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As filed with the Securities and Exchange Commission on October 13, 1999
File No. 333-_____
File No. 811-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. _ [ ]
Post-Effective Amendment No. _ [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. _ [ ]
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
(Exact Name of Registrant as Specified on Charter)
2471 E. Bayshore Road, Suite 501, Palo Alto, California 94303
(Address of Principal Executive Offices including Zip Code)
(800) 486-3717
(Registrant's Telephone Number, including Area Code)
Matthew Kelmon, President
Kelmoore Strategy Variable Trust
2471 E. Bayshore Road, Suite 501
Palo Alto, California 94303
(Name and Address of Agent for Service)
Copies to:
Kimberly J. Smith, Esq. Ms. Sandra L. Adams
Sutherland Asbill & Brennan LLP First Data Investor Services Group
1275 Pennsylvania Avenue, N.W. 3200 Horizon Drive
Washington, DC 20004 King of Prussia, PA 19406-0903
Approximate Date of Proposed Public Offering: As soon as practicable after the
Effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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[OUTSIDE FRONT COVER]
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated October__, 1999
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
The Kelmoore Strategy(TM) Variable Fund
PROSPECTUS
____________, 1999
This prospectus contains important information about The Kelmoore Strategy(TM)
Variable Fund which is available only through the purchase of a variable annuity
contract or variable life insurance policy through a separate account of an
insurance company. This prospectus should be accompanied by the prospectus for
such contract. These prospectuses contain important information. Please read
them before investing and keep them for future reference.
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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TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK/RETURN SUMMARY
What is the Fund? 4
What is the Fund's Primary Goal? 4
What is the Fund's Main Strategy? 4
What are the Fund's Main Risks? 5
Who may want to invest in the Fund? 6
Bar Chart and Performance Table 6
MAIN STRATEGY 6
OTHER STRATEGIES 8
MAIN RISKS 9
MANAGEMENT OF THE FUND 10
PURCHASE AND REDEMPTION OF SHARES 11
DIVIDENDS, DISTRIBUTIONS AND TAXES 12
SPECIAL INFORMATION ABOUT THE FUND 13
FINANCIAL HIGHLIGHTS 13
ADDITIONAL INFORMATION
Shareholder Reports Back Cover
Statement of Additional Information Back Cover
</TABLE>
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THE KELMOORE STRATEGY(TM) VARIABLE FUND
RISK/RETURN SUMMARY
WHAT IS THE FUND?
The Kelmoore Strategy(TM) Variable Fund (the "Fund") is a mutual fund that is
available only through the purchase of a variable annuity contract or variable
life insurance policy issued through a separate account of an insurance company.
Before you invest, please read this prospectus along with the prospectus
describing the variable annuity contract or variable life insurance policy
("Variable Contract"). Keep both prospectuses for future reference.
Only insurance company separate accounts may purchase shares of the Fund. You
may not invest directly in the Fund. You should read the Variable Contract
prospectus for information about:
- Purchasing the Variable Contract
- The terms of the Variable Contract
- Expenses related to purchasing the Variable Contract
WHAT IS THE FUND'S PRIMARY GOAL?
The Fund's primary goal is to maximize realized gains from writing covered
options on common stocks. 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 continually sell or "write" 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, Inc. (the "Adviser") writes as many covered call
options on the stocks the Fund owns as it can in order to maximize gains. 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.
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The Fund will typically hold no more than forty common stocks. 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 relatively stable prices and dividends
The stocks selected will also usually fall into one of the following five
industry sectors:
<TABLE>
<CAPTION>
SECTOR EXAMPLES
- ----------------------------- -----------------------------------------
<S> <C>
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
</TABLE>
The specific companies mentioned above are examples only and may or may not be
included in the Fund's portfolio. The Fund's strategy may change without
shareholder approval.
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 shares
declines below the purchase price, you will lose money. The performance of the
Fund may also vary substantially from year to year. The Fund by itself does not
constitute a balanced investment program. 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 may fall due to changing
economic, political or market conditions
- selection risk, or the risk that the stocks or sectors owned
by the Fund will underperform the stock market as a whole or
certain sectors of the stock market
- risk of reduction in the amount of dividends a stock pays
Risks of writing covered call options:
- risk of limiting gains on stocks in a rising market
- risk of unanticipated exercise of the option
- lack of liquid options market
- decreases in option premiums
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Other Risks:
- lack of liquidity in connection with purchases and sales of
portfolio securities
- relatively higher cost of options trades
- forced liquidation of securities underlying the options
- adverse effects of year 2000 on the Fund
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
WHO MAY WANT TO INVEST IN THE FUND?
The Fund may be appropriate for you if you:
- are seeking to maximize short-term capital gains and are
willing to assume more risk to increase the level of those
gains
- 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
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.
BAR CHART AND PERFORMANCE TABLE
Performance demonstrates how a fund's returns have varied over time. The Fund is
recently organized and has no performance history. Performance information will
be available after the Fund completes a full calendar year of operations. As
with all mutual funds, past performance does not indicate future results.
The investment objective, policies and management of the Fund are the same as
The Kelmoore Strategy(TM) Covered Option Fund, a publicly offered "retail"
mutual fund. Notwithstanding the general similarities, the retail fund and this
Fund are separate mutual funds that will have different investment performance,
and the Fund makes no representation that its performance will be comparable to
any other mutual fund.
MAIN STRATEGY
To generate option premiums, the Fund purchases the common stocks of a limited
number of large companies and simultaneously writes covered call options on
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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.
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 segregated, the shares of stock on which the option is based. A segregated
account is established with the Fund's custodian to hold separately either the
shares of stock or cash equal to the value of the Fund's obligation under the
option. 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. Generally, if the exercise price plus
the option premium are 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 and premium are 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, or
b) the stock is sold because it no longer meets the Adviser's investment
criteria, a corporate event such as a merger or reorganization has occurred, or
the proceeds are used to fund redemptions.
Other Features
The Fund generally 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.
To decrease the risks of volatile or reduced premiums, the Adviser seeks to
select underlying common stocks of larger companies which have high trading
volumes and relatively stable prices and dividends. To reduce stock selection
risk, the companies the Adviser selects generally are considered to be industry
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leaders and to have strong financial fundamentals. In addition, to reduce
overall market risk, the Adviser normally invests across at least five different
industry sectors.
To reduce transaction costs and to avoid realizing capital gains or losses on
portfolio stocks, the Adviser seeks, when practical, to hold portfolio stocks
and to enter into closing purchase transactions before call options the Fund
writes are exercised. It may be impractical in certain circumstances to effect
such closing purchase transactions in a timely or advantageous manner, for
example, if the option is exercised unexpectedly or if the market for the option
is illiquid.
OTHER STRATEGIES
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 generally 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. Put options
written by the Fund are listed for trading on one or more domestic securities
exchanges and are issued by the OCC.
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.
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.
TEMPORARY DEFENSIVE POSITION
In attempting to respond to adverse market, economic, political or other
conditions, the Fund may invest up to 100% of its assets in cash or cash
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equivalents. When the Fund takes a temporary defensive position it may not
achieve its stated investment objective.
MAIN RISKS
INVESTING IN EQUITY SECURITIES
Investing in equity 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 or sectors
selected by the Fund will underperform the stock market or certain sectors of
the market or that the amount of any dividends paid on the securities will be
reduced.
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.
There is no assurance that a liquid market will be available at all times for
the Fund to write call options or to enter into closing purchase transactions.
In addition, the premiums the Fund receives for writing call options may
decrease as a result of a number of factors, including a reduction in interest
rates generally, a decline in stock market volumes or a decrease in the price
volatility of the underlying securities.
LACK OF LIQUIDITY
The Fund's investment strategy may result in a lack of liquidity in connection
with purchases and sales of portfolio securities. Because the Adviser will seek
generally to hold the underlying stocks in the Fund's portfolio, the Fund may be
less likely to sell the existing stocks in its portfolio to take advantage of
new investment opportunities, and the cash available to the Fund to purchase new
stocks may consist primarily of proceeds received from the sale of new Fund
shares.
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
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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.
YEAR 2000
The transition to the year 2000 is a technological challenge for any company
that relies on computer systems. The Fund's operations depend heavily on
computer technology, including the technology and systems used by its Adviser
and other service providers. The failure of these computer systems to properly
process data containing dates in the year 2000 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 deal with the year
2000, there is no assurance that these steps will be sufficient. In addition,
there is no assurance that the companies whose securities are held by the Fund
or the securities markets and their participants will be ready for the year
2000. If these systems are unable to process and calculate date-related
information in the year 2000, there may be a negative effect on the Fund's
operations.
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Fund's shareholders elect a Board of Trustees. The Trustees oversee the
Fund's activities.
INVESTMENT ADVISER
Kelmoore Investment Company, Inc. (the "Adviser") is the investment adviser for
the Fund. The Adviser manages the Fund's investments and supervises the Fund's
daily business affairs. 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 manages The Kelmoore Strategy(TM) Covered Option Fund, an open-end
mutual fund with assets in excess of $___ million. The Adviser's principal
address is 2471 East Bayshore Road, Suite 501, Palo Alto, California 94303.
ADVISORY FEES
Under an investment advisory agreement between the Fund and the Adviser, the
Fund has agreed to pay the Adviser a monthly fee at the annual rate of 1.50% of
the Fund's average daily net assets. The Adviser has voluntarily undertaken to
waive all or a portion of its fee and to reimburse certain expenses of the Fund
so that the total operating expenses of the Fund for the initial fiscal year
will not exceed _____%. 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 then current expense limitation.
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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(TM) 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., a bond dealer, from 1993 to 1994.
DISTRIBUTION PLAN
The Fund has adopted a Distribution (12b-1) Plan that allows the Fund to pay
distribution and/or service fees for the sale and distribution of its shares and
for services provided to shareholders. The distribution plan permits the Fund to
pay the Adviser, as the Fund's distributor, an annual fee not to exceed 0.25% of
the average daily net assets of the Fund. The Adviser may use this fee to
compensate sponsoring insurance companies for providing account services to
Variable Contract holders. These services may include establishing and
maintaining Variable Contract owners' accounts, answering inquiries, and
providing other personal services to Variable Contract owners. Payments may also
be made to financial institutions, industry professionals and broker-dealers for
providing distribution assistance relating to the sale of the Fund's shares.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
PURCHASE AND REDEMPTION OF SHARES
The Fund continuously offers its shares to insurance companies for the funding
of Variable Contracts. Shares are offered at the net asset value ("NAV") per
share next determined after the Fund or its designated agent receives and
accepts a proper purchase request. Shares of the Fund are not sold directly to
the public. The insurance company submits purchase and redemption orders to the
Fund based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the insurance company by such Variable Contract owners. The insurance companies
are designated agents of the Fund. The Fund, the Fund's transfer agent and the
Fund's distributor reserve the right to reject any purchase order from any part
for shares of the Fund.
The Fund will ordinarily make payment for redeemed shares within seven (7)
business days after the Fund or its designated agent receives and accepts a
proper redemption order. A proper redemption order will contain all the
necessary information and signatures required to process the redemption order.
The redemption price will be the NAV per share next determined after the Fund
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or its designated agent receives and accepts the shareholder's request in proper
form.
The Fund may suspend the right of redemption or postpone the date of payment
during any period when trading on the New York Stock Exchange ("NYSE") is
restricted, or the NYSE is closed for other than weekends and holidays; when an
emergency makes it not reasonably practicable for the Fund to dispose of its
assets or calculate its net asset value; or as permitted by the Securities and
Exchange Commission.
Please read the accompanying prospectus for the Variable Contract for a complete
description of the insurance product through which the Fund is offered including
associated fees and any restrictions on purchases or withdrawals.
HOW IS SHARE PRICE CALCULATED?
The NAV for the Fund is calculated each day the Fund is open for business as of
the close of regular trading on the NYSE, normally 4:00 p.m., Eastern time. The
NAV per share is calculated by taking the value of the Fund's investments and
other assets, subtracting the liabilities, and then dividing by the number of
the Fund's outstanding shares. The Fund's investments are valued based on market
value or, if market value is not readily available, based on fair value as
determined in good faith by or at the direction of the Fund's board of trustees.
If the NYSE closes early, the Fund will normally consider the closing price of a
security to be its price at 4:00 p.m. Eastern time.
The NYSE is typically closed and shares of the Fund will not be priced on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute substantially all of its income and capital gains
to its shareholders. Distributions of any net realized long-term capital gains
will be made at least annually. The Fund will declare and pay monthly
distributions from net investment income and any net realized short-term capital
gain. Net investment income consists of dividends and interest accrued on
portfolio investments less accrued expenses. All dividends and capital gains
distributions will be automatically reinvested at net asset value.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, in order to be relieved of federal
income tax on that part of its net investment income and realized capital gains
it distributes to shareholders. To qualify, the Fund must meet certain
relatively complex income and diversification tests. The loss of such status
would result in the Fund being subject to federal income tax on its taxable
income and gains.
Federal tax regulations require that mutual funds offered through insurance
company separate accounts must meet certain diversification requirements to
preserve the tax-deferral benefits provided by the variable contracts. These
requirements must be met at the end of each quarter of the year, or within 30
days thereafter. The Adviser intends to diversify the Fund's investments in
accordance with those requirements. The prospectus for the Variable Contracts
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describe the federal income tax treatment of distributions from such a contract.
Dividends paid by the Fund from its ordinary income and distributions of net
short-term capital gains are includable in the insurance company's gross income.
The tax treatment of such dividends and distributions depends upon the insurance
company's tax status.
You should consult with your own tax adviser regarding the tax consequences of
your investment in the separate account, including the application of state and
local taxes which may differ from the federal income tax consequences described.
SPECIAL INFORMATION ABOUT THE FUND
The Fund may offer shares to both variable annuity and variable life insurance
policy separate accounts. The Trustees do not anticipate that this arrangement
will disadvantage any Variable Contract owners. The Fund's Board of Trustees
monitors events for the existence of any material irreconcilable conflict
between or among Variable Contract owners. If a material irreconcilable conflict
arises, one or more separate accounts may withdraw their investment in the Fund.
This could possibly force the Fund to sell portfolio securities at unfavorable
prices. The insurance companies will bear the expenses of establishing separate
portfolios for variable annuity and variable life insurance separate accounts if
such action becomes necessary; however, ongoing expenses that are ultimately
borne by Variable Contract owners will likely increase due to the loss of the
economies of scale benefits that can be provided to mutual funds with
substantial assets.
FINANCIAL HIGHLIGHTS
Financial highlights will be included in the prospectus after the Fund has a
performance history. This information will reflect financial results for a
single Fund share. The total returns in the table will represent the rates of
return that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions.
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[OUTSIDE BACK COVER]
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 SAI, the annual or semi-annual report, or if you
have questions about investing in the Fund, write to or call us at:
Kelmoore Investment Company, Inc.
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
800 ________
You may visit the SEC's website (http://www.sec.gov) to view reports and other
information about the Fund. 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.
In order to assist you in obtaining this information, the following is the
Fund's registration number under the Investment Company Act of 1940: 811-____.
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
2471 E. Bayshore Road
Suite 501
Palo Alto, CA 94303
(___) ________________
(___) ________________
INVESTMENT ADVISER AND DISTRIBUTOR
Kelmoore Investment Company
2471 E. Bayshore Road
Suite 501
Palo Alto, CA 94303
TRANSFER AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-_________
(800) _____________
CUSTODIAN
______________________
______________________
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The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
Subject to Completion
Preliminary Statement of Additional Information dated October __, 1999
STATEMENT OF ADDITIONAL INFORMATION
FOR
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
The Kelmoore Strategy(TM) Variable Fund
______________, 1999
Shares of The Kelmoore Strategy(TM) Variable Fund are available only through the
purchase of a variable annuity contract or variable life insurance policy issued
through a separate account of an insurance company ("Variable Contract"). The
investment adviser of the Fund is Kelmoore Investment Company, Inc. (the
"Adviser"). The Trust's distributor is Kelmoore Investment Company, Inc. (the
"Distributor").
The Prospectus for the Fund is dated _____, 1999. The Prospectus provides the
basic information an investor should know about the Fund before investing and
may be obtained without charge by calling the Fund at (800) ____________. This
Statement of Additional Information ("SAI") is not a prospectus and is intended
to provide additional information regarding the activities and operations of the
Fund and should be read in conjunction with the Fund's Prospectus. This SAI is
not an offer of shares of the Fund for which an investor has not received the
Prospectus.
15
<PAGE> 16
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History ................................ 17
Investment Strategies and Related Risks ........................ 17
Investment Restrictions ........................................ 20
Management of the Trust ........................................ 22
Other Services ................................................. 25
Purchase, Redemption and Pricing of Shares ..................... 26
Distributions and Taxes ........................................ 27
Portfolio Transactions and Brokerage Commissions ............... 29
Shares of Beneficial Interest .................................. 30
Performance Information ........................................ 31
Financial Statements ........................................ 33
</TABLE>
16
<PAGE> 17
GENERAL INFORMATION AND HISTORY
The Kelmoore Strategy(TM) Variable Fund (the "Fund") is a diversified series of
The Kelmoore Strategy(TM) Variable Trust (the "Trust"), a Delaware business
trust organized on October 4, 1999 as an open-end management investment company.
The Fund has employed Kelmoore Investment Company, Inc. (the "Adviser") to serve
as its investment adviser. Currently, the Trust has one series authorized and
outstanding. The Trust was established for the purpose of providing a vehicle
for the investment of assets of separate accounts of insurance companies for
Variable Contracts. Shares of the Fund are offered solely to these separate
accounts.
INVESTMENT STRATEGIES AND RELATED RISKS
The Prospectus discusses the investment objective of the Fund and the principal
strategies to be employed to achieve that objective. This section contains
supplemental information concerning types of securities and other instruments in
which the Fund may invest, additional strategies that the Fund may utilize and
certain risks associated with such investments and strategies.
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 both general market risk and specific corporate risks.
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 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.
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<PAGE> 18
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.
Reasons for the absence of a liquid secondary market may 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.
Higher trading activity, order flow or other unforeseen events could, at times,
render certain of the facilities of the OCC or various exchanges inadequate.
Such events have, in the past, resulted in the use by an exchange of special
procedures, such as trading rotations, restrictions on certain types of orders,
trading halts or suspensions with respect to one or more options.
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 four months from the date the option is written, it is
not possible for the Fund to 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
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<PAGE> 19
governing the maximum number of puts and calls in each class (whether or not
covered or secured) that 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
restrict 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 are 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 in an amount at least equal to
the repurchase price, including accrued interest.
Borrowing. The Fund may borrow money in amounts up to 10% of the value of its
total assets at the time of such borrowings for temporary purposes, and is
authorized to borrow money in excess of the 10% limit as provided by the
Investment Company Act of 1940, as amended, (the "1940 Act") (not to exceed 30%
of the Fund's total assets) in order to meet redemption requests. This borrowing
may be unsecured. The Fund will not make any additional purchases of securities
at any time its borrowings exceed 10% of its assets. The 1940 Act requires the
Fund to maintain continuous asset coverage of 300% of the amount it has
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio holdings within three (3) days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing may exaggerate the effect
on net asset value of any increase or decrease in the market value of the Fund.
Money borrowed will be subject to interest costs which may or may not be
recovered by an appreciation of the securities purchased. The Fund may also be
required to maintain average balances in connection with borrowing or to pay a
commitment or other fees to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
The Fund may, in connection with permissible borrowings, transfer securities
owned by the Fund as collateral.
Investment Company Securities. The Fund may invest in securities issued by other
investment companies but intends to invest only in money market mutual funds as
a temporary investment. As a shareholder of another investment company, the Fund
would bear its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the expenses the
Fund bears directly. The Fund intends to limit its investments in securities
issued by other investment companies so that immediately after a purchase of
such securities is made: (i) not more than 5% of the value of the Fund's total
assets will be invested in the securities of any one investment company; (ii)
not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies
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<PAGE> 20
as a group; and (iii) not more than 3% of the outstanding voting stock of any
one investment company will be owned by the Fund.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities. Illiquid securities generally include securities that cannot readily
be sold within seven days in the ordinary course of business at approximately
the price at which the Fund has valued the securities. Such securities include,
but are not limited to, restricted securities (securities the disposition of
which is restricted under the federal securities laws), securities that may be
resold pursuant to Rule 144A under the Securities Act of 1933, as amended, but
that are deemed to be illiquid, and repurchase agreements with maturities in
excess of seven days.
Temporary Investments. To maintain cash for redemptions, distributions and
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.
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
that 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.
Other Investments. Subject to prior disclosure to shareholders, the Board of
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 the 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
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<PAGE> 21
in the securities of any particular industry (excluding U.S. Government
securities), but if it is deemed appropriate for the achievement of the
Fund's investment objective, up to 25% of the Fund's total assets may be
invested in any one industry.
1. The Fund may not issue senior securities, mortgage or pledge assets, or
borrow money, except (i) the Fund may borrow money from banks in amounts up
to 30% of its total assets (including the amount borrowed); (ii) the Fund
may obtain such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities; and (iii) the Fund may engage
in options transactions as permitted by the 1940 Act and enter into
collateral arrangements relating thereto.
2. The Fund may not make loans to other persons, except (i) through the
lending of the Fund's portfolio securities provided that any such loans not
exceed 30% of the Fund's total assets (taken at market value); or (ii)
through the use of repurchase agreements or the purchase of short-term
obligations.
3. The Fund may not purchase or sell commodities or real estate (including
limited partnership interests but excluding securities secured by real
estate or interests therein) in the ordinary course of business, (except
the Fund may engage in options transactions as permitted by the 1940 Act
and enter into collateral arrangements relating thereto, and the Fund may
hold and sell, for the Fund's portfolio, real estate acquired as a result
of the Fund's ownership of securities).
5. The Fund may not underwrite securities of other issuers except to the
extent the Fund may be considered to be an underwriter under the Securities
Act of 1933 in connection with the purchase and sale of portfolio
securities.
6. 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, other
than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Non-Fundamental Investment Restrictions. The following restrictions are imposed
by management of the Fund and may be changed by the Board of Trustees without
shareholder approval at any time.
1. The Fund may not invest in a company for the purpose of exercising control
or management of the company.
2. 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
purchases and sales of securities, and provided that margin payments in
connection with options will not constitute purchasing securities on
margin.
3. 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.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
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MANAGEMENT OF THE TRUST
The Board of Trustees is responsible for overseeing and monitoring the
management of the Fund. The Board of Trustees meet periodically throughout the
year to oversee the Fund's operations, review contractual arrangements with
companies that provide services to the Fund and review the Fund's performance.
The Board of Trustees elects the officers of the Trust to supervise actively its
day-to-day operations.
The Trustees and officers of the Trust and their ages, addresses and principal
occupations during the past five years are set forth below. Their titles may
have varied during the five year period.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION HELD WITH THE PRINCIPAL OCCUPATION DURING
TRUST THE PAST 5 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
President, Chief
Executive Officer and
Trustee
- --------------------------------------------------------------------------------
Chairman of the Board
and Trustee
- --------------------------------------------------------------------------------
Trustee
- --------------------------------------------------------------------------------
Trustee
- --------------------------------------------------------------------------------
Trustee
- --------------------------------------------------------------------------------
Trustee
- --------------------------------------------------------------------------------
Trustee
- --------------------------------------------------------------------------------
</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). __________ is considered
an "interested person" of the Fund due to his affiliation with the Adviser.
_______________ are considered "interested persons" of the Fund
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because they own shares of the Adviser.
Members of the Audit Committee of the Board of Trustees are _____________ and
_____________. The Audit Committee makes recommendations to the Trustees
regarding the selection of auditors and confers with the auditors regarding the
scope and results of the audit.
Members of the Nominating Committee of the Board of Trustees are _________ and
_________________. The Nominating Committee is responsible for the selection and
nomination of disinterested Trustees.
Members of the Valuation Committee of the Board of Trustees are ____________ and
________________. The Valuation Committee 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 or
Distributor, as defined in the 1940 Act, receives an annual retainer of $_____
per year (payable in equal installments at the end of each quarter), and $_____
for each meeting of the Board of Trustees attended plus reimbursement for
certain travel and other out-of-pocket expenses incurred with attending such
meetings.
The following table estimates the compensation expected to be paid by the Trust
during the Fund's fiscal year ending ___________, 2000 to the persons who are to
serve as Trustees during such period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ESTIMATED TOTAL
NAME OF PERSON COMPENSATION FROM THE FUND COMPENSATION FROM THE TRUST AND THE FUND
COMPLEX PAID TO TRUSTEES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
TO BE PROVIDED BY AMENDMENT
Note: 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. (the
"Adviser") as its investment adviser. The Adviser, an SEC registered investment
adviser, was organized in 19__ and has been managing The Kelmoore Strategy
Covered Option Fund, an open-end mutual fund, since May of 1999. As of
_____________, 1999, the Adviser managed approximately $____ million of assets,
consisting of discretionary brokerage accounts and the assets of The Kelmoore
Strategy Covered Option Fund. 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. Mr. Kelmon is the father of Matthew Kelmon,
the President and primary portfolio manager for the Fund.
The Adviser manages the Fund's investments consistent with its investment
objectives, policies and limitations. The Adviser also 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. The Adviser also supervises the provision of services by third parties
such as the Fund's transfer agent and custodian. Under the Investment
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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 1.50% of
the value of the Fund's average daily net assets. For the Fund's initial fiscal
year ending ______________, 2000, the Adviser has voluntarily agreed to waive
its fees and reimburse expenses so that the Fund's annual operating expenses
will not exceed ____%. 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. Additionally, the Adviser has agreed to reimburse all expenses
incurred in connection with the organization of the Fund, subject to recoupment
described above. As of ____________, 1999, the Adviser has reimbursed $_________
in Fund expenses that it can recoup until ____________, 2002.
As part of the Fund's organization, the Fund has issued to the Adviser 10,000
shares of beneficial interest at $10.00 per share in a private placement.
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.
Code of Ethics. To mitigate the possibility that the Fund will be adversely
affected by personal trading of employees, the Fund and the Adviser have adopted
Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes contain policies
restricting securities trading in personal trading accounts of Trustees and
others who normally come into possession of information on portfolio
transactions.
Expenses. In addition to fees of the Adviser, the Fund is responsible for
payment of the following, including, but not limited to: fees and expenses of
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<PAGE> 25
disinterested Trustees (including any independent counsel to the disinterested
Trustees); fees and expenses for independent audits and auditors; legal fees;
interest expenses; fees and commissions; taxes; insurance premiums; charges of
administrators, custodians and transfer agents or other service providers;
bookkeeping expenses; 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 "The Kelmoore Strategy(TM)
Variable Trust" and the word "Kelmoore" in the name of any Fund. If the Adviser
ceases to be the investment adviser of the Fund, the Adviser may require the
Trust and the Fund to delete the word "Kelmoore" from their names and cease to
otherwise use the word "Kelmoore."
OTHER SERVICES
Distributor. Kelmoore Investment Company, Inc., 2471 East Bayshore Road, Suite
501, Palo Alto, CA 94303 (the "Distributor") serves as the distributor
(principal underwriter) 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 parties to the Distribution Agreement or interested persons
of parties to the Distribution Agreement and who have no direct or indirect
financial interest in the Distribution Agreement or any related distribution
plan. The Distribution Agreement may be terminated at any time, without the
payment of a penalty, on sixty days' written notice by the Distributor, by the
non-interested Trustees 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 automatically
terminates 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.
Administrator. The Fund has entered into a Services Agreement (the "Services
Agreement") with First Data Investor Services Group, Inc. ("Investor Services
Group"), 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406. Investor
Services Group is a wholly owned subsidiary of First Data Corporation. The
Services Agreement provides that Investor Services Group shall provide certain
accounting, transfer agency and shareholder services to the Fund. The Trust has
agreed to pay Investor Services Group an amount equal to $_____ per annum plus
.__% of aggregate assets of the Fund between $_____ and $____ million, .__% of
aggregate assets between $__ and $___ million and .__% of aggregate assets in
excess of $___ million. The Fund has entered into an Administration Agreement
with the Adviser, which provides that the Adviser shall provide all other
administrative services to the Fund other than those relating to the investment
portfolio of the Fund, the distribution of the Fund and the maintenance of the
Fund's financial records and those performed by Investor Services Group under
the Services Agreement. The Adviser has entered into a Sub-Administration
Agreement with Investor Services Group pursuant to which Investor Services Group
performs certain of those services on behalf of the Adviser.
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<PAGE> 26
Custodian. The Bank of New York, 48 Wall Street, New York, New York 10286,
serves as custodian of the Fund's assets pursuant to a custodian agreement.
Independent Accountants. _____________________________, serves as independent
accountants of the Trust. ________________ performs annual audits of the Fund
and is periodically called upon to provide accounting and tax advice.
Legal Counsel. Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W.,
Washington, DC 20004-2415, serves as legal counsel to the Trust.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Fund is an investment vehicle for the separate accounts of Variable
Contracts offered by insurance companies. Individual Variable Contract holders
are not the shareholders of the Fund. Rather, a participating insurance company
and its separate accounts are the shareholders. The offering is without a sales
charge and is made at the Fund's net asset value per share. Shares of the Fund
are not offered to the general public. The Fund reserves the right, in its sole
discretion, to refuse purchase orders. The procedures for redemption of Fund
shares under ordinary circumstances is set forth in the Prospectus and in the
separate prospectus relating to the Variable Contracts which accompanies the
Prospectus.
The Fund's shares are purchased and redeemed at the net asset value per share.
The net asset value per share of the Fund is calculated on each day, Monday
through Friday, except days on which the New York Stock Exchange is closed. The
NYSE is currently scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when a holiday falls on a Saturday or
Sunday, respectively.
The Fund's net asset value per share is determined as of the close of regular
trading on the New York Stock Exchange, normally 4:00 p.m., Eastern Time, by
taking the value of all assets of the Fund, subtracting liabilities, dividing by
the number of shares outstanding and adjusting to the nearest cent.
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 or at the direction of the Board of 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 or on a foreign
exchange at the most recent closing price. 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 or, if no sale occurs, at the mean between the last bid and asked price.
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
26
<PAGE> 27
amortized cost. Valuations may be obtained from independent pricing services
approved by the Trustees.
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.
DISTRIBUTIONS AND TAXES
Distributions. All dividends and capital gains distributions paid by the Fund
will be automatically reinvested, at net asset value, in additional shares of
the Fund unless otherwise indicated. The Fund currently intends to declare and
pay dividends, if any, on a monthly basis. There is no fixed dividend rate and
there can be no assurance that the Fund will pay any dividends or realize any
capital gains.
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 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.
Taxes. It is the policy of the Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. As a result,
the Fund will not be subject to U.S. Federal income tax on any net income or
capital gains that it distributes to its shareholders, that is, the insurance
companies separate accounts. To meet these requirements and to meet other
requirements necessary for it to be relieved of federal income taxes on income
and gain it distributes to the separate investment accounts that invest in the
Fund, the Fund must, among other things:
1. derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies;
2. diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets consists of cash,
cash items, U.S. government securities, securities of other regulated
investment companies, and other securities limited generally with respect
to any one issuer to a value not greater than 5% of the total assets of the
Fund and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any issuer (other than U.S. government securities or
securities of other regulated investment companies); and
3. distribute in or with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term capital
losses for such year.
27
<PAGE> 28
The Fund intends to declare capital gain and ordinary income dividends by the
end of each calendar year and to distribute such dividends no later than January
31 of the following year to the extent necessary to avoid the 4% excise tax on
undistributed regulated investment company income enacted by the Tax Reform Act
of 1986. The 4% excise tax applies to the excess of the required distribution
for the calendar year over the amount treated as distributed for that year. The
required distribution equals 98% of the Fund's ordinary income for the calendar
year plus 98% of its capital gain net income for the one year period ending
October 31 (or December 31, if the Fund so elects) and any shortfall of income
or gains from the prior year not previously so distributed.
The Treasury Department has issued Regulations under Internal Revenue Code
Section 817(h) that pertain to diversification requirements for variable annuity
and variable life insurance contracts. The Fund intends to comply with the
diversification requirements. These requirements are in addition to the
diversification requirements imposed on the Fund by Subchapter M and the 1940
Act. The 817(h) requirements place certain limitations on the assets of each
separate account that may be invested in securities of a single issue. A
variable contract based upon a separate account will not receive favorable tax
treatment as an annuity or life insurance contract unless the separate account
and underlying regulated investment company investments are adequately
diversified. In determining whether a separate account is adequately
diversified, in certain circumstances the separate account can look through to
the assets of the regulated investment company in which it has invested.
The Regulations require the Fund's assets to be diversified so that no single
investment represents more than 55% of the value of the Fund's total assets, no
two investments represent more than 70% of the Fund's total assets, no three
investments represent more than 80% of the Fund's total assets and no four
investments represent more than 90% of the Fund's total assets. A "safe harbor"
is available to a separate account if it meets the diversification tests
applicable to registered investment companies and not more than 55% of its
assets constitute cash, cash items, government securities and securities of
other registered investment companies.
The applicable Regulations treat all securities of the same issuer as a single
investment. In the case of "government securities," each government agency or
instrumentality shall be treated as a separate issuer for the purpose of the
diversification test (although not for the purpose of the "safe harbor" test
described above). All securities of the same issuer, all interests in the same
real property project, and all interests in the same commodity are treated as a
single investment. The Trust intends to comply with these diversification
requirements. Failure of the Fund to satisfy the Section 817(h) requirements
would result in taxation of the applicable separate accounts, the insurance
companies variable life policies and variable annuity contracts, and tax
consequences to the holders thereof.
The foregoing is only a brief summary of important tax considerations that
generally affect the Fund. 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.
For a discussion of the impact on Variable Contract owners of income taxes an
insurer may owe as a result of (i) its ownership of shares of the Fund, (ii) its
receipt of dividends and distributions thereon, and (iii) its gains from
28
<PAGE> 29
the purchase and sale thereof, reference should be made to the Prospectus for
the Variable Contract accompanying this Prospectus.
Backup Withholding. The Fund may be required to withhold U.S. Federal income tax
at the rate of 31% ("backup withholding") of all distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. Federal income tax liability.
Tax Implications of 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
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 Board of 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)
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
29
<PAGE> 30
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.
SHARES OF BENEFICIAL INTEREST
The Trust is a diversified, open-end investment management company. The
capitalization of the Trust consists solely of an unlimited number of shares of
beneficial interest with a par value of $0.001 per share. The Board of Trustees
have authorized one series with one class of shares issued currently. The Board
of Trustees have authority, without necessity of a shareholder vote, to create
any number of new funds or classes of shares at any time in the future. The
establishment and offering of additional funds will not alter the rights of the
Trust's shareholders.
As a beneficial owner, 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.
When issued, shares are fully paid, non-assessable and freely transferable.
Shares do not have preemptive rights or subscription rights. The Fund's shares
have equal voting rights. In any liquidation of the Fund, each shareholder is
entitled to receive his pro rata share of the net assets of the Fund. The
interests of shareholders in the Fund will not be evidenced by a certificate or
certificates representing shares of the Fund.
Unless otherwise required by the 1940 Act, the Trust is not required and does
not intend to hold regular annual shareholder meetings. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of auditors. The Trust will be required to hold a meeting to elect
Trustees to fill any existing vacancies on the Board if, at any time, fewer than
a majority of the Trustees have been elected by the shareholders of the Trust.
In addition, the Trust Instrument provides that the holders of net less than
two-thirds of the outstanding shares of the Trust may remove persons serving as
Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of persons serving as Trustee if requested in writing
30
<PAGE> 31
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. To the extend required by applicable law, the Trustees shall assist
shareholders who seek to remove any person serving as Trustee.
Special shareholder meetings may be required for proposals requiring shareholder
approval as may be required by the 1940 Act, the Trust Instrument or By-Laws of
the Trust.
The insurance companies will be the Fund's sole shareholders of record, and
pursuant to the 1940 Act, such shareholders may be deemed to be in control of
the Fund. When a shareholder's meeting occurs, each insurance company solicits
and accepts voting instructions from its Variable Contract owners who have
allocated or transferred monies for an investment in the Fund as of the record
date of the meeting. Each shareholder then votes the Fund's shares that are
attributable to its interests in the Fund in which it is entitled to vote, in
proportion to the voting instructions received.
The Fund is available through separate accounts relating to both variable
annuity and variable life insurance contracts. The Fund does not currently
foresee any disadvantages to Variable Contract owners arising from offering its
shares to variable annuity and variable life insurance policy separate accounts,
and the Board of Trustees continuously monitors events for the existence of any
material irreconcilable conflict between or among Variable Contract owners.
Material conflicts could result from, for example, (i) changes in state
insurance laws; (ii) changes in federal income tax laws; or (iii) differences in
voting instructions between those given by variable life owners and variable
annuity owners. If a material irreconcilable conflict arises, as determined by
the Board of Trustees, one or more separate accounts may withdraw their
investment in the Fund. This could possibly require the Fund to sell portfolio
securities at disadvantageous prices. Each insurance company will bear the
expenses of establishing separate portfolios for its variable annuity and
variable life insurance separate accounts if such action becomes necessary.
However, ongoing expenses that are ultimately borne by Variable Contract owners
will likely increase due to the loss of economies of scale benefits that can be
provided to separate accounts with substantial assets.
PERFORMANCE INFORMATION
The Fund's performance may be used from time to time in advertisements,
shareholder reports or other communications disseminated to existing or
prospective shareholders or Contract owners. THE FUND PERFORMANCE DOES NOT
REFLECT THE VARIABLE CONTRACT FEES AND CHARGES. Past performance does not
indicate or project future performance. Performance information may include the
Fund's investment results and/or comparisons of its investment results to the
Fund's benchmark index or other various unmanaged indexes or results of other
mutual funds with similar investment objectives or investing or savings
vehicles. The Fund's performance will be calculated on a total return basis in
the manner set forth below.
The Fund may provide periodic and average annualized "total return" quotations.
The Fund's "total return" refers to the change in the value of an investment in
the Fund over a stated period based on any change in net asset value per share
and including the reinvestment of any dividends and distributions.
31
<PAGE> 32
Quotations of total return and yield will not reflect Contract charges and
expenses. The prospectus for a Contract will contain information about
performance of the relevant separate account and Contract.
Total Return. Total return 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 total returns 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, assuming reinvestment
of all dividends and distributions
P = hypothetical initial payment of $1,000
n = number of years
Aggregate Annual Total Return. The Fund may compute its aggregate total return
over a specified period which represents the cumulative change in the value of
an investment in the Fund for the specified period. The formula for calculating
aggregate total return is as follows:
[ERV - P]
AGGREGATE 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, assuming reinvestment of all dividends and
distributions
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
32
<PAGE> 33
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 vary from time to time depending upon market conditions,
the composition of the portfolio and operating expenses, any given performance
quotation should not be considered representative of the Fund's performance for
any specified period in the future. Performance data for the Fund should not be
used to compare an investment in the 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.
Comparing Performance. Comparison of the quoted non-standardized performance of
various investments is valid only if performance is calculated in the same
manner. Since there are different methods of calculating performance, investors
should consider the effect of the methods used to calculate performance when
comparing performance of the Fund with performance quoted with respect to other
investment companies or types of investments.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Evaluations of the Fund's performance made by independent sources may also be
used in advertisements concerning the Fund. Sources for the Fund's performance
information could include the following: Barron's, Business Week, Changing
Times, Consumer Digest, Financial Times, Financial World, Forbes, Fortune,
Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, Money, Morningstar Inc., New York Times, Personal Investing News,
Personal Investor, Success, The Kiplinger's Magazine,, U.S. News and World
Report, Value Line, Wall Street Journal, Weisenberger Investment Companies
Services and Working Women.
FINANCIAL STATEMENTS
Reports to Shareholders. Shareholders and Variable Contract owners will receive
unaudited semi-annual reports describing the Fund's investment operations and
annual financial statements audited by independent certified public accountants.
33
<PAGE> 34
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
PART C - OTHER INFORMATION
Item 23. EXHIBITS:
(a) Trust Instrument is filed herewith.
(b) By-Laws are filed herewith.
(c) Not Applicable
(d) Form of Investment Advisory Agreement between The Kelmoore
Strategy(TM) Variable Fund and Kelmoore Investment Company, Inc. is
filed herewith.
(e) Distribution Agreement between The Kelmoore Strategy(TM) Variable Fund
and Kelmoore Investment Company, Inc. to be filed by Amendment.
(f) Not Applicable
(g) Custodian Agreement to be filed by Amendment.
(h) (1) Services Agreement to be filed by Amendment.
(2) Sub-Administration Agreement to be filed by Amendment.
(i) Opinion and Consent of Counsel to be filed by Amendment.
(j) Consent of Independent Accountants to be filed by Amendment.
(k) Not Applicable
(l) Initial Capital Agreement to be filed by Amendment.
(m) Rule 12b-1 Plan of Distribution to be filed by Amendment.
(n) Not Applicable
(o) Financial Data Schedule to be filed by Amendment.
(p) Powers of Attorney to be filed by Amendment.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not Applicable
Item 25. Indemnification.
Provisions relating to indemnification of the Registrant's Trustees
and employees are included in Registrant's Trust Instrument and
By-Laws which are filed herewith.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act") may be permitted
to Trustees, officers and controlling persons of the Registrant by the
Registrant pursuant to the Trust's Trust Instrument, its By-Laws or
otherwise, the Registrant understands
34
<PAGE> 35
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the Registrant in the successful defense of any
action, suite or proceeding) is asserted by such Trustee, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser.
Kelmoore Investment Company, Inc. (the "Adviser") is primarily engaged
in the brokerage and investment advisory business. The Adviser serves
as investment adviser to the Fund and to another open-end management
investment company, The Kelmoore Strategy(TM) Covered Option Fund.
For information as to any other business, vocation or employment of a
substantial nature in which each director or officer of the Adviser
has been engaged for his own account or in the capacity of director,
officer, employee, partner or trustee, please refer to the Adviser's
Form ADV (File #801-53123) filed with the Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended, and
incorporated herein by reference.
Item 27. Principal Underwriters.
(a) The Adviser also serves as the distributor of the shares of The
Kelmoore Strategy(TM) Covered Option Fund, an open-end investment
company. The Adviser also currently acts as the 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>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Ralph M. Kelmon, Jr. Chairman of the Board, Initial Trustee
Chief Executive Officer,
and Treasurer
Michael Romanchak Director and President of None
Institutional Sales
David R. Moore Director None
A. Duncan King Director None
Norman H. Moore, Jr. Vice President- None
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C>
Administration: Corporate
Secretary and Chief
Compliance Officer
Norman H. Moore Director None
Cece G. Montgomery Chief Financial Officer None
Matthew Kelmon Vice President of Trading President, Principal
Financial Officer and
Treasurer
Thomas W. Killilea Director None
Richard J. Deagazio Director None
Edward J. Devereaux Director and President None
of Retail Sales
Tamara Beth Heiman Vice President and None
Associate Director
of Marketing
</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 Registrant
under Section 31(a) of the Investment Company Act of 1940, as amended, and the
Rules thereunder will be maintained at the offices of:
(1) Kelmoore Investment Company, Inc.
2471 E. Bayshore Road
Suite 501
Palo Alto, CA 94303
(records relating to function as investment adviser and
distributor to the Fund)
(2) First Data Investor Services Group, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(records relating to function as transfer agent and
administrator)
(3) The Bank of New York
48 Wall Street
New York, New York 10286
(records relating to function as custodian)
Item 29. Management Services. Not Applicable.
Item 30. Undertakings. Not Applicable.
36
<PAGE> 37
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
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 13th day of October, 1999.
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
(Registrant)
/s/ Matthew Kelmon
By: Matthew Kelmon, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement of The Kelmoore Strategy(TM) Variable Trust has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ralph M. Kelmon, Jr.
Ralph M. Kelmon, Jr. Initial Trustee October 13, 1999
/s/ Matthew Kelmon
Matthew Kelmon President October 13, 1999
/s/ Matthew Kelmon
Matthew Kelmon Principal Financial October 13, 1999
Officer and Treasurer
</TABLE>
37
<PAGE> 38
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
EXHIBIT INDEX TO PART "C"
OF
REGISTRATION STATEMENT
ITEM NO. DESCRIPTION
23(a) Trust Instrument
23(b) By-Laws
23(d) Form of Investment Advisory Agreement
38
<PAGE> 1
Exhibit 23(a)
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
(A Delaware Business Trust)
TRUST INSTRUMENT
September 30, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I NATURE AND PURPOSE OF TRUST ...................................1
Section 1. Nature of Trust ...............................................1
Section 2. Purpose of Trust 1
ARTICLE II DEFINITIONS ...................................................2
ARTICLE III THE TRUSTEES ..................................................3
Section 1. Management of the Trust .......................................3
Section 2. Qualifications, Initial Trustee and Number of Trustees ........3
Section 3. Term of Office of Trustees ....................................3
Section 4. Vacancies; Appointment of Trustees ............................3
Section 5. Temporary Vacancy or Absence ..................................4
Section 6. Chairman ......................................................4
Section 7. Action by the Trustees ........................................4
Section 8. Ownership of Trust Property ...................................4
Section 9. Effect of Trustees Not Serving ................................5
Section 10. Trustees, Etc. as Shareholders ................................5
ARTICLE IV POWERS OF THE TRUSTEES 5
Section 1. Powers ........................................................5
Section 2. Certain Transactions ..........................................8
ARTICLE V SERIES; CLASSES; SHARES 9
Section 1. Establishment of Series or Classes ............................9
Section 2. Shares ........................................................9
Section 3. Investment in the Trust ......................................10
Section 4. Assets and Liabilities of Series .............................10
Section 5. Ownership and Transfer of Shares .............................11
Section 6. Status of Shares: Limitation of Shareholder Liability .......11
ARTICLE VI DISTRIBUTIONS AND REDEMPTIONS ................................11
Section 1. Distributions ................................................11
Section 2. Redemptions ..................................................12
Section 3. Determination of Net Asset Value .............................12
Section 4. Suspension of Right of Redemption ............................12
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
Section 5. Redemptions Necessary for Qualification as Regulated
Investment Company ......................................12
Section 6. Maintenance of Stable Net Asset Value ........................13
Section 7. Transfer of Shares ...........................................13
ARTICLE VII SHAREHOLDERS' VOTING POWERS AND MEETINGS .....................13
Section 1. Voting Powers ................................................13
Section 2. Meetings of Shareholders .....................................14
Section 3. Quorum; Required Vote ........................................14
Section 4. Additional Provisions ........................................15
ARTICLE VIII CONTRACTS WITH SERVICE PROVIDERS .............................15
Section 1. Investment Adviser ...........................................15
Section 2. Principal Underwriter ........................................15
Section 3. Transfer Agency, Shareholder Services
and Administration Agreements ...........................15
Section 4. Custodian ....................................................15
Section 5. Other Contracts ..............................................16
Section 6. Parties to Contracts with Service Providers...................16
ARTICLE IX EXPENSES OF THE TRUST AND SERIES .............................16
ARTICLE X LIMITATION OF LIABILITY AND INDEMNIFICATION ..................17
Section 1. (a) General Provisions .......................................17
(b) Notice of Limited Liability ..............................17
(c) Liability Limited to Assets of the Trust .................17
Section 2. Liability of Trustees .......................................17
(a) Liability for Own Actions ................................18
(b) Liability for Actions of Others ..........................18
(c) Advice of Experts and Reports of Others ..................18
(d) Bond .....................................................18
(e) Trust Instrument Governs Issues of Liability .............18
Section 3. Liability of Third Persons Dealing With Trustees .............18
Section 4. Liability of Shareholders ....................................18
(a) Limitation of Liability ..................................18
Section 5. Indemnification ..............................................19
Section 6. Indemnification of Shareholders ..............................20
ARTICLE XI MISCELLANEOUS ................................................20
Section 1. Trust Not a Partnership ......................................20
Section 2. Trustee Action; Expert Advice; No Bond or Surety .............21
Section 3. Record Dates .................................................21
Section 4. Termination of the Trust .....................................21
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
Section 5. Reorganization; Merger; Consolidation ........................22
Section 6. Trust Instrument .............................................22
Section 7. Applicable Law ...............................................22
Section 8. Amendments ...................................................23
Section 9. Fiscal Year ..................................................23
Section 10. Severability .................................................23
Section 11. Signatures ...................................................24
</TABLE>
iv
<PAGE> 5
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
TRUST INSTRUMENT
This TRUST INSTRUMENT is made as of this day, September 30,
1999, by the Trustees hereunder.
WHEREAS, the Trustees desire to establish a trust for the purpose of
carrying on the business of an open-end management investment company; and
WHEREAS, in furtherance of such purpose, the Trustees and any successor
Trustees elected in accordance with Article III hereof are acquiring and may
hereafter acquire assets which they will hold and manage as trustees of a
Delaware business trust in accordance with the provisions hereinafter set forth;
and
WHEREAS, this Trust is authorized to issue its shares of beneficial
interest in one or more separate series and classes of series, all in accordance
with the provisions set forth in this Trust Instrument;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all cash, securities, and other assets which they may from time to time
acquire in any manner as Trustees hereunder, and that they will manage and
dispose of the same upon the following terms and conditions for the benefit of
the holders of shares of beneficial interest in this Trust as hereinafter set
forth.
ARTICLE I
NATURE AND PURPOSE OF TRUST
SECTION 1. NATURE OF TRUST. The Trust is a business trust of the type
referred to in Chapter 38 of Title 12 of the Delaware Business Trust Act. The
Trustees shall file a certificate of trust in accordance with Section 3810 of
the Delaware Business Trust Act. The Trust is not intended to be, shall not be
deemed to be, and shall not be treated as, a general or a limited partnership,
joint venture, corporation or joint stock company, nor shall the Trustees or
Shareholders or any of them for any purpose be deemed to be, or be treated in
any way whatsoever as though they were, liable or responsible hereunder as
partners or joint venturers.
SECTION 2. PURPOSE OF TRUST. The purpose of the Trust is to engage in,
operate and carry on the business of an open-end management investment company
and to do any and all acts or things as are necessary, convenient, appropriate,
incidental or customary in connection therewith.
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ARTICLE II
DEFINITIONS
Unless otherwise required by the context or specifically
provided below:
(a) "Bylaws" shall mean the Bylaws of the Trust adopted by the
Trustees, which Bylaws are incorporated by reference herein in their entirety,
as amended from time to time;
(b) "Class" shall mean a class of Shares of a Series
established pursuant to Article V;
(c) "Code" shall mean the Internal Revenue Code of 1986 (and
any successor statute) and the rules and regulations thereunder, all as amended
from time to time;
(d) "Commission," "Interested Person," and "Principal
Underwriter" shall have the meanings provided in the 1940 Act;
(e) "Covered Person" shall mean a person so defined in Article
X, Section 2;
(f) "Delaware Act" shall mean Chapter 38 of Title 12 of the
Delaware Code entitled "Treatment of Delaware Business Trusts," as amended from
time to time;
(g) "Majority Shareholder Vote" shall mean "the vote of a
majority of the outstanding voting securities" as defined in the 1940 Act;
(h) "Outstanding Shares" shall mean Shares shown in the books
of the Trust or its transfer agent as then outstanding;
(i) "Series" shall mean a series of Shares established
pursuant to Article V;
(j) "Shareholder" shall mean a beneficial owner of Outstanding
Shares, except that with regard to Shares owned by insurance company separate
accounts or trusts established in connection with employee benefit plans,
"Shareholder" shall mean the separate account or trust;
(k) "Shares" shall mean the equal proportionate transferable
units of interest into which the beneficial interest of each Series or Class is
divided from time to time and shall include fractional and whole Shares;
(l) "Trust" shall mean The Kelmoore Strategy(TM) Variable Trust
established hereby, and reference to the Trust, when applicable to one or more
Series, refers to those Series;
(m) "Trustees" shall mean the person or persons who have
signed this Trust Instrument, so long as they shall continue in office in
accordance with the terms hereof, and all other persons who may from time to
time be duly qualified and serving as Trustees of the Trust in accordance with
Article III, in all cases in their capacities as Trustees hereunder and not as
individuals or personally;
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(n) "Trust Property" shall mean any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of the Trust or the Trustees; and
(o) The "1940 Act" refers to the Investment Company Act of
1940 (and any successor statute) and the rules and regulations thereunder, all
as amended from time to time.
ARTICLE III
THE TRUSTEES
SECTION 1. MANAGEMENT OF THE TRUST. The business and affairs
of the Trust shall be managed by or under the direction of the Trustees, and
they shall have all powers necessary or desirable to carry out that
responsibility. The Trustees may execute all instruments and take all action
they deem necessary or desirable to promote the interests of the Trust. Any
determination made by the Trustees in good faith as to what is in the interests
of the Trust shall be conclusive.
SECTION 2. QUALIFICATIONS, INITIAL TRUSTEE AND NUMBER OF
TRUSTEES. Each Trustee shall be a natural person. A Trustee need not be a
Shareholder, a citizen of the United States, or a resident of the State of
Delaware. The initial Trustee shall be the person signing this Trust Instrument.
The exact number of Trustees (other than the initial Trustee) shall be fixed
from time to time by a majority of the Trustees, provided, that there shall be
at least one (1) Trustee. Other than the initial Trustee and Trustees appointed
to fill vacancies pursuant to Section 4 of this Article, the Shareholders shall
elect the Trustees on such dates as the Trustees may fix from time to time.
SECTION 3. TERM OF OFFICE OF TRUSTEES. Each Trustee shall hold
office for life or until any mandatory retirement age adopted by the Trustees or
until his successor is elected and qualified or the Trust terminates; except
that (a) any Trustee may resign by delivering to the other Trustees or to any
Trust officer a written resignation effective upon such delivery or a later date
specified therein; (b) any Trustee who requests to be retired, or who has become
physically or mentally incapacitated or is otherwise unable to serve, may be
retired by a written instrument signed by a majority of the other Trustees,
specifying the effective date of retirement; (c) any Trustee shall be retired or
removed with or without cause at any time upon the unanimous written request of
the remaining Trustees; and (d) any Trustee may be removed at any meeting of the
Shareholders by a vote of at least two-thirds of the Outstanding Shares.
SECTION 4. VACANCIES; APPOINTMENT OF TRUSTEES. Whenever a
vacancy shall exist, regardless of the reason for such vacancy, the remaining
Trustees shall appoint any person as they determine in their sole discretion to
fill that vacancy, consistent with the provisions of Section 10 and Section 16
of the 1940 Act. Such appointment shall be made by a written instrument signed
by a majority of the Trustees or by a resolution of the Trustees, duly adopted
and recorded in the records of the Trust, specifying the effective date of the
appointment. The Trustees may appoint a new Trustee as provided above in
anticipation of a vacancy expected to occur because of the retirement,
resignation or removal of a Trustee, or an
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increase in number of Trustees, provided that such appointment shall become
effective only at or after the expected vacancy occurs. As soon as any such
Trustee has accepted his or her appointment in writing, the Trust estate shall
vest in the new Trustee, together with the continuing Trustees, without any
further act or conveyance, and he or she shall be deemed a Trustee hereunder.
SECTION 5. TEMPORARY VACANCY OR ABSENCE. Whenever a vacancy in
the Trustees shall occur, until such vacancy is filled, or while any Trustee is
absent from his domicile (unless that Trustee has made arrangements to be
informed about, and to participate in, the affairs of the Trust during such
absence), or is physically or mentally incapacitated, the remaining Trustees
shall have all the powers hereunder and their certificate as to such vacancy,
absence or incapacity shall be conclusive.
SECTION 6. CHAIRMAN. The Trustees shall appoint one of their
number to be Chairman of the Trustees. The Chairman shall preside at all
meetings of the Trustees, and shall be responsible for the execution of policies
established by the Trustees and the administration of the Trust.
SECTION 7. ACTION BY THE TRUSTEES. The Trustees shall act by
majority vote at a meeting duly called (including at a telephonic meeting at
which all participants can hear one another, unless the 1940 Act requires that a
particular action be taken only at a meeting of the Trustees in person) at which
a quorum is present or by written consent of a majority of Trustees (or such
greater number as may be required by applicable law) without a meeting.
One-third of the Trustees shall constitute a quorum at any meeting. Meetings of
the Trustees may be called orally or in writing by the Chairman of the Trustees
or by any two other Trustees. Notice of the time, date and place of all Trustees
meetings shall be given to each Trustee by telephone, facsimile or other
electronic mechanism sent to his home or business address at least twenty-four
hours in advance of the meeting or by written notice mailed to his home or
business address at least seventy-two hours in advance of the meeting. Notice
need not be given to any Trustee who attends the meeting without objecting to
the lack of notice or who signs a waiver of notice either before, at or after
the meeting. Subject to the requirements of the 1940 Act, the Trustees by
majority vote may take particular actions on behalf of the Trust and/or delegate
to any Trustee or Trustees authority to approve particular matters. Any written
consent or waiver may be provided and delivered to the Trust by facsimile or
other similar electronic mechanism.
SECTION 8. OWNERSHIP OF TRUST PROPERTY. The Trust Property of
the Trust and of each Series shall be held separate and apart from any assets
now or hereafter held in any capacity other than as Trustee hereunder by the
Trustees or any successor Trustees. All of the Trust Property and legal title
thereto shall at all times be considered as vested in the Trust, provided that
the Trustees may cause legal title to any Trust Property to be held by or in the
name of the Trustees acting on behalf of the Trust, or in the name of any person
as nominee. No Shareholder shall be deemed to have a severable ownership in any
individual asset of the Trust or of any Series or any right of partition or
possession thereof, but each Shareholder shall have, as provided in Article V, a
proportionate undivided beneficial interest in the Trust or Series represented
by Shares. The Trust or the Trustees on behalf of the Trust shall be deemed to
hold legal and beneficial ownership of any income earned on securities held by
the Trust issued by
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any business entity formed, organized or existing under the laws of any
jurisdiction other than a state, commonwealth, possession or colony of the
United States or the laws of the United States.
SECTION 9. EFFECT OF TRUSTEES NOT SERVING. The death,
resignation, retirement, removal, incapacity or inability or refusal to serve of
the Trustees, or any one of them, shall not operate to annul the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
SECTION 10. TRUSTEES, ETC. AS SHAREHOLDERS. Subject to any
restrictions in the Bylaws, any Trustee, officer, agent or independent
contractor of the Trust may acquire, own and dispose of Shares to the same
extent as any other Shareholder, and the Trustees may issue and sell Shares to
and buy Shares from any such person or any firm or company in which such person
is interested, subject only to any general limitations herein.
ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 1. POWERS. The Trustees in all instances shall act as
principals, free of the control of the Shareholders. The Trustees shall have
full power and authority to take or refrain from taking any action and to
execute any contracts and instruments that they may consider necessary or
desirable in the management of the Trust. The Trustees shall not in any way be
bound or limited by current or future laws or customs applicable to trust
investments, but shall have full power and authority to make any investments
which they, in their sole discretion, deem proper to accomplish the purposes of
the Trust. The Trustees may exercise all of their powers without recourse to any
court or other authority. Subject to any applicable limitation herein or in the
Bylaws or resolutions of the Trust, the Trustees shall have power and authority,
without limitation:
(a) To invest and reinvest cash and other property, and to
hold cash or other property uninvested, without in any event being bound or
limited by any current or future law or custom concerning investments by
trustees, and to sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the Trust Property; to invest in obligations,
securities and assets of any kind, and without regard to whether they may mature
before or after the possible termination of the Trust; and without limitation to
invest all or any part of its cash and other assets and property in securities
issued by any investment company or series thereof;
(b) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and proper to conduct such a
business;
(c) To adopt Bylaws not inconsistent with this Trust
Instrument providing for the conduct of the business of the Trust and to amend
and repeal them to the extent such right is not reserved to the Shareholders;
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(d) To elect and remove such officers and appoint and
terminate such agents, independent contractors and delegates as they deem
appropriate;
(e) To employ an investment adviser (subject to such general
or specific instruments as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the Trustees
or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such investment
adviser;
(f) To employ as custodian of any Trust Property, subject to
any provisions herein or in the Bylaws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such;
(g) To retain one or more transfer agents, dividend disbursing
agents, placement agents, administrators, or Shareholder servicing agents, or
both;
(h) To provide for the distribution of Shares, either through
a Principal Underwriter or distributor as provided herein, or by the Trust
itself, or both, or pursuant to a distribution plan of any kind;
(i) To set record dates for the determination of Shareholders
in the manner provided for herein or in the Bylaws;
(j) To delegate such authority as they consider desirable to
any officers of the Trust, to any Committee of the Trustees and to any agent,
subagent, employee, independent contractor, delegate, consultant, manager,
administrator, investment adviser, custodian, depository or underwriter;
(k) To sell or exchange any or all of the Trust Property;
(l) To vote or give assent, or exercise any rights of
ownership, with respect to securities or other property; and to execute and
deliver powers of attorney delegating such power to other persons;
(m) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(n) To hold any security or other Trust Property (i) in a form
not indicating any trust, whether in bearer, book entry, unregistered or other
negotiable form, or (ii) either in the Trust's or Trustees' own name or in the
name of a custodian or a nominee or nominees, subject to safeguards according to
the usual practice of business trusts or investment companies;
(o) To establish separate and distinct Series with separately
defined investment objectives, policies or restrictions and distinct investment
purposes, and with separate Shares representing beneficial interests in such
Series, and to establish separate Classes, all in accordance with the provisions
of Article V;
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(p) To the full extent permitted by Section 3806 of the
Delaware Act, to allocate assets, liabilities and expenses of the Trust to a
particular Series and liabilities and expenses to a particular Class or to
apportion the same between or among two or more Series or Classes, provided that
any liabilities or expenses incurred by a particular Series or Class shall be
payable solely out of the assets belonging to that Series or Class as provided
for in Article V, Section 4;
(q) To consent to or participate in any plan for the
liquidation, reorganization, consolidation or merger of any corporation or
concern whose securities are held by the Trust; to consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or concern;
and to pay calls or subscriptions with respect to any security held by the
Trust;
(r) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner provided in this Trust Instrument or in the Bylaws;
(t) To borrow money and in connection therewith to issue notes
or other evidences of indebtedness and to pledge or grant security interests in
Trust Property as security therefor;
(u) To establish committees for such purposes, with such
membership, and with such responsibilities, as the Trustees may consider proper;
(v) To issue, sell, repurchase, redeem, cancel, retire,
acquire, hold, resell, reissue, dispose of and otherwise deal in Shares; to
establish terms and conditions regarding the issuance, sale, suspension or
termination of sale, repurchase, redemption, cancellation, retirement,
acquisition, holding, resale, reissuance, disposition of or dealing in Shares;
and, subject to Articles V and VI, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
Trust or of the particular Series with respect to which such Shares are issued;
(w) To sell all or a portion of the Shares to another
investment company that is registered under the 1940 Act, in the Trustees' sole
discretion, without the vote or approval of any Shareholder or Shareholders,
notwithstanding any other provision of this Trust Instrument or the Bylaws to
the contrary; and
(x) To carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary or
desirable to accomplish any purpose or to further any of the foregoing powers,
and to take every other action incidental to the foregoing business or purposes,
objects or powers.
(y) The Trustees shall have the power to enter into joint
ventures, general or limited partnerships and any other combinations or
associations.
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(z) The Trustees shall have the power to endorse or guarantee
the payment of any notes or other obligations of any person; to make contracts
of guaranty or suretyship, or otherwise assume liability for payment thereof;
and to mortgage and pledge the Trust property (or Series property) or any part
thereof to secure any of or all such obligations.
(aa) The Trustees shall have the power to purchase and pay for
entirely out of Trust property such insurance as they may deem necessary or
appropriate for the conduct of business, including, without limitation,
insurance policies insuring the assets of the Trust and payment of distributions
and principal on its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, consultants, investment
advisers, managers, administrators, distributors, principal underwriters, or
independent contractors, or any thereof (or any person connected therewith) of
the Trust individually against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
person in any such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability.
(bb) The Trustees shall have the power to pay pensions for
faithful service, as deemed appropriate by the Trustees, and to adopt, establish
and carry out pension, profit-sharing, share bonus, share purchase, savings,
thrift and other retirement, incentive and benefit plans, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
The clauses above shall be construed as objects and powers,
and the enumeration of specific powers shall not limit in any way the general
powers of the Trustees. Any action by one or more of the Trustees in their
capacity as such hereunder shall be deemed an action on behalf of the Trust or
the applicable Series, and not an action in an individual capacity. No one
dealing with the Trustees shall be under any obligation to make any inquiry
concerning the authority of the Trustees, or to see to the application of any
payments made or property transferred to the Trustees or upon their order. In
construing this Trust Instrument, the presumption shall be in favor of a grant
of power to the Trustees.
SECTION 2. CERTAIN TRANSACTIONS. Except as prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, administrator, distributor or transfer agent for the Trust or with any
Interested Person of such person. The Trust may employ any such person or entity
in which such person is an Interested Person, as broker, legal counsel,
registrar, investment adviser, administrator, distributor, transfer agent,
dividend disbursing agent, custodian or in any other capacity upon customary
terms.
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ARTICLE V
SERIES; CLASSES; SHARES
SECTION 1. ESTABLISHMENT OF SERIES OR CLASSES. The Trust shall
consist of one or more Series. The Trustees hereby establish the Series listed
in Schedule A attached hereto and made a part hereof. Each additional Series
shall be established by the adoption of a resolution of the Trustees. The
Trustees may designate the relative rights and preferences of the Shares of each
Series. The Trustees may by resolution divide the Shares of any Series into
Classes. In such case each Class of a Series shall represent interests in the
assets of that Series and have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that expenses allocated to a
Class may be borne solely by such Class as determined by the Trustees, a Class
may have specific conversion rights, and a Class may have exclusive voting
rights with respect to matters affecting only that Class. The Trust shall
maintain separate and distinct records for each Series and hold and account for
the assets thereof separately from the other assets of the Trust or of any other
Series. A Series may issue any number of Shares and need not issue Shares. Each
Share of a Series shall represent an equal beneficial interest in the net assets
of such Series. Each holder of Shares of a Series shall be entitled to receive
his pro rata share of all distributions made with respect to such Series. Upon
redemption of his Shares, such Shareholder shall be paid solely out of the funds
and property of such Series. The Trustees may change the name of any Series or
Class. At any time that there are no Shares outstanding of any particular Series
previously established and designated, the Trustees may by a majority vote
abolish that Series and rescind the establishment and designation thereof.
SECTION 2. SHARES. The beneficial interest in the Trust shall
be divided into Shares of one or more separate and distinct Series or Classes
established by the Trustees. The number of Shares of each Series and Class is
unlimited and each Share shall have a par value of $0.001 per Share. All Shares
issued hereunder shall be fully paid and nonassessable. Shareholders shall have
no preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust. The Trustees shall have full power and
authority, in their sole discretion and without obtaining Shareholder approval:
to issue original or additional Shares at such times and on such terms and
conditions and for such consideration as they deem appropriate; to issue
fractional Shares and Shares held in the treasury; to establish and to change in
any manner Shares of any Series or Classes with such preferences, terms of
conversion, voting powers, rights and privileges as the Trustees may determine
(but the Trustees may not change Outstanding Shares in a manner materially
adverse to the Shareholders of such Shares); to divide or combine the Shares of
any Series or Classes into a greater or lesser number; to classify or reclassify
any unissued Shares of any Series or Classes into one or more Series or Classes
of Shares; to abolish any one or more Series or Classes of Shares; to issue
Shares to acquire other assets (including assets subject to, and in connection
with, the assumption of liabilities) and businesses; and to take such other
action with respect to the Shares as the Trustees may deem desirable. Shares
held in the treasury shall not confer any voting rights on the Trustees and
shall not be entitled to any dividends or other distributions declared with
respect to the Shares.
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SECTION 3. INVESTMENT IN THE TRUST. The Trustees shall accept
or redeem investments in any Series from such persons and on such terms as they
may from time to time authorize. At the Trustees' discretion, such investments,
subject to applicable law, may be in the form of cash or securities in which
that Series is authorized to invest, valued as provided in Article VI, Section
3. Investments in a Series shall be credited to each Shareholder's account in
the form of full Shares at the Net Asset Value per Share next determined after
the investment is received or accepted as may be determined by the Trustees;
provided, however, that the Trustees may, in their sole discretion, (a) impose a
sales charge upon investments in any Series or Class, (b) issue fractional
Shares, or (c) determine the Net Asset Value per Share of the initial capital
contribution. The Trustees shall have the right to refuse to accept investments
in any Series or Class thereof at any time without any cause or reason therefor
whatsoever and to redeem any investments in the same manner.
SECTION 4. ASSETS AND LIABILITIES OF SERIES. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof (including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be), shall be held and accounted for separately from the other assets
of the Trust and every other Series and are referred to as "assets belonging to"
that Series. The assets belonging to a Series shall belong only to that Series
for all purposes, and to no other Series, subject only to the rights of
creditors of that Series. Any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series shall be allocated by the Trustees between and among one
or more Series as the Trustees deem fair and equitable. Each such allocation
shall be conclusive and binding upon the Shareholders of all Series for all
purposes, and such assets, earnings, income, profits or funds, or payments and
proceeds thereof shall be referred to as assets belonging to that Series. The
assets belonging to a Series shall be so recorded upon the books of the Trust,
and shall be held by the Trustees in trust for the benefit of the Shareholders
of that Series. The assets belonging to a Series shall be charged with the
liabilities of that Series and all expenses, costs, charges and reserves
attributable to that Series, except that liabilities and expenses allocated
solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees between or among any one or more of the
Series or Classes in such manner as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of
the Trustees to allocate general liabilities, expenses, costs, charges or
reserves as herein provided, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect to a particular
Series shall be enforceable against the assets of such Series only, and not
against the assets of the Trust generally or of any other Series. Notice of this
contractual limitation on liabilities among Series may, in the Trustees'
discretion, be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act, and
upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3806 of the Delaware
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Act relating to limitations on liabilities among Series (and the statutory
effect under Section 3806 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each Series. Any person
extending credit to, contracting with or having any claim against any Series may
look only to the assets of that Series to satisfy or enforce any debt,
liability, obligation or expense incurred, contracted for or otherwise existing
with respect to that Series. No Shareholder or former Shareholder of any Series
shall have a claim on or any right to any assets allocated or belonging to any
other Series.
SECTION 5. OWNERSHIP AND TRANSFER OF SHARES. The Trust shall
maintain a register containing the names and addresses of the Shareholders of
each Series, the number of Shares of each Series and Class thereof, and a record
of all Share transfers. The register shall be conclusive as to the identity of
Shareholders of record and the Shares held by them from time to time. The
Trustees may authorize the issuance of certificates representing Shares and
adopt rules governing their use. The Trustees may make rules governing the
transfer of Shares, whether or not represented by certificates.
SECTION 6. STATUS OF SHARES: LIMITATION OF SHAREHOLDER
LIABILITY. Shares shall be deemed to be personal property giving Shareholders
only the rights provided in this Trust Instrument. Every Shareholder, by virtue
of having acquired an Share, shall be held expressly to have assented to and
agreed to be bound by the terms of this Trust Instrument. No Shareholder shall
be personally liable for the debts, liabilities, obligations and expenses
incurred by, contracted for, or otherwise existing with respect to, the Trust or
any Series. Neither the Trust nor the Trustees shall have any power to bind any
Shareholder personally or to demand payment from any Shareholder for anything,
other than as agreed by the Shareholder. Shareholders shall have the same
limitation of personal liability as is extended to shareholders of a private
corporation for profit incorporated in the State of Delaware. Every written
obligation of the Trust or any Series shall contain a statement to the effect
that such obligation may only be enforced against the assets of the Trust or
such Series; however, the omission of such statement shall not operate to bind
or create personal liability for any Shareholder or Trustee.
ARTICLE VI
DISTRIBUTIONS AND REDEMPTIONS
SECTION 1. DISTRIBUTIONS. The Trustees may declare and pay
dividends and other distributions, including dividends on Shares of a particular
Series and other distributions from the assets belonging to that Series. The
amount and payment of dividends or distributions and their form, whether they
are in cash, Shares or other Trust Property, shall be determined by the
Trustees. Dividends and other distributions may be paid pursuant to a standing
resolution adopted once or more often as the Trustees determine. All dividends
and other distributions on Shares of a particular Series shall be distributed
pro rata to the Shareholders of that Series in proportion to the number of
Shares of that Series they held on the record date established for such payment,
except that such dividends and distributions shall appropriately reflect
expenses allocated to a particular Class of such Series. The Trustees may adopt
and offer to Shareholders
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such dividend reinvestment plans, cash dividend payout plans or similar plans as
the Trustees deem appropriate.
SECTION 2. REDEMPTIONS. Each Shareholder of a Series shall
have the right at such times as may be permitted by the Trustees to require the
Series to redeem all or any part of his Shares at a redemption price per Share
equal to the Net Asset Value per Share at such time as the Trustees shall have
prescribed by resolution. In the absence of such resolution, the redemption
price per Share shall be the Net Asset Value next determined after receipt by
the Series of a request for redemption in proper form less such charges as are
determined by the Trustees and described in the Trust's Registration Statement
for that Series under the Securities Act of 1933. The Trustees may specify
conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment of
the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of Net Asset
Value, or may be in cash. Upon redemption, Shares may be reissued from time to
time. The Trustees may require Shareholders to redeem Shares for any reason
under terms set by the Trustees, including the failure of a Shareholder to
supply a personal identification number if required to do so, or to have the
minimum investment required, or to pay when due for the purchase of Shares
issued to him. To the extent permitted by law, the Trustees may retain the
proceeds of any redemption of Shares required by them for payment of amounts due
and owing by a Shareholder to the Trust or any Series or Class. Notwithstanding
the foregoing, the Trustees may postpone payment of the redemption price and may
suspend the right of the Shareholders to require any Series or Class to redeem
Shares during any period of time when and to the extent permissible under the
1940 Act.
SECTION 3. DETERMINATION OF NET ASSET VALUE. The net asset
value per Share shall be determined separately for each Series or Class in
accordance with the methods and procedures established by the Trustees from time
to time and, to the extent required by applicable law, as disclosed in the then
current prospectus or statement of additional information for the Series.
SECTION 4. SUSPENSION OF RIGHT OF REDEMPTION. If, as referred
to in Section 2 of this Article, the Trustees postpone payment of the redemption
price and suspend the right of Shareholders to redeem their Shares, such
suspension shall take effect at the time the Trustees shall specify, but not
later than the close of business on the business day next following the
declaration of suspension. Thereafter Shareholders shall have no right of
redemption or payment until the Trustees declare the end of the suspension. If
the right of redemption is suspended, a Shareholder may either withdraw his
request for redemption or receive payment based on the Net Asset Value per Share
next determined after the suspension terminates.
SECTION 5. REDEMPTIONS NECESSARY FOR QUALIFICATION AS
REGULATED INVESTMENT COMPANY. If the Trustees shall determine that direct or
indirect ownership of Shares of any Series has or may become concentrated in any
person to an extent which would disqualify any Series as a regulated investment
company under the Internal Revenue Code of 1986, as amended or superseded from
time to time ("Internal Revenue Code"), then the Trustees shall have the power
(but not the obligation) by lot or other means they deem equitable to (a) call
for redemption by any such person of a number, or principal amount, of
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Shares sufficient to maintain or bring the direct or indirect ownership of
Shares into conformity with the requirements for such qualification and (b)
refuse to transfer or issue Shares to any person whose acquisition of Shares in
question would, in the Trustees' judgment, result in such disqualification. Any
such redemption shall be effected at the redemption price and in the manner
provided in this Article. Shareholders shall upon demand disclose to the
Trustees in writing such information concerning direct and indirect ownership of
Shares as the Trustees deem necessary to comply with the requirements of any
taxing authority.
SECTION 6. MAINTENANCE OF STABLE NET ASSET VALUE. The Trustees may
determine to maintain the net asset value per Share of any Series at a
designated constant dollar amount and in connection therewith may adopt
procedures not inconsistent with the 1940 Act for the continuing declarations of
income attributable to that Series as dividends payable in additional Shares of
that Series at the designated constant dollar amount and for the handling of any
losses attributable to that Series. Such procedures may provide that in the
event of any loss each Shareholder may be deemed to have contributed to the
capital of the Trust attributable to that Series his or her pro rata portion of
the total number of Shares required to be canceled in order to permit the net
asset value per Share of that Series to be maintained, after reflecting such
loss, at the designated constant dollar amount. Each Shareholder of the Trust
shall be deemed to have agreed, by his investment in any Series with respect to
which the Trustees shall have adopted any such procedure, to make the
contribution referred to in the preceding sentence in the event of any such
loss. The Trustees may delegate any of their powers and duties under this
Section with respect to appraisal of assets and liabilities in the determination
of net asset value or with respect to a suspension of the determination of net
asset value to an officer or officers or agent or agents of the Trust designated
from time to time by the Trustees.
SECTION 7. TRANSFER OF SHARES. Except to the extent that
transferability is limited by applicable law or such procedures as may be
developed from time to time by the Trustees or the appropriate officers of the
Trust, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer, together with a Share certificate, if one is
outstanding, and such evidence of the genuineness of each such execution and
authorization and of such other matters as may be required by the Trustees. Upon
such delivery the transfer shall be recorded on the register of the Trust.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 1. VOTING POWERS. The Shareholders shall have power to
vote only with respect to (a) the election of Trustees; (b) the removal of
Trustees; (c) the amendment of this Trust Instrument to the extent and as
provided in Article XI, Section 8; (d) the termination or reorganization of the
Trust to the extent and as provided in Article XI, Section 4 and 5; and (e) such
additional matters relating to the Trust as may be required by law, this Trust
Instrument, or the Bylaws or any registration of the Trust with the Commission
or any State, or as the Trustees may consider desirable.
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On any matter submitted to a vote of the Shareholders, all
Shares shall be voted by individual Series or Class, except (a) when required by
the 1940 Act, Shares shall be voted in the aggregate and not by individual
Series or Class, and (b) when the Trustees have determined that the matter
affects the interests of more than one Series or Class, then the Shareholders of
all such Series or Classes shall be entitled to vote thereon. Each whole Share
shall be entitled to one vote as to any matter on which it is entitled to vote,
and each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy or in any manner provided for in the Bylaws. The
Bylaws may provide that proxies may be given by any electronic or
telecommunications device or in any other manner, but if a proposal by anyone
other than the officers or Trustees is submitted to a vote of the Shareholders
of any Series or Class, or if there is a proxy contest or proxy solicitation or
proposal in opposition to any proposal by the officers or Trustees, Shares may
be voted only in person or by written proxy. Until Shares of a Series are
issued, as to that Series, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted to be taken by Shareholders by
law, this Trust Instrument or the Bylaws.
SECTION 2. MEETINGS OF SHAREHOLDERS. The first Shareholders'
meeting shall be held to elect Trustees at such time and place as the Trustees
designate, provided, however, that such election may be accomplished by the
Shareholders' written consent. No annual or regular meetings of Shareholders are
required to be held. The Trustees shall promptly call and give notice of a
meeting of Shareholders for the purpose of voting upon removal of any Trustee of
the Trust when requested to do so in writing by Shareholders holding not less
than ten percent (10%) of the Shares of the Trust then outstanding. For all
other matters, the Trustees shall call or give notice of a meeting within thirty
(30) days after written application by Shareholders entitled to cast at least
ten (10%) of all of the votes entitled to be cast on the matter requesting a
meeting be called. Shareholders shall be entitled to at least ten days notice of
any meeting, given as determined by the Trustees.
SECTION 3. QUORUM; REQUIRED VOTE. One third of the Outstanding
Shares of each Series or Class, or one third of the Outstanding Shares of the
Trust, entitled to vote in person or by proxy shall be a quorum for the
transaction of business at a Shareholders meeting with respect to such Series or
Class, or with respect to the entire Trust, respectively. Except when a larger
vote is required by law, this Trust Instrument or the Bylaws, at any meeting at
which a quorum is present, a majority of the total Shares voted in person or by
proxy shall decide any matters to be voted upon with respect to the entire Trust
and a plurality of such Shares shall elect a Trustee; provided, that if this
Trust Instrument or applicable law permits or requires that Shares be voted on
any matter by individual Series or Classes, then a majority of the Shares of
that Series or Class (or, if required by law, a Majority Shareholder Vote of
that Series) voted in person or by proxy on the matter shall decide that matter
insofar as that Series or Class is concerned. Shareholders may act as to the
Trust or any Series or Class by the written consent of a majority (or such
greater amount as may be required by applicable law) of the Outstanding Shares
of the Trust or of such Series or Class, as the case may be.
Notwithstanding any other provision herein or in the Bylaws,
any meeting of Shareholders, whether or not a quorum is present, may be
adjourned from time to time by the
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vote of the majority of the total Shares represented at that meeting, either in
person or by proxy. Subject to the Bylaws, any adjourned session of a meeting of
Shareholders may be held within a reasonable time without further notice.
SECTION 4. ADDITIONAL PROVISIONS. The Bylaws may include further
provisions for Shareholders' meetings and votes not inconsistent with the
provisions hereof.
ARTICLE VIII
CONTRACTS WITH SERVICE PROVIDERS
SECTION 1. INVESTMENT ADVISER. Subject to a Majority
Shareholder Vote (or in reliance upon applicable exemptive relief obtained from
the Commission), the Trustees may enter into one or more investment advisory
contracts on behalf of the Trust or any Series, providing for investment
advisory services, statistical and research facilities and services, and other
facilities and services to be furnished to the Trust or Series on terms and
conditions acceptable to the Trustees. Any such contract may provide for the
investment adviser to effect purchases, sales or exchanges of portfolio
securities or other Trust Property on behalf of the Trustees or may authorize
any officer or agent of the Trust to effect such purchases, sales or exchanges
pursuant to recommendations of the investment adviser. The Trustees may
authorize the investment adviser to employ one or more subadvisers.
SECTION 2. PRINCIPAL UNDERWRITER. The Trustees may enter into
contracts on behalf of the Trust or any Series or Class, providing for the
distribution and sale of Shares by the other party, either directly or as sales
agent, on terms and conditions acceptable to the Trustees. The Trustees may
adopt a plan or plans of distribution with respect to Shares of any Series or
Class and enter into any related agreements, whereby the Series or Class
finances directly or indirectly any activity that is primarily intended to
result in sales of its Shares, subject to the requirements of Section 12 of the
1940 Act, Rule 12b-1 thereunder, and other applicable rules and regulations.
SECTION 3. TRANSFER AGENCY, SHAREHOLDER SERVICES AND
ADMINISTRATION AGREEMENTS. The Trustees, on behalf of the Trust or any Series or
Class, may enter into transfer agency agreements, Shareholder service agreements
and administration and management agreements with any party or parties on terms
and conditions acceptable to the Trustees or delegate to a service provider the
arrangement of these and other services.
SECTION 4. CUSTODIAN. The Trustees shall at all times place
and maintain the securities and similar investments of the Trust and of each
Series in custody meeting the requirements of Section 17(f) of the 1940 Act and
the rules thereunder. The Trustees, on behalf of the Trust or any Series, may
enter into an agreement with a custodian on terms and conditions acceptable to
the Trustees, providing for the custodian, among other things, to (a) hold the
securities owned by the Trust or any Series and deliver the same upon written
order or oral order confirmed in writing, (b) receive and receipt for any monies
due to the Trust or any Series and
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deposit the same in its own banking department or elsewhere, (c) disburse such
funds upon orders or vouchers, and (d) employ one or more sub-custodians.
SECTION 5. OTHER CONTRACTS. The Trust may enter into such
other written contracts as the Trustees deem necessary and desirable, including
contracts with one or more persons for the coordination or supervision of
persons providing services to the Trust under one or more of the contracts
described above.
SECTION 6. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS. The
Trustees may enter into any contract referred to in this Article with any
entity, although one or more of the Trustees or officers of the Trust may be an
officer, director, trustee, partner, shareholder or member of such entity, and
no such contract shall be invalidated or rendered void or voidable because of
such relationship. No person having such a relationship shall be disqualified
from voting on or executing a contract in his capacity as Trustee and/or
Shareholder, or be liable merely by reason of such relationship for any loss or
expense to the Trust with respect to such a contract or accountable for any
profit realized directly or indirectly therefrom.
Any contract referred to in Sections 1 and 2 of this Article
shall be consistent with and subject to the applicable requirements of Section
15 of the 1940 Act and the rules and orders thereunder with respect to its
continuance in effect, its termination and the method of authorization and
approval of such contract or renewal. No amendment to a contract referred to in
Section 1 of this Article shall be effective unless assented to in a manner
consistent with the requirements of Section 15 of the 1940 Act, and the rules
and orders thereunder.
ARTICLE IX
EXPENSES OF THE TRUST AND SERIES
Subject to Article V, Section 4, the Trust or a particular
Series shall pay, directly or indirectly through contractual arrangements, or
shall reimburse the Trustees from the Trust estate or the assets belonging to
the particular Series, for their expenses and disbursements, including, but not
limited to, interest charges, taxes, brokerage fees and commissions; expenses of
pricing Trust portfolio securities; expenses of sale, addition and reduction of
Shares; certain insurance premiums; applicable fees, interest charges and
expenses of third parties, including the Trust's investment advisers, managers,
administrators, distributors, custodians, transfer agents and fund accountants;
fees of pricing, interest, dividend, credit and other reporting services; costs
of membership in trade associations; telecommunications expenses; funds
transmission expenses; auditing, legal and compliance expenses; costs of forming
the Trust and its Series and maintaining its existence; subject to applicable
law, costs of preparing and printing the prospectuses of the Trust and each
Series, statements of additional information and Shareholder reports and
delivering them to Shareholders; expenses of meetings of Shareholders and proxy
solicitations therefor; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees who are
not officers of the Trust; compensation of the Trust's officers and employees
and costs of other personnel performing services for the Trust or any Series;
costs of Trustee meetings; Commission registration fees and related expenses;
registration fees and related expenses under state or foreign securities or
other laws;
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and for such non-recurring items as may arise, including litigation to which the
Trust or a Series (or a Trustee or officer of the Trust acting as such) is a
party, and for all losses and liabilities by them incurred in administering the
Trust. The Trustees shall have a lien on the assets belonging to the appropriate
Series, or in the case of an expense allocable to more than one Series, on the
assets of each such Series, prior to any rights or interests of the Shareholders
thereto, for the reimbursement to them of such expenses, disbursements, losses
and liabilities. This Article shall not preclude the Trust from directly paying
any of the aforementioned fees and expenses.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 1.
(a) General Provisions. No personal liability for any debt or
obligation of the Trust shall attach to any Trustee of the Trust. Without
limiting the foregoing, a Trustee shall not be responsible for or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, investment
adviser, subadviser, principal underwriter or custodian of the Trust, nor shall
any Trustee be responsible or liable for the act or omission of any other
Trustee. Every note, bond, contract, instrument, certificate, Share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any Trustee in connection with the Trust
shall be conclusively deemed to have been executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee and neither such
Trustees or Trustee nor the Shareholders shall be personally liable thereon.
(b) Notice Of Limited Liability. Every note, bond, contract,
instrument, certificate or undertaking made or issued by the Trustees or by any
officers or officer shall recite that the same was executed or made by or on
behalf of the Trust by them as Trustees or Trustee or as officers or officer and
not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust or belonging to a Series thereof, and may
contain such further recitals as they or he may deem appropriate, but the
omission thereof shall not operate to bind any Trustees or Trustee or officers
or officer or Shareholders or Shareholder individually.
(c) Liability Limited To Assets Of The Trust. All persons
extending credit to, contracting with or having any claim against the Trust
shall look only to the assets of the Trust or belonging to a Series thereof, as
appropriate, for payment under such credit, contract or claim, and neither the
Shareholders not the Trustees nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
SECTION 2. LIABILITY OF TRUSTEES. The exercise by the Trustees
of their powers and discretion hereunder shall be binding upon the Trust, the
Shareholders, and any other person dealing with the Trust. The liability of the
Trustees, however, shall be limited by this Article X.
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(a) Liability For Own Actions. A Trustee shall be liable to
the Trust or the Shareholders only for his own willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
the office of Trustee, and for nothing else, and shall not be liable for errors
of judgment or mistakes of fact or law.
(b) Liability For Actions Of Others. The Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, adviser, administrative distributor, principal
underwriter, custodian, transfer agent, dividend disbursing agent, Shareholder
servicing agent, or accounting agent of the Trust, nor shall any Trustee be
responsible for any act or omission of any other Trustee.
(c) Advice Of Experts And Reports Of Others. The Trustees may
take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument and their duties as Trustees hereunder, and
shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. In discharging their duties, the
Trustees, when acting in good faith, shall be entitled to rely upon the books of
account of the Trust and upon written reports made to the Trustees by any
officer appointed by them, any independent public accountant and (with respect
to the subject matter of the contract involved) any officer, partner or
responsible employee of any other party to any contract entered into hereunder.
(d) Bond. The Trustees shall not be required to give any bond
as such, nor any surety if a bond is required.
(e) Trust Instrument Governs Issues Of Liability. The
provisions of this Trust Instrument, to the extent that they restrict the duties
and liabilities of the Trustees otherwise existing at law or in equity, are
agreed by the Shareholders and all other Persons bound by this Trust Instrument
to replace such other duties and liabilities of the Trustees.
SECTION 3. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES.
No person dealing with the Trustees shall be bound to make any inquiry
concerning the validity of any transaction made or to be made by the Trustees or
to see to the application of any payments made or property transferred to the
Trust or upon its order.
SECTION 4. LIABILITY OF SHAREHOLDERS. Without limiting the
provisions of this section 4 or the Delaware Business Trust Act, the
Shareholders shall be entitled to the same limitation of personal liability
extended to stockholders of private corporations organized for profit under the
General Corporation Law of the State of Delaware.
(a) Limitation of Liability. No personal liability for any
debt or obligation of the Trust shall attach to any Shareholder or former
Shareholder of the Trust, and neither the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind any Shareholder personally or to
call upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time personally agree
to pay by way of subscription for any Shares or otherwise.
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SECTION 5. INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in subsection
(b) below:
(i) every person who is, or has been, a Trustee, officer,
employee, manager or agent of the Trust (including persons who serve at the
Trust's request as directors, trustees, officers or agents of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise)("Covered Person") shall be indemnified by the Trust or the
appropriate Series to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by such person in connection
with any claim, action, suit or proceeding in which such person becomes involved
as a party or otherwise by virtue of being or having been a Covered Person and
against amounts paid or incurred by such person in the settlement thereof,
whether or not such person is a Covered Person at the time such expenses are
incurred;
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include, without
limitation, attorney's fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office, or (B)
not to have acted in good faith in the reasonable belief that his action was in
or not opposed to the best interests of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office: (A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who are neither Interested Persons
of the Trust nor are parties to the matter based upon a review of readily
available facts (as opposed to a full trial type inquiry); or (C) by written
opinion of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial type inquiry).
(c) To the maximum extend permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by such person of the Trust or
applicable Series if it is ultimately determined that such person is entitled to
indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion,
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shall have determined, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that there is reason to believe that such
Covered Person will not be disqualified from indemnification under this Section.
(d) The rights of indemnification herein provided shall be severable,
shall not be exclusive of or affect any other rights to which any Covered Person
may now or hereafter be entitled, and shall inure to the benefit of the heirs,
executors and administrators of a Covered Person.
(e) By action of the Trustees, and notwithstanding any interest of the
Trustees in the action, the Trust shall have power to purchase and maintain
insurance, in such amounts as the Trustees deem appropriate, on behalf of any
Covered Person, whether or not such person is indemnified against such liability
or expense under the provisions of this Article X and whether or not the Trust
would have the power or would be required to indemnify such person against such
liability under the provisions of this Article X or of the Delaware Act or by
any other applicable law, subject only to any limitations imposed by the 1940
Act.
(f) Any repeal or modification of this Article X, Section 5 by the
Shareholders of the Trust, or adoption or modification of any other provision of
the Trust Instrument or Bylaws inconsistent with this Article, shall be
prospective only, to the extent that such repeal or modification would, if
applied retrospectively, adversely affect any limitation on the liability of any
Covered Person or indemnification available to any Covered Person with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
SECTION 6. INDEMNIFICATION OF SHAREHOLDERS. In case any Shareholder or
former Shareholder of the Trust shall be held to be personally liable solely by
reason of being or having been a Shareholder and not because of such
Shareholder's acts or omissions or for some other reason, the Shareholder or
former Shareholder (or, in the case of a natural person, his or her heirs,
executors, administrators or other legal representatives or, in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled out of the assets of the Trust to be held harmless from and indemnified
against all loss and expense arising from such liability; provided, however,
there shall be no liability or obligation of the Trust arising hereunder to
reimburse any Shareholder for taxes paid by reason of such Shareholder's
ownership of any Shares or for losses suffered by reason of any chances in value
of any Trust assets. The Trust shall, upon request by the Shareholder or former
Shareholder, assume the defense of any claim made against the Shareholder for
any act or obligation of the Trust and satisfy any judgment thereon.
ARTICLE XI
MISCELLANEOUS
SECTION 1. TRUST NOT A PARTNERSHIP. This Trust Instrument
creates a trust and not a partnership, except to the extent such trust is deemed
to constitute a partnership under the Code and applicable state tax laws. No
Trustee shall have any power to bind personally either the Trust's officers or
any Shareholder.
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SECTION 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretion hereunder in good
faith and with reasonable care under the circumstances then prevailing shall be
binding upon everyone interested. Subject to the provisions of Article X, the
Trustees shall not be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Trust Instrument, and subject to the provisions of
Article X, shall not be liable for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is obtained.
SECTION 3. RECORD DATES. The Trustees may fix in advance a
date up to ninety (90) days before the date of any Shareholders meeting, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of Shares shall go into effect as a record date for the determination
of the Shareholders entitled to notice of, and to vote at, any such meeting, or
to receive any such allotment of rights, or to exercise such rights in respect
of any such change, conversion or exchange of Shares. Any Shareholder who was a
Shareholder at the date and time so fixed shall be entitled to vote at such
meeting or any adjournment thereof.
SECTION 4. TERMINATION OF THE TRUST.
(a) Except as provided herein, the Trust shall have perpetual
existence. The Trust may be terminated at any time by vote of a majority of the
Shares of each Series entitled to vote, voting separately by Series, or by the
Trustees by written notice to the Shareholders. Any Series of Shares or Class
thereof may be terminated at any time by vote of a majority of the Shares of
such Series or Class entitled to vote or by the Trustees by written notice to
the Shareholders of such Series or Class.
(b) Upon the requisite Shareholder vote or action by the
Trustees to terminate the Trust or any one or more Series or any Class thereof,
after making reasonable provision for the payment of all known liabilities of
the Trust or any affected Series, the Trustees shall distribute the remaining
proceeds or assets (as the case may be) ratably among the Shareholders of the
Trust or any affected Series or Class; however, the payment to any particular
Class of such Series may be reduced by any fees, expenses or charges allocated
to that Class. Upon completion of the distribution of the remaining proceeds or
assets, the Trust or affected Series or Class shall terminate and the Trustees
and the Trust shall be discharged of any and all further liabilities and duties
hereunder with respect thereto and the right, title and interest of all parties
therein shall be canceled and discharged.
(c) Upon termination of the Trust, following completion of
winding up of its business, the Trustees shall cause a certificate of
cancellation of the Trust's certificate of trust to be filed in accordance with
the Delaware Act, which certificate of cancellation may be signed by any person
as permitted by the Delaware Act.
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SECTION 5. REORGANIZATION; MERGER; CONSOLIDATION.
(a) Notwithstanding anything else herein, the Trustees may,
without Shareholder approval to the extent permitted by applicable law, (i)
cause the Trust to merge or consolidate with or into one or more entities, if
the surviving or resulting entity is the Trust or another open-end management
investment company under the 1940 Act, or a series thereof, that will succeed to
or assume the Trust's registration under the 1940 Act, (ii) cause the Shares to
be exchanged under or pursuant to any state or federal statute to the extent
permitted by law, (iii) sell the assets of the Trust in exchange for shares of
another management investment company, or (iv) cause the Trust to incorporate
under the laws of Delaware. Any agreement of merger or consolidation or
certificate of merger may be signed by a majority of Trustees and facsimile
signatures conveyed by electronic or telecommunication means shall be valid.
(b) Pursuant to and in accordance with the provisions of
Section 3815(f) of the Delaware Act, an agreement of merger or consolidation
approved in accordance with this Section 5 may effect any amendment to the
governing instrument of the Trust or effect the adoption of a new trust
instrument of the Trust if it is the surviving or resulting trust in the merger
or consolidation.
(c) The Trustees may create one or more business trusts to
which all or any part of the assets, liabilities, profits, or losses of the
Trust or any Series or Class thereof may be transferred and may provide for the
conversion of Shares in the Trust or any Series or Class thereof into beneficial
interests in any such newly created trust or trusts or any series or classes
thereof.
(d) Upon completion of a merger or consolidation, the Trustees
shall cause a certificate of merger or consolidation of the Trust's certificate
of trust to be filed in accordance with the Delaware Act, which certificate may
be signed by any person as permitted by the Delaware Act.
SECTION 6. TRUST INSTRUMENT. The original or a copy of this
Trust Instrument and of each amendment hereto or Trust Instrument supplemental
shall be kept at the office of the Trust where it may be inspected by any
Shareholder. Anyone dealing with the Trust may rely on a certificate by a
Trustee or an officer of the Trust as to the authenticity of the Trust
Instrument or any such amendments or supplements and as to any matters in
connection with the Trust. The masculine gender herein shall include the
feminine and neuter genders. Headings herein are for convenience only and shall
not affect the construction of this Trust Instrument. This Trust Instrument may
be executed in any number of counterparts, each of which shall be deemed an
original.
SECTION 7. APPLICABLE LAW. This Trust Instrument and the Trust
created hereunder are governed by and construed and administered according to
the Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware
Code, or (b) any provisions of the laws (statutory or common) of the State of
Delaware (other than the Delaware Act) pertaining to trusts which relate to or
regulate
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<PAGE> 27
(i) the filing with any court or governmental body or agency of trustee accounts
or schedules of trustee fees and charges, (ii) affirmative requirements to post
bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards of responsibility or limitations on the acts or powers of
trustees, which are inconsistent with the limitations on liabilities or
authority and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a Delaware business
trust, and, without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust under Delaware law. The
Trust specifically reserves the right to exercise any of the powers or
privileges afforded to trusts or actions that may be engaged in by trusts under
the Delaware Act, and the absence of a specific reference herein to any such
power, privilege or action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
SECTION 8. AMENDMENTS. The Trustees may, without any
Shareholder vote, amend or otherwise supplement this Trust Instrument by making
an amendment, a Trust Instrument supplemental hereto or an amended and restated
trust instrument; provided, that Shareholders shall have the right to vote on
any amendment (a) which would affect the voting rights of Shareholders granted
in Article VII, Section 1, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, and (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series or Class shall be authorized by vote of the
Shareholders of such Series or Class and no vote shall be required of
Shareholders of a Series or Class not affected.
Notwithstanding anything else herein, any amendment to Article
X which would have the effect of reducing the indemnification and other rights
provided thereby to Trustees, officers, employees and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence, shall be prospective in effect only, and each require the affirmative
vote of the holders of two-thirds (2/3) of the Outstanding Shares of the Trust
entitled to vote thereon.
SECTION 9. FISCAL YEAR. The fiscal year of the Trust shall end
on the date set by resolution approved by the Trustees. The Trustees may change
the fiscal year of the Trust without Shareholder approval.
SECTION 10. SEVERABILITY. The provisions of this Trust
Instrument are severable. If the Trustees determine, with the advice of counsel,
that any provision hereof conflicts with the 1940 Act, the regulated investment
company or other provisions of the Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Trust Instrument; provided, however, that such determination
shall not affect any of the remaining provisions of this Trust Instrument or
render invalid or improper
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<PAGE> 28
any action taken or omitted prior to such determination. If any provision hereof
shall be held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision only in such jurisdiction
and shall not affect any other provision of this Trust Instrument.
SECTION 11. SIGNATURES. To the extent permitted by applicable
law, any instrument signed pursuant to a validly executed power of attorney
shall be deemed to have been signed by the Trustee or officer executing the
power of attorney. To the extent permitted by law, any Trustee or officer may,
in his or her discretion, accept a facsimile signature as evidence of a valid
signature on any document.
IN WITNESS WHEREOF, the undersigned, being the initial Trustee,
has executed this Trust Instrument as of the date first above written.
/s/ Ralph M. Kelmon, Jr.
-----------------------------
Ralph M. Kelmon, Jr., Trustee
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<PAGE> 29
SCHEDULE A
SERIES OF THE TRUST
The Kelmoore Strategy(TM) Variable Fund
25
<PAGE> 1
Exhibit 23(b)
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
(A Delaware Business Trust)
BYLAWS
September 30, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I NAME OF TRUST, PRINCIPAL OFFICE AND SEAL............ 1
Section 1. Principal Office ................................... 1
Section 2. Delaware Office .................................... 1
Section 3. Seal ............................................... 1
ARTICLE II MEETINGS OF TRUSTEES................................ 1
Section 1. Meetings ........................................... 1
Section 2. Action Without a Meeting ........................... 2
ARTICLE III COMMITTEES.......................................... 2
Section 1. Organization ....................................... 2
Section 2. Executive Committee ................................ 2
Section 3. Nominating Committee ............................... 2
Section 4. Audit Committee .................................... 2
Section 5. Other Committees ................................... 2
Section 6. Proceedings and Quorum ............................. 2
ARTICLE IV OFFICER............................................. 3
Section 1. General ............................................ 3
Section 2. Election, Tenure and Qualifications of Officers .... 3
Section 3. Vacancies and Newly Created Offices ................ 3
Section 4. Removal and Resignation ............................ 3
Section 5. President .......................................... 3
Section 6. Vice President ..................................... 4
Section 7. Treasurer and Assistant Treasurers ................. 4
Section 8. Secretary and Assistant Secretaries ................ 4
Section 9. Subordinate Officers ............................... 4
Section 10. Expenses of Officers ............................... 5
Section 11. Surety Bond ........................................ 5
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE V MEETINGS OF SHAREHOLDERS............................ 5
Section 1. Annual Meetings .................................... 5
Section 2. Special Meetings ................................... 5
Section 3. Notice of Meetings ................................. 6
Section 4. Validity of Proxies ................................ 6
Section 5. Place of Meeting ................................... 7
Section 6. Action Without a Meeting ........................... 7
ARTICLE VI SHARES IN THE TRUST................................. 7
Section 1. Certificates ....................................... 7
ARTICLE VII CUSTODY OF SECURITIES............................... 7
Section 1. Employment of a Custodian .......................... 7
Section 2. Termination of Custodian Agreement ................. 7
Section 3. Other Arrangements ................................. 8
ARTICLE VIII FISCAL YEAR AND ACCOUNTANT ......................... 8
Section 1. Fiscal Year ........................................ 8
Section 2. Accountant ......................................... 8
ARTICLE IX AMENDMENTS.......................................... 8
Section 1. General ............................................ 8
ARTICLE X MISCELLANEOUS....................................... 8
Section 1. Inspection of Books ................................ 8
Section 2. Severability ....................................... 8
Section 3. Headings ........................................... 9
</TABLE>
iii
<PAGE> 4
BYLAWS
OF
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
(A Delaware Business Trust)
These Bylaws of The Kelmoore Strategy(TM) Variable Trust (the "Trust"), a
Delaware business trust, are subject to the Trust Instrument of the Trust dated
September 30, 1999, as from time to time amended, supplemented or restated (the
"Trust Instrument"). Capitalized terms used herein have the same meaning as in
the Trust Instrument.
ARTICLE I
NAME OF TRUST, PRINCIPAL OFFICE AND SEAL
SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be
located in Palo Alto, California, or such other location as the Trustees may
from time to time determine. The Trust may establish and maintain other offices
and places of business as the Trustees may from time to time determine.
SECTION 2. DELAWARE OFFICE. The Trustees shall establish a registered
office in the State of Delaware and shall appoint as the Trust's registered
agent for service of process in the State of Delaware an individual resident of
the State of Delaware or a Delaware corporation or a corporation authorized to
transact business in the State of Delaware and in any case the business office
of such registered agent for service of process shall be identical with the
registered Delaware office of the Trust.
SECTION 3. SEAL. The Trustees may adopt a seal which shall be in such
form and have such inscription as the Trustees may from time to time determine.
Any Trustee or officer of the Trust shall have authority to affix the seal to
any document, provided that the failure to affix the seal shall not affect the
validity or effectiveness of any document.
ARTICLE II
MEETINGS OF TRUSTEES
SECTION 1. MEETINGS. Meetings of the Trustees may be held at such
places and such times as the Trustees may from time to time determine. Such
meetings may be called orally or in writing by the Chairman of the Trustees or
by any two other Trustees. Each Trustee shall be given notice of any meeting as
provided in Article II, Section 7, of the Trust Instrument.
<PAGE> 5
SECTION 2. ACTION WITHOUT A MEETING. Actions may be taken by the
Trustees without a meeting or by a telephone meeting, as provided in Article
II, Section 7, of the Trust Instrument.
ARTICLE III
COMMITTEES
SECTION 1. ORGANIZATION. The Trustees may designate one or more
committees of the Trustees. The Chairmen of such committees shall be elected by
the Trustees. The number composing such committees and the powers conferred upon
the same shall be determined by the vote of a majority of the Trustees. All
members of such committees shall hold office at the pleasure of the Trustees.
The Trustees may abolish any such committee at any time in their sole
discretion. Any committee to which the Trustees delegate any of their powers
shall maintain records of its meetings and shall report its actions to the
Trustees. The Trustees shall have the power to rescind any action of any
committee, but no such rescission shall have retroactive effect. The Trustees
shall have the power at any time to fill vacancies in the committees. The
Trustees may delegate to a committee any of its powers, including but not
limited to determining the Chairman and members of such Committee, subject to
the limitations of applicable law.
SECTION 2. EXECUTIVE COMMITTEE. The Trustees may elect from their own
number an Executive Committee which shall have any or all the powers of the
Trustees when the Trustees are not in session; subject to the limitations of
applicable law. The Chairman of the Trustees shall be a member of the Executive
Committee.
SECTION 3. NOMINATING COMMITTEE. The Trustees may elect from their own
number a Nominating Committee composed entirely of Trustees who are not
Interested Persons which shall have the power to select and nominate Trustees
who are not Interested Persons, and shall have such other powers and perform
such other duties as may be assigned to it from time to time by the Trustees.
SECTION 4. AUDIT COMMITTEE. The Trustees may elect from their own
number an Audit Committee composed entirely of Trustees who are not Interested
Persons which shall have the power to review and evaluate the audit function,
including recommending independent certified public accountants, and shall have
such other powers and perform such other duties as may be assigned to it from
time to time by the Trustees.
SECTION 5. OTHER COMMITTEES. The Trustees may appoint other committees
whose members need not be Trustees. Each such committee shall have such powers
and perform such duties as may be assigned to it from time to time by the
Trustees, but shall not exercise any power which may lawfully be exercised only
by the Trustees or a committee thereof.
SECTION 6. PROCEEDINGS AND QUORUM. In the absence of an appropriate
resolution of the Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable. In the event any
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<PAGE> 6
member of any committee is absent from any meeting, the members present at the
meeting, whether or not they constitute a quorum, may appoint a Trustee to act
in the place of such absent member at such meeting, subject to any limitations
as to the membership of such Committee imposed by the Trustees, these Bylaws or
the Trust Instrument.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and may include one or more Vice Presidents, Assistant
Treasurers or Assistant Secretaries, and such other officers as the Trustees may
from time to time elect. It shall not be necessary for any Trustee or other
officer to be a Shareholder of the Trust. No officer need be a Trustee.
SECTION 2. ELECTION, TENURE AND QUALIFICATIONS OF OFFICERS. The
officers of the Trust, except those appointed as provided in Section 9 of this
Article, shall be elected by the Trustees. Each officer elected by the Trustees
shall hold office until his or her successor shall have been elected and
qualified or until his or her earlier resignation. Any person may hold one or
more offices of the Trust except that no one person may serve concurrently as
both President and Secretary. A person who holds more than one office in the
Trust may not act in more than one capacity to execute, acknowledge or verify an
instrument required by law to be executed, acknowledged or verified by more than
one officer.
SECTION 3. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy
shall occur in any office, regardless of the reason for such vacancy, or if any
new office shall be created, such vacancies or newly created offices may be
filled by the Trustees or, in the case of any office created pursuant to Section
9 of this Article, by any officer upon whom such power shall have been conferred
by the Trustees.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed from
office at any time, with or without cause, by the Trustees. In addition, any
officer or agent appointed in accordance with the provisions of Section 9 of
this Article may be removed, with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Trustees. Any officer may
resign from office at any time by delivering a written resignation to the
Trustees, the President, the Secretary, or any Assistant Secretary. Unless
otherwise specified therein, such resignation shall take effect upon delivery.
SECTION 5. PRESIDENT. Subject to the direction of the Trustees, the
President shall have general charge of the business affairs, policies and
property of the Trust and general supervision over its officers, employees and
agents. In the absence of the Chairman of the Trustees or if no Chairman of the
Trustees has been elected, the President shall preside at all Shareholders'
meetings and at all meetings of the Trustees and shall in general exercise the
powers and perform the duties of the Chairman of the Trustees. Except as the
Trustees may otherwise order, the President shall have the power to grant,
issue, execute or sign such powers
3
<PAGE> 7
of attorney, proxies, agreements or other documents as may be deemed advisable
or necessary in the furtherance of the interests of the Trust or any Series or
Class thereof. The President also shall have the power to employ attorneys,
accountants and other advisers and agents for the Trust. The President shall
exercise such other powers and perform such other duties as the Trustees may
from time to time assign to the President.
SECTION 6. VICE PRESIDENT. The Trustees may from time to time elect
one or more Vice Presidents who shall have such powers and perform such duties
as may from time to time be assigned to them by the Trustees or the President.
At the request or in the absence or disability of the President, the Vice
President (or, if there are two or more Vice Presidents, then the first
appointed of the Vice Presidents present and able to act) may perform all the
duties of the President and, when so acting, shall have all the powers of and be
subject to all the restrictions upon the President.
SECTION 7. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be
the principal financial and accounting officer of the Trust and shall have
general charge of the finances and books of the Trust. The Treasurer shall
ensure delivery all funds and securities of the Trust to such company as the
Trustees shall retain as custodian in accordance with the Trust Instrument,
these Bylaws, and applicable law. The Treasurer shall make annual reports
regarding the business and financial condition of the Trust as soon as possible
after the close of the Trust's fiscal year. The Treasurer also shall furnish
such other reports concerning the business and financial condition of the Trust
as the Trustees may from time to time require or as required by applicable law.
The Treasurer shall perform all acts incidental to the office of Treasurer,
subject to the supervision of the Trustees, and shall perform such additional
duties as the Trustees may from time to time designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may
perform all the duties of the Treasurer.
SECTION 8. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record all votes and proceedings of the meetings of Trustees and Shareholders in
books to be kept for that purpose. The Secretary shall be responsible for giving
and serving of all notices of the Trust. The Secretary shall have custody of any
seal of the Trust. The Secretary shall be responsible for the records of the
Trust, including the Share register and such other books and papers as the
Trustees may direct and such books, reports, certificates and other documents
required by law. All of such records and documents shall at all reasonable times
be kept open by the Secretary for inspection by any Trustee for any proper Trust
purpose. The Secretary shall perform all acts incidental to the office of
Secretary, subject to the supervision of the Trustees, and shall perform such
additional duties as the Trustees may from time to time designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
4
<PAGE> 8
SECTION 9. SUBORDINATE OFFICERS. The Trustees may appoint from time to
time such other officers and agents as they may deem advisable, each of whom
shall have such title, hold office for such period, have such authority and
perform such duties as the Trustees may determine. The Trustees may delegate
from time to time to one or more officers or committees of Trustees the power to
appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any officer or agent
appointed in accordance with the provisions of this Section 9 may be removed,
either with or without cause, by any officer upon whom such power of removal
shall have been conferred by the Trustees.
SECTION 10. EXPENSES OF OFFICERS. Officers of the Trust are not
compensated for their services as officers, provided however, that each officer
shall receive from the Trust reimbursement for his or her expenses in performing
services as may be incurred from time to time.
SECTION 11. SURETY BOND. Any officer may be required by the Trustees
to be bonded for the faithful performance of such officer's duties in such
amount and with such sureties as the Trustees may determine.
ARTICLE V
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETINGS. There shall be no annual Shareholders'
meetings except as required by law or as hereinafter provided.
SECTION 2. SPECIAL MEETINGS. Special meetings of Shareholders of the
Trust or of any Series or Class shall be called by the President or Secretary
whenever ordered by the Trustees, and shall be held at such time and place as
may be stated in the notice of the meeting.
Special meetings of the Shareholders of the Trust or of any Series or
Class shall be called by the Secretary upon the written request of Shareholders
owning at least ten percent (10%) of the Outstanding Shares entitled to vote at
such meeting, provided that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) subject to applicable
law, the Shareholders requesting such meeting shall have paid to the Trust the
reasonably estimated cost of preparing and mailing the notice thereof, which the
Secretary shall determine and specify to such Shareholders.
If the Secretary fails for more than thirty days to call a special
meeting, the Trustees or the Shareholders requesting such a meeting may, in the
name of the Secretary, call the meeting by giving the required notice. If the
meeting is a meeting of Shareholders of any Series or Class, but not a meeting
of all Shareholders of the Trust, then only a special meeting of Shareholders of
such Series or Class need be called and, in such case, only Shareholders of such
Series or Class shall be entitled to notice of and to vote at such meeting.
5
<PAGE> 9
SECTION 3. NOTICE OF MEETINGS. Except as provided in Section 2 of this
Article, the Secretary shall cause written notice of the place, date and time,
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Notice shall be given as determined by the Trustees at least
ten (10) and not more than sixty (60) days before the date of the meeting. The
written notice of any meeting may be delivered or mailed, postage prepaid, to
each Shareholder entitled to vote at such meeting. If mailed, notice shall be
deemed to be given when deposited in the United States mail directed to the
Shareholder at his or her address as it appears on the records of the Trust.
Notice of any Shareholders' meeting need not be given to any Shareholder if a
written waiver of notice, executed before, at or after such meeting, is filed
with the record of such meeting, or to any Shareholder who is present at such
meeting in person or by proxy unless the Shareholder is present solely for the
purpose of objecting to the call of the meeting. Notice of adjournment of a
Shareholders' meeting to another time or place need not be given, if such time
and place are announced at the meeting at which the adjournment is taken and the
adjourned meeting is held within a reasonable time after the date set for the
original meeting. At the adjourned meeting the Trust may transact any business
which might have been transacted at the original meeting. If after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to Shareholders of record entitled to vote
at such meeting. Any irregularities in the notice of any meeting or the
non-receipt of any such notice by any of the Shareholders shall not invalidate
any action otherwise properly taken at any such meeting.
SECTION 4. VALIDITY OF PROXIES. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy,
provided that either (1) a written instrument authorizing such proxy to act has
been signed and dated by the Shareholder or by his or her duly authorized
attorney, or (2) the Trustees adopt by resolution an electronic, telephonic,
computerized or other alternative to execution of a written instrument
authorizing the proxy to act, but if a proposal by anyone other than the
officers or Trustees is submitted to a vote of the Shareholders of the Trust or
of any Series, or if there is a proxy contest or proxy solicitation or proposal
in opposition to any proposal by the officers or Trustees, Shares may be voted
only in person or by written proxy. Unless the proxy provides otherwise, it
shall not be valid if executed more than eleven months before the date of the
meeting. All proxies shall be delivered to the Secretary or other person
responsible for recording the proceedings before being voted. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice to the contrary from any one of them. Unless
otherwise specifically limited by their terms, proxies shall entitle the
Shareholder to vote at any adjournment of a Shareholders meeting. At every
meeting of Shareholders, unless the voting is conducted by inspectors, all
questions concerning the qualifications of voters, the validity of proxies, and
the acceptance or rejection of votes, shall be decided by the chairman of the
meeting. Subject to the provisions of the Trust Instrument or these Bylaws, all
matters concerning the giving, voting or validity of proxies shall be governed
by the General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
6
<PAGE> 10
SECTION 5. PLACE OF MEETING. All special meetings of Shareholders shall
be held at the principal place of business of the Trust or at such other place
as the Trustees may from time to time designate.
SECTION 6. ACTION WITHOUT A MEETING. Any action to be taken by
Shareholders may be taken without a meeting if a majority (or such other amount
as may be required by law) of the Outstanding Shares entitled to vote on the
matter consent to the action in writing and such written consents are filed with
the records of the Shareholders' meetings. Such written consent shall be treated
for all purposes as a vote at a meeting of the Shareholders held at the
principal place of business of the Trust. If the unanimous written consent of
all Shareholders entitled to vote shall not have been received, the Secretary
shall give prompt notice of the action approved by the Shareholders without a
meeting.
ARTICLE VI
SHARES IN THE TRUST
SECTION 1. CERTIFICATES. No certificates certifying the ownership of
Shares in the Trust shall be issued. In lieu of issuing certificates of Shares,
the Trustees or the transfer agent or shareholder servicing agent may either
issue receipts therefor or may keep accounts upon the books of the Trust for the
record holders of such Shares in accordance with the Trust Instrument. In either
case, the record holders shall be deemed, for all purposes, to be holders of
certificates for such Shares as if they accepted such certificates and shall be
held to have expressly consented to the terms thereof.
ARTICLE VII
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall at all times
place and maintain all funds, securities and similar investments of the Trust
and of each Series in the custody of a Custodian, including any sub-custodian
for the Custodian (the "Custodian"). The Custodian shall be one or more banks or
trust companies of good standing having an aggregate capital surplus, and
undivided profits of not less than two million dollars ($2,000,000), or such
other financial institutions or other entities as shall be permitted by rule or
order of the Securities and Exchange Commission. The Custodian shall be
appointed from time to time by the Trustees, who shall determine its
remuneration.
SECTION 2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of the
Custodian Agreement or inability of the Custodian to continue to serve, the
Trustees shall promptly appoint a successor Custodian. If so directed by
resolution of the Trustees or by vote of a majority of Outstanding Shares of the
Trust, the Custodian shall deliver and pay over all property of the Trust or any
Series held by it as specified in such vote.
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<PAGE> 11
SECTION 3. OTHER ARRANGEMENTS. The Trust may make such other
arrangements for the custody of its assets (including deposit arrangements)
as may be required by any applicable law, rule or regulation.
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT
SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall be as
determined by resolution of the Trustees.
SECTION 2. ACCOUNTANT. The Trust shall employ independent certified
public accountants as its accountant ("Accountant") to examine the accounts of
the Trust and to sign and certify financial statements filed by the Trust. The
Accountant's certificates and reports shall be addressed both to the Trustees
and to the Shareholders.
ARTICLE IX
AMENDMENTS
SECTION 1. GENERAL. All Bylaws of the Trust shall be subject to
amendment, alteration or repeal, and new Bylaws may be made by the affirmative
vote of a majority of either: (1) the Outstanding Shares of the Trust entitled
to vote at any meeting; or (2) the Trustees at any meeting. In no event will
Bylaws be adopted that are in conflict with the Trust Instrument, the Delaware
Act, the Investment Company Act of 1940, or applicable securities laws.
ARTICLE X
MISCELLANEOUS
SECTION 1. INSPECTION OF BOOKS. The Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions the accounts and books of the Trust or any Series shall be open
to the inspection of Shareholders. No Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees.
SECTION 2. SEVERABILITY. The provisions of these Bylaws are severable.
If the Trustees determine, with the advice of counsel, that any provision hereof
conflicts with the Investment Company Act of 1940, the regulated investment
company or other provisions of the Internal Revenue Code or with other
applicable laws and regulations the conflicting provision shall be deemed never
to have constituted a part of these Bylaws; provided, however, that such
8
<PAGE> 12
determination shall not affect any of the remaining provisions of these Bylaws
or render invalid or improper any action taken or omitted prior to such
determination. If any provision hereof shall be held invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall attach only to such
provision only in such jurisdiction and shall not affect any other provision of
these Bylaws.
SECTION 3. HEADINGS. Headings are placed in these Bylaws for
convenience of reference only and in case of any conflict, the text of these
Bylaws rather than the headings shall control.
9
<PAGE> 1
Exhibit 23(d)
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
FORM OF INVESTMENT ADVISORY AGREEMENT
This INVESTMENT ADVISORY AGREEMENT ("Agreement") is made this ___ day of
_________, 1999, by and between The Kelmoore Strategy(TM) Variable Trust (the
"Trust"), a business trust organized and existing under the laws of the state of
Delaware and Kelmoore Investment Company, Inc. (the "Adviser"), a corporation
organized and existing under the laws of the state of California.
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 Trust is authorized to issue separate series of shares of
beneficial interest (hereinafter referred to individually as a "Fund" and
collectively as the "Funds") listed on Schedule A hereto, as such may be amended
from time to time;
WHEREAS, the Adviser is principally engaged in rendering investment
advisory services and is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services to the Trust pursuant to the terms and provisions of this
Agreement, and the Adviser is willing to provide said services;
NOW, THEREFORE, in consideration of the premises and the covenants
contained in this Agreement, the parties hereto agree as follows:
1. Appointment. The Trust hereby appoints the Adviser to act as investment
adviser to the Trust 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 A that shall
become effective upon its execution and shall supersede any Schedule A having an
earlier date.
2. Investment Advisory Services. Subject to the supervision of the Board
of Trustees of the Trust (the "Board"), the Adviser shall provide a continuous
investment program for each Fund, shall determine from time to time which
securities or other investments shall be purchased, sold or exchanged and what
portions of each Fund shall be held in the various securities or other
investments or cash, and shall take such steps as are necessary to implement an
overall investment plan for each Fund. The Adviser may delegate any or all of
its responsibilities to one or more sub-advisers, subject to the approval of the
Board. Such delegation shall not relieve the Adviser of its duties and
responsibilities hereunder. The Adviser shall provide the services under this
Agreement in accordance with each 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 Board as may be adopted from time to time. The Adviser
further agrees that it:
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(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;
(b) will conform with all applicable rules and regulations of the U.S.
Securities and Exchange Commission (the "Commission") as they pertain to
the registration of the Trust 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 each
Fund either directly with the issuer or with any broker or dealer. 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. Under such conditions as may be
specified by the Board in the interest of its shareholders and to ensure
compliance with applicable law and regulations, the Adviser may (i) place
orders for the purchase or sale of each Fund's portfolio securities with
its affiliated broker-dealer, Kelmoore Investment Company, Inc. (the
"Affiliated Broker"), a registered broker-dealer; (ii) pay commissions to
brokers other than the Affiliated Broker which are higher than might be
charged by another qualified broker to obtain brokerage and/or research
services considered by the Adviser to be useful or desirable in the
performance of its duties hereunder and for the investment management of
other advisory accounts over which the Adviser or the Affiliated Broker
exercise investment discretion; and (iii) consider sales by brokers (other
than the Affiliated Broker) of shares of each Fund and any other mutual
fund for which it acts as investment adviser, as a factor in its selection
of brokers and dealers for each Fund's portfolio transactions.
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 may, to the extent permitted by applicable laws and
regulations, 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, or cause the custodian to maintain, all books and
records with respect to the securities transactions executed for each Fund;
(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 Board
and of the appropriate committees of such Board regarding the conduct of
the business of the Trust;
(f) will furnish the Trust's Board such periodic and special reports with
respect to each Fund's investment activities as the Board may reasonably
request;
(g) will seek to provide qualified personnel to fulfill its duties
hereunder and will bear all costs and expenses;
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<PAGE> 3
(h) will seek to manage the Trust in accordance with any restrictions set
forth in the Trust Instrument or By-Laws, or the Trust's then-current
registration statement on Form N-1A, and the prospectus and Statement of
Additional Information as updated from time to time; and
(i) will make every effort to ensure that (1) each Fund shall comply with
Section 817(h) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations issued thereunder, specifically Regulation
Section 1.817-5 relating to the diversification requirements for variable
annuity, endowment, and life insurance contracts, and any amendments or
other modifications to such Section or regulations; (2) each Fund
continuously qualifies as a regulated investment company under Subchapter M
of the Code or any successor provision; and (3) any and all applicable
state law restrictions on investments that operate to limit or restrict the
investments that a Fund may otherwise make are complied with as well as any
changes thereto.
3. Expenses. During the term of this Agreement, the Adviser shall assume
the expense of and shall pay for maintaining the staff and personnel necessary
to perform its obligations under this Agreement, and shall at its own expense
provide the office space, equipment and facilities that it is obligated to
provide under this Agreement.
The Adviser shall not be liable for any expenses of the Trust
including, without limitation, (a) taxes, (b) brokerage fees and commissions and
other costs in connection with the purchase or sale of securities or other
investment instruments with respect to the Trust, (c) legal, auditing and
accounting fees and expenses, (d) the cost of liability insurance or fidelity
bond coverage, (e) charges of the Trust's administrator, custodian, transfer
agent and other service providers, and (f) the fees and expenses involved in
registering and maintaining registration of the Trust's shares with the
Commission.
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 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 fees or reimburse expenses at any
time. Any amounts waived or reimbursed by the Adviser are subject to
reimbursement by the relevant Fund within the following three years, to the
extent such reimbursement by the Fund would not cause the Fund to exceed any
current expense limitation.
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5. Limitation of Liability of the Adviser. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the management of the Trust, except for
(i) willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
hereunder, and (ii) to the extent specified in section 26(b) of the 1940 Act
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation.
6. Duration and Termination. This Agreement shall not become effective
unless and until it is approved by the Board, including a majority of trustees
who are not parties to this Agreement or interested persons of any such party,
and by the vote of a majority of the outstanding voting shares of each Fund of
the Trust. As to each Fund of the Trust, the Agreement shall continue in effect
for two years and shall thereafter continue in effect from year to year so long
as such continuance is specifically approved for each Fund at least annually by
(i) the Board, or by the vote of a majority of the outstanding votes
attributable to the shares of the applicable Fund; and (ii) a majority of those
trustees who are not parties to this Agreement or interested persons of any such
party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time as to any Fund, without
the payment of any penalty, by the Board, or by vote of a majority of the
outstanding votes attributable to the shares of the applicable Fund, or by the
Adviser, on sixty days' written notice to the other party. If this Agreement is
terminated only with respect to one or more, but less than all, of the Funds,
the Agreement shall remain in effect with respect to the remaining Funds. This
Agreement will automatically terminate in the event of its assignment. 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.
7. Books and Records. The Adviser hereby undertakes and agrees to
maintain, in the form and for the period required by the rules adopted under the
1940 Act, all records relating to the Trust's investments that are required to
be maintained by the Trust pursuant to the requirements of Rule 31a-1 and Rule
2a-7 of the 1940 Act. The foregoing notwithstanding, the Adviser may appoint a
qualified third party, such as the Custodian of the Trust, to maintain the books
and records of the Trust on its behalf; provided, however, that such appointment
shall not relieve the Adviser of its obligations with respect to the books and
records of the Trust hereunder.
The Adviser agrees that all books and records which it may maintain
for the Trust are the property of the Trust and further agrees to surrender
promptly to the Trust any such books, records or information upon the Trust's
request. All such books and records shall be made available, within five
business days of a written request, to the Trust's accountants or auditors
during regular business hours at the Adviser's offices. The Trust or its
authorized representative shall have the right to copy any records in the
possession of the Adviser that pertain to the Trust. Such books, records,
information or reports shall be made available to properly authorized government
representatives consistent with state and federal law and/or regulations. In the
event of the termination of this Agreement, all such books, records or other
information shall be returned to the Trust free from any claim or assertion of
rights by the Adviser.
The Adviser further agrees that it will not disclose or use any
records or information obtained pursuant to this Agreement in any manner
whatsoever except as authorized in this Agreement and that it will keep
confidential any information obtained pursuant to this Agreement
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<PAGE> 5
and disclose such information only if the Trust has authorized such disclosure,
or if such disclosure is required by federal or state regulatory authorities.
8. Name. The parties agree that the Adviser has a proprietary interest in
the name "Kelmoore" and the Trust hereby agrees to promptly take such action as
may be necessary to delete from its name and/or the name of any Fund any
reference to such name promptly after receipt from the Adviser of a written
request therefore.
9. 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.
10. Amendments of this Agreement. This Agreement may be amended as to a
Fund by the parties only if such amendment specifically is approved by (i) the
vote of a majority of the outstanding shares of the Fund, if and to the extent
required by applicable law, and (ii) a majority of those trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
11. Definitions of Certain Terms. The terms "assignment," "affiliated
person," and "interested person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act. The term "majority of the
outstanding votes" attributable to the shares of a Fund means the lesser of (a)
67% or more of the votes attributable to the shares of a Fund present at a
meeting if the holders of more than 50% of such votes are present or represented
by proxy, or (b) more than 50% of the votes attributable to shares of the Fund.
12. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California, without giving effect to conflicts of law
provisions thereof, and applicable provisions of the 1940 Act, the Advisers Act,
and the Securities Exchange Act of 1934.
13. Severability. 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.
14. Limitation of Liability. It is expressly acknowledged and agreed that
the obligations of the Trust shall not be binding upon any of the shareholders,
trustees, officers, employees or agents of the Trust, personally, but shall bind
only the trust property of the Trust, as provided in its Trust Instrument. The
execution and delivery of this Agreement has been authorized by the Board and
such authorization shall not be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Trust as provided in its Trust Instrument.
15. 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. 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.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto executed and delivered this
Agreement as of the date first above written.
THE KELMOORE STRATEGY(TM) VARIABLE KELMOORE INVESTMENT COMPANY,
TRUST INC.
By: ______________________________ By:_________________________________
Name: Matthew Kelmon Name: Ralph M. Kelmon, Jr.
Title: President Title: President and Chief Executive
Officer
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Schedule A
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
Name of Each Fund
1. The Kelmoore Strategy Variable Fund
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Schedule I
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
<TABLE>
<CAPTION>
Name of Fund Annual Fee
- ------------ ----------
<S> <C>
The Kelmoore Strategy(TM) Variable Fund 1.50%
</TABLE>
Dated:__________________, 1999
THE KELMOORE STRATEGY(TM) VARIABLE KELMOORE INVESTMENT COMPANY,
TRUST INC.
By: ______________________________ By:_________________________________
Name: Matthew Kelmon Name: Ralph M. Kelmon, Jr.
Title: President Title: President and Chief Executive
Officer
8
