<PAGE> 1
ANNUAL
REPORT
October 31, 1998
GRANUM
VALUE
FUND
Shareholder Services
1-888-5-GRANUM
(547-2686)
GRANUM CAPITAL
MANAGEMENT, L.L.C.
Investment Adviser
<PAGE> 2
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
NOVEMBER 30, 1998
Dear Shareholder:
For the fiscal year ending October 31, 1998, Granum Value Fund was down
6.2%. Through the first 11 months of calendar 1998, the fund is down 1.7%, after
a 1997 return of 21.1% from its inception (May 1, 1997) through the end of that
year. Our top 5 positions as of October 31, 1998 were Bank of New York, Intel
Corp, Federal National Mortgage, Philip Morris, and Reynolds and Reynolds.
This year has been a very difficult one for most stocks. The Russell 2000, a
broad gauge of the market, is down 9.0% calendar year to date, and 19.2% from
its April high. While the S&P 500 did better, its performance has been driven by
a few large capitalization companies despite their very high price to earnings
ratios by historic standards. Many of our small and mid-cap stocks have
significantly underperformed the S&P 500. In our view, they are very attractive
and are poised for significant catch-up. Moreover, many of our stocks currently
trade at a discount to their liquidation values. We believe that this presents a
significant opportunity for Granum Value Fund.
Granum Value Fund will continue to seek investments in good to great
companies with great to good managements having superior financial
characteristics, specifically, return on equity and return on assets, and hence,
the ability to grow their earnings at a rate greater than the market over an
extended period of time, yet selling at discounts to the market. In the past,
this investment approach has enabled us to generate superior returns.
We are grateful for the trust you have placed in us.
<TABLE>
<S> <C>
LEWIS M. EISENBERG WALTER F. HARRISON, III
Lewis M. Eisenberg Walter F. Harrison, III
Co-Chairman Co-Chairman
</TABLE>
*This data reflects past performance of the Fund, after expenses and assuming
reinvestment of all dividends and other distributions. The principal value of
an investment in the Fund will fluctuate and an investor's shares, when
redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
<PAGE> 3
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
FUND PERFORMANCE
<TABLE>
<CAPTION>
GRANUM VALUE FUND S&P 500
----------------- -------
<S> <C> <C>
5/1/97 10000.00 10000.00
7/31/97 11660.00 11966.00
10/31/97 11695.00 11516.00
1/31/98 12280.00 12391.00
4/30/98 13494.00 14106.00
7/31/98 12110.00 14273.00
10/31/98 10965.00 14049.00
</TABLE>
INVESTMENT PERIOD
The Standard & Poor's 500 Stock Index (S&P 500) is an unmanaged,
capital-weighted index, representing the aggregate market value of the common
equity of 500 stocks primarily traded on the New York Stock Exchange. S&P 500
total return assumes all dividends are reinvested.
This chart assumes an initial gross investment of $10,000 made on May 1,
1997 (commencement of operations). Returns shown include the reinvestment of all
dividends. Past performance is not predictive of future performance. Investment
return and principal value will fluctuate, so that your shares, when redeemed,
may be worth more or less than the original cost.
- --------------------------------------------------------------------------------
2
<PAGE> 4
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS 90.6%
------------------------
APARTMENT REITS 1.3%
14,378 Apartment Investment and
Management Company $ 502,332
45,000 Walden Residential
Properties, Inc.# 1,037,813
------------
1,540,145
------------
APPAREL PRODUCTS 0.2%
38,400 Gildan Activewear, Inc.* 254,400
------------
BANKS AND SAVINGS & LOANS
15.7%
418,400 The Bank of New York
Company, Inc. 13,205,750
20,000 The Chase Manhattan
Corporation 1,136,250
26,000 Dime Bancorp, Inc. 619,125
27,100 Fidelity National
Corporation* 284,550
9,100 First Republic Bank* 225,225
11,356 HUBCO, Inc. 306,612
4,100 Net.B@nk, Inc.*# 77,644
81,000 North Fork
Bancorporation, Inc. 1,609,875
51,800 PFF Bancorp, Inc.* 760,812
11,925 Queens County Bancorp,
Inc. 355,514
------------
18,581,357
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
BUILDING & HOUSING 3.1%
10,800 Beazer Homes USA, Inc.* $ 191,025
54,700 Del Webb Corporation 1,285,450
68,800 Forest City Enterprises,
Inc. -- Class A 1,479,200
23,200 Simpson Manufacturing
Co., Inc.* 759,800
------------
3,715,475
------------
BUSINESS SERVICES 4.4%
292,300 Reynolds & Reynolds
Company -- Class A 5,261,400
------------
COMPUTER HARDWARE &
SERVICES 1.0%
46,000 Seagate Technology, Inc.* 1,213,250
------------
DEFENSE 0.4%
6,200 Alliant Techsystems,
Inc.* 434,000
------------
ENERGY SERVICES 0.5%
30,000 Petroleum Geo-Services*# 641,250
------------
ENGINEERING &
CONSTRUCTION 0.8%
60,850 The Turner Corporation* 927,963
------------
</TABLE>
See Notes to the Financial Statements
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3
<PAGE> 5
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
ENTERTAINMENT & LEISURE
5.1%
27,000 Brunswick Corporation $ 524,812
312,700 Grand Casinos, Inc.* 2,755,669
161,300 Mirage Resorts,
Incorporated* 2,732,019
------------
6,012,500
------------
FINANCIAL SERVICES 10.8%
8,475 Citigroup, Inc. 398,855
49,000 CMAC Investment
Corporation 2,051,875
90,300 DVI, Inc.* 1,410,937
103,700 Fannie Mae 7,343,256
14,300 Kansas City Southern
Industries, Inc. 552,337
10,000 PaineWebber Group Inc. 334,375
47,100 Resource Bancshares
Mortgage Group, Inc. 694,725
------------
12,786,360
------------
FOOD, BEVERAGES & TOBACCO
5.6%
129,600 Philip Morris Companies
Inc.# 6,625,800
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
HEALTH CARE 1.2%
51,500 Columbia/HCA Healthcare
Corporation $ 1,081,500
37,100 Cyberonics, Inc.* 222,600
50,000 Graham-Field Health
Products, Inc.* 162,500
------------
1,466,600
------------
HOTEL/MOTEL 0.1%
16,500 Prime Hospitality Corp.* 150,563
------------
HOTEL REITS 2.2%
93,900 Equity Inns Inc. 985,950
121,000 RFS Hotel Investors, Inc. 1,573,000
------------
2,558,950
------------
HOUSEHOLD PRODUCTS 0.9%
63,300 The Maxim Group, Inc.* 1,115,662
------------
INSTRUMENTS & RELATED
PRODUCTS 1.7%
90,400 Mettler-Toledo
International Inc.* 1,977,500
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
4
<PAGE> 6
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
INSURANCE 7.2%
96,300 CNA Financial
Corporation* $ 4,008,487
36,400 Frontier Insurance Group,
Inc. 593,775
113,200 Orion Capital Corporation 3,870,025
------------
8,472,287
------------
METAL PRODUCTS 1.0%
39,000 Silgan Holdings Inc.* 975,000
15,800 Wyman-Gordon Company*# 227,125
------------
1,202,125
------------
MISCELLANEOUS 0.5%
42,300 Compass Plastics &
Technologies, Inc.* 47,587
6,000 NACCO Industries, Inc. --
Class A 552,000
------------
599,587
------------
MORTGAGE REITS 5.2%
227,700 Annaly Mortgage
Management, Inc. 1,721,981
26,200 Anthracite Capital, Inc. 150,650
25,000 Hanover Capital Mortgage
Holdings, Inc. 100,000
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
205,900 Imperial Credit
Commercial Mortgage
Investment Corp. $ 1,724,412
25,000 Novastar Financial, Inc. 193,750
73,500 Ocwen Asset Investment
Corp. 294,000
139,600 Redwood Trust, Inc. 1,919,500
------------
6,104,293
------------
OFFICE PRODUCTS 0.9%
122,000 OfficeMax, Inc.* 1,113,250
------------
PHARMACEUTICALS 1.0%
23,300 CollaGenex
Pharmaceuticals, Inc.* 227,175
24,400 Teva Pharmaceutical
Industries Ltd.# 962,275
------------
1,189,450
------------
PRINTING & PUBLISHING
0.9%
57,200 Big Flower Press Holding,
Inc.* 1,115,400
------------
RESTAURANTS 0.5%
71,000 Lone Star Steakhouse &
Saloon, Inc.* 568,000
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
5
<PAGE> 7
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
SEMICONDUCTORS &
SEMICONDUCTOR CAPITAL
EQUIPMENT 7.3%
92,500 Intel Corporation# $ 8,249,844
30,000 Electroglas, Inc.* 376,875
------------
8,626,719
------------
SHOPPING CENTER/MALL
REITS 3.4%
80,400 Capital Automotive REIT 1,135,650
53,000 Crown American Realty
Trust 424,000
40,900 Crescent Real Estate
Equities Company 1,025,056
98,400 Konover Property Trust,
Inc.* 682,650
82,700 Prime Retail, Inc. 801,156
------------
4,068,512
------------
SOFTWARE 3.6%
108,500 Computer Associates
International, Inc. 4,272,187
------------
SPECIALTY CHEMICALS 1.0%
46,700 General Chemical Group,
Inc. 831,844
10,900 OM Group, Inc. 355,613
------------
1,187,457
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
TELECOMMUNICATIONS 3.1%
7,000 Asia Pacific Wire & Cable
Corporation* $ 17,938
42,000 Globalstar
Telecommunications
Ltd.*# 703,500
22,000 NTL Incorporated* 1,054,625
25,000 Telecomunicacoes
Brasileiras S.A. --
Telebras* 1,898,438
------------
3,674,501
------------
Total Common Stocks
(Cost $116,361,371) 107,456,943
------------
WARRANTS 0.0%
----------------
25,000 Hanover Capital Mortgage
Holdings, Inc., expires
9/15/00 3,125
------------
Total Warrants
(Cost $67,006) 3,125
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
6
<PAGE> 8
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
VARIABLE RATE DEMAND
NOTES 9.3%
-------------------------
$ 160,451 American Family Financial
Services $ 160,451
4,625,044 Firstar Bank Milwaukee NA 4,625,044
3,659,235 General Mills, Inc. 3,659,235
1,224,117 Pitney Bowes Credit Corp. 1,224,117
810,000 Sara Lee Corporation 810,000
336,426 Warner-Lambert Company 336,426
248,973 Wisconsin Electric Power
Company 248,973
------------
Total Variable Rate
Demand Notes
(Cost of $11,064,246) 11,064,246
------------
Total Investments 99.9%
(Cost of $127,492,623) 118,524,314
------------
Other Assets less
Liabilities 0.1% 131,594
------------
NET ASSETS 100.0% $118,655,908
============
</TABLE>
* Non-income producing security.
# All or a portion of this security has been loaned. See Note 7.
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
7
<PAGE> 9
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $127,492,623)................. $118,524,314
Cash...................................................... 2,500
Dividends receivable...................................... 190,480
Organizational expenses, net of accumulated
amortization............................................ 79,032
Interest receivable....................................... 52,188
Prepaid assets............................................ 20,807
Other assets.............................................. 69
------------
Total assets....................................... 118,869,390
------------
LIABILITIES:
Payable to Investment Adviser............................. 47,305
Distribution fees payable................................. 47,124
Shareholder service fees payable.......................... 23,653
Accrued expenses and other liabilities.................... 95,400
------------
Total liabilities.................................. 213,482
------------
NET ASSETS.................................................. $118,655,908
============
NET ASSETS CONSIST OF:
Capital stock............................................. $127,229,558
Accumulated undistributed net investment income........... 164,950
Accumulated undistributed net realized gain on investments
and option contracts expired or closed.................. 229,709
Net unrealized appreciation (depreciation) on
investments............................................. (8,968,309)
------------
Total Net Assets................................... $118,655,908
============
Shares of beneficial interest outstanding (unlimited
number of shares of beneficial interest authorized,
$.001 par value)........................................ 5,409,776
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE..................................................... $21.93
============
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
8
<PAGE> 10
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign taxes withheld of
$1,405)................................................. $ 1,767,841
Interest income........................................... 530,726
Income from securities lending............................ 2,135
------------
Total investment income................................. 2,300,702
------------
EXPENSES:
Investment advisory fees.................................. 812,828
Distribution fees......................................... 560,555
Shareholder servicing fees................................ 280,277
Administration fees....................................... 81,650
Transfer agent fees and expenses.......................... 51,180
Fund accounting fees...................................... 36,175
Custody fees.............................................. 33,180
Federal and state registration............................ 62,820
Professional fees......................................... 85,916
Reports to shareholders................................... 20,305
Amortization of organizational expenses................... 22,590
Trustees' fees and expenses............................... 48,290
Insurance expense......................................... 16,440
Other..................................................... 1,995
------------
Total expenses.......................................... 2,114,201
------------
NET INVESTMENT INCOME....................................... 186,501
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on:
Investments............................................. 105,360
Option contracts expired or closed...................... 63,907
------------
Total realized gain....................................... 169,267
Change in unrealized appreciation/depreciation on
investments............................................. (12,074,839)
------------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS........... (11,905,572)
------------
NET (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS...... $(11,719,071)
============
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
9
<PAGE> 11
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MAY 1, 1997(1)
YEAR ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).............................. $ 186,501 $ (105,784)
Net realized gain on investments and option contracts
expired or closed....................................... 169,267 44,617
Change in unrealized appreciation/depreciation on
investments............................................. (12,074,839) 3,106,530
------------ -----------
Net increase (decrease) in net assets resulting from
operations........................................... (11,719,071) 3,045,363
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold................................. 64,968,735 76,623,996
Cost of shares redeemed................................... (10,856,355) (3,506,760)
------------ -----------
Net increase in net assets from capital share
transactions......................................... 54,112,380 73,117,236
------------ -----------
TOTAL INCREASE IN NET ASSETS................................ 42,393,309 76,162,599
NET ASSETS:
Beginning of period....................................... 76,262,599 100,000
------------ -----------
End of period*............................................ $118,655,908 $76,262,599
============ ===========
* Including undistributed net investment income............. $ 164,950 $ 0
</TABLE>
(1) Commencement of Operations
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
10
<PAGE> 12
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MAY 1, 1997(1)
YEAR ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Per share data:(4)
Net asset value, beginning of period........................ $ 23.39 $ 20.00
-------- -------
Income (loss) from Investment Operations:
Net investment income (loss)................................ 0.03 (0.03)
Net realized and unrealized gain (loss) on investments...... (1.49) 3.42
-------- -------
Total from investment operations............................ (1.46) 3.39
-------- -------
Net asset value, end of period.............................. $ 21.93 $ 23.39
======== =======
Total return................................................ (6.24)% 16.95%(2)
Supplemental data and ratios:
Net assets, end of period (000's)........................... $118,656 $76,263
Ratio of net expenses to average net assets
Before expense reimbursement.............................. 1.88% 3.03%(3)
After expense reimbursement............................... 1.88% 2.77%(3)
Ratio of net investment income (loss) to average net assets
Before expense reimbursement.............................. 0.17% (0.78)%(3)
After expense reimbursement............................... 0.17% (0.52)%(3)
Portfolio turnover rate..................................... 3.45% 3.12%
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) Information presented relates to a Share of Capital Stock of the Fund
outstanding for the entire period.
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
11
<PAGE> 13
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. ORGANIZATION
Granum Value Fund (the "Fund") is a non-diversified series of Granum Series
Trust (the "Trust"), an open-end management investment company. The Trust is a
Delaware business trust, organized pursuant to a Certificate of Trust dated
December 19, 1996. The Trust has established one series of its shares,
representing interests in the Fund. The investment objective of the Fund is to
seek capital appreciation. The Fund issued and sold 5,000 shares of its capital
stock at $20 per share on March 14, 1997. These shares were purchased by the
Investment Adviser of the Fund, Granum Capital Management, L.L.C. (the
"Adviser") to provide the Fund with its initial capital. The Fund commenced
operations on May 1, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuation - Securities are valued at market value as of the close
of trading on each business day when the New York Stock Exchange ("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. 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. Securities for
which market quotations are not readily available 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, which approximates market value.
b) 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 Adviser and subsequently reimbursed by the Fund. The proceeds of any
redemption of the initial shares purchased by the Adviser (see Note 1) 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.
- --------------------------------------------------------------------------------
12
<PAGE> 14
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
c) Written Option Accounting - The Fund writes put options on stock indices for
hedging purposes. When the Fund sells an option, an amount equal to the premium
received by the Fund is included in the Statement of Assets and Liabilities as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the option
written. Option contracts are valued at the last sales price reported on the day
of valuation. If no sale is reported, the option contract written is valued at
the bid price. When an option expires on its stipulated expiration date or the
Fund enters into a closing purchase transaction, the Fund realizes a gain or
loss if the cost of the closing purchase transaction differs from the premium
received when the option was sold without regard to any unrealized gain or loss
on the underlying stock index, and the liability related to such option is
eliminated.
d) Purchased Option Accounting - The Fund purchases put options on stock indices
to hedge against a general decline in the stock market or in a particular market
segment or industry. Premiums paid for option contracts purchased are included
in the Statement of Assets and Liabilities as an asset. Option contracts are
valued at the last sales price reported on the date of valuation. If no sale is
reported, the option contract purchased is valued at the current bid price. When
option contracts expire or are closed, realized gains or losses are recognized
without regard to any unrealized gains or losses on the underlying stock
indices.
e) Distribution to Shareholders - Dividends from net investment income and net
realized capital gains, if any, are declared and paid annually. The Fund may
periodically make reclassifications among certain of its capital accounts as a
result of the timing and characterization of certain income and realized gain
distributions determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. Accordingly, at
October 31, 1998 reclassifications were recorded from accumulated net investment
income to increase accumulated net realized gains by $286,356 and reduce capital
stock by $15,813.
f) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund intends to comply with the provisions under Subchapter M of the
Internal Revenue Code applicable to regulated investment companies and intends
to distribute investment company net taxable income and net capital gains to
shareholders.
g) 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.
h) Other - Investment and shareholder transactions are recorded on trade date.
The Fund determines the gain or loss realized from the investment transactions
by comparing the original cost of the security lot sold with the net sales
proceeds. Dividend income is recognized on the ex-dividend date or as soon as
information is available, and interest income is recognized on an accrual basis.
- --------------------------------------------------------------------------------
13
<PAGE> 15
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. SHARES OF BENEFICIAL INTEREST
Share transactions were as follows:
<TABLE>
<CAPTION>
MAY 1, 1997(1)
YEAR ENDED THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
Shares sold 2,605,162 3,407,243
Shares redeemed (455,956) (151,673)
--------- ---------
Net increase 2,149,206 3,255,570
Shares outstanding:
Beginning of period 3,260,570 5,000
--------- ---------
End of period 5,409,776 3,260,570
========= =========
</TABLE>
(1)Commencement of Operations
4. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investments, excluding short-term
investments, for the year ended October 31, 1998 were $59,572,944 and
$3,446,739, respectively.
At October 31, 1998, gross unrealized appreciation and depreciation of
investments for tax purposes was as follows:
<TABLE>
<S> <C>
Appreciation $ 10,339,820
(Depreciation) (19,308,129)
------------
Net unrealized depreciation
on investments $ (8,968,309)
============
</TABLE>
At October 31, 1998, the cost of investments for federal income tax purposes was
$127,222,923.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
Investment Adviser - The Adviser provides investment advisory services to the
Fund pursuant to an investment advisory agreement dated March 13, 1997. Under
the terms of the agreement, the Adviser receives a fee, accrued daily and
payable monthly at the annual rate of 1.25% of the Fund's average daily net
assets (the "Basic Fee"), which is adjusted monthly (the "Monthly Performance
Adjustment") depending on the extent to which the
- --------------------------------------------------------------------------------
14
<PAGE> 16
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
investment performance of the Fund, after expenses, exceeds or was exceeded by
the percentage change in the investment performance of the S&P 500 Index. The
Monthly Performance Adjustment, which commenced August 1, 1997, may increase or
decrease the total advisory fee payable to the Adviser (the "Total Advisory
Fee") by up to 0.75% per year of the value of the Fund's average daily net
assets.
Distribution Plan - Pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended, the Fund has adopted a distribution plan (the "Distribution
Plan"). Under the Distribution Plan, the Fund compensates its Distributors,
Mercer Allied Company ("Mercer") and Granum Securities, L.L.C. ("Granum
Securities"), 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 Distributors and securities
dealers to shareholders of the Fund ("Shareholder Services"). Shareholder
Services provided by the Distributors 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. Granum Securities is an affiliate of, and is under common
control with, the Adviser.
As compensation for Distribution Services, the Fund makes monthly payments to
the Distributors, computed at the annual rate of 0.50% of the Fund's average net
assets. From such compensation, the Distributors make payments to securities
dealers that have sold shares of the Fund to their customers in such amounts as
may be agreed to by the Distributors and dealers. As compensation for
Shareholder Services, the Fund makes monthly payments to the Distributors,
computed at the annual rate of 0.25% of the Fund's average net assets.
The Fund incurred the following expenses for Distribution and Shareholder
Services for the year ended October 31, 1998:
<TABLE>
<CAPTION>
DISTRIBUTION SHAREHOLDER
SERVICES SERVICES
------------ -----------
<S> <C> <C>
Mercer $530,302 $265,073
Granum Securities 30,253 15,204
</TABLE>
Other - Firstar Mutual Fund Services, LLC, a subsidiary of Firstar Bank
Milwaukee, NA, a publicly held bank holding company, serves as transfer agent,
administrator and accounting services agent for the Fund.
Firstar Bank Milwaukee, NA serves as custodian for the Fund.
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15
<PAGE> 17
GRANUM VALUE FUND
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NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. PUT OPTION CONTRACTS WRITTEN
The premium amount and the transactions related to put option contracts during
the year ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
PREMIUM AMOUNT (100 SHARES PER CONTRACT)
-------------- -------------------------
<S> <C> <C>
Options outstanding at October 31, 1997 $ 51,630 40
Options written 209,468 175
Options closed (222,375) (185)
Options expired (38,723) (30)
--------- ----
Options outstanding at October 31, 1998 -- --
========= ====
</TABLE>
7. SECURITIES LOANED
The Fund has entered into a securities lending arrangement with the custodian.
Under the terms of the agreement, the Fund receives 60% of the annual net income
from lending transactions. In exchange for such fees, the custodian is
authorized to loan securities on behalf of the Fund, against receipt of
collateral at least equal in value to the value of the securities loaned. Cash
collateral is invested by the custodian in money market instruments approved by
the Advisor. As of October 31, 1998, the Fund had on loan securities valued at
$11,330,400. Cash of $11,557,008 was received as collateral for the loans, and
has been invested in approved instruments. The Fund bears the risk of any
deficiency in the amount of collateral available for return to a borrower due to
a loss in an approved investment.
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<PAGE> 18
GRANUM VALUE FUND
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Granum Series Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Granum Series Trust -- Granum Value
Fund (the "Fund") at October 31, 1998, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
LOGO
Milwaukee, Wisconsin
December 3, 1998
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<PAGE> 19
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a currently effective prospectus of Granum Value
Fund. Please call 1-888-5-GRANUM (547-2686) for a free prospectus. Read it
carefully before you invest.
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18
