SANTA BARBARA GROUP
OF MUTUAL FUNDS
THE BENDER GROWTH FUND
ANNUAL REPORT
MARCH 31, 2000
<PAGE>
LETTER TO SHAREHOLDERS
FROM THE CO-CHAIRMEN OF THE SANTA BARBARA GROUP OF MUTUAL FUNDS
Dear Fellow Shareholders,
The past twelve months have proved to be very profitable for all of us as
shareholders of The Bender Growth Fund. For the twelve months ended March
31, 2000, The Bender Growth Fund gained 175.28% (Class C shares), 180.55%
(Class Y shares) and 165.04% (Class A shares) versus 17.94% for the S&P
500. In addition, for the past three years, The Bender Growth Fund gained
75.90% (Class C shares) and 78.14% (Class Y shares) versus 27.39% for the
S&P 500 on an annualized basis. The Bender Growth Fund ranks as a top
mutual fund in its investment category.
Equally important are the after-tax returns of The Bender Growth Fund. Many
of us own The Bender Growth Fund in taxable accounts. In this volatile
investment market, many mutual fund managers buy and sell securities at a
more frenetic pace. Increased portfolio turnover causes many funds to
declare large short-term and long-term capital gains distributions. The
Bender Growth Fund declared only $0.96 in long-term capital gains
distributions in 1999. This combined with no capital gains distributions in
1997 and 1998 make The Bender Growth Fund one of the most tax efficient
mutual funds in the country. There is no better feeling for a long-term
investor than to have to pay little or no capital gains tax on his or her
investment holdings. Outstanding performance and small capital gains
distributions have made this time period particularly profitable for all of
us.
As we move forward, our goal is to continue to develop a quality mutual fund
company. Over the past year, the expense ratio of The Bender Growth Fund
has dropped dramatically. Current quotes and past performance for the Class
C shares (BEGCX) and Class Y shares (BEGYX) may now be found on any
securities database. Most major publications now post the Class C shares in
their daily mutual fund listings.
As always, we are very thankful for your business. Without your support,
patience and referrals, The Bender Growth Fund would be a much smaller and
less successful mutual fund today. With the combination of your support and
the investment expertise of Robert Bender & Associates, we anticipate a
very profitable future!
Thanks again for all your support!
Sincerely,
[SIGNATURE] [SIGNATURE]
Steven W. Arnold John P. Odell
Co-Chairman Co-Chairman
Past performance is no guarantee of future results. An investment return
and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. This report
is intended for the fund's shareholders. It may not be distributed to
prospective investors unless it is preceded or accompanied by the current
fund prospectus.
1
<PAGE>
LETTER FROM THE INVESTMENT ADVISOR
Dear Fellow Shareholders,
The business world is undergoing dramatic changes. The rise of the Internet
as a business tool has forced companies to rethink their operating processes
at every level. Examples of these changes are many and varied. Companies
are changing how they source and purchase raw materials, how they procure
operating resources and services, and how they sell excess inventory through
digital marketplaces and on-line auctions. Others are linking buyers and
seller in value added exchanges. We believe the Internet, or e-business,
will increase efficiencies throughout the value chain and drive new
competitive advantages for years to come.
Through investments in technology, companies are growing increasingly
efficient. Since 1995, United States workers have increased their output
per hour by about 2.5% per year. This is double the rate of the previous 25
years. And this trend is accelerating. In the second half of 1999
productivity in the United States soared by 5.6%. While these are dramatic
statistics, companies are just starting to decipher ways the Internet can
decrease the cost of doing business. Currently, less than 0.5% of
business-to-business transactions take place electronically. However, in
several different industries, companies are realizing that Internet-based
transactions will allow them to become more specialized and productive.
Today, many companies are vertically focused, handling most procurement,
manufacturing and distribution functions in-house. Yet as supply chains
become more global and complex, companies are moving away from vertically
integrated models toward more outsourcing. While in the past this has
raised questions over the ability to control quality, the Internet is
changing this through tighter collaboration between trading partners and
customers. As customers place or make changes to orders, information flows
through the system to all parties, from design teams to suppliers to
distributors, allowing them to tailor their operations accordingly. This
will enable companies to carry lower levels of inventory, reduce
overstockings, and speed the manufacture of many products.
Several companies we are invested in are direct beneficiaries of the trend
toward e-commerce transactions. Cisco Systems and Ciena Corporation
manufacture networking infrastructure products used to build high-speed
networks. Oracle, Microsoft and Broadvision provide software that allows
companies to engage in business-to-business transactions. Products from
Network Appliance allow companies to store vast amounts of transactional
information. And Checkpoint Software provides security and virtual private
networking software that allows companies to extend their business
activities to the wireless space. As companies race to leverage the
efficiencies of e-commerce, we feel it will drive a wave of corporate
spending on Internet solutions for many years.
Please refer to our web site at: WWW.ROBERTBENDER.COM for more information.
Thank you for your support of The Bender Growth Fund!
Sincerely,
[SIGNATURE] [SIGNATURE]
Robert L. Bender Reed G. Bender
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors
Bender Growth Fund
We have audited the accompanying statement of assets and liabilities of the
Bender Growth Fund, including the schedule of portfolio investments, as of
March 31, 2000,and the related statement of operations for the year then
ended, the statement of changes in net assets for the two years then ended,
and financial highlights for each of the three years then ended and the
period from December 10, 1996 (commencement of operations) to March 31, 1997
in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits 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 and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
investments and cash held by the custodian as of March 31, 2000 by
correspondence with the custodian. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
the Bender Growth Fund as of March 31, 2000, the results of its operations
for the year then ended, the changes in its net assets for the two years
then ended, and the financial highlights for the three years then ended and
for the period from December 10, 1996 (commencement of operations) to March
31, 1997 in the period then ended, in conformity with generally accepted
accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
April 20, 2000
3
<PAGE>
GROWTH OF $10,000 FROM COMMENCEMENT OF OPERATIONS*
THROUGH MARCH 31, 2000
[ID: LINE GRAPH WITH PLOT POINTS AS FOLLOWS]
STANDARD &
CLASS A CLASS C CLASS Y POOR'S 500
------- ------- ------- ----------
10-Dec-96 10,000 10,000 10,000
31-Mar-97 8,240 8,260 10,187
30-Sep-97 12,390 12,460 12,862
31-Mar-98 13,610 13,740 15,077
30-Sep-98 9,425 11,550 11,790 14,025
31-Mar-99 14,552 16,290 16,640 17,860
30-Sep-99 19,827 22,055 22,657 17,925
31-Mar-00 40,922 44,843 46,684 21,064
(1) Adjusted for initial maximum sales charge of 5.75%.
(2) Adjusted for redemption fee of 1%.
*Class C and Class Y commenced operations on December 10, 1996. Class A
commenced operations on October 1, 1998.
Past performance is not predictive of future results. The investment return
and principal value of an investment will fluctuate. An investor's share,
when redeemed, may be worth more or less than the original cost.
4
<PAGE>
INVESTMENT PERFORMANCE FOR PERIODS ENDED MARCH 31, 2000
[GRAPH]
(1) Commenced operations December 10, 1996.
(2) Commenced operations October 1, 1998.
*Adjusted for initial maximum sales charge of 5.75%.
**Adjusted for redemption fee of 1%.
Past performance is not predictive of future results. The investment return
and principal value of an investment will fluctuate. An investor's share,
when redeemed, may be worth more or less than the original cost.
<TABLE>
THE SANTA BARBARA GROUP OF MUTUAL FUNDS
SCHEDULE OF INVESTMENTS
BENDER GROWTH FUND MARCH 31, 2000
------------------------------------------------------------------------------
<S> <C> <C>
MARKET
SHARES VALUE
------ ------
COMMON STOCKS -- 93.6%
BUILDING & CONSTRUCTION -- 0.9%
Elcor Corp. 15,000 $ 517,500
-----------
COMMUNICATIONS -- 4.0%
Advanced Fibre Communication * 10,770 675,144
P-Com, Inc. * 11,890 219,965
QUALCOMM, Inc. * 10,000 1,493,125
-----------
2,388,234
-----------
COMPUTER SOFTWARE & SERVICES -- 48.8%
America Online, Inc. * 23,550 1,583,737
Broadvision, Inc. * 49,680 2,229,390
Brocade Communications Systems, Inc. * 12,100 2,169,681
Checkpoint Software * 21,080 3,605,997
Cisco Systems, Inc. * 23,908 1,848,387
Doubleclick, Inc. * 15,540 1,454,933
Legato Systems, Inc. * 41,000 1,829,625
Marchfirst, Inc. * 33,100 1,181,256
Microsoft Corp. * 9,090 965,813
Network Appliance, Inc. * 57,520 4,759,780
Oracle Corp. * 29,410 2,295,818
Sapient Corp. * 16,330 1,369,679
Smallworldwide PLC ADR * 18,200 225,225
Smartforce PLC ADR * 35,286 1,618,745
Synopsys, Inc. * 27,150 1,323,563
Verisign, Inc. * 6,350 949,325
-----------
29,410,954
-----------
ELECTRONIC EQUIPMENT -- 15.0%
Ciena Corp. * 17,780 2,242,503
Sawtek, Inc. * 35,810 1,882,263
JDS Uniphase Corp. * 30,880 3,722,970
Zoran Corp. * 20,550 1,157,222
-----------
9,004,958
-----------
MEDICAL -- 1.5%
Medtronic, Inc. 17,418 895,938
-----------
PHARMACEUTICAL -- 4.5%
Elan Corp. PLC ADR * 25,840 1,227,400
Watson Pharmaceuticals, Inc. * 37,240 1,477,963
-----------
2,705,363
-----------
</TABLE>
6
<PAGE>
<TABLE>
THE SANTA BARBARA GROUP OF MUTUAL FUNDS
SCHEDULE OF INVESTMENTS
BENDER GROWTH FUND MARCH 31, 2000
------------------------------------------------------------------------------
<S> <C> <C>
MARKET
SHARES VALUE
------ ------
RETAIL -- 14.8%
Bed Bath & Beyond, Inc. * 46,670 1,837,631
CDW Computer Centers, Inc. * 14,190 1,198,168
Fastenal Co. 7,440 356,190
Home Depot, Inc. 23,580 1,520,910
Kohl's Corp. * 16,230 1,663,575
Staples, Inc. * 44,000 880,000
Starbucks Corp. * 32,860 1,472,539
-----------
8,929,013
-----------
SERVICES -- 4.1%
Forrester Research, Inc. * 24,360 1,321,530
Quintiles Transnational Corp. * 35,870 612,032
Paychex, Inc. 10,347 541,924
-----------
2,475,486
-----------
TOTAL COMMON STOCKS
(Cost $23,608,531) 56,327,446
-----------
CASH EQUIVALENT -- 6.7%
United Missouri Bank AFM (Cost $4,038,803) 4,038,803 4,038,803
-----------
TOTAL INVESTMENTS -- 100.3%
(Cost $27,647,334) 60,366,249
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3)% (167,005)
-----------
NET ASSETS -- 100% $60,199,244
===========
</TABLE>
*Non-income producing security
ADR -- American Depository Receipt
AFM -- Automated Funds Management
PLC -- Public Limited Company
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
THE SANTA BARBARA GROUP OF MUTUAL FUNDS
STATEMENT OF ASSETS & LIABILITIES
BENDER GROWTH FUND MARCH 31, 2000
------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in Securities at Market Value
(identified cost $27,647,334) (Note 1) $60,366,249
Receivables:
Dividends and Interest 12,544
Capital Stock Sold 550,611
-----------
TOTAL ASSETS 60,929,404
-----------
LIABILITIES
Due to Advisor 47,786
Capital Stock Redeemed 582,076
Accrued Distribution Fees 86,153
Other Liabilities 14,145
-----------
TOTAL LIABILITIES 730,160
-----------
NET ASSETS $60,199,244
===========
CLASS A SHARES (NOTE 1):
Net Assets (Unlimited shares of $0.001 par beneficial
interest authorized; 129,247 shares outstanding) $ 5,340,894
===========
Net Asset Value and Redemption Price Per Class A Share
($5,340,894 divided by 129,247 shares) $ 41.32
===========
Offering Price Per Share ($41.32 divided by 0.9425) $ 43.84
===========
CLASS Y SHARES (NOTE 1):
Net Assets (Unlimited shares of $0.001 par beneficial
interest authorized; 455,301 shares outstanding) $20,302,412
===========
Net Asset Value, Offering and Redemption Price Per
Class Y Share ($20,302,412 divided by 455,301 shares) $ 44.59
===========
CLASS C SHARES (NOTE 1):
Net Assets (Unlimited shares of $0.001 par beneficial
interest authorized; 799,781 shares outstanding) $34,555,938
===========
Net Asset Value and Offering Price Per Class C Share
($34,555,938 divided by 799,781 shares) $ 43.21
===========
Redemption Price Per Share ($43.21 X 0.99) $ 42.78
===========
SOURCE OF NET ASSETS
At March 31, 2000, net assets consisted of:
Paid-in Capital 27,480,329
Net Unrealized Appreciation on Investments 32,718,915
-----------
NET ASSETS $60,199,244
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
THE SANTA BARBARA GROUP OF MUTUAL FUNDS
STATEMENT OF OPERATIONS
BENDER GROWTH FUND FOR THE YEAR ENDED MARCH 31, 2000
------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest Income $ 61,950
Dividend Income 21,312
-----------
Total Investment Income 83,262
-----------
EXPENSES:
Investment Advisory Fees 133,830
Registration Fees 26,332
Service Fees -- Class A 14,841
Service Fees -- Class Y 108,457
Service Fees -- Class C 262,423
Distribution Fees -- Class A 3,336
Distribution Fees -- Class Y 19,457
Distribution Fees -- Class C 177,207
-----------
Total Expenses Before Reimbursement 745,883
Expenses Reimbursed (26,332)
-----------
Total Expenses, Net 719,551
-----------
Net Investment Loss (636,289)
-----------
Net Realized Gain on Investments 445,176
Change in Net Unrealized Appreciation of Investments 28,778,700
-----------
Net Realized and Unrealized Gain on Investments 29,223,876
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $28,587,587
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
THE SANTA BARBARA GROUP OF MUTUAL FUNDS
STATEMENT OF CHANGES IN NET ASSETS
BENDER GROWTH FUND
-------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999
---------------- ----------------
INVESTMENT ACTIVITIES:
Net Investment Loss $ (636,289) $ (369,302)
Net Realized Gain on Investments 445,176 765,803
Net Change in Unrealized Appreciation of
Investments 28,778,700 1,478,382
----------- -----------
Net Increase in Net Assets Resulting
From Operations 28,587,587 1,874,883
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Realized Capital Gain
Class A (14,282) ---
Class Y (207,265) ---
Class C (570,031) ---
----------- -----------
(791,578) ---
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Class A:
Proceeds from Shares Issued (131,356
and 2,111 shares, respectively) 4,109,181 33,034
Reinvestment of Dividends (610 and
0 shares, respectively) 14,282 ---
Cost of Shares Redeemed (4,829 and
0 shares, respectively) (178,426) ---
----------- -----------
Total Class A Transactions 3,945,037 33,034
----------- -----------
Class Y:
Proceeds from Shares Issued (306,401 and
33,713 shares, respectively) 10,241,920 515,973
Reinvestment of Dividends (9,779 and
0 shares, respectively) 206,555 ---
Cost of Shares Redeemed (27,943 and
34,879 shares, respectively) (922,448) (512,309)
----------- -----------
Total Class Y Transactions 9,526,027 3,664
----------- -----------
Class C:
Proceeds from Shares Issued (304,397 and
136,533 shares, respectively) 8,931,341 1,891,693
Reinvestment of Dividends (27,813 and
0 shares, respectively) 561,316 ---
Cost of Shares Redeemed (69,853 and
93,347 shares, respectively) (2,116,896) (1,287,019)
----------- -----------
Total Class C Transactions 7,375,761 604,674
----------- -----------
Net Increase in Net Assets From Capital Share
Transactions 20,846,825 641,372
----------- -----------
TOTAL INCREASE IN NET ASSETS 48,642,834 2,516,255
----------- -----------
NET ASSETS:
Beginning of Year (706,598 and 662,529
shares, respectively) 11,556,410 9,040,155
----------- -----------
NET ASSETS:
End of Year (1,384,329 and 706,598 shares,
respectively) $60,199,244 $11,556,410
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
CLASS A
--------------------------------------
<S> <C> <C>
FOR THE PERIOD
YEAR ENDED OCTOBER 1, 1998** TO
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------------
NET ASSET VALUE, BEGINNING OF PERIOD $15.44 $10.00
------ ------
Income From Investment Operations:
Net investment income (0.55) (0.20)
Net gains (losses) on securities
(both realized and unrealized) 27.39 5.64
------ ------
Total from investment operations 26.84 5.44
------ ------
Distributions to shareholders from
net realized capital gains (0.96) ---
------ ------
NET ASSET VALUE, END OF PERIOD $41.32 $15.44
====== ======
TOTAL RETURN 181.21% 54.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $5,341 $33
Ratio of expenses to average net assets:
Before expense reimbursement 1.86% 1.82%(1)
After expense reimbursement 1.85% 1.82%(1)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement (1.56)% (3.85)%(1)
After expense reimbursement (1.55)% (3.85)%(1)
Portfolio turnover rate 7.61% 24.91%
</TABLE>
(1)Annualized
**The Bender Growth Fund Class A commenced operations on October 1, 1998.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
<S> <C> <C> <C> <C>
CLASS Y
--------------------------------------------------
FOR THE PERIOD
FOR THE FOR THE DECEMBER 10,
YEAR ENDED YEAR ENDED YEAR ENDED 1996 TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998 1997
---------- ---------- ---------- --------------
NET ASSET VALUE, BEGINNING OF PERIOD $16.64 $13.74 $ 8.26 $10.00
------ ------ ------ ------
Income From Investment Operations:
Net investment income (0.55) (0.47) (0.22) (0.04)
Net gains (losses) on securities
(both realized and unrealized) 29.46 3.37 5.70 (1.70)
------ ------ ------ ------
Total from investment operations 28.91 2.90 5.48 (1.74)
------ ------ ------ ------
Distributions to shareholders from
net realized capital gains (0.96) --- --- ---
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $44.59 $16.64 $13.74 $ 8.26
====== ====== ====== ======
TOTAL RETURN 180.55% 21.11% 66.34% (17.40)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $20,302 $2,781 $2,312 $937
Ratio of expenses to average net assets:
Before expense reimbursement 2.22% 3.49% 4.59% 7.88%(1)
After expense reimbursement 2.13% 3.49% 2.75% 2.75%(1)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement (1.82)% (4.74)% (4.34)% (7.29)%(1)
After expense reimbursement (1.73)% (4.74)% (2.50)% (2.16)%(1)
Portfolio turnover rate 7.61% 24.91% 7.44% 3.00%
</TABLE>
(1)Annualized
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
<S> <C> <C> <C> <C>
CLASS C
--------------------------------------------------
FOR THE PERIOD
FOR THE FOR THE DECEMBER 10,
YEAR ENDED YEAR ENDED YEAR ENDED 1996 TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 1998 1997
---------- ---------- ---------- --------------
NET ASSET VALUE, BEGINNING OF PERIOD $16.27 $13.61 $ 8.24 $10.00
------ ------ ------ ------
Income From Investment Operations:
Net investment income (0.73) (0.55) (0.28) (0.06)
Net gains (losses) on securities
(both realized and unrealized) 28.63 3.21 5.65 (1.70)
------ ------ ------ ------
Total from investment operations 27.90 2.66 5.37 (1.76)
------ ------ ------ ------
Distributions to shareholders from
net realized capital gains (0.96) --- --- ---
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $43.21 $16.27 $13.61 $ 8.24
====== ====== ====== ======
TOTAL RETURN 178.39% 19.54% 65.17% (17.60)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $34,556 $8,743 $6,728 $2,640
Ratio of expenses to average net assets:
Before expense reimbursement 3.09% 4.23% 5.34% 8.70%(1)
After expense reimbursement 2.98% 4.23% 3.50% 3.50%(1)
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement (2.67)% (5.49)% (5.09)% (8.08)%(1)
After expense reimbursement (2.56)% (5.49)% (3.25)% (2.88)%(1)
Portfolio turnover rate 7.61% 24.91% 7.44% 3.00%
</TABLE>
(1)Annualized
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS MARCH 31, 2000
-------------------------------------------------------------------------------
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 Company is registered to offer three classes of shares, Class A,
Class Y and Class C. The Fund's investment objective is long-term
capital appreciation.
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 not 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 -- Common 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. Class specific expenses are
charged directly to the responsible class of shares.
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.
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.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000
-------------------------------------------------------------------------------
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. A sales
charge may apply when purchasing Class A shares. Class C shares
redeemed within one year of purchase may be subject to a contingent
deferred sales charge equal to one-percent.
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. ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, investment advisory
services are provided to the Company by SBG Capital Management (the
"Advisor"). Under the terms of a new investment advisory agreement
effective September 30, 1998 the Advisor receives a monthly fee at an
annual rate of 0.50% of the average daily net assets of the Fund. For
the year ended March 31, 2000, the Advisor received advisory fees of
$133,830. For the year ended March 31, 2000, the Advisor reimbursed
expenses of $26,332.
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 the terms of a new sub-advisory agreement
effective September 30, 1998, 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.
Under the terms of an Operational Services Agreement effective September
30, 1998, the Advisor will provide day-to-day operational services to
the Fund. The services agreement provides that the Advisor pays all
fees and expenses associated with the Fund except for taxes, interest,
litigation expenses and other extraordinary expenses. Under the terms
of the agreement, the Fund will pay to the Advisor the following fees: a
monthly fee at an annual rate of 1.10% of the average daily net assets
of Class A, a monthly fee at an annual rate of 2.00% of the average
daily net assets of Class Y up to $2,500,000 and 1.10% in excess of
$2,500,000, and 2.00% of the average daily net assets of Class C up to
$7,500,000 and 1.10% in excess of $7,500,000. For the year ended March
31, 2000, the Advisor received service fees of $385,721.
Effective August 1, 1998, 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
$10,000.
Declaration Service Company serves as Administrator to and provides
accounting services to the Fund pursuant to an administration 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 0.10%
for such daily net assets in excess of $100 million or a minimum of
$75,000.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2000
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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.
The Fund and Declaration Service Company (the "Transfer Agent") are
parties to a servicing agreement, under which the Transfer Agent
provides transfer agency, dividend disbursing and administrative
services for the Fund.
Certain directors and officers of the Fund are directors and officers of
the Advisor.
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, 1999 to March 31, 2000, were $17,900,861 and $1,936,393,
respectively.
As of March 31, 2000, net unrealized appreciation on investment
securities for book and federal income tax purposes aggregated
$32,718,915 of which $33,866,579 related to appreciated securities and
$1,147,664 related to depreciated securities. There was no difference
between book and tax realized gains on securities for the period from
April 1, 1999 to March 31, 2000.
5. RECLASSIFICATION
In accordance with SOP 93-2, the fund has recorded a reclassification in
the capital accounts. As of September 30, 1999, the fund recorded
permanent book/tax differences of $240,628 from net investment loss to
accumulated undistributed net realized gain and $395,661 from net
investment loss to Paid-in Capital. This reclassification has no impact
on the net asset value of the fund and is designed generally to present
undistributed income and realized gains on a tax basis which is
considered to be more informative to shareholders.
6. DISTRIBUTION PLANS
As noted in the Fund's Prospectus, the Fund has adopted a plan pursuant
to Rule 12b-1 under the 1940 Act. The plan provides that the Fund may
pay a servicing or Rule 12b-1 fee of up to 0.25% of the Fund's average
net assets for the Class A, Class Y and Class C shares to persons or
institutions for performing certain servicing functions for Fund
shareholders. With respect to Class C shares, the distribution plan
allows the use of Fund assets allocable to those shares to be used to
pay additional Rule 12b-1 fees of up to 0.75% of said assets to cover
fees paid to broker-dealers for sales and promotional services. For the
year ended March 31, 2000, distribution fees of $3,336, $19,457 and
$177,207 were paid for Class A, Class Y and Class C, respectively.
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19
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FUND MANAGER
SBG Capital Management Inc.
107 South Fair Oaks Avenue, Suite 315
Pasadena, CA 91105
INVESTMENT ADVISOR
Robert Bender & Associates
525 Starlight Crest Drive
La Canada, CA 91011
TRANSFER AGENT
Declaration Service Company
555 North Lane, Suite 6160
Conshohocken, PA 19428
CUSTODIAN
UMB Bank
928 Grand Boulevard
Kansas City, MO 84141
PRINCIPAL UNDERWRITER
Declaration Distributors, Inc.
555 North Lane, Suite 6160
Conshohocken, PA 19428
INDEPENDENT ACCOUNTANTS
McCurdy & Company
Westlake, Ohio
For more complete information about any other
fund in the Santa Barbara Group of Mutual
Funds, including charges and expenses, please
call (626) 844-1445 or (800) 723-8637 or write
to Declaration Distributors, Inc. and request a
free prospectus. Read the prospectus carefully
before you invest or send money.
