As filed with the Securities and Exchange Commission on December 26, 2000
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. 6 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 8 [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:
Kimberly J. Smith, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2415
It is proposed that this filing will become effective (check appropriate box).
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) 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
<PAGE>
THE KELMOORE STRATEGY(R) FUNDS
[Graphic]
PROSPECTUS
Kelmoore Strategy(R) Fund
Kelmoore Strategy(R) Eagle Fund
Kelmoore Strategy(R) Liberty Fund
------------------------------------------
DECEMBER 26, 2000
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.
<PAGE>
CONTENTS
WHAT ARE THE FUNDS? 1
--------------------------------------------------------------------------------
KELMOORE STRATEGY(R) FUND
--------------------------------------------------------------------------------
What is the Fund's Primary Goal? 1
What is the Fund's Main Strategy? 1
What are the Fund's Main Risks? 2
Who may want to invest in the Fund? 3
KELMOORE STRATEGY(R) EAGLE FUND
--------------------------------------------------------------------------------
What is the Fund's Primary Goal? 3
What is the Fund's Main Strategy? 3
What are the Fund's Main Risks? 4
Who may want to invest in the Fund? 5
KELMOORE STRATEGY(R) LIBERTY FUND
--------------------------------------------------------------------------------
What is the Fund's Primary Goal? 6
What is the Fund's Main Strategy? 6
What are the Fund's Main Risks? 7
Who may want to invest in the Fund? 8
RISK/RETURN BAR CHARTS AND TABLES 9
--------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
--------------------------------------------------------------------------------
Shareholder Fees 9
Annual Fund Operating Expenses 9
Example 11
MAIN STRATEGY 11
--------------------------------------------------------------------------------
MAIN RISKS 13
--------------------------------------------------------------------------------
SECONDARY STRATEGY 15
--------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
Investment Adviser 16
Portfolio Manager 16
Brokerage Commissions 16
YOUR INVESTMENT
--------------------------------------------------------------------------------
How to Buy Shares 17
How to Sell Shares 23
<PAGE>
CONTENTS
TRANSACTION POLICIES 24
--------------------------------------------------------------------------------
SHAREHOLDER SERVICES 26
--------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES 27
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 28
--------------------------------------------------------------------------------
FOR MORE INFORMATION BACK COVER
--------------------------------------------------------------------------------
Shareholder Reports BACK COVER
Statement of Additional Information BACK COVER
<PAGE>
SUMMARY
WHAT ARE THE FUNDS?
The Kelmoore Strategy(R) Fund (formerly the Kelmoore Strategy(TM)
Covered Option Fund), the Kelmoore Strategy Eagle(R) Fund and the
Kelmoore Strategy(R) Liberty Fund (each a "Fund" and collectively
the "Funds") are each diversified series of Kelmoore Strategic
Trust, an open-end management investment company, commonly known
as a mutual fund.
KELMOORE STRATEGY(R) FUND
WHAT IS THE KELMOORE STRATEGY(R) 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 KELMOORE STRATEGY(R) FUND'S MAIN STRATEGY?
The main strategy of the Kelmoore Strategy(R) Fund is to purchase
the common stocks of a limited number of large cap companies with
market capitalizations in excess of $10 billion and strong
financial fundamentals and to continually sell or "write" related
covered call options against substantially all the shares of
stock it owns. The Fund will consist primarily of large cap
leaders in Financial Services, Consumer Goods, Manufacturing,
Natural Resources and Technology.
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 option premiums generated, Kelmoore Investment
Company, Inc. (the "Adviser") writes as many covered call options
as it can on the stocks the Fund owns. The Adviser writes options
of a duration and exercise price which provide the Fund with the
highest expected return.
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 a market capitalization 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
1
<PAGE>
WHAT ARE THE KELMOORE STRATEGY(R) 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 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
* financial services industry risks, including the risk that
government regulation, the cost of capital funds, changes in
interest rates and price competition will reduce the value of an
issuer's stock
* consumer goods industry risks, including the risk that the
performance of the overall economy, interest rates, competition,
consumer confidence and spending and changes in demographics and
consumer tastes will reduce the value of an issuer's stock
* manufacturing industry risks, including the risk that economic
cycles, technical obsolescence, labor relations and government
regulations will reduce the value of an issuer's stock
* natural resources industry risks, including the risk that
international political and economic developments, energy
conservation, the success of exploration projects and tax and
other government regulations will reduce the value of an issuer's
stock
* technology industry risks, including the risk that new products,
systems or information will be developed and introduced to the
marketplace substantially reducing the value of an issuer's stock
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
* relatively higher cost of options trades
* forced liquidation of securities underlying the options
* loss of part or all of your money invested in the Fund
2
<PAGE>
WHO MAY WANT TO INVEST IN THE KELMOORE STRATEGY(R) FUND?
Kelmoore Strategy(R) Fund may be appropriate for you if you:
* are seeking to maximize ordinary income in the form of dividends
for cash flow purposes and are willing to assume more risk to
increase the level of those dividends
* are prepared to receive taxable distributions of short-term
capital gains in connection with maximizing ordinary income
* 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
* have a longer-term investment horizon
You should NOT invest in the Fund if you are seeking capital
appreciation or predictable levels of income or are investing for
a short period of time.
KELMOORE STRATEGY(R) EAGLE FUND
WHAT IS THE KELMOORE STRATEGY(R) EAGLE 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 KELMOORE STRATEGY(R) EAGLE FUND'S MAIN STRATEGY?
The main strategy of the Kelmoore Strategy(R) Eagle Fund is to
purchase the common stocks of a limited number of mid and large
cap companies with market capitalizations in excess of $1 billion
and strong financial fundamentals and to continually sell or
"write" related covered call options against substantially all
the shares of stock it owns. In addition, the Fund may from time
to time purchase a stock not in the market sectors noted above if
particularly attractive options may be sold against the stock.
The Fund will consist primarily of mid and large cap leaders in
Technology, Communications and Financial Services.
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 option premiums generated, the Adviser writes as many
covered call options as it can on the stocks the Fund owns. The
Adviser writes options of a duration and exercise price which
provide the Fund with the highest expected return.
3
<PAGE>
The Fund will typically hold between 30 and 50 common stocks,
though this number may fluctuate at the discretion of the
Adviser. The issuers of stocks selected for investment by the
Fund will generally have a market capitalization in excess of $1
billion and will tend to have most of the following
characteristics:
* considered to be leading edge companies that offer new or
superior products or services
* have a commanding marketing position
* are widely-held and have a high daily trading volume
* have strong financial fundamentals
* have a higher volatility than the stocks selected by the Kelmoore
Strategy(R) Fund
WHAT ARE THE KELMOORE STRATEGY(R) EAGLE 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:
* enhanced 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
* enhanced selection risk, or the risk that the stocks or sectors
selected by the Fund will substantially underperform the stock
market as a whole or certain sectors of the stock market
* mid cap risk, or the risk that returns from mid cap stocks
selected by the Fund will underperform the stock market as a
whole or certain sectors of the stock market, since mid cap
stocks have historically been more volatile in price than large
cap stocks
* financial risk, or the risk that the stock issuer may file
bankruptcy proceedings or be acquired on unfavorable terms to the
stockholders
* risk of reduction in the amount of dividends a stock pays
* technology industry risks, including the risk that new products,
systems or information will be developed and introduced to the
marketplace substantially reducing the value of an issuer's stock
* communications industry risks, including the risk that failure to
obtain or delays in obtaining financing, regulatory approvals,
intense competition, product compatibility, consumer preferences
and rapid obsolescence will reduce the value of an issuer's stock
* financial services industry risks, including the risk that
government regulation, the cost of capital funds, changes in
interest rates and price competition will reduce the value of an
issuer's stock
4
<PAGE>
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
* relatively higher cost of options trades
* forced liquidation of securities underlying the options
* loss of part or all of your money invested in the Fund
WHO MAY WANT TO INVEST IN THE KELMOORE STRATEGY(R) EAGLE FUND?
Kelmoore Strategy(R) Eagle Fund may be appropriate for you if
you:
* are seeking to maximize ordinary income in the form of dividends
for cash flow purposes and are willing to assume more risk to
increase the level of those dividends
* are prepared to receive taxable distributions of short-term
capital gains in connection with maximizing ordinary income
* 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
* can accept wide variation in the value of the Fund's shares which
could cause a capital loss upon redemption of shares
* have a longer-term investment horizon
You should NOT invest in this Fund if you are seeking capital
appreciation or predictable levels of income or are investing for
a short period of time.
5
<PAGE>
KELMOORE STRATEGY(R) LIBERTY FUND
WHAT IS THE KELMOORE STRATEGY(R) LIBERTY FUND'S PRIMARY GOAL?
The Fund's primary goal is to maximize realized gains from
writing covered options on common stocks. The Fund's secondary
objective is capital preservation. As with any mutual fund, there
is no guarantee that the Fund will achieve its goal.
WHAT IS THE KELMOORE STRATEGY(R) LIBERTY FUND'S MAIN STRATEGY?
The main strategy of the Kelmoore Strategy(R) Liberty Fund is to
purchase the common stocks of large companies with market
capitalizations in excess of $10 billion and strong financial
fundamentals and to continually sell or "write" related covered
call options against substantially all the shares of stock it
owns. The Fund will consist primarily of large cap leaders in
Financial Services, Consumer Goods, Manufacturing, Natural
Resources and Technology.
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 option premiums generated, Kelmoore Investment
Company, Inc. (the "Adviser") writes as many covered call options
as it can on the stocks the Fund owns. The Adviser writes options
of a duration and exercise price which provide the Fund with the
highest expected return.
The Fund also seeks to protect or "hedge" the Fund's portfolio
against a decline in the value of the stocks the Fund owns by
acquiring put options. A put option gives the Fund the right to
sell or "put" a fixed number of shares of stock at a fixed price
within a given time frame in exchange for a premium paid. The
value of a put option generally increases as stock prices
decrease. The combination of the Fund's stock portfolio, the
steady cash flow from the sale of covered call options and the
downside protection of the put options is designed to provide the
Fund with fairly consistent returns over a range of equity market
environments. The Adviser currently intends to use approximately
50% of the premiums generated from covered call option writing to
acquire put options, but may devote more or less of the Fund's
assets in its sole discretion.
The Fund will typically hold no more than one hundred common
stocks, though this number may fluctuate at the discretion of the
Adviser. The issuers of stocks selected for investment by the
Fund will generally have a market capitalization in excess of $10
billion and will tend to have most of the following
characteristics:
* considered to be industry leaders
* are widely-held and have a high daily trading volume
* have strong financial fundamentals
6
<PAGE>
* have a lower volatility than the stocks selected by the Kelmoore
Strategy(R) Fund and the Kelmoore Strategy(R) Eagle Fund
* have relatively stable prices and dividends
WHAT ARE THE KELMOORE STRATEGY(R) LIBERTY 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 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
* financial services industry risks, including the risk that
government regulation, the cost of capital funds, changes in
interest rates and price competition will reduce the value of an
issuer's stock
* consumer goods industry risks, including the risk that the
performance of the overall economy, interest rates, competition,
consumer confidence and spending and changes in demographics and
consumer tastes will reduce the value of an issuer's stock
* manufacturing industry risks, including the risk that economic
cycles, technical obsolescence, labor relations and government
regulations will reduce the value of an issuer's stock
* natural resources industry risks, including the risk that
international political and economic developments, energy
conservation, the success of exploration projects and tax and
other government regulations will reduce the value of an issuer's
stock
* technology industry risks, including the risk that new products,
systems or information will be developed and introduced to the
marketplace substantially reducing the value of an issuer's stock
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
7
<PAGE>
OTHER RISKS:
* lack of liquidity in connection with purchases and sales of
portfolio securities
* relatively higher cost of options trades
* forced liquidation of securities underlying options
* loss of premium related to the purchase of a put option if the
option expires
* loss of part or all of your money invested in the Fund
WHO MAY WANT TO INVEST IN THE KELMOORE STRATEGY(R) LIBERTY FUND?
Kelmoore Strategy(R) Liberty Fund may be appropriate for you
if you:
* are seeking to maximize ordinary income in the form of
dividends for cash flow purposes and are willing to assume
more risk to increase the level of those dividends
* are prepared to receive taxable distributions of short-term
capital gains in connection with maximizing ordinary income
* 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
* have a longer-term investment horizon
You should NOT invest in this Fund if you are seeking
capital appreciation or predictable levels of income or are
investing for a short period of time.
8
<PAGE>
RISK/RETURN BAR CHARTS AND TABLES
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 Kelmoore Strategy(R) Liberty Fund is recently
organized and therefore has no performance history. The Kelmoore
Strategy(R) Eagle Fund and the Kelmoore Strategy(R) Fund
commenced operations on June 28, 2000 and May 3, 1999,
respectively. Once a Fund has a performance history of at least
one calendar year, a Bar Chart and Performance Table for the Fund
will be included in the prospectus. Each Fund's annual returns
will also be compared to the returns of a benchmark index.
FEES AND EXPENSES OF THE FUNDS
The tables below describe the fees and expenses that you may pay
if you buy and hold shares of a Fund.
<TABLE>
<CAPTION>
KELMOORE KELMOORE STRATEGY(R)
STRATEGY(R) FUND EAGLE FUND
Class A Class C Class A Class C
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment):
==============================================================================================
Maximum Sales Charge (Load) imposed
on Purchases
(as a percentage of offering price) 5.50%(1) None 5.50%(1) None
----------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None None None None
----------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) imposed
on Reinvested Dividends None None None None
----------------------------------------------------------------------------------------------
Redemption Fees (as a percentage of
amount redeemed) * * * *
----------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets):
==============================================================================================
Management Fees 1.00% 1.00% 1.00% 1.00%
----------------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.25% 1.00% 0.25% 1.00%
----------------------------------------------------------------------------------------------
Other Expenses 1.20% 1.20% 1.00%(2) 1.00%(2)
----------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.45%(3) 3.20%(3) 2.25% 3.00%
----------------------------------------------------------------------------------------------
Fee Reduction and/or Expense
Reimbursement (0.45%)(4) (0.45%)(4) NA NA
----------------------------------------------------------------------------------------------
Net Expenses 2.00% 2.75% NA NA
----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
KELMOORE STRATEGY(R)
LIBERTY FUND
Class A Class C
<S> <C> <C>
SHAREHOLDER FEES (fees paid directly from your investment):
==================================================================================
Maximum Sales Charge (Load) imposed
on Purchases
(as a percentage of offering price) 5.50%(1) 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) * *
----------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets):
==================================================================================
Management Fees 1.00% 1.00%
----------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees 0.25% 1.00%
----------------------------------------------------------------------------------
Other Expenses 1.00%(2) 1.00%(2)
----------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.25% 3.00%
----------------------------------------------------------------------------------
Fee Reduction and/or Expense
Reimbursement NA NA
----------------------------------------------------------------------------------
Net Expenses NA NA
----------------------------------------------------------------------------------
</TABLE>
* If you redeem your shares by wire transfer, the Funds' transfer agent
charges a fee (currently $9.00) for each wire redemption. Purchases and
redemptions not made directly through the Funds' 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.
(1) Reduced for purchases of $50,000 and over.
(2) "Other Expenses" are based on the estimated expenses that the Kelmoore
Strategy(R) Eagle Fund and the Kelmoore Strategy(R) Liberty Fund expect to
incur in their initial fiscal year.
(3) Gross fees and expenses that would have been incurred for the fiscal year
ended February 29, 2000 if the Adviser did not waive any fees and/or
reimburse expenses.
(4) The Adviser has contractually agreed to waive advisory fees and/or reimburse
expenses for the period ending June 28, 2001, so that the total Annual
Operating Expenses for this period will not exceed 2.00% for Class A and
2.75% for Class C.
10
<PAGE>
EXAMPLE
This example is designed so that you may compare the cost of
investing in a 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;
* 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:
KELMOORE STRATEGY(R)
KELMOORE STRATEGY(R) FUND EAGLE FUND
===========================================================================
1 year 3 years 5 years 10 years 1 year 3 years
---------------------------------------------------------------------------
Class A $742 $1,231 $1,745 $3,151 $766 $1,215
---------------------------------------------------------------------------
Class C $278 $ 944 $1,635 $3,473 $303 $ 927
---------------------------------------------------------------------------
KELMOORE STRATEGY(R)
LIBERTY FUND
==================================
1 year 3 years
----------------------------------
Class A $766 $1,215
----------------------------------
Class C $303 $ 927
----------------------------------
MAIN STRATEGY
To generate option premiums, the Funds each purchase the common
stocks of a limited number of companies and simultaneously write
covered call options on these stocks. As the options are
exercised or expire, and the proceeds or underlying stock become
available for reinvestment or cover, the Funds repeat the
process.
The fundamentals of selling covered call options are as follows:
THE FUND SELLS THE OPTION
Selling a call option is selling to an option buyer the right to
purchase a specified number of shares of stock (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.
11
<PAGE>
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 exercise the option at the
exercise price at any time before the option expires. The Fund is
then obligated to deliver the shares at that price. Options are
normally exercised on or before the expiration date if the market
price of the stock exceeds the exercise price of the option.
Generally, if the exercise price plus the option premium are
higher than the price the Fund originally paid to purchase the
stock, the Fund will realize a gain on the sale of the stock; if
the exercise price and premium are lower, the Fund will realize a
loss. By selling a covered call option, the Fund foregoes the
opportunity to benefit from an increase in price of the
underlying stock above the exercise price.
IF THE OPTION EXPIRES
If the market price of the stock does not exceed the exercise
price, the call option will likely expire without being
exercised. The Fund keeps the premium and the stock. The Fund
then expects to sell new call options against those same shares
of stock. This process is repeated until: a) an option is
exercised or b) the stock is sold because it no longer meets the
Adviser's investment criteria, a corporate event such as a merger
or reorganization has occurred, or proceeds from the sale are
used to fund redemptions.
PURCHASING PUT OPTIONS
The Kelmoore Strategy(R) Liberty Fund acquires put options in an
effort to protect the Fund from a significant market decline in a
short period of time. A put option gives the Fund the right to
sell or "put" a fixed number of shares of stock at a fixed price
within a given time frame in exchange for a premium paid. The
value of a put option generally increases as stock prices
decrease.
OTHER FEATURES
The call options written by each Fund are listed for trading on
one or more domestic securities exchanges and are issued by the
Options Clearing Corporation ("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 call
option.
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 a 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.
12
<PAGE>
For the Kelmoore Strategy(R) Fund, 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.
For the Kelmoore Strategy(R) Eagle Fund, the Adviser seeks to
select underlying common stocks of high growth companies which
have high trading volumes, increased volatility and a greater
price fluctuation than the stocks held by the Kelmoore
Strategy(R) Fund. To reduce selection risk, the Adviser selects
stocks that are generally considered to be industry leaders and
have strong financial fundamentals. In addition, to reduce
overall market risk, the Adviser normally invests across three
industry sectors.
For the Kelmoore Strategy(R) Liberty Fund, the Adviser seeks to
select underlying common stocks of larger companies that have
high trading volumes and less volatility and price fluctuation
than the stocks held by the Kelmoore Strategy(R) Fund and the
Kelmoore Strategy(R) Eagle Fund. To reduce selection risk, the
Adviser selects stocks that are generally considered to be
industry leaders and have strong financial fundamentals. In
addition, to reduce overall market risk, the Adviser normally
invests across five industry sectors and will purchase put
options to seek to protect against a decline in the value of the
stocks the Fund owns.
TEMPORARY DEFENSIVE POSITION
A Fund may, from time to time, take a temporary defensive
position that is inconsistent with its principal investment
strategies in attempting to respond to adverse market, economic,
political or other conditions. When a 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.
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 each Fund invests, and therefore each 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 a 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.
13
<PAGE>
WRITING COVERED CALL OPTIONS
When a 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 a 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.
PURCHASING PUT OPTIONS
When the Kelmoore Strategy(R) Liberty Fund purchases put options,
it risks the loss of the cash paid for the options if the options
expire unexercised. Under certain circumstances, the Fund may not
own any put options, resulting in increased risk during a market
decline.
LACK OF LIQUIDITY
A 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 a 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.
PORTFOLIO TURNOVER
The portfolio turnover of a Fund is the percentage of the Fund's
portfolio that was replaced once during a one-year period. High
rates of portfolio turnover (100% or more) entail transaction
costs that could impact a Fund's performance. Additionally, a
high portfolio turnover rate may be more likely to generate
capital gains that must be distributed to shareholders as income
subject to taxes. For the period May 3, 1999 (inception) to
February 29, 2000, the portfolio turnover for the Kelmoore
Strategy(R) Fund, on an annualized basis was 218.66%. It is
anticipated that the portfolio turnover for the Kelmoore
Strategy(R) Eagle Fund and Kelmoore Strategy(R) Liberty Fund will
not exceed 300% for each Fund's initial fiscal year.
14
<PAGE>
TAX CONSEQUENCES
Each 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 a 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.
SECONDARY STRATEGY
SECURED PUT OPTIONS
Each 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 (cash or U.S. government
securities) 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 Funds will only write secured put options in circumstances
where the Fund desires to acquire the security underlying the
option at the exercise price specified in the option. Put options
written by a Fund are listed for trading on one or more domestic
securities exchanges and are issued by the OCC. When a 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 potential 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 a loss equal to the entire value of the
stock.
15
<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
Kelmoore Investment Company, Inc. serves as the investment
adviser to each Fund and is responsible for the selection and
ongoing monitoring of the securities in each Fund's investment
portfolio and for the management of each Fund's business affairs.
The Adviser is a registered investment adviser and broker-dealer.
The Funds intend to place substantially all transactions in both
stock and options with the Adviser in its capacity as a
registered broker-dealer. The Adviser 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 Funds employ. The Adviser's principal address is 2471 East
Bayshore Road, Suite 501, Palo Alto, California 94303.
Each Fund pays the Adviser a monthly investment advisory fee at
the annual rate of 1.00% of its average daily net assets. The
Adviser has contractually agreed to waive advisory fees and
reimburse certain expenses of the Kelmoore Strategy(R) Fund for
the period ending June 28, 2001, so that the total operating
expenses for this period will not exceed 2.00% for Class A and
2.75% for Class C. The Adviser has voluntarily undertaken to
waive all or a portion of its fee and to reimburse certain
expenses of the Kelmoore Strategy(R) Eagle Fund and the Kelmoore
Strategy(R) Liberty Fund so that the total operating expenses of
each Fund 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, at its sole discretion. Any waiver or
reimbursement by the Adviser is subject to reimbursement by the
Kelmoore Strategy(R) Eagle Fund and the Kelmoore Strategy(R)
Liberty Fund within the first three years of each Fund's
operations, to the extent such reimbursement by a Fund would not
cause total operating expenses to exceed any current expense
limitation.
PORTFOLIO MANAGER
The primary portfolio manager for each Fund is Matthew Kelmon.
Mr. Kelmon has been Vice President of Trading for the Adviser
since 1994. 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(R) for private accounts and limited partnerships since
1994. Mr. Kelmon also heads up the equity selection committee of
the Adviser.
BROKERAGE COMMISSIONS
It is anticipated that each 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
16
<PAGE>
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 make the stocks in its portfolio active,
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.
YOUR INVESTMENT -- HOW TO BUY SHARES
You can purchase shares of the Funds through broker-dealers,
directly through the Adviser, or through the Automatic Investment
Plan. Shares of the Funds 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: $ 50
-----------------------------------------------------------------
MULTIPLE CLASSES
Each Fund offers both Class A and Class C shares. Each Class of
shares has a different distribution arrangement to provide for
different investment needs. This allows you to choose the class
of shares most suitable for you depending on the amount and
length of investment and other relevant factors. Sales personnel
may receive different compensation for selling each class of
shares.
17
<PAGE>
CLASS A SHARES
Sales of Class A shares of each Fund include a front-end sales
charge (expressed as a percentage of the offering price) as shown
in the following table:
<TABLE>
<CAPTION>
CLASS A SHARES --
FRONT-END SALES CHARGE
================================================================================
Approximate Percentage
Percentage of Percentage of 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%
--------------------------------------------------------------------------------
$250,000 but less than $500,000 3.25% 3.36% 2.75%
--------------------------------------------------------------------------------
$500,000 or more 2.50% 2.56% 2.00%
--------------------------------------------------------------------------------
</TABLE>
Shares acquired as a result of reinvestment of distributions will
not be subject to any sales charge. Class A shares are subject to
a 12b-1 fee of 0.25%, which is lower than the 12b-1 fee for the
Class C shares.
The distributor may pay a dealer concession to those selected
dealers who have entered into an agreement with the distributor.
The dealer's concession may be changed from time to time. The
distributor may from time to time offer incentive compensation to
dealers who sell shares of the Funds 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 0.25% distribution fee
(12b-1). On some occasions, such incentives will be conditioned
upon the sale of a specified minimum dollar amount of the shares
of the Funds 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.
CLASS A SHARES -- DISTRIBUTION PLAN
Each Fund has, on behalf of its Class A shares, adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended, that allows the Fund to pay distribution and service
fees for the sale and distribution of its shares and for services
provided to its shareholders. Because these fees are paid out of
each 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 A shares permits each Fund to
reimburse the Fund's distributor, an annual fee not to exceed
0.25% of the average daily net assets of the Class A shares of
each Fund.
18
<PAGE>
CLASS A SHARES -- 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, as described below. To qualify for a
reduced sales charge, you must notify your dealer, PFPC Inc. or
the Fund. Certain transactions in Class A shares may be made at
net asset value as described below.
RIGHT OF ACCUMULATION
You may combine your shares and the shares of your spouse and
your children under the age of 21 in order to qualify for the
Rights 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
your dealer, PFPC Inc. or the Fund at the time of subsequent
purchases that the purchase is eligible for the reduced sales
charge under the Right of Accumulation.
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, PFPC 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 your
dealer, PFPC Inc. or the Fund 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
Trust; 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
benefit of any such person or
19
<PAGE>
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 own accounts; and
(7) participants in no-transaction-fee programs of brokers that
maintain an omnibus account with the Funds.
CLASS C SHARES
Sales of Class C shares of the Funds are not subject to a
front-end sales charge. Class C shares are subject to a 12b-1
fee of 1.00%, payable to the distributor. Because of the higher
12b-1 fees, Class C shares have higher expenses than Class A
shares. Currently, the 12b-1 fee is paid by the distributor to
selected dealers.
CLASS C SHARES -- DISTRIBUTION PLAN
Each Fund has, on behalf of its Class C shares, adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended, that allows the Fund to pay distribution and service
fees for the sale and distribution of its shares and for services
provided to its shareholders. Because these fees are paid out of
each 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 C shares permits each Fund to
reimburse the Fund's distributor an annual fee not to exceed
0.75% of the average daily net assets of each Fund's Class C
shares. In addition, the distribution plan for Class C shares
permits each Fund to reimburse the distributor for payments to
dealers or others, an annual service fee not to exceed 0.25% of
the average daily net assets of each Fund's Class C shares.
20
<PAGE>
TO OPEN AN ACCOUNT
BY MAIL
* Complete the application.
* Mail the application and your check to:
PFPC INC.
211 SOUTH GULPH ROAD
P.O. BOX 61503
KING OF PRUSSIA, PA 19406
* Please make your check payable to the appropriate 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:
BOSTON SAFE DEPOSIT & Trust (BSDT), ABA#011001234
ATTN: PFPC INC.
ACCOUNT #018953
CREDIT: THE NAME OF THE 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 PFPC 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:
PFPC INC.
211 SOUTH GULPH ROAD
P.O. BOX 61503
KING OF PRUSSIA, PA 19406
* Please make your check payable to the appropriate fund.
* Please make sure your additional investment is for at least $50.
BY WIRE
* Call toll-free (877) 328-9456. The wire must be received by 4:00
p.m. Eastern time for same day processing.
* Call your bank with instructions under TO OPEN AN ACCOUNT -- By
Wire.
* Your bank may charge a wire fee.
* Please make sure your wire is for at least $50.
21
<PAGE>
AUTOMATIC INVESTMENT PLAN
Once an account has been opened, you can make additional
purchases of shares of the Funds 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 Funds. You may authorize the automatic
withdrawal of funds from your bank account for any amount. The
Funds 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
Funds at (877) 328-9456.
EXCHANGE PRIVILEGE
You may exchange shares of a particular class of a Fund only for
shares of the same class of another Fund. For example, you can
exchange Class A shares of the Kelmoore Strategy(R) Fund for
Class A shares of the Kelmoore Strategy(R) Eagle Fund or the
Kelmoore Strategy(R) Liberty Fund. Shares of the Fund selected
for exchange must be available for sale in your state of
residence. You must meet the minimum purchase requirements for
the Fund you purchase by exchange. For tax purposes, exchanges of
shares involve a sale of shares of the Fund you own and a
purchase of the shares of the other Fund, which may result in a
capital gain or loss.
PURCHASE PRICE
Class C shares of the Funds are sold at the net asset value
("NAV") next determined after receipt of the request in good
order. Class A shares of the Funds are sold at the offering price
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 FUNDS
The Funds reserve 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
22
<PAGE>
YOUR INVESTMENT -- HOW TO SELL SHARES
You may "redeem," that is, sell your shares on any day the New
York Stock Exchange ("NYSE") is open, either directly through the
distributor or through your broker-dealer. The price you receive
will be the NAV next calculated after receipt of the request in
good order by PFPC.
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 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:
PFPC INC.
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 account
application. To use the telephone redemption privilege, you must
have selected this service on your original account application
or submitted a subsequent signature guaranteed request in writing
to add this service to your account. The Funds and PFPC reserve
the right to refuse any telephone transaction when they are
unable to confirm to their satisfaction that a caller is the
account owner or a person preauthorized by the account owner.
PFPC has established security procedures to prevent unauthorized
account access. Neither the Trust 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. The telephone transaction privilege may be suspended,
limited, modified or terminated at any time without prior notice
by the Funds or PFPC.
BY WIRE
In the case of redemption proceeds that are wired to a bank, a
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 Funds and PFPC will not be responsible
for any delays in wired redemption proceeds due to heavy wire
traffic over the Federal Reserve System. The Trust reserves the
right to refuse a wire redemption if it is believed advisable to
do so. If you redeem your shares by wire transfer, PFPC charges a
fee (currently $9.00) for each wire redemption.
23
<PAGE>
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.
SELLING RECENTLY PURCHASED SHARES
If you wish to sell shares that were recently purchased by check,
the Funds 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 PFPC before the close of
the 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 Day.
DETERMINATION OF NAV
The NAV for each Fund is calculated at the close of regular
trading hours of the NYSE, which is normally 4:00 p.m. Eastern
time. Each Fund calculates NAV by adding up the total value of
its investments and other assets, subtracting liabilities, and
then dividing that figure by the number of its outstanding
shares. Each 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
Board of Trustees.
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
24
<PAGE>
buying or selling shares. It is the responsibility of the nominee
to promptly forward purchase or redemption orders and payments to
the Funds. You will not be charged any additional fees if you
purchase or redeem shares of the Funds directly through the
Funds' principal distributor, Kelmoore Investment Company, Inc.
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 Trust 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 Funds' shareholders or (3) an emergency exists making
disposal of portfolio securities or valuation of net assets of
the Funds not reasonably practicable. The Funds will
automatically redeem shares if a purchase check is returned for
insufficient funds. The Funds reserve the right to reject any
third party check. The Funds reserve 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 a
Fund's operations. Large redemptions are considered to exceed
$250,000 or 1% of each 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 Funds 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. When
the Funds require a signature guarantee, a medallion signature
must be provided. A medallion signature guarantee may be obtained
from a domestic bank or trust company, broker, dealer, clearing
agency, saving association, or other financial institution which
is participating in a medallion program recognized by the
Securities Transfer Association. The three recognized medallion
programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York
Stock Exchange, Inc., Medallion Signature Program (NYSE MSP).
Signature guarantees from financial institutions which are not
participating in one of these programs will not be accepted.
Please call the Fund's shareholder servicing group toll-free
(877) 328-9456 for further information on obtaining a signature
guarantee.
25
<PAGE>
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 the Funds' shareholder servicing group toll-free at (877)
328-9456.
SHAREHOLDER SERVICES
TELEPHONE INFORMATION
YOUR ACCOUNT: If you have questions about your account, including
purchases, redemptions and distributions, call the Funds'
shareholder servicing group from Monday through Friday, 9:00 a.m.
to 7:00 p.m., Eastern time. Call toll-free (877) 328-9456.
THE FUNDS: If you have questions about the Funds, call the Funds
Monday through Friday, 9:00 a.m. to 5:00 p.m., Pacific time. Call
toll-free (877) 328-9456.
ACCOUNT STATEMENTS
The Funds provide you with these helpful services and information
about your account:
* a statement after every transaction;
* quarterly account statements reflecting transactions made during
the quarter;
* 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 Funds provide 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 each Fund and gives account balances, information
on the most recent transactions and allows sales of shares.
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.
26
<PAGE>
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Each Fund passes along to your account your share of investment
earnings in the form of dividends and distributions. Each Fund
will distribute at least annually any net realized long-term
capital gains obtained through investment transactions. Each 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. Interest and dividend payments
will normally be distributed as income dividends on a monthly
basis.
Under limited circumstances, certain distributions from a Fund
may be treated as a return of capital. A return of capital is
generally equivalent to a redemption of your investment.
Unless you elect otherwise, all dividends and distributions paid
by a Fund will be reinvested in additional shares of the same
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 a Fund pays
to you will be taxable when paid, regardless of whether they are
taken in cash or reinvested in shares of the Funds. To change
your dividend election, you must notify PFPC in writing at least
fifteen days prior to the applicable dividend record date.
TAXES
Each Fund intends to qualify as a regulated investment company.
This status exempts each Fund from paying federal income tax on
the income or capital gains it distributes to its shareholders.
Your investment in each 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 each Fund's distributions depend upon the
length of time the Fund holds its assets. Due to the nature of
each Fund's principal investment strategy, each Fund anticipates
that a majority of its distributions will be in the form of
ordinary income. Each Fund may at times realize short-term
capital gains on some portfolio
27
<PAGE>
securities, while at the same time seeking to avoid realizing
losses on other securities held in the portfolio. As a result,
each Fund's shareholders may receive taxable distributions from a
net realized short-term capital gain at times when the Fund has
unrealized losses in its portfolio which could have been used to
offset such gain. Similarly, each 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.
Each 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 a Fund has written lapses
unexercised, because the Fund would retain the premium.
If a call option which a 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 a 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 each Fund with your correct taxpayer
identification number and certify that you are not subject to
backup withholding. If you do not, the Funds 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 each 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand
the financial performance for the period of each Fund's
operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the
rate that an investor would have earned on an investment in a
Fund (assuming reinvestment of all dividends and distributions).
There are no financial highlights available for the Kelmoore
Strategy(R) Liberty Fund. The information for the period ended
February 29, 2000 has been audited by PricewaterhouseCoopers LLP,
whose report is included in the annual report, which is available
upon request.
28
<PAGE>
THE KELMOORE STRATEGY(R) FUND
The table below sets forth financial data for one share of
capital stock outstanding throughout the periods presented.
<TABLE>
<CAPTION>
Six Months Ended
August 31, 2000 For the Period Ended
(Unaudited) February 29, 2000
-------------------------------- ----------------------------------
Class C Class A Class C* Class A**
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.80 $ 8.84 $ 10.00 $ 9.43
-----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.02) (0.05)# (0.00)#
Net realized and unrealized gain
on investments 1.00 1.01 0.59 0.44
-----------------------------------------------------------------------------------------------------------
Total from investment operations 0.95 0.99 0.54 0.44
-----------------------------------------------------------------------------------------------------------
Less distributions from:
Net realized gains (0.86) (0.86) (1.74) (1.03)
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.89 $ 8.97 $ 8.80 $ 8.84
-----------------------------------------------------------------------------------------------------------
Total return 11.37%(2) 11.79%(2),+ 5.54%(2) 4.55%(2),+
Ratios/Supplemental Data
Net assets, end of period (in 000s) $193,948 $ 75,004 $116,051 $ 15,490
Ratio of expenses to average
net assets:
Before expense reimbursement 2.48%(1) 1.73%(1) 3.20%(1) 2.45%(1)
After expense reimbursement 2.48%(1) 1.73%(1) 3.00%(1) 2.25%(1)
Ratio of net investment loss to
average net assets:
Before expense reimbursement (1.33%)(1) (0.58%)(1) (1.82%)(1) (1.07%)(1)
After expense reimbursement (1.33%)(1) (0.58%)(1) (1.62%) (0.87%)(1)
Portfolio turnover rate 124.93%(2) 124.93%(2) 218.66%(2) 218.66%(2)
</TABLE>
* Class C commenced operations on May 3, 1999.
** Class A commenced operations on October 25, 1999.
(1) Annualized.
(2) Not Annualized.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the
period.
+ Total return calculation does not reflect sales load.
29
<PAGE>
THE KELMOORE STRATEGY(R) EAGLE FUND
The table below sets forth financial data for one share of
capital stock outstanding throughout the period presented.
<TABLE>
<CAPTION>
Six Months Ended
August 31, 2000
(Unaudited)
--------------------------
Class C* Class A*
--------------------------
<S> <C> <C>
Net asset value, beginning of period $10.00 $10.00
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02) (0.02)
Net realized and unrealized gain on investments 0.80 0.81
-----------------------------------------------------------------------------------
Total from investment operations 0.78 0.79
-----------------------------------------------------------------------------------
Less distributions from:
Net realized gains (0.73) (0.73)
-----------------------------------------------------------------------------------
Net asset value, end of period $10.05 $10.06
-----------------------------------------------------------------------------------
Total return 8.44%(2) 8.55%(2),+
Ratios/Supplemental Data
Net assets, end of period (in 000s) $7,046 $6,888
Ratio of expenses to average net assets:
Before expense reimbursement 7.28%(1) 6.53%(1)
After expense reimbursement 3.00%(1) 2.55%(1)
Ratio of net investment loss to average net assets:
Before expense reimbursement (7.20%)(1) (6.45%)(1)
After expense reimbursement (2.92%)(1) (2.17%)(1)
Portfolio turnover rate 64.95%(2) 64.95%(2)
</TABLE>
* Commenced operations on June 29, 2000.
(1) Annualized.
(2) Not Annualized.
+ Total return calculation does not reflect sales load.
30
<PAGE>
FOR MORE INFORMATION
SHAREHOLDER REPORTS:
Additional information about each Fund's investments will be
available in the Funds' annual and semi-annual reports to
shareholders. In the 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 each of the Funds.
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 Funds,
please write to the address below or call our toll-free number:
Kelmoore Investment Company, Inc.
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
(877) 328-9456
Information about the Funds (including the SAI) may be reviewed
and copied at the SEC's Public Reference Room in Washington, DC.
Call (202) 942-8090 for information on the operation of the
Public Reference Room. You may also request copies by mail by
sending your request, after paying a duplicating fee, to the
SEC's Public Reference Room, Washington, DC 20549-0102 or by
electronic request at the following e-mail address:
[email protected]. You may also visit the SEC's Internet site
(www.sec.gov) to view reports and other information about the
Funds.
ADMINISTRATOR, TRANSFER AGENT COUNSEL
AND FUND ACCOUNTING AGENT Sutherland Asbill & Brennan LLP
PFPC Inc. 1275 Pennsylvania Avenue, NW
3200 Horizon Drive Washington, D.C. 20004-2415
King of Prussia, PA 19406
(877) 328-9456 INDEPENDENT ACCOUNTANTS
CUSTODIAN PricewaterhouseCoopers LLP
The Bank of New York 333 Market Street
48 Wall Street San Francisco, CA 94105
New York, NY 10286
------------------------------------------------------------
KELMOORE STRATEGIC TRUST
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
(877) 328-9456
The Trust's SEC file no. is 811-9165
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 26, 2000
KELMOORE STRATEGIC TRUST
KELMOORE STRATEGY(R) FUND
KELMOORE STRATEGY(R) EAGLE FUND
KELMOORE STRATEGY(R) LIBERTY 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 but should be read
in conjunction with the current Prospectus dated December 26, 2000, as amended
or supplemented from time to time, and is incorporated by reference in its
entirety into the Prospectus. The Funds' audited financial statements included
in their annual report to shareholders are incorporated by reference into this
Statement of Additional Information. The unaudited financial statements included
in the Funds' semi-annual report to shareholders are also incorporated by
reference into this Statement of Additional Information. A copy of the Funds'
Prospectus, annual report and semi-annual report 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>
TABLE OF CONTENTS
PAGE
----
The Kelmoore Strategic Trust.............................................. 1
Investment Strategies and Related Risks .................................. 1
Investment Restrictions .................................................. 3
Portfolio Turnover........................................................ 4
Management of the Funds................................................... 4
Trustees and Officers........................................... 5
Investment Adviser.............................................. 7
Other Services............................................................ 8
Purchases and Redemptions ................................................ 10
Valuation................................................................. 11
Taxes..................................................................... 11
Brokerage ................................................................ 13
Shares of Beneficial Interest............................................. 13
Calculation of Performance ............................................... 14
Financial Statements ..................................................... 16
<PAGE>
THE KELMOORE STRATEGIC TRUST
The Kelmoore Strategic Trust (the "Trust") is a Delaware business trust
organized on December 1, 1998 as an open-end management investment company. The
Trust employs Kelmoore Investment Company, Inc. as its investment adviser (the
"Adviser") to its diversified series: the Kelmoore Strategy(R) Fund (formerly
known as the Kelmoore Strategy(TM) Covered Option Fund), the Kelmoore
Strategy(R) Eagle Fund and the Kelmoore Strategy(R) Liberty Fund (each a "Fund"
and collectively the "Funds").
INVESTMENT STRATEGIES AND RELATED RISKS
The following describes certain attributes of particular types of securities in
which each of the Funds invests and supplements and should be read in
conjunction with sections of the Prospectus entitled "Summary", "Main Strategy"
and "Main Risks."
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.
Each 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.
Each 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 each 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 respective 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 respective Fund's net exposure on its written option
position.
Put options written by each Fund will be secured by (i) maintaining cash or
liquid securities in a segregated account with a value at least equal to the
respective 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
respective Fund's net exposure on its written option position.
To seek to protect or "hedge" the Kelmoore Strategy(R) Liberty Fund's portfolio
against a decline in the value of the stocks the Fund owns, the Fund will
acquire put options. A put option gives the Fund the right to sell or "put" a
fixed number of shares of stock at a fixed price within a given time frame in
exchange for a premium paid. The value of a put option generally increases as
stock prices decrease. The Fund will experience a loss related to the premium
paid for a put option if the option expires unexercised.
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.
There is no assurance a liquid secondary market will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to options it has written, the
respective 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
<PAGE>
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.
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 Funds 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 Funds to time the receipt of exercise notices. This
prevents the Funds from receiving income on a scheduled basis and may inhibit
the Funds from fully utilizing other investment opportunities.
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. Written options have predetermined exercise
prices set below, equal to or above the current market price of the underlying
stock. The premium a 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. Each 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. To assist the Adviser in selecting which options to write, the
Adviser utilizes an in-house computer program called "OPTRACKER(TM)".
The size of the premiums each 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 Funds and other clients
advised by the Adviser may constitute such a group. These position limits may
limit the number of options the Funds may write on a particular security. An
exchange may order the liquidation of positions found to be above such limits or
impose other sanctions.
Other Strategies
Each 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.
Repurchase Agreements. Each 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
2
<PAGE>
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. Each 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 respective 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, each 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 each of the Funds to invest in securities other
than those listed here and in the Prospectus, provided that such investment
would be consistent with the respective Fund's investment objective and that it
would not violate any fundamental investment policies or restrictions applicable
to the Fund.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. For each Fund the following investment
restrictions are considered fundamental, which means they may be changed only by
approval of the holders of a majority of the respective Fund's outstanding
shares, defined in the Investment Company Act of 1940, as amended, (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. A Fund may not purchase securities that would cause more than 25% of the
value of its 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. A Fund may not borrow money or issue senior securities, except to the
extent provided by the 1940 Act.
3. A 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. A 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 a 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. A Fund may not invest in commodities or commodity futures contracts.
6. A Fund may not underwrite securities of other issuers, except insofar as it
may be deemed an underwriter under the Securities Act of 1933 when selling
portfolio securities.
7. A 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. For each Fund the following
restrictions are imposed by management of the Funds and may be modified by the
Trustees without shareholder approval.
1. A Fund may not borrow money, except that a 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 a Fund at
the time of borrowing. In the event asset coverage for such borrowings
falls below
3
<PAGE>
300%, a Fund will reduce, within three days, the amount of its borrowing in
order to provide for 300% asset coverage.
2. A 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 a Fund is valuing
the security. Repurchase agreements with deemed maturities in excess of
seven days are subject to this 15% limit.
3. A Fund may not invest in a company for the purpose of exercising control or
management of the company.
4. A Fund may not purchase securities on margin, except that a 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. A Fund may not invest its assets in securities of any other investment
company, except as permitted by the 1940 Act. Under the 1940 Act, a 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 a Fund. Unless
otherwise indicated, all percentage limitations governing the investments of the
Fund apply only at the time of the investment.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund 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 Funds' 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
Funds 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. It is anticipated that the
portfolio turnover for The Kelmoore Strategy(R) Eagle Fund and the Kelmoore
Strategy(R) Liberty Fund will not exceed 300%, for each Fund's initial year. For
the period since inception to February 29, 2000, the portfolio turnover for The
Kelmoore Strategy(R)Fund, on an annualized basis, was 218.66%.
High rates of portfolio turnover (100% or more) entail certain costs, including
increased taxable income for the Funds' 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 FUNDS
Trustees and Officers. The operations of the Funds are conducted under the
direction of the Trustees. The Trustees establish the Funds' policies and
oversee the management of the Funds. The Trustees meet regularly to review the
activities of the officers, who are responsible for day-to-day operations of the
Funds.
4
<PAGE>
The Trustees and officers of the Funds 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> <S>
*Matthew Kelmon, Age 32 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 68 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 68 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.
Kenneth D. Treece, Age 56 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.
Ignatius J. Panzica, Age 57 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 59 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 40 Trustee President, Crossing Main, a retail women's
5 Main Street clothing company, from 1992 to present.
Hingham, MA 02043
Jeffrey Ira, Age 45 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.
Tamara Beth Heiman, Age 29 Secretary and Executive Vice President and Director of Marketing
2471 East Bayshore Road, Suite 501 Treasurer of Kelmoore Investment Company since March of
Palo Alto, CA 94303 1999. Vice President, Investment Advisory Services
for Josephthal and Co., Inc, a NYSE firm, from
1997 to 1999. Vice President, Investment Advisory
Services, for First Allied Securities, a national
independent broker dealer from 1994 to 1999.
</TABLE>
*AN ASTERISK INDICATES A TRUSTEE WHO MAY BE DEEMED TO BE AN "INTERESTED PERSON"
OF THE TRUST (AS THAT TERM IS DEFINED IN THE 1940 ACT). MR. KELMON IS CONSIDERED
AN "INTERESTED PERSON" OF THE TRUST DUE TO HIS AFFILIATION WITH THE ADVISER.
MESSRS. STANLEY AND BARNES ARE CONSIDERED "INTERESTED PERSONS" OF THE TRUST
BECAUSE THEY OWN SHARES OF THE ADVISER.
5
<PAGE>
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.
Prior to August 14, 2000, each Trustee who is not an affiliated person of the
Adviser, as defined in the 1940 Act, received an annual retainer of $4,000 per
year (payable in equal installments at the end of each quarter), and
reimbursement for expenses. Effective August 14, 2000, the annual retainer of
each Trustee who is not an affiliated person of the Adviser was increased to
$6,000. The following table sets forth the compensation paid by the Trust to the
non-interested Trustees during the period since inception to February 29, 2000.
--------------------------------------------------------------------------------
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
NAME OF TRUSTEE FROM THE TRUST THE TRUST PAID TO TRUSTEE
--------------------------------------------------------------------------------
Kenneth D. Treece $2,000 $2,000
Ignatius J. Panzica $2,000 $2,000
Stephen W. Player $2,000 $2,000
Lisa Ann McCarthy $2,000 $2,000
Jeffrey Ira $2,000 $2,000
--------------------------------------------------------------------------------
Trustees who are "interested persons" are not compensated by the Trust for their
services. The Trust does not have any retirement plan for the Trustees. As of
December 1, 2000, the Trustees and officers owned less than 1% of the shares of
The Kelmoore Strategy(R) Fund and Kelmoore Strategy(R) Eagle Fund and Kelmoore
Investment Company also owned less than 1% of the shares of The Kelmoore
Strategy(R) Fund and the Kelmoore Strategy(R) Eagle Fund.
As of December 1, 2000, the following persons owned of record 5% or more of the
voting securities of a particular Fund. Any person owning more than 25% of the
voting securities of a Fund may be deemed to have effective voting control over
the operation of that Fund, which would diminish the voting rights of other
shareholders:
THE KELMOORE STRATEGY(R) FUND
SHAREHOLDER PERCENTAGE OWNED
Wexford Clearing Services Corp. 13.37%
FBO: SETI Institute
Attn: Shannon Atkinson
2035 Landings Drive
Mountain View, California 94043-0818
THE KELMOORE STRATEGY(R) EAGLE FUND
SHAREHOLDERS PERCENTAGE OWNED
Southwest Securities, Inc. 5.73%
FBO: Blake L. Beckham & Raguet Beckham
P.O. Box 509002
Dallas, Texas 75250
6
<PAGE>
SHAREHOLDER PERCENTAGE OWNED
Wexford Clearing Services Corp. 28.53%
FBO: SETI Institute
Attn: Shannon Atkinson
2035 Landings Drive
Mountain View, California 94043-0818
Investment Adviser. The Trust has employed Kelmoore Investment Company, Inc. as
its investment adviser. As of December 1, 2000, the Adviser managed
approximately $425 million in assets, consisting primarily of assets of the
Kelmoore Strategy(R)Fund, Kelmoore Strategy(R)Eagle Fund and of discretionary
brokerage accounts. Ralph M. Kelmon, Jr. is the Chief Executive Officer and
Chairman of the Board of Kelmoore Investment Company, Inc. Through his ownership
and voting control of more than 25% of the outstanding shares of the Adviser,
Mr. Kelmon, is considered to control the Adviser. Mr. Kelmon is the father of
Matthew Kelmon, the President and primary portfolio manager for the Funds.
In addition to managing the Funds' investments consistent with their investment
objectives, policies and limitations, the Adviser makes recommendations with
respect to other aspects and affairs of the Fund. The Adviser also furnishes the
Funds with certain administrative services, office space and equipment. All
other expenses incurred in the operation of the Funds are borne by the Funds.
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 Funds 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, each 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 Kelmoore
Strategy(R) Eagle Fund's and the Kelmoore Strategy(R) Liberty Fund's initial
fiscal year ended February 29, 2001, the Adviser has voluntarily agreed to waive
its fees and reimburse expenses so that each 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 each Fund within the following three
years, to the extent such reimbursement by a Fund would not cause total
operating expenses of that Fund to exceed any current expense limitation.
Additionally, the Adviser has agreed to reimburse all expenses incurred in
connection with the organization of the Funds, subject to recoupment described
above. From May 3, 1999 through February 29, 2000, the Kelmoore Strategy(R)Fund
has paid the Adviser $491,388 in advisory fees and has reimbursed the Adviser
$164,136 in expenses incurred in connection with the organization of the Fund.
As part of the Trust's organization, the Kelmoore Strategy(R) Fund issued 10,000
shares of beneficial interest at $10.00 per share in a private placement to the
Adviser.
The Investment Advisory Agreement for the Kelmoore Strategy(R) Fund was approved
by the Trustees, including a majority of the Trustees who are not "interested
persons" of the Trust, on March 22, 1999. The Investment Advisory Agreement for
the Kelmoore Strategy(R) Eagle Fund was approved by the Trustees, including a
majority of the Trustees who are not "interested persons" of the Trust, on May
8, 2000. The Investment Advisory Agreement for the Kelmoore Strategy(R) Liberty
Fund was approved by the Trustees, including a majority of the Trustees who are
not "interested persons" of the Trust, on August 14, 2000. The Investment
Advisory Agreement, as it applies to each Fund, 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 respective 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 Funds or by the Adviser, upon sixty days' written notice. The Investment
Advisory Agreement terminates automatically if assigned.
Expenses. Each of the Funds pay 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 Funds'
7
<PAGE>
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 Strategy" and
the word "Kelmoore" in the name of any Fund. If the Adviser ceases to be the
investment adviser of the Funds, the Adviser may require the Trust and the Funds
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 Funds' shares, which are offered on a continuous
basis. The Distributor serves as the principal distributor of the Funds' shares
pursuant to a Distribution Agreement with each of the Funds. The Distribution
Agreement is renewable annually provided its renewal is approved by a majority
of the Trustees who are not parties to the Distribution Agreement or interested
persons of parties to the Distribution Agreement and who have no direct or
indirect financial interest in the Distribution Agreement or any related
distribution plan. The Distribution Agreement may be terminated at any time,
without the payment of a penalty, on sixty days' written notice by the
Distributor, by the non-interested Trustees or by the vote of the holders of the
lesser of: (a) 67% of the Trust's shares present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy, or
(b) more than 50% of the outstanding shares of the Trust. The Distribution
Agreement automatically terminates if it is assigned. The Distributor does not
receive any fee or other compensation under the Distribution Agreement other
than fees it receives in accordance with the Distribution Plan described below.
For the fiscal year ended February 29, 2000, such fees totaled $474,425, all of
which were paid to the Distributor for the services described above.
Shares of the Funds 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 Funds 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.
Code of Ethics. To mitigate the possibility that the Funds will be adversely
affected by the personal trading of employees, the Funds and the
Adviser/Distributor have adopted a Code of Ethics under Rule 17j-1 of the 1940
Act. The Code contains policies restricting securities trading in personal
trading accounts of Trustees and others who normally come into possession of
information on portfolio transactions.
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 Funds (the "Class A
Plan") and the Class C shares of the Funds (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, each of the Funds 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 respective Fund.
Under the Class C Plan, (a) each of the Funds shall reimburse the Distributor a
monthly fee not to exceed 0.75% per annum of the average daily net assets of the
respective Fund; and (b) in addition to the amounts described in (a) above, each
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
respective 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 each 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 Funds.
8
<PAGE>
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 Funds' 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 each of the Funds. 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
Funds require 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 Funds 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.
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, and greater
flexibility in achieving investment objectives.
For the fiscal year ended February 29, 2000, the Kelmoore Strategic Trust -
Class A shares paid fees under its Rule 12b-1 Plan consisting of payments of
approximately: $1,311 for compensation to brokers and $34,652 for Advertising.
For the fiscal year ended February 29, 2000, the Kelmoore Strategic Trust -
Class C shares paid fees under its Rule 12b-1 Plan consisting of payments of
approximately: $544,082 for compensation to brokers, $27,495 for printing and
mailing of prospectuses, $335,758 for advertising and $68,601 for compensation
for sales personnel.
Transfer Agent. PFPC Inc. ("PFPC"), located at 3200 Horizon Drive, King of
Prussia, PA 19406, provides transfer agency and dividend disbursing agent
services for the Trust. As part of these services, PFPC maintains records
pertaining to the sale and redemption of Fund shares and will distribute the
Funds' cash dividends to shareholders. For the period ended February 29, 2000,
the Kelmoore Strategy(R) Fund paid $84,099 to PFPC for its services as Transfer
Agent.
Administrative Services. PFPC also serves as the administrator for the Trust.
The services include the day-to-day administration of matters necessary to the
Funds' operations, maintenance of its records and books, preparation of reports,
and compliance monitoring of its activities. For the period ended February 29,
2000, the Kelmoore Strategy(R) Fund paid $79,136 to PFPC for its services as
Administrator.
Accounting Services. PFPC also serves as the accounting agent for the Fund and
maintains the accounting books and records of the Fund, calculates the Funds'
net asset value in accordance with the provisions of the Fund's current
Prospectus and prepares for the Fund approval and use various government
reports, tax returns, and proxy materials. For the period ended February 29,
2000, the Kelmoore Strategy(R) Fund paid $34,400 to PFPC for its services as
Accounting Agent.
9
<PAGE>
Custodian and Custody Administrator. The Bank of New York, 48 Wall Street, New
York, New York 10286, is custodian of the Funds' 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 Funds (ii) holds and transfers
portfolio securities on account of the Funds, (iii) accepts receipts and make
disbursements of money on behalf of the Funds, (iv) collects and receives all
income and other payments and distributions on account of the Funds' securities
and (v) makes periodic reports to the Trustees concerning the Funds' operations.
PFPC will act as custody administrator and has agreed to pay the fees and
expenses of the custodian.
Independent Accountants. The accounting firm of PricewaterhouseCoopers LLP, 333
Market Street, San Francisco, CA 94105, has been designated as independent
accountants for the Trust. PricewaterhouseCoopers LLP performs annual audits of
the Funds and is periodically called upon to provide accounting and tax advice.
Legal Counsel. Sutherland, Asbill & Brennan LLP, 1275 Pennsylvania Ave, NW,
Washington, D.C. 20004-2415 serves as legal counsel for the Trust and the
Adviser and Distributor.
Year 2000. The Trust did not experience any significant malfunctions or errors
in the computer systems used by its service providers when the date changed from
1999 to 2000. Based on operations since January 1 2000, the Trust does not
expect any significant impact to its on-going business as a result of the "Year
2000 issue." However, it is possible that the full impact of the date change,
which was of concern due to computer programs that use two digits instead of
four digits to define years, has not been fully recognized. For example, it is
possible that Year 2000 or similar issues, such as leap year-related problems,
may affect the computer systems used by the Trust's service providers at month,
quarter or year end. The Trust believes that any such problems are likely to be
minor and correctable.
PURCHASES AND REDEMPTIONS
Redemptions in Kind. In accordance with its election pursuant to Rule 18f-1
under the 1940 Act, the Funds 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 Funds to the detriment of existing shareholders. If the recipient sold
such securities, a brokerage charge might be incurred.
Telephone Instructions. Neither the Funds nor PFPC 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,
PFPC 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 PFPC will be recorded.
Systematic Withdrawal Plan. Shareholders who own $5,000 or more of a Fund's
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 a Fund's share
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.
PFPC, 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 PFPC upon written notice to participants. The plan may be
terminated at any time without penalty upon written notice by the participants,
the Funds, or PFPC.
10
<PAGE>
VALUATION
The Funds' 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 a 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
Funds 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 Funds. Each of the Funds intend to be taxed as a regulated
investment company under Subchapter M of the Code. Accordingly, each 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 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 Funds fail to qualify as a regulated
investment company, the Funds will be subject to U.S. federal income tax and
distributions to its shareholders will be taxed as ordinary dividend income to
the extent of the Fund's earnings and profits.
As a regulated investment company, each 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 Funds intend 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, each 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 a Fund writes an option, there is no taxable event and an amount
equal to the premium received is
11
<PAGE>
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 Funds to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Funds 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 Funds, 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 Funds, 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 Funds 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 Funds, 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 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 Funds 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 Funds with the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Funds 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).
12
<PAGE>
BROKERAGE
Each of the Funds 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 Funds 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. From inception
through February 29, 2000, the Kelmoore Strategy(R) Fund paid $904,587 in
brokerage commissions to Kelmoore Investment Company which constitutes 100% of
the commissions paid by the Fund.
The Adviser may utilize non-affiliated brokers, dealers or members of a
securities exchange to execute portfolio transactions on behalf of the Funds
and, like the Adviser, such firms may receive commissions for executing the
Funds' 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 Funds. At times, investment decisions
may be made to purchase or sell the same security for the Funds 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 Funds with respect to
price and availability of securities. In other cases, however, it is believed
that transactions would be advantageous to the Funds.
SHARES OF BENEFICIAL INTEREST
There are no conversion or preemptive rights in connection with any shares of
the Funds, nor are there cumulative voting rights. Each of the Funds' 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 a class of
the Funds are entitled to participate equally in dividends and distributions
declared and in the net assets of the Funds 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.
13
<PAGE>
All issued and outstanding shares of the Funds 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 Funds.
The authorized capitalization of each of the Funds consist of an unlimited
number of shares having a par value of $0.001 per share. The Trustees have
authorized two 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 Funds 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 Funds' 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
From time to time, each Fund may advertise its yield and total return. THESE
FIGURES WILL BE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. No representation can be made regarding future yields or
returns.
The yield of a Fund refers to the annualized income generated by an investment
in the Fund over a specified 30-day period. The "total return" or "average
annual total return" of a Fund reflects the change in the value of an investment
in a Fund over a stated period of time. Total returns and average annual returns
measure both the net investment income from and any realized or unrealized
appreciation or depreciation of a Fund's holdings for a stated period and assume
that the entire investment is redeemed at the end of each period and the
reinvestment of all dividends and capital gain distributions.
The yield of a Fund will be computed by annualizing net investment income per
share for a recent 30-day period and dividing that amount by a share's maximum
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. Net investment
income will reflect amortization of any market value premium or discount of
fixed income securities (except for obligations backed by mortgages or other
assets) and may include recognition of a pro rata portion of the stated dividend
rate of dividend paying portfolio securities. The yield of a Fund will vary from
time to time depending upon market conditions, the composition of the Fund's
portfolio and operating expenses of the Trust allocated to the Fund. These
factors and possible differences in the methods used in calculating yield should
be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of a Fund's shares and to the
relative risks associated with the investment objective and policies of such
Fund.
Calculation of Total Return:
---------------------------
Each quotation of average annual total return will be computed by finding the
average annual compounded rate of return over that period which would equate the
value of an initial amount of $1,000 invested in a Fund equal to the ending
redeemable value, according to the following formula:
P(T + 1)n = ERV
Where: P = a hypothetical initial payment of $1,000, T = average annual total
return, n = number of years, and ERV = ending redeemable value of a hypothetical
$1,000 payment at the beginning of the period at the end of the period for which
average annual total return is being calculated assuming a complete redemption.
The calculation of average annual total return assumes the deduction of the
maximum sales charge, if any, from the initial investment of $1,000, assumes the
reinvestment of all dividends and distributions at the price stated in the then
effective Prospectus on the reinvestment dates during the period and includes
all recurring fees that are charged to all shareholder accounts assuming such
Fund's average account size.
14
<PAGE>
A Fund, may also advertise aggregate total return in addition to average annual
total return. Aggregate total return is a measure of the change in value of an
investment in a Fund over the relevant period and is calculated similarly to
average annual total return except that the result is not annualized.
For the following periods ended February 29, 2000, the average annual total
returns for the Funds were as follows:
================================================================================
Since
FUND 1 Year 5 Year Inception
================================================================================
Kelmoore Strategy(R)Fund Class A* N/A N/A 4.55%(1)
--------------------------------------------------------------------------------
Kelmoore Strategy(R)Fund Class C** N/A N/A 5.54%
--------------------------------------------------------------------------------
Kelmoore Strategy(R)Eagle Fund Class A(2) N/A N/A N/A
--------------------------------------------------------------------------------
Kelmoore Strategy(R)Eagle Fund Class C(2) N/A N/A N/A
--------------------------------------------------------------------------------
Kelmoore Strategy(R)Liberty Fund Class A(3) N/A N/A N/A
--------------------------------------------------------------------------------
Kelmoore Strategy(R)Liberty Fund Class C(3) N/A N/A N/A
--------------------------------------------------------------------------------
* The Kelmoore Strategy(R) Fund Class A commenced operations on October 26,
1999.
** The Kelmoore Strategy(R)Fund Class C commenced operations on May 3, 1999.
(1) Total Return Calculation does not reflect sales load.
(2) The Kelmoore Strategy(R) Eagle Fund commenced operations on July 28, 2000.
(3) The Kelmoore Strategy(R) Liberty Fund had not commenced operations as of
the date of this SAI.
The performance figures above reflect voluntary fee waivers and expense
reimbursements. Absent such fee waivers and expense reimbursements, the yield
and total returns of the Kelmoore Strategy(R) Fund would have been lower.
At any time in the future, yields and total return may be higher or lower than
past yields and total return and there can be no assurance that any historical
results will continue. Investors in the Funds are specifically advised that
share prices, expressed as the net asset values per share, will vary just as
yields and total return will vary.
Comparing Performance. The performance of a Fund may periodically be compared
with that of other mutual funds or broad groups of comparable mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services,
Inc.) and financial and business publications and periodicals. In addition, a
Fund's performance may be compared with unmanaged indices of various investments
for which reliable performance data is available. These may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs. The performance of a Fund may also be compared in various
publications to averages, performance rankings or other information prepared by
recognized mutual fund statistical services. A Fund may quote Morningstar, Inc.,
a service that ranks mutual funds on the basis of risk-adjusted performance, or
Ibbotson Associates of Chicago, Illinois, which provides historical returns of
the capital markets in the United States. A Fund may use the long-term
performance of these capital markets to demonstrate general long-term risk
versus reward scenarios and could include the value of a hypothetical investment
in any of the capital markets.
A Fund may also quote financial and business publications and periodicals, such
as SMART MONEY, as they relate to Trust management, investment philosophy, and
investment techniques. A Fund may also quote from time to time various measures
of volatility and benchmark correlations in advertising and may compare these
measures with those of other mutual funds. Measures of volatility attempt to
compare historical share price fluctuations or total returns to a benchmark
while measures of benchmark correlation indicate how valid a comparative
benchmark might be. Measures of volatility and correlation are calculated using
averages of historical data and cannot be calculated precisely.
15
<PAGE>
FINANCIAL STATEMENTS
Reports to Shareholders. The audited financial statements and notes thereto for
the Kelmoore Strategy(R) Fund, contained in the Annual Report to Shareholders
dated February 29, 2000, are incorporated by reference into this Statement of
Additional Information and have been audited by PricewaterhouseCoopers LLC whose
report also appears in the Annual Report and is also incorporated by reference
herein. The unaudited financial statements and notes thereto for the Kelmoore
Strategy(R)Fund and Kelmoore Strategy(R)Eagle Fund, contained in the Semi-Annual
Report to Shareholders dated August 31, 2000 are also incorporated by reference
herein. No other parts of the Annual Report or Semi-Annual Report are
incorporated by reference herein.
16
<PAGE>
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)(1) 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.
(d)(2) Schedule I of the Investment Advisory Agreement as amended May 8,
2000 -- Incorporated by reference to Post-Effective Amendment No. 4
to the Registration Statement as filed with the SEC on June 28,
2000.
(d)(3) Schedule I of the Investment Advisory Agreement as amended August
14, 2000 -- Incorporated by reference to Post-Effective Amendment
No. 5 to the Registration Statement as filed with the SEC on October
12, 2000.
(e)(1) 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.
(e)(2) Schedule A of Distribution Agreement as amended May 8, 2000 --
Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement as filed with the SEC on June 28, 2000.
(e)(3) Schedule A of Distribution Agreement as amended August 14, 2000 --
Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement as filed with the SEC on October 12, 2000.
(f) Bonus or Profit Sharing Contracts -- none.
<PAGE>
(g)(1) 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.
(g)(2) Appendix B of the Custodian Agreement as amended May 8, 2000 --
Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement as filed with the SEC on June 28, 2000.
(g)(3) Appendix B of the Custodian Agreement as amended August 14, 2000 --
Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement as filed with the SEC on October 12, 2000.
(h)(1) 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.
(h)(2) Schedule A of the Services Agreement as amended May 8, 2000 --
Incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement as filed with the SEC on June 28, 2000.
(h)(3) Amendment No. 2 to the Services Agreement -- Incorporated by
reference to Post-Effective Amendment No. 5 to the Registration
Statement as filed with the SEC on October 12, 2000.
(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) Legal Opinion dated June 26, 2000 -- Incorporated by reference to
Post-Effective Amendment No. 4 to the Registration Statement as
filed with the SEC on June 28, 2000.
(i)(3) Legal Opinion of Sutherland Asbill & Brennan LLP dated December 20,
2000 -- filed herewith.
(i)(4) Consent of Sutherland Asbill & Brennan LLP -- filed herewith.
(j) Consent of Independent Accountants -- filed herewith.
(k) Omitted Financial Statements -- not applicable.
(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.
2
<PAGE>
(m)(1) Rule 12b-1 Plan of Distribution and Service Plan for Class C Shares
dated October 24, 1999, as amended August 14, 2000 -- Incorporated
by reference to Post-Effective Amendment No. 5 to the Registration
Statement as filed with the SEC on October 12, 2000.
(m)(2) Rule 12b-1 Plan of Distribution Plan for Class A Shares dated
October 24, 1999, as amended August 14, 2000 -- Incorporated by
reference to Post-Effective Amendment No. 5 to the Registration
Statement as filed with the SEC on October 12, 2000.
(n) Rule 18f-3 Plan dated October 24, 1999, as amended August 14, 2000
-- Incorporated by reference to Post-Effective Amendment No. 5 to
the Registration Statement as filed with the SEC on October 12,
2000.
(o)(1) Power of Attorney dated November 13, 2000 -- filed herewith.
(p) Code of Ethics of the Registrant, the Kelmoore Strategy(TM) Variable
Trust, Adviser and Distributor as amended July 28, 2000 --
Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement as filed with the SEC on October 12, 2000.
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 Trust
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
19, 2000 with the Securities and Exchange Commission (Registration
Number 801-53123) and is incorporated herein by reference.
3
<PAGE>
Item 27. Principal Underwriters.
(a) The Adviser also serves as distributor of the shares of the Funds.
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 Vice President- None
Administration: Corporate
Secretary and Chief
Compliance Officer
Norman H. Moore, Jr. Director None
Matthew Kelmon Vice President of Trading President and Trustee
Thomas W. Killilea Director None
Richard J. Deagazio Director None
Edward J. Devereaux Director and Chief None
Operating Officer
Richard D. Stanley None Chairman and Trustee
Tamara Beth Heiman Executive Vice President Secretary and Treasurer
and Director of Marketing
Shawn Young Chief Financial Officer Chief Financial Officer
4
<PAGE>
* 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,
PFPC, 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.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets the eligibility requirements of Rule 485(b) under the Securities Act of
1933, as amended and has duly caused this amendment to the Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Palo Alto and the State of California on this
26th day of December, 2000.
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
/s/ Matthew Kelmon President, Principal December 26, 2000
Executive Officer
and Trustee
/s/ Tamara Beth Heiman Secretary, Treasurer and December 26, 2000
Chief Financial Officer
William H. Barnes* Trustee December 26, 2000
Richard D. Stanley* Trustee December 26, 2000
Jeffrey Ira* Trustee December 26, 2000
Kenneth D. Treece* Trustee December 26, 2000
Lisa Ann McCarthy* Trustee December 26, 2000
Ignatius J. Panzica* Trustee December 26, 2000
Stephen W. Player* Trustee December 26, 2000
By: /s/ Matthew Kelmon
------------------
*Matthew Kelmon,
as Attorney-in-Fact,
pursuant to Power of Attorney filed herewith
6
<PAGE>
KELMOORE STRATEGIC TRUST
EXHIBIT INDEX TO PART "C"
OF
REGISTRATION STATEMENT
ITEM NO. DESCRIPTION
(i)(3) Legal Opinion of Sutherland Asbill & Brennan LLP
(i)(4) Consent of Sutherland Asbill & Brennan LLP
(j) Consent of Independent Accountants
(o)(1) Power of Attorney dated November 13, 2000
7
