SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 16 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Post-Effective Amendment No. 16 [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):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on _____________ 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.
<PAGE>
LOGO OMITTED
DEFENSIVELY MANAGED FUNDS:
MERRIMAN
FLEXIBLE BOND FUND
Seeking income,
preservation of capital and,
secondarily, growth of capital.
MERRIMAN
GROWTH & INCOME FUND
Seeking long-term
growth of capital, income and,
secondarily, preservation of capital.
MERRIMAN
CAPITAL APPRECIATION FUND
Seeking capital appreciation.
MERRIMAN
ASSET ALLOCATION FUND
Seeking high total
return consistent with
reasonable risk.
MERRIMAN
LEVERAGED GROWTH FUND
Seeking capital appreciation
through the use of leverage and other
investment practices.
BUY-AND-HOLD FUND:
MERRIMAN
STRATEGIC EQITY FUND
Seeking long-term growth of capital.
NO LOAD
mutual funds of the
Merriman Investment Trust
The Merriman Investment Trust (the "Trust") is a no load, open-end investment
company offering investors six diversified, investment portfolios ("Funds") 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 June XX, 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
JUNE XX, 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, investment
company offering six diversified Funds from which investors may choose. Five
Funds utilize a defensively managed investment strategy. They are: 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"). One Fund, the Merriman Strategic Equity Fund (the "Strategic Equity
Fund"), utilizes a buy-and-hold investment strategy.
FUND 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 Asset Allocation Fund allocates its investments among
five market segments: domestic and international equities, domestic and
international fixed income, and precious metals. The objective of the Leveraged
Growth Fund is capital appreciation through the use of leverage and other
investment practices. The objective of the Strategic Equity Fund is long-term
growth of capital. The Funds are designed for long-term investors, including
tax-deferred retirement plans. See "Investment Objectives and Policies," page 7.
BROAD DIVERSIFICATION
In seeking to achieve broad diversification, each Fund invests primarily in the
shares of other mutual funds (underlying funds). Consequently, in addition to
paying the operational costs of the Funds, shareholders also indirectly pay a
portion of the operational costs of such underlying funds. 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 underlying
fund may limit the Funds' investment in those 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 funds and their
management's investment decisions may not correlate with the expectations of the
Investment Manager. See "Investing in Mutual Funds," page 10.
DEFENSIVE MANAGEMENT STRATEGY
A defensive management strategy utilizing proprietary, computer-assisted
technical market models is used by the first five Funds named above in an
attempt to avoid the risk of being invested during declining market cycles. The
risk of this strategy is that the Investment Manager may be wrong in predicting
market trends and timing the deployment of Fund assets. As a result,
shareholders could be worse off than if no attempt had been made at predicting
market cycles. See "Defensive Management Strategy," page 8.
BUY-AND-HOLD STRATEGY
A buy-and-hold strategy is utilized by the Strategic Equity Fund, emphasizing
asset class selection rather than individual security selection. The portfolio
is structured in an attempt to maximize investment returns over one or more
business cycles and may underperform the broad equity markets over shorter
periods. The Fund intends to be fully invested at all times and is not
appropriate for short-term investors. There is a risk, for a variety of reasons,
that the investments chosen by the Investment Manager may not achieve the
anticipated performance. See "Buy-and-Hold Strategy," page 8.
RISKS
Underlying funds may invest up to 100% of their assets in the securities of
foreign issuers. Foreign securities may pose increased risk over domestic issues
due to different regulatory, auditing and exchange standards and practices
imposed by foreign governments. If traded in foreign currencies, foreign issues
may be exposed to currency exchange fluctuations. See "Foreign Securities and
Exchange Transactions," page 17.
Each Fund (except the Strategic Equity Fund) can be expected to have high
portfolio turnover (100% to 300%), which may result in greater short-term gains
and transaction costs than funds with lower portfolio turnover. Short-term gains
are taxable to many shareholders as ordinary income. See "Dividends, Capital
Gain Distributions and Taxes," page 23, and "Portfolio Turnover," page 16.
1
<PAGE>
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 be
exposed, through investment in other mutual funds, to what are commonly referred
to as "junk bonds." Such securities are speculative investments which carry
greater risks than higher quality debt securities. See "Fixed me
IncoInvestments," page 15.
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 16.
There are other risks associated with the Funds' investment policies, including
income tax related risks. See "Other Investment Policies and Risks," page 14,
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
Strategic Equity and Flexible Bond Funds and 1.25% for the Growth & Income,
Capital Appreciation, Asset Allocation, and Leveraged Growth Funds. See
"Operations", page 25.
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.
Shares may be purchased by mail, telephone or bank wire. The minimum initial
purchase in each Fund is $5,000 ($2,000 for IRA accounts, $1,000 for Automatic;
Investment Plan Accounts (AIP), some broker-dealers, such as Charles Schwab &
Co., may accommodate investors who wish to invest less than $5,000); subsequent
investments must be at least $100. See "How to Buy Shares", page 18. 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 22.
HOW TO REDEEM
Shares may be redeemed by mail, telephone or bank wire. There is no charge for
most redemptions. The Strategic Equity Fund imposes a 1% short-term trading fee
for all redemptions made within 90 days of purchase. Shares may be redeemed at
any time at the net asset value next determined after receipt of a redemption
request by the Transfer Agent. Shareholders may redeem or exchange shares by
telephone (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 telephone exchange. There is no
charge for telephone redemptions See the "Synopsis of Costs and Expenses",
below, "How to Sell Shares", page 20, and "Exchange Privilege", page 23.
DIVIDENDS AND DISTRIBUTIONS
Net investment income is distributed quarterly for the Flexible Bond Fund and
annually for the other Funds. Net capital gains, if any, are distributed
annually. Shareholders may elect to receive dividends and distributions in cash
or they may be reinvested in additional Fund shares. (See "Dividends, Capital
Gains Distributions and Taxes", page 23).
2
<PAGE>
COSTS AND EXPENSES
Shareholder Transaction Expenses:
Redemption Fee (as a percentage of amount redeemed)
(Strategic Equity Fund only) 1.00%(1,2)
Exchange Fee (Telephone Exchange only) $5.00 (3)
1 The Strategic Equity Fund imposes this short-term trading fee, applicable
only to redemptions made within 90 days of purchase. See "Short-Term Trading
Fee," page 20.
2 The transfer agent charges a fee of $12 for the transfer of redemption
proceeds by wire. There is no fee for redemption by check or ACH transfer. See
"Redemptions by Check, Bank Wire, or ACH," page 20.
3 The exchange fee of $5 is imposed by the transfer agent on exchanges ordered
by telephone. There is no fee for exchanges ordered by mail. See "Exchange
Privilege," page 22.
Annual Fund Operating Expenses As a percentage of net assets):
<TABLE>
<CAPTION>
Flexible Growth & Capital Asset Leveraged Strategic
Bond Income Appreciation Allocation Growth Equity
Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Management Fees 1.00% 1.25% 1.25% 1.25% 1.25% 1.00%
Other Expenses
(after reimbursements) 0.49% 0.52% 0.59% 0.57% 0.50% 0.00%
Interest Expense - - - - 1.95% -
Total Fund ---- ---- ---- ---- ---- ----
Operating Expense 1.49% 1.77% 1.84% 1.82% 3.70% 1.00%
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.
1 year $15 $18 $19 $18 $37 $10
3 years 47 56 58 57 113 31
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. Other expenses are estimated at 0.00% for the Strategic Equity
Fund based upon the Investment Manager's obligation to provide all services
(other than extraordinary expenses) to the Fund at the Manager's expense. The
Investment Manager has agreed to reimburse the Strategic Equity Fund for its
share of the non-interested trustees fees and expenses, which are expected to
total less than 0.005%. See "Management", page 25, for more information about
the fees and costs of operating the Funds. Because of the interest expense
associated with the Leveraged Growth Fund's use of leverage, total fund
operating expenses may be higher for the Leveraged Growth Fund than for similar
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.
3
<PAGE>
<TABLE>
MERRIMAN FLEXIBLE BOND FUND
For a share outstanding throughout each fiscal year ended September 30,:
<CAPTION>
1997(1) 1996 1995 1994 1993 1992 1991 1990 1989(2)
------- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.36 $10.23 $ 9.94 $ 10.97 $ 10.78 $ 10.19 $ 9.84 $10.30 $ 10.00
------- ------ ------- ------- ------- ------- ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.34 0.63 0.55 0.42 0.52 0.66 0.60 0.61 0.50
Net gains or (losses) on securities
(both realize and unrealized) 0.02 0.13 0.29 (0.37) 0.65 0.59 0.37 (0.28) 0.29
---- ---- ---- ----- ---- ---- ---- ----- ----
Total from investment operations 0.36 0.76 0.84 0.05 1.17 1.25 0.97 0.33 0.79
---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends (from net investment income) (0.35) (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 (0.35) (0.63) (0.55) (1.08) (0.98) (0.66) (0.62) (0.79) (0.49)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $ 10.37 $10.36 $ 10.23 $ 9.94 $ 10.97 $ 10.78 $10.19 $ 9.84 $ 10.30
======= ====== ======= ======= ======= ======= ====== ====== =======
Total return 3.39% 7.62% 8.63% 0.36% 11.61% 12.65% 10.14% 3.27% 8.10%
Net assets, end of period
(in thousands) $ 9,611 $8,661 $ 8,592 $10,542 $12,917 $11,175 $11,085 $9,905 $ 6,698
Ratio of expenses to average
net assets* 1.47%* 1.49% 1.50% 1.50% 1.54% 1.51% 1.55% 1.56% 1.50%
Ratio of net income to average
net assets* 6.49%* 6.05% 5.17% 3.89% 4.91% 6.26% 6.03% 6.41% 7.14%
Portfolio turnover rate* 7.84% 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>
1997(1) 1996 1995 1994 1993 1992 1991 1990 1989(3)
------- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.65 $11.32 $ 10.86 $ 10.92 $ 11.58 $ 11.37 $10.49 $10.84 $10.00
------- ------ ------- ------- ------- ------- ------ ------ ------
Income from investment operations:
Net investment income 0.19 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) 0.65 1.02 1.29 (0.04) 0.44 0.21 1.00 (0.33) 0.83
---- ---- ---- ----- ---- ---- ---- ----- ----
Total from investment operations 0.84 1.29 1.53 0.07 0.55 0.40 1.27 0.08 1.04
---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends (from net investment income) (0.23) (0.27) (0.21) (0.13) (0.09) (0.19) (0.27) (0.41) (0.20)
Distributions (from capital gains) (1.04) (0.69) (0.86) - (1.12) - (0.12) (0.02) -
----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (1.27) (0.96) (1.07) (0.13) (1.21) (0.19) (0.39) (0.43) (0.20)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $ 11.22 $11.65 $ 11.32 $ 10.86 $ 10.92 $11.58 $11.37 $10.49 $10.84
======= ====== ======= ======= ======= ====== ====== ====== ======
Total return 7.45% 12.18% 15.41% 0.62% 4.86% 3.52% 12.37% 0.80% 10.41%
Net assets, end of period
(in thousands) $ 8,871 $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%* 1.77% 1.76% 1.90% 1.69% 1.60% 1.71% 1.83% 2.00%
Ratio of net income to average
net assets* 3.12%* 2.33% 2.10% 0.87% 0.93% 1.64% 2.47% 4.16% 4.12%
Portfolio turnover rate* 22.74% 133.00% 78.64% 240.27% 200.67% 90.71% 148.99% 329.00% 48.19%
</TABLE>
4
<PAGE>
<TABLE>
MERRIMAN CAPITAL APPRECIATION FUND
For a share outstanding throughout each fiscal year ended September 30,:
<CAPTION>
1997(1) 1996 1995 1994 1993 1992 1991 1990 1989(4)
------- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.93 $11.69 $ 10.82 $ 11.63 $ 11.52 $ 11.43 $ 9.78 $10.43 $10.00
------- ------ ------- ------- ------- ------- ------ ------ ------
Income from investment operations:
Net investment income 0.13 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) 0.08 0.38 1.56 (0.38) 1.29 0.09 1.66 (0.65) 0.43
---- ---- ---- ----- ---- ---- ---- ----- ----
Total from investment operations 0.21 0.56 1.65 (0.19) 1.29 0.36 1.88 (0.17) 0.51
---- ---- ---- ----- ---- ---- ---- ----- ----
Less distributions:
Dividends (from net investment income) (0.13) (0.23) (0.07) (0.16) (0.04) (0.27) (0.23) (0.48) (0.08)
Distributions (from capital gains) (0.97) (1.09) (0.71) (0.46) (1.14) - - - -
----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (1.10) (1.32) (0.78) (0.62) (1.18) (0.27) (0.23) (0.48) (0.08)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $ 10.04 $10.93 $ 11.69 $ 10.82 $ 11.63 $ 11.52 $11.43 $ 9.78 $10.43
======= ====== ======= ======= ======= ======= ====== ====== ======
Total return 1.84% 5.69% 16.43% (1.64%) 11.69% 3.14% 19.49% (1.67%) 5.10%
Net assets, end of period
(in thousands) $14,532 $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%* 1.84% 1.78% 1.58% 1.51% 1.46% 1.48% 1.53% 1.50%
Ratio of net income to average
net assets* 2.19%* 1.74% 0.80% 1.70% 0.04% 2.48% 1.73% 4.79% 3.63%
Portfolio turnover rate* 28.67% 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>
1997(1) 1996 1995 1994 1993 1992 1991 1990 1989(4)
------- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.61 $ 11.21 $ 11.22 $ 11.97 $ 10.74 $ 10.82 $ 10.04 $ 10.46 $ 10.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.22 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 0.22 0.80 0.87 0.34 1.86 0.23 1.10 0.08 0.54
---- ---- ---- ---- ---- ---- ---- ---- ----
Less distributions:
Dividends (from net investment income) (0.33) (0.16) (0.25) (0.20) (0.10) (0.31) (0.32) (0.50) (0.08)
Distributions (from capital gains) (0.93) (0.24) (0.63) (0.89) (0.53) - - - -
----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (1.26) (0.40) (0.88) (1.09) (0.63) (0.31) (0.32) (0.50) (0.08)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period $ 10.57 $11.61 $ 11.21 $ 11.22 $ 11.97 $ 10.74 $10.82 $10.04 $ 10.46
======= ====== ======= ======= ======= ======= ====== ====== =======
Total return 1.81% 7.41% 8.49% 2.91% 18.11% 2.13% 11.17% 0.75% 5.40%
Net assets, end of period
(in thousands) $16,512 $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%* 1.82% 1.76% 1.56% 1.52% 1.52% 1.52% 1.53% 1.50%
Ratio of net income to average
net assets* 3.71%* 2.53% 2.11% 1.63% 0.85% 2.87% 3.03% 5.01% 3.88%
Portfolio turnover rate* 44.99% 204.55% 288.45% 449.55% 225.96% 132.56% 311.62% 415.73% 56.44%
</TABLE>
5
<PAGE>
<TABLE>
MERRIMAN LEVERAGED GROWTH FUND
For a share outstanding throughout each fiscal year ended September 30,:
<CAPTION>
1997(1) 1996 1995 1994 1993 1992(4)
------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.30 $ 12.30 $ 10.42 $ 10.41 $ 10.04 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.06 (0.08) 0.18 0.07 0.06 0.04
Net gains or (losses) on securities
(both realized and unrealized) (0.03) 0.84 2.11 0.03 0.37 -
----- ---- ---- ---- ----
Total from investment operations 0.03 0.76 2.29 0.10 0.43 0.04
---- ---- ---- ---- ---- ----
Less distributions:
Dividends (from net investment income) - - (0.07) (0.09) (0.06) -
Distributions (from 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 period $ 11.75 $ 12.30 $ 12.30 $ 10.42 $ 10.4 $ 10.04
======= ======= ======= ======= ====== =======
Total return 4.91% 6.85% 22.85% 0.91% 4.3 0.40%
Net assets, end of period (in thousands) $15,143 $15,694 $ 9,686 $ 5,459 $ 5,879 $ 3,577
Ratio of expenses to average net assets* (A) 3.94%* 3.70% 2.82% 2.06% 2.03% 2.08%
Ratio of net income to average net assets* 1.06%* (0.78%) (0.68%) 0.62% 0.65% 1.09%
Portfolio turnover rate* 39.07% 247.36% 130.68% 379.64% 130.68% -
</TABLE>
<TABLE>
<CAPTION>
INFORMATION RELATING TO OUTSTANDING DEBT
DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1997(1) 1996 1995 1994 1993 1992(4)
------- ---- ---- ---- ---- -------
<S> <C> <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) $3,828,984 $2,981 $780 $60 - -
Average number of shares outstanding during the period (000) 1,265,462 1,157 657 543 524 209
Average amount of debt per share during the period $3.03 $2.58 $1.19 $0.11 - -
</TABLE>
Notes to Financial Highlights
[FN]
* Annualized.
(1) For the six months ended March 31, 1997.
(2) For the period October 6, 1988 (commencement of operations) to September
30, 1989.
(3) For the period December 29, 1988 (commencement of operations) to
September 30, 1989.
(4) For the period May 2, 1989 (commencement of operations) to September
30, 1989.
(5) For the period May 27, 1992 (commencement of operations) to September
30, 1992.
(A) Expenses include interest expense of 2.13%, 1.95% and 1.01% for
1997, 1996 and 1995 respectively.
[/FN]
6
<PAGE>
FINANCIAL HIGHLIGHTS
The information contained in the tables on pages 4 through 6 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. Information in the tables for the six months ended March 31,
1997, have not been audited.
INVESTMENT OBJECTIVES AND POLICIES
The Merriman Investment Trust (the "Trust") is a registered, open-end,
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"). The Trust consists of six diversified investment
portfolios, each of which is referred to as a "Fund," together as "Funds." Each
Fund has a distinct investment objective and uses either a Defensive Management
or Buy-and-Hold strategy to achieve its objective, as shown in the table below.
Each Fund invests primarily in the shares of other investment companies,
referred to as "mutual funds" or "underlying funds." Investors may invest in one
or more Funds, according to individual needs and risk tolerance.
Risk Assessment. As with all investments, each Fund involves some risk. The
table below is provided in an effort to assist investors in identifying the
suitability of each Fund for their purposes. The Investment Manager's Risk
Assessment shown below is its opinion of the risk level of each Fund relative to
the other Merriman Funds only, and without regard to any other mutual fund or
securities market investment. The Standard Deviation of Total Return (std. dev.)
is also used as a risk measurement. Shown below, it is taken from an independent
publication, Morningstar Principia(TM) for Mutual Funds (Morningstar). The std.
dev. shown is a measurement of the volatility of past monthly total returns
compared to the average monthly total return over the three years ended May 31,
1997. Each Merriman Fund is compared with a universe of other funds in its
respective category as shown. High std. dev. values signify high volatility; low
values signify low volatility. While past performance cannot be used to assure
future investment results, std. dev. is a widely accepted risk measurement tool
which may be useful when comparing other investments. No std. dev. is shown for
the Merriman Strategic Equity Fund because it has less than three years
operating history.
<TABLE>
<CAPTION>
Merriman Investment Investment Manager's Standard Deviation
Fund Objective Risk Assessment of Total Return
Defensively Managed Funds:
<S> <C> <C> <C>
Merriman Income, preservation of Lowest This Fund - 3.33
Flexible capital and, secondarily, 3,699 fixed income funds - 4.55
Bond Fund growth of capital.
Merriman Long-term growth of Lower This Fund - 6.09
Growth & capital, income and, 575 growth & income funds - 11.68
Income Fund secondarily, preservation
of capital.
Merriman Asset High total return consistent Lower This Fund - 6.57
Allocation Fund with reasonable risk 93 multi asset global funds - 7.57
Merriman Capital Capital appreciation. Moderate This Fund - 8.6
Appreciation 1,099 growth funds - 14.35
Fund
Merriman Capital appreciation through Highest This Fund - 11.75
Leveraged the use of leverage and other 1,099 growth funds - 14.35
Growth Fund investment practices.
BUY-AND-HOLD FUND:
Merriman Strategic Long-term growth of capital. Moderate -
Equity Fund
</TABLE>
The Funds are designed for long-term investors, including tax-deferred
retirement plans. The investment objectives and policies of each Fund, unless
otherwise stated, may be changed by the Board of Trustees of the Trust without
the prior consent of shareholders. Shareholders would be given sixty days notice
in writing, however, prior to a material departure from the stated objectives
and policies. Should such a change be implemented, the resulting investment
objectives and policies may be different from those the shareholders considered
appropriate for their needs at the time of investment in the Fund. There can be
no assurance that a Fund's investment objective will be achieved.
DEFENSIVE MANAGEMENT STRATEGY
Defensive management strategies adopted by the Flexible Bond, Growth & Income,
Capital Appreciation, Asset Allocation and Leveraged Growth Funds are designed
to reduce exposure to "market risk," the investment risk associated with general
stock and bond market declines. The Funds' strategies call for aggressive
investing in the market in anticipation of and during rising market cycles.
Conversely, the strategies call for liquidating portfolio investments into money
market instruments in anticipation of and during declining market cycles. In
other words, the object is to be "in the market" only when it is going up and
"out of the market" when it is going down. If the Funds' defensive management
strategies are successful, shareholders should experience greater overall
returns than with an equivalent investment portfolio held through periods of
market decline. Of course, correctly predicting market advances and declines and
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. See "Defensive Management," page 12.
BUY-AND-HOLD STRATEGY
The buy-and-hold strategy adopted by the Strategic Equity Fund is designed for
long-term investors. It is based upon extensive research of investment market
performance over historical periods of from one to seventy years. Asset class
selection, rather than individual security selection, is emphasized, with
investment in underlying funds providing necessary broad diversification within
each asset class. An asset class selection model, utilizing historical market
performance data, determines investment deployment. See "Buy-and-Hold
Investing," page 13. Diversification
Each Fund seeks to achieve broad diversification of its investment portfolio by
investing primarily in the shares of underlying funds. The broad diversification
available through investment in underlying funds compliments the Funds'
defensive management and buy-and-hold strategies. Underlying funds selected will
have investment objectives and policies believed by the Investment Manager to be
consistent with and most likely to help the Fund achieve its investment
objectives. Qualifying underlying funds are selected based on historical
performance, management, risk and other factors, all relative to peer funds in
their respective asset class. Please see the individual Fund descriptions,
below, for details of the types of mutual fund investments each Fund will make,
as well as "Investing in Mutual Funds", page 10.
THE FLEXIBLE BOND FUND
THE OBJECTIVES OF THE FLEXIBLE BOND FUND ARE INCOME, PRESERVATION OF CAPITAL
AND, SECONDARILY, GROWTH OF CAPITAL. The mutual funds included in the Fund's
portfolio may invest in all types of debt securities, including bonds, notes,
mortgage-backed securities, government and government agency obligations, zero
coupon securities, convertible securities, repurchase agreements and preferred
stocks.
Generally, the Fund seeks to have the majority of its assets invested in mutual
funds which invest in U.S. Government Securities or Investment Grade corporate
bonds (those rated in the four highest ratings categories by Standard & Poor's
Corporation ("S&P") (AAA, AA, A and BBB) or Moody's Investors Service, Inc.
("Moody's") (Aaa, Aa, A and Baa)). 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 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 mutual
funds in which the Fund invests, the Fund seeks to limit its investments in
Lower-Rated debt securities (those rated "BB" or below by S&P or Ba or below by
Moody's, sometimes referred to as "Junk Bonds") to no more than 25% of its total
7
<PAGE>
assets, and in the securities of foreign issuers to no more than 35% of its
total assets. Under normal conditions, the Fund will have at least 65% of its
assets invested in underlying funds which invest primarily in fixed income
securities.
THE GROWTH & INCOME FUND
THE OBJECTIVES OF THE GROWTH & INCOME FUND ARE LONG-TERM GROWTH OF CAPITAL,
INCOME AND, SECONDARILY, PRESERVATION OF CAPITAL. The mutual funds included in
the Fund's portfolio will generally have investment objectives of growth, growth
& income and/or 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, traded on securities exchanges or
over-the-counter, and higher quality or lower quality securities. Mutual funds
included in the Fund's portfolio will, in the Investment Manager's opinion,
offer the best available prospects-when taken as a whole-for long-term growth of
capital and income.
THE CAPITAL APPRECIATION FUND
THE OBJECTIVE OF THE CAPITAL APPRECIATION FUND IS CAPITAL APPRECIATION. The
mutual funds included in the 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 invest 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" securities (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. Under normal conditions, the Fund will
have at least 65% of its assets invested in underlying funds which invest
primarily for growth or capital appreciation.
THE ASSET ALLOCATION FUND
THE OBJECTIVE OF THE ASSET ALLOCATION FUND IS 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
among four market segments: equities, fixed income, foreign, and precious metals
(the precious metals segment includes the securities of companies principally
engaged in mining, processing or distributing precious metals 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 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. Defensive
management strategies will be applied separately as to each segment of the
Fund's portfolio.
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 defensive management
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
8
<PAGE>
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.
THE STRATEGIC EQUITY FUND
THE OBJECTIVE OF THE STRATEGIC EQUITY FUND IS LONG-TERM GROWTH OF CAPITAL. The
underlying funds included in the Fund's portfolio will invest primarily in
equity securities. Fund assets will be deployed to achieve a broadly diversified
portfolio, emphasizing underlying funds which focus on specific asset classes,
rather than individual securities. Asset classes will include large and small
capitalization companies, both domestic and foreign, as well as foreign emerging
market investments. Additional weighting will be given to so-called "value"
oriented investments, sound companies which have intrinsic value, but which may
be temporarily out of favor, or undervalued, by investors. The Strategic Equity
Fund, unlike other Merriman Funds, is a "Buy-and-Hold" fund. Except for
maintaining sufficient cash and money market instruments to meet redemption
requests and day to day expenses, it is the policy of the Fund to remain fully
invested at all times in underlying funds which invest primarily in equity
securities. See "Buy-and-Hold Strategy," page 8.
KEY INVESTMENT POLICIES AND RISKS
INVESTING IN MUTUAL FUNDS
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 mutual funds 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
regulatory authorities. Such regulation, of course, does not imply that a mutual
fund will be successful in meeting its objectives.
Each of the Funds have adopted a policy of "concentrating" in mutual funds,
which means that, at all times, at least 25% of a Funds's assets will be
invested in underlying funds. 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
underlying funds which themselves concentrate their investments in any one
industry; (b) invest more than 25% of its total assets in any one underlying
fund (see "Investment Restrictions", page 17); and (c) invest in any mutual fund
not registered in the United States. Each Fund currently limits its investments
in underlying funds to those which it may purchase without the imposition of
sales commissions or redemption fees ("commission-free funds"). The Funds may,
however, purchase underlying funds which impose a short-term trading fee (for
redemptions made within a short time after purchase, usually 90 days or less)
whenever the Investment Manager believes the risk of incurring such fees is
outweighed by the potential investment returns obtainable. The Investment
Manager has advised the Trustees that, in its opinion, a sufficient selection of
commission-free funds presently exists to meet the needs of the Funds for the
foreseeable future. The Funds may in the future, however, authorize investment
in underlying 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 funds in which the Funds invest may incur distribution expenses in
the form of "12b-1 fees."
The Funds may own shares of underlying funds which invest up to 100% of their
assets in long or short-term fixed-income securities (debt securities issued,
guaranteed or insured by the U.S. Government, its agencies or instrumentalities,
corporate bonds, preferred stock, convertible preferred stock, convertible
debentures and money market instruments, including money market mutual funds).
Underlying funds may also invest up to 100% of their assets in the securities of
10
<PAGE>
foreign issuers (and some of those may engage in foreign currency transactions
with respect to such investments). They may invest up to 25% of their assets in
one industry, up to 15% in illiquid securities, and up to 5% in warrants.
Underlying funds may invest in companies whose securities are more volatile than
the market as a whole. Underlying funds may lend their portfolio securities,
sell securities short, borrow money, write or purchase put or call options on
securities or stock indices, or enter into futures contracts and options on
futures contracts.
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 higher operating costs than if they invested directly
in the underlying funds. To offset higher costs, the Investment Manager attempts
to identify and invest in underlying funds which have demonstrated historically
superior performance and low operational costs.
Through their investment in underlying funds, the Funds may indirectly
concentrate 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.
A Fund, together with its affiliates, may not invest in an underlying fund 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 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 illiquid 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
underlying funds 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 defensive
management strategies as related to a portfolio of underlying funds poses
certain correlation problems. The Fund may invest in a underlying 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 for a
description of other investment vehicles, strategies and risks applicable to
underlying funds.
SELECTION OF UNDERLYING FUNDS. It is not necessary for the underlying funds in
which the Funds invest to share the same investment objectives as the Fund
making the investment. The Investment Manager will, however, select underlying
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. There are many factors which can account for
the significant variation in investment performance from one mutual fund to
another--even funds having similar investment objectives and investing in the
same category or class of assets. The level of risk a fund assumes, the
capabilities of its management and, to a lesser extent, its level of operating
expense may each account for substantial differences in investment results over
any given period of time. Some fund managers, for example, have demonstrated
capabilities to excel above their peers in rising markets, while some do better
in falling or stagnant markets. Funds willing to take greater risk can generally
be expected to outperform their more conservative peers in rising market
11
<PAGE>
periods, but will also lose value more rapidly during falling market periods.
Excellent performance based upon risk assumption and management skill can be
lost through high operating or sales expense.
Fund selection screening begins with an analysis of the investment objectives,
policies, and strategies of many mutual funds in identifying potential
candidates for investment. Candidates are then subjected to absolute and
risk-adjusted performance evaluation over various time periods. Volatility is
evaluated for each fund and class of funds. The portfolio composition of each
fund, as reported through sources like Morningstar, is subjected to technical
and fundamental analyses as deemed appropriate. To a lesser extent, the current
investment outlook of fund management, to the extent obtainable through fund
literature and interviews with fund portfolio managers, is evaluated. Strength
of management, size, 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.
DEFENSIVE MANAGEMENT
The Flexible Bond, Growth & Income, Capital Appreciation, Asset Allocation and
Leveraged Growth Funds are defensively managed. These Funds have adopted
strategies designed to preserve capital by avoiding the risk of declining stock
and bond markets. Such strategies call for aggressive investing in the market in
anticipation of and during rising market cycles and for liquidation of portfolio
investments into money market instruments in anticipation of and during
declining market cycles. Risks associated with such strategies 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 or liquidated.
The Investment Manager utilizes proprietary analytical models as primary tools
to control the timing of portfolio transactions. These models are an
interrelated group of computer-based, econometric analysis tools. They analyze
diverse market technical data to project trend changes in market prices. Simply
put, they generate buy and sell signals. Broad markets, discrete market sectors
and individual underlying funds may be monitored and evaluated technically by
the models. The Investment Manager may, at its discretion, respond to buy and
sell signals generated for broad markets or may allocate Fund assets to various
market sectors or underlying funds and respond discretely as to such sectors or
funds. None of the models recommend or select specific securities for purchase
or sale by the Funds, but the models are designed to detect trend changes in
market price movement.
THE MERRIMAN BOND SWITCH MODELS (the "Bond Models"), are used for the Flexible
Bond Fund and the fixed income portions of the Growth & Income and Asset
Allocation Funds;
The Merriman Equity Switch Models (the "Equity Models"), are 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 Models (the "International Models"), are
used for foreign segments of the Funds; and
The Merriman Precious Metals Switch Model (the "Precious Metals Model"), is used
for the precious metals segment of the Asset Allocation Fund.
The Models undergo ongoing technical evaluation and are adjusted for sensitivity
to changes in market values and trends based upon historical testing and
observation. While it intends to rely primarily upon the Models to control the
timing of portfolio transactions, such use is not a fundamental policy of any
Fund. The Investment Manager employs numerous technical market analyses of the
factors affecting investment in debt and equity markets. The Investment Manager
may use its discretion in determining the weight given to all the technical
analysis tools available to the Funds. Should a substantially different
technical analysis system become primary in controlling the timing of portfolio
transactions of any Fund, shareholders would be notified and the Prospectus
would be amended.
FIXED INCOME DEFENSIVE MANAGEMENT STRATEGY
The goal of defensive management for fixed income portfolios (the Flexible Bond
Fund and portions of the Growth & Income and Asset Allocation Funds) is to be
"fully invested" (holding, through investment in mutual funds, eligible debt
securities maturing, generally, in 5 to 25 years) when interest rates are
expected to be stable or in a declining trend, and to be "uninvested" (holding
only cash and money market instruments) when interest rates are expected to be
in a rising trend. The reason for this is that the market value of debt
12
<PAGE>
securities can generally be expected to increase when interest rates decline and
decrease when interest rates rise. (See "Risks Associated with Fixed Income
Investments," page 15.) 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 money market instruments when interest rates are rising,
decreases in 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 Models generate buy and sell signals when interest rates and bond
prices penetrate levels established by the Models' on-going technical and
econometric analysis routines. The Bond Models are capable of analyzing each
bond market sector individually. Such sectors may include international or
domestic bonds, high yield or high grade corporate bonds, U.S. Government bonds,
short, intermediate or long-term bonds and any combinations or subcategories of
these. In addition, underlying funds in which the Funds may invest may be
analyzed by the Models. When the Models detect 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 Models detect 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. Under normal conditions, whenever a buy signal is generated, the
Investment Manager will fully invest all of the Fund's assets (allocated to the
particular bond market sector or underlying fund for which the signal is
generated) in eligible mutual funds. This fully invested portfolio position will
be maintained until a sell signal is generated by the Bond Model. When a sell
signal is generated the Investment Manager will liquidate the Fund's fully
invested position (as to the pertinent sector or underlying fund) into money
market instruments. Money market instruments will be maintained until the next
buy signal is generated.
EQUITY DEFENSIVE MANAGEMENT STRATEGY
The goal of defensive management, 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 uses the Equity Models as primary tools to analyze
various technical market data such as stock and stock index price changes,
market volume, momentum and other relevant technical and economic data, in
implementing the Funds' defensive management strategy, generally, for equities.
The International Models and the Precious Metals Model, which use similar
technical data pertaining to mutual funds or groups (indices) of mutual funds,
are used as primary defensive management strategy tools for portions of the
Funds' portfolios relating to foreign and precious metals investments.
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 underlying funds investing primarily in equity securities to take
advantage of a strongly anticipated rising market trend. 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 underlying funds, with the remaining assets held in
money market instruments. 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 underlying funds, with the remaining assets temporarily
held in money market instruments. Up to 100% of Fund assets may be withdrawn
from the market and held in money market instruments. The Leveraged Growth Fund
would not use leverage when positioned defensively.
13
<PAGE>
BUY-AND-HOLD INVESTING
The Strategic Equity Fund has adopted a buy-and-hold investment strategy.
Buy-and-hold investing focuses its performance objectives over one or more full
market cycles, rather than short-term. It is not appropriate for short-term
investors. Five years and longer holding periods are an appropriate buy-and-hold
investment horizon. The Strategic Equity Fund imposes a 1% short-term trading
fee, which is retained by the Fund for the benefit of remaining shareholders for
redemptions made within ninety (90) days of purchase.
Merriman's buy-and-hold strategy focuses on correct asset class selection as the
primary building block of a successful buy-and-hold investment portfolio. An
academic study (Brinson, Hood and Beebower, Determinants of Portfolio
Performance, Financial Analysts Journal) of 91 large pension funds over ten
years found that asset class selection accounted for 94 percent of the returns
of a fund. Basic classes include bonds, stocks and cash. Within bonds, some
classes include government, corporate, short-term, long-term, domestic,
international, high-yield and high-grade. Equity asset classes include, among
others, growth, value, large capitalization and small, domestic and
international, dividend-paying, mature and emerging growth. Asset classes tend
to behave differently from one another during any given market cycle. An asset
class having greater risk tends to increase its volatility short-term while
increasing its potential for greater returns over time. Merriman's buy-and-hold
strategy calls for broad diversification over asset classes in order to take
advantage of the non-correlating behavior of various asset classes and to
mitigate the potential effects of individual asset class volatility. Studies of
individual asset class performance over various historical periods are evaluated
through computer-assisted models to determine the historical investment
performance of various combinations of asset classes. Historical total returns
are evaluated over various periods, together with the standard deviation for the
periods. (See "Risk Assessment," page 7, for a description of standard
deviation. Although past performance cannot be relied upon for future results,
these models can assist in the selection of appropriate asset class allocations
to take advantage of present and anticipated market trends.
Broad diversification through investment in underlying funds and across many
asset classes cannot eliminate all risks. An underlying fund may grow so large
that its ability to invest effectively is restricted. The underlying funds may
experience turnover in management. Managers with successful investment records
may lose their ability or desire to manage effectively. The Investment Manager
of the Funds may choose funds based upon anticipated performance which never
materializes.
OTHER INVESTMENT POLICIES AND RISKS
MONEY MARKET INSTRUMENTS
As a substitute for holding cash for temporary defensive purposes, each Fund may
invest in money market instruments. The Funds using a defensive management
strategy may invest up to 100% of their assets in money market instruments for
temporary defensive purposes. The Strategic Equity Fund would normally hold
money market instruments only in sufficient amounts to meet normal redemption
requests and to provide for day to day expenses. Underlying funds may also hold
money market instruments, and underlying money market funds invest exclusively
in money market instruments.
Money market instruments mature in thirteen months or less from the date of
purchase and may include any of the U.S. Government Securities listed under
"Fixed Income Investments," below, bankers acceptances and certificates of
deposit of domestic branches of U.S. banks. Also included are repurchase
agreements ("Repos") and variable amount demand master notes ("Master Demand
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. Mutual funds 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 money market instruments.
MASTER DEMAND NOTES. Master Demand Notes are unsecured debt obligations of U.S.
corporations which are redeemable upon demand. Master Demand Notes permit a fund
to invest fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the fund and the issuing corporation. The Funds will
purchase Master Demand Notes only through the Master Demand Note program of the
Funds' custodian bank, who acts as administrator thereof. Because they are
direct arrangements between a fund and the issuing corporation, there is no
secondary market for the notes. However, they are redeemable at face value, plus
14
<PAGE>
accrued interest, at any time. A Fund's direct investment in the Master Demand
Notes of any given issuer, together with any other securities of such issuer,
will be limited to 5% of each Fund's total assets. Underlying funds may invest
up to 100% of their assets in Master Demand Notes.
Repurchase Agreements ("Repos"). Each Fund and underlying funds 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 with respect to a Fund holding Repos, 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. The Funds have not over the past year purchased Repos and
have no current intention to do so.
FIXED INCOME INVESTMENTS
The Flexible Bond, Growth & Income and Asset Allocation may invest in underlying
funds which invest primarily in short or long-term U.S. Government securities
and corporate debt securities
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, as described under "Repurchase Agreements", page 14.
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.
CORPORATE DEBT SECURITIES. Corporate debt securities include "Investment Grade"
and "Lower Rated" debt securities. Investment Grade securities are those rated
in the four highest ratings categories by Standard & Poor's Corporation ("S&P")
(AAA, AA, A and BBB) or Moody's Investor's Services ("Moody's") (Aaa, Aa, A and
Baa). Lower Rated debt securities (so called "junk bonds") are securities which
are rated "BB" or below by S&P or BA or below by Moody's. 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. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
15
<PAGE>
or adverse conditions. Underlying funds may have the ability to invest in such
lower rated securities. See the Statement of Additional Information for a more
detailed description of Moody's and S&P's ratings.
RISKS ASSOCIATED WITH FIXED INCOME SECURITIES. Investors in the Flexible Bond,
Growth & Income and Asset Allocation Funds are exposed, through their investment
in underlying funds, 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 table 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 7%
Stated 2% Increase in 2% Decrease in
Maturity Interest Rates Interest Rates
-------- -------------- --------------
Short-Term (2.5 years) (4.4%) 4.7%
Intermediate-Term (10 years) (13.0%) 15.6%
Long-Term (20 years) (18.4%) 25.1%
Thus, to the extent an underlying fund is invested in long-term maturities, its
interest rate risk will be high. The Investment Manager invests in long-term
funds 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. An underlying fund's Credit Risk will increase as its
overall portfolio quality decreases. Thus to the extent that an underlying 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 an underlying fund is invested in long-term maturities. Thus, the longer an
underlying fund's average portfolio maturity is, accompanied by a decline in
prevailing interest rates, the Call Risk will increase.
Based upon information obtainable by the Investment Manager pertaining to
portfolio composition of underlying funds, the Flexible Bond, Asset Allocation
and Growth & Income Funds seek to limit their exposure to Lower Rated securities
(so called "Junk Bonds") to 25%, 10% and 5% of their assets, respectively. Lower
Rated securities carry greater risks than Investment Grade securities and, to
the extent a Fund is invested, through underlying funds, in Lower Rated
securities, it will assume such increased risks. An economic 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 underlying funds in
valuation, because of less reliable, objective data available. Each Fund
attempts to minimize fixed income risk by diversifying its portfolio. 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, through
underlying funds, in Lower Rated securities only if it believes the investment
opportunity mitigates the assumed risk.
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
16
<PAGE>
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 base-which fluctuates-is
accompanied by a fixed obligation in connection with the borrowed money.
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. 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 23.
PORTFOLIO TURNOVER
Each of the Funds' historic portfolio turnover rates are shown under the caption
"Financial Highlights," page 4. Due to the nature of the Flexible Bond, Growth &
Income, Capital Appreciation, Asset Allocation and Leveraged Growth Funds' use
of defensive management strategies, these Funds have no restrictions on
portfolio turnover, and 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 these
Funds' disciplined response to volatile market conditions. There is generally a
higher degree of risk associated with high portfolio turnover (100% or more is
considered high). The volatility of the stock markets and interest rates,
together with the defensive management 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. Portfolio turnover for the
Strategic Equity Fund will normally be less than 100%. See " Tax Status of
Dividends and Capital Gains Distributions," page 23, and "Brokerage Policies,"
page 26.
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS
Underlying funds may invest up to 100% of their 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
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, underlying funds 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.
17
<PAGE>
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, 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. In addition, 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) Invest more than 25% of the Fund's total assets in the securities of
any one mutual fund, except as part of a merger, consolidation of other
acquisition.
Restriction number (1), above, is expanded in the Statement of Additional
Information concerning investment activities permitted, but not currently
utilized by the Funds. Other fundamental investment restrictions are listed in
the Statement of Additional Information.
HOW TO PURCHASE SHARES
You may purchase shares by mail or telephone. You may pay for your purchase by
check, Automated Clearing House (ACH) transfer or bank wire. There are no sales
commissions charged to investors, which means that 100% of your money is used to
buy shares. Individual Retirement Accounts, corporate or self-employed
retirement plans and Systematic Withdrawal Plans generally require special or
supplemental application forms to open accounts. Assistance in opening accounts
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 as indicated
herein. All applications to purchase shares are subject to acceptance or
rejection by authorized officers of the Trust and are not binding until
accepted. The minimum initial investment in each Fund is $5,000 ($2,000 for IRA
accounts, $1,000 for Automatic Investment Plan (AIP); some broker-dealers, such
as Charles Schwab & Co., may accommodate investors who wish to invest less than
$5,000). Payment must be made in U.S. dollars. Subsequent investments may be in
amounts of $100 or more. Checks must be drawn on U.S. Banks. Third party checks
will not be accepted. If your payment is not received or you pay with a check or
ACH transfer that does not clear, your purchase will be canceled. You will be
responsible for any losses or expenses (including a $20 fee) incurred by a Fund
or the Transfer Agent. 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 Trust reserves the right to reject any application which does
not include a certified social security or tax identification number. See "How
Net Asset Value is Determined", page 19. You may also place orders through a
broker-dealer, who may charge you a fee for its services. The Funds do not
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 Trust.
A Social Security or Taxpayer Identification Number (TIN) must be supplied and
certified on the Account Application Form before an account can be established
18
<PAGE>
(unless you have applied for a TIN and the application so indicates). If you
fail to furnish the Trust with a correct TIN, the Trust is required to withhold
taxes at the rate of 31% on all distributions and redemption proceeds.
PURCHASE BY MAIL
To open an account, complete and sign the Account Application Form accompanying
the Prospectus. Be sure to indicate in which Fund(s) you wish your investment to
buy shares, and make your check payable to that Fund. The application and your
check should be mailed to Merriman Mutual Funds, c/o Firstar Trust Company, 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. Mail
orders for subsequent investments should include, when possible, the "Additional
Investment Form" stub which is attached to your Fund confirmation statement.
Otherwise, be sure to identify the Fund and your account in your letter.
Overnight and express delivery services do not deliver to Post Office boxes.
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, 3rd Floor, 615 E. Michigan Street, Milwaukee, WI 53202.
PURCHASE BY BANK WIRE
To establish a new account ($5,000 minimum) or add to an existing account ($100
minimum) by wire, please call Firstar Trust Co., 1-800-224-4743, before wiring
funds, to advise them of your forthcoming investment, the dollar amount and the
account registration. This will insure prompt and accurate handling of your
investment. Please use the following wiring instructions:
Wire to: Firstar National Bank
777 E. Wisconsin Avenue
Milwaukee, WI 53202
ABA Number 0750-00022
For Credit to: Firstar Trust Company
Account No. 112-952-137
Further Credit to: (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.
PURCHASE BY TELEPHONE
Only bank accounts held at domestic financial institutions that are Automated
Clearing House (ACH) members can be used for telephone transactions. Telephone
transactions may not be used for initial purchases. Your account must already be
established prior to initiating telephone purchases. Your shares will be
purchased at the net asset value determined as of the close of regular trading
on the date that the Transfer Agent receives payment for shares purchased by
electronic funds transfer through the ACH system, in amounts of $100 or more.
Most transfers are completed within three business days after your call to place
the order. To preserve flexibility, the Fund may revise or remove the ability to
purchase shares by phone, or may charge a fee for such service, although
currently, the Fund does not expect to charge a fee. Investors in the Fund may
also request by telephone a change of address, a change in investments made
through an Automatic Investment Plan (see page 19), and a change in the manner
in which dividends are received (see "Dividends, Capital Gain Distributions and
Taxes," page 23. Also see "Risks of Telephone Transactions" page 21).
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan allows you to purchase shares by an electronic
transfer of funds at regular monthly intervals from your bank checking account,
money market account, NOW acount or savings account.
There is a $1,000 minimum initial investment if you enroll in the Automatic
Investment Plan when you open your account. Your account will be debited and
shares will be purchased at regular monthly intervals of your choosing. You may
join the Automatic Investment Plan by completing that portion of the New Account
Application or filling out a separate Automatic Investment Plan Application
which you may obtain from the Fund or the transfer agent. You may cancel your
participation in the Plan or change the amount of purchase or the day each month
on which shares are purchased at any time by calling (800) 224-4743 or by
writing to the Fund, c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin, 53201-0701. The change or cancellation will be effective five
business days following receipt.
Each investment through the Automatic Investment Plan must be at least $100 and
not more than $50,000. For you to participate in the Plan, your bank or other
financial instituion must be an Automated Clearing House member. It will take
about 15 days for Firstar to process your Automatic Investment Plan enrollment.
The Fund may modify or terminate the Automatic Investment Plan at any time or
charge a service fee, although no such fee is currently contemplated.
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.
19
<PAGE>
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 REDEEM SHARES
You may redeem (sell) shares by mail or telephone. Redemption proceeds may be
sent to you by check, ACH transfer or bank wire. 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 by the Transfer
Agent in proper form, as indicated herein, 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. Redemption requests from retirement
accounts must indicate an election not to have Federal Tax withheld or they will
be subject to withholding. 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.
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
22, for details.
SHORT-TERM TRADING FEE. The Strategic Equity Fund charges a 1% short-term
trading fee for all redemptions, exchanges, and systematic withdrawals made
within ninety (90) days of purchase. The purpose of the fee is to discourage
short-term investment in the Fund, to compensate the remaining shareholders for
transaction costs the Fund must bear for such redemptions and to mitigate any
risks borne by the Fund in connection with such short-term investments. The Fund
reserves the right to refuse new investments from investors whom it believes
have demonstrated a pattern of short-term investment.
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.
REDEEMING BY MAIL
Your regular mail request should be addressed to Merriman Mutual Funds, c/o
Firstar Trust Co., PO Box 701, Milwaukee, Wisconsin 53201-0701. Your overnight,
express, certified or registered mail request should be addressed to Merriman
Mutual Funds, c/o Firstar Trust Co., 3rd Floor, 615 E. Michigan Street,
Milwaukee, Wisconsin 53202-5207.
Your request 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, signed by all registered shareholders in the exact
names in which they are registered;
(c) Signature guarantee(s) (see "Signature Guarantees" page 22); 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.
20
<PAGE>
BY CHECK: Checks 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 check
will not be made until the Trust can verify that the payment(s) for the purchase
has been, or will be collected. It may take up to twelve (12) days for your
check to clear.
BY WIRE: Your redemption proceeds will only be wired to the bank account
specified in your Account Application or Telephone Authorization Form currently
on file with the Transfer Agent. The Transfer Agent charges a $12 wire fee,
which is subject to change without notice.
By ACH: Your redemption proceeds may be sent to your bank account by ACH
transfer if you elected the ACH option on the Account Application Form. There is
no charge for this service. There is a $100 minimum for each ACH transfer. It
will usually take 2 to 3 business days for the redemption proceeds to reach your
bank account.
TELEPHONE REDEMPTIONS
You may make telephone redemptions (in amounts of $1,000 or more) unless you
declined the privilege on the Account Application Form. To make a telephone
redemption, call the Transfer Agent at 1-800-224-4743. The Transfer Agent will
act upon any telephone instructions it believes to be genuine, to redeem shares
from your account. Your Account Application Form specifies the person(s), bank,
account number and/or address to receive your redemption proceeds. Once your
account has been opened you may cancel the privilege by telephone or letter.
Written instructions with signature(s) guaranteed (see "Signature Guarantees,'
page 22) are required to change the person(s), bank, account number and/or
address designated to receive your redemption proceeds. 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. 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 $12 to pay
for the wire transfer cost. There is no charge for redemption proceeds mailed or
moved by ACH transfer. Transfers by ACH generally take up to three business days
to reach your bank account. See "Risks of Telephone Transactions," below.
RISKS OF TELEPHONE TRANSACTIONS. The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. Such
procedures may include, among others, requiring some form of personal
indentification prior to acting upon telephone instructions, providing written
confirmations of all such transactions, and/or tape recording all telephone
instructions. Assuming procedures such as the above have been followed, the Fund
will not be liable for any loss, cost, or expense for acting upon an investor's
telephone instructions or for any unauthorized telephone redemption. As a result
of this policy, the investor will bear the risk of any loss unless the Fund has
failed to follow such procedures.
Shareholders would be given at least 60 days written notice prior to changing
the fees imposed with respect to telephone transactions. 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 12 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 be redeemed by
delivering the redemption request to the transfer agent in person
21
<PAGE>
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, by mail or telephone, 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. The Transfer
Agent will charge your account a $5.00 exchange fee every time you make an
exchange by telephone. There is no fee for exchanges made by mail. Shareholders
would be given at least 60 days written notice prior to changing the fee for 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. To cancel your
telephone exchange privilege or for further information about the Portico Funds,
call the Transfer Agent at 1-800-224-4743, or write 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 a shareholder(s) from making exchanges at any time should
the Trustees determine that it would be in the best interest of our shareholders
to do so. A shareholder(s) will be given at least 10 days written notice prior
to imposing restrictions or prohibition on exchange privileges. 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. Proceeds may either be mailed to you or moved to your bank account by
ACH transfer. Transfers by ACH generally take up to three business days to reach
your bank account. 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
22
<PAGE>
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 (maximum of $25 for multiple Merriman Fund IRA
accounts) 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 a.m. to 8 p.m. Eastern Time) 1-800-224-4743
SHAREHOLDER FEES CHARGED BY TRANSFER AGENT. Shareholders will be notified in
writing at least 60 days prior to the Fund(s) putting any new or increased fee
into effect. All fees disclosed in the Prospectus which are charged to
shareholders by the Transfer Agent are subject to change without notice. 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
for the Flexible Bond Fund and annually for the other Funds. 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
23
<PAGE>
the shares and then receive some portion of the price back as a taxable dividend
or distribution.
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 underlying 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 underlying 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 underlying 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
funds.
Distributions of long-term capital gains received by a Fund from underlying
funds, as well as net long-term capital gains realized by a Fund from the
purchase and sale (or redemption) of underlying 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 underlying 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.
24
<PAGE>
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, the Leveraged Growth Fund and the Strategic Equity 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. In addition to the foregoing services, the Investment
Manager provides to the Strategic Equity Fund, at the Investment Manager's
expense, transfer agency, pricing, custodial, auditing and legal services, and
general administrative and other operating expenses except brokerage
commissions, taxes, interest, fees and expenses of "non-interested" Trustees (as
that term is defined in the 1940 Act) and extraordinary expenses.
Paul A. Merriman, the President and Chief Executive Officer of the Investment
Manager, has been a business executive since the early 1970's 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 defensive
management recommendations. Mr. Merriman is the principal officer responsible
for the operation of the computerized technical defensive management and
buy-and-hold 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 managing the Funds'
investment portfolios in accordance with each Fund's defensive management and
buy-and-hold strategies. He has also been responsible for the day-to-day
management of the Funds' operations since the Trust was founded in 1989. 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. Compensation of the Investment Manager will be 1% for the
Strategic Equity Fund. In the case of the Strategic Equity Fund, however, the
Investment Manager provides many services which are not provided by most
investment advisers. Thus, the other expenses of the Fund should be lower than
25
<PAGE>
most mutual funds. Investment Management fees are accrued daily on the books of
each Fund and are paid monthly.
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. The Funds invest primarily in underlying funds and money
market instruments for which there is no brokerage commissions upon purchase or
sale (redemption). Consequently, there will ordinarily be no brokerage
commissions incurred, and purchase and redemption transactions would involve
only nominal transaction fees. 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.
26
<PAGE>
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
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.
27
<PAGE>
NO LOAD
mutual funds of the
Merriman Investment Trust
MERRIMAN INVESTMENT TRUST
1200 Westlake Avenue North
Seattle, WA 98109
1-206-285-8877
INVESTMENT MANAGER
Merriman Investment Management Co.
1200 Westlake Avenue North
Seattle, WA 98109
CUSTODIAN AND
TRANSFER AGENT
Firstar Trust Co.
PO Box 701
Milwaukee, WI 53201
1-800-224-4743
FUND COUNSEL
Sullivan & Worcester, L.L.P.
Boston, Massachusetts
INDEPDENT AUDITORS
Tait, Weller & Baker
Philadelphia, PA
Table of Contents
Synopsis..........................................1
Costs and Expenses................................3
Financial Highlights..............................4
Investment Objectives and Policies................7
Defensive Management Strategy.....................8
Buy-and-Hold Strategy.............................8
Diversification...................................8
Flexible Bond Fund................................8
Growth & Income Fund..............................9
Capital Appreciation Fund.........................9
Asset Allocation Fund.............................9
Leveraged Growth Fund.............................9
Strategic Equity Fund............................10
Key Investment Policies and Risks................10
Other Investment Policies and Risks..............14
Investment Restrictions..........................17
How to Purchase Shares...........................18
How to Redeem Shares.............................19
Exchange Privilege...............................22
Other Shareholder Services.......................22
Dividends, Capital Gain
Distributions and Taxes........................23
Management.......................................24
Calculation of Performance Data..................26
Denfisively Manged Funds:
MERRIMAN
FLEXIBLE BOND
FUND
MERRIMAN
GROWTH & INCOME
FUND
MERRIMAN
CAPITAL APPRECIATION
FUND
MERRIMAN
ASSET ALLOCATION
FUND
MERRIMAN
LEVERAGD GROWTH
FUND
Buy-and-Hold Fund:
MERRIMAN
STRATEGIC EQUITY
FUND
PROSPECTUS
JUNE XX, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRIMAN INVESTMENT TRUST
[GRAPHIC OMITTED]
NO LOAD
mutual funds of the
Merriman Investment Trust
Defensively Managed Funds:
MERRIMAN FLEXIBLE BOND FUND
MERRIMAN GROWTH & INCOME FUND
MERRIMAN CAPITAL APPRECIATION FUND
MERRIMAN ASSET ALLOCATION FUND
MERRIMAN LEVERAGED GROWTH FUND
Buy and Hold Fund:
MERRIMAN STRATEGIC EQUITY 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
June XX, 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.
June XX, 1997
<PAGE>
Table of Contents
INTRODUCTION...................................................................1
INVESTMENT OBJECTIVES AND POLICIES.............................................1
Defensive Management .......................................................1
Hedging Strategies, Options and Futures Contracts...........................2
Options Transactions .......................................................2
Futures Contracts and Options on Futures Contracts .........................4
Investing in Investment Companies...........................................6
Lending Portfolio Securities................................................6
Delayed Delivery and When-Issued Securities.................................6
Zero Coupon Bonds...........................................................7
High Yield Bonds............................................................7
Concentration...............................................................8
Borrowing...................................................................8
Illiquid and Restricted Securities..........................................8
Foreign Issuers and Currencies..............................................8
Repurchase Agreements ......................................................9
Short Selling..............................................................10
Warrants...................................................................10
Other Transactions.........................................................11
INVESTMENT RESTRICTIONS.......................................................10
SPECIAL SHAREHOLDER SERVICES .................................................12
Regular Account ...........................................................13
Systematic Withdrawal Plan ................................................13
Retirement Plans ..........................................................13
Exchange Privilege ........................................................14
Redemptions in Kind .......................................................15
Transfer of Registration ..................................................15
PURCHASE OF SHARES ...........................................................15
REDEMPTION OF SHARES .........................................................15
NET ASSET VALUE DETERMINATION ................................................16
TRUSTEES AND OFFICERS ........................................................16
5% SHAREHOLDERS...............................................................17
INVESTMENT MANAGER ...........................................................18
MANAGEMENT AND OTHER SERVICES ................................................18
ALLOCATION OF TRUST EXPENSES .................................................19
BROKERAGE ....................................................................19
ADDITIONAL TAX INFORMATION ...................................................20
CAPITAL SHARES AND VOTING ....................................................21
FINANCIAL STATEMENTS AND REPORTS .............................................21
CALCULATION OF PERFORMANCE DATA...............................................21
APPENDIX..................................................................... 23
<PAGE>
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 six series or portfolios ("Funds"), and the Board of Trustees may
establish additional portfolios at any time. Five Funds employ a defensive
management strategy; 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"). One Fund, the Merriman Strategic Equity Fund
(the "Strategic Equity Fund"), uses a buy-and-hold strategy. These key
strategies and the Funds' election to concentrate its investments in the shares
of other mutual funds ("underlying funds") are described in the Prospectus.
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 investment objectives and key strategies of each Fund, 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.
DEFENSIVE MANAGEMENT
As discussed in the Prospectus with respect to the five defensively managed
Funds, the Investment Manager intends to utilize, primarily, the Merriman Bond
Switch Models (the "Bond Models") to assist in the control of fixed income
portfolio transactions, the Merriman Equity Switch Models ("Equity Models"), the
Merriman International Fund Switch Models (the "International Models") and the
Merriman Precious Metals Switch Model (the "Precious Metals Model") to assist in
the control of 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 Precious Metals 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
defensive management tool for the Funds, the Funds have not adopted policies
requiring such use and the Investment Manager may utilize other 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
strategies, 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.
1
<PAGE>
HEDGING STRATEGIES; OPTIONS AND FUTURES CONTRACTS
The Investment Manager may employ, but has not employed and has no present
intention to employ during the current fiscal year, investment strategy of
hedging. The underlying funds in which the Funds invest may hedge their
portfolios. Hedging strategies involve the purchase and sale of hedging
instruments (options, futures contracts, options on futures contracts and
combinations thereof) in an attempt to protect an investment portfolio from
anticipated adverse market action. Hedging and the hedging instruments described
below are used to generate gains (on the hedging instruments) which offset
losses on other portfolio securities. Should the Funds elect to engage in
hedging strategies in the future, shareholders would be given 60 days notice and
the prospectus would be amended. In addition the Funds would be subject to
certain fundamental limitations in the use of hedging as described in the
Investment Restrictions, page 11.
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.
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 lose more value than is offset by the hedge instruments,
resulting in a loss to the fund.
OPTIONS TRANSACTIONS
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.
2
<PAGE>
PURCHASING OPTIONS. 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. Underlying funds may purchase put options in an attempt to
protect the value of portfolio securities when 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.
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. A fund 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.
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.
OPTIONS - 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
3
<PAGE>
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. Underlying funds 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. Bond values generally 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. An underlying fund 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, a
fund might purchase a futures contract in anticipation of a rise in stock market
prices. 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. Underlying funds may also
purchase options on futures contracts and may write (sell) covered options to
buy or sell futures contracts. 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.
An underlying fund may purchase or sell options on Government Futures
Contracts. 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.
4
<PAGE>
Underlying funds may engage in options transactions on Stock Indices, Stock
Index futures contracts and certain commodity and currency indices and futures
contracts related to its portfolio securities. 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 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 bank 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
5
<PAGE>
may be unsuccessful to some degree because of unexpected market behavior or
interest rate trends.
LIMITATIONS ON OPTIONS AND FUTURES CONTRACTS. Transactions in options by
underlying 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 an underlying fund may write or hold may be
affected by options written or held by affiliates of such fund. 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 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.
LENDING PORTFOLIO SECURITIES
In order to earn additional income on its portfolio securities, each Fund and
the underlying funds in which the Funds invest 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. While each Fund reserves the right to lend its
portfolio securities, it has not done so in the past and has no present
intention of doing so in the future.
DELAYED DELIVERY AND WHEN-ISSUED SECURITIES
Underlying funds and the Flexible Bond, Growth & Income and Asset Allocation
Funds may (but the Capital Appreciation, Leveraged Growth and Strategic Equity
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 by the Funds, is to
attempt to secure a more advantageous price 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 would be 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
6
<PAGE>
delivery basis. There is no Fund policy limiting delayed delivery and
when-issued transactions. While the Flexible Bond, Growth & Income and Asset
Allocation Funds reserve the right purchase Delayed Delivery and When-Issued
securities, they have not done so in the past and have no present intention of
doing so in the current fiscal year.
ZERO COUPON BONDS
The Flexible Bond Fund and Growth & Income Fund may each invest up to 10%, and
underlying funds may invest up to 100%, of their respective total assets in zero
coupon U.S. Government Securities and domestic corporate bonds ("Zeros"). 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 a fund's 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. While the Flexible Bond
and Growth & Income Funds each reserve the right to invest in Zero's, they have
not done so in the past and have no present intention of doing so in the current
fiscal year.
HIGH YIELD BONDS
The Flexible Bond, Growth & Income and Asset Allocation Funds may invest up
to 5% of their assets in high yield bonds, or so-called "junk bonds." The
underlying funds in which the Funds invest may invest up to 100% of their assets
in high yield bonds. Investors should familiarize themselves with the risks of
investing in high yield bonds. (See the Prospectus, "Fixed Income Investments.")
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 holder 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, to the extent held by a Fund or underlying funds, 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, a fund holding such bonds
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 net asset value of
any fund holding them. If a fund experiences unexpected net redemptions, it may
be forced to sell its high yield bonds at a time when it would not otherwise
7
<PAGE>
sell them 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.
There are a number of risks associated with reliance upon the credit
ratings of Moody's and S&P when investing in fixed income investments. 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. Before investing in high yield debt
securities directly, the Investment Manager would perform its own evaluation of
fundamental and other factors establishing and would continuously monitor 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.
While the Flexible Bond, Growth & Income and Asset Allocation Funds reserve
the right to invest directly in high-yield bonds, they have not done so in the
past and have no present intention of doing so in the current fiscal year.
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, Asset
Allocation, and Strategic Equity 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 the portfolio
net asset value of the Leveraged Growth Fund and underlying funds will be
exaggerated. The funds would incur interest and other transaction costs in
connection with borrowing.
ILLIQUID AND RESTRICTED SECURITIES
The Funds may invest not more than 10% and underlying funds not more than
15% (money market funds are limited to 10%) of their respective net 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 reserves the right to make direct investments in foreign
securities (up to 5% of its respective total assets). During the past year the
Funds have not made such investments, and each Fund has no present intention of
doing so within the current fiscal year. 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
8
<PAGE>
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 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, a 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.
9
<PAGE>
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
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 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, some of which have
also been described in the Prospectus. They may not 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 outstanding shares are represented, or (ii) more than 50% of its
outstanding shares.
10
<PAGE>
As to each Fund, 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(s) (except for the Leveraged
Growth Fund) will not purchase any securities. For the purpose of this
restriction, collateral arrangements and 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) 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.
(4) 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
(5) 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.
(6) 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);
(7) 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);
(8) Invest more than 25% of the value of its total assets in any industry
or group of industries other than investment companies (except that U.S.
Government Securities are not subject to these limitations);
(9) 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;
11
<PAGE>
(10) 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;
(11) Invest in securities which are restricted as to disposition under the
Federal securities laws;
(12) 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) ;
(13) Invest for the purpose of exercising control or management of another
issuer;
(14) Invest in interests in oil, gas or other mineral exploration or
development programs (except the Fund may invest in securities issued by
companies engaged in such businesses);
(15) 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);
(16) 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;
(17) 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
described in the prospectus is not a short position for the purposes of this
restriction.);
(18) Participate on a joint or joint and several basis in any trading
account in securities;
(19) 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
(20) 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.
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
12
<PAGE>
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.
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. If a check is used to pay the redemption
proceeds, it 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 a 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
13
<PAGE>
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, 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 1/2. Distributions made
before age 59 1/2 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
purchased as an investment for Keogh and Corporate Retirement Plans. There are
penalties for premature distributions from a Keogh Plan prior to age 59 1/2,
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. There is a service
charge levied by the Transfer Agent for each exchange made by telephone. There
is no fee if made by mail. 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.
14
<PAGE>
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
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.
15
<PAGE>
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
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.
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, Age 54** 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
Seattle, WA 98105 an Executive Officer and holds a substantial
TRUSTEE ownership position in numerous industrial and
service companies.
PAUL A. MERRIMAN, Age 53 * Since 1983, President and Chief Executive
1200 Westlake Avenue North Officer of Paul A. Merriman & Associates,
Seattle, WA 98101 Inc., an investment advisory firm. Since
PRESIDENT AND TRUSTEE October 1987, General Partner of Merriman
Investment Management Company, the Trust's
Investment Manager.
WILLIAM L. NOTARO, Age 55* Since 1981, Owner of Wm L. Notaro & Company,
2914 Kennewick Place, N.E. a Seattle Investment Advisory firm. Since
Renton, WA 98056 October 1987, Exec. Vice President and Chief
EXECUTIVE VICE PRESIDENT Operating Officer of Merriman Investment
SECRETARY, TREASURER AND Management Company, the Trust's Investment
TRUSTEE Manager.
BEN W. REPPOND , Age 51** 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.
16
<PAGE>
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 March 31, 1997, the Trustees and officers owned, as a group,
70,058 shares (5.61%) 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.
5% SHAREHOLDERS
The Trust is aware of the following persons who owned of record, or
beneficially, more than 5% of the shares of any Fund as of May 31, 1997:
FLEXIBLE BOND FUND Charles Schwab & Co., Inc. 20.80% Record(1)
San Francisco, California 94104-4175
Ruth E. Kane, Trustee 5.25% Record
&
Beneficial
Albert E. Kane Trust
2880 Stemilt Road
Wenatche, WA 98801
LEVERAGED GROWTH FUND Paul A. Merriman 5.61% Record(2)
1200 Westlake Avenue North &
Seattle, Washington 98109 Beneficial
[FN]
(1)Charles Schwab & Co., Inc., a broker-dealer, has advised that no individual
client beneficially owned so much as 5% of the Fund.
(2)Includes shares owned by: Mr. Merriman for his own and his wife's account;
Merriman Investment Management Co., the Leveraged Growth Fund's Investment
Manager; Paul A. Merriman & Associates, Inc. P/S Plan; and Paul A. Merriman &
Associates, Inc. 401(k) P/S Plan.
[/FN]
17
<PAGE>
INVESTMENT MANAGER
Merriman Investment Management Company (the "Investment Manager") manages
the Funds' investments pursuant to an Investment Management Agreement as is
described in the Prospectus. Compensation of the Investment Manager, based upon
the Fund's daily average net assets, is at the following annual rates:
Flexible Bond Strategic Equity All Other
Fund Fund Funds _
On the First $250 million 1.000% 1.00% 1.250%
On the next $250 million .875% 1.00% 1.125%
On all above $500 million .750% 1.00% 1.000%
In the event that additional series or funds are authorized by the
Trustees, each additional fund would compute investment fees separately. See the
Prospectus for a description of the services provided to the Funds by the
Investment manager.
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 APPRECIATION 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 Services--3rd 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.
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
18
<PAGE>
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.
In addition to the foregoing services, the Investment Manager provides to the
Strategic Equity Fund, at the Investment Manager's expense, transfer agency,
pricing, custodial, auditing and legal services, and general administrative and
other operating expenses except brokerage commissions, taxes, interest, fees and
expenses of "non-interested" Trustees (as that term is defined in the 1940 Act)
and extraordinary expenses. 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
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.
19
<PAGE>
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, 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
20
<PAGE>
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 March 31, 1997
(unaudited) and as of September 30, 1996 (together with the Report of the
independent auditors), are included in the Trust's Semi-Annual and Annual
Reports to Shareholders, respecitively, 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
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:
Six Months Ended Inception to March 31, 1997
March 31, 1997 % Inception Date
Flexible Bond 3.39% 7.69% October 6, 1988
Growth & Income 7.45% 8.09% December 29, 1988
Capital Appreciation 1.84% 7.35% May 2, 1989
Asset Allocation 1.81% 7.25% May 2, 1989
Leveraged Growth 4.91% 7.04% May 27, 1992
21
<PAGE>
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.
22
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
EXCERPTS FROM MOODY'S INVESTORS SERVICE, INC.'S DESCRIPTION OF ITS BOND RATINGS:
Aaa- judged to be of the best quality. They carry the smallest degree of
investment risk; Aa- judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds; A
- -posses many favorable investment attributes and are to be considered 'upper
medium-grade obligations'; Baa- considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time; Ba- judged to have speculative elements; their future cannot be
considered as well assured; B- generally lack characteristics of a desirable
investment; 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- speculative in a high degree; often in default; C- lowest rated
class of bonds; regarded as having extremely poor prospects.
Moody's also supplies numerical indicators-1,2 and 3-to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking and 3 indicates a ranking
toward the lower end of the category.
EXCERPTS FROM STANDARD & POOR'S CORPORATION'S DESCRIPTION OF ITS BOND RATINGS:
AAA- highest grade obligations. Capacity to pay interest and repay principal is
extremely strong; AA- also qualify as high grade obligations. A very strong
capacity to pay interest and repay principal and differs from AAA issues only in
a small degree; A- regarded as upper medium grade. A strong capacity to pay
interest and repay principal although somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rating categories; BBB- regarded as having adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. This group is the lowest which
qualifies for commercial bank investment; BB, B, CCC, CC- predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with terms of the obligations; BB indicates the lowest degree of
speculation and CC the highest.
S&P applies indicators "+", no character, and "-" to its rating categories. The
indicators show relative standing within the major rating categories.
23
<PAGE>
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 six
months ended March 31, 1997 and for the fiscal years ended September 30, 1996,
1995, 1994, 1993, 1992, 1991, 1990 and 1989. Included in Part B - None.
(b) Exhibits
(1) Restated Declaration of Trust - Incorporated by reference, Post-Effective
Amendment No. 15, filed April 11, 1997.
(2) Amendment to By-Laws - Incorporated by reference, Post-Effective Amendment
No. 1, filed October 13, 1988. Original By-Laws - Incorporated by reference,
intitial registration statement filed 3/2/88
(3) Not applicable.
(4) Instruments Defining the Rights of Securities Holders - Incorporated by
reference, Post-Effective Amendment No. 15, filed April 11, 1997.
(5) Investment Management Agreement - Incorporated by reference, Post-Effective
Amendment No. 15, file April 11, 1997.
(6) Not Applicable.
(7) Not Applicable.
(8) Custodian Agreement - Incorporated by reference, Pre-effective Amendment 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 - Semi-Annual Report to
Shareholders, March 31, 1997 - Incorporated by reference, filed May 29,
1997; Annual Report to Shareholders, September 30, 1996, Incorporated by
Reference, Filed November 22, 1996
(13) Assurance Letter with respect to Initial Capital-Incorporated by reference,
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, Incorporated
by reference, initial registration statement, filed March 2, 1988
<PAGE>
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 May 31, 1997, the number of record holders of the Funds of the Trust
were as follows:
Flexible Bond Fund 385 Capital Appreciation Fund 1,048
Growth & Income Fund 459 Asset Allocation Fund 1,034
Leveraged Growth Fund 887
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." <PAGE>
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.
<PAGE>
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. 16, to be signed on its behalf by the
undersigned, duly authorized, in the City of Seattle, and State of Washington on
the 26th day of June , 19 97 .
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 06/26/97
Ben W. Reppond (Title) (Date)
/s/ David A. Ederer * Trustee 06/26/97
David A. Ederer (Title) (Date)
President and Trustee
/s/ Paul A. Merriman (Chief Executive Officer) 06/26/97
Paul A. Merriman (Title) (Date)
Exec. Vice President,
/s/ William L. Notaro Treasurer & Trustee 06/26/97
William L. Notaro (Chief Accounting & Financial
Officer)
(Title) (Date)
* Signed by Paul A. Merriman under Powers of Attorney dated 2/22/88
<PAGE>
EXHIBITS
MERRIMAN INVESTMENT TRUST
FORM N-1A
INDEX OF EXHIBITS
(Numbers coincide with Item 24(b) of Form N-1A)
(11) Consent of Auditors
(17) Financial Data Schedule
<PAGE>
EXHIBIT 11
CONSENT OF AUDITORS
<PAGE>
EXHIBIT 17
FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRIMAN FLEXIBLE BOND FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 9,406,813
<INVESTMENTS-AT-VALUE> 9,690,739
<RECEIVABLES> 48,413
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,739,152
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 129,638
<TOTAL-LIABILITIES> 128,638
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,361,144
<SHARES-COMMON-STOCK> 926,690
<SHARES-COMMON-PRIOR> 835,640
<ACCUMULATED-NII-CURRENT> 30,758
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (65,314)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 283,926
<NET-ASSETS> 9,610,514
<DIVIDEND-INCOME> 348,400
<INTEREST-INCOME> 12,652
<OTHER-INCOME> 0
<EXPENSES-NET> 66,578
<NET-INVESTMENT-INCOME> 294,474
<REALIZED-GAINS-CURRENT> 51,690
<APPREC-INCREASE-CURRENT> (54,660)
<NET-CHANGE-FROM-OPS> 291,504
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 295,051
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 178,201
<NUMBER-OF-SHARES-REDEEMED> 103,352
<SHARES-REINVESTED> 16,201
<NET-CHANGE-IN-ASSETS> 949,964
<ACCUMULATED-NII-PRIOR> 31,335
<ACCUMULATED-GAINS-PRIOR> (117,004)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 45,328
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66,578
<AVERAGE-NET-ASSETS> 9,105,242
<PER-SHARE-NAV-BEGIN> 10.36
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> 1.47
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 8,012,672
<INVESTMENTS-AT-VALUE> 8,872,575
<RECEIVABLES> 17,325
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,889,900
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,825
<TOTAL-LIABILITIES> 18,825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,650,912
<SHARES-COMMON-STOCK> 790,469
<SHARES-COMMON-PRIOR> 747,250
<ACCUMULATED-NII-CURRENT> 6,583
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 353,677
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 859,903
<NET-ASSETS> 8,871,075
<DIVIDEND-INCOME> 209,798
<INTEREST-INCOME> 7,728
<OTHER-INCOME> 0
<EXPENSES-NET> 78,798
<NET-INVESTMENT-INCOME> 138,728
<REALIZED-GAINS-CURRENT> 353,797
<APPREC-INCREASE-CURRENT> 148,663
<NET-CHANGE-FROM-OPS> 641,188
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 168,793
<DISTRIBUTIONS-OF-GAINS> 744,845
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,754
<NUMBER-OF-SHARES-REDEEMED> 69,010
<SHARES-REINVESTED> 81,475
<NET-CHANGE-IN-ASSETS> 169,241
<ACCUMULATED-NII-PRIOR> 36,648
<ACCUMULATED-GAINS-PRIOR> 744,725
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 55,527
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 78,798
<AVERAGE-NET-ASSETS> 8,884,204
<PER-SHARE-NAV-BEGIN> 11.65
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.65
<PER-SHARE-DIVIDEND> 0.23
<PER-SHARE-DISTRIBUTIONS> 1.04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.22
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 13,954,424
<INVESTMENTS-AT-VALUE> 14,556,823
<RECEIVABLES> 10,309
<ASSETS-OTHER> 30
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,567,162
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,134
<TOTAL-LIABILITIES> 35,134
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,479,206
<SHARES-COMMON-STOCK> 1,447,717
<SHARES-COMMON-PRIOR> 1,524,135
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 450,423
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 602,399
<NET-ASSETS> 14,532,028
<DIVIDEND-INCOME> 308,199
<INTEREST-INCOME> 9,320
<OTHER-INCOME> 0
<EXPENSES-NET> 145,218
<NET-INVESTMENT-INCOME> 172,301
<REALIZED-GAINS-CURRENT> 463,713
<APPREC-INCREASE-CURRENT> (323,206)
<NET-CHANGE-FROM-OPS> 312,808
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 172,301
<DISTRIBUTIONS-OF-GAINS> 1,384,017
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50,845
<NUMBER-OF-SHARES-REDEEMED> 280,194
<SHARES-REINVESTED> 152,931
<NET-CHANGE-IN-ASSETS> (2,132,784)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,370,727
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,498
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 145,218
<AVERAGE-NET-ASSETS> 15,734,422
<PER-SHARE-NAV-BEGIN> 10.93
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> 0.13
<PER-SHARE-DISTRIBUTIONS> 0.97
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.04
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 15,435,540
<INVESTMENTS-AT-VALUE> 16,514,323
<RECEIVABLES> 35,783
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,550,106
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,890
<TOTAL-LIABILITIES> 37,890
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,237,277
<SHARES-COMMON-STOCK> 1,561,545
<SHARES-COMMON-PRIOR> 1,526,903
<ACCUMULATED-NII-CURRENT> 54,736
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 141,420
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,078,783
<NET-ASSETS> 16,512,216
<DIVIDEND-INCOME> 468,652
<INTEREST-INCOME> 10,380
<OTHER-INCOME> 0
<EXPENSES-NET> 157,621
<NET-INVESTMENT-INCOME> 321,411
<REALIZED-GAINS-CURRENT> 143,237
<APPREC-INCREASE-CURRENT> (130,503)
<NET-CHANGE-FROM-OPS> 334,145
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 490,612
<DISTRIBUTIONS-OF-GAINS> 1,375,201
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,416
<NUMBER-OF-SHARES-REDEEMED> 217,172
<SHARES-REINVESTED> 171,398
<NET-CHANGE-IN-ASSETS> (1,221,106)
<ACCUMULATED-NII-PRIOR> 223,937
<ACCUMULATED-GAINS-PRIOR> 1,373,384
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 108,352
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 157,621
<AVERAGE-NET-ASSETS> 17,348,943
<PER-SHARE-NAV-BEGIN> 11.61
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0.93
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 14,146,987
<INVESTMENTS-AT-VALUE> 15,196,536
<RECEIVABLES> 10,702
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 284
<TOTAL-ASSETS> 15,207,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,305
<TOTAL-LIABILITIES> 64,305
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,760,156
<SHARES-COMMON-STOCK> 1,288,249
<SHARES-COMMON-PRIOR> 1,275,683
<ACCUMULATED-NII-CURRENT> 81,695
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 251,854
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,049,549
<NET-ASSETS> 15,143,254
<DIVIDEND-INCOME> 381,377
<INTEREST-INCOME> 4,327
<OTHER-INCOME> 0
<EXPENSES-NET> 304,009
<NET-INVESTMENT-INCOME> 81,695
<REALIZED-GAINS-CURRENT> 259,667
<APPREC-INCREASE-CURRENT> (301,246)
<NET-CHANGE-FROM-OPS> 40,116
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 710,778
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 88,572
<NUMBER-OF-SHARES-REDEEMED> 133,166
<SHARES-REINVESTED> 57,160
<NET-CHANGE-IN-ASSETS> (550,873)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 702,966
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96,577
<INTEREST-EXPENSE> 164,865
<GROSS-EXPENSE> 304,009
<AVERAGE-NET-ASSETS> 15,436,441
<PER-SHARE-NAV-BEGIN> 12.30
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.58
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.75
<EXPENSE-RATIO> 3.94
<AVG-DEBT-OUTSTANDING> 3,828,984
<AVG-DEBT-PER-SHARE> 3.03
</TABLE>
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
June 26, 1997
