<PAGE> 1
As filed with the Securities and Exchange 1933 Act Registration No. 333-20473
Commission on April 2, 1997 1940 Act Registration No. 811-08029
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. ____ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes)
_____________________________
GRANUM SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
126 East 56th Street, New York, NY 10022
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 407-3400
Jonas B. Siegel
126 East 56th Street
New York, NY 10022
(Name and Address of Agent for Service)
Copy to:
Kenneth S. Gerstein, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
_____________________________
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
hereby elects to register an indefinite number of shares of beneficial
interest.
_____________________________
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until 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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
FORM N-1A
GRANUM SERIES TRUST
CROSS REFERENCE SHEET
(as required by Rule 495)
<TABLE>
<CAPTION>
PART A
ITEM NUMBER LOCATION IN PROSPECTUS
- ----------- ----------------------
<S> <C> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary;
Summary of Expenses
3. Condensed Financial Information............ Summary of Expenses;
Comparative
Performance
Information; Fund
Expenses
4. General Description of Registrant.......... Front Cover Page;
Investment Objective
and Policies;
Investment
Instruments and
Practices; General
Information
5. Management of Fund......................... Front Cover Page;
Prospectus Summary;
Management of the
Fund; Back Cover Page
5A. Management's Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities......... Front Cover Page;
Dividends,
Distributions and
Taxes; General
Information
7. Purchase of Securities Being Offered....... How to Buy Shares
8. Redemption or Repurchase................... How to Redeem Shares
9. Pending Legal Proceedings.................. Not Applicable
LOCATION IN STATEMENT
PART B OF ADDITIONAL
ITEM NUMBER INFORMATION
- ----------- ----------------------
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ Not Applicable
(Registrant is a
newly-formed entity.)
13. Investment Objectives and Policies......... Investment Policies
and Practices;
Derivative
Investments;
Investment
Restrictions
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART B LOCATION IN STATEMENT OF
ITEM NUMBER ADDITIONAL INFORMATION
- ----------- ------------------------------
<S> <C> <C>
14. Management of the Fund................. Trustees and Officers;
Investment Advisory
Agreement; Back Cover Page
15. Control Persons and Principal Holders
of Securities.......................... General Information
16. Investment Advisory and Other Services. Investment Advisory
Agreement; Distributor;
Distribution Plan
17. Brokerage Allocation and Other Services Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities..... Dividends, Distributions and
Taxes; General Information
19. Purchase, Redemption and Pricing of How to Redeem Shares;
Securities Being Offered............... Determination of Net Asset
Value
20. Tax Status............................. Dividends, Distributions and
Taxes
21. Underwriters........................... Distributor; Distribution Plan
22. Calculation of Performance Data........ Performance Information
23. Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 4
GRANUM VALUE FUND
126 EAST 56TH STREET
TWENTY-FIFTH FLOOR
NEW YORK, NEW YORK 10022
PROSPECTUS
DATED ___________, 1997
Granum Value Fund (the "Fund") is a series of Granum Series Trust (the
"Trust"), a non-diversified, open-end management investment company (commonly
known as a mutual fund). The investment objective of the Fund is to seek
capital appreciation. The Fund pursues this objective by investing its assets
principally in equity securities, including common and preferred stocks, and
other securities, such as warrants and stock options, having equity
characteristics. In managing the Fund's portfolio, the investment adviser of
the Fund attempts to identify securities that are undervalued relative to their
potential for growth. The Fund may also pursue its objective by investing in
fixed income securities when such securities, in the judgment of the investment
adviser, provide attractive opportunities for capital appreciation. See
"INVESTMENT OBJECTIVE AND POLICIES." As part of its investment program, the
Fund may use certain derivative investments which involve certain risks. See
"DERIVATIVE INVESTMENTS." The Fund's investment policies and practices involve
certain risks and there can be no assurance that the Fund will achieve its
investment objective. See "RISK CONSIDERATIONS."
Granum Capital Management, L.L.C. serves as the Fund's investment adviser
(the "Investment Adviser"). Firstar Trust Company (the "Administrator")
provides administrative services to the Fund.
Shares of the Fund are distributed on a continuous basis at their current
net asset value per share, without imposition of any front-end or contingent
deferred sales charge, by Mercer Allied Company (the "Distributor") and by
selected securities dealers. The minimum initial investment in the Fund is
$5,000. Subsequent investments may be made in any amount of $1,000 or more.
See "HOW TO BUY SHARES."
_______________________________
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. It should be read
carefully and retained for future reference. Additional information about the
Fund is contained in a Statement of Additional Information, dated ____________,
1997, which, as amended or supplemented from time to time, is incorporated into
this Prospectus by this reference. The Statement of Additional Information has
been filed with the Securities and Exchange Commission (the "SEC") and is
available without charge by writing to the Transfer Agent or by calling
1-888-5-GRANUM (547-2686).
_________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
THE FUND Granum Value Fund (the "Fund") is a series of Granum
Series Trust (the "Trust"), a non-diversified, open-end
management investment company (commonly known as a mutual
fund).
INVESTMENT The investment objective of the Fund is to seek
OBJECTIVE AND capital appreciation. The Fund pursues this objective by
POLICIES investing its assets principally in equity securities,
including common and preferred stocks, and other securities,
such as warrants and stock options, having equity
characteristics. In managing the Fund's portfolio, the
investment adviser of the Fund attempts to identify
securities that are undervalued relative to their potential
for growth. The Fund may also pursue its objective by
investing in fixed income securities when such securities,
in the judgment of the investment adviser, provide
attractive opportunities capital appreciation. See
"INVESTMENT OBJECTIVE AND POLICIES." As part of its
investment program, the Fund may use certain derivative
investments which involve certain risks. See "DERIVATIVE
INVESTMENTS."
INVESTMENT Subject to the overall supervision of the Board of Trustees
ADVISER of the Trust, Granum Capital Management, L.L.C. (the
"Investment Adviser") is responsible for managing the
investment operations of the Fund in accordance with the
Fund's investment objective and policies. The Investment
Adviser formulates a continuing investment strategy
for the Fund and makes all decisions regarding investments
to be purchased or sold for the Fund. In consideration
of the services provided by the Investment Adviser,
the Fund pays the Investment Adviser monthly compensation
computed daily at the annual rate of 1.25% of the Fund's
net assets (the "Basic Fee"), which rate is adjusted
monthly, as described below (the "Monthly Performance
Adjustment"), depending on the investment performance
of the Fund relative to the investment performance of
the Standard & Poor's Composite Index of 500 Stocks
(the "S&P 500 Index). The Monthly Performance Adjustment
may increase or decrease the total advisory fee payable
to the Investment Adviser (the "Total Advisory Fee")
by up to 0.75% annually of the value of the Fund's annually
net assets. See "MANAGEMENT OF THE FUND - Investment
Adviser."
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<PAGE> 6
ADMINISTRATOR The Trust has retained Firstar Trust Company (the
"Administrator") to provide various administrative and
accounting services necessary for the operations of the
Trust and the Fund. The Fund pays the Administrator
monthly fees for these services and reimburses the
Administrator for certain out-of-pocket expenses.
See "MANAGEMENT OF THE FUND - Administrator."
FUND EXPENSES In addition to the fees paid to the Investment Adviser and
the Administrator, the Fund pays all of its expenses other
than those expressly assumed by the Investment Adviser or
the Distributor. The Fund also makes payments to the
Distributor for distribution and shareholder services
provided by the Distributor and selected securities dealers.
The Investment Adviser has voluntarily agreed to absorb all
ordinary operating expenses of the Fund, other than the fee
payable to the Investment Adviser and amounts payable by the
Fund pursuant to the Distribution Plan (see "Distribution
Plan," below) during the first year of the Fund's operations
or, if sooner, until such time as the daily total net assets
of the Fund average $20 million or more for a period of 30
days. See "FUND EXPENSES."
DIVIDENDS, The Fund intends to pay dividends and to make distributions
DISTRIBUTIONS of long-term capital grains at least annually. Unless
AND TAXES requested otherwise by a shareholder, dividends and capital
gains distributions are automatically reinvested in
additional shares of the Fund.
The Fund intends to qualify each year as a "regulated
investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended. If so qualified, the Fund
will not be subject to federal income taxes to the extent
that it distributes its net income to shareholders.
Shareholders will have to pay any applicable federal income
taxes on the dividends and distributions they receive from
the Fund, whether paid in cash or reinvested in additional
shares of the Fund. Dividends and distributions will also be
subject to applicable state and local taxes.
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<PAGE> 7
HOW TO BUY SHARES Shares of the Fund are distributed on a continuous basis
at their current net asset value per share, without
imposition of any front-end or contingent deferred sales
charge, by Mercer Allied Company (the "Distributor") and by
selected securities dealers. The minimum initial investment
in the Fund is $5,000. Subsequent investments may be made
in any amount of $1,000 or more. See "HOW TO BUY SHARES."
HOW TO REDEEM Shares of the Fund may be redeemed at any time at their
SHARES current net asset value per share next computed after
receipt of a redemption request in proper form. No charges
are imposed in connection with redemptions of shares. The
value of the shares redeemed may be more or less than their
original cost, depending upon the Fund's then-current net
asset value. See "HOW TO REDEEM SHARES."
DISTRIBUTION PLAN Under a distribution plan and a related agreement adopted and
entered into by the Trust in accordance with Rule 12b-1
under the Investment Company Act of 1940, as amended (the
"Distribution Plan"), the Fund makes payments to the
Distributor in consideration of the services it provides in
connection with the sale of the Fund's shares to investors
("Distribution Services") and for the furnishing of account
related services by the Distributor and securities dealers
to shareholders of the Fund ("Shareholder Services"). As
compensation for Distribution Services, the Fund makes
monthly payments to the Distributor which are computed at
the annual rate of 0.50% of the Fund's average net assets.
From such compensation, the Distributor makes payments to
securities dealers that have sold shares of the Fund to
their customers. As compensation for Shareholder Services,
the Fund makes monthly payments to the Distributor which are
computed at the annual rate of 0.25% of the Fund's average
net assets. All payments to securities dealers by the
Distributor are made in arrears commencing six months
after the commencement of the Fund's operations and
thereafter on a quarterly basis. See "DISTRIBUTION PLAN."
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<PAGE> 8
RISK The Fund's investment policies involve certain risks, and
CONSIDERATIONS there can be no assurance that the Fund's investment
objective will be achieved. See "RISK CONSIDERATIONS."
Changes in the value of the Fund's investments will result
in changes in the value of the Fund's shares, and thus the
Fund's total return to shareholders. A significant portion
of the Fund's assets may, from time to time, be invested in
the securities of companies having smaller market
capitalization, which involve greater investment risks than
securities of larger, well established companies. The Fund's
use of derivative investments and limited diversification
may be considered speculative practices and may also result
in losses to the Fund. Investments in illiquid securities by
the Fund will also involve certain risks. Investments in
foreign securities are affected by risk factors generally
not thought to be present in the U.S., including, among
other things, increased political, regulatory, contractual
and economic risk and exposure to currency
fluctuations. Certain other types of securities, such as
derivatives, also are affected by particular risks as
described herein. See "INVESTMENT INSTRUMENTS AND PRACTICES
- Foreign Securities" and "DERIVATIVE INVESTMENTS." The
compensation that may be payable by the Fund to the
Investment Adviser is higher than the compensation paid by
most other mutual funds with investment objectives similar
to the investment objective of the Fund. See "MANAGEMENT OF
THE FUND - Investment Adviser."
- 5 -
<PAGE> 9
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) NONE
Maximum Sales Load Imposed on Reinvestment of Dividends NONE
Maximum Deferred Sales Load NONE
Redemption Fees NONE
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average net assets before expense reimbursement)
Management Fee 1.25%*
Rule 12b-1 Expenses**
Distribution Fee 0.50%
Shareholder Services Fee 0.25% 0.75%
Estimated Other Expenses 1.0%
----
Estimated Total Fund Operating Expenses 3.0%
- --------------
The purpose of the foregoing table is to assist investors in
understanding the various costs and expenses that they will bear directly or
indirectly as shareholders of the Fund. The amounts set forth under "Estimated
Other Expenses," as well as the amounts in the Example below, are based upon
estimates of expenses for the current fiscal year, but do not reflect
reimbursement of Fund expenses by the Investment Adviser. In this regard, the
Investment Adviser has voluntarily agreed to absorb all ordinary operating
expenses of the Fund, other than the Management Fee and Rule 12b-1 Expenses,
for the first year of the Fund's operations or until such time as the daily
total net assets of the Fund average $20 million or more for a period of 30
days, if sooner. See "FUND EXPENSES." Giving effect to this undertaking by
the Investment Adviser, and assuming that net assets of the Fund do not reach
$20 million for 30 days during the current fiscal year, Estimated Other
Expenses would be 0% of the Fund's average net assets and Estimated Total
Operating Expenses would range from 2.75% to 1.25% of the Fund's average net
assets, depending on the investment performance of the Fund. Without such
- --------------
* The fee paid by the Fund to the Investment Adviser is computed at the
annual rate of 1.25% of the average net assets of the Fund and is subject
to increase or decrease by as much as 0.75% based upon the investment
performance of the Fund in relation to the percentage change in the
Standard & Poor's Composite Index of 500 Stocks. See "MANAGEMENT OF THE
FUND - Investment Adviser."
** As a result of Rule 12b-1 expenses paid by the Fund pursuant to its
distribution plan, long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc. See "DISTRIBUTION PLAN."
- 6 -
<PAGE> 10
expense absorption Estimated Total Operating Expenses would range from 3.75% to
2.25% of the Fund's average net assets, depending on the investment performance
of the Fund.
<TABLE>
<CAPTION>
EXAMPLE: 1 3
YEAR YEARS
---- -----
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and
(2) redemption at the end of each time period: $ 30 $ 93
</TABLE>
The above Example is based upon estimated Total Operating Expenses as set
forth in the Table above, which do not reflect the Investment Adviser's
agreement to absorb certain expenses of the Fund. The Example also assumes
that the Fund's hypothetical investment performance of 5% annually for the
relevant periods was the same as the percentage changes in the Standard &
Poor's Composite Index of 500 Stocks (the "S&P 500 Index") throughout such
periods. If the percentage change in the S&P 500 Index was a 2.5% annual
return for those periods as compared to 5% for the Fund, the expenses on a
$1,000 investment for the one and three year periods would be $34 and $104,
respectively. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. ANNUAL RETURN MAY BE GREATER OR LESS THAN THE ANNUAL RETURN ASSUMED IN
THE EXAMPLE.
For a more complete description of fees and expenses, see "DISTRIBUTION
PLAN," "FUND EXPENSES" and "MANAGEMENT OF THE FUND - Investment Adviser."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation.
The Fund pursues this objective by investing its assets principally in equity
securities, including common and preferred stocks, and other securities, such
as warrants and stock options, having equity characteristics. In managing the
Fund's portfolio, the Investment Adviser attempts to identify securities that
are undervalued relative to their potential for growth. The Fund may also
pursue its objective by investing in fixed income securities, when such
securities, in the judgment of the Investment Adviser, provide attractive
opportunities for capital appreciation. As part of its investment program, the
Fund may use certain derivative instruments which involve certain risks. See
"DERIVATIVE INVESTMENTS."
The Investment Adviser emphasizes the use of fundamental research,
particularly balance sheet and return-on-equity analysis, in identifying
companies that it believes to be undervalued, and focuses on those companies
that have, or have the potential to develop, above-average earnings, sales or
asset growth. In evaluating investments, the Investment Adviser also seeks to
identify companies that may be involved in special corporate situations, the
occurrence of which would favorably affect the values of the companies' equity
securities. Such situations could include, among other developments, the
following: a change in management or management policies; the acquisition of a
significant equity position in the company by an investor or investor
- 7 -
<PAGE> 11
group; a merger, reorganization or the sale of a division; the spin-off
of a subsidiary, division, or other substantial assets; or a third-party or
issuer tender offer. The Investment Adviser believes that these situations can
serve as catalysts for capital appreciation in the equity securities of
undervalued companies. The Fund's investments are made without regard to
market capitalization. Thus, a significant portion of the Fund's assets may,
from time to time, be invested in the securities of companies having smaller
market capitalizations. See "INVESTMENT INSTRUMENTS AND PRACTICES - Smaller
Companies." Current income is not a primary factor in the consideration of
equity investments for the Fund.
An essential element of the Investment Adviser's investment philosophy is
the pursuit of superior returns in rising markets and of preservation of
capital in declining markets. In implementing this philosophy, the Fund may
use certain derivative investments (including options and warrants) to pursue
profit opportunities or to hedge a portion of its portfolio against certain
risks. See "DERIVATIVE INVESTMENTS." There is no requirement, however, that
the Fund hedge its investment positions.
Although the Fund invests principally in equity securities of U.S.
companies, the Fund may also invest in the equity securities of foreign issuers
and in U.S. and foreign fixed income securities. The Fund may invest up to 20%
of the value of its total assets in the securities of foreign issuers. See
"TYPES OF INVESTMENTS AND RELATED RISK FACTORS - Fixed Income Securities" and
"- Foreign Securities." Under normal market conditions, the Fund will invest
at least 65% of its assets in equity securities, including for this purpose
common stocks, preferred stocks and securities with equity characteristics such
as convertible securities, warrants and options on stocks and stock indices.
However, when the Investment Adviser believes that a defensive investment
posture is warranted or for liquidity purposes, the Fund may temporarily invest
all or a substantial portion of its assets in high quality fixed income
securities, money market instruments and money market mutual funds, or may hold
cash. See "TYPES OF INVESTMENTS AND RELATED RISK FACTORS - Temporary
Investments."
Because the Fund is a "non-diversified" investment company, with respect
to 50% of the value of its total assets, there are no percentage limitations on
the portion of the Fund's assets that may be invested in the securities of any
one issuer. However, as a matter of policy, the Fund does not invest more than
10% of the value of its total assets in the securities of any one issuer. If
this percentage limitation is adhered to at the time of investment, the Fund
will not be required to reduce a position if, as a result of a change in
percentage resulting from a change in the values of the securities or in the
total assets of the Fund, the position exceeds this percentage limitation.
Under these policies, the Fund's portfolio may be subject to greater risk and
volatility than the portfolio of a "diversified" investment company. See
"TYPES OF INVESTMENTS AND RELATED RISK FACTORS - Limited Diversification."
THE FUND'S INVESTMENT POLICIES INVOLVE CERTAIN RISKS, AND THERE CAN BE NO
ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVED. IN
PARTICULAR, THE FUND'S USE OF DERIVATIVE INVESTMENTS AND LIMITED
DIVERSIFICATION MAY BE CONSIDERED SPECULATIVE PRACTICES AND MAY RESULT IN
LOSSES TO THE FUND.
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<PAGE> 12
INVESTMENT INSTRUMENTS AND PRACTICES
The Fund may utilize a variety of investment instruments and practices in
pursuing its investment program. Descriptions of these instruments and
practices, and the risks associated with them, are set forth below.
Investors should consider the Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake the
risks involved. Changes in the value of the Fund's investments will result in
changes in the value of the Fund's shares, and thus the Fund's total return to
shareholders. The Fund's use of derivative investments should also be
considered. See "DERIVATIVE INVESTMENTS."
EQUITY SECURITIES
The Fund's investments in equity securities may include investments in
common stocks, preferred stocks and convertible securities of U.S. and foreign
issuers. The value of equity securities varies in response to many factors,
including, but not limited to, the activities and financial condition of
individual companies, the business market in which individual companies compete
and general market and economic conditions. Equity securities fluctuate in
value, often based on factors unrelated to the value of the issuer of the
securities, and such fluctuations can be significant.
SMALLER COMPANIES
The Fund may invest in the securities of issuers having smaller market
capitalizations than the issuers in which many other investment companies
invest. The investment risks associated with securities of smaller companies
are generally greater than those associated with the securities of larger,
well-established companies. Smaller companies often are of more recent
formation than other companies and may have limited product lines, distribution
channels and financial and managerial resources. Further, there is often less
publicly available information concerning smaller companies than there is for
larger, more established issuers. The equity securities of smaller companies
are often traded over-the-counter or on regional exchanges and those securities
may not be traded in the volume typical for securities that are traded on a
national securities exchange. Consequently, the Fund may be required to
dispose of such securities over a longer period of time (and potentially at
less favorable prices) than would be the case for securities of larger
companies. In addition, the prices of the securities of smaller companies may
be more volatile than those of larger companies.
FIXED INCOME SECURITIES
To a limited extent, the Fund may invest in bonds and other types of debt
obligations of U.S. and foreign issuers. The Fund may invest in these fixed
income securities to pursue the Fund's investment objective when they offer, in
the judgment of the Investment Adviser, greater potential for capital
appreciation on a risk adjusted basis than alternative equity investments. The
Fund may also invest in these securities for temporary defensive purposes and
to maintain liquidity. See "INVESTMENT INSTRUMENTS AND PRACTICES AND RELATED
RISK FACTORS -
- 9 -
<PAGE> 13
Temporary Investments." Fixed income securities purchased by the Fund may
include, among others: bonds, notes and debentures issued by corporations; debt
securities issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities ("U.S. Government Securities"); municipal
securities; mortgage-backed and asset-backed securities; and debt securities
issued or guaranteed by foreign governments, their agencies, instrumentalities
or political subdivisions, or by government owned, controlled or sponsored
entities, including central banks. These securities may pay fixed, variable or
floating rates of interest, and may include zero coupon obligations. Fixed
income securities are subject to the risk of the issuer's inability to meet
principal and interest payments on its obligations (i.e., credit risk) and are
subject to price volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and general market
liquidity (i.e., market risk). There are no restrictions as to the maximum
maturities of the fixed income securities in which the Fund may invest.
Securities having longer maturities involve greater risk of fluctuations in
value resulting from changes in interest rates.
The Fund may invest in both investment grade and non-investment grade debt
securities. Investment grade debt securities are those securities that have
received a rating from Standard & Poor's Ratings Group, a division of the
McGraw-Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc.
("Moody's") in one of the four highest rating categories or, if not so have
been determined by the Investment Adviser to be of comparable quality.
Non-investment grade debt securities (typically called "junk bonds") are
securities that have received a rating from S&P or Moody's of below investment
grade or that have been given no rating and have been determined by the
Investment Adviser to be of comparable quality to such lower rated securities.
These lower grade securities are considered to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal.
Non-investment grade debt securities in the lowest rating categories may
involve a substantial risk of default or may be in default. Changes in
economic conditions or developments regarding the individual issuer are more
likely to cause price volatility and weaken the capacity of the issuers of
non-investment grade debt securities to make principal and interest payments
than is the case for higher grade debt securities. An economic downturn
affecting an issuer of non-investment grade debt securities may result in an
increased incidence of default. In addition, the market for lower grade debt
securities may be thinner and less active than for higher grade debt
securities. For these reasons, the Fund will not invest more than 20% of the
value of its total assets in non-convertible fixed income securities which are
not of investment grade.
The Fund will not purchase any debt security rated below CCC by S&P or
Caa by Moody's (or any unrated debt security determined to be of comparable
quality by the Investment Adviser). If the rating of any debt security held by
the Fund is downgraded below such minimum ratings (or if the Investment Adviser
determines that a comparable unrated debt security has similarly declined in
quality), there is no requirement that the Fund sell such security. The
determination of whether to sell any such security will be made by the
Investment Adviser, consistent with its best investment judgment.
- 10 -
<PAGE> 14
FOREIGN SECURITIES
Although the Fund invests principally in equity securities of U.S.
companies, the Fund is permitted to invest up to 20% of the value of its total
assets in equity and fixed income securities of foreign issuers, including
depository receipts (such as American Depository Receipts) that represent an
indirect interest in securities of foreign issuers. Investments in foreign
securities are affected by risk factors generally not thought to be present in
the U.S. With respect to such securities, there may be more limited
information publicly available concerning the issuer than would be the case
with respect to domestic securities, different accounting standards may be used
by foreign issuers and foreign trading markets may not be as liquid as U.S.
markets. Foreign securities also involve such risks as currency risks,
possible imposition of withholding or confiscatory taxes, possible currency
transfer restrictions, expropriation or other adverse political or economic
developments and the difficulty of enforcing obligations in other countries.
These risks may be greater in emerging markets and in less developed countries.
The purchase of securities denominated in foreign currencies will subject
the value of the Fund's investments in those securities to fluctuations due to
changes in foreign exchange rates. To hedge against the effects of changes in
foreign exchange rates, the Fund may enter into forward foreign currency
exchange contracts ("forward contracts"). These contracts represent agreements
to exchange an amount of currency at an agreed upon future date and rate. The
Fund will generally use forward contracts only to "lock in" the price in U.S.
dollars of a foreign security that the Fund plans to purchase or to sell, but
in certain limited cases may use such contracts to hedge against an anticipated
substantial decline in the price of a foreign currency against the U.S. dollar.
Forward contracts will not be used in all cases and, in any event, cannot
completely protect the Fund against all changes in the values of foreign
securities resulting from fluctuations in foreign exchange rates. For hedging
purposes, the Fund may also use options on foreign currencies, which expose the
Fund to certain risks. See "DERIVATIVE INVESTMENTS - Options on Foreign
Currency."
TEMPORARY INVESTMENTS
For defensive purposes or to maintain liquidity, the Fund may temporarily
invest all or a substantial portion of its assets in high quality fixed income
securities and money market instruments, or may temporarily hold cash in such
amounts as the Investment Adviser deems appropriate. Fixed income securities
will be deemed to be of high quality if they are rated "A" or better by S&P or
Moody's or, if unrated, are determined to be of comparable quality by the
Investment Adviser. Money market instruments are high quality, short-term
fixed income obligations (which generally have remaining maturities of one year
or less), and may include: U.S. Government Securities; commercial paper;
certificates of deposit and banker's acceptances issued by domestic branches of
United States banks that are members of the Federal Deposit Insurance
Corporation; and repurchase agreements for U.S. Government Securities. In lieu
of purchasing money market instruments, the Fund may purchase shares of money
market mutual funds that invest primarily in U.S. Government Securities and
repurchase agreements involving those securities, subject to certain
limitations imposed by the Investment Company Act of 1940
- 11 -
<PAGE> 15
(the "1940 Act"). The Fund, as an investor in a money market fund, will
indirectly bear the fees and expenses of that fund, which will be in addition
to the fees and expenses of the Fund.
Repurchase agreements are agreements under which the Fund purchases
securities from a bank or a securities dealer that agrees to repurchase the
securities from the Fund at a higher price on a designated future date. If the
seller under a repurchase agreement becomes insolvent, the Fund's right to
dispose of the securities may be restricted, or the value of the securities may
decline before the Fund is able to dispose of them. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before the repurchase of the securities under a repurchase
agreement is accomplished, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities. If the seller defaults, the value of such securities may
decline before the Fund is able to dispose of them. If the Fund enters into a
repurchase agreement that is subject to foreign law and the other party
defaults, the Fund may not enjoy protections comparable to those provided to
certain repurchase agreements under U.S. bankruptcy law, and may suffer delays
and losses in disposing of the collateral as a result. The Fund has adopted
procedures designed to minimize certain of the risks of loss from repurchase
agreement transactions.
LIMITED DIVERSIFICATION
As a "non-diversified" investment company, the Fund is not subject to the
provisions of the 1940 Act that otherwise would limit the percentage of its
assets that may be invested in the securities of a single issuer. However, the
Fund will not invest more than 10% of the value of its total assets in the
securities of any one issuer. If this percentage limitation is adhered to at
the time of investment, the Fund will not be required to reduce a position if,
as a result of a change in percentage resulting from a change in the values of
the securities or in the total assets of the Fund, the position exceeds this
percentage limitation.
In addition, the Fund intends to comply with the diversification
requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"). Under these requirements, at the end of each quarter of the Fund's
taxable year, at least 50% of the market value of the Fund's total assets must
be invested in cash, U.S. Government Securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited (for purposes of this calculation) to an amount not
greater than 5% of the value of the Fund's total assets and not greater than
10% of the outstanding voting securities of such issuer.
Under the Fund's policies, a relatively high percentage of the Fund's
assets may be invested in the securities of a limited number of issuers, some
of which may be within the same industry or economic sector. The Fund's
portfolio may therefore be more susceptible to any single economic, political
or regulatory occurrence and may be more volatile than the portfolio securities
of a "diversified" investment company. Therefore, an investment in the Fund
involves greater risks than an investment in a "diversified" investment
company.
- 12 -
<PAGE> 16
PORTFOLIO TURNOVER
Although many of the Fund's investments may be held for the purpose of
seeking capital appreciation over the long term, the Fund may also engage in
short-term trading in seeking capital appreciation. Moreover, securities may
be sold without regard to the time they have been held when investment
considerations warrant such action. It is expected that these policies will
cause the Fund's portfolio turnover rate to be higher than certain other
investment companies, although the portfolio turnover rate is not anticipated
to exceed 100%. A high portfolio turnover rate will result in higher brokerage
costs to the Fund and may also result in the realization of greater capital
gains which will be subject to tax, including short-term gains which will be
taxable to shareholders at ordinary income tax rates. See "DIVIDENDS,
DISTRIBUTIONS AND TAXES."
SHORT SALES
Although the Fund may not generally sell securities short, it may effect
short sales "against-the-box." In these transactions, the Fund sells short
securities it owns or has the right to obtain without payment of additional
consideration. The Fund may make a short sale against-the-box in order to
hedge against market risks when it believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund, or
when the Fund does not want to sell the security it owns, because, among other
reasons, it wishes to defer recognition of gain or loss for U.S. federal income
tax purposes. If the Fund makes a short sale against-the-box, it will be
required to set aside securities equivalent in kind and amount to the
securities sold short (or securities convertible or exchangeable into such
securities) and will hold such securities while the short sale is outstanding.
The Fund will incur transaction costs, including interest expense, in
connection with opening, maintaining and closing short sales against-the-box.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase or sell securities on a when-issued or
delayed delivery basis. In these transactions, securities are purchased or
sold by the Fund with payment and delivery taking place as much as a month or
more in the future. The Fund engages in these transactions to secure an
advantageous price or yield at the time of entering into the transactions.
However, the value of securities purchased on a when-issued or delayed delivery
basis is subject to market fluctuation and no dividends or interest accrues to
the purchaser during the period before the settlement date. The Fund will not
enter into a when-issued and delayed delivery transaction, if as a result,
when-issued and delayed delivery positions which are not "covered" would exceed
one-third of the value of the Fund's total assets. For this purpose, a
position will be "covered" if the Fund's custodian maintains, in a segregated
account for the Fund, cash and other liquid securities held by the Fund and
having a value (determined daily) equal to or greater than the position.
ILLIQUID SECURITIES
The Fund may invest up to 15% of the value of its net assets in illiquid
securities. Illiquid securities are those securities which the Fund cannot
sell or dispose of in the ordinary
- 13 -
<PAGE> 17
course of business within seven days at approximately the value at which the
Fund carries the securities. These securities include restricted securities
and repurchase agreements maturing in more than seven days. Restricted
securities are securities that may not be sold to the public without an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), and thus, may be sold only in privately negotiated
transactions or pursuant to an exemption from registration. Subject to the
adoption of guidelines by the Board of Trustees of the Trust, certain
restricted securities that may be sold to institutional investors pursuant to
Rule 144A under the 1933 Act and non-exempt commercial paper may be determined
to be liquid by the Investment Adviser. Illiquid securities involve the risk
that the securities will not be able to be sold at the time desired by the
Investment Adviser or at prices approximating the value at which the Fund is
carrying the securities.
LENDING PORTFOLIO SECURITIES
The Fund may lend its portfolio securities to brokers, dealers and
financial institutions in an amount not exceeding 33 1/3% of the value of the
Fund's total assets. These loans will be secured by collateral (consisting of
cash, U.S. Government Securities or irrevocable letters of credit) maintained
in an amount equal to at least 100% of the market value, determined daily, of
the loaned securities. The Fund may, subject to certain notice requirements,
at any time call the loan and obtain the return of the securities loaned. The
Fund will be entitled to payments equal to the interest and dividends on the
loaned securities and may receive a premium for lending the securities. By
lending portfolio securities, the Fund will seek to earn a return on the
investment of collateral. However, there may be delays in the recovery of the
loaned securities or a loss of rights in the collateral supplied should the
borrower fail financially. In addition, securities lending involves a form of
leverage, and the Fund may incur a loss if securities purchased with the
collateral from securities loans decline in value or if the income earned does
not cover the Fund's transaction costs.
INVESTMENT RESTRICTIONS
The Fund has adopted various restrictions on its investment practices.
Except as may otherwise be noted, these restrictions may be changed by the
Board of Trustees of the Trust. However, the Fund's investment objective and
certain of its investment restrictions are deemed fundamental policies and
cannot be changed without the approval of the holders of a majority (as defined
in the 1940 Act) of the Fund's outstanding voting securities. Certain of the
Fund's investment restrictions are set forth in this Prospectus. Additional
investment restrictions are described in the Statement of Additional
Information under "INVESTMENT RESTRICTIONS." Under one such restriction, the
Fund may borrow money from banks for temporary extraordinary or emergency
purposes (but not for investment) in an amount up to 10% of the value of the
Fund's total assets.
DERIVATIVE INVESTMENTS
The Fund may use certain derivative instruments in connection with its
investment activities. These include options on individual securities, options
on securities indices, options
- 14 -
<PAGE> 18
on foreign currency and warrants (collectively, "Derivatives"). These
instruments derive their performance, at least in part, from the performance of
an underlying asset or index. While Derivatives will be used to pursue profit
opportunities, and also for hedging purposes, the use of Derivatives can
increase the volatility of the Fund's net asset value, can decrease the
liquidity of the Fund's portfolio and make more difficult the pricing of the
Fund's portfolio. Derivatives may entail investment exposures that are greater
than their costs would suggest, meaning that a small investment in Derivatives
could have a large potential positive or negative impact on the Fund's
performance. If the Fund invests in Derivatives at inappropriate times or
judges market conditions incorrectly, such investments may lower the Fund's
return or result in losses. Changes in the liquidity of the secondary markets
on which the Fund's Derivatives may trade could result in significant, rapid
and unpredictable changes in the prices of such Derivatives, which could also
cause losses to the Fund.
OPTIONS ON SECURITIES
The Fund may purchase call and put options on securities to seek capital
appreciation or for hedging purposes. The Fund may also write and sell covered
call and put options for hedging purposes. A put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
security at a stated exercise price at any time prior to the expiration of the
option. Similarly, a call option gives the purchaser of the option the right
to buy, and obligates the writer to sell, the underlying security at a stated
exercise price at any time prior to the expiration of the option.
A call option written by the Fund is "covered" if the Fund owns the
underlying security or holds related securities (i.e., securities whose price
movements correlate to the price movements of the securities underlying the
option) during the term of the option. By writing a covered call option, the
Fund foregoes the opportunity to realize any appreciation in the market price
of the underlying security above the exercise price and incurs the risk of
having to continue to hold a security that it might otherwise have subsequently
determined to sell based on investment considerations. A put option written by
the Fund is "covered" if the Fund maintains at all times cash, U.S. Government
Securities or other liquid securities having a value equal to the option
exercise price in a segregated account with the Fund's custodian, or if the
Fund has bought and holds a put on the same security (and on the same amount of
securities) where the exercise price of the put held by the Fund is equal to or
greater than the exercise price of the put written by the Fund. By writing a
put option, the Fund is exposed to the risk, during the term of the option, of
a decline in the price of the underlying security which the Fund would be
required to purchase at a higher price.
After the Fund has written an option, it may close out its position by
purchasing an option on the same security with the same exercise price and
expiration date as the option that it has previously written on the security.
The Fund will realize a profit or loss if the amount paid to purchase an option
is less or more, as the case may be, than the amount received from the sale
thereof. To close out a position as a purchaser of an option, the Fund would
ordinarily make a similar "closing sale transaction," which involves
liquidating the Fund's position by selling the
- 15 -
<PAGE> 19
option previously purchased, although the Fund would be entitled to exercise
the option should it deem it advantageous to do so.
The Fund may also invest in so-called "synthetic" options or other
derivative instruments written by broker-dealers, including options on baskets
of specified securities. Synthetic options transactions involve the use of two
financial instruments that, together, have the economic effect of an options
transaction. The risks of synthetic options are generally similar to the risks
of actual options, with the addition of increased market risk, liquidity risk,
counterparty credit risk, legal risk and operations risk. Other derivative
instruments written by broker-dealers which may be utilized by the Fund include
derivative instruments which are both consistent with the Fund's investment
objective and legally permissible for the Fund. The risks of such derivative
instruments include market risk, liquidity risk, counterparty credit risk,
legal risk and operations risk. Synthetic options transactions and
transactions involving other derivative instruments as described above are
deemed to be subject to the Fund's limitation on the purchase of illiquid
securities.
Options transactions may be effected on securities exchanges or in the
over-the-counter market. The Fund's over-the-counter options positions may be
of the American or the European variety. An American style option may be
exercised by the holder at any time after it is purchased until it expires. A
European style option may be exercised only on its expiration date. When
options are purchased over-the-counter, the Fund bears the risk that the
counterparty that wrote the option will be unable or unwilling to perform its
obligations under the option contract. In addition, the Fund may have
difficulty closing out its positions in over-the-counter options, which could
result in losses to the Fund. Options transactions that are effected in the
over-the-counter market are subject to the Fund's limitation on the purchase of
illiquid securities.
OPTIONS ON SECURITIES INDICES
The Fund may purchase and may write and sell call and put options on stock
indices (such as the S&P 500 Index) listed on national securities exchanges or
traded in the over-the-counter market for hedging purposes. A stock index
fluctuates with changes in the market values of the stocks included in the
index. The effectiveness of purchasing or writing stock index options to hedge
the Fund's investment positions will depend upon the extent to which price
movements of securities held by the Fund correlate with price movements of the
stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
stock, whether the Fund will realize a gain or loss from the purchase or
writing of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indexes, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock indexes
will be subject to the Investment Adviser's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry or market segment. This requires different skills and techniques than
predicting changes in the price of individual stocks.
- 16 -
<PAGE> 20
A put option on an index may be purchased to hedge against a general
decline in the stock market or in a particular market segment or industry. A
call option on an index may be purchased in an attempt to reduce the risk of
missing a general market advance or an increase in the prices of securities
within a particular market segment or industry.
Put and call options of stock indices written by the Fund must be
"covered." A call option on an index written by the Fund will be covered if
the Fund segregates in a separate account with its custodian cash, U.S.
Government Securities or other liquid securities with a value equal to its
obligations under the option. A put option written on an index will be
"covered" if the Fund maintains cash, U.S. Government Securities or other
liquid securities with a value equal to the exercise price of the option in a
segregated account with its custodian or if the Fund has bought and holds a put
on the same index (and in the same amount) where the exercise price of the put
held is equal to or greater than the exercise price of the put written.
OPTIONS ON FOREIGN CURRENCIES
The Fund may write and purchase covered put and call options on foreign
currencies, in amounts not exceeding 5% of the value of its total assets. The
Fund may engage in these transactions for the purpose of protecting against
declines in the U.S. dollar value of portfolio securities or in the U.S. dollar
of dividends or interest expected to be received on those securities. These
transactions may also be used to protect against increases in the U.S. dollar
cost of securities to be acquired by the Fund. As with other types of options,
however, writing an option on foreign currency constitutes only a partial
hedge, up to the amount of the premium received, and the Fund could be required
to purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. Certain options on foreign currencies are traded on
the over-the-counter market and involve liquidity and credit risks that may not
be present in the case of exchange traded currency options.
WARRANTS AND RIGHTS
The Fund may purchase warrants and rights to purchase securities.
Warrants are derivative instruments that permit, but do not obligate, the
holder to subscribe for other securities. Rights are similar to warrants, but
normally have a short duration and are distributed directly by the issuer to
its shareholders. Warrants and rights do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle the
holder to purchase, and they do not represent any rights in the assets of the
issuer. As a result, warrants and rights may be considered more speculative
than certain other types of investments. In addition, the value of warrants
and rights do not necessarily change with the value of the underlying
securities and such securities cease to have value if they are not exercised
prior to their expiration dates.
RISK CONSIDERATIONS
The Fund's total return and net asset value will fluctuate, and such
fluctuations could be substantial. The Fund is subject to the risk that the
Investment Adviser's investment selections will cause the Fund to fail to
achieve its investment objective or to underperform the stock market as a
whole. The Fund is also subject to objective risk, which is the possibility
that returns
- 17 -
<PAGE> 21
from the value stocks in which the Fund invests will trail returns
from the overall stock market. As a group, value stocks tend to go through
cycles of relative under-performance and out-performance in comparison to
common stocks in general. These periods have, in the past, lasted for as long
as several years. Because the Fund may invest a significant portion of its
assets in the securities of companies having smaller market capitalization, the
Fund's portfolio may experience more volatility and be exposed to greater risk
than the portfolios of many other mutual funds. In addition, the Fund's use of
derivative investments and limited diversification may be considered
speculative practices and may result in losses to the Fund. Investments in
non-investment grade debt securities, foreign securities and illiquid
securities by the Fund will also involve certain risks as described above.
The Fund and the Investment Adviser are newly formed entities and have no
operating histories upon which investors can evaluate the performance of the
Fund. The principal members of the Investment Adviser, however, together have
substantial experience in managing private investment partnerships that have
investment objectives that are similar to the Fund's investment objective. See
"MANAGEMENT" and "COMPARATIVE PERFORMANCE INFORMATION."
The compensation that may be payable by the Fund to the Investment Adviser
is higher than the compensation paid by most other mutual funds with investment
objectives similar to the investment objective of the Fund. See "MANAGEMENT OF
THE FUND - Investment Adviser."
COMPARATIVE PERFORMANCE INFORMATION
The personnel of the Investment Adviser who are responsible for managing
the Fund's investments are the same individuals who, acting directly or through
an affiliate of the Investment Adviser, are solely responsible for providing
investment advice to two investment funds that are not registered under the
1940 Act (the "Other Funds"). See "MANAGEMENT OF THE FUND - Investment
Adviser." The investment objectives, policies and strategies of the Other
Funds are substantially similar to those used in managing the Fund.
Unlike the Other Funds, the Fund does not borrow money from banks or brokers
to purchase investments and does not effect short sales of securities (other
than short sales "against-the-box"). However, the use of certain derivative
transactions and other permitted investment techniques should permit the Fund
to achieve investment exposures similar to those that can be obtained through
the use of borrowings and short sales.
The composite investment performance of the Other Funds (which does not
represent the investment performance of the Fund) is set forth below. This
information is provided solely to illustrate the historical performance
achieved by the personnel of the Investment Adviser in managing investment
funds having the same investment objective as the Fund as compared to
investment return of a broad based market index. It is important to recognize
that the fees and expenses of the Other Funds and those of the Fund differ.
The investment performance of the Fund will therefore differ from the
performance of the Other Funds. In addition, the past performance of the Other
Funds should not be viewed as indicative of the Fund's future investment
performance. Unlike the Fund, the Other Funds are not subject to
- 18 -
<PAGE> 22
certain investment limitations, diversification requirements and other
restrictions imposed by the 1940 Act and the Code, which, if applicable, might
have adversely affected the past performance of the Other Funds. The
following data should be read in conjunction with the accompanying notes. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
<TABLE>
<CAPTION>
COMPOSITE OF OTHER COMPOSITE OF OTHER S&P
FUNDS BASED ON FUNDS BASED ON THE 500 AGGREGATE
YEAR ACTUAL FEES(1) FUND'S FEES(2) INDEX(3) NET ASSETS(4)
- ------------------ -------------------- -------------------- -------------- -----------
<S> <C> <C> <C> <C>
1990(5) 2.4% 2.1% 2.5% 26
1991 49.4% 60.0% 30.4% 47
1992 16.6% 19.1% 7.6% 82
1993 8.5% 9.7% 10.1% 146
1994 -15.1% -15.4% 0.7% 128
1995 49.7% 56.0% 37.6% 215
1996 36.8% 43.9% 23.0% 340
Cumulative Return(6) 237% 305% 170%
1990 - 1996
</TABLE>
NOTES
1. The above returns of the Other Funds are net of all fees
(including a 1% management fee) and expenses and 20% incentive
allocations to the advisers of the Other Funds. The returns are
based upon the results an investor would have achieved on an
investment made at the commencement of each fund's operations. This
information is based upon audited financial statements for each
period. The Other Funds commenced operations on March 5, 1990 and
August 16, 1993, respectively.
2. The rates of return of the Other Funds have been modified to
reflect the investment performance of the Other Funds assuming the
fees and estimated expenses of the Fund. This presentation of the
modified rates of return of the Other Funds should not be viewed as
indicative of the Fund's future investment performance.
3. The S&P 500 Index is the Standard & Poor's Composite Index of
500 Stocks and is provided for comparison purposes. The S&P 500
figures assume reinvestment of all dividends paid by stocks included
in the index. They do not, however, include any allowance for the
brokerage commissions or other fees required to invest in those
stocks. The Other Funds do not restrict their investments solely to
securities included in the S&P 500 Index.
4. As of the end of the period, in millions.
5. Returns for 1990 are for the period March 5, 1990 (date of
inception) through December 31, 1990.
6. Cumulative return is calculated by using a compounded,
time-weighted return.
- 19 -
<PAGE> 23
MANAGEMENT OF THE FUND
The Board of Trustees of the Trust is responsible for supervising the
operations and affairs of the Fund. The Trust's officers, who are all members,
partners, officers or employees of the Investment Adviser, the Administrator or
their affiliates, are responsible for the daily management and administration
of the Fund's operations.
INVESTMENT ADVISER
The Investment Adviser, Granum Capital Management, L.L.C., 126 East 56th
Street, 25th Floor, New York, New York 10022, an investment adviser registered
under the Investment Advisers Act of 1940, is controlled by Lewis M. Eisenberg
and Walter F. Harrison III, who serve as its managing members. Subject to the
overall supervision of the Board of Trustees, the Investment Adviser is
responsible for managing the investment operations of the Fund in accordance
with the Fund's investment objective and policies. The Investment Adviser
formulates a continuing investment strategy for the Fund and makes all
decisions regarding investments to be purchased or sold for the Fund. An
investment committee (the "Investment Committee") comprised of Messrs.
Eisenberg and Harrison and Paul Matten is primarily responsible for managing
the investment operations of the Fund in accordance with the Fund's investment
objective and policies.
LEWIS M. EISENBERG graduated from Dartmouth College in 1964 and received
an M.B.A. from Cornell University in 1966. He has served as a founding partner
and portfolio manager of the investment adviser of one of the Other Funds since
it commenced operations in 1990, and has provided investment advice to the
Other Funds since their inception. From 1966 to 1989, Mr. Eisenberg was
associated with Goldman, Sachs & Co. ("Goldman, Sachs"). While at Goldman
Sachs, Mr. Eisenberg became a general partner of the firm, was co-head of the
Equities Division and served on the Sales, Trading and Research Policy
Committee, the Budget Committee and the International Equity Policy Committee,
among others.
WALTER F. HARRISON, III graduated from Dartmouth College in 1966 and
received an M.B.A. in 1969 from the Amos Tuck School of Business
Administration. He has served as a founding partner and portfolio manager of
the investment adviser of one of the Other Funds since it commenced operations
in 1990, and has provided investment advice to the Other Funds since their
inception. From 1971 to 1980, Mr. Harrison was associated with A.W. Jones &
Associates and A.W. Jones Co., two investment limited partnerships
(collectively, "A.W. Jones"). During his tenure with A.W. Jones, Mr. Harrison
became a managing general partner and was a member of the Policy Committee, set
guidelines for equity exposure, and performed extensive work on equities
valuation techniques. From 1980 to 1983, Mr. Harrison was senior vice
president and a principal of Brokaw Capital Management Co., Inc., and from 1983
to 1989, Mr. Harrison was associated with Siebel Capital Management.
PAUL MATTEN graduated from Princeton University in 1984 and received an
M.B.A. and a J.D. in 1991 and an M.A. in 1995 from Harvard University.
He has served as a Vice President of the investment adviser of one of the Other
Funds since January 2, 1996. He
- 20 -
<PAGE> 24
served as a financial analyst with that investment adviser from 1992 until
1995, when he took a leave of absence to complete his studies at Harvard
University. From 1984 to 1987, Mr. Matten was associated with Merrill Lynch
Capital Markets, an investment banking firm, as an analyst. From 1987 to 1991,
Mr. Matten earned two graduate-level degrees at Harvard University.
Although the Investment Adviser is a newly formed company which has not
previously served as the investment adviser of a registered investment company,
the advisory personnel of the investment adviser are all persons who are
limited partners or employees of the investment adviser to one of the Other
Funds, which commenced operations in 1990 and is under common control with the
Investment Adviser. In their capacities with such adviser or as general
partners, these persons have provided investment advisory services to clients,
including the Other Funds, and currently manage investment portfolios with
assets in excess of $340 million.
The Fund pays the Investment Adviser monthly compensation computed daily
at the annual rate of 1.25% of the Fund's net assets (the "Basic Fee"), which
rate is increased or decreased monthly (the "Monthly Performance Adjustment")
depending on the investment performance of the Fund (including dividends and
other distributions) relative to the investment performance of the S&P 500
Index (including dividends and any cash distributions paid by companies included
in the index). The Monthly Performance Adjustment will be 15% of the
difference between the percentage investment performance of the Fund and the
percentage investment performance of the S&P 500 Index, each measured over the
preceding 12 calendar months (or since commencement of operations if the Fund
has not completed 12 full calendar months of operations), but may not be more
than +0.75% or -0.75%. This adjustment, which will become applicable only
after the Fund has completed three full calendar months of operations, will
result in monthly compensation computed at annual rates ranging from 0.50% to
2.00% of the Fund's net assets. For example, if the investment performance of
the Fund is 12% and the investment performance of the index is 10% for the
measurement period, the Basic Fee will be adjusted upward by 0.30% to 1.55%.
Conversely, if the performance of the Fund is 10% and the performance of the
index is 12% for the measurement period, the Basic Fee will be adjusted
downward by 0.30% to 0.95%. Prior to the completion of 12 full calendar
months of operations, the short-term investment performance of the Fund
relative to the performance of the index will have a greater impact on the
total monthly advisory compensation than would be the case if a measurement
period of 12 full calendar months wereused to compute the Monthly Performance
Adjustment.
The investment advisory fees payable by the Fund may be higher than the
fees paid by most other mutual funds with investment objectives similar in the
investment objective of the Fund.
- 21 -
<PAGE> 25
ADMINISTRATOR
The Trust has retained Firstar Trust Company (the "Administrator"), 615
East Michigan Street, 3rd Floor, Milwaukee, WI 53202, to provide various
administrative and accounting services necessary for the operations of the
Trust and the Fund. Services provided by the Administrator include:
facilitating general Fund management; monitoring Fund compliance with federal
and state regulations; supervising the maintenance of the Fund's general
ledger, the preparation of the Fund's financial statements, the determination
of the net asset value of the Fund's assets and the declaration and payment of
dividends and other distributions to shareholders; and preparing specified
financial, tax and other reports. See "MANAGEMENT OF THE FUND -
Administrator." The Fund pays the Administrator a monthly fee for
administrative services which is calculated at the following annual rates:
0.06% of the first $240 million of the Fund's average net assets (subject to a
minimum annual fee of $30,000); 0.05% of the next $300 million of the Fund's
average net assets; and 0.03% of the remaining value of the Fund's average net
assets. The Trust reimburses the Administrator for certain out-of-pocket
expenses. In addition, the Fund pays Firstar Trust Company a monthly fee for
accounting services of $22,000 on the first $40 million of the assets, and
0.01% annually on the next $200 million of such assets; and 0.005% of any
remaining assets, determined as of the end of the month; plus certain expenses.
FUND EXPENSES
The Fund pays all of its expenses other than those expressly assumed by
the Investment Adviser or the Distributor. Expenses of the Fund are deducted
from the Fund's total income before dividends are paid. The Fund's expenses
include, but are not limited to, the following: fees paid to the Investment
Adviser and the Administrator; payments pursuant to the Fund's distribution
plan (see "DISTRIBUTION PLAN"); fees of the Fund's independent accountants,
custodian and transfer agent and certain related expenses; taxes; organization
costs; brokerage fees and commissions; interest; costs incident to meetings of
the Board of Trustees of the Trust and meetings of the Fund's shareholders;
costs of printing and mailing prospectuses and reports to shareholders and the
filing of reports with regulatory bodies; legal fees and disbursements; fees
payable to federal and state regulatory authorities; fees and expenses of
Trustees who are not affiliated with the Investment Adviser, the Distributor or
the Administrator; and any extraordinary expenses.
The Investment Adviser has voluntarily agreed to absorb all ordinary
operating expenses of the Fund, other than the fee payable to the Investment
Adviser and amounts payable by the Fund pursuant to the Fund's distribution
plan during the first year of the Fund's operations or, if sooner, until such
time as the daily total net assets of the Fund average $20 million or more for
a period of 30 days.
The Investment Adviser has borne certain organizational costs which are
subject to reimbursement by the Fund. These expenses have been deferred by the
Fund and will be amortized and reimbursed to the Investment Adviser over a
sixty month period from the commencement of Fund operations.
- 22 -
<PAGE> 26
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS
The Fund intends to pay dividends at least annually consisting of
substantially all of its net investment income (i.e., the income it earns from
dividends and interest on its investments, and any short-term capital gains,
net of Fund expenses). Unless requested otherwise by a shareholder, dividends
are automatically reinvested in additional shares of the Fund at the net asset
value per share of the Fund in effect on the day after the dividend payment
record date.
CAPITAL GAINS DISTRIBUTIONS
The Fund will realize capital gains or losses when it sells investments at
prices that are higher or lower than the prices paid by the Fund to purchase
the investments. Long-term capital gains, if any, will be distributed to
shareholders at least once annually. An additional distribution will be paid
if required for the Fund to avoid imposition of a federal income or excise tax
on undistributed capital gains. Capital gains distributions are automatically
reinvested in additional shares of the Fund at the net asset value per share in
effect on the day after the record date, unless otherwise requested by the
shareholder.
TAXES
The Fund intends to qualify each year as a "regulated investment company"
under Subchapter M of the Code. If so qualified, the Fund will not be subject
to federal income taxes to the extent that it distributes its net income to
shareholders as required by the Code. Certain federal income and excise taxes
would be imposed on the Fund if it fails to make certain required distributions
of its income to shareholders. The Fund intends, however, to make
distributions in a manner which will avoid the imposition of any such taxes.
If, however, for any taxable year the Fund fails to qualify as a "regulated
investment company," it would be subject to federal corporate income tax on its
taxable income.
Shareholders that are subject to federal income taxation will have to pay
any applicable federal income taxes on the dividends and distributions they
receive from the Fund, whether paid in cash or reinvested in additional shares
of the Fund. Dividends and distributions will also be subject to applicable
state and local taxes. Dividends derived from net investment income or net
realized short-term capital gains and all or a portion of any gains realized
from the sale or other disposition of certain market discount bonds will be
taxable to shareholders as ordinary income for federal income tax purposes.
Distributions from net realized long-term capital gains will be taxable to
shareholders as long-term capital gains for federal income tax purposes,
regardless of how long shareholders have held their shares of the Fund. The
Code provides that the net capital gain of an individual generally will not be
subject to federal income tax at a rate in excess of 28%. Each year,
shareholders of the Fund will be sent full information on dividends and capital
gains distributions for tax purposes, including information as to the portion
taxable as
- 23 -
<PAGE> 27
ordinary income, the portion taxable as long-term capital gains and the amount
of dividends eligible for the dividends received deduction available for
corporations.
Redemptions of shares of the Fund will result in the recognition of any
gain or loss for federal income tax purposes.
Dividends received from net investment income, together with
distributions from net realized short-term gain and all or a portion of any
gains realized from the sale or other disposition of certain market discount
bonds, paid by the Fund to a foreign investor generally are subject to U.S.
nonresident withholding tax at the rate of 30%, unless the foreign investor
claims the benefit of a lower rate specified in a treaty. Distributions from
net realized long-term gains paid by the Fund to a foreign investor as well as
proceeds of any redemption from a foreign investor's account may be subject to
backup withholding, as described below, unless the foreign investor certifies
his non-U.S. residency status.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized long-term gains and the proceeds of any redemption paid to a
shareholder if such shareholder fails to certify either that the Taxpayer
Identification Number ("TIN") furnished to the Fund is correct or that such
shareholder has not received notice from the Internal Revenue Service (the
"IRS") of being subject to backup withholding. Furthermore the IRS may notify
the Fund to institute backup withholding if the IRS determines a shareholder's
TIN is incorrect or if a shareholder has failed to properly report taxable
dividend or interest on a federal tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the record
owner of the account, and may be claimed as a credit on the record owner's
federal income tax return.
The foregoing discussion regarding Federal taxation is for general
information only. It is based on tax laws and regulations as in effect on the
date of this Prospectus, and is subject to change by legislative or
administrative action. Prospective shareholders should consult their own
tax advisers concerning the federal, state, local and foreign tax consequences
of such an investment.
HOW TO BUY SHARES
Shares of the Fund are available for purchase by investors through the
Distributor and from selected securities dealers which have entered in dealer
agreements with the Distributor. All purchases of shares are effected at the
net asset value per share of the Fund next computed after the receipt of a
purchase order and payment for the shares being purchased. See "Share Price,"
below. No sales charge is imposed in connection with the purchase of shares.
However, the Distributor and securities dealers that sell shares of the Fund
receive compensation for their services which is paid by the Fund. See
"DISTRIBUTION PLAN." Stock certificates will not be issued. Instead, the
Transfer Agent maintains an account for each shareholder reflecting full
- 24 -
<PAGE> 28
and fraction shares of the Fund owned, and sends shareholders confirmations of
each transaction and quarterly statements showing account balances. The Fund
reserves the right to reject any order to purchase shares.
The minimum initial investment in the Fund by an investor is $5,000.
If an investor has invested at least $5,000 in the Fund directly or indirectly
through another account (including, among other things, a 401(k) retirement
account), there is no minimum initial investment if such investor desires to
invest through additional accounts, and there is no minimum investment with
respect to any Fund account opened by the spouse of such investor. Subsequent
investments may be made in any amount of $1,000 or more. The Fund
may waive these minimum investment requirements in special circumstances and
may modify these requirements at any time.
Shares of the Fund may be purchased by check or federal funds wire using
the procedures described below.
Effective upon obtraining all necessary regulatory approvals, a newly
formed affiliate of the Investment Adviser, Granum Securities, L.L.C. will
become a distributor of shares of the Fund.
PURCHASE BY MAIL
Checks to purchase shares of the Fund must be drawn on a U.S. bank and
made payable to "Granum Value Fund." Checks should be sent, together with a
completed Account Application in the case of an initial investment, to the
Distributor or to Granum Value Fund, c/o Firstar Trust Company, 615 East
Michigan Street, 3rd Floor, Milwaukee, WI 53202. Subsequent investments should
be accompanied with an investment slip (which will be enclosed with
confirmations and statements sent to investors and which will also be available
upon request from the Distributor or the Administrator), and your Fund account
number should be written on the check. Third party checks will not be accepted.
All checks are accepted subject to collection. In the event that an
investor's check does not clear, the Fund will hold the investor liable for the
full amount of any decrease in the value of the shares that have been issued
and for any collection costs incurred by the Fund. Payments for redemptions of
shares recently purchased by check (but not the date as of which the redemption
price is determined) may be delayed to assure that the purchase
check clears, which may take up to 15 days from the Transfer Agent's receipt of
the check. This delay can be avoided if shares are purchased by wire and will
also not apply if there are sufficient other shares in the account from which
to satisfy the requested redemption. In addition, Firstar Trust Company will
charge a $20 fee for any returned check.
PURCHASE BY WIRE
Shares can be purchased by federal funds wire by existing investors and
prospective investors whose applications have been accepted by the Fund. To
send a wire payment, you should have your bank transmit federal funds to:
Firstar Bank Milwaukee, N.A., 777 East
- 25 -
<PAGE> 29
Wisconsin Avenue, Milwaukee, WI 53202, ABA # 075000022, Credit: Firstar Trust
Company, Acct# 112952137, Attn.: Granum Value Fund, Account Name (Name of
Investor). In the case of an initial investment, you should obtain an account
number by calling 1-888-5-GRANUM (547-2686) before wiring funds. A completed
Account Application, including your account number, should be submitted
promptly after wiring federal funds for an initial investment.
For further information regarding the procedures to be used in purchasing
shares, you may contact the Distributor or your securities dealer, or call
1-888-5-GRANUM (547-2686).
PLEASE BE SURE TO SUBMIT A COMPLETED ACCOUNT APPLICATION WITH ALL INITIAL
PURCHASES. AN ACCOUNT APPLICATION MUST BE ON FILE WITH THE TRANSFER AGENT IN
ORDER TO REDEEM SHARES.
SHARE PRICE
The Fund's net asset value per share is determined once daily as of the
close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m., New York time), on each day the New York Stock Exchange is open for
business. Net asset value per share is computed by dividing the value of the
Fund's net assets (i.e., the value of its assets less its liabilities) by the
total number of Fund shares outstanding. The Fund's investments are valued at
their market value or, if market quotations are not readily available, at their
fair value as determined by the Investment Adviser in accordance with
procedures adopted by the Fund's Board of Trustees.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at any time at their current net asset
value per share next computed after receipt of a redemption request in proper
form. See "HOW TO BUY SHARES - Share Price." No charges are imposed in
connection with redemptions of shares. The value of the shares redeemed may be
more or less than their original cost, depending upon the Fund's then-current
net asset value.
The Fund ordinarily will make payment for all shares redeemed within seven
days after receipt by the Transfer Agent of a redemption request in proper
form, but may be delayed for more than seven days as provided by SEC rules.
However, if you purchase shares by check and submit shortly thereafter a
redemption request, the redemption proceeds will not be transmitted to you
until your purchase check has cleared, which may take up to 15 days. Prior to
the time any redemption is effective, dividends on such shares will accrue and
be payable, and you will be entitled to exercise all other rights of beneficial
ownership. Shares may not be redeemed unless you have submitted a completed
Account Application which is on file with the Transfer Agent.
The Fund reserves the right to redeem at its option, upon not less than 45
days' written notice, the account of any shareholder that, as a result of a
redemption of shares, has a value of less than $5,000 as the result of one or
more redemptions if the shareholder does not purchase additional shares to
increase the account value to at least $5,000 during the notice period.
- 26 -
<PAGE> 30
Shares of the Fund may be redeemed by using one of the procedures
described below. For further information regarding redemption procedures, you
may contact the Distributor or your securities dealer, or call 1-888-5-GRANUM
(547-2686).
WRITTEN REDEMPTION REQUESTS
You may redeem shares by written request mailed to: Granum Value Fund, c/o
Firstar Trust Company, 615 East Michigan Street, 3rd Floor, Milwaukee, WI
53202. A written request must be signed by each shareholder, including each
owner of a joint account, and each signature must be guaranteed for redemptions
over $50,000. The Transfer Agent has adopted standards and procedures pursuant
to which signature guarantees in proper form generally will be accepted from
domestic banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations,
as well as from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP") and the
Stock Exchanges Medallion Program. If you have any questions with respect to
signature-guarantees, please call 1-888-5-GRANUM (547-2686).
The proceeds of the redemption of shares redeemed by written request will
normally be paid by check made payable to the shareholders of record. However,
you may request that redemption proceeds of $1,000 or more be wired to any
member bank of the Federal Reserve System if you have previously on your
Account Application, or on a Shareholder Services Form filed with the Transfer
Agent, designated an account at such bank to which redemption proceeds may be
wired.
TELEPHONE REDEMPTION REQUESTS
You may redeem shares by telephone request if you have checked the
appropriate box on the Account Application or have filed a Shareholder Services
Form with the Transfer Agent. If you have selected this option, you may place
a redemption request by calling 1-888-5-GRANUM (547-2686). The proceeds of
telephone redemptions in the amount of $1,000 or more will be wired to your
account at any member bank of the Federal Reserve System if you have previously
designated an account at such a bank to which redemption proceeds may be wired.
Otherwise redemption proceeds will be paid by check made payable to the
shareholders of record.
During times of extreme economic or market conditions, you may experience
difficulty in contacting the Transfer Agent by telephone to request a
redemption of Fund shares. In such cases, you should consider using a written
redemption request sent by overnight service to: Granum Value Fund, c/o Firstar
Trust Company, 615 East Michigan Street, 3rd Floor, Milwaukee, WI 53202. Using
this procedure may result in your redemption request being processed at a later
time that it would have been if the telephone redemption procedure had been
used. During the delay, the Fund's net asset value may fluctuate.
By selecting the telephone redemption option, you authorize the Transfer
Agent to act on telephone instructions reasonably believed by the Transfer
Agent to be genuine. The Transfer Agent employs reasonable procedures, such as
requiring a form of personal identification, to
- 27 -
<PAGE> 31
confirm that telephone redemption instructions are genuine, and neither the
Fund nor the Transfer Agent will be liable for any losses due to unauthorized
or fraudulent instructions if such procedures are followed. The Fund reserves
the right to refuse any request made by telephone, including requests made
shortly after a change of address, and may limit the number of such requests
within a specified period.
DISTRIBUTION PLAN
Under a distribution plan adopted by the Trust in accordance with Rule
12b-1 under the 1940 Act (the "Distribution Plan"), the Fund makes payments to
the Distributor in consideration of the services it provides in connection with
the sale of the Fund's shares to investors ("Distribution Services") and for
the furnishing of account related services by the Distributor and securities
dealers to shareholders of the Fund ("Shareholder Services"). Shareholder
Services provided by the Distributor and securities dealers include responding
to shareholder inquiries regarding the Fund and their accounts with the Fund,
and providing shareholders with reports, information and services related to
their Fund accounts.
As compensation for Distribution Services, the Fund makes monthly payments
to the Distributor which are computed at the annual rate of 0.50% of the Fund's
average net assets. From such compensation, the Distributor makes payments to
securities dealers that have sold shares of the Fund to their customers. As
compensation for Shareholder Services, the Fund makes monthly payments to the
Distributor which are computed at the annual rate of 0.25% of the Fund's
average net assets. All payments to securities dealers by the Distributor are
made in arrears commencing six months after the commencement of the Fund's
operations and thereafter on a quarterly basis.
FUND PERFORMANCE INFORMATION
Advertisements and sales literature relating to the Fund and reports to
shareholders may include quotations of the Fund's investment performance. In
such materials, the Fund's performance may be calculated on the basis of
average annual total return or total return.
Average annual total return is calculated pursuant to a standardized
formula which assumes that an investment was purchased with an initial payment
of $1,000 and that the investment was redeemed at the end of a stated period of
time, after giving effect to the reinvestment of dividends and distributions
during the period. The return is expressed as a percentage rate which, if
applied on a compounded annual basis, would result in the redeemable value of
the investment at the end of the period. Advertisements of the Fund's
performance will include the Fund's average annual total return for one, five
and ten year periods, depending upon the length of time during which the Fund
has operated.
Total return is computed on a per share basis and assumes the reinvestment
of dividends and distributions. Total return generally is expressed as a
percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the net asset value per share at
the beginning of the period. Advertisements may include the percentage rate
- 28 -
<PAGE> 32
of total return or may include the value of a hypothetical investment at the end
of the period which assumes the application of the percentage rate of total
return.
Performance will vary from time to time, and past results are not
necessarily representative of future results.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., the S&P 500 Index, the Wilshire 5000 Index, the Dow
Jones Industrial Average, Money Magazine, Morningstar, Inc. and other industry
publications.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Trust is a Delaware business trust, organized pursuant to a
Certificate of Trust dated December 19, 1996, and is authorized to issue an
unlimited number of shares of beneficial interest, $0.001 par value. As of the
date of this Prospectus, the Trust has established one series of its shares,
representing interests in the Fund. The Board of Trustees has the power to
establish additional series of shares representing interests in separate
investment portfolios and, subject to applicable laws and regulations, to issue
two or more classes of shares of each series. Shares are fully paid and
non-assessable, and have no preemptive or conversion rights.
Shareholders of the Fund are entitled to vote on the election of Trustees
and the ratification of the Trust's independent accountants when those matters
are voted upon at a meeting of shareholders and on certain other matters. Each
share (and fractional share) is entitled to that number of votes which equals
the net asset value of such share (or fraction thereof). Shares of the Fund
have non-cumulative voting rights, which means that shareholders entitled to
cast more than 50% of the votes for the election of Trustees can elect all of
the Trustees standing for election if they choose to do so.
Under Delaware law, a shareholder of the Fund could, under certain
circumstances, be held personally liable for the obligations of the Trust and
the Fund, but only to the extent of the shareholder's investment. The
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust or the Fund, which
are binding only on the assets and property of the Fund. The Declaration of
Trust requires that notice of this disclaimer be given in each contract or
obligation entered into or executed by the Trust or the Trustees. In view of
the foregoing, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself
would be unable to meet its obligations and should therefore be considered
remote.
Annual meetings of shareholders will not be held except as required by the
1940 Act or other applicable law. A meeting will be held on the removal of a
trustee or trustees of the Fund if requested in writing by holders of not less
than 10% of the outstanding shares of the Fund.
CONTROL PERSONS
- 29 -
<PAGE> 33
As of the date of this Prospectus, the Investment Adviser was the sole
shareholder of the Fund. So long as such ownership of shares continues to
exceed 25% of the outstanding shares of the Fund, the Investment Adviser and
Messrs. Eisenberg and Harrison, as the controlling persons of the Investment
Adviser, will be deemed to control the Fund by virtue of such ownership.
TRANSFER AGENT
The Transfer Agent, Firstar Trust Company, 615 East Michigan Street, 3rd
Floor, Milwaukee, WI 53202, serves as the Fund's transfer agent and dividend
disbursing agent. Shareholders of the Fund may contact the Transfer Agent with
their questions regarding transactions in shares of the Fund and their account
balances.
CUSTODIAN
Firstar Trust Company also serves as custodian for the Fund, and in that
capacity maintains custody of all securities and cash assets of the Fund. The
custodian is authorized to hold the Fund's investments in securities
depositories and to subcustodians approved by the Fund.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which
has been incorporated by reference herein, does not contain all the information
set forth in the Registration Statement filed by the Fund with the SEC under
the Securities Act of 1933, as amended and the
- 30 -
<PAGE> 34
1940 Act. Copies of the Registration Statement may be obtained at a reasonable
charge from the SEC or may be examined, without charge, at the office of the
SEC in Washington, D.C.
SHAREHOLDER REPORTS
The Fund sends shareholsder annual and semi-annual reports without
charge. These reports include further information regarding the Fund's
investment performance. The financial statements of the Fund appearing in the
Fund's annual reports will be audited by Coopers & Lybrand L.L.P., the Fund's
independent public accountants.
SHAREHOLDER INQUIRIES
For questions concerning shareholder accounts, dividends and share
purchase and redemption procedures, a shareholder may contact their securities
dealer or may call the Transfer Agent toll free at 1-888-5-GRANUM (547-2686).
<PAGE> 35
INVESTMENT ADVISER
Granum Capital Management, L.L.C.
126 East 56th Street
Twenty-fifth Floor
New York, New York 10022
DISTRIBUTOR
Mercer Allied Company
One Wall Street
Albany, New York 12205
ADMINISTRATOR, TRANSFER AGENT AND CUSTODIAN
Firstar Trust Company
615 East Michigan Street
3rd Floor
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P
The 411 East Wisconsin Building
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
______________________________________________________________________________
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS OR IN APPROVED SALES LITERATURE IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE TRUST
OR BY THE DISTRIBUTORS TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER.
<PAGE> 36
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY 2
SUMMARY OF EXPENSES 6
INVESTMENT OBJECTIVE AND POLICIES 7
INVESTMENT INSTRUMENTS AND PRACTICES 9
DERIVATIVE INVESTMENTS 14
RISK CONSIDERATIONS 17
COMPARATIVE PERFORMANCE INFORMATION 18
MANAGEMENT OF THE FUND 20
FUND EXPENSES 22
DIVIDENDS, DISTRIBUTIONS AND TAXES 23
HOW TO BUY SHARES 24
HOW TO REDEEM SHARES 26
DISTRIBUTION PLAN 28
FUND PERFORMANCE INFORMATION 28
GENERAL INFORMATION 29
<PAGE> 37
GRANUM VALUE FUND
126 EAST 56TH STREET
TWENTY-FIFTH FLOOR
NEW YORK, NEW YORK 10022
STATEMENT OF
ADDITIONAL INFORMATION
DATED _____________, 1997
Granum Value Fund (the "Fund") is a series of Granum Series Trust (the
"Trust"), a non-diversified, open-end management investment company (or mutual
fund). The investment objective of the Fund is to seek capital appreciation.
The Fund pursues this objective by investing its assets principally in equity
securities, including common and preferred stocks and other securities, such as
warrants and stock options, having equity characteristics. In managing the
Fund's portfolio, the investment adviser of the Fund attempts to identify
securities that are undervalued relative to their potential for growth. The
Fund may also pursue its objective by investing in fixed income securities when
such securities, in the judgment of the investment adviser, provide attractive
opportunities for capital appreciation. As part of its investment program, the
Fund may use certain derivative investments which involve certain risks. The
Fund's investment policies and practices involve certain risks and there can be
no assurance that the Fund will achieve its investment objective.
Granum Capital Management, L.L.C. serves as the Fund's investment adviser
(the "Investment Adviser"). Firstar Trust Company (the "Administrator")
provides administrative services to the Fund.
Shares of the Fund are distributed on a continuous basis at their current
net asset value per share, without imposition of any front-end or contingent
deferred sales charge, by Mercer Allied Company (the "Distributor") and by
selected securities dealers. The minimum initial investment in the Fund is
$5,000. Subsequent investments may be made in any amount of $1,000 or more.
_______________________________
Information about the Fund is set forth in a separate Prospectus for the
Fund, dated ______________, 1997, which provides the basic information you
should know before investing. To obtain a copy of the Fund's Prospectus,
please write to Granum Value Fund, c/o Firstar Trust Company, 615 East Michigan
Street, 3rd Floor, Milwaukee, WI 53202, or call 1-888-5-GRANUM (547-2686).
This Statement of Additional Information is not a prospectus, but contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide you with additional information
regarding the activities and operations of the Fund and the Trust, and should
be read in conjunction with the Fund's Prospectus.
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT POLICIES AND PRACTICES 3
DERIVATIVE INVESTMENTS 8
INVESTMENT RESTRICTIONS 10
TRUSTEES AND OFFICERS 12
INVESTMENT ADVISORY AGREEMENT 16
DISTRIBUTOR 17
DISTRIBUTION PLAN 18
HOW TO REDEEM SHARES 20
DETERMINATION OF NET ASSET VALUE 20
DIVIDENDS, DISTRIBUTIONS AND TAXES 22
PORTFOLIO TRANSACTIONS AND BROKERAGE 24
PERFORMANCE INFORMATION 26
GENERAL INFORMATION 27
APPENDIX A 35
</TABLE>
B-2
<PAGE> 39
INVESTMENT POLICIES AND PRACTICES
The sections below describe, in greater detail than in the Fund's
Prospectus, some of the different types of investments which may be made by the
Fund and the different investment practices in which the Fund may engage. The
use of options by the Fund are discussed under "DERIVATIVE INVESTMENTS." The
general investment policies of the Fund are described in the Prospectus.
TYPES OF EQUITY SECURITIES
The equity securities which may be purchased by the Fund include common,
preferred and convertible preferred stocks, and securities having equity
characteristics such as rights, warrants and convertible debt securities. See
"-Convertible Securities." Common stocks and preferred stocks represent equity
ownership interests in a corporation and participate in the corporation's
earnings through dividends which may be declared by the corporation. Unlike
common stocks, preferred stocks are entitled to stated dividends payable from
the corporation's earnings, which in some cases may be "cumulative" if prior
stated dividends have not been paid. Dividends payable on preferred stock have
priority over distributions to holders of common stock, and preferred stocks
generally have preferences on the distribution of assets in the event of the
corporation's liquidation. Preferred stocks may be "participating," which
means that they may be entitled to dividends in excess of the stated dividend
in certain cases. The rights of common and preferred stocks are generally
subordinate to rights associated with a corporation's debt securities.
CONVERTIBLE SECURITIES
Convertible securities may be purchased by the Fund. These securities
include convertible debt obligations and convertible preferred stock. A
convertible security entitles the holder to exchange it for a fixed number of
shares of common stock (or other equity security), usually at a fixed price
within a specified period of time. Until conversion, the holder receives the
interest paid on a convertible bond or the dividend preference of a preferred
stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield it provides in comparison with similar securities
without the conversion feature. The investment value changes based upon
prevailing interest rates and other factors. They also have a "conversion
value" which is the worth in market value if the security were exchanged for
the underlying equity security. Conversion value fluctuates directly with the
price of the underlying security. If conversion value is substantially below
investment value, the price of the convertible security is governed principally
by its investment value. If the conversion value is near or above investment
value, the price of the convertible security generally will rise above
investment value and may represent a premium over conversion value due to the
combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. A convertible security's price, when price is influenced primarily by
its conversion value, will generally yield less than a senior non-convertible
security of comparable investment value.
B-3
<PAGE> 40
Convertible securities may be purchased at varying price levels above their
investment values or conversion values. However, there is no assurance that
any premium above investment value or conversion value will be recovered
because prices change and, as a result, the ability to achieve capital
appreciation through conversion may never be realized.
SPECIAL CORPORATE SITUATION INVESTMENTS
The Fund may invest a significant portion of its total assets in
securities of companies that may be involved in special corporate situations,
the occurrence of which would favorably affect the values of the companies'
equity securities. Such situations could include, among other developments,
the following: a change in management or management policies; the acquisition
of a significant equity position in the company by an investor or investor
group; a merger, reorganization or the sale of a division; the spin-off of a
subsidiary, division, or other substantial assets; or a third-party or issuer
tender offer. The primary risk of this type of investing is that if the
contemplated transaction is abandoned, revised, delayed or becomes subject to
unanticipated uncertainties, the market price of the securities may decline
below the purchase price paid by the Fund.
In general, securities that are the subject of a special corporate
situation sell at a premium to their market prices immediately prior to the
announcement of the situation. However, the increased market price of these
securities sometimes reflect a discount from what the stated or appraised value
of the security would be if the contemplated transaction were approved or
consummated. These investments may be advantageous when the following occur:
(1) the discount significantly overstates the risk of the contingencies
involved; (2) the discount significantly undervalues the securities, assets or
cash to be received by shareholders of the prospective portfolio company as a
result of the contemplated transactions; or (3) the discount fails adequately
to recognize the possibility that the offer or proposal may be replaced or
superseded by an offer or proposal of greater value. The evaluation of these
contingencies requires unusually broad knowledge and experience on the part of
the Investment Adviser, which must appraise not only the value of the issuer
and its component businesses as well as the assets or securities to be received
as a result of the contemplated transaction, but also the financial resources
and business motivation of the offeror as well as the dynamics of the business
climate when the offer or proposal is in progress.
The Fund's special corporate situation investments may tend to increase
its turnover ratio, thereby increasing its brokerage and other transaction
expenses as well as making it more difficult for the Fund to meet the tests for
favorable tax treatment as a "regulated investment company" specified by the
Internal Revenue Code of 1986, as amended (the "Code"). See "DIVIDENDS,
DISTRIBUTIONS AND TAXES." The Investment Adviser attempts to select
investments of the type described that, in its view, have a reasonable prospect
of capital appreciation that is significant in relation to both the risk
involved and the potential of available alternate investments. The Investment
Adviser will closely monitor the effect of such investments on the tax
qualification tests of the Code.
B-4
<PAGE> 41
TYPES OF FIXED INCOME SECURITIES
Generally. The types of fixed income securities in which the Fund may
invest, and certain of their attendant risks, are described in the Prospectus.
Under certain circumstances, these investments are subject to certain quality
limitations and other restrictions and include money market instruments and
other types of obligations. Investors should recognize that, although
securities ratings issued by Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. ("S&P") and Moody's Investors Service, Inc.
("Moody's") provide a generally useful guide as to credit risks, they do not
offer any criteria to evaluate interest rate risk. A description of the ratings
used by S&P and Moody's is set forth in Appendix A to this Statement of
Additional Information. Changes in interest rate levels generally cause
fluctuations in the prices of fixed income securities and will, therefore, cause
fluctuations in the net asset value per share of the Fund. Subsequent to the
purchase of a fixed income security by the Fund, the ratings or credit quality
of such security may deteriorate. Any such subsequent adverse changes in the
rating or quality of a security held by the Fund would not require the Fund to
sell the security.
Zero Coupon Securities. Fixed income securities purchased by the Fund may
include zero coupon securities. These securities do not pay any interest until
maturity and, for this reason, zero coupon securities of longer maturities may
trade at a deep discount from their face or par values and may be subject to
greater fluctuations in market value than ordinary debt obligations of
comparable maturity. Current federal tax law requires the holder of a zero
coupon security to accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment that year.
Variable and Floating Rate Securities. Fixed income securities purchased
by the Fund may also include variable and floating rate securities. The
interest rates payable on these securities are adjusted either at
pre-designated periodic intervals or whenever there is a change in an
established market rate of interest. Other features may include a right
whereby the Fund may demand prepayment of the principal amount prior to the
stated maturity (a "demand feature") and the right of an issuer to prepay the
principal amount prior to maturity. One benefit of variable and floating rate
securities is that, because of interest rate adjustments on the obligation,
changes in market value that would normally result from fluctuations in
prevailing interest rates are reduced. One benefit of a demand feature is
enhanced liquidity.
Non-Investment Grade Debt Securities. As discussed in the Prospectus, the
Fund may invest in both investment grade and non-investment grade debt
securities. Non-investment grade debt securities (typically called "junk
bonds") are securities that are considered to be predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of
such issuers generally is greater than is the case with higher grade
securities. For example, during an economic downturn or a sustained period of
rising
B-5
<PAGE> 42
interest rates, highly leveraged issuers of these securities may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be affected adversely by
specific corporate developments, forecasts, or the unavailability of additional
financing. The risk of loss because of default by the issuer is significantly
greater for the holders of these securities because such securities generally
are unsecured and often are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of these
securities, the Fund anticipates that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent a
secondary trading market for these securities does exist, it generally is not
as liquid as the secondary market for higher grade securities. The lack of a
liquid secondary market may have an adverse impact on market price and yield
and the Fund's ability to dispose of particular issues when necessary to meet
the Fund's liquidity needs or in response to a specific economic event such as
a deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic downturns.
It is likely that an economic recession could disrupt severely the market for
such securities and may have an adverse impact on the value of such securities.
In addition, it is likely that any such economic downturn could adversely
affect the ability of the issuers of such securities to repay principal and pay
interest thereon and increase the incidence of default for such securities.
The Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Fund has
no arrangement with any person concerning the acquisition of such securities,
and the Investment Adviser will review the credit and other characteristics
pertinent to such new issues.
FORWARD CONTRACTS
As discussed in the Prospectus, the Fund is authorized to enter into
forward foreign currency exchange contracts ("forward contracts"). These
contracts represent agreements to exchange an amount of currency at an agreed
upon future date and rate. The rate can be higher or lower than the spot rate
between the currencies that are the subject of the contract. A forward
contract generally has no deposit requirement, and such transactions do not
involve commissions. By entering into a forward contract for the purchase or
sale of the amount of foreign currency invested in an equity or fixed income
security of a foreign issuer (a "foreign security"), the Fund can hedge against
possible variations in the value of the dollar versus the subject currency
either between the date the foreign security is purchased or sold and the date
on which payment is made or received ("transaction hedging"), or during the
time the Fund holds the foreign security ("position hedging"). Hedging against
a decline in the value of a currency through the use of forward contracts does
not eliminate fluctuations in the prices of
B-6
<PAGE> 43
securities or prevent losses if the prices of securities decline. Hedging
transactions preclude the opportunity for gain if the value of the hedged
currency should rise. The Fund will not speculate in forward currency
contracts. If the Fund enters into a "position hedging transaction," which is
the sale of forward non-U.S. currency with respect to a security held by it and
denominated in such foreign currency, the Trust's custodian will place cash or
liquid securities in a separate account in an amount equal to the value of the
Fund's total assets committed to the consummation of such forward contract. If
the value of the securities placed in the account declines, additional cash or
securities will be placed in the account so that the value of cash or
securities in the account will equal the amount of the Fund's commitments with
respect to such contracts. Forward contracts will not be used in all cases
and, in any event, cannot completely protect the Fund against all changes in
the values of foreign securities resulting from fluctuations in foreign
exchange rates.
REPURCHASE AGREEMENTS
As discussed in the Prospectus, the Fund may enter into repurchase
agreements involving the types of securities which are eligible for purchase by
the Fund. However, there is no limitation upon the maturity of the securities
underlying the repurchase agreements.
Repurchase agreements, which may be viewed as a type of secured lending by
the Fund, typically involve the acquisition by the Fund of debt securities
issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities (collectively, "U.S. Government Securities") or other
securities from a selling financial institution such as a bank, savings and
loan association or broker-dealer. The agreement provides that the Fund will
sell back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
Fund will receive interest from the institution until the time when the
repurchase is to occur. Although such date is deemed to be the maturity date
of a repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Trust follows procedures designed to
minimize such risks. These procedures include a requirement that the
Investment Adviser effect repurchase transactions only with large, well
capitalized United States financial institutions approved by it as creditworthy
based upon periodic review under guidelines established and monitored by the
Board of Trustees. In addition, the value of the collateral underlying the
repurchase agreement, which will be held by the Trust's custodian on behalf of
the Fund, will always be at least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement. In the event of a default
or bankruptcy by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercise of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
B-7
<PAGE> 44
LENDING PORTFOLIO SECURITIES
As discussed in the Prospectus, the Fund may lend its portfolio securities
to brokers, dealers and financial institutions. The advantage of such loans is
that the Fund continues to receive the income on the loaned securities while at
the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short-term investments.
A loan may be terminated by the borrower on one business day's notice, or
by the Trust on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Trust could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost exceeding the collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities
fail financially. However, loans of securities will only be made to firms
deemed by the Board of Trustees to be creditworthy (such creditworthiness will
be monitored on an ongoing basis) and when the income which can be earned from
such loans justifies the attendant risks. Upon termination of the loan, the
borrower is required to return the securities. Any gain or loss in the market
price during the loan period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Trust will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the exercise
of such rights if the matters involved would have a material effect on the
investment in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with loans of securities. The
Fund may lend foreign securities consistent with the foregoing requirements.
DERIVATIVE INVESTMENTS
As discussed in the Prospectus, the Fund may use certain derivative
instruments in connection with its investment activities. These include
options on individual securities, options on securities indices, options on
foreign currency and warrants (collectively, "Derivatives"). The specific
Derivatives transactions in which the Fund may engage are noted and described
in the Prospectus. The discussion below provides additional information
regarding the risk of Derivatives generally and use of options on securities
indices.
DERIVATIVES - GENERALLY
The Fund may invest in Derivatives for a variety of reasons, including to
hedge certain market risks, to provide a substitute for purchasing or selling
particular securities or to increase potential income gain. Derivatives may
provide a less costly, quicker or more specifically focused way for the Fund to
invest than "traditional" securities and currencies would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the Fund's
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
level of risk, or change the character
B-8
<PAGE> 45
of the risk, to which its portfolio is exposed in much the same way as the Fund
can increase or decrease the level of risk, or change the character of the
risk, of its portfolio by making investments in specific securities or
currencies.
Derivatives may entail investment exposures that are greater than their
cost would suggest, meaning that a small investment in Derivatives could have a
large potential impact on the Fund's performance.
Derivatives may be purchased on established exchanges or over-the-counter
through privately negotiated transactions. Exchange traded Derivatives
generally are guaranteed by the clearing agency which is the issuer or
counterparty to such Derivatives. This guarantee usually is supported by a
daily payment system (i.e., variation margin requirements) operated by the
clearing agency in order to reduce settlement risks. As a result, unless the
clearing agency defaults, there is relatively little counterparty credit risk
associated with Derivatives purchased on an exchange. By contrast, no clearing
agency guarantees over-the-counter Derivatives. Therefore, each party to an
over-the-counter Derivative bears the risk that the counterparty will default.
Accordingly, the Investment Adviser will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it would
review the credit quality of a security to be purchased by the Fund.
Over-the-counter Derivatives are less liquid than exchange-traded Derivatives
since the other party to the transaction may be the only investor with
sufficient understanding of the Derivative to be interested in bidding for it.
RISKS OF OPTIONS ON SECURITIES INDICES
As discussed in the Prospectus, the purchase and sale of options on
securities indices will be subject to risks applicable to options transactions
generally. In addition, the distinctive characteristics of options on indices
create certain risks that are not present with securities options. Index
prices may be distorted if trading of certain securities included in the index
is interrupted. Trading in index options also may be interrupted in certain
circumstances such as if trading were halted in a substantial number of
securities included in the index or if dissemination of the current level of an
underlying index is interrupted. If this occurred, the Fund would not be able
to close out options which it had purchased and, if restrictions on exercise
were imposed, may be unable to exercise an option it holds, which could result
in losses if the underlying index moves adversely before trading resumes.
However, it is the Fund's policy to purchase options only on indices which
include a sufficient number of securities so that the likelihood of a trading
halt in the index is minimized.
The purchaser of an index option may also be subject to a timing risk. If
an option is exercised by the Fund before final determination of the closing
index value for that day, the risk exists that the level of the underlying
index may subsequently change. If such a change caused the exercised option to
fall out-of-the-money (that is, the exercising of the option would result in a
loss, not a gain), the Fund would be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be able to minimize
this risk by withholding exercise instructions until just before the daily
cutoff time, it may not be possible to eliminate this risk
B-9
<PAGE> 46
entirely because the exercise cutoff times for index options may be earlier
than those fixed for other types of options and may occur before definitive
closing index values are announced. Alternatively, when the index level is
close to the exercise price, the Fund may sell rather than exercise the option.
Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are not as liquid. The ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain
that this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until in the opinion of
the Investment Adviser the market for such options has developed sufficiently
that such risk in connection with such transactions is no greater than such
risk in connection with options on securities.
LIMITATIONS ON OPTIONS ON SECURITIES AND SECURITIES INDICES
The Fund may invest up to 10% of its total assets, represented by the
premium paid, in the purchase of call and put options on securities and
securities indices. The Fund may write (i.e., sell) covered call and put
options on securities and securities indices to the extent of 10% of the value
of its total assets at the time such options are written.
INVESTMENT RESTRICTIONS
The Fund has adopted various investment restrictions on its investment
activities. Certain of these are fundamental policies which cannot be changed
without approval by the holders of a majority, as defined in the Investment
Company Act of 1940 (the "1940 Act"), of the Fund's outstanding voting shares.
For the Fund to alter a fundamental policy requires the affirmative vote of the
holders of (a) 67% or more of the shares of the Fund present at a meeting of
shareholders, if the holders of at least 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund, whichever is less.
Under its fundamental policies, the Fund may not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there
shall be no limitation on the purchase of U.S. Government
securities.
2. Purchase or sell commodities, except that the Fund may
purchase and sell foreign currency and options on foreign currency
and may enter into forward foreign currency exchange contracts in
connection with its investments in foreign securities.
3. Purchase or sell real estate or interests therein, or
purchase oil, gas or other mineral leases, rights or royalty
contracts or development programs, except that the Fund may invest
in the securities of issuers engaged in the foregoing activities and
may invest in securities secured by real estate or interests
therein.
B-10
<PAGE> 47
4. Issue senior securities as defined by the 1940 Act or borrow
money, except that the Fund may borrow from banks for temporary
extraordinary or emergency purposes (but not for investment) in an
amount up to 10% of the value of the Fund's total assets (calculated
at the time of the borrowing). The Fund may not make additional
investments while it has any borrowings outstanding. This
restriction shall not be deemed to prohibit the Fund from purchasing
or selling securities on a when-issued or delayed-delivery basis, or
entering into repurchase agreements, lending portfolio securities,
selling securities short against-the-box, or writing covered put and
call options on securities, stock indices and foreign currencies, in
each case in accordance with such investment policies as may be
adopted by the Board of Trustees.
5. Underwrite the securities of other issuers, except to the
extent that the Fund may be deemed to be an underwriter in
connection with the disposition of portfolio securities.
6. Make loans of money or securities, except that the Fund may
lend money through the purchase of permitted investments, including
repurchase agreements, and may lend its portfolio securities in an
amount not exceeding 33-1/3% of the value of the Fund's total
assets.
The Fund has adopted the following additional investment restrictions
which are not fundamental and may be changed by the Board of Trustees. Under
these restrictions, the Fund may not:
1. Make short sales of securities (other than short sales
against-the-box) or purchase securities on margin, but the Fund may
make margin deposits in connection with its permitted investment
activities.
2. Invest in the securities of a company for the purpose of
exercising management or control; however, this shall not be deemed
to prohibit the Fund from exercising voting rights with respect to
its portfolio securities.
3. Pledge, mortgage, hypothecate or otherwise encumber its
assets, except to secure permitted borrowings and to implement
collateral and similar arrangements incident to permitted investment
practices.
4. Purchase securities which are illiquid, including repurchase
agreements maturing in more than seven days, if as a result more
than 15% of the value of the Fund's net assets would be so
invested.
5. Purchase securities of other investment companies, except to
the extent permitted under the 1940 Act.
Except as otherwise may be stated, all percentage limitations on the
Fund's investment practices apply at the time of an investment or a
transaction. A later change in any percentage
B-11
<PAGE> 48
resulting from a change in value of the investment or the total value of the
Fund's assets will not constitute a violation of such restriction.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust has the overall responsibility for
monitoring the operations of the Trust and the Fund and for supervising the
services provided by the Investment Adviser and other organizations. The
officers of the Trust are responsible for managing the day-to-day operations of
the Trust and the Fund.
Set forth below is information with respect to each of the Trustees and
officers of the Trust, including their principal occupations during the past
five years.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION(S) WITH TRUST DURING LAST FIVE YEARS
- --------------------- ---------------------- ----------------------
<S> <C> <C>
John Breyo (50)* Trustee President of The Ayco
One Wall Street Company, L.P., December 1994
Albany, New York 12205- to present; President of Ayco
3894 Corporation previously.
Lewis M. Eisenberg (54)* Co-Chairman of the Co-Chairman of private investment
126 East 56th Street Board of Trustees adviser; Managing Member of Granum
25th Floor Capital Management, L.L.C. since
New York, New York 10022 January 27, 1997.
Walter F. Harrison, III (53)* Co-Chairman of the Co-Chairman of private investment
126 East 56th Street Board of Trustees adviser; Managing Member of Granum
25th Floor Capital Management, L.L.C. since
New York, New York 10022 January 27, 1997.
Herbert W. McCord (54) Trustee President and Chief Executive
125 Half Mile Road Officer of Granum Communications
Suite 200 Corporation, October 1996 until
Red Bank, New Jersey 07701 present; President and Chief
Executive Officer of Granum
Communications, Inc. and Granum
Holdings, L.P., May 1990 to June 1996.
</TABLE>
B-12
<PAGE> 49
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION(S) WITH TRUST DURING LAST FIVE YEARS
- --------------------- ---------------------- ----------------------
<S> <C> <C>
Burnell R. Roberts (70) Trustee Chairman of Sweetheart
Rettering Tower Holding Inc. and Sweetheart
Suite 2340 Cup Company, Inc.
Dayton, Ohio 45423 September 1993 to present:
Director of Mead
Corporation. October 1981 to
May 1993; Chairman of
Board of Directors and Chief
Executive Officer of Mead
Corporation, April 1982 to
May 1992.
Allen Sinai (57) Trustee Chief Global Economist,
260 Franklin Street President and Chief Executive
15th Floor Officer of Primark Decision
Boston, Massachusetts 02110 Economics, Inc.
Richard A. Zimmer (52) Trustee Partner with Dechert, Price &
199 Nassau Street Rhoads, February 1997 until
Princeton, New Jersey 08540 present; Member of Congress,
from the 12th District of New
Jersey, 1991 to 1997.
Peter Heerwagen (50) Vice President Senior Vice President and
One Wall Street Chief Investment Officer of
Albany, New York 12205- The Ayco Company, L.P.,
3894 December 1994 to present;
Senior, Vice President and
Chief Investment Officer of
Ayco Corporation previously.
Eugene Mercy, Jr. (60) Vice President Principal of private
126 East 56th Street investment adviser.
25th Floor
New York, New York 10022
Paul A. Matten (34) Vice President Vice president of private
126 East 56th Street investment adviser since
25th Floor January 1996; Vice President
New York, New York 10022 of Granum Capital
Management, L.L.C. since
January 27, 1996. Received
</TABLE>
B-13
<PAGE> 50
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION(S) WITH TRUST DURING LAST FIVE YEARS
- --------------------- ---------------------- ----------------------
<S> <C> <C>
M.A. from Harvard
University in 1995; Financial
analyst with private
investment adviser from
1992 to 1995; Received
M.B.A. and J.D. from
Harvard University in 1991
Jonas B. Siegel (53) Vice President, Treasurer Managing Director and Chief
126 East 56th Street and Chief Financial Administrative Officer of
25th Floor Officer private investment adviser,
New York, New York 10022 January 1994 to present;
Managing Director of
Granum Capital
Management, L.L.C. since
January 27, 1996. Vice
President of Goldman, Sachs
& Co. from 1982 to 1993.
Peter R. Martin (39) Vice President and General Counsel of The Ayco
One Wall Street Secretary Company, L.P., December
Albany, New York 12205 1994 to present, General
3894 Counsel of Ayco Corporation
previously.
</TABLE>
* Messrs. Breyo, Eisenberg and Harrison are Trustees who are "interested
persons" (as defined by the 1940 Act) of the Trust by virtue of their
affiliations with the Investment Adviser or a Distributor.
Trustees who are not officers or employees of the Investment Adviser, a
Distributor or their affiliated companies, are each paid an annual retainer of
$6,000 and receive an attendance fee of $1,000 for each meeting of the Board of
Trustees they attend. Officers of the Trust, all of whom are members, officers
or employees of the Investment Adviser, the Distributor, the Administrator, or
their affiliates, receive no compensation from the Trust.
Trustee compensation from the Trust for the current fiscal year is
estimated as follows:
B-14
<PAGE> 51
COMPENSATION TABLE
------------------
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT BENEFITS ESTIMATED TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF BENEFITS FROM TRUST PAID
POSITION FROM FUND FUND EXPENSES UPON RETIREMENT TO TRUSTEES
- ------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
John Breyo, $0 $0 $0 $0
Trustee
Lewis M. Eisenberg, $0 $0 $0 $0
Co-Chairman of the
Board of Trustees
Walter Harrison, $0 $0 $0 $0
Co-Chairman of the
Board of Trustees
Herbert W. McCord, $10,000 $0 $0 $10,000
Trustee
Burnell R. Roberts, $10,000 $0 $0 $10,000
Trustee
Allen Sinai, $10,000 $0 $0 $10,000
Trustee
Richard A. Zimmer, $10,000 $0 $0 $10,000
Trustee
</TABLE>
B-15
<PAGE> 52
INVESTMENT ADVISORY AGREEMENT
The following information supplements and should be read in conjunction
with the sections in the Fund's Prospectus entitled "MANAGEMENT OF THE FUND -
Investment Adviser."
The Investment Adviser is a Delaware limited liability company with
offices at 126 East 56th Street, Twenty-fifth floor, New York, New York 10022.
It is controlled by its managing members, Messrs. Eisenberg and Harrison.
The Investment Adviser provides investment advisory services to the Fund
pursuant to an Investment Advisory Agreement (the "Advisory Agreement"), dated
March 13, 1997 with the Trust. The Advisory Agreement was approved by the
Trust's Board of Trustees, including a majority of the Trustees who are not
"interested persons" (as defined by the 1940 Act) of the Trust at a meeting held
on March 13, 1997, and was approved on March 13, 1997 by the vote of
the sole shareholder of the Trust on such date. The Advisory Agreement is
terminable without penalty, on 60 days' notice, by the Trust's Board or by vote
of the holders of a majority of the Fund's shares, or, on not less than 90 days'
notice, by the Investment Adviser. The Advisory Agreement has an initial term
expiring on February 28, 1999, and may be continued in effect from year to year
thereafter subject to the approval thereof by (i) the Trust's Board or (ii) vote
of a majority (as defined by the 1940 Act) of the outstanding voting securities
of the Fund, provided that in either event the continuance must also be
approved by a majority of the Trustees who are not "interested persons" (as
defined by the 1940 Act) of the Trust or the Investment Adviser, by vote cast
in person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement provides that it will terminate automatically in the event
of its "assignment" (as defined by the 1940 Act and the rules thereunder).
The Investment Adviser manages the Fund's investments in accordance with
the stated policies of the Fund, subject to the supervision of the Trust's
Board. The Investment Adviser is responsible for all investment decisions for
the Fund and for placing orders for the purchase and sale of investments for
the Fund's portfolio. The Investment Adviser also provides such additional
administrative services as the Trust or the Fund may require beyond those
furnished by the Administrator and furnishes, at its own expense, such office
space, facilities, equipment, clerical help, and other personnel and services
as may reasonably be necessary in connection with the operations of the Trust
and the Fund. In addition, the Investment Adviser pays the salaries of
officers of the Trust and any fees and expenses of Trustees of the Trust who
are also officers, directors or employees of the Investment Adviser or who are
officers or employees of any company affiliated with the Investment Adviser and
bears the cost of telephone service, heat, light, power and other utilities
associated with the services it provides.
In consideration of the services provided by the Investment Adviser, the
Fund pays the Investment Adviser monthly compensation computed daily at the
annual rate of 1.25% of the Fund's net assets (the "Basic Fee"), which rate is
adjusted monthly, as described below
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(the "Monthly Performance Adjustment"), depending on the investment performance
of the Fund relative to the investment performance of the Standard
& Poor's Composite Index of 500 Stocks (the "S&P 500 Index"). The Basic Fee as
so adjusted is the "Total Advisory Fee."
The Total Advisory Fee applicable each calendar month is determined by: (1)
adding (a) 1/12th of the Basic Fee plus (b) 1/12th of the Monthly Performance
Adjustment (as specified below); (2) multiplying the result thereof by the net
assets of the Fund; and (3) dividing the amount so determined by the number of
days in the month. The Monthly Performance Adjustment for each month is a
percentage rate determined by: (a) subtracting from the cumulative percentage
performance of the Fund (net of all expenses, including the fees payable
pursuant to this Agreement) over the 12 calendar months preceding, the
percentage change in the S&P 500 Index over the same period (including the value
of dividends paid during the measurement period on stocks included in the S&P
500 Index); and (b) multiplying the result by 0.15; provided, however, that the
maximum Monthly Performance Adjustment will not exceed +.75% or -.75%. Until
such time as the Fund has completed 12 full calendar months of operations, the
performance of the Fund and the S&P 500 Index will be measured from the date of
commencement of the Fund's operations. The Monthly Performance Adjustment will
become applicable only after the Fund has completed three full calendar months
of operations.
The Basic Fee, and the Total Advisory Fee that may be payable by the Fund
as a result of the Monthly Performance Adjustment, are each higher than the
fees paid by most other mutual funds with investment objectives similar to the
investment objective of the Fund.
DISTRIBUTOR
Shares of the Fund are distributed on a continuous basis at their current
net asset value per share, without imposition of any front-end or contingent
deferred sales charge, by Mercer Allied Company, which is the Distributor, and
by selected securities dealers. The Distributor provides these services to the
Fund pursuant to a Distribution Agreement, dated as of March 13, 1997, with the
Trust (the "Distribution Agreement"). The Distribution Agreement was approved
by the Board of Trustees, including a majority of the Trustees who are not
parties to the Distribution Agreement or "interested persons" (as defined by the
1940 Act) of the Investment Adviser or the Distributor, at a meeting held on
March 13, 1997, and was also approved on March 13, 1997 by the vote of
the sole shareholder of the Trust. The Distribution Agreement is terminable
without penalty, on 60 days' notice, by the Trust's Board or by vote of the
holders of a majority of the Fund's shares, or, on not less than 90 days'
notice, by the Distributor. The Distribution Agreement has an initial term
expiring on March 13, 1999, and may be continued in effect from year-to-year
thereafter, subject to the approval by (i) the Trust's Board or (ii) vote of
the holders of a majority of the Fund's outstanding shares, provided that in
either event the continuance must also be approved by a majority of the
Trustees who are not "interested persons" (as defined by the 1940 Act) of the
Investment Adviser or the Distributor, by vote cast in person at a meeting
called for the purpose of voting on such approval.
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The Distribution Agreement provides that it will terminate automatically in the
event of its "assignment" (as defined by the 1940 Act and the rules thereunder).
Under the terms of the Distribution Agreement, the Distributor bears all of
the costs associated with distribution of the shares of the Fund, including the
incremental cost of printing prospectuses, statements of additional information,
annual reports and other periodic reports for distribution to prospective
investors and the costs of preparing, distributing and publishing sales
literature and advertising materials. However, pursuant to a distribution plan
adopted by the Trust, the Fund makes certain payments to the Distributor for
services it provides. See "DISTRIBUTION PLAN." In the Distribution Agreement,
the Trust has agreed to indemnify the Distributor to the extent permitted by
applicable law against certain liabilities under the Securities Act of 1933, as
amended.
The Distributor is a Delaware limited partnership that is wholly owned by
The Ayco Company, L.P. and the principals of that firm. The Distributor's
address is One Wall Street, Albany, New York 12205.
The Board of Trustees has also approved a distribution agreement with
Granum Securities, L.L.C. ("Granum Securities"), a newly formed affiliate of the
Investment Adviser. This agreement will become effective at such time as Granum
Securities becomes a member of the National Association of Securities Dealers,
Inc., and has obtained such other licenses and approvals as necessary to engage
in business as a broker-dealer. When the agreement becomes effective, Granum
Securities and the Distributor will be co-distributors of shares of the Fund.
The terms of the distribution Agreement with Granum Securities is in all
material respects the same as the Distribution Agreement with the Distributor.
DISTRIBUTION PLAN
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "DISTRIBUTION PLAN."
The Trust has adopted a plan of distribution on behalf of the Fund
pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plan"). The
Distribution Plan was approved by the Board of Trustees, including a majority
of the Trustees who are not "interested persons" (as defined by the 1940 Act)
of the Trust and who have no direct or indirect financial interest in the
operation of the Distribution Plan or in any agreement related to the Plan
("Qualified Trustees"), on March 13, 1997. The Distribution Plan provides
that it will continue in effect for a period of one year from the date of its
execution, and may be continued in effect from year to year thereafter,
provided that each such continuance is approved annually by a vote of both a
majority of the Trustees and a majority of the Qualified Trustees. The
Distribution Plan requires that the Trust shall provide to the Board of
Trustees, and the Board of Trustees shall review, at least quarterly, a written
report of the amounts expended (and the purposes therefor) under the
Distribution Plan. The Distribution Plan further provides that the selection
and nomination of Qualified Trustees shall be committed to the discretion of
those
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<PAGE> 55
Trustees, who are not "interested persons" (as defined by the 1940 Act) of the
Distributor, then in office. The Distribution Plan may be terminated at any
time by a vote of a majority of the Qualified Trustees or by vote of a majority
of the outstanding voting shares of the Fund (as defined by the 1940 Act). The
Distribution Plan may not be amended to increase materially the amount of
permitted expenses thereunder without the approval of shareholders and may not
be materially amended in any case without a vote of the majority of both the
Trustees and the Qualified Trustees. The Fund will preserve copies of any plan,
agreement or report made pursuant to the Distribution Plan for a period of not
less than six years from the date of the Distribution Plan, and for the first
two years such copies will be preserved in an easily accessible place.
Under the Distribution Plan, the Fund compensates the Distributor for the
services it provides in connection with the sale of the Fund's shares to
investors ("Distribution Services") and for furnishing or arranging for
securities dealers to provide account related services to shareholders
("Shareholder Services"). Shareholder Services provided by the Distributor
and securities dealers include responding to shareholder inquiries regarding
the Fund and their accounts with the Fund, and providing shareholders with
reports, information and services related to their Fund accounts.
In consideration of the services provided by the Distributor, the Trust
has agreed on behalf of the Fund to pay a monthly fee to the Distributor for
Distribution Services and a monthly fee to the Distributor for Shareholder
Services, which fees are computed at the annual rates of 0.50% of the average
net assets of the Fund, and 0.25% of the average net assets of the Fund,
respectively, attributable to shares held by persons who have purchased shares
through the Distributor or through broker-dealers that have entered into
selling agreements with the Distributor. Granum Securities will provide
similar services when it becomes a distributor of shares of the Fund and will
be paid compensation under the Distribution Plan which is computed on the same
basis as payments made to the Distributor.
Since payments made pursuant to the Distribution Plan are not directly
tied to actual expenses, the amount of payments by the Fund during any year may
be more or less than actual expenses incurred by the Distributor pursuant to
the Distribution Plan. For this reason, this type of distribution fee
arrangement is characterized by the staff of the Securities and Exchange
Commission as being of the "compensation variety" (in contrast to
"reimbursement" arrangements under which payments by a fund are directly linked
to reimburse specific expenses). However, the Fund is not liable for any
distribution related expenses incurred by the Distributor in excess of the
amounts paid pursuant the Distribution Plan.
The Fund estimates that for its first full calendar year of operations,
$125,000 in Distribution Fees and $62,500 in Shareholder Services Fees will be
paid or accrued to the Distributor, assuming net assets of the Fund of $25
million (which cannot be assured).
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HOW TO REDEEM SHARES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "HOW TO REDEEM SHARES."
WIRE REDEMPTION PRIVILEGE
By using this Privilege, the investor authorizes the Transfer Agent to act
on wire or telephone redemption instructions from any person representing
himself or herself to be the investor and reasonably believed by the Transfer
Agent to be genuine. Ordinarily, the Trust will initiate payment for shares
redeemed pursuant to this Privilege on the next business day after receipt by
the Transfer Agent of the redemption request in proper form. Redemption
proceeds ($1,000 minimum) will be transferred by Federal Reserve wire only to
the commercial bank account specified by the investor on the Account
Application or Distribution Services Form, or to a correspondent bank if the
investor's bank is not a member of the Federal Reserve System. Fees ordinarily
are imposed by such bank and usually are borne by the investor. Immediate
notification by the correspondent bank to the investor's bank may be necessary
to avoid a delay in crediting the Fund to the investor's bank account.
To change the commercial bank, or account designated to receive redemption
proceeds, a written request must be sent to the Transfer Agent. This request
must be signed by each shareholder, with each signature guaranteed as described
in the Prospectus under "HOW TO REDEEM SHARES - Written Redemption Requests."
SUSPENSION OF REDEMPTIONS
The right of redemption may be suspended or the date of payment postponed
(a) during any period when the New York Stock Exchange, Inc. (the "NYSE") is
closed (other than customary weekend and holiday closings), (b) when trading in
the markets the Fund ordinarily utilizes is restricted, or when an emergency
exists as determined by the Securities and Exchange Commission such that
disposal of the Fund's investments or determination of its net asset value is
not reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit to protect the Fund's shareholders.
DETERMINATION OF NET ASSET VALUE
The following information supplements and should be read in conjunction
with the sections in the Fund's Prospectus entitled "HOW TO BUY SHARES" and
"HOW TO REDEEM SHARES."
Net asset value is determined as of the close of trading on the NYSE
(generally 4:00 p.m. Eastern time), except that no computation need be made on a
day on which no orders to purchase or redeem shares have been received. The
NYSE currently observes the following holidays: New Year's Day; Presidents' Day
(third Monday in February); Good Friday (Friday before Easter); Memorial Day
(last Monday in May); Independence Day;
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<PAGE> 57
Labor Day (first Monday in September); Thanksgiving Day (last Thursday in
November); and Christmas Day.
Net asset value per share is computed by dividing the value of the Fund's
net assets (i.e., the value of its assets less its liabilities) by the total
number of Fund shares outstanding. In computing net asset value, securities are
valued at market value as of the close of trading on each business day when the
NYSE is open. Securities, other than stock options, listed on the NYSE or other
exchanges are valued on the basis of the last reported sale price on the
exchange on which they are primarily traded. However, if the last sale price on
the NYSE is different than the last sale price on any other exchange, the NYSE
price will be used. If there are no sales on that day, then the securities are
valued at the bid price on the NYSE or other primary exchange for that day.
Securities traded in the over-the-counter market are valued on the basis of the
last sales price as reported by NASDAQ. If there are no sales on that day, then
the securities are valued at the mean between the closing bid and asked prices
as reported by NASDAQ. Stock options traded on national securities exchanges
are valued at the last sales price or, if no sales are reported, at the bid
price as of the close of the exchange. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined pursuant to procedures adopted in good faith by the Board of
Trustees. Debt securities which mature in less than 60 days are valued at
amortized cost (unless the Board of Trustees determines that this method does
not represent fair value), if their original maturity was 60 days or less or by
amortizing the value as of the 61st day prior to maturity, if their original
term to maturity exceeded 60 days. A pricing service may be utilized to
determine the fair value of securities held by the Fund. Any such service might
value the investments based on methods which include consideration of: yields
or prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. The
service may also employ electronic data processing techniques, a matrix system
or both to determine valuation. The Board of Trustees will review and monitor
the methods used by such services to assure itself that securities are valued at
their fair values.
The values of securities held by the Fund and other assets used in
computing net asset value are determined as of the time trading in such
securities is completed each day, which, in the case of foreign securities,
generally occurs at various times prior to the close of the NYSE. Trading in
securities listed on foreign securities exchanges will be valued at the last
sales price or, if no sales are reported, at the bid price as of the close of
the exchange. Foreign currency exchange rates are also generally determined
prior to the close of the NYSE. On occasion, the values of such securities and
exchange rates may be affected by events occurring between the time as of which
determinations of such values or exchange rates are made and the close of the
NYSE. When such events materially affect the value of securities held by the
Fund or their liabilities, such securities and liabilities will be valued at
fair value in accordance with procedures adopted in good faith by the Board of
Trustees. The values of any assets and liabilities initially expressed in
foreign currencies will be converted to U.S. dollars based on exchange rates
determined at the time of the close of the London Stock Exchange.
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<PAGE> 58
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "DIVIDENDS, DISTRIBUTIONS
AND TAXES." In addition, the following is only a summary of certain additional
tax considerations that are not described in the Prospectus and generally
affect the Fund and its shareholders. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus are not intended as substitutes for
careful tax planning.
It is the policy of the Trust each fiscal year to distribute substantially
all of the Fund's net investment income and net realized capital gains, if any,
to its shareholders. The Fund intends to qualify as a regulated investment
company under the provisions of the Code. If so qualified, the Fund will not be
subject to federal income tax on that part of its net investment income and net
realized capital gains which it distributed to its shareholders. To qualify for
such tax treatment, the Fund must generally, among other things, (a) derive at
least 90% of its gross income from dividends, interest (including payments
received with respect to loans of stock and securities) and gains from the sale
or other disposition of stock or securities and certain related income; (b)
derive less than 30% of its gross income from the sale or other disposition of
stock or securities or options or futures thereon and certain other investments
held less than three months; and (c) diversify its holdings so that at the end
of each fiscal quarter (i) 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and other securities limited, in
respect of any one issuer, to an amount not greater than 5% of the Fund's assets
or 10% of the voting securities of the issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities). These requirements may limit the ability of the
Fund to engage in certain transactions involving options.
Shareholders will be notified annually by the Fund as to the federal tax
status of dividends and distributions paid to or reinvested by the shareholder
for the preceding taxable year. In addition, dividend and long-term capital
gains distributions may also be subject to state and local taxes. Each
shareholder is advised to consult its own tax adviser concerning the tax
effects of share ownership.
Depending upon the composition of the Fund's income, the entire amount or
a portion of the dividends paid by the Fund from net investment income may
qualify for the dividends received deduction allowable to qualifying U.S.
corporate shareholders (the "dividends received deduction"). In general,
dividend income of the Fund distributed to qualifying corporate shareholders
will be eligible for the dividends received deduction only to the extent that
the Fund's income consists of dividends paid by U.S. corporations. However,
Section 246(c) of the Code provides that if a qualifying corporate shareholder
has disposed of Fund shares not held for 46 days or more and has received a
dividend from net investment income with respect to such shares, the portion
designated by the Fund as qualifying for the dividends received deduction will
not be eligible for such shareholder's dividends received deduction. In
addition, the Code provides other limitations with respect to the ability of a
qualifying
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<PAGE> 59
corporate shareholder to claim the dividends received deduction in
connection with holding Fund shares.
It should be noted that both dividends and capital gains distributions
received by an investor have the effect of reducing the net asset value of the
shares by the exact amount of the dividend or capital gains distribution. If
the net asset value of the shares should be reduced below a shareholder's cost
as a result of the distribution of realized long-term capital gains, such
distribution would be at least a partial return of capital but nonetheless
taxable at capital gains rates. Therefore, an investor should consider the tax
consequences of purchasing shares immediately prior to a distribution record
date.
Dividends and interest received by the Fund on foreign investments may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
Distributions by the Fund of net investment income and the excess of net
short-term capital gains over net long-term capital loss are taxable to
shareholders of the Fund as ordinary income regardless of whether such
distributions are reinvested in additional shares or paid in cash.
Distributions of net long-term gains, if any, are taxable as long-term capital
gains regardless of how long the investor has held the shares and regardless of
whether the distribution is received in additional shares or in cash.
Ordinarily, gains and losses realized by the Fund from portfolio
transactions will be treated as capital gains and losses. However, a portion
of the gain or loss realized from the disposition of foreign currencies
(including foreign currency denominated bank deposits) and non-U.S. dollar
denominated securities (including debt instruments and certain forward
contracts and options) may be treated as ordinary income or loss under Section
988 of the Code. In addition, all or a portion of any gains realized from the
sale or other disposition of certain market discount bonds will be treated as
ordinary income under Section 1276 of the Code. Finally, all or a portion of
the gain realized from engaging in "conversion transactions" may be treated as
ordinary income under Section 1258 of the Code. "Conversion transactions" are
defined to include certain forward, futures, option and straddle transactions,
transactions marketed or sold to produce capital gains, or transactions
described in Treasury regulations to be issued in the future.
Under Section 1256 of the Code, any gain or loss realized by the Fund from
certain forward contracts and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain
or loss will arise upon exercise or lapse of such contracts and options as well
as from closing transactions. In addition, any such contracts or options
remaining unexercised at the end of the Fund's taxable year will be treated as
sold for their then fair market value, resulting in additional gain or loss to
such Fund characterized in the manner described above.
Offsetting positions held by a Fund involving certain foreign currency
forward contracts or options may constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal
property. The tax treatment of
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<PAGE> 60
"straddles" is governed by Sections 1092 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Sections 1256 and 988 of
the Code. As such, all or a portion of any short or long-term capital gain
from certain "straddle" transactions may be recharacterized as ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in certain forward contracts or options transactions, such "straddles"
would be characterized as"mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed by Section
1256 of the Code. The Fund may make one or more elections with respect to
"mixed straddles." Depending on which election is made, if any, the results to
the Fund may differ. If no election is made, to the extent the "straddle" and
conversion transaction rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in the
offsetting position. Moreover, as a result of the "straddle" and conversion
transaction rules, short-term capital loss on "straddle" positions may be
recharacterized as long-term capital loss, long-term capital gains from such
positions may be treated as short-term capital gains, and any capital gains
from such positions may be treated as ordinary income.
Under present Delaware law, the Trust is not subject to any state income
taxation during any fiscal year in which the Fund qualifies as a regulated
investment company. However, the Trust might be subject to Delaware income
taxes for any taxable year in which the Fund did not so qualify. Further, the
Trust may be subject to tax in certain states where it does business. In those
states which have income tax laws, the tax treatment of the Trust and its
shareholders in respect to distributions may differ from federal tax treatment.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees, the
Investment Adviser is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
Certain money market instruments may be purchased directly from an issuer, in
which case no commission or discounts are paid. The Fund anticipates that its
transactions involving foreign securities will be effected primarily on
principal stock exchanges for such securities. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Affiliates of the Investment Adviser currently serve as investment adviser
to a number of clients, including private investment companies, and the
Investment Adviser may in the
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<PAGE> 61
"straddles" is governed by Sections 1092 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Sections 1256 and 988 of
the Code. As such, all or a portion of any short or long-term capital gain
from certain "straddle" transactions may be recharacterized as ordinary income.
If the Fund were treated as entering into "straddles" by reason of its
engaging in certain forward contracts or options transactions, such "straddles"
would be characterized as"mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed by Section
1256 of the Code. The Fund may make one or more elections with respect to
"mixed straddles." Depending on which election is made, if any, the results to
the Fund may differ. If no election is made, to the extent the "straddle" and
conversion transaction rules apply to positions established by the Fund, losses
realized by the Fund will be deferred to the extent of unrealized gain in the
offsetting position. Moreover, as a result of the "straddle" and conversion
transaction rules, short-term capital loss on "straddle" positions may be
recharacterized as long-term capital loss, long-term capital gains from such
positions may be treated as short-term capital gains, and any capital gains
from such positions may be treated as ordinary income.
Under present Delaware law, the Trust is not subject to any state income
taxation during any fiscal year in which the Fund qualifies as a regulated
investment company. However, the Trust might be subject to Delaware income
taxes for any taxable year in which the Fund did not so qualify. Further, the
Trust may be subject to tax in certain states where it does business. In those
states which have income tax laws, the tax treatment of the Trust and its
shareholders in respect to distributions may differ from federal tax treatment.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees, the
Investment Adviser is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
Certain money market instruments may be purchased directly from an issuer, in
which case no commission or discounts are paid. The Fund anticipates that its
transactions involving foreign securities will be effected primarily on
principal stock exchanges for such securities. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and
regulation of foreign stock exchanges and brokers than in the United States.
Affiliates of the Investment Adviser currently serve as investment adviser
to a number of clients, including private investment companies, and the
Investment Adviser may in the
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future act as investment adviser to other registered investment companies. It
is the practice of the Investment Adviser to cause purchase and sale
transactions to be allocated among the Fund and others whose assets are managed
by the Investment Adviser or its affiliates in such manner as it deems
equitable. In making such allocations, the main factors considered are the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held and the opinions of the persons
responsible for managing the Fund and the other client accounts. This procedure
may, under certain circumstances, have an adverse effect on the Fund.
The policy of the Trust regarding purchases and sales of securities for
the Fund is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, the
Trust's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Board of Trustees believes that a requirement always
to seek the lowest commission cost could impede effective management and
preclude the Investment Adviser from obtaining high quality brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Investment Adviser relies on its
experience and knowledge regarding commissions generally charged by various
brokers and on its judgment in evaluating the brokerage and research services
received from the broker effecting the transaction. Such determinations are
necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
In seeking to implement the Trust's policies, the Investment Adviser
effects transactions with those brokers and dealers who it believes provide the
most favorable prices and which are capable of providing efficient executions.
If the Investment Adviser believes such price and execution are obtainable from
more than one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Trust or the Investment Adviser. Such services may include,
but are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investments; wire services; and
appraisals or evaluations of portfolio securities. The information and
services received by the Investment Adviser from brokers and dealers may be of
benefit in the management of accounts of other clients and may not in all cases
benefit the Trust directly. While such services are useful and important in
supplementing its own research and facilities, the Investment Adviser believes
the value of such services is not determinable and does not significantly
reduce its expenses.
Portfolio transactions may be effected through qualified broker-dealers
who recommend the Fund to their clients, or who act as agent in the purchase of
the Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, the
Fund's adviser may consider the sale of Fund shares by a broker or dealer in
selecting among qualified broker-dealers.
B-25
<PAGE> 63
PERFORMANCE INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "FUND PERFORMANCE
INFORMATION."
GENERALLY
As discussed in the Prospectus, from time to time the Trust may
disseminate quotations of total return and other performance related and
comparative information.
From time to time, the performance of the Fund or of individual accounts
or mutual funds managed by the Investment Adviser may be compared to the
performance of other mutual funds following similar objectives, to a database
including the performance of individually managed portfolios maintained by the
Investment Adviser or to recognized market indices. Comparative performance
information may be used from time to time in advertising or marketing the
Fund's shares, including data from Lipper Analytical Services, Inc., the S&P
500 Index, the Wilshire 5000 Index, the Dow Jones Industrial Average, Money
Magazine, Morningstar, Inc. and other industry publications. The Fund's return
may also be compared to the cost of living (measured by the Consumer Price
Index) or the return of various categories of investments (as measured by
Ibbotson Associates or others) over the same period. In addition to
performance rankings, the Fund may compare its total expense ratio to the
average total expense ratio of similar funds tracked by Lipper Analytical
Services, Inc.
In advertising materials, the Trust may quote or reprint financial or
business publications and periodicals, including model portfolios or
allocations, as they relate to current economic and political conditions, fund
management, portfolio composition, investment philosophy, investment
techniques, the desirability of owning a particular mutual fund, and the
Investment Adviser's services and products. The Investment Adviser may provide
information designed to clarify investment goals and explore various financial
strategies. Such information may include information about current economic,
market, and political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and goal
setting. Materials may also include discussions of other products and services
offered by the Investment Adviser.
The Trust may quote various measures of the volatility and benchmark
correlation of the Fund in advertising. In addition, the Trust may compare
these measures to those of other funds. Measures of volatility seek to compare
the Fund's historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a comparative
benchmark may be. All measures of volatility and correlation are calculated
using averages of historical data.
TOTAL RETURN
The Fund's quotations of total return will reflect the average annual
compounded rate of return on an assumed investment of $1,000 that equates the
initial amount invested to the ending redeemable value according to the
following formula:
B-26
<PAGE> 64
P (1 + T)(n) = ERV
"P" represents a hypothetical initial investment of $1,000; "T" represents
average annual total return; "n" represents the number of years; and "ERV"
represents the ending redeemable value of the initial investment. Dividends
and other distributions are assumed to be reinvested in shares at the prices in
effect on the reinvestment dates. ERV will be adjusted to reflect the effect
of the Investment Adviser's agreement to absorb certain expenses as discussed
in the Prospectus. Quotations of total return will be for a one year, five
year and ten year periods ended on the date of the most recent balance sheet
included in the Trust's registration statement at such times as the
registration statement has been in effect for such periods. Until such time as
the registration has been effective for the one year, five year and ten year
periods, the Fund's quotations of total return will also include a quotation of
total return for the time period during which the registration statement has
been in effect or commencement of operations, whichever is later. The Fund may
also provide quotations of total return for other periods and quotations of
cumulative total returns, which reflect the actual performance of the Fund over
the entire period for which the quotation is given.
NET ASSET VALUE
Charts and graphs using the Fund's net asset values, adjusted net asset
values, and benchmark indices may be used to exhibit performance. An adjusted
net asset value includes any distributions paid by the Fund and reflects all
elements of its return.
GENERAL INFORMATION
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus entitled "GENERAL INFORMATION."
DESCRIPTION OF SHARES
Interests in the Fund are represented by shares of beneficial interest,
$.001 par value. The Trust is authorized to issue an unlimited number of
shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share of the Fund, without any priority or preference over
other shares. All consideration received for the sales of shares of the Fund,
all assets in which such consideration is invested, and all income, earnings and
profits derived therefrom are allocated to and belong to the Fund. As such, the
interest of shareholders in the Fund will be separate and distinct from the
interest of shareholders of any other series of the Trust that may be created in
the future, and shares of the Fund will be entitled to dividends and
distributions only out of the net income and gains, if any, of the Fund as
declared by the Board of Trustees. The assets of the Fund will be segregated on
the Trust's books from the assets of any other series and will be charged with
the expenses and liabilities of the Fund and with a share of the general
expenses and liabilities of the Trust not attributable to the Fund or any other
series. The Board of Trustees will determine those expenses and liabilities
deemed to be general, and
B-27
<PAGE> 65
these items would be allocated among the Fund and any other series as deemed
fair and equitable by the Board of Trustees in its sole discretion.
CONTROL PERSONS AND HOLDERS OF SECURITIES
As of the date of this Statement of Additional Information, Messrs.
Eisenberg and Harrison may be deemed to control the Trust and the Fund through
the Investment Adviser's record and beneficial ownership of all outstanding
shares of the Fund. These control relationships will continue to exist until
such time as the above-described share ownership represents 25% or less of the
outstanding shares of the Fund. Through the exercise of voting rights with
respect to shares of the Fund, the controlling persons set forth above may be
able to determine the outcome of shareholder voting on matters as to which
approval of shareholders is required.
TRUSTEE AND OFFICER LIABILITY
Under the Trust's Declaration of Trust and its By-Laws, and under Delaware
law, the Trustees, officers, employees and certain agents of the Trust are
entitled to indemnification under certain circumstance against liabilities,
claims and expenses arising from any threatened, pending or completed action,
suit or proceeding to which they are made parties by reason of the fact that
they are or were such Trustees, officers, employees or agents of the Trust,
subject to the limitations of the 1940 Act which prohibit indemnification which
would protect such persons against liabilities to the Trust or its shareholders
to which they would otherwise be subject by reason of their own bad faith,
willful misfeasance, gross negligence or reckless disregard of duties.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P., The 411 East Wisconsin Building, Milwaukee,
Wisconsin 53202, are the independent public accountants of the Trust. The
independent public accountants are responsible for auditing the financial
statements of the Fund. The selection of the independent public accountants is
approved annually by the Board of Trustees.
CUSTODIAN
Firstar Trust Company, 615 East Michigan Street, 3rd Floor, Milwaukee, WI
53202, serves as custodian of the Trust's assets and maintains custody of the
Fund's cash and investments. Cash held by the custodian, which may at times be
substantial, is insured by the Federal Deposit Insurance Corporation up to the
amount of available insurance coverage limits (presently, $100,000).
ADMINISTRATOR
The Trust has retained Firstar Trust Company, 615 East Michigan Street,
3rd Floor, Milwaukee, WI 53202, to provide various administrative and
accounting services necessary for the operations of the Trust and the Fund.
Services provided by the Administrator
B-28
<PAGE> 66
include: facilitating general Fund management; monitoring Fund compliance with
federal and state regulations; supervising the maintenance of the Fund's general
ledger, the preparation of the Fund's financial statements, the determination of
the net asset value of the Fund's assets and the declaration and payment of
dividends and other distributions to shareholders; and preparing specified
financial, tax and other reports. The Fund pays the Administrator a monthly fee
for administrative services which is calculated at the following annual rates:
0.06% of the first $240 million of the Fund's average net assets (subject to a
minimum annual fee of $30,000); 0.05% of the next $300 million of the Fund's
average net assets; and 0.03% of the remaining value of the Fund's average net
assets. The Trust reimburses the Administrator for certain out-of-pocket
expenses. In addition, the Fund pays Firstar Trust Company a fee for accounting
services of $22,000 on the first $40 million of assets, and 0.01% annually on
the next $200 million of such assets; and 0.005% of any remaining assets,
determined as of the end of the month; plus certain expenses.
LEGAL COUNSEL
Schulte Roth & Zabel LLP, New York, New York, serves as counsel to the
Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Trust has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Securities
and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of the Fund as of March 14, 1997 included in this
Statement of Additional Information have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as indicated in their report with
respect thereto. The financial statements are included herein in reliance upon
the authority of said firm as experts in accounting and auditing and giving said
report.
B-29
<PAGE> 67
REPORT ON AUDIT OF STATEMENT OF ASSETS AND LIABILITIES
AS OF MARCH 14, 1997
B-30
<PAGE> 68
To the Board of Trustees and Shareholder
Granum Series Trust -
Granum Value Fund
We have audited the accompanying statement of assets and liabilities of Granum
Series Trust - Granum Value Fund as of March 14, 1997. This financial
statement is the responsibility of the Fund's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the statement
of assets and liabilities. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement of assets and liabilities presentation. We
believe that our audit of the statement of assets and liabilities provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Granum
Series Trust - Granum Value Fund as of March 14, 1997, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
March 17, 1997
B-31
<PAGE> 69
GRANUM SERIES TRUST
GRANUM VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
March 14, 1997
<TABLE>
<S> <C>
ASSETS
Cash $100,000
Unamortized organizational costs 89,278
Prepaid initial registration expenses 29,350
--------
Total assets 218,628
--------
LIABILITIES
Payable to Investment Adviser 118,628
--------
Total liabilities 118,628
--------
Net assets $100,000
========
Net assets consist of:
Paid-in capital, unlimited number of shares of beneficial interest
authorized; $0.001 par value; 5,000 shares of beneficial interest
outstanding $100,000
========
Net asset value, offering and redemption price per share
(net assets/shares of beneficial interest outstanding) $ 20.00
========
</TABLE>
The accompanying notes to the financial statement are an integral part of this
statement.
B-32
<PAGE> 70
1. ORGANIZATION
Granum Series Trust (the "Trust") was organized as a Delaware business
trust on December 19, 1996, and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Securities Act of 1933,
as amended, as an open-end, non-diversified management investment company.
Granum Value Fund (the "Fund") comprises the sole series of the Trust at
this time. The investment objective of the Fund is to seek capital
appreciation. The Trust has had no operations other than those relating
to organizational matters and the sale of 5,000 shares of beneficial
interest of the Fund to its initial shareholder, Granum Capital
Management, L.L.C. (the "Investment Adviser") ("initial shares") for cash
in the amount of $100,000.
2. SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION COSTS: Costs incurred by the Fund in connection
with the organization, registration and the initial public offering
of shares are being deferred and amortized over the period of
benefit, but not to exceed sixty months from the Fund's commencement
of operations. These costs were advanced by the Investment Adviser
and will be reimbursed by the Fund over a period not to exceed sixty
months. The proceeds of any redemption of the initial shares by the
initial shareholder will be reduced by a pro-rata portion of any then
unamortized organizational expenses in the same proportion as the
number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of such redemption.
B. FEDERAL INCOME TAXES: The Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a
regulated investment company and to make the requisite distributions
of income and capital gains to its shareholders sufficient to relieve
it from all or substantially all Federal income taxes.
C. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
B-33
<PAGE> 71
3. INVESTMENT ADVISER
Under the terms of an Investment Advisory Agreement between the Trust and
the Investment Adviser, the Fund pays to the Investment Adviser monthly
compensation computed daily at the annual rate of 1.25% of the Fund's net
assets (the "Basic Fee"), which rate is adjusted monthly, as described
below (the "Monthly Performance Adjustment"), depending on the investment
performance of the Fund relative to the investment performance of the
Standard & Poor's Composite Index of 500 Stocks (the "S&P 500 Index").
The Basic Fee as so adjusted is the "Total Advisory Fee".
The Total Advisory Fee applicable each calendar month is determined by:
(1) adding (a) 1/12th of the Basic Fee plus (b) 1/12th of the Monthly
Performance Adjustment (as specified below); (2) multiplying the result
thereof by the net assets of the Fund; and (3) dividing the amount so
determined by the number of days in the month. The Monthly Performance
Adjustment for each month is a percentage rate determined by: (a)
subtracting from the cumulative percentage performance of the Fund (net of
all expenses, including the Investment Adviser's fees) over the 12
calendar months preceding, the percentage change in the S&P 500 Index over
the same period (including the value of dividends paid during the
measurement period on stocks included in the S&P 500 Index); and (b)
multiplying the result by 0.15; provided, however, that the maximum
Monthly Performance Adjustment will not exceed +.75% or -.75%. Until such
time as the Fund has completed 12 full calendar months of operations, the
performance of the Fund and the S&P 500 Index will be measured from the
date of commencement of the Fund's operations. The Monthly Performance
Adjustment will become applicable only after the Fund has completed three
full calendar months of operations.
The Investment Adviser has voluntarily agreed to absorb all ordinary
operating expenses of the Fund, other than the fee payable to the
Investment Adviser and amounts payable by the Fund pursuant to the
Distribution Plan during the first year of the Fund's operations or, if
sooner, until such time as the daily total net assets of the Fund average
$20 million or more for a period of 30 days.
4. RULE 12B-1 PLAN
Under a Plan of Distribution Pursuant to Rule 12b-1 and related agreements
adopted and entered into by the Trust in accordance with Rule 12b-1 under
the 1940 Act (the "12b-1 Plan"), the Fund makes payments to Mercer Allied
Company (the "Distributor") in consideration of the services they provide
in connection with the sale of the Fund's shares to investors
("Distribution Services") and for the furnishing of account related
services by the Distributor and securities dealers to shareholders of the
Fund ("Shareholder Services"). Shareholder Services provided by the
Distributor and securities dealers include responding to shareholder
inquiries regarding the Fund and their accounts with the Fund, and
providing shareholders with reports, information and services related to
their Fund accounts.
The Fund pays monthly fees to the Distributor for Distribution Services
and Shareholder Services, which fees are computed at the annual rates of
0.50% of the average net assets of the Fund and 0.25% of the average net
assets of the Fund, respectively.
B-34
<PAGE> 72
APPENDIX A
Description of ratings used by Standard & Poor's Ratings Group, a
division of The McGraw-Hill Companies, Inc. ("S&P"), and Moody's Investors
Service, Inc. ("Moody's"):
S&P
Long-term Issue Credit Ratings
AAA
An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA
An obligation rated "AA" differs from the highest rated obligations
only in a small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A
An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB
An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor meet its financial commitment on
the obligation.
----------
Obligations rated "BB," "B," "CCC," "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
----------
B-35
<PAGE> 73
BB
An obligation rated "BB" is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B
An obligation rated "B" is more vulnerable to non-payment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC
An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
B-36
<PAGE> 74
Moody's
Corporate Bond Ratings
Aaa
Bonds which are rated as "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and generally are referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa
Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what generally are known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and, thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-37
<PAGE> 75
B
Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa
Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range rating and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
B-38
<PAGE> 76
PRE-EFFECTIVE AMENDMENT NO.1
ON FORM N-1A
GRANUM SERIES TRUST
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
A statement of assets and liabilities for Granum Value Fund, the sole
series of Granum Series Trust, as of March 14, 1997, and the report of
the independent accountants of the Trust thereon are included in the
Statement of Additional Information.
(b) Exhibits
(1) (a) Certificate of Trust dated December 19, 1996. Incorporated by
Reference to Registrant's Registration Statement, File Nos.
333-20473 and 811-08029, filed January 27, 1997.
(b) Declaration of Trust dated December 19, 1996. Incorporated by
Reference to Registrant's Registration Statement, File Nos.
333-20473 and 811-08029, filed January 27, 1997.
(2) By-Laws. Incorporated by Reference to Registrant's Registration
Statement, File Nos. 333-20473 and 811-08029, filed January 27, 1997.
(3) Not applicable.
(4) Not applicable.
(5) Investment Advisory Agreement Between Granum Series Trust and Granum
Capital Management, L.L.C.
(6) (a) Distribution Agreement Between Granum Series Trust and Mercer
Allied Company.
C-1
<PAGE> 77
(b) Distribution Agreement Between Granum Series Trust and Granum
Securities, L.L.C.*
(7) Not applicable.
(8) Custodian Agreement Between Firstar Trust Company and Granum Series
Trust.
(9) Contracts Not Made in the Ordinary Course of Business.
(a) Transfer Agent Agreement Between Firstar Trust Company and
Granum Series Trust.
(b) Fund Administration Servicing Agreement Between Firstar Trust
Company and Granum Series Trust.
(c) Fund Accounting Servicing Agreement Between Firstar Trust
Company and Granum Series Trust.
(10) Opinion and Consent of Counsel.
(11) Consent of Independent Public Accountants.
(12) Not applicable.
(13) Letter of Investment Intent.
(14) Not applicable.
(15) Plan of Distribution Pursuant to Rule 12b-1 and Related Agreements.
(16) Schedule for Computation of Performance Quotations.**
(17) Financial Data Schedule.**
(18) Not applicable.
- ---------------
* This Agreement will not be executed nor shall it become effective until Granum
Securities, L.L.C. has become a member of the National Association of Securities
Dealers, Inc., and become duly licensed as a broker-dealer in states in which it
proposes to offer shares.
** To be filed by post-effective amendment.
C-2
<PAGE> 78
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Granite Capital International Group L.P., an investment adviser which is
exempt from registration under the Investment Advisers Act of 1940, as amended
(the "Advisers Act"), Granum Securities, L.L.C., a newly formed entity which is
in the process of registering as a broker-dealer, and Granum Capital Management,
L.L.C., a newly formed entity which has registered under the Advisers Act as an
investment adviser and is the investment adviser of Registrant (the "Investment
Adviser"), are each companies which are controlled by Lewis M. Eisenberg and
Walter F. Harrison, III, who jointly own all of the voting interests in these
entities. Registrant may be deemed to be under common control with the
foregoing companies because the Investment Adviser owns all of the outstanding
voting shares of beneficial interest of Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
- -------------------- ------------------------
<S> <C>
Shares of Beneficial One.
Interest in Granum
Value Fund
</TABLE>
ITEM. 27. INDEMNIFICATION
A Delaware business trust may provide in its governing instrument for
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article III, Section 7 of Registrant's Declaration of
Trust provides that if any Shareholder or former Shareholder shall be exposed to
liability by reason of a claim or demand relating to his or her being or having
been a Shareholder, and not because of his or her acts or omissions, the
Shareholder or former Shareholder (or his or her heirs, executors,
administrators, or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified out of the assets of the Trust against all
loss and expense arising from such claim or demand.
Pursuant to Article VII, Section 2 of the Declaration of Trust, the
Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, Investment Manager or Principal
Underwriter of the Trust, nor shall any Trustee be responsible for the act or
omission of any other Trustee, and the Trust out of its assets shall indemnify
and hold harmless each and every Trustee from and against any and all claims
and demands whatsoever arising out of or related to each Trustee's performance
of his duties as a Trustee of the Trust to the fullest extent permitted by law;
provided that nothing herein contained shall indemnify, hold harmless or
protect any Trustee from or against any liability to the Trust or any
Shareholder to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
C-3
<PAGE> 79
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, 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 such Act and will be governed by the final adjudication
of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or employment
of a substantial nature in which each investment adviser of Registrant, and
each director, executive officer, or partner of any such investment adviser, is
or has been, at any time during the past two fiscal years, engaged in for his
or her own account or in the capacity of director, officer, employee, partner
or trustee, is set forth in the Form ADV of Granum Capital Management, L.L.C.
as filed with the Securities and Exchange Commission on January 10, 1997, and
is incorporated herein by this reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Mercer Allied Company, L.P., a limited partnership whose sole general
partner is Breham, Inc., and Granum Securities, L.L.C. (collectively, the
"Distributors") act as the principal underwriters of shares of Registrant. The
Distributors do not serve as principal underwriters, depositors, or investment
advisers of any other registered investment company.
(b) Set forth below is information concerning each member, partner and
officer of the Distributors. The principal business address of each such person
is:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
- ---- --------------------- --------------------------
<S> <C> <C>
Breham, Inc. General Partner None
One Wall Street
Albany, NY 12205-3894
The Ayco Company, L.P. Limited Partner None
One Wall Street
</TABLE>
C-4
<PAGE> 80
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
- ---- --------------------- --------------------------
<S> <C> <C>
Albany, NY 12205-3894
John Brevo President Trustee
One Wall Street
Albany, NY 12205-3894
Barry Hamerling President None
One Wall Street
Albany, NY 12205-3894
F. William Joint Vice President None
One Wall Street
Albany, NY 12205-3894
Margaret M. Kayes Vice President None
One Wall Street
Albany, NY 12205-3894
John J. Collins Chief Financial Officer None
One Wall Street
Albany, NY 12205-3894
Peter R. Martin Chief Legal Officer Vice President and
One Wall Street Secretary
Albany, NY 12205-3894
Lewis M. Eisenberg Member Co-Chairman and Trustee
126 East 56th Street,
25th Floor
New York, NY 10022
Walter F. Harrison, III Member Co-Chairman and Trustee
126 East 56th Street,
25th Floor
New York, NY 10022
Jonas B. Siegel President Vice President, Treasurer
126 East 56th Street, and Chief Financial Officer
25th Floor
New York, NY 10022
</TABLE>
C-5
<PAGE> 81
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES WITH
NAME WITH UNDERWRITER REGISTRANT
- ---- --------------------- --------------------------
<S> <C> <C>
Lloyd Moskowitz Chief Financial Officer None
126 East 56th Street,
25th Floor
New York, NY 10022
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All financial and accounting related books and records required to be
maintained under Section 31(a) of the Investment Company Act of 1940, as
amended, and the rules thereunder are maintained at the offices of Firstar
Trust Company, 615 East Michigan Street, Milwaukee, WI 53202. All other books
and records required to be maintained by Section 31(a) and the rules thereunder
are maintained at 126 East 56th Street, New York, NY 10022.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth in Parts A and B of this Registration Statement,
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
Registrant undertakes to file a post-effective amendment, containing
financial statements which need not be certified, within four to six months
from the effective date of this Registration Statement under the 1933 Act.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-6
<PAGE> 82
PRE-EFFECTIVE AMENDMENT NO. 1
ON FORM N-1A
GRANUM SERIES TRUST
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
(5) Investment Advisory Agreement Between Granum Series Trust
and Granum Capital Management L.L.C.
(6) (a) Distribution Agreement Between Granum Series Trust and
Mercer Allied Company.
(7) (b) Distribution Agreement Between Granum Series Trust and
Granum Securities, L.L.C.
(8) Custodian Agreement Between Firstar Trust Company and
Granum Series Trust.
(9) Contracts Not Made in the Ordinary Course of Business.
(a) Transfer Agent Agreement Between Firstar Trust Company
and Granum Series Trust.
(b) Fund Administration Servicing Agreement Between Firstar
Trust Company and Granum Series Trust.
(c) Fund Accounting Servicing Agreement Between Firstar
Trust Company and Granum Series Trust.
(10) Opinion and Consent of Counsel.
(11) Consent of Independent Public Accountants.
(13) Letter of Investment Intent.
(15) Plan of Distribution Pursuant to Rule 12b-1 and Related
Agreements.
(16) Schedule of Computation of Performance Quotations.**
(17) Financial Data Schedule**
</TABLE>
** To be filed by post-effective amendment.
C-7
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Pre-Effective
Amendment No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York, and State of New
York on the 2nd day of April, 1997.
Granum Series Trust
By: /s/ Lewis M. Eisenberg
---------------------------------
Lewis M. Eisenberg
Co-Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement of Granum Series
Trust has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<S> <C> <C>
/s/ Lewis M. Eisenberg Co-Chairman and Trustee April 2, 1997
- ---------------------------------
Lewis M. Eisenberg
/s/ Walter F. Harrison, III Co-Chairman and Trust April 2, 1997
- ---------------------------------
Walter F. Harrison, III
/s/ John J. Breyo Trustee April 2, 1997
- ---------------------------------
John J. Breyo
/s/ Herbert W. McCord Trustee April 2, 1997
- ---------------------------------
Herbert W. McCord
/s/ Burnell R. Roberts Trustee April 2, 1997
- ----------------------------------
Burnell R. Roberts
/s/ Alan Sinai Trustee April 2, 1997
- ----------------------------------
Alan Sinai
/s/ Richard A. Zimmer Trustee April 2, 1997
- ----------------------------------
Richard A. Zimmer
/s/ Jonas B. Siegel Vice President, Treasurer April 2, 1997
- ---------------------------------- and Chief Financial
Jonas B. Siegel Officer
</TABLE>
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 13th day of March, 1997 by and between Granum Series
Trust, a Delaware business trust (the "Trust"), and Granum Capital Management,
L.L.C., a Delaware limited liability corporation (the "Adviser"):
WHEREAS, the Trust intends to engage in business as an open-end,
non-diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act"), and will engage in the
business of acting as an investment adviser; and
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services for the sole investment portfolio of the Trust, Granum Value
Fund (the "Fund"), and to provide certain other services to the Trust in the
manner and on the terms and conditions hereinafter set forth; and
WHEREAS, the Adviser desires to be retained to perform such services on
said terms and conditions:
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Trust and the Adviser agree as follows:
1. The Trust hereby retains the Adviser to act as investment adviser to the
Fund and, subject to the supervision of the Board of Trustees of the Trust, to
manage the investment activities of the Fund and to provide certain other
services to the Trust as hereinafter set forth. Without limiting the
generality of the foregoing, the Adviser shall: obtain and evaluate such
information and advice relating to the economy, securities markets, and
securities as it deems necessary or useful to discharge its duties hereunder;
continuously manage the assets of the Fund in a manner consistent with the
investment objectives, policies and restrictions of the Fund and applicable
laws and regulations; determine the securities to be purchased, sold or
otherwise disposed of by the Fund and the timing of such purchases, sales and
dispositions; and take such further action, including the placing of purchase
and sale orders and the voting of securities on behalf of the Fund, as the
Adviser shall deem necessary or appropriate. The Adviser shall furnish to or
place at the disposal of the Trust such of the information, evaluations,
analyses and opinions formulated or obtained by the Adviser in the discharge of
its duties as the Trust may, from time to time, reasonably request.
<PAGE> 2
2. The Adviser shall assist in the selection of and the negotiation of
agreements with, and monitor the quality of services provided by, the Trust's
administrator, custodian, transfer agent, and other organizations which may
provide services to the Trust (but the Trust shall pay the fees and expenses of
the administrator, custodian and transfer agent and such other organizations
and the Adviser shall not be responsible for the acts or omissions of such
service providers). The Adviser shall also provide such additional management
and administrative services as may be required in connection with the business
affairs and operations of the Trust beyond those furnished by the Trust's
administrator.
3. The Adviser shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as may be necessary
to render the services required to be provided by the Adviser or furnished to
the Trust under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Adviser shall be deemed to include
persons employed or otherwise retained by the Adviser to furnish statistical
and other factual data, advice regarding economic factors and trends,
information with respect to technical and scientific developments, and such
other information, advice and assistance as the Adviser may desire.
4. The Trust will, from time to time, furnish or otherwise make available
to the Adviser such financial reports, proxy statements, policies and
procedures and other information relating to the business and affairs of the
Fund and the Trust as the Adviser may reasonably require in order to discharge
its duties and obligations hereunder.
5. The Adviser shall bear the cost of rendering the services to be
performed by it under this Agreement, and shall provide the Trust with such
office space, facilities, equipment, clerical help, and other personnel and
services as the Trust shall reasonably require in the conduct of its business.
The Adviser shall also bear the cost of telephone service, heat, light, power
and other utilities provided to the Trust. The salaries of officers of the
Trust, and the fees and expenses of Trustees of the Trust, who are also
directors, officers or employees of the Adviser, or who are officers or
employees of any company affiliated with the Adviser, shall be paid and borne
by the Adviser or such affiliated company.
6. The Trust assumes and shall pay or cause to be paid all expenses of the
Trust not expressly assumed by the Adviser under this Agreement, including
without limitation: any payments pursuant to any plan of distribution adopted
by the Trust; the fees, charges and expenses of any registrar, custodian,
accounting agent, administrator, stock transfer and dividend disbursing agent;
brokerage commissions; taxes; registration costs of the Trust and its shares
under federal and state securities laws; the costs and expenses of engraving
and printing stock certificates; the costs and expenses of preparing, printing,
including typesetting, and distributing prospectuses and statements of
additional information of the Trust and the Fund and supplements thereto to the
Trust's shareholders; all expenses of shareholders' and Trustees' meetings and
of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of Trustees and members of any advisory
board or committee who are not also officers, directors or employees of the
Adviser or who are not officers or employees of any company affiliated with the
Adviser; all expenses incident to any dividend, withdrawal or redemption
-2-
<PAGE> 3
options; charges and expenses of any outside service used for pricing of the
Fund's shares; fees and expenses of legal counsel to the Trust and its
Trustees; fees and expenses of the Trust's independent accountants; membership
dues of industry associations; interest payable on borrowings; postage;
insurance premiums on property or personnel (including officers and Trustees)
of the Trust which inure to its benefit; and extraordinary expenses (including
but not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto).
7. As full compensation for the services and facilities furnished to the
Fund and the Trust and the expenses assumed by the Adviser under this
Agreement, the Trust shall pay to the Adviser a fee, as calculated in
accordance with Schedule A hereto. This fee shall be paid monthly. Subject to
the provisions of paragraph 8 hereof, payment of the Adviser's compensation for
the preceding month shall be made as promptly as possible after completion of
the necessary computations.
8. In the event the operating expenses of the Fund including amounts
payable to the Adviser pursuant to paragraph 7 hereof, for any fiscal year
ending on a date on which this Agreement is in effect, exceed any expense
limitation applicable to the Fund under any state securities laws or
regulations (as such limitations may be raised or lowered or waived upon
application of the Trust or the Adviser from time to time) and which are not
pre-empted by federal law, the Adviser shall reduce its fee to the extent of
such excess and, if required pursuant to any such laws or regulations, will
reimburse the Trust for annual operating expenses of the Fund in excess of such
expense limitation; provided, however, that there shall be excluded from
expenses the amount of any interest, taxes, brokerage commissions, distribution
fees and extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification relating thereto) paid
or payable by the Fund to the extent permissible under applicable laws and
regulations. The amount of any such reduction in fee or reimbursement of
expenses shall be calculated and accrued daily and settled on a monthly basis,
based upon the expense limitation applicable to the Fund as at the end of the
last business day of the month. Should two or more such expense limitations be
applicable as at the end of the last business day of the month, that expense
limitation which results in the largest reduction in the Adviser's fee shall be
applicable.
For purposes of this provision, should any applicable expense
limitation be based upon the gross income of the Fund, such gross income shall
include, but not be limited to, interest on debt securities held by the Fund
accrued to and including the last day of the Fund's fiscal year, and dividends
declared on equity securities held by the Fund, the record dates for which fall
on or prior to the last day of such fiscal year, but shall not include gains
from the sale of securities.
9. The Adviser will use its best efforts in the supervision and
management of the investment activities of the Trust and in providing services
hereunder, but in the absence of willful misfeasance, bad faith, negligence or
reckless disregard of its obligations hereunder, the Adviser shall not be
liable to the Trust or the Fund for any error of judgment for any mistake of
law or for any act or omission by the Adviser.
-3-
<PAGE> 4
10. Nothing contained in this Agreement shall prevent the Adviser or any
affiliated person of the Adviser from acting as investment adviser or manager
for any other person, firm or corporation and shall not in any way bind or
restrict the Adviser or any such affiliated person from buying, selling or
trading any securities or commodities for their own accounts or for the account
of others for whom they may be acting. Nothing in this Agreement shall limit
or restrict the right of any director, officer or employee of the Adviser to
engage in any other business or to devote his time and attention in part to the
management or other aspects of any other business whether of a similar or
dissimilar nature.
11. The Trust acknowledges and agrees, in accordance with the provisions of
Article VIII, Section 9 of the Trust's Declaration of Trust dated December 19,
1996 (the "Declaration of Trust"), that the name "Granum" and the Granum logo
and all rights to the use of such name or logo as part of the name of the Trust
and the Fund belong to Granite Capital International Group L.P.
12. This Agreement shall remain in effect until February 28, 1999, and
shall continue in effect from year to year thereafter provided such continuance
is approved at least annually by the vote of a majority of the outstanding
voting securities of the Fund, as defined by the 1940 Act and the rules
thereunder, or by the Board of Trustees of the Trust; provided that in either
event such continuance is also approved by a majority of the Trustees of the
Trust who are not parties to this Agreement or "interested persons" (as defined
in the 1940 Act) of any such party (the "Independent Trustees"), by vote cast
in person at a meeting called for the purpose of voting on such approval; and
provided, however, that (a) the Trust may at any time, without payment of any
penalty, terminate this Agreement upon sixty days' written notice to the
Adviser, either by majority vote of the Trustees of the Trust or by the vote of
a majority of the outstanding voting securities of the Trust (as defined in the
1940 Act and the rules thereunder); (b) this Agreement shall immediately
terminate in the event of its assignment (to the extent required by the 1940
Act and the rules thereunder) unless such automatic termination shall be
prevented by an exemptive order of the Securities and Exchange Commission; and
(c) the Adviser may terminate this Agreement without payment of penalty on
sixty days' written notice to the Trust.
13. Any notice under this Agreement shall be given in writing and shall be
deemed to have been duly given when delivered by hand or facsimile or five days
after mailed by certified mail, post-paid, by return receipt requested to the
other party at the principal office of such party.
14. This Agreement may be amended only by the written agreement of the
parties. Any amendment shall be required to be approved by the Trustees of the
Trust and by a majority of the Independent Trustees in accordance with the
provisions of Section 15(c) of the 1940 Act and the rules thereunder. Any
amendment shall also be required to be approved by a vote of shareholders of
the Trust as, and to the extent, required by the 1940 Act and the rules
thereunder, except that an amendment may be effected without the vote of
shareholders: to reduce the fees payable hereunder; to supply any omission; to
cure, correct or supplement any ambiguous, defective of inconsistent provision
hereof; or if necessary, to conform this Agreement to the requirements of
applicable laws or regulations, but neither the Trust nor the Adviser shall be
liable for failing to do so. This Agreement may be amended to make it
applicable to any
-4-
<PAGE> 5
investment portfolio of the Trust which is hereafter formed and such amendment
need not be approved by the vote of the holders of shares of the Fund or of any
other portfolio.
15. This Agreement shall be construed in accordance with the laws of the
state of New York and the applicable provisions of the 1940 Act. To the extent
the applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
16. The Trust represents that this Agreement has been duly approved by the
Trustees, including a majority of the Independent Trustees, and shareholders of
the Trust in accordance with the requirements of the 1940 Act and the rules
thereunder.
17. The Declaration of Trust states and notice is hereby given that this
Agreement is not executed on behalf of the Trustees of the Trust as
individuals, and the obligations of the Trust under this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Trust
individually, but are binding only upon the assets and property of the Trust.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
GRANUM SERIES TRUST
By: /s/ Lewis M. Eisenberg
----------------------
Attest:
/s/ Jonas B. Siegel
- -------------------
GRANUM CAPITAL MANAGEMENT, L.L.C.
By: /s/ Lewis M. Eisenberg
----------------------
Attest:
/s/ Jonas B. Siegel
- -------------------
-5-
<PAGE> 6
SCHEDULE A
In consideration of the services provided by the Adviser, the Trust shall
pay to the Adviser monthly compensation computed daily at the annual rate of
1.25% of the Fund's net assets (the "Basic Fee"), which rate shall be adjusted
monthly, as described below (the "Monthly Performance Adjustment"), depending
on the investment performance of the Fund relative to the investment
performance of the S&P 500 Index. (The Basic Fee as so adjusted is the "Total
Advisory Fee.")
The Total Advisory Fee applicable each calendar month shall be determined
by: (1) adding (a) 1/12th of the Basic Fee plus (b) 1/12th of the Monthly
Performance Adjustment (as specified below); (2) multiplying the result thereof
by the net assets of the Fund; and (3) dividing the amount so determined by the
number of days in the month. The Monthly Performance Adjustment for each month
shall be a percentage rate determined by: (a) subtracting from the cumulative
percentage performance of the Fund (net of all expenses, including the fees
payable pursuant to this Agreement) over the 12 calendar months preceding, the
percentage change in the S&P 500 Index over the same period (including the
value of dividends paid during the measurement period on stocks included in the
Index); and (b) multiplying the result by 0.15; provided, however, that the
maximum Monthly Performance Adjustment shall not exceed +.75% or -.75%. Until
such time as the Fund has completed 12 full calendar months of operations, the
performance of the Fund and the S&P 500 Index shall be measured from the date
of commencement of the Fund's operations. The Monthly Performance Adjustment
shall become applicable only after the Fund has completed three full calendar
months of operations.
-6-
<PAGE> 1
DISTRIBUTION AGREEMENT
BETWEEN GRANUM SERIES TRUST
AND MERCER ALLIED COMPANY
Agreement made this 13th day of March, 1997, by and between Granum Series
Trust (the "Trust"), on behalf of its portfolio known as Granum Value Fund (the
"Fund"), and Mercer Allied Company (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, management investment company and
the Trust has determined to offer shares of the Fund for sale to the public in
a continuous offering; and
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of shares of the Trust
representing interests in the Fund, par value $0.001 per share (the "Shares"),
to commence after the effective date of the Trust's registration statement (the
"Registration Statement") filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933
Act");
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Appointment of the Distributor.
------------------------------
(a) The Trust hereby appoints the Distributor to serve as a
distributor of Shares and to arrange for the sale of Shares to the public on
the terms set forth in this Agreement and the Distributor hereby accepts such
appointment and agrees to act in such capacity hereunder.
(b) The Distributor shall act as agent of and as a distributor for the
Trust in connection with the sale of Shares to investors and dealers, upon the
terms described herein and in the Trust's prospectus (the "Prospectus") and
statement of additional information (the "Statement of Additional Information"
or "SAI") included in the Trust's Registration Statement filed with the SEC, as
said Prospectus and Statement of Additional Information and Registration
Statement may be amended and supplemented from time to time. No sales of
Shares shall be made by the Distributor pursuant to this Agreement unless the
Registration Statement under the 1933 Act is effective at the time of such
sales.
SECTION 2. Exclusive Nature of Duties.
--------------------------
The Distributor shall be the exclusive distributor of Shares of the
Trust, except that:
<PAGE> 2
(a) The Trust may, upon written notice to the Distributor, appoint a
broker-dealer affiliated with the investment adviser of the Trust to serve as a
distributor, in which case the Distributor and such other broker-dealer shall
be co-distributors of Shares.
(b) The Trust may, upon written notice to the Distributor, from time to
time designate other distributors of Shares with respect to areas other than
the United States as to which the Distributor may have expressly waived in
writing its right to act as such. If such designation is deemed exclusive, the
right of the Distributor under this Agreement to serve as distributor in the
areas so designated shall terminate, but this Agreement shall remain otherwise
in full effect until terminated in accordance with the other provisions hereof.
(c) The rights granted to the Distributor to act as agent in connection
with the sale of Shares shall not apply to Shares issued by the Trust: (i) in
connection with the merger or consolidation of any other investment company or
personal holding company with the Trust or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Trust; or (ii) pursuant to reinvestment of dividends,
capital gains or other distributions; or (iii) pursuant to any reinstatement
privilege afforded redeeming shareholders.
SECTION 3. Purchase of Shares from the Trust and Compensation of
-----------------------------------------------------
Distributor.
------------
(a) Upon the initial effective date of the Registration Statement, the
Trust will commence a continuous offering of Shares. During the continuous
offering, the Distributor shall offer and solicit offers to subscribe to the
purchase of Shares from investors.
(b) The Distributor shall not be paid any compensation by the Trust
pursuant to this Agreement, however, the Trust may pay such compensation and
make other payments to the Distributor as may be permitted by a separate Plan
of Distribution and Related Agreement adopted by the Trust pursuant to Rule
12b-1 under the 1940 Act. The Distributor may pay such concessions or
reallowances to dealers as the Distributor, in its discretion, may from time to
time determine. The Trust and the Distributor agree, however, that no
concessions or reallowances shall be paid except in compliance with applicable
laws and regulations, including the rules of the National Association of
Securities Dealers, Inc. (the "NASD").
(c) The public offering price of Shares, i.e., the price per share at
which the Distributor or Dealers (as hereinafter defined) may sell Shares to
the public, shall be the net asset value of the Shares. If the public offering
price does not equal an even cent, the public offering price may be adjusted to
the nearest cent. All payments to the Trust hereunder shall be made in the
manner set forth in Section 3(g).
(d) The net asset value of Shares shall be determined by the Trust or an
agent appointed by the Trust, on such days, and at such times and in such
manner, as is set forth in the Prospectus and the SAI and in guidelines that
may be established by the Board of Trustees of the Trust.
-2-
<PAGE> 3
(e) The Trust shall have the right to suspend the sale of Shares at times
when redemption is suspended pursuant to the conditions set forth in Section
4(c) hereof. The Trust shall also have the right to suspend the sale of Shares
if trading on the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by Federal or New York authorities,
or if there shall have been some other extraordinary event or if conditions
exist, which, in the sole judgment of the Trust, makes it impracticable or
inadvisable to sell Shares.
(f) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Trust; provided, however,
that the Trust will not arbitrarily or without reasonable cause refuse to
accept orders for the purchase of Shares. The Distributor will confirm orders
upon their receipt, and the Trust (or its agent), upon receipt of payment
therefor and instructions, will deliver a statement confirming the issuance of
such Shares. The Distributor agrees to cause such instructions and any
payments that it may receive to be delivered promptly to the Trust (or its
agent).
SECTION 4. Redemption of Shares.
--------------------
(a) Any of the outstanding Shares may be tendered for redemption at any
time, and the Trust agrees to redeem Shares so tendered in accordance with
their terms and the procedures and requirements set forth in the Prospectus and
the SAI. The price to be paid upon the redemption of Shares shall be equal to
the net asset value calculated in accordance with the provisions of Section
3(e) hereof. All payments by the Trust hereunder shall be made in the manner
set forth below.
Subject to Section 4(b) hereof, the Trust shall pay the total amount of
the redemption price in accordance with applicable provisions of the Prospectus
and the SAI on or before the seventh day subsequent to receipt by the Trust (or
its agent) of a request for the redemption in proper form.
(b) Redemption of Shares may be suspended or payment by the Trust upon the
redemption of Shares may be postponed for more than seven days at times: (i)
when the New York Stock Exchange is closed for other than customary weekend or
holiday closings; (ii) when trading on said Exchange is restricted, or when an
emergency exists as a result of which disposal by the Trust of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Trust fairly to determine the value of its net assets, as provided by SEC
rules; or (iii) during any other period when the SEC by order so permits.
SECTION 5. Duties of the Trust.
-------------------
(a) The Trust shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of the Shares, including
one certified copy, upon request by the Distributor, of all financial
statements prepared by the Trust, in respect of the Fund, and examined by
independent accountants. The Trust shall, at the expense of the Distributor,
make
-3-
<PAGE> 4
available to the Distributor such number of copies of the Prospectus and the
SAI as the Distributor shall reasonably request.
(b) The Trust shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of the Shares as investors may
reasonably be expected to purchase.
(c) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Shares for sale under the
securities laws of such states as the Distributor and the Trust may approve.
Any such qualification may be withheld, terminated or withdrawn by the Trust at
any time in its discretion. As provided in Section 8(b) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust.
The Distributor shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualification.
(d) The Trust shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of annual and
interim reports of the Trust.
(e) The Trust shall promptly notify the Distributor if the effectiveness
of the Registration Statement is suspended or lapses and shall promptly notify
of the termination or withdrawal of qualification under the laws of any state.
SECTION 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of the Shares, but shall not be obligated to sell any specific number of
Shares. The services of the Distributor hereunder are not to be deemed
exclusive and nothing herein contained shall prevent the Distributor from
entering into distribution or dealer arrangements with other investment
companies so long as the performance of its obligations hereunder is not
impaired thereby.
(b) Neither the Distributor nor any Dealer nor any other person is
authorized by the Trust to give any information or to make any representations,
other than those contained in the Registration Statement or the Prospectus and
SAI. Any advertising or sales literature relating to the Trust shall be
approved by the Distributor and the contents and use thereof shall comply with
all applicable laws and regulations, including rules and interpretations of the
NASD.
(c) The Distributor shall perform its responsibilities hereunder in
accordance with applicable laws and regulations, including rules and
interpretations of the NASD.
SECTION 7. Selected Dealer and Agency Agreements.
-------------------------------------
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers (and with such other financial institutions
as may be authorized under applicable laws and regulations to act as agent in
the sale of Shares) of its
-4-
<PAGE> 5
choice ("Dealers") for the offering and sale of Shares by such Dealers and
agents. The Distributor may pay such other compensation and concessions to
Dealers as it determines, consistent with applicable law and the rules of the
NASD. Shares offered for sale by Dealers shall be offered on the same terms as
would apply to the Distributor as set forth herein.
(b) Within the United States, the Distributor shall enter into selected
dealer agreements only with organizations that are either members in good
standing of the NASD or financial institutions that are not required to be NASD
members.
(c) The Distributor shall adopt and follow procedures for the confirmation
of sales of Shares to investors and Dealers, the collection of amounts payable
by investors and Dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with applicable laws and
regulations and the requirements of the NASD, as they may from time to time
exist.
SECTION 8. Payment of Expenses.
-------------------
(a) The Trust shall bear all of its costs and expenses, including fees and
disbursements of its counsel and auditors, in connection with: (i) the
preparation and filing of the Registration Statement, the Prospectus and the
SAI, and supplements to the foregoing; and (ii) the expense of preparing,
printing, mailing and otherwise distributing Prospectuses and SAIs (including
supplements), annual and interim reports and proxy materials for use by
shareholders.
(b) The Trust shall bear the cost and expenses of qualification of Shares
for sale, and, if necessary or advisable in connection therewith, of qualifying
the Trust as a broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Trust and the Distributor pursuant to
Section 5(c) hereof, and the cost and expenses payable to each such state for
continuing qualification therein until the Trust decides to discontinue such
qualification pursuant to Section 5(c) hereof.
SECTION 9. Indemnification.
---------------
(a) The Trust shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith) arising by reason of any person
acquiring any Shares, which may be based upon the 1933 Act, or on any other
statute or at common law, on the ground that the Registration Statement, the
Prospectus or the SAI, or any annual or interim report to shareholders,
includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Trust in connection
therewith by or on behalf of the Distributor; provided, however, that in no
case (i) is the indemnity of the Trust in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Trust or its
shareholders to which the Distributor or any such controlling persons would
otherwise be subject
-5-
<PAGE> 6
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under this Agreement; or (ii) is the Trust to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless the Distributor
or such controlling persons as the case may be, shall have notified the Trust
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve it from any liability which it may have to the person against whom such
action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Trust will be entitled to participate at its
own expense in the defense, or if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Trust elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Trust elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and the expenses of any additional counsel retained by them, but, in
case the Trust does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Trust shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Shares.
(b) The Distributor shall indemnify and hold harmless the Trust and each
of its trustees and officers and each person, if any, who controls the Trust
against any loss, liability, claim, damage, or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Trust in writing by or on behalf of the
Distributor for use in connection with the Registration Statement, the
Prospectus or the SAI, or the annual or interim reports to shareholders. In
case any action shall be brought against the Trust or any person so
indemnified, in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties given to the
Trust, and the Trust and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 9.
SECTION 10. Duration and Termination of This Agreement.
------------------------------------------
This Agreement shall remain in effect for an initial term of two years
from the date hereof and from year to year thereafter provided such continuance
is approved at least annually by the vote of a majority of the outstanding
voting securities of the Fund (as defined by the 1940 Act and the rules
thereunder) or by the Board of Trustees of the Trust; provided, that in either
event such continuance is also approved annually by the vote of a majority of
the trustees of the Trust who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, which vote must be
cast in person at a meeting called for the purpose of
-6-
<PAGE> 7
voting on such approval; and provided, however, that: (a) the Trust may, at
any time and without the payment of any penalty, terminate this Agreement upon
sixty days' written notice to the Distributor; (b) this Agreement shall
immediately terminate in the event of its assignment (to the extent required by
the 1940 Act and the rules thereunder) unless such automatic termination shall
be prevented by an exemptive order of the SEC; and (c) the Distributor may
terminate this Agreement without payment of any penalty on sixty days' written
notice to the Trust.
SECTION 11. Notices.
-------
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed post-paid, to the other party at the principal office of
such party, which addresses are as follows (or such other address as a party
may hereafter specify that notices hereunder be sent):
Granum Series Trust Mercer Allied Company
126 East 56th Street, 25th Floor One Wall Street
New York, New York 10022 Albany, New York 12205
Attention: General Counsel
SECTION 11. Amendments of this Agreement.
----------------------------
This Agreement may be amended only by the written agreement of the
parties; provided that any amendment hereof must be approved by the Board of
Trustees of the Trust, including a majority of the directors of the Trust who
are not parties to this Agreement or "interested persons" (as defined by the
1940 Act) of any such party, by vote cast in person at a meeting called for the
purpose of voting on such approval.
SECTION 12. Governing Law.
-------------
This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the 1940 Act. To the extent the
applicable laws of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
SECTION 13. Liability of the Trust.
----------------------
The Declaration of Trust states and notice is hereby given that this
Agreement is not executed on behalf of the Trustees of the Trust as
individuals, and that the obligations of this Agreement are not binding upon
any of the Trustees, officers or shareholders or partners of the Trust
individually, but are binding only upon the assets and property of the Trust.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
GRANUM SERIES TRUST
By: /s/ Lewis M. Eisenberg
--------------------------------------------
Name: Lewis M. Eisenberg
------------------------------------------
Title: Co-Chairman
----------------------------------------
MERCER ALLIED COMPANY
By: /s/ Peter R. Martin
------------------------------------------
Name: Peter R. Martin
-----------------------------------------
Title: Vice President of Brehan, Inc.,
General Partner of Mercer Allied Company
----------------------------------------
-8-
<PAGE> 1
DISTRIBUTION AGREEMENT
BETWEEN GRANUM SERIES TRUST
AND GRANUM SECURITIES, L.L.C.
Agreement made this ____ day of _________, 199__, by and between Granum
Series Trust (the "Trust"), on behalf of its portfolio known as Granum Value
Fund (the "Fund"), and Granum Securities, L.L.C. (the "Distributor").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, management investment company and
the Trust has determined to offer shares of the Fund for sale to the public in
a continuous offering; and
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of shares of the Trust
representing interests in the Fund, par value $0.001 per share (the "Shares"),
to commence after the effective date of the Trust's registration statement (the
"Registration Statement") filed with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Act of 1933, as amended (the "1933
Act");
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Appointment of the Distributor.
------------------------------
(a) The Trust hereby appoints the Distributor to serve as a distributor of
Shares and to arrange for the sale of Shares to the public on the terms set
forth in this Agreement and the Distributor hereby accepts such appointment and
agrees to act in such capacity hereunder.
(b) The Distributor shall act as agent of and as a distributor for the
Trust in connection with the sale of Shares to investors and dealers, upon the
terms described herein and in the Trust's prospectus (the "Prospectus") and
statement of additional information (the "Statement of Additional Information"
or "SAI") included in the Trust's Registration Statement filed with the SEC, as
said Prospectus and Statement of Additional Information and Registration
Statement may be amended and supplemented from time to time. No sales of
Shares shall be made by the Distributor pursuant to this Agreement unless the
Registration Statement under the 1933 Act is effective at the time of such
sales.
SECTION 2. Exclusive Nature of Duties.
--------------------------
(a) If the Trust has also appointed another broker-dealer to serve as a
distributor, the Distributor and such other broker-dealer shall be
co-distributors of Shares.
<PAGE> 2
(b) The Trust may, upon written notice to the Distributor, from time to
time designate other distributors of Shares with respect to areas other than
the United States as to which the Distributor may have expressly waived in
writing its right to act as such. If such designation is deemed exclusive, the
right of the Distributor under this Agreement to serve as distributor in the
areas so designated shall terminate, but this Agreement shall remain otherwise
in full effect until terminated in accordance with the other provisions hereof.
(c) The rights granted to the Distributor to act as agent in connection
with the sale of Shares shall not apply to Shares issued by the Trust: (i) in
connection with the merger or consolidation of any other investment company or
personal holding company with the Trust or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Trust; or (ii) pursuant to reinvestment of dividends,
capital gains or other distributions; or (iii) pursuant to any reinstatement
privilege afforded redeeming shareholders.
SECTION 3. Purchase of Shares from the Trust and Compensation of
-----------------------------------------------------
Distributor.
-----------
(a) Upon the initial effective date of the Registration Statement, the
Trust will commence a continuous offering of Shares. During the continuous
offering, the Distributor shall offer and solicit offers to subscribe to the
purchase of Shares from investors.
(b) The Distributor shall not be paid any compensation by the Trust
pursuant to this Agreement, however, the Trust may pay such compensation and
make other payments to the Distributor as may be permitted by a separate Plan
of Distribution and Related Agreement adopted by the Trust pursuant to Rule
12b-1 under the 1940 Act. The Distributor may pay such concessions or
reallowances to dealers as the Distributor, in its discretion, may from time to
time determine. The Trust and the Distributor agree, however, that no
concessions or reallowances shall be paid except in compliance with applicable
laws and regulations, including the rules of the National Association of
Securities Dealers, Inc. (the "NASD").
(c) The public offering price of Shares, i.e., the price per share at
which the Distributor or Dealers (as hereinafter defined) may sell Shares to
the public, shall be the net asset value of the Shares. If the public offering
price does not equal an even cent, the public offering price may be adjusted to
the nearest cent. All payments to the Trust hereunder shall be made in the
manner set forth in Section 3(g).
(d) The net asset value of Shares shall be determined by the Trust or an
agent appointed by the Trust, on such days, and at such times and in such
manner, as is set forth in the Prospectus and the SAI and in guidelines that
may be established by the Board of Trustees of the Trust.
(e) The Trust shall have the right to suspend the sale of Shares at times
when redemption is suspended pursuant to the conditions set forth in Section
4(c) hereof. The Trust shall also have the right to suspend the sale of Shares
if trading on the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by
-2-
<PAGE> 3
Federal or New York authorities, or if there shall have been some other
extraordinary event or if conditions exist, which, in the sole judgment of the
Trust, makes it impracticable or inadvisable to sell Shares.
(f) The Trust, or any agent of the Trust designated in writing by the
Trust, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Trust; provided, however,
that the Trust will not arbitrarily or without reasonable cause refuse to
accept orders for the purchase of Shares. The Distributor will confirm orders
upon their receipt, and the Trust (or its agent), upon receipt of payment
therefor and instructions, will deliver a statement confirming the issuance of
such Shares. The Distributor agrees to cause such instructions and any
payments that it may receive to be delivered promptly to the Trust (or its
agent).
SECTION 4. Redemption of Shares.
--------------------
(a) Any of the outstanding Shares may be tendered for redemption at any
time, and the Trust agrees to redeem Shares so tendered in accordance with
their terms and the procedures and requirements set forth in the Prospectus and
the SAI. The price to be paid upon the redemption of Shares shall be equal to
the net asset value calculated in accordance with the provisions of Section
3(e) hereof. All payments by the Trust hereunder shall be made in the manner
set forth below.
Subject to Section 4(b) hereof, the Trust shall pay the total amount of
the redemption price in accordance with applicable provisions of the Prospectus
and the SAI on or before the seventh day subsequent to receipt by the Trust (or
its agent) of a request for the redemption in proper form.
(b) Redemption of Shares may be suspended or payment by the Trust upon the
redemption of Shares may be postponed for more than seven days at times: (i)
when the New York Stock Exchange is closed for other than customary weekend or
holiday closings; (ii) when trading on said Exchange is restricted, or when an
emergency exists as a result of which disposal by the Trust of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Trust fairly to determine the value of its net assets, as provided by SEC
rules; or (iii) during any other period when the SEC by order so permits.
SECTION 5. Duties of the Trust.
-------------------
(a) The Trust shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of the Shares, including
one certified copy, upon request by the Distributor, of all financial
statements prepared by the Trust, in respect of the Fund, and examined by
independent accountants. The Trust shall, at the expense of the Distributor,
make available to the Distributor such number of copies of the Prospectus and
the SAI as the Distributor shall reasonably request.
-3-
<PAGE> 4
(b) The Trust shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of the Shares as investors may
reasonably be expected to purchase.
(c) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Shares for sale under the
securities laws of such states as the Distributor and the Trust may approve.
Any such qualification may be withheld, terminated or withdrawn by the Trust at
any time in its discretion. As provided in Section 8(b) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust.
The Distributor shall furnish such information and other material relating to
its affairs and activities as may be required by the Trust in connection with
such qualification.
(d) The Trust shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of annual and
interim reports of the Trust.
(e) The Trust shall promptly notify the Distributor if the effectiveness
of the Registration Statement is suspended or lapses and shall promptly notify
of the termination or withdrawal of qualification under the laws of any state.
SECTION 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of the Shares, but shall not be obligated to sell any specific number of
Shares. The services of the Distributor hereunder are not to be deemed
exclusive and nothing herein contained shall prevent the Distributor from
entering into distribution or dealer arrangements with other investment
companies so long as the performance of its obligations hereunder is not
impaired thereby.
(b) Neither the Distributor nor any Dealer nor any other person is
authorized by the Trust to give any information or to make any representations,
other than those contained in the Registration Statement or the Prospectus and
SAI. Any advertising or sales literature relating to the Trust shall be
approved by the Distributor and the contents and use thereof shall comply with
all applicable laws and regulations, including rules and interpretations of the
NASD.
(c) The Distributor shall perform its responsibilities hereunder in
accordance with applicable laws and regulations, including rules and
interpretations of the NASD.
SECTION 7. Selected Dealer and Agency Agreements.
-------------------------------------
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers (and with such other financial institutions
as may be authorized under applicable laws and regulations to act as agent in
the sale of Shares) of its choice ("Dealers") for the offering and sale of
Shares by such Dealers and agents. The Distributor may pay such other
compensation and concessions to Dealers as it determines,
-4-
<PAGE> 5
consistent with applicable law and the rules of the NASD. Shares offered for
sale by Dealers shall be offered on the same terms as would apply to the
Distributor as set forth herein.
(b) Within the United States, the Distributor shall enter into selected
dealer agreements only with organizations that are either members in good
standing of the NASD or financial institutions that are not required to be NASD
members.
(c) The Distributor shall adopt and follow procedures for the confirmation
of sales of Shares to investors and Dealers, the collection of amounts payable
by investors and Dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with applicable laws and
regulations and the requirements of the NASD, as they may from time to time
exist.
SECTION 8. Payment of Expenses.
-------------------
(a) The Trust shall bear all of its costs and expenses, including fees and
disbursements of its counsel and auditors, in connection with: (i) the
preparation and filing of the Registration Statement, the Prospectus and the
SAI, and supplements to the foregoing; and (ii) the expense of preparing,
printing, mailing and otherwise distributing Prospectuses and SAIs (including
supplements), annual and interim reports and proxy materials for use by
shareholders.
(b) The Trust shall bear the cost and expenses of qualification of Shares
for sale, and, if necessary or advisable in connection therewith, of qualifying
the Trust as a broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Trust and the Distributor pursuant to
Section 5(c) hereof, and the cost and expenses payable to each such state for
continuing qualification therein until the Trust decides to discontinue such
qualification pursuant to Section 5(c) hereof.
SECTION 9. Indemnification.
---------------
(a) The Trust shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith) arising by reason of any person
acquiring any Shares, which may be based upon the 1933 Act, or on any other
statute or at common law, on the ground that the Registration Statement, the
Prospectus or the SAI, or any annual or interim report to shareholders,
includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Trust in connection
therewith by or on behalf of the Distributor; provided, however, that in no
case (i) is the indemnity of the Trust in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Trust or its
shareholders to which the Distributor or any such controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under this Agreement; or (ii) is the
-5-
<PAGE> 6
Trust to be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or such controlling persons as the case may be,
shall have notified the Trust in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Trust will
be entitled to participate at its own expense in the defense, or if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Trust elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the
event the Trust elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit, shall bear the fees and the expenses of any additional
counsel retained by them, but, in case the Trust does not elect to assume the
defense of any such suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. The Trust shall promptly notify
the Distributor of the commencement of any litigation or proceedings against it
or any of its officers or directors in connection with the issuance or sale of
the Shares.
(b) The Distributor shall indemnify and hold harmless the Trust and each
of its trustees and officers and each person, if any, who controls the Trust
against any loss, liability, claim, damage, or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Trust in writing by or on behalf of the
Distributor for use in connection with the Registration Statement, the
Prospectus or the SAI, or the annual or interim reports to shareholders. In
case any action shall be brought against the Trust or any person so
indemnified, in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties given to the
Trust, and the Trust and each person so indemnified shall have the rights and
duties given to the Distributor by the provisions of subsection (a) of this
Section 9.
SECTION 10. Duration and Termination of This Agreement.
------------------------------------------
This Agreement shall remain in effect for an initial term of two years
from the date hereof and from year to year thereafter provided such continuance
is approved at least annually by the vote of a majority of the outstanding
voting securities of the Fund (as defined by the 1940 Act and the rules
thereunder) or by the Board of Trustees of the Trust; provided, that in either
event such continuance is also approved annually by the vote of a majority of
the trustees of the Trust who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, which vote must be
cast in person at a meeting called for the purpose of voting on such approval;
and provided, however, that: (a) the Trust may, at any time and without the
payment of any penalty, terminate this Agreement upon sixty days' written
notice to the
-6-
<PAGE> 7
Distributor; (b) this Agreement shall immediately terminate in the event of its
assignment (to the extent required by the 1940 Act and the rules thereunder)
unless such automatic termination shall be prevented by an exemptive order of
the SEC; and (c) the Distributor may terminate this Agreement without payment
of any penalty on sixty days' written notice to the Trust.
SECTION 11. Notices.
-------
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed post-paid, to the other party at the principal office of
such party, which addresses are as follows (or such other address as a party
may hereafter specify that notices hereunder be sent):
<TABLE>
<S> <C>
Granum Series Trust Granum Securities, L.L.C.
126 East 56th Street, 25th Floor 126 East 56th Street, 25th Floor
New York, New York 10022 New York, New York 10022
</TABLE>
SECTION 11. Amendments of this Agreement.
----------------------------
This Agreement may be amended only by the written agreement of the
parties; provided that any amendment hereof must be approved by the Board of
Trustees of the Trust, including a majority of the directors of the Trust who
are not parties to this Agreement or "interested persons" (as defined by the
1940 Act) of any such party, by vote cast in person at a meeting called for the
purpose of voting on such approval.
SECTION 12. Governing Law.
-------------
This Agreement shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the 1940 Act. To the extent the
applicable laws of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
SECTION 13. Liability of the Trust.
----------------------
The Declaration of Trust states and notice is hereby given that this
Agreement is not executed on behalf of the Trustees of the Trust as
individuals, and that the obligations of this Agreement are not binding upon
any of the Trustees, officers or shareholders or partners of the Trust
individually, but are binding only upon the assets and property of the Trust.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
GRANUM SERIES TRUST
By: _____________________________
Name: ______________________
Title: ______________________
GRANUM SECURITIES, L.L.C.
By: ______________________________
Name: _______________________
Title: ______________________
-8-
<PAGE> 1
CUSTODIAN AGREEMENT
THIS AGREEMENT made on this thirteenth day of February, 1997, between
Granum Series Trust, a Delaware business trust consisting of the Granum Value
Fund (hereinafter called the "Fund"), and FIRSTAR TRUST COMPANY, a corporation
organized under the laws of the State of Wisconsin (hereinafter called
"Custodian"),
WHEREAS, the Fund desires that its securities and cash shall be hereafter
held and administered by Custodian pursuant to the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Fund and Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or
any other persons duly authorized to sign by the Board of Trustees.
The word "Board" shall mean Board of Trustees of Granum Series Trust.
2. NAMES, TITLES, AND SIGNATURES OF THE FUND'S OFFICERS
An officer of the Fund will certify to Custodian the names and signatures
of those persons authorized to sign the officers' certificates described in
Section 1 hereof, and the names of the members of the Board of Trustees,
together with any changes which may occur from time to time.
ADDITIONAL SERIES. Granum Series Trust is authorized to issue separate
Series of shares of beneficial interest representing interests in separate
investment portfolios. The parties intend that each portfolio established by
the Trust, now or in the future, be covered by the terms and conditions of this
agreement.
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts in the
name of the Fund, subject only to draft or order by Custodian acting pursuant
to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof,
<PAGE> 2
all cash received by it from or for the account of the Fund. Custodian shall
make payments of cash to, or for the account of, the Fund from such cash only:
(a) for the purchase of securities for the portfolio
of the Fund upon the delivery of such securities to Custodian,
registered in the name of the Fund or of the nominee of
Custodian referred to in Section 7 or in proper form for
transfer;
(b) for the purchase or redemption of shares of
beneficial interest of the Fund upon delivery thereof to
Custodian, or upon proper instructions from Granum Series
Trust;
(c) for the payment of interest, dividends, taxes,
investment adviser's fees or operating expenses (including,
without limitation thereto, fees for legal, accounting,
auditing and custodian services and expenses for printing and
postage);
(d) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by
the Fund held by or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution
of the Board of Trustees of the Fund.
Before making any such payment, Custodian shall receive (and may
rely upon) an officers' certificate requesting such payment and stating that it
is for a purpose permitted under the terms of items (a), (b), (c), or (d) of
this Subsection A, and also, in respect of item (e), upon receipt of an
officers' certificate and a certified copy of a resolution of the Board
specifying the amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom such payment is to be made, provided,
however, that an officers' certificate and a certified copy of a resolution of
the Board need not precede the disbursement of cash for the purpose of
purchasing a money market instrument, or any other security with same or
next-day settlement, if the President, a Vice President, the Secretary or the
Treasurer of the Fund issues appropriate oral or facsimile instructions to
Custodian and an appropriate officers' certificate and a certified copy of a
resolution of the Board is received by Custodian within two business days
thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Fund.
C. Custodian shall, upon receipt of proper instructions, make federal
funds available to the Fund as of specified times agreed upon from time to time
by the Fund and the custodian in the amount of checks received in payment for
shares of the Fund which are deposited into the Fund's account.
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<PAGE> 3
4. SEGREGATED ACCOUNTS
Custodian shall hold in a separate account, and physically segregate
at all times from those of any other persons, firms or corporations, pursuant to
the provisions hereof, all securities and other investments other than cash and
cash equivalents received by it for, or for the account of, the Fund. All such
securities and other investments are to be held or disposed of by Custodian
for, and subject at all times to the instructions of the Fund pursuant to the
terms of this Agreement. Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities or other
investments, except pursuant to the directive of the Fund and only for the
account of the Fund as set forth in Section 5 of this Agreement.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any securities
of the Fund held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of
the Fund upon receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or
retired or otherwise become payable;
(c) for examination by any broker selling any such
securities in accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other
securities alone or other securities and cash whether pursuant
to any plan of merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise;
(e) upon conversion of such securities pursuant to
their terms into other securities;
(f) upon exercise of subscription, purchase or other
similar rights represented by such securities;
(g) for the purpose of exchanging interim receipts or
temporary securities for definitive securities;
(h) for the purpose of redeeming in kind shares of
beneficial interest of the Fund upon delivery thereof to
Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefore
shall be deliverable to Custodian.
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<PAGE> 4
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate and a
certified copy of a resolution of the Board specifying the securities to be
delivered, setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made, provided,
however, that an officers' certificate and a certified copy of a resolution of
the Board need not precede any such transfer, exchange or delivery of a money
market instrument, or any other security with same or next-day settlement, if
the President, a Vice President, the Secretary or the Treasurer of the Fund
issues appropriate oral or facsimile instructions to Custodian and an
appropriate officers' certificate and a certified copy of a resolution of the
Board is received by Custodian within two business days thereafter.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other
income items held by it for the account of the Fund, which call for payment
upon presentation and hold the cash received by it upon such payment for the
account of the Fund; (b) collect interest and cash dividends received, with
notice to the Fund, for the account of the Fund; (c) hold for the account of
the Fund hereunder all stock dividends, rights and similar securities issued
with respect to any securities held by it hereunder; and (d) execute, as agent
on behalf of the Fund, all necessary ownership certificates required by the
Internal Revenue Code or the Income Tax Regulations of the United States
Treasury Department or under the laws of any state now or hereafter in effect,
inserting the Fund's name on such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
7. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, Custodian shall
register all securities, except such as are in bearer form, in the name of a
registered nominee of Custodian as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued hereunder or in any provision of
any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under
the laws of any state. Custodian shall use its best efforts to the end that
the specific securities held by it hereunder shall be at all times identifiable
in its records.
The Fund shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
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<PAGE> 5
8. VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall promptly deliver, or cause to be executed and delivered, to the
Corporation all notices, proxies and proxy soliciting materials with relation
to such securities, such proxies to be executed by the registered holder of
such securities (if registered otherwise than in the name of the Fund), but
without indicating the manner in which such proxies are to be voted.
Custodian shall transmit promptly to the Fund all written information
(including, without limitation, pendency of calls and maturities of securities
and expirations of rights in connection therewith) received by Custodian from
issuers of the securities being held for the Fund. With respect to tender or
exchange offers, Custodian shall transmit promptly to the Fund all written
information received by Custodian from issuers of the securities whose tender
or exchange is sought and from the party (or his agent) making the tender or
exchange offer.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
The Fund shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection with
securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to
exempt from taxation any exemptable transfers and/or deliveries of any such
securities.
10. CONCERNING CUSTODIAN
Custodian shall be paid as compensation for its services pursuant to this
Agreement such compensation as may from time to time be agreed upon in writing
between the two parties. Until modified in writing, such compensation shall be
as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon any
certificate herein described or certified copy of any resolution of the Board,
and may rely on the genuineness of any such document which it may in good faith
believe to have been validly executed.
Custodian shall use reasonable care in providing services to the Fund
pursuant to this Agreement. The Fund agrees to indemnify and hold harmless
Custodian and its nominee from all taxes, charges, expenses, assessments,
claims and liabilities (including counsel fees) incurred or assessed against it
or by its nominee in connection with the performance of this
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<PAGE> 6
Agreement, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct. Custodian is authorized
to charge any account of the Fund for such items.
In the event of any advance of cash for any purpose made by Custodian
resulting from orders or instructions of the Fund, or in the event that
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Fund shall be security therefore.
Custodian agrees to indemnify and hold harmless the Fund or their nominees
from all charges, expenses, assessments, and claims/liabilities (including
counsel fees) incurred or assessed against the fund or their nominees in
connection with the performance of this agreement, except such as may arise
from the Fund's, or their nominees own negligent action, negligent failure to
act, or willful misconduct.
11. FOREIGN SUBCUSTODIANS
Custodian is hereby authorized to assign as subcustodians for the Fund's
securities and other assets maintained outside of the United States the foreign
banking institutions and foreign securities depositories designated on Schedule
B hereto ("Foreign Subcustodians") provided that, if the Custodian utilizes the
services of a Foreign Subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Fund by the Foreign Subcustodian as
fully as if the Custodian was directly responsible for any such losses under
the terms of this Agreement. Upon receipt of proper instructions from the Fund,
together with a certified resolution of the Board, Custodian and the Fund may
agree to amend Schedule B hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to act as
Foreign Subcustodians. Upon receipt of proper instructions from Custodian, the
Fund may instruct Custodian to cease the employment of any one or more Foreign
Subcustodians for maintaining custody of the Fund's assets.
Custodian shall limit the securities and other assets maintained in the
custody of Foreign Subcustodians to the following: (a) "foreign securities," as
defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, as amended (the "1940 Act"); and (b) cash and cash equivalents in such
amounts as custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions. Custodian shall identify on
its books and records as belonging to the Fund, the foreign securities of the
Fund held by each Foreign Subcustodian.
Notwithstanding anything contained herein, if the Fund requires the
Custodian to engage specific Foreign Subcustodians for the safekeeping and/or
clearing of assets, the Fund agrees to indemnify and hold harmless Custodian
from all claims, expenses and liabilities incurred or assessed against it in
connection with the use of such Foreign Subcustodian in regard to the Fund's
assets, except as may arise from the Custodian's or the Foreign Subcustodian's
negligent action, negligent failure to act or willful misconduct.
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<PAGE> 7
12. REPORTS BY CUSTODIAN
Custodian shall furnish the Fund daily as agreed upon with a statement
summarizing all transactions and entries for the account of the Fund.
Custodian shall furnish to the Fund, at the end of every month, a list of the
portfolio securities showing the adjusted average cost of each issue and the
market value at the end of such month. Custodian shall furnish the Fund, at the
close of each quarter of the Fund's fiscal year, with a list showing cost and
market values of the securities held by it for the Fund hereunder, adjusted for
all commitments confirmed by the Fund as of such close, certified by a duly
authorized officer of Custodian. The books and records of Custodian pertaining
to its actions under this Agreement shall be open to inspection and audit at
reasonable times by officers of, and of auditors employed by, the Fund.
13. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by the Fund, or by Custodian, on sixty
(60) days notice, given in writing and sent by registered mail to Custodian at
P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Fund at Granum Series
Trust located at 126 East 56th Street, New York, N.Y. 10022 as the case may be.
Upon any termination of this Agreement, pending appointment of a successor to
Custodian or a vote of the shareholders of the Fund to dissolve or to function
without a custodian of its cash, securities and other property, Custodian shall
not deliver cash, securities or other property of the Fund to the Fund, but may
deliver them to a bank or trust company of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last
published report of not less than Two Million Dollars ($2,000,000) as a
Custodian for the Fund to be held under terms similar to those of this
Agreement, provided, however, that Custodian shall not be required to make any
such delivery or payment until full payment shall have been made by the Fund of
all liabilities constituting a charge on or against the properties then held by
Custodian or on or against Custodian, and until full payment shall have been
made to Custodian of all its fees, compensation, costs and expenses, subject to
the provisions of Section 10 of this Agreement.
This Agreement may not be assigned by Custodian without the consent of the
Fund, authorized or approved by a resolution of its Board of Trustees.
14. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Trustees of the Fund approves by resolution the
use of such central securities clearing agency or securities depository.
15. RECORDS
To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Fund pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder,
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<PAGE> 8
Custodian agrees to make any such records available to the Fund upon request
and to preserve such records for the periods prescribed in Rule 31a-2 under the
Investment Company Act of 1940, as amended.
Trustees and shareholders shall not be personally liable for obligations
of the Fund in connection with any matter arising from or in connection with
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their respective corporate seals to be affixed hereto as of the
date first above-written by their respective officers thereunto duly
authorized.
Executed in several counterparts, each of which is an original.
<TABLE>
<S> <C>
GRANUM SERIES TRUST FIRSTAR TRUST COMPANY
/s/ Jonas Siegel /s/ Joe D. Redwine
----------------------------------------- --------------------------------
Title: Chief Financial Officer/Treasurer Title: First Vice President
Date: February 13, 1997 Date: February 27, 1997
----------------------------------- --------------------------
Attest: /s/ Lewis M. Eisenberg Attest: /s/ Paul Rock
--------------------------------- ------------------------
</TABLE>
8
<PAGE> 1
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this thirteenth day of
February, 1997, by and between Granum Series Trust, a Delaware business trust
(hereinafter referred to as the "Fund") and Firstar Trust Company, a
corporation organized under the laws of the State of Wisconsin (hereinafter
referred to as the "Agent").
WHEREAS, the Fund is an open-ended management investment company which is
registered under the Investment Company Act of 1940; and
WHEREAS, the Agent is a trust company and, among other things, is in the
business of administering transfer and dividend disbursing agent functions for
the benefit of its customers;
NOW, THEREFORE, the Fund and the Agent do mutually promise and agree as
follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE AGENT
Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints the Agent to act as transfer agent and dividend
disbursing agent.
The Fund is authorized to issue separate Series of shares of beneficial
interest representing interests in separate investment portfolios. The parties
intend that each portfolio established by the Trust, now or in the future, be
covered by the terms and conditions of this agreement.
The Agent shall perform all of the customary services of a transfer agent
and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares, with
prompt delivery, where appropriate, of payment and supporting
documentation to the Fund's custodian;
B. Process purchase orders and issue the appropriate
number of certificated or uncertificated shares with such
uncertificated shares being held in the appropriate
shareholder account;
C. Process redemption requests received in good
order and, where relevant, deliver appropriate documentation
to the Fund's custodian;
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<PAGE> 2
D. Pay monies (upon receipt from the Fund's
custodian, where relevant) in accordance with the instructions
of redeeming shareholders;
E. Process transfers of shares in accordance with
the shareowner's instructions;
F. Process exchanges between funds within the same
family of funds if applicable;
G. Issue and/or cancel certificates as instructed;
replace lost, stolen or destroyed certificates upon receipt of
satisfactory indemnification or surety bond;
H. Prepare and transmit payments for dividends and
distributions declared by the Fund;
I. Make changes to shareholder records, including,
but not limited to, address changes in plans (i.e., systematic
withdrawal, automatic investment, dividend reinvestment,
etc.);
J. Record the issuance of shares of the Fund and
maintain, pursuant to Securities Exchange Act of 1934 Rule
17ad-10(e), a record of the total number of shares of the Fund
which are authorized, issued and outstanding and such other
records as are required to be maintained by a transfer agent
for open-end registered investment companies by the rules
under the Securities Exchange Act of 1934, as amended;
K. Prepare shareholder meeting lists and, if
applicable, mail, receive and tabulate proxies;
L. Mail shareholder reports and prospectuses to
current shareholders;
M. Prepare and file U.S. Treasury Department forms
1099 and other appropriate information returns required with
respect to dividends and distributions for all shareholders;
N. Provide shareholder account information upon
request and prepare and mail confirmations and statements of
account to shareholders for all purchases, redemptions and
other confirmable transactions as agreed upon with the Fund;
and
O. Provide a Blue Sky System which will enable the
Fund to monitor the total number of shares sold in each state.
In addition, the Fund shall identify to the Agent in writing
those transactions and assets to be treated as exempt from the
Blue Sky reporting to the Fund for each state. The
responsibility of the Agent for the Fund's Blue Sky state
registration status
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<PAGE> 3
is solely limited to the initial compliance by the Fund and
the reporting of such transactions to the Fund.
2. COMPENSATION
The Fund agrees to pay the Agent for performance of the duties listed in
this Agreement; the fees and out-of-pocket expenses include, but are not
limited to the following: printing, postage, forms, stationery, record
retention, mailing, insertion, programming, labels, shareholder lists and proxy
expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Fund and the Agent.
The Fund agrees to pay all fees and reimbursable expenses within ten (10)
business days following the mailing of the billing notice.
3. REPRESENTATIONS OF AGENT
The Agent represents and warrants to the Fund that:
A. It is a trust company duly organized, existing
and in good standing under the laws of Wisconsin;
B. It is a registered transfer agent under the
Securities Exchange Act of 1934 as amended.
C. It is duly qualified to carry on its business in
the state of Wisconsin;
D. It is empowered under applicable laws and by its
charter and bylaws to enter into and perform this Agreement;
E. All requisite corporate proceedings have been
taken to authorize it to enter and perform this Agreement; and
F. It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its
duties and obligations under this Agreement; and
G. It will comply with all applicable requirements
of the Securities Act of 1933 and the Securities Exchange Act
of 1934, as amended, the Investment Company Act of 1940, as
amended, and any laws, rules, and regulations of governmental
authorities having jurisdiction.
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<PAGE> 4
4. REPRESENTATIONS OF THE FUND
The Fund represents and warrants to the Agent that:
A. The Fund is an open-ended diversified investment
company under the Investment Company Act of 1940;
B. The Fund is a Delaware business trust organized,
existing, and in good standing under the laws of Delaware;
C. The Fund is empowered under applicable laws and
by its Declaration of Trust and bylaws to enter into and
perform this Agreement;
D. All necessary proceedings required by the
Declaration of Trust have been taken to authorize the Fund to
enter into and perform this Agreement;
E. The Fund will comply with all applicable
requirements of the Securities Act of 1933, as amended,
Securities Exchange Act of 1934, as amended, the Investment
Company Act of 1940, as amended, and any laws, rules and
regulations of governmental authorities having jurisdiction;
and
F. A registration statement under the Securities Act
of 1933 is currently effective and will remain effective, and
appropriate state securities law filings have been made and
will continue to be made, with respect to all shares of the
Fund being offered for sale.
5. COVENANTS OF THE FUND AND AGENT
The Fund shall furnish the Agent a certified copy of the resolution of the
Board of Trustees of the Fund authorizing the appointment of the Agent and the
execution of this Agreement. The Fund shall provide to the Agent a copy of the
Declaration of Trust, bylaws of the Fund, and all amendments.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the rules thereunder, the Agent agrees that all such records prepared or
maintained by the Agent relating to the services to be performed by the Agent
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such section and rules and will be
surrendered to the Fund on and in accordance with its request.
6. INDEMNIFICATION; REMEDIES UPON BREACH
The Agent shall exercise reasonable care in the performance of its duties
under this Agreement. The Agent shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund in connection with
matters to which this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power
4
<PAGE> 5
supplies beyond the Agent's control, except a loss resulting from the Agent's
refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in the performance of its
duties under this Agreement. Notwithstanding any other provision of this
Agreement, the Fund shall indemnify and hold harmless the Agent from and
against any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature (including
reasonable attorneys' fees) which the Agent may sustain or incur or which may
be asserted against the Agent by any person arising out of any action taken or
omitted to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or (ii) in reliance upon any written
or oral instruction provided to the Agent by any duly authorized officer of the
Fund, such duly authorized officer to be included in a list of authorized
officers furnished to the Agent and as amended from time to time in writing by
resolution of the Board of Trustees of the Fund.
Further, the Fund will indemnify and hold the Agent harmless against any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action, or suit as
a result of the negligence of the Fund (unless contributed to by the Agent's
breach of this Agreement or other Agreements between the Fund and the Agent, or
the Agent's own negligence or bad faith); or as a result of the Agent acting
upon telephone instructions relating to the exchange or redemption of shares
received by the Agent and reasonably believed by the Agent under a standard of
care customarily used in the industry to have originated from the record owner
of the subject shares; or as a result of acting in reliance upon any genuine
instrument or stock certificate signed, countersigned, or executed by any
person or persons authorized to sign, countersign, or execute the same.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, the Agent shall take all reasonable steps to
minimize service interruptions for any period that such interruption continues
beyond the Agent's control. The Agent will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such a
breakdown at the expense of the Agent. The Agent agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing equipment
to the extent appropriate equipment is available. Representatives of the Fund
shall be entitled to inspect the Agent's premises and operating capabilities at
any time during regular business hours of the Agent, upon reasonable notice to
the Agent.
Regardless of the above, the Agent reserves the right to reprocess and
correct administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the Fund may be asked to
indemnify or hold the Agent harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Agent will use all reasonable care to notify the
Fund promptly concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification against the Fund.
The Fund shall have the option to defend the Agent against any claim which may
be the subject of this indemnification. In the
5
<PAGE> 6
event that the Fund so elects, it will so notify the Agent and thereupon the
Fund shall take over complete defense of the claim, and the Agent shall in such
situation initiate no further legal or other expenses for which it shall seek
indemnification under this section. The Agent shall in no case confess any
claim or make any compromise in any case in which the Fund will be asked to
indemnify the Agent except with the Fund's prior written consent.
The Agent shall indemnify and hold the Fund harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which may be asserted against the Fund by any person arising
out of any action taken or omitted to be taken by the Agent as a result of the
Agent's refusal or failure to comply with the terms of this Agreement, its bad
faith, negligence, or willful misconduct.
7. CONFIDENTIALITY
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and its
shareholders and shall not be disclosed to any other party, except after prior
notification to and approval in writing by the Fund, which approval shall not
be unreasonably withheld and may not be withheld where the Agent may be exposed
to civil or criminal contempt proceedings for failure to comply after being
requested to divulge such information by duly constituted authorities.
8. RECORDS
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem advisable
and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act of 1940, as amended (the "Investment Company Act"),
and the rules thereunder. The Agent agrees that all such records prepared or
maintained by The Agent relating to the services to be performed by The Agent
hereunder are the property of the Fund and will be preserved, maintained, and
made available with such section and rules of the Investment Company Act and
will be promptly surrendered to the Fund on and in accordance with its request.
9. WISCONSIN LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the state of Wisconsin.
10. AMENDMENT, ASSIGNMENT, TERMINATION AND NOTICE
A. This Agreement may be amended by the mutual
written consent of the parties.
B. This Agreement may be terminated upon ninety (90)
day's written notice given by one party to the other.
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<PAGE> 7
C. This Agreement and any right or obligation
hereunder may not be assigned by either party without the
signed, written consent of the other party.
D. Any notice required to be given by the parties to
each other under the terms of this Agreement shall be in
writing, addressed and delivered, or mailed to the principal
place of business of the other party. If to the agent, such
notice should to be sent to Firstar Trust Company/Mutual Fund
Services located at 615 East Michigan Street, Milwaukee,
Wisconsin 53202. If to the Fund, such notice should be sent to
Granum Series Trust located at 126 East 56th Street, New York,
N.Y. 10022.
E. In the event that the Fund gives to the Agent its
written intention to terminate and appoint a successor
transfer agent, the Agent agrees to cooperate in the transfer
of its duties and responsibilities to the successor, including
any and all relevant books, records and other data established
or maintained by the Agent under this Agreement.
F. Should the Fund exercise its right to terminate,
except where such termination follows a breach of this
Agreement by the Agent, all out-of-pocket expenses associated
with the movement of records and material will be paid by the
Fund. Trustees and shareholders shall not be personally liable
for obligations of the Fund in connection with any matter
arising from or in connection with this Agreement.
Granum Series Trust Firstar Trust Company
By: /s/ Jonas Siegel By: /s/ Joe D. Redwine
----------------------------------------- ----------------------------
Print: Jonas Siegel Print: Joe D. Redwine
-------------------------------------- -------------------------
Title: Chief Financial Officer/Treasurer Title: First Vice President
Date: February 13, 1997 Date: February 27, 1997
--------------------------------------- ----------------------------
Attest: /s/ Lewis M. Eisenberg Attest:
------------------------------------- ------------------------
Assistant Secretary
7
<PAGE> 1
FUND ADMINISTRATION SERVICING AGREEMENT
This Agreement is made and entered into on this thirteenth day of February,
1997, by and between Granum Series Trust (hereinafter referred to as the
"Fund") and Firstar Trust Company, a corporation organized under the laws of
the State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, The Fund is an open-ended management investment company which is
registered under the Investment Company Act of 1940;
WHEREAS, FTC is a trust company and, among other things, is in the business of
providing fund administration services for the benefit of its customers;
NOW, THEREFORE, the Fund and FTC do mutually promise and agree as follows:
I. Appointment of Administrator
The Fund hereby appoints FTC as Administrator of the Fund on the terms
and conditions set forth in this Agreement, and FTC hereby accepts such
appointment and agrees to perform the services and duties set forth in
this Agreement in consideration of the compensation provided for herein.
II. Duties and Responsibilities of FTC
A. General Fund Management
1. Act as liaison among all fund service providers
2. Coordinate board communication by:
a. Assisting fund counsel in
establishing meeting agendas
b. Preparing board reports based on
financial and administrative data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond
and director and officers liability coverage, and making
the necessary SEC filings relating thereto
e. Record board minutes
3. Audits
a. Prepare appropriate schedules and
assist independent auditors
b. Provide information to SEC and
facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
<PAGE> 2
B. Compliance
1. Regulatory Compliance
a. Monthly, quarterly and intra month
spot checks as needed to monitor compliance with
Investment Company Act of 1940 requirements
1) Asset diversification
tests
2) Total return and SEC
yield calculations
3) Maintenance of books and
records under Rule 31a-3
4) Code of ethics
b. Periodically monitor Fund's compliance with the policies
and investment limitations of the Fund as set forth in
its prospectus and statement of additional information
2. Blue Sky Compliance
a. Prepare and file with the appropriate
state securities authorities any and all required
compliance filings (including initial filings) relating
to the registration of the securities of the Fund so as
to enable the Fund to make a continuous offering of its
shares
b. Monitor status and maintain
registrations in each state
3. SEC Registration and Reporting
a. Update prospectus and statement of additional
information; proxy statements, and Rule 24f-2 notice.
Submit to firm's counsel as needed.
b. Prepare Annual and semiannual reports
4. IRS Compliance
a. Monthly, quarterly and intra month spot checks as needed
to monitor the Fund's status as a regulated investment
company under Subchapter M through review of the
following:
1) Asset diversification
requirements
2) Qualifying income
requirements
3) Distribution requirements
b. Monitor short short testing
c. Calculate required distributions
(including excise tax distributions)
2
<PAGE> 3
C. Financial Reporting
1. Provide financial data required by the fund's
prospectus and statement of additional information
2. Prepare financial reports for shareholders, the
board, the SEC, and independent auditors
3. Supervise the Fund's Custodian and Fund
Accountants in the maintenance of the Fund's general ledger
and in the preparation of the Fund's financial statements
including oversight of expense accruals and payments, of the
determination of net asset value of the Fund's net assets and
of the Fund's shares, and of the declaration and payment of
dividends and other distributions to shareholders
D. Tax Reporting
1. Prepare and file on a timely basis appropriate
federal and state tax returns including forms 1120/8610 with
any necessary schedules
2. Prepare state income breakdowns where relevant
3. File 1099 Miscellaneous for payments to directors
and other service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate
shareholders
III. Compensation
The Fund agrees to pay FTC for performance of the duties listed in this
Agreement and the fees and out-of-pocket expenses as set forth in the
attached Schedule A.
These fees may be changed from time to time, subject to mutual written
Agreement between the Fund and FTC.
The Fund agrees to pay all fees and reimbursable expenses within ten (10)
business days following the mailing of the billing notice.
IV. Additional Series
In the event that the Granum Series Trust a Delaware business trust which
is organized as a series fund currently offering one fund: Granum Value
Fund, establishes one or more series of shares with respect to which it
desires to have FTC render fund administration services, under the terms
hereof, it shall so notify FTC in writing, and if FTC agrees in writing
to provide such services, such series will be subject to the terms and
conditions of
3
<PAGE> 4
this Agreement, and shall be maintained and accounted for by FTC on a
discrete basis. The fund currently covered by this Agreement is the
Granum Value Fund.
V. Performance of Service; Limitation of Liability
A. FTC shall exercise reasonable care and to act in good faith in
the performance of its duties under this Agreement. FTC shall not be
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with matters to which this Agreement
relates, including losses resulting from mechanical breakdowns or the
failure of communication or power supplies beyond FTC's control, except a
loss resulting from FTC's refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or willful misconduct on
its part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless FTC from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without basis
in fact or law) of any and every nature (including reasonable attorneys'
fees)which FTC may sustain or incur or which may be asserted against FTC
by any person other than the Fund arising out of any action taken or
omitted to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or(ii) in reliance upon any
written or oral instruction for a proper corporate purpose provided to
FTC by any duly authorized officer of the Fund, such duly authorized
officer to be included in a list of authorized officers furnished to FTC
and as amended from time to time in writing by resolution of the Board of
Directors of the Fund.
In the event of a mechanical breakdown or failure of communication
or power supplies beyond its control, FTC shall take all reasonable steps
to minimize service interruptions for any period that such interruption
continues beyond FTC's control. FTC will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from
such a breakdown at the expense of FTC. FTC agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available.
Representatives of the Fund shall be entitled to inspect FTC's premises
and operating capabilities at any time during regular business hours of
FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the Fund may be
asked to indemnify or hold FTC harmless, the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that FTC will use all reasonable
care to notify the Fund promptly concerning any situation which presents
or appears likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the option to
defend FTC against any claim which may be the
4
<PAGE> 5
subject of this indemnification. In the event that the Fund so elects,
it will so notify FTC and thereupon the Fund shall take over complete
defense of the claim, and FTC shall in such situation initiate no further
legal or other expenses for which it shall seek indemnification under
this section. FTC shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to indemnify FTC
except with the Fund's prior written consent.
C. FTC shall indemnify and hold the Fund harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature (including
reasonable attorneys' fees)which may be asserted against the Fund by any
person arising out of any action taken or omitted to be taken by FTC as a
result of FTC's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
VI. Confidentiality
FTC agrees on behalf of itself and its employees and agents to treat
confidentially all information relating to the Fund's business which is
received by FTC during the course of rendering any service hereunder. The
Agent agrees on behalf of itself and its employees and agents to treat
confidentially all records and other information relative to the Fund and
its shareholders and shall not disclose to any other party, except after
prior notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld and may not be withheld where the
Agent may be exposed to civil or criminal contempt proceedings for
failure to comply after being requested to divulge such information by
duly constituted authorities.
VII. Data Necessary to Perform Service
The Fund or its agent, which may be FTC, shall furnish to FTC the data
necessary to perform the services described herein at times and in such
form as mutually agreed upon.
VIII. Terms of Agreement
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue automatically in
effect for successive annual periods. The Agreement may be terminated by
either party upon giving ninety(90) days prior written notice to the
other party or such shorter period as is mutually agreed upon by the
parties.
IX. Duties in the Event of Termination
In the event that, in connection with termination, a successor to any of
FTC's duties or responsibilities hereunder is designated by the Fund by
written notice to FTC, FTC will promptly, upon such termination and at
the expense of the Fund, transfer to such successor all relevant books,
records, correspondence, and other data established or maintained by FTC
under this Agreement in a form reasonably acceptable to the Fund (if
5
<PAGE> 6
such form differs from the form in which FTC has maintained, the Fund
shall pay any expenses associated with transferring the data to such
form), and will cooperate in the transfer of such duties and
responsibilities, including provision for assistance from FTC's personnel
in the establishment of books, records, and other data by such successor.
X. Choice of Law
This Agreement shall be construed in accordance with the laws of the
State of Wisconsin.
XI. Notices
Notices of any kind to be given by either party to the other party shall
be in writing and shall be duly given if mailed or delivered as follows:
Notice to FTC shall be sent to Mutual Fund Services located at 615 East
Michigan Street, Milwaukee, Wisconsin 53202 and notice to the Fund shall
be sent to the Granum Series Trust located at 126 East 56th Street,
Twenty-Fifth Floor, New York, N.Y. 10022.
XII. Records
FTC shall keep records relating to the services to be performed
hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Fund but not inconsistent with the
rules and regulations of appropriate government authorities, in
particular, Section 31 of the Investment Company Act of 1940 as amended
(the "Investment Company Act"), and the rules thereunder. FTC agrees
that all such records prepared or maintained by FTC relating to the
services to be performed by FTC hereunder are the property of the Fund
and will be preserved, maintained, and made available with such section
and rules of the Investment Company Act and will be promptly surrendered
to the Fund on and in accordance with its request. [Trustees and
Shareholders shall not be personally liable for the obligations of the
Fund in connection with any matter arising from or in connection with
this agreement.]
XIII. This servicing agreement can not be assigned without consent of Granum
Series Trust.
<TABLE>
<S> <C>
GRANUM SERIES TRUST FIRSTAR TRUST COMPANY
By: /s/ Jonas Siegel By: /s/ Joe D. Redwine
--------------------------------------- -----------------------------------------
Title: Chief Financial Officer/Treasurer Title: First Vice President
Date: February 13, 1997 Date: February 27, 1997
------------------------------------- --------------------------------------
Attest: /s/ Lewis M. Eisenberg Attest: /s/ Paul Rock
----------------------------------- ------------------------------------
</TABLE>
6
<PAGE> 7
SCHEDULE A
FUND ADMINISTRATION SERVICING AGREEMENT
FUND ADMINISTRATION AND COMPLIANCE
ANNUAL FEE SCHEDULE
o Minimum annual fee per fund: $30,000 for the first $40,000,000
o 6 basis points (.0006) on the next $200,000,000
o 5 basis points (.0005) on the next $300,000,000
o 3 basis points (.0003) on the balance
o Out-of-Pocket expenses, including, but not limited to:
o Postage
o Stationery
o Programming
o Proxies
o Retention of Records
o Special reports
o Federal and state regulatory filing fees
o Certain insurance premiums
o All other out-of pocket expenses
o Expenses from Board of Directors meetings
o Auditing and legal expenses
o Fees are billed monthly
7
<PAGE> 1
FUND ACCOUNTING SERVICING AGREEMENT
This contract between Granum Series Trust, a Delaware Business Trust consisting
of Granum Value Fund, (hereinafter called the "Fund"), and Firstar Trust
Company, a Wisconsin corporation, hereinafter called "FTC," is entered into on
this thriteenth day of February, 1997.
WHEREAS, Granum Series Trust, is an open-ended management investment
company registered under the Investment Company Act of 1940; and
WHEREAS, Firstar Trust Company ("FTC") is in the business of providing,
among other things, mutual fund accounting services to investment companies;
NOW, THEREFORE, the parties do mutually promise and agree as follows:
1. SERVICES. FTC agrees to provide the following mutual fund
accounting services to the Funds:
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis
using security trade information communicated from the
investment manager on a timely basis.
(2) For each valuation date, obtain prices from a
pricing source approved by the Board of Trustees and apply
those prices to the portfolio positions. For those
securities where market quotations are not readily
available, the Board of Trustees shall approve, in good
faith, the method for determining the fair value for such
securities.
(3) Identify interest and dividend accrual balances as
of each valuation date and calculate gross earnings on
investments for the accounting period.
(4) Determine gain/loss on security sales and identify
them as to short-short, short- or long-term status; account
for periodic distributions of gains or losses to shareholders
and maintain undistributed gain or loss balances as of each
valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense
accrual amounts as directed by the Fund as to methodology,
rate or dollar amount.
<PAGE> 2
(2) Record payments for Fund expenses upon receipt of written
authorization from the Fund.
(3) Account for fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FTC
and the Fund.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for fund share purchases, sales, exchanges,
transfers, dividend reinvestments, and other fund share activity as
reported by the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Fund.
(3) Determine net investment income (earnings) for the Fund as
of each valuation date. Account for periodic distributions of
earnings to shareholders and maintain undistributed net investment
income balances as of each valuation date.
(4) Maintain a general ledger for the Fund in the form as
agreed upon.
(5) For each day the Fund is open as defined in the
prospectus, determine the net asset value of the according to the
accounting policies and procedures set forth in the prospectus.
(6) Calculate per share net asset value, per share net
earnings, and other per share amounts reflective of fund operation
at such time as required by the nature and characteristics of the
Fund.
(7) Communicate, at an agreed upon time, the per share price
for each valuation date to parties as agreed upon from time to
time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio
of the Fund to support the tax reporting required for IRS-defined
regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
2
<PAGE> 3
(3) Calculate taxable gain/loss on security sales using the
tax lot relief method designated by the Fund.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support
financial statement preparation by making the fund accounting
records available to the Granum Series Trust, the Securities and
Exchange Commission, and the outside auditors.
(2) Maintain accounting records according to the Investment
Company Act of 1940 and regulations provided thereunder.
2. PRICING OF SECURITIES. For each valuation date, obtain prices from a
pricing source selected by FTC but approved by the Fund's Board and apply those
prices to the portfolio positions and to value collateral held with respect to
repurchase agreements and securities loans. For those securities where market
quotations are not readily available, the Fund's Board shall approve, in good
faith, the method for determining the fair value for such securities in
accordance with the method determined by the Fund's Board of Trustees.
If the Fund desires to provide a price which varies from the pricing
source, the Fund shall promptly notify and supply FTC with the valuation of any
such security on each valuation date. All pricing changes made by the Fund
will be in writing and must specifically identify the securities to be changed
by CUSIP, name of security, new price or rate to be applied, and, if
applicable, the time period for which the new prices are effective.
3. CHANGES IN ACCOUNTING PROCEDURES. Any resolution passed by the Board
of Trustees that affects accounting practices and procedures under this
agreement shall be effective upon written receipt and acceptance by the FTC.
4. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC. FTC reserves the right to
make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Funds under
this Agreement.
5. COMPENSATION. FTC shall be compensated for providing the services set
forth in this Agreement in accordance with the Fee Schedule attached hereto as
Exhibit A and as mutually agreed upon and amended from time to time.
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<PAGE> 4
6. PERFORMANCE OF SERVICE.
A. FTC shall exercise reasonable care and act in good faith in the
performance of its duties under this Agreement. FTC shall not be liable
for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with matters to which this Agreement relates,
including losses resulting from mechanical breakdowns or the failure of
communication or power supplies beyond FTC's control, except a loss
resulting from FTC's refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or willful misconduct on
its part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Fund shall
indemnify and hold harmless FTC from and against any and all claims,
demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which FTC may sustain or incur or which may be
asserted against FTC by any person arising out of any action taken or
omitted to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to FTC by any duly authorized
officer of the Fund, such duly authorized officer to be included in a
list of authorized officers furnished to FTC and as amended from time
to time in writing by resolution of the Board of Trustees of the Fund.
In the event of a mechanical breakdown or failure of communication
or power supplies beyond its control, FTC shall take all reasonable
steps to minimize service interruptions for any period that such
interruption continues beyond FTC's control. FTC will make every
reasonable effort to restore any lost or damaged data and correct any
errors resulting from such a breakdown at the expense of FTC. FTC
agrees that it shall, at all times, have reasonable contingency plans
with appropriate parties, making reasonable provision for emergency use
of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Fund shall be entitled
to inspect FTC's premises and operating capabilities at any time during
regular business hours of FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in
this section shall apply, it is understood that if in any case the
Fund may be asked to indemnify or hold FTC harmless, the Fund shall
be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that FTC will
use all reasonable care to notify
4
<PAGE> 5
the Fund promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification against the Fund. The Fund shall have the
option to defend FTC against any claim which may be the
subject of this indemnification. In the event that the Fund
so elects, it will so notify FTC and thereupon the Fund shall
take over complete defense of the claim, and FTC shall in
such situation initiate no further legal or other expenses
for which it shall seek indemnification under this section.
FTC shall in no case confess any claim or make any compromise
in any case in which the Fund will be asked to indemnify FTC
except with the Fund's prior written consent.
C. FTC shall indemnify and hold the Fund harmless from
and against any and all claims, demands, losses, expenses,
and liabilities (whether with or without basis in fact or
law) of any and every nature (including reasonable attorneys'
fees) which may be asserted against the Fund by any person
arising out of any action taken or omitted to be taken by FTC
as a result of FTC's refusal or failure to comply with the
terms of this Agreement, its bad faith, negligence, or
willful misconduct.
7. RECORDS. FTC shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
The Investment Company Act of 1940 as amended (the "Investment Company Act"),
and the rules thereunder. FTC agrees that all such records prepared or
maintained by FTC relating to the services to be performed by FTC hereunder are
the property of the Fund and will be preserved, maintained, and made available
with such section and rules of the Investment Company Act and will be promptly
surrendered to the Fund on and in accordance with its request.
8. CONFIDENTIALITY. FTC shall handle in confidence all information
relating to the Fund's business, which is received by FTC during the course of
rendering any service hereunder.
9. DATA NECESSARY TO PERFORM SERVICES. The Fund or its agent, which may
be FTC, shall furnish to FTC the data necessary to perform the services
described herein at times and in such form as mutually agreed upon.
10. NOTIFICATION OF ERROR. The Fund will notify FTC of any balancing or
control error caused by FTC within three (3) business days after receipt of any
reports rendered by FTC to the Fund, or within three (3) business days after
discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
11. ADDITIONAL SERIES. In the event that the Granum Series Trust
establishes one or more series of shares with respect to which it desires to
have FTC render accounting services, under the terms hereof, it shall so notify
FTC in writing, and if FTC agrees in writing to
5
<PAGE> 6
provide such services, such series will be subject to the terms and conditions
of this Agreement, and shall be maintained and accounted for by FTC on a
discrete basis. The portfolios currently covered by this Agreement are: Granum
Value Fund
12. TERM OF AGREEMENT. This Agreement may be terminated by either party
upon giving ninety (90) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
13. DUTIES IN THE EVENT OF TERMINATION. In the event that in connection
with termination a Successor to any of FTC's duties or responsibilities
hereunder is designated by Granum Series Trust by written notice to FTC, FTC
will promptly, upon such termination and at the expense of Granum Series Trust,
transfer to such Successor all relevant books, records, correspondence and
other data established or maintained by FTC under this Agreement in a form
reasonably acceptable to Granum Series Trust (if such form differs from the
form in which FTC has maintained the same, Granum Series Trust shall pay any
expenses associated with transferring the same to such form), and will
cooperate in the transfer of such duties and responsibilities, including
provision for assistance from FTC's personnel in the establishment of books,
records and other data by such successor.
14. NOTICES. Notices of any kind to be given by either party to the other
party shall be in writing and shall be duly given if mailed or delivered as
follows: Notice to FTC shall be sent to Mutual Fund Services located at 615
East Michigan Street, Milwaukee, Wisconsin 53202, and notice to Fund shall be
sent to The Granum Series Trust located at 126 East 56th Street, Twenty-Fifth
Floor, New York, N.Y. 10022.
15. CHOICE OF LAW. This Agreement shall be construed in accordance with
the laws of the State of Wisconsin. Trustees and shareholders shall not be
personally liable for obligations of the Fund in connection with any matter
arising from or in connection with this Agreement.
16. This Servicing Agreement can not be assigned without consent of Granum
Series Trust.
<TABLE>
<S> <C>
IN WITNESS WHEREOF, the due execution hereof on the date first above written.
Granum Series Trust Firstar Trust Company
By: /s/ Jonas Siegel By: /s/ Joe D. Redwine
- ----------------------------------------- ---------------------------------------
Title: Chief Financial Officer/Treasurer Title: First Vice President
Date: February 13, 1997 Date: February 27, 1997
- ----------------------------------------- ---------------------------------------
Attest: /s/ Lewis M. Eisenberg Attest: /s/ Paul Rock
- ----------------------------------------- ---------------------------------------
</TABLE>
6
<PAGE> 7
EXHIBIT A
FUND ACCOUNTING SERVICING AGREEMENT
FUND VALUATION AND ACCOUNTING
DOMESTIC PORTFOLIOS
ANNUAL FEE SCHEDULE
<TABLE>
<S> <C>
Fixed Income Funds
------------------
o Annual fee per fund based on market value of assets:
o$25,000 for the first $40,000,000
o2/100 of 1% (2 basis points) on the next $200,000,000
o1/100 or 1% (1 basis point) on the balance
o Out-of Pocket expenses, including daily pricing service
</TABLE>
<TABLE>
<S> <C>
Equity/Balance Funds
--------------------
o Annual fee per fund based on market value of assets:
o$22,000 for the first $400,000,000
o1/100 of 1% (1 basis point) on the next $200,000,000
o5/100 of 1% (1/2 basis point) on the balance
o Out-of Pocket expenses, including daily pricing service
Money Market Funds
------------------
o Annual fee per fund based on market value of assets:
o$25,000 for the first $40,000,000
o1/100 of 1% (1 basis point) on the next $200,000,000
o5/1000 of 1% (1/2 basis point) on the balance
o Out-of Pocket expenses, including daily pricing service
</TABLE>
All fees and out-of-pocket expenses are billed monthly.
7
<PAGE> 8
FUND VALUATION AND ACCOUNTING
ASSET PRICING COST
<TABLE>
<S> <C>
CHARGE PER ITEM PER VALUATION
ASSET TYPE (DAILY, WEEKLY, ETC.)
--------------------------------- -----------------------------
Domestic and Canadian Equities $0.15
Options $0.15
Corporate/Government/Agency Bonds $0.50
CMOs $0.80
International Equities and Bonds $0.50
Municipal Bonds $0.80
Money Market Instruments $0.80
</TABLE>
Pricing costs are billed monthly.
8
<PAGE> 1
March 21, 1997
Granum Series Trust
126 East 56th Street
New York, New York 10022
Re: Granum Series Trust
Dear Ladies and Gentlemen:
We have acted as special Delaware counsel to Granum Series Trust, a
Delaware business trust (the "Trust"), in connection with certain matters
relating to the issuance of Shares of beneficial interest in the Trust.
Capitalized terms used herein and not otherwise herein defined are used as
defined in the Declaration of Trust of the Trust dated December 19, 1996 (the
"Governing Instrument").
In rendering this opinion, we have examined copies of the following
documents, each in the form provided to us: the Certificate of Trust of the
Trust as filed in the Office of the Secretary of State of the State of Delaware
(the "Recording Office") on December 19, 1996 (the "Certificate"); the
Governing Instrument; the By-laws of the Trust; the Trust's Notification of
Registration Filed Pursuant to Section 8(a) of the Investment Company Act of
1940 on Form N-8A as filed with the Securities and Exchange Commission on
January 27, 1997; the Trust's Registration Statement on Form N-1A as filed with
the Securities and Exchange Commission on January 27, 1997 (the "Registration
Statement"); and a certification of good standing of the Trust obtained as of a
recent date from the Recording Office. In such examinations, we have assumed
the genuineness of all signatures, the conformity to original documents of all
documents submitted to us as copies or drafts of documents to be executed, and
the legal capacity of natural persons to complete the execution of documents.
We have further assumed for the purpose of this opinion: (i) the due
authorization, execution and delivery by, or on behalf of, each of the parties
thereto of the above-referenced instruments, certificates and other documents,
and of all documents contemplated by the Governing Instrument, the By-laws and
applicable resolutions of the Trustees to be executed by investors desiring to
become Shareholders; (ii) the payment of consideration for Shares, and the
application of such consideration, as provided in the Governing Instrument, and
compliance with
<PAGE> 2
Granum Series Trust
March 21, 1997
Page 2
the other terms, conditions and restrictions set forth in the Governing
Instrument and all applicable resolutions of the Trustees of the Trust in
connection with the issuance of Shares (including, without limitation, the
taking of all appropriate action by the Trustees to designate Series of Shares
and the rights and preferences attributable thereto as contemplated by the
Governing Instrument); (iii) that appropriate notation of the names and
addresses of, the number of Shares held by, and the consideration paid by,
Shareholders will be maintained in the appropriate registers and other books
and records of the Trust in connection with the issuance, redemption or
transfer of Shares; (iv) that no event has occurred subsequent to the filing of
the Certificate that would cause a termination or a merger, consolidation,
conversion or other reorganization of the Trust under Section 2 or Section 3 of
Article VIII of the Governing Instrument; (v) that the activities of the Trust
have been and will be conducted in accordance with the terms of the Governing
Instrument and the Delaware Business Trust Act, 12 Del. C. Section Section
-------
3801 et seq. (the "Delaware Act"); and (vi) that each of the documents examined
-------
by us is in full force and effect and has not been modified, supplemented or
otherwise amended. No opinion is expressed herein with respect to the
requirements of, or compliance with, federal or state securities or blue sky
laws. Further, we express no opinion on the sufficiency or accuracy of any
registration or offering documentation relating to the Trust or the Shares. As
to any facts material to our opinion, other than those assumed, we have relied
without independent investigation on the above-referenced documents and on the
accuracy, as of the date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Trust is a duly created and validly existing business trust in good
standing under the laws of the State of Delaware.
2. The Shares of the Trust, when issued to Shareholders in accordance with
the terms, conditions, requirements and procedures set forth in the Governing
Instrument, will constitute legally issued, fully paid and non-assessable
Shares of beneficial interest in the Trust.
3. Under the Delaware Act and the terms of the Governing Instrument, each
Shareholder of the Trust, in such capacity, will be entitled to the same
limitation of personal liability as that extended to stockholders of private
corporations for profit organized under the general corporation law of the
State of Delaware; provided, however, that we express no opinion with respect
to the liability of any Shareholder who is, was or may become a named Trustee
of the Trust. Neither the existence nor exercise of the voting rights granted
to Shareholders under the Governing Instrument will, of itself, cause a
Shareholder to be deemed a trustee of the Trust under the Delaware Act.
Notwithstanding the foregoing or the opinion expressed in paragraph 2 above, we
note that, pursuant to Section 5 of Article IV of the Governing Instrument, the
Trustees have the power to cause Shareholders, or Shareholders of a particular
Series, to pay certain custodian, transfer, servicing or similar agent charges
by setting off the same against declared but unpaid dividends or by reducing
Share ownership (or by both means) and that, pursuant to Section 3 of
<PAGE> 3
Granum Series Trust
March 21, 1997
Page 3
Article III of the Governing Instrument, Shares may be sold subject to
imposition of sales charges, deferred sales charges, asset-based sales charges
and redemption fees.
We understand that the Trust is currently in the process of registering or
qualifying Shares in various states, and we hereby consent to the filing of a
copy of this opinion with the securities administrators of such states and with
the Securities and Exchange Commission as an exhibit to Pre-Effective Amendment
No. 1 to the Registration Statement. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. The opinion
set forth above is expressed solely for the benefit of the addressee hereof in
connection with the matters contemplated hereby and may not be relied upon for
any other purpose or by any other person or entity without our prior written
consent.
Sincerely,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE> 1
Consent of Independent Accountants
To the Board of Trustees and Shareholder
Granum Series Trust - Granum Value Fund
We consent to the inclusion in Pre-Effective Amendment No. 1 to the
Registration Statement of Granum Series Trust - Granum Value Fund on Form N-1A
of our report dated March 17, 1997 on our audit of the statement of assets and
liabilities of Granum Series Trust - Granum Value Fund as of March 14, 1997.
We also consent to the reference to our Firm under the caption "General
Information - Financial Statements" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
March 28, 1997
<PAGE> 1
March 13, 1997
The Board of Trustees
Granum Series Trust
126 East 56th Street
New York, NY 10022
Gentlemen:
In order to provide Granum Series Trust (the "Trust") with its initial
capital, Granum Capital Management, L.L.C. (the "Purchaser") is hereby
purchasing from the Trust 5,000 shares of beneficial interest, $.001 par value,
of the Trust, representing interests in Granum Value Fund (the "Shares"), at a
purchase price of $20.00 per Share.
The Purchaser represents and warrants to the Trust that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof and that the Purchaser has no present intention to dispose of the
Shares.
The Purchaser hereby agrees that if any of the Shares purchased by
Purchaser herewith are redeemed by the Purchaser (or any subsequent holder of
such Shares) during the sixty (60) month period following the date of
commencement of operations of the Trust, the purchaser will reimburse the Trust
for any unamortized organization and start-up expenses in the same proportion
as the number of Shares being redeemed bears to the number of Shares
outstanding at the time of redemption.
Very truly yours,
GRANUM CAPITAL MANAGEMENT, L.L.C.
By: /s/ Lewis M. Eisenberg
----------------------
Title: Member
-------------------
<PAGE> 1
GRANUM SERIES TRUST
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
AND RELATED AGREEMENTS
THIS PLAN AND RELATED AGREEMENTS between Granum Series Trust, a Delaware
Business Trust (the "Trust") and Mercer Allied Company ("MAC") and between the
Trust and Granum Securities, L.L.C. ("GS") made as of this 13th day of March,
1997.
WHEREAS, the Trust proposes to engage in business as an open-end,
non-diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust has retained MAC to serve as a distributor of shares of
beneficial interest of the Trust ("shares") representing interests in the
Granum Value Fund (the "Fund"), the sole series of the Trust, pursuant to a
separate Distribution Agreement with MAC; and
WHEREAS, the Trust has also retained GS to serve as a distributor of
shares of the Fund pursuant to a separate Distribution Agreement with GS, which
agreement shall become effective after GS has been duly registered as a
broker-dealer under the Securities Exchange Act of 1934 and become a member of
the National Association of Securities Dealers, Inc. and on such date as may be
agreed to by the Trust and GS; and
WHEREAS, the Trust wishes to adopt a plan (the "12b-1 Plan") to authorize
the use of Fund assets to finance certain activities in connection with the
distribution of shares of the Fund in accordance with Rule 12b-1 under the 1940
Act and to enter into an agreement with MAC and GS to facilitate the
distribution such shares; and
WHEREAS, MAC and GS (each, a "Distributor" and collectively, the
"Distributors") each desires to enter into such an agreement pursuant to the
12b-1 Plan (each, an "Agreement") on the terms and conditions set forth below;
and
WHEREAS, the 12b-1 Plan and the Agreements have been approved by the Board
of Trustees of the Trust, including a majority of the trustees who are not
"interested persons" (as defined by the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of the 12b-1 Plan or the
Agreements or any other agreement in respect of the 12b-1 Plan (the
"Disinterested Trustees"), by vote cast in person at a meeting called for the
purpose of voting on the 12b-1 Plan and the Agreements;
NOW, THEREFORE, the Trust hereby adopts this 12b-1 Plan, and the Trust, on
behalf of the Fund, and each Distributor hereby enter into these Agreements
pursuant to the 12b-1 Plan, in accordance with the requirements of Rule 12b-1
under the 1940 Act, and provide and agree as follows:
1. The Trust is hereby authorized to utilize the assets of the Fund to
finance certain activities in connection with distribution of the Fund's
shares, as specified below.
<PAGE> 2
2. The Trust is hereby authorized to finance the following activities in
connection with the sale of shares of the Fund to investors ("Distribution
Services"): (a) the payment of compensation (including performance-based
compensation) to the Distributors and to other securities dealers and financial
institutions which engage in efforts to promote the sale of shares of the Fund
and which sell such shares; (b) the preparation, printing and distribution of
reports and prospectuses and statements of additional information for
distribution to and use by potential investors in the Fund; (c) the
preparation, printing and distribution of sales literature and advertising
relating to the Fund, including but not limited to direct mail solicitation and
television, radio, newspaper and other media advertisements; and (d) such other
activities related to the promotion of sales of shares of the Fund as may from
time to time be specifically authorized by the Board of Trustees and approved
by a majority of the Disinterested Trustees.
3. In addition, the Trust is hereby authorized to finance the following
activities in connection with the furnishing of account related services to
shareholders of the Fund ("Shareholder Services"): (a) responding to
shareholder inquiries regarding the Fund and their accounts with the Fund; (b)
providing shareholders with reports, information and services related to their
Fund accounts including prospectuses, statements of additional information and
sales literature; and (c) providing other account related services to
shareholders of the Fund.
4. Under the 12b-1 Plan, the Fund is authorized to expend its assets in an
amount which shall not exceed 0.50% annually of the Fund's average net assets
for Distribution Services and an amount which shall not exceed 0.25% annually
of the Fund's average net assets for Shareholder Services.
5. Each Distributor hereby undertakes to use its best efforts to promote
sales of shares of the Fund to existing and potential investors by engaging in
those activities specified in paragraphs 2 and 3 above as it from time to time
believes will best further sales of such shares. In furtherance thereof, each
Distributor agrees to provide the following Distribution Services: (a) to
promote the sale of shares of the Fund to its customers and to other investors;
(b) to enter into dealer agreements with other securities dealers and financial
institutions which desire to offer shares of the Fund; (c) to pay selling
compensation to its registered representatives who sell such shares; (d) to pay
selling compensation to other securities dealers and financial institutions
which have sold shares of the Fund; and (e) to pay and bear other expenses
relating to the activities described in paragraph 2 above.
6. Each Distributor also agrees to provide, both directly and through its
registered representatives, Shareholder Services to Fund shareholders who have
purchased shares of the Fund through such Distributor and to enter into
arrangements with organizations that have entered into selling agreements with
such Distributor with respect to the offering of such shares pursuant to which
such organizations agree to provide Shareholder Services to Fund shareholders
who have purchased shares of the Fund through such organizations and to pay
compensation to such organizations for such services.
7. In consideration of the services provided by each Distributor, the
Trust agrees on behalf of the Fund to pay a monthly fee to such Distributor for
Distribution Services
2
<PAGE> 3
and a monthly fee to such Distributor for Shareholder Services, which fees
shall be computed at the annual rates of 0.50% of the average net assets of the
Fund and 0.25% of the average net assets of the Fund, respectively,
attributable to shares held by persons who have purchased shares through such
Distributor or through broker-dealers that have entered into selling agreements
with such Distributor.
8. Each Distributor agrees to provide quarterly written reports to the
Treasurer of the Trust describing the particular Distribution Services and
Shareholder Services that have been provided during the relevant quarter by it
and by broker-dealers with which it has entered into agreements with respect to
the Trust and setting forth the costs and expenses incurred by such Distributor
in connection therewith, and further agrees to provide such additional
information regarding the services provided and the amounts expended as may
reasonably be requested by the Board of Trustees or officers of the Trust for
purposes of reviewing the continued appropriateness of the 12b-1 Plan and each
of the Agreements.
9. The Treasurer of the Trust shall provide, and the Board of Trustees of
the Trust shall review, at least quarterly, a written report of all amounts
expended pursuant to the 12b-1 Plan and the Agreements. Each such report
shall: (a) set forth the amounts expended during the period by the Trust
pursuant to the 12b-1 Plan and the nature of such expenditures; (b) identify
the types of Distribution Services and Shareholder Services provided during the
quarter by the Distributors and others and the costs and expenses incurred by
the Distributors with respect to each type of service.
10. The 12b-1 Plan and the Agreements shall each continue in effect for a
period of one year from the date hereof unless terminated as provided below.
Thereafter, the 12b-1 Plan and the Agreements shall each continue in effect
from year to year, provided that the continuance of each is approved at least
annually by the Board of Trustees of the Trust, including a majority of the
Disinterested Trustees, by vote cast in person at a meeting called for the
purpose of voting on such continuance, and provided that the Disinterested
Trustees have concluded, in the exercise of their reasonable business judgment
and in light of their fiduciary duties under state law and under Sections 36(a)
and 36(b) of the 1940 Act, that there is a reasonable likelihood that the 12b-1
Plan or the applicable Agreement, as the case may be, will benefit the Fund and
its shareholders.
11. The 12b-1 Plan may be terminated at any time, without penalty, by the
vote of a majority of the Disinterested Trustees or by the vote of a majority
of the outstanding voting securities of the Fund. Each Agreement may be
terminated by the Distributor which is a party thereto, or by the vote of a
majority of the Disinterested Trustees or by the vote of a majority of the
outstanding voting securities of the Fund, without penalty, at any time upon 30
days' written notice.
12. So long as the 12b-1 Plan remains in effect, the selection and
nomination of persons to serve as Trustees of the Trust who are not "interested
persons" (as defined by the 1940 Act) of the Trust shall be committed to the
discretion of the Disinterested Trustees then in office. However, nothing
contained herein shall prevent the participation of other persons in the
3
<PAGE> 4
selection and nomination process; provided that a final decision on any such
selection or nomination shall remain within the sole discretion of, and be
approved by, the Disinterested Trustees.
13. The 12b-1 Plan may not be amended to increase materially the amount to
be spent for distribution by the Fund hereunder without the approval of a
majority of the outstanding voting securities of the Fund. All material
amendments to the 12b-1 Plan or to the Agreements must be approved by the Board
of Trustees of the Trust, including a majority of the Disinterested Trustees,
by vote cast in person at a meeting called for the purpose of voting on such
amendment.
14. The 12b-1 Plan shall remain in effect as such, so as to authorize the
use of Fund assets in the amounts and for the purposes set forth herein,
notwithstanding the termination of either or both of the Agreements or the
occurrence of an "assignment," as defined by the 1940 Act and the rules
thereunder, of either or both of the Agreements. However, an Agreement shall
terminate automatically in the event of such an "assignment." Upon a
termination of an Agreement, the Fund may continue to make payments pursuant to
the 12b-1 Plan to the Distributor that is a party thereto only upon the
approval of a new agreement. However, in lieu of such an agreement with such
Distributor, the Trust may adopt other arrangements regarding the use of the
amounts authorized to be paid by the Fund hereunder. Any new agreement or
other arrangements shall be subject to approval by the Board of Trustees of the
Trust, including a majority of the Disinterested Trustees, by vote cast in
person at a meeting called for such purpose, and subject to compliance with the
other provisions of Rule 12b-1 under the 1940 Act that may be applicable.
15. The Trust shall preserve copies of this 12b-1 Plan and these
Agreements and all other agreements relating to the 12b-1 Plan and all reports
made pursuant to paragraphs 8 and 9 hereof, together with minutes of all
meetings of its Board of Trustees at which the adoption, amendment or
continuance of the 12b-1 Plan or any such agreement related to the 12b-1 Plan
(including the Agreements) were considered (describing the factors considered
and the basis for decision), in the manner and for the periods specified by
Rule 12b-1 and other applicable rules adopted under the 1940 Act.
16. The Declaration of Trust states and notice is hereby given that this
Agreement is not executed on behalf of the Trustees of the Trust as
individuals, and the obligations of the Trust under each Agreement are not
binding upon any of the Trustees, officers or shareholders of the Trust
individually, but are binding only upon the assets and property of the Trust.
17. The 12b-1 Plan and the Agreements shall be construed in accordance
with the laws of the State of New York and applicable provisions of the 1940
Act. To the extent the applicable law of the State of New York conflict with
the applicable provisions of the 1940 Act, the latter shall control.
18. The Agreement between MAC and the Trust shall become effective upon
the commencement of the public offering of shares of the Fund. The Agreement
between GS and
4
<PAGE> 5
the Trust shall become effective on such date as the Distribution Agreement
with GS and the Trust becomes effective.
IN WITNESS WHEREOF, the Trust has adopted the 12b-1 Plan, and the Trust
and the Distributor have entered into, executed and delivered the Agreement, as
of the day and year first above written.
GRANUM SERIES TRUST
on behalf of
GRANUM VALUE FUND
By: /s/ Lewis M. Eisenberg
--------------------------------------------
Name: Lewis M. Eisenberg
------------------------------------------
Title: Co-Chairman
-----------------------------------------
MERCER ALLIED COMPANY
By: /s/ Peter R. Martin
--------------------------------------------
Name: Peter R. Martin
------------------------------------------
Title: Vice President of Breham, Inc.,
-----------------------------------------
General Partner of Mercer Allied Company
------------------------------------------
GRANUM SECURITIES, L.L.C.
By: /s/ Jonas B. Siegel
--------------------------
Name: Jonas B. Siegel
------------------------
Title: President
-----------------------
5
