(Graphic Omitted) MERRIMAN
INVESTMENT TRUST
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
www.merrimanfunds.com
MERRIMAN
CAPITAL APPRECIATION INVESTMENT MANAGER
FUND Merriman Investment
Management Company
MERRIMAN 1200 Westlake Ave N, Suite 700
ASSET ALLOCATION Seattle, WA 98109
FUND
CUSTODIAN AND
MERRIMAN TRANSFER AGENT
LEVERAGED GROWTH Firstar Trust Company
FUND PO BOX 701
Milwaukee, WI 53201
1-800-224-4743
ANNUAL REPORT
FUND COUNSEL
YEAR ENDED Sullivan & Worcester
SEPTEMBER 30, 1997 Boston, Massachusettes
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:
I'm pleased to report an excellent fiscal year for the Merriman Mutual Funds for
the 12 months ended September 30. While the future, as always, is uncertain, we
remain as committed as ever to our strategy of combining proper asset allocation
and time-tested mechanical market timing systems. We know of no better way
investors can achieve reasonable rates of return while protecting their assets
from the ravages of bear markets.
The performance of each of our five funds in the year ended September 30 is
detailed later in this letter. To summarize: the Merriman Flexible Bond Fund
gained 9.6 percent; the Merriman Asset Allocation Fund was up 14.4 percent; the
Merriman Growth and Income Fund was up 24.1 percent; the Merriman Capital
Appreciation Fund was up 21.9 percent; and the Merriman Leveraged Growth Fund
was up 26.7 percent.
THE ECONOMY
During this period, the U.S. economy remained the strongest of any major nation
in the world, characterized by a continuation of moderate to strong growth, low
inflation, record corporate profits, decreasing unemployment and stable interest
rates. Rates for three-month and 30-year Treasury securities were virtually
unchanged at the end of September from their levels a year earlier.
The country's economic strength translated into gains of 37.6 percent in the Dow
Jones Industrial Average, 40.4 percent in the Standard & Poor's 500 Index and
33.2 percent in the Russell 2000 Index. In the same 12 months, the U.S. dollar
gained 2.9 percent against the English pound, 15.6 percent against the German
mark and 9.4 percent against the Japanese yen.
While U.S. equities were soaring, the once-envied Japanese Nikkei fell from
21,547 to 17,151 - a drop of 20.4 percent. For U.S. investors with Japanese
holdings, the loss was reduced by the stronger U.S. dollar. But despite the
dollar's strength, international equities underperformed their U.S. counterparts
for the fourth straight year.
Despite that continuing underperformance, we still believe U.S. equity investors
are well served to have up to 35 percent of their portfolios in funds that hold
international stocks. The U.S. may be the king of the economic world now. But
that won't always be the case, and another time will come when gains in
international investments will offset losses in the U.S. market. In eight
calendar years since 1970 (1971, 1972, 1977, 1978, 1985, 1980, 1987 and 1994),
gains in international investments were two to six times as great as those in
the U.S. That's why international funds make up a significant part of our funds'
equity investments.
THE OUTLOOK
We are often asked for our views of the months and quarters just ahead, and our
answers are always the same. We understand the reasons many people are bullish,
and we think they have much validity. We also understand why many investors are
bearish, or at least quite fearful, and we think those reasons have much
validity. However, we don't take sides or make predictions, because we haven't
found any reliable way to forecast the future.
We are not bulls, although we believe (and we hope for investors' sake) that the
world's equity markets are likely to continue their long-term upward bias. We
are not bears, although we believe the current market levels are filled with
potential danger and we are certain that major bear markets lie ahead. Instead,
we are trend-followers with a mechanical investment strategy designed to make
money whichever way the market turns.
MARKET TIMING AND UNDERPERFORMANCE
While our funds had a banner year, their performance was less than that of the
popular untimed averages such as the Dow Jones Industrial Average and the S&P
500. This was not surprising to us, and this is a good time to review why that
is so. In a few words, it's the combination of our global asset diversification,
the strong U.S. bull market and market timing.
I think it's important for you as a shareholder to understand the fundamentals
of market timing, because each of our funds uses this approach. Bull markets are
wonderful for investors, but they never last forever. It's every bit as normal
for markets to fall as to rise, and when they fall they can quickly erase months
or even years of gains. We believe this is a serious detriment to investors,
emotionally as well as financially. Our top priority is to manage this risk in
order to defend investors' capital while striving to achieve favorable returns.
<PAGE>
The simplest approach to investing is what we call buy-and-hold. That means
finding good investment vehicles and sticking with them regardless of
fluctuations in their market value. The problem is that equity markets fluctuate
constantly, and the value of a buy-and-hold portfolio can decline 40 percent or
more in a year. This fluctuation erodes not only investors' portfolios, but
their confidence as well. As a result, many investors react to market declines
by selling securities prematurely, based on emotional reactions to normal market
fluctuations.
There are two primary ways to manage this investment risk. The first calls for
loading up a buy-and-hold portfolio with enough fixed-income investments to
reduce overall volatility to an acceptable level. The drawback of this method is
that over long periods of time, fixed-income investments normally produce far
lower returns than equities. The second way to manage the market risk of
equities is through market timing.
A theoretically perfect market timing system would take equity investors to the
sidelines just before every significant market decline and get them back in just
before every significant advance. Alas, that ideal system has yet to be
discovered or invented, and it probably never will exist. While we have complete
faith in the concept of timing, we do not have enough confidence in any single
timing system to manage an entire portfolio with only one model.
In the Merriman Mutual Funds, we use multiple timing models. Some focus on
entire markets such as U.S. equities, while others are designed to be used with
a single mutual fund in our portfolios. Even with all that diversification,
market timing remains imperfect.
Because our timing models follow trends instead of trying to predict them, we do
not expect them to catch the very top or the very bottom of a market cycle.
However, over long periods of time these signals have demonstrated their ability
to identify the market's major moves in each direction. That has been sufficient
to achieve our objective of reducing losses during falling markets while
allowing investors to participate in rising markets.
TIMING IN BEAR MARKETS
Timing is most advantageous during prolonged bear markets, helping investors
avoid or reduce market declines that could otherwise cause devastating damage to
a portfolio. During periods of decline, market timing can protect investors'
capital even when that timing is imperfect, and in bear markets, timing
typically outperforms a buy-and-hold approach.
TIMING IN BULL MARKETS
However, in prolonged bull markets like the one we've seen in U.S. equities for
the past several years, timing inevitably underperforms a buy-and-hold approach.
There are two reasons for that. First, timing has no way to "add value" to a
rising market. Even when all signals indicate buy, the timer who is 100 percent
invested has no advantage over the buy-and-hold investor who is 100 percent
invested.
Yet bull markets are punctuated with temporary declines, some of which
inevitably trigger one or more timing models into cautionary sell signals. At
the moment of such a signal, there is absolutely no way to know whether that
signal will turn out to indicate the start of a real bear market or whether it
will be only a false alarm. Inevitably, sometimes a sell signal will be followed
by a buy signal that puts investors back into the market at higher prices than
when they sold.
There is no way that timers can avoid such counterproductive trades, and even
though the resulting losses are usually relatively small, those losses induce a
performance penalty compared with buy-and-hold investing. This is precisely why
our funds have underperformed the markets during the strong bull market of the
past few years.
As a shareholder in the Merriman Mutual Funds, I don't like this performance
penalty any more than anyone else. But I regard it as a necessary cost of
protecting my capital from major market declines. It is somewhat akin to the
premium I pay for insuring my home. I'd rather not pay the insurance premium.
But I know that a fire or some other disaster is possible, and I'd much rather
buy insurance than assume all the risk myself.
Likewise as an investor, I'd much rather pay the underperformance penalty, and
protect my investments from a bear market, than leave myself exposed without a
defensive strategy. And personally I am certain that there are greater odds of a
bear market threatening my portfolio than of a fire threatening my home.
HOW WE MANAGE THESE FUNDS
As an investor, I want long-term results. Yet I want to know that my assets are
being actively protected every moment that the markets are open. We believe our
shareholders deserve nothing less than that. While our investment focus is on
long-term results, we manage our funds in the short-term. Every business day, we
track current market trends that affect every asset in our portfolio, and we are
always ready to act on any new signals from our timing models to guide us as we
attempt to maximize gains and minimize losses.
<PAGE>
MERRIMAN FLEXIBLE BOND FUND
The Merriman Flexible Bond Fund invests in a broad spectrum of fixed-income
securities that in our belief offer the best opportunities 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. When our timing systems indicate declining markets, we shift
assets to Treasury bills, money-market funds and other cash equivalents.
In the 12 months ending September 30, according to Morningstar, the average U.S.
bond fund produced a total return of 8.8 percent. The Fund appreciated 9.7
percent, compared with a gain of 10.5 percent for the same balance of U.S. and
international bond funds. According to Morningstar, the Fund's volatility is
about 23 percent less than the average U.S. bond fund and 54 percent less than
the average international bond fund.
MERRIMAN CAPITAL APPRECIATION FUND
The Merriman Capital Appreciation Fund seeks growth of capital by investing in
U.S. and international growth, aggressive growth and small-cap funds. Our
present investment policy allocates 65 percent of the portfolio to U.S. equity
funds and 35 percent to international equity 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 market funds or
other cash equivalents.
In the year ended September 30, the Fund was up 21.9 percent. A similar mix of
domestic and international funds without timing was up 26.6 percent. According
to Morningstar, the volatility of the Fund was 36 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 investors who seek growth as well as preservation of capital with
wide diversification.
MERRIMAN LEVERAGED GROWTH FUND
The Leveraged Growth Fund's defensive strategy uses market timing systems
similar to those of the Capital Appreciation Fund and maintains a similar
balance of domestic and international funds. During rising markets, this Fund
takes a more aggressive approach in order to seek above-average returns. The
Fund may borrow up to $1 for every $2 of its net assets in order to make
additional investments when our timing models indicate a high probability of
gain.
<PAGE>
For the 12 months ended September 30, the Fund's total return was 26.7 percent,
compared with a gain of 26.6 percent for a similar mix of domestic and
international equity funds held without timing or leverage. According to
Morningstar, the Fund's volatility was about 15 percent less than the average of
growth, aggressive growth and small-cap funds and 6.3 percent more than that of
the average international fund.
MERRIMAN GROWTH AND INCOME FUND
The Growth and Income Fund invests primarily in growth-and-income funds,
employing the same balance of domestic and international funds, and similar
timing models to preserve capital, as does the Capital Appreciation Fund. For
the 12 months ending September 30, the Fund's total return was 24.1 percent,
compared with 30.4 percent for a similar balance of domestic growth-and-income
funds and large-cap international funds tracked by Morningstar. Morningstar data
indicate the Fund's volatility was about 36 percent less than the average of
those funds.
MERRIMAN ASSET ALLOCATION FUND
The Asset Allocation Fund spreads its investments among five major asset groups
and applies market timing to each one. The Fund's present investment policy is
to maintain 30 percent of the portfolio in domestic equity funds, 30 percent in
international equity funds, 15 percent in U.S. bond funds, 15 percent in
international bond funds and 10 percent in gold funds.
For the year ending September 30, the Fund's total return was 14.4 percent.
According to Morningstar, an untimed portfolio of the same balance of funds
would have appreciated 15.2 percent. However, the Asset Allocation Fund's
volatility was about 12 percent less than multi-asset global funds tracked by
Morningstar.
IN SUMMARY
While U.S. stocks have provided rich rewards for investors in recent years, we
believe the market contains increasing risk of a severe correction that could
erase much of those gains. We believe most investors, especially the many who
have begun their investment experience in the 1990s, are not prepared
psychologically for the serious losses that could occur in a bear market. This
lack of preparation is likely to lead many people into untimely, emotional
investment decisions that will compound whatever damage their portfolios suffer
as a result of market swings.
And I believe that broad diversification and market timing, coupled with
automatic, mechanical execution of timing models, is the best way to avoid such
untimely decisions, to minimize market risks and preserve investors' capital. We
appreciate your confidence in the Merriman Mutual Funds and in our defensive
approach to investing. We will continue to closely watch each of your
investments every business day, and we look forward to (though we cannot
guarantee) having another favorable report for you next year.
Sincerely,
Paul A. Merriman
President
<PAGE>
MERRIMAN FLEXIBLE BOND FUND
Portfolio of Investments
September 30, 1997
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
HIGH-YIELD CORPORATE BOND FUNDS: 28.31%
---------------------------------------
42,116 Federated High Income Bond Fund ...............$ 504,131
52,390 Federated High Yield Trust ..................... 505,565
39,199 Fidelity Advisor High Yield Fund ............... 515,471
67,239 INVESCO Bond High Yield Fund ................... 511,688
48,640 Northeast Investors Trust ...................... 573,468
-------
Total High-Yield Corporate Bond Funds
(Cost $2,355,215) .............................. 2,610,323
---------
INTERNATIONAL BOND FUNDS: 31.24%
---------------------------------
42,694 Benham European Govt Bond Fund ................. 472,628
11,237 Federated Int'l Income Fund Class A ............ 119,902
37,363 Fidelity Global Bond Fund ...................... 345,978
29,930 G.T. Global High Income Fund Class A ........... 516,586
46,924 T. Rowe Price International Bond Fund .......... 462,669
37,570 Scudder Emerging Markets Income Fund ........... 505,316
43,991 Scudder International Bond Fund ................ 457,067
-------
Total International Bond Funds
(Cost $2,742,555) .............................. 2,880,146
---------
MONEY MARKET FUNDS: 38.51%
---------------------------
19,744 Am Cent Benham Govt Agency Fund ................ 19,744
493,002 Babson Money Market Fund ....................... 493,002
494,835 Columbia Daily Income Fund ..................... 494,835
492,898 Dreyfus Institutional Money Mkt Fund ........... 492,898
170,762 Fidelity Cash Reserves Fund .................... 170,762
452,542 Fidelity U.S. Government Reserves .............. 452,542
443,337 T. Rowe Price Prime Reserve .................... 443,337
75,000 T. Rowe Price US Treas Money Market ............ 75,000
414,721 Scudder U.S. Treasury Fund ..................... 414,721
493,882 Stein Roe Cash Reserves ........................ 493,882
-------
Total Money Market Funds
(Cost $3,550,723) .............................. 3,550,723
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 1.73%
-------------------------------
$83,200 Johnson Controls, Inc.,
5.1650%, 12/30/97 .............................. 83,200
75,900 Wisconsin Electric Power Company,
5.1852%, 11/30/97 .............................. 75,900
------
Total Short-Term Demand Notes
(Cost $159,100) ................................ 159,100
-------
Total Investment in Securities
(Cost $8,807,593) (a) .....................99.79% 9,200,292
Other Assets
Less Liabilities ........................ 0.21% 19,258
--------------------
NET ASSETS ...............................100.00% $9,219,550
======= ==========
(a) Cost for federal income tax purposes is the same and
net unrealized appreciation consists of:
Gross unrealized appreciation ..........$ 392,699
Gross unrealized depreciation .......... 0
-------
Net unrealized appreciation ............ 392,699
=======
See Accompanying Notes to Financial Statements
7
<PAGE>
MERRIMAN GROWTH & INCOME FUND
Portfolio of Investments
September 30, 1997
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
Domestic Equity Funds: 61.57%
-----------------------------
14,604 Am Century Income & Growth Fund ................$ 381,168
19,995 Columbia Common Stock Fund ..................... 481,685
21,871 Founders Blue Chip Fund ........................ 482,515
17,544 INVESCO Value Equity Fund ...................... 525,965
21,827 Janus Growth & Income Fund ..................... 548,305
21,973 Lexington Growth & Income Fund ................. 518,774
16,430 Neuberger & Berman Guardian Fund ............... 535,131
18,677 T. Rowe Price Growth & Income Fund ............. 500,930
23,952 SAFECO Equity Fund ............................. 481,189
22,692 Salomon Brothers Investors Fund ................ 527,365
15,652 Strong Total Return Fund ....................... 520,748
9,369 WPG Growth & Income Fund ....................... 354,045
-------
Total Domestic Equity Funds
(Cost $5,010,758) ............................. 5,857,820
---------
INTERNATIONAL EQUITY FUNDS: 35.70%
----------------------------------
21,871 Fidelity Int'l Growth & Income Fund ............ 483,122
67,840 G.T. Global Growth & Income Fund ............... 564,425
27,083 INVESCO European Fund .......................... 494,257
11,419 Janus Worldwide Growth Fund .................... 483,931
22,631 T. Rowe Price European Stock Fund .............. 465,969
31,480 T. Rowe Price International Stock Fund ......... 482,277
12,125 Scudder Global Fund ............................ 422,566
-------
Total International Equity Funds
(Cost $2,816,189) ............................. 3,396,547
---------
MONEY MARKET FUNDS: 0.69%
-------------------------
30,768 Janus Cash Equivalents Fund .................... 30,768
4,741 Lexington Money Market Fund .................... 4,741
22,369 Neuberger Berman Cash Res Fund ................. 22,369
7,810 Salomon Brothers Cash Mgmt Fund ................ 7,810
-----
Total Money Market Funds
(Cost $65,688) ................................ 65,688
------
Principal
Amount
------
SHORT-TERM DEMAND NOTES: 2.18%
------------------------------
$ 161,400 Johnson Controls, Inc.,
5.1650%, 12/30/97 .............................. 161,400
46,200 Wisconsin Electric Power Co.,
5.1852%, 11/30/97 .............................. 46,200
------
Total Short-Term Demand Notes
(Cost $207,600) ............................... 207,600
-------
Total Investment in Securities
(Cost $8,100,235) (a) ......................100.14% 9,527,655
Liabilities in excess
of other assets ............................(0.14%) (13,302)
-------------------
NET ASSETS ..............................100.00% $9,514,353
======= ==========
(a) Cost for federal income tax purposes is the same and
net unrealized appreciation consists of:
Gross unrealized appreciation ..........$ 1,427,420
Gross unrealized depreciation .......... 0
---------
Net Unrealized Appreciation ............$ 1,427,420
=========
See Accompanying Notes to Financial Statements
8
<PAGE>
MERRIMAN CAPITAL APPRECIATION FUND
Portfolio of Investments
September 30, 1997
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 61.57%
------------------------------
43,372 Founders Growth Fund ...........................$ 886,090
48,128 T. Rowe Price Capital Appreciation Fund ........ 793,626
27,068 T. Rowe Price Growth Stock Fund ................ 871,056
1,094 T. Rowe Price New Horizon Fund ................. 27,411
40,974 Safeco Growth Fund ............................. 999,365
31,253 Scudder Large Company Value Fund ............... 905,724
20,056 Scudder Development Fund ....................... 904,705
40,619 Strong Discovery Fund .......................... 858,287
17,402 20th Century Select Fund ....................... 866,965
58,065 20th Century Vista Fund ........................ 931,355
26,411 USAA Aggressive Growth Fund .................... 928,094
27,728 USAA Growth Fund ............................... 612,236
-------
Total Domestic Equity Funds
(Cost $7,722,637).............................. 9,584,914
---------
INTERNATIONAL EQUITY FUNDS: 36.80%
----------------------------------
46,692 Fidelity European Capital App Fund ............. 811,508
42,463 Fidelity Worldwide Fund ........................ 793,642
33,382 Founders Worldwide Growth Fund ................. 841,560
58,618 Lexington Worldwide Emerging Mkts Fund ......... 748,552
46,163 T. Rowe Price European Stock Fund .............. 950,490
22,757 Scudder Global Fund ............................ 793,090
25,404 Scudder Latin America Fund ..................... 789,295
-------
Total International Equity Funds
(Cost $4,670,613).............................. 5,728,137
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 1.87%
-------------------------------
$ 239,400 Johnson Controls, Inc.,
5.165%, 12/30/97 ............................... 239,400
52,100 Wisconsin Electric Power Company,
5.1852% 11/30/97 ............................... 52,100
------
Total Short-Term Demand Notes
(Cost $291,500) ................................ 291,500
-------
Total Investment in Securities
(Cost $12,684,750) (a) .....................100.24% 15,604,551
Liabilities in excess
of other assets ....................... (0.24%) (37,159)
-------------------
NET ASSETS .................................100.00% $15,567,392
======= ===========
(a) Cost for federal income tax purposes is the same and net unrealized
appreciation consists of:
Gross unrealized appreciation ..................$ 2,934,013
Gross unrealized depreciation .................. (14,212)
--------
Net Unrealized Appreciation ....................$ 2,919,801
=========
See Accompanying Notes to Financial Statements
9
<PAGE>
MERRIMAN ASSET ALLOCATION FUND
Portfolio of Investments
September 30, 1997
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 29.79%
------------------------------
27,136 Founders Frontier Fund .........................$ 1,001,850
30,309 T. Rowe Price Growth Stock Fund ................ 975,337
19,998 T. Rowe Price New Horizons Fund ................ 500,952
22,538 Scudder Development Fund ....................... 1,016,670
19,485 20th Century Select Fund ....................... 970,758
20,965 USAA Growth Fund ............................... 462,912
-------
Total Domestic Equity Funds
(Cost $4,082,169) .............................. 4,928,479
---------
INTERNATIONAL EQUITY FUNDS: 35.89%
63,356 Fidelity European Capital App Fund ............. 1,101,122
13,700 Fidelity Overseas Fund ......................... 502,656
69,073 INVESCO European Fund .......................... 1,260,582
63,736 T. Rowe Price European Stock Fund .............. 1,312,325
26,512 Scudder Global Fund ............................ 923,954
26,918 Scudder Latin America Fund ..................... 836,339
-------
Total International Equity Funds
(Cost $4,482,570) ............................. 5,936,978
---------
HIGH YIELD CORPORATE BOND FUNDS: 10.27%
---------------------------------------
54,213 Federated High Income Bond Fund ................ 648,935
34,410 INVESCO Income High Yield ...................... 261,858
66,827 Northeast Investors Trust ...................... 787,886
-------
Total High Yield Corporate Bond Funds
(Cost $1,492,729) ............................. 1,698,679
---------
INTERNATIONAL BOND FUNDS: 15.21%
------------------------- ------
38,425 Benham European Gov't Bond Fund ................ 425,365
76,601 Federated Int'l Income Fund Class A ............ 817,333
25,657 G.T. Global High Income Fund Class A ........... 442,848
41,710 T. Rowe Price International Bond Fund .......... 411,262
31,188 Scudder Emerging Markets Fund .................. 419,475
-------
Total International Bond Funds
(Cost $2,392,576) ............................. 2,516,283
---------
MONEY MARKET FUNDS: 6.33%
------------------- -----
412,865 Am Cent Benham Govt Agency Fund ................ 412,865
220,387 Lexington Money Market Fund .................... 220,387
407,023 Scudder Investment Trust ....................... 407,023
6,644 20th Century Cash Reserves Fund ................ 6,644
-----
Total Money Market Funds
(Cost $1,046,919) ............................. 1,046,919
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 2.63%
-------------------------------
$ 90,400 American Family Financial Services Inc.,
5.1553% 2/17/98 ................................$ 90,400
304,700 Johnson Controls Inc.,
5.1650% 12/30/97 ............................... 304,700
40,400 Wisconsin Electric Power Co.,
5.1852% 11/30/97 ............................... 40,400
------
Total Short-Term Demand Notes
(Cost $435,500) ............................... 435,500
-------
Total Investment in Securities
(Cost $13,932,463) (a) ..................100.12% 16,562,838
Liabilities in excess
of other assets .........................(0.12%) (19,481)
---------------------
NET ASSETS ...............................100.00% $16,543,357
======= ===========
(a) Cost for federal income tax purposes is the same and net unrealized
appreciation consists of:
Gross unrealized appreciation ..................$ 2,639,008
Gross unrealized depreciation .................. (8,633)
------
Net Unrealized Appreciation ....................$ 2,630,375
=========
See Accompanying Notes to Financial Statements
10
<PAGE>
MERRIMAN LEVERAGED GROWTH FUND
Portfolio of Investments
September 30, 1997
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 90.41%
-----------------------------
22,205 Federated Stock Trust ..........................$ 919,940
14,175 Fidelity Trend Fund ............................ 1,005,876
44,907 Founders Growth Fund ........................... 917,442
25,796 Founders Frontier Fund ......................... 952,375
28,403 T. Rowe Price Growth Stock Fund ................ 913,995
29,308 T. Rowe Price New Era Fund ..................... 935,500
38,021 T. Rowe Price New Horizon Fund ................. 952,435
32,633 Scudder Large Company Value Fund ............... 945,690
21,557 Scudder Development Fund ....................... 972,416
30,769 SteinRoe Capital Opportunity Fund .............. 895,385
25,752 SteinRoe Growth Stock Fund ..................... 908,782
21,860 Strong Opportunity Fund ........................ 950,269
18,574 20th Century Select Fund ....................... 925,352
62,097 20th Century Vista Fund ........................ 996,031
18,382 USAA Aggressive Growth Fund .................... 645,221
13,417 USAA Growth Fund ............................... 296,243
23,757 Value Line Leveraged Growth Fund ............... 951,722
7,142 WPG Growth Fund ................................ 994,265
-------
Total Domestic Equity Funds
(Cost $12,861,740) ............................ 16,078,939
----------
INTERNATIONAL EQUITY FUNDS: 48.63%
----------------------------------
90,437 Am Century Int'l Growth Fund ................... 886,279
41,974 Fidelity European Capital App Fund ............. 729,509
24,473 Fidelity Overseas Fund ......................... 897,899
47,807 Fidelity Worldwide Fund ........................ 893,504
35,832 Founders Worldwide Growth Fund ................. 903,329
49,570 INVESCO European Fund .......................... 904,654
65,994 Lexington Int'l Emerging Markets Fund .......... 842,741
43,756 T. Rowe Price European Stock Fund .............. 900,939
23,014 Scudder Global Fund ............................ 802,049
28,600 Scudder Latin America Fund ..................... 888,610
-------
Total International Equity Funds
(Cost $7,360,431) ............................. 8,649,513
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 0.72%
-------------------------------
$ 59,200 Johnson Controls Inc.,
5.165%, 12/30/97 ...............................$ 59,200
68,300 Wisconsin Electric Power Co.,
5.1852%, 11/30/97 .............................. 68,300
------
Total Short-Term Demand Notes
(Cost $127,500) ............................... 127,500
-------
Total Investment in Securities
(Cost $20,349,671) (a) ..................139.76% 24,855,952
Liabilities in excess
of other assets ........................(39.76%) (7,070,703)
----------------------
NET ASSETS ...............................100.00% $ 17,785,249
======= ============
(a) Cost for federal income tax purposes is the same and net unrealized
appreciation consists of:
Gross unrealized appreciation ..................$ 4,517,297
Gross unrealized depreciation .................. (11,016)
-------
Net Unrealized Appreciation ....................$ 4,506,281
=========
See Accompanying Notes to Financial Statements
11
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1997
<CAPTION>
MERRIMAN MERRIMAN MERRIMAN MERRIMAN
MERRIMAN GROWTH & CAPITAL ASSET LEVERAGED
FLEXIBLE BOND INCOME APPRECIATION ALLOCATION GROWTH
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in securities, at market value
(identified cost $8,807,593, $8,100,235,
$12,684,750, $13,932,463 and $20,349,671,
respectively) (Note 2) $9,200,292 $ 9,527,655 $15,604,551 $16,562,838 $24,855,952
Cash 4,656 4,412 9 2,523 1,855
Dividends and interest receivable 38,044 8,667 1,322 17,457 772
Receivable for fund shares sold 682 268 -- -- --
--- ---
Total assets 9,243,674 9,541,002 15,605,882 16,582,818 24,858,579
--------- --------- ---------- ---------- ----------
LIABILITIES
Loan payable to custodian bank -- -- -- -- 7,000,000
Accrued management fees 7,611 9,623 15,655 16,705 17,698
Other accrued expenses 7,020 10,069 21,533 22,756 55,632
Payable for fund shares redeemed 1,116 6,957 1,302 -- --
Distributions payable 8,377 -- -- -- --
-----
Total liabilities 24,124 26,649 38,490 39,461 7,073,330
------ ------ ------ ------ ---------
NET ASSETS
(Applicable to 858,574, 734,154, 1,295,358, 1,392,313
and 1,197,927 shares of beneficial interest with no
par value, unlimited number of shares authorized) $9,219,550 $ 9,514,353 $15,567,392 $16,543,357 $17,785,249
========== =========== =========== =========== ===========
PRICING OF SHARES
Net asset value, offering and redemption price per share
$ 9,219,550 / 858,574 shares $ 10.74
==========
$ 9,514,353 / 734,154 shares $ 12.96
===========
$15,567,392 / 1,295,358 shares $ 12.02
===========
$16,543,357 / 1,392,313 shares $ 11.88
==========
$17,785,249 / 1,197,927 shares $ 14.85
===========
NET ASSETS
At September 30, 1997, net assets consisted of:
Paid-in capital $8,638,426 $ 6,962,480 $11,799,793 $13,360,546 $12,335,964
Undistributed net investment income 32,071 -- -- 115,265 --
Accumulated net realized gain 156,354 1,124,453 847,798 437,171 943,004
Unrealized appreciation on investments 392,699 1,427,420 2,919,801 2,630,375 4,506,281
------- --------- --------- --------- ---------
$9,219,550 $ 9,514,353 $15,567,392 $16,543,357 $17,785,249
========== =========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
12
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
Year Ended September 30, 1997
<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 $ 22,093 $ 12,891 $ 17,894 $ 17,862 $ 9,048
Dividends 627,327 272,997 349,066 664,369 409,579
------- ------- ------- ------- -------
Total investment income 649,420 285,888 366,960 682,231 418,627
------- ------- ------- ------- -------
EXPENSES
Management fees (Note 3) 92,669 113,874 193,036 210,890 199,789
Accounting services 17,691 19,370 30,327 33,097 33,563
Custodian fees 2,570 2,260 3,979 5,232 5,622
Transfer agent fees 10,302 10,957 28,521 28,158 22,655
Interest expense (Note 4) -- -- -- -- 377,151
Professional services 5,277 4,214 9,251 9,840 10,028
Registration fees 5,276 3,801 8,486 9,198 7,797
Insurance and other 163 182 209 272 296
Printing 1,406 1,422 2,815 3,085 2,457
Trustees fees 234 256 456 519 495
Amortization of organization expenses -- -- -- -- 1,151
------ ------- ------ ------- -------
Total expenses 135,588 156,336 277,080 300,291 661,004
------- ------- ------- ------- -------
Net investment income (loss) 513,832 129,552 89,880 381,940 (242,377)
------- ------- ------ ------- --------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from security transactions 256,067 870,904 526,544 99,855 209,024
Capital gain distributions from regulated
investment companies 17,291 256,262 416,968 339,133 741,886
Increase in unrealized appreciation of investments 54,113 716,179 1,994,196 1,421,089 3,155,486
------ ------- --------- --------- ---------
Net realized and unrealized gain on investments 327,471 1,843,345 2,937,708 1,860,077 4,106,396
------- --------- --------- --------- ---------
Net increase in net assets resulting from
operations $841,303 $1,972,897 $3,027,588 $2,242,017 $3,864,019
======== ========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
13
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
MERRIMAN FLEXIBLE MERRIMAN GROWTH &
BOND FUND INCOME FUND
--------- -----------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 513,832 $ 522,260 $ 129,552 $ 210,420
Net realized gain on investments 256,067 11,709 870,904 833,675
Capital gain distributions from regulated investment
companies 17,291 2,057 256,262 257,241
Net increase (decrease) in unrealized appreciation on investments 54,113 99,779 716,179 (264,367)
------ ------ ------- --------
Net increase in net assets resulting from operations 841,303 635,805 1,972,897 1,036,969
------- ------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments -- -- (747,438) (547,218)
Distributions from net investment income (513,096) (521,876) (166,200) (217,137)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from capital
share transactions (Note 5) 230,793 (45,450) (246,740) (919,075)
------- ------- -------- --------
Total increase (decrease) 559,000 68,479 812,519 (646,461)
NET ASSETS
Beginning of year 8,660,550 8,592,071 8,701,834 9,348,295
--------- --------- --------- ---------
End of year* $ 9,219,550 $ 8,660,550 $ 9,514,353 $ 8,701,834
=========== =========== =========== ===========
* Including undistributed net investment income of: $ 32,071 $ 31,335 $ -- $ 36,648
=========== =========== ========= ===========
</TABLE>
See Accompany Notes to Financial Statements
<TABLE>
<CAPTION>
Merriman Capital Merriman Asset
Appreciation Fund Allocation Fund
----------------- ---------------
Year Ended Year Ended Year Ended Year Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 89,880 $ 323,438 $ 381,940 $ 501,177
Net realized gain on investments 526,544 1,371,325 99,855 1,200,254
Capital gain distributions from regulated investment
companies 416,968 1,085,491 339,133 403,950
Net increase (decrease) in unrealized appreciation on investments 1,994,196 (1,896,938) 1,421,089 (735,043)
--------- ---------- --------- --------
Net increase in net assets resulting from operations 3,027,588 883,316 2,242,017 1,370,338
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments (1,466,440) (1,914,315) (1,375,201) (446,499)
Distributions from net investment income (89,880 (385,016) (490,612) (300,168)
CAPITAL SHARE TRANSACTIONS:
Decrease in net assets resulting from capital
shares transactions (Note 5) (2,568,688) (4,124,143) (1,566,169) (5,522,839)
- ---------- ---------- ---------- ----------
Total decrease (1,097,420) (5,540,158) (1,189,965) (4,899,168)
NET ASSETS
Beginning of year 16,664,812 22,204,970 17,733,322 22,632,490
---------- ---------- ---------- ----------
End of year* $ 15,567,392 $ 16,664,812 $ 16,543,357 $ 17,733,322
============ ============ ============ ============
* Including undistributed net investment income of: $ -- $ -- $ 115,265 $ 223,937
========== ========== ============ ============
</TABLE>
See Accompanying Notes to Financial Statements
14
<PAGE>
<TABLE>
<CAPTION>
Merriman Leveraged
Growth Fund
-----------
Year Ended Year Ended
September 30, September 30,
1997 1996
---- ----
OPERATIONS:
<S> <C> <C>
Net investment loss $ (242,377) $ (107,064)
Net realized gain on investments 209,024 720,399
Capital gain distributions from regulated investment companies 741,886 679,989
Net increase (decrease) in unrealized appreciation on investments 3,155,486 (64,087)
--------- -------
Net increase in net assets resulting from operations 3,864,019 1,229,237
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gains on investments (710,872) (749,459)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from
capital share transactions (Note 5) (1,062,025) 5,528,019
- ---------- ---------
Total increase 2,091,122 6,007,797
NET ASSETS
Beginning of year 15,694,127 9,686,330
---------- ---------
End of year* $ 17,785,249 $ 15,694,127
============ ============
* Including undistributed net investment income of: $ -- $ --
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
15
<PAGE>
<TABLE>
<CAPTION>
MERRIMAN LEVERAGED GROWTH FUND
STATEMENTS OF CASH FLOW
Year Ended Year Ended
September 30, September 30,
1997 1996
---- ----
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Dividends and interest received $ 544,041 $ 305,984
Operating expenses paid (650,899) (485,475)
Net purchases of short-term investments (114,600) 347,785
Purchases of portfolio securities (32,899,636) (58,806,738)
Proceeds from sales of portfolio securities 33,692,429 52,053,829
---------- ----------
Net cash provided by (used for) operating activities 571,335 (6,584,615)
------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital shares sold 2,575,686 7,850,862
Payments on capital shares redeemed (4,315,499) (3,042,113)
Cash dividends paid * (32,384) (21,443)
Net increase in loan payable to custodian bank 1,200,000 1,800,000
--------- ---------
Net cash provided by (used for) financing activities (572,197) 6,587,306
-------- ---------
Net change in cash (862) 2,691
Cash at beginning of year 2,717 26
----- ------
Cash at end of year $ 1,855 $ 2,717
============ ============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 3,864,019 $ 1,229,237
------------ ------------
Adjustments to reconcile net increase in net assets from operations to
net cash provided by (used for) operating activities:
Increase in investment securities (3,428,203) (7,741,424)
(Increase) decrease in dividends and interest receivable 125,414 (97,905)
Decrease in deferred organization expenses 1,151 1,742
Increase in accrued management fees 1,799 5,993
Increase in other accrued expenses 7,155 17,742
----- ------
Total adjustments (3,292,684) (7,813,852)
---------- ----------
Net cash provided by (used for) operating activities $ 571,335 $ (6,584,615)
============ ============
</TABLE>
* Non-cash financing activities included herein consist of reinvestment of
distributions to shareholders of $678,488 and $728,016, respectively.
See Accompanying Notes to Financial Statements
16
<PAGE>
<TABLE>
<CAPTION>
MERRIMAN MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
FLEXIBLE BOND FUND
(for a share outstanding throughout the year)
Year Ended September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.36 $ 10.23 $ 9.94 $ 10.97 $ 10.78
-------- -------- -------- --------- ---------
Income from investment operations
Net investment income 0.60 0.63 0.55 0.42 0.52
Net gains or losses on securities
(realized and unrealized) 0.38 0.13 0.29 (0.37) 0.65
---- ---- ---- ----- ----
Total from investment operations 0.98 0.76 0.84 0.05 1.17
---- ---- ---- ---- ----
Less distributions:
From investment income (0.60) (0.63) (0.55) (0.42) (0.52)
From realized capital gains -- -- -- (0.66) (0.46)
----- ----- ----- ----- -----
Total distributions (0.60) (0.63) (0.55) (1.08) (0.98)
----- ----- ----- ----- -----
Net asset value, end of year $ 10.74 $ 10.36 $ 10.23 $ 9.94 $ 10.97
======== ======== ======== ========= =========
Total return 9.64% 7.62% 8.63% 0.36% 11.61%
Net assets end of year ($000) $ 9,220 $ 8,661 $ 8,592 $ 10,542 $ 12,917
Ratio of expenses to average net assets 1.46% 1.49% 1.50% 1.50% 1.54%
Ratio of net income to average net assets 5.54% 6.05% 5.17% 3.89% 4.91%
Portfolio turnover rate 172.73% 139.77% 291.46% 472.49% 272.87%
</TABLE>
<TABLE>
<CAPTION>
Growth & Income Fund
(for a share outstanding throughout the year)
Year Ended September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.65 $ 11.32 $ 10.86 $ 10.92 $ 11.58
-------- -------- -------- -------- ---------
Income from investment operations
Net investment income 0.19 0.27 0.24 0.11 0.11
Net gains or losses on securities
(realized and unrealized) 2.40 1.02 1.29 (0.04) 0.44
---- ---- ---- ----- ----
Total from investment operations 2.59 1.29 1.53 0.07 0.55
---- ---- ---- ---- ----
Less distributions:
From investment income (0.24) (0.27) (0.21) (0.13) (0.09)
From realized capital gains (1.04) (0.69) (0.86) -- (1.12)
----- ----- ----- ----- -----
Total distributions (1.28) (0.96) (1.07) (0.13) (1.21)
----- ----- ----- ----- -----
Net asset value, end of year $ 12.96 $ 11.65 $ 11.32 $ 10.86 $ 10.92
======== ======== ======== ======== =========
Total return 24.11% 12.18% 15.41% 0.62% 4.86%
Net assets end of year ($000) $ 9,514 $ 8,702 $ 9,348 $ 10,701 $ 16,778
Ratio of expenses to average net assets 1.71% 1.77% 1.76% 1.90% 1.69%
Ratio of net income to average net assets 1.42% 2.33% 2.10% 0.87% 0.93%
Portfolio turnover rate 105.11% 133.00% 78.64% 240.27% 200.67%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Merriman Mutual Funds
Financial Highlights (continued)
Capital Appreciation Fund
(for a share outstanding throughout the year)
Year Ended September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.93 $ 11.69 $ 10.82 $ 11.63 $ 11.52
Income from investment operations
Net investment income 0.06 0.19 0.09 0.19 --
Net gains or losses on securities
(realized and unrealized) 2.13 0.37 1.56 (0.38) 1.29
---- ---- ---- ----- ----
Total from investment operations 2.19 0.56 1.65 (0.19) 1.29
---- ---- ---- ----- ----
Less distributions:
From investment income (0.06) (0.22) (0.07) (0.16) (0.04)
From realized capital gains (1.04) (1.10) (0.71) (0.46) (1.14)
----- ----- ----- ----- -----
Total distributions (1.10) (1.32) (0.78) (0.62) (1.18)
----- ----- ----- ----- -----
Net asset value, end of year $ 12.02 $ 10.93 $ 11.69 $ 10.82 $ 11.63
======= ======== ======== ======== ========
Total return 21.93% 5.69% 16.43% (1.64)% 11.69%
Net assets end of year ($000) $15,567 $ 16,665 $ 22,205 $ 25,579 $ 39,037
Ratio of expenses to average net assets 1.79% 1.84% 1.78% 1.58% 1.51%
Ratio of net income to average net assets 0.58% 1.74% 0.80% 1.70% 0.04%
Portfolio turnover rate 114.36% 254.77% 146.40% 344.25% 241.90%
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation Fund
(for a share outstanding throughout the year)
Year Ended September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.61 $ 11.21 $ 11.22 $ 11.97 $ 10.74
-------- -------- -------- -------- --------
Income from investment operations
Net investment income 0.26 0.30 0.25 0.19 0.10
Net gains or losses on securities
(realized and unrealized) 1.27 0.50 0.62 0.15 1.76
---- ---- ---- ---- ----
Total from investment operations 1.53 0.80 0.87 0.34 1.86
---- ---- ---- ---- ----
Less distributions:
From investment income (0.33) (0.16) (0.25) (0.20) (0.10)
From realized capital gains (0.93) (0.24) (0.63) (0.89) (0.53)
----- ----- ----- ----- -----
Total distributions (1.26) (0.40) (0.88) (1.09) (0.63)
----- ----- ----- ----- -----
Net asset value, end of year $ 11.88 $ 11.61 $ 11.21 $ 11.22 $ 11.97
======= ======== ======== ======== ========
Total return 14.43% 7.41% 8.49% 2.91% 18.11%
Net assets end of year ($000) $16,543 $ 17,733 $ 22,632 $ 29,984 $ 29,492
Ratio of expenses to average net assets 1.78% 1.82% 1.76% 1.56% 1.52%
Ratio of net income to average net assets 2.26% 2.53% 2.11% 1.63% 0.85%
Portfolio turnover rate 161.57% 204.55% 288.45% 449.55% 225.96%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
MERRIMAN MUTUAL FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
LEVERAGED GROWTH FUND
(for a share outstanding throughout the year)
Year Ended September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.30 $ 12.30 $ 10.42 $ 10.41 $ 10.04
-------- -------- ------- ------- -------
Income from investment operations
Net investment income (loss) (0.20) (0.08) (0.04) 0.07 0.06
Net gains on securities
(realized and unrealized) 3.33 0.84 2.33 0.03 0.37
---- ---- ---- ---- ----
Total from investment operations 3.13 0.76 2.29 0.10 0.43
---- ---- ---- ---- ----
Less distributions:
From investment income -- -- (0.07) (0.09) (0.06)
From realized capital gains (0.58) (0.76) (0.34) -- --
----- ----- ----- ----- -----
Total distributions (0.58) (0.76) (0.41) (0.09) (0.06)
----- ----- ----- ----- -----
Net asset value, end of year $ 14.85 $ 12.30 $ 12.30 $ 10.42 $ 10.41
======== ======== ======= ======= =======
Total return 26.66% 6.85% 22.85% 0.91% 4.32%
Net assets end of year ($000) $ 17,785 $ 15,694 $ 9,686 $ 5,459 $ 5,879
Ratio of expenses to average net assets (a) 4.13% 3.70% 2.82% 2.06% 2.03%
Ratio of net income (loss) to average net assets (1.52)% (0.78)% (0.68)% 0.62% 0.65%
Portfolio turnover rate 130.36% 247.36% 87.50% 379.64% 130.68%
</TABLE>
(a) Expenses include interest expense of 2.36%, 1.95% and 1.01% for 1997, 1996
and 1995 respectively.
INFORMATION RELATING TO OUTSTANDING DEBT DURING THE FISCAL YEARS SHOWN BELOW.
<TABLE>
<CAPTION>
Average Average Number
Amount of Debt Amount Of Debt of Shares Average Amount of
Outstanding at Outstanding Outstanding Debt per Share
Year ended End of Year During the Year During the Year During the Year
- ---------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
September 30, 1997 $7,000,000 $4,295,452 1,250,115 $3.44
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>
19
<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 were
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 ended September 30, 1997.
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 $14,000 per year to maintain an
unsecured $7,000,000 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, 1997 was $7,000,000.
NOTE 5 - (SEE FOLLOWING)
NOTE 6 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments and money
market funds, for the year ended September 30, 1997 were as follows:
Purchases Sales
Merriman Flexible Bond Fund $11,371,270 $14,681,602
Merriman Growth & Income Fund $ 8,602,571 $9,177,875
Merriman Capital Appreciation Fund $15,665,641 $19,083,438
Merriman Asset Allocation Fund $22,739,780 $23,951,835
Merriman Leveraged Growth Fund $25,418,536 $25,469,473
20
<PAGE>
MERRIMAN INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL SHARES
At September 30, 1997, there were an unlimited number of no par value shares of
beneficial interest authorized. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
MERRIMAN FLEXIBLE BOND FUND MERRIMAN GROWTH & INCOME FUND
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ........... 280,944 $2,964,179 186,797 $1,935,639 55,591 $ 653,181 35,642 $ 392,671
Shares issued in
reinvestment of
distributions ....... 45,339 477,703 48,199 495,739 81,475 896,229 70,399 751,157
------ ------- ------ ------- ------ ------- ------ -------
326,283 3,441,882 234,996 2,431,378 137,066 1,549,410 106,041 1,143,828
Shares redeemed ....... (303,348) (3,211,089) (239,644) (2,476,828) (150,162) (1,796,150) (184,316) (2,062,903)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net increase (decrease) 22,935 $ 230,793 (4,648) $(45,450) (13,096 $(246,740) (78,275) $ (919,075)
====== ========== ====== ======== ======= ========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
MERRIMAN CAPITAL APPRECIATION FUND MERRIMAN ASSET ALLOCATION FUND
---------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold ..... 103,803 $1,122,921 183,143 $1,971,809 151,724 $1,719,250 151,662 $1,691,922
Shares issued in
reinvestment of
distributions . 152,931 1,547,665 222,748 2,265,357 171,398 1,818,529 68,147 731,955
------- --------- ------- --------- ------- --------- ------ -------
256,734 2,670,586 405,891 4,237,166 323,122 3,537,779 219,809 2,423,877
Shares redeemed . (485,512) (5,239,274) (781,504) (8,361,309) 457,711) (5,103,948) (711,787) (7,946,716)
-------- ---------- -------- ---------- ------- ---------- -------- ----------
Net decrease .... (228,778) $(2,568,688) (375,613) $(4,124,143) (134,589) $(1,566,169) (491,978) $(5,522,839)
======== =========== ======== =========== ======== =========== ======== ===========
</TABLE>
MERRIMAN LEVERAGED GROWTH FUND
------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ ------------
SHARES VALUE SHARES VALUE
------ ----- ------ -----
Shares sold ........... 201,597 $ 2,574,986 679,463 $ 7,842,116
Shares issued in
reinvestment of
distributions ....... 57,160 678,488 65,476 728,016
------ ------- ------ -------
258,757 3,253,474 744,939 8,570,132
Shares redeemed ....... (336,514) (4,315,499) (256,850) (3,042,113)
-------- ---------- -------- ----------
Net increase (decrease) (77,757) $(1,062,025) 488,089 $ 5,528,019
======= =========== ======= ===========
21
<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, 1997, 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 each of the five years in the period then ended. 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, 1997, by correspondence with the custodian. 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, 1997, and the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
Merriman Leveraged Growth cash flows for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania Tait, Weller & Baker
October 17, 1997
22
<PAGE>
(Graphic Omitted)
MERRIMAN
INVESTMENT TRUST
1200 Westlake Avenue North Suite 700
Seattle, Washington 98109
1-800-423-4893
23
<PAGE>
