Oregon Annuity News

In The Matter Of Kelmoore Investment Company, Inc.

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

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

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

Contact a Oregon annuity lawyer today and get a free consultation!

	Did You Know?
	Annuity tax-free exchanges, known as 1035 exchanges Section 1035 of the U.S. tax code allows you to exchange an existing variable annuity contract for a new annuity contract without paying any tax on the income and investment gains in your current variable annuity account. These tax-free exchanges, known as 1035 exchanges, can be useful if another annuity has features that you prefer, such as a larger death benefit, different annuity payout options, or a wider selection of investment choices.