<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. 2 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 4 [ 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
[ X ] on October 24, 1999 pursuant to paragraph (b) of Rule 485
[ ] 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 24, 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? 1
What is the Fund's Main Strategy? 1
What are the Fund's Main Risks? 1
Who may want to invest in the Fund? 2
Risk/Return Bar Chart and Table 3
FEES AND EXPENSES OF THE FUND
Shareholder Fees 4
Annual Fund Operating Expenses 4
Example 4
MAIN STRATEGY
OTHER STRATEGIES 5
MAIN RISKS 6
MANAGEMENT OF THE FUND 7
Investment Adviser 9
<PAGE> 3
Portfolio Manager 9
Distribution Plan 9
YOUR INVESTMENT
How to Buy Shares 10
How to Sell Shares 14
Transaction Policies
SHAREHOLDER SERVICES 15
DISTRIBUTIONS AND TAXES 17
FOR MORE INFORMATION 18
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 have market capitalizations in excess
of $10 billion and 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 Chevron, 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
- limited 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 (as a
percentage of offering price)................................ 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)........... ** **
</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 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 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.
LIMITED OPERATING HISTORY
The Fund has a limited operating history,as does the Adviser in its capacity
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
attributed to Class A shares. 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 attributed to Class C shares. 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 attributed to Class C shares.
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 your 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 of Percentage of Dealer
Amount of Single Transaction Offering Price Amount Invested Concession
- ---------------------------------------------------------------------------------------
<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%, payable
to the Adviser, 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.
Currently, dealers receive the concession set forth in the table above, as well
as the 12b-1 fee. 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.
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, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans of
a single employer.
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.
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; (6) broker-dealers who have entered
into selling agreements with the Adviser for their proprietary accounts; and (7)
participants in no-transaction-fee programs of brokers that maintain an omnibus
account with the Fund.
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%, payable to the Adviser,
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. Currently, the 12b-1 fee is paid
by the Adviser to selected dealers.
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 for any amount. 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.
The tax consequences of the Fund's distributions depends upon the length of
time the Fund holds its assets. 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 24, 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 24, 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. A 100% annual turnover rate would occur if all of the Fund's
securities were replaced one time during a one-year period.
Under certain market conditions, the Fund's portfolio turnover rate is likely to
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 a security in a
relatively brief period of time) in response to stock market conditions or
changes in economic trends and developments. Through August 31, 1999, the Fund's
turnover rate, on an annualized basis, was 486.62% due to a large number of
options being exercised.
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 October 13, 1999, the Trustees and officers 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. Through August
31, 1999 the Fund has paid the Adviser $75,254 in advisory fees and the Fund has
reimbursed the Adviser $70,446 in fund expenses incurred in connection with the
organization of the Fund.
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. Through August 31, 1999, the Fund paid $144,435
in brokerage commissions.
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 to 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 -- Incorporated by reference to
Post-Effective Amendment No. 1 to the Registration Statement as
filed with the SEC on August 25, 1999.
(i)(1) 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.
(i)(2) Consent of Counsel dated October 22, 1999 -- filed herewith.
(j) Consent of Independent Accountants dated October 22, 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
dated October 24, 1999 -- Filed herewith.
(m)(2) Rule 12b-1 Plan of Distribution Plan for Class A Shares dated
October 24, 1999 -- Filed herewith. -- 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.
(o) Rule 18f-3 Plan dated October 24, 1999 -- Filed herewith.
<PAGE> 45
(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) Power of Attorney of Norman H. Moore, Jr. -- Incorporated by
reference to Post-Effective Amendment No. 1 to the Registration
Statement as filed with the SEC on August 25, 1999.
(p)(3) Power of Attorney of Tamara Beth Heiman -- 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.
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
Ralph M. Kelmon, Jr. Chairman of the Board, None
Chief Executive Officer,
and Treasurer
Michael Romanchak Director and President None
David R. Moore Director None
A. Duncan King Director None
Norman H. Moore, Jr. Vice President- None
Administration: Corporate
Secretary and Chief
<PAGE> 46
Compliance Officer
Norman H. Moore Director None
Cece G. Montgomery Chief Financial Officer None
Matthew Kelmon Vice President of Trading President and Trustee
Thomas W. Killilea Director None
Edward J. Devereaux Director and Chief None
Operating Officer
Tamara Beth Heiman Vice President and Secretary, Treasurer and
Associate Director Chief Financial Officer
of Marketing
* 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, and who represent that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933, as amended, in the
City of Palo Alto and the State of California on this 22nd day of October, 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.
SIGNATURE TITLE DATE
Matthew Kelmon* President, Principal October 22, 1999
<PAGE> 47
Executive Officer
and Trustee
Tamara Beth Heiman* Secretary, Treasurer and October 22, 1999
Chief Financial Officer
William H. Barnes* Trustee October 22, 1999
Wayne E. Edgerton* Trustee October 22, 1999
Richard D. Stanley* Trustee October 22, 1999
Jeffrey Ira* Trustee October 22, 1999
Kenneth D. Treece* Trustee October 22, 1999
Lisa Ann McCarthy* Trustee October 22, 1999
Ignatius J. Panzica* Trustee October 22, 1999
Stephen W. Player* Trustee October 22, 1999
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(i)(2) Consent of Counsel dated October 22, 1999
99(j) Consent of Independent Accountants dated October 22, 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)(3) Power of Attorney of Tamara Beth Heiman.
<PAGE> 1
EXHIBIT 99(i)(2)
The Law Offices of
HOWARD RICE NEMEROVSKI CANADY FALK & RABKIN
A Professional Corporation
Three Embarcadero Center, 7th Floor
San Francisco, California 94111-4065
Telephone 415-434-1600
October 21, 1999
Kelmoore Strategic Trust
2471 East Bayshore Road, Suite 501
Palo Alto, CA 94303
Re: Kelmoore Strategic Trust (the "Trust")/N-1A Registration Statement
Ladies and Gentlemen:
We hereby consent to the incorporation by reference into
Post-Effective Amendment No. 2 to the Trust's registration statement on Form
N-1A of our opinion dated March 30, 1999 from Pre-Effective Amendment No. 2 to
the Trust's registration statement filed with the Securities and Exchange
Commission on April 6, 1999. We further consent to the use of our name under the
heading "Counsel" in the prospectus and "Other Services-Legal Counsel" in the
statement of additional information constituting part of the registration
statement.
Very truly yours,
HOWARD, RICE, NEMEROVSKI, CANADY,
FALK & RABKIN
A Professional Corporation
By: /s/ Andre W. Brewster
----------------------
Andre W. Brewster
On behalf of the Firm
<PAGE> 1
EXHIBIT 99(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 2 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.
PricewaterhouseCoopers LLP
San Francisco, CA
October 22, 1999
<PAGE> 1
Exhibit 99(m)(1)
KELMOORE STRATEGIC TRUST
RULE 12B-1 PLAN OF DISTRIBUTION AND SERVICE PLAN FOR CLASS C SHARES
OCTOBER 24, 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 Class C 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.
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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.
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Exhibit 99(m)(2)
KELMOORE STRATEGIC TRUST
RULE 12B-1 PLAN OF DISTRIBUTION PLAN FOR CLASS A SHARES
OCTOBER 24, 1999
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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.
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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.
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Exhibit 99(o)
KELMOORE STRATEGIC TRUST
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
OCTOBER 24, 1999
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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.
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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
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Exhibit 99(p)(3)
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
14th day of October, 1999.
Kelmoore Strategic Trust
By: /s/ Tamara Beth Heiman
----------------------------
Name: Tamara Beth Heiman
Title: Secretary, Treasurer
and Chief Financial Officer
