As filed with the Securities and Exchange Commission on August 3, 2000
File No. 333-88877
File No. 811-09625
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. 1 [ X ]
Post-Effective Amendment No. _ [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
Amendment No. 1 [ X ]
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
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(Exact Name of Registrant as Specified on Charter)
2471 E. Bayshore Road, Suite 501, Palo Alto, California 94303
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(Address of Principal Executive Offices including Zip Code)
(800) 486-3717
(Registrant's Telephone Number, including Area Code)
Shawn K. Young, President
The Kelmoore Strategy(TM) Variable Trust
2471 E. Bayshore Road, Suite 501
Palo Alto, California 94303
(Name and Address of Agent for Service)
Copies to:
Kimberly J. Smith, Esq. Ms. Sandra L. Adams
Sutherland Asbill & Brennan LLP PFPC Inc.
1275 Pennsylvania Avenue, N.W. 3200 Horizon Drive
Washington, DC 20004 King of Prussia, PA 19406-0903
Approximate Date of Proposed Public Offering: As soon as practicable after the
Effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated August 15, 2000
[OUTSIDE FRONT COVER]
Kelmoore Strategy(TM) Variable Fund
Kelmoore Strategy(TM) Variable Eagle Fund
This prospectus contains important information about The Kelmoore Strategy(TM)
Variable Fund and the Kelmoore Strategy(TM) Variable Eagle Fund which are
available only through the purchase of a variable annuity contract or variable
life insurance policy through a separate account of an insurance company. This
prospectus should be accompanied by the prospectus for such contract. These
prospectuses contain important information. Please read them before investing
and keep them for future reference.
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.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY
WHAT ARE THE FUNDS?
KELMOORE STRATEGY(TM) VARIABLE FUND
What is the Fund's Primary Goal? 5
What is the Fund's Main Strategy? 5
What are the Fund's Main Risks? 6
Who may want to invest in the Fund? 7
KELMOORE STRATEGY(TM) VARIABLE EAGLE FUND
What is the Fund's Primary Goal? 7
What is the Fund's Main Strategy? 7
What are the Fund's Main Risks? 8
Who may want to invest in the Fund? 9
Bar Chart and Performance Table 9
MAIN STRATEGY 10
MAIN RISKS 12
MANAGEMENT OF THE FUNDS 13
PURCHASE AND REDEMPTION OF SHARES 14
DIVIDENDS, DISTRIBUTIONS AND TAXES 15
SPECIAL INFORMATION ABOUT THE FUNDS 16
FINANCIAL HIGHLIGHTS 17
ADDITIONAL INFORMATION
Shareholder Reports Back Cover
Statement of Additional Information Back Cover
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RISK/RETURN SUMMARY
WHAT ARE THE FUNDS?
The Kelmoore Strategy(TM) Variable Fund and the Kelmoore Strategy(TM) Variable
Eagle Fund (each a "Fund" and collectively the "Funds") are mutual funds that
are available only through the purchase of a variable annuity contract or
variable life insurance policy issued through a separate account of an insurance
company. Before you invest, please read this prospectus along with the
prospectus describing the variable annuity contract or variable life insurance
policy ("Variable Contract"). Keep both prospectuses for future reference.
Only insurance company separate accounts may purchase shares of the Funds. You
may not invest directly in the Funds. You should read the Variable Contract
prospectus for information about:
o Purchasing the Variable Contract
o The terms of the Variable Contract
o Expenses related to purchasing the Variable Contract
KELMOORE STRATEGY(TM) VARIABLE FUND
WHAT IS THE FUND'S PRIMARY GOAL?
The Fund's primary goal is to maximize realized gains from writing covered
options on common stocks. This goal cannot be changed without shareholder
approval. As with any mutual fund, there is no guarantee that a Fund will
achieve its goal.
WHAT IS THE FUND'S MAIN STRATEGY?
The Fund's main strategy is to purchase the common stocks of a limited number of
large companies which have 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 mid and large cap leaders in
finance, consumer goods, manufacturing, 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 options premiums generated, Kelmoore Investment Company, Inc. (the
"Adviser") writes as many covered call options on the stocks the Fund owns as it
can in order to maximize gains. 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. 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:
o considered to be industry leaders
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o have strong financial fundamentals
o are widely-held and have a high daily trading volume
o are multi-national corporations
o have relatively stable prices and dividends
WHAT ARE THE FUND'S MAIN RISKS?
As with any mutual fund, the value of the Fund's investments, and therefore the
value of the Fund's shares, will fluctuate. If the net asset value of 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 Fund by itself does not
constitute a balanced investment program. The principal risks associated with an
investment in the Fund include:
Risks of investing in stocks:
o 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
o selection risk, or the risk that the stocks or
sectors owned by the Fund will underperform the stock
market as a whole or certain sectors of the stock
market
o risk of reduction in the amount of dividends a stock
pays
Risks of writing covered call options:
o risk of limiting gains on stocks in a rising market
o risk of unanticipated exercise of the option
o lack of liquid options market
o decreases in option premiums
Other Risks:
o lack of liquidity in connection with purchases and
sales of portfolio securities
o relatively higher cost of options trades
o forced liquidation of securities underlying the
options
o loss of part or all of your money invested in the
Fund
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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WHO MAY WANT TO INVEST IN THE FUND?
Kelmoore Strategy(TM) Variable Fund may be appropriate for you if you:
o are seeking to maximize short-term capital gains in
the form of dividends and are willing to assume more
risk to increase the level of those gains
o can accept the risks of investing in a portfolio of
common stocks and their related options
o are seeking a disciplined and continual reinvestment
of premiums generated from writing options
o can tolerate performance which can vary substantially
from year to year
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.
KELMOORE STRATEGY(TM) VARIABLE EAGLE FUND
WHAT IS THE FUND'S PRIMARY GOAL?
The Fund's primary goal is to maximize realized gains from writing covered
options on common stocks. This goal cannot be changed without shareholder
approval. As with any mutual fund, there is no guarantee that a Fund will
achieve its goal.
WHAT IS THE FUND'S MAIN STRATEGY?
The main strategy of the Kelmoore Strategy(TM) Variable Eagle Fund is to
purchase the common stocks of a limited number of Technology, Communications and
Financial companies which have strong financial fundamentals, and to continually
sell or "write" related covered call options against substantially all of the
shares of stock it owns. The Adviser generally seeks over time to maintain a
balance of the Fund's assets invested among these three sectors. 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 and
Communications.
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 options premiums generated, the Adviser writes as many covered call
options on the stocks the Fund owns as it can. 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 thirty common stocks. This number may
fluctuate at the discretion of the Adviser. The issuers of stock selected
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for investment by the Fund will have a market capitalization in excess of $500
million and will tend to have most of the following characteristics:
o considered to be leading edge technology companies
o have a commanding marketing position
o are widely-held and have a high daily trading volume
o have strong financial fundamentals
o have a higher volatility than the stocks selected by
the Kelmoore Strategy(TM)Variable Fund
WHAT ARE THE FUND'S MAIN RISKS?
As with any mutual fund, the value of the Fund's investments, and therefore the
value of the Fund's shares, will fluctuate. If the net asset value of your
shares declines below the price you paid, you will lose money. The performance
of the Fund may also vary substantially from year to year. The principal risks
associated with an investment in the Fund include:
Risks of investing in stocks:
o 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
o enhanced selection risk, or the risk that the stocks
of sectors selected by the Fund will substantially
underperform the stock market as a whole or certain
sectors of the stock market
o financial risk, or the risk that the stock may file
bankruptcy proceedings or be acquired on unfavorable
terms to the stockholders
o technology risk, or the risk that new products,
systems or information will be developed and
introduced to the marketplace substantially reducing
the value of the stock
o risk of reduction in the amount of dividends a stock
pays
Risks of writing covered call options:
o risk of limiting gains on stocks in a rising market
o risk of unanticipated exercise of the option
o lack of liquid options markets
o decreases in option premiums
Other risks:
o lack of liquidity in connection with purchases and
sales of portfolio securities
o relatively higher cost of options trades
o forced liquidation of securities underlying the
options
o loss of part or all of your money invested in the
Fund
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WHO MAY WANT TO INVEST IN THE FUND?
The Fund may be appropriate for you if you:
o are seeking to maximize short-term capital gains in
the form of dividends and are willing to assume more
risk to increase the level of those gains
o can accept the risks of investing in a portfolio of
common stocks and their related options
o are seeking a disciplined and continual reinvestment
of premiums generated from writing options
o can tolerate performance which can vary substantially
from year to year
o can accept wide variation in the value of the Fund's
shares which could cause a capital loss upon
redemption of shares
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.
BAR CHART AND PERFORMANCE TABLE
Although past performance of a fund is no guarantee of how it will perform in
the future, historical performance may give you some indication of the risks of
investing in a mutual fund. Performance demonstrates how a fund's returns have
varied over time. The Funds are recently organized and therefore have no
performance history. Performance information will be included in the Prospectus
when the Funds complete a full calendar year of operation. Each Fund's annual
returns will also be compared to the returns of a benchmark index. As with all
mutual funds, past performance does not indicate future results.
The investment objective, policies and management of the Funds are the same as
the Kelmoore Strategy(TM) Fund and the Kelmoore Strategy(TM) Eagle Fund which
are publicly offered "retail" mutual funds. Notwithstanding the general
similarities, the retail funds and these Funds are separate mutual funds that
will have different investment performance, and the Funds make no representation
that their performance will be comparable to any other mutual fund.
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
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Selling a call option is selling the right to an option buyer the right to
purchase a specified number of shares (100 shares equals one option contract)
from the Fund, at a specified price (the "exercise price") on or before a
specified date (the "expiration date"). The call option is covered because the
Fund owns, and has segregated, the shares of stock on which the option is based.
A segregated account is established with the Fund's custodian to hold separately
either the shares of stock or cash equal to the value of the Fund's obligation
under the option. This eliminates certain risks associated with selling
uncovered, or "naked" options.
The Fund Collects a Premium
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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
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The buyer of the option may elect to purchase the stock (exercise, or "call" the
option) at the exercise price at any time before the option expires. The Fund is
then obligated to deliver the shares at that price. Options are normally
exercised on or before the expiration date if the market price of the stock
exceeds the exercise price of the option. Generally, if the exercise price plus
the option premium are higher than the price the Fund originally paid to
purchase the stock, the Fund will realize a gain on the sale of the stock; if
the exercise price and premium are lower, the Fund will realize a loss. By
selling a covered call option, the Fund foregoes the opportunity to benefit from
an increase in price of the underlying stock above the exercise price.
If the Option Expires
---------------------
If the market price of the stock does not exceed the exercise price, the call
option will likely expire without being exercised. The Fund keeps the premium
and the stock. The Fund then expects to sell new call options against those same
shares of stock. This process is repeated until: a) an option is exercised, or
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
the proceeds are used to fund redemptions.
Other Features
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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
covered call option.
For the Kelmoore Strategy(TM) Variable 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 different industry sectors.
For the Kelmoore Strategy(TM) Variable 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
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held by the Kelmoore Strategy(TM) Variable Fund. To reduce stock 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.
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.
Secured Put Options
-------------------
A 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 gain on a put option is limited to
the interest earned on the liquid assets securing the put option plus the
premium received from the purchaser of the put option, the Fund risks the entire
loss in the value of the stock.
Temporary Defensive Position
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In attempting to respond to adverse market, economic, political or other
conditions, each Fund may invest up to 100% of its assets in cash or cash
equivalents. When a Fund takes a temporary defensive position, it may not
achieve its stated investment objective.
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
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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.
Writing Covered Call Options
----------------------------
When a Fund writes covered call options, it forgoes 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.
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.
MANAGEMENT OF THE FUNDS
Board Of Trustees
-----------------
The Fund's shareholders elect a Board of Trustees. The Trustees oversee each
Fund's activities.
Investment Adviser
------------------
Kelmoore Investment Company, Inc. is the investment adviser for each Fund. The
Adviser manages each Fund's investments and supervises the daily business
affairs of the Funds. The Adviser is a registered investment adviser and
broker-dealer. The Funds intend to place substantially all transactions in both
stocks 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
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employ. The Adviser manages the Kelmoore Strategy(TM) Fund and the Kelmoore
Strategy(TM) Eagle Fund, open-end mutual funds with total assets in excess of
$225 million. The Adviser's principal address is 2471 East Bayshore Road, Suite
501, Palo Alto, California 94303.
Advisory Fees
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Under an investment advisory agreement between the Funds and the Adviser, each
Fund has agreed to pay the Adviser a monthly fee at the annual rate of 1.00% of
its average daily net assets. The Adviser has voluntarily undertaken to waive
all or a portion of its fee and to reimburse certain expenses of the Funds so
that the total operating expenses of each Fund for the initial fiscal year will
not exceed 2.25%. The Adviser reserves the right to terminate this undertaking
at any time, in its sole discretion. Any waiver or reimbursement by the Adviser
is subject to reimbursement by the respective Fund within the first three years
of the Fund's operations, to the extent such reimbursement by the Fund would not
cause total operating expenses to exceed any current expense limitation.
Portfolio Manager
-----------------
The primary portfolio manager for each Fund is Matthew Kelmon. Mr. Kelmon has
been Vice President of Trading for the Adviser from 1994 to the present. Mr.
Kelmon manages the day-to-day trading activities of the Adviser and is
responsible for designing and implementing the in-house software system
(OPTRACKER(TM)) used in the investment process. Mr. Kelmon has been responsible
for the day-to-day management and implementation of The Kelmoore Strategy(TM)for
private accounts and limited partnerships from 1994 to the present. Mr. Kelmon
also heads up the equity selection committee of the Adviser.
Principal Distributor
---------------------
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 transactions completed, there is an
incentive on the part of the Adviser to effect as many transactions as possible.
While the Fund does not intend to trade the stocks in its portfolio actively, it
is in the interest of the Funds 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
Funds' portfolio used to cover or secure those options. Brokerage commissions
are often greater in relation to options premiums then in relation to the price
of the underlying stocks.
Distribution Plan
-----------------
The Funds have adopted Distribution (12b-1) Plans that allow each Fund to pay
distribution and/or service fees for the sale and distribution of its shares and
for services provided to shareholders. Each distribution plan permits the Fund
to pay the Adviser, as the Fund's distributor, an annual fee not to exceed 0.25%
of the average daily net assets of the Fund. The Adviser may use this fee to
compensate sponsoring insurance companies for providing services in connection
with fund shares. These services may include the following costs: (a) of
printing and mailing prospectuses and reports to prospective variable contract
owners; (b) relating to the development, preparation, printing and
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mailing of advertisements, sales literature and other promotional materials
intended for use by the life insurance company; (c) of holding seminars and
sales meetings designed to promote sales of Fund shares; (d) of obtaining
information and providing explanations to variable contract owners regarding the
Funds' investment objectives and policies and other information about the Funds;
(e) of training sales personnel regarding the Funds' (f) of compensating sales
personnel in connection with the allocation of cash values and premiums of the
variable contracts; (g) of personal service and/or maintenance of variable
contract owner accounts with respect to Fund shares attributable to such
accounts; and (h) of financing any other activity that the Trust's Board of
Trustees determines is primarily intended to result in the sale of the Funds'
shares. Payments may also be made to financial institutions, industry
professionals and broker-dealers for providing distribution assistance relating
to the sale of the Funds' shares. Because these fees are paid out of each Fund's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
PURCHASE AND REDEMPTION OF SHARES
Each Fund continuously offers its shares to insurance companies for the funding
of Variable Contracts. Shares are offered at the net asset value ("NAV") per
share next determined after the Fund or its designated agent receives and
accepts a proper purchase request. Shares of the Funds are not sold directly to
the public. The insurance company submits purchase and redemption orders to the
Funds based on allocation instructions for premium payments, transfer
instructions and surrender or partial withdrawal requests which are furnished to
the insurance company by such Variable Contract owners. The insurance companies
are designated agents of the Funds. The Funds, the transfer agent and
distributor reserve the right to reject any purchase order in whole or in part.
The Funds will ordinarily make payment for redeemed shares within seven (7)
business days after the Fund or its designated agent receives and accepts a
proper redemption order. A proper redemption order will contain all the
necessary information and signatures required to process the redemption order.
The redemption price will be the NAV per share next determined after the Fund or
its designated agent receives and accepts the shareholder's request in proper
form.
The Funds may suspend the right of redemption or postpone the date of payment
during any period when trading on the New York Stock Exchange ("NYSE") is
restricted or the NYSE is closed for other than weekends and holidays, when an
emergency makes it not reasonably practicable for each Fund to dispose of its
assets or calculate its net asset value or as permitted by the Securities and
Exchange Commission.
Please read the accompanying prospectus for the Variable Contract for a complete
description of the insurance product through which the Funds are offered
including associated fees and any restrictions on purchases or withdrawals.
HOW IS SHARE PRICE CALCULATED?
The NAV for the Funds is calculated each day the Funds are open for business as
of the close of regular trading on the NYSE, normally 4:00 p.m., Eastern time.
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The NAV per share is calculated by taking the value of the Fund's investments
and other assets, subtracting the liabilities, and then dividing by the number
of the Fund's outstanding shares. Each Fund's investments are valued based on
market value or, if market value is not readily available, based on fair value
as determined in good faith by or at the direction of the Fund's board of
trustees.
If the NYSE closes early, the Fund will normally consider the closing price of a
security to be its price at 4:00 p.m. Eastern time.
The NYSE is typically closed and shares of the Funds will not be priced on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to distribute substantially all of its income and capital
gains to its shareholders. Distributions of any net realized long-term capital
gains will be made at least annually. The Funds will declare and 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. All dividends and capital gains
distributions will be automatically reinvested at net asset value.
Each Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, in order to be relieved of federal
income tax on that part of its net investment income and realized capital gains
it distributes to shareholders. To qualify, the Fund must meet certain
relatively complex income and diversification tests. The loss of such status
would result in the Fund being subject to federal income tax on its taxable
income and gains.
Federal tax regulations require that mutual funds offered through insurance
company separate accounts must meet certain diversification requirements to
preserve the tax-deferral benefits provided by the variable contracts. These
requirements must be met at the end of each quarter of the year, or within 30
days thereafter. The Adviser intends to diversify each Fund's investments in
accordance with those requirements. The prospectus for the Variable Contracts
describe the federal income tax treatment of distributions from such a contract.
Dividends paid by each Fund from its ordinary income and distributions of net
short-term capital gains are includable in the insurance company's gross income.
The tax treatment of such dividends and distributions depends upon the insurance
company's tax status.
You should consult with your own tax adviser regarding the tax consequences of
your investment in the separate account, including the application of state and
local taxes which may differ from the federal income tax consequences described.
SPECIAL INFORMATION ABOUT THE FUNDS
The Funds may offer shares to both variable annuity and variable life insurance
policy separate accounts, and directly to qualified plans. The Trustees do not
14
<PAGE>
anticipate that this arrangement will disadvantage any Variable Contract owners
or plan participants. The Funds' Board of Trustees monitors events for the
existence of any material irreconcilable conflict between or among Variable
Contract owners and plan participants. If a material irreconcilable conflict
arises, one or more separate accounts or plans may withdraw their investment in
the Funds. This could possibly force the Fund to sell portfolio securities at
unfavorable prices. The insurance companies or plans will bear the expenses of
establishing separate portfolios for variable annuity and variable life
insurance separate accounts and plans if such action becomes necessary; however,
ongoing expenses that are ultimately borne by Variable Contract owners and plan
participants will likely increase due to the loss of the economies of scale
benefits that can be provided to mutual funds with substantial assets.
FINANCIAL HIGHLIGHTS
Financial highlights will be included in the prospectus after the Funds have a
performance history. This information will reflect financial results for a
single Fund share. The total returns in the table will represent the rates of
return that an investor would have earned on an investment in the Fund, assuming
reinvestment of all dividends and distributions.
15
<PAGE>
[OUTSIDE BACK COVER]
ADDITIONAL INFORMATION
Shareholder Reports:
-------------------
Additional information about each Fund's investments will be available in the
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 if you have questions about investing in the Funds, please write or call:
Kelmoore Investment Company, Inc.
2471 E. Bayshore Road, Suite 501
Palo Alto, CA 94303
(800) ________
You may visit the SEC's website (http://www.sec.gov) to view reports and other
information about the Fund. Copies of this information may be obtained, after
paying a duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102. Call (202) 942-8090 for information on the
operation of the Public Reference Room. In order to assist you in obtaining this
information, the following is the Fund's registration number under the
Investment Company Act of 1940: 811-09625.
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
2471 E. Bayshore Road
Suite 501
Palo Alto, CA 94303
(___) ________________
INVESTMENT ADVISER AND DISTRIBUTOR
Kelmoore Investment Company
2471 E. Bayshore Road
Suite 501
Palo Alto, CA 94303
TRANSFER AGENT
PFPC Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-_________
(800) _____________
CUSTODIAN
PFPC Trust Company
400 Bellevue Parkway
Wilmington, DE 19809
16
<PAGE>
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
Subject to Completion
Preliminary Statement of Additional Information dated August 15, 2000
STATEMENT OF ADDITIONAL INFORMATION
FOR
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
Kelmoore Strategy(TM) Variable Fund
Kelmoore Strategy(TM) Variable Eagle Fund
Shares of the Funds are available only through the purchase of a variable
annuity contract or variable life insurance policy issued through a separate
account of an insurance company ("Variable Contract"). The investment adviser of
the Funds is Kelmoore Investment Company, Inc. (the "Adviser"). The Funds'
distributor is Kelmoore Investment Company, Inc. (the "Distributor").
The Prospectus for the Funds is dated August 15, 2000. The Prospectus provides
the basic information an investor should know about the Funds before investing
and may be obtained without charge by calling the Funds at (800) ____________.
This Statement of Additional Information ("SAI") is not a prospectus and should
be read in conjunction with the Funds' Prospectus, and is incorporated by
reference in its entirety into the Prospectus. This SAI is not an offer of
shares of the Funds for which an investor has not received the Prospectus.
17
<PAGE>
TABLE OF CONTENTS
PAGE
----
General Information and History......................................... 20
Investment Strategies and Related Risks ................................ 20
Investment Restrictions ................................................ 24
Management of the Trust................................................. 25
Other Services.......................................................... 29
Purchase, Redemption and Pricing of Shares ............................. 30
Distributions and Taxes................................................. 31
Portfolio Transactions and Brokerage Commissions ....................... 29
Shares of Beneficial Interest........................................... 33
Performance Information ................................................ 34
Financial Statements ................................................... 35
18
<PAGE>
GENERAL INFORMATION AND HISTORY
The Kelmoore Strategy(TM) Variable Fund and the Kelmoore Strategy(TM) Variable
Eagle Fund (each a "Fund" and collectively the "Funds") are diversified series
of The Kelmoore Strategy(TM) Variable Trust (the "Trust"), a Delaware business
trust organized on October 4, 1999 as an open-end management investment company.
The Funds employ Kelmoore Investment Company, Inc. (the "Adviser") to serve as
their investment adviser. Currently, the Trust has two series authorized and
outstanding. The Trust was established for the purpose of providing a vehicle
for the investment of assets of separate accounts of insurance companies for
Variable Contracts. Shares of the Funds are offered solely to these separate
accounts.
INVESTMENT STRATEGIES AND RELATED RISKS
The Prospectus discusses the investment objective of each Fund and the principal
strategies to be employed to achieve that objective. This section contains
supplemental information concerning types of securities and other instruments in
which the Funds may invest, additional strategies that the Funds may utilize and
certain risks associated with such investments and strategies.
Common Stock. Common stock represents an equity (ownership) interest in a
company or other entity. This ownership interest often gives the Funds the right
to vote on measures affecting the company's organization and operations.
Although common stocks generally have had a history of long-term growth in
value, their prices are often volatile in the short-term and can be influenced
by both general market risk and specific corporate risks.
Options on Securities. The writing and purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The
successful use of options depends in part on the ability of the Adviser to
predict future price fluctuations.
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 Fund's net exposure on its written option position.
19
<PAGE>
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
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position.
The obligation of an option writer is terminated upon the exercise of the
option, the option's expiration or by effecting a closing purchase transaction.
ADDITIONAL RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance a
liquid secondary market will exist for any particular exchange-traded option or
at any particular time. If a Fund is unable to effect a closing purchase
transaction with respect to options it has written, the Fund will not be able to
sell the underlying securities or dispose of assets held in a segregated account
until the options expire or are exercised.
Reasons for the absence of a liquid secondary market may include the following:
(i) there may be insufficient trading interest in certain options; (ii)
restrictions may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the OCC may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options). If trading were
discontinued, the secondary market on that exchange (or in that class or series
of options) would cease to exist. However, outstanding options on that exchange
that had been issued by the OCC as a result of trades on that exchange would
normally continue to be exercisable or expire in accordance with their terms.
There can be no assurance that higher trading activity, 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, trading halts or suspensions with
respect to one or more options.
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
20
<PAGE>
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) that 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
restrict 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
Repurchase Agreements. The Funds may enter into repurchase agreements with
approved banks and broker-dealers. In a repurchase agreement, the Fund purchases
securities with the understanding they will be repurchased by the seller at a
set price on a set date. This allows the Fund to keep its assets at work but
retain flexibility to pursue longer-term investments upon repurchase.
Repurchase agreements involve risks. For example, if a seller defaults, the Fund
will suffer a loss if the proceeds from the sale of the collateral are 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 in an amount at least equal to
the repurchase price, including accrued interest.
Borrowing. Each Fund may borrow money in amounts up to 10% of the value of its
total assets at the time of such borrowings for temporary purposes, and is
authorized to borrow money in excess of the 10% limit as provided by the
Investment Company Act of 1940, as amended, (the "1940 Act") (not to exceed 30%
of the Fund's total assets) in order to meet redemption requests. This borrowing
may be unsecured. The Fund will not make any additional purchases of securities
at any time its borrowings exceed 10% of its assets. The 1940 Act requires the
Fund to maintain continuous asset coverage of 300% of the amount it has
borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio holdings within three (3) days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing may exaggerate the effect
on net asset value of any increase or decrease in the market value of the Fund.
Money borrowed will be subject to interest costs that may or may not be
recovered by an appreciation of the securities purchased. The Fund may also be
required to maintain average balances in connection with borrowing or to pay
21
<PAGE>
a commitment or other fees to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
The Fund may, in connection with permissible borrowings, transfer securities
owned by the Fund as collateral.
Investment Company Securities. Each Fund may invest in securities issued by
other investment companies but intends to invest only in money market mutual
funds as a temporary investment. As a shareholder of another investment company,
the Fund would bear its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
expenses the Fund bears directly. The Fund intends to limit its investments in
securities issued by other investment companies so that immediately after a
purchase of such securities is made: (i) not more than 5% of the value of the
Fund's total assets will be invested in the securities of any one investment
company; (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group; and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund.
Illiquid Securities. Each Fund may invest up to 15% of its net assets in
illiquid securities. Illiquid securities generally include securities that
cannot readily be sold within seven days in the ordinary course of business at
approximately the price at which the Fund has valued the securities. Such
securities include, but are not limited to, restricted securities (securities
the disposition of which is restricted under the federal securities laws),
securities that may be resold pursuant to Rule 144A under the Securities Act of
1933, as amended, but that are deemed to be illiquid, and repurchase agreements
with maturities in excess of seven days.
Temporary Investments. To maintain cash for redemptions, distributions and
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
and banker's acceptances and repurchase agreements.
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 that expire in less than one year.
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 security in a
relatively brief period of time) in response to stock market conditions or
changes in economic trends and developments. Although the Funds' annual turnover
rate cannot be accurately predicted, it is estimated this rate will not exceed
approximately 100% for the current fiscal year assuming normal market
conditions. A 100% annual turnover rate would occur if all of the Fund's
securities were replaced one time during a one-year period.
Other Investments. Subject to prior disclosure to shareholders, the Board of
Trustees may, in the future, authorize 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
22
<PAGE>
would not violate any fundamental investment policies or restrictions applicable
to the Fund.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions are
considered fundamental, which means they may be changed only by approval of the
holders of a majority of the respective Fund's outstanding shares, defined in
the 1940 Act as the lesser of: (1) 67% or more of the Fund's outstanding shares
present at a meeting, if the holders of more than 50% of the Fund's outstanding
shares are present in person or represented by proxy, or (2) more than 50% of
the Fund's outstanding shares.
1. A Fund may not purchase securities that would cause more than 25% of the
value of the Fund's total assets at the time of such purchase to be
invested in the securities of any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement
of the Fund's investment objective, up to 25% of the Fund's total assets
may be invested in any one industry.
1. A Fund may not issue senior securities, mortgage or pledge assets, or
borrow money, except (i) a Fund may borrow money from banks in amounts up
to 30% of its total assets (including the amount borrowed); (ii) a Fund may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities; and (iii) a Fund may engage in
options transactions as permitted by the 1940 Act and enter into collateral
arrangements relating thereto.
2. A Fund may not make loans to other persons, except (i) through the lending
of the Fund's portfolio securities provided that any such loans not exceed
30% of the Fund's total assets (taken at market value); or (ii) through the
use of repurchase agreements or the purchase of short-term obligations.
3. A Fund may not purchase or sell commodities or real estate (including
limited partnership interests but excluding securities secured by real
estate or interests therein) in the ordinary course of business, (except
the Fund may engage in options transactions as permitted by the 1940 Act
and enter into collateral arrangements relating thereto, and the Fund may
hold and sell, for the Fund's portfolio, real estate acquired as a result
of the Fund's ownership of securities).
5. A Fund may not underwrite securities of other issuers except to the extent
the Fund may be considered to be an underwriter under the Securities Act of
1933 in connection with the purchase and sale of portfolio securities.
6. 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, other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Non-Fundamental Investment Restrictions. The following restrictions are imposed
by management of the Funds and may be changed by the Board of Trustees without
shareholder approval at any time.
23
<PAGE>
1. A Fund may not invest in a company for the purpose of exercising control or
management of the company.
2. 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 purchases and
sales of securities, and provided that margin payments in connection with
options will not constitute purchasing securities on margin.
3. 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 the Fund is
valuing the security. Repurchase agreements with deemed maturities in
excess of seven days are subject to this 15% limit.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
MANAGEMENT OF THE TRUST
The Board of Trustees is responsible for overseeing and monitoring the
management of the Funds. The Board of Trustees meets periodically throughout the
year to oversee each Fund's operations, review contractual arrangements with
companies that provide services to the Funds and review each Fund's performance.
The Board of Trustees elects the officers of the Trust to supervise actively its
day-to-day operations.
The Trustees and officers of the Trust and their ages, addresses and principal
occupations during the past five years are set forth below. Their titles may
have varied during the five year period.
<TABLE>
<CAPTION>
---------------------------------------- -------------------------- --------------------------------------------------
NAME, ADDRESS AND AGE POSITION HELD WITH THE PRINCIPAL OCCUPATION DURING THE PAST 5 YEARS
TRUST
---------------------------------------- -------------------------- --------------------------------------------------
<S> <C> <C>
Shawn K. Young, CPA* President, Treasurer and Chief Financial Officer, Kelmoore Investment
2471 E. Bayshore Road Trustee Company, Inc. from 12/99 to present. Formerly,
Suite 501 a Senior Manager at Ernst & Young, one of the
Palo Alto, CA 94303 "big 5" accounting firms from 6/99 to 12/99.
Partner (1/95 to 6/99) and manager (11/90 to
Age 36 12/95) with Friar, Harper & Arendt, CPAs, a
regional accounting firm.
---------------------------------------- -------------------------- --------------------------------------------------
Michael Romanchak* Chairman of the Board President and Director, Kelmoore Investment
2471 E. Bayshore Road Company, Inc. from 7/95 to the present.
Suite 501 Formerly, First Vice President, Comerica Bank,
Palo Alto, CA 94303 from 7/92 to 7/95.
Age 49
---------------------------------------- -------------------------- --------------------------------------------------
24
<PAGE>
---------------------------------------- -------------------------- --------------------------------------------------
R. Michael Law Trustee Vice President, Comerica Bank, Oakland,
155 Grand Avenue California from 1/87 to present.
Suite 402
Oakland, CA 94612
Age 39
---------------------------------------- -------------------------- --------------------------------------------------
Michael Stepanian Trustee Attorney, Law Offices of Michael Stepanian in
819 Eddy Street San Francisco, California from 1/66 to present.
San Francisco, CA 94109
Age 61
---------------------------------------- -------------------------- --------------------------------------------------
Robert T. Lanz Trustee Partner, BDO Seidman, LLP, an accounting firm
19600 Moray Court located in San Jose, California from 10/98 to
Saratoga, CA 95070 present. Formerly, Partner, Meredith, Cardozo,
Lanz & Chici, LLP, an accounting firm, from 1/95
Age 58 to 10/98.
---------------------------------------- -------------------------- --------------------------------------------------
Tamara B. Heiman Secretary Executive Vice President and Director of
2471 E. Bayshore Road Marketing, Kelmoore Investment Company, Inc.
Suite 501 from 3/99 to present. Formerly, Vice President,
Palo Alto, CA 94303 Investment Advisory Services for Josephthal &
Co., a NYSE broker/dealer from 8/97 to 3/99.
Age 29 Formerly, Vice President, Director of Asset
Management for First Allied Securities, a
national independent broker dealer, from 8/94 to
3/99.
---------------------------------------- -------------------------- --------------------------------------------------
</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. ROMANCHAK AND MS.
YOUNG ARE CONSIDERED "INTERESTED PERSONS" OF THE TRUST DUE TO THEIR AFFILIATION
WITH THE ADVISER.
Members of the Audit Committee of the Board of Trustees are Mr. Law and Mr.
Lanz. 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 Board of Trustees are Messrs.
Stepanian, Law and Lanz. The Nominating Committee is responsible for the
selection and nomination of disinterested Trustees.
25
<PAGE>
Members of the Valuation Committee of the Board of Trustees are Ms. Young, Mr.
Matthew Kelmon and Mr. R. Michael Law. The Valuation Committee is responsible
for fair value pricing of the Fund's portfolio securities.
Each Trustee of the Fund who is not an affiliated person of the Adviser or
Distributor, as defined in the 1940 Act, receives an annual retainer of $4,000
per year (payable in equal installments at the end of each quarter) plus
reimbursement for certain travel and other out-of-pocket expenses incurred with
attending such meetings.
The following table estimates the compensation expected to be paid by the Trust
during the Fund's fiscal year ending December 31, 2000 to the persons who are to
serve as Trustees during such period:
<TABLE>
<CAPTION>
------------------------------------- ----------------------------------- --------------------------------------------
ESTIMATED TOTAL
NAME OF TRUSTEE COMPENSATION FROM THE TRUST COMPENSATION FROM THE COMPLEX PAID TO
TRUSTEE
------------------------------------- ----------------------------------- --------------------------------------------
<S> <C> <C>
Shawn K. Young $ 0 $ 0
Michael Romanchak 0 0
R. Michael Law 4,000 4,000
Michael Stepanian 4,000 4,000
Robert T. Lanz 4,000 4,000
</TABLE>
NOTE: THE TRUSTEES AND OFFICERS AFFILIATED WITH THE ADVISER ARE NOT COMPENSATED
BY THE TRUST FOR THEIR SERVICES. THE TRUST DOES NOT HAVE ANY RETIREMENT PLAN FOR
ITS TRUSTEES.
Investment Adviser. The Trust has employed Kelmoore Investment Company, Inc.
(the "Adviser") as its investment adviser. The Adviser, an SEC registered
investment adviser organized in 1992, has been managing the Kelmoore
Strategy(TM) Fund, open-end mutual fund, since May 3, 1999 and the Kelmoore
Strategy(TM) Eagle Fund, an open-end fund, since June 28, 2000. As of June 30,
2000, the Adviser managed approximately $400 million of assets, consisting of
discretionary brokerage accounts and the assets of the Kelmoore Strategy(TM)
Fund and the Kelmoore Strategy(TM) Eagle Fund. Through his ownership and voting
control of more than 25% of the outstanding shares of the Adviser, Ralph M.
Kelmon, Jr. is considered to control the Adviser. Mr. Kelmon is the Chief
Executive Officer and Chairman of the Board of the Adviser. Mr. Kelmon is the
father of Matthew Kelmon, the primary portfolio manager for the Funds, and Shawn
K. Young, President and Treasurer of the Trust.
The Adviser manages each Fund's investments consistent with its investment
objectives, policies and limitations. The Adviser also makes recommendations
with respect to other aspects and affairs of the Funds. 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. The Adviser also supervises the provision of services by third
parties such as the Funds' transfer agent and custodian. 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
26
<PAGE>
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 Funds' initial
fiscal years ending December 31, 2000 and December 31, 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%. The Adviser may terminate this
waiver at any time. Any waiver or reimbursement by the Adviser is subject to
reimbursement by the Fund within the following three years, to the extent such
reimbursement by the Fund would not cause total operating expenses to exceed any
current expense limitation. Additionally, the Adviser has agreed to reimburse
all expenses incurred in connection with the organization of the Funds, subject
to recoupment described above.
The Investment Advisory Agreement (the "Agreement") for the Kelmoore
Strategy(TM) Variable Fund was approved by the Trustees, including a majority of
the Trustees who are not "interested persons" of the Fund, on March 2, 2000. The
Trustees approved the addition of the Kelmoore Strategy(TM) Variable Eagle Fund
to the Agreement on July 28, 2000. The Agreement was approved by the initial
shareholder of the Funds on _____________, 2000. The 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 Agreement or "interested persons" of any party to the Agreement, voting in
person at a meeting called for the purpose of voting on such approval. The
Agreement may be terminated at any time without penalty by the Trustees, by vote
of a majority of the outstanding shares of the respective Fund or by the
Adviser, upon sixty days' written notice. The Agreement terminates automatically
if assigned.
Code of Ethics. To mitigate the possibility that the Funds will be adversely
affected by personal trading of employees, the Funds and the Adviser have
adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes contain
policies restricting securities trading in personal trading accounts of Trustees
and others who normally come into possession of information on portfolio
transactions.
Expenses. In addition to fees of the Adviser, each Fund is responsible for
payment of the following, including, but not limited to: fees and expenses of
disinterested Trustees (including any independent counsel to the disinterested
Trustees); fees and expenses for independent audits and auditors; legal fees;
interest expenses; fees and commissions; taxes; insurance premiums; charges of
administrators, custodians and transfer agents or other service providers;
bookkeeping expenses; 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(TM)"
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
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Funds to delete the word "Kelmoore" from their names and cease to otherwise use
the word "Kelmoore."
OTHER SERVICES
Distributor. Kelmoore Investment Company, Inc., 2471 East Bayshore Road, Suite
501, Palo Alto, CA 94303 (the "Distributor") serves as the distributor
(principal underwriter) of each Fund's 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 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.
Distribution Plan. The Trust has adopted a distribution plan in accordance with
Rule 12b-1 under the 1940 Act (the "Plan") for each of the Funds. The Plan
permits the Funds to pay the Distributor for remittance to a life insurance
company or an affiliate thereof for various costs incurred or paid in connection
with the distribution of shares of the Funds. The Trust may make quarterly
payments to the Distributor, for remittance to a life insurance company or any
affiliate thereof, in order to reimburse the life insurance company for eligible
expenses incurred or paid in an amount not to exceed 0.25% of the average daily
net assets of such Fund attributable to a life insurance company's variable
contract owners during that quarterly period.
Expenses payable pursuant to the Plan include, but are not limited to the
following costs: (a) of printing and mailing prospectuses and reports to
prospective variable contract owners; (b) relating to the development,
preparation, printing and mailing of advertisements, sales literature and other
promotional materials intended for use by the life insurance company; (c) of
holding seminars and sales meetings designed to promote sales of Fund shares;
(d) of obtaining information and providing explanations to variable contract
owners regarding the Funds' investment objectives and policies and other
information about the Funds; (e) of training sales personnel regarding the
Funds; (f) of compensating sales personnel in connection with the allocation of
cash values and premiums of the variable contracts; (g) of personal service
and/or maintenance of variable contract owner accounts with respect to Fund
shares attributable to such accounts; and (h) of financing any other activity
that the Trust's Board of Trustees determines is primarily intended to result in
the sale of the Funds' shares.
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The Distributor provides the Trustees for their review, on a quarterly basis, a
written report of the amounts expended under the Plan.
The Plan is subject to annual approval by the Trustees. The Plan is terminable
at any time, without penalty, by a vote of a majority of the non-interested
Trustees or by vote of a majority of the outstanding shares of each of the
Funds. The Plan may not be amended to increase materially the amount that may be
spend for distribution by a Fund without the approval of a majority of the
outstanding voting securities of that Fund. Once terminated, no further payments
shall be made under the Plan notwithstanding the existence of any unreimbursed
current or carried forward distribution expenses.
The Plan was adopted because of its anticipated benefit to the Funds. These
anticipated benefits include increased promotion and distribution of the Funds'
shares, an enhancement in the Funds' ability to maintain accounts and improve
asset retention and increased stability of net assets for the Funds.
Administration and Transfer Agency Services. The Fund has entered into an
Administration and Accounting Services Agreement with PFPC Inc. ("PFPC"), 3200
Horizon Drive, King of Prussia, PA 19406. PFPC is an indirect, wholly owned
subsidiary of PNC Bank Corp. PFPC performs certain administrative and accounting
services for the Funds and is responsible for certain clerical, recordkeeping
and bookkeeping services. These services include determining the net asset value
per share of the Funds and filing various reports with the appropriate
regulatory agencies and preparing materials required by the SEC. The services
provided by PFPC as Administrator include regulatory compliance, assistance in
the preparation and filing of post-effective amendments to the Trust's
registration statement with the SEC, preparation of annual, semi-annual and
other reports to shareholders and the preparation of board meeting materials.
For the administrative and fund accounting services PFPC provides to the Funds,
PFPC is paid an annual fee calculated daily and paid monthly which is expected
to approximate 0.18% of net assets.
In addition to the services provided by PFPC to the Funds as Administrator, PFPC
also provides transfer agency and dividend disbursing services to the Funds
pursuant to a separate agreement.
Custodian. PFPC Trust Company, 400 Bellevue Parkway, Wilmington, DE 19809,
serves as custodian of the Funds' assets pursuant to a custodian agreement.
Legal Counsel. Sutherland Asbill & Brennan LLP, 1275 Pennsylvania Avenue, N.W.,
Washington, DC 20004-2415, serves as legal counsel to the Trust and the Adviser
and Distributor.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Each Fund is an investment vehicle for the separate accounts of Variable
Contracts offered by insurance companies. Individual Variable Contract holders
are not the shareholders of the Funds. Rather, a participating insurance company
and its separate accounts are the shareholders. The offering is without a sales
charge and is made at each Fund's net asset value per share. Shares of the Funds
are not offered to the general public. Each Fund reserves the right, in its sole
discretion, to refuse purchase orders. The procedures for redemption of Fund
shares under ordinary circumstances is set forth in the Prospectus and in the
separate prospectus relating to the Variable Contracts which accompanies the
Prospectus.
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The Funds' shares are purchased and redeemed at the net asset value per share.
The net asset value per share of each Fund is calculated on each day, Monday
through Friday, except days on which the New York Stock Exchange is closed. The
NYSE is currently scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day, and on the
preceding Friday or subsequent Monday when a holiday falls on a Saturday or
Sunday, respectively.
The Funds' net asset value per share is determined as of the close of regular
trading on the New York Stock Exchange, normally 4:00 p.m., Eastern Time, by
taking the value of all assets of the Fund, subtracting liabilities, dividing by
the number of shares outstanding and adjusting to the nearest cent.
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 Board of Trustees. Equity securities traded
on an exchange or on the NASDAQ National Market System (the "NASDAQ"), will be
valued at the last sale price on the exchange or system in which they are
principally traded on the valuation date. If there is no sale on the valuation
date, securities traded principally on a U.S. exchange or the NASDAQ will be
valued at the mean between the closing bid and asked prices or on a foreign
exchange at the most recent closing price. Equity securities which are traded in
the over-the-counter market only, but which are not included in the NASDAQ, will
be valued at the last sale price on the valuation day or, if no sale occurs, at
the mean between the last bid and asked prices. Exchange traded options will be
valued at the last sale price in the market where such options are principally
traded or, if no sale occurs, at the mean between the last bid and asked price.
Debt securities with a remaining maturity of sixty days or more will be valued
using a pricing service if such prices are believed to accurately represent
market value. Debt securities and money market instruments with a remaining
maturity of less than sixty days will be valued at amortized cost. Valuations
may be obtained from independent pricing services approved by the Trustees.
When the Funds write 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.
DISTRIBUTIONS AND TAXES
Distributions. All dividends and capital gains distributions paid by the Funds
will be automatically reinvested, at net asset value, in additional shares of
the Fund unless otherwise indicated. Each Fund currently intends to declare and
pay dividends, if any, on a monthly basis. There is no fixed dividend rate and
there can be no assurance that the Funds will pay any dividends or realize any
capital gains.
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
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will include the amount of the forthcoming distribution, but the distribution
will generally be taxable to the shareholder.
Taxes. It is the policy of each Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. As a result,
the Fund will not be subject to U.S. Federal income tax on any net income or
capital gains that it distributes to its shareholders, that is, the insurance
companies separate accounts. To meet these requirements and to meet other
requirements necessary for it to be relieved of federal income taxes on income
and gain it distributes to the separate investment accounts that invest in the
Fund, the Fund must, among other things:
1. derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies;
2. diversify its holdings so that, at the close of each quarter of its taxable
year, (i) at least 50% of the value of its total assets consists of cash,
cash items, U.S. government securities, securities of other regulated
investment companies, and other securities limited generally with respect
to any one issuer to a value not greater than 5% of the total assets of the
Fund and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested
in the securities of any issuer (other than U.S. government securities or
securities of other regulated investment companies); and
3. distribute in or with respect to each taxable year at least 90% of the sum
of its taxable net investment income, its net tax-exempt income, and the
excess, if any, of net short-term capital gains over net long-term capital
losses for such year.
Each Fund intends to declare capital gain and ordinary income dividends by the
end of each calendar year and to distribute such dividends no later than January
31 of the following year to the extent necessary to avoid the 4% excise tax on
undistributed regulated investment company income enacted by the Tax Reform Act
of 1986. The 4% excise tax applies to the excess of the required distribution
for the calendar year over the amount treated as distributed for that year. The
required distribution equals 98% of the Fund's ordinary income for the calendar
year plus 98% of its capital gain net income for the one year period ending
October 31 (or December 31, if the Fund so elects) and any shortfall of income
or gains from the prior year not previously so distributed.
The Treasury Department has issued Regulations under Internal Revenue Code
Section 817(h) that pertain to diversification requirements for variable annuity
and variable life insurance contracts. Each Fund intends to comply with the
diversification requirements. These requirements are in addition to the
diversification requirements imposed on the Fund by Subchapter M and the 1940
Act. The 817(h) requirements place certain limitations on the assets of each
separate account that may be invested in securities of a single issue. A
variable contract based upon a separate account will not receive favorable tax
treatment as an annuity or life insurance contract unless the separate account
and underlying regulated investment company investments are adequately
diversified. In determining whether a separate account is adequately
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<PAGE>
diversified, in certain circumstances the separate account can look through to
the assets of the regulated investment company in which it has invested.
The Regulations require the Funds' assets to be diversified so that no single
investment represents more than 55% of the value of the Fund's total assets, no
two investments represent more than 70% of the Fund's total assets, no three
investments represent more than 80% of the Fund's total assets and no four
investments represent more than 90% of the Fund's total assets. A "safe harbor"
is available to a separate account if it meets the diversification tests
applicable to registered investment companies and not more than 55% of its
assets constitute cash, cash items, government securities and securities of
other registered investment companies.
The applicable Regulations treat all securities of the same issuer as a single
investment. In the case of "government securities," each government agency or
instrumentality shall be treated as a separate issuer for the purpose of the
diversification test (although not for the purpose of the "safe harbor" test
described above). All securities of the same issuer, all interests in the same
real property project, and all interests in the same commodity are treated as a
single investment. The Trust intends to comply with these diversification
requirements. Failure of the Funds to satisfy the Section 817(h) requirements
would result in taxation of the applicable separate accounts, the insurance
companies variable life policies and variable annuity contracts, and tax
consequences to the holders thereof.
The foregoing is only a brief summary of important tax considerations that
generally affect the Funds. 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.
For a discussion of the impact on Variable Contract owners of income taxes an
insurer may owe as a result of (i) its ownership of shares of the Fund, (ii) its
receipt of dividends and distributions thereon, and (iii) its gains from the
purchase and sale thereof, reference should be made to the Prospectus for the
Variable Contract accompanying this Prospectus.
Backup Withholding. The Funds generally will be required to withhold U.S.
Federal income tax at the rate of 31% ("backup withholding") of all
distributions payable to shareholders who fail to provide the Funds with their
correct taxpayer identification number or to make required certifications, or
who have been notified by the IRS that they are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may be
credited against the shareholder's U.S. Federal income tax liability.
Tax Implications of Options. When a Fund writes an option, there is no taxable
event and an amount equal to the premium received is recorded by the Fund as an
asset and an equivalent liability. The liability is thereafter valued to reflect
the current value of the option. If the option is not exercised and expires, or
if the Fund effects a closing purchase transaction, the Fund will realize a gain
(or a loss in the case of a closing purchase transaction where the cost exceeds
the original premium received) and the liability related to the option will be
extinguished. Any such gain or loss is a short-term capital gain or loss for
federal income tax purposes, except that any loss realized when the Fund closes
certain covered call options whose underlying security is trading above the
exercise price of the option will be
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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.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Each Fund intends to place substantially all its securities transactions,
including transactions involving options, through the Adviser in accordance with
procedures set forth in Rule 17e-1 under the 1940 Act. These procedures, which
have been adopted by the Board of 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.
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
The Trust is a diversified, open-end investment management company. The
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capitalization of the Trust consists solely of an unlimited number of shares of
beneficial interest with a par value of $0.001 per share. The Board of Trustees
have authorized two series with one class of shares issued currently. The Board
of Trustees has authority, without necessity of a shareholder vote, to create
any number of new funds or classes of shares at any time in the future. The
establishment and offering of additional funds will not alter the rights of the
Trust's shareholders.
As a beneficial owner, you receive one vote for each share of the Funds you own
and each fractional share you own shall be entitled to a proportionate
fractional vote. Each issued and outstanding share of the Funds is entitled to
participate equally in dividends and distributions declared and in the net
assets of the Fund upon liquidation or dissolution remaining after satisfaction
of outstanding liabilities. Under Delaware law, shareholders will be liable for
the obligations of the Fund only to the extent of their investment in the Fund.
When issued, shares are fully paid, non-assessable and freely transferable.
Shares do not have preemptive rights or subscription rights. Each Fund's shares
have equal voting rights. In any liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the net assets of the Fund. The
interests of shareholders in the Fund will not be evidenced by a certificate or
certificates representing shares of the Fund.
Unless otherwise required by the 1940 Act, the Trust is not required and does
not intend to hold regular annual shareholder meetings. As a result,
shareholders may not consider each year the election of Trustees or the
appointment of auditors. The Trust will be required to hold a meeting to elect
Trustees to fill any existing vacancies on the Board if, at any time, fewer than
a majority of the Trustees have been elected by the shareholders of the Trust.
In addition, the Trust Instrument provides that the holders of net less than
two-thirds of the outstanding shares of the Trust may remove persons serving as
Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of persons serving as Trustee if requested in writing to
do so by the holders of not less than 10% of the outstanding shares of the
Trust. To the extent required by applicable law, the Trustees shall assist
shareholders who seek to remove any person serving as Trustee.
Special shareholder meetings may be required for proposals requiring shareholder
approval as may be required by the 1940 Act, the Trust Instrument or By-Laws of
the Trust.
The insurance companies will be each Fund's sole shareholders of record, and
pursuant to the 1940 Act, such shareholders may be deemed to be in control of
the Fund. When a shareholder's meeting occurs, each insurance company solicits
and accepts voting instructions from its Variable Contract owners who have
allocated or transferred monies for an investment in the Fund as of the record
date of the meeting. Each shareholder then votes the Fund's shares that are
attributable to its interests in the Fund in which it is entitled to vote, in
proportion to the voting instructions received.
Each Fund is available through separate accounts relating to both variable
annuity and variable life insurance contracts, and directly to qualified plans.
The Funds do not currently foresee any disadvantages to Variable Contract owners
or plan participants arising from offering their shares to variable annuity and
variable life insurance policy separate accounts and plans, and the
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Board of Trustees continuously monitors events for the existence of any material
irreconcilable conflict between or among Variable Contract owners and plans.
Material conflicts could result from, for example, (i) changes in state
insurance laws; (ii) changes in federal income tax laws; or (iii) differences in
voting instructions between those given by variable life owners and variable
annuity owners. If a material irreconcilable conflict arises, as determined by
the Board of Trustees, one or more separate accounts or plans may withdraw their
investment in the Fund. This could possibly require the Fund to sell portfolio
securities at disadvantageous prices. Each insurance company or plan will bear
the expenses of establishing separate portfolios for its variable annuity and
variable life insurance separate accounts and plans if such action becomes
necessary. However, ongoing expenses that are ultimately borne by Variable
Contract owners and plan participants will likely increase due to the loss of
economies of scale benefits that can be provided to separate accounts with
substantial assets.
PERFORMANCE INFORMATION
The Funds' performance may be used from time to time in advertisements,
shareholder reports or other communications disseminated to existing or
prospective shareholders or Contract owners. THE FUND PERFORMANCE DOES NOT
REFLECT THE VARIABLE CONTRACT FEES AND CHARGES. Past performance does not
indicate or project future performance. Performance information may include a
Fund's investment results and/or comparisons of its investment results to the
Fund's benchmark index or other various unmanaged indexes or results of other
mutual funds with similar investment objectives or investing or savings
vehicles. The Funds' performance will be calculated on a total return basis in
the manner set forth below.
A Fund may provide periodic and average annualized "total return" quotations.
The Fund's "total return" refers to the change in the value of an investment in
the Fund over a stated period based on any change in net asset value per share
and including the reinvestment of any dividends and distributions.
Quotations of total return and yield will not reflect Contract charges and
expenses. The prospectus for a Contract will contain information about
performance of the relevant separate account and Contract.
Total Return. Total return is calculated for the specified periods of time by
assuming a hypothetical investment of $1,000 in the Fund's shares. Each dividend
or other distribution is treated as having been reinvested at net asset value on
the payment date. The total returns stated are the percent that an original
investment would have increased during the applicable period.
Average Annual Total Return. Each Fund computes its average annual total return
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
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(l/n)
AVERAGE ANNUAL TOTAL RETURN = (ERV/P) - 1
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period, assuming
reinvestment of all dividends and
distributions
P = hypothetical initial payment of $1,000
n = number of years
Aggregate Annual Total Return. Each Fund may compute its aggregate total return
over a specified period which represents the cumulative change in the value of
an investment in the Fund for the specified period. The formula for calculating
aggregate total return is as follows:
AGGREGATE TOTAL RETURN = (ERV-P)/P
Where: ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period, assuming
reinvestment of all dividends and
distributions
P = hypothetical initial payment of $1,000
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
payment dates during the period. The ending redeemable value (variable "ERV" in
each formula) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all nonrecurring charges at the end of the
period covered by the computations. Such calculations are not indicative of
future results and do not take into account Federal, state and local taxes, if
any, that shareholders must pay on a current basis.
Since performance will vary from time to time depending upon market conditions,
the composition of the portfolio and operating expenses, any given performance
quotation should not be considered representative of the Fund's performance for
any specified period in the future. Performance data for the Fund should not be
used to compare an investment in the Fund's shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed or
guaranteed fixed yield for a stated period of time.
Comparing Performance. Comparison of the quoted non-standardized performance of
various investments is valid only if performance is calculated in the same
manner. Since there are different methods of calculating performance, investors
should consider the effect of the methods used to calculate performance when
comparing performance of the Fund with performance quoted with respect to other
investment companies or types of investments.
In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
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other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs.
Evaluations of a Fund's performance made by independent sources may also be used
in advertisements concerning the Fund. Sources for the Fund's performance
information could include the following: Barron's, Business Week, Changing
Times, Consumer Digest, Financial Times, Financial World, Forbes, Fortune,
Investor's Daily, Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, Money, Morningstar Inc., New York Times, Personal Investing News,
Personal Investor, Success, The Kiplinger's Magazine,, U.S. News and World
Report, Value Line, Wall Street Journal, Weisenberger Investment Companies
Services and Working Women.
FINANCIAL STATEMENTS
Reports to Shareholders. Shareholders and Variable Contract owners will receive
unaudited semi-annual reports describing the Funds' investment operations and
annual financial statements audited by independent certified public accountants.
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THE KELMOORE STRATEGY(TM) VARIABLE TRUST
PART C - OTHER INFORMATION
Item 23. EXHIBITS:
(a) Trust Instrument is incorporated by reference to Registrant's
Registration Statement on Form N-1A filed on October 13, 1999.
(b) By-Laws are incorporated by reference to Registrant's Registration
Statement on Form N-1A filed on October 13, 1999.
(c) Not Applicable
(d) Investment Advisory Agreement between The Kelmoore Strategy(TM)
Variable Trust and Kelmoore Investment Company, Inc., as amended, is
filed herewith.
(e) Distribution Agreement between The Kelmoore Strategy(TM) Variable Trust
and Kelmoore Investment Company, Inc. is filed herewith.
(f) Not Applicable
(g) Custodian Services Agreement between The Kelmoore Strategy(TM) Variable
Trust and PFPC Trust Company is filed herewith.
(h) (1) Transfer Agency Services Agreement is filed herewith.
(2) Administration and Accounting Services Agreement is filed herewith.
(3) Form of Participation Agreement is filed herewith.
(i) Opinion and Consent of Counsel is filed herewith.
(j) Not Applicable
(k) Not Applicable
(l) Not Applicable
(m) (1) Distribution Plan Pursuant to Rule 12b-1 is filed herewith.
(2) Distribution and Services Agreement is filed herewith.
(n) Not Applicable
(p) (i) Code of Ethics of the Trust and the principal underwriter is filed
herewith
(q) Powers of Attorney are filed herewith:
1. Shawn K. Young, CPA
2. Michael Romanchak
3. R. Michael Law
4. Michael Stepanian
5. Robert T. Lanz
6. Tamara B. Heiman
Item 24. Persons Controlled by or under Common Control with Registrant.
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Not Applicable
Item 25. Indemnification.
Provisions relating to indemnification of the Registrant's
Trustees and employees are included in Registrant's Trust
Instrument and By-Laws which are incorporated herein by
reference and to the Participation Agreement filed herewith.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act") may be
permitted to Trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the Trust's Trust
Instrument, its By-Laws or otherwise, the Registrant
understands that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Trustee, officer, or
controlling person of the Registrant in the successful defense
of any action, suite or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the 1933 Act and will
be governed by the final adjudication of such issue.
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
Adviser serves as investment adviser to the Fund and to
Kelmoore Strategy(TM) Fund and the Kelmoore Strategy(TM) Eagle
Fund, open-end investment management companies.
For information as to any other business, vocation or
employment of a substantial nature in which each director or
officer of the Adviser has been engaged for his own account or
in the capacity of director, officer, employee, partner or
trustee, please refer to the Adviser's Form ADV (File
#801-53123) filed with the Securities and Exchange Commission
under the Investment Advisers Act of 1940, as amended, and
incorporated herein by reference.
Item 27. Principal Underwriters.
(a) The Adviser also serves as the distributor of the shares of
the Kelmoore Strategy(TM) Fund and the Kelmoore Strategy(TM)
Eagle Fund, open-end investment companies. The Adviser also
currently acts as the 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.
39
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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 of Chairman of the Board
Institutional Sales of Trustees
David R. Moore Director None
A. Duncan King Director None
Norman H. Moore, Jr. Vice President- None
Administration: Corporate
Secretary and Chief
Compliance Officer
Norman H. Moore Director None
Cece G. Montgomery Chief Financial Officer None
Matthew Kelmon Vice President of Trading None
Thomas W. Killilea Director None
Richard J. Deagazio Director None
Edward J. Devereaux Director and President None
of Retail Sales
Tamara Beth Heiman Vice President and Secretary
Associate Director
of Marketing
* All addresses are 2471 East Bayshore Road, Suite 501, Palo Alto, CA 94303
unless otherwise indicated.
(c) Not applicable.
Item 28. Location of Accounts and Records.
The accounts, books, or other documents required to be maintained by Registrant
under Section 31(a) of the Investment Company Act of 1940, as amended, and the
Rules thereunder will be maintained at the offices of:
(1) Kelmoore Investment Company, Inc.
2471 E. Bayshore Road
Suite 501
Palo Alto, CA 94303
(records relating to function as investment adviser and
distributor to the Funds)
40
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(2) PFPC Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(records relating to function as transfer agent and
administrator)
(3) PFPC Trust Company
400 Bellevue Parkway
Wilmington, DE 19809
(records relating to function as custodian)
Item 29. Management Services. Not Applicable.
Item 30. Undertakings. Not Applicable.
41
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Amendment to its 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 3rd day of August, 2000.
THE KELMOORE STRATEGY(TM) VARIABLE TRUST
(Registrant)
/s/ Shawn K. Young, CPA
By: Shawn K. Young, CPA, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement of The Kelmoore Strategy(TM) Variable
Trust has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
*/s/ Michael Romanchak
------------------------
Michael Romanchak Chairman of the Board August 3, 2000
*/s/ Shawn K. Young, CPA
------------------------
Shawn K. Young President, Treasurer August 3, 2000
and Trustee
*/s/ R. Michael Law
------------------------
R. Michael Law Trustee August 3, 2000
*/s/ Michael Stepanian
------------------------
Michael Stepanian Trustee August 3, 2000
*/s/ Robert T. Lanz
------------------------
Robert T. Lanz Trustee August 3, 2000
*BY: /s/ Sandra L. Adams
------------------------
Sandra L. Adams
Attorney-In-Fact
42
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THE KELMOORE STRATEGY(TM) VARIABLE TRUST
EXHIBIT INDEX TO PART "C"
OF
REGISTRATION STATEMENT
ITEM NO. DESCRIPTION
23(d) Investment Advisory Agreement
23(e) Distribution Agreement
23(g) Custodian Services Agreement
23(h) (1) Transfer Agency Services Agreement
(2) Administration and Accounting Services Agreement
(3) Form of Participation Agreement
23(i) Opinion and Consent of Counsel
23(m) (1) Distribution Plan Pursuant to Rule 12b-1
(2) Distribution and Services Agreement
23(p) (i) Code of Ethics of the Trust and the principal underwriter
23(q) Powers of Attorney
(1) Shawn K. Young, CPA
(2) Michael Romanchak
(3) R. Michael Law
(4) Michael Stepanian
(5) Robert T. Lanz
(6) Tamara B. Heiman
43
