<PAGE> 1
As filed with the Securities and Exchange Commission on ____________, 1999
File No. 333-69365
File No. 811-9165
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 3 [ X ]
KELMOORE STRATEGIC TRUST
(Exact Name of Registrant as Specified on Charter)
2471 E. Bayshore Road, Suite 501
Palo Alto, California 94303
(Address of Principal Executive Offices)
(800) 486-3717
(Registrant's Telephone Number)
Matthew Kelmon, President
Kelmoore Strategic Trust
2471 E. Bayshore Road, Suite 501
Palo Alto, California 94303
(Name and Address of Agent for Service)
Copies to:
Andre W. Brewster, Esq. Carolyn F. Mead, Esq.
Howard Rice Nemerovski Canady Falk & Rabkin First Data Investor Services Group
Three Embarcadero Center, 7th Floor 3200 Horizon Drive
San Francisco, CA 94111-4065 King of Prussia, PA 19406-0903
It is proposed that this filing will become effective (check appropriate box).
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ X ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE> 2
[OUTSIDE FRONT COVER]
PROSPECTUS
October ___, 1999
THE KELMOORE STRATEGY(TM) COVERED OPTION FUND
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.
CONTENTS
SUMMARY
What is the Fund?
What is the Fund's Primary Goal?
What is the Fund's Main Strategy?
What are the Fund's Main Risks?
Who may want to invest in the Fund?
Risk/Return Bar Chart and Table
FEES AND EXPENSES OF THE FUND
Shareholder Fees
Annual Fund Operating Expenses
Example
MAIN STRATEGY
OTHER STRATEGIES
MAIN RISKS
MANAGEMENT OF THE FUND
Investment Adviser
<PAGE> 3
Portfolio Manager
Distribution Plan
YOUR INVESTMENT
How to Buy Shares
How to Sell Shares
Transaction Policies
SHAREHOLDER SERVICES
DISTRIBUTIONS AND TAXES
FOR MORE INFORMATION
Shareholder Reports Back Cover
Statement of Additional Information Back Cover
THE KELMOORE STRATEGY(TM) COVERED OPTION FUND
SUMMARY
WHAT IS THE FUND?
The Kelmoore Strategy(TM) Covered Option Fund (the "Fund") is a diversified
series of Kelmoore Strategic Trust, an open-end management investment company,
commonly known as a mutual fund.
WHAT IS THE FUND'S PRIMARY GOAL?
The Fund's primary goal is to maximize realized gains from writing covered
options on common stocks. 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" the related covered call
options against substantially all the shares of stock it owns.
When the Fund purchases a stock, it simultaneously writes covered call options
on the stock. The options written by the Fund are considered "covered" because
the Fund owns the stock against which the options are written. As a result, the
number of covered call options the Fund can write against any particular stock
is limited by the number of shares of that stock the Fund holds.
To maximize premiums generated, Kelmoore Investment Company, Inc. (the
"Adviser") writes as many covered call options on the stocks the Fund owns as it
can. 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)".
<PAGE> 4
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.
The Fund will typically hold no more than forty common stocks, though this
number may fluctuate at the discretion of the Adviser. The issuers of stocks
selected for investment by the Fund will tend to have most of the following
characteristics:
- - - - Considered to be industry leaders
- - - - Have strong financial fundamentals
- - - - Are widely-held and have a high daily trading volume
- - - - Are multi-national corporations
- - - - Have relatively stable prices and dividends
The stocks selected will also usually fall into one of the following five
industry sectors:
SECTOR EXAMPLES
- ----------------------------- ------------------------------------------
Advanced Manufacturing Boeing, General Motors, Kodak
Consumer Goods Gillette, Home Depot, Merck
Finance Allstate, American Express, Merrill Lynch
Resources Amoco, Exxon, Mobil
Technology Hewlett-Packard, IBM, Intel, Microsoft
The Adviser generally seeks over time to maintain a balance of the Fund's assets
invested among the five sectors. The specific companies mentioned above are
examples only and may or may not be included in the Fund's portfolio.
WHAT ARE THE FUND'S MAIN RISKS?
As with any mutual fund, the value of the Fund's investments, and therefore the
value of the Fund's shares, will fluctuate. If the net asset value of your
shares declines below the price you paid, you will lose money. The performance
of the Fund may also vary substantially from year to year. 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
<PAGE> 5
selected 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
Other risks:
- lack of liquidity in connection with purchases and sales of
portfolio securities
- payment to the Adviser of brokerage commissions on stocks and
options
- relatively higher cost of options trades
- taxable income to the investor
- forced liquidation of securities underlying the options
- lack of prior operating history of the Fund, and of the
Adviser as a fund adviser
- adverse effects of year 2000 issues on the Fund
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
- are prepared to receive taxable distributions of income
- have a longer-term investment horizon
YOU SHOULD NOT INVEST IN THIS FUND IF YOU ARE SEEKING CAPITAL APPRECIATION OR
<PAGE> 6
PREDICTABLE LEVELS OF INCOME OR ARE INVESTING FOR A SHORT PERIOD OF TIME.
RISK/RETURN BAR CHART AND TABLE
Although past performance of a fund is no guarantee of how it will perform in
the future, historical performance may give you some indication of the risks of
investing in a mutual fund. Performance demonstrates how a mutual fund's returns
have varied over time. The Fund is recently organized and therefore has no
performance history. Once the Fund has performance for at least one calendar
year, a Bar Chart and Performance Table will be included in the prospectus. The
Fund's annual returns will also be compared to the returns of a benchmark index.
FEES AND EXPENSES OF THE FUND
THE TABLES BELOW DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND
HOLD SHARES OF THE FUND.
SHAREHOLDER FEES
(fees paid directly from your investment):
<TABLE>
<CAPTION>
Class A Class C
<S> <C> <C>
Maximum Sales Charge (Load) imposed on Purchases .............. 5.50%* None
Maximum Deferred Sales Charge (Load)........................... None None
Maximum Sales Charge (Load) imposed on Reinvested Dividends.... None None
Redemption Fees (as a percentage of amount redeemed)........... None** None**
</TABLE>
*Reduced for purchases of $50,000 and over.
**If you redeem your shares by wire transfer, the Fund's transfer agent charges
a fee (currently $9.00) for each wire redemption. Purchases and redemptions not
made directly through the Fund's principal distributor may be made through
broker-dealers, financial advisors or other nominees who may charge a commission
or other transaction fee for their services.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
Class A Class C
<S> <C> <C>
Management Fees .............................................. 1.00% 1.00%
Distribution and Service (12b-1) Fees......................... 0.25 1.00
Other Expenses................................................ 1.00* 1.00*
---- ----
Total Annual Fund Operating Expenses.......................... 2.25% 3.00%
==== ====
</TABLE>
* "Other Expenses" are based on the estimated expenses that the Fund
expects to incur in its initial fiscal year.
EXAMPLE
This example is designed so that you may compare the cost of investing in the
Fund with the cost of investing in other mutual funds. The example assumes that:
- YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS INDICATED;
- YOU REDEEM ALL OF YOUR SHARES AT THE END OF THE TIME PERIODS;
<PAGE> 7
- YOUR INVESTMENT HAS A HYPOTHETICAL 5% RETURN EACH YEAR;
- ALL DISTRIBUTIONS ARE REINVESTED; AND
- THE FUND'S OPERATING EXPENSES REMAIN THE SAME.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C> <C>
Class A.................. $766 $1215
Class C.................. $302 $927
</TABLE>
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
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. 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
<PAGE> 8
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
it is 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
leaders and to have strong financial fundamentals. In addition, to reduce
overall market risk, the Adviser normally invests across five 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.
TEMPORARY DEFENSIVE POSITION
The Fund may, from time to time, take a temporary defensive position that is
inconsistent with the Fund's principal investment strategies in attempting to
respond to adverse market, economic, political or other conditions. When the
Fund takes a temporary defensive position, it may not achieve its stated
investment objective. A principal defensive investment position would be the
purchase of cash equivalents.
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.
<PAGE> 9
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.
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 equity 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 foregoes 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.
<PAGE> 10
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 possible.
While the Fund does not intend to trade the stocks in its portfolio actively, it
is in the interest of the Fund to write as many options as possible, thereby
maximizing the premiums it receives. In practice, the number of options written
at any time will be limited to the value of the stocks and other assets in the
Fund's portfolio used to cover or secure those options. Brokerage commissions
are often greater in relation to options premiums than in relation to the price
of the underlying stocks.
TAX CONSEQUENCES
The Fund expects to generate a high level of premiums. Income from these
premiums is typically in the form of short-term capital gains and will usually
be taxable as ordinary income to the investor. Because the Fund will have no
control over the exercise of options, shareholder redemptions and corporate
events (such as mergers or reorganizations), it may be forced to realize capital
gains or losses at inopportune times.
LACK OF OPERATING HISTORY
The Fund has no operating history, and the Adviser has not previously acted as
an investment adviser for a mutual fund.
YEAR 2000 ISSUES
Like all mutual funds, the Fund's operations depend heavily on the functioning
of computer systems, including those used by its Adviser, custodian, fund
accounting agent, and transfer agent. The failure of these computer systems to
properly process data containing dates occurring after December 31, 1999 (the
"Year 2000 problem") could adversely affect the Fund. While the Adviser and
other service providers have advised the Fund that they are taking steps they
believe are reasonably designed to address the Year 2000 problem, there is no
assurance that these steps will be sufficient. In addition, there is no
assurance that the Year 2000 problem will not have an adverse effect on the
companies whose securities are held by the Fund or the securities markets and
their participants generally.
<PAGE> 11
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
Kelmoore Investment Company, Inc. serves as the investment adviser to the Fund
and is responsible for the selection and ongoing monitoring of the securities in
the Fund's investment portfolio and for the management of the Fund's business
affairs. The Adviser is a registered investment adviser and broker-dealer that
was established in 1992 by Ralph M. Kelmon, Jr., who is the principal
shareholder. The Adviser offers investment advisory and brokerage services to
individual clients, trusts, corporations, institutions and private investment
funds using the same investment strategy that the Fund employs. The Adviser has
not previously advised or managed a mutual fund. The Adviser's principal address
is 2471 East Bayshore Road, Suite 501, Palo Alto, California 94303.
The Fund pays the Adviser a monthly fee at the annual rate of 1.00% of the
Fund's average daily net assets. The Adviser 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 2.25% for Class A shares and 3.00% for Class C shares. The Adviser
reserves the right to terminate this undertaking at any time, in its sole
discretion. Any waiver or reimbursement by the Adviser is subject to
reimbursement by the Fund within the following three years, to the extent such
reimbursement by the Fund would not cause total operating expenses to exceed any
current expense limitation.
PORTFOLIO MANAGER
The primary portfolio manager for the Fund is Matthew Kelmon. Mr. Kelmon has
been Vice President of Trading for the Adviser from 1994 to present. Mr. Kelmon
manages the day-to-day trading activities of the Adviser and is responsible for
designing and implementing the in-house software system (OPTRACKER(TM)) used in
the investment process. Mr. Kelmon has been responsible for the day-to-day
management and implementation of the Kelmoore Strategy for private accounts and
limited partnerships from 1994 to present. Mr. Kelmon also heads up the equity
selection committee of the Adviser. Previously, Mr. Kelmon was an account
executive with M.L. Stern & Co., Inc., a bond dealer, from 1993 to 1994.
DISTRIBUTION PLAN
The Fund has, on behalf of the Class A and Class C shares, adopted plans
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended,
that allow the Fund to pay distribution and service fees for the sale and
distribution of its shares and for services provided to shareholders. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time,
these fees will increase the cost of your investment and may cost more than
paying other types of sales charges. The distribution plan for Class
<PAGE> 12
A shares permits the Fund to reimburse 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 distribution plan for Class C shares permits the Fund to
reimburse the Adviser an annual fee not to exceed 0.75% of the average daily net
assets of the Fund. In addition, the distribution plan for Class C shares
permits the Fund to reimburse the Adviser for payments to dealers or others, an
annual service fee not to exceed 0.25% of the average daily net assets of the
Fund.
YOUR INVESTMENT
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers, directly through the
Adviser, or through the Automatic Investment Plan. Shares of the Fund are
offered only to residents of states in which the shares are registered or
qualified. No share certificates will be issued in connection with the purchase
of Fund shares.
PURCHASE AMOUNTS
MINIMUM INITIAL INVESTMENT: $1,000
MINIMUM ADDITIONAL INVESTMENTS: $100
Multiple Classes
The Fund offers both Class A and Class C shares. Each Class of shares has a
different distribution arrangement to provide for different investment needs.
this allows you to choose the class of shares most suitable for you depending on
the amount and length of investment and other relevant factors. Sales personnel
may receive different compensation for selling each Class of shares.
Class A Shares
Sales of Class A shares of the Fund include a front-end sales charge (expressed
as a percentage of the offering price) as shown in the following table:
<TABLE>
<CAPTION>
Front-End Sales Charge
-------------------------------------------------------
Approximate Percentage
Percentage of Percentage of of Dealer
Amount of Single Transaction Offering Price Amount Invested Reallowance
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.75% 4.99% 4.25%
$100,000 but less than $250,000 4.00% 4.17% 3.50%
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
$250,000 but less than $500,000 3.25% 3.36% 2.50%
$500,000 or more 2.50% 2.56% 1.50%
</TABLE>
Shares acquired as a result of reinvestment of distributions will not be subject
to any sales charge. Class A shares are subject to a 12b-1 fee of 0.25%, which
is lower than the 12b-1 fee for the Class C shares.
The Adviser may pay a dealer concession to those selected dealers who have
entered into an agreement with the Adviser. The dealer's concession may be
changed from time to time. The Adviser may from time to time offer incentive
compensation to dealers which sell shares of the Fund subject to sales charges,
allowing such dealers to retain an additional portion of the sales charge. On
some occasions, such incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of the Fund during a specified period of
time. A dealer who receives all or substantially all of the sales charge may be
considered an "underwriter" under the Securities Act of 1933, as amended. All
such sales charges are paid to the securities dealer involved in the trade, if
any.
Reduced Sales Charges
The sales charge for purchases of Class A shares of the Fund may be reduced for
a single purchaser through a Right of Accumulation or a Letter of Intent. To
qualify for a reduced sales charge, you must notify your dealer, First Data
Investor Services Group, Inc. ("Investor Services Group") or the Fund.
Right of Accumulation
If you already hold Class A shares of the Fund, a reduced sales charge based on
the sales charge schedule for Class A shares may apply to subsequent purchases.
The sales charge on each additional purchase is determined by adding the current
market value of the shares you currently own to the amount being invested. The
reduced sales charge is applicable only to current purchases. It is your
responsibility to notify Investor Services Group at the time of subsequent
purchases that the purchase is eligible for the reduced sales charge under the
Right of Accumulation. You must also give the account numbers of your accounts,
and of those accounts held in the name of your spouse or for minor children, the
age of such children and the specific relationship of each such person.
<PAGE> 14
Letter of Intent
You may qualify for a reduced sales charge immediately by signing a
non-binding Letter of Intent stating your intention to invest during the next 13
months a specified amount which, if made at one time, would qualify for a
reduced sales charge. The first investment cannot be made more than 90 days
prior to the date of the Letter of Intent. Any redemptions made during the
13-month period will be subtracted from the amount of purchases in determining
whether the Letter of Intent has been satisfied. During the term of the Letter
of Intent, Investor Services Group will hold shares representing 5% of the
indicated amount in escrow for payment of a higher sales charge if the full
amount indicated in the Letter of Intent is not purchased. The escrowed shares
will be released when the full amount indicated has been purchased. If the full
amount indicated is not purchased within the 13-month period, your escrowed
shares will be redeemed in an amount equal to the difference in the dollar
amount of sales charge actually paid and the amount of sales charge you would
have had to pay on your aggregate purchases if the total of such purchases had
been made at a single time. It is your responsibility to notify Investor
Services Group at the time the Letter of Intent is submitted that there are
prior purchases that may apply.
The term "single purchaser" refers to (i) an individual, (ii) an individual
and spouse purchasing shares of the Fund for their own account or for trust or
custodial accounts of their minor children, (iii) a fiduciary purchasing for any
one trust, estate or fiduciary account, including employee benefit plans of a
single employer, or (iv) tax exempt organizations.
Sales at Net Asset Value
The Fund may sell Class A shares at net asset value (i.e., without any
initial sales charge) to certain categories of investors, including:(1)
investment advisory clients of the Adviser or its affiliates; (2) officers and
present or former Trustees of the Fund; directors and full-time employees of
selected dealers or agents; the spouse, sibling, direct ancestor or direct
descendant (collectively "relatives") of any such person; any trust, individual
retirement account or retirement plan account for the
<PAGE> 15
benefit of any such person or relative; or the estate of any such person or
relative; if such shares are purchased for investment purposes (such shares may
not be resold except to the Fund); (3) the Adviser and its affiliates and
certain employee benefit plans for employees of the Adviser; (4) employer
sponsored qualified pension or profit-sharing plans (including Section 401(k)
plans),custodial accounts maintained pursuant to Section 403(b)(7)retirement
plans and individual retirement accounts (including individual retirement
accounts to which simplified employee pension ("SEP") contributions are made),
if such plans or accounts are established or administered under programs
sponsored by administrators or other persons that have been approved by the
Adviser; (5) fee-based financial planners and registered investment advisors who
are purchasing on behalf of their clients; and (6) broker-dealers who have
entered into selling agreements with the Adviser for their own accounts.
Class C Shares
Sales of Class C shares of the Fund do not include a front-end sales charge.
Class C shares are subject to a 12b-1 fee of 1.00% which, over time, may cost
you more than other types of sales charges. Because of the higher 12b-1 fees,
Class C shares have higher expenses and, consequently, pay lower dividends than
Class A shares.
TO OPEN AN ACCOUNT
BY MAIL
- - Complete the application.
- - Mail the application and your check to:
First Data Investor Services Group
211 South Gulph Road
P.O. Box 61503
King of Prussia, PA 19406
- - Please make check payable to "The Kelmoore Strategy Covered Option Fund."
- - Please make sure your check is for at least $1,000.
BY WIRE
- - To make a same-day wire investment, call toll-free (877) 328-9456 by 4:00 p.m.
Eastern time. An account number will be assigned to you.
- - Call your bank with instructions to transmit funds to:
<PAGE> 16
Boston Safe Deposit & Trust (BSDT), ABA#011001234
Attn: First Data Investor Services Group
Account# 018953
Credit: The Kelmoore Strategy Covered Option Fund
FBO: Name(s) of account registration and account number
- - Your bank may charge a wire fee. Please make sure your wire is for at least
$1,000. Mail your completed application to First Data Investor Services Group at
the address under "To Open an Account - By Mail".
TO ADD TO AN ACCOUNT
BY MAIL
Fill out an investment slip from a previous confirmation and write your account
number on your check. Mail the slip and your check to:
First Data Investor Services Group
211 South Gulph Road
P.O. Box 61503
King of Prussia, PA 19406
- - Please make check payable to "The Kelmoore Strategy Covered Option Fund."
- - Please make sure your additional investment is for at least $100.
BY WIRE
- - Call toll-free (877) 328-9456. The wire must be received by 4:00 p.m.
Eastern time for same day processing.
- - Follow the instructions under "To Open an Account - By Wire." Your bank may
charge a wire fee. Please make sure your wire is for at least $100.
Automatic Investment Plan
Once an account has been opened, you can make additional purchases of shares of
the Fund through an automatic investment plan. The automatic investment plan
provides a convenient method to have monies deducted directly from your bank
account for investment in the Fund. You may authorize the automatic withdrawal
of funds from your bank account subject to a minimum of $100 per withdrawal. The
Fund may alter, modify or terminate this plan at any time. To begin
participating in this plan, please complete the Automatic Investment Plan
Section found on the application or contact the Fund at (877) 328-9456.
PURCHASE PRICE
Class C shares of the Fund are sold at the net asset value ("NAV") next
determined after receipt of the request in good order. Class A shares are sold
at the offering price
<PAGE> 17
which is the NAV next determined after the request is received in good order
plus a sales charge of up to 5.50%
RIGHTS RESERVED BY THE FUND
The Fund reserves the right to:
- reject any purchase order
- suspend the offering of shares
- vary the initial and subsequent investment minimums
- waive the minimum investment requirement for any investor
HOW TO SELL SHARES
GENERAL
You may "redeem", that is, sell your shares on any day the New York Stock
Exchange is open, either directly through the Adviser or through your
broker-dealer. The price you receive will be the NAV next calculated after
receipt of the request in good order by Investor Services Group.
BY MAIL
To redeem your shares by mail, write a letter of instruction that includes:
- The name of the Fund, your account number, the name(s) in
which the account is registered, the class of shares and the
dollar value or number of shares you wish to sell.
- Include all signatures and any additional documents that may
be required.
- Mail your request to:
First Data Investor Services Group
211 South Gulph Road
P.O. Box 61503
King of Prussia, PA 19406
- A check will be mailed to the name(s) and address in which the
account is registered within seven days.
BY TELEPHONE
Call toll-free (877) 328-9456. The proceeds will be paid to the registered
owner: (1) by mail at the address on the account, or (2) by wire to the bank
account designated on the form. To use the telephone redemption privilege, you
must have selected this service on your original account application or
submitted a subsequent request in writing to add this service to your account.
The Fund and Investor Services Group reserve the right to refuse any telephone
transaction when they are unable to confirm to their satisfaction that a caller
<PAGE> 18
is the account owner or a person preauthorized by the account owner. Investor
Services Group has established security procedures to prevent unauthorized
account access. The telephone transaction privilege may be suspended, limited,
modified or terminated at any time without prior notice by the Fund or Investor
Services Group. Neither the Fund nor any of its service contractors will be
liable for any loss or expense in acting upon telephone instructions that are
reasonably believed to be genuine.
BY WIRE
In the case of redemption proceeds that are wired to a bank, the Fund will
transmit the payment only on days that commercial banks are open for business
and only to the bank and account previously authorized on your application or
your signature-guaranteed letter of instruction. The Fund and Investor Services
Group will not be responsible for any delays in wired redemption proceeds due to
heavy wire traffic over the Federal Reserve System. The Fund reserves the right
to refuse a wire redemption if it is believed advisable to do so. If you redeem
your shares by wire transfer, Investor Services Group charges a fee (currently
$9.00) for each wire redemption.
SELLING RECENTLY PURCHASED SHARES
If you wish to sell shares that were recently purchased by check, the Fund may
delay mailing your redemption check for up to 15 business days after your
redemption request to allow the purchase check to clear.
TRANSACTION POLICIES
TIMING OF PURCHASE OR SALE REQUESTS
All requests received in good order by Investor Services Group before the close
of the New York Stock Exchange ("NYSE"), typically 4:00 p.m. Eastern Time, will
be executed the same day, at that day's NAV. Orders received after the close of
the NYSE will be executed the following day, at that day's NAV. All investments
must be in U.S. dollars. Purchase and redemption orders are executed only on
days when the NYSE is open for trading. If the NYSE closes early, the deadlines
for purchase and redemption orders will be accelerated to the earlier closing
time.
STOCK EXCHANGE CLOSINGS
The NYSE is typically closed for trading on New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas.
DETERMINATION OF NAV
The NAV for the Fund is calculated at the close of regular trading hours of the
NYSE, which is normally 4:00 p.m. Eastern time. The Fund calculates NAV by
adding up the total value of the Fund's investments and other assets,
subtracting liabilities, and then dividing that figure by the number of the
Fund's outstanding shares. The Fund's investments are valued based on market
value, or where market quotations are not readily available, on fair value as
determined in good faith by or at the direction of the Fund's Trustees.
<PAGE> 19
INVESTMENTS THROUGH NOMINEES
If you invest through a nominee, such as a broker-dealer or financial advisor
(rather than directly), the policies and fees may be different than those
described here. Nominees may charge transaction fees and set different minimum
investments or limitations on buying or selling shares. It is the responsibility
of the nominee to promptly forward purchase or redemption orders and payments to
the Fund. You will not be charged fees if you purchase Class C shares of the
Fund or redeem Class A shares or Class C shares of the Fund directly through the
Fund's principal distributor.
REDEMPTION POLICIES
Payment for redemptions of Fund shares is usually made within one business day,
but not later than seven calendar days after receipt of your redemption request,
unless the check used to purchase the shares has not yet cleared. The Fund may
suspend the right of redemption or postpone the date of payment for more than
seven days during any period when (1) trading on the NYSE is restricted or the
NYSE is closed for other than customary weekends and holidays, (2) the
Securities and Exchange Commission ("SEC") has by order permitted such
suspension for the protection of the Fund's shareholders, or (3) an emergency
exists making disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable. The Fund will automatically redeem shares if a
purchase check is returned for insufficient funds. The Fund reserves the right
to reject any third party check. The Fund reserves the right to make a
"redemption in kind" payment in portfolio securities rather than cash if the
amount you are redeeming is large enough to affect fund operations. Large
redemptions are considered to exceed $250,000 or 1% of the Fund's assets.
ACCOUNT MINIMUM
You must keep at least $1,000 worth of shares in your account to keep the
account open. If, after giving you thirty days prior written notice, your
account value is still below $1,000 we may redeem your shares and send you a
check for the redemption proceeds.
SIGNATURE GUARANTEES
The Fund may require additional documentation, or signature guarantees, on any
redemption over $10,000 in value or for the redemption of corporate, partnership
or fiduciary accounts, or for certain types of transfer requests or account
registration changes. A signature guarantee helps protect against fraud. You can
obtain one from most banks or securities dealers, but not from a notary public.
Please call toll-free (877) 328-9456 for information on obtaining a signature
guarantee.
OTHER DOCUMENTS
Additional documents may be required for purchases and redemptions when shares
are registered in the name of a corporation, partnership, association, agent,
fiduciary, trust, estate or other organization. For further information, please
call Investor Services Group toll-free at (877) 328-9456.
SHAREHOLDER SERVICES
<PAGE> 20
TELEPHONE INFORMATION
Your Account: If you have questions about your account, including
purchases, redemptions and distributions, call
Investor Services Group from Monday through Friday,
9:00 a.m. to 7:00 p.m., Eastern time. Call toll-free
(877) 328-9456.
The Fund: If you have questions about the Fund, call the Fund's
telephone representatives Monday through Friday, 9:00
a.m. to 5:00 p.m., Pacific time. Call toll-free (877)
328-9456.
ACCOUNT STATEMENTS
The Fund provides you with these helpful services and information about your
account:
- a statement after every transaction;
- an annual account statement reflecting all transactions for
the year;
- tax information which will be mailed by January 31 of each
year, a copy of which will also be filed with the Internal
Revenue Service, if necessary; and
- financial statements with a summary of portfolio composition
and performance will be mailed at least twice a year.
The Fund provides the above shareholder services without charge, but may charge
for special services such as requests for historical transcripts of accounts.
INTEGRATED VOICE RESPONSE SYSTEM
You may obtain access to account information by calling toll-free (877)
328-9456. The system provides share price and price change information for the
Fund and gives account balances and information on the most recent transactions
and allows sales of shares.
SYSTEMATIC WITHDRAWAL PLAN
Once you have established an account with $5,000 or more, you may automatically
receive funds from your account on a monthly, quarterly or semi-annual basis
(minimum withdrawal of $100). Call toll-free (877) 328-9456 to request a form to
start the Systematic Withdrawal Plan.
RETIREMENT PLANS
Shares of the Fund are available for purchase through individual retirement
accounts ("IRAs") and other retirement plans. An IRA application and further
details about the procedures to be followed by IRAs and other retirement plans
are available by calling toll-free (877) 328-9456.
DISTRIBUTIONS AND TAXES
<PAGE> 21
DISTRIBUTIONS
The Fund passes along to your account your share of investment earnings in the
form of dividends and distributions. The Fund will distribute at least annually
any net realized long-term capital gains obtained through Fund investment
transactions. The Fund will 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.
Under limited circumstances, certain distributions from the Fund may be treated
as a return of capital. If your distributions are reinvested, you are largely
unaffected by such returns of capital. If you received your distributions in
cash, a return of capital is equivalent to a partial redemption of your
investment.
Unless you elect otherwise, all dividends and distributions paid by the Fund
will be reinvested in additional shares of the Fund. They will be credited to
your account in the Fund at the same NAV per share as would apply to cash
purchases on the applicable dividend payment date. All distributions the Fund
pays to you will be taxable when paid, regardless of whether they are taken in
cash or reinvested in shares of the Fund. To change your dividend election, you
must notify Investor Services Group in writing at least fifteen days prior to
the applicable dividend record date.
TAXES
The Fund intends to qualify as a regulated investment company. This status
exempts the Fund from paying federal income tax on the income or capital gains
it distributes to its shareholders.
Your investment in the Fund will be subject to the following tax consequences:
- Dividends from net investment income and distributions from
short-term capital gains are taxable as ordinary income
- Distributions from long-term capital gains, if any, are
taxable as long-term capital gain
- Dividends and distributions may also be subject to state and
local taxes
- Certain dividends paid to you in January will be taxable as if
they had been paid the previous December
If you purchase shares shortly before a record date for a dividend or
distribution, a portion of your investment will be returned as a taxable
distribution.
Due to the nature of the Fund's principal investment strategy, the Fund
anticipates that a majority of its distributions will be in the form of ordinary
income. The Fund may at times realize short-term capital gains on some portfolio
securities, while at the same time seeking to avoid realizing losses on other
securities held in the portfolio. As a result, the Fund's shareholders may
receive taxable distributions from a net realized short-term capital gain at
<PAGE> 22
times when the Fund has unrealized losses in its portfolio which could have been
used to offset such gain. Similarly, the Fund may at times continue to pay
taxable distributions from a new realized short-term gain which could have been
retained by the Fund and offset by a capital loss carryforward available to the
Fund.
The Fund will generally realize short-term capital gain (or loss) on a closing
purchase transaction with respect to a call or put previously written by the
Fund if the premium, plus commission costs, paid to purchase the call or put is
less (or greater) than the premium, less commission costs, received on the sale
of the call or put. A short-term capital gain also will be realized if a call or
put which the Fund has written lapses unexercised, because the Fund would retain
the premium. If a call option which the Fund has written on any equity security
is exercised, the Fund realizes a capital gain or loss 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.
You must provide the Fund with your correct taxpayer identification number and
certify that you are not subject to backup withholding. If you do not, the Fund
will be required to withhold 31% of your taxable distributions and redemptions.
After the end of each calendar year, you will receive a statement (Form 1099) of
the federal income tax status of the Fund's dividends and other distributions
paid during the year. You should keep all of your Fund statements for accurate
tax-accounting purposes.
You should consult your tax advisor concerning federal, state and local taxation
of Fund dividends and distributions in your particular circumstances.
[OUTSIDE BACK COVER]
ADMINISTRATOR, TRANSFER AGENT AND FUND ACCOUNTING AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
(877) 328-9456
CUSTODIAN
The Bank of New York
48 Wall Street
New York, NY 10286
COUNSEL
Howard Rice Nemerovski Canady Falk & Rabkin, A Professional Corporation
Three Embarcadero Center
Seventh Floor
San Francisco, CA 94111-4065
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
<PAGE> 23
333 Market Street
San Francisco, CA 94105
ADDITIONAL INFORMATION
Shareholder Reports:
Additional information about the Fund's investments will be available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year will
be included.
Statement of Additional Information (SAI):
The SAI contains additional information about the Fund. It is incorporated by
reference into this prospectus.
To request a free copy of the current annual report, semi-annual report or SAI,
or to request other information about the Fund, please write or call:
Kelmoore Investment Company, Inc.
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
(877) 328-9456
Information about the Fund (including the SAI) may be obtained in person at the
SEC's Public Reference Room in Washington, DC. Call (800) SEC-0330 for
information on the operation of the Public Reference Room. You may also request
copies by mail by sending your request, along with a duplicating fee, to the
SEC's Public Reference Room, Washington, DC 20549-6009. You may also visit the
SEC's Internet site (www.sec.gov) to view reports and other information about
the Fund.
The Trust's SEC file number: 811-9165.
<PAGE> 24
STATEMENT OF ADDITIONAL INFORMATION
October ___, 1999
KELMOORE STRATEGIC TRUST
THE KELMOORE STRATEGY(TM) COVERED OPTION FUND
Principal Distributor:
Kelmoore Investment Company, Inc.
2471 East Bayshore Road
Suite 501
Palo Alto, CA 94303
Toll-free (877) 328-9456
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's Prospectus dated October ___, 1999. The
information in this Statement of Additional Information expands on information
contained in the Prospectus. The Prospectus can be obtained without charge by
contacting either the dealer through whom you purchased shares or the
Distributor at the telephone number or address above.
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Kelmoore Strategy(TM) Covered Option Fund......... 1
Investment Strategies and Related Risks .............. 1
Investment Restrictions .............................. 3
Portfolio Turnover.................................... 4
Management of the Fund................................ 4
Trustees and Officers....................... 4
Investment Adviser.......................... 6
Other Services........................................ 6
Purchases and Redemptions ............................ 8
Valuation............................................. 9
Taxes................................................. 9
Brokerage ............................................ 11
Shares of Beneficial Interest......................... 11
Calculation of Performance ........................... 12
Financial Statements ................................. 13
</TABLE>
<PAGE> 26
THE KELMOORE STRATEGY(TM) COVERED OPTION FUND
The Kelmoore Strategy(TM) Covered Option Fund (the "Fund") is a diversified
series of Kelmoore Strategic Trust (the "Trust"), a Delaware business trust
organized on December 1, 1998 as an open-end management investment company. The
Fund has employed Kelmoore Investment Company, Inc. as its investment adviser
(the "Adviser").
INVESTMENT STRATEGIES AND RELATED RISKS
The following describes certain attributes of particular types of securities in
which the Fund invests and supplements and should be read in conjunction with
sections of the Prospectus entitled "Summary", "Main Strategy", "Other
Strategies" and "Main Risks."
Common Stock. Common stock represents an equity (ownership) interest in a
company or other entity. This ownership interest often gives the Fund the right
to vote on measures affecting the company's organization and operations.
Although common stocks generally have had a history of long-term growth in
value, their prices are often volatile in the short-term and can be influenced
by not only general market risk but specific corporate risks as well.
Options on Securities. The writing and purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
successful use of options depends in part on the ability of the Adviser to
predict future price fluctuations.
The Fund may write (sell) call and put options on any security in which it may
invest. These options will be listed on securities exchanges. Exchange-traded
options in the United States are issued by the Options Clearing Corporation (the
"OCC"), a clearing organization affiliated with the exchanges on which options
are listed. The OCC, in effect, gives its guarantee to every exchange-traded
option transaction.
The Fund receives a premium for each option it writes. The premium received will
reflect, among other things, the current market price of the underlying
security, the relationship of the exercise price to the market price, the
historical price volatility of the underlying security, the option period,
supply and demand and interest rates.
All call and put options written by the Fund are covered (or secured). A written
call option is typically covered by maintaining the securities subject to the
option in a segregated account. A written call option may also be covered by (i)
maintaining cash or liquid securities in a segregated account with a value at
least equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position.
Put options written by the Fund will be secured by (i) maintaining cash or
liquid securities in a segregated account with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position.
The obligation of an option writer is terminated upon the exercise of the
option, the option's expiration or by effecting a closing purchase transaction.
Additional Risks Associated with Options Transactions. There is no assurance a
liquid secondary market will exist for any particular exchange-traded option or
at any particular time. If the Fund is unable to effect a closing purchase
transaction with respect to options it has written, the Fund will not be able to
sell the underlying securities or dispose of assets held in a segregated account
until the options expire or are exercised.
Reasons for the absence of a liquid secondary market include the following: (i)
there may be insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or the OCC may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options). If trading were
discontinued, the secondary market on that exchange (or in that class or series
of options) would cease to exist. However, outstanding options on that exchange
that had been issued by the OCC as a result of trades on that exchange would
normally continue to be exercisable or expire in accordance with their terms.
1
<PAGE> 27
There can be no assurance that higher trading activity or order flow or other
unforeseen events might not, at times, render certain of the facilities of the
OCC or various exchanges inadequate. Such events have, in the past, resulted in
the institution by an exchange of special procedures, such as trading rotations,
restrictions on certain types of orders, or trading halts or suspensions, with
respect to one or more options, or may otherwise interfere with the timely
execution of customers' orders.
The writer of an option lacks the ability to control when an option will be
exercised. Although the Fund will generally only write options whose expiration
dates are between one and 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
governing the maximum number of puts and calls in each class (whether or not
covered or secured) which may be written by a single investor, or group of
investors, acting in concert (regardless of whether the options are written on
the same or different exchanges or are held or written in one or more accounts
or through one or more brokers). It is possible that the Fund and other clients
advised by the Adviser may constitute such a group. These position limits may
limit the number of options the Fund may write on a particular security. An
exchange may order the liquidation of positions found to be above such limits or
impose other sanctions.
Repurchase Agreements. The Fund may enter into repurchase agreements with
approved banks and broker-dealers. In a repurchase agreement, the Fund purchases
securities with the understanding they will be repurchased by the seller at a
set price on a set date. This allows the Fund to keep its assets at work but
retain flexibility to pursue longer-term investments upon repurchase.
Repurchase agreements involve risks. For example, if a seller defaults, the Fund
will suffer a loss if the proceeds from the sale of the collateral is below the
repurchase price. If the seller becomes bankrupt, the Fund may be delayed or
incur additional costs in selling the collateral. To help minimize risk,
collateral must be held with the Fund's custodian at least equal to the
repurchase price, including accrued interest.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities. Illiquid securities will 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 (e.g., when
trading in the security is suspended or repurchase agreements not terminable
within seven days).
Temporary Investments. To maintain cash for redemptions and distributions and
for temporary defensive purposes, the Fund may invest in money market mutual
funds and in investment grade short-term fixed income securities, including
short-term U.S. government securities, negotiable certificates of deposit,
commercial paper, banker's acceptances, and repurchase agreements.
Other Investments. Subject to prior disclosure to shareholders, the Trustees
may, in the future, authorize the Fund to invest in securities other than those
listed here and in the Prospectus, provided that such investment would be
consistent with the Fund's investment objective and that it would not violate
any fundamental investment policies or restrictions applicable to the Fund.
2
<PAGE> 28
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions are
considered fundamental, which means they may be changed only by approval of the
holders of a majority of the Fund's outstanding shares, defined in the 1940 Act
as the lesser of: (1) 67% or more of the Fund's outstanding shares present at a
meeting, if the holders of more than 50% of the Fund's outstanding shares are
present in person or represented by proxy, or (2) more than 50% of such Fund's
outstanding shares.
1. The Fund may not purchase securities that would cause more than 25% of the
value of the Fund's total assets at the time of such purchase to be invested
in the securities of one or more issuers conducting their principal
activities in the same industry. For purposes of this limitation, U.S.
government securities are not considered part of any industry.
2. The Fund may not borrow money or issue senior securities, except to the
extent provided by the 1940 Act.
3. The Fund may not make loans to other persons, except loans of securities not
exceeding one-third of the Fund's total assets. For purposes of this
limitation, investments in debt obligations and transactions in repurchase
agreements shall not be treated as loans.
4. The Fund may not purchase, sell or invest in real estate, real estate
investment trust securities, real estate limited partnership interests, or
oil, gas or other mineral leases or exploration or development programs, but
the Fund may purchase and sell securities that are secured by real estate and
may purchase and sell securities issued by companies that invest or deal in
real estate.
5. The Fund may not invest in commodities or commodity futures contracts.
6. The Fund may not underwrite securities of other issuers, except insofar as
the Fund may be deemed an underwriter under the Securities Act of 1933 when
selling portfolio securities.
7. The Fund, with respect to 75% of its total assets, will not invest more than
5% of its total assets in the securities of any single issuer, or own more
than 10% of the outstanding voting securities of any one issuer, in each case
other than (1) securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or (2) securities of other investment
companies.
Non-Fundamental Investment Restrictions. The following restrictions are
imposed by management of the Fund and may be modified by the Trustees without
shareholder approval.
1. The Fund may not borrow money, except that the Fund may borrow money from
banks for temporary or emergency purposes only, including the meeting of
redemption requests which might require the untimely disposition of
securities, and may use collateral for such borrowing. Such temporary
borrowing may not exceed 10% of the value of the total assets of the Fund at
the time of borrowing. In the event asset coverage for such borrowings falls
below 300%, the Fund will reduce, within three days, the amount of its
borrowing in order to provide for 300% asset coverage.
2. 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.
3. The Fund may not invest in a company for the purpose of exercising control or
management of the company.
4. The Fund may not purchase securities on margin, except that the Fund may
obtain such short-term credits as are necessary for the clearance of
transactions and provided that margin payments in connection with options
will not constitute purchasing securities on margin.
5. The Fund may not invest its assets in securities of any other investment
company, except as permitted by the 1940 Act. Under the 1940 Act, the Fund
may acquire securities of other investment companies if, immediately after
such acquisition, the Fund does not own in the aggregate (1) more than 3% of
the total outstanding voting stock of such other investment company, (2) more
than 5% of the value of the Fund's total assets of any one investment
company, or (3) securities issued by such other investment company and all
other investment companies having an aggregate value in excess of 10% of the
value of the Fund's total assets.
Shareholders should understand that all investments involve risks and there can
be no guarantee against loss resulting from an investment in the Fund. Unless
otherwise indicated, all percentage limitations governing the investments of the
Fund apply only at the time of the investment.
3
<PAGE> 29
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of the
purchases or sales of portfolio investments for the reporting period by the
monthly average value of the portfolio investments owned during the reporting
period. The calculation excludes all options written by the Fund which expire in
less than one year.
Under certain market conditions, the Fund's portfolio turnover rate may be
higher than that of other mutual funds. This would be the case, for example, if
the Fund writes a substantial number of call options and the market prices of
the underlying securities appreciates, causing the options to be exercised. The
Fund may also engage in short-term trading (purchase and sale of security in a
relatively brief period of time) in response to stock market conditions or
changes in economic trends and developments. Although the Fund's annual turnover
rate cannot be accurately predicted, it is estimated this rate will not exceed
approximately 100% for the current fiscal year assuming normal market
conditions. A 100% annual turnover rate would occur if all of the Fund's
securities were replaced one time during a one-year period.
High rates of portfolio turnover (100% or more) entail certain costs, including
increased taxable income for the Fund's shareholders. Also, the higher the
turnover, the higher the overall brokerage commissions, dealer mark-ups and
mark-downs, and other transaction costs incurred. The Adviser takes these costs
into account, since they affect the Fund's overall investment performance and
reduce shareholders' return.
MANAGEMENT OF THE FUND
Trustees and Officers. The operations of the Fund are conducted under the
direction of the Trustees. The Trustees establish the Fund's policies and
oversee the management of the Fund. The Trustees meet regularly to review the
activities of the officers, who are responsible for day-to-day operations of the
Fund.
The Trustees and officers of the Fund and their principal occupations during the
past five years are set forth below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
POSITION WITH
NAME, ADDRESS AND AGE THE FUND PRINCIPAL OCCUPATION DURING THE PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Matthew Kelmon, Age 30 President, Chief Vice President of Trading for the Adviser from
2471 East Bayshore Road, Suite 501 Executive Officer and 1994 to present. Formerly, an Account Executive
Palo Alto, CA 94303 Trustee with M.L. Stern & Co., Inc., a bond dealer, from
1993 to 1994.
- ----------------------------------------------------------------------------------------------------------------------
*Richard D. Stanley, Age 66 Chairman and Trustee President of Naranja, Inc., an investment and
2471 East Bayshore Road, Suite 501 consulting corporation, from 1994 to present.
Palo Alto, CA 94303
- ---------------------------------------- ------------------------ ----------------------------------------------------
*William H. Barnes, Age 66 Trustee President, Barnes, Stork & Associates, a
932-A Santa Cruz Avenue registered investment adviser, from 1975 to
Menlo Park, CA 94025 present. President and Director, Trinity Guardian
Foundation, a firm which manages assets in support of
local charities, from 1996 to present. Director,
Church of the Pioneers Foundation, from 1985 to
present.
- ----------------------------------------------------------------------------------------------------------------------
*Wayne E. Edgerton, Age 56 Trustee Retired. Employed by Mid-Continent Bottlers, Inc.,
13682 Lakeshore Drive manufacturer and distributor of national brand
Clive, Iowa 50325 soft drinks, from 1975 through 1997, most recently
as Executive Vice President/Partner.
- ----------------------------------------------------------------------------------------------------------------------
Kenneth D. Treece, Age 54 Trustee Chief Executive Officer of SBMC Corp., a precision
2960 Copper Road sheet metal producer, from 1996 to present. From
Santa Clara, CA 95051 1988 to 1997, Chief Executive Officer of The
Gluers, a trade bindery.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 30
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Ignatius J. Panzica, Age 55 Trustee Self-employed; formerly, President and Chief
16280 Oak Glen Avenue Executive Officer of Custom Chrome, Inc., a
Morgan Hill, CA 95037 supplier of motorcar parts and accessories, from
1969 to 1997.
- ----------------------------------------------------------------------------------------------------------------------
Stephen W. Player, Age 57 Trustee Attorney, Law Offices of Stephen W. Player, from
2600 El Camino Real, Suite 410 1994 to present.
Palo Alto, CA 94306
- ----------------------------------------------------------------------------------------------------------------------
Lisa Ann McCarthy, Age 39 Trustee President, Crossing Main, a retail women's
5 Main Street clothing company, from 1992 to present.
Hingham, MA 02043
- ----------------------------------------------------------------------------------------------------------------------
Jeffrey Ira, Age 44 Trustee Certified Public Accountant and Partner with C.G.
647 Veterans Boulevard Uhlonberg & Company, from 1984 to present. City
Redwood City, CA 94063 Councilman, Redwood City, CA from 1997 to present.
- ----------------------------------------------------------------------------------------------------------------------
Norman H. Moore, Jr., Age 43 Secretary and Vice President of Compliance for the Adviser from
2471 East Bayshore Road, Suite 501 Treasurer 1994 to present.
Palo Alto, CA 94303
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*An asterisk indicates a Trustee who may be deemed to be an "interested
person" of the Fund (as that term is defined in the 1940 Act). Mr. Kelmon
is considered an "interested person" of the Fund due to his affiliation with
the Adviser. Messrs. Stanley, Barnes and Edgerton are considered "interested
persons" of the Fund because they own shares of the Adviser.
Members of the Audit Committee of the Trustees are Messrs. Ira, Panzica and
Treece. The Audit Committee members make recommendations to the Trustees
regarding the selection of auditors and confer with the auditors regarding the
scope and results of the audit.
Members of the Nominating Committee of the Trustees are Ms. McCarthy and
Messrs. Barnes and Player. The Nominating Committee of the Trustees is
responsible for the selection and nomination of disinterested Trustees.
Members of the Valuation Committee of the Trustees are Messrs. Kelmon,
Stanley and Treece. The Valuation Committee of the Trustees is responsible
for fair value pricing of the Fund's portfolio securities.
Each Trustee of the Fund who is not an affiliated person of the Adviser, as
defined in the 1940 Act, receives an annual retainer of $4,000 per year (payable
in equal installments at the end of each quarter), and reimbursement for
expenses. The following table sets forth the compensation expected to be paid by
the Trust to the non-interested Trustees during the Fund's fiscal year ending
February 29, 2000.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
NAME OF TRUSTEE FROM THE TRUST THE TRUST PAID TO TRUSTEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Matthew Kelmon $ 0 $ 0
Richard D. Stanley 0 0
William H. Barnes 0 0
Wayne E. Edgerton 0 0
Kenneth D. Treece 4,000 4,000
Ignatius J. Panzica 4,000 4,000
Stephen W. Player 4,000 4,000
Lisa Ann McCarthy 4,000 4,000
Jeffrey Ira 4,000 4,000
</TABLE>
- ---------------
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. As of August 11, 1999, the Trustees and Officers of the
Trust owned less than 1% of the Fund's shares.
5
<PAGE> 31
Investment Adviser. The Fund has employed Kelmoore Investment Company, Inc.
as its investment adviser. As of February 28, 1999, the Adviser managed
approximately $100 million of assets, consisting primarily of discretionary
brokerage accounts. 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.
In addition to managing the Fund's investments consistent with its investment
objectives, policies and limitations, the Adviser makes recommendations with
respect to other aspects and affairs of the Fund. The Adviser also furnishes the
Fund with certain administrative services, office space and equipment. All other
expenses incurred in the operation of the Fund are borne by the Fund. Under the
Investment Advisory Agreement, the Adviser will not be liable for any error of
judgment or mistake of fact or law or for any loss by the Fund in connection
with the performance of the Investment Advisory Agreement, except a loss from a
breach of a fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties under the Investment Advisory Agreement.
For providing investment advisory and other services and assuming certain
Fund expenses, the Fund pays the Adviser a monthly fee at the annual rate of
1.00% of the value of the Fund's average daily net assets. For the Fund's
initial fiscal year ending February 29, 2000, the Adviser has voluntarily agreed
to waive its fees and reimburse expenses so that the Fund's annual operating
expenses will not exceed 2.25% for Class A shares and 3.00% for Class C shares.
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. At March 24,
1999, the Adviser has reimbursed $70,446 in Fund expenses that it can recoup
until March 24, 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 March
22, 1999 and by the initial shareholder of the Fund on March 25, 1999. The
Investment Advisory Agreement is for an initial term of two years and continues
in effect from year to year thereafter if such continuance is approved annually
by the Trustees or by a vote of a majority of the outstanding shares of the
Fund, and, in either case, by the vote of a majority of the Trustees who are not
parties to the Investment Advisory Agreement or "interested persons" of any
party to the Investment Advisory Agreement, voting in person at a meeting called
for the purpose of voting on such approval. The Investment Advisory Agreement
may be terminated at any time without penalty by the Trustees, by vote of a
majority of the outstanding shares of the Fund or by the Adviser, upon sixty
days' written notice. The Investment Advisory Agreement terminates automatically
if assigned.
Expenses. The Fund pays all expenses not assumed by the Adviser, including, but
not limited to: Trustees' expenses, audit fees, legal fees, interest expenses,
brokerage commissions, fees for registration and notification of shares for sale
with the SEC and various state securities commissions, taxes, insurance
premiums, fees of the Fund's administrator, transfer agent, fund accounting
agent or other service providers, and costs of obtaining quotations for
portfolio securities and the pricing of Fund shares.
Name. The word "Kelmoore" is used by the Trust with the Adviser's consent and
the Trust has a non-exclusive license to use the name "Kelmoore Strategic Trust"
and the word "Kelmoore" in the name of any 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
The Distributor. Kelmoore Investment Company, Inc., 2471 East Bayshore Road,
Suite 501, Palo Alto, CA 94303 (the "Distributor") also acts as the primary and
exclusive distributor of the Fund's shares, which are offered on a continuous
basis. The Distributor serves as the principal distributor of the Fund's shares
pursuant to a Distribution Agreement with the Fund. The Distribution Agreement
is renewable annually provided its renewal is approved by a majority of the
Trustees who are not 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
6
<PAGE> 32
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.
Shares of the Fund may also be sold by selected broker-dealers which have
entered into selling agency agreements with the Distributor. The Distributor
accepts orders for the purchase of the shares of the Fund which are continually
offered at net asset value next determined. The Distributor may pay extra
compensation to financial services firms selling large amounts of Fund shares.
This compensation is calculated as a percentage of Fund shares sold by the firm.
Distribution Plan. The Trust has adopted a distribution plan in accordance
with Rule 12b-1 under the 1940 Act for the Class A shares of the Fund (the
"Class A Plan") and the Class C shares of the Fund (the "Class C Plan",
collectively, the "Plans"). The Plans permit the Fund to pay the Distributor for
its services related to sales and distribution of shares and provision of
ongoing services to Fund shareholders.
Under the Class A Plan, the Fund shall reimburse the Distributor for payments to
dealers or others, a monthly fee not to exceed 0.25% per annum of the average
daily net assets of the Fund.
Under the Class C Plan, (a) the Fund shall reimburse the Distributor a monthly
fee not to exceed 0.75% per annum of the average daily net assets of the Fund;
and (b) in addition to the amounts described in (a) above, the Fund shall
reimburse the Distributor for payments to dealers or others, a monthly fee not
to exceed 0.25% per annum of the average daily net assets of the Fund, as a
service fee.
The fees payable under the Class A Plan and section (a) of the Class C Plan
shall be used to reimburse the Distributor for any expenses primarily intended
to result in the sale of the Fund's shares, including, but not limited to:
payments the Distributor makes to broker-dealers or other financial institutions
and industry professionals for providing distribution assistance, payments made
for the preparation, printing and distribution of advertisements and sales
literature, and payments made for printing and distributing prospectuses and
shareholder reports to other than existing shareholders of the Fund.
The fees payable under section (b) of the Class C Plan, shall be used to
reimburse the Distributor for any expenses for personal service and/or the
maintenance of shareholder accounts, including, but not limited to: payments
made to broker-dealers of other financial institutions and industry
professionals for providing administrative support services to the holders of
the Fund's shares.
All such expenses covered by the Plans shall be deemed incurred whether paid
directly by the Distributor or by a third party to the extent reimbursed
therefor by the Distributor.
The Distributor provides the Trustees for their review, on a quarterly basis, a
written report of the amounts expended under the Plans.
The Plans are subject to annual approval by the Trustees. The Plans are
terminable at any time by vote of a majority of the non-interested Trustees or
by vote of a majority of the outstanding shares of the Fund. Pursuant to the
Plans, a new Trustee who is not an interested person (as defined in the 1940
Act) must be nominated by existing Trustees who are not interested persons. Any
change in the Plans that would materially increase the cost of a Plan to the
Fund requires shareholder approval; otherwise, the Plans may be amended in a
material way by Trustees and the non-interested Trustees at a meeting called for
the purpose of voting on any amendment.
Although there is no obligation for the Fund to pay expenses incurred by the
Distributor in excess of payments made to the Distributor under the Plans, if a
Plan is terminated, the Trustees will consider how to treat such expenses. All
distribution expenses in excess of the fee rates provided for in the Plans may
be carried forward and resubmitted in a subsequent fiscal year provided that (i)
distribution expenses cannot be carried forward for more than three years
following initial submission; and (ii) the non-interested Trustees determine at
the time of initial submission that the distribution expenses are appropriate to
be reimbursed. Distribution expenses will be paid on a first-in, first-out
basis.
7
<PAGE> 33
Because amounts paid pursuant to the Plans are paid to the Distributor, the
Distributor and its officers, directors and employees may be deemed to have a
financial interest in the operation of the Plans. None of the non-interested
Trustees has a financial interest in the operation of either Plan.
The Plans were adopted because of their anticipated benefit to the Fund. These
anticipated benefits include: increased promotion and distribution of the Fund's
shares, an enhancement in the Fund's ability to maintain accounts and improve
asset retention, increased stability of net assets for the Fund, increased
stability in the Fund's positions, and greater flexibility in achieving
investment objectives.
Transfer Agent. First Data Investor Services Group, Inc. ("Investor Services
Group"), a wholly-owned subsidiary of First Data Corporation, which has its
principal business address at 4400 Computer Drive, Westborough, MA 01581,
provides transfer agency and dividend disbursing agent services for the Fund. As
part of these services, Investor Services Group maintains records pertaining to
the sale and redemption of Fund shares and will distribute the Fund's cash
dividends to shareholders. In consideration for such services, the Fund has
agreed to pay Investor Services Group a basic fee of $20.00 per account subject
to a minimum of $39,000 per year. The fee will be paid monthly.
Administrative Services. Investor Services Group also serves as the
administrator for the Fund. The services include the day-to-day administration
of matters necessary to the Fund's operations, maintenance of its records and
books, preparation of reports, and compliance monitoring of its activities. For
providing administrative services to the Fund, Investor Services Group receives
from the Fund a basic fee, computed daily and paid monthly, at the annual rate
of 0.15% of the first $50 million of average daily net assets of the Fund, 0.10%
of the next $50 million of average daily net assets, and 0.05% of average daily
net assets over $100 million (with a minimum annual fee of $67,000).
Accounting Services. Investor Services Group also serves as the accounting agent
for the Fund and maintains the accounting books and records of the Fund,
calculates the Fund's net asset value in accordance with the provisions of the
Fund's current Prospectus and prepares for Fund approval and use various
government reports, tax returns, and proxy materials. For providing accounting
services to the Fund, Investor Services Group receives from the Fund an annual
fee, computed daily and paid monthly, based on a minimum of $42,000 for the
first $20 million of average daily net assets, 0.03% of the next $30 million of
average daily net assets, 0.02% of the next $50 million of average daily net
assets, and 0.01% of average daily net assets over $100 million.
Custodian and Custody Administrator. The Bank of New York, 48 Wall Street,
New York, New York 10286, is custodian of the Fund's assets pursuant to a
custodian agreement. Under the custodian agreement, The Bank of New York (i)
maintains a separate account or accounts in the name of the Fund (ii) holds and
transfers portfolio securities on account of the Fund, (iii) accepts receipts
and make disbursements of money on behalf of the Fund, (iv) collects and
receives all income and other payments and distributions on account of the
Fund's securities and (v) makes periodic reports to the Trustees concerning the
Fund's operations. Investor Services Group will act as custody administrator and
has agreed to pay the fees and expenses of the custodian. For those services,
Investor Services Group receives from the Fund a basic fee of 0.02% of the first
$50 million of average net assets, 0.015% of the next $150 million of average
net assets, and 0.0125% of average net assets over $200 million. The minimum
monthly fee charged is $500. Certain transaction fees and out-of-pocket expenses
may also be charged.
Independent Accountants. The accounting firm of PricewaterhouseCoopers LLP, 333
Market Street, San Francisco, CA 94105, has been designated as independent
accountants for the Fund. PricewaterhouseCoopers LLP performs annual audits of
the Fund and is periodically called upon to provide accounting and tax advice.
Legal Counsel. Howard Rice Nemerovski Canady Falk & Rabkin, A Professional
Corporation, Three Embarcadero Center, Seventh Floor, San Francisco, CA
94111-4065 serves as legal counsel for the Trust and the Adviser and
Distributor.
PURCHASES AND REDEMPTIONS
Redemptions in Kind. In accordance with its election pursuant to Rule 18f-1
under the 1940 Act, the Fund may limit redemptions in cash with respect to each
shareholder during any ninety-day period to the lesser of (i) $250,000 or (ii)
1% of the net asset value of the Fund at the beginning of such period. In the
case of requests for redemptions in excess of such amount, the Trustees reserve
the right to make payments in whole or in part in securities or other assets in
case of an emergency, or any time a cash distribution would impair the liquidity
of the Fund to the detriment of existing shareholders. If the recipient sold
such securities, a brokerage charge might be incurred.
8
<PAGE> 34
Telephone Instructions. Neither the Fund nor Investor Services Group will be
liable for any loss or expense in acting upon telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, Investor Services Group will use procedures that are
considered reasonable. Shareholders assume the risk to the full extent of their
accounts that telephone requests may be unauthorized. All telephone
conversations with Investor Services Group will be recorded.
Systematic Withdrawal Plan. Shareholders who own $5,000 or more of Fund shares,
valued at the Fund's current net asset value, and who wish to receive periodic
payments from their account(s) may establish a Systematic Withdrawal Plan by
completing an application provided for this purpose. Participants in this plan
will receive monthly, quarterly, semi-annual or annual checks in the amount
designated. The minimum withdrawal amount is $100. This amount may be changed at
any time. Dividends and capital gains distributions on the Fund's shares in the
Systematic Withdrawal Plan are automatically reinvested in additional shares at
net asset value. Payments are made from proceeds derived from the redemption of
Fund shares owned by the participant. The redemption of shares will result in a
gain or loss that is reportable by the participant on its income tax return, if
the participant is a taxable entity.
Redemptions required for payments may reduce or use up the participant's
investment, depending upon the size and frequency of withdrawal payments and
market fluctuations. Accordingly, Systematic Withdrawal Plan payments cannot be
considered as yield or income on the investment.
Investor Services Group, as agent for the participant, may charge for services
rendered to participants. No such charge is currently assessed, but such a
charge may be instituted by Investor Services Group upon written notice to
participants. The plan may be terminated at any time without penalty upon
written notice by the participants, the Fund, or Investor Services Group.
VALUATION
The Fund's securities are valued based on market value or, where market
quotations are not readily available, based on fair value as determined in good
faith by or at the direction of the Trustees. Equity securities traded on an
exchange or on the NASDAQ National Market System (the "NASDAQ"), will be valued
at the last sale price on the exchange or system in which they are principally
traded on the valuation date. If there is no sale on the valuation date,
securities traded principally on a U.S. exchange or the NASDAQ will be valued at
the mean between the closing bid and asked prices 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 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.
TAXES
Below is a discussion of certain U.S. federal income tax issues concerning the
Fund and the purchase, ownership, and disposition of Fund shares. This
discussion does not purport to deal with all aspects of federal income taxation
relevant to shareholders in light of their particular circumstances. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisers with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
Tax Status of the Fund. The Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies; and (b) diversify its holdings so that, at
the end of each fiscal quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash and cash items, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities limited, in respect of any one issuer, to
9
<PAGE> 35
an amount not greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities and the securities of other regulated
investment companies). If the Fund fails to qualify as a regulated investment
company, the Fund will be subject to U.S. federal income tax.
As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed to shareholders. The Fund intends to distribute substantially all of
such income.
Amounts not distributed in accordance with certain requirement are subject to a
nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must
distribute during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (adjusted for certain ordinary losses) for a one-year period
generally ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. The Fund intends to avoid application of the excise tax.
A distribution will be treated as paid on December 31 of a calendar year if it
is declared by the Fund in October, November or December of that year with a
record date in such a month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received.
Options. When the Fund writes an option, there is no taxable event and an amount
equal to the premium received is recorded by the Fund as an asset and an
equivalent liability. The liability is thereafter valued to reflect the current
value of the option. If the option is not exercised and expires, or if the Fund
effects a closing purchase transaction, the Fund will realize a gain (or a loss
in the case of a closing purchase transaction where the cost exceeds the
original premium received) and the liability related to the option will be
extinguished. Any such gain or loss is a short-term capital gain or loss for
federal income tax purposes, except that any loss realized when the Fund closes
certain covered call options whose underlying security is trading above the
exercise price of the option will be long-term capital loss if the hypothetical
sale of the underlying security on the date of such transaction would have given
rise to a long-term capital gain. If a call option which the Fund has written on
any equity security is exercised, the Fund realizes a capital gain or loss
(long-term or short-term, depending on the holding period of the underlying
security) from the sale of the underlying security and the proceeds from such
sale are increased by the premium originally received. If a put option which the
Fund has written on an equity security is exercised, the amount of the premium
originally received will reduce the cost of the security which the Fund
purchases upon exercise of the option.
Distributions. Distributions of investment company taxable income are taxable to
a U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
The excess of net long-term capital gains over the short-term capital losses
realized and distributed by the Fund, whether paid in cash or reinvested in Fund
shares, will generally be taxable to shareholders as long-term gain, regardless
of how long a shareholder has held Fund shares. Net capital gains from assets
held for one year or less will be taxed as ordinary income.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
Dispositions. Upon a redemption or sale of shares of the Fund, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. A gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands, and the rate of tax will depend upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days, beginning 30 days before and ending
10
<PAGE> 36
30 days after the shares are disposed of. In such a case the basis of the shares
acquired will be adjusted to reflect the disallowed loss. If a shareholder holds
Fund shares for six months or less and during that period receives a
distribution taxable to the shareholder as long-term capital gain, any loss
realized on the sale of such shares during such six-month period would be a
long-term loss to the extent of such distribution.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he or she is not subject to backup withholding. Any amounts withheld may be
credited against the shareholder's federal income tax liability.
Other Taxation. Distributions may be subject to additional state, local and
foreign taxes, depending on each shareholder's particular situation.
Non-U.S. shareholders may be subject to U.S. tax rules that differ
significantly from those summarized above, including the likelihood that
ordinary income dividends to them would be subject to withholding of U.S. tax
at a rate of 30% (or a lower treaty rate, if applicable).
BROKERAGE
The Fund intends to place substantially all its securities transactions,
including transactions involving options, through the Adviser in accordance with
procedures set forth in Rule 17e-1 under the 1940 Act. These procedures, which
have been adopted by the Trustees, including a majority of the non-interested
Trustees, are reasonably designed to provide that any commissions, fees or other
compensation paid to the Adviser (or any affiliate) are fair and reasonable when
compared to commissions, fees and other compensation received from other firms
who engage in comparable transactions. The Fund will not deal with the Adviser
(or any affiliate) in any transaction in which the Adviser (or any affiliate)
acts as principal, except in accordance with rules promulgated by the Securities
and Exchange Commission.
The Adviser may utilize non-affiliated brokers, dealers or members of a
securities exchange to execute portfolio transactions on behalf of the Fund and,
like the Adviser, such firms may receive commissions for executing the Fund's
securities transactions. In effecting the purchase or sale of portfolio
securities from non-affiliated brokers, dealers or members of an exchange, the
Adviser will seek execution of trades either (1) at the most favorable and
competitive rate of commission charged by any broker, dealer or member of an
exchange, or (2) at a higher rate of commission charged, if reasonable in
relation to brokerage and research services provided to the Trust or the Adviser
by such member, broker or dealer. Such services may include, but are not limited
to, information as to the availability of securities for purchase or sale and
statistical or factual information or opinions pertaining to investments. The
Adviser may use brokerage and research services provided to it by brokers and
dealers in servicing all its clients.
The Adviser currently manages separate accounts that employ investment
strategies similar to those used by the Fund. At times, investment decisions may
be made to purchase or sell the same security for the Fund and one or more of
the other clients advised by the Adviser. When two or more of such clients are
simultaneously engaged in the purchase or sale of the same security, the
transactions will be allocated as to amount and price in a manner considered
equitable to each so that each receives, to the extent practicable, the average
price for such transaction. There may be circumstances in which such
simultaneous transactions would be disadvantageous to the Fund with respect to
price and availability of securities. In other cases, however, it is believed
that transactions would be advantageous to the Fund.
SHARES OF BENEFICIAL INTEREST
There are no conversion or preemptive rights in connection with any shares of
the Fund, nor are there cumulative voting rights. The Fund's shares have equal
voting rights. As a shareholder, you receive one vote for each share of the Fund
you own and each fractional share you own shall be entitled to a proportionate
fractional vote. Each issued and outstanding share of the Fund is entitled to
participate equally in dividends and distributions declared and in the net
assets of the Fund upon liquidation or dissolution remaining after satisfaction
of outstanding liabilities. Under Delaware law, shareholders will be liable for
the obligations of the Fund only to the extent of their investment in the Fund.
All issued and outstanding shares of the Fund will be fully paid and
non-assessable and will be redeemable at net asset value per share. The
interests of shareholders in the Fund will not be evidenced by a certificate or
certificates representing shares of the Fund.
11
<PAGE> 37
The authorized capitalization of the Fund consists of an unlimited number of
shares having a par value of $0.001 per share. The Trustees have authorized one
series with two classes of shares issued currently. The Trustees have authority,
without necessity of a shareholder vote, to create any number of new series or
classes of shares.
Unless otherwise required by the 1940 Act, ordinarily it will not be necessary
for the Trust to hold annual meetings of shareholders. As a result, shareholders
may not consider each year the election of Trustees or the appointment of
auditors. However, the holders of at least 10% of the shares outstanding and
entitled to vote may require the Fund to hold a special meeting of shareholders
for purposes of removing a Trustee. Shareholders may remove a Trustee by the
affirmative vote of two-thirds of the Fund's outstanding shares. In addition,
the Trustees will call a meeting of shareholders for the purpose of electing
Trustees if, at any time, less than a majority of the Trustees then holding
office have been elected by shareholders. Special shareholder meetings may also
be called for certain purposes such as electing Trustees, changing fundamental
policies, or approving a management contract.
CALCULATION OF PERFORMANCE
Total Percentage Increase. Total percentage increase is calculated for the
specified periods of time by assuming a hypothetical investment of $1,000 in the
Fund's shares. Each dividend or other distribution is treated as having been
reinvested at net asset value on the payment date. The percentage increases
stated are the percent that an original investment would have increased during
the applicable period.
Average Annual Total Return. The Fund computes its average annual total return
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
(1/n)
Average Annual Total Return = ((ERV/P) )-1
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of years.
The Funds that compute their aggregate total returns over a specified period do
so by determining the aggregate compounded rate of return during such specified
period that likewise equates over a specified period the initial amount invested
to the ending redeemable value of such investment. The formula for calculating
aggregate total return is as follows:
Aggregate Total Return = (ERV - P)/P
Where: ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
payment dates during the period. The ending redeemable value (variable "ERV" in
each formula) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations. Such calculations are not indicative of
future results and do not take into account Federal, state and local taxes, if
any, that shareholders must pay on a current basis.
12
<PAGE> 38
Since performance will fluctuate, performance data for the Fund should not be
used to compare an investment in a Fund's shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance is generally a function of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses and
market conditions.
Comparing Performance. Performance information for the Fund may be compared, in
reports and promotional literature, to indices including, but not limited to:
(i) the Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, or other appropriate unmanaged domestic or foreign indices
of performance of various types of investments so that investors may compare the
Fund's results with those of indices widely regarded by investors as
representative of the securities markets in general; (ii) Lehman Brothers
Corporate Bond Index; (iii) other groups of mutual funds tracked by Lipper
Analytical Services, Inc., a widely-used independent research firm which ranks
mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
Fund on overall performance or other criteria; (iv) the Consumer Price Index (a
measure of inflation) to assess the real rate of return from an investment in
the Fund; and (v) products managed by a universe of money managers with similar
performance objectives. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses.
FINANCIAL STATEMENTS
Reports to Shareholders. Shareholders will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by independent certified public accountants.
13
<PAGE> 39
KELMOORE STATEGIC TRUST
KELMOORE STRATEGY COVERED OPTION FUND
STATEMENT OF ASSETS AND LIABILITIES
24-MAR-99
<TABLE>
<S> <C>
ASSETS
Cash $100,000
Receivable from Advisor 70,446
Deferred Offering Costs (see note 2) 92,090
--------
Total Assets 262,536
--------
LIABILITIES
Payable to Advisor 162,536
--------
Total Liabilities 162,536
--------
NET ASSETS $100,000
========
Net assets consist of :
Paid in capital $100,000
========
Shares of Beneficial Interest ( $.001 Par Value) 10,000
Net Asset Value, and redemption
price per share ($100,000/ 10000 Shrs Outstanding) $ 10.00
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 40
KELMOORE STATEGIC TRUST
KELMOORE STRATEGY COVERED OPTION FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED 3/24/1999
<TABLE>
<S> <C>
INCOME
Investment Income $ -
------
EXPENSES
Organizational Costs
Audit 2,500
Legal 25,000
Administrative Fee (see note 3e) 42,250
Other 696
------
Total Expenses 70,446
\ Reimbursement from Advisor (see note 3a) (70,446)
------
Net Expenses after reimbursement -
------
Net Income and net increase in assets resulting $ -
from operations. ======
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 41
KELMOORE STRATEGIC TRUST
KELMOORE STRATEGY COVERED OPTION FUND
NOTES TO THE STATEMENT OF ASSETS AND LIABILITIES AND STATEMENT OF OPERATIONS
MARCH 24, 1999
NOTE 1: ORGANIZATION
Kelmoore Strategic Trust (the "Trust"), an open-end, diversified management
investment company was organized as a Delaware business trust on November 30,
1998. It currently consists of one investment fund, Kelmoore Strategy Covered
Option Fund (the "Fund"). The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest of $0.001 par value. The
Fund's investment adviser is Kelmoore Investment Company, Inc. (the "Adviser").
The Fund currently offers one class of shares.
The objective of the Fund is to maximize realized gains from writing covered
options on common stocks. The Funds seeks to achieve this goal by taking long
positions in a limited universe of equity securities principally traded in the
markets of the United States with large market capitalization, and
simultaneously writing covered call options on these securities to maximize the
premiums received.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: Estimates and assumptions are required to be made regarding
assets and liabilities when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ from the
amounts recorded.
FEDERAL INCOME TAXES: The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company and
to make the requisite distributions of taxable income and gains to its
shareholders which will be sufficient to relieve it from all or substantially
all federal income taxes. Therefore, no provision for federal income tax
provision has been made.
DEFERRED OFFERING COSTS: The Fund has deferred initial offering costs of
$92,090. These costs will be amortized by the Fund over the period of benefit,
not to exceed 12 months from the date the Fund commences operations.
DISTRIBUTIONS: Dividends from net investment income and net realized short term
capital gains are declared and paid quarterly. Distributions from net realized
long term capital gains are paid at least annually. Additional distributions of
net investment income and net realized capital gains may be made in order to
avoid the application of an excise tax on certain undistributed amounts. Income
dividends and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
NOTE 3: INVESTMENT ADVISORY AND OTHER AGREEMENTS
a. The Fund has entered into an Investment Advisory Agreement with the Adviser.
Under the Agreement, the Adviser is responsible for the selection and ongoing
monitoring of the securities in the Fund's investment portfolio and for the
management of the Fund's business affairs. The Fund pays the Adviser a monthly
fee at the annual rate of 1.00% of the Fund's average daily net assets.
The Adviser has voluntarily undertaken to waive all or a portion of its fees and
to reimburse certain expenses of the Fund so that the total operating expenses
for the first year of operations will not exceed 3.00%. The Adviser reserves the
right to terminate this undertaking at any time, in its sole discretion. Any
waiver or reimbursement by the Adviser is subject to recoupment from the Fund
within the following three years, to the extent such recoupment would not cause
total operating expenses to exceed any current
17
<PAGE> 42
expense limitation At March 24, 1999, the Adviser has reimbursed $70,446 in Fund
expenses that it can recoup until March 24, 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.
b. The Fund has adopted a plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"), that allows the Fund to pay
distribution and service fees for the sale and distribution of its shares and
for services provided to shareholders. The plan permits the Fund to reimburse
the Adviser, as principal distributor, a monthly distribution fee not to exceed
0.75% per annum of the average daily net assets of the Fund. In addition, the
plan permits the Fund to reimburse the Adviser for payments to dealers or
others, a monthly service fee not to exceed 0.25% per annum of the average daily
net assets of the Fund.
c. The Fund has entered into a Distribution Agreement with Kelmoore Investment
Company, Inc. (the "Distributor") to serve as the principal distributor of the
Fund's shares. 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 above.
d. The Fund has entered into a Services Agreement with First Data Investor
Services Group, Inc. ("Investor Services Group"). Under the Services Agreement,
Investor Services Group provides certain transfer agency, administrative,
accounting and custody administration services.
e. Certain officers and Trustees of the Trust are affiliated with the Adviser.
Such persons are not paid directly by the Trust for serving in those capacities.
f. The Fund intends to place substantially all of its securities transactions,
including transactions involving stocks and options, through the Adviser in
accordance with rules set forth under the 1940 Act. There were no such
transactions for the period ended March 24, 1999.
18
<PAGE> 43
Report of Independent Accountants
To the Shareholder and Board of Trustees
of Kelmoore Strategy Covered Option Fund
In our opinion, the accompanying statement of assets and liabilities and
statement of operations present fairly, in all material respects, the financial
position of Kelmoore Strategy Covered Option Fund (the "Fund") at March 24,
1999 and the results of its operations for the period then ended, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, CA
March 24, 1999
<PAGE> 44
KELMOORE STRATEGIC TRUST
PART C - OTHER INFORMATION
Item 23. EXHIBITS:
(a)(1) Certificate of Trust dated December 1, 1998 -- Incorporated by
reference to the Initial Registration Statement as filed with the
SEC on December 21, 1998.
(a)(2) Agreement and Declaration of Trust as amended March 22, 1999 --
Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registration Statement as filed with the SEC on April 6, 1999.
(b) By-Laws as amended March 22, 1999 -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the Registration Statement as filed
with the SEC on April 6, 1999.
(c) Instruments Defining Rights of Security Holders -- not applicable.
(d) Investment Advisory Agreement dated March 22, 1999 -- Incorporated
by reference to Pre-Effective Amendment No. 2 to the Registration
Statement as filed with the SEC on April 6, 1999.
(e) Distribution Agreement dated March 22, 1999 -- Incorporated by
reference to Pre-Effective Amendment No. 2 to the Registration
Statement as filed with the SEC on April 6, 1999.
(f) Bonus or Profit Sharing Contracts -- none.
(g) Custodian Agreement dated March 22, 1999 -- Incorporated by
reference o Pre-Effective Amendment No. 2 to the Registration
Statement as filed with the SEC on April 6, 1999.
(h) Services Agreement dated May 3, 1999 -- Filed herewith.
(i) Legal Opinion dated March 30, 1999 -- Incorporated by reference to
Pre-Effective Amendment No. 2 to the Registration Statement as filed
with the SEC on April 6, 1999.
(j) Consent of Independent Accountants dated August 20, 1999 --
Filed herewith.
(k) Omitted Financial Statements -- none.
(l) Initial Capital Agreements dated March 25, 1999-- Incorporated by
reference to Pre-Effective Amendment No. 2 to the Registration
Statement as filed with the SEC on April 6, 1999.
(m)(1) Rule 12b-1 Plan of Distribution and Service Plan for Class C Shares
-- Filed herewith.
(m)(2) Rule 12b-1 Plan of Distribution Plan for Class A Shares -- Filed
herewith.
(n) Financial Data Schedule -- Incorporated by reference to Pre-
Effective Amendment No. 2 to the Registration Statement as filed
with the SEC on April 6, 1999.
<PAGE> 45
(o) Rule 18f-3 Plan -- Filed herewith.
(p)(1) Powers of Attorney -- Incorporated by reference to Pre-Effective
Amendment No. 2 to the Registration Statement as filed with the SEC
on April 6, 1999.
(p)(2) Powers of Attorney of Norman H. Moore, Jr. -- Filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not Applicable
Item 25. Indemnification.
The Agreement and Declaration of Trust (Article IV, Section 3) of the Trust
provides that, in the event a Trustee, officer, employee or agent of the Trust
is sued for his or her activities concerning the Trust, the Trust will indemnify
that person to the fullest extent permitted by law except if that person has
been found by a court or body before which the proceeding was brought to have
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office or not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the Trust.
The Registrant has purchased Errors and Omissions insurance with Directors and
Officers liability coverage.
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 Fund is the only registered
investment company to which the Adviser serves as investment adviser.
Information as to the officers and directors of the Adviser is included in its
Form ADV filed February 12, 1999 with the Securities and Exchange Commission
(Registration Number 801-53123) and is incorporated herein by reference.
Item 27. Principal Underwriters.
(a) The Adviser also serves as distributor of the shares of the Fund. The
Adviser currently acts as principal underwriter for Kelmoore Covered Writing
Fund, K2 LP, a California Limited Partnership.
(b) The following table sets forth information concerning each director and
officer of the Adviser.
<TABLE>
<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, None
Chief Executive Officer,
and Treasurer
Michael Romanchak Director and President None
</TABLE>
<PAGE> 46
<TABLE>
<S> <C> <C>
David R. Moore Director None
A. Duncan King Director None
Norman H. Moore, Jr. Vice President- None
Administration: Corporate
Secretary and Chief
Compliance Officer
Norman H. Moore Director Secretary and Treasurer
Cece G. Montgomery Chief Financial Officer None
Matthew Kelmon Vice President of Trading President and Trustee
Thomas W. Killilea Director None
Richard J. Deagazio Director None
Edward J. Devereaux Director and Chief None
Operating Officer
Richard D. Stanley President Chairman and Trustee
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 Section
31(a) of the 1940 Act and the Rules 17 CFR 270.31a-1 to 31a-3 promulgated
thereunder, are maintained by the Adviser, 2471 East Bayshore Road, Suite 501,
Palo Alto, California 94303; by the Trust's Administrator, Transfer Agent, and
Fund Accounting Agent, First Data Investor Services Group, 3200 Horizon Drive,
P.O. Box 61503, King of Prussia, PA 19406-0903; and by the Trust's Custodian,
The Bank of New York, 48 Wall Street, New York, New York 10286.
Item 29. Management Services. Not Applicable.
Item 30. Undertakings. Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
amendment to the Registration Statement on Form N-1A to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Palo Alto and the
<PAGE> 47
State of California on this 20th day of August, 1999.
KELMOORE STRATEGIC TRUST
(Registrant)
/s/ Matthew Kelmon
---------------------------
By: Matthew Kelmon, President*
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Matthew Kelmon* President, Principal August 20, 1999
Executive Officer
and Trustee
Norman H. Moore* Secretary, Treasurer and August 20, 1999
Chief Financial Officer
William H. Barnes* Trustee August 20, 1999
Wayne E. Edgerton* Trustee August 20, 1999
Richard D. Stanley* Trustee August 20, 1999
Jeffrey Ira* Trustee August 20, 1999
Kenneth D. Treece* Trustee August 20, 1999
Lisa Ann McCarthy* Trustee August 20, 1999
Ignatius J. Panzica* Trustee August 20, 1999
Stephen W. Player* Trustee August 20, 1999
</TABLE>
By: /s/ Sandra Adams
-----------------
*Sandra L. Adams,
as Attorney-in-Fact
pursuant to
Powers of Attorney
<PAGE> 48
KELMOORE STRATEGIC TRUST
EXHIBIT INDEX TO PART "C"
OF
REGISTRATION STATEMENT
ITEM NO. DESCRIPTION
99(h) Services Agreement dated May 3, 1999
99 (j) Consent of Independent Accountants dated August 20, 1999
99(m)(1) Rule 12b-1 Plan of Distribution and Service Plan for Class C Shares
99(m)(2) Rule 12b-1 Plan of Distribution Plan for Class A Shares
99(o) Rule 18f-3 Plan
99(p)(2) Powers of Attorney of Norman H. Moore, Jr.
<PAGE> 1
Exhibit 99(h)
SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 3rd day of May, 1999 (the "Effective Date")
between KELMOORE STRATEGIC TRUST (the "Trust"), a Delaware business trust having
its principal place of business at 2471 East Bayshore Road, Palo Alto,
California 94303 and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor
Services Group"), a Massachusetts corporation with principal offices at 4400
Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
WHEREAS, the Trust is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Trust initially intends to offer Shares in those
Portfolios identified in the attached Schedule A, and each such Portfolio,
together with all other Portfolios subsequently established by the Trust, shall
be subject to this Agreement in accordance with Article 14;
WHEREAS, the Trust on behalf of the Portfolios, desires to appoint
Investor Services Group as its administrator, fund accounting agent, transfer
agent, dividend disbursing agent, shareholder servicing agent and agent in
connection with certain other activities and Investor Services Group desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Trust and Investor Services Group agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Trust as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Trust (other than an officer or employee of
Investor Services Group); or (ii) any person, whether or not such
person is an officer or employee of the Trust, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Trust as
indicated in writing to Investor Services Group from time to time.
(c) "Board Members" shall mean the Directors or Trustees of
the governing body of the Trust, as the case may be.
-1-
<PAGE> 2
(d) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Trust, as the case may be.
(e) "Commencement Date" shall mean the date on which Investor
Services Group commences providing services to the Trust pursuant to
this Agreement.
(f) "Commission" shall mean the Securities and Exchange
Commission.
(g) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Trust may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(h) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(i) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(j) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(k) "Portfolio" shall mean each separate series of shares
offered by the Trust representing interests in a separate portfolio of
securities and other assets;
(l) "Prospectus" shall mean the most recently dated Trust
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(m) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Trust as may be issued from time to
time.
(n) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Trust.
(o) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
-2-
<PAGE> 3
Article 2 Appointment of Investor Services Group.
The Trust, on behalf of the Portfolios, hereby appoints and constitutes
Investor Services Group as its sole and exclusive transfer agent and dividend
disbursing agent for Shares of each respective Portfolio of the Trust and as
administrator, fund accounting agent, shareholder servicing agent for the Trust
and Investor Services Group hereby accepts such appointments and agrees to
perform the duties hereinafter set forth. This Agreement shall be effective as
of the Effective Date.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein, and in accordance with the terms of
the Prospectus of the Trust on behalf of the applicable Portfolio,
applicable law and the procedures established from time to time between
Investor Services Group and the Trust.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, issued and outstanding.
Investor Services Group shall provide the Trust on a regular basis with
the total number of Shares of each Portfolio which are authorized and
issued and outstanding.
(c) Performing the customary services of an administrator,
including corporate secretarial, treasury, legal and blue sky services,
and fund accounting agent for the Trust, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein, and subject to the supervision and
direction of the Board of Directors of the Trust.
(d) Performing the Custody Administration services described
in Schedule B.
3.2 In addition to providing the foregoing services, the Trust hereby
engages Investor Services Group as its exclusive service provider with respect
to the Print/Mail Services itemized in Schedule C for the fees also identified
in Schedule C. Investor Services Group agrees to perform the services and its
obligations subject to the terms and conditions of this Agreement.
3.3 Notwithstanding any of the foregoing provisions of this Agreement,
Investor Services Group shall be under no duty or obligation to inquire into,
and shall not be liable for: (i) the legality of the issuance or sale of any
Shares or the sufficiency of the amount to be
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received therefor; (ii) the legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor; (iii) the legality of the
declaration of any dividend by the Board of Directors, or the legality of the
issuance of any Shares in payment of any dividend; or (iv) the legality of any
recapitalization or readjustment of the Shares.
3.4 In performing its duties under this Agreement, Investor Services
Group: (a) will act in accordance with the Articles of Incorporation, By-Laws,
Prospectuses and with the Oral Instructions and Written Instructions of the
Trust and will conform to and comply with the requirements of the 1940 Act and
all other applicable federal or state laws and regulations; and (b) will consult
with legal counsel to the Trust, as necessary and appropriate. Furthermore,
Investor Services Group shall not have or be required to have any authority to
supervise the investment or reinvestment of the securities or other properties
which comprise the assets of the Trust or any of its Portfolios and shall not
provide any investment advisory services to the Trust or any of its Portfolios.
3.5 Investor Services Group agrees to provide the services described
herein in accordance with the Performance Standards annexed hereto as Exhibit 1
of Schedule B and incorporated herein (the "Performance Standards"). Such
Performance Standards may be amended from time to time upon written agreement of
the parties.
3.6 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Trust
and Investor Services Group.
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule B
and in the Fund's Registration Statement in accordance with all applicable laws,
rules and regulations, including records required by Section 31(a) of the 1940
Act. Where applicable, such records shall be maintained by Investor Services
Group for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Trust and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Trust on and in accordance with the Trust's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Trust, Investor Services Group will endeavor to
notify the Trust of such request and secure Written Instructions as to the
handling of such request. Investor Services Group reserves the right, however,
to exhibit the Shareholder records to any person whenever it is advised by its
counsel that it may be held liable for the failure to comply with such request.
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Article 5 Trust Instructions.
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Trust. Investor Services Group will also have no liability when
processing Share certificates which it reasonably believes to bear the proper
manual or facsimile signatures of the officers of the Trust and the proper
countersignature of Investor Services Group.
5.2 At any time, Investor Services Group may request Written
Instructions from the Trust and may seek advice from legal counsel for the
Trust, or its own legal counsel, with respect to any matter arising in
connection with this Agreement, and it shall not be liable for any action taken
or not taken or suffered by it in good faith in accordance with such Written
Instructions or in accordance with the opinion of counsel for the Trust or for
Investor Services Group. Written Instructions requested by Investor Services
Group will be provided by the Trust within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Trust only if said representative is an
Authorized Person. The Trust agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Trust's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 Compensation.
6.1 The Trust on behalf of each of the Portfolios will compensate
Investor Services Group for the performance of its obligations hereunder in
accordance with the fees and other charges set forth in the written Fee Schedule
annexed hereto as Schedule C and incorporated herein. Out of the Custody
Administration fees received by it under Section 1(d) of Schedule C, Investor
Services Group agrees to pay all compensation and expenses of the Trust's
custodian promptly upon receipt of statements thereon. This reflects Article XI
Section9 of the Custody Agreement. In the event that Investor Services Group
fails to meet certain Performance Standards as set forth in Exhibit 1 to
Schedule B, the Trust shall have the right to reduce the fees owed to Investor
Services Group as set forth in Exhibit 1 to Schedule B; provided, however, that
the Trust's right to reduce fee under this Section 6.1, shall not become
effective until ninety (90) days following the Commencement Date.
6.2 In addition to those fees set forth in Section 6.1 above, the Trust
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by Investor Services Group in the
performance of its duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule D and incorporated herein.
Schedule D may be modified by written agreement between the parties. Unspecified
out-of-pocket expenses shall
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be limited to those out-of-pocket expenses reasonably incurred by Investor
Services Group in the performance of its obligations hereunder.
6.3 The Trust on behalf of each of the Portfolios hereby authorizes
Investor Services Group to collect its fees, other charges and related
out-of-pocket expenses by debiting the Trust's or Portfolio's custody account
for invoices which are rendered for the services performed for the applicable
function. Invoices for the services performed will be sent to the Trust after
such debiting with an indication that payment has been made.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, a revised Fee Schedule executed and dated by
the parties hereto.
6.5 The Trust acknowledges that the fees and charges that Investor
Services Group charges the Trust under this Agreement reflect the allocation of
risk between the parties, including the disclaimer of warranties in Section 9.3
and the limitations on liability and exclusion of remedies in Section 11.2 and
Article 12. Modifying the allocation of risk from what is stated here would
affect the fees that Investor Services Group charges, and in consideration of
those fees, the Trust agrees to the stated allocation of risk.
6.6 Investor Services Group will from time to time employ or associate
with itself such person or persons as Investor Services Group may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
Investor Services Group and the Trust. The compensation of such person or
persons shall be paid by Investor Services Group and no obligation shall be
incurred on behalf of the Trust in such respect.
6.7 Investor Services Group shall not be required to pay any of the
following expenses incurred by the Trust: membership dues in the Investment
Company Institute or any similar organization; investment advisory expenses;
costs of printing and mailing stock certificates, prospectuses, reports and
notices; interest on borrowed money; brokerage commissions; stock exchange
listing fees; taxes and fees payable to Federal, state and other governmental
agencies; fees of Board Members of the Trust who are not affiliated with
Investor Services Group; outside auditing expenses; outside legal expenses; Blue
Sky registration or filing fees; or other expenses not specified in this Section
6.7 which are properly payable by the Trust. Investor Services Group shall not
be required to pay any Blue Sky registration or filing fees unless and until it
has received the amount of such fees from the Trust.
Article 7 Investor Services Group System.
7.1 Investor Services Group shall retain title to and ownership of any
and all proprietary data bases, computer programs, screen formats, report
formats, interactive design techniques, derivative works, inventions,
discoveries, patentable or copyrightable matters, concepts, expertise, patents,
copyrights, trade secrets, and other related legal rights utilized by Investor
Services Group in connection with the services provided by Investor Services
Group to the Trust herein (the "Investor Services Group System").
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7.2 Investor Services Group hereby grants to the Trust a limited
license to the Investor Services Group System for the sole and limited purpose
of having Investor Services Group provide the services contemplated hereunder
and nothing contained in this Agreement shall be construed or interpreted
otherwise and such license shall immediately terminate with the termination of
this Agreement.
7.3 In the event that the Trust, including any affiliate or agent of
the Trust or any third party acting on behalf of the Trust is provided with
direct access to the Investor Services Group System for either account inquiry
or to transmit transaction information, including but not limited to
maintenance, exchanges, purchases and redemptions, such direct access capability
shall be limited to direct entry to the Investor Services Group System by means
of on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 8 Representations and Warranties.
8.1 Investor Services Group represents and warrants to the Trust that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
8.2 THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, INVESTOR SERVICES GROUP DISCLAIMS ALL OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, MADE TO THE TRUST OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY, SUITABILITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF
ANY COURSE OF DEALING, CUSTOM OR USAGE OF TRADE) OF ANY SERVICES OR ANY GOODS
PROVIDED INCIDENTAL TO SERVICES PROVIDED UNDER THIS AGREEMENT. INVESTOR SERVICES
GROUP DISCLAIMS ANY WARRANTY OF TITLE OR NON-INFRINGEMENT EXCEPT AS OTHERWISE
SET FORTH IN THIS AGREEMENT.
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Article 9 Indemnification.
9.1 Investor Services Group shall not be responsible for and the Trust
on behalf of each Portfolio shall indemnify and hold Investor Services Group
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against Investor Services Group or for
which Investor Services Group may be held to be liable (a "Claim") arising out
of or attributable to any of the following:
(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act or bad faith by Investor Services
Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Trust,
or any authorized third party acting on behalf of the Trust, including
but not limited to the prior transfer agent for the Trust, in the
performance of Investor Services Group's duties and obligations
hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Trust on
behalf of the applicable Portfolio; and
(d) the Trust's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Trust's negligence
or misconduct or the breach of any representation or warranty of the
Trust made herein.
9.2 In any case in which the Trust may be asked to indemnify
or hold Investor Services Group harmless, Investor Services Group will notify
the Trust promptly after identifying any situation which it believes presents or
appears likely to present a claim for indemnification against the Trust although
the failure to do so shall not prevent recovery by Investor Services Group and
shall keep the Trust advised with respect to all developments concerning such
situation. The Trust shall have the option to defend Investor Services Group
against any Claim which may be the subject of this indemnification, and, in the
event that the Trust so elects, such defense shall be conducted by counsel
chosen by the Trust and reasonably satisfactory to Investor Services Group, and
thereupon the Trust shall take over complete defense of the Claim and Investor
Services Group shall sustain no further legal or other expenses in respect of
such Claim. Investor Services Group will not confess any Claim or make any
compromise in any case in which the Trust will be asked to provide
indemnification, except with the Trust's prior written consent. The obligations
of the parties hereto under this Article 10 shall survive the termination of
this Agreement.
9.3 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
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(a) one year after the Investor Services Group becomes aware
of the event for which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
9.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 9 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Trust's indemnification obligations pursuant to this
Article 9 may apply.
Article 10 Standard of Care.
10.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Trust unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
10.2 Notwithstanding any provision in this Agreement to the contrary,
Investor Services Group's cumulative liability (to the Trust) for all losses,
claims, suits, controversies, breaches, or damages for any cause whatsoever
arising out of or related to this Agreement and regardless of the form of action
or legal theory shall not exceed the lesser of (i) $500,000 or (ii) the fees
received by Investor Services Group for services provided under this Agreement
during the twelve months immediately prior to the date of such loss or damage.
Trust understands the limitation on Investor Services Group's damages to be a
reasonable allocation of risk and Trust expressly consents with respect to such
allocation of risk.
10.3 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than two (2) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
10.4 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 11 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL INVESTOR SERVICES GROUP, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF
TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES
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REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER PARTY OR
ANY ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 12 Term and Termination.
12.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term").
12.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of three (3) years ("Renewal Terms")
each, unless the Trust or Investor Services Group provides written notice to the
other of its intent not to renew. Such notice must be received not less than
ninety (90) days and not more than one-hundred eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term.
12.3 In the event a termination notice is given by the Trust, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Trust.
12.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. In all cases, termination by the Non-Defaulting Party
shall not constitute a waiver by the Non-Defaulting Party of any other rights it
might have under this Agreement or otherwise against the Defaulting Party.
12.5 In the event that Investor Services Group has failed to meet a
Priority A Performance Standard as set forth and for the periods of time
described in Exhibit 1 of Schedule B (a "Termination Event"), the Trust may
terminate this Agreement. The Trust will provide Investor Services Group with
sixty (60) days notice in writing if the Trust intends to exercise its option
under this Section 12.5; provided that such notice must be given to Investor
Services Group no later than ninety (90) days following notification of the
Termination Event. Notwithstanding the foregoing, the Trust's rights under this
Section 12.5, shall not become effective until ninety (90) days following the
Commencement Date.
12.6 Notwithstanding anything contained in this Agreement to the
contrary, in the event that the Board of Directors decide to liquidate or
dissolve the Trust prior to the end of the Initial Term and the Trust is not
merged into or acquired by a successor fund, the Trust shall have the right to
terminate this Agreement upon ninety (90) days written notice to Investor
Services Group provided that, prior to the effective date of such termination,
the Trust shall pay to Investor Services Group a penalty in an amount equal to
$55,000.
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12.7 Notwithstanding anything contained in this Agreement to the
contrary and except as provided in Sections 12.4, 12.5 and 12.6 hereof, should
the Trust desire to move any of the services provided by Investor Services Group
hereunder to a successor service provider prior to the expiration of the then
current Initial or Renewal Term, or should the Trust or any of its affiliates
take any action which would result in Investor Services Group ceasing to provide
transfer agency, administration or fund accounting services to the Trust prior
to the expiration of the Initial or any Renewal Term, Investor Services Group
shall make a good faith effort to facilitate the conversion on such prior date,
however, there can be no guarantee that Investor Services Group will be able to
facilitate a conversion of services on such prior date. In connection with the
foregoing, should services be converted to a successor service provider or
should the Trust or any of its affiliates take any action which would result in
Investor Services Group ceasing to provide transfer agency, administration or
fund accounting services to the Trust prior to the expiration of the Initial or
any Renewal Term, the payment of fees to Investor Services Group as set forth
herein shall be accelerated to a date prior to the conversion or termination of
services and calculated as if the services had remained with Investor Services
Group until the expiration of the then current Initial or Renewal Term and
calculated at the asset and/or Shareholder account levels, as the case may be,
on the date notice of termination was given to Investor Services Group.
Article 13 Additional Portfolios
13.1 In the event that the Trust establishes one or more Portfolios in
addition to those identified in Schedule A, with respect to which the Trust
desires to have Investor Services Group render services under the terms hereof,
the Trust shall so notify Investor Services Group in writing, and if Investor
Services Group agrees in writing to provide such services, Schedule A shall be
amended to include such additional Portfolios.
Article 14 Confidentiality.
14.1 The parties agree that the Confidential Information (defined
below) is confidential information of the parties and their respective
licensors. The Trust and Investor Services Group shall exercise at least the
same degree of care, but not less than reasonable care, to safeguard the
confidentiality of the Confidential Information of the other as it would
exercise to protect its own confidential information of a similar nature. The
Trust and Investor Services Group shall not duplicate, sell or disclose to
others the Confidential Information of the other, in whole or in part, without
the prior written permission of the other party. The Trust and Investor Services
Group may, however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees and their independent contractors, auditors and
professional advisors, provided that each shall use reasonable efforts to ensure
that the Confidential Information is not duplicated or disclosed in breach of
this Agreement. Notwithstanding the previous sentence, in no event shall either
the Trust or Investor Services Group disclose the Confidential Information to
any competitor of the other without specific, prior written consent.
14.2 Confidential Information means:
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(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, and internal performance results relating to
the past, present or future business activities of the Trust or
Investor Services Group, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Trust or
Investor Services Group a competitive advantage over its competitors;
and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
14.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
14.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(f) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the
Confidential Information disclosed under this Agreement.
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Article 15 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country; (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (whether or not the
employees' demands are reasonable or within the party's power to satisfy); or
(v) nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 16 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. Investor Services Group may, in
its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group.
Article 17 Arbitration.
17.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
17.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
17.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 17.
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Article 18 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Trust or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Trust:
Kelmoore Strategic Trust
2471 East Bayshore Road
Palo Alto, California 94303
Attention: Matthew Kelmon
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To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 19 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this Agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and
Investor Services Group and the Trust hereby submit themselves to the exclusive
jurisdiction of those courts.
Article 20 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 21 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 22 Publicity.
Neither Investor Services Group nor the Trust shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without the prior
review and written approval of the other party; provided, however, that either
party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
Article 23 Relationship of Parties/Non-Solicitation.
23.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
23.2 During the term of this Agreement and for one (1) year afterward,
the Trust shall not recruit, solicit, employ or engage, for the Trust or others,
Investor Services Group's employees.
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Article 24 Entire Agreement; Severability.
24.1 This Agreement, including Schedules, constitutes the entire
Agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous proposals, agreements, contracts,
representations, and understandings, whether written or oral, between the
parties with respect to the subject matter hereof. No change, termination,
modification, or waiver of any term or condition of the Agreement shall be valid
unless in writing signed by each party. No such writing shall be effective as
against Investor Services Group unless said writing is executed by a Senior Vice
President, Executive Vice President, or President of Investor Services Group. A
party's waiver of a breach of any term or condition in the Agreement shall not
be deemed a waiver of any subsequent breach of the same or another term or
condition.
24.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
Article 25 Miscellaneous.
The Trust and Investor Services Group agree that the obligations of the
Trust under the Agreement shall not be binding upon any of the Board Members,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust individually, but are binding only upon the assets and
property of the Trust, as provided in the Articles of Incorporation. The
execution and delivery of this Agreement have been authorized by the Board
Members of the Trust, and signed by an authorized officer of the Trust, acting
as such, and neither such authorization by such Board Members nor such execution
and delivery by such officer shall be deemed to have been made by any of them or
any shareholder of the Trust individually or to impose any liability on any of
them or any shareholder of the Trust personally, but shall bind only the assets
and property of the Trust as provided in the Articles of Incorporation.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
KELMOORE STRATEGIC TRUST
By: \s\Matthew Kelmon
----------------------------
Title: President
----------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/Kenneth J. Kempf
----------------------------
Title: Senior Vice President
----------------------------
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<PAGE> 18
SCHEDULE A
LIST OF PORTFOLIOS
Kelmoore Strategy Covered Option Fund
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<PAGE> 19
SCHEDULE B
DUTIES OF INVESTOR SERVICES GROUP
I. TRANSFER AGENCY AND SHAREHOLDER SERVICES
(a) Shareholder Information. Investor Services Group shall maintain a
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification and which shall indicate whether
such Shares are held in certificates or uncertificated form.
(b) Shareholder Services. Investor Services Group shall respond as
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and the Trust.
(c) Share Certificates.
- At the expense of the Trust, the Trust shall supply Investor
Services Group with an adequate supply of blank share
certificates to meet Investor Services Group requirements
therefor. Such Share certificates shall be properly signed by
facsimile. The Trust agrees that, notwithstanding the death,
resignation, or removal of any officer of the Trust whose
signature appears on such certificates, Investor Services
Group or its agent may continue to countersign certificates
which bear such signatures until otherwise directed by Written
Instructions.
- Investor Services Group shall issue replacement Share
certificates in lieu of certificates which have been lost,
stolen or destroyed, upon receipt by Investor Services Group
of properly executed affidavits and lost certificate bonds, in
form satisfactory to Investor Services Group, with the Trust
and Investor Services Group as obligees under the bond.
Investor Services Group shall further maintain a stop transfer
record on lost and/or replaced certificates
(d) Mailing Communications to Shareholders; Proxy Materials. Investor
Services Group will address and mail to Shareholders of the Trust, all reports
to Shareholders, dividend and distribution notices and proxy material for the
Trust's meetings of Shareholders. In connection with meetings of Shareholders,
Investor Services Group will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process and tabulate returned proxy cards,
report on proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
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<PAGE> 20
(e) Sales of Shares.
- Investor Services Group shall not be required to issue any
Shares of the Trust where it has received a Written
Instruction from the Trust or official notice from any
appropriate authority that the sale of the Shares of the Trust
has been suspended or discontinued. The existence of such
Written Instructions or such official notice shall be
conclusive evidence of the right of Investor Services Group to
rely on such Written Instructions or official notice.
- In the event that any check or other order for the payment of
money is returned unpaid for any reason, Investor Services
Group will endeavor to: (i) give prompt notice of such return
to the Trust or its designee; (ii) place a stop transfer order
against all Shares issued as a result of such check or order;
and (iii) take such other actions as Investor Services Group
and the Fund may from time to time deem appropriate.
(f) Transfer and Repurchase.
- Investor Services Group shall process all requests to transfer
or redeem Shares in accordance with the transfer or repurchase
procedures set forth in the Trust's Prospectus.
- Investor Services Group will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise
pursuant to the Prospectus and Share certificates, if any,
properly endorsed for transfer or redemption, accompanied by
such documents as Investor Services Group reasonably may deem
necessary.
- Investor Services Group reserves the right to refuse to
transfer or repurchase Shares until it is reasonably satisfied
that the endorsement on the instructions is valid and genuine.
Investor Services Group also reserves the right to refuse to
transfer or repurchase Shares until it is reasonably satisfied
that the requested transfer or repurchase is legally
authorized, and it shall incur no liability for the refusal,
in good faith, to make transfers or repurchases which Investor
Services Group, in its good judgement, deems improper or
unauthorized, or until it is reasonably satisfied that there
is no basis to any claims adverse to such transfer or
repurchase.
- When Shares are redeemed, Investor Services Group shall, upon
receipt of the instructions and documents in proper form,
deliver to the Custodian and the Trust or its designee a
notification setting forth the number of Shares to be
repurchased. Such repurchased shares shall be reflected on
appropriate accounts maintained by Investor Services Group
reflecting outstanding Shares of the Trust and Shares
attributed to individual accounts.
- Investor Services Group shall upon receipt of the monies
provided to it by the Custodian for the repurchase of Shares,
pay such monies as are received from the Custodian, all in
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<PAGE> 21
accordance with the procedures described in Oral or Written
Instructions received by Investor Services Group from the
Trust or otherwise pursuant to the Prospectus.
- Investor Services Group shall not process or effect any
repurchase with respect to Shares of the Trust after receipt
by Investor Services Group or its agent of notification of the
suspension of the determination of the net asset value of the
Trust.
(g) Dividends.
- Upon the declaration of each dividend and each capital gains
distribution by the Board of Directors of the Trust with
respect to Shares of the Trust, the Trust shall furnish or
cause to be furnished to Investor Services Group Written
Instructions setting forth the date of the declaration of such
dividend or distribution, the ex-dividend date, the date of
payment thereof, the record date as of which Shareholders
entitled to payment shall be determined, the amount payable
per Share to the Shareholders of record as of that date, the
total amount payable on the payment date and whether such
dividend or distribution is to be paid in Shares at net asset
value.
- On or before the payment date specified in such resolution of
the Board of Directors, the Trust will provide Investor
Services Group with sufficient cash to make payment to the
Shareholders of record as of such payment date.
- If Investor Services Group does not receive sufficient cash
from the Trust to make total dividend and/or distribution
payments to all Shareholders of the Trust as of the record
date, Investor Services Group will, upon notifying the Trust,
withhold payment to all Shareholders of record as of the
record date until sufficient cash is provided to Investor
Services Group.
(h) Retirement Plans. In connection with the individual retirement
account, simplified employee pension plan, rollover individual retirement plan,
educational IRA and ROTH individual retirement account (each hereinafter
referred to as an "IRA" and, collectively, the "IRAs") within the meaning of
Section 408 of the Internal Revenue Code of 1986, as amended (the "Code")
offered by the Trust, Investor Services Group shall provide the following
administrative services in addition to those services described herein:
- Establish a record of types and reasons for distributions
(i.e., attainment of age 59-1/2, disability, death, return of
excess contributions, etc.);
- Record method of distribution requested and/or made;
- Receive and process designation of the beneficiary forms;
- Examine and process requests for direct transfers between
custodians/trustees, transfer and pay over to the successor
assets in the account and records pertaining thereto as
requested;
- Prepare any annual reports or returns required to be prepared
and/or filed by a custodian of an IRA, including, but not
limited to, an annual fair market value report,
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<PAGE> 22
Forms 1099R and 5498 and file with the IRS and provide to
Participant/Beneficiary; and
- Perform applicable federal withholding and send
Participants/Beneficiaries an annual TEFRA notice regarding
required federal tax withholding.
(i) Cash Management Services. Funds received by Investor Services Group
in the course of performing its services hereunder will be held in demand
deposit bank accounts or money market fund accounts in the name of Investor
Services Group (or its nominee) as agent for the Trust. Investor Services Group
shall be entitled to retain any excess interest, dividends, balance credits or
fee reductions or other concessions or benefits earned or generated by or
associated with such accounts or made available by the institution at which such
accounts are maintained after such benefits are first applied towards banking
service fees charged to the Trust by such institution.
(j) Lost Shareholders. Investor Services Group shall perform such
services as are required in order to comply with Rules 17a-24 and 17Ad-17 of the
34 Act (the "Lost Shareholder Rules"), including, but not limited to those set
forth below. Investor Services Group may, in its sole discretion, use the
services of a third party to perform the some or all such services.
- documentation of electronic search policies and procedures;
- execution of required searches;
- creation and mailing of confirmation letters;
- taking receipt of returned verification forms;
- providing confirmed address corrections in batch via
electronic media;
- tracking results and maintaining data sufficient to comply
with the Lost Shareholder Rules; and
- preparation and submission of data required under the Lost
Shareholder Rules.
II. ADMINISTRATION SERVICES
(a) Maintaining office facilities (which may be in the offices of
Investor Services Group or a corporate affiliate) and furnishing corporate
officers for the Trust;
(b) Furnishing data processing services, clerical services, and
executive and administrative services and standard stationery and office
supplies;
(c) Performing all functions ordinarily performed by the office of a
corporate treasurer, and furnishing the services and facilities ordinarily
incident thereto, including:
- Expense Accrual Monitoring
- Determination of Dividends
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<PAGE> 23
- Preparation of materials for review by the Board, e.g., Rules
2a-7,10f-3, 17a-7, 17e-1 and 144A
- Tax and Financial Counsel
- Creation of expense pro formas for new Portfolios/classes
- Reporting to investment company reporting agencies (i.e.,
Lipper)
- Compliance Testing including Section 817(h) (daily, weekly or
monthly)
(d) Preparing reports to the Trust's Shareholders and the SEC
including, but not necessarily limited to, Annual Reports and Semi-Annual
Reports on Form N-SAR;
(e) Preparing and filing the Trust's tax returns and providing
shareholder tax information to the Trust's transfer agent;
(f) Assisting the Adviser, at the Adviser's request, in monitoring and
developing compliance procedures for the Trust which will include, among other
matters, procedures to assist the Adviser in monitoring compliance with each
Portfolio's investment objective, policies, restrictions, tax matters and
applicable laws and regulations;
(g) Performing "Blue Sky" compliance functions, as follows:
Effecting and maintaining, as the case may be, the registration or notification
of Shares of the Trust for sale under the securities laws of the jurisdictions
listed in the Written Instructions of the Trust, which instructions will include
the amount of Shares to be registered as well as the warning threshold to be
maintained. Any Written Instructions not received at least 45 days prior to the
date the Trust intends to offer or sell its Shares cannot be guaranteed a timely
notification to the states.
- Filing with each appropriate jurisdiction the appropriate
materials relating to the Trust.
- Providing to the Trust quarterly reports of sales activity in
each jurisdiction in accordance with the Written Instructions
of the Trust. Sales will be reported by shareholder residence.
NSCC trades and order clearance will be reported by the state
provided by the dealer at the point of sale. Trades by omnibus
accounts will be reported by trustee state of residence in
accordance with the Written Instructions of the Trust
outlining the entities which are permitted to maintain omnibus
positions with the Trust.
- In the event sales of Shares in a particular jurisdiction
reach or exceed the warning levels provided in the Written
Instructions of the Trust, Investor Services Group will
promptly notify the Trust with a recommendation of the amount
of Shares to be registered in such jurisdiction and the fee
for such registration. Investor Services Group will not
register
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<PAGE> 24
additional Shares in such jurisdiction unless and until
Investor Services Group shall have received Written
Instructions from the Trust to do so.
If Investor Services Group is instructed by the Trust not to register Shares in
a particular jurisdiction, Investor Services Group will use its best efforts to
cause any sales in such jurisdictions to be blocked.
(h) Performing corporate secretarial services including the following:
- Assist in maintaining corporate records and good standing
status of Trust in its state of organization
- Develop and maintain calendar of annual and quarterly board
approvals and regulatory filings
- Prepare notice, agenda, memoranda, resolutions and background
materials for legal approvals at quarterly board meetings and
committee meetings; attend meetings; make presentations where
appropriate; prepare minutes; follow up on issues
- Provide support for one special in person board meeting per
year and written consent votes where needed
(i) Performing the following legal and other services:
- Prepare and file annual Post-Effective Amendment
- Prepare and file Rule 24f-2 Notice
- Review and file Form N-SAR
- Review, Edgarize and file Annual and Semi-Annual Financial
Reports
- Communicate significant regulatory or legislative developments
to Trust management and directors and provide related planning
assistance where needed
- Consult with Trust management regarding portfolio compliance
and Trust corporate and regulatory issues as needed
- Maintain effective communication with outside counsel and
review legal bills of outside counsel
- Coordinate the printing and mailing process with outside
printers for all shareholder publications
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<PAGE> 25
- Arrange D&O/E&O insurance and fidelity bond coverage for Trust
- Assist in monitoring Trust Code of Ethics reporting and
provide such reports to the person designated under the
Trust's Code
(j) Performing, in accordance with the Written Instructions of the
Trust, the following Special Legal Services in accordance with the additional
pricing structure listed on the Fee Schedule attached to this Agreement as
Schedule C:
- Assist in managing SEC audit of the Trust at the Adviser's
principal place of business
- Review sales material and advertising for Trust Prospectus and
legal compliance
- Assist in new Portfolio start-up (to the extent requested)
Coordinate time and responsibility schedules Prepare Trust
corporate documents Draft/file registration statement
(including investment objectives/policies and prospectuses)
Respond to and negotiate SEC comments Draft notice, agenda and
resolutions for organizational meeting; attend board meeting;
make presentations where appropriate; prepare minutes and
follow up on issues
- Assist in developing compliance guidelines and procedures to
improve overall compliance by Trust and service providers
- Prepare notice, agenda, memoranda and background materials for
special board meetings, make presentations where appropriate,
prepare minutes and follow up on issues
- Prepare proxy material for special meetings (including fund
merger documents)
- Prepare Post-Effective Amendments for special purposes (e.g.,
new funds or classes, changes in advisory relationships,
mergers, restructurings)
- Prepare special Prospectus supplements where needed
- Assist in extraordinary non-recurring projects, including
providing consultative legal services, e.g.,
Arrange CDSC financial programs
Profile prospectuses
Exemptive order applications
III. FUND ACCOUNTING SERVICES
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<PAGE> 26
Performing fund accounting and bookkeeping services (including the
maintenance of such accounts, books and records of the Trust as may be required
by Section 31(a) of the 1940 Act) as follows:
- Daily, Weekly, and Monthly Reporting
- Portfolio and General Ledger Accounting
- Daily Valuation of all Portfolio Securities
- Daily NAV Calculation
- Comparison of NAV to market movement
- Review research of price tolerance/fluctuation report to
market movements and events
- Research of items appearing on the price exception report
- Security trade processing
- Daily cash and position reconciliation with the custodian bank
- Daily updating of price and distribution rate information to
the Transfer Agent/Insurance Agent
- Daily support and report delivery to Portfolio Management
- Daily calculation of Portfolio adviser fees and waivers
- Daily calculation of distribution rates
- Daily investable cash call
- Monitor and research aged receivables
- Collect aged income items and perform reclaims
- Update NASDAQ reporting
- Daily maintenance of each Portfolio's general ledger including
expense accruals
- Daily NAV per share notification to other vendors as required
- Calculation of 30-day SEC yields and total returns
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<PAGE> 27
- Preparation of month-end reconciliation package
- Monthly reconciliation of Portfolio expense records
- Application of monthly pay down gain/loss
- Preparation of all annual and semi-annual audit work papers
IV. CUSTODY ADMINISTRATION SERVICES
Performing custody administration services as follows:
- Assign a custody administrator to accept, control and process
the Trust's daily portfolio transactions through direct
computer link with the Custodian
- Match and review DTC eligible ID's and trade information with
the Trust's instructions for accuracy and coordinating with
the Custodian and the Trust's accounting agent for recording
and affirmation processing with the depository
- Systematically settle all depository eligible issues.
Transactions requiring physical delivery will be settled
through the Custodian's New York office.
- Assist the Trust in placing cash management trades through the
Custodian, such as commercial paper, CD's and repurchase
agreements
- Provide the Adviser with daily custodian statements reflecting
all prior day cash activity on behalf of each Portfolio by
8:30 a.m. Eastern time. Complete description of any posting,
inclusive of Sedol/CUSIP numbers, interest/dividend payment
date, capital stock details, expense authorizations,
beginning/ending cash balances, etc., will be provided by the
Custodian's reports or systems.
- Provide monthly activity statements combining both cash
changes and security trades, and a full portfolio listing.
- Communicate to the Trust on any corporate actions, capital
changes and interest rate changes supported by appropriate
supplemental reports received from the Custodian. Follow-up
will be made with the Custodian to ensure all necessary
actions and/or paperwork is complete.
- Coordinate and resolve unsettled dividends, interest, paydowns
and capital changes. Assist in resolution of failed
transactions and any settlement problems.
- Provide broker interface ensuring trade settlement with failed
trade follow-up.
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<PAGE> 28
- Provide the Fund's auditor with trade documentation to help
expedite the Trust's audit.
- Investor Services Group shall be entitled to retain any excess
balance credits or fee reductions or other concessions or
benefits earned or generated by or associated with the Fund's
custodial accounts or made available by the institution at
which such accounts are maintained after such benefits are
first applied towards banking service fees charged to the
Trust by such institution.
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<PAGE> 29
EXHIBIT 1 TO SCHEDULE B
PERFORMANCE STANDARDS
STANDARDS:
Fund Accounting/Custody Administration
The following standards will be met 95% of the time.
- NAV's calculated accurately, provided all information from
external vendors or fund manager is correct*
- Information to NASDAQ is reported within timeframes*
- Daily bulletin is released by 7:00 p.m., EST, provided all
information from external vendors or fund managers is received
in a timely basis
Fund Administration/Tax and Compliance
The following standard will be met 100% of the time.
- All SEC and IRS regulatory requirements will be met*
Processing:
The following standards will be met 95% of the time measured on a quarterly
basis, minimum of 50 items per standard measured.
- New accounts in good order will be established on the Transfer
Agent System on the same day received*
- Shareholder transactions in good order will be processed on
the Transfer Agent System on the same day received*
- Correspondence will be completed within five (5) business days
of receipt
- Fulfillment requests will be mailed within 48 hours of
receipt.
- Maintenance items will be completed within five (5) business
days of receipt
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<PAGE> 30
Print/Mail:
The following standards will be met 95% of the time measured on a quarterly
basis, minimum of 50 items per standard measured.
- Daily confirmations will be mailed to shareholders on Trade
Date plus two (2) business days*
- Check requests will be mailed to shareholders on Trade Date
plus two (2) business day
- Quarterly Statements will be mailed to shareholders within
five (5) business days from quarter end
*Priority A Standards. All other measurements are considered Priority B
Standards.
MEASUREMENT:
Measurement of the Performance Standards shall not become effective until 90
days following the Commencement Date.
PENALTIES:
Penalties for Priority A Standards:
- The penalty for missing the same Performance Standard in one
(1) quarter is written notice.
- The penalty for missing the same Performance Standard two (2)
quarters in succession is termination of this Agreement in
accordance with Section 12.5 hereof.
Penalties for Priority B Standards:
- The penalty for missing the same Performance Standard in one
(1) quarter is written notice.
- The penalty for missing the same Performance Standard two (2)
quarters in succession is a 10% reduction in the quarterly fee
for such service for the second quarter.
- The penalty for missing the same Performance Standard three
(3) quarters in a rolling six (6) quarter period is a 20%
reduction in the quarterly fee for such service for the third
quarter.
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<PAGE> 31
SCHEDULE C
FEE SCHEDULE
1. Standard Fees
<TABLE>
<S> <C> <S>
(a) Administration Fees:
First $50 million of average net assets .0015
Next $50 million of average net assets .0010
Over $100 million average net assets .0005
Annual minimum fees $55,000 for first Portfolio
$12,000 for each additional
domestic Portfolio or class
</TABLE>
(b) Transfer Agency and Shareholder Servicing Fees:
Transfer Agency and Shareholder Services $20.00 per account
per year per Portfolio $24,000 annual minimum fee per
no-load Portfolio
IRA's, 403(b) Plans, Defined Contribution/Benefit Plans
Annual Maintenance Fee - $12.00 per account per year
FUND/SERV Processing (if applicable)
$1,000 one time set-up charge
$50.00 per month/per Portfolio monthly maintenance fee
Networking Processing (if applicable)
$1,000 one time set-up charge
$75.00 per month/per Portfolio monthly maintenance fee
<TABLE>
<S> <C> <C>
(c) Fund Accounting Fees:
(Per Domestic Portfolio)
Minimum to $20 million of average net assets $30,000
Next $30 million of average net assets .0003
Next $50 million of average net assets .0002
Over $100 million of average net assets .0001
Each additional class is $12,000 minimum per year
(d) Custody Administration Fees:
Domestic Securities and ADRs (Per Portfolio)
First $50 million of average net assets .0002
</TABLE>
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<PAGE> 32
<TABLE>
<S> <C> <C>
Next $150 million of average net assets .00015
Over $200 million of average net assets .000125
Minimum monthly fee: $500
Custody Domestic Securities Transaction Charge:
Book Entry, DTC, Federal Book Entry, PTC $12.00
Physical Securities, Options/Futures $20.00
RIC's $24.50
P & I Paydowns $7.00
Wires $7.00
Check Request $6.00
Eurodollar CD's $45.00
Euro/TD's $15.00
</TABLE>
A transaction includes buys, sells, maturities or
free security movements.
Cedel/Euroclear
4 bps safekeeping charge, $20.00 transaction charge
Fee expressed in basis points per annum based upon
month end market value
Global Network Fee
$500 per Portfolio per month, includes Cedel trades
Note: To the extent the Trust commences using foreign
(non USD) securities, additional fees will apply per country,
plus global network fee per month. At least two (2) weeks
advance notice is required to complete documentation and
establish accounts in the foreign countries.
When Issued, Securities Lending, Index Futures, Etc.
Should any investment vehicle require a separate segregated
custody account, a fee of $250 per account per month will
apply.
Custody Miscellaneous Fees
Administrative fees incurred in certain local markets will be
passed on to the Trust with a detailed description of the
fees. Fees include income collection, corporate action
handling, overdraft charges, funds transfer, special local
taxes, stamp duties, registration fees, messenger and courier
services and other out-of-pocket expenses.
Investor Services Group agrees that a portion of its custody
administration fee will be used to pay on behalf of the Trust
the Custodian for its services rendered to the Trust under the
Custody Agreement.
2. Lost Shareholder Search/Reporting: $2.75 per account search*
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<PAGE> 33
* The per account search fee shall be waived until June 2000
so long as the Trust retains Keane Tracers, Inc. ("KTI") to
provide the Trust with KTI's "In-Depth Research Program"
services.
3. Print/Mail Fees.
<TABLE>
<S> <C>
Implementation Fee: $ 5000.00 - WAIVED
$150.00/hr. Multi-check and non-standard
Testing Application or
Data Requirements: $3.00/fax
Work Order: $15.00 per workorder
Daily Work (Confirms):
Hand: $71/K with $20.00 minimum (includes 1 insert)
$0.07/each additional insert
Machine: $42/K with $15.00 minimum (includes 1 insert)
$0.01/each additional insert
Daily Checks*:
Hand: $91/K with $30.00 minimum daily (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $20.00 minimum (includes 1 insert)
$0.01/each additional insert
* There is a $3.00 charge for each 3606 Form sent.
Statements:
Hand: $78/K with $20.00 minimum (includes 1 insert)
$0.08/each additional insert
$125/K for intelligent inserting
Machine: $52/K with $20.00 minimum (includes 1 insert)
$0.01 each additional insert
$58/K for intelligent inserting
Periodic Checks:
Hand: $91/K with $30.00 minimum (includes 1 insert)
$0.08/each additional insert
Machine: $52/K with $30.00 minimum (includes 1 insert)
$0.01/each additional insert
12B1/Dealer Commission
Checks/Statements: $0.78/each envelope with
$30.00 minimum
Spac Reports/Group
Statements: $78/K with $20.00 minimum
Listbills: $0.78 per envelope with $20.00 minimum
Printing Charges: (price ranges dependent on volumes)
$0.08/per confirm/statement/page
</TABLE>
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<PAGE> 34
$0.115/per check
Folding (Machine): $18/K
Folding (Hand): $.12 each
Presort Charge: postage rate
$0.035 per piece
Courier Charge: $25.00 for each on call courier trip/or
actual cost for on demand
Overnight Charge: $3.50 per package service charge plus
Federal Express/Airborne charge
Inventory Storage: $20.00 for each inventory location as of the
15th of the month
Inventory Receipt: $20.00 for each SKU / Shipment
Hourly work; special projects, opening envelopes, etc...: $24.00 per hour
Special Pulls: $2.50 per account pull
Boxes/Envelopes: Shipping boxes $0.85 each
Oversized Envelopes $0.45 each
Forms Development/Programming Fee: $100/hr
Systems Testing: $110/hr
Cutting Charges: $10.00/K
4. Investor Services Group shall be entitled to the following fee for the
performance of any Special Legal Services as described in Schedule B in
accordance with the Written Instructions of the Trust: $185 per hour subject to
certain project caps as may be agreed to by Investor Services Group and the
Trust. Services and charges may vary based on volume.
5. Miscellaneous Charges. The Trust shall be charged for the following products
and services as applicable:
- Ad hoc reports
- Ad hoc SQL time
- COLD Storage
- Digital Recording
- Banking Services, including incoming and outgoing wire charges
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Manual Pricing
- Pre-Printed Stock, including business forms, certificates,
envelopes, checks and stationary
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<PAGE> 35
6. Fee Adjustments. After the one year anniversary of the effective date of this
Agreement, Investor Services Group may adjust the fees described in the above
sections once per calendar year, upon thirty (30) days prior written notice in
an amount not to exceed the cumulative percentage increase in the Consumer Price
Index for All Urban Consumers (CPI-U) U.S. City Average, All items (unadjusted)
- - (1982-84=100), published by the U.S. Department of Labor since the last such
adjustment in the Client's monthly fees (or the Effective Date absent a prior
such adjustment).
7. Programming Costs. The following programming rates are subject to an annual
5% increase after the one year anniversary of the effective date of this
Agreement.
(a) Dedicated Team: Programmer: $100,000 per annum
BSA: $ 85,000 per annum
Tester: $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team): $150.00 per/hr per programmer
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<PAGE> 36
SCHEDULE D
OUT-OF-POCKET EXPENSES
The Trust shall reimburse Investor Services Group monthly for reasonable
out-of-pocket expenses incurred on behalf of the Trust, including, but not
limited to the following items:
- Postage - direct pass through to the Trust
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Shipping, Certified and Overnight mail and insurance
- Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals
and lines
- Duplicating services
- Distribution and Redemption Check Issuance
- Courier services
- Federal Reserve charges for check clearance
- Overtime, as approved by the Trust
- Temporary staff, as approved by the Trust
- Travel and entertainment, as approved by the Trust
- Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record
keeping vendors
- Third party audit reviews
- Insurance
- Pricing services (or services used to determine Trust NAV)
- Vendor set-up charges for Blue Sky and other services
- Blue Sky filing or registration fees
- EDGAR filing fees
- Vendor pricing comparison
- Such other expenses as are agreed to by Investor Services
Group and the Trust
The Trust agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with Investor Services Group. In addition,
the Trust will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Trust and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
-36-
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
March 24, 1999, relating to the financial statements of The Kelmoore Strategy
Covered Option Fund, which are also included in the Registration Statement. We
also consent to the reference to us under the heading "Independent Accountants"
in such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
San Francisco, CA
August 20, 1999
<PAGE> 1
Exhibit 99(m)(1)
KELMOORE STRATEGIC TRUST
RULE 12B-1 PLAN OF DISTRIBUTION AND SERVICE PLAN
MARCH 22, 1999
The following Distribution and Service Plan (the "Plan") has been adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act"), by Kelmoore Strategic Trust (the "Trust") for the shares of
Kelmoore Strategy Covered Option Fund (the "Fund"). The Plan has been approved
by a majority of the Trust's Trustees, including a majority of the Trustees who
are not interested persons of the Trust (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreement related to the Plan (the "non-interested Trustees"), cast in
person at a meeting called for the purpose of voting on such Plan.
SECTION 1. ANNUAL FEE.
(a) The Fund shall reimburse Kelmoore Investment Company, Inc., as the
Fund's distributor (the "Distributor"), a monthly fee not to exceed 0.75%
(3/4 of 1%) per annum of the average daily net assets of the Fund.
(b) In addition to the amounts described in (a) above, the Fund shall
reimburse the Distributor for payment to dealers or others a monthly fee
not to exceed 0.25% (1/4 of 1%) per annum of the average daily net assets
of the Fund, as a service fee.
SECTION 2. EXPENSES COVERED BY THE PLAN.
The fees payable under Section 1(a) of the Plan shall be used to reimburse
the Distributor for any expenses primarily intended to result in the sale
of the Fund's shares, including, but not limited to: payments the
Distributor makes to broker-dealers or other financial institutions and
industry professionals for providing distribution assistance, payments made
for the preparation, printing and distribution of advertisements and sales
literature, and payments made for printing and distributing prospectuses
and shareholder reports to other than existing shareholders of the Fund.
The fees payable under Section 1(b) of the Plan shall be used to reimburse
the Distributor for any expenses for personal service and/or the
maintenance of shareholder accounts, including, but not limited to:
payments made to broker-dealers or other financial institutions and
industry professionals for providing administrative support services to the
holders of the Fund's shares.
All such expenses covered by the Plan shall be deemed incurred whether paid
directly by the Distributor or by a third party to the extent reimbursed
therefor by the Distributor.
SECTION 3. DISTRIBUTION EXPENSES IN EXCESS OF FEE.
All Distribution Expenses in excess of the fee rates provided for in this
Plan may be carried forward and resubmitted in a subsequent fiscal year
provided that (i) Distribution Expenses cannot be carried forward for more
than three years following initial submission; and (ii) the non-interested
Trustees determine at the time of initial submission that the Distribution
Expenses are appropriate to be reimbursed. Distribution Expenses will be
paid on a first-in, first-out basis.
1
<PAGE> 2
SECTION 4. WRITTEN REPORTS.
The Adviser shall furnish to the Trustees, for their review, on a quarterly
basis, a written report of the monies paid under the Plan or any related
agreement and the purposes therefor, and shall furnish the Trustees with
such other information as the Trustees may reasonably request in connection
with payments made under the Plan or any related agreement in order to
enable the Trustees to make an informed determination of whether the Plan
should be continued.
SECTION 5. TERMINATION.
The Plan may be terminated at any time, without penalty, by a vote of a
majority of the non-interested Trustees or by vote of a majority of the
outstanding voting securities of the Fund, and any distribution agreement
under the Plan may be likewise terminated on not more than sixty (60) days'
written notice. Once terminated, no further payments shall be made under
the Plan notwithstanding the existence of any unreimbursed current or
carried forward distribution expenses.
SECTION 6. AMENDMENTS.
The Plan may not be amended to increase materially the amount to be spent
for distribution and servicing of Fund shares without approval by a
majority of the outstanding voting securities of the Fund. All material
amendments to the Plan and any related distribution agreement shall be
approved by the Trustees and the non-interested Trustees cast in person at
a meeting called for the purpose of voting on any such amendment.
SECTION 7. SELECTION OF INDEPENDENT TRUSTEES.
So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested Trustees shall be committed to the discretion of
such non-interested Trustees.
SECTION 8. EFFECTIVE DATE OF PLAN.
The Plan shall take effect as of the date hereof and, unless sooner
terminated, shall continue in effect for a period of more than one year
from the date of its execution only so long as such continuance is
specifically approved at least annually by the Trustees, including the
non-interested Trustees, cast in person at a meeting called for the purpose
of voting on such continuance.
SECTION 9. PRESERVATION OF MATERIALS.
The Trust will preserve copies of the Plan, any agreements relating to the
Plan and any report made pursuant to Section 4 above, for a period of not
less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
SECTION 10. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the
1940 Act, subject to any exemption that may be granted to the Trust under
the 1940 Act by the Securities and Exchange Commission.
2
<PAGE> 1
Exhibit 99(m)(2)
KELMOORE STRATEGIC TRUST
RULE 12B-1 PLAN OF DISTRIBUTION PLAN FOR CLASS A SHARES
MARCH 22, 1999
The following Distribution Plan (the "Plan") has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), by
Kelmoore Strategic Trust (the "Trust") for the Class A shares of Kelmoore
Strategy Covered Option Fund (the "Fund"). The Plan has been approved by a
majority of the Trust's Trustees, including a majority of the Trustees who are
not interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "non-interested Trustees"), cast in person at
a meeting called for the purpose of voting on such Plan.
SECTION 1. ANNUAL FEE.
The Fund shall reimburse Kelmoore Investment Company, Inc., as the Fund's
distributor (the "Distributor"), a monthly fee not to exceed 0.25% (1/4 of
1%) per annum of the average daily net assets of the Fund.
SECTION 2. EXPENSES COVERED BY THE PLAN.
The fees payable under the Plan shall be used to reimburse the Distributor
for any expenses primarily intended to result in the sale of the Fund's
shares, including, but not limited to: payments the Distributor makes to
broker-dealers or other financial institutions and industry professionals
for providing distribution assistance and administrative support services
to the holders of the Fund's shares, payments made for the preparation,
printing and distribution of advertisements and sales literature, and
payments made for printing and distributing prospectuses and shareholder
reports to other than existing shareholders of the Fund.
All such expenses covered by the Plan shall be deemed incurred whether paid
directly by the Distributor or by a third party to the extent reimbursed
therefor by the Distributor.
SECTION 3. DISTRIBUTION EXPENSES IN EXCESS OF FEE.
All distribution expenses in excess of the fee rates provided for in this
Plan may be carried forward and resubmitted in a subsequent fiscal year
provided that (i) distribution expenses cannot be carried forward for more
than three years following initial submission; and (ii) the non-interested
Trustees determine at the time of initial submission that the distribution
expenses are appropriate to be reimbursed. Distribution expenses will be
paid on a first-in, first-out basis.
SECTION 4. WRITTEN REPORTS.
The Adviser shall furnish to the Trustees, for their review, on a quarterly
basis, a written report of the monies paid under the Plan or any related
agreement and the purposes therefor, and shall furnish the Trustees with
such other information as the Trustees may reasonably request in connection
with payments made under the Plan or any related agreement in order to
enable the Trustees to make an informed determination of whether the Plan
should be continued.
1
<PAGE> 2
SECTION 5. TERMINATION.
The Plan may be terminated at any time, without penalty, by a vote of a
majority of the non-interested Trustees or by vote of a majority of the
outstanding voting securities of the Fund, and any distribution agreement
under the Plan may be likewise terminated on not more than sixty (60) days'
written notice. Once terminated, no further payments shall be made under
the Plan notwithstanding the existence of any unreimbursed current or
carried forward distribution expenses.
SECTION 6. AMENDMENTS.
The Plan may not be amended to increase materially the amount to be spent
for distribution and servicing of Fund shares without approval by a
majority of the outstanding voting securities of the Fund. All material
amendments to the Plan and any related distribution agreement shall be
approved by the Trustees and the non-interested Trustees cast in person at
a meeting called for the purpose of voting on any such amendment.
SECTION 7. SELECTION OF INDEPENDENT TRUSTEES.
So long as the Plan is in effect, the selection and nomination of the
Trust's non-interested Trustees shall be committed to the discretion of
such non-interested Trustees.
SECTION 8. EFFECTIVE DATE OF PLAN.
The Plan shall take effect as of the date hereof and, unless sooner
terminated, shall continue in effect for a period of more than one year
from the date of its execution only so long as such continuance is
specifically approved at least annually by the Trustees, including the
non-interested Trustees, cast in person at a meeting called for the purpose
of voting on such continuance.
SECTION 9. PRESERVATION OF MATERIALS.
The Trust will preserve copies of the Plan, any agreements relating to the
Plan and any report made pursuant to Section 4 above, for a period of not
less than six years (the first two years in an easily accessible place)
from the date of the Plan, agreement or report.
SECTION 10. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the
1940 Act, subject to any exemption that may be granted to the Trust under
the 1940 Act by the Securities and Exchange Commission.
2
<PAGE> 1
Exhibit 99(o)
KELMOORE STRATEGIC TRUST
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), Kelmoore Strategic Trust hereby adopts this Multiple Class Plan
(the "Plan") on behalf of Kelmoore Strategy Covered Option Fund (the "Fund").
This Plan has been adopted by a majority of the Trustees, including a majority
of the independent Trustees of Kelmoore Strategic Trust (the "Trust"). The
Trustees have determined that the Plan is in the best interests of each class
and the Fund as a whole. This Plan sets forth below the provisions relating to
the establishment of multiple classes of shares for the Fund.
SECTION 1. ATTRIBUTES OF CLASSES.
Except as otherwise provided herein, each class of shares issued by the
Fund will be entitled to distributions, if any, calculated in the same
manner and at the same time as each other class of the Fund. For purposes
of this calculation, expenses will be allocated to each class of the Fund
at the same time as to all other classes of the Fund. Except as otherwise
provided herein, each share of the Fund will represent an equal pro rata
interest in the Fund, regardless of class, and will have identical voting,
dividend, liquidation and other rights. Each class shall vote separately
with respect to any matter that relates solely to that class.
SECTION 2. CLASS A SHARES.
Class A Shares of the Fund are sold subject to a front-end sales load of
5.50% for an investment under $50,000, 4.75% for investments of $50,000 but
less than $100,000, 4.00% for investments of $100,000 but less than
$250,000, 3.25% for investments of $250,000 but less than $500,000, and
2.50% on investments of $500,000 or more.
Class A Shares are subject to the distribution fees under the Fund's Rule
12b-1 Plan.
SECTION 3. CLASS C SHARES.
Class C Shares of the Fund are offered without imposition of a front-end
sales load but are subject to higher Rule 12b-1 Plan fees. Class C Shares
are subject to the distribution and service fees under the Fund's Rule
12b-1 Plan of Distribution and Service Plan for Class C Shares.
SECTION 4. ALLOCATIONS.
Rule 12b-1 Plan expenses will be allocated to and borne by only the class
to which the particular plan applies. All other expenses, including
advisory fees, administration fees and custody fees will be allocated to
all shares of the Fund by net asset value, regardless of class. Expenses
may be waived or reimbursed by the investment adviser or other service
providers to the Fund. Any waivers or reimbursements will be effected in
accordance with positions taken by the Internal Revenue Service.
1
<PAGE> 2
SECTION 5. GENERAL.
The Rule 12b-1 Plans relating to each class of shares of the Fund shall
operate in accordance with the Conduct Rules of the National Association of
Securities Dealers, Inc.
On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the 1940 Act, and otherwise, will monitor the Fund
for the existence of material conflicts between the interests of the
classes of shares. The investment adviser and the distributor shall be
responsible for alerting the Trustees to any material conflicts that may
arise.
Any material amendments to this Plan must be approved by a majority of the
Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust, as defined in the 1940 Act.
Date: March 22, 1999
2
<PAGE> 1
Exhibit 99(p)(2)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints Sandra Adams, Gerry Holland, Carolyn Mead, Esq. and David Peters, Esq.,
and each of them, with full power to act without the other, as a true and lawful
attorney-in-fact and agent, with full and several power of substitution, to take
any appropriate action to execute and file with the U.S. Securities and Exchange
Commission, any amendment to the registration statement of Kelmoore Strategic
Trust (the "Trust"), to file any request for exemptive relief from state and
federal regulations, to file the prescribed notices in the various states
regarding the sale of shares of the Trust, to perform on behalf of the Trust any
and all such acts as such attorneys-in-fact may deem necessary or advisable in
order to comply with the applicable laws of the United States or any such state,
and in connection therewith to execute and file all requisite papers and
documents, including, but not limited to, applications, reports, surety bonds,
irrevocable consents and appointments of attorneys for service of process;
granting to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act requisite and necessary to be
done in connection therewith, as fully as each might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents or
any of them, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
day of , 1999.
Kelmoore Strategic Trust
By: /s/ Norman H. Moore, Jr.
----------------------------
Name: Norman H. Moore, Jr.
Title: Secretary, Treasurer
and Chief Financial Officer
