AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
ON 08/06/99
FILE NOS: 811-____
333-_____
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDERTHE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
(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
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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
PMB # 134
518 Kimberton Road
Phoenixville, Pennsylvania 19460
610-718-5381
------------
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>
PART A
THE ELECTRIC CITY VALUE FUND
(the "Fund")
A SERIES OF ELECTRIC CITY FUNDS, INC.
One North Church Street
Schenectady, NY 12305
518-370-0289
Or toll-free at 1-800-___-____
PROSPECTUS
OCTOBER 20, 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.
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<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
2
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THE FUND
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to maximize 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 Total Return is best achieved by investing
in companies that exhibit the potential for significant increases in total
return over the long term. The Adviser believes that long-term is a time
horizon of at least three years. While the Adviser will consider current
income in selecting common stocks for the Fund, its importance is secondary
to the company's potential for capital appreciation. Accordingly, the Fund
attempts to achieve its investment objective 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 30 companies.
To choose the securities in which the Fund will invest, the Adviser seeks
to identify companies which exhibit some or all of the following criteria:
o companies that have a solid financial condition;
o companies or industries which are temporarily out of favor;
o companies that have undervalued or overlooked assets;
o companies that have favorable insider ownership trends;
o companies that have a consistent dividend history;
o companies that are not widely owned or followed by institutional
investors;
o companies that have experienced or are 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 management efforts to unlock company value;
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
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The Fund will normally invest its remaining assets 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. Your risk of loss is greater if you hold your investment for
shorter time periods. 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.
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.
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
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.
4
<PAGE>
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.
Market Risk- 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.
Management Risk- Acting as investment adviser to the Fund is a new position
for the Adviser, and the Fund has no operating history. The Adviser and
Fund's lack of experience and performance history may pose additional
risks.
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 taking steps to address
the Y2K problem with respect to the computer systems that they use and to
obtain assurances that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the
Fund. 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 preparedness. However, there can be no assurance that the
Fund's portfolio will not be adversely affected by the Y2K problem.
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.
Performance information will be included in the Fund's first semi-annual
and annual reports, which will be issued after the end of the Fund's first
six months of operations and after the end of the Fund's fiscal year.
5
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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
(as a percentage of offering price)
Maximum Deferred Sales Charge (Load) NONE
(as a percentage of redemption amount)
Maximum Sales Charge (Load) NONE
Imposed on Reinvested Dividends
And other Distributions
Redemption Fees NONE
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%
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.
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.
6
<PAGE>
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
- ------------------
Mohawk Asset Management, Inc. (the "Adviser"), One North Church Street,
Schenectady, New York 12305, the investment adviser to the Fund, is an
investment advisory company founded as a sole proprietorship in 1994 and
incorporated in ________, 1999. The Adviser provides 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. The Adviser manages
the investment portfolio and business affairs of the Fund under an Investment
Advisory Agreement with the Fund, and manages, or arranges to manage, the daily
operations of the Fund under an Operating Services Agreement.
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 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.
Investment Advisory Agreement.
- ------------------------------
The Company has entered into an Investment Advisory Agreement with the Adviser.
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. At all times
the Adviser's actions on behalf of the Fund are subject to the overall
supervision and review of the Board of Directors of the Company.
7
<PAGE>
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 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.
Operating Services Agreement.
- -----------------------------
The Company has also entered into an Operating Services Agreement with the
Adviser ("Services Agreement"). Under the terms of the Services Agreement, the
Adviser provides, or arranges to provide, day-to-day operational services to the
Fund including, but not limited to;
1. accounting 6. custodial
2. administrative 7. fund share distribution
3. legal (except litigation) 8. shareholder reporting
4. dividend disbursing and transfer agent 9. sub-accounting, and
5. registrar 10. record keeping services
For its services to the Fund under this Agreement, the Fund pays to the Adviser,
on the last day of each month, a fee equal to 0.70% of average net asset value
of the Fund, such fee to be computed daily based upon the net asset value of the
Fund.
Under the Services Agreement, the Adviser may, with the Company's permission,
employ third parties to assist it in performing the various services required of
the Fund. The Adviser is responsible for compensating such parties.
The effect of the Investment Advisory Agreement and the Operating Services
Agreement is to place a "cap" on the Fund's normal operating expenses at 1.65%.
The only other expenses which may be incurred by the Fund are brokerage fees,
taxes, if any, legal fees relating to Fund litigation, and other extraordinary
expenses.
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.
8
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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.
The 12b-1 Plan provides that the Fund may finance activities which are primarily
intended to result in the sale of the Fund's shares. These services include,
among other things, processing new shareholder account applications, preparing
and transmitting to the Fund's Transfer Agent computer processable tapes of all
transactions by customers, and serving as the primary source of information to
customers in answering questions concerning the Fund and their transactions with
the Fund.
Payments under the 12b-1 Plan are not tied exclusively to the distribution
and/or shareholder servicing expenses actually incurred by the Adviser, and such
payments, if made, may exceed the expenses actually incurred. The Fund's Board
of Directors evaluates the Plan on a regular basis.
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.
Your purchase of Fund shares is subject to the following minimum investment
amounts:
MINIMUM MINIMUM
TYPE OF INVESTMENT SUBSEQUENT
ACCOUNT TO OPEN ACCOUNT INVESTMENTS
REGULAR $1,000 $100
IRAs $1,000 $100
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN MEMBERS
- --------------------------------------------------------------------------------
REGULAR $1,000 $100 per month minimum
IRAs $1,000 $100 per month minimum
- --------------------------------------------------------------------------------
9
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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-___-____.
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 [Transfer Agent]
123 Main Street, Suite 100
City, State 12345
Your purchase order, if accompanied by payment, will be processed upon receipt
by [Transfer Agent], 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:
Chosen 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-___-____ 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.
10
<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 on page __ of this prospectus. You may only select this option if
you have an account maintained at a domestic financial institution which is an
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-___-____.
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
Automatic Clearing House. 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 Automated Clearing House. 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.
[Transfer Agent], 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 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
11
<PAGE>
risk of any loss unless the Fund has failed to follow procedures such as the
above. However, if the Fund fails to follow such procedures, it may be liable
for such losses.
Miscellaneous Purchase Information
- ----------------------------------
All applications to purchase shares of the Fund are subject to acceptance or
rejection by authorized officers of the Company and are not binding until
accepted. Applications will not be accepted unless they are accompanied by
payment in U.S. funds. Payment must be made by 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. The
Company reserves the right to refuse to accept applications under circumstances
or in amounts considered disadvantageous to shareholders. 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.
For economy and convenience, share certificates will not be issued.
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:
[Transfer Agent]
123 Main Street, Suite 100
City, State 12345
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. 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.
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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.
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.
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-___-____ 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.
13
<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 [Transfer Agent], 123
Main Street, Suite 100, City, State 12345.
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.
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<PAGE>
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 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.
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. Please
see the SAI for further information on your rights as a shareholder.
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<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 October 20, 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 [Transfer Agent]
123 Main Street, Suite 100
City, State 12345
1-800-___-____
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.
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
Investment Company Act No.
811-_____
<PAGE>
Part B
STATEMENT OF ADDITIONAL INFORMATION
Dated October 20, 1999
ELECTRIC CITY FUNDS, INC.
One North Church Street
Schenectady, New York 12305
1-800-___-____
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
October 20, 1999. You may obtain a copy of the Prospectus, free of charge, by
writing to Electric City Funds, Inc. c/o [Transfer Agent], 123 Main Street,
Suite 100, City, State 12345 or by calling 1-800-___-____.
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 fluctuate
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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 in vest
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.
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. The Fund will not
invest more than 10% of its assets in REITS.
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.
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
properly regulated 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 enter into such contracts does not exceed five
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<PAGE>
percent (5%) of the Fund's total net assets. When writing covered call options,
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.
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. Entering into such transactions only on
national exchanges and over-the-counter markets with an active and liquid
secondary market will minimize the risk that the Fund will be unable to close
out a position.
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.
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
3
<PAGE>
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.
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. 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 or non-U.S. currencies, 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;
4
<PAGE>
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;
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;
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f. Invest more than 10% of the Fund's assets (valued at time of investment) in
initial margin deposits of options or futures 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.
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 Maryland as an investment advisory corporation in
________1999. The Adviser registered as an Investment Adviser with the
Securities and Exchange Commission in ________ 1999. The Adviser's principal
occupation and business is to provides 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
October 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:
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<PAGE>
One North Church Street
Schenectady, New York 12305
Position Principal Occupation for
Name, Age with Fund The Last Five Years________________
- --------------------------------------------------------------------------------
James W. Denney*; President President of Mohawk Asset Management,
(Age 34) Director Inc., a Registered Investment Adviser
Corporation, since 1994. 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.
* 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 October 31, 2000.
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
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.
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<PAGE>
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.
[n]
Average Annual Total Return is computed as follows: P(1+T) = 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:
6
Yield = 2[(a-b/cd + 1) - 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
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
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<PAGE>
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
generally does not charge sales or redemption fees, the NAV is the offering
price for shares of the Fund. For shares redeemed prior to being held for at
least six months, the redemption value is the NAV less a service fee equal to
0.50% of the NAV.
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.
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.
9
<PAGE>
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.
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,
10
<PAGE>
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 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.
CUSTODIAN
Chosen Bank, 123 Main Street, Anywhere, USA, acts as custodian for the Fund. As
such, Chosen Bank 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. Chosen Bank 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
[Transfer Agent], 123 Main Street, City, State 12345 ("TA") 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, TA is
responsible for administering and performing transfer agent functions, dividend
distribution, shareholder administration, and maintaining necessary records in
accordance with applicable rules and regulations.
11
<PAGE>
For the services to be rendered as transfer agent, The Adviser shall pay
[Transfer Agent] 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
[Transfer Agent], 123 Main Street, City, State 12345 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
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
[Distributor], 123 Main Street, Suite 100, City, State 12345, 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
The Law Offices of David D. Jones, P.C., PMB # 134, 518 Kimberton Road,
Phoenixville, PA 19460, 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
12
<PAGE>
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 is entitled to a fee each month of 0.25% per
annum of average net assets 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., Article III,
Section 26(d)(4).
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.
13
<PAGE>
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.
FINANCIAL STATEMENTS
This is a new Fund without a prior operating history. Accordingly, financial
statements are not available at this time. The Fund will provide financial
statement as, if and when required by law.
<PAGE>
PART C
------
OTHER INFORMATION
Item 23. Financial Statements and Exhibits
(a) Articles of Incorporation---*
(b) By-Laws--- *
(c) Instruments defining rights of Shareholders---None,
See Articles of Incorporation
(d) Investment Advisory Contracts--- Attached as Exhibit 23D
(e) Underwriting Contracts--- *
(f) Bonus or Profit Sharing Contracts--- None
(g) Custodian Agreements--- *
(h) Other Material Contracts---
(h)(1) Operating Services Agreement--- Attached as Exhibit 23H(1)
(h)(2) Transfer Agency Agreement--- *
(i) Legal Opinion--- Attached as Exhibit 23(I)
(j) Other opinions--- *
(k) Omitted Financial statements--- None
(l) Initial Capital Agreements--- *
(m) Rule 12b-1 Plan--- *
(n) Financial Data Schedule--- Not Applicable
* To be filed by amendment
Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
See Caption "Principal Holders of Securities" in the Statement of
Additional Information
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
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.
<PAGE>
(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
---------------------
To Be Filed By Amendment
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 [Transfer Agent], 123 Main Street, City, State 12345.
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 6th day of August, 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 & August 6, 1999
- --------------------------- Director
JAMES W. DENNEY
<PAGE>
EXHIBIT INDEX
EXHIBIT 23D INVESTMENT ADVISORY AGREEMENT
EXHIBIT 23H(1) OPERATING SERVICES AGREEMENT
EXHIBIT 23D
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT
ELECTRIC CITY FUNDS, INC.
This Agreement is made and entered into as of the 15th of October, 1999, by
and between Electric City Funds, Inc., a Maryland corporation (the "Fund"), and
Mohawk Asset Management, Inc., a Maryland corporation ("Adviser").
WHEREAS, the Fund is an open-end management investment company, registered under
the Investment Company Act of 1940, as amended (the "Act"), and is authorized to
issue shares representing interests in the following series:
The Electric City Value Fund (the "Portfolio"); and
WHEREAS, Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, and engages in the business of asset management; and
WHEREAS, the Fund desires to retain Adviser to render certain investment
management services to the Fund and Adviser is willing to render such services;
NOW THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. OBLIGATIONS OF INVESTMENT ADVISER
(A) SERVICES. Adviser agrees to perform the following services (the "Services")
for the Fund:
(1) manage the investment and reinvestment of the Portfolio's assets;
(2) continuously review, supervise, and administer the investment program
of the Portfolio;
1
<PAGE>
(3) determine, in its discretion, the securities to be purchased, retained
or sold (and implement those decisions);
(4) provide the Fund with records concerning Adviser's activities which
the Fund is required to maintain; and
(5) render regular reports to the Fund's officers and directors concerning
Adviser's discharge of the foregoing responsibilities.
Adviser shall discharge the foregoing responsibilities subject to the
general supervision and control of the officers and the directors of the Fund
and in compliance with such policies as the directors may from time to time
establish, and in compliance with the objectives, policies, and limitations of
the Portfolio set forth in the Fund's prospectus and statement of additional
information, as amended from time to time, and with all applicable laws and
regulations. All Services to be furnished by Adviser under this Agreement may be
furnished through the medium of any directors, officers or employees of Adviser
or through such other parties as Adviser may determine from time to time.
Adviser agrees, at its own expense or at the expense of one or more of its
affiliates, to render the Services and to provide the office space, furnishings,
equipment and personnel as may be reasonably required in the judgment of the
Board of Directors of the Fund to perform the Services on the terms and for the
compensation provided herein. Adviser shall authorize and permit any of its
officers, directors and employees, who may be elected as directors or officers
of the Fund, to serve in the capacities in which they are elected.
Except to the extent expressly assumed by Adviser herein and except to the
extent required by law to be paid by Adviser, the Fund shall pay all costs and
expenses in connection with its operation and organization.
(B) BOOKS AND RECORDS. All books and records prepared and maintained by
Adviser for the Fund under this Agreement shall be the property of the Fund and,
upon request therefor, Adviser shall surrender to the Fund such of the books and
records so requested.
2. PORTFOLIO TRANSACTIONS. Adviser is authorized to select the brokers or
dealers that will execute the purchases and sales of portfolio securities for
the Portfolio and is directed to use its best efforts to obtain the best net
results as described in the Fund's prospectus from time to time. Adviser may, in
its discretion, purchase and sell portfolio securities from and to brokers and
dealers who provide the Portfolio with research, analysis, advice and similar
services, and Adviser may pay to these brokers and dealers, in return for
research and analysis, a higher commission or spread than may be charged by
other brokers and dealers, provided that Adviser determines in good faith that
such commission is reasonable in terms either of that particular transaction or
of the overall responsibility of Adviser to the Fund and its other clients and
that the total commission paid by the Fund will be reasonable in relation to the
benefits to the Portfolio over the long-term. Adviser will promptly communicate
to the officers and the directors of the Fund such information relating to
portfolio transactions as they may reasonably request.
2
<PAGE>
3. COMPENSATION OF ADVISER. The Fund will pay to Adviser on the last day of
each month a fee at an annual rate equal to 0.95% of the daily average net asset
value of the Portfolio, such fee to be computed daily based upon the net asset
value of the Portfolio as determined by a valuation made in accordance with the
Fund's procedure for calculating Portfolio net asset value as described in the
Fund's Prospectus and/or Statement of Additional Information. During any period
when the determination of a Portfolio's net asset value is suspended by the
directors of the Fund, the net asset value of a share of the Portfolio as of the
last business day prior to such suspension shall, for the purpose of this
Paragraph 3, be deemed to be net asset value at the close of each succeeding
business day until it is again determined.
4. STATUS OF INVESTMENT ADVISER. The services of Adviser to the Fund are
not to be deemed exclusive, and Adviser shall be free to render similar services
to others so long as its services to the Fund are not impaired thereby. Adviser
shall be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the
Fund in any way or otherwise be deemed an agent of the Fund. Nothing in this
Agreement shall limit or restrict the right of any director, officer or employee
of Adviser, who may also be a director, officer, or employee of the Fund, to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business, whether of a similar
nature or a dissimilar nature.
5. PERMISSIBLE INTERESTS. Directors, agents, and stockholders of the Fund
are or may be interested in Adviser (or any successor thereof) as directors,
partners, officers, or stockholders, or otherwise, and directors, partners,
officers, agents, and stockholders of Adviser are or may be interested in the
Fund as directors, stockholders or otherwise; and Adviser (or any successor) is
or may be interested in the Fund as a stockholder or otherwise.
6. LIABILITY OF INVESTMENT ADVISER. Adviser assumes no responsibility under
this Agreement other than to render the services called for hereunder in good
faith. Adviser shall not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
Investment Company Act of 1940 or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of, or from reckless
disregard by it of its obligations and duties under, this Agreement.
7. TERM. This Agreement shall remain in effect until October 15, 2001, and
from year to year thereafter provided such continuance is approved at least
annually by (1) the vote of a majority of the Board of Directors of the Fund or
(2) a vote of a "majority" (as that term is defined in the Investment Company
Act of 1940) of the Fund's outstanding securities, provided that in either event
the continuance is also approved by the vote of a majority of the directors of
the Fund who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at
meeting called for the purpose of voting on such approval; provided, however,
that;
(a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon 60 days written notice to Adviser;
3
<PAGE>
(b) the Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Act and the Rules thereunder);
and
(c) Adviser may terminate this Agreement without payment of penalty on 60
days written notice to the Fund; and
(d) the terms of paragraph 6 of this Agreement shall survive the
termination of this Agreement.
8. NOTICES. Except as otherwise provided in this Agreement, any notice or
other communication required by or permitted to be given in connection with this
Agreement will be in writing and will be delivered in person or sent by first
class mail, postage prepaid or by prepaid overnight delivery service to the
respective parties as follows:
If to the Fund: If to the Adviser:
- --------------- ------------------
Electric City Funds, Inc. Mohawk Asset Management, Inc.
One North Church Street One North Church Street
Schenectady, NY 12305 Schenectady, NY 12305
James W. Denney James W. Denney
President President
9. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of the Fund's outstanding
voting securities.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and the year first written above.
MOHAWK ASSET
ELECTRIC CITY FUNDS, INC. MANAGEMENT, INC.
- ------------------------------- ------------------------------
By: James W. Denney By: James W. Denney
President President
ATTEST: ATTEST:
- ------------------------------- ------------------------------
By:
---------------------------- ------------------------------
Its: Secretary Its: Secretary
[Corporate Seal] [Corporate Seal]
EXHIBIT 23H(1)
OPERATING SERVICES AGREEMENT
OPERATING SERVICES AGREEMENT
ELECTRIC CITY FUNDS, INC.
THIS AGREEMENT is made and entered into as of the 15TH day of October,
1999, by and between Electric City Funds, Inc., a Maryland corporation (the
"Fund"), and Mohawk Asset Management, Inc., a Maryland corporation (hereinafter
referred to as "Manager").
WHEREAS, the Fund is an open-end management investment company, registered
under the Investment Company Act of 1940, as amended (the "Act"), and authorized
to issue shares representing interests in the following series:
The Electric City Value Fund (the "Portfolio"); and
WHEREAS, Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of asset management
and the provision of certain other administrative and recordkeeping services in
connection therewith; and
WHEREAS, the Fund wishes to engage Manager, to provide, or arrange for the
provision of, certain operational services which are necessary for the
day-to-day operations of the Portfolio in the manner and on the terms and
conditions hereinafter set forth, and Manager wishes to accept such engagement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the Fund and Manager agree as follows:
1. OBLIGATIONS OF MANAGER
(a) Services. The Fund hereby retains Manager to provide, or, upon receipt
of written approval of the Fund arrange for other companies to
provide, the following services to the Portfolio in the manner and to
the extent that such services are reasonably necessary for the
operation of the Portfolio (collectively, the "Services"):
(1) accounting services and functions, including costs and expenses
of any independent public accountants;
(2) non-litigation related legal and compliance services, including
the expenses of maintaining registration and qualification of the
Fund and the Portfolio under federal, state and any other
applicable laws and regulations;
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(3) dividend disbursing agent, dividend reinvestment agent, transfer
agent, and registrar services and functions (including answering
inquiries related to shareholder Portfolio accounts);
(4) custodian and depository services and functions;
(5) distribution, marketing, and/or underwriting services;
(6) independent pricing services;
(7) preparation of reports describing the operations of the
Portfolio, including the costs of providing such reports to
broker-dealers, financial institutions and other organizations
which render services and assistance in connection with the
distribution of shares of the Portfolio;
(8) sub-accounting and recordkeeping services and functions (other
than those books and records required to be maintained by Manager
under the Investment Advisory Agreement between the Fund and
Manager dated October 15, 1999), including maintenance of
shareholder records and shareholder information concerning the
status of their Portfolio accounts by investment advisors,
broker-dealers, financial institutions, and other organizations
on behalf of Manager;
(9) shareholder and board of directors communication services,
including the costs of preparing, printing and distributing
notices of shareholders' meetings, proxy statements,
prospectuses, statements of additional information, Portfolio
reports, and other communications to the Fund's Portfolio
shareholders, as well as all expenses of shareholders' and board
of directors' meetings, including the compensation and
reimbursable expenses of the directors of the Fund;
(10) other day-to-day administrative services, including the costs of
designing, printing, and issuing certificates representing shares
of the Portfolio, and premiums for the fidelity bond maintained
by the Fund pursuant to Section 17(g) of the Act and rules
promulgated thereunder (except for such premiums as may be
allocated to third parties, as insureds thereunder).
(b) Exclusions from Service. Notwithstanding the provisions of Paragraph
1(a) above, the Services shall not include and Manager will not be
responsible for any of the following:
(1) all brokers' commissions, issue and transfer taxes, and other
costs chargeable to the Fund or the Portfolio in connection with
securities transactions to which the Fund or the Portfolio is a
party or in connection with securities owned by the Fund or the
Portfolio;
(2) the interest on indebtedness, if any, incurred by the Fund or the
Portfolio;
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(3) the taxes, including franchise, income, issue, transfer, business
license, and other corporate fees payable by the Fund or the
Portfolio to federal, state, county, city, or other governmental
agents;
(4) the expenses, including fees and disbursements of counsel, in
connection with litigation by or against the Fund or the
Portfolio; and
(5) any other extraordinary expense of the Fund or Portfolio.
(c) Books and Records. All books and records prepared and maintained by
Manager for the Fund under this Agreement shall be the property of the
Fund and, upon request therefor, Manager shall surrender to the Fund
such of the books and records so requested.
(d) Staff and Facilities. Manager assumes and shall pay for maintaining
the staff, personnel, space, equipment and facilities necessary to
perform its obligations under this Agreement.
2. OBLIGATIONS OF THE FUND
(a) Fee. The Fund will pay to Manager on the last day of each month a fee
at an annual rate equal to 0.70% of average net asset of the
Portfolio, such fee to be computed daily based upon the net asset
value of the Portfolio as determined by a valuation made in accordance
with the Fund's procedure for calculating Portfolio net asset value as
described in the Fund's Prospectus and/or Statement of Additional
Information. During any period when the determination of the
Portfolio's net asset value is suspended by the directors of the Fund,
the net asset value of a share of the Portfolio as of the last
business day prior to such suspension shall, for the purpose of this
Paragraph 2(a), be deemed to be the net asset value at the close of
each succeeding business day until it is again determined.
(b) Information. The Fund will, from time to time, furnish or otherwise
make available to Manager such information relating to the business
and affairs of the Portfolio as Manager may reasonably require in
order to discharge its duties and obligations hereunder.
3. TERM.
This Agreement shall remain in effect until October 15, 2001, and from year to
year thereafter provided such continuance is approved at least annually by (1)
the vote of a majority of the Board of Directors of the Fund or (2) a vote of a
"majority" (as that term is defined in the Investment Company Act of 1940) of
the Fund's outstanding securities; provided, however, that;
(a) at any time and without the payment of any penalty, the Fund may
terminate this Agreement upon 90 days written notice to Manager;
(b) this Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Act and the Rules thereunder);
and
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(c) at any time and without the payment of any penalty, Manager may
terminate this Agreement upon 90 days written notice to the Fund.
4. NOTICES.
Except as otherwise provided in this Agreement, any notice or other
communication required by or permitted to be given in connection with this
Agreement will be in writing and will be delivered in person or sent by first
class mail, postage prepaid or by prepaid overnight delivery service to the
respective parties as follows:
If to the Fund: If to the Manager:
--------------- ------------------
Electric City Funds, Inc. Mohawk Asset Management, Inc.
One North Church Street One North Church Street
Schenectady, NY 12305 Schenectady, NY 12305
Attn: James W. Denney Attn: James W. Denney
President President
5. MISCELLANEOUS
(a) Performance Review. Manager will permit representatives of the Fund,
including the Fund's independent auditors, to have reasonable access to the
personnel and records of Manager in order to enable such representatives to
monitor the quality of services being provided and the level of fees due
Manager pursuant to this Agreement. In addition, Manager shall promptly
deliver to the Board of Directors of the Fund such information as may
reasonably be requested from time to time to permit the Board of Directors
to make an informed determination regarding continuation of this Agreement
and the payments contemplated to be made hereunder.
(b) Choice of Law. This Agreement shall be construed in accordance with the
laws of the State of Maryland and the applicable provisions of the Act. To
the extent the applicable law of the State of Maryland or any of the
provisions herein conflict with the applicable provisions of the Act, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
MOHAWK ASSET
ELECTRIC CITY FUNDS, INC. MANAGEMENT, INC.
- ------------------------------- -----------------------------
By: James W. Denney By: James W. Denney
Its: President Its: President
ATTEST: ATTEST:
- ----------------------------- -----------------------------
By: By:
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Secretary Secretary
