SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 14 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Post-Effective Amendment No. 14 [X]
MERRIMAN INVESTMENT TRUST
1200 Westlake Avenue North, Seattle, Washington 98109
Telephone (206) 285-8877
AGENT FOR SERVICE:
Paul A. Merriman
1200 Westlake Avenue North, Seattle Washington 98109
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on January 2, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on __________ pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SECURITIES UNDER THE
SECURITIES ACT OF 1933, PURSUANT TO RULE 24F-2 UNDER THE SECURITIES ACT OF 1933.
THE RULE 24F-2 NOTICE FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON
NOVEMBER 22, 1996.
MERRIMAN
FLEXIBLE BOND FUND
Objectives are income,
preservation of capital and,
secondarily, growth of capital.
MERRIMAN
GROWTH & INCOME FUND
Objectives are long-term
growth of capital, income and,
secondarily, preservation of capital.
MERRIMAN
CAPITAL APPRECIATION FUND
Objective is
capital appreciation.
MERRIMAN
ASSET ALLOCATION FUND
Objectives are high total
return consistent
with reasonable risk.
MERRIMAN
LEVERAGED GROWTH FUND
Objective is capital appreciation
through the use of leverage
and other investment practices.
NO LOAD
mutual funds of the
Merriman Investment Trust
The Merriman Investment Trust (the "Trust") is a no load, diversified, open-end
investment company offering investors a variety of investment objectives from
which to choose. Shares of the Funds are offered "No Load", which means
investors pay no sales charges, either directly or indirectly.
Shares of the Funds are not issued or guaranteed by the United States Government
and there can be no assurance given that the Funds will attain their objectives.
This prospectus provides you with the basic information you should know before
investing in the Funds. You should read it and keep it for future reference. A
Statement of Additional Information, dated January 2, 1997, containing
additional information about the Trust and the Funds has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. The Trust's address is 1200 Westlake Avenue North,
Seattle, Washington 98109, and its telephone number is 1-800-423-4893. A copy of
the Statement of Additional Information may be obtained at no charge by calling
the Trust.
PROSPECTUS
JANUARY 2, 1997
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>
SYNOPSIS
The Merriman Investment Trust is a professionally managed, open-end, diversified
investment company offering five funds from which investors may choose, the
Merriman Flexible Bond Fund (the "Flexible Bond Fund"), the Merriman Growth &
Income Fund (the "Growth & Income Fund"), the Merriman Capital Appreciation Fund
(the "Capital Appreciation Fund"), the Merriman Asset Allocation Fund (the
"Asset Allocation Fund") and the Merriman Leveraged Growth Fund (the "Leveraged
Growth Fund"). THE OBJECTIVES OF THE FLEXIBLE BOND FUND are income, preservation
of capital and, secondarily, growth of capital. See "The Flexible Bond Fund,"
page 7. THE OBJECTIVES OF THE GROWTH & INCOME FUND are long-term growth of
capital, income and, secondarily, preservation of capital. See "The Growth &
Income Fund," page 8. THE OBJECTIVE OF THE CAPITAL APPRECIATION FUND is capital
appreciation. See "The Capital Appreciation Fund," page 8. THE OBJECTIVES OF THE
ASSET ALLOCATION FUND are high total return consistent with reasonable risk. The
Asset Allocation Fund allocates its investments among four market segments:
equities, fixed income, foreign, and gold. See "The Asset Allocation Fund", page
9. THE OBJECTIVE OF THE LEVERAGED GROWTH FUND is capital appreciation through
the use of leverage and other investment practices. See "The Leveraged Growth
Fund," page 10.
In seeking to achieve its investment objectives, each Fund has adopted a policy
of concentrating (investing more than 25% and up to 100% of the value of its
total assets) in the shares of other investment companies. Each Fund, however,
reserves the right to make direct investments (up to 75% of the value of the
it's total assets) in the securities of issuers other than investment companies
whenever the Investment Manager believes direct investment will result in a
higher likelihood of achieving the Fund's investment objectives.
Market timing strategies and other investment techniques, including hedging, are
utilized by all five Funds, primarily in an attempt to reduce market risk and,
secondarily, to generate income from option premiums and gains resulting from
hedging strategies. The investment objectives and policies of the Funds, unless
otherwise stated herein, are not considered fundamental and may be changed by
the Board of Trustees without the prior consent of the holders of a majority of
the Fund's outstanding shares. Shareholders would be notified in writing,
however, prior to a material departure from the stated objectives and policies.
Such changes may result in a Fund having investment objectives different from
the objectives which the shareholder considered appropriate at the time of
investment in the Fund. The Funds are designed for long-term investors,
including use of the shares as a funding vehicle for tax-deferred retirement
plans. (See "Investment Objectives and Policies", page 7, "Market Timing
Strategy", page 13, and "Hedging Strategies; Options and Futures Contracts",
page 15).
RISK FACTORS
The Funds use market timing and hedging strategies. To the extent market timing
and hedging strategies are used in managing the Funds, investors could be worse
off than if they had not been used if the Investment Manager is wrong in its
expectations about interest rate or market trends and the consequential
deployment of Fund assets. See "Market Timing Strategy," page 13 and "Market
Timing and Hedging," page 17, for more information.
The Funds concentrate their investments in the shares of other investment
companies. Consequently, in addition to paying the operational costs of the
Funds, shareholders also indirectly pay a portion of the operational costs of
such underlying investment companies. Such double-tired costs would not be
incurred if shareholders owned the underlying funds directly. Federal
regulations on the amount which may be invested in a single investment company
may limit the Funds' investment in what the Investment Manager considers to be
the most desirable companies. Also, the Fund has no knowledge or control over
the day-to-day investment activities of underlying investment companies and
their management's investment decisions may not correlate with the expectations
of the Investment Manager. See "Investment Company Securities," page 17.
Since the Flexible Bond Fund's assets are normally invested in
"interest-sensitive securities," the Fund's net asset value can be expected to
vary inversely with changes in market interest rates. The Flexible Bond Fund
and, to a lesser extent, the Growth & Income and Asset Allocation Funds may
invest, directly or through investment companies, in what are commonly referred
to as "junk bonds." Such securities are speculative investments which carry
greater risks than higher quality debt securities. See "Fixed Income
Securities," page 16.
<PAGE>
The Leveraged Growth Fund may borrow for investment purposes. Such borrowing,
commonly called leverage, is a speculative practice and involves greater risk
and expense than that incurred by many other funds having long-term growth as
their objective. See "Leverage," page 18.
There are other risks associated with the Funds' investment policies, including
income tax related risks and potentially higher than normal transaction costs.
See "Risk Factors," page 16, for a more detailed description of the risks
associated with investment in the Funds.
INVESTMENT MANAGER
Merriman Investment Management Company serves as the Funds' Investment Manager,
providing overall management and supervision of Fund assets as well as
administrative services and facilities. The fee for these services, based on
average daily net assets, is computed monthly at the annual rate of 1% for the
Flexible Bond Fund and 1% for the Growth & Income, Capital Appreciation, Asset
Allocation and Leveraged Growth Funds. These fees are higher than that paid by
most investment companies (See "Operations", page 28).
HOW TO PURCHASE SHARES
Shares are offered "No Load", which means that shares are sold without the
imposition of a sales commission, through the Transfer Agent, Firstar Trust Co.
The minimum initial purchase in each Fund is $2,000; subsequent investments must
be at least $100. (See "How to Buy Shares", page 20). Shares may be purchased by
individuals or organizations and may be appropriate for use in tax-sheltered
Retirement Plans and Systematic Withdrawal Plans. (See "Other Shareholder
Services", page 25).
HOW TO REDEEM
There is no charge for redemptions. Shares may be redeemed at any time at the
net asset value next determined after receipt of a redemption request by the
Transfer Agent. A shareholder who submits appropriate written authorization may,
by a telephone call, redeem shares or exchange shares (in amounts of $1,000 or
more) for shares of any Fund offered by this prospectus or shares of the Portico
U.S. Government Money Market Fund, the Portico Money Market Fund or the Portico
Tax-Exempt Money Market Fund. The Transfer Agent charges a fee of $5.00 for each
exchange. There is no charge for telephone redemptions (See the "Synopsis of
Costs and Expenses", below, "How to Sell Shares", page 22, and "Exchange
Privilege", page 24).
DIVIDENDS AND DISTRIBUTIONS
Net investment income is distributed quarterly. Net capital gains, if any, are
distributed annually. Shareholders may elect to receive dividends and distribu-
tions in cash or they may be reinvested in additional Fund shares. (See "Divid-
ends, Capital Gains Distributions and Taxes", page 26).
<PAGE>
<TABLE>
SYNOPSIS OF COSTS AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
Exchange Fee $5.00
ANNUAL FUND OPERATING EXPENSES
(As a percentage of net assets):
<CAPTION>
Flexible Growth & Capital Asset Leveraged
Bond Income Appreciation Allocation Growth
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Management Fees
(after reimbursements) 1.00% 1.25% 1.25% 1.25% 1.25%
Other Expenses 0.49% 0.52% 0.59% 0.57% 0.50%
Interest Expense 0.00% 0.00% 0.00% 0.00% 1.95%
---- ---- ---- ---- ----
Total Fund
Operating Expense 1.49% 1.77% 1.84% 1.82% 3.70%
==== ==== ==== ==== ====
</TABLE>
<TABLE>
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, WHETHER OR
NOT YOU REDEEM AT THE END OF THE PERIOD, ASSUMING A 5% ANNUAL RETURN.
<S> <C> <C> <C> <C> <C>
1 year $15 $18 $19 $18 $37
3 years 47 56 58 57 113
5 years 81 96 100 99 191
10 years 178 208 216 214 395
</TABLE>
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly. The Funds do not charge for redemptions or exchanges, but the
Transfer Agent charges an exchange fee, shown in the table. See "Exchange
Privilege", page 25, for details. See "Management", page 28, for more
information about the fees and costs of operating the Funds. Because of
anticipated borrowing and related interest expense, total fund operating
expenses may be higher for the Leveraged Growth Fund than other funds that do
not use leverage. THE EXAMPLE SHOWN SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
FINANCIAL HIGHLIGHTS
The information contained in the tables below for the last five fiscal years
ended September 30, 1996, have been audited by Tait, Weller & Baker, independent
accountants, whose report appears in the Funds' 1996 Annual Report (incorporated
herein by reference), which may be obtained without charge from the Trust.
<PAGE>
<TABLE>
MERRIMAN FLEXIBLE BOND FUND
For a share outstanding throughout each fiscal year ended September 30,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989(1)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.23 $9.94 $10.97 $10.78 $10.19 $9.84 $10.30 $10.00
------ ----- ------ ------ ------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.63 0.55 0.42 0.52 0.66 0.60 0.61 0.50
Net gains or (losses) on securities
(both realized and unrealized) 0.13 0.29 (0.37) 0.65 0.59 0.37 (0.28) 0.29
---- ---- ----- ---- ---- ---- ----- ----
Total from investment operations 0.76 0.84 0.05 1.17 1.25 0.97 0.33 0.79
---- ---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS:
Dividends (from investment income) (0.63) (0.55) (0.42) (0.52) (0.66) (0.62) (0.61) (0.49)
----- ----- ----- ----- ----- ----- ----- -----
Distributions (from capital gains) - - (0.66) (0.46) - - (0.18) -
----- ----- ----- ----- -----
Total distributions (0.63) (0.55) (1.08) (0.98) (0.66) (0.62) (0.79) (0.49)
NET ASSET VALUE, END OF PERIOD $10.36 $10.23 $9.94 $10.97 $10.78 $10.19 $9.84 $10.30
====== ====== ===== ====== ====== ====== ===== ======
Total return 7.62% 8.63% 0.36% 11.61% 12.65% 10.14% 3.27% 8.10%
---- ---- ---- ----- ----- ----- ---- ----
Net assets, end of period ($000) $8,661 $8,592 $10,542 $12,917 $11,175 $11,085 $9,905 $6,698
Ratio of expenses to average net assets* 1.49% 1.50% 1.50% 1.54% 1.51% 1.55% 1.56% 1.50%
Ratio of net income to average net assets* 6.05% 5.17% 3.89% 4.91% 6.26% 6.03% 6.41% 7.14%
Portfolio turnover rate* 139.77% 291.46% 472.49% 272.87% 2.92% 202.06% 234.29% 269.50%
</TABLE>
<TABLE>
MERRIMAN GROWTH & INCOME FUND
For a share outstanding throughout each fiscal year ended September 30,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989(2)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.32 $10.86 $10.92 $11.58 $11.37 $10.49 $10.84 $10.00
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.27 0.24 0.11 0.11 0.19 0.27 0.41 0.21
Net gains or (losses) on securities
(both realized and unrealized) 1.02 1.29 (0.04) 0.44 0.21 1.00 (0.33) 0.83
---- ---- ----- ---- ---- ---- ----- ----
Total from investment operations 1.29 1.53 0.07 0.55 0.40 1.27 0.08 1.04
---- ---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS:
Dividends (from net investment income) (0.27) (0.21) (0.13) (0.09) (0.19) (0.27) (0.41) (0.20)
Distributions (from realized capital gains) (0.69) (0.86) - (1.12) - (0.12) (0.02) -
----- ----- ----- ----- -----
Total distributions (0.96) (1.07) (0.13) (1.21) (0.19) (0.39) (0.43) (0.20)
----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $11.65 $11.32 $10.86 $10.92 $11.58 $11.37 $10.49 $10.84
====== ====== ====== ====== ====== ====== ====== ======
Total return 12.18% 15.41% 0.62% 4.86% 3.52% 12.37% 0.80% 10.41%
----- ----- ---- ---- ---- ----- ---- -----
Net assets, end of period ($000) $8,702 $9,348 $10,701 $16,778 $21,554 $19,859 $14,870 $9,091
Ratio of expenses to average net assets* 1.77% 1.76% 1.90% 1.69% 1.60% 1.71% 1.83% 2.00%
Ratio of net income to average net assets* 2.33% 2.10% 0.87% 0.93% 1.64% 2.47% 4.16% 4.12%
Portfolio turnover rate* 133.00% 78.64% 240.27% 200.67% 90.71% 148.99% 329.00% 48.19%
</TABLE>
<PAGE>
<TABLE>
MERRIMAN CAPITAL APPRECIATION FUND
For a share outstanding throughout each fiscal year ended September 30,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989(3)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.69 $10.82 $11.63 $11.52 $11.43 $9.78 $10.43 $10.00
------ ------ ------ ------ ------ ----- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.18 0.09 0.19 0.00 0.27 0.22 0.48 0.08
Net gains or (losses) on securities
(both realized and unrealized) 0.38 1.56 (0.38) 1.29 0.09 1.66 (0.65) 0.43
---- ---- ----- ---- ---- ---- ----- ----
Total from investment operations 0.56 1.65 (0.19) 1.29 0.36 1.88 (0.17) 0.51
---- ---- ----- ---- ---- ---- ----- ----
LESS DISTRIBUTIONS:
Dividends (from net investment income) (0.23) (0.07) (0.16) (0.04) (0.27) (0.23) (0.48) (0.08)
Distributions (from realized capital gains) (1.09) (0.71) (0.46) (1.14) - - - -
----- ----- ----- -----
Total distributions (1.32) (0.78) (0.62) (1.18) (0.27) (0.23) (0.48) (0.08)
----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $10.93 $11.69 $10.82 $11.63 $11.52 $11.43 $9.78 $10.43
====== ====== ====== ====== ====== ====== ===== ======
Total return 5.69% 16.43% (1.64%) 11.69% 3.14% 19.49% (1.67%) 5.10%
Net assets, end of period ($000) $16,665 $22,205 $25,579 $39,037 $43,704 $45,629 $18,109 $8,838
Ratio of expenses to average net assets* 1.84% 1.78% 1.58% 1.51% 1.46% 1.48% 1.53% 1.50%
Ratio of net income to average net assets* 1.74% 0.80% 1.70% 0.04% 2.48% 1.73% 4.79% 3.63%
Portfolio turnover rate* 254.77% 146.40% 344.25% 241.90% 122.09% 118.51% 429.44% 15.03%
</TABLE>
<TABLE>
MERRIMAN ASSET ALLOCATION FUND
For a share outstanding throughout each fiscal year ended September 30,
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989(3)
---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.21 $11.22 $11.97 $10.74 $10.82 $10.04 $10.46 $10.00
------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.30 0.25 0.19 0.10 0.31 0.32 0.50 0.09
Net gains or (losses) on securities
(both realized and unrealized) 0.50 0.62 0.15 1.76 (0.08) 0.78 (0.42) 0.45
---- ---- ---- ---- ----- ---- ----- ----
Total from investment operations 0.80 0.87 0.34 1.86 0.23 1.10 0.08 0.54
---- ---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS:
Dividends (from net investment income) (0.16) (0.25) (0.20) (0.10) (0.31) (0.32) (0.50) (0.08)
Distributions (from realized capital gains) (0.24) (0.63) (0.89) (0.53) - - - -
----- ----- ----- -----
Total distributions (0.40) (0.88) (1.09) (0.63) (0.31) (0.32) (0.50) (0.08)
----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $11.61 $11.21 $11.22 $11.97 $10.74 $10.82 $10.04 $10.46
====== ====== ====== ====== ====== ====== ====== ======
Total return 7.41% 8.49% 2.91% 18.11% 2.13% 11.17% 0.75% 5.40%
Net assets, end of period ($000) $17,733 $22,632 $29,984 $29,492 $26,508 $28,350 $22,612 $9,169
Ratio of expenses to average net assets* 1.82% 1.76% 1.56% 1.52% 1.52% 1.52% 1.53% 1.50%
Ratio of net income to average net assets* 2.53% 2.11% 1.63% 0.85% 2.87% 3.03% 5.01% 3.88%
Portfolio turnover rate* 204.55% 288.45% 449.55% 225.96% 132.56% 311.62% 415.73% 56.44%
</TABLE>
<PAGE>
<TABLE>
MERRIMAN LEVERAGED GROWTH FUND
For a share outstanding throughout each fiscal year ended September 30,
<CAPTION>
1996 1995 1994 1993 1992(4)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.30 $10.42 $10.41 $10.04 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.08) (0.04) 0.07 0.06 0.04
Net gains on securities
(both realized and unrealized) 0.84 2.33 0.03 0.37 -
---- ---- ---- ----
Total from investment operations 0.76 2.29 0.10 0.43 0.04
---- ---- ---- ---- ----
LESS DISTRIBUTIONS:
From net investment income - (0.07) (0.09) (0.06) -
From realized capital gains (0.76) (0.34) - - -
----- -----
Total distributions (0.76) (0.41) (0.09) (0.06) -
----- ----- ----- -----
Net asset value, end of period $12.30 $12.30 $10.42 $10.41 $10.04
====== ====== ====== ====== ======
Total return 6.85% 22.85% 0.91% 4.32% 0.40%
---- ----- ---- ---- ----
Net assets, end of period ($000) $15,694 $9,686 $5,459 $5,879 $3,577
Ratio of expenses to average net assets* (A) 3.70% 2.82% 2.06% 2.03% 2.08%
Ratio of net income (loss)
to average net assets* (0.78)% (0.68)% 0.62% 0.65% 1.09%
Portfolio turnover rate* 247.36% 87.50% 379.64% 130.68% -
</TABLE>
Information relating to outstanding debt during the fiscal years ended Sept. 30,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(4)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Amount of debt outstanding
at end of period ($000) $5,800 $4,000 - - -
Average amount of debt
outstanding during the period ($000) $2,981 $780 $60 - -
Average number of shares
outstanding during the period (000) 1,157 657 543 524 209
Average amount of debt
per share during the period $2.58 $1.19 $0.11 - -
</TABLE>
Notes to Financial Highlights:
* Annualized for all periods of less than one year.
(1) For the period October 6, 1988 (commencement of operations) to September 30,
1989
(2) For the period December 29, 1988 (commencement of operations) to September
30, 1989
(3) For the period May 2, 1989 (commencement of operations) to September 30,
1989
(4) For the period May 27, 1992 (commencement of operations) to September 30,
1992
(A) Expenses include interest expense of 1.95% and 1.01% for 1996 and 1995,
respectively
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Merriman Investment Trust (the "Trust") is a registered, open-end,
diversified, management investment company which offers investors five funds
from which to choose, the Merriman Flexible Bond Fund ("Flexible Bond Fund"),
the Merriman Growth & Income Fund ("Growth & Income Fund"), the Merriman Capital
Appreciation Fund ("Capital Appreciation Fund"), the Merriman Asset Allocation
Fund ("Asset Allocation Fund") and the Merriman Leveraged Growth Fund
("Leveraged Growth Fund"). Investors may invest in one or more Funds as they see
fit. The Funds are designed for long-term investors, including those who wish to
use the shares as a funding vehicle for tax-deferred retirement plans. The
investment objectives and policies of each Fund, unless otherwise stated, are
not considered fundamental and may be changed by the Board of Trustees without
prior consent of the holders of a majority of the Fund's shares. Shareholders
would be notified in writing, however, prior to a material departure from the
stated objectives and policies. Such changes may result in a Fund having
investment objectives different from the objectives which the shareholder
considered appropriate at the time of investment in the Fund.
CONCENTRATION POLICY
Each Fund has adopted a policy of concentrating (investing more than 25% and up
to 100% of the value of its total assets) in the shares of other investment
companies, sometimes referred to herein as "mutual funds." Investment company
candidates for inclusion in a Fund's portfolio will have investment objectives
and policies believed by the Investment Manager to be consistent with and,
indeed, most likely to help the Fund achieve its investment objectives. Each
Fund also may make direct investments (up to 75% of the value of the it's total
assets) in the securities of issuers other than investment companies whenever
the Investment Manager believes direct investment will result in the best
likelihood of achieving the Fund's investment objectives. Please see the
individual Fund descriptions, below, for a description of the types of
investment company and direct investments each Fund will make, as well as
"Investing in Investment Companies", page 11.
THE FLEXIBLE BOND FUND
THE OBJECTIVES OF THE FLEXIBLE BOND FUND ARE INCOME, PRESERVATION OF CAPITAL
AND, SECONDARILY, GROWTH OF CAPITAL. The investment companies qualifying for
inclusion in the Flexible Bond Fund's portfolio may invest in all types of debt
securities, including bonds, notes, mortgage securities, government and
government agency obligations, zero coupon securities, convertible securities,
repurchase agreements and preferred stocks. The Fund may also make direct
investments in all of the foregoing except that it will not invest directly in
convertible securities and preferred stocks (See "Fixed Income Strategy", page
13).
Generally, the Fund seeks to have the majority of its assets invested, either
directly or through mutual funds, in U.S. Government Securities or in Investment
Grade corporate bondsthose rated "A" or better by Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"). But the Fund is
flexible as to its mix of portfolio securities with respect to issuer, type,
maturity, and quality. The Fund will seek to invest, either directly or through
mutual funds, in those segments of the fixed-income market which, in the opinion
of the Investment Manager, afford the greatest opportunities to achieve the
Fund's objectives. From time to time the Fund may emphasize long, intermediate
or short maturities, higher or lower yields or quality, U.S. government,
domestic or foreign market segments. Based upon information available to the
Investment Manager relating to the portfolio mix of the investment companies in
which the Fund invests, the Fund seeks to limit its direct and indirect
investments in Lower-Rated debt securities (those rated below "A" by Moody's or
S&P) to no more than 25% of its total assets, and in the securities of foreign
issuers to no more than 35% of its total assets. Direct investment in the
securities of foreign issuers and Lower Rated debt securities will each be
limited to 5% of the Fund's total assets. American Depository Receipts ("ADR's")
are not considered to be securities of foreign issuers. (ADR's are foreign
securities denominated in U.S. dollars and traded in U.S. securities markets.)
Up to 10% of its total assets may be invested in zero-coupon securities (see
"Zero Coupon Bonds", page 12) and up to 35% of its total assets in high quality
money market instruments, as described on page 11. Please see "U.S. Government
Securities," page 10, and "Fixed Income Strategy," page 13, for descriptions of
specific securities in which the Fund may invest.
In furtherance of its capital preservation objective, the Fund attempts to avoid
some of the risks associated with investment in a portfolio of debt securities
by diversifying its portfolio and by investing in other mutual funds which also
diversify their portfolios. The Fund also employs market timing and hedging
<PAGE>
strategies, as described under "Marketing Timing Strategy," page 13. For the
purpose of hedging its investment portfolio, and subject to the investment
restrictions set forth on page 19, the Fund may purchase and sell options on
U.S. Government Securities and may purchase and sell futures contracts on U.S.
Government Securities and options thereon (see "Hedging Strategies; Options and
Futures Contracts", page 15).
THE GROWTH & INCOME FUND
THE OBJECTIVES OF THE GROWTH & INCOME FUND ARE LONG-TERM GROWTH OF CAPITAL,
INCOME AND, SECONDARILY, PRESERVATION OF CAPITAL. The investment companies
qualifying for inclusion in the Growth & Income Fund's portfolio will generally
include those having investment objectives of growth, growth & income and
income. They may invest in common stocks, bonds and securities convertible into
common stocks, both domestic and foreign. They may emphasize large or small
capitalization securities, securities traded on securities exchanges or
over-the-counter, and higher quality or lower quality securities. The Fund may
also make direct investments in equity securities, including those which do not
pay a dividend (see "Equity Strategy", page 13), and debt securities (See "Fixed
Income Strategy", page 13). Direct investment in the securities of foreign
issuers and Lower Rated debt securities will each be limited to 5% of the Fund's
total assets. For this purpose, American Depository Receipts ("ADR's") and
shares of mutual funds investing in the securities of foreign issuers are not
considered to be securities of foreign issuers. (ADR's are foreign securities
denominated in U.S. dollars and traded in U.S. securities markets.) All
investments selected for inclusion in the Fund's portfolio will, in the
Investment Manager's opinion, offer the best available prospectswhen taken as a
wholefor long-term growth of capital and income.
To preserve capital, its secondary objective, the Fund diversifies its portfolio
in an attempt to diminish the risk of owning individual securities. The
investment companies in which the Fund invests also diversify their portfolios.
In addition, the Fund utilizes market timing and hedging strategies, described
under "Market Timing Strategy", page 13, in an attempt to diminish market risk.
The Fund may invest up to 10% of its total assets in zero-coupon securities (see
"Zero Coupon Bonds", page 12) and up to 35% of the Fund's total assets in U.S.
Government Securities and high quality money market instruments, as described on
pages 10 and 11. The Fund may also, subject to the Investment Restrictions on
page 19, purchase options on stocks and stock indices, sell covered call and put
options on stocks and stock indices and purchase and sell stock index futures
and options thereon in an attempt both to protect the value of portfolio
securities and to generate premium income to the Fund.
THE CAPITAL APPRECIATION FUND
THE OBJECTIVE OF THE CAPITAL APPRECIATION FUND IS CAPITAL APPRECIATION.
Investment companies qualifying for inclusion in the Capital Appreciation Fund's
portfolio will generally have growth or aggressive growth as their principal
objective. They may invest in common stocks or securities convertible into
common stocks, both domestic and foreign. They may emphasize large or small
capitalization securities traded on securities exchanges or over-the-counter.
The Fund may also make direct investments in individual equity securities (see
"Equity Strategy," page 13) and in mutual funds having other than growth or
aggressive growth objectives if, in the opinion of the Investment Manager, such
investments would enhance the ability of the Fund to achieve its objective of
capital appreciation. For example, "interest rate sensitive" stocks (or mutual
funds investing therein) may offer greater opportunities for capital
appreciation during periods of declining interest rates than many growth
oriented stocks. An investment is "interest rate sensitive" if its market value
is affected by changes in market interest rates. Current income, while it may
result from some of the investment strategies used by the Fund, will not be
considered as a significant factor in the selection of securities for investment
by the Fund. Direct investment in the securities of foreign issuers will be
limited to 5% of the Fund's total assets. For this purpose, American Depository
Receipts ("ADR's") and shares of mutual funds investing in the securities of
foreign issuers are not considered to be the securities of foreign issuers.
(ADR's are foreign securities denominated in U.S. dollars and traded in U.S.
securities markets.) Under normal circumstances at least 65% of the assets of
the Fund will be invested in (a) mutual funds having growth or aggressive growth
as their principal investment objective and (b) common stocks which, in the
opinion of the Investment Manager, present opportunities for capital
appreciation.
The Investment Manager believes that preservation of capital plays a vital role
in achieving capital appreciation. The Fund will therefore diversify its
portfolio to attempt to diminish the risk of owning individual securities. The
<PAGE>
investment companies in which the Fund invests also diversify their portfolios.
In addition, the Fund utilizes market timing and hedging strategies, described
under "Market Timing Strategy", page 13, in an attempt to diminish market risk.
As to the assets of the Fund not invested pursuant to the 65% policy, the Fund
may invest up to 35% of its assets in high quality money market instruments,
described on page 11, investment companies having objectives other than growth
or aggressive growth and may, subject to the Investment Restrictions, page 19,
utilize hedging instruments, limited to: purchasing options on stocks and stock
indices, writing (selling) covered call and put options on stocks and stock
indices and purchasing and selling stock index futures and options thereon. Some
income may be generated by the use of hedging strategies, but the primary
purpose will be to hedge the Fund's portfolio. Hedging instruments will not be
used for speculative purposes, nor will investments be made in mutual funds
which utilize hedging instruments for speculative purposes.
THE ASSET ALLOCATION FUND
THE OBJECTIVES OF THE ASSET ALLOCATION FUND ARE HIGH TOTAL RETURN CONSISTENT
WITH REASONABLE RISK. By "total return", the Fund means return from all sources,
including current income, such as interest and dividends, and capital gains. In
seeking to secure its objective, the Fund allocates its assets for investment,
either directly or through mutual funds, among four market segments: equities,
fixed income, foreign, and gold (the gold segment includes the securities of
companies principally engaged in mining, processing or distributing gold and
other precious metals).
The Fund remains flexible with respect to the percentage allocation of its
portfolio to each market segment, but can generally be expected to have the
majority of its assets allocated to the equities and fixed income market
segments. By allocating its investments in this manner, the Fund will not be
exposed to the same degree of market risk as a fund which, for example, invests
in only one of the foregoing market segments. Assets allocated to a particular
market segment will generally be invested in the shares of one or more mutual
funds which invest primarily in such segment. The Fund believes that such
diversification will further reduce the risks to the Fund and its shareholders.
Direct investments for the equities segment will be limited to domestic
securities and will be selected as described under "Equity Strategy," page 13.
Direct investments for the fixed income segment will be selected as described
under "Fixed Income Strategy," page 13. Direct investment in Lower Rated debt
securities will be limited to 5% of the Fund's total assets. Direct investments
for the foreign and gold segments may include any proportion of equities or
fixed income securities, depending upon the Investment Manager's judgment of
where opportunities lie within those segments at any given time. Depending upon
the type of security, selection will be based upon the equity or fixed income
strategies referred to above. Because of certain risks associated with investing
directly in the securities of foreign issuers, the Fund will limit such
investments, if made, to 5% of the Fund's total assets. For this purpose, ADR's
and shares of mutual funds investing in the securities of foreign issuers are
not considered to be securities of foreign issuers.
The Fund employs the market timing and hedging strategies described under
"Market Timing Strategy", page 13, and such strategies are employed separately
as to each segment of the Fund's portfolio. Accordingly, when the Investment
Manager believes that a particular market segment is subject to the risk of
substantial decline, the Investment Manager may temporarily suspend the normal
investment policies for that market segment and adopt a defensive investment
strategy. Up to 100% of the Fund's assets allocated to a particular market
segment may be hedged or liquidated and reinvested in high quality money market
instruments, or both, until the Investment Manager determines that there no
longer exists the risk of substantial market decline. Under such a defensive
posture, the Fund would earn income from the money market and hedging
instruments. It is possible that a defensive portfolio posture may be adopted
for more than one market segment at the same time and, while the Investment
Manager believes it is not likely, it is remotely possible, that 100% of the
Fund's assets (all segments) could be deployed in a defensive manner at the same
time.
In hedging the Fund's portfolio assets, the Fund may, subject to the Investment
Restrictions, page 19, purchase and sell (write): (a) options on stocks and
stock indices, stock index futures and options thereon, (b) options on U.S.
Government Securities, futures contracts on U. S. Government Securities and
options thereon and (c) options, futures contracts and options on futures
contracts on commodities indices, currencies and currency indices. Any options
written by the Fund must be fully "covered" options (see "Hedging Strategies;
Options and Futures Contracts", page 15).
<PAGE>
THE LEVERAGED GROWTH FUND
THE OBJECTIVE OF THE LEVERAGED GROWTH FUND IS CAPITAL APPRECIATION THROUGH THE
USE OF LEVERAGE AND OTHER INVESTMENT PRACTICES. Except for its use of leverage,
or borrowing, as described below, the investment policies of the Leveraged
Growth Fund are the same as those of the Capital Appreciation Fund, described
above.
Borrowing by the Fund. The Fund may borrow money for investment purposes as the
Investment Manager deems appropriate. Such borrowing, commonly known as
leverage, exaggerates the effect upon net asset valuation of increases and
decreases in the market value of the Fund's portfolio. Accordingly, leverage
will be utilized by the Fund in conjunction with its market timing strategy (see
below) only when the Investment Manager believes a rising trend in the stock
market, accompanied by little risk of decline, is strongly indicated. The Fund
may pledge its portfolio securities to secure such loans and lenders will have
recourse only against the Leveraged Growth Fund.
The Investment Company Act of 1940, as amended (the "1940 Act"), requires the
Fund to maintain continuous asset coverage (that is, total assets including
loans, less liabilities exclusive of loans) of 300% of the amount borrowed.
Simply stated, the Fund may borrow up to $1 for each $2 of net assets. If market
fluctuations or other reasons cause the 300% asset coverage to decline, the Fund
may be required to sell some of its portfolio holdings within three days in
order to reduce the debt and restore the 300% asset coverage. The timing of such
a forced sale may be disadvantageous from an investment perspective.
OTHER INVESTMENT POLICIES
U.S. GOVERNMENT SECURITIES
"U.S. Government Securities", for the purpose of this prospectus, include the
following securities: (1) U.S. Treasury obligations of various interest rates,
maturities and issue dates, such as: U.S. Treasury bills (mature in one year or
less), U.S. Treasury notes (mature in one to seven years), and U.S. Treasury
bonds (mature in more than seven years), the payments of principal and interest
of which are all backed by the full faith and credit of the U.S. Government; (2)
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, some of which are backed by the full faith and credit of the
U.S. Government, e.g., obligations of the Government National Mortgage
Association ("GNMA"), the Farmers Home Administration ("FmHA") and the
Export-Import Bank; some of which do not carry the full faith and credit of the
U.S. Government but which are supported by the right of the issuer to borrow
from the U.S. Government, e.g., obligations of the Tennessee Valley Authority,
the U.S. Postal Service, the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation ("FHLMC"); and some of which are
backed only by the credit of the issuer itself, e.g., obligations of the Student
Loan Marketing Association, the Federal Home Loan Banks and the Federal Farm
Credit Bank; and (3) any of the foregoing purchased subject to repurchase
agreements or purchased or sold on a delayed delivery or when-issued basis, as
described under "Repurchase Agreements", page 19, and "Delayed Delivery and
When-Issued Securities", page 12.
Obligations of GNMA, FNMA and FHLMC may include direct pass-through
"Certificates", representing undivided ownership interests in pools of
mortgages. Such Certificates are guaranteed as to payment of principal and
interest (but not as to price and yield) by the U.S. Government or the issuing
agency. Each Fund limits its investment in such Certificates to 5% of its total
assets.
INVESTING IN INVESTMENT COMPANIES
Investment companies, commonly known as "mutual funds", sell their shares to
many investors and, in turn, invest the money received in securities which are
expected to achieve their stated investment objectives. There is a wide variety
of investment objectives and approaches from which investors may choose among
the more than 5,000 mutual funds in operation. By aggregating the investments of
many investors, the investment companies are able to economically employ
professional management in selecting investment securities and in pursuing their
particular investment objective. Investors today hold stock and bond mutual fund
shares worth in excess of two trillion dollars. Most mutual funds continually
offer to redeem their shares at net asset value ("open-end companies"), but
there are some that do not do so. The latter are referred to as "closed-end
companies" and are traded on a national stock exchange or in the
over-the-counter market. The operations of mutual funds and the sale and
redemption of their shares are heavily regulated by federal and state securities
<PAGE>
regulatory authorities. Such regulation, of course, does not imply that a mutual
fund will be successful in meeting its objectives.
Each of the Funds may invest in mutual funds and have adopted a policy of
concentrating (investing at least 25% of their assets) in such securities. Among
other policies adopted by the Funds are that no Fund may: (a) invest more than
25% of its total assets in the securities of mutual funds which themselves
concentrate their investments in any one industry; (b) invest more than 25% of
its total assets in any one mutual fund (see "Investment Restrictions", page
19); and (c) invest in any investment company not registered in the United
States. Each Fund currently limits its investments in mutual funds to those
which it may purchase without the imposition of sales commissions or redemption
fees. The Investment Manager has advised the Trustees that, in its opinion, a
sufficient selection of such mutual funds presently exists to meet the needs of
the Funds for the foreseeable future. The Funds may in the future, however,
authorize investment in mutual funds that do charge the Funds sales commissions
or redemption fees, if such investment is deemed advisable in the judgment of
the Trustees. Prior to implementing such a change of policy, the shareholders
would be given at least 60 days' written notice and the Prospectus would be
amended. The underlying mutual funds in which the Funds invest may incur
distribution expenses in the form of "12b-1 fees."
Mutual funds in which the Funds invest may not necessarily share the same
investment objectives as the Fund making the investment. The Investment Manager
will, however, select mutual funds for inclusion in a Fund's portfolio based
primarily upon the degree to which the Investment Manager believes they would
enhance the Fund's ability to achieve its investment objectives. Screening
begins with an analysis of the investment objectives, policies, and strategies
of many investment companies in identifying potential candidates for investment.
Candidates are then subjected to performance evaluation and other analyses
deemed appropriate by the Investment Manager and ranked over various time
periods. Strength of management, size, portfolio composition, and shareholder
services offered are among other factors evaluated by the Investment Manager in
selecting suitable mutual funds for inclusion in a Fund's portfolio.
HIGH QUALITY MONEY MARKET INSTRUMENTS
As a substitute for holding cash for temporary or defensive purposes, each Fund
may invest in high quality money market instruments. High quality money market
instruments mature in thirteen months or less from the date of purchase and may
include any of the U.S. Government Securities, bankers acceptances and
certificates of deposit of domestic branches of U.S. banks. Also included are
variable amount demand master notes ("Master Notes") which, at the time of
purchase, will be rated in the top two quality grades by Moody's Investors
Services, Inc. or Standard and Poor's Corporation or, if not rated, will be of
equivalent quality in the judgment of the Fund's Investment Manager. Master
Notes are unsecured obligations, which are redeemable upon demand. Master Notes
permit the Funds to invest fluctuating amounts at varying rates of interest.
Master Notes are purchased only through the Master Note program of the Funds'
custodian bank, who acts as administrator thereof. Master Notes of any given
issuer, together with any other securities of such issuer, will be limited to 5%
of each Fund's total assets. Investment companies investing at least 80% of
their assets in money market instruments, or which hold themselves out to be
money market funds, are included in the definition of high quality money market
instruments.
LENDING PORTFOLIO SECURITIES
In order to earn additional income on its portfolio securities, each Fund may
lend up to 33% of the value of its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral, consisting of cash or
U.S. Government Securities, or any combination thereof, equal to not less than
100% of the market value, determined daily, of the securities loaned. Although
the limitation on the amount of securities any Fund may lend is a fundamental
policy, the particular practices followed in connection with such loans are not
deemed fundamental and may be changed by the Board of Trustees without the vote
of the Fund's shareholders.
DELAYED DELIVERY AND WHEN-ISSUED SECURITIES
The Flexible Bond, Growth & Income and Asset Allocation Funds may (but the
Capital Appreciation and Leveraged Growth Funds may not) purchase or sell U.S.
Government Securities on a delayed delivery basis or may purchase such
securities on a when-issued basis. Such transactions arise when a Fund commits
to sell or purchase securities with payment and delivery taking place in the
future. The purpose, if done, is to attempt to secure a more advantageous price
<PAGE>
and/or yield to the Fund at the time of entering into the transaction than could
be obtained on a similar transaction providing for normal settlement. However,
the yield on a comparable security available when delivery takes place may vary
from the yield on the security at the time that the delayed delivery and
when-issued transaction was entered into. When a Fund engages in delayed
delivery and when-issued transactions, the Fund relies on the seller or buyer,
as the case may be, to consummate the transaction, and failure to consummate the
transaction may result in the Fund missing the price or yield considered to be
advantageous. Normally, such transactions may be expected to settle within three
months from the date the transactions are entered into. However, no payment or
delivery is made by a Fund until it receives delivery or payment from the other
party to the transaction. The Fund will deposit and maintain, in a segregated
account with the Custodian, cash, U.S. Government securities or other liquid
high-grade debt obligations having a value equal to or greater than the Fund's
purchase commitments; the Custodian will likewise segregate securities sold on a
delayed delivery basis. There is no Fund policy limiting delayed delivery and
when-issued transactions.
ZERO COUPON BONDS
The Flexible Bond Fund and Growth & Income Fund may each invest up to 10% of
their respective total assets in zero coupon U.S. Government Securities and
domestic corporate bonds ("Zeros") in an attempt to realize growth of capital.
Such securities do not make periodic interest payments, but are purchased at a
discount from their face, or maturity, value. Thus, the holder of a Zero
receives only the right to receive the face value upon maturity. The advantage
of a Zero is that a fixed yield is earned on the invested principal and on all
accretion of the discount from the date of purchase until maturity. A bond which
makes a periodic interest payment, on the other hand, bears the risk that
current interest payments, when received, must be reinvested at then-current
yields, which could be higher or lower than that of the bond originally
purchased. Zero's are subject to greater price volatility than current-interest
bonds during periods of changing interest rates, more so with longer maturities.
A disadvantage of investment in Zeros is that the Fund is obligated to recognize
as interest income, on a current basis, the accretion of the discount from the
date of purchase until the date of maturity or sale, even though no interest
income is actually received in cash on a current basis. The Investment Manager
will therefore invest in Zeros only when it believes that the overall benefit to
shareholders will offset this disadvantage.
EQUITY STRATEGY
The Growth & Income, Capital Appreciation, Asset Allocation and Leveraged Growth
Funds may invest in equity securities. Equity securities, generally, are common
stocks and may include securities convertible into common stocks, such as
convertible preferred stocks and convertible bonds. Equity securities are
selected primarily as a result of a performance evaluation analysis from a data
base of over 6,000 stocks. The analysis ranks stocks according to recent price
movements, market capitalization, longer-term historical performance,
earnings-per-share rankings and other technical considerations, the weighing of
which may vary from time to time according to the judgment of the Investment
Manager. Equities may include small or large capitalization issues, and may
include the equities of domestic or foreign issuers. Common stocks selected may
be dividend-paying or non-dividend-paying. Securities of foreign issuers will
not exceed 5% of the respective total assets of any Fund. ADR's are not
considered securities of foreign issuers.
FIXED INCOME STRATEGY
The Flexible Bond, Growth & Income and Asset Allocation Funds may invest in U.S.
Government Securities. Selection is based upon the Investment Manager's judgment
of yield spreads among issues and maturities, interest rate trends and
availability. The Flexible Bond, Growth & Income and Asset Allocation Funds may
also invest in other debt securities, and such securities will be selected by
the Investment Manager based upon its assessment of their likelihood in
enhancing the Fund's ability to achieve its investment objectives. Such
securities include "Investment Grade" and "Lower Rated" debt securities.
Investment Grade debt securities, for purposes of this prospectus, are debt
obligations which are rated at the time of purchase no lower than "A" by
Standard & Poor's Corporation ("S & P") or Moody's Investor's Services
("Moody's"). Lower Rated debt securities (so called "junk bonds"), for purposes
of this prospectus, are securities which are rated lower than "A", but, in the
case of the Growth & Income and Asset Allocation Funds, no lower than "B" by S &
P or Moody's and, in the case of the Flexible Bond Fund, no lower than "CCC" by
S&P or "Caa" by Moody's. Unrated securities will be classified by the Investment
<PAGE>
Manager, in its judgment, according to their equivalent investment quality.
Lower Rated bonds are regarded, on balance, as predominately speculative with
respect to the issuer's capacity to pay interest and principal in accordance
with the terms of the obligation. S& P's BB and Moody's Baa ratings indicate the
lowest degree of speculation and CCC or Caa the highest in which the Fund will
invest. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
or adverse conditions. Direct investment in Lower Rated debt securities by each
Fund will be limited to no more than 5% of each Fund's total assets. See the
Statement of Additional Information for a more detailed description of Moody's
and S&P's ratings.
MARKET TIMING STRATEGY
The Investment Manager attempts to significantly reduce market risk to each Fund
by utilizing market timing strategies designed to avoid the risk of declining
market cycles. Such strategies call for aggressive investing in the market in
anticipation of and during rising market cycles and for liquidation of portfolio
investments into high quality money market instruments in anticipation of and
during declining market cycles. Hedging strategies may also be used in an
attempt to mitigate risk and to generate additional income to the Funds during
both rising and declining market cycles. The Investment Manager believes that by
avoiding market declines, shareholders should experience greater overall
returns. Of course, the timing of portfolio transactions in response to
anticipated changes in interest rate or stock market trends is vitally important
to the successful application of such strategies. The Investment Manager uses a
two-fold approach to control the timing of portfolio transactions. The first and
most important part of this two-fold approach is the use of the following
computerized investment models:
THE MERRIMAN BOND SWITCH MODEL (the "Bond Model"), used for the Flexible Bond
Fund and the fixed income portions of the Growth & Income and Asset Allocation
Funds;
THE MERRIMAN EQUITY SWITCH MODEL (the "Equity Model"), used for the Capital
Appreciation and Leveraged Growth Funds and the equity portions of the Growth &
Income and Asset Allocation Funds;
THE MERRIMAN INTERNATIONAL FUND SWITCH MODEL (the "International Model"), used
for foreign segments of the Funds; and
THE MERRIMAN GOLD SWITCH MODEL (the "Gold Model"), used for the gold segment of
the Asset Allocation Fund.
The use of hedging strategies and other investments, discussed below, is the
second part of the Investment Manager's approach. The Models are proprietary
products of Paul A. Merriman & Associates, Inc., a company controlled by the
Investment Manager's President.
While it intends to rely primarily upon the Models to assist in the control of
portfolio transactions, such use is not a fundamental policy of any Fund. The
Investment Manager will employ its own analyses of the factors affecting
investment in U.S. Government Securities, other debt securities and equity
securities and, at its discretion, may utilize its own analyses or alternative
timing systems and strategies with or in place of the Models to manage Fund
portfolio transactions. While no notice is required to be given to the
shareholders, should a different timing system become the primary system used by
the Investment Manager to control portfolio transactions of any Fund,
shareholders would be notified and the Prospectus will be amended if such a
change becomes permanent.
FIXED INCOME TIMING STRATEGY
Ideally, the goal of market timing for fixed income securities (the Flexible
Bond Fund and portions of the Growth & Income and Asset Allocation Funds) is to
be "fully invested" (holding only eligible securities maturing, generally, in 5
to 25 years or shares of investment companies investing in fixed income
securities) when interest rates are expected to be stable or in a declining
trend, and to be "uninvested" (holding only cash and high quality money market
instruments) when interest rates are expected to be in a rising trend. The
reason for this is that, in the opinion of the Investment Manager, the market
value of debt securities maturing in 5 to 25 years tends to increase when
interest rates decline and, conversely, tends to decrease when interest rates
rise. By being fully invested when interest rates are declining or stable, the
Investment Manager believes that the production of interest income will be
maximized, and the potential for capital growth will be present as the market
value of portfolio securities rises. Conversely, by holding only cash and high
quality money market instruments when interest rates are rising, decreases in
<PAGE>
the market value of fixed income portfolio investments can be avoided while
interest income continues to be earned on the money market investments.
The Bond Model is a computer-based, econometric analysis tool comprised of
technically oriented methodologies which operates, basically, to generate buy
and sell signals. The Bond Model generates buy and sell signals when interest
rates and bond prices penetrate levels established by the Model's on-going
technical and econometric analysis routines. When the Model detects that the
interest rate trend is about to change to generally rising (and therefore, that
bond prices are about to change to generally declining), a sell signal is
generated. Conversely, if the Model detects that the interest rate trend is
about to change to generally declining or stable (bond prices generally rising
or steady), a buy signal is generated. Buy and sell signals generated by the
Model would generally be utilized by the Investment Manager as follows:
Whenever a buy signal is generated, the Investment Manager will fully invest all
of the Fund's assets (except for the maintenance of sufficient liquidity to meet
redemption requests) in eligible securities maturing, generally, in 5 to 25
years and in shares of investment companies investing in fixed income
securities, or will utilize hedging instruments as a temporary substitute for
full investment. This fully invested portfolio position will be maintained until
either a sell signal is generated by the Bond Model or until the Investment
Manager determines that hedging strategies should be used in an attempt to
protect invested assets from market decline. When a sell signal is generated the
Investment Manager will switch to an uninvested position by liquidating the
Fund's fully invested position into cash and high quality money market
instruments or by hedging the Fund's investments. This high quality money market
instruments portfolio composition will be maintained until either the next buy
signal is generated or until the Investment Manager determines that the use of
hedging strategies would be advisable in anticipation of a change in market
direction.
EQUITY TIMING STRATEGY
The goal of market timing, for equity securities (the Capital Appreciation and
Leveraged Growth Funds and portions of the Growth & Income and Asset Allocation
Funds) is to vary the Fund's portfolio composition in accordance with stock
market trends anticipated by the Investment Manager. Accordingly, the Fund will
position its portfolio aggressively when a rising trend in the stock market,
accompanied by little risk of decline, is strongly anticipated; conservatively
when a more moderate rising trend in the stock market accompanied by an
increasing risk of decline is anticipated; and defensively when a substantial
risk of stock market decline is anticipated. A "substantial risk" of market
decline exists when volatile or abnormal market conditions are anticipated
because, for example, of rapidly accelerating inflation or interest rates,
sharply declining stock markets or other volatile or unstable economic,
financial or national security conditions.
The Investment Manager intends to use the Equity Model, a computer-based
analysis tool which utilizes various technical market data such as stock and
stock index price changes, market volume, momentum and other relevant technical
and economic data, in implementing market timing strategy, generally, for
equities. The Investment Manager intends to use the International Model and the
Gold Model, which use similar technical data pertaining to investment companies
or groups (indices) of investment companies, in implementing the market timing
strategy for the Asset Allocation Fund as to portions of its portfolios relating
to foreign and gold investments. None of the Models recommend or select specific
securities for purchase or sale by the Funds, but the Models are limited to
detecting trend changes in market price movement.
AN AGGRESSIVE PORTFOLIO POSITION would involve deploying all of the Fund's
assets (except for the maintenance of sufficient liquidity to meet redemption
requests) in equity securities (including the shares of mutual funds investing
primarily in equity securities) to take advantage of a strongly anticipated
rising market trend. The Investment Manager might also utilize hedging
strategies as described below (i) as a temporary substitute for, or coupled with
the purchase of equity securities, (ii) to seek to protect portfolio assets from
the risk of unexpected market declines or (iii) in the case of the Growth &
Income and Asset Allocation Funds only, to increase portfolio income. The
Leveraged Growth Fund may employ leverage as part of its aggressive portfolio
positioning.
A CONSERVATIVE PORTFOLIO POSITION would involve the investment of 65 to 70% of
the Fund's total assets in eligible equity securities, with the remaining assets
held in cash, high quality money market instruments and hedging instruments.
Hedging strategies could also be utilized as described below in an effort to
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offset unexpected volatility in the value of portfolio securities or to generate
additional income to the Fund, and up to 100% of the Fund's securities portfolio
could be hedged. Leverage would be substantially curtailed or eliminated by the
Leveraged Growth Fund when taking a conservative portfolio position.
A DEFENSIVE PORTFOLIO POSITION would involve investment of less than 65% of the
Fund's total assets in eligible equity securities, with the remaining assets
temporarily held in cash, high quality money market instruments and hedging
instruments. Up to 100% of Fund assets may be hedged and/or withdrawn from the
market and held in cash or high quality money market instruments. The Leveraged
Growth Fund would not use leverage when positioned defensively.
HEDGING STRATEGIES; OPTIONS AND FUTURES CONTRACTS
The Investment Manager may employ the investment strategy of hedging, which is
the purchase and sale of hedging instruments (options, futures contracts,
options on futures contracts and combinations thereof) in an attempt to protect
Fund assets from anticipated adverse market action. Hedging and the hedging
instruments described below and in the Statement of Additional Information are
used to generate gains (on the hedging instruments) which offset losses on other
portfolio securities. As to the Flexible Bond, Growth & Income and Asset
Allocation Funds, hedging strategies may also be used for the purpose of
increasing income to the Fund through the receipt of premium income. No Fund
will utilize hedging for speculative purposes or for leverage.
Subject to the limitations described in Investment Restrictions number (4), page
20, each Fund may: (a) purchase put and call options; (b) write covered put and
call options; (c) purchase and sell futures contracts; and (d) purchase options
on futures contracts and sell covered options thereon. See the Statement of
Additional Information for a complete description of the Funds' hedging
policies. Also see "Risk Factors, below, especially the section entitled "Market
Timing and Hedging."
RISK FACTORS
All investments bear some degree of risk. For this reason there can be no
assurance that any Fund will be able to achieve its investment objectives. Each
investor should evaluate his needs in light of the principal investment risks
enumerated below.
Fixed Income Securities. Investors in the Flexible Bond, Growth & Income and
Asset Allocation Funds are exposed to three types of risk associated with fixed
income investment. Interest Rate Risk is the potential for bond prices to
fluctuate when interest rates change. When interest rates rise, bond prices
fall. When interest rates fall, bond prices rise. Interest Rate Risk increases
as a Fund's average portfolio maturity increases. The following chart
illustrates the probable effect of a 2% change in interest rates on three
investment grade bonds of varying maturities:
PERCENT INCREASE (DECREASE) IN
THE PRICE OF A PAR BOND YIELDING 8.5%
STATED 2% INCREASES IN 2% DECREASES IN
MATURITY INTEREST RATES INTEREST RATES
-------- -------------- --------------
Short-Term (2.5 years) (4%) 5%
Intermediate-Term (10 years) (12%) 15%
Long-Term (20 years) (17%) 22%
Thus, to the extent a Fund is invested, directly or through mutual funds, in
long-term maturities, its interest rate risk will be high. The Investment
Manager invests in such securities only when it believes interest rates will be
stable or declining. CREDIT RISK is associated with a borrower failing to make
payments of interest and principal when due. A Fund's Credit Risk will increase
as its overall portfolio quality decreases. Thus to the extent that a Fund is
invested in high grade bonds and U.S. Government Securities, it will experience
minimal credit risk, but to the extent it invests in lower quality bonds, its
exposure to increased Credit Risk increases. CALL RISK for corporate bonds (or
prepayment risk for mortgage-backed securities) is the possibility that
borrowers will prepay (call) their debt prior to the scheduled maturity date,
resulting in the necessity to reinvest the proceeds at lower interest rates.
Call Risk generally occurs during declining interest rates and is greater when a
Fund is invested in long-term maturities. Thus, the longer a Fund's average
portfolio maturity is, accompanied by a decline in prevailing interest rates,
the Call Risk will increase.
The Flexible Bond and Asset Allocation Funds seeks to limit its investments in
Lower Rated securities (so called "Junk Bonds")either directly or through mutual
funds to 25% and 10% resprectively of their assets. Direct investment by each
Fund is limited to 5% of its respective assets. Lower Rated securities carry
greater risks than Investment Grade securities and, to the extent the Fund owns
Lower Rated securities, it will assume such increased risks. An economic
<PAGE>
downturn or increasing interest rates could have an adverse affect upon less
financially secure issuers' ability to repay interest and principal and could
result in increased "junk bond" defaults. High yield bonds have been found to be
less sensitive to interest rate changes than Investment Grade issues, but more
sensitive to adverse economic or corporate developments. The Call Risk
associated with Lower Rated issues may be increased when the issuer's financial
position improves, because of its potential to refinance its debt at lower
rates, even when market interest rates are stable. Lower Rated issues may be
thinly traded, which could pose increased difficulty for the Fund in valuation,
because of less reliable, objective data available.
Each Fund attempts to minimize risk by diversifying its portfolio, by investing
in other investment companies which also diversify and by limiting to 5% of
total assets the extent to which each will make direct investments in Lower
Rated securities. The Growth & Income and Asset Allocation Funds will not likely
be as significantly affected by adverse bond market events as a Fund which
invests most or all of its assets in fixed income securities. The Investment
Manager will invest, directly or through mutual funds, in Lower Rated securities
only if it believes the investment opportunity mitigates the assumed risk.
MARKET TIMING AND HEDGING. Risks associated with timing and hedging include the
risk that the Investment Manager may be incorrect in its expectations of market
or interest rate trends and the resulting deployment of a Fund's assets. In such
case, the Fund could lose money depending upon the extent portfolio positions
taken can be reversed, liquidated or hedged. The use of puts, calls and Futures
Contracts entails risks, including the possibility that a liquid secondary
market may not exist at the time when a Fund may desire to close out an option
position. Trading in options and futures contracts might be halted at times when
the securities markets are allowed to remain open. If a closing transaction
cannot be effected because of the lack of a secondary market, the Fund would
have to either make or take delivery under the futures contract or, in the case
of a written option, wait to sell the underlying securities until the option
expires or is exercised. Skills needed to trade options, futures contracts and
options thereon are different than those needed to select equity or fixed income
securities. The Investment Manager's officer (William L. Notaro) who will be
responsible for hedging has substantial experience both in managing securities
portfolios which trade in such hedging instruments and in executing such
transactions in a broker/dealer environment.
An additional risk is that price movements in a Fund's portfolio will not
correlate perfectly with the price changes in stock indices, futures contracts
and options thereon, and the prices on Government Futures Contracts and options
thereon may not move inversely with interest rates. At best, the correlation
between changes in prices of (a) stock indices, futures contracts and options
thereon ("hedging instruments") and (b) the portfolio securities being hedged
can be only approximate. The degree of imperfection of correlation depends upon
circumstances such as: variations in speculative market demand for the hedging
instruments and for related securities, including technical influences in the
trading of hedging instruments and differences between the financial instruments
or stocks being hedged and the instruments underlying the standard futures
contracts available for trading. Such differences could be, in the case of
hedging instruments on U.S. Government Securities, interest rate levels,
maturities and credit-worthiness of issuers and, in the case of stock indices
and hedging instruments on stock indices, quality, intrinsic value and
volatility. The hours of trading of futures contracts may not conform to the
hours during which the Funds may trade such securities. To the extent that the
futures markets close before or after the U.S. Government Securities, bond or
stock markets, significant price and rate movements can take place in the
intervening time period that cannot be reflected in the market(s) first to
close. Also, additional futures trading sessions may result in significant price
movements, exercises of positions and margin calls at a time when the U.S.
Government Securities and/or stock markets are not open. Consequently, if a Fund
has entered into options on stock indices, futures contracts and/or options
thereon to hedge portfolio securities positions there is a risk that the
securities hedged may loose more value than is offset by the hedge instruments,
resulting in a loss to the Fund.
INVESTMENT COMPANY SECURITIES. The Funds invest in the shares of other
investment companies (such investments sometimes referred to as "underlying
funds"). This involves certain risks which should be considered by investors.
Although the Funds will invest in a number of underlying mutual funds, this
practice will not eliminate all risks. By investing in underlying funds,
investors indirectly pay a portion of the operating costs of the underlying
funds. These costs include management, brokerage, shareholder servicing and
other operational expenses. Indirectly, then, shareholders may pay higher
<PAGE>
operational costs than they would if they owned the underlying fund's shares
directly. To offset potentially higher costs, the Investment Manager attempts to
identify and invest in investment companies which have demonstrated historically
superior performance and low operational costs. Through their investment in
underlying funds, the Funds may indirectly invest more than 25% of their assets
in one industry. Such indirect concentration of a Fund's assets may subject the
shares of the Fund to greater fluctuation in value than would be the case in the
absence of such concentration.
Federal and state securities laws impose limits on the investment company
holdings of the Funds. Current limits are that a Fund, together with its
affiliates, may not invest in an investment company if as a result the Fund and
its affiliates (including the other Funds and the privately managed accounts of
the Investment Manager and its affiliates) together own more than 3% of the
total assets of the underlying fund. The Investment Manager will monitor the
holdings of each Fund and of any such privately managed accounts in order to
comply with the limitations. An underlying fund may, under the Investment
Company Act of 1940, as amended (the "1940 Act"), elect not to redeem shares in
excess of 1% of such underlying fund's outstanding shares during any period of
less than 30 days. Therefore, should a Fund hold greater than 1% of an
underlying fund's shares, the holdings in excess of 1% would be considered "not
readily marketable securities" and, together with other such securities, would
be subject to fundamental Fund policies limiting such holdings to 10% of that
Fund's total assets. Because of these limitations, a Fund may not be able to
purchase the shares of certain investment companies believed to be most
desirable by the Investment Manager, but may have to seek alternate investments.
An underlying fund may, under certain conditions, elect to effect redemptions
ordered by the Funds by making payment partially or wholly in securities from
its investment portfolio in lieu of cash payment ("in kind redemptions"). In
such case, a Fund may retain the securities so received if the Investment
Manager believes that it is advisable, whether or not the purchase of such
securities would be permitted by the investment objectives and policies of the
Fund. The Fund would, of course, incur brokerage and transaction costs in
disposing of the securities so received.
The Investment Manager of the Funds has no control over, or day-to-day knowledge
of, the investment decisions of the underlying funds. It is possible that the
management of one underlying fund may be purchasing a particular security at or
near the same time that the Fund or the management of another underlying fund is
selling the same security. This would result in an indirect expense to the Fund
without corresponding economic or investment benefit. The use of market timing
and hedging strategies as related to a portfolio of underlying funds poses
certain correlation problems in addition to the other risks of market timing and
hedging described above. The Fund may invest in a mutual fund in anticipation of
rising market prices while, at the same time, the underlying fund may be
investing defensively. In such event, the Fund would lose the expected benefit
of its ownership of the underlying fund either for as long as it retained its
investment or until the management of the underlying fund repositioned its
portfolio. See the Statement of Additional Information, "Investing in Investment
Companies", for a description of the various investment strategies to be used by
the underlying funds.
LEVERAGE. The Leveraged Growth Fund may borrow (use leverage) for investment
purposes. The use of leverage is a speculative technique, involving risks not
incurred by funds which do not employ leverage. The cost of borrowed money may
fluctuate with changing market rates of interest. The Fund may have to pay
commitment or other fees to maintain lines of credit or may be required to
maintain minimum average loan or deposit balances. The costs of borrowing may
partially or completely offset, or even be greater than, the return earned on
the borrowed money. In addition, should leverage be employed during adverse
market conditions the Fund could be forced to sell portfolio securities to make
interest or principal payments at a time when it would not normally consider it
advantageous to do so. This could result in higher than normal portfolio
turnover, which usually generates additional brokerage commissions and expenses
for the Fund. Leveraging, when employed, will tend to exaggerate the Fund's net
asset value per share fluctuation. Net asset value per share will increase more
when the Fund's portfolio assets increase in value and will decrease more when
portfolio assets decrease in value than would be the case without leverage. This
is because the Fund's increased investment asset basewhich fluctuatesis
accompanied by a fixed obligation in connection with the borrowed money.
LENDING PORTFOLIO SECURITIES. Lending portfolio securities involves certain
risks, the most significant of which is the risk that a borrower may fail to
<PAGE>
return a portfolio security. The Trust's Board of Trustees has adopted policies
designed to minimize such risks.
TAX-RELATED RISKS. Each Fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code for each taxable year.
In order to so qualify, it must, among other things, (i) derive at least 90% of
its gross income from dividends, interest and gains from the sale or other
disposition of stock or securities or options thereon, and (ii) derive less than
30% of its gross income from the sale or other disposition of stock or
securities (or options thereon) held less than three months. Due to these
limitations, each Fund will limit the extent to which it engages in, but will
not be precluded from, (i) selling investments held for less than three months,
whether or not they were purchased on the exercise of an option, (ii) purchasing
or selling calls or puts which expire in less than three months, (iii) effecting
closing transactions with respect to calls purchased or puts purchased less than
three months previously, and (iv) exercising puts or calls held for less than
three months. The Funds' shareholders may receive taxable capital gains
distributions to a greater extent than would be the case if they invested
directly in the underlying funds. See "Dividends, Capital Gains Distributions
and Taxes", page 26.
REPURCHASE AGREEMENTS ("REPO'S"). Each Fund may invest in repurchase agreements
with securities dealers or member banks of the Federal Reserve System. This
involves the purchase by a Fund of U.S. Government Securities with the condition
that after a stated period of time the original seller will buy back the same
securities at a predetermined price or yield. Repurchase agreements involve
certain risks not associated with direct investments in government securities.
In the event the original seller defaults on its obligation to repurchase, as a
result of its bankruptcy or otherwise, the Fund holding the Repo will seek to
sell the underlying securities, which action could involve costs or delays. In
such cases, a Fund's ability to dispose of the securities to recover its
investment may be restricted or delayed. To minimize this risk the securities
underlying the repurchase agreement will be held by the Trust's Custodian,
either physically or in book entry form, in an amount at least equal to the
repurchase price under the agreement (including accrued interest thereunder). A
Fund will only enter into repurchase agreements with parties meeting
credit-worthiness standards established by the Trustees. Under the Trustees'
general supervision, the Investment Manager monitors the credit-worthiness of
such parties. In the event the other party to the repurchase agreement fails to
repurchase the securities subject to such agreement, the Fund holding the Repo
could suffer a loss to the extent proceeds from the sale of the securities
subject thereto were less than the repurchase price.
Portfolio Turnover. Each of the Funds' historic portfolio turnover rates are
shown under the caption "Financial Highlights," page 4. Due to the nature of
each Fund's investment strategies involving the use of timing and hedging
strategies, the Funds have no restrictions on portfolio turnover.
Portfolio turnover for all Funds will normally range from 100% to 300%. (A 100%
turnover rate would occur, for example, if all of the securities in a Fund are
replaced within a period of one year.) Rates in excess of 300% are a reflection
of the Funds' disciplined response to volatile market conditions. There is
generally a higher degree of risk associated with high portfolio turnover. While
it is not the intent of the Funds to trade short term, the volatility of the
stock markets and interest rates, together with the timing strategy employed by
the Funds, may involve selling portfolio securities within twelve months of
their purchase which could result in short-term gains and/or losses. As a
result, transaction and brokerage costs will likely be higher for the Funds than
those of other investment companies not employing timing and hedging techniques.
INVESTMENT RESTRICTIONS
In order to protect investors from certain investment and other risks, each Fund
has adopted a number of investment restrictions which are considered fundamental
in nature, meaning they cannot be changed without the approval of the holders of
a "majority", as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), of the shares of the Fund. The principal restrictions,
applying to each Fund, are that the Fund may not:
(1) Issue senior securities, borrow money or pledge its assets, except
that each Fund may borrow from banks as a temporary measure for extraordinary or
emergency purposes in amounts (taken at the lower of cost or current value) not
exceeding 5% or, in order to meet redemption requests which might otherwise
require untimely disposition of portfolio securities, 33.3% of its total assets
(not including the amount borrowed) and may pledge its assets to secure such
loans. So long as loans are outstanding, the Fund will not purchase any
securities. For the purpose of this restriction, collateral arrangements and
<PAGE>
initial and variation margin with respect to the purchase and sale of delayed
delivery and when-issued securities, futures contracts and options are not
deemed to be a pledge of assets and neither such arrangements nor the purchase
or sale of futures contracts or options are deemed to be the issuance of a
senior security. In addition to the foregoing, the Leveraged Growth Fund may
borrow for investment purposes as set forth elsewhere in the Prospectus and
Statement of Additional Information;
(2) Make loans of money or securities, except the Fund may (a) purchase
debt obligations in accordance with its investment objectives and policies, (b)
lend its portfolio securities (up to 33% of the value of its total assets) as
permitted under the Investment Company Act of 1940, as amended, and (c) invest
in repurchase agreements (but repurchase agreements having a maturity of longer
than 7 days, together with illiquid assets, are limited to 10% of the Fund's
total assets);
(3) Purchase or sell commodities or commodity contracts, real estate or
other interests in real estate except that the Fund may: invest in (a)
securities secured by real estate, securities of companies which invest or deal
in real estate; and (b) futures contracts and options thereon (subject to number
4, below); and
(4) Write, purchase or sell puts, calls or combinations thereof, or
purchase or sell futures contracts or related options, except that, with respect
to the Flexible Bond Fund and the Asset Allocation Fund pertaining to U.S.
Government Securities, all Funds except the Flexible Bond Fund pertaining to
stocks and stock indices and the Asset Allocation Fund pertaining to commodities
and currencies related to its portfolio securities, the Fund may: (a) purchase
put and call options: (b) write covered put and call options provided that the
aggregate value of the obligations underlying the put options will not exceed
50% of the net assets: (c) purchase and sell futures contracts; and (d) purchase
options on futures contracts and sell covered options thereon, provided that the
aggregate premiums paid on all such options which are held at any time do not
exceed 20% of the Fund's net assets and the aggregate margin deposits required
on all such futures contracts or options thereon held at any time do not exceed
5% of the Fund's total assets.
(5) Invest more than 25% of the Fund's total assets in the securities of
any one investment company, except as part of a merger, consolidation of other
acquisition.
In order to qualify the Funds' shares for sale in certain state(s), the Funds
have agreed that real estate limited partnership interests shall be restricted
as though they were listed among the investments in restriction number (3),
above. Other fundamental investment restrictions are listed in the Statement of
Additional Information.
HOW TO BUY SHARES
There are no sales commissions charged to investors, which means that 100% of
investors' money is used to buy shares. Assistance in opening accounts and
Account Application Forms may be obtained from the Trust by calling toll-free,
1-800-423-4893, or by writing to the address shown on the cover. Payment for
shares purchased should accompany the Account Application or purchase order as
described herein. Your investment will purchase shares at the Fund's net asset
value next determined after your order is received by the Transfer Agent in
proper order and accepted by the Fund as indicated herein. All applications to
purchase shares are subject to acceptance or rejection by authorized officers of
the Fund and are not binding until accepted. The minimum initial investment in
each Fund is $2,000 and payment must be made by check or money order drawn on a
U.S. bank and payable in U.S. dollars. The Transfer Agent will charge a $20 fee,
in addition to any loss sustained by the Fund, against any shareholder account
whose check is returned as NSF (non-sufficient funds). It is the policy of the
Funds not to accept applications under circumstances or in amounts considered
disadvantageous to shareholders; for example, if an individual previously tried
to purchase shares with a bad check, or the proper social security or tax
identification number is omitted, the Fund reserves the right not to accept
future applications from such individual. The Fund reserves the right to reject
any application which does not include a certified social security or tax
identification number. All orders received by the Transfer Agent, whether by
mail or bank wire, prior to the close of trading (currently 4:00 p.m. New York
time) on the New York Stock Exchange (the "Exchange") will purchase shares at
the net asset value determined as of that business day's close of trading.
Otherwise, your order will purchase shares as of the next business day. See "How
Net Asset Value is Determined", page 22. Orders may also be placed through a
broker-dealer, who may charge you a fee for its services. The Funds do not
<PAGE>
consider the U. S. Postal Service or other independent delivery services to be
its agents. Therefore, deposit in the mail or with such services, or receipt at
Firstar Trust Company's post office box, of purchase applications or redemption
requests does not constitute receipt by Firstar Trust Company or the Fund.
Due to Internal Revenue Service ("IRS") regulations, applications without social
security or tax identification numbers will not be accepted unless you have
applied for a social security or tax identification number and the application
so indicates. The Trust is required to withhold taxes on all distributions and
redemption proceeds if the number is not subsequently delivered to the Trust
within 60 days.
REGULAR MAIL ORDERS
Please complete and sign the Account Application form accompanying this
Prospectus. Be sure to indicate in which Fund(s) you wish your investment to buy
shares, and make your check ($2,000 minimum) payable to that Fund. The
application and your check should be mailed to:
Merriman Mutual Funds
c/o Firstar Trust Company
Mutual Fund Services, 3rd Floor
PO Box 701
Milwaukee, Wisconsin 53201-0701
The foregoing address should also be used for all written shareholder
communication to the Transfer Agent unless the shareholder is using an express
or overnight delivery service, as described below.
EXPRESS OR OVERNIGHT DELIVERY ORDERS
Overnight and express delivery services do not deliver to Post Office boxes. To
insure prompt delivery, therefore, please follow the instructions for regular
mail orders, but use the following address to insure prompt delivery:
Merriman Mutual Funds
c/o Firstar Trust Company
Mutual Fund Services, 3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202
BANK WIRE ORDERS
Investments can be made directly by bank wire. To establish a new account or add
to an existing account by wire, please call Firstar Trust Co., 1-800-224-4743,
BEFORE WIRING FUNDS, to advise them of the investment, the dollar amount and the
account registration. This will insure prompt and accurate handling of your
investment. Please use the following wiring instructions to purchase by wire:
Wire to: Firstar National Bank
777 E. Wisconsin Avenue, Milwaukee, WI 53202
ABA Number 0750-00022
Credit: Firstar Trust Company
Account No. 112-952-137
Further Credit: (Fund Name)
(Shareholder Account Number)
(Shareholder Name/Registration)
It is important that the wire contain all the information and that Firstar Trust
Company receive prior telephone notification to ensure proper credit.
RETIREMENT ACCOUNT ORDERS
Individual Retirement Accounts, corporate or self-employed retirement plans and
Systematic Withdrawal Plans generally require special or supplementary
application forms to open accounts. Please call the Trust for details at
1-800-423-4893.
AUTOMATIC INVESTMENT PLAN
If you wish to invest fixed dollar amounts in the Fund every month, you can make
automatic purchases in amounts of $100 or more, by using the Fund's Automatic
Investment Plan. Under the Automatic Investment Plan, your designated bank or
other financial institution debits a pre-authorized amount to your account on a
business day of your choosing and applies the amount to the purchase of Fund
shares. There is no service fee for participating in this Plan. To use this
service, you must authorize the transfer of funds from your checking or NOW
account by completing the appropriate section of the new account application or
the Automatic Investment Plan application, which may be obtained from the
Transfer Agent. The Fund reserves the right to suspend, modify or terminate the
Automatic Investment Plan without notice.
The Automatic Investment Plan is designed to be a method to implement dollar
cost averaging. Dollar cost averaging is an investment approach providing for
the investment of a specific dollar amount on a regular basis, thereby
<PAGE>
precluding emotions dictating investment decisions. Dollar cost averaging does
not insure a profit nor protect against a loss.
ADDITIONAL INVESTMENTS
You may add to your account by mail or wire (minimum additional investment of
$100) at any time by purchasing shares at the then current net asset value as
aforementioned. Before adding funds by bank wire, it is advisable to call the
Transfer Agent, Firstar Trust Co., 1-800-224-4743, to alert them that your wire
is to be sent. Follow the wire instructions above to send your wire. When
calling for any reason, please have the name of the Fund and your account number
ready, if known. Mail orders should include, when possible, the "Invest by Mail"
stub which is attached to your Fund confirmation statement. Otherwise, be sure
to identify the Fund and your account in your letter.
STOCK CERTIFICATES
Certificates will not be issued for your shares unless you request them. In
order to facilitate redemptions and transfers, most shareholders elect not to
receive certificates. If you lose a certificate, you may incur delay and expense
in replacing it.
HOW NET ASSET VALUE IS DETERMINED
The Net Asset Value of each Fund is determined on each day that the New York
Stock Exchange (the "Exchange") is open for trading, as of the close of the
Exchange (currently 4:00 p.m., New York time). Net asset value per share is
determined by dividing the total value of all Fund securities (valued at market
value) and other assets, less liabilities, by the total number of shares then
outstanding. See the Statement of Additional Information for details concerning
determination of net asset value.
HOW TO SELL SHARES
Shares may be redeemed (sold) by mail or telephone. Any redemption may be more
or less than the purchase price of your shares depending on the market value of
the Fund's portfolio securities. All redemption orders received in proper form,
as indicated herein, by the Transfer Agent, whether by mail or telephone, prior
to the close of trading on the New York Stock Exchange (currently 4:00 p.m. New
York time) will redeem shares at the net asset value determined as of that
business day's close of trading. Otherwise, your order will redeem shares as of
the next business day. You may also redeem your shares through a broker-dealer
who may charge you a fee for its services.
The Funds expect normally to make all redemptions in cash. Circumstances could
arise, however, under which a Fund may wish to make redemptions in kind. In such
case, an in-kind redemption would only be made in readily marketable securities,
which may cause the shareholder to incur brokerage fees upon disposition of such
securities. See the Statement of Additional Information, "Redemptions in Kind",
for further information.
The Board of Trustees reserves the right to redeem any account having a net
asset value of less than $2,000 (due to redemptions, exchanges or transfers, and
not due to market action) upon 60 days' written notice. If the shareholder
brings his account net asset value up to $2,000 or more during the notice
period, the account will not be redeemed. Redemptions from retirement plans for
which Firstar Trust Co. serves as Custodian may be subject to tax withholding.
See "Individual Retirement Accounts ("IRA") and Other Retirement Plans", page
26, for details.
If you are uncertain of the requirements for redemption, please contact the
Transfer Agent, at 1-800-224-4743, or write to the address shown below.
REGULAR MAIL REDEMPTIONS
Your request should be addressed to Merriman Mutual Funds, c/o Firstar Trust
Co., PO Box 701, Milwaukee, Wisconsin 53201-0701. Your request for redemption
must include:
(a) your share certificates, if issued;
(b) your letter of instruction or a stock assignment specifying the Fund from
which shares are to be redeemed, the account number, and the number of shares
or dollar amount to be redeemed. This request must be signed by all registered
shareholders in the exact names in which they are registered;
(c) any required signature guarantees (see "Signature Guarantees" page 24); and
(d) other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension or
profit sharing plans, and other organizations.
Your redemption proceeds will be mailed to you, typically, within one or two
business days, but no later than seven days after receipt of your redemption
request. However, payments to investors redeeming shares which were purchased by
<PAGE>
check will not be made until the Trust can verify that the payment(s) for the
purchase has been, or will be collected. It will normally take up to three days
to clear local personal or corporate checks and up to seven days to clear other
personal or corporate checks. A Fund may suspend the right of redemption or
postpone the date at times when the New York Stock Exchange is closed, or under
any emergency circumstances as may be determined by the Securities and Exchange
Commission.
EXPRESS OR OVERNIGHT MAIL REDEMPTIONS
Overnight and express mail services do not deliver to Post Office boxes. To
insure prompt delivery, please follow the instructions for regular mail
redemptions, but use the following address to insure prompt delivery:
Merriman Mutual Funds
c/o Firstar Trust Company
Mutual Fund Services, 3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202
TELEPHONE AND BANK WIRE REDEMPTIONS
AUTHORIZING THE TELEPHONE REDEMPTION PRIVILEGE. You must activate this privilege
in advance, in writing, in order to use it. By activating this privilege, you
authorize the Transfer Agent to act upon any telephone instructions it believes
to be genuine, to (1) redeem shares from your account and (2) to mail or wire
the redemption proceeds. Your written activation request will specify the
person(s), bank, account number and/or address to receive your redemption
proceeds. You may activate this privilege when completing your initial Account
Application. But once your account has been opened you must use a separate
Telephone Redemption Authorization Form (available from the Transfer Agent) to
activate the privilege or to change the person(s), bank, account number and/or
address designated to receive your redemption proceeds. Each shareholder must
sign the Telephone Redemption Authorization Form with signature(s) guaranteed
(see "Signature Guarantees," below). Further documentation may be requested from
corporations, executors, administrators, trustees and guardians. There is no
charge for establishing or using this privilege. You may cancel the privilege at
any time by telephone or letter.
USING THE TELEPHONE REDEMPTION PRIVILEGE. Once you have authorized the Telephone
Redemption Privilege, you may redeem shares by calling the Transfer Agent at
1-800-224-4743. The Fund and its Agents will employ reasonable procedures to
confirm the identity of shareholders using the privilege and a written
confirmation of the transaction will be sent to the shareholder's address of
record. When you call to redeem shares, you will be asked how many shares, or
dollars worth of shares, you wish to redeem, to whom you wish the proceeds to be
sent, and whether the proceeds are to be mailed or wired. To protect you, your
redemption proceeds will only be sent to you at your address of record or to the
bank account or person(s) specified in your Account Application or Telephone
Authorization Form currently on file with the Transfer Agent. If you choose to
have the proceeds wired, the Transfer Agent will charge your account $10 to pay
for the wire transfer cost.
TELEPHONE REDEMPTION FACTORS TO CONSIDER. Redeeming by Telephone is a convenient
service enjoyed by many shareholders. There are important factors to consider
before activating the privilege, however. The Funds and the Transfer Agent
believe that the foregoing procedures it has established for telephone
redemptions reasonably protect shareholders from fraudulent transactions.
Shareholders should be aware of the Funds' policy that the investor who chooses
to activate the telephone redemption privilege bears the risk of loss in the
event of fraudulent use. Despite the procedures employed to prevent fraud, it
may be impossible to detect. Neither the Transfer Agent nor the Funds will be
responsible for the authenticity of redemption instructions received by
telephone. The Trust reserves the right to restrict or cancel telephone
redemption privileges, or to modify the telephone redemption procedures, for any
shareholder or all shareholders, without notice, if the Trustees believe it to
be in the best interest of the shareholders to do so. Shareholders would be
given at least 60 days written notice prior to changing the fees imposed with
respect to telephone redemptions and wires.
You cannot redeem shares by telephone if you hold the stock certificates
representing the shares you are redeeming or if you paid for the shares with a
personal, corporate, or government check and your payment has been on the
Transfer Agent's books for less than 15 days. During drastic economic and market
changes, telephone redemption services may be difficult to implement. If an
investor is unable to contact the Transfer Agent by telephone, shares may also
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be redeemed by delivering the redemption request to the transfer agent in person
or by mail as described under "How to Sell Shares," above.
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect you, the Funds and the
Transfer Agent from fraud, and to be certain that you are the person who has
authorized a redemption from your account. Signature guarantees are required for
(1) all mail order redemptions, (2) change of registration requests, and (3)
requests to establish or change exchange privileges or telephone redemption
service other than through your initial account application. The Funds reserve
the right to require a signature guarantee under other circumstances. The Funds
will honor signature guarantees from acceptable financial institutions such as
banks, savings and loan associations, trust companies, credit unions, brokers
and dealers, registered securities associations and clearing agencies. A
signature guarantee may not be provided by a notary public. The signature
guarantee must appear either (a) on the written request for redemption, or (b)
on a separate instrument of assignment ("stock power") which should specify the
total number of shares to be redeemed, or (c) on all stock certificates tendered
for redemption and, if shares held for you by the Transfer Agent are also being
redeemed, on the letter or stock power.
EXCHANGE PRIVILEGE
Shareholders may exchange shares (in amounts worth $1,000 or more) of one
Merriman Fund for shares of any other Merriman Fund or of three money market
funds: the Portico U.S. Government Money Market Fund, the Portico Money Market
Fund and the Portico Tax-Exempt Money Market Fund. To make a telephone exchange,
the Exchange Privilege Authorization option must have been selected on the
Account Application form when the account was opened. Otherwise an Exchange
Privilege Application form must be completed with signature(s) guaranteed and
sent to the Transfer Agent prior to making telephone exchanges. The Transfer
Agent will charge your account a $5.00 exchange fee every time you use the
telephone to make an exchange. To make an exchange, simply call the Transfer
Agent at 1-800-224-4743 prior to 4:00 p.m. Eastern Time. Your exchange will take
effect as of the next determination of net asset value per share of each fund
involved (usually at the close of business on the same day). Once an exchange
request is made, either in writing or by telephone, it may not be modified or
canceled. Further information about the Portico Funds and the necessary
authorization forms are available by calling the Transfer Agent at
1-800-224-4743, or by writing to Firstar Trust Co., Mutual Fund Services - 3rd
Floor, PO Box 701, Milwaukee, Wisconsin 53201-0701. The Trust reserves the right
to limit the number of exchanges or to otherwise prohibit or restrict
shareholders from making exchanges at any time, without notice to shareholders,
should the Trustees determine that it would be in the best interest of our
shareholders to do so. Shareholders would be given at least 60 days written
notice prior to changing the fee for an exchange. An exchange, for tax purposes,
constitutes the sale of the shares of one fund and the purchase of those of
another; consequently, the sale will usually involve either a capital gain or
loss to the shareholder for Federal income tax purposes. During drastic economic
and market changes, telephone exchange services may be difficult to implement.
The exchange privilege is only available in states where the exchange may
legally be made.
The Portico funds made available to Merriman Fund shareholders under this
Exchange Privilege are not affiliated with the Merriman Funds or the Investment
Manager, but are made available as a convenience to Merriman Fund shareholders
desiring to invest a portion of their assets in money market instruments. The
Investment Manager has entered into a Servicing Agreement with Portico Funds,
Inc. whereby the Investment Manager receives 2/10 of 1% of the average daily net
value of shares of any fund offered by Portico Funds, Inc. which are
beneficially owned by shareholders of the Merriman Funds in return for providing
support services to said shareholders on behalf of Portico.
OTHER SHAREHOLDER SERVICES
SYSTEMATIC WITHDRAWAL PLAN provides for regular monthly or quarterly checks to
be sent to you (or your designee). Shareholders owning shares of any Merriman
Fund with a value of $10,000 or more may establish a Systematic Withdrawal Plan.
A shareholder may receive monthly or quarterly payments, in amounts of not less
than $50 per payment, by authorizing the Transfer Agent to redeem the necessary
number of shares either monthly or quarterly in order to make the payments
requested. Share certificates for the shares being redeemed must be held for you
by the Transfer Agent. If the recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees"). Corporations or other legal entities
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should call the Transfer Agent for special instructions. There is no charge for
the use of this plan. Shareholders should be aware that such systematic
withdrawals could deplete or use up entirely the initial investment and may
result in realized long-term or short-term capital gains or losses. The
Systematic Withdrawal Plan may be terminated at any time by the Trust upon 60
days written notice or by a shareholder upon written notice to the Transfer
Agent. An application may be obtained from the Transfer Agent by telephone at
1-800-224-4743. A signature guarantee is required to convert an existing account
to systematic withdrawal.
INDIVIDUAL RETIREMENT ACCOUNTS ("IRA") AND OTHER RETIREMENT PLANS, including
Simplified Employee Pension-Individual Retirement Accounts ("SEP-IRA") and
Savings Incentive Match Plans ("SIMPLE") are furnished to enable shareholders
and employers to set aside tax-deferred investments in Merriman Funds. There is
no charge to establish an IRA with the Merriman Fund. A $12.50 annual
maintenance fee per account is charged by Firstar Trust Co., who acts as IRA
Custodian. A $15 fee applies for each transfer to a Successor Custodian, each
distribution to a participant and for each refund of an excess contribution.
Shareholders who have an IRA or other retirement plan must indicate on their
redemption request whether or not to withhold Federal income tax. Redemption
requests must indicate an election not to have Federal tax withheld or they will
be subject to withholding. If you are uncertain of the redemption requirements,
please contact Firstar Trust Company in advance at 1-800-224-4743. In addition
to the plans mentioned above, Fund accounts may also be opened by all kinds of
tax-deferred retirement plans. For assistance in opening or establishing
tax-deferred retirement accounts, please call the Trust at 1-800-423-4893. Trust
personnel will be happy to assist investors in establishing tax-deferred plans,
including those which permit investments in vehicles other than the Merriman
Funds.
TOLL-FREE INFORMATION LINES are staffed during business hours for your
convenience. Friendly, experienced personnel answer your questions, solve
problems and provide current price quotes. The numbers are:
Information about opening accounts, retirement plans, requests for prospectuses
and account applications (11 a.m. to 8 p.m. Eastern Time) 1-800-423-4893;
Information about existing accounts, telephone exchanges and redemptions,
assistance with investing by wire (9 am to 8 pm Eastern Time) 1-800-224-4743.
SHAREHOLDER FEES CHARGED BY TRANSFER AGENT. All fees disclosed in the Prospectus
which are charged to shareholders by the Transfer Agent are subject to change at
any time. Shareholders will be notified in writing at least 60 days prior to
putting any new or increased fee into effect. In addition to the fees disclosed
elsewhere in the Prospectus, the Transfer Agent charges $20 for any Stop Payment
(of a liquidation or distribution check) ordered by a Shareholder. Also, for
account history research of transactions or other items which occurred in or
previous to the second calendar year previous to the date of the request, the
Transfer Agent charges a fee of $5 per research item.
DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Dividends are paid to shareholders from net investment income, if any,
quarterly. The fiscal year end of each Fund is September 30. The Funds will also
distribute net realized capital gains, including short-term gains, if any,
during November or December.
All dividend and capital gain distributions are automatically reinvested in
additional shares of the Fund at the then current net asset value, except that,
by notifying the Trust or by indicating on the Account Application Form, a
shareholder may choose to receive dividend distributions and/or capital gain
distributions in cash. Dividends and capital gains distributions are paid in
cash or reinvested as of the "ex-date", which is normally the day following the
record date. With respect to cash distributions, shareholders can authorize
another person or entity to receive such distributions. The name and address of
the intended recipient should be clearly indicated in the Account Application
Form or on a signed statement accompanying the Application Form.
Dividends and distributions are paid on a per-share basis. At the time of such a
payment, therefore, the value of each share will be reduced by the amount of the
payment. Keep in mind that if you purchase shares shortly before the payment of
a dividend or the distribution of capital gains, you will pay the full price for
the shares and then receive some portion of the price back as a taxable dividend
or distribution.
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TAX STATUS OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund intends to comply with the provisions of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies so that it will not be
liable for federal income tax with respect to amounts distributed to
shareholders. The Funds intend to distribute all of their investment company
taxable income and their net capital gain to shareholders, who may be
proportionately liable for taxes thereon. Shareholders not subject to tax on
their income will not be required to pay taxes on the amounts distributed to
them.
Net investment income will be distributed to shareholders as dividends. Such
dividends, along with any short-term capital gains distributed, will be taxable
to shareholders (except IRA's, Keogh Plans, Simplified Employee Pension Plans
and corporate retirement plans) as ordinary income, whether received in cash or
invested in additional Fund shares. Investors should refer to the Statement of
Additional Information, which contains additional information about dividends,
distributions and taxes.
Borrowing by the Leveraged Growth Fund may cause some of its portfolio
securities to be treated as "debt-financed" and dividends paid to corporate
shareholders from earnings on such securities to be ineligible for the 70%
dividends-received deduction which might otherwise be available to corporate
shareholders. See the Statement of Additional Information, "Additional Tax
Information," for further information.
Federal law requires that the Funds withhold 31% of reportable payments (which
may include dividends, capital gains distributions, and redemptions) paid to
certain shareholders who have not complied with Internal Revenue Service
regulations. Therefore, you will be asked to certify on your application that
the social security or tax identification number you provide is correct and that
you are not subject to backup withholding for previous under-reporting to the
IRS. If you do not have a social security number, you should indicate on the
purchase form that an application to obtain a number is pending. The Fund is
required to withhold taxes if a number is not subsequently delivered to the Fund
within the time period prescribed by Federal tax regulations.
Shareholders will receive federal tax information regarding dividends and
capital gains distributions after the end of each year. Dividends and capital
gains distributions may also be subject to state and local taxes. Shareholders
are urged to consult their attorneys or tax advisers regarding specific
questions as to Federal, state or local taxes.
For Federal income tax purposes, exchanges and redemptions are taxable events,
and accordingly, capital gains or losses may be realized. In addition to Federal
taxes, you may be subject to state taxes on your dividends and distributions,
depending on the laws of your home state.
Income (including dividends and distributions of short-term capital gains)
received by a Fund from mutual funds in the Fund's portfolio, as well as any
interest received on money market instruments and net short-term capital gains
received by the Fund on the sale of portfolio securities (including mutual
funds), will be distributed by the Fund and will be taxable to shareholders at
ordinary income tax rates. The Fund may be expected to realize short-term gains
from the sale of mutual fund securities held in its portfolio. Investors in the
Fund may experience a greater tax liability than would result if they invested
directly in the underlying mutual funds.
Distributions of long-term capital gains received by a Fund from mutual funds,
as well as net long-term capital gains realized by a Fund from the purchase and
sale (or redemption) of mutual fund shares or other securities held by a Fund
for more than one year, will be distributed by the Fund and will be taxable to
shareholders as long-term capital gains (even if the shareholder has held the
shares for less than six months). However, if a shareholder who has received a
capital gains distribution suffers a loss on the sale of his shares not more
than six months after purchase, the loss will be treated as a long-term capital
loss to the extent of the capital gains distribution received.
For purposes of determining the character of income received by a Fund when an
underlying fund distributes long-term capital gains to the Fund, the Fund will
treat the distribution as a long-term capital gain, even if it has held shares
of the mutual fund for less than one year. However, any loss incurred by the
Fund on the sale of that underlying fund's shares after holding them for less
than six months will be treated as a long-term capital loss to the extent of the
gain distribution.
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MANAGEMENT
GENERAL INFORMATION
Merriman Investment Trust (the "Trust") is an open-end diversified management
investment company commonly known as a "mutual fund". Organized in 1987 as a
Massachusetts Business Trust, it is a "series" company, which means it may offer
a choice of series or portfolios ("Funds"). Capital of the Trust consists of an
unlimited number of no par shares of beneficial interest ("shares") which may be
classified or reclassified by the Board of Trustees among the Funds or to any
new Funds as they deem appropriate. Currently the Trustees have authorized the
Flexible Bond Fund, the Growth & Income Fund, the Capital Appreciation Fund, the
Asset Allocation Fund and the Leveraged Growth Fund as described herein and have
authorized an unlimited number of shares of each Fund which may be sold to the
public. Each Fund so created is governed by the Investment Company Act of 1940,
as amended, and rules thereunder and is preferred over all other Funds with
respect to assets allocated to such Fund. Shares are issued fully paid and
non-assessable and each share represents an equal proportionate interest in its
particular Fund with every other share of that Fund outstanding. Each share of
each Fund has no preference as to conversion, dividends or interest and has no
preemptive rights. Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See the Statement of Additional Information
for additional information.
OPERATIONS
THE INVESTMENT MANAGER. The Trust's operations are conducted under the general
direction of the Board of Trustees. The Trust has employed Merriman Investment
Management Co. as Investment Manager for the Funds. The Investment Manager
provides continuous management of each Fund's investment portfolio, is
responsible for overall management of the Trust's business affairs (subject, of
course, to the supervision of the Trustees), provides certain of the Trust's
executive officers, and supplies office space and equipment not otherwise
provided by the Trust.
Paul A. Merriman, the President and Chief Executive Officer of the Investment
Manager, has had twenty years of experience as a business executive and was
first licensed in the securities industry in 1966. He is also founder and
President of Paul A. Merriman & Associates, Inc., an investment advisory firm
affiliated with the Investment Manager from which the Funds will be obtaining
market timing recommendations. Mr. Merriman is the principal officer responsible
for the operation of the computerized technical market timing disciplines
("models") employed by the Funds. His experience includes all of the investment
techniques which will be employed by the Funds.
Mr. William L. Notaro, Executive Vice President and Chief Operating Officer of
the Investment Manager, has been primarily responsible for implementing the
Funds' portfolio purchases and sales in response to market timing signals
generated by the computerized market timing models. He has also been responsible
for the day-to-day management of the Funds' operations since each Fund's
inception. An investment adviser who has had extensive executive and operational
experience in the securities field, Mr. Notaro is a skilled securities market
technician and has been engaged in the design and analysis of technically
oriented money management systems since 1980. He also has extensive securities
trading, execution and clearance experience.
The Investment Manger's address and phone number is the same as the Trust's.
Compensation of the Investment Manager for the fiscal year ended September 30,
1996, based upon each Fund's daily average net assets, was 1.00% for the
Flexible Bond Fund, 1.25% for the Growth & Income Fund, 1.25% for the Capital
Appreciation Fund, 1.25% for the Asset Allocation Fund and 1.25% for the
Leveraged Growth Fund. The advisory fee is higher than that incurred by most
investment companies. Investment Management fees are accrued daily on the books
of each Fund and are paid monthly.
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OTHER FUND COSTS. In addition to paying the Investment Manager, each Fund pays
all its expenses not assumed by the Investment Manager. Expenses which apply
only to one Fund such as, for example, a Fund's Investment Management Fee, are
borne by that Fund to which the expense applies. Expenses which apply to more
than one Fund, such as the cost of Board of Trustees' meetings, are allocated
among the Funds in a fair and equitable manner in accordance with policies
determined from time to time by the Trustees. Each Fund is also liable for any
non-recurring expenses as may arise such as litigation to which the Fund may be
a party. The Fund may be obligated to indemnify the Trustees and officers with
respect to such litigation. All expenses of the Funds are accrued daily on the
books of each Fund at a rate which, to the best of the Investment Manager's
belief, is equal to the actual expenses expected to be incurred by the Fund in
accordance with generally accepted accounting practices. For the fiscal year
ended September 30, 1996, the total expenses of each Fund (as a percent of
average net assets) were 1.49%, 1.77%, 1.84%, 1.82% and 3.70%, respectively, for
the Flexible Bond Fund, Growth & Income Fund, Capital Appreciation Fund, Asset
Allocation Fund and Leveraged Growth Fund.
SHAREHOLDER SERVICING AND CUSTODY. Firstar Trust Co., whose street address is
615 E. Michigan Street, Milwaukee, WI 53202, serves as the Trust's Transfer and
Dividend Paying Agent (Shareholder Services Agent) and Custodian, and provides
the Trust with certain accounting and record keeping services. Firstar's mailing
address is PO Box 701, Milwaukee, WI 53201-0701.
BROKERAGE POLICIES. Securities transactions are effected through broker-dealers
selected by the Investment Manager, with the view to obtaining the best price
and execution. Within this guideline, the Investment Manager is permitted to
prefer brokers who sell or recommend Fund shares to their clients, or who
provide the Investment Manger with research services, such as statistical
reports, technical and fundamental analyses, computer services, software and
support, and quotation and other services helpful to the management of the
Funds. Such research services, even though obtained through one Fund's brokerage
transactions, may also benefit other Funds or clients of affiliates of the
Investment Manager. Conversely, such services resulting from brokerage
transactions of the Investment Manager's other clients or affiliates may also
benefit the Funds.
VOTING AND OTHER. Each outstanding share, of whatever Fund, is entitled to one
vote for each full share of stock and a fractional vote for each fractional
share of stock, on all matters which concern the Trust as a whole. On any matter
submitted to a vote of shareholders, all shares of the Trust then issued and
outstanding and entitled to vote, irrespective of the Fund, shall be voted in
the aggregate and not by Fund; except (i) when required by the Investment
Company Act of 1940, as amended, shares shall be voted by individual Fund; and
(ii) when the matter does not affect any interest of a particular Fund, then
only shareholders of the affected Fund or Funds shall be entitled to vote
thereon. Examples of matters which affect only a particular Fund could be a
proposed change in the fundamental investment objectives of that Fund or
approval of the investment management agreement. The shares of the Funds will
have non-cumulative rights, which means that the holders of more than 50% of the
shares voting for the election of trustees can elect all of the trustees if they
choose so. The Declaration of Trust provides that, if elected, the Trustees will
hold office for the life of the Trust, except that: (1) any Trustee may resign
or retire; (2) any Trustee may be removed with or without cause at any time: (a)
by a written instrument, signed by at least two-thirds of the number of Trustees
prior to such removal; (b) by vote of shareholders holding not less than
two-thirds of the outstanding shares of the Trust, cast in person or by proxy at
a meeting called for that purpose; or (c) by a written declaration signed by
shareholders holding not less than two-thirds of the outstanding shares of the
Trust and filed with the Trust's custodian. In case a vacancy or an anticipated
vacancy shall for any reason exist, the vacancy shall be filled by the
affirmative vote of a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act. Otherwise there will normally be no
meeting of shareholders for the purpose of electing Trustees, and none of the
Funds are expected to have an annual meeting of shareholders.
CALCULATION OF PERFORMANCE DATA
From time to time the Funds may advertise their total return. Total return
figures are based on historical earnings and are not intended to indicate future
performance. The "total return" of the Funds refers to the average annual
compounded rates of return over 1, 5 and 10 year periods that would equate an
initial amount invested at the beginning of a stated period to the ending
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redeemable value of the investment. The calculation assumes the reinvestment of
all dividends and distributions, includes all recurring fees that are charged to
all shareholder accounts and deducts all non-recurring charges at the end of
each period. If the Funds have been operating less than 1, 5 or 10 years, the
time period during which the Funds have been operating is substituted.
Information about the performance of the Funds is contained in the Annual
Reports of the Funds which may be obtained without charge.
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MERRIMAN INVESTMENT TRUST MERRIMAN
1200 Westlake Avenue North FLEXIBLE BOND
Seattle, WA 98109 FUND
1-206-285-8877
INVESTMENT MANAGER MERRIMAN
Merriman Investment Management Co. GROWTH & INCOME
1200 Westlake Avenue North FUND
Seattle, WA 98109
CUSTODIAN AND MERRIMAN
TRANSFER AGENT CAPITAL APPRECIATION
Firstar Trust Co. FUND
PO Box 701
Milwaukee, WI 53201
1-800-224-4743 MERRIMAN
ASSET ALLOCATION
FUND COUNSEL FUND
Sullivan & Worcester
Boston, Massachusetts
INDEPENDENT AUDITORS NO LOAD
Tait, Weller & Baker mutual funds of the
Philadelphia, PA Merriman Investment Trust
TABLE OF CONTENTS
Synopsis 1
Synopsis of Costs and Expenses 3
Financial Highlights 4
Investment Objectives and Policies 7
Risk Factors 16
Investment Restrictions 19 PROSPECTUS
How to Buy Shares 20 January 2, 1997
How to Sell Shares 22
Exchange Privilege 25
Other Shareholder Services 25
Dividends, Capital Gain
Distributions and Taxes 26
Management 28
Calculation of Performance Data 30
STATEMENT OF ADDITIONAL INFORMATION
MERRIMAN INVESTMENT TRUST
MERRIMAN
FLEXIBLE BOND
FUND
MERRIMAN
GROWTH & INCOME
FUND
MERRIMAN
CAPITAL APPRECIATION
FUND
MERRIMAN
ASSET ALLOCATION
FUND
MERRIMAN
LEVERAGED GROWTH
FUND
1200 Westlake Avenue North
Seattle, Washington 98109
Telephone 1-800-423-4893
1-206-285-8877
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD ONLY BE
READ IN CONJUNCTION WITH THE PROSPECTUS OF THE MERRIMAN INVESTMENT TRUST DATED
JANUARY 2, 1997. THE PROSPECTUS MAY BE OBTAINED FROM THE TRUST, AT THE ADDRESS
AND PHONE SHOWN ABOVE, AT NO CHARGE.
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 STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
JANUARY 2, 1997
<PAGE>
TABLE OF CONTENTS
INTRODUCTION .............................................................. 1
INVESTMENT OBJECTIVES AND POLICIES ........................................ 1
Market Timing ..................................................... 1
Options Transactions .............................................. 2
Futures Contracts and Options on Futures Contracts ................ 4
Limitations on Options and Futures Contracts ...................... 7
Investing in Investment Companies ................................. 7
High Yield Bonds .................................................. 7
Concentration ..................................................... 8
Borrowing ......................................................... 8
Illiquid and Restricted Securities ................................ 8
Foreign Issuers and Currencies .................................... 8
Repurchase Agreements ............................................. 9
Short Selling ..................................................... 9
Warrants .......................................................... 10
Other Transactions ................................................ 10
INVESTMENT RESTRICTIONS ................................................... 10
SPECIAL SHAREHOLDER SERVICES .............................................. 12
Regular Account ................................................... 12
Systematic Withdrawal Plan ........................................ 13
Retirement Plans .................................................. 13
Exchange Privilege ................................................ 14
Redemptions in Kind ............................................... 14
Transfer of Registration .......................................... 15
PURCHASE OF SHARES ........................................................ 15
REDEMPTION OF SHARES ...................................................... 15
NET ASSET VALUE DETERMINATION ............................................. 16
Valuation of Exchange-Traded Options and Futures Contracts ........ 16
TRUSTEES AND OFFICERS ..................................................... 17
5% SHAREHOLDERS ........................................................... 18
INVESTMENT MANAGER ........................................................ 18
MANAGEMENT AND OTHER SERVICES ............................................. 19
ALLOCATION OF TRUST EXPENSES .............................................. 20
BROKERAGE ................................................................. 20
ADDITIONAL TAX INFORMATION ................................................ 21
CAPITAL STOCK AND VOTING .................................................. 22
FINANCIAL STATEMENTS AND REPORTS .......................................... 22
CALCULATION OF PERFORMANCE DATA ........................................... 23
APPENDIX .................................................................. 24
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INTRODUCTION
The Statement of Additional Information is designed to be read in
conjunction with the Prospectus, which is incorporated in its entirety herein.
Definitions used in the Prospectus have the same meaning herein.
Merriman Investment Trust (the "Trust"), a Massachusetts business trust,
is a professionally managed, open-end, diversified, series investment company.
The Trust is designed to provide an opportunity for investors to pool their
money to achieve economies of scale and diversification. The Trust currently
issues shares of five series or portfolios ("Funds"), and the Board of Trustees
may establish additional portfolios at any time. The Merriman Flexible Bond Fund
(the "Flexible Bond Fund"), the Merriman Growth & Income Fund (the "Growth &
Income Fund"), the Merriman Capital Appreciation Fund (the "Capital Appreciation
Fund"), the Merriman Asset Allocation Fund (the "Asset Allocation Fund") and the
Merriman Leveraged Growth Fund (the "Leveraged Growth Fund") are the five funds
currently offered by the Trust. Shareholders of the Flexible Bond Fund approved
a change in its fundamental policies on December 16, 1992. Prior to that date
the name of the Fund was Merriman Government Fund. Shareholders of the Growth &
Income Fund approved a change in its fundamental policies on December 15, 1993.
Prior to that date the name of the Fund was Merriman Blue Chip Fund.
INVESTMENT OBJECTIVES AND POLICIES
The Funds are designed for long-term investors, including those who wish
to use shares as a funding vehicle for tax-deferred retirement plans, and not
for investors who intend to liquidate their investments after a short period of
time. The objectives of each Fund and strategies with respect to the composition
of its investment portfolio, as described in the prospectus and in further
detail herein, may be changed by the Board of Trustees without approval of
shareholders, unless otherwise noted. Shareholders would be given at least 60
days written notice prior to implementation, however, should any material change
be adopted.
MARKET TIMING
The Investment Manager intends to utilize, primarily, the Merriman Bond
Switch Model (the "Bond Model") to time fixed income portfolio transactions, and
the Merriman Equity Switch Model ("Equity Model"), the Merriman International
Fund Switch Model (the "International Model") and the Merriman Gold Switch Model
(the "Gold Model") to time equity portfolio transactions. The Models are
proprietary products of Paul A. Merriman & Associates, Inc. ("PM&A"), General
Partner of the Investment Manager and controlled by Paul A. Merriman, President
and Trustee of the Trust. Use of the Models by the Investment Manager is in
accordance with license agreements renewable by the Investment Manager for terms
ending in the year 2018. The Bond, Equity and Gold Models have been utilized by
PM&A since August, 1983, and the International Model since January, 1988, to
manage investments for PM&A's clients. Prior to their use, they were
"back-tested" with over ten years of historical data in order to establish their
economic viability.
Although the Investment Manager plans to rely on the Models as its
primary market timing tool for the Funds, the Funds have not adopted policies
requiring such use and the Investment Manager may utilize other timing models or
strategies with or in place of the Models. Under the license agreements, PM&A is
granted similar flexibility. The Investment Manager believes that, by using such
market timing techniques, superior returns are possible over the long-term by
protecting Fund assets from the risk of declining markets. No assurance can be
provided, however, that either the Models or the Investment Manager will be
correct in their expectations of market trends.
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OPTIONS TRANSACTIONS
The Funds may engage in options transactions as described herein and in
the Prospectus. An option is a legal contract giving the purchaser the right to
buy (in the case of a call) or sell (in the case of a put) a specified amount of
a specified security at the specified price at any time before the option
expires. In return for a premium paid to a writer ("seller") of a call the
purchaser obtains the right to purchase the underlying security. The buyer of a
put obtains in return for a premium, the right to sell a specified security to a
writer of the put. Listed options are traded on national securities exchanges
that maintain a continuous market enabling holders or writers to close out their
positions by offsetting sales and purchases. The premium paid to an option
writer is a non-refundable payment for the rights conveyed by the option. A put
or call that is not sold or exercised prior to its expiration becomes worthless.
In addition, there is no assurance that a liquid market will exist on a given
exchange in order for an option position to be closed out, and, if trading is
halted in an underlying security, the trading of options on that security is
usually halted as well. In the event that an option cannot be traded, the only
alternatives to the holder of the option are to exercise it or allow it to
expire.
The Funds may purchase options and may write (sell) "covered" options
which are traded on a domestic securities or commodities exchange or quoted on
the NASDAQ automated quotation system ("exchange-traded options"). The Flexible
Bond, Growth & Income and Asset Allocation Funds may enter into options on U.S.
Government Securities and options on Futures Contracts on U.S. Government
Securities. The Growth & Income, Capital Appreciation, Asset Allocation and
Leveraged Growth Funds may engage in options transactions which relate to (a)
securities held in the Funds' portfolio (b) Stock Indices and (c) Stock Index
futures contracts (whether or not such stock index futures contracts are held in
a Fund's portfolio). In addition, the Asset Allocation Fund, in order to hedge
assets held in its foreign and gold segments, may (i) enter into appropriate
options, futures contracts and options on futures, such as gold and silver
commodities indices and currency indices and may (ii) engage in foreign currency
transactions (but only to protect the value of a foreign security in its
portfolio between the time of placing a firm order for the sale or purchase of
such security and the time of settling such order. A "Stock Index" as referred
to herein means the Dow Jones Industrial Average (the "Dow"), the Standard &
Poor's Index of 500 Stocks ("S & P 500"), the Standard & Poor's Index of 100
Stocks ("S & P 100"), the Major Market Index or the Value Line Index.
Exchange-traded options are issued by the Options Clearing Corporation ("OCC")
which, in effect, guarantees every exchange-traded options transaction.
PURCHASING OPTIONS. Call options may be purchased by a Fund in response
to a buy signal from a Model as a temporary substitute for the actual purchase
of portfolio securities it intends to purchase. Later, if it is ascertained by
the Investment Manager that the market action anticipated by a Model has
actually taken place, the call options may be exercised. The Investment Manager
may also purchase call options in anticipation of Model signals, and once the
anticipated buy signal has been given, the Investment Manager may exercise the
call options. The Investment Manager believes that when call options are used in
this way, portfolio securities may be purchased at a lower cost and with less
risk than if the Investment Manager had either waited for a buy signal or
purchased securities immediately upon receipt of such a signal. If the
Investment Manager is wrong in its assumptions about market direction, the
potential loss to a Fund in purchasing put and call options is limited to the
total of premiums, commissions and transaction costs paid for the option plus,
in the case of a put option, the initial difference, if any, between the strike
price of the put and the market value of the portfolio security. The Funds may
also purchase put options in an attempt to protect the value of portfolio
securities when, in the opinion of the Investment Manager, there is a risk of a
substantial decline in value. Because holding a put grants a Fund the right to
sell the underlying security to the writer of the put at the strike price for a
specific period of time, a Fund is protected should the value of the security
decline below the strike price during the term of the put. Puts and calls may
also be purchased by a Fund to cover puts and calls it has written.
<PAGE>
WRITING OPTIONS. When a Fund writes a covered call option, it receives a
premium payment and the purchaser obtains the right to buy the underlying
securities from the Fund at a specified strike price for a specified period of
time. Thus the Fund gives up the opportunity for gains on the underlying
security (above the strike price) and retains the risk of loss so long as the
option remains open. If the price should rise, the Fund would likely be required
to sell the securities to the holder of the call at a price less than the
current market price. A Fund would normally write a call option when the price
of the securities underlying the call are expected to decline or remain stable.
When the Fund writes a covered put option, it gains a premium payment but, so
long as the option remains open, assumes an obligation to purchase the
underlying security at the strike price from the purchaser of the put, even
though the current price of the security may fall below the strike price. A Fund
would normally write a put option when the price of the securities underlying
the put are expected to rise or remain stable. If the price were to decline, the
Fund might be required to purchase the underlying securities from the holder of
the put at a price greater than the current market price. So long as the option
writer's obligation remains open, the writer may be assigned an exercise notice
through the Options Clearing Corporation. The writer would, in such case, be
required to deliver, in the case of a call, or take delivery, in the case of a
put, the underlying security against payment of the exercise price. Upon
expiration of the option, the obligation terminates. The Funds may purchase
options in closing transactions to terminate its obligations under options it
has written. A closing transaction is the purchase of an option covering the
same underlying security having the same strike price and expiration date
(assuming availability of a secondary market) as the option the Fund seeks to
"close out." Once an option is exercised, the writer may not enter into a
closing transaction. If the cost of a closing transaction, plus transaction
costs, is greater than the premium received by the Fund upon writing the
original option, the Fund will incur a loss in the transaction.
The Capital Appreciation and Leveraged Growth Funds would only write
options in the event that the Investment Manager believed it to be the most
advantageous method of hedging the Fund's portfolio. The premiums received in
writing options are retained whether or not the option is exercised. The Funds
may write "covered" put and call options only. This means that, for so long as a
Fund remains obligated as a writer of a put option, it must, (a) deposit and
maintain with its Custodian, in a segregated account, cash, U.S. Government
Securities or other liquid high-grade debt obligations having a value equal to
or greater than the specified exercise price of the option ("strike price") or,
(b) own, on a share-for-share basis, a put option on the same security with a
strike price equal to or greater than that of the put option sold (if lower, the
difference will be maintained in a segregated account as in (a) above). To be
"covered" on a call option, a Fund must, (a) own the underlying security (or
equivalent in the case of stock index options) subject to the option or must
have the absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
portfolio securities. With respect to calls written against U.S. Treasury Bills
the Flexible Bond, Growth & Income or Asset Allocation Funds may own U.S.
Treasury Bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to that of the option and a
maturity date no later than that of the securities underlying the call option),
or (b) deposit and maintain with its Custodian, in a segregated account, cash,
U.S. Government Securities or other liquid high-grade debt obligations having a
value at least equal to the fluctuating market value of the securities
underlying the call, or (c) own, on a share-for-share basis, a call on the same
security as the call written.
A call option is "covered" if the Fund owns the underlying security (or
equivalent in the case of stock index options) covered by the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds on a share-for-share
basis a call on the same security as the call written where the exercise price
of the call held is equal to or less than the exercise price of the call written
or greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other high grade, short-term
obligations in a segregated account with its custodian. A put option is
"covered" if the Fund maintains cash, Treasury bills or other high grade
<PAGE>
short-term obligations with a value equal to the exercise price in a segregated
account with its custodian, or else holds on a share-for-share basis a put on
the same security as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written.
The Funds may also write a combination of a call and a put written on
the same security at the same strike price (a "straddle"), where the same issue
of the security is used for "cover" for both the put and the call. In such case,
should the put side of the transaction be "in the money," the Fund will deposit
and maintain, in a segregated account with the Custodian, cash, U.S. Government
Securities or other high-grade debt obligations in an amount at least equal to
the amount by which the put is "in the money."
OPTIONS ON TREASURY BONDS AND NOTES. Interest in Treasury Bonds and
Notes tends to center on the most recently auctioned issues. The Exchanges,
however, will not indefinitely continue to introduce new options series with
expirations to replace expiring options on particular issues, but will likely
limit new issues to a limited number of new expirations while allowing old
expirations introduced at the commencement of options trading to run their
course. Thus, options trading on each new series of Bonds or Notes will be
phased out and there will no longer be a full range of expiration dates
available for every series on which options are traded.
OPTIONS ON TREASURY BILLS. Writers of Treasury Bill call options cannot
provide in advance for their potential exercise settlement obligations by
acquiring and holding the exact underlying security, because the deliverable
Treasury Bill changes from week to week. If a Fund holds a long position in
Treasury Bills with a principal amount corresponding to the option contract
size, however, the Fund may be hedged from a risk standpoint. In addition, the
Fund will maintain, in a segregated account with its Custodian, Treasury Bills
maturing no later than those which would be deliverable in the event of an
assignment of an exercise notice in order to ensure that it can meet its open
option obligations.
OPTIONS - SECONDARY MARKET. As stated in the prospectus, each Fund
intends to purchase or write options only if there appears to be an active
secondary market. If a Fund, as a covered call option writer, is unable to
effect a closing transaction because a liquid secondary market is not available
at the time the Fund desires to effect such a transaction, the Fund will not be
able to sell the security underlying the call option until the option expires or
the Fund delivers the underlying security upon exercise. There are several
reasons that a liquid secondary market may not exist at any given time. They
include: insufficient trading interest in certain options; restrictions on
certain transactions imposed by an Exchange; trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; interruption of the normal operations on an Exchange;
inadequate facilities of an Exchange or the OCC to handle trading volume; or a
decision by one or more Exchanges to discontinue the trading of options (or a
particular series or class of options), in which event the secondary market on
that Exchange would cease to exist, although outstanding options on that
Exchange that had been issued by OCC as a result of trades on that Exchange
would generally continue to be exercisable in accordance with their terms.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A "sale" of a futures contract means the acquisition of a contractual
obligation to deliver the securities called for by the contract at a specified
price on a specified date. A "purchase" of a Futures Contract means the
acquisition of a contractual obligation to acquire securities at a specified
price on a specified date. Each Fund may purchase and sell futures contracts for
the purpose of hedging portfolio securities against the adverse effects of stock
market and/or interest rate movements.
GOVERNMENT FUTURES CONTRACTS. The Flexible Bond, Growth & Income and
Asset Allocation Funds may purchase and sell futures contracts on U.S.
Government Securities ("Government Futures Contract"). Bond values generally
<PAGE>
vary inversely with interest rates, e.g.; as interest rates go up, bond prices
decline. A Fund might sell a Government Futures Contract as a hedge against an
anticipated increase in interest rates, and might purchase a futures contract as
a temporary substitute for the actual purchase of portfolio securities it
intends to buy. When a Fund purchases a Government Futures Contract, it agrees
to take delivery of a specific type of debt security at a specific future date
for a specific price. When it sells a Government Futures Contract, it agrees to
make delivery of a specific type of debt security at a specific future date for
a specific price. Either obligation may be satisfied or "closed out" by actually
taking or making delivery as agreed, or by entering into an offsetting
Government Futures Contract. At the date hereof, Government Futures Contracts
can be purchased and sold with respect to U.S. Treasury bonds, U.S.
Treasury notes and GNMA Certificates on the Chicago Board of Trade and with
respect to U.S. Treasury bills on the International Monetary Market at the
Chicago Mercantile Exchange.
STOCK INDEX FUTURES CONTRACTS. The Growth & Income, Capital
Appreciation, Asset Allocation and Leveraged Growth Funds may purchase and sell
Stock Index futures contracts. The Investment Manager might sell a futures
contract to hedge an anticipated decline in stock market prices, in lieu of, or
to supplement hedging individual securities in the Fund's portfolio. Conversely,
the Investment Manager might purchase a futures contract upon receipt of, or in
anticipation of, a buy signal as a temporary substitute for purchasing
individual portfolio securities. Stock Index Futures Contracts obligate the
seller to deliver (and the purchaser to take) cash to settle the futures
transaction, or to enter into an offsetting contract. No physical delivery of
the underlying stocks in the index is made. Futures Contracts can be purchased
and sold on the Standard & Poor's 500 Index on the Chicago Mercantile Exchange
and on the Major Market Index on the Chicago Board of Trade.
OPTIONS ON STOCK INDICES AND FUTURES CONTRACTS. The Funds may also
purchase options on futures contracts and may write (sell) covered options to
buy or sell futures contracts for purposes of hedging and, secondarily (except
for the Capital Appreciation and Leveraged Growth Funds), for increasing
portfolio income through receipt of option writing premiums. The Funds may only
write fully "covered" options. An option on a futures contract gives the
purchaser, in return for a premium paid, the right to assume a position in the
futures contract (a purchase if the option is a call and a sale if the option is
a put). The writer, if the option is exercised, is required to assume an
offsetting futures position (a sale if a call and a purchase if a put). Exercise
of the option is accompanied by the delivery of the accumulated cash balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the strike price of the option on
the futures contract. A Fund may enter into "closing" transactions on futures
contracts and options thereon in order to terminate existing positions.
The Flexible Bond, Growth & Income and Asset Allocation Funds may
purchase or sell options on Government Futures Contracts as described herein.
Those currently available include options on futures contracts on U.S. Treasury
Bonds, U.S. Treasury Notes and Cash Settled GNMA's on the Chicago Board of
Trade. Options on Government Futures Contracts are similar to options on other
securities, except that the related investment is a futures contract. Thus, the
buyer of a call option obtains the right to purchase a futures contract at a
specified price during the life of the option, and the buyer of a put option
obtains the right to sell a futures contract at a specified price during the
life of the option. The options are traded on an expiration cycle based on the
expiration cycle of the underlying futures contract.
The Growth & Income, Capital Appreciation, Asset Allocation and
Leveraged Growth Funds may engage in options transactions on Stock Indices,
Stock Index futures contracts and (as to the Asset Allocation Fund only) certain
commodity and currency indices and futures contracts related to its portfolio
securities as described herein. Futures contracts can be purchased and sold with
respect to the U.S. Dollar Index on the Financial Instrument Exchange (a
division of the New York Cotton Exchange) and with respect to the CRB
(Commodities Research Bureau) Index on the New York Futures Exchange. Puts and
calls on stock indices and stock index futures contracts are similar to puts and
calls on securities except that all settlements are in cash and gain or loss
depends on changes in the index (and, therefore, on price movements in the stock
<PAGE>
market generally) rather than on price movements on individual securities. When
the purchaser buys a call on a stock index or stock index futures contract, it
pays a premium to the seller. If the purchaser then exercises the call prior to
its expiration, the seller is required to pay the purchaser an amount of cash to
settle the call if the closing level of the stock index or stock index futures
contract upon which the call is based is greater than the strike price of the
call. That cash payment is equal to the difference between the closing price of
the index or futures contract and the strike price of the call times a specified
multiple (the "multiplier") which determines the total dollar value for each
point of difference. When the purchaser buys a put on a stock index or stock
index future, it pays a premium and obtains the right to require the seller,
upon the purchaser's exercise of the put, to deliver to the purchaser an amount
of cash to settle the put if the closing level of the stock index or stock index
future upon which the put is based is less than the exercise price of the put.
That cash payment is determined by the multiplier in the same manner as
described above as to calls.
A Fund neither pays nor receives money upon the sale of a futures
contract. Instead, when a Fund enters into a futures contract, it will initially
be required to deposit with its Custodian for the benefit of the futures broker
an amount of "initial margin" of cash or U.S. Treasury Bills, which currently
ranges from 1/10 of 1% to 4% of the contract amount, depending on the type of
contract. The term "initial margin" in futures transactions is different from
the term "margin" in securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the customer to finance the
transactions. Rather, initial margin is in the nature of a good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the futures broker are made on a
daily basis as the market price of the futures contract fluctuates.
At any time prior to expiration of the futures contract, a Fund may
elect to close its position by taking an offsetting position which will operate
to terminate the Fund's position in the futures contract. While futures
contracts on U.S. Government securities provide for the delivery and acceptance
of securities, most futures contracts, including stock index futures contracts,
are terminated by entering into offsetting transactions. Because of the low
margin deposits required, futures trading involves a high degree of leverage. As
a result, a relatively small price movement in a futures contract may result in
immediate and substantial loss, as well as gain, to the investor. For example,
if at the time of purchase, 10% of the value of the futures contract is
deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit, if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the offsetting securities positions of the portfolio which are being
hedged would, in most cases, substantially alleviate the loss incurred in the
futures contract. In addition, a Fund would presumably have sustained comparable
losses if, instead of the futures contract, the Fund had invested in the
underlying financial instrument and sold it after the decline. Furthermore, in
the case of a futures contract purchase, in order to be certain that a Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
earmarks to the futures contract money market instruments equal in value to the
current price of the underlying instrument less the margin deposit.
A clearing corporation associated with the commodity exchange on which a
Futures Contract trades assumes responsibility for the completion of
transactions and guarantees that Futures Contracts will be performed.
The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in stock market and/or interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events. A decision of whether, when,
and how to hedge involves skill and judgment, and even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
interest rate trends.
<PAGE>
LIMITATIONS ON OPTIONS AND FUTURES CONTRACTS
Transactions in options by the Funds will be subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same or
different exchanges or are written or held in one or more accounts or through
one or more brokers. Thus, the number of options which either Fund may write or
hold may be affected by options written or held by the other Funds or by other
investment advisory clients of the Investment Manager and its affiliates.
Position limits also apply to futures contracts. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain sanctions.
INVESTING IN INVESTMENT COMPANIES
As described in the Prospectus, the Funds invest in the shares of other
investment companies (commonly called "mutual funds" and sometimes referred to
herein as "underlying funds"). The mutual funds in which the Funds invest will
be registered in the United States, will be diversified and will be managed by a
number of investment advisors. The Funds believe that this diversification
offers the opportunity to benefit from a variety of investment approaches and
strategies employed by experienced investment professionals over a diverse
spectrum of investment portfolios. The mutual funds in which the Funds invest
may have differing investment objectives, they may invest in bonds, equities,
tax-exempt securities and a variety of other investments. They may seek
speculative or conservative investments or any mixture of these objectives and
strategies. The Funds' Investment Manager is responsible for evaluating,
selecting and monitoring each mutual fund in which the Funds invest.
The mutual funds in which the Funds invest may engage in some or all of
the investment techniques and may invest in some or all of the types of
securities in which the Funds engage or invest. In addition, underlying funds
may have less stringent limitations on investment activities than the Funds.
This could conceivably result in the Funds having a greater exposure to certain
risks than intended. The Fund believes that this risk exposure is effectively
reduced by investing in a diversified portfolio of mutual funds.
HIGH YIELD BONDS
As described in the Prospectus, the Flexible Bond, Growth & Income and
Asset Allocation Funds may invest a portion of their assets in high yield bonds,
or so-called "junk bonds." The mutual funds in which the Funds invest also may
invest in high yield bonds. Investors should familiarize themselves with the
risks of fixed income high yield bonds. (See the Prospectus, "Risk
Factors...Fixed Income Securities.) Investors should be aware that the
widespread expansion of government, consumer and corporate debt within our
economy has made the corporate sector, especially cyclically sensitive
industries, more vulnerable to economic downturns or increased interest rates.
An economic downturn could severely disrupt the market for high yield bonds and
adversely affect the value of outstanding bonds and the ability of the issuers
to repay principal and interest, leading to an increased risk of default. If the
issuer of a bond defaulted, the Fund may incur additional expenses to seek
recovery. Periods of economic uncertainty and change can be expected to result
in increased volatility of market prices of high yield bonds and, consequently,
the value of the Fund. High yield bonds structured as zero coupon securities are
affected to a greater extent by interest rate changes and thereby tend to be
more volatile than securities which pay interest periodically.
High yield bonds may contain redemption or call provisions. If an issuer
exercises these in a declining interest rate market, the Fund would have to
replace the security with a lower yielding security, resulting in a decreased
return for the shareholders. Conversely, a high yield bond's value will decrease
in a rising interest rate market, as will the value of the Fund's assets. If the
Fund experiences unexpected net redemptions, it may be forced to sell its high
yield bonds at a time when the Investment Manager would not otherwise sell them
<PAGE>
based upon their investment merits, thereby decreasing the total return expected
from the investment. High yield bonds may be subject to market value fluctuation
based upon adverse publicity and investor perceptions (whether or not based on
fundamental analysis), exposing investors to a increased risk of decreased
values and liquidity, especially in a thinly traded market.
The Investment Manager relies in part on the credit ratings of Moody's
and S&P when investing directly in fixed income investments. There are a number
of risks associated with such reliance. Credit ratings evaluate the safety of
principal and interest payments but not the market value of high yield bonds.
Rating agencies may fail to timely change the credit ratings to reflect
subsequent events. For this reason, the Investment Manager performs its own
evaluation of fundamental and other factors establishing value prior to making
direct investments in high yield bonds and continuously monitors the issuers of
such bonds actually held in the Funds' portfolio. For a description of the
Moody's and S&P bond ratings, see the Appendix.
CONCENTRATION
An underlying mutual fund may concentrate its investments in a single
industry (but the Funds limit investment in any one underlying fund to no more
than 25% of the total assets of each Fund). The value of shares of such an
underlying fund may be subject to greater market fluctuation because investment
alternatives within a single industry are more limited than for the market as a
whole.
BORROWING
The Leveraged Growth Fund borrows for investment purposes as described
in the Prospectus. The Flexible Bond, Growth & Income, Capital Appreciation and
Asset Allocation Funds may each borrow up to 5% of its total assets for
extraordinary purposes and up to 33.3% of its total assets to meet redemption
requests which might otherwise require untimely disposition of the Fund's
securities. Underlying funds in which the Funds invest may borrow up to 33.3% of
total assets for the purpose of increasing portfolio holdings. Because of such
leveraging, the effects of market price fluctuations on portfolio net asset
value will be exaggerated. The funds would incur interest and other transaction
costs in connection with borrowing.
ILLIQUID AND RESTRICTED SECURITIES
The Funds, as well as any mutual fund in which the Funds invest, may
invest not more than 10% of their respective total assets in illiquid securities
(repurchase agreements maturing in over seven days, certain over-the-counter
options and other securities for which there is no readily available market, )
and restricted securities (securities which would be legally restricted from
resale). If a fund holding such securities decides to sell them, a considerable
period of time could elapse until it is able to sell them. During that period,
the market value of such securities (and therefore the market value of the
particular fund) could decline.
FOREIGN ISSUERS AND CURRENCIES
Each Fund limits its investment in foreign securities to 5% of its total
assets. However, an underlying fund may invest up to 100% of its assets, in the
securities of foreign issuers. These issuers and the foreign securities markets
in which their securities are traded may not be as highly regulated as domestic
issues, there may be less information publicly available about them and foreign
auditing requirements may not be the same as domestic requirements. There may be
delays in some countries in settling securities transactions, in some cases up
to six months. In addition, foreign currency exchange rates may adversely affect
an underlying fund's value. Other political and economic developments, including
the possibility of expropriation, confiscatory taxation, exchange controls or
<PAGE>
other governmental restrictions could adversely affect value. Under the 1940
Act, a mutual fund may maintain its foreign securities in custody of non-U.S.
banks and securities depositories.
In connection with securities traded in a foreign currency, the Asset
Allocation Fund and any underlying fund may enter into forward contracts to
purchase or sell an agreed upon amount of a specific currency at a future date
which may be any fixed number of days from the date agreed upon by the parties.
The price would be set at the time of entering into the contract. Concurrent
with entry into a contract to acquire a foreign security for a specified amount
of a foreign currency, the fund would purchase, with U.S. dollars, the required
amount of foreign currency for delivery at the settlement date of the purchase.
A similar forward currency transaction would be made in connection with the sale
of foreign securities. The purpose of such a forward currency transaction is to
fix a firm U.S. dollar price necessary to settle a foreign securities
transaction, and thus to protect against adverse fluctuation of the exchange
relationship between the U.S. dollar and the foreign currency needed to settle
the particular transaction during the time interval between the purchase or sale
date and settlement date. This time period is normally between three to fourteen
days. Forward currency transactions are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward currency contract usually has no deposit requirements and
no commissions are charged.
While such contracts tend to limit the risk of adverse currency exchange rate
fluctuations, they also limit the potential gain which might result from
positive exchange rate fluctuations.
REPURCHASE AGREEMENTS
Each Fund may purchase U.S. Government Securities subject to repurchase
agreements. A repurchase transaction occurs when, at the time a Fund purchases a
security, it also resells it to the vendor (normally a commercial bank or a
broker-dealer) and must deliver the security (and/or securities substituted for
them under the repurchase agreement) to the vendor on an agreed-upon date in the
future. Such securities, including any securities so substituted, are referred
to as the "Resold Securities". The resale price reflects an agreed-upon market
interest rate effective for the period of time during which the Fund's money is
invested in the Resold Securities. The majority of these transactions run from
day to day, and the delivery pursuant to the resale typically will occur within
one to five days of the purchase. A Fund's risk is limited to the ability of the
vendor to pay the agreed-upon sum upon the delivery date; in the event of
bankruptcy or other default by the vendor, there may be possible delays and
expenses in liquidating the instrument purchased, decline in its value and loss
of interest. These risks are minimized when the Fund holds a perfected security
interest in the Resold Securities and can therefore resell the instrument
promptly. Under guidelines issued by the Trustees, the Investment Manager will
carefully consider the credit worthiness of any vendor of repurchase agreements
prior to entering into a repurchase agreement and will monitor such vendor's
credit worthiness during the term of the repurchase agreement. Repurchase
agreements can be considered as loans "collateralized" by the Resold Securities,
such agreements being defined as "loans" in the Investment Company Act of 1940,
as amended (the "1940 Act"). The return on such "collateral" may be more or less
than that from the repurchase agreement. The market value of the resold
securities will be marked to market daily and monitored so that the value of the
"collateral" is at all times at least equal to the value of the loan, including
the accrued interest earned thereon. All Resold Securities will be held by the
Fund's custodian either directly or through a securities depository. While the
Funds limit their direct repurchase agreement transactions to U.S. Government
Securities, underlying funds may not have such limitations. Lower quality
securities underlying a repurchase agreement transaction would involve
potentially greater risk.
SHORT SELLING
An underlying fund may engage in short selling (the sale of a security
it does not own). In order to make delivery, it "borrows" the needed securities
from a broker and replaces them at a later time by purchasing them in the open
market. The price paid may be more or less than the price received when the
securities were sold short. The broker retains the proceeds from the short sale
<PAGE>
to the extent necessary to meet margin requirements, until the securities are
replaced. So long as the short sale is outstanding, any interest and dividends
generated by the borrowed security must be paid to the lender and there may be
other brokerage charges associated with the transaction. In addition, the fund
must deposit and maintain on a daily basis, in a segregated account, an amount
of cash or U.S. Government Securities equal to the difference between (a) the
market value of the securities sold short and (b) the value of the collateral
deposited with the broker in connection with the short sale (not including the
proceeds from the short sale). Up to 80% of a fund's net assets may be so
deposited as collateral for the obligation to replace securities borrowed in
connection with short sales. If the price of a security sold short decreases
between the time of the short sale and replacement of the borrowed security, the
fund would incur a loss. Conversely, the fund will realize a gain if the price
of a security sold short increases between the time of the short sale and
replacement of the borrowed security. A short sale "against the box" occurs when
a fund sells short a security the fund owns long, or if the fund owns securities
convertible into, or exchangeable without further consideration for, the
identical securities as those sold short. Short "against the box" transactions
are generally used to defer realizing gains or losses on securities for federal
income tax purposes. The Funds will not invest in underlying funds unless such
funds limit short sales as follows: The dollar amount of short sales at any one
time will not exceed 25% of the Fund's net equity, and the value of securities
of any one issuer in which an underlying fund is short may not exceed the lower
of 2% of the value of such fund's net assets or 2% of the securities of any
class of any issuer. Short sales may be made only in those securities which are
fully listed on a national securities exchange. This provision does not include
the sale of securities if the fund contemporaneously owns or has the right to
acquire securities equivalent in kind and amount to those sold (i.e., short
sales "against the box").
WARRANTS
The Funds do not invest directly in warrants. An underlying fund,
however, may invest in warrants, which are options to purchase equity securities
at specific prices for a specific period of time. Warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer. If a warrant is not exercised within the specified period of time,
it will become worthless and the fund will lose both the purchase price and the
right to purchase the underlying security. Prices of warrants do not necessarily
move parallel to the prices of the underlying securities. The Funds will invest
in underlying funds only if such funds limit their investments in warrants to
5%, valued at the lower of cost or market, of the value of such funds' net
assets; included within that amount, up to 2% of such funds' net assets may be
warrants which are not listed on the New York or American Stock Exchanges.
OTHER TRANSACTIONS
The Funds and the underlying funds may lend portfolio securities and may
engage in options transactions, futures contracts and options thereon. If
underlying funds lend their securities, such funds must provide that collateral
values must be continuously maintained at no less than 100%, marking to market
daily, and adequate provision must have been made by such funds for margin
calls, loan termination, reasonable servicing fees and voting and dividend
rights. The Funds will invest in underlying funds only if such funds will not
invest in oil, gas or other mineral leases, or in real estate or real estate
limited partnership interests.
INVESTMENT RESTRICTIONS
The Funds have adopted the following investment restrictions, in addition to
those described in the Prospectus, which cannot be changed without approval by
holders of a majority of the outstanding voting shares of the Fund. A "majority"
for this purpose, means the lesser of (i) 67% of the Fund's outstanding shares
represented in person or by proxy at a meeting at which more than 50% of its
<PAGE>
outstanding shares are represented, or (ii) more than 50% of its outstanding
shares.
As to each Fund, the Fund may not:
(1) As to 75% of it's total assets, invest more than 5% of the value of
its total assets in the securities of any one issuer (U.S. Government Securities
are not subject to this limitation);
(2) Purchase more than 10% of the outstanding voting securities or of
any class of securities of any one issuer (U.S. Government Securities are not
subject to this limitation);
(3) Invest more than 25% of the value of its total assets in any indus-
try or group of industries other than investment companies (except that U.S.
Government Securities are not subject to these limitations);
(4) Invest more than 5% of its total assets in securities of issuers
(other than U.S. Government Securities and investment companies) which together
with their predecessors, have a record of less than three years' continuous
operation;
(5) Invest in the securities of any issuer if any of the officers or
trustees of the Trust or its Investment Manager who own beneficially more than
1/2 of 1% of the outstanding securities of such issuer together own more than 5%
of the outstanding securities of such issuer;
(6) Invest in securities which are restricted as to disposition under
the Federal securities laws;
(7) Invest in securities which are considered illiquid, if the total of
such securities would exceed 10% of the Fund's total assets (Investment company
securities are considered illiquid to the extent the Fund owns more than 1% of
an investment company's outstanding shares) (Repurchase agreements maturing in
more than 7 days are considered illiquid for purposes of this restriction);
(8) Invest for the purpose of exercising control or management of an-
other issuer;
(9) Invest in interests in oil, gas or other mineral exploration or
development programs (except the Fund may invest in securities issued by com-
panies engaged in such businesses);
(10) Underwrite securities issued by others (except to the extent that
the Fund may be deemed to be an underwriter under the Federal securities laws in
connection with the disposition of portfolio securities);
(11) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions, and
initial and variation margin payments in connection with transactions in Futures
Contracts and related options are not considered purchasing securities on
margin), provided, however, that this restriction which is intended to apply to
margin accounts with brokers shall not restrict the Leveraged Growth Fund from
borrowing from banks in accordance with the limitations contained in the
Prospectus under "Investment Restrictions" and elsewhere in the Prospectus and
in the Statement of Additional Information;
(12) Make short sales of securities or maintain a short position, except
short sales "against the box." (A short sale is made by selling a security a
Fund does not own. A short sale is "against the box" to the extent that a Fund
contemporaneously owns or has the right to obtain at no additional cost
securities identical to those sold short.) (The purchase of put options as
<PAGE>
described in the prospectus is not a short position for the purposes of this
restriction.);
(13) Participate on a joint or joint and several basis in any trading
account in securities;
(14) Purchase foreign securities in excess of 5% of the Fund's total
assets (ADR's and U.S.-registered investment companies are not considered
foreign securities for this purpose); or
(15) Purchase foreign currencies, except that the Asset Allocation Fund
may engage in transactions in foreign currencies, including options and futures
thereon, but only for hedging purposes with respect to the Fund's portfolio
securities.
In order to qualify the shares of the Funds in certain state(s), each
Fund has agreed that, for so long as its shares are registered in such
state(s), the Fund will restrict mineral leases as though listed among the
investment interests restricted in number (9), above.
In order to qualify the shares of the Capital Appreciation and
Leveraged Growth Funds in certain state(s), each Fund has agreed that, for so
long as its shares are registered in such state(s), the Fund will limit, to no
more than 5% of its total assets, its aggregate investment in the classes of
securities represented by investment restrictions numbered (4) and (7), above,
except that, for this purpose, Fund holdings of other investment companies in
excess of 1% and no greater than 3% of such other investment companies'
total assets are excluded from the definition of "not readily marketable
securities."
Percentage restrictions stated in any investment restriction apply at
the time of investment; if a later increase or decrease in percentage beyond the
specified limits results from a change in securities values or total assets, it
will not be considered a violation. However, in the case of the borrowing
limitation, the Funds will, to the extent necessary, reduce their existing loans
to comply with the limitation
While it is the Fund's policy to reserve the right to make short sales
"against the box," (restriction number 12, above), the Investment Manager has no
present intention of engaging in such transactions at this time or during the
coming year.
SPECIAL SHAREHOLDER SERVICES
As noted in our prospectus, the Trust offers the following shareholder
services;
REGULAR ACCOUNT
The regular account allows for voluntary investments to be made at any
time. Available to individuals, custodians, corporations, trusts, estates,
corporate retirement plans and others, investors are free to make additions and
withdrawals to or from their account as often as they wish. When an investor
makes an initial investment in a Fund, a shareholder account is opened in
accordance with the investor's registration instructions. Each time there is a
transaction in a shareholder account, such as an additional investment or the
reinvestment of a dividend or distribution, the shareholder will receive a
confirmation statement showing the current transaction and all prior
transactions in the shareholder account during the calendar year to date, along
with a summary of the status of the account as of the transaction date.
Shareholder certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in a shareholder account may be requested by a
shareholder.
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN
Shareholders owning shares of a Fund with a value of $10,000 or more may
establish a Systematic Withdrawal Plan. A shareholder may receive monthly or
quarterly payments, in amounts of not less than $50 per payment, by authorizing
the Transfer Agent to redeem the necessary number of shares periodically (each
month), or quarterly in the months of January, April, July and October) in order
to make the payments requested. Share certificates for the shares being redeemed
must be held by the Transfer Agent. Checks will be made payable to the
designated recipient and mailed within 7 days of the valuation date. If the
designated recipient is other than the registered shareholder, the signature of
each shareholder must be guaranteed on the application (see "Signature
Guarantees" in the Prospectus). A corporation (or partnership) must also submit
a "Corporate Resolution" (or "Certification of Partnership") indicating the
names, titles and required number of signatures authorized to act on its behalf.
The application must be signed by a duly authorized officer(s) and the corporate
seal affixed. There is no charge for the use of this plan. Shareholders should
be aware that such systematic withdrawals may deplete or use up entirely their
initial investment and may result in realized long-term or short-term capital
gains or losses. The Systematic Withdrawal Plan may be terminated at any time by
the Trust upon thirty day's written notice or by a shareholder upon written
notice to the Transfer Agent. Applications and further details may be obtained
by calling the Transfer Agent at 1-800-224-4743, or by writing to:
Merriman Mutual Funds
c/o Firstar Trust Co.
Mutual Funds Services, 3rd Floor
PO Box 701
Milwaukee, WI 53201-0701
RETIREMENT PLANS
As noted in the Fund's Prospectus, an investment in either Fund's shares
may be appropriate for IRA's, Keogh Plans and corporate retirement plans. Unless
otherwise directed, capital gains distributions and dividends received on Fund
shares held by any of these plans will be automatically reinvested in additional
Fund shares and will be exempt from taxation until distributed from the plans.
Investors who are considering establishing such a plan may wish to consult their
attorneys or tax advisers with respect to individual tax questions. The Trust
intends to offer pre-qualified plans as described herein.
INDIVIDUAL RETIREMENT ACCOUNT - IRA The Internal Revenue Code of 1986
imposes substantial restrictions on an individual's ability to make deductible
contributions to an IRA. Under the law, a single individual who is an active
participant in an Employer Plan and who has an adjusted gross income of $25,000
or more, but not exceeding $35,000, is allowed to deduct a portion of his IRA
contribution. That portion decreases proportionately to the extent the
individual's income exceeds $25,000. A married couple filing a joint return
whose adjusted gross income is $40,000 or more, but not exceeding $50,000 is
also allowed to deduct a portion of their IRA contributions, which portion
decreases proportionately to the extent the couple's adjusted gross income
exceeds $40,000. An individual with an adjusted gross income exceeding $35,000
and who is an active participant in an Employer Plan is not allowed to deduct
any portion of his IRA contributions, and a married couple filing a joint return
whose adjusted gross income exceeds $50,000 is not able to deduct any portion of
their IRA contributions if either spouse is an active participant in an Employer
Plan. Individuals may make nondeductible contributions to the extent they are
not eligible to make deductible IRA contributions.
An investment in Fund shares through IRA contributions, whether
deductible or nondeductible, is advantageous because all income, dividends and
capital gains distributions earned on your IRA account Fund shares are not
immediately taxable to you, but will be taxable, as are all IRA distributions,
<PAGE>
as ordinary income when distributed. To avoid penalties, your interest in an IRA
must be distributed, or start to be distributed, to you not later than the first
day of April following the tax year in which you attain age 70. Distributions
made before age 59 are subject to a penalty equal to 10% of the distribution,
except in the case of death or disability or where the distribution is rolled
over into another IRA in accordance with certain rules specified in Section 408
(d) of the Internal Revenue Code.
Shares of the Funds may be purchased as an investment for an IRA
account, including those established by employers as Simplified Employee
Pension-IRA's ("SEP-IRA") or Savings Incentive Match Plans ("SIMPLE") for the
benefit of their employees. Information concerning an IRA, SEP-IRA or SIMPLE
retirement plan, fees charged for maintaining such plans, more detailed
information and disclosures made pursuant to requirements of the Internal
Revenue Code, and assistance in opening a plan may be obtained from the Trust by
calling 1-800-423-4893.
KEOGH PLANS AND CORPORATE RETIREMENT PLANS Fund shares may also be pur-
chased as an investment for Keogh and Corporate Retirement Plans. There are
penalties for premature distributions from a Keogh Plan prior to age 59, except
in the case of death or disability.
HOW TO ESTABLISH RETIREMENT ACCOUNTS. All the foregoing retirement plan
options require special applications or plan documents. Please call the Trust at
1-800-423-4893 to obtain information regarding the establishment of retirement
plan accounts. In the case of IRA and certain other pre-qualified plans, nominal
fees will be charged in connection with plan establishment, custody and
maintenance, all of which are detailed in plan documents. You may wish to
consult with your attorney or other tax advisor for specific advice concerning
your tax status and plans.
EXCHANGE PRIVILEGE
Shareholders may exchange shares (in amounts of $1,000 or more) of any
Merriman Fund for shares of any other Merriman Fund or for shares of the Portico
U.S. Government Money Market Fund, the Portico Money Market Fund or the Portico
Tax-Exempt Money Market Fund. A current prospectus of the Portico Funds should
be obtained and read prior to seeking any such exchange. Your special
authorization form must have been completed and must be on file with the
Transfer Agent. There is a service charge levied by the Transfer Agent for each
exchange. The Transfer Agent will redeem sufficient shares in your account to
cover the fee, which currently is $5.00. This fee may be changed from time to
time by the Transfer Agent, but shareholders will be given at least 60 days
written notice prior to instituting a fee change. To make an exchange, an
exchange order must comply with the requirements for a redemption or repurchase
order and must specify the value or number of the shares to be exchanged. Your
exchange will take effect as of the next determination of net asset value per
share of each fund involved (usually at the close of business on the same day).
The Trust reserves the right to limit the number of exchanges or to otherwise
prohibit or restrict shareholders from making exchanges at any time, without
notice, should the Trustees determine that it would be in the best interest of
shareholders to do so. For tax purposes an exchange constitutes the sale of the
shares of one fund and the purchase of those of the second fund. Consequently,
the sale will likely involve either a capital gain or loss to the shareholder
for Federal income tax purposes.
REDEMPTIONS IN KIND
No Fund intends, under normal circumstances, to redeem its securities by
payment in kind. It is possible, however, that conditions may arise in the
future which would, in the opinion of the Trustees, make it undesirable for the
Funds to pay for all redemptions in cash. In such case, the Board of Trustees
may authorize payment to be made in portfolio securities. Securities delivered
in payment of redemptions would be valued at the same value assigned to them in
computing the net asset value per share. Shareholders receiving them would incur
brokerage costs when these securities are sold. To protect shareholders, an
<PAGE>
irrevocable election has been filed under Rule 18f-1 of the Investment Company
Act of 1940, as amended, wherein the Trust committed itself to pay redemptions
in cash, rather than in kind, to any shareholder of record of either Fund during
any ninety-day period, the lesser of (a) $250,000 or (b) one percent (1%) of the
Fund's net asset value at the beginning of such period.
TRANSFER OF REGISTRATION
To transfer shares to another owner, send a written request to the
Transfer Agent c/o Firstar Trust Co., Mutual Fund Services, 3rd Floor, PO Box
701, Milwaukee, WI 53201-0701. Your request should include the following: (1)
the Fund name and existing account registration; (2) signature(s) of the
registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number and how dividends and capital gains are to be
distributed; (4) any stock certificates which have been issued for the shares
being transferred; (5) signature guarantees (See "Signature Guarantees" in the
Prospectus); and (6) any additional documents which are required for transfer by
corporations, administrators, executors, trustees, guardians, etc. If you have
any questions about transferring shares, call or write the Transfer Agent.
PURCHASE OF SHARES
The purchase price of Fund shares is the net asset value next determined
after the order is received. An order received prior to the close of the New
York Stock Exchange ("Exchange") will be executed at the price computed on the
date of receipt; and an order received after the close of the Exchange will be
executed at the price computed on the next Business Day. The Exchange currently
closes at 4:00 p.m., New York City time. An order to purchase shares is not
binding on the Trust until the Transfer Agent confirms it in writing (or unless
other arrangements have been made with the Transfer Agent, for example in the
case of orders utilizing wire transfer of funds) and payment has been received.
The Trust reserves the right in its sole discretion (i) to suspend the
offering of Fund shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of such Fund and its
shareholders, and (iii) to reduce or waive the minimum for initial and
subsequent investments for certain fiduciary accounts such as employee benefit
plans or under circumstances where certain economies can be achieved in sales of
Fund shares.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the Exchange is restricted as determined by the Securities and
Exchange Commission (the "Commission"), (ii) during any period when an emergency
exists as defined by the rules of the Commission as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or to
fairly determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
No charge is made by the Trust for redemptions although, as disclosed in
the Prospectus, the Trustees could impose a redemption charge in the future.
Any redemption may be more or less than the shareholder's cost depending on the
market value of the securities held by the Fund.
TELEPHONE REDEMPTION PRIVILEGE. The Prospectus describes the procedures the
Funds follow to establish and operate the telephone redemption privilege. To
protect the Funds, their agents and shareholders from liability, the Funds
employ reasonable procedures to help ascertain that the instructions
communicated by telephone are genuine. Among other things, the Transfer Agent
<PAGE>
will require the caller to provide verifying information unique to the
shareholder. Such information could include a password or other form of personal
identification. In addition, the call/transaction will be recorded.
NET ASSET VALUE DETERMINATION
Under the Investment Company Act of 1940, as amended, the Trustees are
responsible for determining in good faith the fair value of the securities and
other assets of the Funds, and they have adopted procedures to do so, as
follows. The Net Asset Value of each Fund is determined as of the close of
trading of the New York Stock Exchange (currently 4:00 p.m., New York City time)
on each Business Day. A Business Day means any day, Monday through Friday,
except for the following holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Fourth of July, Labor Day, Election Day, Thanksgiving Day and
Christmas. Net asset value per share is determined by dividing the total value
of all Fund securities and other assets, less liabilities, by the total number
of shares then outstanding. Net asset value includes interest on fixed income
securities which is accrued daily.
Securities which are traded over-the-counter and on a stock exchange
will be valued according to the broadest and most representative market. It is
expected that for U.S. Government Securities and other fixed income securities
this ordinarily will be the over-the-counter market. For equity securities this
will ordinarily be the principal exchange on which the security is traded or the
NASDAQ National Market System. Over-the-counter securities that are not traded
on a particular day and fixed income securities are priced at the current quoted
bid price. However, U.S. Government Securities and other fixed income securities
may be valued on the basis of prices provided by an independent pricing service
when such prices are believed to reflect the fair market value of such
securities. The prices provided by a pricing service are determined without
regard to bid or last sale prices but take into account securities prices,
yields, maturities, call features, ratings, institutional size trading in
similar groups of securities and developments related to specific securities.
Stock exchange and NASDAQ securities are priced at the latest quoted sale on the
date of valuation. Short-term debt securities which mature in 60 days or less
are valued at amortized cost if their original term to maturity from the date of
purchase was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their term to maturity from the date of purchase exceeded 60
days, unless the Trustees determine that such valuation does not represent fair
value. Short-term debt securities which mature in more than 60 days are valued
at last sale or current bid quotations. Securities and other assets for which no
quotations are readily available will be valued in good faith at fair value
using methods determined by the Board of Trustees.
VALUATION OF EXCHANGE-TRADED OPTIONS AND FUTURES CONTRACTS
For pricing purposes, 4:00 p.m. New York City time ("NYC time") is
considered the cut-off time. Certain exchanges, especially commodities
exchanges, close trading later than that time. In such case, the Funds will
utilize last sale prices obtained as of 4:00 PM NYC time. This will result the
valuation of Fund assets at other than the actual closing prices for that day.
Securities affected include exchange-traded options on U.S. Government
Securities and exchange-traded options on Futures Contracts, both of which are
valued at the last sale price at 4:00 PM NYC time. If there is no sale by 4:00
PM NYC time on the applicable options exchange on a given day, options are
valued at the current bid prices as of that time. Also, Futures Contracts are
marked to market daily as of 4:00 PM NYC time. The Investment Manager will
monitor the actual closing prices in order to assure that the differences do not
materially distort net asset value, and will report to the Trustees in the event
that there appears to be a substantial risk that a material distortion may
occur.
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and Officers of the Merriman Investment
Trust, and a brief statement of their present positions and principal
occupations during the past five years:
NAME AND ADDRESS PRINCIPAL OCCUPATION(S)
POSITION WITH TRUST DURING PAST 5 YEARS
DAVID A. EDERER ** Since 1974, Managing Partner of D. A. Ederer
4919 NE Laurelcrest Lane Company, a private investment company. In
Seattle, WA 98105 connection therewith, Mr. Ederer serves as an
TRUSTEE Executive Officer and holds a substantial
ownership position in Trustee numerous in-
dustrial and service companies.
PAUL A. MERRIMAN * Since 1983, President and Chief Executive
1200 Westlake Avenue North Officer of Paul A. Merriman & Associates, Inc.,
Seattle, WA 98101 an investment advisory firm. Since October
PRESIDENT AND TRUSTEE 1987, General Partner of Merriman Investment
Management Company, the Trust's Investment
Manager.
WILLIAM L. NOTARO * Since 1981, Owner of Wm L. Notaro & Company, a
2914 Kennewick Place, N.E. Seattle Investment Advisory firm. Since October
Renton, WA 98056 1987, Exec. Vice President and Chief Operating
EXECUTIVE VICE PRESIDENT Officer of Merriman Investment Management
SECRETARY, TREASURER AND Company, the Trust's Investment Manager.
TRUSTEE
BEN W. REPPOND ** Since 1981, President and Chief Executive
6965 N.E. Buck Lake Road Officer, the Reppond Co., Inc., an insurance
Hansville, WA 98340 brokerage firm.
TRUSTEE
* These Trustees are "interested persons" of the Fund, by virtue of their
positions with the Investment Manager.
** These trustees are members of the Audit Committee.
Trustees and officers of the Trust who are interested persons of the
Trust receive no salary or fees from the Trust. Trustees of the Trust who are
not interested persons of the Trust receive $500 per year plus $100 per meeting
of the Board of Trustees attended by them. For the fiscal year ended September
30, 1996, remuneration of the Trustees and officers, in the aggregate, by the
Trust, was $2,000. As of November 30, 1996, the Trustees and officers owned, as
a group, 66,824 shares (5.37%) of the Leveraged Growth Fund and less than 1% of
the outstanding shares of the Flexible Bond Fund, the Growth & Income Fund, the
Capital Appreciation Fund, and the Asset Allocation Fund.
<PAGE>
5% SHAREHOLDERS
The Trust is aware of the following persons who owned of record, or benefi-
cially, more than 5% of the shares of any Fund as of November 30, 1996:
FLEXIBLE BOND FUND Charles Schwab & Co., Inc. 9.86% Record1
San Francisco, California 94104-4175
Ruth E. Kane, Trustee 5.57% Record &
Albert E. Kane Trust Beneficial
2880 Stemilt Road
Wenatche, WA 98801
LEVERAGED GROWTH FUND Paul A. Merriman 5.37% Record &
1200 Westklake Avenue North Beneficial2
Seattle, Washington 98109
1 Charles Schwab & Co., Inc., a broker-dealer, has advised that no individual
client own more than 5% of the Fund.
2 Includes shares owned by: Mr. Merriman for his own account; Merriman Invest-
ment Management Co., the Leveraged Growth Fund's Investment Manager; Paul A.
Merriman & Associates, Inc. P/S Plan; Paul A. Merriman & Associates, Inc. 401(k)
P/S Plan; and Mr. Merriman's wife, Dolores I. Merriman. Mr. Merriman disavows
beneficial ownership (i.e., investment and voting rights) of shares (0.06%)
owned by his wife.
INVESTMENT MANAGER
Merriman Investment Management Company (the "Investment Manager")
manages the Funds' investments pursuant to an Investment Management Agreement
(the "Management Agreement") as is described in the Prospectus. The Management
Agreement was last approved by the shareholders of the Leveraged Growth Fund on
December 16, 1992 and by shareholders of the other Funds on December 29, 1989,
and is effective until December 31, 1997. It will be renewed from year to year
thereafter only so long as such renewal and continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund(s) outstanding voting securities, provided the continuance is also approved
by a majority of the Trustees who are not "interested persons" of the Trust or
the Investment Manager by vote cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement is terminable for
any Fund without penalty on sixty days notice by the Board of Trustees of the
Trust or by the Investment Manager. The Management Agreement provides that it
will terminate automatically in the event of its assignment.
As shown in the Prospectus, compensation of the Investment Manager,
based upon the Fund's daily average net assets, is at the following annual
rates:
<PAGE>
Flexible Bond All Other
Fund Funds
---- -----
On the First $250 million 1.000% 1.250%
On the next $250 million .875% 1.125%
On all above $500 million .750% 1.000%
The advisory fees are higher than that incurred by most investment
companies. In the event that additional series or funds are authorized by the
Trustees, each additional fund would compute investment fees separately.
Advisory fees paid to and expense reimbursements (or advisory fee
waivers) received from the Investment Manager have been as follows:
<TABLE>
<CAPTION>
Fiscal Period Flexible Growth & Capital Asset Leveraged
Ended Bond Income Appreication Allocation Growth
September 30, Fund Fund Fund Fund Fund
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees: 1996 $86,416 $113,042 $232,703 $248,132 $172,334
1995 92,419 121,720 286,406 309,010 89,884
1994 117,646 164,771 390,116 379,063 71,131
Reimbursements: 1996 - - - - -- -- --
1995 10,283 - - -- 1,988 5,910
1994 9,877 4,634 41,293 24,224 34,521
1993 12,511 2,390 32,891 40,330 29,149
</TABLE>
Paul A. Merriman is President and Trustee of the Trust. A company he
wholly owns, Paul A. Merriman & Associates, Inc., owns a 50% interest, as
General Partner, in the Investment Manager. Only the General Partner has the
right to manage the affairs of the Investment Manager and the limited partners
are considered passive investors. Merriman Investment Management Company, L.P.
is a Washington limited partnership. William L. Notaro, Exec. Vice President of
the Trust, serves in the same capacity for the Investment Manager. Messrs
Merriman and Notaro, the principal officers and control persons of the
Investment Manager also serve as principal officers and trustees of the Trust.
See "Trustees and Officers" for details.
MANAGEMENT AND OTHER SERVICES
The firm of Tait, Weller & Baker, of Philadelphia, PA, is the
independent auditor of the Trust's financial statements.
Firstar Trust Company, Mutual Fund Services3rd Floor, 615 E. Michigan
Street, Milwaukee, WI 53202, serves as custodian for the Funds. As such it holds
all cash and securities of the Fund (either in its possession or in its favor
through "book entry systems" authorized by the Trustees in accordance with the
Investment Company Act of 1940, as amended), collects all income and effects all
securities transactions on behalf of the Funds.
<PAGE>
Firstar Trust Company also serves as Shareholder Servicing Agent and as
Fund Accounting Servicing Agent for the Funds. As Shareholder Servicing Agent,
it effects all transactions in shareholder accounts, maintains all shareholder
records and pays income dividends and capital gains distributions as directed by
the Board of Trustees. As Fund Accounting Servicing Agent, it provides portfolio
accounting services, expense accrual and payment services, Fund valuation and
financial reporting services, tax accounting services and compliance control
services.
ALLOCATION OF TRUST EXPENSES
The Investment Manager provides a continuous investment management
program, furnishes the services and pays the compensation of the executive
officers of the Trust, provides suitable office space, necessary small office
equipment, utilities, general purpose forms and supplies used at the offices of
the Trust. Each Fund will pay all of its own expenses not assumed by the
Investment Manager, including, but not limited to, the following: custodian,
stock transfer and dividend disbursing fees and expenses; clerical employees and
junior level officers of the Trust as and if approved by the Board of Trustees;
taxes; expenses of the issuance and redemption of shares (including stock
certificates, registration and qualification fees and expenses); costs and
expenses of membership and attendance at meetings of certain associations which
may be deemed by the trustees to be of overall benefit to each Fund and its
shareholders; legal and auditing expenses; and the cost of stationery and forms
prepared exclusively for the Funds. General Trust expenses are allocated among
the series, or Funds, on a fair and equitable basis by the Board of Trustees,
which may be based on relative net assets of each Fund (on the date the expense
is paid) or the nature of the services performed and the relative applicability
to each Fund.
BROKERAGE
It is the Trust's intention to seek the best price and execution for all
portfolio securities transactions. The Investment Manager (subject to the
general supervision of the Board of Trustees) directs the execution of the
Fund's portfolio transactions. The Trust has adopted a policy which prohibits
the Investment Manager from effecting Fund portfolio transactions with any
broker-dealer related or affiliated with any Trustee, officer or director of the
Trust or its Investment Manager or any interested person of such person.
Normally, most of the Fund's portfolio transactions will be investments in other
investment companies in which no brokerage commissions or dealer mark-ups are
incurred. Options and Futures Contracts generally involve the payment of
commissions. With respect to securities traded only in the over-the counter
market, orders will be executed on a principal basis with primary market makers
in such securities except where better prices or executions may be obtained on
an agency basis or by dealing with other than a primary market maker. While
there is no formula, agreement or undertaking to do so, the Investment Manager
may allocate a portion of the Funds' brokerage commissions to persons or firms
providing the Investment Manager with investment recommendations, statistical or
research services useful to the daily operation of the Trust. The Funds regard
such services, customarily only available in return for brokerage business, as
one of the many steps involved in keeping abreast of the information generally
<PAGE>
circulated among institutional investors by broker-dealers. While this
information is useful in varying degrees, it is of indeterminable value. Such
services received on the basis of transactions for one Fund may also be used by
the Investment Manager for the benefit of the other Fund or any other client it
may have. Conversely, a Fund may benefit from such transactions effected for the
benefit of the other Fund or of other clients. The Investment Manager may
consider sales of Fund shares as a factor in the selection of brokers to execute
portfolio transactions for a Fund, subject to best execution. It is the policy
of the Trust not to pay higher brokerage commissions to any broker in
consideration of research services provided than it would pay to a broker not
providing such services.
Brokerage commissions paid during the fiscal year ended September 30,
1994, for the Growth & Income Fund, were $11,998. Brokerage commissions paid
during the fiscal years ended September 30, 1994, for the Leveraged Growth Fund
were $4,814. No other commissions were paid during the past three fiscal years
by any Fund. No brokerage orders were directed to any particular broker in
consideration of research services provided or sale or recommendation of Fund
shares, nor is there any agreement or undertaking in effect to do so.
ADDITIONAL TAX INFORMATION
Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code). As a
regulated investment company, a Fund will not be subject to federal income tax
to the extent it distributes its net taxable income and its net capital gains to
its shareholders. In order to qualify for tax treatment as a regulated
investment company under the code, each fund will be required, among other
things, to distribute annually at least 90% of its taxable income other than its
net capital gains to shareholders (the "90% Test") and to derive less than 30%
of its gross income from the sale or other disposition of securities held for
less than three months (the 30% Test).
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year. The Fund
intends to make sufficient distributions of its ordinary taxable income and
capital gain net income prior to the end of each calendar year to avoid
liability for the excise tax.
Should additional series, or funds, be created by the Trustees, each
Fund would be treated as a separate tax entity for Federal Income Tax purposes.
Based upon current tax law, regulations and positions taken by the
Internal Revenue Service ("IRS") in circumstances similar to those of the Funds,
each Fund's investments in options futures contracts and in options on futures
contracts will in effect be treated as investments in the securities underlying
the options, futures contracts or options on futures contracts for purposes of
the 90% Test and the 30% Test mentioned above, and that certain constructive
gains realized on such investments as a result of marking such investments to
market will not constitute gains from the sale or other disposition of a
security held for less than three months. Under the Internal Revenue Code and
regulations to be promulgated thereunder, gains from options and futures
contracts derived with respect to each Fund's business of investing in the
underlying securities will be treated as qualified income for the purpose of the
90% Test above. In addition, subject to regulations to be promulgated under the
Internal Revenue Code, increases or decreases in the values of options, short
sales and other instruments permitted pursuant to such regulations in a
"designated hedge," and increases or decreases in the value of the securities so
hedged may be netted for the purpose of the 30% Test.
DIVIDENDS AND DISTRIBUTIONS. As explained in the Prospectus, dividends
from net investment income and distributions of any capital gains will be
taxable to shareholders (except for shareholders who are exempt from paying
taxes on their income), whether received in cash or invested in additional Fund
shares. For corporate shareholders, the 70% dividends received deduction, if
applicable, should apply to distributions received from all Funds except the
Leveraged Growth Fund. As to dividends received from the Leveraged Growth Fund,
<PAGE>
a substantial portion of the distributions should be eligible for the dividends
received deduction for corporate shareholders. Eligibility for the deduction,
however, is: (i) reduced to the extent that the Fund's shares with respect to
which the dividends are received are treated as "debt-financed;" and (ii)
eliminated if the Fund's shares are determined to have been held for less than
46 days. Amounts qualifying for the deduction are incredible in adjusted
alternative minimum taxable income and may require corporate shareholders to
reduce their basis in the event distributions are treated as "extraordinary
dividends."
A dividend or capital gains distribution paid shortly after shares have
been purchased, although in effect a return of investment, is subject to federal
income taxation. Dividends from net investment income, along with capital gains,
will be taxable to shareholders, whether received in cash or shares and no
matter how long you have held Fund shares, even if they reduce the net asset
value of shares below your cost and thus in effect result in a return of a part
of your investment. The Fund will send shareholders information each year on the
tax status of dividends and disbursements.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related Treasury Regulations currently in effect. For
the complete provisions, reference should be made to the pertinent Code sections
and Treasury Regulations. The Code and Regulations are subject to change by
legislative or administrative action at any time. Investors should consult with
their own advisers for the effect of any state or local taxation and for more
complete information on federal taxation.
CAPITAL SHARES AND VOTING
Please refer to the Prospectus, "Voting and Other", which contains
information on the subject capital shares and voting. Shares of both Funds, when
issued, are fully paid and non-assessable and have no preemptive or conversion
rights. Shareholders are entitled to one vote for each full share and a
fractional vote for each fractional share held. Shares have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees and, in this
event, the holders of the remaining shares voting will not be able to elect any
Trustees. The Trustees will hold office indefinitely, except that: (1) any
Trustee may resign or retire; (2) any Trustee may be removed with or without
cause at any time: (a) by a written instrument, signed by at lease two-thirds of
the number of Trustees prior to such removal; or (b) by vote of shareholders
holding not less than two-thirds of the outstanding shares of the Trust, cast in
person or by proxy at a meeting called for that purpose; (c) by a written
declaration signed by shareholders holding not less than two-thirds of the
outstanding shares of the Trust and filed with the Trust's custodian.
Shareholders have certain rights, as set forth in the Declaration of Trust,
including the right to call a meeting of the shareholders for the purpose of
voting on the removal of one or more Trustees. Shareholders holding not less
than ten percent (10%) of the shares then outstanding may require the Trustees
to call such a meeting and the Trustees are obligated to provide certain
assistance to shareholders desiring to communicate with other shareholders in
such regard (e.g.; providing access to shareholder lists, etc.). In case a
vacancy or an anticipated vacancy shall for any reason exist, the vacancy shall
be filled by the affirmative vote of a majority of the remaining Trustees,
subject to the provisions of Section 16(a) of the 1940 Act. Otherwise there will
normally be no meeting of shareholders for the purpose of electing Trustees, and
the Trust does not expect to have an annual meeting of shareholders.
FINANCIAL STATEMENTS AND REPORTS
The books of each Fund will be audited at least once each year by
independent auditors. Financial Statements of each Fund, as of September 30,
1996, together with the Report of the independent auditors, are included in the
Trust's Annual Report to Shareholders and are incorporated herein by reference.
Shareholders will receive annual audited and semi-annual (unaudited) reports
when published, and will receive written confirmation of all confirmable
transactions in their account. A copy of the Annual Report is available free of
<PAGE>
charge and will accompany the Prospectus or the Statement of Additional
information ("S.A.I.") whenever either is requested by a shareholder or
prospective investor.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, the Funds may, from time to time,
advertise certain total return information. The total return of the Funds for a
period is computed by subtracting the net asset value per share at the beginning
of the period from the net asset value per share at the end of the period (after
adjusting for the reinvestment of any income dividends and capital gain
distributions), and dividing the result by the net asset value per share at the
beginning of the period. In particular, the average annual total return of the
Funds ("T") is computed by using the redeemable value at the end of a specified
period of time ("ERV") of a hypothetical initial investment of $1,000 ("P") over
a period of time ("n") according to the formula P (1+T)n = ERV. The average
annual total return quotations for the Funds are set forth below:
Year Ended Inception to Sept. 30, 1996
September 30, 1996 % Inception Date
------------------ - --------------
Flexible Bond Fund 7.62% 7.74% October 6, 1988
Growth & Income Fund 12.18% 7.63% December 29, 1988
Capital Appreciation Fund 5.69% 7.59% May 2, 1989
Asset Allocation Fund 7.41% 7.48% May 2, 1989
Leveraged Growth Fund 6.85% 7.82% May 27, 1992
Performance quotations should not be considered as representative of the
Funds' performance for any specified period in the future.
The Funds' performance may be compared in sales literature to the
performance of other mutual funds having similar objectives or to standardized
indices or other measures of domestic, international or global investment
performance. In particular, the Funds may compare their performance to the S & P
500 Index, which is generally considered to be representative of the performance
of unmanaged common stocks that are publicly traded in the U.S. securities
markets. The Flexible Bond Fund may compare its performance to the Salomon BIG
Index, representative of the performance of unmanaged fixed income securities
that are publicly traded in the U.S. securities markets. .
Comparative performance may also be expressed by reference to a ranking
prepared by a mutual fund monitoring service or by one or more newspapers,
newsletters or financial periodicals.
Performance comparisons may be useful to investors who wish to compare
the Funds' past performance to that of other mutual funds and investment
products. Of course, past performance is not a guarantee of future results.
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
Moody's Investors Service, Inc.'s Corporate Bond Ratings:
Aaa: Bonds rate Aaa are judged to be of the best quality. They carry the small-
est degree of investment risk and are generally referred to as "gilt-edged."
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 fund-
amentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins or protection may not
be as large in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements that make the long-term risks
appear somewhat larger than in Aaa securities.
A: Bonds rated A posses many favorable investment attributes and are to be con-
sidered upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interested 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 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: Bonds rated B generally lack characteristics of a 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 rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to payment of principal or
interest.
Ca: Bonds rated Ca represent obligations that are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
<PAGE>
STANDARD & POOR'S CORPORATION'S BOND RATINGS:
AAA: This is the highest rating assigned by Standard & Poor's to a debt obliga-
tion and indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in circum-
stances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay princi-
pal and interest. Whereas they normally exhibit protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this category than
for bonds in the A category.
BB, B, CCC, CC: Bonds rated BB, B, CCC an CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures or adverse conditions.
PART C
MERRIMAN INVESTMENT TRUST
FORM N-1A
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements: Included in Part A - Financial Highlights for the
fiscal years ended September 30, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and
1989. Included in Part B - None.
(b) Exhibits
(1) Amendment to Declaration of Trust - Incorporated by reference, Post-
Effective Amendment No. 11, filed January 12, 1994
Amendment to Declaration of Trust - Incorporated by reference, Post-
Effective Amendment No. 9, filed December 28, 1992
Amendment to Declaration of Trust - Incorporated by reference, Post-
Effective Amendment No. 7, filed February 12, 1992
Amendment to Declaration of Trust - Incorporated by reference, Post-
Effective Amendment No. 1, filed November 5, 1991
Amendment to Declaration of Trust - Incorporated by reference, Post-
Effective Amendment No. 1, filed October 13, 1988
Amendment to Declaration of Trust - Incorporated by reference, Pre-
Effective Amendment No. 1, filed June 28, 1988
Original Declaration of Trust - Incorporated by reference, initial
registration statement, filed March 2, 1988
(2) Amendment to By-Laws - Incorporated by reference, Post-Effective Amend-
ment No. 1, filed October 13, 1988
Original By-Laws - Incorporated by reference, initial registration
statement, filed 3/2/88
(3) Not Applicable
(4) Specimen copies of each security issued by Registrant - Incorporated by
reference, Post-Effective Amendment No. 11, filed January 12, 1994
(5) Investment Management Agreement - Incorporated by reference, Post-
Effective Amendment No. 2, filed February 1, 1989
(6) Not Applicable
(7) Not Applicable
(8) Custodian Agreement - Incorporated by reference, Pre-effective Amend-
ment No. 1, filed June 28, 1988
(9) (A) Shareholder Services Agreement - Incorporated by reference, Pre-
effective Amendment No. 1, filed June 28, 1988
(B) Fund Accounting Services Agreement - Incorporated by reference,
Pre-effective Amendment No. 1, filed June 28, 1988
(10) Opinion of Counsel - Incorporated by reference, Pre-effective Amendment
No. 2, filed August 27, 1988.
(11) Consent of Independent Auditors - Enclosed
(12) Financial Statements Omitted from Item 23 - Annual Report to Share-
holders, September 30, 1996 - Enclosed
(13) Assurance Letter with respect to Initial Capital - Incorporated by re-
ference, Post-Effective Amendment No. 1, filed October 13, 1988
(14) None - Each Fund uses standard Internal Revenue Service approved IRA,
SEP-IRA and SIMPLE Forms.
(15) None - Not applicable
(16) None - Not applicable at this time
(17) Financial Data Schedule - Enclosed
(18) Copies of Powers of Attorney - For Messrs Ederer and Reppond, Incorpo-
rated by reference, initial registration statement, filed March 2, 1988
ITEM 25. Persons Controlled By or Under Common Control with Registrant
There are no persons controlled by or under common control with the
Registrant.
ITEM 26. Number of Holders of Securities
As of October 31, 1996, the number of record holders of the Funds of the
Trust were as follows:
Flexible Bond Fund 413 Capital Appreciation Fund 1,183
Growth & Income Fund 496 Asset Allocation Fund 1,177
Leveraged Growth Fund 906
ITEM 27. Indemnification
Article VIII of the Trust's Declaration of Trust provides for
indemnification of certain persons acting on behalf of the Trust.
Article VIII, Section 8.1 states, "The Trustees and officers of the
Trust, in incurring any debts, liabilities or obligations, or in limiting or
omitting any other actions for or in connection with the Trust, are or shall be
deemed to be acting as Trustees or officers of the Trust and not in their own
capacities," and further states that, "subject to Section 8.4 hereof, no
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever in tort, contract or otherwise to any other Person
in connection with the assets or affairs of the Trust or of any Fund, unless
only that arising from his own willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office or the
discharge of his functions."
Section 8.2 states concerning a Trustee's liability, "Subject to Section
8.4 hereof, a Trustee shall be liable for his own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. Subject to the foregoing, (i)
the Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant or Contracting Party, nor
shall any Trustee be responsible for the act or omission of any other Trustee;
(ii) the Trustees may take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust and their duties as
Trustees, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice; and (iii) in discharging
their duties, the Trustees, when acting in good faith, shall be entitled to rely
upon the books of account of the Trust and upon written reports made to the
Trustees by any officer appointed by them, any independent public accountant,
and (with respect to the subject matter of the contract involved) any officer,
partner or responsible employee of a Contracting Party. The Trustees as such
shall not be required to give any bond or surety or any other security for the
performance of their duties."
Concerning indemnification by the Trust, or Fund of the Trust, section
8.4 states, "Subject to the limitations set forth in this Section 8.4, the Trust
shall indemnify (from the assets of the Fund or Funds to which the conduct in
question relates) each of its Trustees and officers, including Persons who serve
at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise (referred to hereinafter, together with such Person's heirs,
executors, administrators or other legal representatives, as a "Covered Person")
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that his action
was in or not opposed to the bet interests of the Trust or (ii) had acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office (either and both of the conduct
described in clauses (i) and (ii) above being referred to hereinafter as
"Disabling Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that such Covered Person was
not liable by reason of Disabling Conduct, (ii) dismissal of a court action or
an administrative proceeding against such Covered Person for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination, based upon a
review of the facts, that such Covered Person was not liable by reason of
Disabling Conduct by (a) vote of a majority of a quorum of Trustees who are
neither "interested persons" of the Trust as the quoted phrase is defined in
Section 2(a)(19) of the 1940 Act nor parties to the action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened (such quorum of such Trustees being referred to hereinafter as the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Fund
or Funds to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided, that the Covered
Person shall have undertaken to repay the amounts so paid if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article VIII and if (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of the Disinterested Trustees, or an
independent legal counsel in a written opinion, shall have determined, based on
a review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be
entitled to indemnification hereunder."
Regarding compromise payments, the Declaration of Trust states, "As to
any matter disposed of by a compromise payment by any Covered Person referred to
in Section 8.4 hereof, pursuant to a consent decree or otherwise, no such
indemnification either for said payment or for any other expenses shall be
provided unless such indemnification shall be approved (i) by a majority of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Disinterested Trustees pursuant to clause (ii) shall
not prevent the recovery from any Covered Person of any amount paid to such
Covered Person in accordance with either of such clauses as indemnification if
such Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that such
Covered Person's action was in or not opposed to the best interests of the Trust
or to have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office."
Finally, Section 8.6 states that, "The right of indemnification provided
by this Article VIII shall not be exclusive of or affect any of the rights to
which any Covered Person may be entitled. Nothing contained in this Article VIII
shall affect any rights to indemnification to which personnel of the Trust,
other than Trustees and officers, and other Persons may be entitled by contract
or otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons by
the Trust's Declaration of Trust and By-Laws, or otherwise, the Trust has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Trust of expenses incurred or
paid by a director, officer or controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Trust will, unless, in the opinion of its counsel, the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Trust reserves the right to purchase Professional Indemnity
insurance coverage, the terms and conditions of which would conform generally to
the standard coverage available to the investment company industry. Such
coverage for the Trust would generally include losses incurred on account of any
alleged negligent act, error or omission committed in connection with the
operation of the Trust, but excluding losses incurred arising out of any
dishonest, fraudulent, criminal or malicious act committed or alleged to have
been committed by the Trust. Such coverage for trustees and officers would
generally include losses incurred by reason of any actual or alleged breach of
duty, neglect, error, misstatement, misleading statement or other act of
omission committed by such person in such a capacity, but would generally
exclude losses incurred on account of personal dishonesty, fraudulent breach of
trust, lack of good faith or intention to deceive or defraud, or willful failure
to act prudently. Similar coverage by separate policies may be afforded the
investment manager and its directors, officers and employees. Notwithstanding
the foregoing, no insurance will be purchased which protects or purports to
protect any officer or trustee for actions constituting willful misfeasance, bad
faith, gross negligence or reckless disregard of duties.
ITEM 28. Business and Other Connections of Investment Adviser
See Part B, "Trustees and Officers," for the activities and affiliations
of the officers and directors of the Investment Adviser. Currently, the
Investment Adviser's sole business is to serve the Trust, principally as its
investment adviser.
ITEM 29. Principal Underwriters
Inapplicable.
ITEM 30. Location of Accounts and Records
All account books and records not normally held by the Custodian,
Shareholder Servicing Agent and Fund Accounting Services Agent are held by the
Trust in the care of Paul A. Merriman, 1200 Westlake Avenue, North, Seattle,
Washington 98109.
ITEM 31. Management Services
The substantive provisions of a Fund Accounting Services Agreement
between the Registrant and Firstar Trust Company, are discussed in Part B hereof
The Agreement is referred to herein as Exhibit 9(B).
ITEM 32. Undertakings
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, has duly caused this Registration
Statement, Post-Effective Amendment No. 14, to be signed on its behalf by the
undersigned, duly authorized, in the City of Seattle, and State of Washington on
the 23rd day of December, 1996 .
MERRIMAN INVESTMENT TRUST
By: /s/ Paul A. Merriman
Paul A. Merriman
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
/s/ Ben W. Reppond * Trustee 12/23/96
Ben W. Reppond (Title) (Date)
/s/ David A. Ederer * Trustee 12/23/96
David A. Ederer (Title) (Date)
President and Trustee
/s/ Paul A. Merriman (Chief Executive Officer) 12/23/96
Paul A. Merriman (Title) (Date)
Exec. Vice President, Treasurer & Trustee
/s/ William L. Notaro (Chief Accounting & Financial Officer) 12/23/96
William L. Notaro (Title) (Date)
* Signed by Paul A. Merriman under Powers of Attorney dated 2/22/88
EXHIBITS
MERRIMAN INVESTMENT TRUST
FORM N-1A
INDEX OF EXHIBITS
(Numbers coincide with Item 24(b) of Form N-1A)
(11) Consent of Auditors
(12) Financial Statements
Annual Audited Report to Shareholders, September 30, 1996
(17) Financial Data Schedule
EXHIBIT 11
CONSENT OF AUDITORS
EXHIBIT 12
FINANCIAL REPORT
ANNUAL AUDITED REPORT TO SHAREHOLDERS
SEPTEMBER 30, 1996
EXHIBIT 17
FINANCIAL DATA SCHEDULE
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated October 17, 1996 on the
financial statements and financial highlights of Merriman Flexible Bond Fund,
Merriman Growth & Income Fund, Merriman Capital Appreciation Fund, Merriman
Asset Allocation Fund, Merriman Leveraged Growth Fund, and Merriman Investment
Trust. Such financial statements appear in the 1996 Annual Report to
Shareholders which is incorporated by reference in the Prospectus and in the
Statement of Additional Information filed in the Post-Effective Amendment to the
Registration Statement on Form N-1A of Merriman Investment Trust. We also
consent to the references to our Firm in the Registration Statement and
Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 23, 1996
<PAGE>
MERRIMAN MERRIMAN INVESTMENT TRUST
FLEXIBLE BOND FUND 1200 Westlake Ave N., Suite 700
Seattle, WA 98109
MERRIMAN 1-800-423-4893
GROWTH & INCOME FUND 1-206-285-8877
MERRIMAN Investment Manager
CAPITAL APPRECIATION Merriman Invesment
FUND Management Company
1200 Westlake Ave N., Suite 700
MERRIMAN Seattle, WA 98109
ASSET ALLOCATION
FUND Custodian and
Transfer Agent
MERRIMAN Firstar Trust Company
LEVERAGED GROWTH PO Box 701
FUND Milwaukee, WI 53201
1-800-224-4743
ANNUAL REPORT Fund Council
Sullivan & Worcester
PERIOD ENDED Boston, Massachusetts
September 30, 1996
Officers & Trustees
Paul A. Merriman, President and Trustee
William L. Notaro, Executive Vice President,
Secretary, Treasurer, and Trustee
David A. Ederer, Trustee
Ben W. Reppond, Trustee
<PAGE>
Dear Fellow Shareholder:
Many investors and portfolio managers who thought they could predict the markets
were fooled during the fiscal year that ended September 30. Some high flying
managers and funds were humbled, most conspicuously including Jeff Vinik, who
lost his job as manager of the world's largest mutual fund, Fidelity Magellan (a
fund whose record now is closer to average than it has ever been). The Merriman
Mutual Funds also faced major challenges during the year.
During this period, the U.S. economy was characterized by moderate growth, low
inflation, record corporate profits, low unemployment, strong productivity, and
a somewhat bumpy interest rate market. While the economy has been sensitive to
overheating, our expansion has outpaced that of Europe. In Asia, emerging
economies continue to grow more than twice as fast as the industrialized
countries. Meanwhile, Japan is struggling with its longest and deepest slump
since World War II.
The U.S. dollar has strengthened against the Japanese yen and the German mark,
moderating U.S. investors' otherwise strong gains in international investments,
which have now trailed those in the U.S. for three years in a row. Nevertheless,
we continue to believe strongly that international diversification is the best
policy for most investors.
We are often asked what we see ahead for the domestic stock market. As always,
we see compelling arguments to be optimistic. And we see equally compelling
arguments in favor of great caution. There are always legitimate reasons to
expect either higher or lower prices, and the present time is no exception. In
fact, we are observing a classic tug of war between the bulls and bears.
GO BULLS!
If we were drafted to root for the bulls, we'd stress the fact that the Federal
Reserve seems to be successful in engineering a "soft landing" for the economy.
The threat of inflation apparently has been nearly wrung out of the economy,
while productivity improvements and worldwide competition have kept downward
pressure on prices.
One thing is very obvious: U.S. investors are bullish on stocks, pouring money
into equity mutual funds at record rates, encouraged by one of the longest bull
markets of the century. Demographic trends have an enormous effect on the
economy, and some present trends are crystal clear. The Baby Boom generation,
three times as big as any previous generation in U.S. history, isn't expected to
peak in its spending and saving habits until around 2009. Many people believe
this generation of Americans, just now starting to reach their peak earning
years, is about to fuel the greatest economic expansion in history.
In addition, U.S. corporations have done much of the painful pruning needed to
get rid of their inefficient operations. Companies are rewarding employees by
beefing up subsidized savings plans such as 401(k)s. And they're rewarding
shareholders with stock buyback programs, mergers, and in some cases splitting
companies into pieces in the hope that the total value of the separate parts
will exceed that of the whole (AT&T is a major current example). All these are
positive signs for stock prices well into the future.
GO BEARS!
If we had to root for the bears, we'd also find plenty to talk about. Many
cautious investors are still waiting for what they consider inevitable market
corrections to counteract the present rampant optimism. U.S. consumers are
struggling with record levels of debt and record rates of personal bankruptcies.
Savings rates are very low by world standards, real wage increases are minimal
for many people and nonexistent for others. While corporate profits have been
remarkably robust since 1990, that pace simply cannot continue forever, and
weaker profits may lead to lower P/E ratios, multiplying the unpleasant effects
on stock prices.
If Americans continue their heavy investing through retirement plans, that will
exert a strong upward pressure on stock prices. But when optimism has so much
momentum, when continuing miracles are expected as investors' due, even minor
disappointments can bring swift, brutal consequences in the market. Millions of
mutual fund investors have never been through a bear market. When that market
comes, a 10 to 15 percent correction will wring many fair-weather investors out
of the market, possibly forcing fund managers to sell their holdings at
depressed prices. It's not clear who the buyers will be if that happens in any
great volume. <PAGE>
The bears have other strong arguments. For some time, the dividend yields of the
Dow Jones Industrial Average and the Standard & Poor's 500 Index have been at
all-time lows while their price-to-book ratios have been at all-time highs.
However, the real excesses are to be found in the OTC market. The NASDAQ's
astronomical P/E ratio of 40 and dividend yield of only 0.6 percent equal those
of the Japanese stock market before it tumbled by 60 percent.
DOING IT DAILY
Long ago, we stopped trying to take sides between bulls and bears. We do not try
to predict the future. Our approach is to track current trends affecting each
investment in our portfolio, and we do it daily. Our objective is to squeeze out
all possible profits in bull markets while protecting against the major declines
that are likely when the bears take over. We believe the best way to achieve
those objectives is with a combination of patience, a long-term focus, daily
monitoring, and our proprietary market timing systems.
We apply these tools to each of our five mutual funds.
MERRIMAN FLEXIBLE BOND FUND
The Merriman Flexible Bond Fund invests in a broad spectrum of fixed-income
securities that we believe offer the best opportunity to achieve attractive
returns with below-average volatility. The Fund's present investment policy is
to maintain a balance of 35 percent in international bonds, 25 percent in U.S.
high-yield bonds, and the remaining 40 percent in high-grade U.S. government and
corporate bonds. We use our timing systems to help us be invested in each bond
group during market advances and on the sidelines, in Treasury bills, money
funds and other cash equivalents, while markets are declining.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Flexible Bond Fund and the Salomon Big
Index.
Start Date 10-06-88
End Date 09-30-96
Beginning Value $10,000
End Value - Merriman Flexible Bond Fund $18,119
End Value - Salomon Big Index $19,983
Average Annual Total Return of 1YR 5YR Since Inception
Merriman Flexible Bond Fund 7.62% 8.08% 7.74%
During the past year, unexpectedly strong job reports in March and July sparked
one-day drops in the Dow of 171 and 115 points. Those reports also touched off
sharp price drops in U.S. high grade corporate and government bonds. Our timing
models took us out of that arena well in advance of both those plunges.
To the surprise of many investors, the 12 months ended September 30 were not
good to long-term government and corporate high-grade bonds. According to
Morningstar, the average bond fund in those markets with portfolios of 15 years
or more produced a total return of only 3.34 percent, less than the yield of
money-market funds. At the same time, high-yield bonds were up 12.93 percent,
giving investors (at least those who bothered to notice) one more reminder of
why it's wise to diversify. We have been continuously invested in U.S.
high-yield bond funds since January 1995. While the international investments of
the Fund experienced several unproductive whiplashes, our investments in
emerging markets funds enjoyed a particularly strong run from April through the
end of our fiscal year.
For the 12 months ending September 30, the Flexible Bond Fund was up 7.62
percent. This compares with a gain of 8.01 percent for the same balance of U.S.
and international bond funds, based on Morningstar's averages for those
categories. According to Morningstar, the Fund's volatility is about 20 percent
less than the average fund in its category, giving shareholders more return for
each unit of risk. Because of this relationship, the Fund recently earned
Morningstar's highest rating, 5 Stars.
MERRIMAN CAPITAL APPRECIATION FUND
The Capital Appreciation Fund pursues growth of capital by investing in mutual
funds seeking U.S. and international growth and aggressive growth as well as
small-cap funds. Our present investment policy maintains a balance of 65 percent
in U.S. equity funds and 35 percent in international funds. As with all our
funds, whenever our timing models indicate the risk of loss is greater than the
potential for gain, we take defensive action and move into money funds or other
cash equivalents. <PAGE>
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Capital Appreciation Fund and the
S&P 500 Index.
Start Date 05/02/89
End Date 09/30/96
Beginning Value $10,000
End Value - Merriman Capital Appreciation Fund $17,213
End Value - S&P 500 Index $26,604
Average Annual Total Return of 1YR 5YR Since Inception
Merriman Capital Appreciation Fund 5.69% 6.86% 7.59%
In the year ended September 30, the Capital Appreciation Fund's total return was
5.69 percent. By comparison, a similar mix of domestic and international equity
funds held without timing returned 11.94 percent. The Fund's underperformance
resulted from a huge sell-off in aggressive growth and technology funds in the
fourth calendar quarter of 1995 and another sell-off in March 1996. In both
cases, our market timing systems produced a whipsaw effect as we tried to
protect the Fund's assets from sharp declines.
However, according to Morningstar, the volatility of the Fund is about 40
percent lower than the average of funds in the growth, aggressive growth,
small-cap, and international equity categories. We believe this makes the
Capital Appreciation Fund an excellent choice for conservative investors seeking
growth of capital with wide diversification.
MERRIMAN LEVERAGED GROWTH FUND
The Leveraged Growth Fund uses the same defensive strategies as the Capital
Appreciation Fund. But during rising markets, this Fund takes a more aggressive
approach in order to seek above-average returns. This Fund may borrow up to $1
for each $2 of net assets in order to make additional investments when our
timing models indicate a high probability of gain.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Leveraged Growth Fund and the S&P 500
Index.
Start Date 05/27/92
End Date 09/30/96
Beginning Value $10,000
End Value - Merriman Leveraged Growth Fund $13,873
End Value - S&P 500 Index $18,581
Average Annual Total Return of 1YR 5YR Since Inception
Merriman Leveraged Growth Fund 6.85% N/A 7.82%
For the 12 months ending September 30, the Fund's total return was 6.85 percent,
compared with a gain of 11.94 percent for a similar mix of domestic and
international equity funds held without timing or leverage. According to
Morningstar, the Fund's volatility is less than 80 percent of the average of
growth, aggressive growth, and small-cap funds.
MERRIMAN GROWTH AND INCOME FUND
The Growth and Income Fund invests primarily in growth-and-income mutual funds,
with 65 percent of assets invested domestically and 35 percent internationally,
as in the Capital Appreciation and Leveraged Growth Funds. For the year ending
September 30, the Fund's total return was 12.18 percent, compared with 11.94
percent for a similar balance of growth-and-income funds tracked by Morning-
star. According to Morningstar, the Fund's volatility is about 45 percent less
than the average of funds in its category.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Growth & Income Fund and the S&P 500
Index.
Start Date 12/29/88
End Date 09/30/96
Beginning Value $10,000
End Value - Merriman Growth & Income Fund $17,685
End Value - S&P 500 Index $31,153
Average Annual Total Return of 1YR 5YR Since Inception
Merriman Growth & Income Fund 12.18% 7.17% 7.63%
This Fund did not suffer to the same extent from the market whipsaws in the
first and second quarters of our fiscal year, largely because the Fund's
portfolio concentrates on large-cap funds. Those funds performed better than the
more aggressive funds held by the Capital Appreciation and Leveraged Growth
Funds. <PAGE>
MERRIMAN ASSET ALLOCATION FUND
The Asset Allocation Fund spreads its investments among five major asset groups
and applies disciplined timing models to each one. Our present policies allocate
30 percent of the Fund's portfolio to U.S. equity funds, 30 percent to
international equity funds, 15 percent to U.S. bond funds, 15 percent to
international bond funds, and 10 percent to gold funds.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Asset Allocation Fund and the S&P 500
Index.
Start Date 05/02/89
End Date 09/30/96
Beginning Value $10,000
End Value - Merriman Asset Allocation Fund $17,083
End Value - S&P 500 Index $26,604
Average Annual Total Return of 1YR 5YR Since Inception
Merriman Asset Allocation Fund 7.41% 7.66% 7.48%
For the year ending September 30, the Fund's total return was 7.41 percent.
According to Morningstar, an untimed portfolio of the same balance of funds
appreciated 11.75 percent. However, the Fund's volatility was about 30 percent
less than such an untimed portfolio.
Although our timing systems often result in underperformance for our funds
during market advances, we continue to believe strongly that investors need
defensive protection from the very real threat of severe corrections, both in
equities and in bonds. It is true that markets always feel safest after they
have made a major advance. However, this is often just the time when those
markets are at the greatest risk.
Our job is to minimize that risk, and we continue to watch each of our
investments every business day. And every day, we are grateful for your
confidence in the Merriman Mutual Funds and in our defensive approach to
investing.
Sincerely,
Paul A. Merriman
President
<PAGE>
Merriman Flexible Bond Fund
Portfolio of Investments
September 30, 1996
Market Value
Shares (Note 2A)
------ ------------
High Grade Corporate Bond Funds: 33.19%
---------------------------------------
281,189 Babson Bond Trust - Long Term .................. $ 424,595
33,475 Columbia Fixed Income Securities Fund .......... 432,159
30,201 Dreyfus A Bond Plus, Inc. ...................... 431,267
41,856 Fidelity Intermediate Bond Fund ................ 418,564
36,101 T. Rowe Price New Income Fund .................. 316,421
32,009 Scudder Income Fund ............................ 423,485
49,806 Stein Roe Intermediate Bond Fund ............... 428,332
-------
Total High Grade Corporate Bond Funds
(Cost $2,874,643) .............................. 2,874,643
---------
High-Yield Corporate Bond Funds: 29.68%
---------------------------------------
45,366 Federated High Income Bond Fund ................ 513,995
55,689 Federated High Yield Trust ..................... 509,551
41,820 Fidelity Advisor High Yield Fund ............... 516,475
71,541 INVESCO Bond High Yield Fund ................... 502,217
48,640 Northeast Investors Trust ...................... 528,232
-------
Total High-Yield Corporate Bond Funds
(Cost $2,305,000) .............................. 2,570,470
---------
International Bond Funds: 35.16%
--------------------------------
36,328 Benham European Govt Bond Fund ................. 427,949
38,219 Federated International Income Fund ............ 431,879
43,367 Fidelity Global Bond Fund ...................... 418,061
29,719 G.T. Global High Income Fund Class A ........... 438,657
42,815 T. Rowe Price International Bond Fund .......... 442,279
36,340 Scudder Emerging Markets Income Fund ........... 467,330
37,644 Scudder International Bond Fund ................ 419,353
-------
Total International Bond Funds
(Cost $2,972,392) .............................. 3,045,508
---------
Principal
Amount
---------
Short-Term Demand Notes: 1.91%
-------------------------------
$82,000 Johnson Controls, Inc.,
5.2160%, 03/03/97............................... 82,000
83,000 Wisconsin Electric Power Company,
5.2356%, 02/14/97............................... 83,000
------
Total Short-Term Demand Notes
(Cost $165,000)................................. 165,000
-------
Total Investment in Securities
(Cost $8,317,035) (a)..........................99.94% 8,655,621
Other Assets
Less Liabilities............................. 0.06% 4,929
---- -----
NET ASSETS....................................100.00% $8,660,550
======= ==========
(a) Cost for federal income tax purposes is the same and
net unrealized appreciation consists of:
Gross unrealized appreciation $ 351,172
Gross unrealized depreciation (12,586)
-------
Net Unrealized Appreciation $ 338,586
=======
See Accompanying Notes to Financial Statements
<PAGE>
Merriman Growth & Income Fund
Portfolio of Investments
September 30, 1996
Market Value
Shares (Note 2A)
------ ------------
Domestic Equity Funds: 61.52%
------------------------------
20,815 Columbia Common Stock Fund...................... $ 435,240
14,691 Fidelity Growth & Income Fund................... 425,735
55,848 Founders Blue Chip Fund......................... 437,845
67,840 GT Global Growth & Income Fund.................. 467,415
19,017 INVESCO Value Equity Fund....................... 443,470
22,609 Janus Growth & Income Fund...................... 448,552
24,277 Lexington Growth & Income Fund.................. 453,746
17,880 Neuberger & Berman Guardian Fund................ 442,522
19,737 T. Rowe Price Growth & Income Fund.............. 427,103
23,434 SAFECO Income Fund.............................. 469,373
23,769 Salomon Brothers Investors Fund................. 452,087
14,610 Strong Total Return Fund........................ 450,275
-------
Total Domestic Equity Funds
(Cost $5,094,420)............................... 5,353,363
---------
International Equity Funds: 33.20%
-----------------------------------
24,838 Fidelity Int'l Growth & Income Fund............. 474,663
27,083 INVESCO European Fund........................... 420,592
15,682 Janus Worldwide Growth Fund..................... 541,201
30,644 T. Rowe Price European Stock Fund............... 508,379
36,344 T. Rowe Price International Stock Fund.......... 491,735
16,406 Scudder Global Fund............................. 452,644
-------
Total International Equity Funds
(Cost $2,436,917)............................... 2,889,214
---------
Money Market Funds: 1.08%
--------------------------
19,380 Fidelity Cash Reserves Fund..................... 19,380
61,048 Lexington Money Market Fund..................... 61,048
13,089 Strong Money Market Fund........................ 13,089
------
Total Money Market Funds
(Cost $93,517).................................. 93,517
------
Principal
Amount
---------
Short-Term Demand Notes: 3.89%
--------------------------------
$ 150,200 Johnson Controls, Inc.,
5.2160%, 03/03/97............................... 150,200
75,000 American Family Financial Services,
5.1956%, 05/16/97............................... 75,000
13,400 Pitney Bowes, Inc.,
5.1946%, 01/31/97............................... 113,400
-------
Total Short-Term Demand Notes
(Cost $338,600)................................. 338,600
-------
Total Investment in Securities
(Cost $7,963,454) (a)..........................99.69% 8,674,694
Other Assets,
Less Liabilities..............................0.31% 27,140
----- ------
NET ASSETS....................................100.00% $8,701,834
======= ==========
(a) Cost for federal income tax purposes is the same and
net unrealized appreciation consists of:
Gross unrealized appreciation $ 711,240
Gross unrealized depreciation 0
-------
Net Unrealized Appreciation $ 711,240
=======
See Accompany Notes to Financial Statements
<PAGE>
Merriman Capital Appreciation Fund
Portfolio of Investments
September 30, 1996
Market Value
Shares (Note 2A)
------ ------------
Domestic Equity Funds: 56.50%
------------------------------
50,391 Founders Growth Fund............................$ 849,598
57,433 T. Rowe Price Capital Appreciation Fund......... 867,811
33,762 T. Rowe Price Growth Stock Fund................. 888,617
37,748 T. Rowe Price New Horizon Fund.................. 909,356
38,550 Scudder Capital Growth Fund..................... 872,767
29,081 Stein Roe Capital Opportunity Fund.............. 902,677
42,018 Strong Discovery Fund........................... 702,129
41,543 20th Century Growth Fund........................ 898,991
28,292 USAA Aggressive Growth Fund..................... 906,204
39,945 USAA Growth Fund................................ 707,828
6,192 WPG Growth Fund................................. 909,907
-------
Total Domestic Equity Funds
(Cost $9,014,386)............................... 9,415,885
---------
International Equity Funds: 38.27%
-----------------------------------
41,091 Federated International Equity Fund Class A .... 701,011
75,702 Fidelity European Capital App Fund ............. 1,051,508
39,387 Founders Worldwide Growth Fund ................. 854,300
63,102 T. Rowe Price European Stock Fund .............. 1,046,867
97,187 T. Rowe Price New Asia Fund .................... 856,219
37,078 Scudder Global Fund ............................ 1,022,989
51,358 Scudder Pacific Opportunity Fund ............... 844,329
-------
Total International Equity Funds
(Cost $5,853,117)............................... 6,377,223
---------
Money Market Funds: 2.94%
--------------------------
375,881 Lexington Money Market Fund..................... 375,881
113,742 20th Century Cash Reserves Fund................. 113,742
-------
Total Money Market Funds
(Cost $489,623)................................. 489,623
-------
Principal
Amount
---------
Short-Term Demand Notes: 2.21%
-------------------------------
$ 134,400 Johnson Controls, Inc.,
5.216%, 03/03/97................................ 134,400
30,700 American Family Financial Services,
5.1956%, 05/16/97............................... 30,700
203,400 Wisconsin Electric Power Company,
5.2356% 02/14/97................................ 203,400
-------
Total Short-Term Demand Notes
(Cost $368,500)................................. 368,500
-------
Total Investment in Securities
(Cost $15,725,626) (a)........................99.92% 16,651,231
Other Assets
Less Liabilities............................0.08% 13,581
----- ------
NET ASSETS...................................100.00% $16,664,812
======= ===========
(a) Cost for federal income tax purposes is the same
and net unrealized appreciation consists of:
Gross unrealized appreciation................... $1,087,147
Gross unrealized depreciation................... (161,542)
--------
Net Unrealized Appreciation..................... $ 925,605
=======
See Accompanying Notes to Financial Statements
<PAGE>
Merriman Asset Allocation Fund
Portfolio of Investments
September 30, 1996
Market Value
Shares (Note 2A)
------ ---------
Domestic Equity Funds: 26.39%
------------------------------
54,613 Founders Growth Fund ........................... $920,771
38,215 T. Rowe Price New Horizons Fund ................ 920,596
40,385 Scudder Capital Growth Fund .................... 914,328
31,054 Stein Roe Capital Opportunity Fund ............. 963,910
57,060 20th Century Vista Fund ........................ 960,321
-------
Total Domestic Equity Funds
(Cost $4,391,626)............................... 4,679,926
---------
International Equity Funds: 33.69%
-----------------------------------
83,449 Fidelity European Capital Appreciation Fund..... 1,159,113
69,073 INVESCO European Fund........................... 1,072,704
57,413 INVESCO Strategic Basin Fund.................... 837,653
63,736 T. Rowe Price European Stock Fund............... 1,057,381
101,852 T. Rowe Price New Asia Fund..................... 897,315
34,446 Scudder Global Fund............................. 950,373
-------
Total International Equity Funds
(Cost $5,325,840)............................... 5,974,539
---------
High Grade Corporate Bond Funds: 2.13%
---------------------------------------
28,499 Scudder Income Fund............................. 377,042
-------
Total High Grade Corporate Bond Funds
(Cost $377,042)................................. 377,042
-------
High Yield Corporate Bond Funds: 11.53%
----------------------------------------
54,207 Federated High Income Bond Fund................. 614,162
77,029 Federated High Yield Trust...................... 704,813
66,827 Northeast Investors Trust....................... 725,737
-------
Total High Yield Corporate Bond Funds
(Cost $1,837,672)............................... 2,044,712
---------
International Bond Funds: 14.00%
---------------------------------
50,811 Benham European Gov't Bond Fund................. 598,557
56,308 Federated Int'l Income Fund Class A............. 636,278
50,514 Scudder Emerging Markets Fund................... 649,606
53,673 Scudder International Bond Fund................. 597,913
-------
Total International Bond Funds
(Cost $2,417,107)............................... 2,482,354
---------
Money Market Funds: 10.04%
---------------------------
312,691 Benham Government Agency Fund................... 312,691
319,125 Lexington Money Market Fund..................... 319,125
161,938 T. Rowe Price Prime Reserve Fund................ 161,938
21,791 Stein Roe Cash Reserves Fund.................... 21,791
310,406 United Services US Treasury Fund................ 310,406
655,342 USAA Money Market Fund.......................... 655,342
-------
Total Money Market Funds
(Cost $1,781,293)............................... 1,781,293
---------
Principal
Amount
---------
Short-Term Demand Notes: 1.67%
-------------------------------
$ 296,400 Johnson Controls, Inc.,
5.2160% 03/03/97................................$ 296,400
-------
Total Short-Term Demand Notes
(Cost $296,400)................................. 296,400
-------
Total Investment in Securities
(Cost $16,426,980) (a)........................99.45% 17,636,266
Other Assets
Less liabilities............................0.55% 97,056
----- ------
NET ASSETS...................................100.00% $17,733,322
======= ===========
(a) Cost for federal income tax purposes is the same
and net unrealized appreciation consists of:
Gross unrealized appreciation................... $1,217,337
Gross unrealized depreciation................... (8,051)
------
Net Unrealized Appreciation..................... $1,209,286
==========
See Accompany Notes to Financial Statements
<PAGE>
Merriman Leveraged Growth Fund
Portfolio of Investments
September 30, 1996
Market Value
Shares (Note 2A)
------ ---------
Domestic Equity Funds: 85.81%
------------------------------
33,567 Columbia Special Fund...........................$ 800,917
22,205 Federated Stock Trust........................... 741,859
46,182 Founders Growth Fund............................ 778,633
32,089 Founders Discovery Fund......................... 831,103
23,161 Founders Frontier Fund.......................... 824,060
30,145 T. Rowe Price Growth Stock Fund................. 793,408
34,262 T. Rowe Price New Horizons Fund................. 825,377
33,467 Scudder Capital Growth Fund..................... 757,699
18,240 Scudder Development Fund........................ 748,584
26,789 SteinRoe Capital Opportunity Fund............... 831,526
27,392 SteinRoe Growth Stock Fund...................... 788,623
37,092 20th Century Growth Fund........................ 802,671
49,483 20th Century Vista Fund......................... 832,791
25,908 USAA Aggressive Growth Fund..................... 829,840
37,100 USAA Growth Fund................................ 657,410
23,591 Value Line Leveraged Growth Fund................ 810,114
5,528 WPG Growth Fund................................. 812,292
-------
Total Domestic Equity Funds
(Cost $12,808,693).............................. 13,466,907
----------
International Equity Funds: 50.64%
-----------------------------------
46,627 Federated Int'l Equity Fund Class A............. 795,452
61,917 Fidelity European Capital App Fund.............. 860,026
35,832 Founders Worldwide Growth Fund.................. 777,199
52,545 G.T. Global Emerging Markets Fund Class A....... 771,888
49,570 INVESCO European Fund........................... 769,823
23,690 Janus Worldwide Fund............................ 817,536
51,618 T. Rowe Price European Stock Fund............... 856,339
87,165 T. Rowe Price New Asia Fund..................... 767,924
27,599 Scudder Global Fund............................. 761,447
46,856 Scudder Pacific Opportunity Fund................ 770,308
-------
Total International Equity Funds
(Cost $7,255,361)............................... 7,947,942
---------
Principal
Amount
---------
Short-Term Demand Notes: 0.08%
$ 12,900 American Family Financial Services,
5.1956%, 05/16/97...............................$ 12,900
------
Total Short-Term Demand Notes
(Cost $12,900).................................. 12,900
------
Total Investment in Securities
(Cost $20,076,954) (a)......................136.53% 21,427,749
Other Assets,
Less Liabilities..........................(36.53%)(5,733,622)
------ ----------
NET ASSETS..................................100.00% $15,694,127
======= ===========
(a) Cost for federal income tax purposes is the same
and net unrealized appreciation consists of:
Gross unrealized appreciation................... $1,494,538
Gross unrealized depreciation................... (143,743)
--------
Net Unrealized Appreciation..................... $1,350,795
==========
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1996
<CAPTION>
Merriman Merriman Merriman Merriman
Merriman Growth & Capital Asset Leveraged
Flexible Bond Income Appreciation Allocation Growth
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets
Investments in securities, at market value
(identified cost $8,317,035, $7,963,454,
$15,725,626, $16,426,980 and $20,076,954
respectively) (Note 2) $ 8,655,621 $8,674,694 $16,651,231 $17,636,266 $21,427,749
Cash 15,353 5,353 10,188 15,604 2,717
Dividends and interest receivable 29,287 77,202 63,480 70,114 126,186
Receivable for securities sold 2,869,657 - - 377,042 -
Receivable for fund shares sold - 4,000 200 59,740 700
Deferred organization expenses - - - - 1,151
--------- --------- ---------- ---------- ----------
Total assets 11,569,918 8,761,249 16,725,099 18,158,766 21,558,503
---------- --------- ---------- ---------- ----------
Liabilities
Loan payable to custodian bank - - - - 5,800,000
Accrued management fees 7,044 8,845 16,864 17,927 15,899
Other accrued expenses 9,008 11,142 23,797 25,475 48,477
Payable for securities purchased 2,874,642 - - 377,042 -
Payable for fund shares redeemed 12,713 39,428 19,626 5,000 -
Distributions payable 5,961 - - - -
--------- ------ ------ ------- ---------
Total liabilities 2,909,368 59,415 60,287 425,444 5,864,376
--------- ------ ------ ------- ---------
Net Assets
(Applicable to 835,640, 747,250, 1,524,135, 1,526,903
and 1,275,683 shares of beneficial interest with no
par value, unlimited number of shares authorized) $ 8,660,550 $8,701,834 $16,664,812 $17,733,322 $15,694,127
=========== ========== =========== =========== ===========
Pricing of Shares
Net asset value, offering and redemption price
per share
$ 8,660,550 / 835,640 shares $ 10.36
===========
$ 8,701,834 / 747,250 shares $ 11.65
==========
$16,664,812 / 1,524,135 shares $ 10.93
===========
$17,733,322 / 1,526,903 shares $ 11.61
===========
$15,694,127 / 1,275,683 shares $ 12.30
===========
Net assets
At September 30, 1996, net assets consisted of:
Paid-in capital $ 8,407,633 $7,209,221 $14,368,480 $14,926,715 $13,640,366
Undistributed net investment income 31,335 36,648 - 223,937 -
Accumulated net realized gain (loss) (117,004) 744,725 1,370,727 1,373,384 702,966
Unrealized appreciation on investments 338,586 711,240 925,605 1,209,286 1,350,795
--------- --------- ---------- ---------- ----------
$ 8,660,550 $8,701,834 $16,664,812 $17,733,322 $15,694,127
============ ========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
Year Ended September 30, 1996
<CAPTION>
Merriman Merriman Merriman Merriman
Merriman Growth & Capital Asset Leveraged
Flexible Bond Income Appreciation Allocation Growth
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment income
Interest $ 15,208 $ 14,999 $ 18,851 $ 18,957 $ 15,970
Dividends 635,445 355,548 645,925 842,686 387,920
------- ------- ------- ------- -------
Total investment income 650,653 370,547 664,776 861,643 403,890
------- ------- ------- ------- -------
Expenses
Management fees (Note 3) 86,416 113,042 232,703 248,132 172,334
Accounting services 17,490 18,718 37,803 41,618 25,355
Custodian fees 3,311 3,404 5,067 6,287 5,320
Transfer agent fees 13,046 14,929 41,556 40,406 19,667
Interest expense (Note 4) - - - - 269,359
Professional services 3,583 4,888 10,134 10,451 6,786
Registration fees 3,595 4,077 10,984 11,064 8,423
Insurance and other 43 65 735 10 371
Printing 805 810 1,736 1,922 1,176
Trustees fees 104 194 620 576 421
Amortization of organization expenses - - - - 1,742
------ ------- ------- ------- -------
Total expenses 128,393 160,127 341,338 360,466 510,954
------- ------- ------- ------- -------
Net investment income (loss) 522,260 210,420 323,438 501,177 (107,064)
------- ------- ------- ------- --------
Realized and Unrealized gain (loss)
on investments
Net realized gain from security transactions 11,709 833,675 1,371,325 1,200,254 720,399
Capital gain distributions from regulated investment
companies 2,057 257,241 1,085,491 403,950 679,989
Increase (decrease) in unrealized appreciation of
investments 99,779 (264,367) (1,896,938) (735,043) (64,087)
------ -------- ---------- -------- -------
Net realized and unrealized gain on investments 113,545 826,549 559,878 869,161 1,336,301
------- ------- ------- ------- ---------
Net increase in net assets resulting from
operations $ 635,805 $ 1,036,969 $ 883,316 $ 1,370,338 $1,229,237
=========== =========== =========== =========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
Merriman Flexible Bond Fund Merriman Growth & Income Fund
---------------------------- -----------------------------
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 522,260 $ 477,393 $ 210,420 $ 204,709
Net realized gain on investments 11,709 12,563 833,675 145,339
Capital gain distributions from regulated investment
companies 2,057 - 257,241 55,403
Net increase (decrease) in unrealized appreciation on
investments 99,779 242,467 (264,367) 975,607
------- ------- -------- -------
Net increase in net assets resulting from operations 635,805 732,423 1,036,969 1,381,058
Distributions to shareholders:
Distributions from net realized gain on investments - - (547,218) (772,792)
Distributions from net investment income (521,876) (481,041) (217,137) (183,504)
Capital share transactions:
Decrease in net assets resulting from capital
share transactions (Note 5) (45,450) (2,201,254) (919,075) (1,777,320)
- ------- ---------- -------- ----------
Total increase (decrease) 68,479 (1,949,872) (646,461) (1,352,558)
Net assets
Beginning of year 8,592,071 10,541,943 9,348,295 10,700,853
--------- ---------- --------- ----------
End of year* $8,660,550 $8,592,071 $8,701,834 $9,348,295
========== ========== ========== ==========
* Including undistributed net investment income of: $ 31,335 $ 30,951 $ 36,648 $ 43,365
========== ========== =========== ==========
</TABLE>
<TABLE>
Merriman Capital Merriman Asset
Appreciation Fund Allocation Fund
----------------- ---------------
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 323,438 $ 183,702 $ 501,177 $ 519,782
Net realized gain on investments 1,371,325 696,597 1,200,254 150,214
Capital gain distributions from regulated investment
companies 1,085,491 131,629 403,950 64,624
Net increase (decrease) in unrealized appreciation on
investments (1,896,938) 2,343,249 (735,043) 1,105,563
---------- --------- -------- ---------
Net increase in net assets resulting from operations 883,316 3,355,177 1,370,338 1,840,183
Distributions to shareholders:
Distributions from net realized gain on investments (1,914,315) (1,568,532) (446,499) (1,493,203)
Distributions from net investment income (385,016) (143,190) (300,168) (522,635)
Capital share transactions:
Decrease in net assets resulting from capital
share transactions (Note 5) (4,124,143) (5,017,157) (5,522,839) (7,175,623)
---------- ---------- ---------- ----------
Total decrease (5,540,158) (3,373,702) (4,899,168) (7,351,278)
Net assets
Beginning of year 22,204,970 25,578,672 22,632,490 29,983,768
---------- ---------- ---------- ----------
End of year* $16,664,812 $22,204,970 $17,733,322 $22,632,490
=========== =========== =========== ===========
* Including undistributed net investment income of: $ - $ 61,578 $ 223,937 $ 22,928
========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merriman Leveraged Growth Fund
------------------------------
<CAPTION>
Year Ended Year Ended
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Operations:
Net investment loss $ (107,064) $ (48,768)
Net realized gain on investments 720,399 180,865
Capital gain distributions from regulated investment
companies 679,989 84,827
Net increase (decrease) in unrealized appreciation on
investments (64,087) 1,414,882
-------- ---------
Net increase in net assets resulting from operations 1,229,237 1,631,806
Distributions to shareholders:
Distributions from net realized gains on investments (749,459) (227,723)
Capital share transactions:
Increase in net assets resulting from
capital share transactions (Note 5) 5,528,019 2,822,845
- --------- ---------
Total increase 6,007,797 4,226,928
Net assets
Beginning of year 9,686,330 5,459,402
--------- ---------
End of year* $15,694,127 $ 9,686,330
=========== ===========
* Including undistributed net investment income of: $ - $ -
========== ==========
</TABLE>
See Accompany Notes to Financial Statements
<PAGE>
<TABLE>
MERRIMAN LEVERAGED GROWTH FUND
STATEMENTS OF CASH FLOW
<CAPTION>
Year Ended Year Ended
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH Cash flows from operating activities:
Dividends and interest received $ 305,984 $ 103,585
Operating expenses paid (485,475) (170,054)
Net proceeds from disposition of short-term investments 347,785 5,175,724
Purchases of portfolio securities (58,806,738) (16,666,208)
Proceeds from disposition of portfolio securities 52,053,829 5,020,702
---------- ---------
Net cash used for operating activities (6,584,615) (6,536,251)
---------- ----------
Cash flows from financing activities:
Proceeds from capital shares sold 7,850,862 3,834,146
Payments on capital shares redeemed (3,042,113) (1,292,318)
Cash dividends paid * (21,443) (5,551)
Net increase in loan payable to custodian bank 1,800,000 4,000,000
--------- ---------
Net cash provided by financing activities 6,587,306 6,536,277
--------- ---------
Net change in cash 2,691 26
Cash at beginning of period 26 -
--------- ---------
Cash at end of period $ 2,717 $ 26
========== ==========
Reconciliation of net increase in net assets resulting from
operations to net cash used for operating activities:
Net increase in net assets resulting from operations $1,229,237 $1,631,806
---------- ----------
Adjustments to reconcile net increase in net assets from
operations to net cash used for operating activities:
Increase in investment in securities (7,741,424) (8,179,975)
Increase in dividends and interest receivable (97,905) (21,137)
Decrease in deferred organization expenses 1,742 1,737
Increase in accrued management fees 5,993 9,910
Increase in other accrued expenses 17,742 21,408
--------- ---------
Total adjustments (7,813,852) (8,168,057)
---------- ----------
Net cash used for operating activities $(6,584,615) $(6,536,251)
=========== ===========
<FN>
* Non-cash financing activities included herein consist of reinvestment of
distributions to shareholders of $728,016 and $223,529, respectively.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merriman Mutual Funds
Financial Highlights
Flexible Bond Fund
(for a share outstanding throughout the period)
Year Ended September 30,
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.23 $ 9.94 $ 10.97 $ 10.78 $ 10.19
------- ------ ------- ------- -------
Income from investment operations
Net investment income 0.63 0.55 0.42 0.52 0.66
Net gains or losses on securities
(realized and unrealized) 0.13 0.29 (0.37) 0.65 0.59
------- ------ ------- ------- -------
Total from investment operations 0.76 0.84 0.05 1.17 1.25
------- ------ ------- ------- -------
Less distributions:
From investment income (0.63) (0.55) (0.42) (0.52) (0.66)
From realized capital gains - - (0.66) (0.46) -
------- ------ ------- ----- -----
Total distributions (0.63) (0.55) (1.08) (0.98) (0.66)
------- ------ ------- ----- -----
Net asset value, end of period $ 10.36 $ 10.23 $ 9.94 $ 10.97 $ 10.78
======= ======= ====== ======= =======
Total return 7.62% 8.63% 0.36% 11.61% 12.65%
Net assets end of period ($000) $ 8,661 $ 8,592 $10,542 $12,917 $11,175
Ratio of expenses to average net assets 1.49% 1.50% 1.50% 1.54% 1.51%
Ratio of net income to average net assets 6.05% 5.17% 3.89% 4.91% 6.26%
Portfolio turnover rate 139.77% 291.46% 472.49% 272.87% 2.92%
</TABLE>
<TABLE>
Growth & Income Fund
(for a share outstanding throughout the period)
Year Ended September 30,
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.32 $ 10.86 $ 10.92 $ 11.58 $ 11.37
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.27 0.24 0.11 0.11 0.19
Net gains or losses on securities
(realized and unrealized) 1.02 1.29 (0.04) 0.44 0.21
------- ------- ------- ------- -------
Total from investment operations 1.29 1.53 0.07 0.55 0.40
------- ------- ------- ------- -------
Less distributions:
From investment income (0.27) (0.21) (0.13) (0.09) (0.19)
From realized capital gains (0.69) (0.86) - (1.12) -
------- ------- ------- ------- -------
Total distributions (0.96) (1.07) (0.13) (1.21) (0.19)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.65 $ 11.32 $ 10.86 $ 10.92 $ 11.58
======= ======= ======= ======= =======
Total return 12.18% 15.41% 0.62% 4.86% 3.52%
Net assets end of period ($000) $ 8,702 $ 9,348 $10,701 $16,778 $21,554
Ratio of expenses to average net assets 1.77% 1.76% 1.90% 1.69% 1.60%
Ratio of net income to average net assets 2.33% 2.10% 0.87% 0.93% 1.64%
Portfolio turnover rate 133.00% 78.64% 240.27% 200.67% 90.71%
</TABLE>
<PAGE>
<TABLE>
Merriman Mutual Funds
Financial Highlights (continued)
Capital Appreciation Fund
(for a share outstanding throughout the period)
Year Ended September 30,
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.69 $ 10.82 $ 11.63 $ 11.52 $ 11.43
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.19 0.09 0.19 - 0.27
Net gains or losses on securities
(realized and unrealized) 0.37 1.56 (0.38) 1.29 0.09
------- ------- ------- ------- -------
Total from investment operations 0.56 1.65 (0.19) 1.29 0.36
------- ------- ------- ------- -------
Less distributions:
From investment income (0.22) (0.07) (0.16) (0.04) (0.27)
From realized capital gains (1.10) (0.71) (0.46) (1.14) -
------- ------- ------- ------- -------
Total distributions (1.32) (0.78) (0.62) (1.18) (0.27)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.93 $ 11.69 $ 10.82 $ 11.63 $ 11.52
======= ======= ======= ======= =======
Total return 5.69% 16.43% (1.64)% 11.69% 3.14%
Net assets end of period ($000) $ 16,665 $22,205 $25,579 $39,037 $43,704
Ratio of expenses to average net assets 1.84% 1.78% 1.58% 1.51% 1.46%
Ratio of net income to average net assets 1.74% 0.80% 1.70% 0.04% 2.48%
Portfolio turnover rate 254.77% 146.40% 344.25% 241.90% 122.09%
</TABLE>
<TABLE>
Asset Allocation Fund
(for a share outstanding throughout the period)
Year Ended September 30,
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.21 $ 11.22 $ 11.97 $ 10.74 $ 10.82
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.30 0.25 0.19 0.10 0.31
Net gains or losses on securities
(realized and unrealized) 0.50 0.62 0.15 1.76 (0.08)
------- ------- ------- ------- -------
Total from investment operations 0.80 0.87 0.34 1.86 0.23
------- ------- ------- ------- -------
Less distributions:
From investment income (0.16) (0.25) (0.20) (0.10) (0.31)
From realized capital gains (0.24) (0.63) (0.89) (0.53) -
------- ------- ------- ------- -------
Total distributions (0.40) (0.88) (1.09) (0.63) (0.31)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.61 $ 11.21 $ 11.22 $ 11.97 $ 10.74
======= ======= ======= ======== =======
Total return 7.41% 8.49% 2.91% 18.11% 2.13%
Net assets end of period ($000) $ 17,733 $22,632 $29,984 $ 29,492 $26,508
Ratio of expenses to average net assets 1.82% 1.76% 1.56% 1.52% 1.52%
Ratio of net income to average net assets 2.53% 2.11% 1.63% 0.85% 2.87%
Portfolio turnover rate 204.55% 288.45% 449.55% 225.96% 132.56%
</TABLE>
<PAGE>
<TABLE>
Merriman Mutual Funds
Financial Highlights (continued)
Leveraged Growth Fund
(for a share outstanding throughout the period)
Year Ended September 30,
<CAPTION>
1996 1995 1994 1993 1992**
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.30 $ 10.42 $ 10.41 $ 10.04 $ 10.00
------- ------- ------- ------- -------
Income from investment operations
Net investment income (loss) (0.08) (0.04) 0.07 0.06 0.04
Net gains on securities
(realized and unrealized) 0.84 2.33 0.03 0.37 -
------- ------- ------- ------- -------
Total from investment operations 0.76 2.29 0.10 0.43 0.04
------- ------- ------- ------- -------
Less distributions:
From investment income - (0.07) (0.09) (0.06) -
From realized capital gains (0.76) (0.34) - - -
------- ------- ------- ------- -------
Total distributions (0.76) (0.41) (0.09) (0.06) -
------- ------- ------- ------- -------
Net asset value, end of period $ 12.30 $ 12.30 $ 10.42 $ 10.41 $ 10.04
======= ======= ======= ======= =======
Total return 6.85% 22.85% 0.91% 4.32% 0.40%
Net assets, end of period ($000) $15,694 $ 9,686 $ 5,459 $ 5,879 $ 3,577
Ratio of expenses to average net assets (A) 3.70% 2.82% 2.06% 2.03% 2.08%*
Ratio of net income (loss) to average
net assets (0.78)% (0.68)% 0.62% 0.65% 1.09%*
Portfolio turnover rate 247.36% 87.50% 379.64% 130.68% 0.00%
</TABLE>
* Annualized
** Operations commenced May 27, 1992
(A) Expenses include interest expense of 1.95% and 1.01% for 1996 and 1995,
respectively
<TABLE>
Information relating to outstanding debt during the fiscal periods shown below.
<CAPTION>
Average Average Number
Amount of Debt Amount Of Debt of Shares Average Amount of
Outstanding at Outstanding Outstanding Debt per Share
Period ended End of Period During the Period During the Period During the Period
- ------------ ------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
September 30 1996 $5,800,000 $2,981,434 1,156,941 $2.58
September 30, 1995 $4,000,000 $ 779,589 656,687 $1.19
</TABLE>
<PAGE>
Merriman Investment Trust
Notes to Financial Statements
Note 1 - Organization
Merriman Flexible Bond Fund, Merriman Growth & Income Fund, Merriman Capital
Appreciation Fund, Merriman Asset Allocation Fund, and Merriman Leveraged Growth
Fund (the "Funds") are separate series of Merriman Investment Trust (the
"Trust") which is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management company. The Trust was organized
in 1987 as a Massachusetts Business Trust and may issue an unlimited number of
shares of beneficial interest without par value in separate classes of "funds."
Each fund has specific investment objectives: The objectives of the Flexible
Bond Fund are income, preservation of capital, and secondarily, growth of
capital. The objectives of the Growth & Income Fund are long-term growth of
capital, income and, secondarily, preservation of capital. The objective of the
Capital Appreciation Fund is capital appreciation. The objectives of the Asset
Allocation Fund are high total return consistent with reasonable risk. The
objective of the Leveraged Growth Fund is capital appreciation through the use
of leverage and other investment practices.
Note 2 - Significant Accounting
Policies The following is a summary of significant accounting policies
consistently followed in the preparation of the Trust's financial statements.
The policies are in conformity with generally accepted accounting principles.
A. Security Valuation. Short-term debt securities are valued at amortized cost,
which approximates market value.Investments in regulated investment companies
(mutual funds) are valued at the net asset value per share.
B. Federal Income Taxes. It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to its shareholders. Therefore, no
federal income or excise tax provision is required.
C. Income Recognition. Dividend income and distributions to shareholders are
recorded on the exdividend date. Interest income is accrued daily.
D. Security Transactions. Security transactions are recorded on the trade date.
Realized gains and losses from security transactions are determined using
the identified cost basis.
E. Dividends and Distributions to Shareholders. Net income and capital gains
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences
are primarily due to differing treatments for post-October losses.
F. Deferred Organization Expenses. All expenses incurred in connection with the
organization and the registration of the Merriman Leveraged Growth Fund were
paid by the Manager and were reimbursed by the Fund. These expenses are being
amortized to operations on a straight line basis over five years.
G. Use of Estimates in Financial Statements. In preparing financial statements
in conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of income and expenses during the reported period. Actual results may
differ from these estimates.
Note 3 - Investment Management Agreement
Merriman Investment Management Company (the "Manager") receives investment
advisory fees from the Funds. As compensation for its services, the Manager is
paid a fee which is calculated at an annual rate based on the average daily net
assets of each Fund as follows:
Flexible Bond All Other
Fund Funds
---- -----
On the first $250 million 1.000% 1.250%
On the next $250 million .875% 1.125%
On all above $500 million .750% 1.000%
The Manager has agreed to limit each Fund's expenses. In the event that a Fund's
expenses exceed any such limitations, the Manager either waives its fees and/or
reimburses such fund to the extent required to conform to such limitations.
Currently, the maximum expense which each Fund may incur, expressed as a
percentage of average net assets, is 2.5% of the first $30 million, 2% of the
next $70 million, and 1.5% of all over $100 million.
The Manager has voluntarily reduced the expense limit to 2% of the first $15
million in net assets, 1.5% on the next $35 million, and 1% of net assets over
$50 million for the Merriman Capital Appreciation Fund, the Merriman Asset
Allocation Fund, and the Merriman Growth & Income Fund, to 2% of the first $15
million in net assets, 1.5% of the next $15 million in net assets, and 1% of net
assets over $30 million for the Merriman Leveraged Growth Fund (exclusive of
interest expense), and to 1.5% on the first $30 million in net assets and 1.0%
of net assets over $30 million for the Merriman Flexible Bond Fund.
There were no reimbursements made for the year ending September 30, 1996.
Certain trustees and officers of the trust are also officers of the Manager.
Note 4 - Bank Line of Credit
The Merriman Leveraged Growth Fund pays $12,000 per year to maintain an
unsecured $6,000,000 bank line of credit; borrowings under this arrangement bear
interest at the bank's prime rate. No compensating balances are required.
Balance outstanding at September 30, 1996 was $5,800,000. Note 5 - (See
Following) Note 6 - Purchases and Sales of Securities Purchases and sales of
specialties, other than short-term investments and money market funds, for the
year ended September 30, 1996 were as follows:
Purchases Sales
Merriman Flexible Bond Fund 9,628,716 9,687,520
Merriman Growth & Income Fund 10,412,923 11,868,446
Merriman Capital Appreciation Fund 38,557,662 45,940,056
Merriman Asset Allocation Fund 34,422,160 41,677,223
Merriman Leveraged Growth Fund 45,975,014 39,284,113
<PAGE>
Merriman Investment Trust
Notes to Financial Statements
Note 5 - Capital Shares
At September 30, 1996, there were an unlimited number of no par value shares of
beneficial interest authorized. Transactions in capital shares were as follows:
<TABLE>
Merriman Flexible Bond Fund Merriman Growth & Income Fund
--------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<CAPTION>
Shares Value Shares Value Shares Value Shares Value
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ............ 186,797 $1,935,639 85,525 $ 858,774 35,642 $ 392,671 27,581 $ 292,106
Shares issued in
reinvestment of
distributions ....... 48,199 495,739 45,669 457,165 70,399 751,157 94,189 948,647
-------- ---------- -------- ---------- -------- ---------- -------- -------
234,996 2,431,378 131,194 1,315,939 106,041 1,143,828 121,770 1,240,753
Shares redeemed ........ (239,644) (2,476,828) (351,861) (3,517,193) (184,316) (2,062,903) (281,992) (3,018,073)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net decrease ........... (4,648) $ (45,450) (220,667) $(2,201,254) (78,275) $ (919,075) (160,222) $(1,777,320)
======== ========== ======== =========== ======== ========== ======== ===========
</TABLE>
<TABLE>
Merriman Capital Appreciation Fund Merriman Asset Allocation Fund
---------------------------------- ------------------------------
<CAPTION>
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares Value Shares Value Shares Value Shares Value
------ ----- ------ ----- ------ ----- ------ -----
Shares sold ........... 183,143 $1,971,809 135,309 $1,440,890 151,662 $1,691,922 231,323 $2,500,130
Shares issued in
reinvestment of
distributions ...... 222,748 2,265,357 169,521 1,696,910 68,147 731,955 190,417 1,976,772
-------- ---------- -------- ---------- -------- ---------- ---------- -----------
405,891 4,237,166 304,830 3,137,800 219,809 2,423,877 421,740 4,476,902
Shares redeemed ....... (781,504) (8,361,309) (768,304) (8,154,957) (711,787) (7,946,716) (1,075,304) (11,652,525)
-------- ---------- -------- ---------- -------- ---------- ---------- -----------
Net decrease .......... (375,613) $(4,124,143) (463,474) $(5,017,157) (491,978) $(5,522,839) (653,564) $(7,175,623)
======== =========== ======== =========== ======== =========== ======== ===========
</TABLE>
<TABLE>
Merriman Leveraged Growth Fund
------------------------------
<CAPTION>
Year Ended Year Ended
September 30, September 30,
1996 1995
---- ----
Shares Value Shares Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Shares sold ........... 679,463 $7,842,116 357,815 $3,840,009
Shares issued in
reinvestment of
distributions ...... 65,476 728,016 22,023 223,529
-------- --------- -------- ----------
744,939 8,570,132 379,838 4,063,538
Shares redeemed ....... (256,850) (3,042,113) (116,048) (1,240,693)
-------- ---------- -------- ----------
Net increase .......... 488,089 $5,528,019 263,790 $2,822,845
======== ========== ======== ==========
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
To The Board of Trustees and Shareholders of
Merriman Investment Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments , of the Merriman Investment Trust, consisting of
the Merriman Flexible Bond Fund, Merriman Growth & Income Fund, Merriman Capital
Appreciation Fund, Merriman Asset Allocation Fund, and Merriman Leveraged Growth
Fund as of September 30, 1996, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, the statement of cash flows of Merriman
Leveraged Growth Fund for each of the two years in the period then ended and the
financial highlights for the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. We conducted our audits
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996, by correspondence
with the custodian and mutual funds. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of each of the respective funds
constituting the Merriman Investment Trust at September 30, 1996, and the
results of their operations for the year then ended, the changes in their net
assets for each of the two years then ended, Merriman Leveraged Growth cash
flows for each of the two years in the period then ended and the financial
highlights for the periods referred to above, in conformity with generally
accepted accounting principles.
Philadelphia, Pennsylvania Tait, Weller & Baker
October 17, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRIMAN FLEXIBLE BOND FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 8,317,035
<INVESTMENTS-AT-VALUE> 8,655,621
<RECEIVABLES> 2,898,944
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 15,353
<TOTAL-ASSETS> 11,569,918
<PAYABLE-FOR-SECURITIES> 2,874,642
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,726
<TOTAL-LIABILITIES> 2,909,368
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,407,633
<SHARES-COMMON-STOCK> 835,640
<SHARES-COMMON-PRIOR> 840,288
<ACCUMULATED-NII-CURRENT> 31,335
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (117,004)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 338,586
<NET-ASSETS> 8,660,550
<DIVIDEND-INCOME> 635,445
<INTEREST-INCOME> 15,208
<OTHER-INCOME> 0
<EXPENSES-NET> 128,393
<NET-INVESTMENT-INCOME> 522,260
<REALIZED-GAINS-CURRENT> 13,766
<APPREC-INCREASE-CURRENT> 99,779
<NET-CHANGE-FROM-OPS> 635,805
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 521,876
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 186,797
<NUMBER-OF-SHARES-REDEEMED> 239,644
<SHARES-REINVESTED> 48,199
<NET-CHANGE-IN-ASSETS> (68,479)
<ACCUMULATED-NII-PRIOR> 30,951
<ACCUMULATED-GAINS-PRIOR> (130,770)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 128,393
<AVERAGE-NET-ASSETS> 8,605,158
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> .63
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRIMAN GROWTH & INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 7,963,454
<INVESTMENTS-AT-VALUE> 8,674,694
<RECEIVABLES> 81,202
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,353
<TOTAL-ASSETS> 8,761,249
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,415
<TOTAL-LIABILITIES> 59,415
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,209,221
<SHARES-COMMON-STOCK> 747,250
<SHARES-COMMON-PRIOR> 825,525
<ACCUMULATED-NII-CURRENT> 36,648
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 744,725
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 711,240
<NET-ASSETS> 8,701,834
<DIVIDEND-INCOME> 355,548
<INTEREST-INCOME> 14,999
<OTHER-INCOME> 0
<EXPENSES-NET> 160,127
<NET-INVESTMENT-INCOME> 210,240
<REALIZED-GAINS-CURRENT> 1,090,916
<APPREC-INCREASE-CURRENT> (264,367)
<NET-CHANGE-FROM-OPS> 1,036,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 217,137
<DISTRIBUTIONS-OF-GAINS> 547,218
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,642
<NUMBER-OF-SHARES-REDEEMED> 184,316
<SHARES-REINVESTED> 70,399
<NET-CHANGE-IN-ASSETS> (646,461)
<ACCUMULATED-NII-PRIOR> 43,365
<ACCUMULATED-GAINS-PRIOR> 201,026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 113,042
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 160,127
<AVERAGE-NET-ASSETS> 9,056,100
<PER-SHARE-NAV-BEGIN> 11.32
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0.69
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.65
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRIMAN CAPITAL APPRECIATION FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 15,725,626
<INVESTMENTS-AT-VALUE> 16,651,231
<RECEIVABLES> 63,680
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,188
<TOTAL-ASSETS> 16,725,099
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,287
<TOTAL-LIABILITIES> 60,287
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,368,480
<SHARES-COMMON-STOCK> 1,524,135
<SHARES-COMMON-PRIOR> 1,899,748
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,370,727
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 925,605
<NET-ASSETS> 16,664,812
<DIVIDEND-INCOME> 645,925
<INTEREST-INCOME> 18,851
<OTHER-INCOME> 0
<EXPENSES-NET> 341,338
<NET-INVESTMENT-INCOME> 323,438
<REALIZED-GAINS-CURRENT> 2,456,816
<APPREC-INCREASE-CURRENT> (1,896,938)
<NET-CHANGE-FROM-OPS> 883,316
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 385,016
<DISTRIBUTIONS-OF-GAINS> 1,914,315
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 183,143
<NUMBER-OF-SHARES-REDEEMED> 781,504
<SHARES-REINVESTED> 222,748
<NET-CHANGE-IN-ASSETS> (5,540,158)
<ACCUMULATED-NII-PRIOR> 61,578
<ACCUMULATED-GAINS-PRIOR> 828,226
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 232,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 341,338
<AVERAGE-NET-ASSETS> 18,747,574
<PER-SHARE-NAV-BEGIN> 11.69
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 1.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MERRIMAN ASSET ALLOCATION FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 16,426,980
<INVESTMENTS-AT-VALUE> 17,636,266
<RECEIVABLES> 506,896
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 15,604
<TOTAL-ASSETS> 18,158,766
<PAYABLE-FOR-SECURITIES> 377,042
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,402
<TOTAL-LIABILITIES> 425,444
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,926,715
<SHARES-COMMON-STOCK> 1,526,903
<SHARES-COMMON-PRIOR> 2,018,881
<ACCUMULATED-NII-CURRENT> 223,937
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,373,384
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,209,286
<NET-ASSETS> 17,733,322
<DIVIDEND-INCOME> 842,686
<INTEREST-INCOME> 18,957
<OTHER-INCOME> 0
<EXPENSES-NET> 360,466
<NET-INVESTMENT-INCOME> 501,177
<REALIZED-GAINS-CURRENT> 1,604,204
<APPREC-INCREASE-CURRENT> (735,043)
<NET-CHANGE-FROM-OPS> 1,370,338
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 300,168
<DISTRIBUTIONS-OF-GAINS> 446,499
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 151,662
<NUMBER-OF-SHARES-REDEEMED> 711,787
<SHARES-REINVESTED> 68,147
<NET-CHANGE-IN-ASSETS> (4,899,168)
<ACCUMULATED-NII-PRIOR> 22,928
<ACCUMULATED-GAINS-PRIOR> 215,679
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 248,132
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 19,906,041
<PER-SHARE-NAV-BEGIN> 11.21
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0.24
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> 1.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> MERRIMAN LEVERAGED GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 20,076,954
<INVESTMENTS-AT-VALUE> 21,427,749
<RECEIVABLES> 126,886
<ASSETS-OTHER> 1,151
<OTHER-ITEMS-ASSETS> 2,717
<TOTAL-ASSETS> 21,558,503
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 5,800,000
<OTHER-ITEMS-LIABILITIES> 64,376
<TOTAL-LIABILITIES> 5,864,376
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,640,366
<SHARES-COMMON-STOCK> 1,275,683
<SHARES-COMMON-PRIOR> 787,594
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 702,966
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,350,795
<NET-ASSETS> 15,694,127
<DIVIDEND-INCOME> 387,920
<INTEREST-INCOME> 15,970
<OTHER-INCOME> 0
<EXPENSES-NET> 510,954
<NET-INVESTMENT-INCOME> (107,064)
<REALIZED-GAINS-CURRENT> 1,400,388
<APPREC-INCREASE-CURRENT> (64,087)
<NET-CHANGE-FROM-OPS> 1,229,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 749,459
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 679,463
<NUMBER-OF-SHARES-REDEEMED> 256,850
<SHARES-REINVESTED> 65,476
<NET-CHANGE-IN-ASSETS> 6,007,797
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 159,101
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,334
<INTEREST-EXPENSE> 269,359
<GROSS-EXPENSE> 510,954
<AVERAGE-NET-ASSETS> 13,015,513
<PER-SHARE-NAV-BEGIN> 12.30
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.76
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.30
<EXPENSE-RATIO> 3.70
<AVG-DEBT-OUTSTANDING> 2,981,434
<AVG-DEBT-PER-SHARE> 2.58
</TABLE>
