<PAGE> 1
The Kelmoore Strategy(TM) Covered Option Fund
[LIGHTBULB GRAPHIC]
SEMI-ANNUAL REPORT
AUGUST 31, 1999
<PAGE> 2
Dear Shareholder:
We are pleased to present the first semi-annual report to all shareholders of
The Kelmoore Strategy(TM) Covered Option Fund (the "Fund"). This report covers
the period from the Fund's inception on May 3, 1999 to August 31, 1999.
The Fund returned 3.00% for the period. In contrast, the major averages have
been in narrow trading ranges. The Dow Jones Industrial Average(SM)* saw support
at the 10,500 level, while hitting resistance at 11,200, and was down 1.06% for
the period. Similarly, the Lehman Brothers Corporate Bond Intermediate Total
Return Index(TM)* was down 1.59% for the period.
Despite this relatively flat period for the major market averages, the Fund was
able to continually realize gains by writing covered options on a universe of
forty highly capitalized domestic equities. By taking a near fully invested
stance and writing covered options against the stocks in the universe, the Fund
was able to pay dividends totaling more than fifty-seven cents per share during
the period. The dividends consisted of realized short-term gains, and interest
and dividends received, net of expenses.
The Fund pays dividends on a monthly basis to shareholders of record on the
second-to-last day of the month, with the last day of the month being the
ex-dividend date and payable date. Dividends reflect all amounts accrued and
unpaid as of the first business day of the month after options expiration day
(set by the Options Clearing Corporation).
I will be appearing as a guest on America Online Live Events (AOL keyword: sage)
on Thursday, December 2nd at 9:00 p.m. Eastern time. The event will consist of a
one-hour live chat where I can answer specific questions.
We would like to encourage all shareholders to visit us on the web at
www.kelmoore.com, expected to be available after October 31, 1999. Here you will
find the Fund's daily net asset value, quarterly performance reports and
information specific to your account. For your convenience, you can download an
additional prospectus directly from our site.
Sincerely,
/s/ Matthew Kelmon
Matthew Kelmon
President and Portfolio Manager
* The Dow Jones Industrial Average(SM) and Lehman Brothers Corporate Bond
Intermediate Total Return Index(TM) are unmanaged indexes.
1
<PAGE> 3
THE KELMOORE STRATEGY(TM)
COVERED OPTION FUND August 31, 1999
PORTFOLIO OF INVESTMENTS (Unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ --------
COMMON STOCKS - 44.9%
CONSUMER GOODS - 9.3%
<S> <C>
14,000 General Mills, Inc. ......... $1,172,500
5,000 The Home Depot, Inc. ........ 305,625
14,000 Johnson & Johnson ........... 1,431,500
8,000 McDonald's Corp. ............ 331,000
13,000 Merck & Co., Inc. ........... 873,438
10,000 Walgreen Co. ................ 231,875
----------
4,345,938
----------
FINANCIAL SERVICES - 8.5%
2,000 The Allstate Corp. .......... 65,625
10,000 Bank of America Corp. ....... 605,000
10,000 Citigroup, Inc. ............. 444,375
10,000 Fannie Mae .................. 621,250
11,000 Fleet Financial Group, Inc. . 437,937
14,500 Merrill Lynch & Co., Inc. ... 1,082,063
8,500 Morgan Stanley
Dean Witter & Co. ........... 729,406
----------
3,985,656
----------
MANUFACTURING - 11.0%
800 The Boeing Co. .............. 36,250
10,000 Eastman Kodak Co. ........... 734,375
15,000 Ford Motor Co. .............. 781,875
14,000 General Electric Co. ........ 1,572,375
13,000 General Motors Corp. ........ 859,625
24,300 Xerox Corp. ................. 1,160,325
----------
5,144,825
----------
RESOURCES - 4.7%
10,000 Alcoa, Inc. ................. 645,625
2,800 Chevron Corp. ............... 258,300
5,000 du Pont (E.I.) de Nemours
& Co. ....................... 316,875
10,000 Halliburton Co. ............. 463,750
3,000 Mobil Corp. ................. 307,125
3,000 Schlumberger Ltd. ........... 200,250
----------
2,191,925
----------
TECHNOLOGY - 11.4%
7,000 Cisco Systems, Inc+. ........ $474,687
3,000 Hewlett-Packard Co. ......... 316,125
11,000 International Business
Machines Corp. .............. 1,370,188
5,000 Microsoft Corp.+ ............ 462,812
25,000 Motorola, Inc. .............. 2,306,250
10,000 Oracle Corp.+ ............... 365,000
----------
5,295,062
----------
TOTAL COMMON STOCKS
(Cost $21,466,053*) ......... 20,963,406
----------
</TABLE>
See Notes to Financial Statements.
2
<PAGE> 4
THE KELMOORE STRATEGY(TM)
COVERED OPTION FUND August 31, 1999
PORTFOLIO OF INVESTMENTS - (Continued) (Unaudited)
<TABLE>
<CAPTION>
Number of Expiration Strike Value
Contracts Date Price (Note 1)
- --------- ---- ----- --------
PUT STOCK OPTIONS WRITTEN - (2.5)%
<S> <C> <C> <C> <C>
100 Alcoa, Inc. .............. 9/18/99 $65 $(19,375)
100 American
Express Co. .............. 9/18/99 140 (55,000)
100 American
Express Co. .............. 9/18/99 150 (130,000)
192 The Boeing Co. ........... 9/18/99 50 (88,800)
100 Chevron Corp. ............ 9/18/99 95 (35,000)
100 Cisco Systems, Inc.+ ..... 9/18/99 70 (30,000)
100 Citigroup, Inc. .......... 9/18/99 50 (51,250)
100 du Pont (E.I.) de
Nemours & Co. ............ 9/18/99 70 (66,250)
100 Exxon Corp. .............. 9/18/99 85 (70,000)
100 General Electric Co. ..... 9/18/99 115 (35,000)
200 The Gillette Co. ......... 9/18/99 50 (62,500)
100 Halliburton Co. .......... 9/18/99 45 (10,000)
100 The Home
Depot, Inc. .............. 9/18/99 65 (38,750)
100 Intel Corp. .............. 9/18/99 80 (18,125)
200 McDonald's Corp. ......... 9/18/99 43 (25,000)
100 Merck & Co., Inc. ........ 9/18/99 70 (35,000)
100 Merrill Lynch &
Co., Inc. ................ 9/18/99 80 (66,250)
100 Microsoft Corp.+ ......... 9/18/99 90 (14,375)
100 Minnesota
Mining and
Manufacturing Co. ........ 9/18/99 100 (53,750)
100 Mobil Corp. .............. 9/18/99 105 (37,500)
100 Morgan Stanley
Dean Witter & Co. ........ 9/18/99 95 (91,250)
100 The Procter &
Gamble Co. ............... 9/18/99 100 (30,000)
100 Schlumberger Ltd. ........ 9/18/99 65 (14,375)
100 Schlumberger Ltd. ........ 9/18/99 70 (41,875)
100 Sun Microsystems,
Inc.+ .................... 9/18/99 75 (10,000)
100 Texas Instruments,
Inc. ..................... 9/18/99 75 (7,500)
100 Wal-Mart
Stores, Inc. ............. 9/18/99 48 (33,750)
----------
Total Put Options Written
(Premiums received $823,535) (1,170,675)
----------
<CAPTION>
CALL OPTIONS WRITTEN - (0.6)%
<S> <C> <C> <C> <C>
100 Alcoa, Inc. .............. 9/18/99 $65 $(16,250)
20 The Allstate Corp. ....... 9/18/99 35 (625)
100 Bank of
America Corp. ............ 9/18/99 70 (625)
28 Chevron Corp. ............ 9/18/99 100 (1,400)
70 Cisco Systems, Inc. ...... 9/18/99 70 (7,875)
100 Citigroup, Inc. .......... 9/18/99 50 (2,500)
50 du Pont (E.I.) de
Nemours & Co. ............ 9/18/99 75 (469)
100 Eastman Kodak Co. ........ 9/18/99 75 (10,000)
100 Fannie Mae ............... 9/18/99 65 (7,500)
110 Fleet Financial
Group, Inc. .............. 9/18/99 45 (1,375)
150 Ford Motor Co. ........... 9/18/99 55 (3,750)
140 General Electric Co. ..... 9/18/99 115 (24,500)
140 General Mills, Inc. ...... 9/18/99 85 (13,125)
130 General Motors
Corp. .................... 9/18/99 65 (30,063)
50 Halliburton Co. .......... 9/18/99 50 (3,125)
30 Hewlett-Packard Co. ...... 9/18/99 110 (6,750)
50 The Home
Depot, Inc. .............. 9/18/99 65 (3,750)
110 International Business
Machines Corp. ........... 9/18/99 135 (6,875)
140 Johnson &
Johnson .................. 9/18/99 105 (17,500)
80 McDonald's Corp. ......... 9/18/99 43 (3,500)
130 Merck & Co., Inc. ........ 9/18/99 70 (8,937)
145 Merrill Lynch &
Co., Inc. ................ 9/18/99 85 (9,063)
50 Microsoft Corp.+ ......... 9/18/99 90 (20,625)
30 Mobil Corp. .............. 9/18/99 110 (562)
85 Morgan Stanley
Dean Witter & Co. ........ 9/18/99 100 (2,125)
250 Motorola, Inc. ........... 9/18/99 95 (53,125)
100 Oracle Corp.+ ............ 9/18/99 40 (7,500)
30 Schlumberger Ltd. ........ 9/18/99 70 (3,000)
100 Walgreen Co. ............. 9/18/99 25 (2,500)
----------
Total Call Options Written
(Premiums received $349,845) (268,994)
----------
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 5
THE KELMOORE STRATEGY(TM)
COVERED OPTION FUND August 31, 1999
PORTFOLIO OF INVESTMENTS - (Continued) (Unaudited)
<TABLE>
<CAPTION>
Value
(Note 1)
--------
CASH AND OTHER ASSETS,
<S> <C>
LESS LIABILITIES - 58.2% $27,197,282
-----------
NET ASSETS - 100.0% $46,721,019
===========
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal tax purposes is $21,466,053 and net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 305,672
Gross unrealized depreciation (808,319)
---------
Net unrealized depreciation $(502,647)
=========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 6
THE KELMOORE STRATEGY(TM)
COVERED OPTION FUND August 31, 1999
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
<TABLE>
ASSETS:
<S> <C>
Investments at market value (Cost $21,466,053) (Note 1) ............. $ 20,963,406
Cash (Note 1) ....................................................... 6,693,557
Deposit with brokers for open option contracts (Note 1) ............. 19,263,811
Receivables:
Investment securities sold ....................................... 2,479,905
Dividends and interest ........................................... 115,987
Due from Adviser ................................................. 4,792
Deferred offering costs (Note 1) .................................... 126,688
Other assets ........................................................ 53,541
------------
Total Assets ..................................................... 49,701,687
------------
LIABILITIES:
Payables:
Capital stock redeemed ........................................... 119,031
Accrued advisory fees ............................................ 34,757
Accrued distribution fees ........................................ 61,359
Accrued trustees fees ............................................ 2,948
Accrued expenses ................................................. 238,914
Distribution payable ............................................. 1,083,990
Option contracts written (Proceeds $1,173,380) (Note 1) ............. 1,439,669
------------
Total Liabilities ................................................ 2,980,668
------------
NET ASSETS:
Applicable to 4,808,801 shares; unlimited number of shares of
beneficial interest authorized with $0.001 par value ............. $ 46,721,019
============
Net asset value, offering and redemption price ($46,721,019/4,808,801
shares) .......................................................... $ 9.72
============
NET ASSETS CONSIST OF:
Paid-in capital ..................................................... $ 47,493,031
Accumulated undistributed net investment loss ....................... (9,963)
Accumulated net realized gain on securities and written options ..... 6,887
Net unrealized depreciation on securities and written options ....... (768,936)
------------
Net Assets ....................................................... $ 46,721,019
============
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 7
THE KELMOORE STRATEGY(TM) For the Period May 3, 1999*
COVERED OPTION FUND Through August 31, 1999
STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
INVESTMENT INCOME:
<S> <C>
Dividends ................................................. $ 61,964
Interest (Note 1) ......................................... 155,259
-----------
Total Income ........................................... 217,223
-----------
EXPENSES:
Investment advisory fees (Note 3) ......................... 75,254
Distribution expense (Note 3) ............................. 75,254
Amortization of offering costs (Note 1) ................... 37,448
Administration fees ....................................... 21,192
Audit fees ................................................ 18,079
Legal fees ................................................ 17,984
Registration fees ......................................... 11,975
Accounting fees ........................................... 11,491
Transfer agent fees ....................................... 9,360
Directors' fees ........................................... 7,948
Miscellaneous fees ........................................ 3,847
Custodian fees ............................................ 2,489
-----------
Total expenses ......................................... 292,321
Expenses waived by Adviser (Note 3) .................... (65,135)
-----------
Net expenses ........................................... 227,186
-----------
Net Investment Loss ....................................... (9,963)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from:
Security transactions .................................. 862,484
Written options ........................................ 1,268,649
Net change in unrealized depreciation on:
Security transactions .................................. (502,647)
Written options ........................................ (266,289)
-----------
Net realized and unrealized gain on investments ........ 1,362,197
-----------
Net increase in net assets resulting from operations ...... $ 1,352,234
===========
</TABLE>
* Commencement of investment operations.
See Notes to Financial Statements.
6
<PAGE> 8
THE KELMOORE STRATEGY(TM) For the Period May 3, 1999*
COVERED OPTION FUND Through August 31, 1999
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
OPERATIONS:
<S> <C>
Net investment loss ..................................................... $ (9,963)
Net realized gain on securities and written options ..................... 2,131,133
Net change in unrealized depreciation on securities and written options.. (768,936)
------------
Net increase in net assets resulting from operations .................... 1,352,234
------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized short-term capital gains ................................... (2,124,246)
------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ............................................... 47,120,108
Reinvestment of dividends ............................................... 979,891
Cost of shares redeemed ................................................. (706,968)
------------
Increase in net assets derived from capital share transactions (a) ...... 47,393,031
------------
TOTAL INCREASE IN NET ASSETS ............................................ 46,621,019
------------
NET ASSETS:
Beginning of period ..................................................... $ 100,000
------------
End of period (including net investment loss of $9,963) ................. $ 46,721,019
============
(a) Transactions in capital stock were:
Shares sold .......................................................... 4,779,864
Shares issued through reinvestment of dividends ...................... 99,918
Shares redeemed ...................................................... (70,981)
------------
Increase in shares outstanding .......................................... $ 4,808,801
============
</TABLE>
* Commencement of investment operations.
See Notes to Financial Statements.
7
<PAGE> 9
THE KELMOORE STRATEGY(TM) For the Period May 3, 1999*
COVERED OPTION FUND Through August 31, 1999
FINANCIAL HIGHLIGHTS (Unaudited)
The table below sets forth financial data for one share of capital stock
outstanding throughout the period presented.
<TABLE>
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................... $ 10.00
----------
Income from investment operations:
Net investment loss .................................. 0.00#
Net realized and unrealized gain on investments ...... 0.29
----------
Total from investment operations ..................... 0.29
----------
Less distributions from:
Net realized gains ................................... (0.57)
----------
NET ASSET VALUE, END OF PERIOD .......................... $ 9.72
==========
TOTAL RETURN ............................................ 3.00%(2)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) ..................... $ 46,721
Ratio of expenses to average net assets:
Before expense reimbursement ......................... 3.86%(1)
After expense reimbursement .......................... 3.00%(1)
Ratio of net investment loss to average net assets:
Before expense reimbursement ......................... (0.99%)(1)
After expense reimbursement .......................... (0.13%)(1)
Portfolio turnover rate ................................. 158.65%(2)
</TABLE>
* Commencement of investment operations.
(1) Annualized.
(2) Not Annualized.
# Amount represents less than $0.01 per share.
See Notes to Financial Statements.
8
<PAGE> 10
THE KELMOORE STRATEGY(TM)
COVERED OPTION FUND August 31, 1999
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Kelmoore Strategic Trust (the "Trust"), an open-end, diversified management
investment company was organized as a Delaware business trust on November 30,
1998. The Trust has a fiscal year ending the last day of February each year and
currently consists of one investment fund, The Kelmoore Strategy(TM) Covered
Option Fund (the "Fund"). The Fund's authorized capital consists of an unlimited
number of shares of beneficial interest of $0.001 par value. The Fund offers one
class of shares. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles for investment companies.
A. SECURITY 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. 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.
B. OPTIONS. Exchange traded options are valued at the last sale price on the
exchange where the options are principally traded or, if no sale occurs, at the
mean between the last bid and asked price.
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 expires, or if the Fund enters 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.
The risk in writing a call option is that the Fund may forego the opportunity of
profit if the market value of the underlying security increases and the option
is exercised, although any potential loss would be reduced by the amount of
option premium received.
9
<PAGE> 11
THE KELMOORE STRATEGY(TM)
COVERED OPTION FUND August 31, 1999
NOTES TO FINANCIAL STATEMENTS - (Continued) (Unaudited)
The risk in writing a put option is that the Fund may be called on to pay the
exercise price of the option for a security that has decreased (potentially to
zero) in market price, although any potential loss would be reduced by the
amount of option premium received.
Generally, options transactions also involve risks concerning the liquidity of
the options' market. An illiquid market for an option may limit the Fund's
ability to write options or enter closing transactions. As the options written
by the Fund are traded on a national exchange, counterparty and credit risk are
limited to the failure of the exchange on which the options are traded.
Transactions in options contracts written for the period ended August 31, 1999
were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
--------- -------
<S> <C> <C>
Options beginning of period................................. - -
Options written during period............................... $(16,608) $(3,467,139)
Options exercised during period............................. 4,373 994,678
Options expired during period............................... 6,115 1,219,322
Options closed during period................................ 410 79,759
-------- -----------
Outstanding at August 31, 1999.............................. $ (5,710) $(1,173,380)
======== ===========
</TABLE>
C. INVESTMENT INCOME AND SECURITIES TRANSACTIONS. Securities transactions are
accounted for on the date the securities are purchased or sold (trade date).
Cost is determined and gains and losses are based on the identified cost basis
for both financial statement and federal income tax purposes. Dividend income is
reported on the ex-dividend date. Interest income and expenses are accrued
daily. Uninvested cash and premiums from options written are swept daily into an
interest bearing account at the Bank of New York.
D. OFFERING COSTS. Offering costs are being amortized on a straight line basis
over 12 months from commencement of operations.
E. DISTRIBUTIONS TO SHAREHOLDERS. The Fund will distribute substantially all of
its net investment income and short-term capital gains monthly and long-term
capital gains, if any, annually. Distributions to shareholders are recorded on
the ex-dividend date. Income and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles.
F. FEDERAL INCOME TAXES. It is the policy of the Fund to comply with all
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to
shareholders. Therefore, no federal income tax provision is required.
G. USE OF ESTIMATES. In preparing financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, totaled
$40,613,833 and $19,015,586, respectively, for the period ended August 31, 1999.
10
<PAGE> 12
THE KELMOORE STRATEGY(TM)
COVERED OPTION FUND August 31, 1999
NOTES TO FINANCIAL STATEMENTS - (Continued) (Unaudited)
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Kelmoore Investment Company, Inc. (the "Adviser"), a registered investment
adviser, provides the Fund with investment management services. For providing
these services, the Fund pays the Adviser an annual fee of 1.00% of 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 expenses to exceed any current expense
limitation. For the period ended August 31, 1999, advisory fees of $75,254 were
paid to the Adviser and the Adviser reimbursed the Fund $65,135. 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 Fund has adopted a distribution plan (the "Plan"), pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, which permits the Fund to
pay certain expenses associated with the distribution of its shares. The Plan
provides that the Fund will reimburse Kelmoore Investment Company, Inc. the
Fund's distributor (the "Distributor"), for actual distribution expenses
incurred by the Distributor not exceeding, on an annual basis, 0.75% of the
Fund's average daily net assets. In addition, the Plan permits the Fund to
reimburse the Distributor an annual service fee not to exceed 0.25% of the
average daily net assets of the Fund. For the period ended August 31, 1999, the
Fund reimbursed the Distributor $75,254, for distribution and servicing expenses
incurred.
A. SERVICES AGREEMENT. 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.
B. BROKERAGE COMMISSIONS. The Fund places substantially all its securities
transactions, including transactions involving options, through the Adviser in
accordance with procedures adopted by the Trustees. 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. As of August 31, 1999, the Fund has paid
$144,435 in brokerage commissions.
C. OFFICER AND TRUSTEE COMPENSATION. Certain officers and Trustees of the Fund
are affiliated persons of the Adviser and the Distributor. No officer, Trustee
or employee of the Adviser, Investor Services Group, or any affiliate thereof,
receives any compensation from the Trust for serving as an officer or Trustee of
the Trust. The Trust pays each Trustee who is not an affiliated person of the
Adviser, Investor Services Group, or any affiliate thereof an annual retainer of
$4,000, payable in quarterly installments, and the Trust reimburses expenses
incurred by the Trustees for attendance at Trustee meetings.
NOTE 4 - SUBSEQUENT EVENTS
The Fund expects to offer a second class of shares during the fourth quarter
1999. The new class of shares will be called Class A shares and the class of
shares which this report pertains to will be called Class C shares.
11
<PAGE> 13
[This page intentionally left blank]
<PAGE> 14
For More Information
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
333 Market Street
San Francisco, CA 94105
KELMOORE STRATEGIC TRUST
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
(877) 328-9456
The Trust's SEC file no. is 811-9165
FOR ADDITIONAL INFORMATION ABOUT
THE KELMOORE STRATEGY(TM) COVERED OPTION FUND
CALL 887-328-9456
This report is submitted for general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors in the Fund
unless preceded or accompanied by an effective Prospectus which includes details
regarding the Fund's objectives, policies, expenses and other information.
