Alabama Annuity News

In The Matter Of Kelmoore Investment Company, Inc.

The Commission issued Order Instituting Administrative andCease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of the Securities Actof 1933 Section15(b) of theSecurities Exchange Act of 1934, Section 203(e) of the Investment Advisers Act o1940, and Sections 9(b) and 9(f) of the Investment Company Act of 1940 bn(Order) against KelmooreInvestment Company,Inc. (Kelmoore). The Order finds that the Palo Alto-based investment adviserpurported to charge investors 1% advisory fee. However,if Kelmoore had adequately disclosed all its advisory charges,the feeswould have ranged from 1.5% to over 3%. Without admitting& or denying the Commission's findings, Kelmoore agreed to pay a $100,000 penalty and to undertake certain compliance reforms.

The Commission finds that from 1999 to 2005, Kelmoore acted as both investment adviser and securities broker for five mutual funds.Kelmoore's fund prospectuses and related documents informed investors that it charged an advisory fee totaling 1% of assets under management. According to the Order, these documents suggested that all of the significant advisory services performed by Kelmoore were covered by the 1% fee. However, the Commission's Order finds that Kelmoore failed to inform investors& that the firm internally categorized most services it was providing brokerage, rather than advisory, and was charging investors substantial brokerage commissions on top of the 1% fee. According to the Order, had Kelmoore actually calculated the fee in the manner suggested by its written disclosures,the fee would have been as high as 3.63%. As a result of the misleading disclosures, the Commission finds, it would have been difficult for investors to understand the actual amount& they were paying for advisory services or make an informed investmentbs decision when comparing the Kelmoore Funds to other mutual funds.

The Order finds that Kelmoore violated Section 17(a)(3) of the Securities Act of 1933 and Section 34(b) of the Investment Company Act and requires Kelmoore to cease and desist from violating these provisions, pay a $100,000 penalty and undertake certain compliance reforms. (Rels. 33-8774; 34-55123; IA-2581; IC-27667; File No. 3-12541)

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	Did You Know?
	The NASD Reminds Members of Their Responsibilities Regarding the Sales of Variable Annuities NASD is an independent self-regulatory organization charged with regulating the securities industry, including sellers of variable annuities. The NASD recently issued a release to its members reminding them of their responsibilities to investors in selling variable annuities (NASD Notice 99-35, "The NASD Reminds Members of Their Responsibilities Regarding the Sales of Variable Annuities").