES
Shares of the Fund are sold on a continuous basis and may be purchased on any
day the New York Stock Exchange is open through authorized investment dealers
or directly from the Fund's Distributor, or the Fund's transfer agent if the
purchase is made by mail. Only the Distributor and investment dealers that
have a sales agreement with the Distributor are authorized to sell shares of
the Fund.
Shares will be credited to a shareholder's account at the net asset value next
computed after an order is received by the Distributor or a dealer. No stock
certificates representing shares purchased
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<PAGE>
will be issued except upon written request to the Fund's Transfer Agent. The
Fund's management reserves the right to reject any purchase order if, in its
opinion, it is in the Fund's best interest to do so and to suspend the
offering of shares of any class for any period of time.
The minimum initial investment for Class C shares is $2,500 ($1,000 for IRA
accounts) and subsequent investments must be at least $100. The minimum
initial investment for Class Y shares is $25,000 and subsequent investments
must be at least $10,000.
Class Y shares are sold without an initial or a contingent deferred sales
charge. Class Y shares are offered only to institutional investors with a
minimum investment in the Fund of $25,000, and to directors, officers and
employees of the Company, the Fund Manager, the Investment Adviser, and the
Distributor, as well as private advisory clients of the Investment Adviser or
Fund Manager. As used herein, "institutional investors" includes financial
institutions (such as banks, savings institutions and credit unions); pension,
profit sharing and employee benefit plans and trusts; insurance companies;
investment companies; investment advisers; and broker-dealers acting for their
own accounts or for the accounts of their customers through an omnibus
account.
Class C shares are sold without an initial sales charge. However, a 1.00%
contingent deferred sales charge will be imposed in the event of certain
redemption transactions within one year following such investments.
An account may be opened by mailing a check or other negotiable bank draft,
payable to The Starbuck Tisdale Growth & Income Fund for $2,500 ($1,000 for an
IRA account) for Class C shares, or $25,000 for Class Y shares, together with
the completed Investment Application Form included with this Prospectus to the
Transfer Agent at National Financial Data Services ("NFDS"), 1004 Baltimore,
Kansas City, MO 64105-1807. All such investments are made at the net asset
value next computed following receipt of payment by the Transfer Agent.
Confirmations of the opening of an account and of all subsequent transactions
in the account are forwarded by the Transfer Agent to the shareholder's
address of record. When placing purchase orders, investors should specify the
class of shares being purchased. All share purchase orders that fail to
specify a class will automatically be invested in Class C shares, unless the
purchase order meets the investment criteria for purchase of Class Y shares,
in which case, the purchase order will be invested in Class Y shares. There is
no right to convert Class C shares to Class Y shares or vice versa.
REDEMPTION OF SHARES
Shareholders may require the Fund to redeem their shares by sending a written
request, signed by the record owner(s), to NFDS, 1004 Baltimore, Kansas City,
MO 64105-1807. If stock certificates have been issued for shares being
redeemed, such certificates must accompany the written request with the
shareholder's signature guaranteed by a commercial bank, trust company,
savings association or credit union as defined by the Federal Deposit
Insurance Act, or by a registered
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<PAGE>
securities broker-dealer member of a recognized national securities exchange.
No signature guarantees are required for shares for which certificates have
not been issued when an application is on file with the Transfer Agent and
payment is made to the shareholder of record at the shareholder's address of
record. However, if the proceeds of the redemption are greater than $50,000,
or are to be paid to someone other than the registered holder, or to other
than the shareholder's address of record, or if the shares are to be
transferred, the owner's signature must be guaranteed as described above. The
redemption price shall be the net asset value per share next computed after
receipt of the redemption request in proper order. See "Net Asset Value."
The right of redemption and payment of redemption proceeds are subject to
suspension for any period during which the New York Stock Exchange is closed,
other than customary weekend and holiday closing, or when trading on the New
York Stock Exchange is restricted as determined by the Securities and Exchange
Commission; during any period when an emergency as defined by the rules and
regulations of the Securities and Exchange Commission exists; or during any
period when the Securities and Exchange Commission has by order permitted such
suspension. The Fund will not mail redemption proceeds until checks (including
certified checks or cashier's checks) received for the shares purchased have
cleared, which can be as long as 15 days from the purchase date.
The value of shares on redemption may be more or less than the investor's cost
depending upon the market value of the Fund's portfolio securities at the time
of redemption. No redemption fee is charged for the redemption of shares.
Involuntary Redemption
The Fund may at its discretion redeem an investor's shares if the net asset
value of such shares is less than $500; provided that such involuntary
redemptions will not result from fluctuations in the value of an investor's
shares. In addition, the Fund may at its discretion redeem the shares of any
investor who has failed to provide the Fund with a certified taxpayer
identification number or such other tax-related certifications as the Fund may
require. It should be noted that involuntary redemptions of IRA accounts could
have adverse tax consequences.
See the Statement of Additional Information for further information regarding
redemption of the Fund's shares.
Contingent Deferred Sales Charge--Class C Shares
In order to recover commissions paid to dealers on investments in Class C
shares, a contingent deferred sales charge of 1% applies to certain
redemptions of such shares made within the first year after investing. No
charge is imposed to the extent that the net asset value of the shares
redeemed does not exceed (a) the current net asset value of shares purchased
through reinvestment of dividends or capital gains distributions plus (b) the
current net asset value of shares purchased
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<PAGE>
more than one year prior to the redemption, plus (c) increases in the net
asset value of the shareholder's shares above the purchase payments made
during the preceding one year.
NET ASSET VALUE
The net asset value of the Fund's shares will be determined as of the close of
the New York Stock Exchange (currently 4:00 p.m. Eastern Standard Time) on
each day that the New York Stock Exchange is open for trading.
Net asset value per share is determined by dividing the value of the net
assets of the Fund by the total number of shares outstanding. The per share
net asset values and total returns of the various classes will differ due to
differing expenses borne by each class.
Portfolio securities that are traded on a national securities exchange or on
the NASDAQ National Market System are valued at the last sale price on such
exchange or market as of the close of business on the date of valuation.
Securities traded on a national securities exchange or on the NASDAQ National
Market System for which there were no sales on the date of valuation and
securities traded on other over-the-counter markets, including listed
securities for which the primary market is believed to be over-the-counter,
are valued at the mean between the most recently quoted bid and asked prices.
Securities for which market quotations are not available are valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund. Short-term investments that mature in 60 days or less
are valued at amortized cost, unless the Board of Directors determines that
such valuation does not constitute fair value.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute at least annually to shareholders substantially
all of the Fund's net investment income. Net realized capital gains, if any,
will be distributed at least annually to shareholders. All dividends and
distributions will be automatically reinvested in shares of the Fund unless
the shareholder elects to be paid in cash by notifying the Transfer Agent in
writing. The per share dividends on Class Y shares will be higher than the per
share dividends on Class C shares as a result of lower expenses applicable to
Class Y shares.
BROKERAGE COMMISSIONS
All portfolio transactions will be effected at the best price and execution
obtainable within the scope of the Fund's brokerage policies, which are
described under the heading "Brokerage Allocation and Portfolio Transactions"
in the Statement of Additional Information. The Fund's brokerage policies
provide that the receipt of research services from a broker and the sale of
Fund shares by a broker are factors which may be taken into account in
allocating securities transactions.
15
<PAGE>
TAXATION
General Tax Information
The Fund intends to be treated as a regulated investment company under the
federal tax law. As such, the Fund generally will not pay federal income tax
on the income and gains it pays as dividends to its shareholders. In order to
avoid a 4% federal excise tax, the Fund intends to distribute each year
substantially all of its income and gains.
Shareholders will be subject to tax on dividends received from the Fund,
regardless of whether received in cash or reinvested in additional shares.
Shareholders must treat dividends, other than capital gain dividends, as
ordinary income. Dividends designated as capital gain dividends are taxable to
shareholders as long-term capital gain. Certain dividends declared in October,
November, or December of a calendar year are taxable to shareholders as though
received on December 31 of that year if paid to shareholders during January of
the following calendar year. The Fund will advise shareholders annually of the
amount and nature of dividends paid to them.
Other Tax Laws
The preceding discussion relates only to federal income taxes; the
consequences under other tax laws may differ. For additional information
relating to the tax aspects of investing in the Fund, see "Tax Status" in the
Statement of Additional Information.
OTHER INFORMATION
Description of Shares
The Company was organized as a Maryland corporation on December 30, 1992. The
Fund currently issues two classes of common stock, $.01 par value per share,
designated Class Y, and Class C shares. All shares represent interests in the
same assets of the Fund and are identical in all respects except that each
class bears different distribution expenses and may bear various class-
specific expenses, and each class has exclusive voting rights with respect to
its service and/or distribution plan. See "Other Information--Voting Rights."
Class C shares are subject to a distribution and service fee which will cause
Class C shares to have a higher expense ratio and pay lower dividends than
Class Y shares. Shares of the Fund issued are fully paid, non-assessable,
fully transferable and redeemable at the option of the holder.
16
<PAGE>
Performance Information
The Fund may include its total return in advertisements or reports to
shareholders or prospective investors. Quotations of average annual total
return will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in the Fund over a period of one, five and
ten years (or up to the life of the Fund), will reflect the deduction of a
proportional share of Fund expenses (on an annual basis), and will assume that
all dividends and distributions are reinvested when paid. Total return may be
expressed in terms of the cumulative value of an investment in the Fund at the
end of a defined period of time. For a description of the methods used to
determine total return for the Fund, see "Performance Information" in the
Statement of Additional Information.
Custodian, Dividend Disbursing Agent, Transfer Agent and Registrar
The transfer agent, dividend disbursing agent and registrar for the share of
the Fund will be National Financial Data Services. Its address is 1004
Baltimore, Kansas City, MO 64105. The Fund's securities and cash are held
under a Custodial Agreement with UMB Bank, 928 Grande Boulevard, Kansas City,
MO 64141.
Legal Matters
Dechert Price & Rhoads, Washington, D.C. has passed upon certain legal matters
in connection with the shares offered by this Prospectus, and also acts as
counsel to the Fund.
Financial Statements and Experts
The Statement of Assets and Liabilities of the Fund as of September 20, 1996
which has been audited by Deloitte & Touche LLP, is included in the Statement
of Additional Information and incorporated by reference herein.
Shareholder Inquiries
Shareholder inquires should be directed to 333 South Grand Ave., Suite 4075,
Los Angeles, California 90071 or by Calling (800) SB FUNDS.
Voting Rights
All shares have equal voting rights and equal rights with respect to
dividends, assets and liquidation, except only the shares of a given class
vote on matters pertaining to that class and classes differ with respect to
sales load structure and certain fees.
The Company does not intend to hold annual shareholder meetings, but does
intend to hold periodic information meetings for shareholders, at the
Investment Adviser's expense, at which the
17
<PAGE>
Fund's performance and prospects will be reviewed. The Directors will call a
meeting for any purpose upon written request of shareholders holding at least
10% of the Company's outstanding shares.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement
of Additional Information and/or in the Fund's official sales literature in
connection with the offering of the Fund's shares and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer in any
state in which, or to any person to whom, such offer may not lawfully be made.
18
<PAGE>
FUND MANAGER
SBG Capital Management Inc
333 S. Grand Avenue, Suite 4075
Los Angeles, CA 91007
INVESTMENT ADVISER
Starbuck, Tisdale & Associates
111 West Micheltorena Street
Suite 210
Santa Barbara, CA 93101
TRANSFER AGENT
National Financial Data Service
1004 Baltimore
Kansas City, MO 64105-1807
CUSTODIAN
UMB Bank
928 Grande Boulevard
Kansas City, MO 64141
PRINCIPAL UNDERWRITER
Ascher/Decision Services, Inc.
333 South Grand Avenue
40th Floor
Los Angeles, CA 90071
INDEPENDENT ACCOUNTANTS
For more complete information about any other fund in the Santa Barbara Group
of Mutual Funds, including charges and expenses, please call (213) 628-2907 or
(800) SB FUNDS or write to Ascher/Decision Services, Inc. and request a free
prospectus. Read the prospectus carefully before you invest or send money.
LOGO
The
Starbuck Tisdale
Growth & Income
Fund
------------------
The date of this Prospectus is .
<PAGE>
THE STARBUCK TISDALE GROWTH AND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER __, 1996
The Starbuck Tisdale Fund (the "Fund") is currently the sole series of
shares of Santa Barbara Group of Mutual Funds Inc. (the "Company"), a newly
organized, open-end investment management company. The Fund has entered into an
Investment Agreement with SBG Capital Management, Inc. (the "Fund Manager"),
which has entered into a Sub-Investment Advisory Agreement with Starbuck Tisdale
& Associates ("Investment Adviser") which will provide primary and ongoing
investment advice to the Fund.
This Statement of Additional Information is intended to supplement the
information provided to investors in the Prospectus dated October 2, 1996 of
the Fund and has been filed with the Securities and Exchange Commission as part
of the Fund's Registration Statement. Investors should note, however, that this
Statement of Additional Information is not itself a prospectus and should be
read carefully in conjunction with the Fund's Prospectus and retained for future
reference. The contents of this Statement of Additional Information are
incorporated by reference in the Prospectus in their entirety. A copy of the
Prospectus may be obtained free of charge from the Fund by writing to or calling
the Fund at 333 South Grand Ave., Suite 4075, Los Angeles, California
90071/(800) SB FUNDS.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE AND POLICIES AND
ASSOCIATES RISKS 3
U.S. Government Securities 3
Commercial Paper 3
Repurchase Agreements 3
Foreign Securities 4
Loans of Portfolio Securities 4
Borrowing 5
INVESTMENT RESTRICTIONS 5
DIRECTORS AND OFFICERS 7
INVESTMENT ADVISORY AND OTHER SERVICES 8
Investment Adviser/Fund Manager 8
Custodian, Dividend Disbursing Agent,
Transfer Agent and Registrar 9
Independent Accountants 9
Counsel 9
BROKERAGE ALLOCATION AND PORTFOLIO TRANSACTIONS 9
PURCHASE, REDEMPTION AND PRICING OF SHARES 10
Pricing of Shares 10
TAX STATUS 11
Currency Fluctuations -- "Section 988" -- Gains or Losses 12
Investment in Passive Foreign Investment Companies 12
Debt Securities Acquired at a Discount 13
Distributions 13
Disposition of Shares 14
Backup Withholding 14
Other Taxation 15
DISTRIBUTION OF FUND SHARES 15
PERFORMANCE INFORMATION 15
REGISTRATION STATEMENT 17
FINANCIAL STATEMENTS 18
</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES AND ASSOCIATED RISKS
The Fund's investment objective and policies are described in the
Prospectus under the heading "Investment Objective and Policies." Additional
information concerning the characteristics of certain of the Fund's investments
are set forth below.
The Fund's investment objective is a fundamental policy and may not be
changed without the authorization of the holders of a majority of the Fund's
outstanding shares. As used in this Statement of Additional Information and the
Prospectus, a "majority of the Fund's outstanding shares" means the lesser of
(i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. U.S. Government
securities are obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities. Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes, and bonds) and (2) Federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). With respect to these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government, and
thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury.
However, they involve Federal sponsorship in one way or another; some are backed
by specific types of collateral; some are supported by the issuer's right to
borrow from the Treasury; some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer; others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, and Student Loan Marketing Association.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued in
bearer from by bank holding companies, corporations and finance companies.
3
<PAGE>
The Fund may invest in commercial paper which, at the date of investment, is
rated A-1 or higher by Standard & Poor's Corporations or Prime-1 or higher by
Moody Investors Services, Inc.
REPURCHASE AGREEMENTS
The Fund may, from time to time, enter into "repurchase agreements"
pertaining to the securities in which it may invest with securities dealers or
member banks of the Federal Reserve System. A repurchase agreement is
considered a loan and arises when a buyer, such as the Fund, purchases as
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally one day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate which is
effective for the period of time the buyer's money is invested in the security
and which is related to the current market rate rather than the coupon rate on
the purchased security. Such agreements permit the Fund to keep all of its
assets at work while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund requires continual maintenance by its
custodian for its account in the Federal Reserve/Treasury Book Entry System of
collateral in an amount equal to, or in excess of, the resale price. In the
event of a vendor's bankruptcy, the Fund might be delayed in, or prevented from,
selling the collateral for the Fund's benefit. The Fund's Board of Directors
has established procedures, which are periodically reviewed by the Board,
pursuant to which the Investment Adviser will monitor the credit worthiness of
the dealers and banks with which the Fund enters into repurchase agreement
transactions.
FOREIGN SECURITIES
The Fund may invest up to 15% of the value of its total assets in
securities of foreign issuers represented by American Depositary Receipts listed
on a domestic securities exchange or included in the NASDAQ National Market
System, or foreign securities listed directly on a domestic securities exchange.
Income and gains on such securities may be subject to foreign withholding taxes.
Investors should consider carefully the substantial risks involved in securities
of companies and governments of foreign nations, which are in addition to the
usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the United
States. Foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards, and auditing practices and
requirements may not be comparable to those applicable to United States
companies. Foreign markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and more
volatile than securities of comparable United States companies.
4
<PAGE>
Commission rates in foreign countries, which are generally fixed rather than
subject to negotiation as in the United States, are likely to be higher. In many
foreign countries there is less government supervision and regulation of stock
exchanges, brokers, and listed companies than in the United States.
LOANS OF PORTFOLIO SECURITIES
To enhance the return on its portfolio, the Fund may lend securities in its
portfolio representing up to 25% of its total assets, taken at market value, to
securities firms and financial institutions, provided that each loan is secured
continuously by collateral in the form of cash, high quality money market
instruments or short-term U.S. Government securities adjusted daily to have a
market value at least equal to the current market value of the securities
loaned. These loans are terminable at any time, and the Fund will receive any
interest or dividends paid on the loaned securities. In addition, it is
anticipated that the Fund may share with the borrower some of the income
received on the collateral for the loan or the Fund will be paid a premium for
the loan. The risk in lending portfolio securities, as with other extensions of
credit, consists of possible delay in recovery of the securities or possible
loss of rights in the collateral should the borrower fail financially. In
determining whether the Fund will lend securities, the Investment Adviser will
consider all relevant facts and circumstances. The Fund will only enter into
loan arrangements with broker-dealers, banks or other institutions which the
Investment Adviser has determined are creditworthy under guidelines established
by the Board of Directors.
BORROWING
The Fund is authorized to borrow money from a bank in amounts up to 5% of
the value of its total assets at the time of such borrowing for temporary
purposes, and is authorized to borrow money in excess of the 5% limit as
permitted by the Investment Company Act of 1940 ("1940 Act") to meet redemption
requests. The Fund will not purchase portfolio securities while borrowing
exceed 5% of the Fund's total assets. This borrowing may be unsecured. The
1940 Act requires the Fund to maintain continuous asset coverage of 300% of the
amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell some of
its portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing may exaggerate the effect
on net asset value of any increase of decrease in the market value of the Fund.
Money borrowed will be subject to interest costs which may or may not be
recovered by an appreciation of the securities purchased. The Fund may also be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would
5
<PAGE>
increase the cost of borrowing over the stated interest rate. The Fund may, in
connection with permissible borrowing, transfer as collateral securities owned
by the Portfolio.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions that
may not be changed without the affirmative vote of the holders of a majority of
the Fund's outstanding voting securities. The Fund may not:
1. make further investments when 25% or more of its total assets
would be invested in any one industry (securities issued or guaranteed
by the United States Government, its agencies or instrumentalities are
not considered to represent industries);
2. invest more than 5% of the Fund's assets (taken at market value
at the time of purchase) in the securities of any single issuer or own
more than 10% of the outstanding voting securities of any one issuer
(other than securities issued or guaranteed by the United States
Government, its agencies or instrumentalities);
3. borrow money or issue senior securities (as defined in the 1940
Act) except that the Fund may borrow (i) for temporary purposes in
amounts not exceeding 5% of its total assets and (ii) to meet
redemption requests, in amounts (when aggregated with amounts borrowed
under clause (i)) not exceeding 33 1/3% of its total assets;
4. pledge, mortgage or hypothecate its assets other than to secure
borrowing permitted by restriction 3 above;
5. make loans of securities to other persons except loans of portfolio
securities and provided the Fund may invest without limitation in
short-term obligations (including repurchase agreements) and publicly
distributed obligations;
6. underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities;
7. purchase or sell real estate or mortgages on real estate,
(although the Fund may invest in marketable securities secured by real
estate or interests therein or issued by companies or investment
trusts that invest in real estate or interests
6
<PAGE>
therein);
8. purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary for the
clearance of purchases and sales of portfolio securities; or,
9. make investments for the purpose of exercising control or
management.
10. invest in commodities or commodity futures contracts, provided that
this limitation shall not prohibit the purchase or sale of forward
foreign currency exchange contracts, financial futures contracts, and
options on financial futures contracts and options on securities and
on securities indices.
Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:
1. invest in securities issued by an investment company;
2. invest more than 15% of its net assets in securities which
cannot be readily resold because of legal or contractual restrictions
and which are not otherwise marketable;
3. invest in warrants if at the time of acquisition more than 5%
of its net assets, taken at market value at the time of purchase,
would be invested in warrants, and if at the time of acquisition more
than 2% of its total assets, taken at market value at the time of
purchase, would be invested in warrants not traded on the New York
Stock Exchange or American Stock Exchange. For purposes of this
restriction, warrants acquired by the Fund in units or attached to
securities may be deemed to be without value; or,
4. Invest more than 10% of its total assets in securities of
issuers which together with any predecessors have a record of less
than three years of continuous operation.
With the exception of the restriction on borrowing, if a percentage
restriction set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changes in value or in
7
<PAGE>
the number of outstanding securities of an issuer will not be considered a
violation.
DIRECTORS AND OFFICERS
The Board of Directors of the Company is responsible for the overall
management and operation of the Fund. The Directors and officers of the Company
and their principal occupations during the last five years are set forth below:
<TABLE>
<CAPTION>
Principal Occupation
Name Position with Company During Past 5 Years
---- --------------------- -------------------
<S> <C> <C>
Stephen Y. Ascher(1) Director, Chief Chairman, Director and
Executive Officer; Chief Executive Officer
Chief Financial of the Underwriter;
Officer, Treasurer Chairman, Director and
Shareholder of Capital
Management Group
registered investment
adviser.
Steven W. Arnold(1) Director, President Officer, Director and
and Secretary Shareholder of Capital
Management Group; Marketing
Manager for Robert Bender
& Associates.
L. David Tisdale(1)(2) Director Chairman of the Board
of Directors, Chief
Executive Officer,
Shareholder and President
of the Sub-Investment
Adviser
Robert L. Bender(1) Director Chairman of the Board of
Directors, Chief Executive
Officer, Shareholder and
President of Robert Bender
& Associates, a registered
investment adviser
Hugh M. Grant Director Partner with Ernst &
Young, certified public
accountants
Watson M. Laetsch Director Former Vice-chancellor,
University of California,
Berkeley; Consultant to
non-profit corporations
and foreign entities.
John W. Svendsen Director Investor
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name Position with Company During Past 5 Years
---- --------------------- -------------------
<S> <C> <C>
Robert A. Graham, Jr. Assistant Secretary Attorney
</TABLE>
(1) Director who is an "interested person" of the Company, as defined in the
1940 Act.
(2) "Controlling person" of the Investment Adviser, as defined in the 1940 Act.
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Benefits Estimated Compensation
Compensation from Accrued As Part of Benefits from Company
Name of Director Company Company Expenses Upon Retirement and
Fund Complex
<S> <C> <C> <C> <C>
Hugh M. Grant $1,000 per year -0- -0- $2,000
plus $250 per meeting
Watson M. Laetsch $1,000 per year -0- -0- $2,000
plus $250 per meeting
John W. Svendsen $1,000 per year -0- -0- $2,000
plus $250 per meeting
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The investment adviser of the Fund is Starbuck, Tisdale & Associates (the
"Investment Adviser"), in which L. David Tisdale owns a controlling interest.
It has been retained under an Investment Advisory Agreement (the "Advisory
Agreement") with the Fund Manager, SBG Capital Management, subject to the
authority of the Board of Directors. The Investment Adviser was incorporated in
December, 1961.
Under the terms of the Advisory Agreement, the Fund Manager furnishes
continuing investment supervision to the Fund and is responsible for the
management of the Fund's portfolio. The responsibility for making decisions to
buy, sell or hold a particular security rests with the Investment Adviser,
subject to review by the Board of Directors. However, pursuant to the Sub-
Advisory Agreement, the Investment Adviser makes the day to day decisions with
regard to the Fund.
For its services, the Fund Manager receives from the Fund a monthly fee at
an annual rate of 0.95% of the Fund's average daily net assets.
The Investment Adviser is paid by the Fund Manager monthly at an annual
rate of 0.50% of the Fund's average daily net assets.
The Advisory Agreement and Sub-Advisory Agreement will continue in effect
for a period of two years from their effective date. If not sooner terminated,
the Advisory Agreement and Sub-Advisory Agreement will continue in effect for
successive one year periods thereafter, provided that each continuance is
specifically approved annually by (a) the vote of a
9
<PAGE>
majority of the Company's Board of Directors who are not parties to the
Agreement or interested persons (as defined in the 1940 Act), cast in person at
a meeting called for the purpose of voting on approval; and, (b) either (i) the
vote of a majority of the outstanding voting securities of the Fund or (ii) the
vote of a majority of the Company's Board of Directors. The Advisory Agreement
and Sub-Advisory Agreement may be terminated at any time by the Fund on 60 days'
written notice, without the payment of any penalty, upon the vote of a majority
of the Company's Board of Directors of a majority of the outstanding voting
securities of the Fund. The Advisory Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act). The Investment Adviser
may terminate the Advisory Agreement and Sub-Advisory Agreement without penalty
on 90 days written notice to the Fund.
CUSTODIAN, DIVIDEND DISBURSING AGENT, TRANSFER AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the shares
of the Fund is National Financial Data Services ("Transfer Agent"). Its address
is 1004 Baltimore, Kansas City, Missouri 64105. The Fund's securities and cash
are held under a Custodial Agreement with UMB Bank. Its address is 928 Grand
Boulevard, Kansas City, Missouri 64141.
INDEPENDENT ACCOUNTANTS
Deliotte Touche, LLP serves as the independent public audit services, tax
and accounting assistance, and consultation in connection with Securities and
Exchange Commission filings. Its address is 1000 Wilshire Blvd., Los Angeles,
California 90017.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, has
passed upon certain legal matters in connection with the shares offered by the
Fund, and also acts as counsel to the Fund.
BROKERAGE ALLOCATION AND PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for investment decisions and for the execution
of the Fund's portfolio transactions. The Fund has no obligation to deal with
any particular broker or dealer in the execution of transactions in portfolio
securities. In executing such transactions, the Investment Adviser seeks to
obtain the best price and execution for its transactions. While the Investment
Adviser generally seeks reasonably competitive commission rates, the Fund does
not necessarily pay the lowest commission.
10
<PAGE>
Where best price and execution may be obtained from more than one broker or
dealer, the Investment Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and other
information to the Investment Adviser. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Investment Adviser under the Sub-Advisory Agreement and the expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt of
such supplemental information. Although certain research, market and
statistical information from brokers and dealers can be useful to the Fund and
the Investment Adviser, the Investment Adviser has advised that such information
is, in its opinion, only supplementary to the Investment Adviser's own research
activities and the information must still be analyzed, weighed and reviewed by
the Investment Adviser.
The Fund will not purchase securities from, or sell securities to, the Fund
Manager or Investment Adviser. The Investment Adviser may take into account
the sale of Fund shares by a broker in allocating brokerage transactions.
It is anticipated that the Fund's annual portfolio turnover rate will not
exceed 40%. The portfolio turnover rate is calculated by dividing the lesser of
sales or purchases of portfolio securities by the average monthly value of the
Fund's portfolio securities. For purposes of this calculation, portfolio
securities exclude securities having a maturity when purchased of one year or
less. The turnover rate has a direct effect on the transaction costs (including
brokerage costs) to be borne by the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Purchase and redemptions are discussed in the Prospectus under the headings
"Purchase of Shares," "Redemption of Shares," and "Net Asset Value", and that
information is incorporated herein by reference.
The Fund reserves the right to suspend or postpone redemptions during any
period when: (i) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that Exchange is closed
for other than customary weekend and holiday closing; (ii) the Securities and
Exchange Commission has by order permitted such suspension or postponement for
the protection of shareholders; or (iii) an emergency, as determined by the
Securities and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of the Fund not reasonably practicable.
The Fund may, at its discretion, redeem an investor's shares if the net
asset value of such shares is less than $ 500; provided that involuntary
redemptions will not result from fluctuations in the value of an investor's
shares. In addition, the Fund may redeem the shares of any investor who has
failed to provide the Fund with a certified taxpayer identification number or
11
<PAGE>
such other tax-related certifications as the Fund may require. A notice of
redemption, sent by first-class mail to the investor's address of record, will
fix a date not less than 30 days after the mailing date, and shares will be
redeemed at the net asset value at the close of business on that date unless
sufficient additional shares are purchased to bring the aggregate account value
up to $500 or more, or unless a certified taxpayer identification number (or
such other information as the Fund has requested) has been provided, as the case
may be. A check for the redemption proceeds payable to the investor will be
mailed to the investor at the address of record.
PRICING OF SHARES
As indicated under "Net Asset Value" in the Prospectus, the Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at or about 4:00 p.m. Eastern Standard Time on each day the Fund
is open for business and the New York Stock Exchange is open for trading. Net
asset value will not be determined on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and the Monday's
before New Year's Day, Independence Day, and Christmas Day if any of these
holidays fall on a Tuesday, and the Friday's after New Year's Day, Independence
Day, or Christmas Day if any of these holidays falls on a Thursday, and the
Friday after Thanksgiving Day. The value of portfolio securities that are
traded on stock exchange outside the United States are based upon the price on
the exchange as of the close of business of the exchange immediately preceding
the time of valuation.
TAX STATUS
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Fund generally must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale or other
disposition of stock, other securities or other income derived with respect to
its business of investing in such stock or other, securities; (b) derive in each
taxable year less than 30% of its gross income from the sale or other
disposition of assets held less than three months, (i) stock or securities; and
(c) diversify its holdings so that, at the end of each fiscal
12
<PAGE>
quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with cash other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be subject
to U.S. Federal income tax on its income and gains that it distributes to
shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any short-
term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each
calendar year, (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the calendar
year, and (3) all ordinary income and capital gains for previous years that were
not distributed during such years. To avoid application of the excise tax, the
Fund intends to make distributions in accordance with the calendar year
distribution requirements. A distribution will be treated as paid on December
31 of the current calendar year if it is declared by the Fund in October,
November or December of the year with a record date in such
13
<PAGE>
a month and paid by the Fund during January of the following year. Such
distributions will be taxable to shareholders in the calendar year the
distributions are declared, rather than the calendar year in which the
distributions are received.
CURRENTLY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues income or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities and certain other instruments denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security and the date of
disposition also are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders as ordinary income. If section 988 losses
exceed other net investment income during a taxable year, the Fund generally
would not be able to make ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as return of capital to
shareholders for federal income tax purposes, rather than as an ordinary
dividend, reducing each shareholder's basis in his Fund shares, or as capital
gain.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
14
<PAGE>
The Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election may be
available that would involve marking to market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized. If
this election were made, tax at the fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. In addition, other elections may become
available that would affect the tax treatment of PFIC shares held by the Fund.
The Fund's intention to qualify annually as a regulated investment company may
limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a Fund that did not invest in PFIC shares.
In addition, investment income and gains received by the Fund from sources
outside the United States may be subject to foreign taxes which were withheld at
the source. Since the percentage of the Fund's total assets which will be
invested in foreign stocks and securities will not be more than 50%, any foreign
tax credits or deductions associated with such foreign taxes will not be
available for use by its shareholders. The effective rate of foreign taxes to
which the Fund will be subject depends on the specific countries in which the
Fund's assets will be invested and the extent of the assets invested in each
such country and therefore cannot be determined in advance.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities that may be acquired by the Fund may be subject
to the special rules for obligations issued or acquired at a discount.
Generally, under these rules, the amount of the discount is treated as ordinary
income and, depending upon the circumstances, the discount is included in income
(i) over the term of the debt security, even though payment of the discount is
not received until a later time, usually when the debt security matures, or (ii)
upon the disposition of, and any partial payment of principal on, the debt
security.
15
<PAGE>
The Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includible in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund or by borrowing.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net long-
term capital gains over net short-term capital losses), if any, designated by
the Fund as capital gain dividends, are taxable as long-term capital gains,
whether paid in cash or in shares, regardless of how long the shareholder has
held the Fund's shares and are not eligible for the dividends received
deduction. Shareholders receiving distributions in the form of newly issued
shares will have a cost basis in each share received equal to the net asset
value of a share of the Fund on the distribution date. Shareholders will be
notified annually as to the U.S. federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors
should be careful to consider the tax implications of buying shares just prior
to distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and generally will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption, sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including
16
<PAGE>
through reinvestment of dividends) within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the
shareholder for six months or less will be treated for tax purposes as a long-
term capital loss to the extent of any distributions of capital gain dividends
received or treated as having been received by the shareholder with respect to
such shares.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service (the
"IRS") all distributions as well as gross proceeds from the redemption of the
Fund's shares, except in the base of certain exempt shareholders. All such
distributions and proceeds will be subject to withholding of federal income tax
at a rate of 31% ("backup withholding") in the case of non-exempt shareholders
if (1) the shareholder fails to furnish the fund with and to certify the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
OTHER TAXATION
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of
the tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
DISTRIBUTION OF FUND SHARES
Ascher/Decision Services, Inc. serves as the Fund's Distributor pursuant to
a Distribution Contract ("Distribution Contract") with the Fund. The
Distributor is not obligated to sell any specific amount of Fund shares.
17
<PAGE>
PERFORMANCE INFORMATION
The Fund may, from time to time, include its yield and total return in
advertisements, sales literature, or reports to shareholders or prospective
investors.
Quotations of yield for the Fund will be based on all investment income per
share during a particular 30-day (or one accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per share on the last day of the period, according to the
following formula:
6
2 [ (a-b + 1) - 1]
-------
cd
where a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and,
d = the maximum offering price per share on the last day of the
period.
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5, and 10 years (up to the life of the
Fund), calculated pursuant to the following formula:
n
P (1 + T) = ERV
where P = a hypothetical initial payment of $1,000;
T = the average annual total return;
n = the number of years; and,
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
Quotations of aggregate total return for the Fund may be shown for periods of
less than one year, calculated pursuant to the following formula: P (1 + T) =
ERV, where P and ERV have the same meaning as indicated above, and T = the
aggregate total return. All total return figures reflect the deduction of Fund
expenses on an annual basis, and assume that all dividends and
18
<PAGE>
distributions are reinvested when paid. Quotations of total return may also be
shown for other periods.
In reports or other communications to shareholders or in advertising
material, the Fund's performance may be compared with that of other mutual funds
listed in the rankings prepared by Lipper Analytical Services, Inc. or similar
independent services that monitor the performance of mutual funds or with other
appropriate indices of investment securities such as the Standard & Poor's 500
Composite Stock Price Index and the Dow Jones Industrial Average. The
performance information may also include evaluations of the Fund published by
nationally recognized financial publications such as Barron's, Business Week,
CDA Investment Technologies, Inc., Forbes, Fortune, Institutional Investor,
Investor's Daily, Kiplinger's Personal Finance Magazine, Money, Morningstar
Mutual Fund Values, The New York Times, USA Today and The Wall Street Journal.
The Investment Adviser may also report to shareholders or to the public in
advertisements on the comparative performance or standing of the Investment
Adviser in relation to other money managers. Such comparative information may
be compiled or provided by independent ratings services or by news
organizations. Any performance information, whether related to the Fund or the
Investment Adviser, should be considered in light of the Fund's investment
objectives and policies, characteristics and quality of the Fund's portfolio,
and the market conditions during the given time period, and should not be
considered to be representative of what may be achieved in the future.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain
all the information included in the Fund's registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to the securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The registration statement, including the exhibits filed therewith, may be
examined at the offices of the Securities and Exchange Commission in Washington,
D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract of other documents referred to are not necessarily complete, and, in
such instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respect by such reference.
19
<PAGE>
FINANCIAL STATEMENTS
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' REPORT
Santa Barbara Group of Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of the
Santa Barbara Group of Mutual Funds, Inc. (the "Company"), including the
schedule of investments as of September 20, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at September 20, 1996 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, CA
September 26, 1996
20
<PAGE>
SANTA BARBARA GROUP OF MUTUAL FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 20, 1996
<TABLE>
<CAPTION>
STARBUCK TISDALE
GROWTH AND INCOME
FUND
-----------------
<S> <C>
ASSETS:
Cash $ 30,000
Investment Securities at Market (Cost $104,008) 104,008
Deferred Organization Costs 68,000
--------
Total Assets 202,008
--------
LIABILITIES:
Accrued Expenses 68,000
--------
Total Liabilities 68,000
--------
NET ASSETS:
Fund Shares of Class Y (unlimited Shares Authorized--$.01
par value) based on 13,400 outstanding shares of common
stock 134,008
--------
Total Net Assets $134,008
========
</TABLE>
1. SIGNIFICANT ACCOUNTING POLICIES
The Santa Barbara Group of Mutual Funds, Inc. (the "Company") was organized on
December 30, 1992 as a diversified open-end management investment company
formed under Maryland law. The Company will operate as a series mutual fund
initially consisting of one investment portfolio (the "Fund"). To date, the
Company has had no transactions other than those relating to organization
matters and the issuance of 13,400 shares of common stock to certain
affiliates of Starbuck Tisdale and Associates Inc. (the "Sub-Advisor"). The
Company is registered under the Investment Company Act of 1940, as amended
(the "Act").
The Fund's investment objective is to provide shareholders with long-term
capital appreciation and reasonable current net income by investing primarily
in a diversified portfolio of equity securities of companies that have
demonstrated superior prospects for long-term earnings growth, increasing cash
flow returns on corporate assets, financial stability and lower price per
share volatility.
Investment securities that are traded on a national securities exchange (or on
the NASDAQ national market) are valued at the last reported sales on the date
of valuation. Securities traded on a national securities exchange or on the
NASDAQ national market for which no sale was reported on that date are valued
at the mean between the most recently quoted bid and asked prices. Securities
for which market quotations are not available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors
of the Fund. Short-term investments that mature in 60 days or less are valued
at amortized cost, unless the Board of Directors determines that such
violation does not constitute fair value.
21
<PAGE>
USE OF ESTIMATES The preparation of the accompanying financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements. Actual results could
differ from the estimates.
2. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES
The Company has entered into an Investment Advisory and Management Agreement
with SBG Capital Management, Inc. (the "Fund Manager"). For its services, the
Fund Manager is entitled to receive a fee, which is calculated daily and paid
quarterly, at an annual rate of .95% of the average daily net assets of the
Fund. The Fund Manager and Starbuck Tisdale & Associates, Inc. are parties to
a Sub-Advisory Agreement in which the Sub-Advisor is entitled to receive a
fee, which is calculated daily and paid quarterly, at an annual rate of .50%
of the average daily net assets of the Fund. The Fund Manager and the Sub-
Advisor have agreed to waive a portion of their fees in order to limit the
operating expenses of the Fund.
The Company has entered into a Distribution Agreement with Ascher/Decision
Services, Inc. (the "Distributor"), an affiliate of the Company, to provide
non-exclusive distribution of shares of the Fund. Certain officers and/or
directors of the Company are officers and/or directors of the Sub-Advisor
and/or the Distributor.
SEI Fund Resources (the "Administrator"), a Delaware business trust, serves as
administrator to the Company. SEI Financial Management Corporation, a wholly-
owned subsidiary of SEI Corporation, is the owner of all beneficial interest
in the Administrator. The Company and the Administrator are parties to an
Administrator Agreement under which the Administrator provides the Company
with management and administrative services for an annual fee as follows,
based on the Fund's average daily net assets: .15% on the first $50 million;
.125% on the next $50 million; .10% in excess of $100 million, or a minimum
annual fee based on the terms of the Agreement.
3. FEDERAL INCOME TAXES
The Company intends to comply with the requirements of the Internal Revenue
Code that are necessary to qualify as a regulated investment company. As such,
the Fund will not be subject to federal income tax on taxable income
(including net realized capital gains) which is distributed to shareholders.
4. ORGANIZATIONAL COSTS
Certain organization costs in the amount of $68,000 have been deferred by the
Fund and will be amortized over a five-year period from commencement of
operations. In the event that the Sub-Advisor or certain of its affiliates
redeem any of their original shares from the Funds prior to the end of the
five-year period, the proceeds of the redemptions payable in respect of such
shares will be reduced by the pro rata share (based on the proportionate share
of the original shares redeemed to the total number of shares outstanding at
the time of such redemption) of the unamortized deferred organization costs as
of the date of such redemption. In the event that the Fund liquidates prior to
the end of the five-year period, the Sub-Advisor will reimburse the Fund for
any unamortized deferred organization expenses.
22
<PAGE>
SCHEDULE OF INVESTMENTS
STARBUCK TISDALE GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
SEPTEMBER 20,
1996
---------------
SHARES MARKET
AMOUNT VALUE
------ --------
<S> <C> <C>
COMMON STOCKS (96.6%)
COMMUNICATIONS EQUIPMENT (22.6%)
Exide Electronics Group 300 $ 2,738
MCI Communications 200 5,575
Pacific Telesis 200 6,875
Sprint 200 8,275
--- --------
23,463
COMPUTER & SOFTWARE SERVICES (20.8%)
Metatools 800 18,400
Novell 300 3,188
--- --------
21,588
COSMETICS, SOAPS & TOILETRIES (17.9%)
Procter & Gamble 200 18,650
--- --------
DRUGS (5.1%)
Alza 200 5,300
--- --------
ELECTRICAL MACHINERY (3.2%)
Valence Technology 600 3,337
--- --------
RAILROADS (7.1%)
Union Pacific 100 7,412
--- --------
REAL ESTATE INVESTMENT TRUST (16.2%)
Burnham Pacific Properties 600 6,975
Thornburg Mtg. Asset 600 9,825
--- --------
16,800
--------
TRUCKING (3.7%)
Wabash National 250 3,875
--- --------
Total Common Stock (Cost $100,425) 100,425
--------
PREFERRED STOCK (3.4%)
COMPUTER & SOFTWARE SERVICES (3.4%)
Network Imaging Conv. Pfd. Series A 245 3,583
--- --------
Total Preferred Stock (Cost $3,583) 3,583
--------
Total Investments (100.0%) (Cost $104,008) $104,008
========
</TABLE>
23
<PAGE>
The Fund's audited Statement of assets and liabilities, including the
schedule of investments and notes thereto, dated as of September 20, 1996,
have been audited by Deloitte & Touche LLP and are included in this Statement of
Additional Information.
24
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
An audited Statement of Assets and Liabilities will be filed by
Pre-Effective Amendment
(b) Exhibits (the number of each exhibit relates to the exhibit
designation in Form N-1A):
(1)(a) Articles of Incorporation*
(b) Articles of Amendment*
(2) By-Laws*
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Advisory Agreement
(6) Form of Distribution Agreement
(7) Not Applicable
(8) Custodial Agreement
(9)(a) Form of Transfer Agency and Service Agreement
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Not Applicable
(13) Initial Capital Agreement
(14) Not Applicable
(15) Service and Distribution Plan
(16) Not Applicable
(17) Not Applicable
(18) Multi-Class Plan
- --------------------
* Filed in the Registrant's initial Registration Statement on December 30,
1992 and incorporated by reference herein.
** To be filed by Amendment.
Item 25. Persons Controlled by or Under Common Control with Registrant.
-------------------------------------------------------------
As of the date of this Pre-Effective Amendment, the Starbuck Tisdale &
Associates Pension and Profit Sharing Plan (the "Plan") and the vested
accounts of the Plan for the benefit of L. David Tisdale and Jon S.
Bull own all of the issue and outstanding shares of the Registrant
which were acquired in connection with investing statutory seed money
in the Registrant.
<PAGE>
Item 26. Number of Holders of Securities.
-------------------------------
As of the date of this Registration Statement, there are three
shareholders of record of Registrant's shares.
Item 27. Indemnification.
---------------
Reference is made to Article 7.6 in the Registrant's Articles of
Incorporation, which are incorporated by reference herein.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Fund's Articles of Incorporation,
its By-Laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such directors, officers or
controlling persons in connection with shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a Court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of the Fund Manager and Investment
-----------------------------------------------------------------
Adviser
-------
FUND MANAGER
------------
SBG Capital Management, Inc.
----------------------------
<TABLE>
<CAPTION>
Name Position with Other Affiliations
- ---- ------------- ------------------
Fund Manager
------------
<S> <C> <C>
Stephen Y. Ascher Chief Executive Director, Chief Executive
Officer, Chief Officer, Chief Financial
Financial Officer Officer, Treasurer of the
Company
Steven W. Arnold President, Secretary Director, Chief Financial
Officer, Secretary of the
</TABLE>
<PAGE>
Company
INVESTMENT ADVISER
------------------
Starbuck, Tisdale & Associates
------------------------------
<TABLE>
<CAPTION>
Name Position with Advisor Other Affiliations
- ---- --------------------- ------------------
<S> <C> <C>
L. David Tisdale Director, President, Director of the Registrant
Chief Executive Officer
Donn V. Tognazzini Director, Senior Vice
President
Clare Miner-McMahon Secretary, Treasurer
Patrick Storm Steele Vice President
</TABLE>
Item 29. Principal Underwriters
----------------------
(a) Ascher/Decision Services, Inc. ("Ascher") serves as Distributor
of shares of the Fund.
(b) The directors and officers of Ascher are set forth below. Unless
otherwise indicated, their address is 333 South Grand Ave, Suite
4075, Los Angeles, California 90071.
<TABLE>
<CAPTION>
Name Positions and Positions and
- ---- ------------- -------------
Registrant Offices with Ascher Offices with Registrant
- ---------- ------------------- -----------------------
<S> <C> <C>
Stephen Y. Ascher Director, President Director, Chief
and Treasurer Executive Officer,
Chief Financial
Officer, Treasurer
Sheldyn Ascher Montagne Secretary None
John McCutcheon Director None
517-1177 W. Hastings
Vancouver, B.C. Canada
</TABLE>
(c) Not Applicable
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of SBG Capital
Management, Inc., 333 S. Grand Avenue, Los Angeles, California 90071; the
offices of Starbuck Tisdale & Associates, 111 West Micheltorena Street, Suite
210, Santa Barbara, California 93101 and SEI Fund Resources, 680 E. Swedesford
Road, Wayne, Pennsylvania 19087-1658.
Item 31. Management Services
-------------------
Not Applicable.
Item 32. Undertakings
------------
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the effective date of Registrant's Registration
Statement under the Securities Act of 1933.
(c) Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director of
Directors when requested to do so by the holders of at lease 10%
of the Registrant's outstanding shares of beneficial interest and
in connection with such meeting to comply with the shareholders
communications provisions of Section 16(c) of the Investment
Company Act of 1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this pre-
Effective Amendment No. 4 to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized in the City of Los Angeles,
and State of California on this 4th day of October, 1996.
THE SANTA BARBARA GROUP OF MUTUAL FUNDS, INC.
BY: /s/ Stephen Y. Ascher
__________________________________________
Stephen Y. Ascher
Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 4 to the Registration Statement on Form N-1A has been
signed below by the following persons on behalf of The Santa Barbara Group of
Mutual Funds, Inc. in the capacity and on the date indicated:
DATED: October 4, 1996 /s/ Stephen Y. Ascher
___________________________________
Stephen Y. Ascher, Chairman
Director, Chief Executive Officer,
Chief Financial Officer, Secretary
and Treasurer
DATED: October 4, 1996 /s/ Steven W. Arnold
___________________________________
Steven W. Arnold
President, and Chief Investment
Officer, Secretary
DATED: October 4, 1996 /s/ L. David Tisdale
___________________________________
L. David Tisdale
Director
<PAGE>
DATED: October 4, 1996 /s/ Watson M. Laetsch
___________________________________
Watson M. Laetsch
Director
DATED: October 4, 1996 /s/ Hugh M. Grant
___________________________________
Hugh M. Grant
Director
DATED: October 4, 1996 /s/ John W. Svendsen
___________________________________
John W. Svendsen
Director
DATED: October 4, 1996 /s/ Robert L. Bender
___________________________________
Robert L. Bender
Director
<PAGE>
EXHIBIT 5(a)
INVESTMENT ADVISER AGREEMENT
AGREEMENT, made this ___ day of September __, 1996, between The Santa
Barbara Group of Mutual Funds (the "Company") on behalf of the Starbuck Tisdale
Growth and Income Fund and SBG Captial Management, Inc. (the "Adviser"), a
California Corporation.
WHEREAS, the Company is a Maryland Corporation authorized to issue shares
in series and is registered as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund is
the initial series of the Company;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Company and the Adviser as follows:
1. Appointment
-----------
The Company hereby appoints the Adviser to act as Investment Adviser to the
Fund for the periods and on the terms set forth herein. The Adviser accepts the
appointment and agrees to furnish the services set forth herein for the
compensation provided herein.
2. Services as Investment Adviser
------------------------------
Subject to the general supervision and direction of the Board of Directors
of the Company, the Adviser will (a) manage the Fund in accordance with the
Fund's investment objective and policies as stated in the Fund's Prospectus and
the Statement of Additional Information filed with the Securities and Exchange
Commission, as they may be amended from time to time; (b) make investment
decisions for the Fund; (c) place
<PAGE>
purchase and sale orders on behalf of the Fund; and, (d) employ professional
portfolio managers and securities analysts to provide research services to the
Fund. In providing those services, the Adviser will provide the Fund with
ongoing research, analysis, advice, and judgments regarding individual
investments, general economic conditions and trends and long-range investment
policy. In addition, the Adviser will furnish the Fund with whatever statistical
information the Fund may reasonably request with respect to the securities that
the Fund may hold or contemplate purchasing.
The Adviser further agrees that, in performing its duties hereunder, it
will:
a. comply with the 1940 Act and all rules and regulations thereunder, the
Advisers Act, the Internal Revenue Code of 1986, as amended (the "Code") and all
other applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Directors;
b. use reasonable efforts to manage the Fund so that it will qualify, and
continue to qualify, as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder;
c. maintain books and records with respect to the Fund's securities
transactions, render to the Board of Directors of the Company such periodic and
special reports as the Board may reasonably request, and keep the Directors
informed of developments materially affecting the Fund's portfolio;
d. make available to the Fund's administrator, and the Company, promptly
upon their request, such copies of its investment records and ledgers with
respect to the Fund as may be required to assist the administrator and the
Company in their compliance with applicable laws and regulations. The Adviser
will furnish the Directors with such periodic and special reports regarding the
Fund as they may reasonably request;
e. immediately notify the Company in the event that the Adviser or any of
its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission or other regulatory authority. The Adviser further agrees to notify
the Company immediately of any material fact known to the Adviser respecting or
relating to the Adviser
2
<PAGE>
that is not contained in the Company's Registration Statement regarding the
Fund, or any amendment or supplement thereto, but that is required to be
disclosed therein, and of any statement contained therein that becomes untrue in
any material respect.
3. Investment Adviser
------------------
The Company authorizes Adviser to enter into such Investment Advisory
Agreements as the Adviser deems necessary to carry out the terms of this
Agreement and to meet investment objectives of the individual series of Funds
that may be offered from time to time by the Company.
4. Documents
---------
The Fund has delivered properly certified or authenticated copies of each
of the following documents to the Adviser and will deliver to it all future
amendments and supplements thereto, if any:
a. certified resolution of the Board of Directors of the Company
authorizing the appointment of the Adviser and approving the form of this
Agreement;
b. The Registration Statement as filed with the Securities and Exchange
Commission and any amendments thereto;
c. exhibits, powers of attorneys, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
5. Brokerage
---------
In selecting brokers or dealers to execute transactions on behalf of the
Fund, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Fund
transaction, the Adviser will consider all factors it deems relevant, including,
but not limited to, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing
3
<PAGE>
basis. In selecting brokers or dealers to execute a particular transaction, and
in evaluating the best overall terms available, the Adviser is authorized to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the securities Exchange Act of 1934, as amended (the "1934
Act")) provided to the Fund and/or other accounts over which the Adviser or its
affiliates exercise investment discretion. In accordance with Section 11(a) of
the 1934 Act and Rule 11a2-2(T) thereunder, and subject to any other applicable
laws and regulations, the Adviser and its affiliates are authorized to effect
portfolio transactions for the Fund and to retain brokerage commissions on such
transactions. Advisers may also take into account sale of Sub shares in
selecting brokers.
6. Records
-------
The Adviser agrees to maintain and to preserve for the periods prescribed
under the 1940 Act any such records as are required to be maintained by the
Adviser with respect to the Fund by the 1940 Act. The Adviser further agrees
that all records which it maintains for the Fund are the property of the Fund
and it will promptly surrender any of such records upon request.
7. Standard of Care
----------------
The Adviser shall exercise its best judgment in rendering the services
under this Agreement. The Adviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund or the Fund's
shareholders in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Adviser against any liability to the Fund or to its shareholders to which
the Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of the Adviser's reckless disregard of its obligations and duties under
this Agreement. As used in this Section 7, the term "Adviser" shall include any
officers, directors, employees, or other affiliates of the Adviser performing
services with respect to the Fund.
8. Compensation
------------
In consideration of the services rendered pursuant to this Agreement, the
Fund will pay the Adviser a fee at an annual rate equal to
4
<PAGE>
1% of the average daily net assets of the Fund. This fee shall be computed
and accrued daily and payable quarterly. For the purpose of determining fees
payable to the Adviser, the value of the Fund's average daily net assets shall
be computed at the times and in the manner specified in the Fund's Prospectus or
Statement of Additional Information.
9. Expenses
--------
The Adviser will bear all expenses in connection with the performance of
its services under this Agreement. The Fund will bear certain other expenses to
be incurred in its operation, including: taxes, interest, brokerage fees and
commission, if any, fees of Directors of the Company who are not officers,
directors, or employees of the Adviser; Securities and Exchange Commission fees
and state blue sky qualification fees; charges of custodians and transfer and
dividend disbursing agents; the Fund's proportionate share of insurance
premiums; outside auditing and legal expenses; costs of maintenance of the
Fund's existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; charges of an independent pricing
service; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders' costs of shareholders' reports and meetings of the shareholders of
the Fund and of the officers or Board of Directors of the Company; and any
extraordinary expenses. In addition, the Fund will pay distribution fees
pursuant to a Distribution Plan adopted under Rule 12b-1 of the 1940 Act.
10. Reduction of Fees or Reimbursement to the Fund
----------------------------------------------
If in any fiscal year the aggregate expenses of the Fund (including fees
pursuant to this Agreement and the Fund's administration agreement, but
excluding distribution fees, interest, taxes, brokerage and extraordinary
expenses) exceed the expense limitation of any state having jurisdiction over
the Fund, the Adviser will reduce its fees or reimburse the Fund for such excess
expense in the same proportion as its advisory fee bears to the Fund's combined
fee for investment advice and administration. The Adviser's obligation to reduce
its fees or reimburse the Fund will be limited to the amount of its fees
received pursuant to this Agreement. Such reduction in fees or reimbursement, if
any, will be estimated, reconciled and, in the case of reimbursement, paid on a
quarterly basis.
5
<PAGE>
11. Services to Other Companies or Accounts
---------------------------------------
The investment advisory services of the Adviser to the Fund under this
Agreement are not to be deemed exclusive, and the Adviser, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of the Fund) and to engage in other activities, so long as it
services hereunder are not impaired thereby.
12. Duration and Termination
------------------------
This Agreement shall become effective on September 17, 1996,in effect,
unless sooner terminated as provided herein, for two years from such date and
shall continue from year to year thereafter, provided each continuance is
specifically approved at least annually by (i) the vote of a majority of the
Board of Directors of the Company or (ii) a vote of a "majority" (as defined in
the 1940 Act) of the Fund's outstanding voting securities, provided that in
either event the continuance is also approved by a majority of the Board of
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable, without
penalty, on sixty (60) days' written notice by the Board of Directors of the
Company or by bote of holders of a majority of the Fund's shares or upon ninety
90) days' written notice by the Adviser. This Agreement will also terminate
automatically in the event of its "assignment" (as defined in the 1940 Act).
13. Amendment
---------
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved by
an affirmative vote of (i) a majority of the outstanding voting securities of
the Fund, and (ii) a majority of the Directors of the Company, including a
majority of Directors who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
6
<PAGE>
15. Miscellaneous
-------------
a. This Agreement constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
b. Titles or captions of Sections contained in this Agreement are
inserted only as a matter of convenience and for reference, and in no way
define, limit, extend or describe the scope of this Agreement or the intent of
any provisions thereof.
c. This Agreement may be executed in several counterparts, all of which
together shall for all purposes constitute one Agreement, binding on all the
parties.
d. This Agreement and the rights and obligations of the parties hereunder
shall be governed by, and interpreted, construed and enforced in accordance with
the laws of the State of California.
e. If any provision of this Agreement or the application thereof to any
party or circumstances shall be determined by any court of competent
jurisdiction to be invalid or unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person or circumstance,
other than those as to which it is so determined to be invalid or unenforceable,
shall not be affected thereby, and each provision hereof shall be valid and
shall be enforced to the fullest extent permitted by law.
7
<PAGE>
f. Notices of any kind to be given to the Adviser by the Company shall be
in writing and shall be duly given if mailed or delivered to the Adviser at SBG
Capital's address, or at such other address or to such individual as shall be
specified by the Adviser to the Company. Notices of any kind to be given to the
Company by the Adviser shall be in writing and shall be duly given if mailed or
delivered to 333 S. Grand Ave., Suite 4075, Los Angeles, California 90071, or at
such other address or to such individual as shall be specified by the Company to
the Adviser.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
Santa Barbara Group of Mutual Funds
By:_________________________________
Stephen Y. Ascher
Chief Executive Officer
SBG CAPITAL MANAGEMENT, INC.
By:_________________________________
Steven W. Arnold
Managing Director
9
<PAGE>
EXHIBIT 5(b)
SUB-INVESTMENT ADVISER AGREEMENT
AGREEMENT, made this ___ day of September __, 1996, between The SBG Capital
Management, Inc. (the "Company") on behalf of the Starbuck Tisdale Growth and
Income Fund (the "Fund") and Starbuck Tisdale & Associates, Inc. (the "Sub-
Adviser"), a California Corporation.
WHEREAS the Fund Manager has entered into an Investment Advisory with The
Santa Barbara Group of Mutual Funds, Inc. (the "Company").
WHEREAS, the Company is a Maryland Corporation authorized to issue shares
in series and is registered as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and the Fund is
the initial series of the Company;
WHEREAS, the Sub-Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Advisers Act");
WHEREAS, the Fund Manager wishes to retain the Sub-Adviser to render
investment advisory services to the Fund, and the Sub-Adviser is willing to
furnish such services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Company and the Sub-Adviser as follows:
1. Appointment
-----------
The Fund Manager hereby appoints the Sub-Adviser to act as Sub-Investment
Adviser to the Fund for the periods and on the terms set forth herein. The Sub-
Adviser accepts the appointment and agrees to furnish the services set forth
herein for the compensation provided herein.
2. Services as Sub-Investment Adviser
----------------------------------
Subject to the general supervision and direction of the Board of Directors
of the Company, the Sub-Adviser will (a) manage the Fund in accordance with the
Fund's investment objective and policies as stated in the Fund's Prospectus and
the Statement of Additional Information filed
10
<PAGE>
with the Securities and Exchange Commission, as they may be amended from time to
time; (b) make investment decisions for the Fund; (c) place purchase and sale
orders on behalf of the Fund; and, (d) employ professional portfolio managers
and securities analysts to provide research services to the Fund. In providing
those services, the Sub-Adviser will provide the Fund with ongoing research,
analysis, advice, and judgments regarding individual investments, general
economic conditions and trends and long-range investment policy. In addition,
the Sub-Adviser will furnish the Fund with whatever statistical information the
Fund may reasonably request with respect to the securities that the Fund may
hold or contemplate purchasing.
The Sub-Adviser further agrees that, in performing its duties hereunder, it
will:
a. comply with the 1940 Act and all rules and regulations thereunder, the
Advisers Act, the Internal Revenue Code of 1986, as amended (the "Code") and all
other applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Directors;
b. use reasonable efforts to manage the Fund so that it will qualify, and
continue to qualify, as a regulated investment company under Subchapter M of the
Code and regulations issued thereunder;
c. maintain books and records with respect to the Fund's securities
transactions, render to the Board of Directors of the Company such periodic and
special reports as the Board may reasonably request, and keep the Directors
informed of developments materially affecting the Fund's portfolio;
d. make available to the Fund's administrator, and the Company, promptly
upon their request, such copies of its investment records and ledgers with
respect to the Fund as may be required to assist the administrator and the
Company in their compliance with applicable laws and regulations. The Sub-
Adviser will furnish the Directors with such periodic and special reports
regarding the Fund as they may reasonably request;
e. immediately notify the Company in the event that the Sub-Adviser or
any of its affiliates: (1) becomes aware that it is subject to a statutory
disqualification that prevents the Sub-Adviser from serving as sub-investment
adviser pursuant to this Agreement; or (2) becomes aware that it is the subject
of an administrative proceeding or enforcement action by the Securities and
Exchange Commission or other
11
<PAGE>
regulatory authority. The Sub-Adviser further agrees to notify the Company
immediately of any material fact known to the Sub-Adviser respecting or relating
to the Sub-Adviser that is not contained in the Company's Registration Statement
regarding the Fund, or any amendment or supplement thereto, but that is required
to be disclosed therein, and of any statement contained therein that becomes
untrue in any material respect.
4. Documents
---------
The Fund has delivered properly certified or authenticated copies of each
of the following documents to the Sub-Adviser and will deliver to it all future
amendments and supplements thereto, if any:
a. certified resolution of the Board of Directors of the Company
authorizing the appointment of the Sub-Adviser and approving the form of this
Agreement;
b. The Registration Statement as filed with the Securities and Exchange
Commission and any amendments thereto;
c. exhibits, powers of attorneys, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
5. Brokerage
---------
In selecting brokers or dealers to execute transactions on behalf of the
Fund, the Sub-Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Fund
transaction, the Sub-Adviser will consider all factors it deems relevant,
including, but not limited to, the breadth of the market
12
<PAGE>
in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
selecting brokers or dealers to execute a particular transaction, and in
evaluating the best overall terms available, the Sub-Adviser is authorized to
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the securities Exchange Act of 1934, as amended (the "1934
Act")) provided to the Fund and/or other accounts over which the Sub-Adviser or
its affiliates exercise investment discretion. In accordance with Section 11(a)
of the 1934 Act and Rule 11a2-2(T) thereunder, and subject to any other
applicable laws and regulations, the Sub-Adviser and its affiliates are
authorized to effect portfolio transactions for the Fund and to retain brokerage
commissions on such transactions. Sub-Adviser may take into account sales of
Fund shares in selecting a broker.
6. Records
-------
The Sub-Adviser agrees to maintain and to preserve for the periods
prescribed under the 1940 Act any such records as are required to be maintained
by the Sub-Adviser with respect to the Fund by the 1940 Act. The Sub-Adviser
further agrees that all records which it maintains for the Fund are the property
of the Fund and it will promptly surrender any of such records upon request.
7. Standard of Care
----------------
The Sub-Adviser shall exercise its best judgment in rendering the services
under this Agreement. The Sub-Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or the Fund's
shareholders in connection with the matters to which this Agreement relates,
provided that nothing herein shall be deemed to protect or purport to protect
the Sub-Adviser against any liability to the Fund or to its shareholders to
which the Sub-Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or by reason of the Sub-Adviser's reckless disregard of its obligations
and duties under this Agreement. As used in this Section 7, the term "Sub-
Adviser" shall include any officers, directors, employees, or other affiliates
of the Sub-Adviser performing services with respect to the Fund.
8. Compensation
------------
13
<PAGE>
In consideration of the services rendered pursuant to this Agreement, the
Company will pay the Sub-Adviser a fee at an annual rate equal to 0.50% of the
average daily net assets of the Fund. This fee shall be computed and accrued
daily and payable quarterly. For the purpose of determining fees payable to the
Sub-Adviser, the value of the Fund's average daily net assets shall be computed
at the times and in the manner specified in the Fund's Prospectus or Statement
of Additional Information.
9. Expenses
--------
The Sub-Adviser will bear all expenses in connection with the performance
of its services under this Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including: taxes, interest, brokerage fees and
commission, if any, fees of Directors of the Company who are not officers,
directors, or employees of the Sub-Adviser; Securities and Exchange Commission
fees and state blue sky qualification fees; charges of custodians and transfer
and dividend disbursing agents; the Fund's proportionate share of insurance
premiums; outside auditing and legal expenses; costs of maintenance of the
Fund's existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; charges of an independent pricing
service; costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
shareholders' costs of shareholders' reports and meetings of the shareholders of
the Fund and of the officers or Board of Directors of the Company; and any
extraordinary expenses. In addition, the Fund will pay distribution fees
pursuant to a Distribution Plan adopted under Rule 12b-1 of the 1940 Act.
10. Reduction of Fees or Reimbursement to the Fund
----------------------------------------------
If in any fiscal year the aggregate expenses of the Fund (including fees
pursuant to this Agreement and the Fund's administration agreement, but
excluding distribution fees, interest, taxes, brokerage and extraordinary
expenses) exceed the expense limitation of any state having jurisdiction over
the Fund, the Sub-Adviser will reduce its fees or reimburse the Fund for such
excess expense in the same proportion as its advisory fee bears to the Fund's
combined fee for investment advice and administration. The Sub-Adviser's
obligation to reduce its fees or reimburse the Fund will be limited to the
amount of its fees received pursuant to this Agreement. Such reduction in fees
or reimbursement, if any, will be estimated, reconciled and, in the case of
reimbursement, paid on a quarterly basis.
14
<PAGE>
11. Services to Other Companies or Accounts
---------------------------------------
The investment advisory services of the Sub-Adviser to the Fund under this
Agreement are not to be deemed exclusive, and the Sub-Adviser, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of the Fund) and to engage in other activities, so long as it
services hereunder are not impaired thereby.
12. Duration and Termination
------------------------
This Agreement shall become effective on September 17, 1996,in effect,
unless sooner terminated as provided herein, for two years from such date and
shall continue from year to year thereafter, provided each continuance is
specifically approved at least annually by (i) the vote of a majority of the
Board of Directors of the Company or (ii) a vote of a "majority" (as defined in
the 1940 Act) of the Fund's outstanding voting securities, provided that in
either event the continuance is also approved by a majority of the Board of
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. This Agreement is terminable, without
penalty, on sixty (60) days' written notice by the Board of Directors of the
Fund or by vote of holders of a majority of the Fund's shares or upon ninety 90)
days' written notice by the Sub-Adviser 90 terminates by SBG Capital. This
Agreement will also terminate automatically in the event of its "assignment" (as
defined in the 1940 Act).
13. Amendment
---------
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved by
an affirmative vote of (i) a majority of the outstanding voting securities of
the Fund, and (ii) a majority of the Directors of the Company, including a
majority of Directors who are not
15
<PAGE>
interested persons of any party to this Agreement, cast in person at a meeting
called for the purpose of voting on such approval, if such approval is required
by applicable law.
14. Use of Name
-----------
It is understood that the name of Starbuck Tisdale & Associates, Inc. or
any derivative thereof or logo associated with that name is the valuable
property of the Sub-Adviser and its affiliates, and that the Fund has the right
to use such name (or derivative or logo) only so long as this Agreement shall
continue with respect to the Fund. Upon termination of this Agreement, the Fund
shall forthwith cease to use such name (or derivative or logo) and shall
promptly amend its Articles of Incorporation to change its name to comply
herewith.
15. Miscellaneous
-------------
a. This Agreement constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
b. Titles or captions of Sections contained in this Agreement are
inserted only as a matter of convenience and for reference, and in no way
define, limit, extend or describe the scope of this Agreement or the intent of
any provisions thereof.
c. This Agreement may be executed in several counterparts, all of which
together shall for all purposes constitute one Agreement, binding on all the
parties.
d. This Agreement and the rights and obligations of the parties hereunder
shall be governed by, and interpreted, construed and enforced in accordance with
the laws of the State of California.
e. If any provision of this Agreement or the application thereof to any
party or circumstances shall be determined by any court of competent
jurisdiction to be invalid or unenforceable to any extent, the remainder of this
Agreement or the application of such provision to such person or circumstance,
other than those as to which it is so determined to be invalid or unenforceable,
shall not be affected thereby, and each provision hereof shall be valid and
shall be enforced to the fullest
16
<PAGE>
extent permitted by law.
f. Notices of any kind to be given to the Sub-Adviser by the Company
shall be in writing and shall be duly given if mailed or delivered to the Sub-
Adviser at 111 West Micheltorena Street, Suite 210, Santa Barbara California
93101, or at such other address or to such individual as shall be specified by
the Sub-Adviser to the Company. Notices of any kind to be given to the Company
by the Sub-Adviser shall be in writing and shall be duly given if mailed or
delivered to 333 S. Grand Ave., Suite 4075, Los Angeles, California 90071, or at
such other address or to such individual as shall be specified by the Company to
the Sub-Adviser.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
SBG CAPITAL MANAGEMENT, INC.
By:_________________________________
Stephen Y. Ascher
Chief Executive Officer
STARBUCK TISDALE & ASSOCIATES
By:_________________________________
L. David Tisdale
Managing Director
17
<PAGE>
EXHIBIT (6)
THE SANTA BARBARA GROUP OF MUTUAL FUNDS
333 S. Grand Ave. Suite 4075
Los Angeles, California 90071
September 17, 1996
Ascher/Decision Services, Inc.
333 S. Grand Ave., Suite 4075
Los Angeles, California 90071
re: Underwriting Agreement
----------------------
Ladies and Gentlemen:
We are a Maryland Corporation operating as an open-end management investment
company (hereinafter referred to as the "Company"). As such, the Company is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and its shares are registered under the Securities Act of 1933, as
amended (the "1933 Act"). The series of shares of common stock ("Funds") and the
Classes thereof ("Classes") authorized for issuance by the Company and for sale
pursuant to this Agreement are listed in Appendix "A" hereto, as such Appendix
may be amended from time to time. Each Fund constitutes a distinct and separate
investment portfolio. We desire to offer and sell shares of the Funds (the
"Shares") to the public in accordance with the applicable federal and state
securities laws.
You have informed us that your company is registered as a broker-dealer under
the provisions of the Securities Exchange Act of 1934 and that your company is a
member of the National Association of Securities Dealers, Inc. You have
indicated your desire to act as the exclusive selling agent and principal
distributor for Shares of each Fund. We have been authorized to execute and
deliver this Agreement to you on behalf of each Fund by consent of our
Directors, given at a meeting at which a majority of our Directors, including a
majority of our Directors who are not otherwise interested persons of the
Company and who are not
1
<PAGE>
interested persons of your company, were present and voted in favor of the
consent approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this Agreement and in
--------------------------
consideration of the agreements on your part herein expressed and upon the terms
and conditions set forth herein, we hereby appoint you as the exclusive sales
agent for the Shares of the Funds and agree that we will deliver such Shares as
you may sell. You agree to use your best efforts to promote the sale of Shares
of the Funds, but are not obligated to sell any specific number of Shares.
2. Independent Contractor. You will undertake and discharge your
----------------------
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind us by your actions, conduct or contracts except
that your are authorized to accept orders for the purchase or repurchase of the
Shares as our agent. You may appoint sub-agents or distribute through dealers
(pursuant to the Master Selling Group Agreement attached hereto as Exhibit A),
your own sales representative s or otherwise as you may determine from time to
time, but this Agreement shall not be construed as authorizing any dealer or
other person to accept orders for sale or repurchase of Shares of the Funds on
our behalf or otherwise act as our agent for any purpose.
3. Public Offering Price. The Shares of each Class of Shares of a Fund
---------------------
shall be offered for sale to the public at the public offering price set forth
in the then current prospectus for the Class of Shares. The public offering
price will not be less than the net asset value of the Shares, and may include a
front-end sales commission equal to a percentage of the net asset value of the
Shares. Shares may also be sold subject to a contingent deferred sales charge,
in such amount and on such terms as set forth in the then current Prospectus for
the Class of Shares. On each business day on which the New York Stock Exchange
is open for business, we will furnish you with the net asset value of the Shares
which shall be determined and become effective as of the close of business on
the New York Stock Exchange on that day, as set forth in the then current
effective Prospectus of each Fund. The net asset value so determined shall apply
to all orders for the purchase of our Shares received by dealers and you prior
to such determination, and you are authorized as our agent to accept orders and
confirm sales at such net asset value plus your sales commission as applicable,
provided that such dealers notify you of the time when they receive that
particular order and that the order is placed with you prior to your close of
business on the day on which the applicable net asset value is determined. To
the extent that the Transfer Agent or Custodian for the Funds receives
2
<PAGE>
payments on behalf of investors, such Transfer Agent and/or Custodian shall be
required to record the time of such receipt with respect to each payment, and
the applicable net asset value and public offering price shall be that which is
next determined and effective after the time of receipt by them. In all events,
you shall forthwith notify all of the dealers comprising your selling group and
such Transfer Agent and/or Custodian of the effective net asset value as
received from us. Should we at any time calculate the net asset value more
frequently than one each business day, you and we will follow procedures with
respect to such additional price or prices comparable to those set forth above
in this Section.
4. Sales Commission and Other Compensation. You shall be entitled to charge
---------------------------------------
a sales commission on the sale of the Shares of each Class in the amount set
forth in the then current effective Prospectus for such Class, if any. Such
commission (subject to any quantity or other discounts or eliminations of
commission as set forth in the then current effective Prospectus for the Class
of Share) shall be an amount mutually agreed upon between us and equal to the
difference between the net asset value and the public offering price of the
Shares, if any. You may allow such sub-agents or dealers such commissions or
discounts, including payments exceeding the total sales commission, as your
shall deem advisable so long as any such commissions or discounts are set forth
in the then current effective Prospectus of such Class to the extent required by
all applicable securities laws. You may retain a contingent deferred sales
charge, if applicable, from the net asset value of Shares redeemed by the
holders thereof, in the amount and on the terms set forth in the then current
prospectus for the Class of Shares. You may also receive any amounts authorized
for payment to you under a Fund's service and/or distribution plan.
5. Payment for Shares. At or prior to the time of delivery of any of the
------------------
Shares, you will pay or cause to be paid to the Fund's Custodian, for the
applicable Fund's account, an amount in cash equal to the net asset value of
such Shares. In the event that you pay for Shares sold by you prior to your
receipt of payment from purchasers, you are authorized to reimburse yourself for
the net asset value of such Shares when received by you.
6. Registration of Shares. No Shares of any Fund shall be registered on the
----------------------
books of such Fund until (i) receipt by us of your written request therefor;
(ii) receipt by the Fund's Transfer Agent of a certificate signed by an officer
of the Company stating the amount to be received therefor; and (iii) receipt of
payment of that amount by the
3
<PAGE>
Fund's Custodian. We will provide for the recording of all Shares purchased in
uncertificated form in "book accounts." Share certificates will be issued only
upon specific request in writing to the Transfer Agent, in which case
certificates for shares in such names and amounts as are specified in such
writing will be delivered by the Transfer Agent as soon as practicable after
their registration on our books.
7. Purchase for Your Own Account. You shall not purchase the Shares for
-----------------------------
your own account for purposes of resale to the public, but your may purchase
shares for your own investment account upon written assurance that the purchase
is for investment purposes only and that the Shares will not be resold except
through redemption by us.
8. Allocation of Expenses.
----------------------
A. We will pay the expenses:
1. of the preparation of our audited and certified financial
statements to be included in any amendments ("Amendments") to
our registration statement under the 1933 Act, including the
Prospectus and Statement of Additional Information of each of
the Funds included therein;
2. of the preparation, including legal fees and the setting of
type, and of printing all Amendments or supplements to the
registration statement filed with the Securities and Exchange
Commission, including the copies of the Funds' Prospectuses and
Statement of Additional Information included in the Amendments
or supplements thereto, other than those necessitated by your
(including your "affiliates") activities or related to your
activities where such Amendments or supplements result in
expenses which we would not otherwise have incurred;
3. of the preparation, printing, and distribution of any reports
or communications to existing shareholders of each Fund,
including Prospectuses and Statements of Additional
Information;
4. of filing and other fees to federal, state or other securities
regulatory authorities necessary to register and maintain
registration of the Shares;
4
<PAGE>
and,
5. of the Transfer Agent for the Funds, including all costs and
expenses in connection with the issuance, transfer and
registration of the Shares, including but not limited to any
taxes and other governmental charges in connection therewith.
B. You will pay or be responsible for:
1. the expenses of the preparation, excluding legal fees and the
setting of type, and printing of all Amendments and supplements
to the Funds' Prospectuses and Statement of Additional
Information, if the Amendment or supplement arises from or is
necessitated by your (including your "affiliates") activities
or related to your activities where those expenses would not
otherwise have been incurred by us;
2. of print additional copies, for use by you as sales literature,
of reports or other communications which we have prepared for
distribution to our existing shareholders; and,
3. incurred by you in advertising, promoting and selling the
Shares to the public, including the printing of Prospectuses
and Statements of Additional Information for such use.
9. Furnishing of Information. We will furnish to your such information with
-------------------------
respect each Fund and its Shares, in such form and signed by such of our
officers as you may reasonably request, and we warrant that the statements
therein contained when so signed will be true and correct. We will also furnish
you with such information and will take such action as your may reasonable
request in order to qualify the Shares for sale to the public under the
securities laws of jurisdictions in which you may wish to offer them. We will
furnish you at least annually with audited financial statements of our books and
accounts certified by independent public accountants, and, from time to time,
with such additional information regarding our financial condition as you may
reasonably request.
10. Conduct of Business. Other than the Funds' then current
-------------------
5
<PAGE>
effective Prospectuses and Statement of Additional Information, you will not
issue any sales material or statements except literature or advertising which
conforms to the requirements of all applicable securities laws and regulations
and which have been filed, where necessary, with the appropriate regulatory
authorities. You will furnish us with copies of all such material prior to their
use and no such material shall be published if we shall reasonably and promptly
object.
You shall comply with the applicable securities laws and regulations of
the jurisdiction where the Shares are offered for sale and conduct your affairs
with us and with dealers, brokers or investors in accordance with the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.
11. Other Activities. Your services pursuant to this Agreement shall not be
----------------
deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their shares.
12. Term of Agreement. This Agreement shall become effective on the date of
-----------------
its execution written below and shall remain in effect for a period of two (2)
years from the date of its execution. This Agreement shall continue thereafter
for periods not exceeding one (1) year if approved at least annually (i) by a
vote of a majority of the outstanding voting securities of each Fund or by a
vote of the Directors of the Company, and (ii) by a vote of a majority of the
Directors of the Company who are not interested persons or parties to this
Agreement (other than as Directors of the Company), cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement: (i) may at any time be terminated without the payment of
any penalty, either by vote of the Directors of the Company or by a vote of a
majority of the outstanding voting securities of each Fund with respect to such
Fund, on sixty (60) days' written notice to your; (ii) shall immediately
terminate with respect to all the Funds in the event of its assignment; and
(iii) may be terminated with respect to any fund by you on sixty (60) days'
written notice to us.
13. Suspension of Sales. We reserve the right at all times to suspend or
-------------------
limit the public offering of the Shares or any Class thereof upon written notice
to you, and to reject any order for the purchase of the Shares or any Class
thereof in whole or in part.
14. Miscellaneous. This Agreement shall be subject to the laws of
-------------
6
<PAGE>
the State of California and shall be interpreted and construed to further and
promote the operation of the Company as an open-end investment company. As used
herein the terms "net asset value," "offering price," "investment company,"
"open-end investment company," "assignment," "principal underwriter,"
"interested person," and "majority of the outstanding voting securities," shall
have the meanings set forth in the 1933 Act and the 1940 Act and the Rules and
Regulations thereunder.
15. Liability. Nothing herein shall be deemed to protect you against any
---------
liability to us or to our securities holders to which you would otherwise be
subject by reason of your willful misfeasance, bad faith or gross negligence in
the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
16. Indemnification. We agree to indemnify and hold you harmless from and
---------------
against any and all losses, claims, damages or liabilities to which you may
become subject under the 1933 Act, the 1940 Act or any state securities statute,
and to reimburse you for any legal or other expenses reasonably incurred by you
in connection with any claim or litigation, whether or not resulting in any
liability, insofar as such losses, claims, damages, liabilities, or litigation
arise out of or are based upon any untrue statement or omission or alleged
untrue statement or omission or alleged untrue statement or omission of a
material fact contained in the Registration Statement, which statement or
omission was made in reliance upon information furnished to us by you for
inclusion in the Registration Statement.
You agree to indemnify and hold us harmless from and against any and all
losses, claims, damage or liabilities to which we may become subject under the
1933 Act, the 1940 Act of any state securities statute, and reimburse use for
any legal or other expenses reasonably incurred by us in connection with any
claim or litigation, whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities, or litigation arise out of or are based
upon (1) any untrue statement or omission or alleged untrue statement or
omission of a material fact contained in the Registration Statement, which
statement or omission was made in reliance upon information furnished to us by
you for inclusion in the Registration Statement; (ii) any failure to deliver a
currently effective Prospectus in connection with the sale of Shares; (iii) any
unauthorized use of sales materials or any verbal or written misrepresentations
or any unlawful sales practices concerning the Shares by you, your agents,
representatives or employees; and (iv) claims by your agents, representatives or
employees for commissions, service fees,
7
<PAGE>
or other compensation or remuneration of any type.
If the foregoing meets with your approval, please acknowledge your acceptance
by signing each of the enclosed counterparts hereof and returning two such
counterparts to us, whereupon this shall constitute a binding agreement as of
the date first above written.
Very truly yours,
The Santa Barbara Group of Mutual
Funds, Inc. on behalf of the Funds
set forth in Appendix A (as may be
amended)
By:_________________________________
Accepted:
Ascher/Decision Services, Inc.
By:________________________________
Stephen Y. Ascher
President
8
<PAGE>
APPENDIX "A"
TO
THE SANTA BARBARA GROUP OF MUTUAL FUNDS, INC.
UNDERWRITING AGREEMENT
DATED: September 17, 1996
This Agreement applies to:
1. The Starbuck Tisdale Growth and Income Fund
* Class C Shares
* Class Y Shares
2. The Bender Growth Fund
* Class A
* Class C
* Class Y
9
<PAGE>
EXHIBIT (8)
CUSTODY AGREEMENT
DATED ________________, 1996
BETWEEN
UMB BANK, N.A.
AND
SANTA BARBARA GROUP OF MUTUAL FUNDS
ON BEHALF OF
BENDER GROWTH FUND
STARBUCK TISDALE GROWTH & INCOME FUND
Prototype Custody Agreement
for
Registered Investment Companies
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. Appointment of Custodian 1
2. DEFINITIONS 1
(a) Securities 1
(b) Assets 2
(c) Instructions and Special Instructions 2
3. DELIVERY OF CORPORATE DOCUMENTS 2
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN 3
(a) Safekeeping 3
(b) Manner of Holding Securities 4
(c) Free Delivery of Assets 5
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 7
(h) Futures Contracts 8
(i) Segregated Accounts 8
(j) Depositary Receipts 9
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 9
(l) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions 10
(n) Pledges or Loans of Securities 11
(o) Stock Dividends, Rights, Etc. 12
(p) Routine Dealings 12
(q) Collections 12
(r) Bank Accounts 12
(s) Dividends, Distributions and Redemptions 13
(t) Proceeds from Shares Sold 13
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 13
(v) Books and Records 14
(w) Opinion of Fund's Independent Certified Public
Accountants 14
(x) Reports by Independent Certified Public Accountants 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
(y) Bills and Others Disbursements 14
5. SUBCUSTODIANS 14
(a) Domestic Subcustodians 15
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 16
(d) Special Subcustodians 17
(e) Termination of a Subcustodian 17
(f) Certification Regarding Foreign Subcustodians 17
6. STANDARD OF CARE 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Armed Conflict, Sovereign
Risk, Etc. 17
(c) Liability for Past Records 18
(d) Advice of Counsel 18
(e) Advice of the Fund and Others 18
(f) Instructions Appearing to be Genuine 18
(g) Exceptions from Liability 19
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS 19
(a) Domestic Subcustodians 19
(b) Liability for Acts and Omissions of Foreign
Subcustodians 19
(c) Securities Systems, Interim Subcustodians,
Special Subcustodians, Securities Depositories and
Clearing Agencies 19
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 20
(e) Reimbursement of Expenses 20
8. INDEMNIFICATION 20
(a) Indemnification by Fund 20
(b) Indemnification by Custodian 20
9. ADVANCES 21
10. LIENS 21
11. COMPENSATION 22
12. POWERS OF ATTORNEY 22
13. TERMINATION AND ASSIGNMENT 22
14. ADDITIONAL FUNDS 22
15. NOTICES 23
16. MISCELLANEOUS 23
</TABLE>
<PAGE>
CUSTODY AGREEMENT
-----------------
This agreement made as of this ______ day of ___________________, 199__,
between UMB Bank, n.a., a national banking association with its principal place
of business located at Kansas City, Missouri (hereinafter "Custodian"), and each
of the Funds which have executed the signature page hereof together with such
additional Funds which shall be made parties to this Agreement by the execution
of a separate signature page hereto (individually, a "Fund" and collectively,
the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for the
custody of Assets (as hereinafter defined) owned by such Fund which Assets are
to be held in such accounts as such Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF CUSTODIAN.
------------------------
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the meanings
so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates and all negotiable or nonnegotiable paper
commonly known as Securities and other instruments or obligations.
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<PAGE>
(b) "Assets" shall mean Securities, monies and other property held by
the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex,
a written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by an Authorized Person; (ii) a telephonic or other oral communication from
a person the Custodian reasonably believes to be an Authorized Person; or (iii)
a communication effected directly between an electro-mechanical or electronic
device or system (including, without limitation, computers) on behalf of a Fund.
Instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in clause
(i) above, but the lack of such confirmation shall in no way affect any action
taken by the Custodian in reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to
record any and all telephonic or other oral Instructions communicated to the
Custodian.
(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such Fund
in writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(4) Where appropriate, Instructions and Special Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
-------------------------------
Each of the parties to this Agreement represents that its execution does not
violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified or
authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund
as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
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<PAGE>
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with copies of any updates,
amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Instructions
or any other notice, request, direction, instruction, certificate or instrument
on behalf of each Fund, and (b) the names, titles and signatures of those
persons authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Instructions or to countersign
or confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically requires that the
approval of anyone else will first have been obtained, the Custodian will be
under no obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of the
foregoing, no Instructions or Special Instructions received by the Custodian
from a Fund will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of such Fund to withdraw any of the Assets of such
Fund upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
--------------------------------------------------------
Except for Assets held by any Subcustodian appointed pursuant to Sections
5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the
powers and duties hereinafter set forth in this Section 4. For purposes of this
Section 4 all references to powers and duties of the "Custodian" shall also
refer to any Domestic Subcustodian appointed pursuant to Section 5(a).
(a) Safekeeping.
-----------
3
<PAGE>
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be responsible for
any property of a Fund held or received by such Fund and not delivered to the
Custodian.
(b) Manner of Holding Securities.
----------------------------
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name of
the appropriate Fund or its nominee, or in the name of the Custodian or its
nominee, for whose actions such Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the Custodian shall hold such
Securities in street certificate form, so called, with or without any indication
of fiduciary capacity. However, unless it receives Instructions to the
contrary, the Custodian will register all such portfolio Securities in the name
of the Custodian's authorized nominee. All such Securities shall be held in an
account of the Custodian containing only assets of the appropriate Fund or only
assets held by the Custodian as a fiduciary, provided that the records of the
Custodian shall indicate at all times the Fund or other customer for which such
Securities are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The Depository
Trust Company; (b) The Participants Trust Company; and (c) any book-entry system
as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by a Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets of investment companies) which
acts as a Securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through one
or more agents or Subcustodians which are also qualified to act as
custodians for investment companies.
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<PAGE>
(ii) The Custodian shall deposit and/or maintain the Securities in a
Securities System, provided that such Securities are represented
in an account ("Account") of the Custodian in the Securities
System that includes only assets held by the Custodian as a
fiduciary, custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds
which are maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the account
of a Fund only upon (a) receipt of advice from the Securities
System that such Securities have been transferred to the Account
of the Custodian in accordance with the rules of the Securities
System, and (b) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of
such Fund. The Custodian shall transfer Securities sold for the
account of a Fund only upon (a) receipt of advice from the
Securities System that payment for such Securities has been
transferred to the Account of the Custodian in accordance with the
rules of the Securities System, and (b) the making of an entry on
the records of the Custodian to reflect such transfer and payment
for the account of such Fund. Copies of all advices from the
Securities System relating to transfers of Securities for the
account of a Fund shall be maintained for such Fund by the
Custodian. The Custodian shall deliver to a Fund on the next
succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the
account of such Fund. Such transaction reports shall be delivered
to such Fund or any agent designated by such Fund pursuant to
Instructions, by computer or in such other manner as such Fund and
Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the
Custodian or any Subcustodian with respect to a Securities
System's accounting system, internal accounting control and
procedures for safeguarding Securities deposited in the Securities
System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as
promptly as practicable and shall take all actions reasonably
practicable to safeguard the Securities of such Fund maintained
with such Securities System.
(c) Free Delivery of Assets.
-----------------------
5
<PAGE>
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
----------------------
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive form, to
surrender Securities for transfer into a name or nominee name as permitted in
Section 4(b)(2), to effect an exchange of shares in a stock split or when the
par value of the stock is changed, to sell any fractional shares, and, upon
receiving payment therefor, to surrender bonds or other Securities held by it at
maturity or call.
(e) Purchases of Assets.
-------------------
(1) Securities Purchases. In accordance with Instructions, the
--------------------
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has
received Special Instructions to the contrary, such payment will be made only
upon receipt of Securities by the Custodian, a clearing corporation of a
national Securities exchange of which the Custodian is a member, or a Securities
System in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, upon receipt of Instructions: (i) in connection
with a repurchase agreement, the Custodian may release funds to a Securities
System prior to the receipt of advice from the Securities System that the
Securities underlying such repurchase agreement have been transferred by book-
entry into the Account maintained with such Securities System by the Custodian,
provided that the Custodian's instructions to the Securities System require that
the Securities System may make payment of such funds to the other party to the
repurchase agreement only upon transfer by book-entry of the Securities
underlying the repurchase agreement into such Account; (ii) in the case of
Interest Bearing Deposits, currency deposits, and other deposits, foreign
exchange transactions, futures contracts or options, pursuant to Sections 4(g),
4(h), 4(l), and 4(m) hereof, the Custodian may make payment therefor before
receipt of an advice of transaction; and (iii) in the case of Securities as to
which payment for the Security and receipt of the instrument evidencing the
Security are under generally accepted trade practice or the terms of the
instrument representing the Security expected to take place in different
locations or
6
<PAGE>
through separate parties, such as commercial paper which is indexed to foreign
currency exchange rates, derivatives and similar Securities, the Custodian may
make payment for such Securities prior to delivery thereof in accordance with
such generally accepted trade practice or the terms of the instrument
representing such Security.
(2) Other Assets Purchased. Upon receipt of Instructions and except
----------------------
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
---------------
(1) Securities Sold. In accordance with Instructions, the Custodian
---------------
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national Securities exchange of which
the Custodian is a member; or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
-----------------
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g) Options.
-------
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the purchase or writing of
the option by a Fund; (b) if the transaction involves the sale of a covered call
option, deposit and maintain in a segregated account the Securities (either
physically or by book-entry in a Securities System) subject to the covered call
option written on behalf of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the securities or options
7
<PAGE>
exchanges on which such options were traded, or such other organization as may
be responsible for handling such option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked option
(including stock index and commodity options), the Custodian, the appropriate
Fund and the broker-dealer shall enter into an agreement to comply with the
rules of the OCC or of any registered national securities exchange or similar
organizations(s). Pursuant to that agreement and such Fund's Instructions, the
Custodian shall: (a) receive and retain confirmations or other documents, if
any, evidencing the writing of the option; (b) deposit and maintain in a
segregated account, Securities (either physically or by book-entry in a
Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the securities or options exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets held in any
segregated account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) Futures Contracts.
-----------------
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements.
The appropriate Fund and such futures commission merchant shall be responsible
for determining the type and amount of Assets held in the segregated account or
paid to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
-------------------
8
<PAGE>
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on behalf of a
Fund, into which account or accounts may be transferred Assets of such Fund,
including Securities maintained by the Custodian in a Securities System pursuant
to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary Receipts.
-------------------
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered Securities to the depositary used for such Securities by an issuer
of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence satisfactory
to the organization surrendering the same that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such Securities in the
name of the Custodian or a nominee of the Custodian, for delivery in accordance
with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
------------------------------------------------
Upon receipt of Instructions, the Custodian shall: (a) deliver warrants,
puts, calls, rights or similar Securities to the issuer or trustee thereof (or
to the agent of such issuer or trustee) for the purpose of exercise or sale,
provided that the new Securities, cash or other Assets, if any, acquired as a
result of such actions are to be delivered to the Custodian; and (b) deposit
Securities upon invitations for tenders thereof, provided that
the consideration for such Securities is to be paid or delivered to the
Custodian, or the tendered Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or
9
<PAGE>
similar rights of security ownership, and shall notify the appropriate Fund of
such action in writing by facsimile transmission or in such other manner as such
Fund and Custodian may agree in writing.
The Fund agrees that if it gives an Instruction for the performance of an
act on the last permissible date of a period established by any optional offer
or on the last permissible date for the performance of such act, the Fund shall
hold the Bank harmless from any adverse consequences in connection with acting
upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
-------------------------
Upon receipt of Instructions directing the Custodian to purchase interest
bearing fixed term and call deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of a Fund, the Custodian shall
purchase such Interest Bearing Deposits in the name of such Fund with such banks
or trust companies, including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
-----------------------------
(l) Each Fund hereby appoints the Custodian as its agent in the
execution of all currency exchange transactions. The Custodian agrees to
provide exchange rate and U.S. Dollar information, in writing, to the Funds.
Such information shall be supplied by the Custodian at least by the business day
prior to the value date of the foreign exchange transaction, provided that the
Custodian receives the request for such information at least two business days
prior to the value date of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to Instructions. If, in its Instructions, a Fund does not direct the
Custodian to utilize a particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker or Banking Institution as
it deems appropriate to execute the Fund's foreign currency transaction.
10
<PAGE>
(3) Each Fund accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange. The Custodian shall have no
responsibility or liability with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or the performance of
such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made
available to a Fund its services as a principal in foreign exchange transactions
and subject to any separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
------------------------------
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by such Fund with various lenders including but not limited to
UMB Bank, n.a.; provided, however, that the Securities shall be released only
upon payment to the Custodian of the monies borrowed, except that in cases where
additional collateral is required to secure existing borrowings, further
Securities may be released or delivered, or caused to be released or delivered
for that purpose upon receipt of Instructions. Upon receipt of Instructions,
the Custodian will pay, but only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities
11
<PAGE>
System deliver the Securities of the appropriate Fund to the borrower thereof
only upon receipt of the collateral for such borrowing. The Custodian shall have
no responsibility or liability for any loss arising from the delivery of
Securities prior to the receipt of collateral. Upon receipt of Instructions and
the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
-----------------------------
The Custodian shall receive and collect all stock dividends, rights,
and other items of like nature and, upon receipt of Instructions, take action
with respect to the same as directed in such Instructions.
(p) Routine Dealings.
----------------
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling Securities
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
-----------
The Custodian shall (a) collect amounts due and payable to each Fund
with respect to portfolio Securities and other Assets; (b) promptly credit to
the account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse and deliver any
instruments required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use its best
efforts to collect amounts due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing if any amount payable with respect
to portfolio Securities or other Assets is not received by the Custodian when
due. The Custodian shall not be responsible for the collection of amounts due
and payable with respect to portfolio Securities or other Assets that are in
default.
12
<PAGE>
(r) Bank Accounts.
-------------
Upon Instructions, the Custodian shall open and operate a bank account
or accounts on the books of the Custodian; provided that such bank account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
one or more Funds, and shall be subject only to draft or order of the Custodian.
The responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
----------------------------------------
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall release cash or Securities
insofar as available. In the case of cash, the Custodian shall, upon the
receipt of Instructions, transfer such funds by check or wire transfer to any
account at any bank or trust company designated by each such Fund in such
Instructions. In the case of Securities, the Custodian shall, upon the receipt
of Special Instructions, make such transfer to any entity or account designated
by each such Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
-------------------------
The Custodian shall receive funds representing cash payments received
for shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received by the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as of
specified times agreed upon from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares which are deposited to the
accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders
------------------------------------------------------
Communication Act of 1985.
-------------------------
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant
13
<PAGE>
to Instructions, neither the Custodian nor any Subcustodian or nominee shall
vote upon any such Securities, or execute any proxy to vote thereon, or give any
consent or take any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer
which requests such information pursuant to the Shareholder Communications Act
of 1985 for the specific purpose of direct communications between such issuer
and any such Fund unless a particular Fund directs the Custodian otherwise in
writing.
(v) Books and Records.
-----------------
The Custodian shall maintain such records relating to its activities
under this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be
open for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
The Custodian shall provide accountings relating to its activities
under this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
----------------------------------------------------------
The Custodian shall take all reasonable action as each Fund may request
to obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
---------------------------------------------------
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
-----------------------------
14
<PAGE>
Upon receipt of Instructions, the Custodian shall pay, or cause to be
paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
-------------
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this Agreement, may also
appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to
act on behalf of any one or more Funds. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
----------------------
The Custodian may, at any time and from time to time, appoint any bank
as defined in Section 2(a)(5) of the 1940 Act or any trust company or other
entity, any of which meet the requirements of a custodian under Section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act for the Custodian
on behalf of any one or more Funds as a subcustodian for purposes of holding
Assets of such Fund(s) and performing other functions of the Custodian within
the United States (a "Domestic Subcustodian"). Each Fund shall approve in
writing the appointment of the proposed Domestic Subcustodian; and the
Custodian's appointment of any such Domestic Subcustodian shall not be effective
without such prior written approval of the Fund(s). Each such duly approved
Domestic Subcustodian shall be listed on Appendix A attached hereto, as it may
be amended, from time to time.
(b) Foreign Subcustodians.
---------------------
The Custodian may at any time appoint, or cause a Domestic Subcustodian to
appoint, any bank, trust company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules
and regulations thereunder to act for the Custodian on behalf of any one or more
Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the United States of America
(hereinafter referred to as a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the Custodian shall have
obtained written confirmation from each Fund of the approval of the Board of
Directors or other governing body of each such Fund (which approval may be
withheld in the sole discretion of such Board of Directors or other governing
body or entity) with respect to (i) the identity of any proposed Foreign
Subcustodian (including branch designation), (ii) the country or countries in
which, and the securities depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if any, through which, the
Custodian or any proposed Foreign
15
<PAGE>
Subcustodian is authorized to hold Securities and other Assets of each such
Fund, and (iii) the form and terms of the subcustodian agreement to be entered
into with such proposed Foreign Subcustodian. Each such duly approved Foreign
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold Securities and other Assets of the
Fund(s) shall be listed on Appendix A attached hereto, as it may be amended,
from time to time. Each Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held in a
country in which no Foreign Subcustodian is authorized to act, in order that
there shall be sufficient time for the Custodian, or any Domestic Subcustodian,
to effect the appropriate arrangements with a proposed Foreign Subcustodian,
including obtaining approval as provided in this Section 5(b). In connection
with the appointment of any Foreign Subcustodian, the Custodian shall, or shall
cause the Domestic Subcustodian to, enter into a subcustodian agreement with the
Foreign Subcustodian in form and substance approved by each such Fund. The
Custodian shall not consent to the amendment of, and shall cause any Domestic
Subcustodian not to consent to the amendment of, any agreement entered into with
a Foreign Subcustodian, which materially affects any Fund's rights under such
agreement, except upon prior written approval of such Fund pursuant to Special
Instructions.
(c) Interim Subcustodians.
---------------------
Notwithstanding the foregoing, in the event that a Fund shall invest in
an Asset to be held in a country in which no Foreign Subcustodian is
authorized to act, the Custodian shall notify such Fund in writing by facsimile
transmission or in such other manner as such Fund and the Custodian shall agree
in writing of the unavailability of an approved Foreign Subcustodian in such
country; and upon the receipt of Special Instructions from such Fund, the
Custodian shall, or shall cause its Domestic Subcustodian to, appoint or approve
an entity (referred to herein as an "Interim Subcustodian") designated in such
Special Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
---------------------
Upon receipt of Special Instructions, the Custodian shall, on behalf of
a Fund, appoint one or more banks, trust companies or other entities designated
in such Special Instructions to act for the Custodian on behalf of such Fund as
a subcustodian for purposes of: (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities through the use of a
common custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a
16
<PAGE>
subcustodian agreement with the Special Subcustodian in form and substance
approved by the appropriate Fund in Special Instructions. The Custodian shall
not amend any subcustodian agreement entered into with a Special Subcustodian,
or waive any rights under such agreement, except upon prior approval pursuant to
Special Instructions.
(e) Termination of a Subcustodian.
-----------------------------
The Custodian may, at any time in its discretion upon notification to
the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in
accordance with the termination provisions under the applicable subcustodian
agreement, and upon the receipt of Special Instructions, the Custodian will
terminate any Subcustodian in accordance with the termination provisions under
the applicable subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
---------------------------------------------
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
----------------
(a) General Standard of Care.
------------------------
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the gross negligence or willful misfeasance of the Custodian; provided, however,
in no event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
---------------------------------------------------------------
Control, Sovereign Risk, Etc.
- ----------------------------
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System, Securities Depository or
Clearing Agency utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any act or
thing which this Agreement provides shall be performed or omitted to be
performed, by reason of: (a) any provision of any present or future law or
regulation or order of the United States of
17
<PAGE>
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and neither the
Custodian nor any other Person shall be obligated to take any action contrary
thereto); or (b) any event beyond the control of the Custodian or other Person
such as armed conflict, riots, strikes, lockouts, labor disputes, equipment or
transmission failures, natural disasters, or failure of the mails,
transportation, communications or power supply; or (ii) for any loss, damage,
cost or expense resulting from "Sovereign Risk." A "Sovereign Risk" shall mean
nationalization, expropriation, currency devaluation, revaluation or
fluctuation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting a
Fund's Assets; or acts of armed conflict, terrorism, insurrection or revolution;
or any other act or event beyond the Custodian's or such other Person's control.
(c) Liability for Past Records.
--------------------------
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(d) Advice of Counsel.
-----------------
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all matters. The
Custodian and all Domestic Subcustodians shall be without liability for any
actions taken or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
-----------------------------
The Custodian and any Domestic Subcustodian may rely upon the advice of
any Fund and upon statements of such Fund's accountants and other persons
believed by it in good faith to be expert in matters upon which they are
consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions taken or omitted, in good faith, pursuant to such advice
or statements.
(f) Instructions Appearing to be Genuine.
------------------------------------
The Custodian and all Domestic Subcustodians shall be fully protected
and indemnified in acting as a custodian hereunder upon any Resolutions of the
Board of Directors or Trustees, Instructions, Special Instructions, advice,
notice, request, consent, certificate, instrument or paper appearing to it to be
genuine and to have been properly executed and
18
<PAGE>
shall, unless otherwise specifically provided herein, be entitled to receive as
conclusive proof of any fact or matter required to be ascertained from any Fund
hereunder a certificate signed by any officer of such Fund authorized to
countersign or confirm Special Instructions.
(g) Exceptions from Liability.
-------------------------
Without limiting the generality of any other provisions hereof, neither
the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for
any Fund, the legality of the purchase thereof or evidence of
ownership required to be received by any such Fund, or the
propriety of the decision to purchase or amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund, or
the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings
or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of any such Fund, or any such
Fund's currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
------------------------------------------------
(a) Domestic Subcustodians
----------------------
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
---------------------------------------------------------
The Custodian shall be liable to a Fund for any loss or damage to such
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian
19
<PAGE>
agreement and the Custodian or Domestic Subcustodian recovers from the Foreign
Subcustodian under the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
-----------------------------------------------------------------
Securities Depositories and Clearing Agencies.
- ---------------------------------------------
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency unless such loss,
damage or expense is caused by, or results from, the gross negligence or willful
misfeasance of the Custodian.
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
-----------------------------------------------
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by the actions,
omissions, neglects, defaults or insolvency of any broker, bank, trust company
or any other person with whom the Custodian may deal (other than any of such
entities acting as a Subcustodian, Securities System or Securities Depository
and Clearing Agency, for whose actions the liability of the Custodian is set out
elsewhere in this Agreement) unless such loss, damage or expense is caused by,
or results from, the gross negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
-------------------------
Each Fund agrees to reimburse the Custodian for all out-of-pocket
expenses incurred by the Custodian in connection with this Agreement, but
excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
---------------
(a) Indemnification by Fund.
-----------------------
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
losses, damages and expenses (including attorneys' fees) suffered or incurred by
the Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
20
<PAGE>
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
----------------------------
Subject to the limitations set forth in this Agreement and in addition
to the obligations provided in Sections 6 and 7, the Custodian agrees to
indemnify and hold harmless each Fund from all losses, damages and expenses
suffered or incurred by each such Fund caused by the gross negligence or willful
misfeasance of the Custodian.
9. ADVANCES.
--------
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing Agency
acting either directly or indirectly under agreement with the Custodian (each of
which for purposes of this Section 9 shall be referred to as "Custodian"), makes
any payment or transfer of funds on behalf of any Fund as to which there would
be, at the close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of any such Fund, the
Custodian may, in its discretion without further Instructions, provide an
advance ("Advance") to any such Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Instructions to make any payment or transfer of funds on behalf of any Fund as
to which it is subsequently determined that such Fund has overdrawn its cash
account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable by the Fund on behalf of which the Advance was made on demand
by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall
accrue interest from the date of the Advance to the date of payment by such Fund
to the Custodian at a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any transaction in respect of
which the Custodian shall have made an Advance, including but
not limited to a foreign exchange contract or transaction in respect of which
the Custodian is not acting as a principal, is for the account of and at the
risk of the Fund on behalf of which the Advance was made, and not, by reason of
such Advance, deemed to be a transaction undertaken by the Custodian for its own
account and risk. The Custodian and each of the Funds which are parties to this
Agreement acknowledge that the purpose of Advances is to finance temporarily the
purchase or sale of Securities for prompt delivery in accordance with the
settlement terms of such transactions or to meet emergency expenses not
reasonably foreseeable by a Fund. The Custodian shall promptly notify the
appropriate Fund of any Advance. Such notification shall be sent by facsimile
transmission or in such other manner as such Fund and the Custodian may agree.
21
<PAGE>
10. LIENS.
-----
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any purpose
or in the event that the Bank or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of its duties hereunder, except such as may arise from its or
its nominee's negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the Custody Account shall be security therefor
and the Fund hereby grants a security interest therein to the Bank. The Fund
shall promptly reimburse the Bank for any such advance of cash or securities or
any such taxes, charges, expenses, assessments, claims or liabilities upon
request for payment, but should the Fund fail to so reimburse the Bank, the Bank
shall be entitled to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund with
the Bank including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
------------
Each Fund will pay to the Custodian such compensation as is agreed to
in writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
------------------
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
--------------------------
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
22
<PAGE>
This Agreement may not be assigned by the Custodian or any Fund without the
respective consent of the other, duly authorized by a resolution by its Board of
Directors or Trustees.
14. ADDITIONAL FUNDS. An additional Fund or Funds may become a party to this
----------------
Agreement after the date hereof by an instrument in writing to such effect
signed by such Fund or Funds and the Custodian. If this Agreement is terminated
as to one or more of the Funds (but less than all of the Funds) or if an
additional Fund or Funds shall become a party to this Agreement, there shall be
delivered to each party an Appendix B or an amended Appendix B, signed by each
of the additional Funds (if any) and each of the remaining Funds as well as the
Custodian, deleting or adding such Fund or Funds, as the case may be. The
termination of this Agreement as to less than all of the Funds shall not affect
the obligations of the Custodian and the remaining Funds hereunder as set forth
on the signature page hereto and in Appendix B as revised from time to time.
15. NOTICES.
-------
As to each Fund, notices, requests, instructions and other writings
delivered to the Santa Barbara Group of Mutual Funds, 333 South Grand Avenue,
40th Floor, Los Angeles, California 90071, postage prepaid, or to such other
address as any particular Fund may have designated to the Custodian in writing,
shall be deemed to have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928 Grand
Boulevard, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's
Securities Administration Department, Post Office Box 419226, Kansas City,
Missouri 64141, or to such other addresses as the Custodian may have designated
to each Fund in writing, shall be deemed to have been properly delivered or
given to the Custodian hereunder; provided, however, that procedures for the
delivery of Instructions and Special Instructions shall be governed by Section
2(c) hereof.
16. MISCELLANEOUS.
-------------
(a) This Agreement is executed and delivered in the State of Missouri
and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived,
in any manner except in writing, properly executed by both parties hereto;
provided, however,
23
<PAGE>
Appendix A may be amended from time to time as Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, and Securities Depositories and Clearing
Agencies are approved or terminated according to the terms of this Agreement.
(d) 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.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Subcustodian 5
1940 Act 4(v)
</TABLE>
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement to
be executed by their respective duly authorized officers.
SANTA BARBARA GROUP
of MUTUAL FUNDS
ATTEST:
- -----------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
UMB BANK, N.A.
ATTEST:
- -----------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
25
<PAGE>
APPENDIX A
----------
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
Euroclear
Santa Barbara Group of Mutual Funds UMB Bank, n.a.
By: By:
---------------------------------- -------------------------------------
Name: Name:
-------------------------------- -----------------------------------
Title: Title:
------------------------------- ----------------------------------
Date: Date:
------------------------------- ----------------------------------
26
<PAGE>
APPENDIX B
----------
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are hereby
made parties to the Custody Agreement dated _______________________, 199__, with
UMB Bank, n.a. ("Custodian") and Santa Barbara Group of Mutual Funds, and agree
to be bound by all the terms and conditions contained in said Agreement:
LIST THE FUNDS
--------------
Bender Growth Fund
Starbuck Tisdale Growth & Income Fund
ATTEST:
- -------------------------------
SANTA BARBARA GROUP
OF MUTUAL FUNDS
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
ATTEST:
- ------------------------------
UMB BANK, N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
27
<PAGE>
EXHIBIT (9)(a)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
(Name of Mutual Fund, Trust or Company)
and
STATE STREET BANK AND TRUST COMPANY
1G - Domestic Corp/Series
<PAGE>
TABLE OF CONTENTS
Page
----
1. Terms of Appointment; Duties of the Bank.......................1
2. Fees and Expenses..............................................3
3. Representations and Warranties of the Bank.....................4
4. Representations and Warranties of the Fund.....................4
5. Data Access and Proprietary Information........................5
6. Indemnification................................................6
7. Standard of Care...............................................7
8. Covenants of the Fund and the Bank.............................7
9. Termination of Agreement.......................................8
10. Additional Funds...............................................9
11. Assignment.....................................................9
12. Amendment......................................................9
13. Massachusetts Law to Apply.....................................9
14. Force Majeure..................................................9
15. Consequential Damages.........................................10
16. Merger of Agreement...........................................10
17. Counterparts..................................................10
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the day of , 199 , by and between ,
a corporation, having its principal office and place of business at
(the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts
trust company having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in series, the (NAME
EACH PORTFOLIO) (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Article 10, being herein referred to as a "Portfolio", and collectively as the
"Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment; Duties of the Bank
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its common stock, $ par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus")
of the Fund on behalf of the applicable Portfolio, including without
limitation any periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of
<PAGE>
the Fund authorized pursuant to the Articles of Incorporation
of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption request and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or
to take cognizance of any laws relating to the issue or sale
of such shares, which functions shall be the sole
responsibility of the Fund.
2
<PAGE>
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent,
dividend disbursing agent, custodian of certain retirement
plans and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without limitation
any periodic investment plan or periodic withdrawal program),
including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing
proxies, mailing Shareholder reports and prospectuses to
current Shareholders, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms
required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and
mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts,
preparing and mailing activity statements for Shareholders,
and providing Shareholder account information and (ii) provide
a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt
from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system
prior to activation and thereafter monitor the daily activity
for each State. The responsibility of the Bank for the Fund's
blue sky State registration status is solely limited to the
initial establishment of transactions subject to blue sky
compliance by the Fund and the reporting of such transactions
to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by agreement
between the Fund on behalf of each Portfolio and the Bank per
the attached service responsibility schedule. The Bank may at
times perform only a portion of these services and the Fund or
its agent may perform these services and the Fund or its agent
may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon in
writing between the Fund and the Bank.
2. Fees and Expenses
-----------------
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between
the Fund and the Bank.
3
<PAGE>
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
on behalf of each of the Portfolios to reimburse the Bank for out-of-
pocket expenses, including but not limited to confirmation
production, postage, forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank
for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or
with the consent of the Fund, will be reimbursed by the Fund on
behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to the Bank by the Fund at least seven (7) days
prior to the mailing date of such materials.
3. Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.1 It is a corporation duly organized and existing and in good standing
under the laws of the State of .
4.2 It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Articles of Incorporation
and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4
<PAGE>
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1993, as amended
on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have
been made and will continue to be made, with respect to all Shares of
the Fund being offered for sale.
5. Data Access and Proprietary Information
---------------------------------------
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of
the Fund's ability to access certain Fund-related data ("Customer
Data") maintained by the Bank on data bases under the control and
ownership of the Bank ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information
(collectively, "Proprietary Information") of substantial value to the
Bank or other third party. In no event shall Proprietary Information
be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it
shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting
the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal copyright
law and under other federal or state law.
5
<PAGE>
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible
for the contents of such data and the Fund agrees to make no claim against
the Bank arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL
COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS
ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
6. Indemnification
---------------
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and against,
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or
firm on behalf of the Fund including but not limited to any previous
transfer agent or registrar.
6
<PAGE>
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
(f) The negotiation and processing by the Bank of checks not made payable
to the order of the Bank, the Fund, the Fund's management company,
transfer agent or distributor or the retirement account custodian or
trustee for a plan account investing in Shares, which checks are
tendered to the Bank for the purchase of Shares (i.e., checks made
payable to prospective or existing Shareholders, such checks are
commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund on behalf of the applicable
Portfolio for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any paper
or document furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank
or its agents or subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be held
to have notice of any change of authority of any person, until receipt of
written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend against
said claim in its own name or in the name of the Bank. The Bank shall in no
case confess any claim or make any compromise in any case in which the Fund
may be required to indemnify the Bank except with the Fund's prior written
consent.
7
<PAGE>
7. Standard of Care
----------------
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not
be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
----------------------------------
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund and
all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms
and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be performed
by the Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be surrendered promptly to the Fund on and in accordance with its
request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
8
<PAGE>
9. Termination of Agreement
------------------------
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket expenses
associated with the movement of records and material will be borne by
the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank
reserves the right to charge for any other reasonable expenses associated
with such termination and/or a charge equivalent to the average of three
(3) months' fees.
10. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to (LIST) with respect to which it desires to have the Bank
render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide
such services, such series of Shares shall become a Portfolio hereunder.
11. Assignment
----------
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange Act
of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c)(2) or (iii) a
BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
12. Amendment
---------
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the
Board of Directors of the Fund.
9
<PAGE>
13. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
14. Force Majeure
-------------
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform
or otherwise from such causes.
15. Consequential Damages
---------------------
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. Merger of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
17. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
BY:_________________________________
ATTEST:
_______________________________________
STATE STREET BANK AND TRUST COMPANY
BY:________________________________
Executive Vice President
ATTEST:
_______________________________________
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
<PAGE>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2(a), (b) and (c) of
the Agreement.
BY:
------------------------------------
ATTEST:
- -----------------------------------
STATE STREET BANK AND TRUST
COMPANY
BY:
------------------------------------
Executive Vice President
ATTEST:
- ------------------------------------
<PAGE>
NATIONAL FINANCIAL DATA SERVICES
FEE PROPOSAL PREPARED FOR
THE SANTA BARBARA GROUP OF FUNDS
AUGUST 1996
ACCOUNT MAINTENANCE FEES*
- -------------------------
<TABLE>
<S> <C>
Monthly Dividend Fund (per open account within a fund) $14.00 per year
Quarterly Dividend Fund (per open account within a fund) $13.00 per year
Semi-Annual/Annual Dividend Fund (per open account within a fund) $12.00 per year
Closed Account Fee $1.80 per account/per year
Annual Minimum Per Class $15,000 First Year
$20,400 Second Year
$30,000 Third Year
</TABLE>
* The Account Maintenance Fee will be the higher of open plus closed account
charges, or, the annual per fund minimum.
ACTIVITY FEES (HANDLED BY NFDS)
- -------------------------------
<TABLE>
<S> <C>
New Account Set Up $4.00 each
Manual Financial Transactions $1.50 each
Manual Maintenance Transactions $.75 each
Shareholder/Dealer Telephone Calls $2.00 each
Shareholder/Dealer Correspondence $3.00 each
Checkwriting Set Up $5.00 each
Checkwriting Drafts Submitted for Payment $1.00 each
Omnibus Account Support $2,500 per year/per relationship
</TABLE>
FUND IMPLEMENTATION FEE Up to 2 Funds = No Charge
- ----------------------- Thereafter = $1,000 each
OUT-OF-POCKET EXPENSES
- ----------------------
Out-of-Pocket expenses are billed as incurred and include, but are not limited
to: mailing expenses (i.e. statements, stationery, checks, certificates, sales
literature, printing, postage, etc.), telecommunication expenses,
equipment/software expenses (client-site only), programming expenses (i.e.
charges necessary to establish consolidated statement), microfiche, freight, ACH
bank charges, and all other expenses incurred on the fund's behalf.
<PAGE>
EXHIBIT (10)
[LETTERHEAD OF DECHERT PRICE & RHOADS]
October 3, 1996
The Santa Barbara Group
of Mutual Funds, Inc.
333 South Grand Avenue
Suite 4075
Los Angeles, California 90071
Gentlemen:
In connection with the registration under the Securities Act of 1993 of
an indefinite number of shares of common stock of The Starbuck Tisdale Growth
and Income Fund of The Santa Barbara Group of Mutual Funds, Inc. (the
"Company"), we have examined such matters as we have deemed necessary to give
this opinion.
On the basis of the foregoing, it is our opinion that each of the Company's
authorized shares, when paid for as contemplated by the Company's Registration
Statement, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm therein.
Very truly yours,
/s/ Dechert Price & Rhoads
<PAGE>
EXHIBIT 11
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
CONSENT OF INDEPENDENT AUDITORS
SANTA BARBARA GROUP OF MUTUAL FUNDS, INC.:
We consent to (a) the use in this Pre-Effective Amendment No. 3 to
Registration Statement No. 33-56546 on Form N-1A of our report on the
financial statements of the Fund comprising Santa Barbara Group of Mutual
Funds, Inc. as of September 20, 1996 dated September 26, 1996 appearing in
Part B, the Statement of Additional Information of such Registration
Statement, (b) the reference to us under the heading "Financial Statements and
Experts" in the Prospectus which is part of such Registration Statement, and
(c) the reference to us under the heading "Independent Accountants" in Part B
of the Statement of Additional Information of such Registration Statement.
/s/ Deloitte & Touche LLP
October 1, 1996
<PAGE>
EXHIBIT (13)
The Santa Barbara Group of Mutual Funds
333 S. Grand Avenue, Suite 4075
Los Angeles, California 90071
September 20, 1996
Claire Miner-McMahon, Trustee
Patrick S. Steele, Trustee
L. David Tisdale, Trustee
Starbuck Tisdale & Associates, Inc.,
Pension and Profit Sharing Fund
111 West Micheltorea Street, Suite 210
Santa Barbara, California 48009
Dear Messers Tisdale and Bull:
The Santa Barbara Group of Mutual Funds, Inc. (the "Company") hereby
accepts your offer to purchase 13,400.8 shares of Starbuck Tisdale Growth and
Income Fund at a price of $10.00 per share for an aggregate purchase price of
$134,008. This agreement is subject to the understanding that you have no
present intention of selling or redeeming the shares so acquired.
Any redemption of these shares by you will be reduced by a pro rata portion
of any then unamortized organization expenses of the Company. This proration
will be calculated by dividing the number of shares to be redeemed by the
aggregate number of shares held which represent the initial capital of the
Company.
Sincerely,
--------------------------
Steven Y. Ascher
Chief Executive Officer
Santa Barbara Group
of Mutual Funds, Inc.
Accepted: Starbuck Tisdale & Assoc. Pension &
Profit Share Plan
-----------------------------------
Claire Miner-McMahon
Trustee
-----------------------------------
Patrick S. Steele, Trustee
-----------------------------------
L. David Tisdale, Trustee
<PAGE>
EXHIBIT (15)
SERVICE AND DISTRIBUTION PLAN
WHEREAS, the Santa Barbara Group of Mutual Funds, Inc. (the "Company") engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company is currently divided into
series of shares, one of which is designated as The Starbuck Tisdale Growth and
Income Funds (the "Fund");
WHEREAS, shares of common stock of the Fund are divided into classes of
shares, one of which is designated Class C;
WHEREAS, the Company employs Ascher/Decision Services, Inc. (the
"Distributor") as a distributor of the securities of which it is the issuer;
and,
WHEREAS, the Company and the Distributor have entered into an Underwriting
Agreement dated September 17, 1996, pursuant to which the Company has employed
the Distributor in such capacity during the continuous offering of shares of the
Company.
NOW, THEREFORE, the Company hereby adopts on behalf of the Fund with respect
to its Class C shares, and the Distributor hereby agrees to the terms of, the
Plan, in accordance with Rule 12b-1 under the Act on the following terms and
conditions:
1.a. The Fund shall pay to the Distributor, as the distributor of the Class C
shares of the Fund, a fee for distribution of the shares at the rate of 0.75% on
an annualized basis of the average daily net assets of the Fund's Class C
shares, provided that, at any time such payment is made, the making thereof
will not cause the limitation upon such payments established by this Plan to be
exceeded. Such fee shall be calculated and accrued daily and paid at such
intervals as the Board of Directors shall determine, subject to any applicable
restriction imposed by rules of the National Association of Securities Dealers,
Inc.
b. The Fund shall pay to the Distributor, as the distributor of
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the Class C shares of the Fund, a service fee at the rate of 0.25% on an
annualized basis of the average daily net assets of the Fund's Class C shares,
provided that, at any time such payment is made, the making thereof will not
cause the limitation upon such payments established by this Plan to be exceeded.
Such fee shall be calculated and accrued daily and paid at such intervals as the
Board of Directors shall determine, subject to any applicable restriction
imposed by rules of the National Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1.a. of this Plan shall be paid for the
Distributor's services as distributor of the shares of the Fund in connection
with any activities or expenses primarily intended to result in the sale of the
Class C shares of the Fund, including, but not limited to, payment of
compensation, including incentive compensation, to securities dealers (which may
include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Fund. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Fund's Transfer Agent computer
processable tapes of all transactions by customer and serving as the primary
source of information to customers in answering questions concerning the Fund
and their transactions with the Fund. The Distributor is also authorized to
engage in advertising, the preparation and distribution of sales literature and
other promotional activities on behalf of the Fund. In addition, this Plan
hereby authorizes payment by the Fund of the cost of preparing, printing and
distributing Fund Prospectuses and Statements of Additional Information to
prospective investors and of implementing and operating the Plan. Distribution
expenses also include an allocation of overhead of the Distributor and accruals
for interest on the amount of distribution expenses that exceed distribution
fees and contingent deferred sales charges received by the Distributor.
Payments under the Plan are not tied exclusively to actual distribution and
service expenses, and the payments may exceed distribution and service expenses
actually incurred.
The amount set forth in paragraph 1.b. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. The Plan shall not take effect with respect to the Class C
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shares of the Fund until it has been approved by a vote of the then sole
shareholder of the Class C shares of the Fund.
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall take
effect. The Plan of Distribution shall continue in force and effect as to the
Class C shares of the Fund for so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 4.
6. The Distributor shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to the Fund at any time, without payment
of any penalty, by vote of the Directors of the Company, by vote of a majority
of the Rule 12b-1 Directors, or by a vote of a majority of the outstanding
voting securities of Class C shares of the Fund on not more than 30 days'
written notice to any other party to the Plan.
8. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and not material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of
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Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
10. The Company shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 6 hereof, for a period of not less
than six years from the date of this Plan, any such agreement or any such
report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the Company, on behalf of the Fund, and the Distributor
have executed this Service and Distribution Plan as of the ___ day of _________,
1996, to be effective _________, 1996.
THE SANTA BARBARA GROUP OF
MUTUAL FUNDS, INC.
By:_________________________________
Steven W. Arnold
ASCHER/DECISION SERVICES, INC.
By:_________________________________
Stephen Y. Ascher
President
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EXHIBIT (18)
MULTI-CLASS PLAN
The Santa Barbara Group of Mutual Funds (the "Company") intends to issue two
classes of shares of the Starbuck Tisdale Growth and Income Fund, pursuant to
Rule 18f-3, Class C shares and Class Y shares. The company further intends to
issue at a later time, a second series of shares as the Bender Growth Fund with
three classes, Class A shares, Class C shares and Class Y shares. In connection
therewith, the shares shall be issued in accordance with the following
conditions:
1. Each class of shares will represent interests in the same portfolio of
investments of a Fund and be identical in all respects, except as set forth
below. The only differences among various classes of shares of the same Fund
will relate solely to: (a) the designation of each class of shares of a Fund;
(b) the impact of the respective sales charges, if any, for each class of shares
(e.g., Class A shares would be subject to a front-end sales load, Classes C & Y
----
shares would not be subject to a front-end sales load, however, Class C would be
subject to a 1% contingent deferred sales load); (c) expenses assessed to a
class as a result of a Rule 12b-1 plan providing for a service and/or
distribution fee (e.g., Class A shares would pay a service fee; and Class C
----
shares would pay a service fee and a distribution fee; and Class Y shares would
not pay a service fee or a distribution fee); (d) different expenses which the
Board of Directors of a Fund determines to allocate to a specific class ("class-
specific expenses"), which are limited to: (i) transfer agency fees as
identified by the transfer agent as being attributable to a specific class; (ii)
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
(iii) Blue Sky registration fees incurred by a class of shares; (iv) Commission
registration fees incurred by a class of shares; (v) the expenses of
administrative personnel and services as required to support the shareholders of
a specific class; (vi) litigation or other legal expenses relating solely to one
class of shares; and (vii) directors' fees incurred as a result of issues
relating to one class of shares; (e) voting rights on matters exclusively
affecting one class of shares (e.g., the adoption, amendment or termination of a
----
Rule 12b-1 plan) in accordance with the procedures set forth in Rule 12b-1; (f)
the difference exchange privileges of the various classes of shares as described
in the prospectuses (and as more fully described in the statements of additional
information) of the Funds; and (g) classes that impose a 12b-1 fee may convert
to another class. Any additional
1
<PAGE>
incremental expenses not specifically identified above that are subsequently
identified and determined to be properly allocated to one class of shares shall
not be so allocated until approved by the Commission.
2. The Directors of each of the Funds, including a majority of the Independent
Directors, shall have approved the Variable Pricing System, prior to the
implementation of the Variable Pricing System by a particular Fund. The
minutes of the meetings of the Directors of each of the Funds regarding the
deliberations of the Directors with respect to the approvals necessary to
implement the Variable Pricing System will reflect in detail the reasons for
determining that the proposed Variable Pricing System is in the best
interest of the Fund and its shareholders.
3. The initial determination of the class-specific expenses, if any, that will
be allocated to a particular class of a Fund and any subsequent changes
thereto will be reviewed and approved by a vote of the Directors of the
affected Fund, including a majority of the Independent Directors. Any person
authorized to direct the allocation and disposition of monies paid or
payable by a Fund to meet class-specific expenses shall provide to the
Directors, and the Directors shall review, at least quarterly, a written
report of the amounts so expended and the purpose for which the expenditures
were made.
4. On an ongoing basis, the Directors of the Funds, pursuant to their fiduciary
responsibilities under the 1940 Act and otherwise, will monitor each Fund
for the existence of any material conflicts among the interests of the
various classes or shares. The Directors, including a majority of the
Independent Directors, shall take such action as is reasonably necessary to
eliminate any such conflicts that may develop. The Adviser of the affected
Fund and Ascher/Decision will be responsible for reporting any potential or
existing conflicts to the Directors. If a conflict arises, the Adviser of
the affected Fund and Ascher/Decision at their own costs will remedy such
conflict up to and including establishing a new registered management
investment company.
5. The Directors of the Funds will receive quarterly and annual statements
concerning distribution and shareholder servicing expenditures complying
with paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from time to
time. In the statements, only expenditures properly attributable to the sale
or servicing of a
2
<PAGE>
particular class of shares will be used to justify any distribution or
servicing fee charged to that class. Expenditures not related to the sale or
servicing of a particular class will not be presented to the Directors to
justify any fee attributable to that class. The statements, including the
allocations upon which they are based, will be subject to the review and
approval of the Independent Directors in the exercise of their fiduciary
duties.
6. Dividends paid by a Fund with respect to each class of shares, to the extent
any dividends are paid, will be calculated in the same manner, at the same
time, on the same day and will be in the same amount, except that fee
payments made under the Rule 12b-1 plan relating to a particular class will
be borne exclusively by each such class and except that any class-specific
expenses will be borne by the applicable class of shares.
7. The methodology and procedures for calculating the net asset value and
dividends/distributions of the various classes and the proper allocation of
income and expenses among the various classes will be reviewed by the Fund's
Auditors. The Auditors will render reports, stating that such methodology
and procedures are adequate to ensure that such calculations and allocations
will be made in an appropriate manner. On an ongoing basis, the Auditors
will monitor the manner in which the calculations and allocations are being
made and, based upon such review, will render at least annually a report to
the Funds that the calculations and allocations are being made and, based
upon such review, will render at least annually a report to the Funds that
the calculations and allocations are being made properly.
3
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8. The Company has adequate facilities in place to ensure implementation of the
methodology and procedures for calculating the net asset value and
dividends/distributions amount the various classes of shares and the proper
allocation of income and expenses among such classes of shares.
9. Ascher/Decision will adopt compliance standards as to when shares of a
particular class may appropriately be sold to particular investors.
Applicants will require all persons selling shares of the Funds to agree to
conform to these standards.
4
