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As filed with the Securities and Exchange Commission on February 25, 1999
File No. 333-69365
File No. 811-9165
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. 1 [ X ]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 1 [ X ]
KELMOORE STRATEGIC TRUST
(Exact Name of Registrant as Specified on Charter)
2471 E. Bayshore Road, Suite 501
Palo Alto, California 94303
(Address of Principal Executive Offices)
(800) 486-3717
(Registrant's Telephone Number)
Matthew Kelmon, President
Kelmoore Strategic Trust
2471 E. Bayshore Road, Suite 501
Palo Alto, California 94303
(Name and Address of Agent for Service)
Copies to:
Andre W. Brewster, Esq. Ms. Sandra L. Adams
Howard Rice Nemerovski Canady Falk & Rabkin First Data Investor Services Group
Three Embarcadero Center, 7th Floor 3200 Horizon Drive
San Francisco, CA 94111-4065 King of Prussia, PA 19406-0903
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Title of Securities Being Registered: Shares of Beneficial Interest of the
Kelmoore Strategic Trust.
Registrant has previously registered an indefinite number of shares of
beneficial interest of Kelmoore Strategic Trust pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant will file a notice
pursuant to Rule 24f-2 within ninety days after its fiscal year end.
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[OUTSIDE FRONT COVER]
PROSPECTUS
________________ , 1999
KELMOORE STRATEGY COVERED OPTION FUND
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
(800) __________________
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
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CONTENTS
SUMMARY
What is the Fund? 1
What is the Fund's Primary Goal? 1
What is the Fund's Main Strategy? 1
In what type of securities does the Fund Invest? 1
What are the Fund's Main Risks? 2
Who may want to invest in the Fund? 2
Risk/Return Bar Chart and Table 2
FEES AND EXPENSES OF THE FUND
Shareholder Fees 3
Annual Fund Operating Expenses 3
Example 3
MAIN STRATEGIES 4
MAIN RISKS 5
MANAGEMENT OF THE FUND
Investment Adviser 6
Portfolio Manager 6
Distribution Plan 6
YOUR INVESTMENT
How to Buy Shares 7
How to Sell Shares 8
Transaction Policies 9
SHAREHOLDER SERVICES 10
DISTRIBUTIONS AND TAXES 11
FOR MORE INFORMATION
Shareholder Reports Back Cover
Statement of Additional Information Back Cover
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KELMOORE STRATEGY COVERED OPTION FUND
SUMMARY
WHAT IS THE FUND?
Kelmoore Strategy Covered Option Fund (the "Fund") is a diversified series of
Kelmoore Strategic Trust, an open-end management investment company, commonly
known as a mutual fund.
WHAT IS THE FUND'S PRIMARY GOAL?
The Fund's primary goal is to maximize realized gains from writing covered
options on common stocks. Realized gains may be distributed as cash or
reinvested in additional shares of the Fund. As with any mutual fund, there is
no guarantee that the Fund will achieve its goal.
WHAT IS THE FUND'S MAIN STRATEGY?
The Fund's main strategy is to purchase the common stocks of a limited number of
large companies and to continuously sell or "write" the related covered call
options against substantially all the shares of stock it owns.
When the Fund purchases a stock, it simultaneously writes covered call
options on the stock. The options written by the Fund are considered "covered"
because the Fund owns the stock against which the options are written. As a
result, the number of covered call options the Fund can write against any
particular stock is limited by the number of shares of that stock the Fund
holds.
Kelmoore Investment Company (the "Adviser") continually writes as many
covered call options on the stocks the Fund owns as it can to maximize the
premiums generated. The Adviser writes options of the duration and exercise
price which provide the Fund with the highest expected return. To assist the
Adviser in selecting which options to write, the Adviser utilizes an in-house
computer program called "OPTRACKER(TM)".
The Options Clearing Corporation (the "OCC") sets option expiration dates and
exercise prices, which depend on the range of prices in the underlying stock's
recent trading history. Option periods usually range from 30 days to 120 days
but can have longer durations. Exercise prices are set below, equal to or above
the current market price of the underlying stock. The premium the Fund receives
for writing an option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to the market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
To acquire the common stocks in its portfolio and generate additional premiums,
the Fund may also write secured put options.
IN WHAT TYPE OF COMMON STOCKS DOES THE FUND INVEST?
The Fund will typically hold no more than forty common stocks, though this
number may fluctuate at the discretion of the Adviser. The issuers of stocks
selected for investment by the Fund will tend to have most of the following
characteristics:
- - Considered to be industry leaders
- - Have strong financial fundamentals
- - Are widely-held and have a high daily trading volume
- - Are multi-national corporations
- - Have stable dividend payments
The stocks selected will also usually fall into one of the following five
industry sectors:
SECTOR EXAMPLES
- ------------------------------- -----------------------------------------
- - Advanced Manufacturing Boeing, General Motors, Kodak
- - Consumer Goods Gillette, Home Depot, Merck
- - Finance Allstate, American Express, Merrill Lynch
- - Resources Amoco, Exxon, Mobil
- - Technology Hewlett-Packard, IBM, Intel, Microsoft
The Adviser generally seeks over time to maintain a balance of the Fund's assets
invested among the five sectors.
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WHAT ARE THE FUND'S MAIN RISKS?
As with any mutual fund, the value of the Fund's investments, and therefore the
value of the Fund's shares, will fluctuate. If the net asset value of your
shares declines below the price you paid, you will lose money. The principal
risks associated with an investment in the Fund include:
Risks of investing in stocks:
- stock market risk, or the risk that the price of the
securities owned by the Fund will rise or fall due to changing
economic, political or market conditions
- selection risk, or the risk that the stocks selected by the
Fund will underperform the stock market as a whole or certain
sectors of the stock market
- risk of a sector falling into disfavor with investors
- risk of reduction in the amount of dividends a stock pays
Risks of covered call options:
- risk of limiting gains on stocks in a rising market
- risk of unanticipated exercise of the option
- risk of decreased trading volume or demand for the option
Risks of secured put options:
- risk of loss if the Fund is required to purchase the stock at
a price greater than the current market price
- risk of unanticipated exercise of the option
- risk of limiting gains on rises in underlying security (as
opposed to outright ownership of underlying security)
- the gain on a put option is limited to interest earned on its
liquid assets secured in a segregated account plus the premium
received for selling the put option
- risk of decreased trading volume or demand for the option
Other risks of strategy:
- taxable income to the investor
- Forced liquidation of securities underlying the options
- lack of liquidity to execute redemptions and purchases of
stock
- decreases in interest rates generally
- brokerage commissions paid by the Fund may be higher than
those paid by other mutual funds which do not use options in
their trading practices
- the Fund has no prior operating history
- year 2000 issues could adversely affect the Fund
WHO MAY WANT TO INVEST IN THE FUND?
The Fund may be appropriate for you if you:
- are seeking current income and are willing to assume more risk
to increase the level of income
- can accept the risks of investing in a portfolio of common
stocks and their related options
- are seeking a disciplined and continual reinvestment of
premiums generated from writing options
- can tolerate performance which can vary substantially from
year to year
- are prepared to receive taxable distributions of income
- have a longer-term investment horizon
YOU SHOULD NOT INVEST IN THIS FUND IF YOU ARE SEEKING CAPITAL APPRECIATION OR
PREDICTABLE LEVELS OF INCOME OR ARE INVESTING FOR A SHORT PERIOD OF TIME.
RISK/RETURN BAR CHART AND TABLE
Although past performance of a fund is no guarantee of how it will perform in
the future, historical performance may give you some indication of the risks of
investing in a mutual fund. Performance demonstrates how a mutual fund's returns
have varied over time. The Fund is recently organized and therefore has no
performance history. Once the Fund has performance for at least one calendar
year, a Bar Chart and Performance Table will be included in the prospectus. The
Fund's annual returns will also be compared to the returns of a benchmark index.
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FEES AND EXPENSES OF THE FUND
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
SHAREHOLDER FEES
(fees paid directly from your investment):
Maximum Sales Charge (Load) imposed on Purchases ................None
Maximum Deferred Sales Charge (Load).............................None
Maximum Sales Charge (Load) imposed on Reinvested Dividends .....None
Redemption Fees (as a percentage of amount redeemed).............0.50%*
*If your redemption is for more than $250,000 and you redeem your shares at any
time during the month except the five business days immediately following the
third Friday of the month, a redemption fee of 0.50% will be deducted from your
redemption proceeds. If you redeem your shares by wire transfer, the Fund's
transfer agent charges a fee (currently $9.00) for each wire redemption.
Purchases and redemptions may also be made through broker-dealers who may charge
a commission or other transaction fee for their services.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees .........................................................1.00%
Distribution and Service (12b-1) Fees....................................1.00
Other Expenses...........................................................1.00*
----
Total Annual Fund Operating Expenses.....................................3.00%**
====
* "Other Expenses" are based on estimated amounts for the Fund's current
fiscal year.
** The Adviser has voluntarily undertaken to waive all or a portion of its
fees and to reimburse certain expenses of the Fund so that the total
operating expenses for the first year of operations will not exceed
3.00%. The Adviser reserves the right to terminate this undertaking at
any time, in its sole discretion. Any waiver or reimbursement by the
Adviser is subject to reimbursement by the Fund within the following
three years, to the extent such reimbursement by the Fund would not
cause total operating expenses to exceed any current expense
limitation.
EXAMPLE
This example is designed so that you may compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The example assumes that:
- YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;
- YOU REDEEM ALL OF YOUR SHARES AT THE END OF THE TIME PERIODS;
- YOUR INVESTMENT HAS A HYPOTHETICAL 5% RETURN EACH YEAR;
- ALL DISTRIBUTIONS ARE REINVESTED; AND
- 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 (if you redeem your shares other than during the five
business days immediately following the third Friday of any calendar month and
your redemption is for more than $250,000):
1 YEAR 3 YEARS
$354 $980
You would pay the following expenses if you did not redeem your shares (or if
you redeem any amount of your shares during the five business days immediately
following the third Friday of any calendar month, or your redemption is for less
than $250,000 and is made on any day of the month), your costs would be:
1 YEAR 3 YEARS
$203 $927
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MAIN STRATEGIES
To generate option premiums, the Fund purchases the common stocks of a
limited number of large companies and simultaneously writes covered call options
on these stocks. As the options the Fund writes are exercised or expire, and the
proceeds or underlying stock become available for reinvestment or cover, the
Fund repeats the process.
To decrease the risks of volatile or reduced premiums, the Adviser selects
only underlying common stocks of larger companies which have high trading
volumes and relatively stable prices. In addition, to reduce stock selection
risk, the companies the Adviser selects are generally considered industry
leaders and have strong financial fundamentals and to reduce overall market
risk, the Adviser invests across five industry sectors.
COVERED CALL OPTIONS
The fundamentals of selling covered call options are as follows:
The Fund Sells the Option
Selling a call option is selling the right to an option buyer to purchase a
specified number of shares (100 shares equals one option contract) from the
Fund, at a specified price (the "exercise price") on or before a specified date
(the "expiration date"). The call option is covered because the Fund owns, and
has placed on deposit, the shares of stock on which the option is based. This
eliminates certain risks associated with selling uncovered, or "naked," options.
The Fund Collects a Premium
For the right to purchase the underlying stock, the buyer of a call option pays
a fee or "premium" to the Fund. The premium is paid at the time the option is
purchased, and is not refundable to the buyer, regardless of what happens to the
stock price.
If the Option is Exercised
The buyer of the option may elect to purchase the stock (exercise, or "call",
the option) at the exercise price at any time before the option expires. The
Fund is then obligated to deliver the shares at that price. Options are normally
exercised on or before the expiration date if the market price of the stock
exceeds the exercise price of the option. If the exercise price is higher than
the price the Fund originally paid to purchase the stock, the Fund will realize
a gain on the sale of the stock; if the exercise price is lower, the Fund will
realize a loss. By selling a covered call option, the Fund foregoes the
opportunity to benefit from an increase in price of the underlying stock above
the exercise price.
If the Option Expires
If the market price of the stock does not exceed the exercise price, the call
option will likely expire without being exercised. The Fund keeps the premium
and the stock. The Fund then expects to sell new call options against those same
shares of stock. This process is repeated until: a) an option is exercised, b)
the Fund believes the stock no longer meets its investment criteria and sells
the stock, or c) the Fund liquidates the stock for cash.
Other Features
The Fund will not sell naked call options. The call options written by the Fund
are listed for trading on one or more domestic securities exchanges and are
issued by the OCC. If a dividend is declared on stock underlying a covered call
option written by the Fund, the dividend is paid to the Fund and not the owner
of the covered call option.
SECURED PUT OPTIONS
The Fund may also write secured put options either to earn additional option
premiums (anticipating that the price of the underlying security will remain
stable or rise during the option period and the option will therefore not be
exercised) or to acquire the underlying security at a net cost below the current
value. Secured put option writing entails the Fund's sale of a put option to a
third party for a premium and the Fund's concurrent deposit of liquid assets
into a segregated account equal to the option's exercise price. A put option
gives the buyer the right to put (sell) the stock underlying the option to the
Fund at the exercise price at any time during a specified time period.
The Fund will not sell naked put options. The Fund will only write secured put
options in circumstances where it desires to acquire the security underlying the
option at the exercise price specified in the option. The Fund may acquire its
initial portfolio of stocks largely through the sale of secured put options.
Thereafter, the use of secured put options by the Fund should decline. Put
options written by the Fund are listed for trading on one or more domestic
securities exchanges and are issued by the OCC.
TEMPORARY DEFENSIVE POSITION
The Fund may, from time to time, take a temporary defensive position that is
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market, economic, political or other conditions. When the
Fund takes a temporary defensive position, it may not achieve its stated
investment objective. A principal defensive investment position would be the
purchase of cash equivalents.
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INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, including
money market mutual funds. In making such investments, the Fund seeks to acquire
interests in portfolios of securities that are more diversified or with more
specialized characteristics than in those that could be efficiently acquired
directly by the Fund. By investing in shares of other investment companies, the
Fund indirectly pays a portion of the operating expenses and brokerage costs of
such companies as well as its own operating expenses.
MAIN RISKS
INVESTING IN CORPORATE SECURITIES
Investing in corporate securities includes the risks inherent in investing in
stocks and the stock market generally. The value of securities in which the Fund
invests, and therefore the Fund's net asset value, will fluctuate due to
economic, political and market conditions. As with any mutual fund which invests
in corporate securities, there is also the risk that the securities selected by
the Fund will underperform the stock market or certain sectors of the market.
WRITING COVERED CALL OPTIONS
When the Fund writes covered call options, it forgoes the opportunity to benefit
from an increase in the value of the underlying stock above the exercise price,
but continues to bear the risk of a decline in the value of the underlying
stock. While the Fund receives a premium for writing the call option, the price
the Fund realizes from the sale of the stock upon exercise of the option could
be substantially below its prevailing market price. The purchaser of the call
option may exercise the call at any time during the option period (the time
between when the call is written and when it expires). Alternatively, if the
value of the stock underlying the call option is below the exercise price, the
call is not likely to be exercised, and the Fund could have an unrealized loss
on the stock, offset by the amount of the premium received by the Fund when it
wrote the option.
WRITING SECURED PUT OPTIONS
When the Fund writes secured put options, it bears the risk of loss if the value
of the underlying stock declines below the exercise price. If the option is
exercised, the Fund could incur a loss if it is required to purchase the stock
underlying the put option at a price significantly greater than the current
market price of the stock. While the Fund's gain on a put option is limited to
the interest earned on the liquid assets securing the put option plus the
premium received from the purchaser of the put option, the Fund risks the entire
loss in the value of the stock, potentially to zero.
BROKERAGE COMMISSIONS
It is anticipated that the Fund will place substantially all of its
transactions, both in stocks and options, with the Adviser in its capacity as a
broker-dealer. As the level of option writing increases, the level of
commissions paid by the Fund to the Adviser increases. Because the Adviser
receives compensation based on the amount of transactions completed, there is an
incentive on the part of the Adviser to effect as many transactions as possible.
While the Fund does not intend to trade the stocks in its portfolio actively, it
is in the interest of the Fund to write as many options as possible, thereby
maximizing the premiums it receives. In practice, the number of options written
at any time will be limited to the value of the stocks and other assets in the
Fund's portfolio used to cover or secure those options. Brokerage commissions
are often greater in relation to options premiums than in relation to the price
of the underlying stocks.
TAX CONSEQUENCES
The Fund expects to generate a high level of premiums. Income from these
premiums is typically in the form of short-term capital gains and will usually
be taxable as ordinary income to the investor. In addition, because the Fund
will have no control over the exercise of options, it may be forced to realize
short or long term capital gains at inopportune times.
LACK OF OPERATING HISTORY
The Fund has no operating history, and the Adviser has not previously acted as
an investment adviser for a mutual fund.
YEAR 2000 ISSUES
Like all mutual funds, the Fund's operations depend heavily on the functioning
of computer systems, including those used by its Adviser, custodian, fund
accounting agent, and transfer agent. The failure of these computer systems to
properly process data containing dates occurring after December 31, 1999 (the
"Year 2000 problem") could adversely affect the Fund. While the Adviser and
other service providers have advised the Fund that they are taking steps they
believe are reasonably designed to address the Year 2000 problem, there is no
assurance that these steps will be sufficient. In
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addition, there is no assurance that the Year 2000 problem will not have an
adverse effect on the companies whose securities are held by the Fund or the
securities markets and their participants generally.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
Kelmoore Investment Company, Inc. serves as the investment adviser to the Fund
and is responsible for the selection and ongoing monitoring of the securities in
the Fund's investment portfolio and for the management of the Fund's business
affairs. The Fund pays the Adviser a monthly fee at the annual rate of 1.00% of
the Fund's average daily net assets. The Adviser is a registered investment
adviser and broker-dealer that was established in 1992 by Ralph M. Kelmon, Jr.,
who is the principal shareholder. The Adviser offers investment advisory and
brokerage services to individual clients, trusts, corporations, institutions and
private investment funds using the same investment strategy that the Fund
employs. The Adviser has not previously advised or managed a mutual fund. The
Adviser's principal address is 2471 East Bayshore Road, Suite 501, Palo Alto,
California 94303.
PORTFOLIO MANAGER
The primary portfolio manager for the Fund is Matthew Kelmon. Mr. Kelmon has
been Vice President of Trading for the Adviser from 1994 to present. Mr. Kelmon
manages the day-to-day trading activities of the Adviser and is responsible for
designing and implementing the in-house software system (OPTRACKER(TM)) used in
the investment process. Mr. Kelmon has been responsible for the day-to-day
management and implementation of the Kelmoore Strategy for private accounts and
limited partnerships from 1994 to present. Mr. Kelmon also heads up the equity
selection committee of the Adviser. Previously, Mr. Kelmon was an account
executive with M.L. Stern & Co., Inc., located in San Diego, California, from
1993 to 1994.
DISTRIBUTION PLAN
The Fund has adopted a plan pursuant to rule 12b-1 under the Investment Company
Act of 1940, as amended, that allows the Fund to pay distribution fees for the
sale and distribution of its shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time, these fees will increase the cost
of your investment and may cost more than paying other types of sales charges.
The distribution plan permits the Fund to pay the Adviser, as principal
distributor, a monthly fee at the annual rate of 1.00% of the Fund's average
daily net assets.
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YOUR INVESTMENT
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers or directly through
the Adviser. Shares of the Fund are offered only to residents of states in which
the shares are registered or qualified. No share certificates will be issued in
connection with the purchase of Fund shares.
PURCHASE AMOUNTS
MINIMUM INITIAL INVESTMENT: $1,000
MINIMUM ADDITIONAL INVESTMENTS: $1,000
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
BY MAIL BY MAIL
- ------------------------------------------------------------ ---------------------------------------------------------
Complete the application. Fill out an investment slip from a previous
confirmation and write your account number on your
Mail the application and your check to: check. Mail the slip and your check to:
First Data Investor Services Group
3200 Horizon Drive First Data Investor Services Group
P.O. Box 61503 P.O. Box 412797
King of Prussia, PA 19406-0903 Kansas City, Missouri 64141-2797
Please make check payable to "Kelmoore Strategy Covered Please make check payable to "Kelmoore Strategy Covered
Option Fund." Option Fund."
PLEASE MAKE SURE YOUR CHECK IS FOR AT LEAST $1,000. PLEASE MAKE SURE YOUR ADDITIONAL INVESTMENT IS FOR AT
LEAST $1,000.
- ------------------------------------------------------------ ---------------------------------------------------------
BY WIRE BY WIRE
- ------------------------------------------------------------ ---------------------------------------------------------
To make a same-day wire investment, call (800) ________ by Call (800) ________. The wire must be received by 4:00
4:00 p.m. Eastern time. An account number will be p.m. Eastern time for same day processing.
assigned to you.
Follow the instructions under TO OPEN AN ACCOUNT - By
Call your bank with instructions to transmit funds to: Wire.
UMB Bank, NA, ABA #10-10-00695
For: First Data Investor Services Group Your bank may charge a wire fee.
Account #98-7037-071-9 PLEASE MAKE SURE YOUR WIRE IS FOR AT LEAST $1,000.
Fund - Kelmoore Strategy Covered Option Fund
Name(s) of account registration
Your bank may charge a wire fee.
PLEASE MAKE SURE YOUR WIRE IS FOR AT LEAST $1,000.
Mail your completed application to First Data Investor
Services Group at the address above.
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
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PURCHASE PRICE
You pay no sales charge to invest in the Fund. Shares of the Fund are sold at
the net asset value per share ("NAV") next determined after receipt of the
request in good order by First Data Investor Services Group ("Investor Services
Group"). The NAV multiplied by the number of Fund shares you own equals the
value of your investment.
RIGHTS RESERVED BY THE FUND
The Fund reserves the right to:
- reject any purchase order
- suspend the offering of shares
- vary the initial and subsequent investment minimums
- waive the minimum investment requirement for any investor
- waive the redemption fee for any investor
HOW TO SELL SHARES
GENERAL
You may "redeem", that is, sell your shares on any day the New York Stock
Exchange is open, either directly through the Adviser or through your
broker-dealer. The price you receive will be the NAV next calculated after
receipt of the request in good order by Investor Services Group. A redemption
fee of 0.50% will be deducted from your redemption proceeds if your redemption
is for $250,000 or more and you redeem your shares at any time other than the
five business days immediately following the third Friday of every month. See
"Transaction Policies Redemption Fee."
BY MAIL
Write a letter of instruction that includes:
- The Fund name, your account number, the name(s) in which the
account is registered and the dollar value or number of shares
you wish to sell.
- Include all signatures and any additional documents that may
be required.
- Mail your request to:
First Data Investor Services Group
P.O. Box 61503
King of Prussia, PA 19406-0903
- A check will be mailed to the name(s) and address in which the
account is registered within seven days.
BY TELEPHONE
Call (800) _________ . Telephone redemptions will not be available for amounts
less than $5,000. The proceeds will be paid to the registered owner: (1) by mail
at the address on the account, or (2) by wire to the bank account designated on
the form. To use the telephone redemption privilege, you must have selected this
service on your original account application or submitted a subsequent request
in writing to add this service to your account. The Fund and Investor Services
Group reserve the right to refuse any telephone transaction when they are unable
to confirm to their satisfaction that a caller is the account owner or a person
preauthorized by the account owner. Investor Services Group has established
security procedures to prevent unauthorized account access. The telephone
transaction privilege may be suspended, limited, modified or terminated at any
time without prior notice by the Fund or Investor Services Group. Neither the
Fund nor any of its service contractors will be liable for any loss or expense
in acting upon telephone instructions that are reasonably believed to be
genuine.
BY WIRE
In the case of redemption proceeds that are wired to a bank, the Fund will
transmit the payment only on days that commercial banks are open for business
and only to the bank and account previously authorized on your application or
your signature-guaranteed letter of instruction. The Fund and Investor Services
Group will not be responsible for any delays in wired redemption proceeds due to
heavy wire traffic over the Federal Reserve System. The Fund reserves the right
to refuse a wire redemption if it is believed advisable to do so.
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SELLING RECENTLY PURCHASED SHARES
If you wish to sell shares that were recently purchased by check, the Fund may
delay mailing your redemption check for up to 15 business days after your
redemption request to allow the purchase check to clear.
TRANSACTION POLICIES
TIMING OF PURCHASE OR SALE REQUESTS
All requests received in good order by Investor Services Group before the close
of the New York Stock Exchange ("NYSE"), typically 4:00 p.m. Eastern Time, will
be executed the same day, at that day's NAV. Orders received after the close of
the NYSE will be executed the following day, at that day's NAV. All investments
must be in U.S. dollars. Purchase and redemption orders are executed only on
days when the NYSE is open for trading. If the NYSE closes early, the deadlines
for purchase and redemption orders will be accelerated to the earlier closing
time.
STOCK EXCHANGE CLOSINGS
The NYSE is typically closed for trading on New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
DETERMINATION OF NAV
The NAV for the Fund is calculated at the close of regular trading hours of the
NYSE, which is normally 4:00 p.m. Eastern time. The Fund calculates NAV by
adding up the total value of the Fund's investments and other assets,
subtracting liabilities, and then dividing that figure by the number of the
Fund's outstanding shares. The Fund's investments are valued based on market
value, or where market quotations are not readily available, on fair value as
determined in good faith by the Fund's Trustees.
INVESTMENTS THROUGH NOMINEES
If you invest through a nominee, such as a broker-dealer or financial advisor
(rather than directly), the policies and fees may be different than those
described here. Nominees may charge transaction fees and set different minimum
investments or limitations on buying or selling shares. It is the responsibility
of the nominee to promptly forward purchase or redemption orders and payments to
the Fund. You will not be charged fees if you purchase or redeem shares of the
Fund directly through the Fund's principal distributor.
REDEMPTION FEE
A redemption fee of 0.50% will be deducted from your redemption proceeds if your
redemption is for $250,000 or more and you redeem your shares at any time other
than the five business days immediately following the third Friday of the month.
The Fund will process your redemption requests without imposing a 0.50%
redemption fee if you redeem your shares during these five business days. The
expiration of options occurs on the third Friday of every month and the
redemption fee of 0.50% is used to offset any losses incurred by the Fund for
closing out options before the expiration date in order to process redemptions.
REDEMPTION POLICIES
Payment for redemptions of Fund shares is usually made within one business day,
but not later than seven calendar days after receipt of your redemption request,
unless the check used to purchase the shares has not yet cleared. The Fund may
suspend the right of redemption or postpone the date of payment for more than
seven days during any period when (1) trading on the NYSE is restricted or the
NYSE is closed for other than customary weekends and holidays, (2) the
Securities and Exchange Commission ("SEC") has by order permitted such
suspension for the protection of the Fund's shareholders, or (3) an emergency
exists making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable. The Fund will automatically redeem shares if a
purchase check is returned for insufficient funds. The Fund reserves the right
to reject any third party check. The Fund reserves the right to make a
"redemption in kind" payment in portfolio securities rather than cash if the
amount you are redeeming is large enough to affect fund operations. Large
redemptions are considered to exceed $250,000 or 1% of the Fund's assets.
ACCOUNT MINIMUM
You must keep at least $5,000 worth of shares in your account to keep the
account open. If, after giving you thirty days prior written notice, your
account value is still below $5,000 we may redeem your shares and send you a
check for the redemption proceeds.
SIGNATURE GUARANTEES
The Fund may require additional documentation, or signature guarantees, on any
redemption over $10,000 in value or for the redemption of corporate, partnership
or fiduciary accounts, or for certain types of transfer requests or account
registration changes. A signature guarantee helps protect against fraud. You can
obtain one from most banks or
9
<PAGE> 13
securities dealers, but not from a notary public. Please call (800) ________ for
information on obtaining a signature guarantee.
OTHER DOCUMENTS
Additional documents may be required for purchases and redemptions when shares
are registered in the name of a corporation, partnership, association, agent,
fiduciary, trust, estate or other organization. For further information, please
call Investor Services Group toll-free at (800) ___________.
SHAREHOLDER SERVICES
TELEPHONE INFORMATION
Your Account: If you have questions about your account, including
purchases, redemptions and distributions, call
Investor Services Group from Monday through Friday,
9:00 a.m. to 7:00 p.m., Eastern time. Call toll-free
(800) ____________.
The Fund: If you have questions about the Fund, call the Fund's
telephone representatives Monday through Friday, 9:00
a.m. to 5:00 p.m., Eastern time. Call toll-free (800)
_____________.
ACCOUNT STATEMENTS
The Fund provides you with these helpful services and information about your
account:
- a statement after every transaction;
- an annual account statement reflecting all transactions for
the year;
- tax information which will be mailed by January 31 of each
year, a copy of which will also be filed with the Internal
Revenue Service, if necessary; and
- financial statements with a summary of portfolio composition
and performance will be mailed at least twice a year.
The Fund provides the above shareholder services without charge, but may charge
for special services such as requests for historical transcripts of accounts.
INTEGRATED VOICE RESPONSE SYSTEM
You may obtain access to account information by calling (800) ________. The
system provides share price and price change information for the Fund and gives
account balances and information on the most recent transactions and allows
sales of shares.
SYSTEMATIC WITHDRAWAL PLAN
Once you have established an account with $5,000 or more, you may automatically
receive funds from your account on a monthly, quarterly or semi-annual basis
(minimum withdrawal of $100). Call (800) ___________ to request a form to start
the Systematic Withdrawal Plan.
RETIREMENT PLANS
Shares of the Fund are available for purchase through individual retirement
accounts ("IRAs") and other retirement plans. An IRA application and further
details about the procedures to be followed by IRAs and other retirement plans
are available by calling (800) _____________.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund passes along to your account your share of investment earnings in the
form of dividends and distributions. The Fund's distributions may consist of
premiums from put and call options written by the Fund, interest on debt
instruments, dividends from stock, net gains from closing purchase and sale
transactions in options, and net gains from sales of
10
<PAGE> 14
portfolio securities. The Fund will distribute at least annually any net capital
gains obtained through Fund investment transactions. Interest and dividend
payments will normally be distributed as income dividends on a quarterly basis.
Unless you elect otherwise, all dividends and distributions paid by the Fund
will be reinvested in additional shares of the Fund. They will be credited to
your account in the Fund at the same NAV per share as would apply to cash
purchases on the applicable dividend payment date. All distributions the Fund
pays to you will be taxable when paid, regardless of whether they are taken in
cash or reinvested in shares of the Fund. To change your dividend election, you
must notify Investor Services Group in writing at least fifteen days prior to
the applicable dividend record date.
TAXES
The Fund intends to qualify as a regulated investment company. This status
exempts the Fund from paying federal income tax on the income or capital gains
it distributes to its shareholders.
Your investment in the Fund will be subject to the following tax consequences:
- Dividends from net investment income and distributions from
short-term capital gains are taxable as ordinary income
- Distributions from long-term capital gains are taxable as
long-term capital gain
- Dividends and distributions may also be subject to state and
local taxes
- Certain dividends paid to you in January will be taxable as if
they had been paid the previous December
If you purchase shares shortly before a record date for a dividend or
distribution, a portion of your investment will be returned as a taxable
distribution.
Due to the nature of the Fund's principal investment strategy, the Fund
anticipates that a majority of its distributions will be in the form of ordinary
income.
The Fund will generally realize short-term capital gain (or loss) on a closing
purchase transaction with respect to a call or put previously written by the
Fund if the premium, plus commission costs, paid to purchase the call or put is
less (or greater) than the premium, less commission costs, received on the sale
of the call or put. A short-term capital gain also will be realized if a call or
put which the Fund has written lapses unexercised, because the Fund would retain
the premium.
You must provide the Fund with your correct taxpayer identification number and
certify that you are not subject to backup withholding. If you do not, the Fund
will be required to withhold 31% of your taxable distributions and
redemptions.
After the end of each calendar year, you will receive a statement (Form 1099) of
the federal income tax status of the Fund's dividends and other distributions
paid during the year. You should keep all of your Fund statements for accurate
tax-accounting purposes.
You should consult your tax advisor concerning federal, state and local taxation
of Fund dividends and distributions in your particular circumstances.
11
<PAGE> 15
[OUTSIDE BACK COVER]
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
(800) _______
CUSTODIAN
The Bank of New York
48 Wall Street
New York, NY 10286
COUNSEL
Howard Rice Nemerovski Canady Falk & Rabkin, A Professional Corporation
Three Embarcadero Center
Seventh Floor
San Francisco, CA 94111-4065
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
333 Market Street
San Francisco, CA 94105
ADDITIONAL INFORMATION
Shareholder Reports:
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year will
be included.
Statement of Additional Information (SAI):
The SAI contains additional information about the Fund. It is incorporated by
reference into this prospectus.
To request a free copy of the current annual report, semi-annual report or SAI,
or to request other information about the Fund, please write or call:
Kelmoore Investment Company, Inc.
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
(800) _________
Information about the Fund (including the SAI) may be obtained in person at the
SEC's Public Reference Room in Washington, DC. Call (800) SEC-0330 for
information on the operation of the Public Reference Room. You may also request
copies by mail by sending your request, along with a duplicating fee, to the
SEC's Public Reference Room, Washington, DC 20549-6009. You may also visit the
SEC's Internet site (www.sec.gov) to view reports and other information about
the Fund.
12
<PAGE> 16
STATEMENT OF ADDITIONAL INFORMATION
KELMOORE STRATEGIC TRUST
KELMOORE STRATEGY COVERED OPTION FUND
____________, 1999
Principal Distributor:
Kelmoore Investment Company, Inc.
2471 East Bayshore Road
Suite 501
Palo Alto, CA 94303
(800) __________
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's Prospectus dated __________, 1999. The
information in this Statement of Additional Information expands on information
contained in the Prospectus. The Prospectus can be obtained without charge by
contacting either the dealer through whom you purchased shares or the
Distributor at the telephone number or address above.
13
<PAGE> 17
TABLE OF CONTENTS
PAGE
Kelmoore Strategy Covered Option Fund......................................... 1
Investment Strategies and Related Risks ...................................... 1
Investment Restrictions ...................................................... 3
Portfolio Turnover............................................................ 4
Management of the Fund........................................................ 4
Trustees and Officers................................................ 4
Investment Adviser................................................... 6
Other Services................................................................ 6
Purchases and Redemptions .................................................... 8
Valuation..................................................................... 8
Taxes......................................................................... 9
Brokerage ....................................................................11
Shares of Beneficial Interest.................................................11
Calculation of Performance ...................................................12
Financial Statements .........................................................13
14
<PAGE> 18
KELMOORE STRATEGY COVERED OPTION FUND
Kelmoore Strategy Covered Option Fund (the "Fund") is a diversified series of
Kelmoore Strategic Trust (the "Trust"), a Delaware business trust organized on
December 1, 1998 as an open-end management investment company. The Fund has
employed Kelmoore Investment Company, Inc. as its investment adviser (the
"Adviser").
INVESTMENT STRATEGIES AND RELATED RISKS
The following describes certain attributes of particular types of securities in
which the Fund invests and supplements and should be read in conjunction with
sections of the Prospectus entitled "Summary", "Main Strategies" and "Main
Risks."
Common Stock. Common stock represents an equity (ownership) interest in a
company or other entity. This ownership interest often gives the Fund the right
to vote on measures affecting the company's organization and operations.
Although common stocks generally have had a history of long-term growth in
value, their prices are often volatile in the short-term and can be influenced
by not only general market risk but specific corporate risks as well.
Options on Securities. The writing and purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
successful use of options depends in part on the ability of the Adviser to
predict future price fluctuations.
The Fund may write (sell) call and put options on any security in which it may
invest. These options will be listed on securities exchanges. Exchange-traded
options in the United States are issued by the Options Clearing Corporation (the
"OCC"), a clearing organization affiliated with the exchanges on which options
are listed. The OCC, in effect, gives its guarantee to every exchange-traded
option transaction.
The Fund receives a premium for each option it writes. The Fund may also write
secured put options either to earn additional option premiums (anticipating that
the price of the underlying security will remain stable or rise during the
option period and the option will therefore not be exercised) or to acquire the
underlying security at a net cost below the current value. The premium received
will reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security, the option period,
supply and demand and interest rates.
All call and put options written by the Fund are covered (or secured). A written
call option is typically covered by maintaining the securities subject to the
option in a segregated account. A written call option may also be covered by (i)
maintaining cash or liquid securities in a segregated account with a value at
least equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position.
Put options written by the Fund will be secured by (i) maintaining cash or
liquid securities in a segregated account with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position.
The obligation of an option writer is terminated upon the exercise of the
option, the option's expiration or by effecting a closing purchase transaction.
Additional Risks Associated with Options Transactions. There is no assurance a
liquid secondary market will exist for any particular exchange-traded option or
at any particular time. If the Fund is unable to effect a closing purchase
transaction with respect to options it has written, the Fund will not be able to
sell the underlying securities or dispose of assets held in a segregated account
until the options expire or are exercised.
15
<PAGE> 19
Reasons for the absence of a liquid secondary market include the following: (i)
there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or the OCC may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options). If trading were
discontinued, the secondary market on that exchange (or in that class or series
of options) would cease to exist. However, outstanding options on that exchange
that had been issued by the OCC as a result of trades on that exchange would
normally continue to be exercisable or expire in accordance with their terms.
There can be no assurance that higher trading activity or order flow or other
unforeseen events might not, at times, render certain of the facilities of the
OCC or various exchanges inadequate. Such events have, in the past, resulted in
the institution by an exchange of special procedures, such as trading rotations,
restrictions on certain types of orders, or trading halts or suspensions, with
respect to one or more options, or may otherwise interfere with the timely
execution of customers' orders.
The writer of an option lacks the ability to control when an option will be
exercised. Although the Fund will generally only write options whose expiration
dates are between one and nine months from the date the option is written, it is
still not possible for the Fund to adequately time the receipt of exercise
notices. This prevents the Fund from receiving income on a scheduled basis and
may inhibit the Fund from fully utilizing other investment opportunities.
Written options have predetermined exercise prices set below, equal to or above
the current market price of the underlying stock. The Fund's overall return
will, in part, depend on the ability of the Adviser to accurately predict price
fluctuations in underlying securities in addition to the effectiveness of the
Adviser's strategy in terms of stock selection.
The size of the premiums the Fund receives for writing options may be adversely
affected as new or existing institutions, including other investment companies,
engage in or increase their option writing activities.
Each securities exchange on which options trade has established limitations
governing the maximum number of puts and calls in each class (whether or not
covered or secured) which may be written by a single investor, or group of
investors, acting in concert (regardless of whether the options are written on
the same or different exchanges or are held or written in one or more accounts
or through one or more brokers). It is possible that the Fund and other clients
advised by the Adviser may constitute such a group. These position limits may
limit the number of options the Fund may write on a particular security. An
exchange may order the liquidation of positions found to be above such limits or
impose other sanctions.
Repurchase Agreements. The Fund may enter into repurchase agreements with
approved banks and broker-dealers. In a repurchase agreement, the Fund purchases
securities with the understanding they will be repurchased by the seller at a
set price on a set date. This allows the Fund to keep its assets at work but
retain flexibility to pursue longer term investments upon repurchase.
Repurchase agreements involve risks. For example, if a seller defaults, the
Fund will suffer a loss if the proceeds from the sale of the collateral is below
the repurchase price. If the seller becomes bankrupt, the Fund may be delayed or
incur additional costs in selling the collateral. To help minimize risk,
collateral must be held with the Fund's custodian at least equal to the value of
the securities subject to the repurchase agreement plus any accrued
interest.
Illiquid Securities: The Fund may invest up to 15% of its net assets in illiquid
securities. Illiquid securities will generally include direct placements or
other securities that are subject to legal or contractual restrictions on resale
or for which there is not a readily available market (e.g., when trading in the
security is suspended or, in the case of unlisted securities, when market makers
do not exist or will not entertain bids or offers) and repurchase agreements not
terminable within seven days.
Temporary Investments. To maintain cash for redemptions and distributions and
for temporary defensive purposes, the Fund may invest in money market mutual
funds and in investment grade short-term fixed income securities, including
short-term U.S. government securities, negotiable certificates of deposit,
commercial paper, banker's acceptances, and repurchase agreements.
16
<PAGE> 20
Other Investments. Subject to prior disclosure to shareholders, the Trustees
may, in the future, authorize the Fund to invest in securities other than those
listed here and in the Prospectus, provided that such investment would be
consistent with the Fund's investment objective and that it would not violate
any fundamental investment policies or restrictions applicable to the Fund.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions The following investment restrictions are
considered fundamental, which means they may be changed only by approval of the
holders of a majority of the Fund's outstanding shares, defined in the 1940 Act
as the lesser of: (1) 67% or more of the Fund's outstanding shares present at a
meeting, if the holders of more than 50% of the Fund's outstanding shares are
present in person or represented by proxy, or (2) more than 50% of such Fund's
outstanding shares.
1. The Fund may not purchase securities that would cause more than 25% of
the value of the Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their
principal activities in the same industry. For purposes of this
limitation, U.S. government securities are not considered part of any
industry.
2. The Fund may not borrow money or issue senior securities, except to the
extent provided by the 1940 Act.
3. The Fund may not make loans to other persons, except loans of
securities not exceeding one-third of the Fund's total assets. For
purposes of this limitation, investments in debt obligations and
transactions in repurchase agreements shall not be treated as loans.
4. The Fund may not purchase, sell or invest in real estate, real estate
investment trust securities, real estate limited partnership interests,
or oil, gas or other mineral leases or exploration or development
programs, but the Fund may purchase and sell securities that are
secured by real estate and may purchase and sell securities issued by
companies that invest or deal in real estate.
5. The Fund may not invest in commodities or commodity futures contracts.
6. The Fund may not underwrite securities of other issuers, except insofar
as the Fund may be deemed an underwriter under the Securities Act of
1933 when selling portfolio securities.
7. The Fund, with respect to 75% of its total assets, will not invest more
than 5% of its total assets in the securities of any single issuer, or
own more than 10% of the outstanding voting securities of any one
issuer, in each case other than (1) securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or (2)
securities of other investment companies.
Non-Fundamental Investment Restrictions The following restrictions are imposed
by management of the Fund and may be modified by the Trustees without
shareholder approval.
1. The Fund may not invest more than 15% of its net assets in illiquid
securities. A security is illiquid if it cannot be disposed of in seven
days at a price approximately equal to the price at which the Fund is
valuing the security. Repurchase agreements with deemed maturities in
excess of seven days are subject to this 15% limit.
2. The Fund may not invest in a company for the purpose of exercising
control or management of the company.
3. The Fund may not purchase securities on margin, except that the Fund
may obtain such short-term credits as are necessary for the clearance
of transactions and provided that margin payments in connection with
options will not constitute purchasing securities on margin.
4. The Fund may not invest its assets in securities of any other
investment company, except as permitted by the 1940 Act. Under the 1940
Act, the Fund may acquire securities of other investment companies if,
immediately after such acquisition, the Fund does not own in the
aggregate (1) more than 3% of the total outstanding voting stock of
such other investment company, (2) more than 5% of the value of the
Fund's total assets of any one investment company, or (3) securities
issued by such other investment company and all other investment
companies having an aggregate value in excess of 10% of the value of
the Fund's total assets.
Shareholders should understand that all investments involve risks and there can
be no guarantee against loss resulting from an investment in the Fund. Unless
otherwise indicated, all percentage limitations governing the investments of the
Fund apply only at the time of the investment.
17
<PAGE> 21
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of the
purchases or sales of portfolio investments for the reporting period by the
monthly average value of the portfolio investments owned during the reporting
period. The calculation excludes all options written by the Fund which expire in
less than one year.
Under certain market conditions, the Fund's portfolio turnover rate may be
higher than that of other mutual funds. This would be the case, for example, if
the Fund writes a substantial number of call options and the market prices of
the underlying securities appreciates, causing the options to be exercised. The
Fund may also engage in short-term trading (purchase and sale of security in a
relatively brief period of time) in response to stock market conditions or
changes in economic trends and developments. Although the Fund's annual turnover
rate cannot be accurately predicted, it is estimated this rate will not exceed
approximately 100% for the current fiscal year assuming normal market
conditions. A 100% annual turnover rate would occur if all of the Fund's
securities were replaced one time during a one-year period.
High rates of portfolio turnover (100% or more) entail certain costs, including
increased taxable income for the Fund's shareholders. Also, the higher the
turnover, the higher the overall brokerage commissions, dealer mark-ups and
mark-downs, and other transaction costs incurred. The Adviser takes these costs
into account, since they affect the Fund's overall investment performance and
reduce shareholders' return.
MANAGEMENT OF THE FUND
Trustees and Officers. The operations of the Fund are conducted under the
direction of the Trustees. The Trustees establish the Fund's policies and
oversee the management of the Fund. The Trustees meet regularly to review the
activities of the officers, who are responsible for day-to-day operations of the
Fund.
The Trustees and officers of the Fund and their principal occupations during the
past five years are set forth below.
<TABLE>
<CAPTION>
- ---------------------------------------- --------------------------- -------------------------------------------------
POSITION WITH
NAME, ADDRESS AND AGE THE FUND PRINCIPAL OCCUPATION DURING THE PAST 5 YEARS
- ---------------------------------------- --------------------------- -------------------------------------------------
<S> <C> <C>
*Matthew Kelmon, Age 30 President, Chief Vice President of Trading for the Adviser from
2471 East Bayshore Road, Suite 501 Executive Officer and 1994 to present. Formerly, an Account
Palo Alto, California 94303 Trustee Executive with M.L. Stern & Co., Inc., a bond
dealer, from 1993 to 1994.
- ---------------------------------------- --------------------------- -------------------------------------------------
*Wayne E. Edgerton, Age 56 Trustee Retired, most recently as Executive Vice
13682 Lakeshore Drive President/Partner, Mid-Continent Bottlers,
Clive, Iowa 50325 Inc., a manufacturer and distributor of
national brand soft drinks, from 1975 through
1997.
- ---------------------------------------- --------------------------- -------------------------------------------------
*Richard D. Stanley, Age 66 Trustee Consultant for the Adviser from 1994 to
2471 East Bayshore Road, Suite 501 present; President of Naranja, Inc., a
Palo Alto, California 94303 ___________ from 1994 to present. Formerly, a
Broker Associate for Gibson Properties, Better
Homes & Gardens, from 1989 to 1994.
- ---------------------------------------- --------------------------- -------------------------------------------------
Kenneth D. Treece, Age 54 Trustee Chief Executive Officer of SBMC Corp. a
2960 Copper Rd precision sheet metal producer from 1996 to
Santa Clara, CA 95051 present. From 1988 to 1997, Chief Executive
Officer of The Gluers, a trade bindery.
- ---------------------------------------- --------------------------- -------------------------------------------------
Ignatius J. Panzica, Age 55 Trustee President and Chief Executive Officer of
16280 Oak Glen Ave Custom Chrome, Inc., a supplier of motorcar
Morgan Hill, CA 95037 parts and accessories from 1969 to 1997.
- ---------------------------------------- --------------------------- -------------------------------------------------
</TABLE>
18
<PAGE> 22
<TABLE>
<CAPTION>
- ---------------------------------------- --------------------------- --------------------------------------------------
<S> <C> <C>
William H. Barnes, Age 66 Trustee President, Barnes, Stork & Associates, a
932-A Santa Cruz Avenue registered investment adviser, from 1975 to
Menlo Park, CA 94025 present. President and Director, Trinity
Guardian Foundation, a firm which manages
assets in support of local charities, from 1996
to present. Director, Church of the Pioneers
Foundation, from 1985 to present.
- ---------------------------------------- --------------------------- --------------------------------------------------
Lisa Ann McCarthy, Age 39 Trustee President, Crossing Main, a retail women's
5 Main Street clothing company, from 1992 to present.
Hingham, MA 02043
- ---------------------------------------- --------------------------- --------------------------------------------------
Jeffrey Ira Trustee Certified Public Accountant and Partner with C.G.
647 Veterans Boulevard Uhlonberg & Company, from 1984 to present. City
Redwood City, CA 94063 Councilman, Redwood City, CA from 1997 to present.
- ---------------------------------------- --------------------------- --------------------------------------------------
Norman H. Moore, Jr., Age 43 Secretary and Treasurer Vice President of Compliance for the Adviser from
2471 East Bayshore Road, Suite 501 1994 to present.
Palo Alto, California 94303
- ---------------------------------------- --------------------------- --------------------------------------------------
</TABLE>
*An asterisk indicates a Trustee who may be deemed to be an "interested person"
of the Fund (as that term is defined in the 1940 Act). Messrs. Kelmon and
Stanley are considered "interested persons" of the Fund due to their affiliation
with the Adviser. Mr. Edgerton is considered an "interested person" of the Fund
because he owns shares of Kelmoore Investment Company, Inc.
Members of the Audit Committee of the Trustees are Messrs. ___________ and
_______. The Audit Committee members make recommendations to the Trustees
regarding the selection of auditors and confer with the auditors regarding the
scope and results of the audit.
Members of the Nominating Committee of the Trustees are Messrs. _________ and
_______. The Nominating Committee of the Trustees is responsible for the
selection and nomination of disinterested Trustees.
Members of the Valuation Committee of the Trustees are Messrs. ________ and
______. The Valuation Committee of the Trustees is responsible for fair value
pricing of the Fund's portfolio securities.
Each Trustee of the Fund who is not an affiliated person of the Adviser, as
defined in the 1940 Act, receives an annual retainer of $4,000 per year. and
reimbursement for expenses. The following table sets forth the compensation
expected to be paid by the Trust to the Trustees during the Fund's fiscal year
ending December 31, 1999.
<TABLE>
<CAPTION>
- --------------------------------- ---------------------------------------- ---------------------------------------
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
NAME OF TRUSTEE FROM THE TRUST THE TRUST PAID TO TRUSTEE
- --------------------------------- ---------------------------------------- ---------------------------------------
<S> <C> <C>
Matthew Kelmon $ 0 $ 0
Wayne E. Edgerton 0 0
Richard D. Stanley 0 0
Kenneth D. Treece 4,000 4,000
Ignatius J. Panzica 4,000 4,000
William H. Barnes 0 0
Lisa Ann McCarthy 4,000 4,000
Jeffrey Ira 4,000 4,000
- ---------------
</TABLE>
19
<PAGE> 23
The Trustees and officers affiliated with the Adviser are not compensated by the
Trust for their services. The Fund does not have any retirement plan for its
Trustees.
Investment Adviser. The Fund has employed Kelmoore Investment Company, Inc. as
its investment adviser. As of February 28, 1999, the Adviser managed
approximately $100 million of assets. Through his ownership and voting control
of more than 25% of the outstanding shares of the Adviser, Ralph M. Kelmon, Jr.
is considered to control the Adviser.
In addition to managing the Fund's investments consistent with its investment
objectives, policies and limitations, the Adviser makes recommendations with
respect to other aspects and affairs of the Fund. The Adviser also furnishes the
Fund with certain administrative services, office space and equipment. All other
expenses incurred in the operation of the Fund are borne by the Fund. Under the
Investment Advisory Agreement, the Adviser will not be liable for any error of
judgment or mistake of fact or law or for any loss by the Fund in connection
with the performance of the Investment Advisory Agreement, except a loss from a
breach of a fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties under the Investment Advisory Agreement.
For providing investment advisory and other services and assuming certain Fund
expenses, the Fund pays the Adviser a monthly fee at the annual rate of 1.00% of
the value of the Fund's average daily net assets. For the Fund's initial fiscal
year ending ____________, 1999, the Adviser has voluntarily agreed to waive its
fees and reimburse expenses so that the Fund's annual operating expenses will
not exceed 3.00%. The Adviser may terminate this waiver at any time. Any waiver
or reimbursement by the Adviser is subject to reimbursement by the Fund within
the following three years, to the extent such reimbursement by the Fund would
not cause total operating expenses to exceed any current expense limitation.
The Investment Advisory Agreement was approved by the Trustees, including a
majority of the Trustees who are not "interested persons" of the Fund, on
________ 1999 and by the initial shareholder of the Fund on ________, 1999. The
Investment Advisory Agreement is for an initial term of two years and continues
in effect from year to year thereafter if such continuance is approved annually
by the Trustees or by a vote of a majority of the outstanding shares of the
Fund, and, in either case, by the vote of a majority of the Trustees who are not
parties to the Investment Advisory Agreement or "interested persons" of any
party to the Investment Advisory Agreement, voting in person at a meeting called
for the purpose of voting on such approval. The Investment Advisory Agreement
may be terminated at any time without penalty by the Trustees, by vote of a
majority of the outstanding shares of the Fund or by the Adviser, upon sixty
days' written notice. The Investment Advisory Agreement terminates automatically
if assigned.
Expenses. The Fund pays all expenses not assumed by the Adviser, including, but
not limited to: Trustees' expenses, audit fees, legal fees, interest expenses,
brokerage commissions, fees for registration and notification of shares for sale
with the SEC and various state securities commissions, taxes, insurance
premiums, fees of the Fund's administrator, transfer agent, fund accounting
agent or other service providers, and costs of obtaining quotations for
portfolio securities and the pricing of Fund shares.
Name. The word "Kelmoore" is used by the Trust with the Adviser's consent and
the Trust has a non-exclusive license to use the name "Kelmoore Strategic Trust"
and the word "Kelmoore" in the name of any future Fund. If the Adviser ceases to
be the investment adviser of the Fund, the Trust shall delete the word
"Kelmoore" from its name and cease to otherwise use the word "Kelmoore."
OTHER SERVICES
The Distributor. Kelmoore Investment Company, Inc., 2471 East Bayshore Road,
Suite 501, Palo Alto, CA 94303 (the "Distributor") also acts as the primary and
exclusive distributor of the Fund's shares, which are offered on a continuous
basis. The Distributor serves as the principal distributor of the Fund's shares
pursuant to a Distribution Agreement with the Fund. The Distribution Agreement
is renewable annually provided its renewal is approved by a majority of the
Trustees who are not interested persons of the Fund, parties to the Distribution
Agreement or interested persons of parties to the Distribution Agreement. The
Distribution Agreement may be terminated at any time, without the payment
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<PAGE> 24
of a penalty, on sixty days' written notice by the Distributor, the Trust or by
the vote of the holders of the lesser of: (a) 67% of the Trust's shares present
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy, or (b) more than 50% of the outstanding shares of
the Trust. The Distribution Agreement shall automatically terminate if it is
assigned. The Distributor does not receive any fee or other compensation under
the Distribution Agreement other than fees it receives in accordance with the
Distribution Plan described below.
Shares of the Fund may also be sold by selected broker-dealers which have
entered into selling agency agreements with the Distributor. The Distributor
accepts orders for the purchase of the shares of the Fund which are continually
offered at net asset value next determined. The Distributor may pay extra
compensation to financial services firms selling large amounts of fund shares.
This compensation is calculated as a percentage of Fund shares sold by the firm.
Distribution Plan. The Trust has adopted a distribution plan in accordance with
Rule 12b-1 under the 1940 Act for the Fund (the "Plan"). The Plan permits the
Fund to pay the Distributor for its services related to sales and distribution
of shares and provision of ongoing services to Fund shareholders. Under the
Plan, the fees may not exceed an annual rate of 1.00% of the Fund's average
daily net assets, 0.25% of which will be used for a service fee pursuant to
dealer or servicing agreements. The fees payable under the Plan may be used to
compensate the Distributor for any expenses primarily intended to result in the
sale of the Fund's shares, including, but not limited to: (a) payments the
Distributor makes to other institutions and industry professionals,
broker-dealers, including the investment adviser, Distributor and their
affiliates or subsidiaries (collectively referred to as "Participating
Organizations"), pursuant to an agreement in connection with providing
administrative support services to the holders of the Fund's shares; (b)
payments to financial institutions and industry professionals (such as insurance
companies, investment counselors, accountants, and estate planning forms (but
not including banks and savings and loan associations), broker-dealers, the
Distributor and the Distributor's affiliates and subsidiaries in consideration
for distribution services provided and expenses assumed in connection with
distribution assistance, including but not limited to, printing and distributing
prospectuses to persons other than current shareholders of the Fund, printing
and distributing advertising and sales literature and reports to shareholders
used in connection with the sale of the Fund's shares, and personnel and
communication equipment used in servicing shareholder accounts and prospective
shareholder inquiries; (c) costs relating to the formulation and implementation
of marketing and promotional activities, including, but not limited to, direct
mail promotions and television, radio, newspaper, magazine and other mass media
advertising; (d) costs of printing and distributing prospectuses, statements of
additional information and reports of the Fund to prospective shareholders of
the Fund; (e) costs involved in preparing, printing and distributing sales
literature pertaining to the Fund; and (f) costs involved in obtaining whatever
information, analyses and reports with respect to marketing and promotional
activities that the Trust may, from time to time, deem advisable. Such expenses
shall be deemed incurred whether paid directly by the Adviser as Distributor or
by a third party to the extent reimbursed therefor by the Adviser.
The Adviser provides the Trustees for their review, on a quarterly basis, a
written report of the amounts expended under the Plan.
The Plan is subject to annual approval by the Trustees. The Plan is terminable
at any time by vote of a majority of the non-interested Trustees or by vote of a
majority of the outstanding shares of the Fund. Pursuant to the Plan, a new
Trustee who is not an interested person (as defined in the 1940 Act) must be
nominated by existing Trustees who are not interested persons. Any change in the
Plan that would materially increase the distribution cost to the Fund requires
shareholder approval; otherwise, the Plan may be amended by the non-interested
Trustees at a meeting called for the purpose of voting on any amendment.
Although there is no obligation for the Fund to pay expenses incurred by the
Distributor in excess of payments made to the Distributor under the Plan, if the
Plan is terminated, the Board will consider how to treat such expenses. Any
expenses incurred by the Distributor but not yet recovered through distribution
fees could be recovered through future distribution fees. If the Distributor's
actual distribution expenditures in a given year are less than the Rule 12b-1
payments it receives from the Fund for that year, and no effect is given to
previously accumulated distribution expenditures in excess of the Rule 12b-1
payments borne by the Distributor out of its own resources in other years, the
difference is "profit" to the Distributor for that year.
Because amounts paid pursuant to the Plan are paid to the Distributor, the
Distributor and its officers, directors and employees may be deemed to have a
financial interest in the operation of the Plan. None of the non-interested
Trustees
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<PAGE> 25
has a financial interest in the operation of the Plan.
The Plan was adopted because of its anticipated benefit to the Fund. The
Trustees have determined, in the exercise of their reasonable business judgment
and in light of their fiduciary duties, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders.
Transfer Agent. First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, which has its
principal business address at 4400 Computer Drive, Westborough, MA 01581,
provides transfer agency and dividend disbursing agent services for the Fund. As
part of these services, Investor Services Group maintains records pertaining to
the sale and redemption of Fund shares and will distribute the Fund's cash
dividends to shareholders. In consideration for such services, the Fund has
agreed to pay Investor Services Group a fee of $20.00 per account subject to a
minimum of $24,000 per year. The fee will be paid monthly.
Administrative Services. Investor Services Group also serves as the
administrator for the Fund. The services include the day-to-day administration
of matters necessary to the Fund's operations, maintenance of its records and
books, preparation of reports, and compliance monitoring of its activities. For
providing administrative services to the Fund, Investor Services Group receives
from the Fund a fee, computed daily and paid monthly, at the annual rate of
0.15% of the first $50 million of average daily net assets of the Fund, 0.10% of
the next $50 million of average daily net assets, and 0.05% of average daily net
assets over $100 million (with a minimum annual fee of $55,000).
Accounting Services. Investor Services Group also serves as the accounting agent
for the Fund and maintains the accounting books and records of the Fund,
calculates the Fund's net asset value in accordance with the provisions of the
Fund's current Prospectus and prepares for Fund approval and use various
government reports, tax returns, and proxy materials. For providing accounting
services to the Fund, Investor Services Group receives from the Fund a fee,
computed daily and paid monthly, based on a minimum of $30,000 for the first $20
million of average daily net assets, 0.03% of the next $30 million of average
daily net assets, 0.02% of the next $50 million of average daily net assets, and
0.01% of average daily net assets over $100 million.
Custodian. The Bank of New York, 48 Wall Street, New York, New York 10286, is
custodian of the Fund's assets pursuant to a custodian agreement. Under the
custodian agreement, The Bank of New York (i) maintains a separate account or
accounts in the name of the Fund (ii) holds and transfers portfolio securities
on account of the Fund, (iii) accepts receipts and make disbursements of money
on behalf of the Fund, (iv) collects and receives all income and other payments
and distributions on account of the Fund's securities and (v) makes periodic
reports to the Trustees concerning the Fund's operations.
Independent Accountants. The accounting firm of PricewaterhouseCoopers LLP, 333
Market Street, San Francisco, CA 94105, has been designated as independent
accountants for the Fund. PricewaterhouseCoopers LLP performs annual audits of
the Fund and is periodically called upon to provide accounting and tax advice.
Legal Counsel. Howard Rice Nemerovski Canady Falk & Rabkin, A Professional
Corporation, Three Embarcadero Center, Seventh Floor, San Francisco, CA
94111-4065 serves as legal counsel for the Trust and the Adviser and
Distributor.
PURCHASES AND REDEMPTIONS
Redemptions in Kind. In accordance with its election pursuant to Rule 18f-1
under the 1940 Act, the Fund may limit redemptions in cash with respect to each
shareholder during any ninety-day period to the lesser of (i) $250,000 or (ii)
1% of the net asset value of the Fund at the beginning of such period. In the
case of requests for redemptions in excess of such amount, the Trustees reserve
the right to make payments in whole or in part in securities or other assets in
case of an emergency, or any time a cash distribution would impair the liquidity
of the Fund to the detriment of existing shareholders. If the recipient sold
such securities, a brokerage charge might be incurred.
Telephone Instructions. Neither the Fund nor Investor Services Group will be
liable for any loss or expense in acting upon telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
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<PAGE> 26
instructions are genuine, Investor Services Group will use procedures that are
considered reasonable. Shareholders assume the risk to the full extent of their
accounts that telephone requests may be unauthorized. All telephone
conversations with Investor Services Group will be recorded.
Systematic Withdrawal Plan. Shareholders who own $5,000 or more of Fund shares,
valued at the Fund's current net asset value, and who wish to receive periodic
payments from their account(s) may establish a Systematic Withdrawal Plan by
completing an application provided for this purpose. Participants in this plan
will receive monthly, quarterly or annual checks in the amount designated. The
minimum withdrawal amount is $100. This amount may be changed at any time.
Dividends and capital gains distributions on the Fund's shares in the Systematic
Withdrawal Plan are automatically reinvested in additional shares at net asset
value. Payments are made from proceeds derived from the redemption of Fund
shares owned by the participant. The redemption of shares will result in a gain
or loss that is reportable by the participant on its income tax return, if the
participant is a taxable entity.
Redemptions required for payments may reduce or use up the participant's
investment, depending upon the size and frequency of withdrawal payments and
market fluctuations. Accordingly, Systematic Withdrawal Plan payments cannot be
considered as yield or income on the investment.
Investor Services Group, as agent for the participant, may charge for services
rendered to participants. No such charge is currently assessed, but such a
charge may be instituted by Investor Services Group upon written notice to
participants. The plan may be terminated at any time without penalty upon
written notice by the participants, the Fund, or Investor Services Group.
VALUATION
The Fund's securities are valued based on market value or, where market
quotations are not readily available, based on fair value as determined in good
faith by the Trustees. Equity securities traded on an exchange or on the NASDAQ
National Market System (the "NASDAQ"), will be valued at the last sale price on
the exchange or system in which they are principally traded on the valuation
date. If there is no sale on the valuation date, securities traded principally
on a U.S. exchange or the NASDAQ will be valued at the mean between the closing
bid and asked prices. Equity securities which are traded in the over-the-counter
market only, but which are not included in the NASDAQ, will be valued at the
last sale price on the valuation day or, if no sale occurs, at the mean between
the last bid and asked prices. Exchange traded options will be valued at the
last sale price in the market where such options are principally traded. Debt
securities with a remaining maturity of sixty days or more will be valued using
a pricing service if such prices are believed to accurately represent market
value. Debt securities and money market instruments with a remaining maturity of
less than sixty days will be valued at amortized cost, which the Trustees have
determined to be equal to fair value. Valuations may also be obtained from
independent pricing services approved by the Trustees when such prices are
believed to reflect fair market value.
When the Fund writes a put or call option, it records the premium received as an
asset and equivalent liability, and thereafter adjusts the liability to the
market value of the option determined in accordance with the preceding
paragraph.
TAXES
Below is a discussion of certain U.S. federal income tax issues concerning the
Fund and the purchase, ownership, and disposition of Fund shares. This
discussion does not purport to deal with all aspects of federal income taxation
relevant to shareholders in light of their particular circumstances. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisers with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
Tax Status of the Fund. The Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock,
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<PAGE> 27
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies). If the Fund fails to qualify as a regulated investment company, the
Fund will be subject to U.S. federal income tax.
As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed to shareholders. The Fund intends to distribute substantially all of
such income.
Amounts not distributed in accordance with certain requirement are subject to a
nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must
distribute during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses) for a one-year period
generally ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. The Fund intends to avoid application of the excise tax.
A distribution will be treated as paid on December 31 of a calendar year if it
is declared by the Fund in October, November or December of that year with a
record date in such a month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received.
Options. When the Fund writes an option, there is no taxable event and an amount
equal to the premium received is recorded by the Fund as an asset and an
equivalent liability. The liability is thereafter valued to reflect the current
value of the option. If the option is not exercised and expires, or if the Fund
effects a closing purchase transaction, the Fund will realize a gain (or a loss
in the case of a closing purchase transaction where the cost exceeds the
original premium received) and the liability related to the option will be
extinguished. Any such gain or loss is a short-term capital gain or loss for
federal income tax purposes, except that any loss realized when the Fund closes
certain covered call options whose underlying security is trading above the
exercise price of the option will be long-term capital loss if the hypothetical
sale of the underlying security on the date of such transaction would have given
rise to a long-term capital gain. If a call option which the Fund has written on
any equity security is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a put option which the
Fund has written on an equity security is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchases upon exercise of the option.
Distributions. Distributions of investment company taxable income are taxable to
a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
The excess of net long-term capital gains over the short-term capital losses
realized and distributed by the Fund, whether paid in cash or reinvested in Fund
shares, will generally be taxable to shareholders as long-term gain, regardless
of how long a shareholder has held Fund shares. Net capital gains from assets
held for one year or less will be taxed as ordinary income.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful
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to consider the tax implications of buying shares of the Fund just prior to a
distribution. The price of shares purchased at this time will include the amount
of the forthcoming distribution, but the distribution will generally be taxable
to the shareholder.
Dispositions. Upon a redemption or sale of shares of the Fund, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands, and the rate of tax will depend upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days, beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case the basis of the shares acquired will be
adjusted to reflect the disallowed loss. If a shareholder holds Fund shares for
six months or less and during that period receives a distribution taxable to the
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term loss to the extent of
such distribution.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Any amounts withheld may be
credited against the shareholder's federal income tax liability.
Other Taxation. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above, including the likelihood that ordinary income dividends
to them would be subject to withholding of U.S. tax at a rate of 30% (or a lower
treaty rate, if applicable).
BROKERAGE
The Fund intends to place substantially all its securities transactions,
including transactions involving options, through the Adviser in accordance with
procedures set forth in Rule 17e-1 under the 1940 Act. These procedures, which
have been adopted by the Trustees, including a majority of the non-interested
Trustees, are reasonably designed to provide that any commissions, fees or other
compensation paid to the Adviser (or any affiliate), even though such fees and
commissions may actually be higher, are fair and reasonable when compared to
commissions, fees and other compensation received from other firms who engage in
comparable transactions. The Fund will not deal with the Adviser (or any
affiliate) in any transaction in which the Adviser (or any affiliate) acts as
principal, except in accordance with rules promulgated by the Securities and
Exchange Commission.
The Adviser may utilize non-affiliated brokers, dealers or members of a
securities exchange to execute portfolio transactions on behalf of the Fund and,
like the Adviser, such firms may receive commissions for executing the Fund's
securities transactions. In effecting the purchase or sale of portfolio
securities from non-affiliated brokers, dealers or members of an exchange, the
Adviser will seek execution of trades either (1) at the most favorable and
competitive rate of commission charged by any broker, dealer or member of an
exchange, or (2) at a higher rate of commission charged, if reasonable in
relation to brokerage and research services provided to the Trust or the Adviser
by such member, broker or dealer. Such services may include, but are not limited
to, information as to the availability of securities for purchase or sale and
statistical or factual information or opinions pertaining to investments. The
Adviser may use brokerage and research services provided to it by brokers and
dealers in servicing all its clients.
The Adviser currently manages separate accounts that employ investment
strategies similar to those used by the Fund. At times, investment decisions may
be made to purchase or sell the same security for the Fund and one or more of
the other clients advised by the Adviser. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security, the
transactions will be allocated as to amount and price in a manner considered
equitable to each so that each receives, to the extent practicable, the average
price for such transaction. There may be circumstances in which such
simultaneous transactions would be disadvantageous to the Fund with respect to
price and availability of securities. In other cases, however, it is believed
that transactions would be advantageous to the Fund.
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<PAGE> 29
SHARES OF BENEFICIAL INTEREST
There are no conversion or preemptive rights in connection with any shares of
the Fund, nor are there cumulative voting rights. The Fund's shares have equal
voting rights. As a shareholder, you receive one vote for each share of the Fund
you own and each fractional share you own shall be entitled to a proportionate
fractional vote. Each issued and outstanding share of the Fund is entitled to
participate equally in dividends and distributions declared and in the net
assets of the Fund upon liquidation or dissolution remaining after satisfaction
of outstanding liabilities. Under Delaware law, shareholders will be liable for
the obligations of the Fund only to the extent of their investment in the Fund.
All issued and outstanding shares of the Fund will be fully paid and
non-assessable and will be redeemable at net asset value per share. The
interests of shareholders in the Fund will not be evidenced by a certificate or
certificates representing shares of the Fund.
The authorized capitalization of the Fund consists of an unlimited number of
shares having a par value of $0.001 per share. The Trustees have authorized one
series with one class of shares issued currently. The Trustees have authority,
without necessity of a shareholder vote, to create any number of new series or
classes of shares.
Unless otherwise required by the 1940 Act, ordinarily it will not be necessary
for the Trust to hold annual meetings of shareholders. As a result, shareholders
may not consider each year the election of Trustees or the appointment of
auditors. However, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Fund to hold a special meeting of shareholders
for purposes of removing a Trustee. Shareholders may remove a Trustee by the
affirmative vote of a majority of the Fund's outstanding voting shares. In
addition, the Trustees will call a meeting of shareholders for the purpose of
electing Trustees if, at any time, less than a majority of the Trustees then
holding office have been elected by shareholders. Special shareholder meetings
may also be called for certain purposes such as electing Trustees, changing
fundamental policies, or approving a management contract.
CALCULATION OF PERFORMANCE
Total Percentage Increase. Total percentage increase is calculated for the
specified periods of time by assuming a hypothetical investment of $1,000 in the
Fund's shares. Each dividend or other distribution is treated as having been
reinvested at net asset value on the payment date. The percentage increases
stated are the percent that an original investment would have increased during
the applicable period.
Average Annual Total Return. The Fund computes its average annual total return
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
1/n
(ERV)
Average Annual Total Return = ---------- -1
P
Where: ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at
the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of
years.
The Funds that compute their aggregate total returns over a specified period do
so by determining the aggregate compounded rate of return during such specified
period that likewise equates over a specified period the initial amount invested
to the ending redeemable value of such investment. The formula for calculating
aggregate total return is as
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<PAGE> 30
follows:
(ERV-P)
Average Total Return = -------
P
Where: ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
payment dates during the period. The ending redeemable value (variable "ERV" in
each formula) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations. Such calculations are not indicative of
future results and do not take into account Federal, state and local taxes, if
any, that shareholders must pay on a current basis.
Since performance will fluctuate, performance data for the Fund should not be
used to compare an investment in a Fund's shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance is generally a function of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions.
Comparing Performance. Performance information for the Fund may be compared, in
reports and promotional literature, to indices including, but not limited to:
(i) the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, or other appropriate unmanaged domestic or foreign indices
of performance of various types of investments so that investors may compare the
Fund's results with those of indices widely regarded by investors as
representative of the securities markets in general; (ii) Lehman Brothers
Corporate Bond Index; (iii) other groups of mutual funds tracked by Lipper
Analytical Services, Inc., a widely-used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
Fund on overall performance or other criteria; (iv) the Consumer Price Index (a
measure of inflation) to assess the real rate of return from an investment in
the Fund; and (v) products managed by a universe of money managers with similar
performance objectives. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses.
FINANCIAL STATEMENTS
Reports to Shareholders Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
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<PAGE> 31
KELMOORE STRATEGIC TRUST
PART C - OTHER INFORMATION
Item 23. EXHIBITS:
(a)(1) Certificate of Trust -- Incorporated by reference to the Initial
Registration Statement as filed with the SEC on December 21,
1998.
(a)(2) Agreement and Declaration of Trust -- Incorporated by reference
to the Initial Registration Statement as filed with the SEC on
December 21, 1998.
(b) By-Laws -- Incorporated by reference to the Initial Registration
Statement as filed with the SEC on December 21, 1998.
(c) Instruments Defining Rights of Security Holders -- not
applicable.
(d) Form of Investment Advisory Agreement -- filed herewith.
(e) Form of Distribution Agreement -- filed herewith.
(f) Bonus or Profit Sharing Contracts -- none.
(g)(1) Form of Custodian Agreement -- filed herewith.
(g)(2) Form of Special Custody Account Agreement -- filed herewith.
(h) Other Material Contracts
(i) Form of Services Agreement -- filed herewith.
(i) Legal Opinion -- to be filed by Amendment.
(j) Consent of Independent Accountants -- to be filed by Amendment.
(k) Omitted Financial Statements -- none.
(l) Initial Capital Agreements -- to be filed by Amendment.
(m) Form of Rule 12b-1 Plan -- filed herewith.
(n) Financial Data Schedule -- to be filed by Amendment.
(o) Rule 18f-3 Plan -- none.
Item 24. Persons Controlled by or under Common Control with Registrant.
None
Item 25. Indemnification.
The Agreement and Declaration of Trust (Article IV, Section 3)
limits the liabilities of a Trustee, officer or employee of the
Trust to that of gross negligence and in the event a Trustee,
officer or employee of the Trust is sued for his or her
activities concerning the Trust, the Trust will indemnify that
Trustee, officer or employee to the fullest extent permitted by
Section 3817 of Chapter 38 of Title 12 of the Delaware Code,
except if a Trustee, officer or employee of the Trust has been
found by a court or body before which the proceeding was brought
to have acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office or not to have acted in good faith
in the reasonable belief that his action was in the best interest
of the Trust.
The Registrant intends to purchase Errors and Omissions insurance
with Directors and Officers liability coverage.
28
<PAGE> 32
Item 26. Business and Other Connections of the Investment Adviser.
Kelmoore Investment Company, Inc. (the "Adviser"), is a
registered investment adviser and broker-dealer incorporated on
November 6, 1978. The Adviser is primarily engaged in the
investment advisory business. The Fund is the only registered
investment company to which the Adviser serves as investment
adviser. Information as to the officers and directors of the
Adviser is included in its Form ADV filed February 12, 1999 with
the Securities and Exchange Commission (Registration Number
801-53123) and is incorporated herein by reference.
Item 27. Principal Underwriters.
(a) The Adviser also serves as distributor of the shares of the
Fund. The Adviser currently acts as principal underwriter for
Kelmoore Covered Writing Fund, K2 LP, a California Limited
Partnership.
(b) The following table sets forth information concerning each
director and officer of the Adviser.
<TABLE>
<S> <C> <C> <C>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
--------------------- ------------------------ ---------------------
Ralph M. Kelmon, Jr.* Chairman of the Board, None
Chief Executive Officer,
and Treasurer
Michael Romanchak* Director and President None
David R. Moore* Director None
A. Duncan King* Director None
Norman H. Moore, Jr.* Secretary None
Cece G. Montgomery* Chief Financial Officer None
Matthew Kelmon* Vice President of Trading President
</TABLE>
* All addresses are 2471 East Bayshore Road, Suite 501, Palo
Alto, CA 94303 unless otherwise indicated.
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts, books, or other documents required to be maintained
by Section 31(a) of the 1940 Act and the Rules 17 CFR 270.31a-1
to 31a-3 promulgated thereunder, are maintained by the Adviser at
2471 East Bayshore Road, Suite 501, Palo Alto, California 94303.
Certain records, including records relating to Registrant's
shareholders are maintained at the Trust's Administrator,
Transfer Agent, and Fund Accounting Agent, First Data Investor
Services Group, 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, PA 19406-0903. Records relating to the physical
possession of securities are maintained by the Trust's Custodian,
The Bank of New York, 48 Wall Street, New York, New York 10286.
Item 29. Management Services. Not Applicable.
Item 30. Undertakings. Not Applicable.
29
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
amendment to the Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Palo Alto and the
State of California on this 25th day of February, 1999.
KELMOORE STRATEGIC TRUST
(Registrant)
By: Matthew Kelmon, President*
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
Ralph M. Kelmon* Initial Trustee February 25, 1999
Matthew Kelmon* President and Principal February 25, 1999
Executive Officer
Matthew Kelmon* Principal Financial and February 25, 1999
Accounting Officer
By: Sandra L. Adams,
as Attorney-in-Fact
February 25, 1999
30
<PAGE> 34
KELMOORE STRATEGIC TRUST
EXHIBIT INDEX TO PART "C"
OF
REGISTRATION STATEMENT
ITEM NO. DESCRIPTION
- -------- -----------
99(d) Form of Investment Advisory Agreement
99(e) Form of Distribution Agreement
99(g)(1) Form of Custodian Agreement
99(g)(2) Form of Special Custody Account Agreement
99(h)(1) Form of Services Agreement
99(m) Form of Rule 12b-1 Plan
31
<PAGE> 1
Exhibit 99(d)
KELMOORE STRATEGIC TRUST
[FORM OF] INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement is made as of this ____ day of ____________,
1999, by and between Kelmoore Strategic Trust, a Delaware business trust (the
"Trust"), on behalf of each series of the Trust listed in Schedule I attached
hereto, as such may be amended from time to time (individually, a "Fund" and
collectively, the "Funds") and Kelmoore Investment Company, Inc., a California
corporation (the "Adviser").
WHEREAS, the Trust is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended;
WHEREAS, the Trust desires to retain the Adviser to render investment advisory
and other services to the Funds pursuant to the terms and provisions of this
Agreement, and the Adviser is interested in furnishing said services;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained in this Agreement, the parties hereto agree as follows:
SECTION 1. APPOINTMENT.
The Trust hereby appoints the Adviser to act as investment adviser to the
Funds for the period and on the terms and subject to the conditions set
forth in this Agreement. The Adviser accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
Additional series of the Trust may from time to time be added to those
covered by this Agreement by the parties executing a new Schedule I that
shall become effective upon its execution and shall supersede any Schedule I
having an earlier date.
SECTION 2. INVESTMENT ADVISORY AND OTHER SERVICES.
Subject to the supervision of the Trust's Trustees (the "Trustees"), the
Adviser shall provide a continuous investment program for each of the Funds,
including investment, research and management with respect to all securities
and investments and cash equivalents in the Funds. The Adviser shall
determine from time to time what securities and other investments will be
purchased, retained or sold by the Trust with respect to the Funds. The
Adviser shall provide the services under this Agreement in accordance with
each of the Fund's investment objectives, policies, and restrictions as
stated in such Fund's most current Prospectus and Statement of Additional
Information, including all amendments or supplements thereto, and in such
resolutions of the Trustees as may be adopted from time to time. The Adviser
further agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to any fiduciary accounts for which it has
investment responsibilities;
1
<PAGE> 2
(b) will conform with all applicable rules and regulations of the U.S.
Securities and Exchange Commission (the "Commission") and, in addition,
will conduct its activities under this Agreement in accordance with any
applicable regulations of any governmental authority pertaining to the
investment advisory activities of the Adviser;
(c) will place orders pursuant to its investment determinations for the
Funds either directly with the issuer or with any broker or dealer,
including the Adviser. In placing orders with brokers and dealers, the
Adviser will attempt to obtain and is hereby directed to obtain prompt
execution of orders in an effective manner at the most favorable price.
Consistent with this obligation, the Adviser may, in its discretion,
purchase and sell portfolio securities to and from brokers and dealers
who provide the Adviser with brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934).
Subject to the review of the Trustees from time to time with respect to
the extent and continuation of this policy, the Adviser is authorized to
pay a broker or dealer who provides such brokerage and research services
a commission for effecting a securities transaction for any of the Funds
which is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if, but only if, the
Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by
such broker or dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the Adviser with respect
to the accounts as to which it exercises investment discretion. On
occasions when the Adviser deems the purchase or sale of a security to
be in the best interest of one or more of the Funds as well as of other
clients, the Adviser, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be so purchased or sold in
order to obtain the most favorable price or lower brokerage commissions
and the most efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser in the manner it considers to
be the most equitable and consistent with its fiduciary obligations to
the Funds and to such other clients. In placing orders with the Adviser
for the Trust, the Adviser will comply with the procedures adopted by
the Trust pursuant to Rule 17e-1 under the 1940 Act.
(d) will maintain all books and records with respect to the securities
transactions of the Funds and will furnish the Trust's Board of Trustees
such periodic and special reports with respect to each Fund's investment
activities as the Trustees may reasonably request; and
(e) will advise and assist the officers of the Trust in taking such
actions as may be necessary or appropriate to carry out the decisions of
the Trustees and of the appropriate committees of the Trustees regarding
the conduct of the business of the Funds.
SECTION 3. EXPENSES.
During the term of this Agreement, the Adviser will pay all expenses
incurred by it in connection with its activities, duties and obligations
under this Agreement, other than the costs of securities (including
brokerage fees, if any) purchased for the Funds. The Adviser will also
furnish the Funds with office space and equipment necessary for the conduct
of the Funds' business.
2
<PAGE> 3
SECTION 4. COMPENSATION.
For the services provided and the expenses assumed pursuant to this
Agreement, each of the Funds will pay the Adviser and the Adviser will
accept as full compensation therefor the annual fee set forth on Schedule I
hereto. The obligations of the Funds to pay the above described fee to the
Adviser will begin as of the respective dates of the initial public sale of
shares in the Funds, including any shares sold or exchanged in connection
with a merger, consolidation or reorganization involving one or more of the
Funds. Such fee shall be paid monthly based upon each respective Fund's
average daily net assets calculated in the manner provided in the Prospectus
and Statement of Additional Information then in effect.
The fee shall be accrued daily by each Fund and paid to the Adviser within
five (5) business days after the end of each calendar month. If this
Agreement is terminated before the end of any month, the fee to the Adviser
shall be prorated for the portion of any month in which this Agreement is in
effect and shall be payable within ten (10) days after the date of
termination.
The Adviser may voluntarily waive or reimburse expenses at any time. Any
amounts waived or reimbursed by the Adviser are subject to reimbursement by
the Fund within the following three years, to the extent such reimbursement
by the Fund would not cause total operating expenses to exceed any current
expense limitation.
SECTION 5. LIMITATION OF LIABILITY.
The Adviser shall not be liable for any error of judgment or mistake of fact
or law or for any loss suffered by the Funds in connection with the
performance of this Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on
the part of the Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
SECTION 6. DURATION AND TERMINATION.
This Agreement shall become effective at the time the Trust's initial
Registration Statement under the Securities Act of 1933 with respect to the
shares of the Trust is declared effective by the Commission and shall remain
in effect for a period of two (2) years, unless sooner terminated as
hereinafter provided. This Agreement shall continue in effect thereafter for
additional periods not exceeding one (1) year so long as such continuation
is approved for each Fund at least annually by (i) the vote of the Trustees
or the vote of a majority of the outstanding voting securities of such Fund,
and (ii) the vote of a majority of the Trustees of the Trust who are not
parties to this Agreement nor interested persons thereof, cast in person at
a meeting called for the purpose of voting on such approval.
Notwithstanding the foregoing, this Agreement may be terminated as to a
particular Fund at any time on sixty days' written notice, without the
payment of any penalty, by the Trust (by vote of the Trustees or by vote of
a majority of the outstanding voting securities of such Fund) or by the
Adviser. This Agreement will automatically terminate in the event of its
assignment.
3
<PAGE> 4
Any notice under this Agreement shall be given in writing, addressed and
delivered or mailed to the other party at the principal office of such
party.
As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same
meanings as ascribed to such terms in the 1940 Act.
SECTION 7. NAME.
The word "Kelmoore" in the name of the Trust or the Funds is understood to
be used by the Trust with your consent, and the Trust is hereby granted a
non-exclusive license to use the name "Kelmoore Strategic Trust" and to use
the word "Kelmoore" in any Fund's name provided that the Trust and the Funds
may use such name only so long as (i) Kelmoore Investment Company, Inc. (the
"Adviser"), which currently acts as adviser to the Trust and the Funds,
shall continue to be retained by the Trust and the Funds as its adviser
pursuant to an investment advisory Agreement between the Trust and the
Adviser, as from time to time amended or supplemented, or (ii) you shall
specifically consent in writing to such continued use. Any such use by the
Trust and the Funds shall in no way prevent you or any of your successors or
assigns from using or permitting the use of the name "Kelmoore" alone or
with any other word or business whether or not the same directly or
indirectly competes or conflicts with the Trust or its business in any
manner. To the extent permitted by the 1940 Act and the rules and
regulations thereunder, and Investment Company Act Release No. 5510, in the
event that the Adviser shall cease to be the adviser of the Trust and the
Funds, the Trust, upon your written request, shall take such further action
as may be necessary to delete from its name and the name of the Funds the
word "Kelmoore" and thereafter (i) cease to use the name "Kelmoore Strategic
Trust" and omit the word "Kelmoore" from the Funds' names or any name
deceptively similar thereto or to "Kelmoore Investment Company" in any way
whatsoever, and (ii) for such period and in such manner as may reasonably be
required by you, on all letterheads and other material designed to be read
or used by salesmen, underwriters or investors, state in a prominent
position and prominent type that Kelmoore Investment Company, Inc. ceased to
be the adviser of the Trust and the Funds.
SECTION 8. ADVISER'S REPRESENTATIONS.
The Adviser hereby represents and warrants that it is willing, and possesses
all requisite legal authority, to provide the services contemplated by this
Agreement without violation of applicable laws and regulations.
SECTION 9. AMENDMENT OF THIS AGREEMENT.
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.
SECTION 10. MISCELLANEOUS.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
4
<PAGE> 5
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and shall be governed by the laws of the State of California.
All persons contracting with or having any claim against the Trust or a
particular Fund shall look only to the assets of all Funds or such
particular Fund for payment under such contract or claim; and neither the
Trustees nor, when acting in such capacity, any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally
liable therefor.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
KELMOORE STRATEGIC TRUST KELMOORE INVESTMENT COMPANY, INC.
By: ________________________ By: __________________________
Name: ________________________ Name: __________________________
Title: ________________________ Title: __________________________
5
<PAGE> 6
SCHEDULE I
Name of Fund Annual Fee
KELMOORE STRATEGY COVERED OPTION FUND 1.00%
Dated:____________________, 1999
KELMOORE INVESTMENT COMPANY, INC KELMOORE STRATEGIC TRUST
By:_____________________________ By:______________________________
Name:___________________________ Name:____________________________
Title:__________________________ Title:___________________________
6
<PAGE> 1
KELMOORE STRATEGIC TRUST
[FORM OF] DISTRIBUTION AGREEMENT Exhibit 99(e)
This Distribution Agreement (the "Agreement") is made as of this ____ day of
____________, 1999, by and between Kelmoore Strategic Trust, a Delaware business
trust (the "Trust"), on behalf of each series of the Trust listed in Schedule I
attached hereto, as may be amended from time to time (individually, a "Fund"
and, collectively, the "Funds") and Kelmoore Investment Company, Inc., a
California corporation (the "Distributor" or "You").
SECTION 1. GENERAL DUTIES AS DISTRIBUTOR OF FUND SHARES.
It is hereby agreed that you shall act as principal distributor for each
series of the Trust set forth on Schedule I and any other series of the
Trust as the parties may agree from time to time. Each Fund may be
authorized to issue multiple classes of shares pursuant to Rule 18f-3 under
the Investment Company Act of 1940, as amended (the "1940 Act"). As
Distributor, you will have the exclusive right to purchase, as principal,
from each Fund, shares of each class authorized and issued by the Fund and
it is further agreed that during the term of this Agreement, you will use
your best efforts to solicit or otherwise cause sales of the shares of each
Fund and any authorized class of the Funds' shares which are registered or
qualified for sale. You agree, as agent for each Fund, to repurchase, and
accept for redemption, the shares of each class authorized and issued by the
Fund; whenever the officers of the Trust deem it advisable for the
protection of shareholders, they may suspend or cancel such authority with
respect to one or more of the Funds. In the performance of these duties you
shall be guided by the requirements of this Agreement, the applicable
provisions of the Trust's Agreement and Declaration of Trust, By-laws, and
applicable federal and state law, all as amended and/or supplemented from
time to time, and each Fund's Prospectus and Statement of Additional
Information, which is from time to time in effect under the Trust's
Registration Statement filed with the U.S. Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "1933 Act"), and the 1940 Act.
SECTION 2. DEALERS.
You may, as principal, solicit qualified dealers for orders to purchase
shares of the Funds and may enter into dealer Agreements with any such
dealers, the form thereof to be determined by you.
SECTION 3. SALES LITERATURE AND ADVERTISEMENTS.
All sales literature and advertisements used by you in connection with the
sale of the Trust's shares must be submitted to the Trust for its advance
approval. In connection with the sale or arranging for the sale of the
Trust's shares, you are authorized to give only such information and to make
only such statements or representations as are contained in each Fund's
Prospectus in effect under the Trust's Registration Statement, or in sales
literature or advertisements approved by the Trust.
1
<PAGE> 2
SECTION 4. LIMITATION UPON INVESTMENT IN THE TRUST
You shall not accept any initial or subsequent investment in shares of a
Fund, except as described in the Fund's then-current Prospectus.
SECTION 5. OFFERING PRICE. NET ASSET VALUE PER SHARE.
Shares of each Fund sold under this Agreement shall be sold only at the
offering price in effect at the time of such sale, as described in the
then-current Prospectus and Statement of Additional Information of each
Fund, and each Fund shall receive not less than the full net asset value
thereof. Any front-end sales charge payable upon purchases shall be retained
by you, it being understood that such amounts will not exceed those set
forth in each Fund's then-current Prospectus. You may re-allow to dealers
all or any part of the sales charge.
Any reference to "net asset value per share" shall refer to each Fund's net
asset value per share computed in accordance with the Trust's Agreement and
Declaration of Trust, each Fund's then-current Prospectus and Statement of
Additional Information and the instructions of the Trustees, all as amended
from time to time. The Trust or its agent will advise you as promptly as
practicable of each Fund's net asset value per share on each day on which it
is determined.
SECTION 6. DUTIES UPON SALE OR REDEMPTION OF SHARES OF THE TRUST.
You shall remit to the Trust's custodian the net asset value per share of
all shares of each Fund sold by you. Each Fund will, as promptly as
practicable, cause the account of the purchaser to be credited with the
number of shares purchased. The Trust will not issue share certificates.
You shall process or cause to be processed requests received from each
Fund's shareholders for redemption of its shares, in the manner prescribed
in the Trust's then-current Prospectus and Statement of Additional
Information. Shares shall be redeemed at their net asset value per share
next computed after receipt of the redemption request, subject to any
applicable redemption fee as set forth in the Fund's then current
prospectus. You shall arrange for payment to such shareholders from each
Fund's account with the custodian.
You shall reimburse the respective Fund for any loss caused by the failure
of a shareholder to confirm in writing any purchase or redemption order
accepted by you. In the event that orders for the purchase or redemption of
shares of a Fund are placed and subsequently canceled, you shall pay to that
Fund, on at least an annual basis, an amount equal to the losses (net of any
gains) realized by the Fund as a result of such cancellations.
SECTION 7. INFORMATION RELATING TO THE TRUST.
The Trust or its agent will furnish you with a certified copy of all
financial statements and a signed copy of each report prepared by its
independent public accountants, and will cooperate fully with you in your
efforts to sell the Funds' shares, and in the performance by you of all of
your duties under this Agreement.
SECTION 8. FILING OF REGISTRATION STATEMENTS.
The Trust or its agent will from time to time file (and furnish you with
copies of) such registration statements, amendments and supplements thereto,
and reports or other documents
2
<PAGE> 3
as may be required under the 1933 Act, the 1940 Act, or the laws of the
states in which you desire to sell shares of the Funds.
SECTION 9. MULTIPLE CAPACITIES.
Nothing contained in this Agreement shall be deemed to prohibit you from
acting, and being separately compensated for acting, in one or more
capacities on behalf of the Trust, including, but not limited to, the
capacities of adviser, administrator, broker and distributor. The Trust
understands that you may act in one or more such capacities on behalf of
other investment companies and customers. You shall give the Trust equitable
treatment under the circumstances in supplying services in any capacity, but
the Trust recognizes that it is not entitled to receive preferential
treatment from you as compared with the treatment given to any other
investment company or customer. Whenever you shall act in multiple
capacities on behalf of the Trust, you shall maintain the appropriate
separate account and records for each such capacity.
SECTION 10. PAYMENT OF FEES AND EXPENSES.
You shall be entitled to receive fees for your services as Distributor. The
Funds shall pay you fees in accordance with any plans adopted by the Funds
(or class of shares of the respective Funds) pursuant to Rule 12b-1 under
the 1940 Act.
The Trust, on behalf of the Funds, shall assume and pay, or reimburse you
for, all expenses of the Trust arising from this Agreement, except that the
following expenses shall be allocated to you, and you shall pay for: (i)
expenses of printing all sales literature of the Funds, including
shareholder reports and prospectuses required for your purposes (expenses of
printing quarterly and annual reports and of maintaining and printing a
current Prospectus for the Funds' shareholders will be paid for by the
respective Funds); and (ii) any payments to other persons for selling shares
of the Funds; or (iii) the amount of any service fees payable to you by the
Funds to be used to compensate persons for providing personal service to
shareholders and maintaining shareholder accounts. The foregoing shall not,
however, be deemed to limit your right to receive and retain any front-end
sales charges referred to in Section 5 hereof.
SECTION 11. LIABILITY OF THE DISTRIBUTOR.
You shall be liable for your own acts and omissions caused by your willful
misfeasance, bad faith, or gross negligence in the performance of your
duties, or by your reckless disregard of your obligations under this
Agreement, and nothing herein shall protect you against any such liability
to the Trust or its shareholders. Subject to the first sentence of this
Section, you shall not be liable for any action taken or omitted on advice,
obtained in good faith, of counsel, provided such counsel is satisfactory to
the Trust.
SECTION 12. TERMINATION OF AGREEMENT; ASSIGNMENT.
This Agreement may be terminated at any time, without the payment of any
penalty, on 60 days' written notice (i) by you; (ii) by the Trust, acting
pursuant to a resolution adopted by the non-interested Trustees; or (iii) by
the vote of the holders of the lesser of (1) 67% of the Trust's shares
present at a meeting if the holders of more than 50% of the outstanding
shares are
3
<PAGE> 4
present in person or represented by proxy, or (2) more than 50% of the
outstanding shares of the Trust. This Agreement shall automatically
terminate in the event of its assignment. Termination shall not affect the
rights of the parties which have accrued prior thereto.
SECTION 13. DURATION.
Unless sooner terminated, this Agreement shall continue in effect for one
year from the date herein above first written, and from year to year
thereafter until terminated, provided that the continuation of this
Agreement and the terms hereof are specifically approved annually in
accordance with the requirements of the 1940 Act as modified or superseded
by any rule, regulation, order or interpretive position of the Commission.
SECTION 14. DEFINITIONS.
The terms "assignment" and "interested person" when used in this Agreement
shall have the meanings given such terms in the 1940 Act.
SECTION 15. CONCERNING APPLICABLE PROVISIONS OF LAW, ETC.
This Agreement shall be subject to all applicable provisions of law,
including, without being limited to, the applicable provisions of the 1940
Act, the 1933 Act, and the Securities Exchange Act of 1934, as amended; and
to the extent that any provisions of this Agreement are in conflict with
such laws, the latter shall control.
This Agreement is executed and delivered in California, and the laws of the
State of California shall govern the construction, validity and effect of
this Agreement.
SECTION 16. MISCELLANEOUS.
The obligations of the Trust and each Fund are not personally binding upon,
nor shall resort be had to the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Trust or any Fund, but
only the relevant Fund's property shall be bound. No Fund shall be liable
for the obligations of any other Fund.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
KELMOORE STRATEGIC TRUST KELMOORE INVESTMENT COMPANY, INC.
By: ___________________________ By: ____________________________
Name: ___________________________ Name: ____________________________
Title: ___________________________ Title: ____________________________
4
<PAGE> 5
SCHEDULE I
Kelmoore Strategic Trust:
Kelmoore Strategy Covered Option Fund
5
<PAGE> 1
CUSTODY AGREEMENT Exhibit 99(g)(1)
Agreement made as of this day of , 1999, between KELMOORE STRATEGIC
TRUST, a Delaware business trust organized and existing under the laws of the
State of Delaware, having its principal office and place of business at 2471 -
E. Bayshore Road, Palo Alto, California 94303 (hereinafter called the "Fund"),
and THE BANK OF NEW YORK, a New York corporation authorized to do a banking
business, having its principal office and place of business at One Wall Street,
New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
WHEREAS, the Fund represents that pursuant to the Administration Agreement (as
hereinafter defined) between First Data Investors Services Group ("FDISG") and
the Fund, FDISG (a) has agreed to perform certain administrative functions which
may include the functions of administrator, transfer agent and accounting
services agent and (b) has been appointed by the Fund to act as its agent in
respect of certain transactions contemplated in this Agreement; and
WHEREAS, the Fund represents that (a) FDISG has agreed to act as Fund's agent in
respect of certain transactions contemplated in this Agreement and (b) the
Custodian is authorized and directed to rely upon and follow Certificates and
Instructions given by FDISG, the Fund's agent, in respect of transactions
contemplated in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth,
the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
1. "Administrator" shall mean FDISG and such successors or permitted assigns as
may succeed and perform its duties under the Administration Agreement.
2. "Administration Agreement" shall mean that certain separate agreement
entitled "Custody Administration and Agency Agreement" dated as of
_______________, 199 between the Fund and the FDISG.
3. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system
for United States and federal agency securities, its successor or successors and
its nominee or nominees.
4. "Call Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
Securities.
5. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement to be given to the Custodian
which is actually received by the Custodian and signed on behalf of the Fund by
any two Officers, and the term Certificate shall also include Instructions
communicated to the Custodian by the Administrator.
6. "Clearing Member" shall mean a registered broker-dealer which is a clearing
member under the rules of O.C.C. and a member of a national securities exchange
qualified to act as a custodian for an investment company, or any broker-dealer
reasonably believed by the Custodian to be such a clearing member.
7. "Collateral Account" shall mean a segregated account so denominated which is
specifically allocated to a Series and pledged to the Custodian as security for,
and in consideration of, the Custodian's issuance of (a) any Put Option
guarantee letter or similar document described in paragraph 8 of Article V
herein, or (b) any receipt described in Article V or VIII herein.
8. "Composite Currency Unit" shall mean the European Currency Unit or any other
composite unit consisting of the aggregate of specified amounts of specified
Currencies as such unit may be constituted from time to time.
<PAGE> 2
9. "Covered Call Option" shall mean an exchange traded option entitling the
holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
10. "Currency" shall mean money denominated in a lawful currency of any country
or the European Currency Unit.
11. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange Commission, its successor or
successors and its nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution of the
Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
12. "Financial Futures Contract" shall mean the firm commitment to buy or sell
fixed income securities including, without limitation, U.S. Treasury Bills, U.S.
Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at an agreed upon
price.
13. "Futures Contract" shall mean a Financial Futures Contract and/or Stock
Index Futures Contracts.
14. "Futures Contract Option" shall mean an option with respect to a Futures
Contract.
15. "FX Transaction" shall mean any transaction for the purchase by one party of
an agreed amount in one Currency against the sale by it to the other party of an
agreed amount in another Currency.
16. "Instructions" shall mean instructions communications transmitted by
electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission signed by an Officer and tested telex.
17. "Margin Account" shall mean a segregated account in the name of a broker,
dealer, futures commission merchant, or a Clearing Member, or in the name of the
Fund for the benefit of a broker, dealer, futures commission merchant, or
Clearing Member, or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant or a Clearing
Member (a "Margin Account Agreement"), separate and distinct from the custody
account, in which certain Securities and/or money of the Fund shall be deposited
and withdrawn from time to time in connection with such transactions as the Fund
may from time to time determine. Securities held in the Book-Entry System or the
Depository shall be deemed to have been deposited in, or withdrawn from, a
Margin Account upon the Custodian's effecting an appropriate entry in its books
and records.
18. "Money Market Security" shall be deemed to include, without limitation,
certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as
to interest and principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to the same and bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the same day as such
purchase or sale.
19. "O.C.C." shall mean the Options Clearing Corporation, a clearing agency
registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
20. "Officers" shall be deemed to include the President, any Vice President, the
Secretary, the Clerk, the Treasurer, the Controller, any Assistant Secretary,
<PAGE> 3
any Assistant Clerk, any Assistant Treasurer, and any other person or persons,
including officers or employees of the Administrator, whether or not any such
other person is an officer of the Fund, duly authorized by the Board of Trustees
of the Fund to execute any Certificate, instruction, notice or other instrument
on behalf of the Fund and listed in the Certificate annexed hereto as Appendix A
or such other Certificate as may be received by the Custodian from time to time.
21. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option
and/or a Put Option.
22. "Oral Instructions" shall mean verbal instructions actually received by the
Custodian from an Officer or from a person reasonably believed by the Custodian
to be an Officer.
23. "Put Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer thereof for the
exercise price.
24. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which the
Fund sells Securities and agrees to repurchase such Securities at a described or
specified date and price.
25. "Security" shall be deemed to include, without limitation, Money Market
Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures
Contracts, Stock Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks
and other securities having characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal governments and by public
authorities, (including, without limitation, general obligation bonds, revenue
bonds, industrial bonds and industrial development bonds), bonds, debentures,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase, sell or subscribe
for the same, or evidencing or representing any other rights or interest
therein, or any property or assets.
26. "Senior Security Account" shall mean an account maintained and specifically
allocated to a Series under the terms of this Agreement as a segregated account,
by recordation or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically allocated to such Series
shall be deposited and withdrawn from time to time in accordance with
Certificates received by the Custodian in connection with such transactions as
the Fund may from time to time determine.
27. "Series" shall mean the various portfolios, if any, of the Fund as described
from time to time in the current and effective prospectus for the Fund and
listed on Appendix B hereto as amended from time to time.
28. "Shares" shall mean the shares of beneficial interest of the Fund, each of
which is, in the case of a Fund having Series, allocated to a particular Series.
29. "Stock Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
stock index at the close of the last business day of the contract and the price
at which the futures contract is originally struck.
30. "Stock Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
ARTICLE II
APPOINTMENT OF CUSTODIAN
<PAGE> 4
1. The Fund hereby constitutes and appoints the Custodian as custodian of the
Securities and money at any time owned by the Fund during the period of this
Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to
perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, the Fund will deliver or cause to be delivered to the Custodian all
Securities and all money owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and money not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and money is not
finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Trustees of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and money deposited
in either the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Trustees, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate actually
received by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the name of
each Series, and shall credit to the separate account for each Series all money
received by it for the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed by the Custodian
only:
(a) as hereinafter provided;
<PAGE> 5
(b) pursuant to Certificates setting forth the name and address of the person to
whom the payment is to be made, the Series account from which payment is to be
made and the purpose for which payment is to be made; or
(c) in payment of the fees and in reimbursement of the expenses and liabilities
of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian shall furnish
the Administrator with confirmations and a summary, on a per Series basis, of
all transfers to or from the account of the Fund for a Series, either hereunder
or with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Administrator with a detailed statement, on a per Series basis, of the
Securities and money held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, all Securities held by the Custodian hereunder, which are issued or
issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish or cause to be furnished to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of its registered nominee or in the name of
the Book-Entry System or the Depository any Securities which it may hold
hereunder and which may from time to time be registered in the name of the Fund.
The Custodian shall hold all such Securities specifically allocated to a Series
which are not held in the Book-Entry System or in the Depository in a separate
account in the name of such Series physically segregated at all times from those
of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) collect all income due or payable;
(b) present for payment and collect the amount payable upon such Securities
which are called, but only if either (i) the Custodian receives a written notice
of such call, or (ii) notice of such call appears in one or more of the
publications listed in Appendix C annexed hereto, which may be amended at any
time by the Custodian without the prior notification or consent of the Fund;
(c) present for payment and collect the amount payable upon all Securities which
mature;
(d) surrender Securities in temporary form for definitive Securities;
(e) execute, as custodian, any necessary declarations or certificates of
ownership under the Federal Income Tax Laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and
(f) hold directly, or through the Book-Entry System or the Depository with
respect to Securities therein deposited, for the account of a Series, all rights
and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian, directly or
through the use of the Book-Entry System or the Depository, shall:
<PAGE> 6
(a) execute and deliver to such persons as may be designated in such Certificate
proxies, consents, authorizations, and any other instruments whereby the
authority of the Fund as owner of any Securities held by the Custodian hereunder
for the Series specified in such Certificate may be exercised;
(b) deliver any Securities held by the Custodian hereunder for the Series
specified in such Certificate in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of any
conversion privilege and receive and hold hereunder specifically allocated to
such Series any cash or other Securities received in exchange;
(c) deliver any Securities held by the Custodian hereunder for the Series
specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to such Series such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of the Series specified in
such Certificate, and take such other steps as shall be stated in such
Certificate to be for the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) present for payment and collect the amount payable upon Securities not
described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the Custodian shall
not be required to obtain possession of any instrument or certificate
representing any Futures Contract, any Option, or any Futures Contract Option
until after it shall have determined, or shall have received a Certificate from
the Fund stating, that any such instruments or certificates are available. The
Fund shall deliver to the Custodian such a Certificate no later than the
business day preceding the availability of any such instrument or certificate.
Prior to such availability, the Custodian shall comply with Section 17(f) of the
Investment Company Act of 1940, as amended, in connection with the purchase,
sale, settlement, closing-out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing-out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or futures commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin Account
and payments with respect to Securities to which a Margin Account relates, shall
be made in accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are available, the
Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall
<PAGE> 7
be held by the Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a purchase
of an Option, a Futures Contract, or a Futures Contract Option, the Fund shall
deliver or cause the Administrator to deliver to the Custodian (i) with respect
to each purchase of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each purchase of Money Market Securities,
a Certificate or Oral Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase price per unit; (f)
the total amount payable upon such purchase; (g) the name of the person from
whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of Securities purchased by or for the
Fund, pay to the broker specified in the Certificate out of the money held for
the account of such Series the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other than a sale of any
Option, Futures Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver or cause the Administrator to deliver to the
Custodian (i) with respect to each sale of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each sale of Money Market
Securities, a Certificate or Oral Instructions, specifying with respect to each
such sale: (a) the Series to which such Securities were specifically allocated;
(b) the name of the issuer and the title of the Security; (c) the number of
shares or principal amount sold, and accrued interest, if any; (d) the date of
sale; (e) the sale price per unit; (f) the total amount payable to the Fund upon
such sale; (g) the name of the broker through whom or the person to whom the
sale was made, and the name of the clearing broker, if any; and (h) the name of
the broker to whom the Securities are to be delivered. The Custodian shall
deliver the Securities specifically allocated to such Series to the broker
specified in the Certificate against payment upon receipt of the total amount
payable to the Fund upon such sale, provided that the same conforms to the total
amount payable as set forth in such Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund shall deliver
or cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to each Option purchased: (a) the Series to which such Option is
specifically allocated; (b) the type of Option (put or call); (c) the name of
the issuer and the title and number of shares subject to such Option or, in the
case of a Stock Index Option, the stock index to which such Option relates and
the number of Stock Index Options purchased; (d) the expiration date; (e) the
exercise price; (f) the dates of purchase and settlement; (g) the total amount
payable by the Fund in connection with such purchase; (h) the name of the
Clearing Member through whom such Option was purchased; and (i) the name of the
broker to whom payment is to be made. The Custodian shall pay, upon receipt of a
Clearing Member's statement confirming the purchase of such Option held by
<PAGE> 8
such Clearing Member for the account of the Custodian (or any duly appointed and
registered nominee of the Custodian) as custodian for the Fund, out of money
held for the account of the Series to which such Option is to be specifically
allocated, the total amount payable upon such purchase to the Clearing Member
through whom the purchase was made, provided that the same conforms to the total
amount payable as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant to
paragraph 1 hereof, the Fund shall deliver or cause the Administrator to deliver
to the Custodian a Certificate specifying with respect to each such sale: (a)
the Series to which such Option was specifically allocated; (b) the type of
Option (put or call); (c) the name of the issuer and the title and number of
shares subject to such Option or, in the case of a Stock Index Option, the stock
index to which such Option relates and the number of Stock Index Options sold;
(d) the date of sale; (e) the sale price; (f) the date of settlement; (g) the
total amount payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian shall consent to
the delivery of the Option sold by the Clearing Member which previously supplied
the confirmation described in preceding paragraph 1 of this Article with respect
to such Option against payment to the Custodian of the total amount payable to
the Fund, provided that the same conforms to the total amount payable as set
forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
to such Call Option: (a) the Series to which such Call Option was specifically
allocated; (b) the name of the issuer and the title and number of shares subject
to the Call Option; (c) the expiration date; (d) the date of exercise and
settlement; (e) the exercise price per share; (f) the total amount to be paid by
the Fund upon such exercise; and (g) the name of the Clearing Member through
whom such Call Option was exercised. The Custodian shall, upon receipt of the
Securities underlying the Call Option which was exercised, pay out of the money
held for the account of the Series to which such Call Option was specifically
allocated the total amount payable to the Clearing Member through whom the Call
Option was exercised, provided that the same conforms to the total amount
payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
to such Put Option: (a) the Series to which such Put Option was specifically
allocated; (b) the name of the issuer and the title and number of shares subject
to the Put Option; (c) the expiration date; (d) the date of exercise and
settlement; (e) the exercise price per share; (f) the total amount to be paid to
the Fund upon such exercise; and (g) the name of the Clearing Member through
whom such Put Option was exercised. The Custodian shall, upon receipt of the
amount payable upon the exercise of the Put Option, deliver or direct the
Depository to deliver the Securities specifically allocated to such Series,
provided the same conforms to the amount payable to the Fund as set forth in
such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
to such Stock Index Option: (a) the Series to which such Stock Index Option was
specifically allocated; (b) the type of Stock Index Option (put or call); (c)
the number of Options being exercised; (d) the stock index to which such Option
relates; (e) the expiration date; (f) the exercise price; (g) the total amount
to be received by the Fund in connection with such exercise; and (h) the
Clearing Member from whom such payment is to be received.
<PAGE> 9
6. Whenever the Fund writes a Covered Call Option, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Covered Call Option: (a) the Series for which such Covered
Call Option was written; (b) the name of the issuer and the title and number of
shares for which the Covered Call Option was written and which underlie the
same; (c) the expiration date; (d) the exercise price; (e) the premium to be
received by the Fund; (f) the date such Covered Call Option was written; and (g)
the name of the Clearing Member through whom the premium is to be received. The
Custodian shall deliver or cause to be delivered, in exchange for receipt of the
premium specified in the Certificate with respect to such Covered Call Option,
such receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate instructing
the Custodian to deliver, or to direct the Depository to deliver, the Securities
subject to such Covered Call Option and specifying: (a) the Series for which
such Covered Call Option was written; (b) the name of the issuer and the title
and number of shares subject to the Covered Call Option; (c) the Clearing Member
to whom the underlying Securities are to be delivered; and (d) the total amount
payable to the Fund upon such delivery. Upon the return and/or cancellation of
any receipts delivered pursuant to paragraph 6 of this Article, the Custodian
shall deliver, or direct the Depository to deliver, the underlying Securities as
specified in the Certificate against payment of the amount to be received as set
forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
to such Put Option: (a) the Series for which such Put Option was written; (b)
the name of the issuer and the title and number of shares for which the Put
Option is written and which underlie the same; (c) the expiration date; (d) the
exercise price; (e) the premium to be received by the Fund; (f) the date such
Put Option is written; (g) the name of the Clearing Member through whom the
premium is to be received and to whom a Put Option guarantee letter is to be
delivered; (h) the amount of cash, and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in the Senior
Security Account for such Series; and (i) the amount of cash and/or the amount
and kind of Securities specifically allocated to such Series to be deposited
into the Collateral Account for such Series. The Custodian shall, after making
the deposits into the Collateral Account specified in the Certificate, issue a
Put Option guarantee letter substantially in the form utilized by the Custodian
on the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the preceding
paragraph is exercised, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying: (a) the Series to which such
Put Option was written; (b) the name of the issuer and title and number of
shares subject to the Put Option; (c) the Clearing Member from whom the
underlying Securities are to be received; (d) the total amount payable by the
<PAGE> 10
Fund upon such delivery; (e) the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be withdrawn from the
Collateral Account for such Series and (f) the amount of cash and/or the amount
and kind of Securities, specifically allocated to such Series, if any, to be
withdrawn from the Senior Security Account. Upon the return and/or cancellation
of any Put Option guarantee letter or similar document issued by the Custodian
in connection with such Put Option, the Custodian shall pay out of the money
held for the account of the Series to which such Put Option was specifically
allocated the total amount payable to the Clearing Member specified in the
Certificate as set forth in such Certificate against delivery of such
Securities, and shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Stock Index Option: (a) the Series for which such Stock
Index Option was written; (b) whether such Stock Index Option is a put or a
call; (c) the number of options written; (d) the stock index to which such
Option relates; (e) the expiration date; (f) the exercise price; (g) the
Clearing Member through whom such Option was written; (h) the premium to be
received by the Fund; (i) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in the
Senior Security Account for such Series; (j) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such Series to
be deposited in the Collateral Account for such Series; and (k) the amount of
cash and/or the amount and kind of Securities, if any, specifically allocated to
such Series to be deposited in a Margin Account, and the name in which such
account is to be or has been established. The Custodian shall, upon receipt of
the premium specified in the Certificate, make the deposits, if any, into the
Senior Security Account specified in the Certificate, and either (1) deliver
such receipts, if any, which the Custodian has specifically agreed to issue,
which are in accordance with the customs prevailing among Clearing Members in
Stock Index Options and make the deposits into the Collateral Account specified
in the Certificate, or (2) make the deposits into the Margin Account specified
in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Stock Index Option: (a) the Series for which such Stock
Index Option was written; (b) such information as may be necessary to identify
the Stock Index Option being exercised; (c) the Clearing Member through whom
such Stock Index Option is being exercised; (d) the total amount payable upon
such exercise, and whether such amount is to be paid by or to the Fund; (e) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Margin Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security Account for such
Series; and the amount of cash and/or the amount and kind of Securities, if any,
to be withdrawn from the Collateral Account for such Series. Upon the return
and/or cancellation of the receipt, if any, delivered pursuant to the preceding
paragraph of this Article, the Custodian shall pay out of the money held for the
account of the Series to which such Stock Index Option was specifically
allocated to the Clearing Member specified in the Certificate the total amount
payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a previously written
Option described in paragraphs, 6, 8 or 10 of this Article in a transaction
expressly designated as a "Closing Purchase Transaction" in order to liquidate
its position as a writer of an Option, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
to the Option being purchased: (a) that the transaction is a Closing Purchase
<PAGE> 11
Transaction; (b) the Series for which the Option was written; (c) the name of
the issuer and the title and number of shares subject to the Option, or, in the
case of a Stock Index Option, the stock index to which such Option relates and
the number of Options held; (d) the exercise price; (e) the premium to be paid
by the Fund; (f) the expiration date; (g) the type of Option (put or call); (h)
the date of such purchase; (i) the name of the Clearing Member to whom the
premium is to be paid; and (j) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium and the return and/or cancellation of any
receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to
the Option being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein,
and upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall deliver
or cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Futures Contract, (or with respect to any number of
identical Futures Contract(s)): (a) the Series for which the Futures Contract is
being entered; (b) the category of Futures Contract (the name of the underlying
stock index or financial instrument); (c) the number of identical Futures
Contracts entered into; (d) the delivery or settlement date of the Futures
Contract(s); (e) the date the Futures Contract(s) was (were) entered into and
the maturity date; (f) whether the Fund is buying (going long) or selling (going
short) on such Futures Contract(s); (g) the amount of cash and/or the amount and
kind of Securities, if any, to be deposited in the Senior Security Account for
such Series; (h) the name of the broker, dealer, or futures commission merchant
through whom the Futures Contract was entered into; and (i) the amount of fee or
commission, if any, to be paid and the name of the broker, dealer, or futures
commission merchant to whom such amount is to be paid. The Custodian shall make
the deposits, if any, to the Margin Account in accordance with the terms and
conditions of the Margin Account Agreement. The Custodian shall make payment out
of the money specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and deposit in the Senior Security Account for
such Series the amount of cash and/or the amount and kind of Securities
specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be made by
the Fund to a broker, dealer, or futures commission merchant with respect to an
outstanding Futures Contract, shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker, dealer, or
futures commission merchant to the Fund with respect to an outstanding Futures
Contract, shall be received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is retained by
the Fund until delivery or settlement is made on such Futures Contract, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
<PAGE> 12
Certificate specifying: (a) the Futures Contract and the Series to which the
same relates; (b) with respect to a Stock Index Futures Contract, the total cash
settlement amount to be paid or received, and with respect to a Financial
Futures Contract, the Securities and/or amount of cash to be delivered or
received; (c) the broker, dealer, or futures commission merchant to or from whom
payment or delivery is to be made or received; and (d) the amount of cash and/or
Securities to be withdrawn from the Senior Security Account for such Series. The
Custodian shall make the payment or delivery specified in the Certificate, and
delete such Futures Contract from the statements delivered to the Fund pursuant
to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a Futures
Contract held by the Custodian hereunder, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying: (a) the
items of information required in a Certificate described in paragraph 1 of this
Article, and (b) the Futures Contract being offset. The Custodian shall make
payment out of the money specifically allocated to such Series of the fee or
commission, if any, specified in the Certificate and delete the Futures Contract
being offset from the statements delivered to the Fund pursuant to paragraph 3
of Article III herein, and make such withdrawals from the Senior Security
Account for such Series as may be specified in such Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
5. Notwithstanding any other provision in this Agreement to the contrary, the
Custodian shall deliver cash and Securities to a futures commission merchant
upon receipt of a Certificate from the Fund or the Administrator specifying: (a)
the name of the futures commission merchant; (b) the specific cash and
Securities to be delivered; (c) the date of such delivery; and (d) the date of
the agreement between the Fund and such futures commission merchant entered
pursuant to Rule 17f-6 under the Investment Company Act 1940, as amended. Each
delivery of such a Certificate by the Fund shall constitute (x) a representation
and warranty by the Fund that the Rule 17f-6 agreement has been duly authorized,
executed and delivered by the Fund and the futures commission merchant and
complies with Rule 17f-6, and (y) an agreement by the Fund that the Custodian
shall not be liable for the acts or omissions of any such futures commission
merchant.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the Fund, the
Fund shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to such Futures Contract Option: (a) the
Series to which such Option is specifically allocated; (b) the type of Futures
Contract Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option purchased; (d) the expiration date; (e) the exercise
price; (f) the dates of purchase and settlement; (g) the amount of premium to be
paid by the Fund upon such purchase; (h) the name of the broker or futures
commission merchant through whom such option was purchased; and (i) the name of
the broker, or futures commission merchant, to whom payment is to be made. The
Custodian shall pay out of the money specifically allocated to such Series, the
total amount to be paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
<PAGE> 13
to each such sale: (a) Series to which such Futures Contract Option was
specifically allocated; (b) the type of Futures Contract Option (put or call);
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract Option; (d) the
date of sale; (e) the sale price; (f) the date of settlement; (g) the total
amount payable to the Fund upon such sale; and (h) the name of the broker or
futures commission merchant through whom the sale was made. The Custodian shall
consent to the cancellation of the Futures Contract Option being closed against
payment to the Custodian of the total amount payable to the Fund, provided the
same conforms to the total amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically allocated; (b) the
particular Futures Contract Option (put or call) being exercised; (c) the type
of Futures Contract underlying the Futures Contract Option; (d) the date of
exercise; (e) the name of the broker or futures commission merchant through whom
the Futures Contract Option is exercised; (f) the net total amount, if any,
payable by the Fund; (g) the amount, if any, to be received by the Fund; and (h)
the amount of cash and/or the amount and kind of Securities to be deposited in
the Senior Security Account for such Series. The Custodian shall make, out of
the money and Securities specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Account as specified in
the Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series for which such
Futures Contract Option was written; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other information as
may be necessary to identify the Futures Contract underlying the Futures
Contract Option; (d) the expiration date; (e) the exercise price; (f) the
premium to be received by the Fund; (g) the name of the broker or futures
commission merchant through whom the premium is to be received; and (h) the
amount of cash and/or the amount and kind of Securities, if any, to be deposited
in the Senior Security Account for such Series. The Custodian shall, upon
receipt of the premium specified in the Certificate, make out of the money and
Securities specifically allocated to such Series the deposits into the Senior
Security Account, if any, as specified in the Certificate. The deposits, if any,
to be made to the Margin Account shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call is
exercised, the Fund shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option exercised; (c) the type of Futures Contract underlying the Futures
Contract Option; (d) the name of the broker or futures commission merchant
through whom such Futures Contract Option was exercised; (e) the net total
amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited in the Senior
Security Account for such Series. The Custodian shall, upon its receipt of the
net total amount payable to the Fund, if any, specified in such Certificate make
the payments, if any, and the deposits, if any, into the Senior Security Account
as specified in the Certificate. The deposits, if any, to be made to the Margin
<PAGE> 14
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and which is
a put is exercised, the Fund shall deliver or cause the Administrator to deliver
to the Custodian a Certificate specifying: (a) the Series to which such Option
was specifically allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying such Futures Contract
Option; (d) the name of the broker or futures commission merchant through whom
such Futures Contract Option is exercised; (e) the net total amount, if any,
payable to the Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount and kind of
Securities and/or cash to be withdrawn from or deposited in, the Senior Security
Account for such Series, if any. The Custodian shall, upon its receipt of the
net total amount payable to the Fund, if any, specified in the Certificate, make
out of the money and Securities specifically allocated to such Series, the
payments, if any, and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to a
previously written Futures Contract Option described in this Article in order to
liquidate its position as a writer of such Futures Contract Option, the Fund
shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to the Futures Contract Option being
purchased: (a) the Series to which such Option is specifically allocated; (b)
that the transaction is a closing transaction; (c) the type of Futures Contract
and such other information as may be necessary to identify the Futures Contract
underlying the Futures Option Contract; (d) the exercise price; (e) the premium
to be paid by the Fund; (f) the expiration date; (g) the name of the broker or
futures commission merchant to whom the premium is to be paid; and (h) the
amount of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
8. Upon the expiration, exercise, or consummation of a closing transaction with
respect to, any Futures Contract Option written or purchased by the Fund and
described in this Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein and, (b) make such withdrawals from and/or in the case of an
exercise such deposits into the Senior Security Account as may be specified in a
Certificate. The deposits to and/or withdrawals from the Margin Account, if any,
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a Futures
Contract Option described in this Article shall be subject to Article VI hereof.
10. Notwithstanding any other provision in this Agreement to the contrary, the
Custodian shall deliver cash and Securities to a futures commission merchant
upon receipt of a Certificate from the Fund or the Administrator specifying: (a)
the name of the futures commission merchant; (b) the specific cash and
Securities to be delivered; (c) the date of such delivery; and (d) the date of
the agreement between the Fund and such futures commission merchant entered
pursuant to Rule 17f-6 under the Investment Company Act 1940, as amended. Each
delivery of such a Certificate by the Fund shall constitute (x) a representation
and warranty by the Fund that the Rule 17f-6 agreement has been duly authorized,
executed and delivered by the Fund and the futures commission merchant and
<PAGE> 15
complies with Rule 17f-6, and (y) an agreement by the Fund that the Custodian
shall not be liable for the acts or omissions of any such futures commission
merchant.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund shall
deliver or cause the Administrator to deliver to the Custodian a Certificate
specifying: (a) the Series for which such short sale was made; (b) the name of
the issuer and the title of the Security; (c) the number of shares or principal
amount sold, and accrued interest or dividends, if any; (d) the dates of the
sale and settlement; (e) the sale price per unit; (f) the total amount credited
to the Fund upon such sale, if any, (g) the amount of cash and/or the amount and
kind of Securities, if any, which are to be deposited in a Margin Account and
the name in which such Margin Account has been or is to be established; (h) the
amount of cash and/or the amount and kind of Securities, if any, to be deposited
in a Senior Security Account, and (i) the name of the broker through whom such
short sale was made. The Custodian shall upon its receipt of a statement from
such broker confirming such sale and that the total amount credited to the Fund
upon such sale, if any, as specified in the Certificate is held by such broker
for the account of the Custodian (or any nominee of the Custodian) as custodian
of the Fund, issue a receipt or make the deposits into the Margin Account and
the Senior Security Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall deliver
or cause the Administrator to deliver to the Custodian a Certificate specifying
with respect to each such closing-out: (a) the Series for which such transaction
is being made; (b) the name of the issuer and the title of the Security; (c) the
number of shares or the principal amount, and accrued interest or dividends, if
any, required to effect such closing-out to be delivered to the broker; (d) the
dates of closing-out and settlement; (e) the purchase price per unit; (f) the
net total amount payable to the Fund upon such closing-out; (g) the net total
amount payable to the broker upon such closing-out; (h) the amount of cash and
the amount and kind of Securities to be withdrawn, if any, from the Margin
Account; (i) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Senior Security Account; and (j) the name of the
broker through whom the Fund is effecting such closing-out. The Custodian shall,
upon receipt of the net total amount payable to the Fund upon such closing-out,
and the return and/or cancellation of the receipts, if any, issued by the
Custodian with respect to the short sale being closed-out, pay out of the money
held for the account of the Fund to the broker the net total amount payable to
the broker, and make the withdrawals from the Margin Account and the Senior
Security Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with respect to
Securities and money held by the Custodian hereunder, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certificate, or in the
event such Reverse Repurchase Agreement is a Money Market Security, a
Certificate or Oral Instructions specifying: (a) the Series for which the
Reverse Repurchase Agreement is entered; (b) the total amount payable to the
Fund in connection with such Reverse Repurchase Agreement and specifically
allocated to such Series; (c) the broker or dealer through or with whom the
Reverse Repurchase Agreement is entered; (d) the amount and kind of Securities
to be delivered by the Fund to such broker or dealer; (e) the date of such
Reverse Repurchase Agreement; and (f) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
<PAGE> 16
deposited in a Senior Security Account for such Series in connection with such
Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total
amount payable to the Fund specified in the Certificate or Oral Instructions
make the delivery to the broker or dealer, and the deposits, if any, to the
Senior Security Account, specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in preceding
paragraph 1 of this Article, the Fund shall deliver or cause the Administrator
to deliver a Certificate or, in the event such Reverse Repurchase Agreement is a
Money Market Security, a Certificate or Oral Instructions to the Custodian
specifying: (a) the Reverse Repurchase Agreement being terminated and the Series
for which same was entered; (b) the total amount payable by the Fund in
connection with such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series in connection
with such termination; (d) the date of termination; (e) the name of the broker
or dealer with or through whom the Reverse Repurchase Agreement is to be
terminated; and (f) the amount of cash and/or the amount and kind of Securities
to be withdrawn from the Senior Securities Account for such Series. The
Custodian shall, upon receipt of the amount and kind of Securities to be
received by the Fund specified in the Certificate or Oral Instructions, make the
payment to the broker or dealer, and the withdrawals, if any, from the Senior
Security Account, specified in such Certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically allocated to a
Series held by the Custodian hereunder, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying with respect
to each such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title of the
Securities, (c) the number of shares or the principal amount loaned, (d) the
date of loan and delivery, (e) the total amount to be delivered to the Custodian
against the loan of the Securities, including the amount of cash collateral and
the premium, if any, separately identified, and (f) the name of the broker,
dealer, or financial institution to which the loan was made. The Custodian shall
deliver the Securities thus designated to the broker, dealer or financial
institution to which the loan was made upon receipt of the total amount
designated as to be delivered against the loan of Securities. The Custodian may
accept payment in connection with a delivery otherwise than through the
Book-Entry System or Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds and may deliver Securities in accordance with the
customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by the Fund, the
Fund shall deliver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the money held for the account of the Fund, the total amount payable
upon such return of Securities as set forth in the Certificate.
ARTICLE XI
<PAGE> 17
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or withdrawals
from, a Senior Security Account as specified in a Certificate received by the
Custodian. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Senior Security Account for such Series. In the event that
the Certificate fails to specify the Series, the name of the issuer, the title
and the number of shares or the principal amount of any particular Securities to
be deposited by the Custodian into, or withdrawn from, a Senior Securities
Account, the Custodian shall be under no obligation to make any such deposit or
withdrawal and shall so notify the Administrator.
2. The Custodian shall make deliveries or payments from a Margin Account to the
broker, dealer, futures commission merchant or Clearing Member in whose name, or
for whose benefit, the account was established as specified in the Margin
Account Agreement.
3. Amounts received by the Custodian as payments or distributions with respect
to Securities deposited in any Margin Account shall be dealt with in accordance
with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in and to
any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a statement
with respect to each Margin Account in which money or Securities are held
specifying as of the close of business on the previous business day: (a) the
name of the Margin Account; (b) the amount and kind of Securities held therein;
and (c) the amount of money held therein. The Custodian shall make available
upon request to any broker, dealer, or futures commission merchant specified in
the name of a Margin Account a copy of the statement furnished the Fund with
respect to such Margin Account.
6. Promptly after the close of business on each business day in which cash
and/or Securities are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Administrator with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall deliver or cause the
Administrator to deliver to the Custodian a Certificate specifying the then
market value of the Securities described in such statement. In the event such
then market value is indicated to be less than the Custodian's obligation with
respect to any outstanding Put Option guarantee letter or similar document, the
Fund shall promptly specify or cause the Administrator to promptly specify in a
Certificate the additional cash and/or Securities to be deposited in such
Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall deliver or cause the Administrator to deliver to the Custodian
a copy of the resolution of the Board of Trustees of the Fund, certified by the
<PAGE> 18
Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk, either (i)
setting forth with respect to the Series specified therein the date of the
declaration of a dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent and any
sub-dividend agent or co-dividend agent of the Fund on the payment date, or (ii)
authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral Instructions or
Certificate, as the case may be, the Custodian shall pay out of the money held
for the account of each Series the total amount payable to the Dividend Agent
and any sub-dividend agent or co-dividend agent of the Fund with respect to such
Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver or cause the
Administrator to deliver to the Custodian a Certificate duly specifying:
(a) the Series, the number of Shares sold, trade date, and price; and
(b) the amount of money to be received by the Custodian for the sale of such
Shares and specifically allocated to the separate account in the name of such
Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian shall
credit such money to the separate account in the name of the Series for which
such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the Custodian to
make payment out of the money held by the Custodian hereunder in connection with
a redemption of any Shares, it shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying:
(a) the number and Series of Shares redeemed; and
(b) the amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the Series
and number of Shares received by the Transfer Agent for redemption and that such
Shares are in good form for redemption, the Custodian shall make payment to the
Transfer Agent out of the money held in the separate account in the name of the
Series the total amount specified in the Certificate delivered pursuant to the
foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any Shares,
whenever any Shares are redeemed pursuant to any check redemption privilege
which may from time to time be offered by the Fund, the Custodian, unless
otherwise instructed by a Certificate, shall, upon receipt of an advice from the
Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the money held in
the separate account of the Series of the Shares being redeemed.
<PAGE> 19
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on behalf of any
Series which results in an overdraft because the money held by the Custodian in
the separate account for such Series shall be insufficient to pay the total
amount payable upon a purchase of Securities specifically allocated to such
Series, as set forth in a Certificate or Oral Instructions, or which results in
an overdraft in the separate account of such Series for some other reason, or if
the Fund is for any other reason indebted to the Custodian with respect to a
Series, including any indebtedness to The Bank of New York under the Fund's Cash
Management and Related Services Agreement (except a borrowing for investment or
for temporary or emergency purposes using Securities as collateral pursuant to a
separate agreement and subject to the provisions of paragraph 2 of this
Article), such overdraft or indebtedness shall be deemed to be a loan made by
the Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to 1/2% over Custodian's prime
commercial lending rate in effect from time to time, such rate to be adjusted on
the effective date of any change in such prime commercial lending rate but in no
event to be less than 6% per annum, or at such other rate per annum, if any, as
the Fund and the Custodian may agree upon in writing from time to time. In
addition, the Fund hereby agrees that the Custodian shall have a continuing lien
and security interest in and to any property specifically allocated to such
Series at any time held by it for the benefit of such Series or in which the
Fund may have an interest which is then in the Custodian's possession or control
or in possession or control of any third party acting in the Custodian's behalf.
The Fund authorizes the Custodian, in its sole discretion, at any time to charge
any such overdraft or indebtedness together with interest due thereon against
any balance of account standing to such Series' credit on the Custodian's books.
In addition, the Fund hereby covenants that on each Business Day on which either
it intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from
a third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified other than from
the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank (including,
if the borrowing is pursuant to a separate agreement, the Custodian) from which
it borrows money for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for such borrowings, a
notice or undertaking in the form currently employed by any such bank setting
forth the amount which such bank will loan to the Fund against delivery of a
stated amount of collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a) the Series to
which such borrowing relates; (b) the name of the bank, (c) the amount and terms
of the borrowing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other loan agreement,
(d) the time and date, if known, on which the loan is to be entered into, (e)
the date on which the loan becomes due and payable, (f) the total amount payable
to the Fund on the borrowing date, (g) the market value of Securities to be
delivered as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any particular
Securities, and (h) a statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such loan is in
conformance with the Investment Company Act of 1940 and the Fund's prospectus.
<PAGE> 20
The Custodian shall deliver on the borrowing date specified in a Certificate the
specified collateral and the executed promissory note, if any, against delivery
by the lending bank of the total amount of the loan payable, provided that the
same conforms to the total amount payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein given the
lending bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver such Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described in this
paragraph. The Fund shall cause all Securities released from collateral status
to be returned directly to the Custodian, and the Custodian shall receive from
time to time such return of collateral as may be tendered to it. In the event
that the Fund fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of any particular
Securities to be delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
ARTICLE XV
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund in order for
the Fund to transmit Instructions to the Custodian (the "Software"), the
Custodian grants to such Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Instructions
to, and receiving communications from, the Custodian in connection with its
account(s). The Fund shall use the Software solely for its own internal and
proper business purposes, and not in the operation of a service bureau, and
agrees not to sell, reproduce, lease or otherwise provide, directly or
indirectly, the Software or any portion thereof to any third party without the
prior written consent of the Custodian. The Fund acknowledges that the Custodian
and its suppliers have title and exclusive proprietary rights to the Software,
including any trade secrets or other ideas, concepts, know how, methodologies,
or information incorporated therein and the exclusive rights to any copyrights,
trademarks and patents (including registrations and applications for
registration of either) or statutory or legal protections available with respect
thereof. The Fund further acknowledges that all or a part of the Software may be
copyrighted or trademarked (or a registration or claim made therefor) by the
Custodian or its suppliers. The Fund shall not take any action with respect to
the Software inconsistent with the foregoing acknowledgments, nor shall the Fund
attempt to decompile, reverse engineer or modify the Software. The Fund may not
copy, sell, lease or provide, directly or indirectly, any of the Software or any
portion thereof to any other person or entity without the Custodian's prior
written consent. The Fund may not remove any statutory copyright notice, or
other notice including the software or on any media containing the Software. The
Fund shall reproduce any such notice on any reproduction of the Software and
shall add statutory copyright notice or other notice to the Software or media
upon the Bank's request. Custodian agrees to provide reasonable training,
instruction manuals and access to Custodian's "help desk" in connection with the
Fund's user support necessary to use of the Software. At the Fund's request,
Custodian agrees to permit reasonable testing of the Software by the Fund.
2. The Fund shall obtain and maintain at its own cost and expense all equipment
and services, including but not limited to communications services, necessary
for it to utilize the Software and transmit Instructions to the Custodian. The
Custodian shall not be responsible for the reliability, compatibility with the
Software or availability of any such equipment or services or the performance or
nonperformance by any nonparty to this Custody Agreement.
<PAGE> 21
3. The Fund acknowledges that the Software, all data bases made available to the
Fund by utilizing the Software (other than data bases relating solely to the
assets of the Fund and transactions with respect thereto), and any proprietary
data, processes, information and documentation (other than which are or become
part of the public domain or are legally required to be made available to the
public) (collectively, the "Information"), are the exclusive and confidential
property of the Custodian. The Fund shall keep the Information confidential by
using the same care and discretion that the Fund uses with respect to its own
confidential property and trade secrets and shall neither make nor permit any
disclosure without the prior written consent of the Custodian. Upon termination
of this Agreement or the Software license granted hereunder for any reason, the
Fund shall return to the Custodian all copies of the Information which are in
its possession or under its control or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
4. The Custodian reserves the right to modify, at its own expense, the Software
from time to time without prior notice and the Fund shall install new releases
of the Software as the Custodian may direct. The Fund agrees not to modify or
attempt to modify the Software without the Custodian's prior written consent.
The Fund acknowledges that any modifications to the Software, whether by the
Fund or the Custodian and whether with or without the Custodian's consent, shall
become the property of the Custodian.
5. The Custodian and its manufacturers and suppliers make no warranties or
representations of any kind with regard to the Software or the method(s) by
which the Fund may transmit Instructions to the Custodian, express or implied,
including but not limited to any implied warranties of merchantability or
fitness for a particular purpose.
6. EXPORT RESTRICTIONS. EXPORT OF THE SOFTWARE IS PROHIBITED BY UNITED STATES
LAW. THE FUND AGREES THAT IT WILL NOT UNDER ANY CIRCUMSTANCES RESELL, DIVERT,
TRANSFER, TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY FORM) IN OR TO
ANY OTHER COUNTRY. IF THE CUSTODIAN DELIVERS THE SOFTWARE TO THE FUND OUTSIDE
THE UNITED STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED STATES IN
ACCORDANCE WITH EXPORT ADMINISTRATIVE REGULATIONS. DIVERSION CONTRARY TO U.S.
LAWS PROHIBITED. The Fund hereby authorizes Custodian to report its name and
address to government agencies to which Custodian is required to provide such
information by law.
7. Where the method for transmitting Instructions by the Fund involves an
automatic systems acknowledgment by the Custodian of its receipt of such
Instructions, then in the absence of such acknowledgment the Custodian shall not
be liable for any failure to act pursuant to such Instructions, the Fund may not
claim that such Instructions were received by the Custodian, and the Fund shall
deliver a Certificate by some other means.
8. (a) The Fund agrees that where it delivers to the Custodian Instructions
hereunder, it shall be the Fund's sole responsibility to ensure that only
persons duly authorized by the Fund transmit such Instructions to the Custodian.
The Fund will cause all persons transmitting Instructions to the Custodian to
treat applicable user and authorization codes, passwords and authentication keys
with extreme care, and irrevocably authorizes the Custodian to act in accordance
with and rely upon Instructions received by it pursuant hereto.
(b) The Fund hereby represents, acknowledges and agrees that it is fully
informed of the protections and risks associated with the various methods of
transmitting Instructions to the Custodian and that there may be more secure
methods of transmitting instructions to the Custodian than the method(s)
selected by the Fund. The Fund hereby agrees that the security procedures (if
any) to be followed in connection with the Fund's transmission of Instructions
<PAGE> 22
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
9. The Fund hereby represents, warrants and covenants to the Custodian that this
Agreement has been duly approved by a resolution of its Board of Trustees, and
that its transmission of Instructions pursuant hereto shall at all times comply
with the Investment Company Act.
10. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, its ability to send
Instructions as promptly as practicable, and in any event within 24 hours after
the earliest of (i) discovery thereof, (ii) the Business Day on which discovery
should have occurred through the exercise of reasonable care and (iii) in the
case of any error, the date of actual receipt of the earliest notice which
reflects such error, it being agreed that discovery and receipt of notice may
only occur on a business day. The Custodian shall promptly advise the Fund
whenever the Custodian learns of any errors, omissions or interruption in, or
delay or unavailability of, the Fund's ability to send Instructions.
11. Custodian will indemnify and hold harmless the Fund with respect to any
liability, damages, loss or claim incurred by or brought against Fund by reason
any claim or infringement against any patent, copyright, license or other
property right arising out or by reason of the Fund's use of the Software in the
form provided under this Section. Custodian at its own expense will defend such
action or claim brought against Fund to the extent that it is based on a claim
that the Software in the form provided by Custodian infringes any patents,
copyrights, license or other property right, provided that Custodian is provided
with reasonable written notice of such claim, provided that the Fund has not
settled, compromised or confessed any such claim without the Custodian's written
consent, in which event Custodian shall have no liability or obligation
hereunder, and provided Fund cooperates with and assists Custodian in the
defense of such claim. Custodian shall have the right to control the defense of
all such claims, lawsuits and other proceedings. If, as a result of any claim of
infringement against any patent, copyright, license or other property right,
Custodian is enjoined from using the Software, or if Custodian believes that the
System is likely to become the subject of a claim of infringement, Custodian at
its option may in its sole discretion either (a) at its expenses procure the
right for the Fund to continue to use the Software, or (b), replace or modify
the Software so as to make it non-infringing, or (c) may discontinue the license
granted herein upon written notice to Customer.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF ANY SERIES HELD OUTSIDE
OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as sub-custodian for
each Series' Securities for which the primary market is outside the United
States ("Foreign Securities") and other assets, the foreign banking institutions
and foreign securities depositories and clearing agencies designated on Schedule
I hereto ("Foreign Sub-Custodians"). The Fund may designate any additional
foreign sub-custodian with which the Custodian has an agreement for such entity
to act as the Custodian's agent, as its sub-custodian and any such additional
foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a
Certificate from the Fund, the Custodian shall cease the employment of any one
or more Foreign Sub-Custodians for maintaining custody of the Fund's assets and
such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each delivery of a Certificate to the Custodian in connection with a
transaction involving the use of a Foreign Sub-Custodian shall constitute a
representation and warranty by the Fund that its Board of Trustees, or its third
party foreign custody manager as defined in Rule 17f-5 under the Investment
Company Act of 1940, as amended, if any, has determined that use of such Foreign
<PAGE> 23
Sub-Custodian satisfies the requirements of such Investment Company Act of 1940
and such Rule 17f-5 thereunder.
3. The Custodian shall identify on its books as belonging to each Series of the
Fund the Foreign Securities of such Series held by each Foreign Sub-Custodian.
At the election of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims by the Fund or any Series against a
Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if and to the
extent that the Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the terms of
the applicable Foreign Sub-Custodian agreement, use reasonable efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any Foreign Sub-Custodian insofar as such books and records
relate to the performance of such Foreign Sub-Custodian under its agreement with
the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and other assets of each Series
held by Foreign Sub-Custodians, including but not limited to an identification
of entities having possession of each Series' Foreign Securities and other
assets, and advices or notifications of any transfers of Foreign Securities to
or from each custodial account maintained by a Foreign Sub-Custodian for the
Custodian on behalf of the Series.
6. The Custodian shall transmit promptly to the Fund all notices, reports or
other written information received pertaining to the Fund's Foreign Securities,
including without limitation, notices of corporate action, proxies and proxy
solicitation materials.
7. Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for securities received for the account of any Series and delivery
of securities maintained for the account of such Series may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
8. Notwithstanding any other provision in this Agreement to the contrary, with
respect to any losses or damages arising out of or relating to any actions or
omissions of any Foreign Sub-Custodian the sole responsibility and liability of
the Custodian shall be to take appropriate action at the Fund's expense to
recover such loss or damage from the Foreign Sub-Custodian. It is expressly
understood and agreed that the Custodian's sole responsibility and liability
shall be limited to amounts so recovered from the Foreign Sub-Custodian.
ARTICLE XVII
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall promptly
deliver or cause the Administrator to deliver to the Custodian a Certificate or
Oral Instructions specifying with respect to such FX Transaction: (a) the Series
to which such FX Transaction is specifically allocated; (b) the type and amount
of Currency to be purchased by the Fund; (c) the type and amount of Currency to
be sold by the Fund; (d) the date on which the Currency to be purchased is to be
delivered; (e) the date on which the Currency to be sold is to be delivered; and
(f) the name of the person from whom or through whom such currencies are to be
purchased and sold. Unless otherwise instructed by a Certificate or Oral
Instructions, the Custodian shall deliver, or shall instruct a Foreign
Sub-Custodian to deliver, the Currency to be sold on the date on which
<PAGE> 24
such delivery is to be made, as set forth in the Certificate, and shall receive,
or instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on
the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as the
Currency to be purchased, as specified in the Certificate or Oral Instructions,
the Custodian or a Foreign Sub-Custodian may arrange for such deliveries and
receipts to be made in accordance with the customs prevailing from time to time
among brokers or dealers in Currencies, and such receipt and delivery may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with such receipts and deliveries, which
responsibility and liability shall continue until the Currency to be received by
the Fund has been received in full.
3. Any FX Transaction effected by the Custodian in connection with this
Agreement may be entered with the Custodian, any office, branch or subsidiary of
The Bank of New York Company, Inc., or any Foreign Sub-Custodian acting as
principal or otherwise through customary banking channels. The Fund may issue a
standing Certificate with respect to FX Transaction but the Custodian may
establish rules or limitations concerning any foreign exchange facility made
available to the Fund. The Fund shall bear all risks of investing in Securities
or holding Currency. Without limiting the foregoing, the Fund shall bear the
risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign
depositories, exchange controls, asset freezes or other laws, rules, regulations
or orders shall prohibit or impose burdens or costs on the transfer to, by or
for the account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home jurisdiction or the
conversion of cash from one Currency into another currency. The Custodian shall
not be obligated to substitute another Currency for a Currency (including a
Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such law,
regulation, rule or procedure. Neither the Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from any of the
foregoing events.
ARTICLE XVIII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI neither the
Custodian nor its nominee shall be liable for any loss or damage, including
reasonable counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence or willful misconduct.
The Custodian agrees to indemnify and hold harmless the Trust and Trust's
Trustees and officers to the extent described below against any loss as a result
of any breach or violation of this Agreement by the Custodian or its officers,
employees and agents or its nominees, resulting from their negligence or willful
misconduct. The Custodian may, with respect to questions of law arising
hereunder or under any Margin Account Agreement, apply for and obtain the advice
and opinion of counsel to the Fund, or of its own counsel, at the expense of the
Fund, and shall be fully protected with respect to anything done or omitted by
it in good faith in conformity with such advice or opinion. The Custodian shall
be liable to the Fund for any loss or damage resulting from the use of the
Book-Entry System or any Depository arising by reason of any negligence or
willful misconduct on the part of the Custodian or any of its employees or
agents. Notwithstanding the foregoing, or any other provision contained in this
Agreement, in no event shall the Custodian be liable to the Trust, its Trustees
or officers, or any third party, for special, indirect or consequential damages,
or lost profits or loss of business, arising under or in connection with this
<PAGE> 25
Agreement, even if previously informed of the possibility of such damages and
regardless of the form of action.
2. Without limiting the generality of the foregoing, the Custodian shall be
under no obligation to inquire into, and shall not be liable for:
(a) the validity of the issue of any Securities purchased, sold, or written by
or for the Fund, the legality of the purchase, sale or writing thereof, or the
propriety of the amount paid or received therefor;
(b) the legality of the sale or redemption of any Shares, or the propriety of
the amount to be received or paid therefor;
(c) the legality of the declaration or payment of any dividend by the Fund;
(d) the legality of any borrowing by the Fund using Securities as collateral;
(e) the legality of any loan of portfolio Securities, nor shall the Custodian be
under any duty or obligation to see to it that any cash collateral delivered to
it by a broker, dealer, or financial institution or held by it at any time as a
result of such loan of portfolio Securities of the Fund is adequate collateral
for the Fund against any loss it might sustain as a result of such loan. The
Custodian specifically, but not by way of limitation, shall not be under any
duty or obligation periodically to check or notify the Fund that the amount of
such cash collateral held by it for the Fund is sufficient collateral for the
Fund, but such duty or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio Securities of the
Fund are lent pursuant to Article XIV of this Agreement makes payment to it of
any dividends or interest which are payable to or for the account of the Fund
during the period of such loan or at the termination of such loan, provided,
however, that the Custodian shall promptly notify the Fund in the event that
such dividends or interest are not paid and received when due; or
(f) the sufficiency or value of any amounts of money and/or Securities held in
any Margin Account, Senior Security Account or Collateral Account in connection
with transactions by the Fund. In addition, the Custodian shall be under no duty
or obligation to see that any broker, dealer, futures commission merchant or
Clearing Member makes payment to the Fund of any variation margin payment or
similar payment which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see that any payment
received by the Custodian from any broker, dealer, futures commission merchant
or Clearing Member is the amount the Fund is entitled to receive, or to notify
the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the Custodian of,
any money, whether or not represented by any check, draft, or other instrument
for the payment of money, received by it on behalf of the Fund until the
Custodian actually receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the Book-Entry
System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable for
ascertaining or acting upon any calls, conversions, exchange offers, tenders,
interest rate changes or similar matters relating to Securities held in the
Depository, unless the Custodian shall have actually received timely notice from
the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action, suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
<PAGE> 26
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount due to the Fund from the Transfer Agent of the
Fund nor to take any action to effect payment or distribution by the Transfer
Agent of the Fund of any amount paid by the Custodian to the Transfer Agent of
the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign Sub-Custodians
pursuant to Article XVI appoint one or more banking institutions as Depository
or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking institutions located in
foreign countries, of Securities and money at any time owned by the Fund, upon
such terms and conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to ascertain
whether any Securities at any time delivered to, or held by it or by any Foreign
Sub-Custodian, for the account of the Fund and specifically allocated to a
Series are such as properly may be held by the Fund or such Series under the
provisions of its then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the Custodian, are such
transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to pay to the
Custodian all out-of-pocket expenses and such compensation as may be agreed upon
from time to time between the Custodian and the Fund. The Fund represents that
the Administrator has agreed to pay such compensation and expenses promptly upon
receipt of statements therefor, and hereby directs the Custodian to (i) send all
statements for compensation to its attention care of FDISG at the following
address: FDISG Services, Inc., 3200 Horizon Drive, King of Prussia, PA
19406-0903, Attention: Mr. Elmer Gardner, Senior Vice President, and (ii) accept
all payments made by Fund/Plan in the Fund's name as if such payments were made
directly by the Fund. The Fund shall pay to FDISG fees for services (including
custodian services provided by the Custodian) in accordance with the
Administration Agreement. The Custodian's compensation for services rendered
hereunder is set forth in a separate agreement between the Custodian and
Fund/Plan. Should Fund/Plan fail to pay or remit such compensation to the
Custodian within 20 days of the date the same is due and payable, Custodian
shall notify the Fund. If such payment or remittance is not received from FDISG
within 15 days of such notice, then the Custodian will be entitled to debit the
Custody Account directly for such compensation. The Custodian may charge
compensation with respect to which it has properly sent a notice to the Fund, as
provided in the preceding sentence, and any expenses with respect to a Series
incurred by the Custodian in the performance of its duties pursuant to such
agreement against any money specifically allocated to such Series. Unless and
until the Fund or the Administrator instructs the Custodian by a Certificate to
apportion any loss, damage, liability or expense among the Series in a specified
manner, the Custodian shall also be entitled to charge against any money held by
it for the account of a Series such Series' pro rata share (based on such
Series, net asset value at the time of the charge to the aggregate net asset
value of all Series at that time) of the amount of any loss, damage, liability
or expense, including counsel fees, for which it shall be entitled to
reimbursement under the provisions of this Agreement. The expenses for which
<PAGE> 27
the Custodian shall be entitled to reimbursement hereunder shall include, but
are not limited to, the expenses of sub-custodians and foreign branches of the
Custodian incurred in settling outside of New York City transactions involving
the purchase and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate, notice or
other instrument in writing received by the Custodian and reasonably believed by
the Custodian to be a Certificate. The Custodian shall be entitled to rely upon
any Oral Instructions actually received by the Custodian. The Fund agrees to
forward or cause the Administrator to forward to the Custodian a Certificate or
facsimile thereof confirming such Oral Instructions in such manner so that such
Certificate or facsimile thereof is received by the Custodian, whether by hand
delivery, telecopier or other similar device, or otherwise, by the close of
business of the same day that such Oral Instructions are given to the Custodian.
The Fund agrees that the fact that such confirming instructions are not received
by the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from an
Officer.
11. The Custodian shall be entitled to rely upon any instrument, instruction or
notice received by the Custodian and reasonably believed by the Custodian to be
given in accordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing, the Custodian shall
be under no duty to inquire into, and shall not be liable for, the accuracy of
any statements or representations contained in any such instrument or other
notice including, without limitation, any specification of any amount to be paid
to a broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in the possession of
the Custodian shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representatives, shall have access to such books
and records during the Custodian's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
the Custodian to the Fund or the Fund's authorized representative, and the Fund
shall reimburse the Custodian its expenses of providing such copies. Upon
reasonable request of the Fund, the Custodian shall provide in hard copy or on
micro-film, whichever the Custodian elects, any records included in any such
delivery which are maintained by the Custodian on a computer disc, or are
similarly maintained, and the Fund shall reimburse the Custodian for its
expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
the Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against and save the Custodian
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or non-payment of checks
pursuant to paragraph 6 of Article XIII as part of any check redemption
privilege program of the Fund, except for any such liability, claim, loss and
demand arising out of the Custodian's own negligence or willful misconduct. For
any legal proceeding giving rise to the indemnification set forth above in this
paragraph, the Fund shall be entitled to defend or prosecute any claim in the
name of the Custodian at its own expense and through counsel of its own choosing
reasonably acceptable to the Custodian if it gives written notice to the
<PAGE> 28
Custodian within ten (10) Business days of receiving notice of such claim.
Notwithstanding the foregoing, the Custodian may participate in the litigation
at its own expense and with counsel of its own choosing.
15. Subject to the foregoing provisions of this Agreement, including, without
limitation, those contained in Article XVI the Custodian may deliver and receive
Securities, and receipts with respect to such Securities, and arrange for
payments to be made and received by the Custodian in accordance with the customs
prevailing from time to time among brokers or dealers in such Securities. When
the Custodian is instructed to deliver Securities against payment, delivery of
such Securities and receipt of payment therefor may not be completed
simultaneously. The Fund assumes all responsibility and liability for all credit
risks involved in connection with the Custodian's delivery of Securities
pursuant to Certificates or instructions of the Fund or the Administrator which
responsibility and liability shall continue until final payment in full has been
received by the Custodian.
16. In the event the Custodian is advised by the Fund that the Fund is no longer
utilizing the services of the Administrator, then the Custodian shall furnish or
give to the Fund the statements or notices described above as to be furnished or
given to the Administrator.
17. The Custodian shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian. Without limiting the generality of the foregoing, the
Custodian shall have no duties or responsibilities by reason of any terms or
provisions in the Administration Agreement, and if such Administration Agreement
shall cease to be in effect the Custodian shall have no additional duties
hereunder.
ARTICLE XIX
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to the
other party a notice in writing specifying the date of such termination, which
shall be not less than ninety (90) days after the date of giving of such notice,
provided, however, that if such notice is sent by the Fund and recites that it
is being given contemporaneously with a termination of the Custody
Administration any Agency Agreement with FDISG, such notice may specify any date
of termination selected by the Fund. In the event such notice is given by the
Fund, it shall be accompanied by a copy of a resolution of the Board of Trustees
of the Fund, certified by the Secretary, the Clerk, any Assistant Secretary or
any Assistant Clerk, electing to terminate this Agreement and designating a
successor custodian or custodians, each of which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus and undivided
profits. In the event such notice is given by the Custodian, the Fund shall, on
or before the termination date, deliver to the Custodian a copy of a resolution
of the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon
the date set forth in such notice this Agreement shall terminate, and the
Custodian shall upon receipt of a notice of acceptance by the successor
custodian on that date deliver directly to the successor custodian all
Securities and money then owned by the Fund and held by it as Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the Custodian in
accordance with the preceding paragraph, the Fund shall upon the date specified
<PAGE> 29
in the notice of termination of this Agreement and upon the delivery by the
Custodian of all Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Fund) and money then owned by the Fund be
deemed to be its own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book Entry System which cannot be
delivered to the Fund to hold such Securities hereunder in accordance with this
Agreement.
ARTICLE XX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the present
Officers of the Fund under its seal, setting forth the names and the signatures
of the present Officers. The Fund agrees to furnish to the Custodian a new
Certificate in similar form in the event that any such present Officer ceases to
be an Officer or in the event that other or additional Officers are elected or
appointed. Until such new Certificate shall be received, the Custodian shall be
fully protected in acting under the provisions of this Agreement upon Oral
Instructions or signatures of the present Officers as set forth in the last
delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian, shall be sufficiently given if addressed
to the Custodian and mailed or delivered to it at its offices at 90 Washington
Street, New York, New York 10286, or at such other place as the Custodian may
from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Fund shall be sufficiently given if addressed to
the Fund and mailed or delivered to it at its office at the address for the Fund
first above written, or at such other place as the Fund may from time to time
designate in writing, and any notice or other instrument in writing authorized
or required to be given to the Administrator shall be sufficiently given if
addressed to the Administrator at such address as the Administrator may from
time to time designate in writing.
4. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws of the State of
New York without giving effect to conflict of laws principles thereof. Each
party hereby consents to the jurisdiction of a state or federal court situated
in New York City, New York in connection with any dispute arising hereunder and
hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective Officers, thereunto duly authorized and their respective
seals to be hereunto affixed, as of the day and year first above written.
KELMOORE STRATEGIC TRUST
[SEAL] By:
Attest:
<PAGE> 30
THE BANK OF NEW YORK
[SEAL] By:
Attest:
APPENDIX A
I, , President and
I, , of
KELMOORE STRATEGIC TRUST, a Delaware business trust (the "Fund"), do hereby
certify that:
The following individuals including officers and employees of the Administrator
have been duly authorized by the Board of Trustees of the Fund in conformity
with the Fund's Declaration of Trust and By-Laws to give Certificates or Oral
Instructions on behalf of the Fund, and the signatures set forth opposite their
respective names are their true and correct signatures:
Name
Signature
___________________________
___________________________
APPENDIX B
PORTFOLIO
Kelmoore Strategy Covered Option Fund
APPENDIX C
I, Nicholas A Deliso, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he or she is the duly
elected and acting of KELMOORE STRATEGIC TRUST, a Delaware
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 199 , at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 199 ,
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of the Series
to which the same are specifically allocated, and to utilize the Book-Entry
System to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
<PAGE> 31
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of KELMOORE
STRATEGIC TRUST, as of the day of , 199 .
[SEAL]
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he or she is the duly
elected and acting of KELMOORE STRATEGIC TRUST, a Delaware
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 199 , at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 199 ,
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of KELMOORE
STRATEGIC TRUST, as of the day of , 199 .
[SEAL]
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or she is the duly
elected and acting of KELMOORE STRATEGIC TRUST, a Delaware
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 199 , at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and effect
as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 199 ,
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the Participants Trust Company
as Depository, as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Participants Trust Company to the extent possible
in connection with its performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of KELMOORE
STRATEGIC TRUST, as of the day of , 199 .
[SEAL]
<PAGE> 32
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he or she is the
duly elected and acting of KELMOORE STRATEGIC TRUST, a Delaware
business trust (the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting duly held on
, 199 , at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
199 , (the "Custody Agreement") is authorized and instructed on a continuous
and ongoing basis until such time as it receives a Certificate, as defined in
the Custody Agreement, to the contrary, to accept, utilize and act with respect
to Clearing Member confirmations for Options and transaction in Options,
regardless of the Series to which the same are specifically allocated, as such
terms are defined in the Custody Agreement, as provided in the Custody
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of KELMOORE
STRATEGIC TRUST, as of the day of , 199 .
[SEAL]
EXHIBIT D
The undersigned, , hereby certifies that he or she is the
duly elected and acting President of KELMOORE STRATEGIC TRUST, a Delaware
business trust (the "Fund"), further certifies that the following resolutions
were adopted by the Board of Trustees of the Fund at a meeting duly held on
, 1999, at which a quorum was at all times present and that
such resolutions have not been modified or rescinded and are in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the Custody
Agreement between The Bank of New York and the Fund dated as of ,
1999 (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to act in accordance with, and to rely on Instructions (as defined
in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant use of such
access codes only to Officers of the Fund as defined in the Custody Agreement,
shall establish internal safekeeping procedures to safeguard and protect the
confidentiality and availability of user and access codes, passwords and
authentication keys, and shall use Instructions only in a manner that does not
contravene the Investment Company Act of 1940, as amended, or the rules and
regulations thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of KELMOORE
STRATEGIC TRUST, as of the day of , 1999.
[SEAL]
??
39
<PAGE> 1
Exhibit 99(g)2
KELMOORE STRATEGIC TRUST
SPECIAL CUSTODY ACCOUNT AGREEMENT
THIS AGREEMENT, dated as of ________ _____ ___, by and among The Bank of New
York, in its capacity as custodian ("Bank"), Kelmoore Strategic Trust ("Trust")
with respect to the Kelmoore Strategy Covered Option Fund ("Customer") and
______________ ("Broker").
WHEREAS, Broker is a securities broker dealer registered with the Securities and
Exchange Commission and a clearing member of The Options Clearing Corporation
("OCC") and is a member of several national securities exchanges; and
WHEREAS, Customer desires from time to time to engage in the purchase and sale
of certain Option contracts (as hereunder defined) through Broker, such Options
transactions being permitted by Customer's investment policies, and for that
purpose has opened one or more margin accounts with Broker (each an "Account")
and executed Broker's "Customer Agreement" (the "Margin Agreement"); and
WHEREAS, to facilitate Customer's transactions through Broker, Customer and
Broker desire to establish procedures for the compliance by Broker with the
provisions of Regulation T of the Board of Governors of the Federal Reserve
System and with the provisions of Rule 431 of the New York Stock Exchange and
other applicable requirements and for compliance by Customer with Regulation X
of the Board of Governors of the Federal Reserve System and other requirements
("Margin Rules"); and
WHEREAS, to assist Broker and Customer in complying with the Margin Rules, Bank
is prepared to act as custodian to hold Collateral as defined below (in such
capacity, Bank is herein called the "Custodian").
NOW, THEREFORE, be it agreed as follows:
SECTION 1. DEFINITIONS.
"ADEQUATE MARGIN" shall mean such Collateral as is adequate in Broker's
judgment under the Margin Rules and the internal policies of Broker. For
purposes hereunder, Collateral shall be valued by Broker at current market
value.
"ADVICE FROM BROKER" or "ADVISE" means a written notice sent to Customer
and/or Bank or transmitted by a facsimile sending device, except that for
any of the following purposes it shall mean notice by telephone to a person
designated by Customer in writing as authorized to receive such advice or,
in the event that no such person is available, to any officer of Customer
and confirmed promptly in writing thereafter: (i) for initial or additional
Collateral; (ii) that an exercise notice filed with OCC has been assigned to
Customer; or (iii) that Customer failed to give notice of intent to make
delivery of or payment for securities as provided in section 8(a) or 8(b) or
otherwise defaulted pursuant to section 8(c) hereof. With respect to any
covering purchase transaction, the Advice from Broker shall mean a standard
confirmation in use by Broker and sent or
1
<PAGE> 2
transmitted to Customer and/or Bank. With respect to substitutions or
releases of Collateral, Advice from Broker means a written notice signed by
an authorized person of Broker and sent or transmitted to Customer and/or
Bank. An officer of Broker will certify to Bank the names and signatures of
those employees who are authorized to sign Advices from Broker, which
certification may be amended from time to time. When used herein the term,
"Advise" means the act of sending an Advice from Broker.
"CALL OPTION" shall mean a call option ("CALL") which is cleared by Broker
through the OCC.
"CLOSING TRANSACTION" is a transaction in which Customer purchases an Option
of the same series as an Option previously written by it and still
outstanding or in which Customer sells an Option of the same series as an
Option previously purchased by it and still outstanding.
"COLLATERAL" shall mean cash or U.S. Government securities or other
securities acceptable to Broker.
"INSOLVENCY" means that (i) an order, judgment or decree has been entered
under the bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law (the
"Bankruptcy Law") of any jurisdiction adjudicating the Customer insolvent;
or (ii) the Customer has petitioned or applied to any tribunal for, or
consented to the appointment of, or taking possession by, a trustee,
receiver, liquidator or similar official, of the Customer, or commenced a
voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Customer under the Bankruptcy Law of any other
jurisdiction, whether now or hereinafter in effect; or (iii) any such
petition or application has been filed, or any such proceedings has
commenced, against the Customer or the Customer by any act has indicated its
approval thereof, consent thereto or acquiescence therein, or an order for
relief has been entered in an involuntary case under the Bankruptcy Law of
the United States, as now or hereinafter constituted, or an order, judgment
or decree has been entered appointing any such trustee, receiver, liquidator
or similar official, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than
30 days.
"INSTRUCTIONS FROM CUSTOMER" or "INSTRUCTIONS" means a request, direction or
certification in writing delivered in the name of Customer by an authorized
person, to Bank and/or Broker or transmitted by a facsimile sending device.
Customer will furnish to Bank a new certificate of authorized persons in the
event of any change in the then present authorized persons. Until such new
certificate is received, Bank shall be fully protected in acting upon oral
instructions and written instructions it reasonably believes to have
originated from such present Authorized Persons.
"INSTRUCT" shall mean the act of sending an Instruction from Customer.
"OPTION" shall mean either a Put Option or a Call Option or both as the
context requires.
"PUT OPTION" shall mean a put option ("PUT") which is cleared by Broker
through the OCC.
"RECEIPT OF PAYMENT" means receipt by Bank of (i) a certified or official
bank check; (ii) a written or telegraphic advice from a registered clearing
agency that funds have been or
2
<PAGE> 3
will be credited to the account of Bank; or (iii) a transfer of funds from
any of Broker's accounts maintained at Bank.
"RECEIPT OF SECURITIES" means receipt by Bank, of (i) securities in proper
form for transfer; or (ii) a written or telegraphic advice from a registered
clearing agency that securities have been credited to the account of Bank.
SECTION 2. SPECIAL CUSTODY ACCOUNT.
Bank shall open an account on its books entitled "Special Custody Account
for __________________ as pledgee of the Kelmoore Strategy Covered Option
Fund" (referred to herein as "Special Custody Account"). Subject to Section
22 hereof, Customer hereby grants a continuing security interest to Broker
in the Collateral and the proceeds thereof to secure its obligations to
Broker under the Margin Agreement and this Agreement. Collateral shall be
released from the Special Custody Account only in accordance with this
Agreement. Bank agrees to release Collateral to Customer from the pledge
hereunder only upon receipt of Advice from Broker. Customer may substitute
or exchange the cash, securities or similar property in the Special Custody
Account only after Customer notifies Broker of the contemplated substitution
or exchange and Broker Advises Bank that such substitution or exchange is
acceptable, which acceptance shall not unreasonably be withheld.
SECTION 3. COLLATERAL.
Customer agrees to instruct Bank in Instructions from Customer that cash and
securities specified by Customer as Collateral and which are in amounts at
least equal in value to what Broker shall initially and from time to time
advise Customer in an Advice from Broker is necessary to constitute Adequate
Margin are to be identified on Bank's books and records as pledged to Broker
as Collateral. Such Collateral (i) will be held by Bank for Broker as agent
of Broker, subject to the terms and conditions of this Agreement; (ii) may
be released only in accordance with the terms of this Agreement; and (iii)
except as required to be released hereunder to Broker, shall not be made
available to Broker or to any other person claiming through Broker,
including creditors of Broker. Bank will hold the Collateral in the Special
Custody Account separate and apart from any other property of Customer which
may be held by Bank, subject to the interest therein of Broker as the
pledgee thereof in accordance with the terms of this Agreement. Such
security interest will terminate at such time as Collateral is released as
provided herein.
Bank will confirm to Broker and Customer all pledges, releases or
substitutions of Collateral. Bank will also advise Broker upon reasonable
request of the kind and amount of Collateral pledged to Broker.
SECTION 4. MAINTENANCE OF COLLATERAL.
Upon request of Customer, Broker shall Advise Bank and Customer of any
excess of Collateral in the Special Custody Account. Customer represents and
warrants to Broker that securities included at any time in the Collateral
shall be in good deliverable form (or Bank shall have the unrestricted power
to put such securities into good deliverable form) in accordance with the
requirements of such exchanges as may be the primary market or
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markets for such securities. Securities Collateral may be held at Depository
Trust Company ("DTC") or other book entry depository system in the account
of Bank in accordance with the Investment Company Act of 1940, except that
U.S. Treasury securities may also be held at the Federal Reserve Bank in the
account of Bank. The Bank represents that Collateral will not be subject to
any other lien, charge, security interest or other right or claim of the
Bank or any person claiming through the Bank.
SECTION 5. SEPARATE ACCOUNTS.
Bank will maintain accounts and records for the Collateral in the Special
Custody Account separate from the accounts and records for other property of
Customer held by Bank and other property in which Broker has an interest.
SECTION 6. ADEQUATE MARGIN.
Customer agrees to maintain Adequate Margin at all times. Broker shall
initially, and from time to time, advise Customer (in an Advice from Broker)
of the value of Collateral which is necessary to constitute Adequate Margin.
Broker shall, from time to time, compute the aggregate net credit or debit
balance on customer's open short sales and advise Customer by 11:00 a.m. New
York time of the amount of the net debit or credit, as the case may be. If a
net debit balance exists on such day, Customer will cause an amount equal to
such net debit balance to be paid to Broker by the close of business on such
day. Broker will not pay interest on credit balances. Balances will be
appropriately adjusted to reflect each Closing Transaction.
SECTION 7. DESIGNATION OF ORDERS.
It is understood and agreed that Customer, when placing with Broker any
order to sell short for its account, will designate the order as such and
hereby authorizes Broker to mark such order as being "short," and when
placing with Broker any order to sell long for its account, will designate
the order as such and hereby authorizes Broker to mark such order as being
"long." Any sell order which Customer shall designate as being "long" as
provided above is for securities then owned by Customer.
SECTION 8. EXERCISE NOTICES.
(a) In the event that Broker advises Customer in an Advice from Broker that
an exercise notice filed with OCC in respect of one or more Calls sold by
Customer has been assigned to Customer through Broker and (i) Customer does
not promptly notify Broker by telephone of Customer's intention to comply
with the exercise notice by delivery of the underlying securities or, (ii)
Customer, having given such notice, fails to make delivery of such
securities to Broker, or cause such delivery to be made, against Receipt of
Payment of the gross exercise price for such securities less applicable
commissions or other charges, then Broker will immediately notify Customer
in an Advice from Broker of such failure to give telephone notice or failure
to deliver, as applicable, and may, after transmittal of an Advice from
Broker of its intention to do so and only if Customer does not promptly make
delivery of such securities to Broker, purchase the securities necessary and
sell such of the Collateral as is necessary to reimburse Broker for the
purchase of the securities which were deliverable under the exercised Call
plus applicable commissions or other charges minus
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the amount of the gross exercise price less applicable commissions or other
charges if Broker has not made payment of such amount to Customer. Such sale
of Collateral shall be made in accordance with subparagraph (d) of this
section.
(b) In the event that Broker advises Customer in an Advice from Broker that
an exercise notice filed with OCC in respect of one or more Puts sold by
Customer has been assigned to Customer through Broker, and (i) Customer does
not promptly notify Broker by telephone of Customer's intention to comply
with the exercise notice by making payment of the gross exercise price plus
applicable commissions or other charges against Bank's Receipt of Securities
underlying the Put or (ii) Customer, having given such notice, fails to make
such payment, or cause such payment to be made, against Receipt of
Securities underlying the Put, then Broker will immediately notify Customer
in an Advice from Broker of such failure to give telephone notice or make
payment, as applicable, and may, after transmittal of an Advice from Broker
of its intention to do so and only if Customer does not promptly make
payment to Broker for such securities, sell the securities underlying the
exercised Put and sell such of the Collateral as is necessary to reimburse
Broker for the gross exercise price of the Put plus applicable commissions
or other charges. Such sale of Collateral shall be made in accordance with
subparagraph (d) of this section.
(c) Subject to Section 22 hereof, in the event of default by Customer of any
obligation hereunder or under the Margin Agreement, or in the event of
Customer's Insolvency, Broker may, after transmittal of an Advice from
Broker of its intention to do so and only if Customer continues to be in
default or Insolvent, sell such of the Collateral as in Broker's judgment is
reasonably necessary for the protection of its interest under this
Agreement.
(d) Any sale of Collateral made pursuant to this section must be made on an
exchange or other market where such business is then usually transacted.
Such sale shall be made in a manner commercially reasonable for such
securities. Broker shall give consideration to any timely request by
Customer with respect to particular securities to be sold, but shall not be
obligated to comply with any such request if Broker, in its reasonable
judgment, believes that its rights or position would be prejudiced thereby.
Customer shall remain liable to Broker for any deficiency. Broker shall
notify Customer of any sale of Collateral and any deficiency remaining in an
Advice from Broker.
SECTION 9. BANK FEES AND EXPENSES.
Customer shall pay to Bank the fees and charges as may be specifically
agreed upon from time to time and such other fees and charges at Bank's
standard rates for such services as may be applicable. Customer shall
reimburse Bank for all costs associated with the conversion of Customer's
securities hereunder and the transfer of securities and records kept in
connection with this Agreement. Customer shall also reimburse Bank for
out-of-pocket expenses which are a normal incident of the services provided
hereunder.
Subject to section 22 hereof, Bank has the right to debit any cash account
(or any subaccount thereof) for any amount payable by Customer in connection
with any and all obligations of Customer to Bank arising under this
Agreement subject to Section 22 hereof. In addition to the rights of Bank
under applicable law and other agreements, at any time when Customer shall
not have honored any and all of its obligations to Bank, arising
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under this Agreement, Bank shall have the right without notice to Customer
to retain or setoff, against such obligations of Customer, any securities or
cash the Bank or any affiliate of the Bank may directly or indirectly hold
for the account of Customer, and any obligation (whether matured or
unmatured) that Bank or any affiliate of the Bank may have to Customer. Any
such asset of, or obligation to, the Customer may be transferred to Bank and
any affiliate of the Bank in order to effect the above rights.
SECTION 10. BANK LIABILITY.
(a) Except as otherwise expressly provided herein, Bank shall not be liable
for any costs, expenses, damages, liabilities or claims, including
attorneys' and accountants' fees (collectively, "Losses"), incurred by or
asserted against Customer or Broker, except those Losses arising out of the
negligence or willful misconduct of Bank. Bank shall have no liability
whatsoever for the action or inaction of any depository. Customer covenants
to Bank that it shall not enter into transactions which would require Bank
to employ a foreign subcustodian (i.e., transactions involving non U.S.
securities or foreign markets) in connection with this Agreement. In no
event shall Bank be liable to Customer, Broker or any third party for
special, indirect or consequential damages, or lost profits or loss of
business, arising in connection with this Agreement.
(b) Bank may enter into subcontracts, agreements and understandings with any
affiliate of the Bank, wherever and on such terms and conditions as it deems
necessary or appropriate to perform its services hereunder. No such
subcontract, agreement or understanding shall discharge Bank from its
obligations hereunder.
(c) Customer and Broker agree jointly and severally to indemnify Bank and
hold Bank harmless from and against any and all Losses sustained or incurred
by or asserted against Bank by reason of or as a result of any action or
inaction, or arising out of Bank's performance hereunder, including
reasonable fees and expenses of counsel incurred by Bank in a successful
defense of claims by Customer; provided however, that neither Customer nor
Broker shall indemnify Bank for those Losses arising out of Bank's
negligence or willful misconduct. This indemnity shall be a continuing
obligation of Customer or Broker, its successors and assigns notwithstanding
the termination of this Agreement.
(d) Without limiting the generality of the foregoing, Bank shall be under no
obligation to inquire into, and shall not be liable for, any losses incurred
by Customer or any other person as a result of the receipt or acceptance of
fraudulent, forged or invalid securities, or securities which are otherwise
not freely transferable or deliverable without encumbrance in any relevant
market.
(e) Bank may, with respect to questions of law regarding the Agreement, seek
and obtain the advice of independent counsel and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity
with such advice.
(f) Bank shall be under no obligation to take action to collect any amount
payable on securities in default, or if payment is refused after due demand
and presentment.
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(g) Bank shall have no duty or responsibility to inquire into, make
recommendation as to, supervise, or determine the suitability of any
transactions affecting any account.
SECTION 11. BROKER LIABILITY.
Broker shall not be liable for any losses, costs, damages, liabilities or
expenses suffered or incurred by Customer as a result of any transaction
executed hereunder, or any other action taken or not taken by Broker
hereunder for Customer's account at Customer's direction or otherwise,
except to the extent that such loss, cost, damage, liability or expense is
the result of Broker's own negligence, willful misconduct or bad faith.
SECTION 12. AMENDMENTS.
No amendment of this Agreement shall be effective unless in writing and
signed by an authorized officer of each of the parties hereto.
SECTION 13. ENTIRE AGREEMENT.
This Agreement may be executed in one or more counterparts, all of which
together shall constitute but one and the same instrument.
SECTION 14. CONFIRMATIONS AND STATEMENTS.
Bank will confirm in writing to Broker and Customer all pledges, releases or
substitutions of Collateral. Bank will also advise Broker upon request, at
any time, of the kind and amount of Collateral pledged to Broker. A monthly
statement will be provided to Broker listing all Collateral held in the
Special Custody Account. It is agreed that, notwithstanding any language to
the contrary in Bank's form of confirmation, Bank holds the Collateral as
agent of Broker as pledgee and secured party hereunder, not as escrow agent.
SECTION 15. LIENS AND ENCUMBRANCES.
Customer represents and warrants that the Collateral will not be subject to
any other liens or encumbrances.
SECTION 16. TERMINATION.
Any of the parties hereto may terminate this Agreement by notice in writing
to the other parties hereto; provided, however, that the status of any
Options transaction, and of Collateral held at the time of such notice to
margin such Options transaction shall not be affected by such termination
until the release of such Collateral pursuant to applicable rules of such
national securities exchanges of which Broker may be a member or the OCC, as
applicable.
SECTION 17. WRITTEN COMMUNICATIONS.
Written communications hereunder shall be sent by facsimile transmission or
hand delivered as required herein, or when another method of delivery is not
specified, may be mailed first class postage prepaid, except that written
notice of termination shall be sent by certified mail, addressed:
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(a) If to Bank, to: (b) If to Customer, to:
The Bank of New York Kelmoore Strategic Trust
____________________________________ 2471 E. Bayshore Road, Suite 501
____________________________________ Palo Alto, CA 94303
Attn: ______________________________ Attn: _____________________________
Phone: _____________________________ Phone: ____________________________
Fax: __________________________ Fax: _____________________________
(c) If to Broker, to:
Attn: __________________________
Phone: __________________________
Fax: __________________________
SECTION 18. GOVERNING LAW.
This Agreement shall be construed in accordance with the substantive laws of
the State of New York, without regard to conflicts of laws principles
thereof. Customer, Broker and Bank hereby consent to the jurisdiction of a
state or federal court situated in New York City, New York in connection
with any dispute arising hereunder. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection which it may now or hereafter have to the laying of venue of any
such proceeding brought in such a court and any claim that such proceeding
brought in such a court has been brought in an inconvenient forum. Customer
and Bank each hereby irrevocably waives any and all rights to trial by jury
in any legal proceeding arising out of or relating to this Agreement.
SECTION 19. PARTIES.
The parties hereto agree that in performing hereunder, Bank is acting solely
on behalf of Customer and no contractual or service relationship shall be
deemed to be established hereby between Bank and any other person.
SECTION 20. LIMITATIONS OF BANK LIABILITIES.
(a) Bank shall not be responsible or liable for any failure or delay in the
performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable
control, including without limitation, acts of God; earthquakes; fires;
floods; wars; civil or military disturbances; sabotage; epidemics; riots;
interruptions, loss or malfunctions of utilities, computer (hardware or
software) or communications service; accidents; labor disputes; acts of
civil or military authority or governmental actions; it being understood
that Bank shall use its best efforts to resume performance as soon as
practicable under the circumstances.
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(b) Bank shall have no duties or responsibilities whatsoever except such
duties and responsibilities as are specifically set forth in this Agreement,
and no covenant or obligation shall be implied against Bank in connection
with this Agreement.
SECTION 21. CONFLICT WITH CUSTODY AGREEMENTS.
If Customer and Bank are parties to a custodial agreement that relates to
accounts such as this Special Custody Account, then the Special Custody
Account shall be subject to such custodial agreement, as well as to this
Agreement. To the extent that this Agreement is inconsistent with such
custodial agreement, this Agreement shall govern with respect to the subject
matter hereof.
SECTION 22. AMOUNTS OWED.
Notwithstanding any provision in this Agreement to the contrary, any amount
owed by Customer to Bank or Broker arising out of the Special Custody
Account shall be paid only out of the assets and property of the Kelmoore
Strategy Covered Option Fund.
All persons contracting with or having any claim against the Trust or a
particular fund of the Trust shall look only to the assets of all funds or
such particular fund for payment under such contract or claim; and neither
the Trustees of the Trust nor, when acting in such capacity, any of the
Trust's officers, employees or agents, whether past, present or future,
shall be personally liable therefor.
KELMOORE STRATEGIC TRUST THE BANK OF NEW YORK
By:______________________________ By:________________________________
Name:____________________________ Name:______________________________
Title:___________________________ Title:_____________________________
Broker:
_________________________________
By:______________________________
Name:____________________________
Title: __________________________
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<PAGE> 1
[FORM OF] SERVICES AGREEMENT Exhibit 99(h)(1)
THIS AGREEMENT, dated as of this day of , 1999 (the "Effective
Date") between KELMOORE STRATEGIC TRUST (the "Fund"), a Delaware business trust
having its principal place of business at and FIRST DATA INVESTOR
SERVICES GROUP, INC. ("Investor Services Group"), a Massachusetts corporation
with principal offices at 4400 Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Schedule A, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint
Investor Services Group as its administrator, fund accounting agent, transfer
agent, dividend disbursing agent and agent in connection with certain other
activities and Investor Services Group desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to Investor Services Group from time to time.
(c) "Board Members" shall mean the Directors or Trustees of
the governing body of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
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(e) "Commencement Date" shall mean the date on which Investor
Services Group commences providing services to the Fund pursuant to
this Agreement.
(f) "Commission" shall mean the Securities and Exchange
Commission.
(g) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(h) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(i) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(j) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(k) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets;
(l) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(m) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(n) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(o) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 Appointment of Investor Services Group.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
Investor Services Group as its sole and exclusive transfer agent and dividend
disbursing agent for Shares of each respective Portfolio of the Fund and as
administrator, fund accounting agent, shareholder
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<PAGE> 3
servicing agent for the Fund and Investor Services Group hereby accepts such
appointments and agrees to perform the duties hereinafter set forth. This
Agreement shall be effective as of the Effective Date.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein, and in accordance with the terms of
the Prospectus of the Fund on behalf of the applicable Portfolio,
applicable law and the procedures established from time to time between
Investor Services Group and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. Investor Services Group
shall provide the Fund on a regular basis with the total number of
Shares of each Portfolio which are authorized and issued and
outstanding and shall have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares or to take cognizance
of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Fund.
(c) Investor Services Group shall be responsible for the
following: performing the customary services of an administrator,
including corporate secretarial, treasury and blue sky services, and
fund accounting agent for the Fund, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein, and subject to the supervision and
direction of the Board of Directors of the Fund.
(d) In addition to providing the foregoing services, the Fund
hereby engages Investor Services Group as its exclusive service
provider with respect to the Print/Mail Services as set forth in
Schedule C for the fees also identified in Schedule C. Investor
Services Group agrees to perform the services and its obligations
subject to the terms and conditions of this Agreement.
(e) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the redemption of any Shares,
or the propriety of the amount to be paid therefor; (iii) the legality
of the declaration of any
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<PAGE> 4
dividend by the Board of Directors, or the legality of the issuance of
any Shares in payment of any dividend; or (iv) the legality of any
recapitalization or readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to Investor Services Group
in writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of Investor Services Group for the
Fund's blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
3.3 In performing its duties under this Agreement, Investor Services
Group: (a) will act in accordance with the Articles of Incorporation, By-Laws,
Prospectuses and with the Oral Instructions and Written Instructions of the Fund
and will conform to and comply with the requirements of the 1940 Act and all
other applicable federal or state laws and regulations; and (b) will consult
with legal counsel to the Fund, as necessary and appropriate. Furthermore,
Investor Services Group shall not have or be required to have any authority to
supervise the investment or reinvestment of the securities or other properties
which comprise the assets of the Fund or any of its Portfolios and shall not
provide any investment advisory services to the Fund or any of its Portfolios.
3.4 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule B
in accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Fund on and in accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, Investor Services Group will endeavor to notify
the Fund of such request and secure Written Instructions as to the handling of
such request. Investor Services Group reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its counsel that
it may be held liable for the failure to comply with such request.
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Article 5 Fund Instructions.
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund. Investor Services Group will also have no liability when
processing Share certificates which it reasonably believes to bear the proper
manual or facsimile signatures of the officers of the Fund and the proper
countersignature of Investor Services Group.
5.2 At any time, Investor Services Group may request Written
Instructions from the Fund and may seek advice from legal counsel for the Fund,
or its own legal counsel, with respect to any matter arising in connection with
this Agreement, and it shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for Investor Services
Group. Written Instructions requested by Investor Services Group will be
provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 Compensation.
6.1 The Fund on behalf of each of the Portfolios will compensate
Investor Services Group for the performance of its obligations hereunder in
accordance with the fees and other charges set forth in the written Fee Schedule
annexed hereto as Schedule C and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by Investor Services Group in the
performance of its duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule D and incorporated herein.
Schedule D may be modified by written agreement between the parties. Unspecified
out-of-pocket expenses shall be limited to those out-of-pocket expenses
reasonably incurred by Investor Services Group in the performance of its
obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all
fees, charges and out-of-pocket expenses to Investor Services Group by Federal
Funds Wire within fifteen (15) business days following the receipt of the
respective invoice. In addition, with respect to all fees
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<PAGE> 6
under this Agreement, Investor Services Group may charge a service fee equal to
the lesser of (i) one and one half percent (1 1/2%) per month or (ii) the
highest interest rate legally permitted on any past due invoiced amounts,
provided however, the foregoing service fee shall not apply if the Fund in good
faith legitimately disputes any invoice amount in which case the Fund shall do
the following within thirty (30) days of the postmark date: (a) pay Investor
Services Group the undisputed amount of the invoice; and (b) provide Investor
Services Group a detailed written description of the disputed amount and the
basis for the Fund's dispute with such amount. In addition, the Fund shall
cooperate with Investor Services Group in resolving disputed invoice amounts and
then promptly paying such amounts determined to be due.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, a revised Fee Schedule executed and dated by
the parties hereto.
6.5 The Fund acknowledges that the fees and charges that Investor
Services Group charges the Fund under this Agreement reflect the allocation of
risk between the parties, including the disclaimer of warranties in Section 9.3
and the limitations on liability and exclusion of remedies in Section 11.2 and
Article 12. Modifying the allocation of risk from what is stated here would
affect the fees that Investor Services Group charges, and in consideration of
those fees, the Fund agrees to the stated allocation of risk.
6.6 Investor Services Group will from time to time employ or associate
with itself such person or persons as Investor Services Group may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
Investor Services Group and the Fund. The compensation of such person or persons
shall be paid by Investor Services Group and no obligation shall be incurred on
behalf of the Fund in such respect.
6.7 Investor Services Group shall not be required to pay any of the
following expenses incurred by the Fund: membership dues in the Investment
Company Institute or any similar organization; investment advisory expenses;
costs of printing and mailing stock certificates, prospectuses, reports and
notices; interest on borrowed money; brokerage commissions; stock exchange
listing fees; taxes and fees payable to Federal, state and other governmental
agencies; fees of Board Members of the Fund who are not affiliated with Investor
Services Group; outside auditing expenses; outside legal expenses; Blue Sky
registration or filing fees; or other expenses not specified in this Section 6.7
which may be properly payable by the Fund. Investor Services Group shall not be
required to pay any Blue Sky registration or filing fees unless and until it has
received the amount of such fees from the Fund.
Article 7 Documents.
In connection with the appointment of Investor Services Group, the Fund
shall, on or before the date this Agreement goes into effect, but in any case
within a reasonable period of time for Investor Services Group to prepare to
perform its duties hereunder, deliver or caused to be delivered to Investor
Services Group the documents set forth in the written schedule of Fund Documents
annexed hereto as Schedule E.
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Article 8 Investor Services Group System.
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts, expertise, patents, copyrights,
trade secrets, and other related legal rights utilized by Investor Services
Group in connection with the services provided by Investor Services Group to the
Fund herein (the "Investor Services Group System").
8.2 Investor Services Group hereby grants to the Fund a limited license
to the Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited to maintenance,
exchanges, purchases and redemptions, such direct access capability shall be
limited to direct entry to the Investor Services Group System by means of
on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 9 Representations and Warranties.
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to Investor Services Group that:
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(a) it is duly organized, existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize
it to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933,
as amended, and the 1940 Act on behalf of each of the Portfolios is
currently effective and will remain effective, and all appropriate
state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale;
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable; and
(f) as of the date hereof, each Portfolio is duly registered
and lawfully eligible for sale in each jurisdiction indicated for such
Portfolio on the list furnished to Investor Services Group pursuant to
Article 7 of this Agreement and that it will notify Investor Services
Group immediately of any changes to the aforementioned list.
9.3 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE FUND OR ANY OTHER PERSON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. INVESTOR SERVICES
GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE
SET FORTH IN THIS AGREEMENT.
Article 10 Indemnification.
10.1 Investor Services Group shall not be responsible for and the Fund
on behalf of each Portfolio shall indemnify and hold Investor Services Group
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against Investor Services Group or for
which Investor Services Group may be held to be liable (a "Claim") arising out
of or attributable to any of the following:
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(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act or bad faith by Investor Services
Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Fund, or
any authorized third party acting on behalf of the Fund, including but
not limited to the prior transfer agent for the Fund, in the
performance of Investor Services Group's duties and obligations
hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 The Fund agrees and acknowledges that Investor Services Group has
not prior to the date hereof assumed, and will not assume, any obligations or
liabilities arising out of the conduct by the Company prior to the date hereof
of those duties which Investor Services Group has agreed to perform pursuant to
this Agreement. The Fund further agrees to indemnify Investor Services Group
against any losses, claims, damages or liabilities to which Investor Services
Group may become subject in connection with the conduct by the Fund or its agent
of such duties prior to the date hereof.
10.3 In any case in which the Fund may be asked to indemnify or hold
Investor Services Group harmless, Investor Services Group will notify the Fund
promptly after identifying any situation which it believes presents or appears
likely to present a claim for indemnification against the Fund although the
failure to do so shall not prevent recovery by Investor Services Group and shall
keep the Fund advised with respect to all developments concerning such
situation. The Fund shall have the option to defend Investor Services Group
against any Claim which may be the subject of this indemnification, and, in the
event that the Fund so elects, such defense shall be conducted by counsel chosen
by the Fund and satisfactory to Investor Services Group, and thereupon the Fund
shall take over complete defense of the Claim and Investor Services Group shall
sustain no further legal or other expenses in respect of such Claim. Investor
Services Group will not confess any Claim or make any compromise in any case in
which the Fund will be asked to provide indemnification, except with the Fund's
prior written consent. The obligations of the parties hereto under this Article
10 shall survive the termination of this Agreement.
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10.4 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Investor Services Group becomes aware
of the event for which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 Standard of Care.
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
11.2 Notwithstanding any provision in this Agreement to the contrary,
Investor Services Group's cumulative liability (to the Fund) for all losses,
claims, suits, controversies, breaches, or damages for any cause whatsoever
(including but not limited to those arising out of or related to this Agreement)
and regardless of the form of action or legal theory shall not exceed the lesser
of (i) $500,000 or (ii) the fees received by Investor Services Group for
services provided under this Agreement during the twelve months immediately
prior to the date of such loss or damage. Fund understands the limitation on
Investor Services Group's damages to be a reasonable allocation of risk and Fund
expressly consents with respect to such allocation of risk. In allocating risk
under the Agreement, the parties agree that the damage limitation set forth
above shall apply to any alternative remedy ordered by a court in the event such
court determines that sole and exclusive remedy provided for in the Agreement
fails of its essential purpose.
11.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.4 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
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NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL INVESTOR SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS
OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR ANY ENTITY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless the Fund or Investor Services Group provides written notice to the
other of its intent not to renew. Such notice must be received not less than
ninety (90) days and not more than one-hundred eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination of rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
13.5 Notwithstanding anything contained in this Agreement to the
contrary, should the Fund desire to move any of the services provided by
Investor Services Group hereunder to a successor service provider prior to the
expiration of the then current Initial or Renewal Term, or should the Fund or
any of its affiliates take any action which would result in Investor Services
Group ceasing to provide transfer agency, administration or fund accounting
services to the Fund prior to the expiration of the Initial or any Renewal Term,
Investor Services Group shall make a good faith effort to facilitate the
conversion on such prior date, however, there can be no
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guarantee that Investor Services Group will be able to facilitate a conversion
of services on such prior date. In connection with the foregoing, should
services be converted to a successor service provider or should the Fund or any
of its affiliates take any action which would result in Investor Services Group
ceasing to provide transfer agency, administration or fund accounting services
to the Fund prior to the expiration of the Initial or any Renewal Term, the
payment of fees to Investor Services Group as set forth herein shall be
accelerated to a date prior to the conversion or termination of services and
calculated as if the services had remained with Investor Services Group until
the expiration of the then current Initial or Renewal Term and calculated at the
asset and/or Shareholder account levels, as the case may be, on the date notice
of termination was given to Investor Services Group.
Article 14 Additional Portfolios
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Schedule A, with respect to which the Fund
desires to have Investor Services Group render services as transfer agent under
the terms hereof, the Fund shall so notify Investor Services Group in writing,
and if Investor Services Group agrees in writing to provide such services,
Exhibit 1 shall be amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and Investor Services Group shall exercise at least the same degree of care, but
not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. The Fund and Investor Services
Group shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior written
permission of the other party. The Fund and Investor Services Group may,
however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and Investor Services Group may also disclose
the Confidential Information to independent contractors, auditors, and
professional advisors, provided they first agree in writing to be bound by the
confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
Investor Services Group disclose the Confidential Information to any competitor
of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past,
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<PAGE> 13
present or future business activities of the Fund or Investor Services
Group, their respective subsidiaries and affiliated companies and the
customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or
Investor Services Group a competitive advantage over its competitors;
and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(f) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the
Confidential Information disclosed under this Agreement.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly,
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by (i) fire, flood, elements of nature or other acts of God; (ii) any outbreak
or escalation of hostilities, war, riots or civil disorders in any country,
(iii) any act or omission of the other party or any governmental authority; (iv)
any labor disputes (whether or not the employees' demands are reasonable or
within the party's power to satisfy); or (v) nonperformance by a third party or
any similar cause beyond the reasonable control of such party, including without
limitation, failures or fluctuations in telecommunications or other equipment.
In any such event, the non-performing party shall be excused from any further
performance and observance of the obligations so affected only for as long as
such circumstances prevail and such party continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. Investor Services Group may, in
its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that
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party and received by it at its office set forth below or at such other place as
it may from time to time designate in writing.
To the Fund:
Attention: __________________
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and
Investor Services Group and the Fund hereby submit themselves to the exclusive
jurisdiction of those courts.
Article 21 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Neither Investor Services Group nor the Fund shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without the prior
review and written approval of the other party; provided, however, that either
party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
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Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
the Fund shall not recruit, solicit, employ or engage, for the Fund or others,
Investor Services Group's employees.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
Article 26 Miscellaneous.
The Fund and Investor Services Group agree that the obligations of the
Fund under the Agreement shall not be binding upon any of the Board Members,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Fund individually, but are binding only upon the assets and
property of the Fund, as provided in the Articles of Incorporation. The
execution and delivery of this Agreement have been authorized by the Board
Members of the Fund, and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such Board Members nor such execution
and delivery by such officer shall be deemed to have been made by any of them or
any shareholder of the Fund individually or to impose any liability on any of
them or any shareholder of the Fund personally, but shall bind only the assets
and property of the Fund as provided in the Articles of Incorporation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
KELMOORE STRATEGIC TRUST
By:
Title:
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
Title:
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SCHEDULE A
LIST OF PORTFOLIOS
Kelmoore Strategy Covered Option Fund
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SCHEDULE B
DUTIES OF INVESTOR SERVICES GROUP
I. TRANSFER AGENCY SERVICES
(a) Shareholder Information. Investor Services Group shall maintain a
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification and which shall indicate whether
such Shares are held in certificates or uncertificated form.
(b) Shareholder Services. Investor Services Group shall respond as
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and the Fund.
(c) Share Certificates.
- - At the expense of the Fund, the Fund shall supply Investor Services
Group with an adequate supply of blank share certificates to meet
Investor Services Group requirements therefor. Such Share certificates
shall be properly signed by facsimile. The Fund agrees that,
notwithstanding the death, resignation, or removal of any officer of
the Fund whose signature appears on such certificates, Investor
Services Group or its agent may continue to countersign certificates
which bear such signatures until otherwise directed by Written
Instructions.
- - Investor Services Group shall issue replacement Share certificates in
lieu of certificates which have been lost, stolen or destroyed, upon
receipt by Investor Services Group of properly executed affidavits and
lost certificate bonds, in form satisfactory to Investor Services
Group, with the Fund and Investor Services Group as obligees under the
bond.
- - Investor Services Group shall also maintain a record of each
certificate issued, the number of Shares represented thereby and the
Shareholder of record. With respect to Shares held in open accounts or
uncertificated form (i.e., no certificate being issued with respect
thereto) Investor Services Group shall maintain comparable records of
the Shareholders thereof, including their names, addresses and taxpayer
identification. Investor Services Group shall further maintain a stop
transfer record on lost and/or replaced certificates.
(d) Mailing Communications to Shareholders; Proxy Materials. Investor
Services Group will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In
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connection with meetings of Shareholders, Investor Services Group will prepare
Shareholder lists, mail and certify as to the mailing of proxy materials,
process and tabulate returned proxy cards, report on proxies voted prior to
meetings, act as inspector of election at meetings and certify Shares voted at
meetings.
(e) Sales of Shares.
- - Investor Services Group shall not be required to issue any Shares of
the Fund where it has received a Written Instruction from the Fund or
official notice from any appropriate authority that the sale of the
Shares of the Fund has been suspended or discontinued. The existence of
such Written Instructions or such official notice shall be conclusive
evidence of the right of Investor Services Group to rely on such
Written Instructions or official notice.
- - In the event that any check or other order for the payment of money is
returned unpaid for any reason, Investor Services Group will endeavor
to: (i) give prompt notice of such return to the Fund or its designee;
(ii) place a stop transfer order against all Shares issued as a result
of such check or order; and (iii) take such actions as Investor
Services Group may from time to time deem appropriate.
(f) Transfer and Repurchase.
- - Investor Services Group shall process all requests to transfer or
redeem Shares in accordance with the transfer or repurchase procedures
set forth in the Fund's Prospectus.
- - Investor Services Group will transfer or repurchase Shares upon receipt
of Oral or Written Instructions or otherwise pursuant to the Prospectus
and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as Investor Services Group
reasonably may deem necessary.
- - Investor Services Group reserves the right to refuse to transfer or
repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. Investor Services Group also
reserves the right to refuse to transfer or repurchase Shares until it
is satisfied that the requested transfer or repurchase is legally
authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or repurchases which Investor Services Group,
in its good judgement, deems improper or unauthorized, or until it is
reasonably satisfied that there is no basis to any claims adverse to
such transfer or repurchase.
- - When Shares are redeemed, Investor Services Group shall, upon receipt
of the instructions and documents in proper form, deliver to the
Custodian and the Fund or its designee a notification setting forth the
number of Shares to be repurchased. Such repurchased shares shall be
reflected on appropriate accounts maintained by Investor
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Services Group reflecting outstanding Shares of the Fund and Shares
attributed to individual accounts.
- - Investor Services Group shall upon receipt of the monies provided to it
by the Custodian for the repurchase of Shares, pay such monies as are
received from the Custodian, all in accordance with the procedures
described in the written instruction received by Investor Services
Group from the Fund.
- - Investor Services Group shall not process or effect any repurchase with
respect to Shares of the Fund after receipt by Investor Services Group
or its agent of notification of the suspension of the determination of
the net asset value of the Fund.
(g) Dividends.
- - Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Fund with respect to
Shares of the Fund, the Fund shall furnish or cause to be furnished to
Investor Services Group Written Instructions setting forth the date of
the declaration of such dividend or distribution, the ex-dividend date,
the date of payment thereof, the record date as of which Shareholders
entitled to payment shall be determined, the amount payable per Share
to the Shareholders of record as of that date, the total amount payable
on the payment date and whether such dividend or distribution is to be
paid in Shares at net asset value.
- - On or before the payment date specified in such resolution of the Board
of Directors, the Fund will provide Investor Services Group with
sufficient cash to make payment to the Shareholders of record as of
such payment date.
- - If Investor Services Group does not receive sufficient cash from the
Fund to make total dividend and/or distribution payments to all
Shareholders of the Fund as of the record date, Investor Services Group
will, upon notifying the Fund, withhold payment to all Shareholders of
record as of the record date until sufficient cash is provided to
Investor Services Group.
(h) Retirement Plans. In connection with the individual retirement
account, simplified employee pension plan, rollover individual retirement plan,
educational IRA and ROTH individual retirement account (each hereinafter
referred to as an "IRA" and, collectively, the "IRAs") within the meaning of
Section 408 of the Internal Revenue Code of 1986, as amended (the "Code")
offered by the Fund for which contributions of the Funds' shareholders (the
"Participants") in the IRA's are invested in shares of the Fund, Investor
Services Group shall provide the following administrative services in addition
to those services described herein:
- - Establish a record of types and reasons for distributions (i.e.,
attainment of age 59-1/2, disability, death, return of excess
contributions, etc.);
- - Record method of distribution requested and/or made;
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<PAGE> 22
- - Receive and process designation of the beneficiary forms;
- - Examine and process requests for direct transfers between
custodians/trustees, transfer and pay over to the successor assets in
the account and records pertaining thereto as requested;
- - Prepare any annual reports or returns required to be prepared and/or
filed by a custodian of an IRA, including, but not limited to, an
annual fair market value report, Forms 1099R and 5498 and file with the
IRS and provide to Participant/Beneficiary; and
- - Perform applicable federal withholding and send
Participants/Beneficiaries an annual TEFRA notice regarding required
federal tax withholding.
(i) Cash Management Services. Funds received by Investor Services Group
in the course of performing its services hereunder will be held in demand
deposit bank accounts or money market fund accounts in the name of Investor
Services Group (or its nominee) as agent for the Fund. Investor Services Group
shall be entitled to retain any excess interest, dividends, balance credits or
fee reductions or other concessions or benefits earned or generated by or
associated with such accounts or made available by the institution at which such
accounts are maintained after such benefits are first applied towards banking
service fees charged to the Fund by such institution.
(j) Lost Shareholders. Investor Services Group shall perform such
services as are required in order to comply with Rules 17a-24 and 17Ad-17 of the
34 Act (the "Lost Shareholder Rules"), including, but not limited to those set
forth below. Investor Services Group may, in its sole discretion, use the
services of a third party to perform the some or all such services.
- - documentation of electronic search policies and procedures;
- - execution of required searches;
- - creation and mailing of confirmation letters;
- - taking receipt of returned verification forms;
- - providing confirmed address corrections in batch via electronic media;;
- - tracking results and maintaining data sufficient to comply with the
Lost Shareholder Rules; and o preparation and submission of data
required under the Lost Shareholder Rules.
(k) Miscellaneous. In addition to and neither in lieu nor in
contravention of the services set forth above, Investor Services Group shall:
(i) perform all the customary services of a transfer agent, registrar, dividend
disbursing agent and agent of the dividend reinvestment and cash purchase plan
as described herein consistent with those requirements in effect as at the date
of this Agreement. The detailed definition, frequency, limitations and
associated costs (if any) set out in the attached fee schedule, include but are
not limited to: maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports
to current Shareholders, withholding taxes on U.S. resident and non-resident
alien accounts where applicable, preparing and filing U.S. Treasury Department
Forms 1099 and
-22-
<PAGE> 23
other appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
II. ADMINISTRATION SERVICES
(a) Maintaining office facilities (which may be in the offices of
Investor Services Group or a corporate affiliate) and furnishing corporate
officers for the Fund;
(b) Furnishing data processing services, clerical services, and
executive and administrative services and standard stationery and office
supplies;
(c) Performing all functions ordinarily performed by the office of a
corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, as follows:
- - Expense Accrual Monitoring
- - Determination of Dividends
- - Preparation materials for review by the Board, e.g., Rules 2a-7,10f-3,
17a-7, 17e-1 and 144A
- - Tax and Financial Counsel
- - Creation of expense pro formas for new Portfolios/classes
- - Reporting to investment company reporting agencies (i.e., Lipper)
- - Compliance Testing including Section 817(h) (daily, weekly or monthly)
(d) Preparing reports to the Fund's Shareholders and the SEC including,
but not necessarily limited to, Annual Reports and Semi-Annual Reports on Form
N-SAR;
(e) Preparing and filing the Fund's tax returns and providing
shareholder tax information to the Fund's transfer agent;
(f) Assisting the Adviser, at the Adviser's request, in monitoring and
developing compliance procedures for the Fund which will include, among other
matters, procedures to assist the Adviser in monitoring compliance with each
Portfolio's investment objective, policies, restrictions, tax matters and
applicable laws and regulations;
(g) Performing "Blue Sky" compliance functions, as follows:
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<PAGE> 24
- - Effecting and maintaining, as the case may be, the registration of
Shares of the Fund for sale under the securities laws of the
jurisdictions listed in the Written Instructions of the Fund, which
instructions will include the amount of Shares to be registered as well
as the warning threshold to be maintained. Any Written Instructions not
received at least 45 days prior to the date the Fund intends to offer
or sell its Shares cannot be guaranteed a timely notification to the
states. In addition, Investor Services Group shall not be responsible
for providing to any other service provider of the Fund a list of the
states in which the Fund may offer and sell its Shares.
- - Filing with each appropriate jurisdiction the appropriate materials
relating to the Fund. The Fund shall be responsible for providing such
materials to Investor Services Group, and Investor Services Group shall
make such filings promptly after receiving such materials.
- - Providing to the Fund quarterly reports of sales activity in each
jurisdiction in accordance with the Written Instructions of the Fund.
Sales will be reported by shareholder residence. NSCC trades and order
clearance will be reported by the state provided by the dealer at the
point of sale. Trades by omnibus accounts will be reported by trustee
state of residence in accordance with the Written Instructions of the
Fund outlining the entities which are permitted to maintain omnibus
positions with the Fund.
- - In the event sales of Shares in a particular jurisdiction reach or
exceed the warning levels provided in the Written Instructions of the
Fund, Investor Services Group will promptly notify the Fund with a
recommendation of the amount of Shares to be registered in such
jurisdiction and the fee for such registration. Investor Services Group
will not register additional Shares in such jurisdiction unless and
until Investor Services Group shall have received written instructions
from the Fund to do so.
- - If Investor Services Group is instructed by the Fund not to register
Shares in a particular jurisdiction, Investor Services Group will use
its best efforts to cause any sales in such jurisdictions to be
blocked, and such sales will not be reported to Investor Services Group
as sales of Shares of the Fund.
(h) Performing corporate secretarial services including the following:
- - Assist in maintaining corporate records and good standing status of
Fund in its state of organization
- - Develop and maintain calendar of annual and quarterly board approvals
and regulatory filings
- - Prepare notice, agenda, memoranda, resolutions and background materials
for legal approvals at quarterly board meetings and committee meetings;
attend meetings; make presentations where appropriate; prepare minutes;
follow up on issues
-24-
<PAGE> 25
- - Provide support for one special in person board meeting per year and
written consent votes where needed
- - (i) Performing the following legal services:
- - Prepare and file annual Post-Effective Amendment
- - Prepare and file Rule 24f-2 Notice
- - Review and file Form N-SAR
- - Review, Edgarize and file Annual and Semi-Annual Financial Reports
- - Communicate significant regulatory or legislative developments to Fund
management and directors and provide related planning assistance where
needed
- - Consult with Fund management regarding portfolio compliance and Fund
corporate and regulatory issues as needed
- - Maintain effective communication with outside counsel and review legal
bills of outside counsel
- - Coordinate the printing and mailing process with outside printers for
all shareholder publications
- - Arrange D&O/E&O insurance and fidelity bond coverage for Fund
- - Assist in monitoring Fund Code of Ethics reporting and provide such
reports to the person designated under the Fund's Code
(j) Performing, in accordance with the Written Instructions of the
Fund, the following Special Legal Services in accordance with the pricing
structure listed on the Fee Schedule attached to this Agreement as Schedule C:
- - Assist in managing SEC audit of the Fund at the Adviser's principal
place of business
- - Review sales material and advertising for Fund Prospectus compliance
- - Assist in new Portfolio start-up (to the extent requested)
Coordinate time and responsibility schedules
Prepare Fund corporate documents (MTA/by-laws)
Draft/file registration statement (including investment
objectives/policies and prospectuses)
-25-
<PAGE> 26
Respond to and negotiate SEC comments
Draft notice, agenda and resolutions for organizational
meeting; attend board meeting; make presentations where
appropriate; prepare minutes and follow up on issues
- - Assist in developing compliance guidelines and procedures to improve
overall compliance by Fund and service providers
- - Prepare notice, agenda, memoranda and background materials for special
board meetings, make presentations where appropriate, prepare minutes
and follow up on issues
- - Prepare proxy material for special meetings (including fund merger
documents)
- - Prepare Post-Effective Amendments for special purposes (e.g., new funds
or classes, changes in advisory relationships, mergers, restructurings)
- - Prepare special Prospectus supplements where needed
- - Assist in extraordinary non-recurring projects, including providing
consultative legal services, e.g.,
Arrange CDSC financial programs
Prospectus simplification
Profile prospectuses
Exemptive order applications
III. FUND ACCOUNTING SERVICES
Performing fund accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Fund as may be required
by Section 31(a) of the 1940 Act) as follows:
- - Daily, Weekly, and Monthly Reporting
- - Portfolio and General Ledger Accounting
- - Daily Valuation of all Portfolio Securities
- - Daily Valuation and NAV Calculation
- - Comparison of NAV to market movement
- - Review research of price tolerance/fluctuation report to market
movements and events
- - Research of items appearing on the price exception report
-26-
<PAGE> 27
- - Weekly cost monitoring along with market-to-market valuations in
accordance with Rule 2a-7
- - Security trade processing
- - Daily cash and position reconciliation with the custodian bank
- - Daily updating of price and distribution rate information to the
Transfer Agent/Insurance Agent
- - Daily support and report delivery to Portfolio Management
- - Daily calculation of Portfolio adviser fees and waivers
- - Daily calculation of distribution rates
- - Daily investable cash call
- - Monitor and research aged receivables
- - Collect aged income items and perform reclaims
- - Update NASDAQ reporting
- - Daily maintenance of each Portfolio's general ledger including expense
accruals
- - Daily NAV per share notification to other vendors as required
- - Calculation of 30-day SEC yields and total returns
- - Preparation of month-end reconciliation package
- - Monthly reconciliation of Portfolio expense records
- - Application of monthly pay down gain/loss
- - Preparation of all annual and semi-annual audit work papers
IV. CUSTODY ADMINISTRATION SERVICES
Performing custody administration services as follows:
-27-
<PAGE> 28
- - Assign a custody administrator to accept, control and process the
Fund's daily portfolio transactions through direct computer link with
the Custodian
- - Match and review DTC eligible ID's and trade information with the
Fund's instructions for accuracy and coordinating with the Custodian
and the Fund's accounting agent for recording and affirmation
processing with the depository
- - Systematically settle all depository eligible issues. Transactions
requiring physical delivery will be settled through the Custodian's New
York office.
- - Assist the Fund in placing cash management trades through the
Custodian, such as commercial paper, CD's and repurchase agreements
- - Provide the Adviser with daily custodian statements reflecting all
prior day cash activity on behalf of each Portfolio by 8:30 a.m.
Eastern time. Complete description of any posting, inclusive of
Sedol/CUSIP numbers, interest/dividend payment date, capital stock
details, expense authorizations, beginning/ending cash balances, etc.,
will be provided by the Custodian's reports or systems.
- - Provide monthly activity statements combining both cash changes and
security trades, and a full portfolio listing.
- - Communicate to the Fund on any corporate actions, capital changes and
interest rate changes supported by appropriate supplemental reports
received from the Custodian. Follow-up will be made with the Custodian
to ensure all necessary actions and/or paperwork is complete.
- - Coordinate and resolve unsettled dividends, interest, paydowns and
capital changes. Assist in resolution of failed transactions and any
settlement problems.
- - Provide automated mortgage-backed processing through the Custodian
- - Provide broker interface ensuring trade settlement with failed trade
follow-up
- - Provide the Fund's auditor's with trade documentation to help expedite
the Fund's audit
-28-
<PAGE> 29
SCHEDULE C
FEE SCHEDULE
1. Standard Fees
(a) Administration Fees:
First $50 million of average net assets .0015
Next $50 million of average net assets .0010
Over $100 million average net assets .0005
Annual minimum fees $55,000 for first Portfolio
$12,000 for each additional domestic
Portfolio or class
(b) Transfer Agency and Shareholder Servicing Fees:
Transfer Agency and Shareholder Services
$20.00 per account per year per Portfolio
$24,000 annual minimum fee per no-load Portfolio
$15,000 annual minimum fee per additional class of shares
IRA's, 403(b) Plans, Defined Contribution/Benefit Plans
Annual Maintenance Fee - $12.00 per account per year
FUND/SERV Processing (if applicable)
$1,000 one time set-up charge
$50.00 per month/per Portfolio monthly maintenance fee
Networking Processing (if applicable)
$1,000 one time set-up charge
$75.00 per month/per Portfolio monthly maintenance fee
(c) Fund Accounting Fees:
(Per Domestic Portfolio)
Minimum to $20 million of average net assets $30,000 Next $30
million of average net assets .0003 Next $50 million of
average net assets .0002 Over $100 million of average net
assets .0001
* Each additional class is $12,000 minimum per year
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<PAGE> 30
(d) Custody Administration Fees:
(*For multiple class portfolios, fees are based on combined Classes'
average net assets)
<TABLE>
<S> <C>
Domestic Securities and ADRs (Per Portfolio)
First $50 million of average net assets .0002
Next $150 million of average net assets .00015
Over $200 million of average net assets .000125
Minimum monthly fee: $500
Custody Domestic Securities Transaction Charge:
Book Entry, DTC, Federal Book Entry, PTC $12.00
Physical Securities, Options/Futures $20.00
RIC's $24.50
P & I Paydowns $7.00
Wires $7.00
Check Request $6.00
Eurodollar CD's $45.00
Euro/TD's $15.00
</TABLE>
A transaction includes buys, sells, maturities or free security
movements.
Cedel/Euroclear
4 bps safekeeping charge, $20.00 transaction charge
Fee expressed in basis points per annum based upon
month end market value
Global Network Fee
$500 per Portfolio per month, includes Cedel trades
Note: To the extent the Fund commences using foreign (non USD)
securities, additional fees will apply per country, plus global network
fee per month. At least two (2) weeks advance notice is required to
complete documentation and establish accounts in the foreign countries.
When Issued, Securities Lending, Index Futures, Etc. Should any
investment vehicle require a separate segregated custody account, a fee
of $250 per account per month will apply.
Custody Miscellaneous Fees
Administrative fees incurred in certain local markets will be passed on
to the Fund with a detailed description of the fees. Fees include
income collection, corporate action handling, overdraft charges, funds
transfer, special local taxes, stamp duties, registration fees,
messenger and courier services and other out-of-pocket expenses.
-30-
<PAGE> 31
2. Lost Shareholder Search/Reporting: $2.75 per account search*
* The per account search fee shall be waived until June 2000
so long as the Fund retains Keane Tracers, Inc. ("KTI") to
provide the Fund with KTI's "In-Depth Research Program"
services.
3. Print/Mail Fees.
(a) Standard Pricing:
Testing Application or Data Requirements: $3.00/fax
Work Order: $15.00 per work order
Daily Work (Confirms):
Hand: $71/K with $75.00 minimum (includes BRE or CRE)
$0.07/each additional insert
Machine: $42/K with $50.00 minimum (includes BRE or CRE)
$0.01/each additional insert
Daily Checks*:
Hand: $91/K with $100.00 minimum daily (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $75.00 minimum (includes 1 insert)
$0.01/each additional insert
* There is a $3.00 charge for each 3606 Form sent.
Statements:
Hand: $78/K with $75.00 minimum (includes BRE or CRE)
$0.08/each additional insert
$125/K for intelligent inserting
Machine: $52/K with $75.00 minimum (includes BRE or CRE)
$0.01 each additional insert
$58/K for intelligent inserting
Periodic Checks:
Hand: $91/K with $100.00 minimum (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $100.00 minimum (includes 1 insert)
$0.01/each additional insert
12B1/Dealer Commission Checks/Statements: $0.78/each envelope with
$100.00 minimum
Spac Reports/Group Statements: $78/K with $75.00 minimum
Listbills: $0.78 per envelope with $75.00 minimum
Printing Charges: (price ranges dependent on volumes)
-31-
<PAGE> 32
$0.08/per confirm/statement/page
$0.10/per check
Folding (Machine): $18/K
Folding (Hand): $.12 each
Presort Charge: postage rate
$0.035 per piece
Courier Charge: $15.00 for each on call courier trip/or actual
cost for on demand
Overnight Charge: $3.50 per package service charge plus Federal
Express/Airborne charge
Inventory Storage: $20.00 for each inventory location as of the 15th
of the month
Inventory Receipt: $20.00 for each SKU / Shipment
Hourly work; special projects, opening envelopes, etc...: $24.00 per
hour
Special Pulls: $2.50 per account pull
Boxes/Envelopes: Shipping boxes $0.85 each
Oversized Envelopes $0.45 each
Forms Development/Programming Fee: $100/hr
Systems Testing: $85/hr
Cutting Charges: $10.00/K
(b) Special Mailings:
Special mailing pricing is based on appropriate notification
(standard of 30 day notification) and scheduling for special
mailings. Scheduling requirements include having collateral
arrive at agreed upon times in advance of deadlines.
Mailings which arise with shorter time frames and turns will
be billed at a premium based on turn around requirements.
Work Order: $30.00 per Workorder
Daily Work (Confirms):
Hand: $135.00 to create an admark tape
$10.00/K to zip + 4 data enhance/$125.00
minimum
$80.00/hr for any data manipulation
$10.00/K combo charge
Admark & Machine Insert
#10, #11, 6x9: $62/K to admark envelope and machine insert
1 piece/$125.00 min
$2.50/K for each additional insert
$38/K to admark only with $75.00 minimum
$25.00/K hand sort
9x12: $135/K to admark envelope and machine insert
1 piece/$125.00 min
$5.00/K for each additional insert
$38/K to admark only/$75.00 minimum
-32-
<PAGE> 33
$0.08 for each hand insert
Admark & Hand Insert:
#10, #11, 6x9: $0.08 for each hand insert
$25.00/K hand sort
9x12 $0.09 for each hand insert
$35.00/K hand sort
Pressure/Sensitive Labels:
$0.32 each to create, affix and hand insert 1 piece/$75.00
minimum
$0.08 for each hand insert $0.10 to affix labels only
$0.10 to create labels only
Legal Drop: $150.00 / compliant legal drop per job and processing fees
Create Mailing List: $0.40 per entry with $75.00 minimum
Presort Fee: $0.035 per piece
4. Investor Services Group shall be entitled to the following fee for the
performance of any Special Legal Services as described in Schedule B in
accordance with the Written Instructions of the Fund: $185 per hour subject to
certain project caps as may be agreed to by Investor Services Group and the
Fund. Services and charges may vary based on volume.
5. Miscellaneous Charges. The Fund shall be charged for the following products
and services as applicable:
- - Ad hoc reports
- - Ad hoc SQL time
- - COLD Storage
- - Digital Recording
- - Banking Services, including incoming and outgoing wire charges
- - Microfiche/microfilm production
- - Magnetic media tapes and freight
- - Manual Pricing
- - Pre-Printed Stock, including business forms, certificates, envelopes,
checks and stationary
6. Fee Adjustments. After the one year anniversary of the effective date of this
Agreement, Investor Services Group may adjust the fees described in the above
sections once per calendar year, upon thirty (30) days prior written notice in
an amount not to exceed the cumulative percentage increase in the Consumer Price
Index for All Urban Consumers (CPI-U) U.S. City Average, All items (unadjusted)
- - (1982-84=100), published by the U.S. Department of Labor since the last such
adjustment in the Client's monthly fees (or the Effective Date absent a prior
such adjustment).
7. Programming Costs. The following programming rates are subject to an annual
5% increase after the one year anniversary of the effective date of this
Agreement.
-33-
<PAGE> 34
(a) Dedicated Team: Programmer: $100,000 per annum
BSA: $ 85,000 per annum
Tester: $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team): $150.00 per/hr per
programmer
-34-
<PAGE> 35
SCHEDULE D
OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- - Postage - direct pass through to the Fund
- - Telephone and telecommunication costs, including all lease, maintenance and
line costs
- - Proxy solicitations, mailings and tabulations
- - Shipping, Certified and Overnight mail and insurance
- - Terminals, communication lines, printers and other equipment and any expenses
incurred in connection with such terminals and lines
- - Duplicating services
- - Distribution and Redemption Check Issuance
- - Courier services
- - Federal Reserve charges for check clearance
- - Overtime, as approved by the Fund
- - Temporary staff, as approved by the Fund
- - Travel and entertainment, as approved by the Fund
- - Record retention, retrieval and destruction costs, including, but not limited
to exit fees charged by third party record keeping vendors
- - Third party audit reviews
- - Insurance
- - Pricing services (or services used to determine Fund NAV)
- - Vendor set-up charges for Blue Sky and other services
- - Blue Sky filing or registration fees
- - EDGAR filing fees
- - Vendor pricing comparison
- - Such other expenses as are agreed to by Investor Services Group and the Fund
The Fund agrees that postage and mailing expenses will be paid on the day of
or prior to mailing as agreed with Investor Services Group. In addition, the
Fund will promptly reimburse Investor Services Group for any other unscheduled
expenses incurred by Investor Services Group whenever the Fund and Investor
Services Group mutually agree that such expenses are not otherwise properly
borne by Investor Services Group as part of its duties and obligations under the
Agreement.
-35-
<PAGE> 36
SCHEDULE E
FUND DOCUMENTS
- - Certified copy of the Articles of Incorporation of the Fund, as amended
- - Certified copy of the By-laws of the Fund, as amended,
- - Copy of the resolution of the Board of Directors authorizing the execution
and delivery of this Agreement
- - Copies of all agreements between the Fund and its service providers.
- - All notices issued by the Fund with respect to the Shares in accordance with
and pursuant to the Articles of Incorporation or By-laws of the Fund or as
required by law and shall perform such other specific duties as are set forth
in the Articles of Incorporation including the giving of notice of any
special or annual meetings of shareholders and any other notices required
thereby.
- - A listing of all jurisdictions in which each Portfolio is registered and
lawfully available for sale as of the date of this Agreement and all
information relative to the monitoring of sales and registrations of Fund
shares in such jurisdictions
- - Each Fund's most recent post-effective amendment to its Registration
Statement
- - Each Fund's most recent prospectus and statement of additional information,
if applicable, and all amendments and supplements thereto
- - Specimens of the certificates for Shares of the Fund, if applicable, in the
form approved by the Board of Directors of the Fund, with a certificate of
the Secretary of the Fund as to such approval
- - All account application forms and other documents relating to Shareholder
accounts or to any plan, program or service offered by the Fund
- - Certified list of Shareholders of the Fund with the name, address and
taxpayer identification number of each Shareholder, and the number of Shares
of the Fund held by each, certificate numbers and denominations (if any
certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and
the number of Shares redeemed by the Fund
- - All notices issued by the Fund with respect to the Shares in accordance with
and pursuant to the Articles of Incorporation or By-laws of the Fund or as
required by law and shall perform such other specific duties as are set forth
in the Articles of Incorporation including the giving of notice of any
special or annual meetings of shareholders and any other notices required
thereby.
-36-
<PAGE> 1
KELMOORE STRATEGIC TRUST Exhibit 99(m)
[Form of] Rule 12b-1 Plan of Distribution
____________, 1999
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), by
Kelmoore Strategic Trust (the "Trust") for the shares of Kelmoore Covered Option
Fund (the "Fund"). The Plan has been approved by a majority of the Trust's
Trustees, including a majority of the Trustees who are not interested persons of
the Trust (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (the "non-interested Trustees"), cast in person at a meeting called for
the purpose of voting on such Plan.
SECTION 1. ANNUAL FEE.
(a) The Fund shall pay Kelmoore Investment Company, Inc., as the Fund's
distributor (the "Distributor"), a monthly fee not to exceed 0.75% (3/4 of
1%) per annum of the average daily net assets of the Fund.
(b) In addition to the amounts described in (a) above, the Fund shall pay
(i) the Adviser for payment to dealers or others, or (ii) directly to
others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the average
daily net assets of the Fund, as a service fee pursuant to dealer or
servicing agreements.
Section 2. DISTRIBUTION EXPENSES IN EXCESS OF OR LESS THAN FEE.
All distribution expenses in excess of the fee rates provided for in this
Plan may be carried forward and resubmitted in a subsequent fiscal year
provided that (i) Distribution Expenses cannot be carried forward for more
than three years following initial submission; and (ii) the non-interested
Trustees determine at the time of initial submission that the Distribution
Expenses are appropriate to be reimbursed. Distribution expenses will be
paid on a first-in, first-out basis.
Section 3. EXPENSES COVERED BY THE PLAN.
The fees payable under Section 1 of the Plan may be used to compensate the
Distributor for any expenses primarily intended to result in the sale of
the Fund's shares, including, but not limited to: (a) payments the
Distributor makes to other institutions and industry professionals,
broker-dealers, including the investment adviser, Distributor and their
affiliates or subsidiaries (collectively referred to as "Participating
Organizations"), pursuant to an agreement in connection with providing
administrative support services to the holders of the Fund's shares; (b)
payments to financial institutions and industry professionals (such as
insurance companies, investment counselors, accountants, and estate
planning firms (but not including banks and savings and loan associations),
broker-dealers, the Distributor and the Distributor's affiliates and
subsidiaries in consideration for distribution services provided and
expenses assumed in connection with distribution assistance, including but
not limited to, printing and distributing prospectuses to persons other
than current shareholders of the Fund, printing and distributing
advertising and sales literature and reports to shareholders used in
connection with the sale of the Fund's shares, and personnel and
communication equipment used in servicing shareholder
1
<PAGE> 2
accounts and prospective shareholder inquiries; or (c) payments made to the
Distributor pursuant to the Distribution Agreement between the Trust and
the Distributor. Such expenses shall be deemed incurred whether paid
directly by the Adviser as Distributor or by a third party to the extent
reimbursed therefor by the Adviser.
SECTION 4. WRITTEN REPORTS.
The Adviser shall furnish to the Trustees, for their review, on a quarterly
basis, a written report of the monies paid under the Plan or any related
agreement and the purposes therefore, and shall furnish the Trustees with
such other information as the Trustees may reasonably request in connection
with payments made under the Plan or any related agreement in order to
enable the Trustees to make an informed determination of whether the Plan
should be continued.
SECTION 5. TERMINATION.
The Plan may be terminated at any time, without penalty, by a vote of a
majority of the non-interested Trustees or by vote of a majority of the
outstanding voting securities of the Fund, and any distribution agreement
under the Plan may be likewise terminated on not more than sixty (60) days'
written notice. Once terminated, no further payments shall be made under
the Plan notwithstanding the existence of any unreimbursed current or
carried forward distribution expenses.
SECTION 6. AMENDMENTS.
The Plan may not be amended to increase materially the amount to be spent
for distribution and servicing of Fund shares without approval by a
majority of the outstanding voting securities of the Fund. All material
amendments to the Plan and any related distribution agreement shall be
approved by the Trustees and the non-interested Trustees cast in person at
a meeting called for the purpose of voting on any such amendment.
SECTION 7. SELECTION OF INDEPENDENT TRUSTEES.
So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested Trustees shall be committed to the discretion of
such non-interested Trustees.
SECTION 8. EFFECTIVE DATE OF PLAN.
The Plan shall take effect as of the date hereof and, unless sooner
terminated, shall continue in effect for a period of more than one year
from the date of its execution only so long as such continuance is
specifically approved at least annually by the Trustees, including the
non-interested Trustees, cast in person at a meeting called for the purpose
of voting on such continuance.
SECTION 9. PRESERVATION OF MATERIALS.
The Trust will preserve copies of the Plan, any agreements relating to the
Plan and any report made pursuant to Section 4 above, for a period of not
less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
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SECTION 10. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the
1940 Act, subject to any exemption that may be granted to the Trust under
the 1940 Act by the Securities and Exchange Commission.
