NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
Bender Growth Fund - September 30, 1998
1. ORGANIZATION
The Santa Barbara Group of Mutual Funds, Inc. (the "Company"), was organized
as a Maryland corporation under Articles of Incorporation dated December 30,
1992. The Company is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management investment company with one
fund: the Bender Growth Fund (the "Fund"). The financial statements of the
Bender Growth Fund are included herein. The Company is registered to offer
two classes of shares, Class Y and Class C. Each Fund's prospectus provides a
description of the Fund's investment objectives, policies and strategies.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund.
Security Valuation - Investment securities which are listed on a national
securities exchange or on the NASDAQ National Market System for which market
quotations are available are valued by an independent pricing service at the
last reported sale price for such security 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 the over-the-counter market are valued at
the mean between the most recently quoted bid and asked prices. 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.
Security Transaction and Investment Income - Security transactions are
accounted for on the trade date of the security purchase or sale. Costs used
in determining net realized capital gains and losses on the sale of securities
will be those of the specific securities sold. Dividend income is recorded on
the ex-dividend date, and interest income is recorded on the accrual basis.
Purchase discounts and premiums on securities held by the Fund are accreted
and amortized to maturity using the scientific interest method, which
approximates the effective interest method.
Federal Income Taxes - The Company's policy is to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to shareholders. Accordingly, no
provision for Federal income taxes is required in the financial statements.
Expenses - Expenses that are directly related to the Fund are charged to the
Fund. Other operating expenses of the Company are prorated to the Funds on
the basis of relative net assets. Expenses, income and gains and losses are
allocated daily among share classes of each Fund based on the relative
proportion of net assets represented by each class.
Distributions to Shareholders - Distributions from net investment income are
declared and paid at least annually. Any net realized capital gains on sales
of securities are distributed annually.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -----------------------------------------------------------------------------
Bender Growth Fund - September 30, 1998
The amounts of distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations, which may differ from those amounts determined under generally
accepted accounting principles. To the extent these book/tax differences are
permanent, they are charged or credited to paid-in capital in the period that
the difference arises.
Net Asset Value Per Share - The net asset value per share of the Fund is
calculated each business day by dividing the total value of the Fund's assets,
less liabilities, by the number of shares outstanding. Class C shares
redeemed within one year of purchase may be subject to a contingent deferred
sales charge equal to one-percent. The redemption price disclosed in the
financial statements for Class C shares does not reflect the contingent
deferred sales charge.
Organizational Costs - Organizational costs have been deferred in the account
of the Fund and are being amortized on a straight line basis over a period of
sixty months commencing with operations. In the event any of the initial
shares of the Fund are redeemed by any holder thereof during the period that
the Fund is amortizing its organizational costs, the redemption proceeds
payable to the holders thereof by the fund 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 organizational costs as of the date of such redemption.
Use of Estimates in the Preparation of Financial Statements - The financial
statements have been prepared in conformity with generally accepted accounting
principles which requires management to make certain estimates and assumptions
that affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. SERVICE AGREEMENTS
Pursuant to an investment advisory agreement, investment advisory services are
provided to the Company by SBG Capital Management (the "Advisor"). The
Advisor receives a monthly fee at an annual rate of 0.50% of the average daily
net asset of the Fund. The Advisor has agreed to waive a portion of their
fees and reimburse the Fund for other expenses as necessary in order to limit
the operating expenses to 2.75% and 3.50% of average daily net assets of the
Class Y and Class C shares, respectively.
Sub-Advisory services are provided to the Advisor for the Fund by Robert
Bender & Associates, Inc. (the "Sub-Advisor") pursuant to a sub-advisory
agreement. Under terms of the agreement, the Sub-Advisor receives a monthly
fee at an annual rate of 0.40% of the average daily net assets of the fund and
is paid by the Advisor. The Advisor is responsible for the supervision and
payment of fees to the Sub-Advisor in connection with its services.
Declaration Distributors, Inc. serves as Distributor to the Fund pursuant to a
Distribution Agreement. Under terms of the Plan, the Distributor is paid an
annual distribution fee of $20,000.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
- -----------------------------------------------------------------------------
Bender Growth Fund - September 30, 1998
Declaration Service Company serves as Administrator to and provides accounting
services to the Fund pursuant to an Investment Company Services Agreement (the
"Agreement"). Under terms of such Agreement, the Administrator is paid an
annual fee equal to the greater of 0.20% of the first $25 million in average
daily net assets, 0.15% for the next $25 million in average daily net assets,
0.10% for the next $50 million of average daily net assets, and 0.075% for
such daily net assets in excess of $100 million or a minimum of $50,000.
Under the Agreement Declaration Service Company (the "Transfer Agent") also
provides transfer agency and dividend disbursing services for the Fund.
The Fund and United Missouri Bank (the "Custodian") are parties to a custodial
agreement under which the Custodian holds cash, securities and other assets of
the fund as required by the Investment Company Act of 1940. The Custodian
plays no role in determining the investment policies of the Fund or which
securities are to be purchased or sold by the Fund.
4. INVESTMENT TRANSACTIONS
The cost of security purchases and the proceeds from the sale of securities,
other than temporary cash investments for the period from April 1, 1998 to
September 30, 1998, were $1,240,436 and $579,644, respectively.
As of September 30, 1998, net unrealized appreciation on investment securities
for book and federal income tax purposes aggregated $1,233,820 of which
$2,658,243 related to appreciated securities and $1,424,423 related to
depreciated securities. There was no difference between book and tax realized
gains on securities for the period from April 1, 1998 to September 30, 1998.
<PAGE>
<TABLE>
STATEMENT OF NET ASSETS THE SANTA BARBARA GROUP OF MUTUAL FUNDS
September 30, 1998 (Unaudited)
BENDER GROWTH FUND
<S> <C> <C>
Market
COMMON STOCKS (97.2%) Shares Value
--------- ----------
COMMUNICATIONS (9.4%)
Advanced Fibre Communication * 7,270 $ 49,981
Ascend Communications * 6,170 280,735
CIENA * 5,100 72,994
Hummingbird Communications * 4,310 88,086
P-COM, Inc. * 11,890 46,446
Sawtek, Inc. * 15,905 224,658
- -----------------------------------------------------------------------------
762,900
- -----------------------------------------------------------------------------
COMPUTER & SERVICES (39.9%)
CBT Group PLC ADR * 7,886 106,461
Checkpoint Software * 10,540 209,483
Cisco Systems, Inc. * 5,977 369,453
Gartner Group, Inc. Class A * 4,380 91,433
Genesys Telecom Labs * 11,690 216,996
Legato Systems, Inc. * 14,260 732,608
Microsoft Corp. * 2,300 253,144
Network Appliance, Inc. * 8,190 414,619
Networks Associates, Inc. * 4,020 142,710
Oracle Corp. * 7,870 229,214
Smallworldwide PLC ADR * 18,200 200,200
Synopsys, Inc. * 7,550 251,509
- -----------------------------------------------------------------------------
3,217,830
- -----------------------------------------------------------------------------
MEDICAL (17.3%)
Arterial Vascular Engineering * 12,040 445,480
PSS World Medical Inc. * 16,967 313,890
Quintiles Transnational * 6,460 282,625
Watson Pharmaceuticals * 6,840 347,130
- -----------------------------------------------------------------------------
1,389,125
- -----------------------------------------------------------------------------
OIL FIELD MACHINE & EQUIPMENT (1.2%)
Dril-Quip * 5,710 99,925
- -----------------------------------------------------------------------------
RETAIL (17.8%)
Bed Bath & Beyond * 11,870 277,461
CDW Computer Centers * 4,350 231,638
Fastenal Co. 6,180 154,500
Home Depot 7,720 304,940
Kohl's * 6,040 235,560
Starbucks Corp. * 6,330 229,067
- -----------------------------------------------------------------------------
1,433,166
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF NET ASSETS THE SANTA BARBARA GROUP OF MUTUAL FUNDS
September 30, 1998 (Unaudited)
BENDER GROWTH FUND
<S> <C> <C>
Shares/ Market
Face Amount Value
----------- -------------
SERVICES (11.9%)
Abacus Direct Corp. * 6,050 $ 308,550
CKS Group, Inc. * 6,050 107,008
Forrester Research, Inc. * 6,500 237,250
Paychex, Inc. 6,045 311,694
- ------------------------------------------------------------------------------
964,502
- ------------------------------------------------------------------------------
Total Common Stocks
(Cost $6,633,628) 7,867,450
- ------------------------------------------------------------------------------
CASH EQUIVALENT (2.3%)
United Missouri Bank AFM (Cost $186,438) $ 186,438 186,438
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.5%)
(Cost $6,820,066) 8,053,886
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES (0.2%) 25,762
- ------------------------------------------------------------------------------
NET ASSETS:
Portfolio Shares of Y Class ($.001 par
value - unlimited shares authorized)
based on 164,773 outstanding shares 1,643,590
Portfolio Shares of C Class ($.001 par
value - unlimited shares authorized)
based on 526,315 outstanding shares 5,509,445
Undistributed net investment loss (138,380)
Accumulated net realized loss on investments (168,827)
Net unrealized appreciation on investments 1,233,820
- ------------------------------------------------------------------------------
Total Net Assets: (100%) $ 8,079,648
- ------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE - Y CLASS $ 11.91
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE - C CLASS
(SEE FOOTNOTE 2) $ 11.62
==============================================================================
</TABLE>
[FN]
* Non-income producing security
ADR - American Depository Receipt
AFM - Automated Funds Management
PLC - Public Limited Company
See accompanying notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS THE SANTA BARBARA GROUP OF MUTUAL FUNDS
For the Six Months Ended
September 30, 1998 (Unaudited)
<S> <C>
Bender
Growth
Fund
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest Income $ 9,632
Dividend Income 1,189
- ------------------------------------------------------------------------------
Total Investment Income 10,821
- ------------------------------------------------------------------------------
EXPENSES:
Investment Advisory Fees 56,142
Administration Fees 30,082
Accounting and Pricing 8,242
Custodian Fees 5,025
Transfer Agent Fees 47,884
Professional Fees 14,649
Director Fees 4,429
Registration Fees 5,198
Distribution Fees - Class Y 3,781
Distribution Fees - Class C 32,792
Printing Expense 10,510
Amortization of Deferred Organizational Costs 4,013
Miscellaneous Expenses 109
- ------------------------------------------------------------------------------
Total Expenses before Waiver of Investment Advisory Fees
and Contribution from Advisor 222,856
- ------------------------------------------------------------------------------
Waiver of Investment Advisory Fees (56,142)
Contribution from Advisor (17,513)
- ------------------------------------------------------------------------------
Total Expenses, Net 149,201
- ------------------------------------------------------------------------------
Net Investment Loss (138,380)
- ------------------------------------------------------------------------------
Net Realized Gain on Investments 9,946
Change in Net Unrealized Depreciation of Investments (1,228,013)
- ------------------------------------------------------------------------------
Net Realized and Unrealized Loss on Investments (1,218,067)
- ------------------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations $(1,356,447)
==============================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS THE SANTA BARBARA GROUP OF MUTUAL FUNDS
<S> <C> <C>
Bender
Growth
Fund
- -------------------------------------------------------------------------------
Six Months Ended Year
September 30, 1998 Ended
(Unaudited) March 31, 1998
------------------ ---------------
INVESTMENT ACTIVITIES:
Net Investment Loss $ (138,380) $ (186,963)
Net Realized Gain (Loss) on
Investments 9,946 (144,608)
Net Change in Unrealized Appreciation
(Depreciation) of Investments (1,218,067) 3,111,816
- -------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting From Operations (1,356,447) 2,780,245
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Class Y:
Proceeds from Shares Issued
(8,121 and 84,043 shares,
respectively) 110,166 915,570
Cost of Shares Redeemed (11,562
and 29,360 shares,
respectively) (150,401) (301,972)
- -------------------------------------------------------------------------------
Total Class Y Transactions (40,235) 613,598
- -------------------------------------------------------------------------------
Class C:
Proceeds from Shares Issued
(76,665) and 245,728 shares,
respectively) 1,009,807 2,774,788
Cost of Shares Redeemed (44,664
and 71,888 shares,
respectively) (573,632) (705,432)
- -------------------------------------------------------------------------------
Total Class C Transactions 436,175 2,069,356
- -------------------------------------------------------------------------------
Net Increase in Net Assets From Capital
Share Transactions 385,962 2,682,954
- -------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS (960,507) 5,463,199
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of Year (662,529 and 434,006
shares, respectively) 9,040,155 3,576,956
- -------------------------------------------------------------------------------
NET ASSETS:
End of Year (691,088 and 662,529
shares, respectively) $8,079,648 $9,040,155
===============================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS THE SANTA BARBARA GROUP OF MUTUAL FUNDS
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CLASS Y CLASS C
---------------------------------------------------- ---------------------------------------------------
For the Six For the Period For the Six For the Period
Months Ended For the Year December 10, 1996 Months Ended For the Year December 10, 1996
September 30, 1998 Ended to September 30, 1998 Ended to
(Unaudited) March 31, 1998 March 31, 1997 (Unaudited) March 31, 1998 March 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 13.74 $ 8.26 $ 10.00 $ 13.61 $ 8.24 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------------
Income From Investment
Operations:
Net investment income (0.19) (0.22) (0.04) (0.17) (0.28) (0.06)
Net gains (losses) on
securities (both realized
and unrealized) (1.93) 5.70 (1.70) (1.53) 5.65 (1.70)
Total from investment
operations (2.12) 5.48 (1.74) (1.70) 5.37 (1.76)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 11.62 $ 13.74 $ 8.26 $ 11.91 $ 13.61 $ 8.24
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 44.19% 66.34% (17.40%) 40.68% 65.17% (17.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000s) $ 1,962 $ 2,312 $ 937 $ 6,117 $ 6,728 $ 2,640
Ratio of expenses to
average net assets:
Before expense
reimbursement 3.10%* 4.59%* 7.88% 3.90%* 5.34%* 8.70%
After expense
reimbursement 2.75%* 2.75%* 2.75% 3.50%* 3.50%* 3.50%
Ratio of net investment
income (loss) to average
net assets:
Before expense
reimbursement (2.86%)* (4.34%)* (7.29%) (0.75%)* (1.56%)* 1.65%
After expense
reimbursement (2.48%)* (2.50%)* (2.16%) (0.35%)* (0.41%)* 0.45%
Portfolio turnover rate 6.98% 7.44% 3.00% 6.98% 7.44% 3.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
*Annualized
See accompanying notes to financial statements.
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