<PAGE> 1
ANNUAL
REPORT
October 31, 1999
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, 1999
Dear Shareholder:
For the fiscal year ending October 31, 1999, the total return of the Granum
Value Fund was 15.7%. Our top 5 positions as of October 31, 1999 were Bank of
New York, Intel Corp, Federal National Mortgage, Orion Capital, and Computer
Associates. The Fund benefited from the significant rise in prices of large
capitalization stocks broadly, while many of the small cap "value" stocks
remained out of favor, and in our view, undervalued.
Since March of 1999, there have been seven announced takeovers of companies
in our portfolio: Platinum Technology, Imperial Credit Commercial Mortgage
Investment, Orion Capital, Turner Corporation, Ocwen Asset Investment
Corporation, Walden Residential, and Hudson United Bancorp. We believe that
these takeovers are indicative of the undervalued nature of our portfolio as a
whole.
Another indication of the undervaluation of the portfolio is that the top 30
positions, comprising more than 80% of the net assets of the Fund, trade at
approximately 17 times estimated 2000 earnings while the S&P 500 trades at
approximately 25 times estimated earnings. We believe that this 32% discount
represents a compelling value for shareholders.
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>
- --------------------------------------------------------------------------------
<PAGE> 3
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
FUND PERFORMANCE
[GRAPH]
<TABLE>
<CAPTION>
GRANUM VALUE FUND S&P 500
----------------- -------
<S> <C> <C>
5/1/97 10000 10000
11660 11966
10/31/97 11695 11516
12280 12391
4/30/98 13494 14106
12110 14273
10/31/98 10965 14049
12068 16417
4/30/99 12475 17184
12847 17156
10/31/99 12686 17654
</TABLE>
$12,686 (Granum Value Fund)
$17,654 (S&P 500)
<TABLE>
<CAPTION>
AVERAGE ANNUAL RATE OF
RETURN
FOR PERIODS ENDED
OCTOBER 31, 1999
----------------------
SINCE
INCEPTION
1 YEAR 5/1/97
------ ---------
<S> <C> <C>
Granum Value Fund 15.69% 9.96%
S&P 500 25.67% 25.48%
</TABLE>
INVESTMENT PERIOD
The Standard & Poor's 500 Stock Index (S&P 500) is a capital-weighted index,
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange.
This chart assumes an initial gross investment of $10,000 made on 5/01/97
(commencement of operations). Returns shown included 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, 1999
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS 96.5%*
------------------------
BANKS AND SAVINGS & LOANS
18.1%*
418,400 The Bank of New York
Company, Inc. $ 17,520,500
26,000 Dime Bancorp, Inc. 464,750
11,356 Hudson United Bancorp,
Inc. 357,004
81,000 North Fork
Bancorporation, Inc. 1,675,688
80,585 Ocwen Financial Corp. 538,912
51,800 PFF Bancorp, Inc.** 1,055,425
11,925 Queens County Bancorp,
Inc. 374,892
------------
21,987,171
------------
BUILDING & HOUSING 3.2%*
83,900 Del Webb Corporation 1,851,044
82,800 Forest City Enterprises,
Inc. -- Class A 2,070,000
------------
3,921,044
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
BUSINESS SERVICES 5.5%*
63,800 American Bank Note
Holographics, Inc. ** $ 169,469
26,000 Comdisco, Inc. 524,875
19,500 Convergys Corporation ** 381,469
9,800 Deluxe Corporation 276,850
292,300 Reynolds & Reynolds
Company -- Class A 5,316,206
------------
6,668,869
------------
COMPUTER HARDWARE &
SERVICES 1.5%*
63,700 Seagate Technology, Inc.
** 1,875,169
------------
DEFENSE 0.3%*
6,200 Alliant Techsystems, Inc.
** 381,300
------------
ENERGY SERVICES 0.4%*
31,600 Petroleum Geo-Services ** 462,150
------------
ENTERTAINMENT & LEISURE
6.7%*
27,000 Brunswick Corporation # 610,875
150,000 Casino Data Systems** 525,000
78,175 Lakes Gaming, Inc. ** 747,548
149,300 Mirage Resorts,
Incorporated ** 2,174,181
312,700 Park Place Entertainment
Corporation 4,104,188
------------
8,161,792
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
3
<PAGE> 5
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
FINANCIAL SERVICES 10.2%*
64,000 Ag Services of America,
Inc. ** $ 956,000
94,600 DVI, Inc. ** 1,277,100
103,700 Fannie Mae # 7,336,775
49,000 Radian Group, Inc. 2,587,812
47,100 Resource Bancshares
Mortgage Group, Inc. 264,938
------------
12,422,625
------------
HEALTH CARE 1.0%*
51,500 Columbia/HCA Healthcare
Corporation 1,242,437
------------
HOTEL REITS 2.1%*
93,900 Equity Inns, Inc. 704,250
151,200 RFS Hotel Investors, Inc. 1,814,400
------------
2,518,650
------------
INSTRUMENTS & RELATED
PRODUCTS 2.2%*
90,400 Mettler-Toledo
International, Inc. ** 2,695,050
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
INSURANCE 10.5%*
96,300 CNA Financial Corporation
** $ 3,587,175
40,500 ESG RE Limited 313,875
78,900 Everest Reinsurance
Holdings 2,031,675
42,000 Frontier Insurance Group,
Inc. 372,750
132,800 Orion Capital Corporation 6,490,600
------------
12,796,075
------------
MORTGAGE REITS 5.3%*
227,700 Annaly Mortgage
Management, Inc. 1,963,912
89,400 Anthracite Capital, Inc. 609,038
255,400 Imperial Credit
Commercial Mortgage
Investment Corp. 2,777,475
89,600 Redwood Trust, Inc. ** 1,164,800
------------
6,515,225
------------
OFFICE PRODUCTS 0.3%*
62,000 OfficeMax, Inc. ** 313,875
------------
PHARMACEUTICALS 1.1%*
35,400 International Isotopes,
Inc. ** 177,000
24,400 Teva Pharmaceutical
Industries Ltd. 1,180,350
------------
1,357,350
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
4
<PAGE> 6
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
PRINTING & PUBLISHING
2.4%*
73,700 Big Entertainment, Inc.
** $ 1,252,900
57,200 Big Flower Press
Holding, Inc. ** 1,726,725
------------
2,979,625
------------
PRIVATE PLACEMENTS 1.6%*
28,850 American Technology
Convertible Preferred
(Acquired 12/22/98;
Cost $288,500) (a)(b)
** 360,625
9,500 Big Entertainment, Inc.
(Acquired 5/17/99; Cost
$201,875) (a)(b) ** 161,500
62,500 The Good Guys (Acquired
8/17/99; Cost $312,500)
(a)(b) ** 398,437
26,800 International Isotopes,
Inc. (Acquired 5/28/99;
Cost $243,880) (a)(b)
** 134,000
151,500 Intertainer Inc. Series C
Convertible Preferred
(Acquired 2/12/99; Cost
$833,250) (a)(b) ** 833,250
------------
1,887,812
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
RESIDENTIAL REITS 1.1%*
33,500 Prison Realty Corporation $ 341,281
45,000 Walden Residential
Properties, Inc. 964,687
------------
1,305,968
------------
RESTAURANTS 0.5%*
71,000 Lone Star Steakhouse &
Saloon, Inc. ** 568,000
------------
RETAILING 0.5%*
117,000 The Maxim Group, Inc. ** 614,250
------------
SEMICONDUCTORS &
SEMICONDUCTOR CAPITAL
EQUIPMENT 11.6%*
181,800 Intel Corporation 14,078,138
------------
SHOPPING CENTER/MALL
REITS 2.2%*
80,400 Capital Automotive REIT 1,025,100
53,000 Crown American Realty
Trust 324,625
98,400 Konover Property Trust,
Inc. ** 627,300
82,700 Prime Retail, Inc. 656,431
------------
2,633,456
------------
SOFTWARE 5.0%*
108,500 Computer Associates
International, Inc. 6,130,250
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
5
<PAGE> 7
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
SPECIALTY CHEMICALS 0.7%*
46,700 Gentek, Inc. $ 411,544
12,400 OM Group, Inc. 465,000
------------
876,544
------------
TELECOMMUNICATIONS 2.5%*
42,000 Globalstar
Telecommunications Ltd.
** 926,625
27,500 NTL Incorporated ** 2,072,813
------------
2,999,438
------------
Total Common Stocks
(Cost $105,997,926) 117,392,263
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
PRIVATE PLACEMENT
WARRANTS 0.0%*
---------------------
28,850 American Technology
Warrants, expires
11/30/01 (Acquired
12/22/98; Cost $0)
(a)(b) $ 7,213
3,166 Big Entertainment, Inc.
Warrants, expires
5/17/04 (Acquired
5/17/99; Cost $0)
(a)(b) --
31,250 The Good Guys Warrants,
expires 8/17/01
(Acquired 8/17/99; Cost
$0) (a)(b) 7,813
26,800 International Isotopes
Warrants, expires
5/28/02 (Acquired
5/28/99; Cost $0)
(a)(b) --
63,125 Intertainer Inc.
Warrants, expires
5/12/00 (Acquired
2/12/99; Cost $0)
(a)(b) --
------------
Total Warrants
(Cost $0) 15,026
------------
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
6
<PAGE> 8
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
CONTRACTS
(100 SHARES MARKET
PER CONTRACT) VALUE
- ------------- ------------
<C> <S> <C>
PUT OPTIONS
PURCHASED 0.2%*
-----------------
50 S&P 500 Index, Expiration
March 2000, Exercise
Price $1,325 $ 272,500
------------
Total Put Options
Purchased
(Cost $361,400) 272,500
------------
VARIABLE RATE DEMAND
NOTES 1.5%*
-------------------------
$1,638,899 Firstar Bank NA, 5.16% 1,638,899
246,220 Sara Lee Corporation,
5.01% 246,220
------------
Total Variable Rate
Demand Notes
(Cost $1,885,119) 1,885,119
------------
TOTAL INVESTMENTS
(Cost $108,244,445)
98.2%* $119,564,908
============
</TABLE>
* Calculated as a percentage of net assets.
** Non-income producing security.
# All or a portion of the shares have been committed as collateral for written
put options.
(a) Restricted Security.
(b) Board Valued Security.
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
7
<PAGE> 9
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
SCHEDULE OF OPTIONS WRITTEN
OCTOBER 31, 1999
<TABLE>
<CAPTION>
CONTRACTS
(100 SHARES MARKET
PER CONTRACT) VALUE
- ------------- ------
<C> <S> <C>
WRITTEN PUT OPTION CONTRACTS
-----------------------------------
50 S&P 500 Index, Expiration March 2000, Exercise Price $1,200 $135,000
--------
TOTAL WRITTEN PUT OPTION CONTRACTS (Premiums received
$196,093) $135,000
========
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
8
<PAGE> 10
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $108,244,445)................. $119,564,908
Short-term investments of collateral received for
securities loaned....................................... 4,909,000
Receivable for investments sold........................... 2,510,625
Dividends receivable...................................... 140,213
Organizational expenses, net of accumulated
amortization............................................ 56,442
Interest receivable....................................... 9,746
Prepaid assets............................................ 18,376
Other assets.............................................. 5,908
------------
Total assets....................................... 127,215,218
------------
LIABILITIES:
Collateral for securities loaned.......................... 4,909,000
Payable to custodian...................................... 271,478
Payable to Investment Adviser............................. 50,134
Distribution fees payable................................. 49,939
Shareholder service fees payable.......................... 24,972
Put options written (Premiums received $196,093).......... 135,000
Accrued expenses and other liabilities.................... 70,515
------------
Total liabilities.................................. 5,511,038
------------
NET ASSETS.................................................. $121,704,180
============
NET ASSETS CONSIST OF:
Capital stock............................................. $112,836,207
Accumulated undistributed net investment income........... 432,956
Accumulated net realized loss on investments and option
contracts expired or closed............................. (2,946,539)
Net unrealized appreciation on
Investments............................................. 11,320,463
Written options......................................... 61,093
------------
Total Net Assets................................... $121,704,180
============
Shares of beneficial interest outstanding (unlimited
number of shares of beneficial interest authorized,
$.001 par value)........................................ 4,811,864
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE..................................................... $25.29
============
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
9
<PAGE> 11
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income (net of foreign taxes withheld of
$1,751)................................................. $ 2,512,869
Interest income........................................... 224,939
Securities lending income................................. 21,063
-----------
Total investment income................................. 2,758,871
-----------
EXPENSES:
Investment advisory fee................................... 617,304
Distribution fees......................................... 617,304
Shareholder servicing fees................................ 308,652
Administration fees....................................... 78,646
Professional fees......................................... 67,623
Transfer agent fees and expenses.......................... 56,420
Trustees' fees and expenses............................... 53,345
Fund accounting fees...................................... 32,788
Reports to shareholders................................... 29,018
Custody fees.............................................. 27,760
Federal and state registration............................ 24,115
Amortization of organizational expenses................... 22,590
Insurance expense......................................... 21,080
Other..................................................... 6,443
-----------
Total expenses.......................................... 1,963,088
-----------
NET INVESTMENT INCOME....................................... 795,783
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on:
Investments............................................. (2,745,882)
Option contracts expired or closed...................... (565,434)
Change in unrealized appreciation (depreciation) on
investments and options................................. 20,349,865
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 17,038,549
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $17,834,332
===========
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
10
<PAGE> 12
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 795,783 $ 186,501
Net realized gain (loss) on investments and option
contracts expired or closed............................. (3,311,316) 169,267
Change in unrealized appreciation/depreciation on
investments............................................. 20,349,865 (12,074,839)
------------ ------------
Net increase (decrease) in net assets resulting from
operations........................................... 17,834,332 (11,719,071)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (408,522) --
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold................................. 7,819,670 64,968,735
Proceeds from shares issued to holders in reinvestment of
dividends............................................... 405,596 --
Cost of shares redeemed................................... (22,602,804) (10,856,355)
------------ ------------
Net increase (decrease) in net assets from capital share
transactions......................................... (14,377,538) 54,112,380
------------ ------------
TOTAL INCREASE IN NET ASSETS................................ 3,048,272 42,393,309
NET ASSETS:
Beginning of period....................................... 118,655,908 76,262,599
------------ ------------
End of period* $121,704,180 $118,655,908
============ ============
* Including undistributed net investment income of.......... $ 432,956 $ 164,950
</TABLE>
See Notes to the Financial Statements
- --------------------------------------------------------------------------------
11
<PAGE> 13
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MAY 1, 1997(1)
YEAR ENDED YEAR ENDED THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per share data:(4)
Net asset value, beginning of period................... $ 21.93 $ 23.39 $ 20.00
-------- -------- -------
Income from Investment Operations:
Net investment income (loss)........................... 0.16 0.03 (0.03)
Net realized and unrealized gain (loss) on
investments.......................................... 3.28 (1.49) 3.42
-------- -------- -------
Total from investment operations....................... 3.44 (1.46) 3.39
-------- -------- -------
Less distributions:
Dividends from net investment income................... (0.08) -- --
-------- -------- -------
Net asset value, end of period......................... $ 25.29 $ 21.93 $ 23.39
======== ======== =======
Total return........................................... 15.69% (6.24)% 16.95%(2)
Supplemental data and ratios:
Net assets, end of period (000's)...................... $121,704 $118,656 $76,263
Ratio of net expenses to average net assets
Before expense reimbursement......................... 1.59% 1.88% 3.03%(3)
After expense reimbursement.......................... 1.59% 1.88% 2.77%(3)
Ratio of net investment income to average net assets
Before expense reimbursement......................... 0.64% 0.17% (0.78)%(3)
After expense reimbursement.......................... 0.64% 0.17% (0.52)%(3)
Portfolio turnover rate................................ 18.18% 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
- --------------------------------------------------------------------------------
12
<PAGE> 14
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 1999
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 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. As of October 31, 1999, fair value securities represent 1.59% of the
Fund's investments, at value. Debt securities which mature in less than 60 days
are valued at amortized cost, which approximates market value.
b) Restricted Securities - The Fund owns investment securities which are
unregistered and thus restricted as to resale. These securities are valued by
the Fund after giving due consideration to pertinent factors including recent
private sales, market conditions and the issuer's financial performance. Where
future disposition of these securities requires registration under the
Securities Act of 1933, the Fund has the right to include these securities in
such registration, generally without cost to the Fund. The Fund has no right to
require registration of unregistered securities. At October 31, 1999, the Fund
held restricted securities with an aggregate market value of $1,902,838
representing 1.56% of the net assets of the Fund.
c) 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
- --------------------------------------------------------------------------------
13
<PAGE> 15
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
subsequently reimbursed by the Fund. The proceeds of any redemption of the 5,000
initial shares purchased by the Adviser 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.
d) 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.
e) 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.
f) 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.
g) 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 substantially all of its investment company net taxable income and
net capital gains to shareholders.
h) 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.
- --------------------------------------------------------------------------------
14
<PAGE> 16
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
i) 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.
The Fund may utilize derivative instruments including written options, purchased
options and other instruments with similar characteristics to the extent that
they are consistent with the Fund's investment objectives and limitations. The
use of these instruments may involve additional investment risks including the
possibility of illiquid markets or imperfect correlation between the value of
the instruments and the underlying securities.
3. SHARES OF BENEFICIAL INTEREST
Share transactions were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Shares sold 325,475 2,605,162
Shares reinvested 17,208 --
Shares redeemed (940,595) (455,956)
--------- ---------
Net increase (decrease) (597,912) 2,149,206
Shares outstanding:
Beginning of period 5,409,776 3,260,570
--------- ---------
End of period 4,811,864 5,409,776
========= =========
</TABLE>
4. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term investments, for the
year ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
- ------------------------ ------------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
- ---------- ----- ---------- -----
<S> <C> <C> <C>
$3,021,996 $17,587,179 $2,967,339 $25,357,982
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE> 17
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
At October 31, 1999, gross unrealized appreciation and depreciation of
investments for tax purposes was as follows:
<TABLE>
<S> <C>
Appreciation $ 25,470,256
(Depreciation) (13,742,242)
------------
Net unrealized appreciation
on investments $ 11,728,014
============
</TABLE>
At October 31, 1999, the cost of investments for federal income tax purposes was
$107,836,894. The Fund had a capital loss carryover of $3,292,997 which expires
in varying amounts in 2006 and 2007.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
Investment Adviser - The Adviser provides investment advisory services to the
Fund pursuant to an investment advisory agreement. 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 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. During the year ended October 31, 1999, the Fund's
Adviser earned investment advisory fees at an annual rate of 0.50% of average
daily net assets after the Monthly Performance Adjustment.
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
- --------------------------------------------------------------------------------
16
<PAGE> 18
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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, 1999:
<TABLE>
<CAPTION>
DISTRIBUTION SHAREHOLDER
SERVICES SERVICES
------------ -----------
<S> <C> <C>
Mercer $574,818 $287,409
Granum Securities 42,486 21,243
</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.
6. PUT OPTION CONTRACTS WRITTEN
The premium amount and the transactions related to put option contracts written
during the year ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
PREMIUM AMOUNT (100 SHARES PER CONTRACT)
-------------- -------------------------
<S> <C> <C>
Options outstanding at October 31, 1998 $ -- --
Options written 460,559 225
Options expired (264,466) (175)
--------- ----
Options outstanding at October 31, 1999 $ 196,093 50
========= ====
</TABLE>
Expired put option contracts written resulted in a capital gain of $264,466.
7. SECURITIES LOANED
The Fund has entered into a securities lending arrangement with the custodian.
Under the terms of the agreement, the custodian is authorized to loan securities
on behalf of the Fund to approved brokers against the receipt of cash collateral
at least equal to the value of the securities loaned. The cash collateral is
invested by the custodian in a money market pooled account approved by the
Adviser. Although risk is mitigated by the collateral, the Fund could experience
a delay in recovering its securities and possible loss of income or value if the
borrower fails to return them. The agreement provides that after predetermined
rebates to the brokers, the income generated from lending transactions is
allocated 60% to the Fund and 40% to the custodian. As of October 31, 1999, the
Fund had on loan securities valued at $4,812,745 and collateral of $4,909,000.
- --------------------------------------------------------------------------------
17
<PAGE> 19
GRANUM VALUE FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Granum Value Fund and Board of Trustees of
Granum Series Trust:
In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments and options written, 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, 1999, 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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Pricewaterhousecoopers LLP
Milwaukee, Wisconsin
December 3, 1999
- --------------------------------------------------------------------------------
18
