AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
ON 12/29/99
FILE NOS: 811-9523
333-84665
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [2]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [2]
(Check appropriate box or boxes.)
ELECTRIC CITY FUNDS, INC.
-------------------------------
(Exact name of Registrant as Specified in Charter)
ONE NORTH CHURCH STREET
SCHENECTADY, NY 12305
------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
518-370-0289
------------
MR. JAMES W. DENNEY
ONE NORTH CHURCH STREET
SCHENECTADY, NY 12305
---------------------------------------
(Name and Address of Agent for Service)
Please send copy of communications to:
DAVID D. JONES, ESQUIRE
4747 RESEARCH FOREST DRIVE,
SUITE 180, # 303
THE WOODLANDS, TX 77381
(281) 367-8409 (Phone)
(281) 367-8401 (Facsimile)
------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effective date.
Registrant declares that it is registering an indefinite number or amount of its
securities by this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or 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 the Registration Statement shall became
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
TOTAL NUMBER OF PAGES _____
EXHIBIT INDEX BEGINS
ON PAGE _____
<PAGE>
THE ELECTRIC CITY VALUE FUND
(the "Fund")
A SERIES OF ELECTRIC CITY FUNDS, INC.
(THE "COMPANY")
One North Church Street
Schenectady, NY 12305
518-370-0289
Or toll-free at
1-800-453-6556
PROSPECTUS
DECEMBER 30, 1999
- --------------------------------------------------------------------------------
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
THE FUND
What is the Fund's Primary Investment Objective? .................... 3
What are the Fund's Primary Investment Strategies? .................. 3
What are the Principal Risks of Investing in the Fund? .............. 4
How Has the Fund Performed in the Past? ............................. 5
What are the Fund's Fees And Expenses? .............................. 6
Shareholder Fees .................................................... 6
Annual Operating Expenses ........................................... 6
An Example of Fund Expenses Over Time ............................... 6
THE FUND'S INVESTMENT ADVISER
The Fund's Adviser .................................................. 7
The Fund's Portfolio Manager ........................................ 7
Investment Advisory Agreement ....................................... 7
Operating Services Agreement ........................................ 7
HOW TO BUY AND SELL SHARES
Investing In The Fund ............................................... 8
Determination of Share Price ........................................ 8
Distribution Fees ................................................... 8
Minimum Investment Amounts .......................................... 9
Opening and Adding To Your Account .................................. 9
Purchase By Mail .................................................... 10
Wire Transfer Purchases ............................................. 10
Purchases through Financial Service Organizations ................... 10
Automatic Investment Plan ........................................... 11
Telephone Purchases ................................................. 11
Miscellaneous Purchase Information .................................. 11
Redeeming Your Shares ............................................... 12
By Mail ............................................................. 12
Signature Guarantees ................................................ 13
By Telephone ........................................................ 13
By Wire ............................................................. 13
Redemption At The Option Of The Fund ................................ 14
DIVIDENDS AND DISTRIBUTIONS .............................................. 14
TAX CONSIDERATIONS ....................................................... 14
GENERAL INFORMATION ...................................................... 15
<PAGE>
THE FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to build shareholder wealth by maximizing the TOTAL RETURN
of the Fund's portfolio.
Total Return is derived by combining the total changes in the principal
value of all the Fund's investments with the total dividends and interest
paid to the Fund.
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?
The Fund's Adviser believes that the Fund's objective is best achieved by
investing in companies that exhibit the potential for significant increases
in total return over the long term (3 years or more). Accordingly, the Fund
will generally use a "buy and hold" investment strategy. However, the Fund
may occasionally invest on a short-term basis when the Adviser believes
that such an investment will benefit the Fund. The Adviser will sell
securities when a portfolio holding no longer qualifies under the criteria
set forth below.
The Fund's Adviser attempts to build shareholder wealth by:
o investing in common stocks without restrictions regarding market
capitalization;
o normally investing at least 65% of the Fund's total assets in common
stocks or securities convertible into common stocks;
o holding at least 80% of the total value of the common stocks owned by
the Fund in a core position of no more than 40 companies.
To choose the common stocks in which the Fund will invest, the Adviser
seeks to identify companies which exhibit some or all of the following
criteria:
o solid financial condition;
o consistent earnings and/or dividend history;
o company or industry group is temporarily out of favor;
o undervalued or overlooked assets;
o favorable insider ownership trends;
o not widely owned or followed by institutional investors;
o experienced or is likely to experience a triggering event that may
cause an increase in value.
Examples of a trigger for a possible increase in value include:
o a change in corporate structure;
o a change in a company's key management;
o initiating or increasing an authorized buy-back of a company's own
stock;
o apparent corporate efforts to take advantage of business
opportunities;
o increased following by securities analysts and institutional
investors;
o beneficiary of a long term demographic or economic trend;
o beneficiary of change in government policy or regulations.
3
<PAGE>
The Fund will normally invest its remaining assets, if any, in a variety of
other securities, such as US government debt instruments, corporate debt
securities, other unaffiliated mutual funds, commercial paper, bankers
acceptances and repurchase agreements.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
General Risks- Almost all investments are subject to inherent risks, and
the Fund is no exception. Accordingly, you may lose money by investing in
the Fund. When you sell your Fund shares, they may be worth more or less
than what you paid for them because the value of the Fund's investments
will vary from day-to-day, reflecting changes in market conditions,
interest rates and numerous other factors.
Stock Market Risk. The Fund invests primarily in common stock, so the Fund
will be subject to the risks associated with common stocks, including price
volatility and the creditworthiness of the issuing company. The stock
market trades in cyclical price patterns, with prices generally rising or
falling over time. These cyclical periods may last for a significant period
of time. Although individual securities may outperform the market, the
entire market may decline as a result of rising interest rates, regulatory
developments or deteriorating economic conditions.
Small To Medium-Cap Stock Risks- The Fund may invest in companies with
smaller market capitalizations (less than $6 billion in market
capitalization). Because these companies are relatively small compared to
large-cap companies, may be engaged in business mostly within their own
geographic region, and may be less well-known to the investment community,
they can have more volatile share prices. Also, small companies often have
less liquidity, less management depth, narrower market penetrations, less
diverse product lines, and fewer resources than larger companies. As a
result, their stock prices react more strongly to changes in the
marketplace.
Focused Portfolio Risk- The Fund has the ability to concentrate a
relatively high percentage of its investments in the securities of a small
number of companies. Under normal conditions, the Fund will invest in not
more than 40 companies. Investing in this manner makes the Fund more
susceptible to a single economic, political or regulatory event than a more
diversified fund might be. Also, a change in the value of a single company
will have a more pronounced effect on the Fund than such a change would
have on a more diversified fund.
Management Risk- Acting as investment adviser to the Fund is a new position
for the Adviser, and the Fund has no operating history.
Year 2000 Risks: As with other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Adviser and the Fund's other
service providers don't properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known
as the "Year 2000" or "Y2K" problem. The Adviser is taken all steps
necessary to insure that its systems are fully Y2K compliant. The Adviser
has also obtained assurance from the Fund's other major service providers
that each are fully Y2K compliant as to the systems used by each such
service provider. The Adviser has also considered the effect of Y2K risk on
the Fund's portfolio, and is monitoring the companies in which the Fund
invests for evidence of Y2K
4
<PAGE>
preparedness and will not invest in any company unless such company has
first published evidence satisfactory to the Adviser that the company
anticipates negligible adverse Y2K effects on its business. However, there
can be no assurance that the Fund's portfolio will not be adversely
affected by the Y2K problem. Because the Fund is authorized to invest in
foreign securities, the Adviser is closely monitoring the Y2K preparedness
of other countries and will not invest in any foreign company unless such
company has first published evidence satisfactory to the Adviser that the
company anticipates negligible adverse Y2K effects on its business. You
should be aware that, although the Adviser and the Fund's other service
providers appear to be fully prepared for the change in dates, each such
provider depends, to varying degrees, on the services of others, and there
is no way to be sure that all such entities are prepared for Y2K, or to
accurately predict the level of risk remaining to the Fund as a result of
Y2K.
HOW HAS THE FUND PERFORMED IN THE PAST?
Because this is a new Fund that does not yet have an operating history, a
performance bar chart and table describing the Fund's annual performance
and comparing that performance to appropriate indices is not yet available.
WHAT ARE THE FUND'S FEES AND EXPENSES?
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES:
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
MAXIMUM SALES CHARGE (LOAD)
IMPOSED ON PURCHASES NONE
MAXIMUM DEFERRED SALES CHARGE (LOAD) NONE
MAXIMUM SALES CHARGE (LOAD) NONE
IMPOSED ON REINVESTED DIVIDENDS
AND OTHER DISTRIBUTIONS
REDEMPTION FEES 0.75%*
ANNUAL FUND OPERATING EXPENSES:
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES1 1.65%
DISTRIBUTION (12B-1) FEES2 0.00%
OTHER EXPENSES3 0.00%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.65%
* This fee is charged against your redemption proceeds if you redeem shares
within thirteen months of purchase.
1. Management fees include a fee of 0.95% for investment advisory services and
0.70% for administrative and other services. Both fees are paid to the
Fund's Adviser.
5
<PAGE>
2. Although the Fund's Board of Director's has adopted a Plan of Distribution
under Rule 12b-1 of the Investment Company Act of 1940, the Plan has not
been implemented and the Fund has no intention of implementing the Plan
during the Fund's first fiscal year.
3. The Fund's Adviser is responsible for paying all the Fund's expenses except
taxes, interest, litigation expenses and other extraordinary expenses.
Because the Fund believes in good faith that it will not incur any of these
expenses during its first fiscal year, expenses in this category are not
included.
AN EXAMPLE OF EXPENSES OVER TIME:
This Example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated, reinvest all dividends and distributions, and then redeem all your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
ONE YEAR THREE YEARS
-------- -----------
$ 132 $ 412
THE FUND'S INVESTMENT ADVISER
The Fund's Adviser
- ------------------
The Company has entered into an Investment Advisory Agreement with Mohawk Asset
Management, Inc. (the "Adviser"), One North Church Street, Schenectady, New York
12305. The Adviser is an investment advisory company founded as a sole
proprietorship in 1994 and incorporated in Maryland in 1999. The Adviser'
principal business and occupation is the provision of financial management
services to individuals, corporations, fraternal and non-profit organizations
and other institutions in New York and throughout the United States. The Adviser
has been investment adviser to the Fund since its inception.
Under the terms of the Advisory Agreement, the Adviser manages the investment
operations of the Fund in accordance with the Fund's investment policies and
restrictions. The Adviser furnishes an investment program for the Fund,
determines what investments should be purchased, sold and held, and makes
changes on behalf of the Company in the investments of the Fund.
The Fund's Portfolio Manager
- ----------------------------
Mr. James W. Denney is President of the Adviser and acts as the portfolio
manager for the Fund. Mr. Denney is also President of Electric City Funds, Inc.
(the "Company"). Mr. Denney has been managing investment portfolios for
individuals, corporations, trusts and retirement accounts since 1990. Mr. Denney
holds licenses as a Registered Principal (NASD Series 24), General Securities
Representative (NASD Series 7), and New York State Life, Accident & Health
Insurance Agent. He has also completed the CFP Professional Education Program
through the College for Financial Planning. You should be aware that, although
Mr. Denney has extensive experience in managing
6
<PAGE>
investment portfolios for clients of the Adviser, neither he nor Mohawk Asset
Management, Inc. has any prior experience in managing a portfolio for an
investment company, and this may result in additional risks for the Fund.
For its investment advisory services to the Fund, the Company pays to the
Adviser, on the last day of each month, a fee equal to an annual rate of 0.95%
of average net asset value of the Fund, such fee to be computed daily based upon
the net asset value of the Fund.
HOW TO BUY & SELL SHARES OF THE FUND
INVESTING IN THE FUND
Determination of Share Price
- ----------------------------
Shares of the Fund are offered at each share's net asset value ("NAV"). NAV per
share is calculated by adding the value of Fund investments, cash and other
assets, subtracting Fund liabilities, and then dividing the result by the number
of shares outstanding. The Fund generally determines the total value of its
shares by using market prices for the securities comprising its portfolio.
Securities for which quotations are not available and any other assets are
valued at fair market value as determined in good faith by the Adviser, subject
to the review and supervision of the Board of Directors. The Fund's per share
NAV is computed on all days on which the New York Stock Exchange is open for
business at the close of regular trading hours on the Exchange, currently 4:00
p.m. Eastern Standard time.
Distribution Fees
- -----------------
The Fund has adopted a Plan of Distribution Pursuant to Rule 12b-1 under the
1940 Act (the "12b-1 Plan") for its shares, pursuant to which the Fund pays the
Adviser a monthly fee for shareholder servicing expenses of 0.25% per annum of
the Fund's average daily net assets. The Adviser may, in turn, pay such fees to
third parties for eligible services provided by those parties to the Fund.
The Fund has not implemented the 12b-1 Plan and does not foresee doing so during
its first fiscal year. The Board adopted the Plan so that, if and when
necessary, the Fund would have available to it sufficient resources to pay third
parties who provide eligible services to the Fund.
If the 12b-1 Plan is implemented in the future, you should be aware that if you
hold your shares for a substantial period of time afterwards, you may indirectly
pay more than the economic equivalent of the maximum front-end sales charge
allowed by the National Association of Securities Dealers due to the recurring
nature of Distribution (12b-1) fees.
Minimum Investment Amounts
- --------------------------
Payments for Fund shares should be in U.S. dollars, and in order to avoid fees
and delays, should be drawn on a U.S. bank. Fund management may reject any
purchase order for Fund shares and may waive the minimum investment amounts in
its sole discretion.
7
<PAGE>
Your purchase of Fund shares is subject to the following minimum investment
amounts:
MINIMUM MINIMUM
INVESTMENT SUBSEQUENT
TO OPEN ACCOUNT INVESTMENTS
- --------------------------------------------------------------------------------
$500 $50
$500 $50
- --------------------------------------------------------------------------------
Opening and Adding To Your Account
- ----------------------------------
You can invest in the Fund by mail, wire transfer and through participating
financial service professionals. After you have established your account, you
may also make subsequent purchases by telephone. You may also invest in the Fund
through an automatic payment plan. Any questions you may have can be answered by
calling 1-800-453-6556.
Purchasing Shares By Mail
- -------------------------
Complete an Account Registration Form, make a check payable to The Electric City
Value Fund, and mail the Form and check to:
Electric City Funds, Inc.
c/o Mutual Shareholder Services, LLC
1301 East Ninth Street, Suite 1005
Cleveland, Ohio 44114-1800
Your purchase order, if accompanied by payment, will be processed upon receipt
by Mutual Shareholder Services, the Fund's Transfer Agent. If the Transfer Agent
receives your order and payment by the close of regular trading on the Exchange
(currently 4:00 p.m. East Coast time), your shares will be purchased at the
Fund's public offering price calculated at the close of regular trading on that
day. Otherwise, your shares will be purchased at the public offering price
determined as of the close of regular trading on the next business day.
Wire Transfer Purchases
- -----------------------
To purchase shares by wire transfer, ask your bank to wire funds to account of:
FirstStar Bank, NA, ABA #: 123456789
Credit: Electric City Funds, Inc., Acct. #123456789
Further credit: The Electric City Value Fund.
Include your name(s), address and taxpayer identification number or Social
Security number. The wire should state that you are opening a new Fund account.
When you make subsequent purchases by wire, include your account number on the
wire transfer instructions.
Call 1-800-453-6556 to inform us that a wire is being sent.
If you purchase Fund shares by wire, you must complete and file an Account
Registration Form with the Transfer Agent before any of the shares purchased can
be redeemed. You should contact your bank (which will need to be a commercial
bank that is a member of the Federal Reserve System) for information on sending
funds by wire, including any charges that your bank may make for these services.
8
<PAGE>
Purchases through Financial Service Organizations
- -------------------------------------------------
You may purchase shares of the Fund through participating brokers, dealers, and
other financial professionals. Simply call your investment professional to make
your purchase. If you are a client of a securities broker or other financial
organization, you should note that such organizations may charge a separate fee
for administrative services in connection with investments in Fund shares and
may impose account minimums and other requirements. These fees and requirements
would be in addition to those imposed by the Fund. If you are investing through
a securities broker or other financial organization, please refer to its program
materials for any additional special provisions or conditions that may be
different from those described in this Prospectus (for example, some or all of
the services and privileges described may not be available to you). Securities
brokers and other financial organizations have the responsibility of
transmitting purchase orders and funds, and of crediting their customers'
accounts following redemptions, in a timely manner in accordance with their
customer agreements and this Prospectus.
Automatic Investment Plan
- -------------------------
You may purchase shares of the Fund through an Automatic Investment Plan. The
Plan provides a convenient way for you to have money deducted directly from your
checking, savings, or other accounts for investment in shares of the Fund. You
can take advantage of the plan by filling out the Automatic Investment Plan
application included with this prospectus. You may only select this option if
you have an account maintained at a domestic financial institution which is an
Automated Clearing House ("ACH") member for automatic withdrawals under the
plan. The Fund may alter, modify, amend or terminate the Plan at any time, but
will notify you if it does so. For more information, call the Transfer Agent at
1-800-453-6556.
Telephone Purchases
- -------------------
In order to be able to purchase shares by telephone, your account authorizing
such purchases must have been established prior to your call. Your initial
purchase of shares may not be made by telephone. Shares purchased by telephone
will be purchased at the per share net asset value determined at the close of
business on the day that the transfer agent receives payment through the ACH.
Call the Transfer Agent for details.
You may make purchases by telephone only if you have an account at a bank that
is a member of the ACH. Most transfers are completed within three business days
of your call. To preserve flexibility, the Company may revise or eliminate the
ability to purchase Fund shares by phone, or may charge a fee for such service,
although the Company does not currently expect to charge such a fee.
Mutual Shareholder Services, LLC, the Fund's transfer agent, employs certain
procedures designed to confirm that instructions communicated by telephone are
genuine. Such procedures may include, but are not limited to, requiring some
form of personal identification prior to acting upon telephonic instructions,
providing written confirmations of all such transactions, and/or tape recording
all telephonic instructions. Assuming reasonable procedures such as the above
have been followed, neither the Transfer Agent nor the Fund will be liable for
any loss, cost, or expense for acting upon telephone instructions that are
believed to be genuine. The Company shall have authority, as your agent, to
redeem shares in your account to cover any such loss. As a result of this
policy, you will bear the risk of any loss unless the Fund and/or the Transfer
Agent has failed to follow procedures reasonably designed to prevent losses.
However, if the Fund and/or the Transfer Agent fails to follow such procedures,
it may be liable for such losses.
9
<PAGE>
Miscellaneous Purchase Information
- ----------------------------------
The Fund reserves the right to reject applications for shares under
circumstances or in amounts considered disadvantageous to shareholders.
Applications will not be accepted unless they are accompanied by payment in U.S.
funds. Payment must be made by wire transfer, check or money order drawn on a
U.S. bank, savings & loan or credit union. The Fund's custodian will charge a
$20.00 fee against your account, in addition to any loss sustained by the Fund,
for any payment check returned to the custodian for insufficient funds.
If you place an order for Fund shares through a securities broker, and you place
your order in proper form before 4:00 p.m. East Coast time on any business day
in accordance with their procedures, your purchase will be processed at the
public offering price calculated at 4:00 p.m. on that day, if the securities
broker then transmits your order to the Transfer Agent before the end of its
business day (which is usually 5:00 p.m. East Coast time). The securities broker
must send to the Transfer Agent immediately available funds in the amount of the
purchase price within three business days for the order.
Federal regulations require that you provide a certified taxpayer identification
number whenever you open or reopen an account. Congress has mandated that if any
shareholder fails to provide and certify to the accuracy of the shareholder's
social security number or other taxpayer identification number, the Company will
be required to withhold a percentage, currently 31%, of all dividends,
distributions and payments, including redemption proceeds, to such shareholder
as a backup withholding procedure.
HOW TO SELL (REDEEM) YOUR SHARES
You may sell (redeem) your shares at any time. You may request the sale of your
shares either by mail, by telephone or by wire.
By Mail
- -------
Sale requests should be mailed via U.S. mail or overnight courier service to:
Mutual Shareholder Services, LLC
1301 East Ninth Street, Suite 1005
Cleveland, Ohio 44114-1800
The selling price of the shares being redeemed will be the Fund's per share net
asset value next calculated after receipt of all required documents in "Good
Order".
"Good Order" means that the request must include:
1. Your account number.
2. The number of shares to be sold (redeemed) or the dollar value of the
amount to be redeemed.
3. The signatures of all account owners exactly as they are registered on the
account.
10
<PAGE>
4. Any required signature guarantees.
5. Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships and certain other types of accounts.
Payment of redemption proceeds will be made no later than the third business day
after the valuation date unless otherwise expressly agreed by the parties at the
time of the transaction. The Fund will charge you a fee equal to 0.75% of the
value of your shares redeemed if you redeem shares within thirteen months of
purchasing them. This fee is charged to offset the cost the Fund of maintaining
an account. No affiliated person of the Fund receives any benefit from these
fees.
Signature Guarantees --
- -----------------------
A signature guarantee of each owner is required to redeem shares in the
following situations, for all size transactions:
(i) if you change the ownership on your account;
(ii) when you want the redemption proceeds sent to a different address than is
registered on the account;
(iii) if the proceeds are to be made payable to someone other than the account's
owner(s);
(iv) any redemption transmitted by federal wire transfer to your bank; and
(v) if a change of address request has been received by the Company or
[Transfer Agent] within 15 days previous to the request for redemption.
In addition, signature guarantees are required for all redemptions of $25,000 or
more from any Fund shareholder account. A redemption will not be processed until
the signature guarantee, if required, is received in "Good Order".
Signature guarantees are designed to protect both you and the Fund from fraud.
To obtain a signature guarantee, you should visit a bank, trust company, member
of a national securities exchange or other broker-dealer, or other eligible
guarantor institution. (Notaries public cannot provide signature guarantees.)
Guarantees must be signed by an authorized person at one of these institutions,
and be accompanied by the words "Signature Guarantee."
By Telephone
- ------------
You may redeem your shares in the Fund by calling the Transfer Agent at
1-800-453-6556 if you elected to use telephone redemption on your account
application when you initially purchased shares. Redemption proceeds must be
transmitted directly to you or to your pre-designated account at a domestic
bank. You may not redeem by telephone if a change of address request has been
received by the Company or the Transfer Agent within 15 days previous to the
request for redemption. During periods of substantial economic or market
changes, telephone redemptions may be difficult to implement. If you are unable
to contact the Transfer Agent by telephone, shares may be redeemed by delivering
the redemption request in person or by mail. You should understand that with the
telephone redemption option, you may be giving up a measure of security that you
might otherwise have had were you to redeem your shares in writing. In addition,
interruptions in telephone service may mean that you will be unable to effect a
redemption by telephone if desired.
11
<PAGE>
If you purchase your shares by check and then redeem your shares before your
check has cleared, the Fund may hold your redemption proceeds until your check
clears, or for 15 days, whichever comes first.
By Wire
- -------
You may request the redemption proceeds be wired to your designated bank if it
is a member bank or a correspondent of a member bank of the Federal Reserve
System. The Custodian charges a $10 fee for outgoing wires.
Redemption At The Option Of The Fund
- ------------------------------------
If the value of the shares in your account falls to less than $500, the Company
may notify you that, unless your account is increased to $500 in value, it will
redeem all your shares and close the account by paying you the redemption
proceeds and any dividends and distributions declared and unpaid at the date of
redemption. You will have thirty days after notice to bring the account up to
$500 before any action is taken. This minimum balance requirement does not apply
to IRAs and other tax-sheltered investment accounts. This right of redemption
shall not apply if the value of your account drops below $500 as the result of
market action. The Company reserves this right because of the expense to the
Fund of maintaining very small accounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends paid by the Fund are derived from its net investment income. Net
investment income will be distributed at least annually. The Fund's net
investment income is made up of dividends received from the stocks it holds, as
well as interest accrued and paid on any other obligations that might be held in
its portfolio.
The Fund realizes capital gains when it sells a security for more than it paid
for it. The Fund may make distributions of its net realized capital gains (after
any reductions for capital loss carry forwards), generally, once a year.
Unless you elect to have your distributions paid in cash, your distributions
will be reinvested in additional shares of the Fund. You may change the manner
in which your dividends are paid at any time by writing to the Transfer Agent at
the address shown above.
TAX CONSIDERATIONS
The Fund intends to qualify as a regulated investment company under Sub Chapter
M of the Internal Revenue Code so as to be relieved of federal income tax on its
capital gains and net investment income currently distributed to its
shareholders. To qualify as a regulated investment company, the Fund must, among
other things, derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or other income derived with respect to its
business of investing in such stock or securities, and distribute substantially
all of such income to its shareholders at least annually.
The Fund intends to distribute to shareholders, at least annually, usually in
December, substantially all net investment income and any net capital gains
realized from sales of the Fund's portfolio
12
<PAGE>
securities. Dividends from net investment income and distributions from any net
realized capital gains are reinvested in additional shares of the Fund unless
the shareholder has requested in writing to have them paid by check.
Dividends from investment income and net short-term capital gains are generally
taxable to you as ordinary income. Distributions of long-term capital gains are
taxable as long-term capital gains regardless of the length of time shares in
the Fund have been held. Distributions are taxable, whether received in cash or
reinvested in shares of the Fund.
You will be advised annually of the source of distributions for federal income
tax purposes.
If you fail to furnish your social security or other tax identification number
or to certify properly that it is correct, the Fund may be required to withhold
federal income tax at the rate of 31% (backup withholding) from your dividend,
capital gain and redemption payments. Dividend and capital gain payments may
also be subject to backup withholding if you fail to certify properly that you
are not subject to backup withholding due to the under-reporting of certain
income.
Taxable distributions generally are included in your gross income for the
taxable year in which they are received. However, dividends declared in October,
November and December and made payable to shareholders of record in such month
will be deemed to have been received on December 31st if paid by the Fund during
the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below your
cost basis, such distribution would be taxable to you as ordinary income or as a
long-term capital gain, even though, from an investment standpoint, it may
constitute a partial return of capital. In particular, you should be careful to
consider the tax implications of buying shares of the Fund just prior to a
distribution. The price of such shares include the amount of any forthcoming
distribution so that you may receive a return of investment upon distribution
which will, nevertheless, be taxable.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. You should consult a tax Adviser regarding the effect of
federal, state, local, and foreign taxes on an investment in the Fund.
GENERAL INFORMATION
The Fund will not issue stock certificates evidencing shares. Instead, your
account will be credited with the number of shares purchased, relieving you of
responsibility for safekeeping of certificates and the need to deliver them upon
redemption. Written confirmations are issued for all purchases of shares.
In reports or other communications to investors, or in advertising material, the
Fund may describe general economic and market conditions affecting the Fund and
may compare its performance with other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc. or similar nationally recognized
rating services and financial publications that monitor mutual fund performance.
The Fund may also, from time to time, compare its performance to the one or more
appropriate indices.
13
<PAGE>
According to the law of Maryland under which the Company is incorporated, and
the Company's bylaws, the Company is not required to hold an annual meeting of
shareholders unless required to do so under the Investment Company Act of 1940.
Accordingly, the Company will not hold annual shareholder meetings unless
required to do so under the Act. Shareholders do have the right to call a
meeting of shareholders for the purpose of voting to remove directors. The Fund
will render assistance to shareholders in connection with their efforts to
arrange a shareholder meeting as required under Section 16(c) of the Investment
Company Act of 1940, as amended. Please see the SAI for further information on
your rights as a shareholder.
14
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund is available in the Fund's Statement of
Additional Information (SAI). The SAI contains more detailed information on all
aspects of the Fund. A current SAI, dated December 30, 1999, has been filed with
the SEC and is incorporated by reference into this prospectus.
To receive information concerning the Fund, or to request a copy of the SAI or
other documents relating to the Fund, please contact the Fund at:
Electric City Funds, Inc.
c/o Mutual Shareholder Services, Inc.
1301 East Ninth Street, Suite 1005
Cleveland, Ohio 44114-1800
1-800-453-6556
A copy of your requested document(s) will be sent to you within three days of
your request.
You may also receive information concerning the Fund, or request a copy of the
SAI or other documents relating to the Fund, by contacting the Securities and
Exchange Commission:
IN PERSON: at the SEC's Public Reference Room in Washington, D.C.(call
1-800-SEC-0330 to obtain information on how to use the Public Reference Room)
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section, Securities and Exchange Commission,
Washington, D.C. 20549-6009 (duplicating fee required)
ON THE INTERNET: www.sec.gov
The Fund's Investment Company Act File No. is:
811-9523
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Dated December 30, 1999
ELECTRIC CITY FUNDS, INC.
One North Church Street
Schenectady, New York 12305
1-800-453-6556
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of The Electric City Value Fund, dated
December 30, 1999. You may obtain a copy of the Prospectus, free of charge, by
writing to Electric City Funds, Inc. c/o Mutual Shareholder Services, 1301 East
Ninth Street, Suite 1005, Cleveland, Ohio 44114-1800 or by calling
1-800-453-6556.
TABLE OF CONTENTS
Management of the Fund
Investment Policies and Restrictions
Investment Adviser
Directors and Officers
Performance Information
Purchasing and Redeeming Shares
Tax Information
Portfolio Transactions
Custodian
Transfer Agent
Administration
Distributor
Legal Counsel
Distribution Plan
Financial Statements
<PAGE>
MANAGEMENT OF THE FUND
Electric City Funds, Inc. (the "Company"), an open-end diversified management
investment company, was incorporated in Maryland on August 6, 1999. The Affairs
of the Company are managed by a Board of Directors which approves all
significant agreements between the Company and the persons and companies that
furnish services to the Fund, including agreements with the Fund's custodian,
transfer agent, investment adviser and administrator. All such agreements are
subject to limitations imposed by state and/or federal securities laws, and to
the extent that any such contract may contradict such statutes, the contract
would be unenforceable. The day-to-day operations of the Fund are delegated to
the Adviser.
The Company's Articles of Incorporation permit the Board of Directors to issue
100,000,000 shares of common stock. The Board of Directors has the power to
designate one or more classes of shares of common stock (each a "series" or
"Fund") and to classify or reclassify any unissued shares with respect to such
series. Currently, the Fund is the only series of shares being offered by the
Company.
Shareholders are entitled:
(i) to one vote per full share;
(ii) to such distributions as may be declared by the Company's Board of
Directors out of funds legally available; and
(iii) upon liquidation, to participate ratably in the assets available for
distribution.
There are no conversion or sinking fund provisions applicable to the shares, and
shareholders have no preemptive rights and may not cumulate their votes in the
election of directors. The shares are redeemable and are fully transferable. All
shares issued and sold by the Fund will be fully paid and nonassessable.
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objectives and the manner in which the Fund pursues its
investment objectives are generally discussed in the prospectus. This Section
provides additional information concerning the Fund's investments and its
investment restrictions.
The Fund is a diversified Fund, meaning that as to 75% of the Fund's assets
(valued at the time of investment), the Fund will not invest more than 5% of its
assets in securities of any one issuer, except in obligations of the United
States Government and its agencies and instrumentalities, thereby reducing the
risk of loss. The Fund normally will invest at least 65% of total assets in
common stock and securities convertible into common stock. The Fund may also
invest in a variety of other securities. The complete list of securities in
which the Fund may ordinarily invest is listed below, along with any
restrictions on such investments, and, where necessary, a brief discussion of
any risks unique to the particular security.
COMMON STOCKS. The Fund will ordinarily invest at least 65% of its total assets
in common stock or securities convertible into common stock. The market value of
common stock can
1
<PAGE>
fluctuate significantly, reflecting the business performance of the issuing
company, investor perceptions and general economic or financial market
movements. Smaller companies are especially sensitive to these factors. Despite
the risk of price volatility, however, common stocks historically have offered
the greatest potential for gain on investment, compared to other classes of
financial assets.
FOREIGN SECURITIES. The Fund may invest in the common stock of foreign issuers,
whether traded on U.S. exchanges or foreign exchanges. The Fund may also invest
in foreign securities in the form of American Depository Receipts (ADRs). The
Fund will only invest in ADRs that are issuer sponsored. Sponsored ADRs
typically are issued by a U.S. bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. The Fund will not invest
in "emerging market" countries, and investing in foreign securities is not a
principal strategy for the Fund.
PREFERRED STOCK. The Fund may invest, without limitation, in preferred stock.
Preferred stock generally pays dividends at a specified rate and generally has
preference over common stock in the payments of dividends and the liquidation of
the issuer's assets. Dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. Accordingly, Shareholders may
suffer a loss of value if dividends are not paid. The market prices of preferred
stocks are also sensitive to changes in interest rates and in the issuer's
creditworthiness. Accordingly, shareholders may experience a loss of value due
to adverse interest rate movements or a decline in the issuer's credit rating.
REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real estate investment
trusts (REITs). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. REITs pay dividends to
their shareholders based upon available funds from operations. It is quite
common for these dividends to exceed the REITs taxable earnings and profits
resulting in the excess portion of such dividends being designated as a return
of capital. The Fund intends to include the gross dividends from such REITs in
its distribution to its shareholders and, accordingly, a portion of the Fund's
distributions may also be designated as a return of capital. A return of capital
means that assets of the Fund have been returned to the Fund as cash and must be
re-invested in other securities. There is a risk that the re-invested asset may
be invested at lower rates of return than were previously invested. However, a
return of capital is not a distribution for tax purposes. The Fund will not
invest more than 10% of its assets in REITS. Fund shareholders will be subject
to management and other fees charged by the REITS in which the Fund invests.
OPTIONS ON EQUITIES. The Fund may occasionally invest in options contracts to
decrease its exposure to the effects of changes in security prices, to hedge
securities held, to maintain cash reserves while remaining fully invested, to
facilitate trading, to reduce transaction costs, or to seek higher investment
returns when an options contract is priced more attractively than the underlying
security or index.
2
<PAGE>
The Fund may write (i.e. sell) puts and covered call options, and may purchase
put and call options, on equity securities traded on a United States exchange or
over-the-counter market. The Fund may also enter into such transactions on
Indexes. Options contracts can include long-term options with durations of up to
three years.
The Fund may enter into these transactions so long as the value of the
underlying securities on which options contracts may be written at any one time
does not exceed 100% of the net assets of the Fund, and so long as the initial
margin required to purchase options contracts does not exceed five percent (5%)
of the Fund's total net assets. When writing covered call options or selling
puts, to minimize the risks of entering into these transactions, the Fund will
maintain a segregated account with its Custodian consisting of the underlying
securities upon which the option was written, cash, cash equivalents, U.S.
Government Securities or other high-grade liquid debt securities, denominated in
U.S. dollars or non-U.S. currencies, in an amount equal to the aggregate fair
market value of its commitments to such transactions. Over-the counter options
and the assets used to cover such options are considered to be illiquid.
Risk Factors. The primary risks associated with the use of options are; (1)
imperfect correlation between a change in the value of the underlying security
or index and a change in the price of the option or futures contract, and (2)
the possible lack of a liquid secondary market for an options or futures
contract and the resulting inability of the Fund to close out the position prior
to the maturity date. Investing only in those contracts whose price fluctuations
are expected to resemble those of the Fund's underlying securities will minimize
the risk of imperfect correlation.
DEBT SECURITIES. The Fund may invest in corporate or U.S. Government debt
securities including zero coupon bonds. Corporate debt securities may be
convertible into preferred or common stock. In selecting corporate debt
securities for the Fund, the Adviser reviews and monitors the creditworthiness
of each issuer and issue. U.S. Government securities include direct obligations
of the U.S. Government and obligations issued by U.S. Government agencies and
instrumentalities. The market value of such securities fluctuates in response to
interest rates and the creditworthiness of the issuer. In the case of securities
backed by the full faith and credit of the United States Government,
shareholders are only exposed to interest rate risk.
Zero coupon bonds do not provide for cash interest payments but instead are
issued at a discount from face value. Each year, a holder of such bonds must
accrue a portion of the discount as income. Because issuers of zero coupon bonds
do not make periodic interest payments, their prices tend to be more volatile
than other types of debt securities when market interest rates change.
Credit Risk- A debt instrument's credit quality depends on the issuer's
ability to pay interest on the security and repay the debt: the lower the
credit rating, the greater the risk that the security's issuer will
default. The credit risk of a security may also depend on the credit
quality of any bank or financial institution that provides credit
enhancement for the security. The Fund may invest in securities that carry
a wide range of credit risk, from US Government debt instruments that carry
almost no credit risk to high-yield corporate securities that carry
considerable credit risk. However, the Fund may not invest more than 35% of
its total assets in such securities
3
<PAGE>
Interest Rate Risk- All debt securities face the risk that their principal
value will decline because of a change in interest rates. Generally,
investments subject to interest rate risk will decrease in value when
interest rates rise and will rise in value when interest rates decline.
Also, the longer a security has until it matures, the more pronounced will
be a change in its value when interest rates change.
UNAFFILIATED MUTUAL FUNDS. The Fund may invest in securities issued by other
registered investment companies (mutual funds). As a shareholder of another
registered investment company, the Fund would bear its pro rata portion of that
company's advisory fees and other expenses. Such fees and expenses will be borne
indirectly by the Fund's shareholders. The Fund may invest in such instruments
to the extent that such investments do not exceed 3% of any investment company's
outstanding securities.
REPURCHASE AGREEMENTS. The Fund may invest a portion of its assets in repurchase
agreements ("Repos") with broker-dealers, banks and other financial
institutions, provided that the Fund's custodian always has possession of the
securities serving as collateral for the Repos or has proper evidence of book
entry receipt of said securities. In a Repo, the Fund purchases securities
subject to the seller's simultaneous agreement to repurchase those securities
from the Fund at a specified time (usually one day) and price. The repurchase
price reflects an agreed-upon interest rate during the time of investment. All
Repos entered into by the Fund must be collateralized by U.S. Government
Securities, the market values of which equal or exceed 102% of the principal
amount of the money invested by the Fund. If an institution with whom the Fund
has entered into a Repo enters insolvency proceedings, the resulting delay, if
any, in the Fund's ability to liquidate the securities serving as collateral
could cause the Fund some loss if the securities declined in value prior to
liquidation. To minimize the risk of such loss, the Fund will enter into Repos
only with institutions and dealers considered creditworthy. You should be aware
that these types of investments are considered "loans" under the Investment
Company Act of 1940, as amended.
Repurchase Agreement Risk- A repurchase agreement is an agreement where one
party sells securities to a buyer with a simultaneous agreement to repurchase
those securities at a future date at a set price. The difference between the
original sales price and the future repurchase price represents an interest
payment to the original buyer. A repurchase agreement exposes the Fund to the
risk that the party that sells the security will default on its obligation to
repurchase those securities. If that happens the Fund can lose money because:
o it may not be able to sell the securities at the agreed-upon time and
price;
o the securities may lose value before they can be sold.
CASH RESERVES. The Fund may hold up to 10% of its net assets in cash to maintain
liquidity.
Restricted and Illiquid Securities.
- -----------------------------------
The Fund will not invest more than 15% of its net assets in securities that the
Adviser determines, under the supervision of the Board of Directors, to be
illiquid and/or restricted.
4
<PAGE>
Illiquid securities are securities that may be difficult to sell promptly at an
acceptable price because of lack of available market and other factors. The sale
of some illiquid and other types of securities may be subject to legal
restrictions. Because illiquid and restricted securities may present a greater
risk of loss than other types of securities, the Fund will not invest in such
securities in excess of the limits set forth above.
When-Issued Securities and Delayed-Delivery Transactions.
- ---------------------------------------------------------
The Fund may purchase securities on a when-issued basis, and it may purchase or
sell securities for delayed-delivery. These transactions occur when securities
are purchased or sold by the Fund with payment and delivery taking place at some
future date. The Fund may enter into such transactions when, in the Adviser's
opinion, doing so may secure an advantageous yield and/or price to the Fund that
might otherwise be unavailable. The Fund has not established any limit on the
percentage of assets it may commit to such transactions, but to minimize the
risks of entering into these transactions, the Fund will maintain a segregated
account with its Custodian consisting of cash, cash equivalents, U.S. Government
Securities or other high-grade liquid debt securities, denominated in U.S.
dollars, in an amount equal to the aggregate fair market value of its
commitments to such transactions.
Portfolio Turnover.
- -------------------
The Fund has no operating history and therefore has no annual reportable
portfolio turnover. Higher portfolio turnover rates may result in higher rates
of net realized capital gains to the Fund, thus the portion of the Fund's
distributions constituting taxable gains may increase. In addition, higher
portfolio turnover activity can result in higher brokerage costs to the Fund.
The Fund anticipates that its annual portfolio turnover will be not greater than
100%.
The complete list of the Fund's investment restrictions is as follows:
The Fund will not:
1. To the extent of 75% of its assets (valued at time of investment), invest
more than 5% of its assets in securities of any one issuer, except in
obligations of the United States Government and its agencies and
instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Borrow money, except from banks for temporary or emergency purposes in
amounts not exceeding 20% of the value of the Fund's assets at the time of
borrowing;
5. Underwrite the distribution of securities of other issuers, or acquire
"restricted" securities that, in the event of a resale, might be required
to be registered under the Securities Act of 1933;
5
<PAGE>
6. Make margin purchases;
7. Invest in companies for the purpose of management or the exercise of
control;
8. Lend money (but this restriction shall not prevent the Fund from investing
in debt securities or repurchase agreements, or lend its portfolio
securities).
9. Invest in oil, gas or other mineral exploration or development programs,
although it may invest in marketable securities of companies engaged in
oil, gas or mineral exploration;
10. Purchase or sell real estate or real estate loans or real estate limited
partnerships, although it may invest in marketable securities of companies
that invest in real estate or interests in real estate.
11. Issue senior securities.
12. Invest in commodities, or invest in futures or options on commodities.
Restrictions 1 through 12 listed above are fundamental policies, and may be
changed only with the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940.
The Fund has also adopted the following restrictions that may be changed by the
Board of Directors without shareholder approval:
The Fund may not:
a. Invest more than 25% of its assets (valued at time of investment) in
securities of issuers with less than three years' operation (including
predecessors);
b. Invest more than 15% of its net assets in securities that are not readily
marketable;
c. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission and
(b) where acquisition results from a dividend or merger, consolidation or
other reorganization.
d. purchase more than 3% of the voting securities of any one investment
company;
e. Pledge, mortgage or hypothecate its assets, except for temporary or
emergency purposes and then to an extent not greater than 20% of its total
assets at cost;
f. Invest more than 5% of the Fund's assets (valued at time of investment) in
initial margin deposits for options contracts;
INVESTMENT ADVISER
Information on the Fund's Investment Adviser, Mohawk Asset Management, Inc., is
set forth in the prospectus. This Section contains additional information
concerning the Adviser.
6
<PAGE>
Mohawk Asset Management was organized as a sole proprietorship in 1994. Mohawk
Asset Management, Inc. (the "Adviser"), its successor, was organized under the
laws of the State of Delaware as an investment advisory corporation in
September1999. The Adviser registered as an Investment Adviser with the
Securities and Exchange Commission in December, 1999. The Adviser's principal
occupation and business is to provide financial management services to
individuals, corporations, non-profit organizations and other institutions
throughout the United States.
The Adviser manages the investment portfolio and the general business affairs of
the Fund pursuant to an investment services agreement with the Fund dated
December 15,1999 (the "Agreement"). Messrs. James W. Denney and Bill R. Werner
are officers of the Adviser and Directors of the Company. Accordingly, each of
those persons is considered an "affiliated person", as that term is defined in
the Investment Company Act of 1940, as amended (the 1940 Act).
Mr. James W. Denney is portfolio manager for the Fund.
The Agreement provides that the Adviser shall not be liable for any loss
suffered by the Fund or its shareholders as a consequence of any act or omission
in connection with services under the Agreement, except by reason of the
Adviser's willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations and duties under the Advisory Agreement.
The Agreement has a term of two years, but may be continued from year to year so
long as its continuance is approved at least annually:
(a) by the vote of a majority of the Directors of the Fund who are not
"interested persons" of the Fund or the adviser cast in person at a meeting
called for the purpose of voting on such approval, and
(b) by the Board of Directors as a whole or by the vote of a majority (as
defined in the 1940 Act) of the outstanding shares of the Fund.
The Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
DIRECTORS AND OFFICERS
The Board Of Directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Fund are managed by the Adviser,
subject to the bylaws of the Company and review by the Board of Directors. The
directors of the Company, including those directors who are also officers, are
listed below. The business address of each director is:
One North Church Street
Schenectady, New York 12305
7
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupation for
Name, Age with Fund The Last Five Years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
James W. Denney*; President President of Mohawk Asset Management,
(Age 34) Director Inc., a Registered Investment Adviser
Corporation. Registered Principal of Milestone
Financial Services, Inc., a broker/dealer firm,
from July 1998 to present. Registered Principal,
Linsco/Private Ledger, from 8/92 - 7/98.
Investment Executive, Paine Webber, Inc., from
12/89 - 7/92. Series 7 Registered Representative
License (1990). General Securities Principal
(1992). New York State Insurance License.
Bill W. Werner* Secretary Partner, General Manager, Dillinger
(Age 36) Director Stairbuilding Company, Fairview, NJ, a
contracting firm, since 1985. Also Vice
President of Mohawk Asset Management since
September, 1999. Formerly an air traffic
controller in the United States Marine Corps.
Michael J. Massey Director Owner and President of AdMania, an
(Age 35) advertising firm.
Joseph D. Condon Director Public Affairs Director, Albany
(Age 53) Broadcasting Company. Employed
with Albany Broadcasting Company since
1969. Bachelor of Arts degree from Siena
College, Loudenville, NY in 1969.
Honorable Albert P. Jurczynski Director Mayor, City of Schenectady, NY since
(Age 43) 1996. City Council member, City of
Schenectady, from 1984 through 1995.
</TABLE>
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
The table below sets forth the compensation anticipated to be paid by the
Corporation to each of the directors of the Corporation during the fiscal year
ending August 31, 2000.
8
<PAGE>
Name of Director Compensation Pension Annual Total Compensation
from Corp Benefits Benefits Paid to Director
- --------------------------------------------------------------------------------
James W. Denney $0.00 $0.00 $0.00 $0.00
Bill R. Werner $0.00 $0.00 $0.00 $0.00
Michael J. Massey $600.00 $0.00 $0.00 $600.00
Joseph D. Condon $600.00 $0.00 $0.00 $600.00
Albert P. Jurczynski $600.00 $0.00 $0.00 $600.00
Control Persons and Shareholders Owning in Excess of 5% of Fund Shares
- ----------------------------------------------------------------------
The Adviser intends to purchase all of the outstanding shares of the Fund prior
to the Fund's effective date, and will accordingly be deemed to control the
Fund.
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Corporation's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
Average Annual Total Return is computed as follows: P(1+T)[n] = ERV
Where: P = a hypothetical initial investment of $1000]
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at the end of the period
Yield. The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period
that they were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
9
<PAGE>
The Fund's performance is a function of conditions in the securities markets,
portfolio management, and operating expenses. Although information such as that
shown above is useful in reviewing the Fund's performance and in providing some
basis for comparison with other investment alternatives, it should not be used
for comparison with other investments using different reinvestment assumptions
or time periods.
In sales literature, the Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, the Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Redemptions will be made at net asset value. The Fund's net asset value is
determined on days on which the New York Stock Exchange is open for trading. For
purposes of computing the net asset value of a share of the Fund, securities
traded on security exchanges, or in the over-the-counter market in which
transaction prices are reported, are valued at the last sales price at the time
of valuation or, lacking any reported sales on that day, at the most recent bid
quotations. Securities for which quotations are not available and any other
assets are valued at a fair market value as determined in good faith by the
Adviser, subject to the review and supervision of the board of directors. The
price per share for a purchase order or redemption request is the net asset
value next determined after receipt of the order.
The Fund is open for business on each day that the New York Stock Exchange
("NYSE") is open. The Fund's share price or net asset value per share ("NAV") is
normally determined as of 4:00 p.m., New York time. The Fund's share price is
calculated by subtracting its liabilities from the closing fair market value of
its total assets and dividing the result by the total number of shares
outstanding on that day. Fund liabilities include accrued expenses and dividends
payable, and its total assets include the market value of the portfolio
securities as well as income accrued but not yet received. Since the Fund does
not charge sales, the NAV is the offering price for shares of the Fund.
TAX INFORMATION
The Fund intends to qualify as a regulated investment company under SubChapter M
of the Internal Revenue Code so as to be relieved of federal income tax on its
capital gains and net investment income currently distributed to its
shareholders. To qualify as a regulated investment company, the Fund must, among
other things, derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities, or other income derived with respect to its
business of investing in such stock or securities.
10
<PAGE>
If the Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
The Fund intends to distribute to shareholders, at least annually, substantially
all net investment income and any net capital gains realized from sales of the
Fund's portfolio securities. Dividends from net investment income and
distributions from any net realized capital gains are reinvested in additional
shares of the Fund unless the shareholder has requested in writing to have them
paid by check.
Dividends from investment income and net short-term capital gains are generally
taxable to the shareholder as ordinary income. Distributions of long-term
capital gains are taxable as long-term capital gains regardless of the length of
time shares in the Fund have been held. Distributions are taxable, whether
received in cash or reinvested in shares of the Fund.
Each shareholder is advised annually of the source of distributions for federal
income tax purposes. A shareholder who is not subject to federal income tax will
not be required to pay tax on distributions received.
If shares are purchased shortly before a record date for a distribution, the
shareholder will, in effect, receive a return of a portion of his investment,
but the distribution will be taxable to him even if the net asset value of the
shares is reduced below the shareholder's cost. However, for federal income tax
purposes the original cost would continue as the tax basis.
If a shareholder fails to furnish his social security or other tax
identification number or to certify properly that it is correct, the Fund may be
required to withhold federal income tax at the rate of 31% (backup withholding)
from dividend, capital gain and redemption payments to him. Dividend and capital
gain payments may also be subject to backup withholding if the shareholder fails
to certify properly that he is not subject to backup withholding due to the
under-reporting of certain income.
Taxation of the Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Fund during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
11
<PAGE>
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax Adviser regarding the
effect of federal, state, local, and foreign taxes on an investment in the Fund.
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
Capital Gain Distribution. Long-term capital gains earned by the Fund from the
sale of securities and distributed to shareholders are federally taxable as
long-term capital gains, regardless of the length of time shareholders have held
their shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund, and such shares are held six months or less and are sold at
a loss, the portion of the loss equal to the amount of the long-term capital
gain distribution will be considered a long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to shareholders as
dividends, not as capital gains.
PORTFOLIO TRANSACTIONS
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, it can be expected that
the rate of portfolio turnover may be substantial. The Fund expects that its
annual portfolio turnover rate will not exceed 50% under normal conditions.
However, there can be no assurance that the Fund will not exceed this rate, and
the portfolio turnover rate may vary from year to year.
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Fund are made by the Adviser
subject to review by the Corporation's Board of Directors. In placing purchase
and sale orders for portfolio securities for the Fund, it is the policy of the
Adviser to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Adviser's
evaluation of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and
12
<PAGE>
sold directly with principal market makers who retain the difference in their
cost in the security and its selling price. In some instances, the Adviser feels
that better prices are available from non-principal market makers who are paid
commissions directly.
The Fund may borrow up to 25% of its net assets for emergency purposes.
Borrowing money can result in an opportunity for leveraging of the Fund's
assets. This means that the Fund could, in theory, invest in more securities
than the Fund had in investable cash by borrowing. This also means that the Fund
could incur significantly greater risks. The Fund will not borrow to leverage.
It will only borrow to meet extraordinary redemption requests.
CUSTODIAN
FirstStar Bank, N.A., Cincinnati, Ohio, acts as custodian for the Fund. As such,
FirstStar holds all securities and cash of the Fund, delivers and receives
payment for securities sold, receives and pays for securities purchased,
collects income from investments and performs other duties, all as directed by
officers of the Company. FirsStar does not exercise any supervisory function
over management of the Fund, the purchase and sale of securities or the payment
of distributions to shareholders.
TRANSFER AGENT
Mutual Shareholder Services, LLC, 1301 East Ninth Street, Suite 1005, Cleveland,
Ohio 44114-1800 ("MSS") acts as transfer, dividend disbursing, and shareholder
servicing agent for the Fund pursuant to a written agreement with the Company
and the Adviser. Under the agreement, MSS is responsible for administering and
performing transfer agent functions, dividend distribution, shareholder
administration, and maintaining necessary records in accordance with applicable
rules and regulations.
For the services to be rendered as transfer agent, The Adviser shall pay MSS an
annual fee, paid monthly, based on the average net assets of the Fund, as
determined by valuations made as of the close of each business day of the month.
ADMINISTRATION
MSS also acts as Administrator to the Fund pursuant to a written agreement with
the Company and Adviser. The Administrator supervises all aspects of the
operations of the Fund except those performed by the Fund's investment adviser
under the Fund's investment advisory agreement. The Administrator is responsible
for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
13
<PAGE>
For the services to be rendered as Administrator, The Adviser shall pay TA an
annual fee, paid monthly, based on the average net assets of the Fund, as
determined by valuations made as of the close of each business day of the month.
DISTRIBUTOR
B/D Holdings, Inc, 1301 East Ninth Street, Suite 100, Cleveland, Ohio
44114-1800, acts as the principal underwriter of the Fund's shares pursuant to a
written agreement with the Fund and the Adviser.
INDEPENDENT ACCOUNTANTS
McCurdy & Associates, CPA's, Inc., 27995 Clemens Road, Westlake, Ohio 44145 will
serve as the Company's independent auditors for its first fiscal year.
LEGAL COUNSEL
David Jones & Assoc., P.C., 4747 Research Forest Drive, Suite 180, # 303, The
Woodlands, TX 77381, has passed on certain matters relating to this Registration
Statement and acts as counsel to the Company.
DISTRIBUTION PLAN
As noted in the Fund's Prospectus, the Fund has adopted a plan pursuant to Rule
12b-1 under the 1940 Act (collectively, the "Plan") whereby the Fund may pay a
fee of 0.25% per annum of the Fund's average daily net assets to the Adviser and
others for providing personal service and/or maintaining shareholder accounts
relating to the distribution of the Fund's shares. The fees are paid on a
monthly basis, based on the Fund's average daily net assets.
Pursuant to the Plan, the Adviser receives from the Fund a fee each month equal
to 0.25% per annum of average net assets. The Adviser uses such fees to pay for
expenses incurred in the distribution and promotion of the Fund's shares,
including but not limited to, printing of prospectuses and reports used for
sales purposes, preparation and printing of sales literature and related
expenses, advertisements, and other distribution-related expenses as well as any
distribution or service fees paid to securities dealers or others who have
executed a dealer agreement with the distributor. Any expense of distribution in
excess of 0.25% per annum will be borne by the Adviser without any additional
payments by the Fund. You should be aware that it is possible that Plan accruals
will exceed the actual expenditures by the Adviser for eligible services.
Accordingly, such fees are not strictly tied to the provision of such services.
The Plan also provides that to the extent that the Fund, the Adviser, or other
parties on behalf of the Fund, or the Adviser make payments that are deemed to
be payments for the financing of any activity primarily intended to result in
the sale of shares issued by the Fund within the context of Rule 12b-1, such
payments shall be deemed to be made pursuant to the Plans. In no event shall the
payments made under the Plan, plus any other payments deemed to be made pursuant
to the Plan, exceed the amount permitted to be paid pursuant to the Conduct
Rules of the National Association of Securities Dealers, Inc.
14
<PAGE>
The Board of Directors has determined that a consistent cash flow resulting from
the sale of new shares is necessary and appropriate to meet redemptions and to
take advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities. The Board therefore believes that it will
likely benefit the Fund to have monies available for the direct distribution
activities of the Adviser in promoting the sale of the Fund's shares, and to
avoid any uncertainties as to whether other payments constitute distribution
expenses on behalf of the Fund. The Board of Directors, including the non-
interested Directors, has concluded that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.
The Plan has been approved by the Funds' Board of Directors, including all of
the Directors who are non-interested persons as defined in the 1940 Act. The
Plan must be renewed annually by the Board of Directors, including a majority of
the Directors who are non-interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan. The votes must be
cast in person at a meeting called for that purpose. It is also required that,
during the period in which the Plan is in effect, the selection and nomination
of non-interested Directors be done only by the non-interested Directors. The
Plan and any related agreements may be terminated at any time, without any
penalty:
(1) by vote of a majority of the non-interested Directors on not more than 60
days' written notice,
(2) by the Adviser on not more than 60 days' written notice,
(3) by vote of a majority of the Fund's outstanding shares, on 60 days' written
notice, and
(4) automatically by any act that terminates the Advisory Agreement with the
Adviser.
The Adviser or any dealer or other firm may also terminate their respective
agreements at any time upon written notice.
The Plan and any related agreement may not be amended to increase materially the
amounts to be spent for distribution expenses without approval by a majority of
the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested Directors,
cast in person at a meeting called for the purpose of voting on any such
amendment.
The Adviser is required to report in writing to the Board of Directors of the
Fund, at least quarterly, on the amounts and purposes of any payment made under
the Plans, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the Plans should be continued.
Although the Plan has been adopted by the Board of Directors, the Board has
decided not to implement the Plan for at least the Fund's first fiscal year, in
order to minimize the ongoing expenses of the Fund during the Fund's start-up
phase. The Board will implement the Plan when and if circumstances so warrant.
15
<PAGE>
FINANCIAL STATEMENTS
ELECTRIC CITY FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 27, 1999
Electric City
Value Fund
ASSETS:
Cash in Bank $ 100,000
----------
Total Assets $ 100,000
----------
LIABILITIES: $ 0
----------
Total Liabilities $ 0
----------
NET ASSETS $ 100,000
----------
NET ASSETS CONSIST OF:
Capital Paid In $ 100,000
----------
OUTSTANDING SHARES
100 Million Authorized at .0001 par 10,000
NET ASSET VALUE PER SHARE $ 10.00
OFFERING PRICE PER SHARE $ 10.00
MAXIMUM REDEMPTION PRICE PER SHARE $ 9.925
See Accountants' Audit Report
16
<PAGE>
ELECTRIC CITY FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
December 27, 1999
1. ORGANIZATION
Electric City Funds, Inc. (the "Trust") is an open-end management
investment company organized as a corporation under the laws of the State
of Maryland on August 6, 1999. The corporation provides for 100 million
authorized shares at .0001 par value, which may, without shareholder
approval, be divided into an unlimited number of series of such shares, and
which presently consist of one series of shares for the Electric City Value
Fund (the "Fund").
The primary investment objective of the Fund is maximizing total return.
The Fund uses an independent custodian and transfer agent. No transactions
other than those relating to organizational matters and the sale of 10,000
shares of the Electric City Value Fund have taken place to date.
2. RELATED PARTY TRANSACTIONS
As of December 27, 1999, all of the outstanding shares of the Fund were
owned by Bill R. Werner IRA, Ernerose B. Werner, and James R. Denney Jr.
403B. A shareholder who beneficially owns, directly or indirectly, more
than 25% of the Fund's voting securities may be deemed a "control person"
(as defined in the 1940 Act) of the Fund.
Mohawk Asset Management, Inc., the Fund's investment adviser and
administrator, is registered as an investment adviser under the Investment
Advisers Act of 1940. Certain directors and officers of Electric City
Funds, Inc. are also directors and officers of Mohawk Asset Management,
Inc.
As adviser, Mohawk Asset Management, Inc. receives from the Fund as
compensation for its services to the Fund an annual fee of 1.65% of the
Fund's net assets. This fee is higher than that paid by most other
investment companies. The fee is paid monthly and calculated on the average
daily closing net asset value of the Fund.
The adviser pays all expenses incident to the Fund's operations and
business except litigation expenses, brokerage fees, taxes, interest, and
other extraordinary charges.
3. DISTRIBUTION PLAN
The Fund has adopted a distribution plan in accordance with Rule 12b-1
under the 1940 Act. The plan has not been implemented and the Fund has no
intention of implementing the plan during the Fund's first fiscal year.
- --------------------------------------------------------------------------------
17
<PAGE>
4. REDEMPTION FEES
The shares carry a 0.75% redemption fee if sold within thirteen months of
purchase. The redemption fee is calculated at 0.75% of the net asset value
of such shares at the time of redemption.
5. CAPITAL STOCK AND DISTRIBUTION
At December 27, 1999, 100 million shares were authorized and paid in
capital amounted to $100,000 for the Electric City Value Fund. Transactions
in capital stock were as follows:
Shares Sold:
Electric City Value Fund 10,000
Shares Redeemed:
Electric City Value Fund 0
------
Net Increase:
Electric City Value Fund 10,000
------
Shares Outstanding:
Electric City Value Fund 10,000
------
18
<PAGE>
PART C
------
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Articles of Incorporation---included as Exhibit 23A to Pre-effective
Amendment # 1 to Registration Statement, filed on November 24, 1999.
(b) By-Laws--- included as Exhibit 23B to Pre-effective Amendment # 1 to
Registration Statement, filed on November 24, 1999.
(c) Instruments defining rights of Shareholders---None, See Articles of
Incorporation
(d) Investment Advisory Contracts--- included as Exhibit 23D in Original
Registration Statement filed on October 6, 1999.
(e) Underwriting Contracts--- Attached as Exhibit 23E
(f) Bonus or Profit Sharing Contracts--- None
(g) Custodian Agreements--- Attached as Exhibit 23G
(h) Other Material Contracts---
(i) (h)(1) Operating Services Agreement--- included as Exhibit 23H(1) in
Original Registration Statement filed on October 6, 1999.
(h)(2) Transfer Agency Agreement--- included as Exhibit 23H(2) to
Pre-effective Amendment # 1 to Registration Statement, filed on November
24, 1999.
(j) Legal Opinion--- included as Exhibit 23I in Original Registration Statement
filed on October 6, 1999.
(k) Other opinions--- Attached as Exhibit 23K
(l) Omitted Financial statements--- None
(m) Initial Capital Agreements--- Attached as Exhibit 23M
(n) Rule 12b-1 Plan--- included as Exhibit 23N to Pre-effective Amendment # 1
to Registration Statement, filed on November 24, 1999.
(o) Financial Data Schedule--- Not Applicable
Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
See Caption "Principal Holders of Securities" in the Statement of
Additional Information
<PAGE>
Item 25. Indemnification
---------------
(a) General. The Articles of Amendment and Restatement of Charter
(the "Articles") of the Corporation provide that to the fullest
extent permitted by Maryland and federal statutory and decisional
law, as amended or interpreted, no director or officer of this
Corporation shall be personally liable to the Corporation or the
holders of Shares for money damages for breach of fiduciary duty
as a director and each director and officer shall be indemnified
by the Corporation; provided, however, that nothing herein shall
be deemed to protect any director or officer of the Corporation
against any liability to the Corporation or the holders of Shares
to which such director or officer would otherwise be subject by
reason of breach of the director's or officer's duty of loyalty
to the Corporation or its stockholders, for acts or omissions not
in good faith or which involved intentional misconduct or a
knowing violation of law or for any transaction from which the
director derived any improper personal benefit.
The By-Laws of the Corporation provide that the Corporation shall
indemnify any individual who is a present or former director or
officer of the Corporation and who, by reason of his or her
position was, is or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
(hereinafter collectively referred to as a "Proceeding") against
judgments, penalties, fines, settlements and reasonable expenses
actually incurred by such director or officer in connection with
such Proceeding, to the fullest extent that such indemnification
may be lawful under Maryland law.
(b) Disabling Conduct. The By-Laws provide that nothing therein shall
be deemed to protect any director or officer against any
liability to the Corporation or its shareholders to which such
director or officer would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office (such conduct hereinafter referred to as "Disabling
Conduct").
The By-Laws provide that no indemnification of a director or
officer may be made unless: (1) there is a final decision on the
merits by a court or other body before whom the Proceeding was
brought that the director or officer to be indemnified was not
liable by reason of Disabling Conduct; or (2) in the absence of
such a decision, there is a reasonable determination, based upon
a review of the facts, that the director or officer to be
indemnified was not liable by reason of Disabling Conduct, which
determination shall be made by: (i) the vote of a majority of a
quorum of directors who are neither "interested persons" of the
Corporation as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the Proceeding; or (ii) an
independent legal counsel in a written opinion.
(c) Standard of Conduct. Under Maryland law, the Corporation may not
indemnify any director if it is proved that: (1) the act or
omission of the director was material to the cause of action
<PAGE>
adjudicated in the Proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty; or
(2) the director actually received an improper personal benefit;
or (3) in the case of a criminal proceeding, the director had
reasonable cause to believe that the act or omission was
unlawful. No indemnification may be made under Maryland law
unless authorized for a specific proceeding after a determination
has been made, in accordance with Maryland law, that
indemnification is permissible in the circumstances because the
requisite standard of conduct has been met.
(d) Required Indemnification. Maryland law requires that a director
or officer who is successful, on the merits or otherwise, in the
defense of any Proceeding shall be indemnified against reasonable
expenses incurred by the director or officer in connection with
the Proceeding. In addition, under Maryland law, a court of
appropriate jurisdiction may order indemnification under certain
circumstances.
(e) Advance Payment. The By-Laws provide that the Corporation may pay
any reasonable expenses so incurred by any director or officer in
defending a Proceeding in advance of the final disposition
thereof to the fullest extent permissible under Maryland law. In
accordance with the By-Laws, such advance payment of expenses
shall be made only upon the undertaking by such director or
officer to repay the advance unless it is ultimately determined
that such director or officer is entitled to indemnification, and
only if one of the following conditions is met: (1) the director
or officer to be indemnified provides a security for his
undertaking; (2) the Corporation shall be insured against losses
arising by reason of any lawful advances; or (3) there is a
determination, based on a review of readily available facts, that
there is reason to believe that the director or officer to be
indemnified ultimately will be entitled to indemnification, which
determination shall be made by: (i) a majority of a quorum of
directors who are neither "interested persons" of the
Corporation, as defined in Section 2(a)(19) of the Investment
Company Act of 1940, nor parties to the Proceeding; or (ii) an
independent legal counsel in a written opinion.
(f) Insurance. The By-Laws provide that, to the fullest extent
permitted by Maryland law and Section 17(h) of the Investment
Company Act of 1940, the Corporation may purchase and maintain
insurance on behalf of any officer or director of the
Corporation, against any liability asserted against him or her
and incurred by him or her in and arising out of his or her
position, whether or not the Corporation would have the power to
indemnify him or her against such liability.
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
None
Item 27. Principal Underwriter
---------------------
B/D Holdings, Inc.
1301 East Ninth Street, Suite 100
Cleveland, Ohio 44114-1800
Item 28. Location of Accounts and Records
--------------------------------
The books and records of the Fund, other than the accounting and
transfer agency (including dividend disbursing) records, are
maintained by the Fund at One North Church Street, Schenectady, NY
12305; the Fund's accounting and transfer agency records are
maintained at Mutual Shareholder Services, LLC, 1301 East Ninth
Street, Suite 1005, Cleveland, Ohio 44114-1800.
Item 29. Management Services
-------------------
There are no management service contracts not described in Part A or
Part B of Form N-1A.
Item 30. Undertakings
------------
The Registrant undertakes to file an amendment to the registration
statement with certified financial statements showing the initial
capital received before accepting subscriptions from more than 25
persons in the event the Fund chooses to raise its initial capital
under Section 14(a)(3) of the Securities Act.
<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 Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized in Schenectady, New York on the 29th day of December, 1999.
ELECTRIC CITY FUNDS, INC.
/s/ James W. Denny
-------------------
By: JAMES W. DENNEY
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
ELECTRIC CITY FUNDS, INC.
NAME TITLE DATE
/s/ James W. Denney President & December 29, 1999
- ----------------------------------- Treasurer, Director
JAMES W. DENNEY
/s/ Bill W. Werner Secretary & December 29, 1999
- ----------------------------------- Director
BILL W. WERNER
/s/ Michael J. Massey Director December 29, 1999
- -----------------------------------
MICHAEL J. MASSEY
/s/ Joseph D. Condon Director December 29, 1999
- -----------------------------------
JOSEPH D. CONDON
/s/ Honorable Albert P. Jurczynski Director December 29, 1999
- -----------------------------------
HONORABLE ALBERT P. JURCZYNSKI
<PAGE>
EXHIBIT INDEX
EXHIBIT 23E PRINCIPAL UNDERWRITING AGREEMENT WITH B/D HOLDINGS, INC.
EXHIBIT 23G CUSTODIAN AGREEMENT WITH FIRSTSTAR BANK, NA
EXHIBIT 23K OPINION AND CONSENT OF MCCURDY & ASSOCIATES CPA'S, INC.
EXHIBIT 23M SUBSCRIPTION AGREEMENTS FROM INITIAL SHAREHOLDERS
- --------------------------------------------------------------------------------
Exhibit 23E
Principal Underwriting Agreement with B/D Holdings, Inc (B/D Holdings, Inc.)
UNDERWRITING AGREEMENT
FOR
ELECTRIC CITY FUNDS, INC.
-------------------------
THIS AGREEMENT is made as of December 15, 1999, by and between Electric
City Funds, Inc., a Maryland corporation (the "Fund"), Mohawk Asset Management,
Inc., a Delaware corporation (the "Adviser"), and B/D Holdings Inc, a Nevada
corporation ("Underwriter").
WHEREAS, the Fund is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Adviser has registered with the Securities and Exchange
Commission as an investment adviser under the Investment Advisers Act of 1940,
as amended; and
WHEREAS, the Fund is authorized by its Articles of Incorporation and
by-laws to issue separate Portfolio of shares representing interests in separate
investment portfolios (the "Portfolios"), and
WHEREAS, The Fund has authorized the issuance of shares of beneficial
interest ("Shares") in the Portfolios which are identified on Exhibit B attached
hereto, which Exhibit B may be amended from time to time by mutual agreement of
the Fund, Adviser and Underwriter, and;
WHEREAS, Adviser and the Fund have entered into a previous contract wherein
Adviser is responsible for providing certain services to the Fund, a copy of
which is attached hereto as Exhibit 1 and incorporated herein by reference, and;
WHEREAS, Adviser is authorized, pursuant to the contract described above
with the Fund, to enter into contracts with third parties and engage such
parties to provide services to the Fund, and;
<PAGE>
WHEREAS, Underwriter is a broker-dealer registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc., (the "NASD"); and
NOW, THEREFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. APPOINTMENT. The Fund and Adviser hereby appoint Underwriter as
exclusive agent for the distribution of Shares of the Portfolio(s) in the states
listed in Exhibit A hereto, and Underwriter hereby accepts such appointment
under the terms of this Agreement. Notwithstanding any other provision hereof,
the Fund may terminate, suspend or withdraw the offering of Shares of any
Portfolio whenever, in its sole discretion, it deems such action to be
desirable.
2. SALE AND REPURCHASE OF SHARES.
(a) Underwriter, as agent for the Fund, will sell Shares to the public
against orders therefor at the net asset value, all such sales to comply with
the provisions of the Act and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
(b) Underwriter will also have the right to take, as agent for the
Fund, all actions, which, in Underwriter's judgement, are necessary to carry
into effect the distribution of the Shares.
(c) The net asset value of the Shares of each Portfolio (or Class of
Shares of a Portfolio) shall be determined in the manner provided in the
Registration Statement, and when determined shall be applicable to transactions
as provided for in the Registration Statement. The net asset value of the Shares
of each Portfolio (or each Class of Shares of a Portfolio) shall be calculated
by the Fund or by another entity on behalf of the Fund. Underwriter shall have
no duty to inquire into or liability for the accuracy of the net asset value per
share is calculated.
(d) On every sale, the Fund shall receive the applicable net asset
value of the Shares promptly, but in no event later than the third business day
following the date on which Underwriter shall have received an order for the
purchase of the Shares.
(e) Upon receipt of purchase instructions, Underwriter will transmit
such instructions to the Fund or its transfer agent for registration of the
Shares purchased.
(f) Nothing in the Agreement shall prevent Underwriter or any
affiliated person (as defined in the Act) of Underwriter from acting as
underwriter or distributor for any other person, firm or corporation (including
other investment companies) or in any way limit or restrict Underwriter or any
such affiliated person from buying, selling or trading any securities for its or
their own account or for the accounts of others for whom it or they may be
acting; provided, however, that Underwriter expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this Agreement.
<PAGE>
(g) Underwriter, as agent of the Fund and for the account of the
Portfolio(s), may repurchase the Shares at such prices and upon such terms and
conditions as shall be specified in the Fund's Registration Statement. At the
end of each business day, the Underwriter shall notify the Fund and the Fund's
transfer agent of the number of Shares redeemed for each Portfolio, and the
identity of the shareholders or dealers offering Shares for repurchase. Upon
such notice, the Fund shall pay the Underwriter the net asset value of the
redeemed shares in cash or in the form of a credit against monies due the Fund
from the Underwriter as proceeds from the sale of Shares. The Fund reserves the
right to suspend such repurchase right upon written notice to the Underwriter.
The Underwriter further agrees to act as agent for the Fund to receive and
transmit promptly to the Fund's transfer agent, shareholder and dealer requests
for redemption of Shares in the Portfolio(s).
3. SALES OF SHARES BY THE FUND. The Fund reserves the right to issue or
sell Shares of the Portfolio(s) directly to the public at any time.
4. BASIS OF SALE OF SHARES. Underwriter does not agree to sell any
specific number of Shares. Underwriter, as agent for the Fund, undertakes to
sell Shares of the Portfolio(s) on a best effort basis only against orders
therefor.
5. COMPLIANCE WITH NASD AND GOVERNMENT RULES.
(a) Underwriter will conform to the Rules of Fair Practice of the NASD
and the securities laws of any jurisdiction in which it sells Shares of the
Portfolio(s).
(b) The Fund and the Adviser agree to furnish to the Underwriter
sufficient copies of any agreements, plans or other materials it intends to use
in connection with sales of Shares in adequate time for the Underwriter to file
and clear them with the proper authorities before they are put in use, and not
to use them until so filed and cleared.
(c) Underwriter, at its own expense, will qualify as dealer or broker,
or otherwise, under all applicable State or federal laws required in order that
Shares may be sold in such States as may be mutually agreed upon by the parties,
except for expenses described in Exhibit A hereto, which will be paid by the
Adviser.
(d) Underwriter shall not make, or permit any representative, broker
or dealer to make, in connection with any sale or solicitation of a sale of the
Shares, any representations concerning the Shares except those contained in the
Fund's then current prospectus and statement of additional information covering
the Shares and in printed information approved by the Fund as information
supplemental to such prospectus and statement of additional information. Copies
of the Fund's then effective prospectus and statement of additional information
and any such printed supplemental information will be supplied by the Adviser to
Underwriter in reasonable quantities upon request.
<PAGE>
6. RECORDS TO BE SUPPLIED BY FUND. The Fund shall furnish to Underwriter
copies of all information, financial statements and other papers which
Underwriter may reasonably request for use in connection with the distribution
of Shares of the Portfolio(s).
7. EXPENSES TO BE BORNE BY ADVISER. The Adviser will bear the following
expenses:
(a) preparation, setting in type, printing of sufficient copies of the
prospectus and statement of additional information for distribution to
shareholders, and the distribution to shareholders of the prospectus and
statement of additional information;
(b) preparation, printing and distribution of reports and other
communications to shareholders;
(c) registration of the Shares under the federal securities law;
(d) qualification of the Shares for sale in the jurisdictions
designated by Fund, Adviser and Underwriter;
(e) maintaining facilities for the issue and transfer of the Shares;
(f) supplying information, prices and other data to be furnished by
the Fund under this Agreement; and
(g) any original issue taxes or transfer taxes applicable to the sale
or delivery of the Shares of certificates therefor.
8. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold the Underwriter, its
officers, and directors, and any person who controls the Underwriter within the
meaning of Section 15 of the Securities Act of 1933 Act (the "1933 Act") or
Section 20 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
free and harmless from and against any and all claims, demands or liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection therewith)
which the Underwriter, its officers, directors or any such controlling persons
may incur under the 1933 Act, the 1934 Act, or under common law or otherwise,
arising out of or based upon any untrue statement of a material fact contained
in the Registration Statement or Prospectus or arising out of or based upon any
alleged omission to state a material fact required to be stated in either
thereof or necessary to make the statements in either thereof not misleading,
except insofar as such claims, demands, liabilities or expenses arise out of or
are based upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with information furnished
in writing by the Underwriter to the Fund for use in the Registration Statement.
The Underwriter agrees to comply with all of the applicable terms and provisions
of the 1934 Act.
<PAGE>
(b) The Underwriter agrees to indemnify, defend, and hold the Fund,
its officers, directors, employees shareholders and agents, and any person who
controls the Fund within the meaning of Section 15 of the 1933 Act of Section 20
of the 1934 Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending
against such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which the Fund, its directors, officers, employees,
shareholders and agents, or any such controlling person may incur under the 1933
Act, the 1934 Act or under common law or otherwise arising out of or based upon
any untrue statement of a material fact contained in information furnished in
writing by the Underwriter to the Fund for use in the Registration Statement, or
arising out of or based upon any omission or alleged omission to state a
material fact in connection with such information required to be stated in the
Registration Statement necessary to make such information not misleading.
(c) A party seeking indemnification hereunder (the Indemnitee) shall
give prompt written notice to the party from whom indemnification is sought
("Indemnitor") of a written assertion or claim of any threatened or pending
legal proceeding which may be subject to indemnity under this Section; provided,
however, that failure to notify the Indemnitor of such written assertion or
claim shall not relieve the indemnitor of any liability arising from this
Section. The Indemnitor shall be entitled, if it so elects, to assume the
defense of any suit brought to enforce a claim subject to this Agreement and
such defense shall be conducted by counsel chosen by the Indemnitor and
satisfactory to the Indemnitee; provided, however, that if the defendants
include both the Indemnitee and the Indemnitor, and the Indemnitee shall have
reasonably concluded that there may be one or more legal defenses available to
it which are different from or additional to those available to the Indemnitor
("conflict of interest"), the Indemnitor shall have the right to select separate
counsel to defend such claim on behalf of the Indemnitee. In the event that the
Indemnitor elects to assume the defense of any suit pursuant to the preceding
sentence and retains counsel satisfactory to the Indemnitee, the Indemnitee
shall bear the fees and expenses of additional counsel retained by it except for
reasonable investigation costs which shall be borne by the Indemnitor. If the
Indemnitor (i) does not elect to assume the defense of a claim, (ii) elects to
assume the defense of a claim but chooses counsel that is not satisfactory to
the Indemnitee or (iii) has no right to assume the defense of a claim because of
a conflict of interest, the Indemnitor shall advance or reimburse the
Indemnitee, at the election of the Indemnitee, reasonable fees and disbursements
of any counsel retained by Indemnitee, including reasonable investigation costs.
9. ADVANCES OF EXPENSES. The Adviser shall advance attorney's fees or
other expenses incurred by a Covered Person in defending a proceeding only to
the extent permitted by 1933 Act and the Act.
10. TERMINATION AND AMENDMENT OF THIS AGREEMENT. This Agreement shall
automatically terminate, without the payment of any penalty, in the event of its
assignment. This Agreement may be amended only if such amendment is approved (i)
by Underwriter, (ii) either by action of the Board of Directors of the Fund or
at a meeting of the Shareholders of the Fund by the affirmative vote of a
majority of the outstanding Shares, and (iii) by a majority of the Directors of
the Fund who are not interested persons of the Fund or of Underwriter, by vote
cast in person at a meeting called for the purpose of voting on such approval.
Either the Fund or
<PAGE>
Underwriter may at any time terminate this Agreement on sixty (60) days' written
notice delivered or mailed by registered mail, postage prepaid, to the other
party.
11. EFFECTIVE PERIOD OF THIS AGREEMENT. This Agreement shall take effect
upon its execution and shall remain in full force and effect for a period of ONE
year from the date of its execution (unless terminated automatically as set
forth in paragraph 10 and from year to year thereafter), subject to annual
approval (i) by Underwriter, (ii) by the Board of Directors of the Fund or a
vote of a majority of the outstanding Shares, and (iii) by a majority of the
Directors of the Fund who are not interested persons of the Fund or of
Underwriter, by vote cast in person at a meeting called for the purpose of
voting on such approval.
12. LIMITATION OF FUND'S LIABILITY. The Term "Electric City Funds" means
and refers to the directors and officers from time to time serving under the
Fund's Articles of Incorporation as the same may subsequently thereto have been,
or subsequently hereto be, amended. It is expressly agreed that the obligations
of the Fund hereunder shall not be binding upon any of the Directors,
Shareholders, nominees, officers, agents or employees of the Fund personally,
but bind only the property of the Fund, as provided in Fund's Articles of
Incorporation. The execution and delivery of this Agreement have been authorized
by the Directors and Shareholders of the Fund and signed by the officers of the
Fund and Adviser, acting as such, and neither such authorization by such
Directors and Shareholders, nor such execution and delivery by such officers
shall be deemed to have been made by any of them individually or to impose any
liability on them personally, but shall bind only the trust property of the Fund
as provided in its Articles of Incorporation. A copy of the Articles of
Incorporation of the Fund is on file with the Secretary of State of Maryland.
13. SUCCESSOR INVESTMENT COMPANY. Unless this Agreement has been
terminated in accordance with Paragraph 10, the terms and provisions of this
Agreement shall become automatically applicable to any investment company which
is a successor to the Fund as a result of a reorganization, recapitalization or
change of domicile.
14. SEVERABILITY. In the event any provision of this Agreement is
determined to be void or unenforceable, such determination shall not affect the
remainder of this Agreement, which shall continue to be in force.
15. QUESTIONS OF INTERPRETATION.
(a) This Agreement shall be governed by the laws of the State of Ohio.
(b) Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act shall be resolved by reference to such term or provision of the Act
and to interpretation thereof, if any, by the United States courts or in the
absence of any controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the Act, reflected in any
provision of this Agreement is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
<PAGE>
16. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that for this purpose the
address of the Fund and the Adviser shall be One North Church Street,
Schenectady, NY 12305 and of the Underwriter shall be 1301 East Ninth Street,
Suite 3600, Cleveland, Ohio 44114.
17. COUNTERPARTS. This Agreement may be in one or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
18. BINDING EFFECT. Each of the undersigned expressly warrants and
represents that he has the full power and authority to sign this Agreement on
behalf of the party indicated, and that his signature will operate to bind the
party indicated to the foregoing terms.
19. FORCE MAJEURE. If Underwriter shall be delayed in its performance of
services or prevented entirely or in part from performing services due to causes
or events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages or suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with the Agreement shall be extended to
include the period of such delay or non-performance.
IN WITNESS WHEREOF, the Fund, Adviser and Underwriter have each caused this
Agreement to be signed on its behalf, all as of the day and year first above
written.
ATTEST: B/D HOLDINGS INC.
_________________________ By: __________________________
Name: ________________________
Title: _______________________
ATTEST ELECTRIC CITY FUNDS, INC.
__________________________ By: __________________________
Name: James W. Denney
Title: President, Director
ATTEST MOHAWK ASSET MANAGEMENT, INC.
___________________________ By: __________________________
Name: James W. Denney
Title: President
<PAGE>
UNDERWRITING AGREEMENT
EXHIBIT A
The following is a list of the states in which B/D Holdings Inc will act as
underwriter for the Portfolio(s) of the Fund, and the amount of expenses that
Adviser will pay on behalf of B/D Holdings Inc.
STATE EXPENSES
----- --------
<PAGE>
UNDERWRITING AGREEMENT
EXHIBIT B
The following Portfolios are hereby made subject to the underwriting
Agreement dated December 15th, 1999 , with B/D Holdings, Inc. ("Underwriter"),
Mohawk Asset Management, Inc. and Electric City Funds, Inc., and each agree to
be bound by all the terms and conditions contained in said Agreement:
THE ELECTRIC CITY VALUE FUND
ELECTRIC CITY FUNDS, INC.
Attest: __________________________ By: __________________________
Name: James W. Denney
-----------------------
Title: President, Director
-----------------------
Date:
-----------------------
B/D HOLDINGS, INC.
Attest: __________________________ By: __________________________
Name: _______________________
Title: _______________________
Date: _______________________
Attest: MOHAWK ASSET MANAGEMENT, INC.
Attest: __________________________ By: __________________________
Name: James W. Denney
-----------------------
Title: President
-----------------------
Date:
-----------------------
Exhibit 23G
Custodian Agreement with FirstStar Bank, NA
CUSTODY AGREEMENT
This agreement (the "Agreement") is entered into as of the 18th day of
December, 1999, by and between Electric City Funds, Inc. (the "Corporation"), a
corporation organized under the laws of the State of Maryland and having its
office at One North Church Street, Schenectady, NY 12305, Mohawk Asset
Management, Inc. (the "Adviser"), a corporation organized under the laws of the
State of Delaware and registered as an investment adviser with the Securities
and Exchange Commission, each acting for and on behalf of The Electric City
Value Fund (the "Fund"), which is operated and maintained by the Corporation for
the benefit of the holders of shares of each Fund, and Firstar Bank, N.A. (the
"Custodian"), a national banking association having its principal office and
place of business at Firstar Center, 425 Walnut Street, Cincinnati, Ohio 45202.
WHEREAS, the Fund, Adviser and the Custodian desire to enter into this
Agreement to provide for the custody and safekeeping of the assets of the Fund
as required by the Investment Company Act of 1940, as amended (the "Act").
WHEREAS, the Fund hereby appoints the Custodian as custodian of all the
Fund's Securities and moneys at any time owned by the Fund during the term of
this Agreement (the "Fund Assets").
WHEREAS, the Custodian hereby accepts such appointment as Custodian and
agrees to perform the duties thereof as hereinafter set forth.
THEREFORE, in consideration of the mutual promises hereinafter set forth,
the Fund and the Custodian agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
The following words and phrases, when used in this Agreement, unless the
context otherwise requires, shall have the following meanings:
AUTHORIZED PERSON - the Chairman, President, Secretary, Treasurer,
Controller, or Senior Vice President of the Fund, or any other person, whether
or not any such person is an officer or employee of the Fund, duly authorized by
the Board Of Directors of the Fund to give Oral Instructions and Written
Instructions on behalf of the Fund, and listed in the Certificate annexed hereto
as Appendix A, or such other Certificate as may be received by the Custodian
from time to time.
BOOK-ENTRY SYSTEM - the Federal Reserve Bank book-entry system for United
States Treasury securities and federal agency securities.
CERTIFICATE- A written certificate signed by the Secretary of the Fund
certifying the actions taken by the Board of Directors.
DEPOSITORY - The Depository Trust Company ("DTC"), a limited purpose trust
company its successor(s) and its nominee(s) or any other person or clearing
agent
DIVIDEND AND TRANSFER AGENT - the dividend and transfer agent appointed,
from time to time, pursuant to a written agreement between the dividend and
transfer agent and the Fund
FOREIGN SECURITIES - (a) securities issued and sold primarily outside of
the United States by a foreign government, a national of any foreign country, or
a trust or other organization incorporated or organized under the laws of any
foreign country OR; (b) securities issued or guaranteed by the government of the
United States, by any state, by any political subdivision or agency thereof, or
by any entity organized under the laws of the United States or of any state
thereof, which have been issued and sold primarily outside of the United States.
MONEY MARKET SECURITY - debt obligations issued or guaranteed as to
principal and/or interest by the government of the United States or agencies or
instrumentalities thereof, commercial paper, obligations (including certificates
of deposit, bankers' acceptances, repurchase agreements and reverse repurchase
agreements with respect to the same), and time deposits of domestic banks and
thrift institutions whose deposits are insured by the Federal Deposit Insurance
Corporation, and short-term corporate obligations where the purchase and sale of
such securities normally require settlement in federal funds or their equivalent
on the same day as such purchase and sale, all of which mature in not more than
thirteen (13) months.
<PAGE>
OFFICERS - the Chairman, President, Secretary, Treasurer, Controller, and
Senior Vice President of the Fund listed in the Certificate annexed hereto as
Appendix A, or such other Certificate as may be received by the Custodian from
time to time.
ORAL INSTRUCTIONS - verbal instructions received by the Custodian from an
Authorized Person (or from a person that the Custodian reasonably believes in
good faith to be an Authorized Person) and confirmed by Written Instructions in
such a manner that such Written Instructions are received by the Custodian on
the business day immediately following receipt of such Oral Instructions.
PROSPECTUS - the Fund's then currently effective prospectus and Statement
of Additional Information, as filed with and declared effective from time to
time by the Securities and Exchange Commission.
SECURITY OR SECURITIES - Money Market Securities, common stock, preferred
stock, options, financial futures, bonds, notes, debentures, corporate debt
securities, mortgages, and any certificates, receipts, warrants, or other
instruments representing rights to receive, purchase, or subscribe for the same
or evidencing or representing any other rights or interest therein, or any
property or assets.
WRITTEN INSTRUCTIONS - communication received in writing by the Custodian
from an Authorized Person.
ARTICLE II
DOCUMENTS AND NOTICES TO BE FURNISHED BY THE FUND
-------------------------------------------------
A The following documents, including any amendments thereto, will be
provided contemporaneously with the execution of the Agreement, to the Custodian
by the Fund:
1. A copy of the Articles of Incorporation of the Fund certified by the
Secretary.
2. A copy of the By-Laws of the Fund certified by the Secretary.
3. A copy of the resolution of the Board Of Directors of the Fund
appointing the Custodian, certified by the Secretary.
4. A copy of the then current Prospectus.
5. A Certificate of the President and Secretary of the Fund setting forth
the names and signatures of the Officers of the Fund.
<PAGE>
B. The Fund agrees to notify the Custodian in writing of the appointment of
any Dividend and Transfer Agent.
ARTICLE III
RECEIPT OF FUND ASSETS
----------------------
A. During the term of this Agreement, the Fund will deliver or cause to be
delivered to the Custodian all moneys constituting Fund Assets. The Custodian
shall be entitled to reverse any deposits made on the Fund's behalf where such
deposits have been entered and moneys are not finally collected within 30 days
of the making of such entry.
B. During the term of this Agreement, the Fund will deliver or cause to be
delivered to the Custodian all Securities constituting Fund Assets. The
Custodian will not have any duties or responsibilities with respect to such
Securities until actually received by the Custodian.
C. As and when received, the Custodian shall deposit to the account(s) of
the Fund any and all payments for shares of the Fund issued or sold from time to
time as they are received from the Fund's distributor or Dividend and Transfer
Agent or from the Fund itself.
ARTICLE IV
DISBURSEMENT OF FUND ASSETS
---------------------------
A. The Fund shall furnish to the Custodian a copy of the resolution of the
Board Of Directors of the Fund, certified by the Fund's Secretary, either (i)
setting forth the date of the declaration of any dividend or distribution in
respect of shares of the Fund, the date of payment thereof, the record date as
of which Fund shareholders entitled to payment shall be determined, the amount
payable per share to Fund shareholders of record as of that date, and the total
amount to be paid by the Dividend and Transfer Agent on the payment date, OR
(ii) authorizing the declaration of dividends and distributions in respect of
shares of the Fund on a daily basis and authorizing the Custodian to rely on a
Certificate setting forth the date of the declaration of any such dividend or
distribution, the date of payment thereof, the record date as of which Fund
shareholders entitled to payment shall be determined, the amount payable per
share to Fund shareholders of record as of that date, and the total amount to be
paid by the Dividend and Transfer Agent on the payment date.
<PAGE>
On the payment date specified in such resolution or Certificate described
above, the Custodian shall segregate such amounts from moneys held for the
account of the Fund so that they are available for such payment.
B. Upon receipt of Written Instructions so directing it, the Custodian
shall segregate amounts necessary for the payment of redemption proceeds to be
made by the Dividend and Transfer Agent from moneys held for the account of the
Fund so that they are available for such payment.
C. Upon receipt of a Certificate directing payment and setting forth the
name and address of the person to whom such payment is to be made, the amount of
such payment, and the purpose for which payment is to be made, the Custodian
shall disburse amounts as and when directed from the Fund Assets. The Custodian
is authorized to rely on such directions and shall be under no obligation to
inquire as to the propriety of such directions.
D. Upon receipt of a Certificate directing payment, the Custodian shall
disburse moneys from the Fund Assets in payment of the Custodian's fees and
expenses as provided in Article VIII hereof.
ARTICLE V
CUSTODY OF FUND ASSETS
----------------------
A. The Custodian shall open and maintain a separate bank account or
accounts in the United States in the name of the Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this Agreement, and shall
hold all cash received by it from or for the account of the Fund, other than
cash maintained by the Fund in a bank account established and used by the Fund
in accordance with Rule 17f-3 under the Act. Moneys held by the Custodian on
behalf of the Fund may be deposited by the Custodian to its credit as Custodian
in the banking department of the Custodian. Such moneys shall be deposited by
the Custodian in its capacity as such, and shall be withdrawable by the
Custodian only in such capacity.
B. The Custodian shall hold all Securities delivered to it in safekeeping
in a separate account or accounts maintained at Firstar Bank, N.A. for the
benefit of the Fund.
<PAGE>
C. All Securities held which are issued or issuable only in bearer form,
shall be held by the Custodian in that form; all other Securities held for the
Fund shall be registered in the name of the Custodian or its nominee. The Fund
agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold, or deliver in proper form for transfer, any Securities that
it may hold for the account of the Fund and which may, from time to time, be
registered in the name of the Fund.
D. With respect to all Securities held for the Fund , the Custodian shall
on a timely basis (concerning items 1 and 2 below, as defined in the Custodian's
Standards of Service Guide, as amended from time to time, annexed hereto as
Appendix C):
1.) Collect all income due and payable with respect to such Securities;
2.) Present for payment and collect amounts payable upon all Securities
which may mature or be called, redeemed, or retired, or otherwise
become payable;
3.) Surrender Securities in temporary form for definitive Securities; and
4.) Execute, as agent, any necessary declarations or certificates of
ownership under the Federal income tax laws or the laws or regulations
of any other taxing authority, including any foreign taxing authority,
now or hereafter in effect.
E. Upon receipt of a Certificate AND NOT OTHERWISE, the Custodian shall:
1.) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as beneficial owner of
any Securities may be exercised;
2.) Deliver any Securities in exchange for other Securities or cash issued
or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation, or recapitalization of any trust,
or the exercise of any conversion privilege;
3.) Deliver any Securities to any protective committee, reorganization
committee, or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization, or sale of
assets of any trust, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to evidence such
delivery;
4.) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said Certificate to be for the
purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Fund;
and
5.) Deliver any Securities held for the Fund to the depository agent for
tender or other similar offers.
<PAGE>
F. The Custodian shall promptly deliver to the Fund all notices, proxy
material and executed but unvoted proxies pertaining to shareholder meetings of
Securities held by the Fund. The Custodian shall not vote or authorize the
voting of any Securities or give any consent, waiver or approval with respect
thereto unless so directed by a Certificate or Written Instruction.
G. The Custodian shall promptly deliver to the Fund all information
received by the Custodian and pertaining to Securities held by the Fund with
respect to tender or exchange offers, calls for redemption or purchase, or
expiration of rights.
ARTICLE VI
PURCHASE AND SALE OF SECURITIES
-------------------------------
A. Promptly after each purchase of Securities by the Fund, the Fund shall
deliver to the Custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, Written Instructions, and (ii) with respect to
each purchase of Money Market Securities, Written Instructions or Oral
Instructions, specifying with respect to each such purchase the;
1.) name of the issuer and the title of the Securities,
2.) principal amount purchased and accrued interest, if any,
3.) date of purchase and settlement,
4.) purchase price per unit,
5.) total amount payable, and
6.) name of the person from whom, or the broker through which, the
purchase was made.
The Custodian shall, against receipt of Securities purchased by or for the
Fund, pay out of the Fund Assets, the total amount payable to the person from
whom or the broker through which the purchase was made, provided that the same
conforms to the total amount payable as set forth in such Written Instructions
or Oral Instructions, as the case may be.
B. Promptly after each sale of Securities by the Fund, the Fund shall
deliver to the Custodian (i) with respect to each sale of Securities which are
not Money Market Securities, Written Instructions, and (ii) with respect to each
sale of Money Market Securities, Written Instructions or Oral Instructions,
specifying with respect to each such sale the;
<PAGE>
1.) name of the issuer and the title of the Securities,
2.) principal amount sold and accrued interest, if any,
3.) date of sale and settlement,
4.) sale price per unit,
5.) total amount receivable, and
6.) name of the person to whom, or the broker through which, the sale was
made.
The Custodian shall deliver the Securities against receipt of the total
amount receivable, provided that the same conforms to the total amount
receivable as set forth in such Written Instructions or Oral Instructions, as
the case may be.
C. On contractual settlement date, the account of the Fund will be charged
for all purchased Securities settling on that day, regardless of whether or not
delivery is made. Likewise, on contractual settlement date, proceeds from the
sale of Securities settling that day will be credited to the account of the
Fund, irrespective of delivery.
D. Purchases and sales of Securities effected by the Custodian will be made
on a delivery versus payment basis. The Custodian may, in its sole discretion,
upon receipt of a Certificate, elect to settle a purchase or sale transaction in
some other manner, but only upon receipt of acceptable indemnification from the
Fund.
E. The Custodian shall, upon receipt of a Written Instructions so directing
it, establish and maintain a segregated account or accounts for and on behalf of
the Fund. Cash and/or Securities may be transferred into such account or
accounts for specific purposes, to-wit:
1.) in accordance with the provision of any agreement among the Fund, the
Custodian, and a broker-dealer registered under the Securities and
Exchange Act of 1934, as amended, and also a member of the National
Association of Securities Dealers (NASD) (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange, the Commodity Futures
Trading Commission, any registered contract market, or any similar
organization or organizations requiring escrow or other similar
arrangements in connection with transactions by the Fund;
<PAGE>
2.) for purposes of segregating cash or government securities in
connection with options purchased, sold, or written by the Fund or
commodity futures contracts or options thereon purchased or sold by
the Fund;
3.) for the purpose of compliance by the fund with the procedures required
for reverse repurchase agreements, firm commitment agreements, standby
commitment agreements, and short sales by Act Release No. 10666, or
any subsequent release or releases or rule of the Securities and
Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies; and
4.) for other corporate purposes, ONLY IN THE CASE OF THIS CLAUSE 4 upon
receipt of a copy of a resolution of the Board Of Directors of the
Fund, certified by the Secretary of the Fund, setting forth the
purposes of such segregated account.
F. Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with any Written Instructions to
settle the purchase of any Securities on behalf of the Fund unless there is
sufficient cash in the account(s) at the time or to settle the sale of any
Securities from an account(s) unless such Securities are in deliverable form.
Notwithstanding the foregoing, if the purchase price of such Securities exceeds
the amount of cash in the account(s) at the time of such purchase, the Custodian
may, in its sole discretion, advance the amount of the difference in order to
settle the purchase of such Securities. The amount of any such advance shall be
deemed a loan from the Custodian to the Fund payable on demand and bearing
interest accruing from the date such loan is made up to but not including the
date such loan is repaid at a rate per annum customarily charged by the
Custodian on similar loans.
ARTICLE VII
FUND INDEBTEDNESS
-----------------
In connection with any borrowings by the Fund, the Fund will cause to be
delivered to the Custodian by a bank or broker requiring Securities as
collateral for such borrowings (including the Custodian if the borrowing is from
the Custodian), a notice or undertaking in the form currently employed by such
bank or broker setting forth the amount of collateral. The Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
borrowing: (a) the name of the bank or broker, (b) the amount and terms of the
borrowing, which
<PAGE>
may be set forth by incorporating by reference an attached promissory note duly
endorsed by the Fund, or a loan agreement, (c) the date, and time if known, on
which the loan is to be entered into, (d) the date on which the loan becomes due
and payable, (e) the total amount payable to the Fund on the borrowing date, and
(f) the description of the Securities securing the loan, including the name of
the issuer, the title and the number of shares or the principal amount. The
Custodian shall deliver on the borrowing date specified in the Certificate the
required collateral against the lender's delivery of the total loan amount then
payable, provided that the same conforms to that which is described in the
Certificate. The Custodian shall deliver, in the manner directed by the Fund,
such Securities as additional collateral, as may be specified in a Certificate,
to secure further any transaction described in this Article VII. The Fund shall
cause all Securities released from collateral status to be returned directly to
the Custodian and the Custodian shall receive from time to time such return of
collateral as may be tendered to it.
The Custodian may, at the option of the lender, keep such collateral in its
possession, subject to all rights therein given to the lender because of the
loan. The Custodian may require such reasonable conditions regarding such
collateral and its dealings with third-party lenders as it may deem appropriate.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
A. Except as otherwise provided herein, the Custodian shall not be liable
for any loss or damage resulting from its action or omission to act or
otherwise, except for any such loss or damage arising out of its own gross
negligence or willful misconduct. The Fund shall defend, indemnify and hold
harmless the Custodian and its directors, officers, employees and agents with
respect to any loss, claim, liability or cost (including reasonable attorneys'
fees) arising or alleged to arise from or relating to the Fund's duties
hereunder or any other action or inaction of the Fund or its Directors,
officers, employees or agents, except such as may arise from the negligent
action, omission, willful misconduct or breach of this Agreement by the
Custodian. The Custodian may, with respect to questions of law, apply for and
obtain the advice and opinion of counsel, at the expense of the Fund, and shall
be fully protected with respect to anything done or omitted by it in good faith
in conformity with the advice or opinion of counsel. The provisions under this
paragraph shall survive the termination of this Agreement.
B. Without limiting the generality of the foregoing, the Custodian, acting
in the capacity of Custodian hereunder, shall be under no obligation to inquire
into, and shall not be liable for:
<PAGE>
1.) The validity of the issue of any Securities purchased by or for the
account of the Fund, the legality of the purchase thereof, or the
propriety of the amount paid therefor;
2.) The legality of the sale of any Securities by or for the account of
the Fund, or the propriety of the amount for which the same are sold;
3.) The legality of the issue or sale of any shares of the Fund, or the
sufficiency of the amount to be received therefor;
4.) The legality of the redemption of any shares of the Fund, or the
propriety of the amount to be paid therefor;
5.) The legality of the declaration or payment of any dividend by the Fund
in respect of shares of the Fund;
6.) The legality of any borrowing by the Fund on behalf of the Fund, using
Securities as collateral;
C. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount due to the Fund from any Dividend and
Transfer Agent of the Fund nor to take any action to effect payment or
distribution by any Dividend and Transfer Agent of the Fund of any amount paid
by the Custodian to any Dividend and Transfer Agent of the Fund in accordance
with this Agreement.
D. Notwithstanding Section D of Article V, the Custodian shall not be under
any duty or obligation to take action to effect collection of any amount, if the
Securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by a Certificate and (ii) it shall be assured to
its satisfaction (including prepayment thereof) of reimbursement of its costs
and expenses in connection with any such action.
<PAGE>
E. The Fund acknowledges and hereby authorizes the Custodian to hold
Securities through its various agents described in Appendix B annexed hereto.
The Fund hereby represents that such authorization has been duly approved by the
Board Of Directors of the Fund as required by the Act. The Custodian
acknowledges that although certain Fund Assets are held by its agents, the
Custodian remains primarily liable for the safekeeping of the Fund Assets.
In addition, the Fund acknowledges that the Custodian may appoint one or
more financial institutions, as agent or agents or as sub-custodian or
sub-custodians, including, but not limited to, banking institutions located in
foreign countries, for the purpose of holding Securities and moneys at any time
owned by the Fund. The Custodian shall not be relieved of any obligation or
liability under this Agreement in connection with the appointment or activities
of such agents or sub-custodians. Any such agent or sub-custodian shall be
qualified to serve as such for assets of investment companies registered under
the Act. Upon request, the Custodian shall promptly forward to the Fund any
documents it receives from any agent or sub-custodian appointed hereunder which
may assist trustees of registered investment companies fulfill their
responsibilities under Rule 17f-5 of the Act.
F. The Custodian shall not be under any duty or obligation to ascertain
whether any Securities at any time delivered to or held by it for the account of
the Fund are such as properly may be held by the Fund under the provisions of
the Articles of Incorporation and the Fund's By-Laws.
G. The Custodian shall treat all records and other information relating to
the Fund and the Fund Assets as confidential and shall not disclose any such
records or information to any other person unless (i) the Fund shall have
consented thereto in writing or (ii) such disclosure is required by law.
<PAGE>
H. The Custodian shall be entitled to receive and the Adviser agrees to pay
to the Custodian such compensation as shall be determined pursuant to Appendix D
attached hereto, or as shall be determined pursuant to amendments to such
Appendix D. In the event that the Adviser fails to pay such compensation to the
Custodian within 30 days of receipt of an invoice therefore, the Custodian shall
be entitled to charge against any money held by it for the account of the Fund,
the amount of any of its fees, any loss, damage, liability or expense, including
counsel fees. The expenses which the Custodian may charge against the account of
the Fund include, but are not limited to, the expenses of agents or
sub-custodians incurred in settling transactions involving the purchase and sale
of Securities of the Fund.
I. The Custodian shall be entitled to rely upon any Oral Instructions and
any Written Instructions. The Fund agrees to forward to the Custodian Written
Instructions confirming Oral Instructions in such a manner so that such Written
Instructions are received by the Custodian, whether by hand delivery, facsimile
or otherwise, on the same business day on which such Oral Instructions were
given. The Fund agrees that the failure of the Custodian to receive such
confirming instructions shall in no way affect the validity of the transactions
or enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund for acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions.
J. The Custodian will (i) set up and maintain proper books of account and
complete records of all transactions in the accounts maintained by the Custodian
hereunder in such manner as will meet the obligations of the Fund under the Act,
with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder and those records are the property of the Fund,
<PAGE>
and (ii) preserve for the periods prescribed by applicable Federal statute or
regulation all records required to be so preserved. All such books and records
shall be the property of the Fund, and shall be open to inspection and audit at
reasonable times and with prior notice by Officers and auditors employed by the
Fund.
K. The Custodian shall send to the Fund any report received on the systems
of internal accounting control of the Custodian, or its agents or
sub-custodians, as the Fund may reasonably request from time to time.
L. The Custodian performs only the services of a custodian and shall have
no responsibility for the management, investment or reinvestment of the
Securities from time to time owned by the Fund. The Custodian is not a selling
agent for shares of the Fund and performance of its duties as custodian shall
not be deemed to be a recommendation to the Fund's depositors or others of
shares of the Fund as an investment.
M. The Custodian shall take all reasonable action that the Fund may from
time to time request to assist the Fund in obtaining favorable opinions from the
Fund's independent accountants with respect to the Custodian's activities
hereunder, in connection with the preparation of the Fund's Form N-1A, Form
N-SAR, or other annual reports to the Securities and Exchange Commission.
N. The Fund hereby pledges to and grants the Custodian a security interest
in any Fund Assets to secure the payment of any liabilities of the Fund to the
Custodian, whether acting in its capacity as Custodian or otherwise, or on
account of money borrowed from the Custodian. This pledge is in addition to any
other pledge of collateral by the Fund to the Custodian.
<PAGE>
ARTICLE IX
FORCE MAJEURE
-------------
Neither the Custodian nor the Corporation shall be liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control, including, without limitation, acts of God; earthquakes; fires; floods;
wars; civil or military disturbances; sabotage; strikes; epidemics; riots; labor
disputes; acts of civil or military authority; governmental actions; or
inability to obtain labor, material, equipment or transportation; provided,
however, that the Custodian, in the event of a failure or delay, shall use its
best efforts to ameliorate the effects of such failure or delay.
ARTICLE X
TERMINATION
-----------
A. The Fund or the Custodian may terminate this Agreement for any reason by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. If such notice is given by the Fund, it shall be
accompanied by a copy of a resolution of the Board Of Directors of the Fund,
certified by the Secretary of the Fund, electing to terminate this Agreement and
designating a successor custodian or custodians. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board Of Directors of the
Fund, certified by the Secretary, designating a successor custodian or
custodians to act on behalf of the Fund. In the absence of such designation by
the Fund, the Custodian may designate a successor custodian which shall be a
bank or trust company having not less than $100,000,000 aggregate capital,
surplus, and undivided profits. Upon the date set forth in such notice this
Agreement shall terminate, and the Custodian, provided that it has received a
notice of acceptance by the successor custodian, shall deliver, on that date,
directly to the successor custodian all Securities
<PAGE>
and moneys then owned by the Fund and held by it as Custodian. Upon termination
of this Agreement, the Fund shall pay to the Custodian on behalf of the Fund
such compensation as may be due as of the date of such termination. The Fund
agrees on behalf of the Fund that the Custodian shall be reimbursed for its
reasonable costs in connection with the termination of this Agreement.
B. If a successor custodian is not designated by the Fund, or by the
Custodian in accordance with the preceding paragraph, or the designated
successor cannot or will not serve, the Fund shall, upon the delivery by the
Custodian to the Fund of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund, be deemed to be the custodian for the Fund, and the Custodian shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement, other than the duty with respect to Securities held in the Book-Entry
System, which cannot be delivered to the Fund, which shall be held by the
Custodian in accordance with this Agreement.
ARTICLE XI
MISCELLANEOUS
-------------
A. Appendix A sets forth the names and the signatures of all Authorized
Persons, as certified by the Secretary of the Fund. The Fund agrees to furnish
to the Custodian a new Appendix A in form similar to the attached Appendix A, if
any present Authorized Person ceases to be an Authorized Person or if any other
or additional Authorized Persons are elected or appointed. Until such new
Appendix A shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the then current Authorized Persons as set forth in the last delivered Appendix
A.
<PAGE>
B. No recourse under any obligation of this Agreement or for any claim
based thereon shall be had against any organizer, shareholder, Officer,
Director, past, present or future as such, of the Fund or of any predecessor or
successor, either directly or through the Fund or any such predecessor or
successor, whether by virtue of any constitution, statute or rule of law or
equity, or be the enforcement of any assessment or penalty or otherwise; it
being expressly agreed and understood that this Agreement and the obligations
thereunder are enforceable solely against the Fund, and that no such personal
liability whatever shall attach to, or is or shall be incurred by, the
organizers, shareholders, Officers, Directors of the Fund or of any predecessor
or successor, or any of them as such. To the extent that any such liability
exists, it is hereby expressly waived and released by the Custodian as a
condition of, and as a consideration for, the execution of this Agreement.
C. The obligations set forth in this Agreement as having been made by the
Fund have been made by the Board Of Directors, acting as such Directors for and
on behalf of the Fund, pursuant to the authority vested in them under the laws
of the State of Maryland, the Articles of Incorporation and the By-Laws of the
Fund. This Agreement has been executed by Officers of the Fund as officers, and
not individually, and the obligations contained herein are not binding upon any
of the Directors, Officers, agents or holders of shares, personally, but bind
only the Fund.
D. Provisions of the Prospectus and any other documents (including
advertising material) specifically mentioning the Custodian (other than merely
by name and address) shall be reviewed with the Custodian by the Fund prior to
publication and/or dissemination or distribution, and shall be subject to the
consent of the Custodian.
E. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the
<PAGE>
Custodian and mailed or delivered to it at its offices at Firstar Center, 425
Walnut Street, M. L. 6118, Cincinnati, Ohio 45202, attention Mutual Fund Custody
Department, or at such other place as the Custodian may from time to time
designate in writing.
F. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given when
delivered to the Fund or on the second business day following the time such
notice is deposited in the U.S. mail postage prepaid and addressed to the Fund
at its office at One North Church Street, Schenectady, NY 12305, or at such
other place as the Fund may from time to time designate in writing.
G. This Agreement, with the exception of the Appendices, may not be amended
or modified in any manner except by a written agreement executed by both parties
with the same formality as this Agreement, and authorized and approved by a
resolution of the Board Of Directors of the Fund.
H. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund or by the Custodian, and no
attempted assignment by the Fund or the Custodian shall be effective without the
written consent of the other party hereto.
I. This Agreement shall be construed in accordance with the laws of the
State of Ohio.
J. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and year first above written.
ATTEST: ELECTRIC CITY FUNDS, INC.
__________________________ By: _________________________
James W. Denney
Its: President
ATTEST: FIRSTAR BANK, N.A.
__________________________ By: _________________________
Marsha A. Croxton
Its: Senior Vice President
ATTEST: MOHAWK ASSET MANAGEMENT, INC.
__________________________ By: _________________________
James W. Denney
Its: President
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
Authorized Persons Specimen Signatures
<S> <C> <C>
Chairman: James W. Denney _______________________
President: James W. Denney _______________________
Secretary: Bill R. Werner _______________________
Treasurer: James W. Denney _______________________
Controller: _______________________ _______________________
Adviser Employees: _______________________ _______________________
_______________________ _______________________
_______________________ _______________________
Transfer Agent/Fund Accountant
Employees:
Gregory Getts _______________________
_______________________ _______________________
_______________________ _______________________
</TABLE>
<PAGE>
APPENDIX B
The following agents are employed currently by Firstar Bank, N.A. for securities
processing and control . . .
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bank of New York
1 Wall St
New York, NY 10286
(For Foreign Securities and certain non-DTC eligible Securities)
<PAGE>
APPENDIX C
STANDARDS OF SERVICE GUIDE
<PAGE>
[GRAPHIC OMITTED]
Firstar Institutional
Custody Services
Standard of Services Guide
Firstar Institutional Custody Services
425 Walnut Street, 6th Floor
M.L. 6118
Cincinnati, OH 45202
July, 1999
<PAGE>
FIRSTAR INSTITUTIONAL CUSTODY SERVICES
STANDARDS OF SERVICE GUIDE
Firstar Bank, N.A. is committed to providing superior quality service to
all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Firstar Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Firstar Bank will make every effort to complete all
processing on a timely basis.
Firstar Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Firstar Bank utilizes SEI's Reorg Source,
Financial Information, Inc., XCITEK, DTC Important Notices, and the Wall Street
Journal.
For bond calls and mandatory puts, Firstar Bank utilizes SEI's Bond Source,
Kenny Information Systems, Standard & Poor's Corporation, and DTC Important
Notices. Firstar Bank will not notify clients of optional put opportunities.
Any securities delivered free to Firstar Bank or its agents must be
received three (3) business days prior to any payment or settlement in order for
the Firstar Bank standards of service to apply.
Should you have any questions regarding the information contained in
this guide, please feel free to contact your account representative.
The information contained in this Standards of Service Guide is subject to
change. Should any changes be made Firstar Bank will provide you with an
updated copy of its Standards of Service Guide.
<PAGE>
FIRSTAR BANK SECURITY SETTLEMENT STANDARDS
<TABLE>
<CAPTION>
TRANSACTION TYPE INSTRUCTIONS DEADLINES* DELIVERY INSTRUCTIONS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DTC 1:30 P.M. on Settlement Date DTC Participant #2803
Agent Bank ID 27895
Institutional #________________
For Account #____________
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of Cinti/Trust
for Firstar Bank, N.A. ABA# 042000013
For Account #_____________
Fed Wireable FNMA & FHLMC 12:30 P.M. on Settlement Date Bk of NYC/Cust
ABA 021000018
A/C Firstar Bank # 117612
For Account #____________
Federal Reserve Book Entry (Repurchase 1:00 P.M. on Settlement Date Federal Reserve Bank of Cinti/Spec
Agreement Collateral Only) for Firstar Bank, N.A. ABA# 042000013
For Account #_____________
PTC Securities 12:00 P.M. on Settlement Date PTC For Account BYORK
(GNMA Book Entry) Firstar Bank / 117612
Physical Securities 9:30 A.M. EST on Settlement Date Bank of New York
(for Deliveries, by 4:00 P.M. on One Wall Street- 3rd Floor - Window A
Settlement Date minus 1) New York, NY 10286
For account of Firstar Bank / Cust #117612
Attn: Donald Hoover
CEDEL/EURO-CLEAR 11:00 A..M. on Settlement Cedel a/c 55021
Date minus 2 FFC: a/c 387000
Firstar Bank / Global Omnibus
Cash Wire Transfer 3:00 P.M. Firstar Bank,N.A. Cinti/Trust ABA# 042000013
Credit Account #9901877
Further Credit to ___________
Account # _______________
</TABLE>
* All times listed are Eastern Standard Time.
<PAGE>
FIRSTAR BANK PAYMENT STANDARDS
<TABLE>
<CAPTION>
SECURITY TYPE INCOME PRINCIPAL
<S> <C> <C>
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank Book Entry* Payable Date Payable Date
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs *
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Certificates* Payable Date Payable Date
Certificates of Deposit* Payable Date + 1 Payable Date + 1
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
</TABLE>
NOTE: If a payable date falls on a weekend or bank holiday, payment will be
made on the immediately following business day.
<PAGE>
FIRSTAR BANK CORPORATE REORGANIZATION STANDARDS
<TABLE>
<CAPTION>
TYPE OF ACTION NOTIFICATION TO CLIENT DEADLINE FOR CLIENT INSTRUCTIONS TRANSACTION
TO FIRSTAR BANK POSTING
<S> <C> <C> <C>
Rights, Warrants, Later of 10 business days prior to 5 business days prior to expiration Upon receipt
and Optional Mergers expiration or receipt of notice
Mandatory Puts with Later of 10 business days prior to 5 business days prior to expiration Upon receipt
Option to Retain expiration or receipt of notice
Class Actions 10 business days prior to expiration date 5 business days prior to expiration Upon receipt
Voluntary Tenders, Later of 10 business days prior to 5 business days prior to expiration Upon receipt
Exchanges, expiration or receipt of notice
and Conversions
Mandatory Puts, Defaults, At posting of funds or securities received None Upon receipt
Liquidations, Bankruptcies, Stock
Splits, Mandatory Exchanges
Full and Partial Calls Later of 10 business days prior to None Upon receipt
expiration or receipt of notice
</TABLE>
NOTE: Fractional shares/par amounts resulting from any of the above will be
sold.
<PAGE>
APPENDIX D
SCHEDULE OF COMPENSATION
- --------------------------------------------------------------------------------
Exhibit 23K
Opinion and Consent of McCurdy & Associates CPA's, Inc.
OPINION OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying statement of assets and liabilities of the
Electric City Funds, Inc. (comprised of the Electric City Value Fund) as of
December 27, 1999. The financial statement is the responsibility of management.
Our responsibility is to express an opinion on this financial statement 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 statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of December 27, 1999, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, iun all material respects, the financial position of the
Electric City Value Fund as of December 27, 1999, in conformity with generally
accepted accounting principles.
/s/ McCurdy & Associates CPA's, Inc.
McCURDY & ASSOCIATES, CPA'S, INC.
Westlake, Ohio
December 27, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Pre-effective Amendment No. 2 to the Registration Statement for the Electric
City Funds, Inc. of all references to our firm included in or made a part of
this Amendment.
McCurdy & Associates CPA's, Inc.
December 27, 1999
- --------------------------------------------------------------------------------
Exhibit 23M
Subscription Agreements from Initial Shareholders
SUBSCRIPTION AGREEMENT
Electric City Funds, Inc.
One North Church Street
Schenectady, NY 12305
Gentlemen:
The undersigned ("Subscriber") hereby subscribes for and agrees to acquire
from Electric City Funds, Inc., a corporation incorporated under the laws of the
State of Maryland (the "Corporation"), the number of shares of $.0001 par value
Common stock of The Electric City Value Fund (the "Shares") of the Corporation
shown below in consideration of a cash contribution of $45,000.00 ($10.00 per
share).
Subscriber hereby represents and warrants to the Corporation that:
(a) Subscriber hereby acknowledges and agrees that the shares will be issued in
reliance upon the exemption from registration contained in Section 4(2) of
the Securities Act of 1933 (the "Securities Act"), and that such Shares
will or may also be issued in reliance upon the exemptions from
registration contained in relevant sections of the Maryland Securities Act
and/or comparable exemptions contained in the securities laws of other
jurisdictions to the extent applicable, and that the transfer of such
shares may be restricted or limited as a condition to the availability of
such exemptions.
(b) The shares are being purchased for investment for the account of the
undersigned and without the intent of participating directly or indirectly
in a distribution of such Shares, and the Shares will not be transferred
except in a transaction that is in compliance with any and all applicable
securities laws.
(c) Subscriber has been supplied with, or has had access to, all information,
including financial statements and other financial information, of the
Corporation, to which a reasonable investor would attach significance in
making investment decisions, and has had the opportunity to ask questions
of, and receive answers from, knowledgeable individuals concerning the
Corporation and the Shares.
(d) Subscriber understands that no registration statement or prospectus with
respect to the corporation or the shares is yet effective, and Subscriber
has made his own inquiry and analysis with respect to the Corporation and
the shares.
(e) Subscriber personally, or together with his purchaser representative, has
such knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the
Corporation and the Shares.
(f) Subscriber is financially able to bear the economic risk of this
investment, can afford to hold the shares for an indefinite period and can
afford a complete loss of this investment
Dated as of the 19th day of December, 1999.
Shares of
The Electric City Value Fund Subscribed Purchase Amount
4,500 $45,000.00
SUBSCRIBED BY:
/s/ Emerose B. Werner
- ---------------------
By: EMEROSE B. WERNER
ACCEPTED BY
ELECTRIC CITY FUNDS, INC.
/s/ James W. Denney
- --------------------
By: JAMES W. DENNEY
Its: President
<PAGE>
SUBSCRIPTION AGREEMENT
Electric City Funds, Inc.
One North Church Street
Schenectady, NY 12305
Gentlemen:
The undersigned ("Subscriber") hereby subscribes for and agrees to acquire
from Electric City Funds, Inc., a corporation incorporated under the laws of the
State of Maryland (the "Corporation"), the number of shares of $.0001 par value
Common stock of The Electric City Value Fund (the "Shares") of the Corporation
shown below in consideration of a cash contribution of $30,000.00 ($10.00 per
share).
Subscriber hereby represents and warrants to the Corporation that:
(g) Subscriber hereby acknowledges and agrees that the shares will be issued in
reliance upon the exemption from registration contained in Section 4(2) of
the Securities Act of 1933 (the "Securities Act"), and that such Shares
will or may also be issued in reliance upon the exemptions from
registration contained in relevant sections of the Maryland Securities Act
and/or comparable exemptions contained in the securities laws of other
jurisdictions to the extent applicable, and that the transfer of such
shares may be restricted or limited as a condition to the availability of
such exemptions.
(h) The shares are being purchased for investment for the account of the
undersigned and without the intent of participating directly or indirectly
in a distribution of such Shares, and the Shares will not be transferred
except in a transaction that is in compliance with any and all applicable
securities laws.
(i) Subscriber has been supplied with, or has had access to, all information,
including financial statements and other financial information, of the
Corporation, to which a reasonable investor would attach significance in
making investment decisions, and has had the opportunity to ask questions
of, and receive answers from, knowledgeable individuals concerning the
Corporation and the Shares.
(j) Subscriber understands that no registration statement or prospectus with
respect to the corporation or the shares is yet effective, and Subscriber
has made his own inquiry and analysis with respect to the Corporation and
the shares.
(k) Subscriber personally, or together with his purchaser representative, has
such knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the
Corporation and the Shares.
(l) Subscriber is financially able to bear the economic risk of this
investment, can afford to hold the shares for an indefinite period and can
afford a complete loss of this investment
Dated as of the 20th day of December, 1999.
Shares of
The Electric City Value Fund Subscribed Purchase Amount
3,000 $30,000.00
SUBSCRIBED BY:
/s/ James R. Denney, Jr.
- ------------------------
By: JAMES R. DENNEY, JR.
ACCEPTED BY
ELECTRIC CITY FUNDS, INC.
/s/ James W. Denney
- --------------------
By: JAMES W. DENNEY
Its: President
<PAGE>
SUBSCRIPTION AGREEMENT
Electric City Funds, Inc.
One North Church Street
Schenectady, NY 12305
Gentlemen:
The undersigned ("Subscriber") hereby subscribes for and agrees to acquire
from Electric City Funds, Inc., a corporation incorporated under the laws of the
State of Maryland (the "Corporation"), the number of shares of $.0001 par value
Common stock of The Electric City Value Fund (the "Shares") of the Corporation
shown below in consideration of a cash contribution of $25,000.00 ($10.00 per
share).
Subscriber hereby represents and warrants to the Corporation that:
(m) Subscriber hereby acknowledges and agrees that the shares will be issued in
reliance upon the exemption from registration contained in Section 4(2) of
the Securities Act of 1933 (the "Securities Act"), and that such Shares
will or may also be issued in reliance upon the exemptions from
registration contained in relevant sections of the Maryland Securities Act
and/or comparable exemptions contained in the securities laws of other
jurisdictions to the extent applicable, and that the transfer of such
shares may be restricted or limited as a condition to the availability of
such exemptions.
(n) The shares are being purchased for investment for the account of the
undersigned and without the intent of participating directly or indirectly
in a distribution of such Shares, and the Shares will not be transferred
except in a transaction that is in compliance with any and all applicable
securities laws.
(o) Subscriber has been supplied with, or has had access to, all information,
including financial statements and other financial information, of the
Corporation, to which a reasonable investor would attach significance in
making investment decisions, and has had the opportunity to ask questions
of, and receive answers from, knowledgeable individuals concerning the
Corporation and the Shares.
(p) Subscriber understands that no registration statement or prospectus with
respect to the corporation or the shares is yet effective, and Subscriber
has made his own inquiry and analysis with respect to the Corporation and
the shares.
(q) Subscriber personally, or together with his purchaser representative, has
such knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the
Corporation and the Shares.
(r) Subscriber is financially able to bear the economic risk of this
investment, can afford to hold the shares for an indefinite period and can
afford a complete loss of this investment
Dated as of the 19th day of December, 1999.
Shares of
The Electric City Value Fund Subscribed Purchase Amount
2,500 $25,000.00
SUBSCRIBED BY:
/s/ Bill R. Werner
- -----------------------
By: BILL R. WERNER, IRA
ACCEPTED BY
ELECTRIC CITY FUNDS, INC.
/s/ James W. Denney
- --------------------
By: JAMES W. DENNEY
Its: President
