SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 15 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Post-Effective Amendment No. 15 [X]
MERRIMAN INVESTMENT TRUST
1200 Westlake Avenue North, Seattle, Washington 98109
Telephone (206) 285-8877
AGENT FOR SERVICE:
Paul A. Merriman
1200 Westlake Avenue North, Seattle Washington 98109
It is proposed that this filing will become effective (check appropriate
box): [ ] immediately upon filing pursuant to paragraph (b) [ ] on
pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph
(a)(i) [ ] on pursuant to paragraph (a)(i) [X] 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 , 1996.
[GRAPHIC OMITTED]
NO LOAD
mutual funds of the
Merriman Investment Trust
The Merriman Investment Trust (the "Trust") is a no load, diversified, open-end
investment company offering investors six series 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.
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 invest-
ment practices.
BUY-AND-HOLD:
MERRIMAN STRATEGIC EQUITY FUND - Seeking long-term growth of capital.
PROSPECTUS JUNE XX, 1997
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
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. <PAGE>
SYNOPSIS
The Merriman Investment Trust is a professionally managed, open-end, diversified
investment company offering six 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. See "Investment Objectives and Policies," page 7.
BROAD DIVERSIFICATION
In seeking to achieve its investment objectives, each Fund has adopted a policy
of concentrating (investing more than 25% and up to 100% of the value of its
total assets) in the shares of other mutual 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 mutual 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 investment company may limit the Funds' investment in what the Investment
Manager considers to be the most desirable companies. Also, the Fund has no
knowledge or control over the day-to-day investment activities of underlying
mutual 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 market
timing models is used by the first five Funds named above in an attempt to
reduce market risk. The risk of this strategy is that investors could be worse
off than if they had not been used if the Investment Manager is wrong in its
expectations about interest rate or market trends and the consequential
deployment of Fund assets. See "Defensive Management Strategy," page 8.
BUY-AND-HOLD STRATEGY
A buy-and-hold strategy is utilized by the Strategic Equity Fund, concentrating
in other mutual funds to achieve broad diversification.. There is a risk, for a
variety of reasons, that the funds chosen by the Investment Manager may not
achieve the anticipated performance. See "Buy-and-Hold Strategy," page 8.
RISKS
The investment objectives and policies of the Funds, unless otherwise stated,
may be changed by the Board of Trustees without the prior consent of the holders
of a majority of the Fund's outstanding shares. Shareholders would be notified
in writing, however, prior to a material departure from the stated objectives
and policies. Such changes may result in a Fund having investment objectives
different from the objectives which the shareholder considered appropriate at
the time of investment in the Fund. The Funds are designed for long-term
investors, including use of the shares as a funding vehicle for tax-deferred
retirement plans. See "Investment Objectives and Policies", page 7.
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 Income
Investments," page 15.
1
<PAGE>
The Leveraged Growth Fund may borrow for investment purposes. Such borrowing,
commonly called leverage, is a speculative practice and involves greater risk
and expense than that incurred by many other funds having long-term growth as
their objective. See "Leverage," page 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. These fees
are higher than that paid by most investment companies. 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; some broker-dealers,
such as 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>
SYNOPSIS OF COSTS AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES:
All Funds - Telephone Exchange Fee: $5.00
Strategic Equity Fund - Short-term Trading Fee: 1% of redemption proceeds
ANNUAL FUND OPERATING EXPENSES (As a percentage of net
assets):
<TABLE>
Growth & Capital Asset Leveraged Strategic
Flexible Bond Income Appreciation Allocation Growth Equity
Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees
(after reimbursements) 1.00% 1.25% 1.25% 1.25% 1.25% 1.00%
Other Expenses 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%
=============================================================================================================================
</TABLE>
EXAMPLE: YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, WHETHER OR
NOT YOU REDEEM AT THE END OF THE PERIOD, ASSUMING A 5% ANNUAL RETURN.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 YEAR $15 $18 $19 $18 $37 $10
3 YEARS 47 56 58 57 113 32
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. Except for the Strategic Equity Fund which imposes a short-term
trading fee for redemptions made within 90 days of purchase, the Funds do not
charge for most redemptions or exchanges. The Transfer Agent imposes a fee for
exchanges made by telephone, shown in the table. See "Exchange Privilege", page
22, for details. "Other Expenses" are estimated at 0% 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. 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>
FINANCIAL HIGHLIGHTS
The information contained in the tables below for the last five fiscal years
ended September 30, 1996, have been audited by Tait, Weller & Baker, independent
accountants, whose report appears in the Funds' 1996 Annual Report (incorporated
herein by reference), which may be obtained without charge from the Trust.
<TABLE>
MERRIMAN FLEXIBLE BOND FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH FISCAL YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $10.23 $9.94 $10.97 $10.78 $10.19 $9.84 $10.30 $10.00
PERIOD
- -------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.63 0.55 0.42 0.52 0.66 0.60 0.61 0.50
Net gains or (losses) on
securities
(realized and unrealized) 0.13 0.29 (0.37) 0.65 0.59 0.37 (0.28) 0.29
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.76 0.84 0.05 1.17 1.25 0.97 0.33 0.79
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From investment income (0.63) (0.55) (0.42) (0.52) (0.66) (0.62) (0.61) (0.49)
From realized capital gains - - - - (0.66) (0.46) -- -- (0.18) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.63) (0.55) (1.08) (0.98) (0.66) (0.62) (0.79) (0.49)
===================================================================================================================
NET ASSET VALUE, END OF PERIOD $10.36 $10.23 $9.94 $10.97 $10.78 $10.19 $9.84 $10.30
===================================================================================================================
Total return 7.62% 8.63% 0.36% 11.61% 12.65% 10.14% 3.27% 8.10%
Net assets, end of period ($000) $8,661 $8,592 $10,542 $12,917 $11,175 $11,085 $9,905 $6,698
Ratio of expenses to average 1.49% 1.50% 1.50% 1.54% 1.51% 1.55% 1.56% 1.50%
net assets*
Ratio of net income to average 6.05% 5.17% 3.89% 4.91% 6.26% 6.03% 6.41% 7.14%
net assets*
Portfolio turnover rate* 139.77% 291.46% 472.49% 272.87% 2.92% 202.06% 234.29% 269.50%
</TABLE>
<TABLE>
Merriman Growth & Income Fund
For a share outstanding throughout each fiscal year ended September 30,
1996 1995 1994 1993 1992 1991 1990 1989(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $11.32 $10.86 $10.92 $11.58 $11.37 $10.49 $10.84 $10.00
PERIOD
- -------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.27 0.24 0.11 0.11 0.19 0.27 0.41 0.21
Net gains or (losses) on
securities
(realized and unrealized) 1.02 1.29 (0.04) 0.44 0.21 1.00 (0.33) 0.83
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.29 1.53 0.07 0.55 0.40 1.27 0.08 1.04
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.27) (0.21) (0.13) (0.09) (0.19) (0.27) (0.41) (0.20)
From realized capital gains (0.69) (0.86) -- (1.12) -- (0.12) (0.02) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.96) (1.07) (0.13) (1.21) (0.19) (0.39) (0.43) (0.20)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.65 $11.32 $10.86 $10.92 $11.58 $11.37 $10.49 $10.84
===================================================================================================================
Total return 12.18% 15.41% 0.62% 4.86% 3.52% 12.37% 0.80% 10.41%
Net assets, end of period ($000) $8,702 $9,348 $10,701 $16,778 $21,554 $19,859 $14,870 $9,091
Ratio of expenses to average 1.77% 1.76% 1.90% 1.69% 1.60% 1.71% 1.83% 2.00%
net assets*
Ratio of net income to average 2.33% 2.10% 0.87% 0.93% 1.64% 2.47% 4.16% 4.12%
net assets*
Portfolio turnover rate* 133.00% 78.64% 240.27% 200.67% 90.71% 148.99% 329.00% 48.19%
</TABLE>
(Continued on following page)
4
<PAGE>
<TABLE>
MERRIMAN CAPITAL APPRECIATION FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH FISCAL YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $11.69 $10.82 $11.63 $11.52 $11.43 $9.78 $10.43 $10.00
PERIOD
- -------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.18 0.09 0.19 0.00 0.27 0.22 0.48 0.08
Net gains or (losses) on
securities
(realized and unrealized) 0.38 1.56 (0.38) 1.29 0.09 1.66 (0.65) 0.43
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.56 1.65 (0.19) 1.29 0.36 1.88 (0.17) 0.51
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.23) (0.07) (0.16) (0.04) (0.27) (0.23) (0.48) (0.08)
From realized capital gains (1.09) (0.71) (0.46) (1.14) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (1.32) (0.78) (0.62) (1.18) (0.27) (0.23) (0.48) (0.08)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.93 $11.69 $10.82 $11.63 $11.52 $11.43 $9.78 $10.43
===================================================================================================================
Total return 5.69% 16.43% (1.64%) 11.69% 3.14% 19.49% (1.67%) 5.10%
Net assets, end of period ($000) $16,665 $22,205 $25,579 $39,037 $43,704 $45,629 $18,109 $8,838
Ratio of expenses to average 1.84% 1.78% 1.58% 1.51% 1.46% 1.48% 1.53% 1.50%
net assets*
Ratio of net income to average 1.74% 0.80% 1.70% 0.04% 2.48% 1.73% 4.79% 3.63%
net assets*
Portfolio turnover rate* 254.77% 146.40% 344.25% 241.90% 122.09% 118.51% 429.44% 15.03%
</TABLE>
<TABLE>
MERRIMAN ASSET ALLOCATION FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH FISCAL YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990 1989(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $11.21 $11.22 $11.97 $10.74 $10.82 $10.04 $10.46 $10.00
PERIOD
- -------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.30 0.25 0.19 0.10 0.31 0.32 0.50 0.09
Net gains or (losses) on
securities
(realized and unrealized) 0.50 0.62 0.15 1.76 (0.08) 0.78 (0.42) 0.45
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.80 0.87 0.34 1.86 0.23 1.10 0.08 0.54
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.16) (0.25) (0.20) (0.10) (0.31) (0.32) (0.50) (0.08)
From realized capital gains (0.24) (0.63) (0.89) (0.53) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.40) (0.88) (1.09) (0.63) (0.31) (0.32) (0.50) (0.08)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.61 $11.21 $11.22 $11.97 $10.74 $10.82 $10.04 $10.46
===================================================================================================================
Total return 7.41% 8.49% 2.91% 18.11% 2.13% 11.17% 0.75% 5.40%
Net assets, end of period ($000) $17,733 $22,632 $29,984 $29,492 $26,508 $28,350 $22,612 $9,169
Ratio of expenses to average 1.82% 1.76% 1.56% 1.52% 1.52% 1.52% 1.53% 1.50%
net assets*
Ratio of net income to average 2.53% 2.11% 1.63% 0.85% 2.87% 3.03% 5.01% 3.88%
net assets*
Portfolio turnover rate* 204.55% 288.45% 449.55% 225.96% 132.56% 311.62% 415.73% 56.44%
(Continued on following page)
5
<PAGE>
</TABLE>
<TABLE>
MERRIMAN LEVERAGED GROWTH FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH FISCAL YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992(4)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $12.30 $10.42 $10.41 $10.04 $10.00
PERIOD
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.08) (0.04) 0.07 0.06 0.04
Net gains on securities
(realized and unrealized) 0.84 2.33 0.03 0.37 --
- ----------------------------------------------------------------------------------------
Total from investment operations 0.76 2.29 0.10 0.43 0.04
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income -- (0.07) (0.09) (0.06) --
From realized capital gains (0.76) (0.34) -- -- --
- ----------------------------------------------------------------------------------------
Total distributions (0.76) (0.41) (0.09) (0.06) --
- ----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.30 $12.30 $10.42 $10.41 $10.04
========================================================================================
Total return 6.85% 22.85% 0.91% 4.32% 0.40%
Net assets, end of period ($000) $15,694 $9,686 $5,459 $5,879 $3,577
Ratio of expenses to
average net assets* (A) 3.70% 2.82% 2.06% 2.03% 2.08%
Ratio of net income (loss)
to average net assets* (0.78)% (0.68)% 0.62% 0.65% 1.09%
Portfolio turnover rate* 247.36% 87.50% 379.64% 130.68% 0.00%
</TABLE>
<TABLE>
INFORMATION RELATING TO OUTSTANDING DEBT DURING THE FISCAL YEARS ENDED SEPT. 30,
1996 1995 1994 1993 1992(5)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMOUNT OF DEBT OUTSTANDING
at end of period ($000) $5,800 $4,000 - - - - - -
Average amount of debt
outstanding during the period $2,981 $780 $60 - - - -
($000)
Average number of shares
outstanding during the period 1,157 657 543 524 209
(000)
Average amount of debt
per share during the period $2.58 $1.19 $0.11 - - - -
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS:
* Annualized for all periods of less than one year.
(1) For the period October 6, 1988 (commencement of operations) to
September 30, 1989
(2) For the period December 29, 1988 (commencement of operations)
to September 30, 1989
(3) For the period May 2, 1989 (commencement of operations) to
September 30, 1989
(4) For the period May 27, 1992 (commencement of operations) to
September 30, 1992
(A) Expenses include interest expense of 1.95% and 1.01% for 1996
and 1995, respectively
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Merriman Investment Trust (the "Trust") is a registered, open-end,
diversified, management investment company registered under the Investment
Company Act of 1940 (the "1940 Act"). The Trust consists of six separate
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 concentrates its investments 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 depicts the Relative Risk of each Fund. First, the Investment
Manager's assessment of the risk level of each Fund relative to the other
Merriman Funds is shown, followed by the standard deviation (std. dev.) of each
Fund as published by Morningstar Principia for Mutual Funds (Principia),
2/28/97. Standard deviation is a statistical measure of the degree to which
future performance is likely to vary from average past performance. Higher std.
dev. values indicate greater risk. 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 compared with other investments. No
Std. Dev. is shown for the Merriman Strategic Equity Fund because it has less
than three years operating history. The average std. devs. for all 2,326 equity
funds and 2,392 fixed income funds published by Principia on the same date were
12.40 and 4.94, respectively, on that date.
MERRIMAN FUND INVESTMENT OBJECTIVE RELATIVE RISK
- -------------------------------------- -----------------------------------------
DEFENSIVELY
MANAGED FUNDS:
Merriman Income, preservation of capital Lowest
Flexible and, secondarily growth of capital Std. Dev of 3.26
Bond Fund
Merriman Long-term growth of capital, income Lower
Growth & Income and, secondarily preservation Std. Dev. of 5.65
Fund of capital
Merriman Asset High total return consistent Lower
Allocation Fund with reasonable risk Std. Dev. of 6.03
Merriman Capital
Appreciation Fund Capital appreciation Moderate
Std. Dev. of 7.74
Merriman Leveraged Capital appreciation through the use Highest
Growth Fund of leverage and other investment practices Std. Dev. of
10.56
BUY-AND-HOLD FUND:
Merriman Strategic
Equity Fund Long-term growth of capital Moderate
The Funds are designed for long-term investors, including those who wish to use
the shares as a funding vehicle for tax-deferred retirement plans. The
investment objectives and policies of each Fund, unless otherwise stated, 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.
7
<PAGE>
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 mutual 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.
CONCENTRATION POLICY
Each Fund has adopted a policy of concentrating (investing more than 25% and up
to 100% of the value of its total assets) in the shares of mutual funds. The
broad diversification available through investment in mutual funds compliments
the Funds' defensive management and buy-and-hold strategies. Mutual funds
selected will diversify their investments and 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 mutual
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
assets, and in the securities of foreign issuers to no more than 35% of its
total assets.
8
<PAGE>
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, 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.
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
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.
9
<PAGE>
THE STRATEGIC EQUITY FUND
THE OBJECTIVE OF THE STRATEGIC EQUITY FUND IS LONG-TERM GROWTH OF CAPITAL. The
mutual funds included in the Fund's portfolio will invest primarily in equity
securities. Fund assets will be deployed to achieve a broadly diversified
balance of non-correlating asset classes. 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.
Therefore it is the policy of the Fund to remain fully invested at all times.
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 their investments
(investing at least 25% of their assets) in mutual 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 mutual funds which themselves concentrate their
investments in any one industry; (b) invest more than 25% of its total assets in
any one mutual fund (see "Investment Restrictions", page 17); and (c) invest in
any mutual fund not registered in the United States. Each Fund currently limits
its investments in mutual funds to those which it may purchase without the
imposition of sales commissions or redemption fees ("commission-free funds").
The Funds may, however, purchase mutual 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 mutual funds that do charge the Funds sales commissions or redemption fees,
if such investment is deemed advisable in the judgment of the Trustees. Prior to
implementing such a change of policy, the shareholders would be given at least
60 days' written notice and the Prospectus would be amended. The underlying
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
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 10% in restricted or 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,
10
<PAGE>
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 mutual 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 investment company
if, as a result, the Fund and its affiliates (including the other Funds and the
privately managed accounts of the Investment Manager and its affiliates)
together own more than 3% of the total assets of the underlying fund. The
Investment Manager will monitor the holdings of each Fund and of any such
privately managed accounts in order to comply with the limitations. An
underlying fund may, under the 1940 Act, elect not to redeem shares in excess of
1% of such underlying fund's outstanding shares during any period of less than
30 days. Therefore, should a Fund hold greater than 1% of an underlying fund's
shares, the holdings in excess of 1% would be considered "not readily marketable
securities" and, together with other such securities, would be subject to
fundamental Fund policies limiting such holdings to 10% of that Fund's total
assets. Because of these limitations, a Fund may not be able to purchase the
shares of certain mutual 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 mutual fund in
anticipation of rising market prices while, at the same time, the underlying
fund may be investing defensively. In such event, the Fund would lose the
expected benefit of its ownership of the underlying fund either for as long as
it retained its investment or until the management of the underlying fund
repositioned its portfolio. See the Statement of Additional Information,
"Investing in Mutual funds", for a description of other investment vehicles,
strategies and risks of underlying funds.
SELECTION OF MUTUAL 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 mutual funds for
inclusion in a Fund's portfolio based primarily upon the degree to which the
Investment Manager believes they would enhance the Fund's ability to achieve its
investment objectives. 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
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.
11
<PAGE>
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
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
12
<PAGE>
domestic bonds, high yield or high grade corporate bonds, U.S. Government bonds,
short, intermediate or long-term bonds and any combinations or sub-categories 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 equity securities (including the shares of mutual 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 eligible equity securities, 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 eligible equity securities, 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.
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
13
<PAGE>
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 non-correlating asset classes. Historical
total returns are evaluated over various periods, together with the standard
deviation for the periods. (Standard deviation is a measurement of the
percentage of time an investment's periodic total return falls within a given
range of the mean total return over a number of time periods. For a simplified
example, take a series of numbers, the average of which is 40. If the series has
a standard deviation of 10, that means two-thirds of the numbers will fall
within 10 of the average, or between 30 and 50.) 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 mutual 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 or 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 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
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
14
<PAGE>
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
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
15
<PAGE>
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 there 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 and by
investing in other mutual funds which also diversify. The Growth & Income and
Asset Allocation Funds will not likely be as significantly affected by adverse
bond market events as a Fund which invests most or all of its assets in fixed
income securities. The Investment Manager will invest, directly or through
mutual funds, in Lower Rated securities only if it believes the investment
opportunity mitigates the assumed risk.
LEVERAGE. The Leveraged Growth Fund may borrow (use leverage) for investment
purposes. The use of leverage is a speculative technique, involving risks not
incurred by funds which do not employ leverage. The cost of borrowed money may
fluctuate with changing market rates of interest. The Fund may have to pay
commitment or other fees to maintain lines of credit or may be required to
maintain minimum average loan or deposit balances. The costs of borrowing may
partially or completely offset, or even be greater than, the return earned on
the borrowed money. In addition, should leverage be employed during adverse
market conditions the Fund could be forced to sell portfolio securities to make
interest or principal payments at a time when it would not normally consider it
advantageous to do so. This could result in higher than normal portfolio
turnover, which usually generates additional brokerage commissions and expenses
for the Fund. Leveraging, when employed, will tend to exaggerate the Fund's net
asset value per share fluctuation. Net asset value per share will increase more
when the Fund's portfolio assets increase in value and will decrease more when
portfolio assets decrease in value than would be the case without leverage. This
is because the Fund's increased investment asset 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. 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%.
16
<PAGE>
FOREIGN SECURITIES AND CURRENCY TRANSACTIONS
Underlying funds may invest up to 100% of its assets, in the securities of
foreign issuers. These issuers and the foreign securities markets in which their
securities are traded may not be as highly regulated as domestic issues, there
may be less information publicly available about them and foreign auditing
requirements may not be the same as domestic requirements. There may be delays
in some countries in settling securities transactions, in some cases up to six
months. In addition, foreign currency exchange rates may adversely affect an
underlying fund's value. Other political and economic developments, including
the possibility of expropriation, confiscatory taxation, exchange controls or
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.
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.
17
<PAGE>
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 and accepted
by the Trust 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; some broker-dealers, such as 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. 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, and the Trust can redeem shares
you own in any identically registered Merriman Fund as reimbursement. 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. Your purchase order will purchase shares
at the net asset value next computed after receipt by the Transfer Agent in
proper form. 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
(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 ($5,000 minimum initial investment, $100 minimum
subsequent investment) 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 "Invest by Mail"
stub which is attached to your Fund confirmation statement. Otherwise, be sure
to identify the Fund and your account in your letter.
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
For Further Credit to:(Fund Name), (Shareholder Account Number),
(Shareholder Name/Registration)
18
<PAGE>
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 & AUTOMATIC INVESTMENT PLAN
If you elect the ACH option on the Account Application Form, you may use the
telephone to make subsequent investments directly from your bank account in
amounts of $100 or more. To make subsequent investments by telephone, call
1-800-224-4743. This option will become effective approximately 15 business days
after the Account Application Form is received. You may not use telephone
transactions for initial purchases of the Fund(s) shares.
Once your account is established, you may make automatic monthly purchases in
amounts of $100 or more through the Fund's Automatic Investment Plan. Under the
Plan, you authorize your bank (or other financial institution) to transfer a
pre-authorized amount from your bank account to your Fund account on a business
day of your choice. The amount transferred is applied to the purchase of Fund
shares. There is no service fee for participating in this Plan. To use this
service, you must authorize the transfer of funds from your checking or NOW
account by completing the appropriate section of the new account application or
the Automatic Investment Plan application, which may be obtained from the
Transfer Agent. The Fund reserves the right to suspend, modify or terminate the
Automatic Investment Plan without notice. The Automatic Investment Plan may be
used to implement dollar cost averaging. Dollar cost averaging is an investment
approach providing for the investment of a specific dollar amount on a regular
basis, thereby precluding emotions dictating investment decisions. Dollar cost
averaging does not insure a profit nor protect against a loss.
Only bank accounts held at domestic financial institutions that are ACH members
may be used for telephone purchase and Automatic Investment Plan transactions.
STOCK CERTIFICATES
Certificates will not be issued for your shares unless you request them. In
order to facilitate redemptions and transfers, most shareholders elect not to
receive certificates. If you lose a certificate, you may incur delay and expense
in replacing it.
HOW NET ASSET VALUE IS DETERMINED
The Net Asset Value of each Fund is determined on each day that the New York
Stock Exchange (the "Exchange") is open for trading, as of the close of the
Exchange (currently 4:00 p.m., New York time). Net asset value per share is
determined by dividing the total value of all Fund securities (valued at market
value) and other assets, less liabilities, by the total number of shares then
outstanding. See the Statement of Additional Information for details concerning
determination of net asset value.
HOW TO 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. 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,
19
<PAGE>
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 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) any required signature guarantees (see "Signature Guarantees"
page 21); 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.
REDEEMING BY TELEPHONE
You may redeem shares (in amounts of $1,000 or more) by calling the Transfer
Agent at 1-800-224-4743. See "Telephone Transactions," below. Telephone
redemption requests for IRA accounts will not be accepted.
REDEMPTION PAYMENTS BY CHECK, BANK WIRE OR ACH
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 2-3 business days for the redemption proceeds to reach your
bank account.
20
<PAGE>
TELEPHONE REDEMPTIONS
You may make telephone redemptions unless you declined the privilege on the
Account Application Form. 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," below) 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.
The Fund and its Agents will employ reasonable procedures to confirm the
identity of shareholders using the privilege and a written confirmation of the
transaction will be sent to the shareholder's address of record. When you call
to redeem shares, you will be asked how many shares, or dollars worth of shares,
you wish to redeem, to whom you wish the proceeds to be sent, and whether the
proceeds are to be mailed, wired or moved by ACH transfer. 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
(subject to change without notice) 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.
TELEPHONE REDEMPTION FACTORS TO CONSIDER. Redeeming by Telephone is a convenient
service enjoyed by many shareholders. There are important factors to consider
before activating the privilege, however. The Funds and the Transfer Agent
believe that the foregoing procedures it has established for telephone
redemptions reasonably protect shareholders from fraudulent transactions.
Shareholders should be aware of the Funds' policy that the investor who chooses
to activate the telephone redemption privilege bears the risk of loss in the
event of fraudulent use. Despite the procedures employed to prevent fraud, it
may be impossible to detect. Neither the Transfer Agent nor the Funds will be
responsible for the authenticity of redemption instructions received by
telephone. The Trust reserves the right to restrict or cancel telephone
redemption privileges, or to modify the telephone redemption procedures, for any
shareholder or all shareholders, without notice, if the Trustees believe it to
be in the best interest of the shareholders to do so. Shareholders would be
given at least 60 days written notice prior to changing the fees imposed with
respect to telephone redemptions and wires.
You cannot redeem shares by telephone if you hold the stock certificates
representing the shares you are redeeming or if you paid for the shares with a
personal, corporate, or government check and your payment has been on the
Transfer Agent's books for less than 15 days. During drastic economic and market
changes, telephone redemption services may be difficult to implement. If an
investor is unable to contact the Transfer Agent by telephone, shares may also
be redeemed by delivering the redemption request to the transfer agent in person
or by mail as described under "How to Sell Shares," above.
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect you, the Funds and the
Transfer Agent from fraud, and to be certain that you are the person who has
authorized a redemption from your account. Signature guarantees are required for
(1) all mail order redemptions, (2) change of registration requests, and (3)
requests to establish or change exchange privileges or telephone redemption
service other than through your initial account application. The Funds reserve
the right to require a signature guarantee under other circumstances. The Funds
will honor signature guarantees from acceptable financial institutions such as
banks, savings and loan associations, trust companies, credit unions, brokers
and dealers, registered securities associations and clearing agencies. A
signature guarantee may not be provided by a notary public. The signature
guarantee must appear either (a) on the written request for redemption, or (b)
on a separate instrument of assignment ("stock power") which should specify the
total number of shares to be redeemed, or (c) on all stock certificates tendered
for redemption and, if shares held for you by the Transfer Agent are also being
redeemed, on the letter or stock power.
21
<PAGE>
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. 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
shareholders from making exchanges at any time, without notice to shareholders,
should the Trustees determine that it would be in the best interest of our
shareholders to do so. Shareholders would be given at least 60 days written
notice prior to changing the fee for an exchange. An exchange, for tax purposes,
constitutes the sale of the shares of one fund and the purchase of those of
another; consequently, the sale will usually involve either a capital gain or
loss to the shareholder for Federal income tax purposes. During drastic economic
and market changes, telephone exchange services may be difficult to implement.
The exchange privilege is only available in states where the exchange may
legally be made.
The Portico funds made available to Merriman Fund shareholders under this
Exchange Privilege are not affiliated with the Merriman Funds or the Investment
Manager, but are made available as a convenience to Merriman Fund shareholders
desiring to invest a portion of their assets in money market instruments. The
Investment Manager has entered into a Servicing Agreement with Portico Funds,
Inc. whereby the Investment Manager receives 2/10 of 1% of the average daily net
value of shares of any support services to said shareholders on behalf of
Portico.owned by shareholders of the Merriman Funds in return for providing
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
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
22
<PAGE>
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
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.
23
<PAGE>
Net investment income will be distributed to shareholders as dividends. Such
dividends, along with any short-term capital gains distributed, will be taxable
to shareholders (except IRA's, Keogh Plans, Simplified Employee Pension Plans
and corporate retirement plans) as ordinary income, whether received in cash or
invested in additional Fund shares. Investors should refer to the Statement of
Additional Information, which contains additional information about dividends,
distributions and taxes.
Borrowing by the Leveraged Growth Fund may cause some of its portfolio
securities to be treated as "debt-financed" and dividends paid to corporate
shareholders from earnings on such securities to be ineligible for the 70%
dividends-received deduction which might otherwise be available to corporate
shareholders. See the Statement of Additional Information, "Additional Tax
Information," for further information.
Federal law requires that the Funds withhold 31% of reportable payments (which
may include dividends, capital gains distributions, and redemptions) paid to
certain shareholders who have not complied with Internal Revenue Service
regulations. Therefore, you will be asked to certify on your application that
the social security or tax identification number you provide is correct and that
you are not subject to backup withholding for previous under-reporting to the
IRS. If you do not have a social security number, you should indicate on the
purchase form that an application to obtain a number is pending. The Fund is
required to withhold taxes if a number is not subsequently delivered to the Fund
within the time period prescribed by Federal tax regulations.
Shareholders will receive federal tax information regarding dividends and
capital gains distributions after the end of each year. Dividends and capital
gains distributions may also be subject to state and local taxes. Shareholders
are urged to consult their attorneys or tax advisers regarding specific
questions as to Federal, state or local taxes.
For Federal income tax purposes, exchanges and redemptions are taxable events,
and accordingly, capital gains or losses may be realized. In addition to Federal
taxes, you may be subject to state taxes on your dividends and distributions,
depending on the laws of your home state.
Income (including dividends and distributions of short-term capital gains)
received by a Fund from mutual funds in the Fund's portfolio, as well as any
interest received on money market instruments and net short-term capital gains
received by the Fund on the sale of portfolio securities (including mutual
funds), will be distributed by the Fund and will be taxable to shareholders at
ordinary income tax rates. The Fund may be expected to realize short-term gains
from the sale of mutual fund securities held in its portfolio. Investors in the
Fund may experience a greater tax liability than would result if they invested
directly in the underlying mutual funds.
Distributions of long-term capital gains received by a Fund from mutual funds,
as well as net long-term capital gains realized by a Fund from the purchase and
sale (or redemption) of mutual fund shares or other securities held by a Fund
for more than one year, will be distributed by the Fund and will be taxable to
shareholders as long-term capital gains (even if the shareholder has held the
shares for less than six months). However, if a shareholder who has received a
capital gains distribution suffers a loss on the sale of his shares not more
than six months after purchase, the loss will be treated as a long-term capital
loss to the extent of the capital gains distribution received.
For purposes of determining the character of income received by a Fund when an
underlying fund distributes long-term capital gains to the Fund, the Fund will
treat the distribution as a long-term capital gain, even if it has held shares
of the mutual fund for less than one year. However, any loss incurred by the
Fund on the sale of that underlying fund's shares after holding them for less
than six months will be treated as a long-term capital loss to the extent of the
gain distribution.
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
24
<PAGE>
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.
As to te Strategic Equity Fund only, in addition to the services enumerated in
the preceeding paragraph, the Investment Manager provides, at its expense, all
other services necessary for the day-to-day operations of the Funds. The only
exceptions are (a) brokerage commissions, taxes, interest and extraordinary
expenses, if any, and (b) the Fund's allocable share of the fees and expenses of
"non-interested" Trustees (as that term is defined in the 1940 Act). The
Investment Manager has agreed to reduce its compensation by an amount equivalent
to (b), above. Under this management fee arrangement, total operating expenses
of the Strategic Equity Fund will not normally exceed 1% of the Fund's average
net assets.
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 1.00% for
the Strategic Equity Fund. The advisory fees are higher than that incurred by
most investment companies. 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
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
25
<PAGE>
determined from time to time by the Trustees. Each Fund is also liable for any
non-recurring expenses as may arise such as litigation to which the Fund may be
a party. The Fund may be obligated to indemnify the Trustees and officers with
respect to such litigation. All expenses of the Funds are accrued daily on the
books of each Fund at a rate which, to the best of the Investment Manager's
belief, is equal to the actual expenses expected to be incurred by the Fund in
accordance with generally accepted accounting practices. For the fiscal year
ended September 30, 1996, the total expenses of each Fund (as a percent of
average net assets) were 1.49%, 1.77%, 1.84%, 1.82% and 3.70%, respectively, for
the Flexible Bond Fund, Growth & Income Fund, Capital Appreciation Fund, Asset
Allocation Fund and Leveraged Growth Fund.
SHAREHOLDER SERVICING AND CUSTODY. Firstar Trust Co., whose street address is
615 E. Michigan Street, Milwaukee, WI 53202, serves as the Trust's Transfer and
Dividend Paying Agent (Shareholder Services Agent) and Custodian, and provides
the Trust with certain accounting and record keeping services. Firstar's mailing
address is PO Box 701, Milwaukee, WI 53201-0701.
BROKERAGE POLICIES. Securities transactions are effected through broker-dealers
selected by the Investment Manager, with the view to obtaining the best price
and execution. Within this guideline, the Investment Manager is permitted to
prefer brokers who sell or recommend Fund shares to their clients, or who
provide the Investment Manger with research services, such as statistical
reports, technical and fundamental analyses, computer services, software and
support, and quotation and other services helpful to the management of the
Funds. Such research services, even though obtained through one Fund's brokerage
transactions, may also benefit other Funds or clients of affiliates of the
Investment Manager. Conversely, such services resulting from brokerage
transactions of the Investment Manager's other clients or affiliates may also
benefit the Funds.
VOTING AND OTHER. Each outstanding share, of whatever Fund, is entitled to one
vote for each full share of stock and a fractional vote for each fractional
share of stock, on all matters which concern the Trust as a whole. On any matter
submitted to a vote of shareholders, all shares of the Trust then issued and
outstanding and entitled to vote, irrespective of the Fund, shall be voted in
the aggregate and not by Fund; except (i) when required by the Investment
Company Act of 1940, as amended, shares shall be voted by individual Fund; and
(ii) when the matter does not affect any interest of a particular Fund, then
only shareholders of the affected Fund or Funds shall be entitled to vote
thereon. Examples of matters which affect only a particular Fund could be a
proposed change in the fundamental investment objectives of that Fund or
approval of the investment management agreement. The shares of the Funds will
have non-cumulative rights, which means that the holders of more than 50% of the
shares voting for the election of trustees can elect all of the trustees if they
choose so. The Declaration of Trust provides that, if elected, the Trustees will
hold office for the life of the Trust, except that: (1) any Trustee may resign
or retire; (2) any Trustee may be removed with or without cause at any time: (a)
by a written instrument, signed by at least two-thirds of the number of Trustees
prior to such removal; (b) by vote of shareholders holding not less than
two-thirds of the outstanding shares of the Trust, cast in person or by proxy at
a meeting called for that purpose; or (c) by a written declaration signed by
shareholders holding not less than two-thirds of the outstanding shares of the
Trust and filed with the Trust's custodian. In case a vacancy or an anticipated
vacancy shall for any reason exist, the vacancy shall be filled by the
affirmative vote of a majority of the remaining Trustees, subject to the
provisions of Section 16(a) of the 1940 Act. Otherwise there will normally be no
meeting of shareholders for the purpose of electing Trustees, and none of the
Funds are expected to have an annual meeting of shareholders.
CALCULATION OF PERFORMANCE DATA
From time to time the Funds may advertise their total return. Total return
figures are based on historical earnings and are not intended to indicate future
performance. The "total return" of the Funds refers to the average annual
compounded rates of return over 1, 5 and 10 year periods that would equate an
initial amount invested at the beginning of a stated period to the ending
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.
26
<PAGE>
[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
TABLE OF CONTENTS MERRIMAN INVESTMENT TRUST
1200 Westlake Avenue North
Seattle, WA 98109
1-206-285-8877
Synopsis................................1
Synopsis of Costs and Expenses..........3
Financial Highlights....................4 INVESTMENT MANAGER
Investment Objectives and Policies......7 Merriman Investment Management Co
Defensive Management Strategy...........8 1200 Westlake Avenue North
Buy-and-Hold Strategy...................8 Seattle, WA 98109
Concentration Policy....................8
Flexible Bond Fund......................8
Growth & Income Fund....................9 CUSTODIAN AND
Capital Appreciation Fund...............9 TRANSFER AGENT
Asset Allocation Fund...................9 Firstar Trust Co.
Leveraged Growth Fund...................9 PO Box 701
Strategic Equity Fund..................10 Milwaukee, WI 53201
Key Investment Policies and Risks......10 1-800-224-4743
Other Investment Policies and Risks....14
Investment Restrictions................17
How to Purchase Shares.................18 FUND COUNSEL
How to Redeem Shares...................19 Sullivan & Worcester
Exchange Privilege.....................22 Boston, Massachusetts
Other Shareholder Services.............22
Dividends, Capital Gain
Distributions and Taxes..............23 INDEPENDENT AUDITORS
Management.............................24 Tait, Weller & Baker
Calculation of Performance Data........26 Philadelphia, PA
<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:
LONG-TERM 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 Bonds................................7
Zero Coupon Bonds.....................................................7
High Yield Bonds......................................................7
Concentration.........................................................8
Borrowing.............................................................8
Illiquid and Restricted Securities....................................8
Foreign Issuers and Currencies........................................9
Repurchase Agreements ................................................9
Short Selling........................................................10
Warrants.............................................................10
Other Transactions...................................................11
INVESTMENT RESTRICTIONS.......................................................11
SPECIAL SHAREHOLDER SERVICES .................................................13
Regular Account .....................................................13
Systematic Withdrawal Plan ..........................................13
Retirement Plans ....................................................14
Exchange Privilege ..................................................15
Redemptions in Kind .................................................15
Transfer of Registration ............................................15
PURCHASE OF SHARES ...........................................................16
REDEMPTION OF SHARES .........................................................16
NET ASSET VALUE DETERMINATION ................................................16
Valuation of Exchange-Traded Options and Futures Contracts...........17
TRUSTEES AND OFFICERS ........................................................18
5% SHAREHOLDERS...............................................................19
INVESTMENT MANAGER ...........................................................19
MANAGEMENT AND OTHER SERVICES ................................................20
ALLOCATION OF TRUST EXPENSES .................................................20
BROKERAGE ....................................................................21
ADDITIONAL TAX INFORMATION ...................................................21
CAPITAL SHARES AND VOTING ....................................................23
FINANCIAL STATEMENTS AND REPORTS .............................................23
CALCULATION OF PERFORMANCE DATA...............................................23
APPENDIX......................................................................25
<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 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, the 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 loose 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
2
<PAGE>
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.
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
3
<PAGE>
option expires or the fund delivers the underlying security upon exercise. There
are several reasons that a liquid secondary market may not exist at any given
time. They include: insufficient trading interest in certain options;
restrictions on certain transactions imposed by an Exchange; trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; interruption of the normal
operations on an Exchange; inadequate facilities of an Exchange or the OCC to
handle trading volume; or a decision by one or more Exchanges to discontinue the
trading of options (or a particular series or class of options), in which event
the secondary market on that Exchange would cease to exist, although outstanding
options on that Exchange that had been issued by OCC as a result of trades on
that Exchange would generally continue to be exercisable in accordance with
their terms.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A "sale" of a futures contract means the acquisition of a contractual obligation
to deliver the securities called for by the contract at a specified price on a
specified date. A "purchase" of a Futures Contract means the acquisition of a
contractual obligation to acquire securities at a specified price on a specified
date. 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.
4
<PAGE>
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.
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
5
<PAGE>
sufficient assets to satisfy its obligations under a futures contract, the fund
earmarks to the futures contract money market instruments equal in value to the
current price of the underlying instrument less the margin deposit.
A clearing corporation associated with the commodity exchange on which a
Futures Contract trades assumes responsibility for the completion of
transactions and guarantees that Futures Contracts will be performed.
The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in stock market and/or interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events. A decision of whether, when,
and how to hedge involves skill and judgment, and even a well-conceived hedge
may be unsuccessful to some degree because of unexpected market behavior or
interest rate trends.
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, will be diversified and will be managed by a
number of investment advisors. The Funds believe that this diversification
offers the opportunity to benefit from a variety of investment approaches and
strategies employed by experienced investment professionals over a diverse
spectrum of investment portfolios. The mutual funds in which the Funds invest
may have differing investment objectives, they may invest in bonds, equities,
tax-exempt securities and a variety of other investments. They may seek
speculative or conservative investments or any mixture of these objectives and
strategies. The Funds' Investment Manager is responsible for evaluating,
selecting and monitoring each mutual fund in which the Funds invest.
The mutual funds in which the Funds invest may engage in some or all of the
investment techniques and may invest in some or all of the types of securities
in which the Funds engage or invest. In addition, underlying funds may have less
stringent limitations on investment activities than the Funds. This could
conceivably result in the Funds having a greater exposure to certain risks than
intended. The Fund believes that this risk exposure is effectively reduced by
investing in a diversified portfolio of mutual funds.
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.
6
<PAGE>
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
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 future
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 future.
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
7
<PAGE>
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
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 is 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 future.
CONCENTRATION
An underlying mutual fund may concentrate its investments in a single
industry (but the Funds limit investment in any one underlying fund to no more
than 25% of the total assets of each Fund). The value of shares of such an
underlying fund may be subject to greater market fluctuation because investment
alternatives within a single industry are more limited than for the market as a
whole.
BORROWING
The Leveraged Growth Fund borrows for investment purposes as described in
the Prospectus. The Flexible Bond, Growth & Income, Capital Appreciation and
Asset Allocation Funds may each borrow up to 5% of its total assets for
extraordinary purposes and up to 33.3% of its total assets to meet redemption
requests which might otherwise require untimely disposition of the Fund's
securities. Underlying funds in which the Funds invest may borrow up to 33.3% of
total assets for the purpose of increasing portfolio holdings. Because of such
leveraging, the effects of market price fluctuations on portfolio net asset
value will be exaggerated. The funds would incur interest and other transaction
costs in connection with borrowing.
ILLIQUID AND RESTRICTED SECURITIES
The Funds may invest not more than 10% (underlying funds may invest up to
15%) of their respective total assets in illiquid securities (repurchase
agreements maturing in over seven days, certain over-the-counter options and
other securities for which there is no readily available market, ) and
restricted securities (securities which would be legally restricted from
8
<PAGE>
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 in the future. However, an underlying fund may invest up to 100% of its
assets, in the securities of foreign issuers. These issuers and the foreign
securities markets in which their securities are traded may not be as highly
regulated as domestic issues, there may be less information publicly available
about them and foreign auditing requirements may not be the same as domestic
requirements. There may be delays in some countries in settling securities
transactions, in some cases up to six months. In addition, foreign currency
exchange rates may adversely affect an underlying fund's value. Other political
and economic developments, including the possibility of expropriation,
confiscatory taxation, exchange controls or 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
9
<PAGE>
agreements can be considered as loans "collateralized" by the Resold Securities,
such agreements being defined as "loans" in the Investment Company Act of 1940,
as amended (the "1940 Act"). The return on such "collateral" may be more or less
than that from the repurchase agreement. The market value of the resold
securities will be marked to market daily and monitored so that the value of the
"collateral" is at all times at least equal to the value of the loan, including
the accrued interest earned thereon. All Resold Securities will be held by the
Fund's custodian either directly or through a securities depository. While the
Funds limit their direct repurchase agreement transactions to U.S. Government
Securities, underlying funds may not have such limitations. Lower quality
securities underlying a repurchase agreement transaction would involve
potentially greater risk.
SHORT SELLING
An underlying fund may engage in short selling (the sale of a security it
does not own). In order to make delivery, it "borrows" the needed securities
from a broker and replaces them at a later time by purchasing them in the open
market. The price paid may be more or less than the price received when the
securities were sold short. The broker retains the proceeds from the short sale
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.
10
<PAGE>
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.
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 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
11
<PAGE>
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;
(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.);
12
<PAGE>
(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
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.
13
<PAGE>
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
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
14
<PAGE>
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.
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.
15
<PAGE>
PURCHASE OF SHARES
The purchase price of Fund shares is the net asset value next determined
after the order is received. An order received prior to the close of the New
York Stock Exchange ("Exchange") will be executed at the price computed on the
date of receipt; and an order received after the close of the Exchange will be
executed at the price computed on the next Business Day. The Exchange currently
closes at 4:00 p.m., New York City time. An order to purchase shares is not
binding on the Trust until the Transfer Agent confirms it in writing (or unless
other arrangements have been made with the Transfer Agent, for example in the
case of orders utilizing wire transfer of funds) and payment has been received.
The Trust reserves the right in its sole discretion (i) to suspend the
offering of Fund shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of such Fund and its
shareholders, and (iii) to reduce or waive the minimum for initial and
subsequent investments for certain fiduciary accounts such as employee benefit
plans or under circumstances where certain economies can be achieved in sales of
Fund shares.
REDEMPTION OF SHARES
The Trust may suspend redemption privileges or postpone the date of payment
(i) during any period that the New York Stock Exchange is closed, or trading on
the Exchange is restricted as determined by the Securities and Exchange
Commission (the "Commission"), (ii) during any period when an emergency exists
as defined by the rules of the Commission as a result of which it is not
reasonably practicable for a Fund to dispose of securities owned by it, or to
fairly determine the value of its assets, and (iii) for such other periods as
the Commission may permit.
No charge is made by the Trust for redemptions although, as disclosed in
the Prospectus, the Trustees could impose a redemption charge in the future. Any
redemption may be more or less than the shareholder's cost depending on the
market value of the securities held by the Fund.
TELEPHONE REDEMPTION PRIVILEGE. The Prospectus describes the procedures the
Funds follow to establish and operate the telephone redemption privilege. To
protect the Funds, their agents and shareholders from liability, the Funds
employ reasonable procedures to help ascertain that the instructions
communicated by telephone are genuine. Among other things, the Transfer Agent
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
16
<PAGE>
this ordinarily will be the over-the-counter market. For equity securities this
will ordinarily be the principal exchange on which the security is traded or the
NASDAQ National Market System. Over-the-counter securities that are not traded
on a particular day and fixed income securities are priced at the current quoted
bid price. However, U.S. Government Securities and other fixed income securities
may be valued on the basis of prices provided by an independent pricing service
when such prices are believed to reflect the fair market value of such
securities. The prices provided by a pricing service are determined without
regard to bid or last sale prices but take into account securities prices,
yields, maturities, call features, ratings, institutional size trading in
similar groups of securities and developments related to specific securities.
Stock exchange and NASDAQ securities are priced at the latest quoted sale on the
date of valuation. Short-term debt securities which mature in 60 days or less
are valued at amortized cost if their original term to maturity from the date of
purchase was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their term to maturity from the date of purchase exceeded 60
days, unless the Trustees determine that such valuation does not represent fair
value. Short-term debt securities which mature in more than 60 days are valued
at last sale or current bid quotations. Securities and other assets for which no
quotations are readily available will be valued in good faith at fair value
using methods determined by the Board of Trustees.
VALUATION OF EXCHANGE-TRADED OPTIONS AND FUTURES CONTRACTS
For pricing purposes, 4:00 p.m. New York City time ("NYC time") is
considered the cut-off time. Certain exchanges, especially commodities
exchanges, close trading later than that time. In such case, the Funds will
utilize last sale prices obtained as of 4:00 PM NYC time. This will result the
valuation of Fund assets at other than the actual closing prices for that day.
Securities affected include exchange-traded options on U.S. Government
Securities and exchange-traded options on Futures Contracts, both of which are
valued at the last sale price at 4:00 PM NYC time. If there is no sale by 4:00
PM NYC time on the applicable options exchange on a given day, options are
valued at the current bid prices as of that time. Also, Futures Contracts are
marked to market daily as of 4:00 PM NYC time. The Investment Manager will
monitor the actual closing prices in order to assure that the differences do not
materially distort net asset value, and will report to the Trustees in the event
that there appears to be a substantial risk that a material distortion may
occur.
17
<PAGE>
TRUSTEES AND OFFICERS
The following is a list of the Trustees and Officers of the Merriman Investment
Trust, and a brief statement of their present positions and principal
occupations during the past five years:
NAME AND ADDRESS PRINCIPAL OCCUPATION(S)
POSITION WITH TRUST DURING PAST 5 YEARS
DAVID A. EDERER ** Since 1974, Managing Partner of D. A. Ederer
4919 NE Laurelcrest Lane Company, a private investment company. In
Seattle, WA 98105 connection therewith, Mr. Ederer serves as
TRUSTEE an Executive Officer and holds a substantial
ownership position in numerous industrial
and service companies.
PAUL A. MERRIMAN * Since 1983, President and Chief Executive
1200 Westlake Avenue North Officer of Paul A. Merriman & an investment
Seattle, WA 98101 advisory firm. Since October 1987, General
PRESIDENT AND TRUSTEE Partner of Merriman Investment Management
Company, the Trust's Investment Manager.
WILLIAM L. NOTARO * Since 1981, Owner of Wm L. Notaro & Company,
2914 Kennewick Place, NE 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 ** Since 1981, President and Chief Executive
6965 NE Buck Lake Road Officer, the Reppond Co., Inc., an insurance
Hansville, WA 98340 brokerage firm.
TRUSTEE
* These Trustees are "interested persons" of the Fund, by virtue of their
positions with the Investment Manager.
** These trustees are members of the Audit Committee.
Trustees and officers of the Trust who are interested persons of the Trust
receive no salary or fees from the Trust. Trustees of the Trust who are not
interested persons of the Trust receive $500 per year plus $100 per meeting of
the Board of Trustees attended by them. For the fiscal year ended September 30,
1996, remuneration of the Trustees and officers, in the aggregate, by the Trust,
was $2,000. As of March 31, 1997, the Trustees and officers owned, as a group,
70,626 shares (5.48%) 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.
18
<PAGE>
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 February 28, 1997:
Flexible Bond Fund Charles Schwab & Co., Inc. 20.03% Record1
San Francisco, California 94104-4175
Ruth E. Kane, Trustee 5.10% Record &
Albert E. Kane Trust Beneficial
2880 Stemilt Road
Wenatche, WA 98801
Leveraged Growth Fund Paul A. Merriman 5.48% Record &
1200 Westlake Avenue North Beneficial2
Seattle, Washington 98109
1Charles Schwab & Co., Inc., a broker-dealer, has advised that no individual
client beneficially owned so much as 5% of the Fund.
2Includes 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.
INVESTMENT MANAGER
Merriman Investment Management Company (the "Investment Manager") manages
the Funds' investments pursuant to an Investment Management Agreement (the
"Management Agreement") as is described in the Prospectus. The Management
Agreement was last approved by the shareholders of the Leveraged Growth Fund on
December 16, 1992 and by shareholders of the other Funds on December 29, 1989,
and is effective until December 31, 1997. It will be renewed from year to year
thereafter only so long as such renewal and continuance is specifically approved
at least annually by the Board of Trustees or by vote of a majority of the
Fund(s) outstanding voting securities, provided the continuance is also approved
by a majority of the Trustees who are not "interested persons" of the Trust or
the Investment Manager by vote cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement is terminable for
any Fund without penalty on sixty days notice by the Board of Trustees of the
Trust or by the Investment Manager. The Management Agreement provides that it
will terminate automatically in the event of its assignment.
As shown in the Prospectus, compensation of the Investment Manager, based
upon the Fund's daily average net assets, is at the following annual rates:
<TABLE>
Flexible Bond Strategic Equity All Other
Fund Fund Funds
<S> <C> <C> <C>
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%
</TABLE>
The advisory fees are higher than that incurred by most investment
companies. In the event that additional series or funds are authorized by the
Trustees, each additional fund would compute investment fees separately.
19
<PAGE>
Advisory fees paid to and expense reimbursements (or advisory fee waivers)
received from the Investment Manager have been as follows:
<TABLE>
Fiscal Period Flexible Bond Growth & Capital Asset Leveraged
Ended Fund Income Appreciation Allocation Growth
September 30, 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
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
20
<PAGE>
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.
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%
21
<PAGE>
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
their own advisers for the effect of any state or local taxation and for more
complete information on federal taxation.
22
<PAGE>
CAPITAL SHARES AND VOTING
Please refer to the Prospectus, "Voting and Other", which contains
information on the subject capital shares and voting. Shares of both Funds, when
issued, are fully paid and non-assessable and have no preemptive or conversion
rights. Shareholders are entitled to one vote for each full share and a
fractional vote for each fractional share held. Shares have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees and, in this
event, the holders of the remaining shares voting will not be able to elect any
Trustees. The Trustees will hold office indefinitely, except that: (1) any
Trustee may resign or retire; (2) any Trustee may be removed with or without
cause at any time: (a) by a written instrument, signed by at lease two-thirds of
the number of Trustees prior to such removal; or (b) by vote of shareholders
holding not less than two-thirds of the outstanding shares of the Trust, cast in
person or by proxy at a meeting called for that purpose; (c) by a written
declaration signed by shareholders holding not less than two-thirds of the
outstanding shares of the Trust and filed with the Trust's custodian.
Shareholders have certain rights, as set forth in the Declaration of Trust,
including the right to call a meeting of the shareholders for the purpose of
voting on the removal of one or more Trustees. Shareholders holding not less
than ten percent (10%) of the shares then outstanding may require the Trustees
to call such a meeting and the Trustees are obligated to provide certain
assistance to shareholders desiring to communicate with other shareholders in
such regard (e.g.; providing access to shareholder lists, etc.). In case a
vacancy or an anticipated vacancy shall for any reason exist, the vacancy shall
be filled by the affirmative vote of a majority of the remaining Trustees,
subject to the provisions of Section 16(a) of the 1940 Act. Otherwise there will
normally be no meeting of shareholders for the purpose of electing Trustees, and
the Trust does not expect to have an annual meeting of shareholders.
FINANCIAL STATEMENTS AND REPORTS
The books of each Fund will be audited at least once each year by
independent auditors. Financial Statements of each Fund, as of September 30,
1996, together with the Report of the independent auditors, are included in the
Trust's Annual Report to Shareholders and are incorporated herein by reference.
Shareholders will receive annual audited and semi-annual (unaudited) reports
when published, and will receive written confirmation of all confirmable
transactions in their account. A copy of the Annual Report is available free of
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:
23
<PAGE>
<TABLE>
Year Ended Inception to Sept. 30, 1996
September 30, 1996 % Inception Date
<S> <C> <C> <C>
Flexible Bond 7.62% 7.74% October 6, 1988
Growth & Income 12.18% 7.63% December 29, 1988
Capital Appreciation 5.69% 7.59% May 2, 1989
Asset Allocation 7.41% 7.48% May 2, 1989
Leveraged Growth 6.85% 7.82% May 27, 1992
</TABLE>
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.
24
<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.
25
<PAGE>
PART C
MERRIMAN INVESTMENT TRUST
FORM N-1A
OTHER INFORMATION
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS: Included in Part A - Financial Highlights for the
fiscal years ended September 30, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and
1989. Included in Part B - None.
(b) EXHIBITS
(1) RESTATED DECLARATION OF TRUST - ENCLOSED
(2) Amendment to By-Laws - Incorporated by reference, Post-Effective
Amendment No. 1, filed October 13, 1988 Original By-Laws- Incorporated
by reference, initial registration statement, filed 3/2/88
(3) Not Applicable
(4) INSTRUMENTS DEFINING THE RIGHTS OF HOLDERS OF THE SECURITIES BEING
REGISTERED: See the declaration of trust, exhibit (1), article vi,
sections 6.1, 6.2; article vii; article viii
(5) INVESTMENT MANAGEMENT AGREEMENT - ENCLOSED
(6) Not Applicable
(7) Not Applicable
(8) Custodian Agreement - Incorporated by reference, Pre-effective Amend-
ment No. 1, filed June 28, 1988
(9) (A) Shareholder Services Agreement - Incorporated by reference, Pre-
effective Amendment No. 1, filed June 28, 1988
(B) Fund Accounting Services Agreement - Incorporated by reference,
Pre-effective Amendment No. 1, filed June 28, 1988
(10)Opinion of Counsel- Incorporated by reference, Pre-effective Amendment
No. 2, filed August 27,1988.
(11)CONSENT OF INDEPENDENT AUDITORS - ENCLOSED
(12)Financial Statements Omitted from Item 23 - Annual Report to Share-
holders, September 30, 1996- Incorporated by reference, Post-Effective
Amendment No. 14, filed December 31, 1997
(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 October 31, 1996, the number of record holders of the Funds of the
Trust were as follows:
Flexible Bond Fund 413 Capital Appreciation Fund 1,183
Growth & Income Fund 496 Asset Allocation Fund 1,177
Leveraged Growth Fund 906
ITEM 27. INDEMNIFICATION
Article VIII of the Trust's Declaration of Trust provides for
indemnification of certain persons acting on behalf of the Trust.
Article VIII, Section 8.1 states, "The Trustees and officers of the Trust,
in incurring any debts, liabilities or obligations, or in limiting or omitting
any other actions for or in connection with the Trust, are or shall be deemed to
be acting as Trustees or officers of the Trust and not in their own capacities,"
and further states that, "subject to Section 8.4 hereof, no Trustee, officer,
employee or agent of the Trust shall be subject to any personal liability
whatsoever in tort, contract or otherwise to any other Person in connection with
the assets or affairs of the Trust or of any Fund, unless only that arising from
his own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or the discharge of his
functions."
Section 8.2 states concerning a Trustee's liability, "Subject to Section
8.4 hereof, a Trustee shall be liable for his own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee, and for nothing else, and shall not be liable
for errors of judgment or mistakes of fact or law. Subject to the foregoing, (i)
the Trustees shall not be responsible or liable in any event for any neglect or
wrongdoing of any officer, agent, employee, consultant or Contracting Party, nor
shall any Trustee be responsible for the act or omission of any other Trustee;
(ii) the Trustees may take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust and their duties as
Trustees, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice; and (iii) in discharging
their duties, the Trustees, when acting in good faith, shall be entitled to rely
upon the books of account of the Trust and upon written reports made to the
Trustees by any officer appointed by them, any independent public accountant,
and (with respect to the subject matter of the contract involved) any officer,
partner or responsible employee of a Contracting Party. The Trustees as such
shall not be required to give any bond or surety or any other security for the
performance of their duties."
Concerning indemnification by the Trust, or Fund of the Trust, section 8.4
states, "Subject to the limitations set forth in this Section 8.4, the Trust
shall indemnify (from the assets of the Fund or Funds to which the conduct in
question relates) each of its Trustees and officers, including Persons who serve
at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise (referred to hereinafter, together with such Person's heirs,
executors, administrators or other legal representatives, as a "Covered Person")
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that his action
was in or not opposed to the bet interests of the Trust or (ii) had acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office (either and both of the conduct
<PAGE>
described in clauses (i) and (ii) above being referred to hereinafter as
"Disabling Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that such Covered Person was
not liable by reason of Disabling Conduct, (ii) dismissal of a court action or
an administrative proceeding against such Covered Person for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination, based upon a
review of the facts, that such Covered Person was not liable by reason of
Disabling Conduct by (a) vote of a majority of a quorum of Trustees who are
neither "interested persons" of the Trust as the quoted phrase is defined in
Section 2(a)(19) of the 1940 Act nor parties to the action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened (such quorum of such Trustees being referred to hereinafter as the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Fund
or Funds to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided, that the Covered
Person shall have undertaken to repay the amounts so paid if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article VIII and if (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of the Disinterested Trustees, or an
independent legal counsel in a written opinion, shall have determined, based on
a review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be
entitled to indemnification hereunder."
Regarding compromise payments, the Declaration of Trust states, "As to any
matter disposed of by a compromise payment by any Covered Person referred to in
Section 8.4 hereof, pursuant to a consent decree or otherwise, no such
indemnification either for said payment or for any other expenses shall be
provided unless such indemnification shall be approved (i) by a majority of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Disinterested Trustees pursuant to clause (ii) shall
not prevent the recovery from any Covered Person of any amount paid to such
Covered Person in accordance with either of such clauses as indemnification if
such Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that such
Covered Person's action was in or not opposed to the best interests of the Trust
or to have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office."
Finally, Section 8.6 states that, "The right of indemnification provided by
this Article VIII shall not be exclusive of or affect any of the rights to which
any Covered Person may be entitled. Nothing contained in this Article VIII shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons by the
Trust's Declaration of Trust and By-Laws, or otherwise, the Trust has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Trust of expenses incurred or
paid by a director, officer or controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Trust will, unless, in the opinion of its counsel, the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Trust reserves the right to purchase Professional Indemnity insurance
coverage, the terms and conditions of which would conform generally to the
standard coverage available to the investment company industry. Such coverage
for the Trust would generally include losses incurred on account of any alleged
negligent act, error or omission committed in connection with the operation of
the Trust, but excluding losses incurred arising out of any dishonest,
fraudulent, criminal or malicious act committed or alleged to have been
committed by the Trust. Such coverage for trustees and officers would generally
<PAGE>
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 has duly caused this Registration
Statement, Post-Effective Amendment No. 15, to be signed on its behalf by the
undersigned, duly authorized, in the City of Seattle, and State of Washington on
the 9th day of April , 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 4/09/97
Ben W. Reppond (Title) (Date)
/s/ David A. Ederer * Trustee 4/09/97
David A. Ederer (Title) (Date)
President and Trustee
/s/ Paul A. Merriman (Chief Executive Officer) 4/09/97
Paul A. Merriman (Title) (Date)
Exec. Vice President, Treasurer & Trustee
/s/ William L. Notaro (Chief Accounting & Financial Officer) 4/09/97
William L. Notaro (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)
(1) Restated Declaration of Trust
(5) Investment Management Agreement
(11) Consent of Auditors
(17) Financial Data Schedule
<PAGE>
EXHIBIT 1
RESTATED DECLARATION OF TRUST
<PAGE>
EXHIBIT 5
INVESTMENT MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT 11
CONSENT OF AUDITORS
<PAGE>
EXHIBIT 17
FINANCIAL DATA SCHEDULE
DECLARATION OF TRUST
MERRIMAN INVESTMENT TRUST
<PAGE>
TABLE OF CONTENTS
ARTICLE I. THE TRUST..........................................................2
SECTION 1.1. Name....................................................2
SECTION 1.2. Location................................................2
SECTION 1.3. Nature of Trust.........................................2
SECTION 1.4. Definitions.............................................3
ARTICLE II. PURPOSE OF THE TRUST..............................................7
ARTICLE III. POWERS OF THE TRUSTEES...........................................7
SECTION 3.1. Powers in General.......................................7
(a) Investments...........................................8
(b) Disposition of Assets.................................9
(c) Ownership Powers......................................9
(d) Form of Holding.......................................9
(e) Reorganization, etc...................................9
(f) Voting Trusts, etc....................................9
(g) Contracts, etc.......................................10
(h) Guarantees, etc......................................10
(i) Partnerships, etc....................................10
(j) Insurance............................................10
(k) Pensions, etc........................................10
(l) Power of Collection and Litigation...................11
(m) Issuance and Repurchase of Shares....................11
(n) Offices..............................................11
(o) Expenses.............................................11
(p) Agents, etc..........................................11
(q) Accounts.............................................12
(r) Valuation............................................12
(s) Indemnification......................................12
(t) General..............................................12
SECTION 3.2. Borrowings; Financings; Issuance of Securities.........12
SECTION 3.3. Deposits...............................................13
SECTION 3.4. Allocations............................................13
SECTION 3.5. Further Powers; Limitations............................13
<PAGE>
ARTICLE IV. TRUSTEES AND OFFICERS............................................13
SECTION 4.1. Number, Designation, Election, Term, etc...............13
(a) Initial Trustee......................................13
(b) Number...............................................13
(c) Election and Term....................................14
(d) Resignation and Retirement...........................14
(e) Removal..............................................14
(f) Vacancies............................................14
(g) Acceptance of Trusts.................................15
(h) Effect of Death, Resignation, etc....................15
(i) Conveyance...........................................15
(j) No Accounting........................................15
(k) Filings..............................................15
SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc....16
SECTION 4.3. Committees; Delegation.................................16
SECTION 4.4. Officers...............................................16
SECTION 4.5. Compensation of Trustees and Officers..................17
SECTION 4.6. Ownership of Shares and Securities of the Trust........17
SECTION 4.7. Right of Trustees and Officers to Own Property
or to Engage in Business; Authority of
Trustees to Permit Others to Do Likewise............17
SECTION 4.8. Reliance on Experts....................................18
SECTION 4.9. Surety Bonds...........................................18
SECTION 4.10. Apparent Authority of Trustees and Officers............18
SECTION 4.11. Other Relationships Not Prohibited.....................18
SECTION 4.12. Payment of Trust Expenses..............................19
SECTION 4.13. Ownership of the Trust Property........................20
ARTICLE V. DELEGATION OF MANAGERIAL RESPONSIBILITIES.........................20
SECTION 5.1. Appointment; Action by Less than All Trustees..........20
SECTION 5.2. Certain Contracts......................................21
(a) Advisory.............................................21
(b) Administration.......................................22
(c) Distribution.........................................22
(d) Custodian............................................22
(e) Transfer and Dividend Disbursing Agency..............22
<PAGE>
(f) Shareholder Servicing................................22
(g) Accounting...........................................22
ARTICLE VI. FUND AND FUND SHARES.............................................23
SECTION 6.1. Description of Funds and Shares........................23
(a) Shares; Funds; Series of Shares......................23
(b) Establishment, etc. of Funds;
Authorization of Shares..........................23
(c) Character of Separate Funds and Shares Thereof.......24
(d) Consideration for Shares.............................24
SECTION 6.2. Establishment and Designation of Certain Funds;
General Provisions for All Funds.................25
(a) Assets Belonging to Funds............................25
(b) Liabilities of Funds.................................25
(c) Dividends............................................26
(d) Liquidation..........................................26
(e) Voting...............................................27
(f) Redemption by Shareholder............................27
(g) Redemption at the Option of the Trust................27
(h) Net Asset Value......................................27
(i) Transfer.............................................28
(j) Equality.............................................28
(k) Rights of Fractional Shares..........................28
SECTION 6.3. Ownership of Shares....................................29
SECTION 6.4. Investments in the Trust...............................29
SECTION 6.5. No Preemptive Rights...................................29
SECTION 6.6. Status of Shares.......................................29
ARTICLE VII. SHAREHOLDERS' VOTING POWERS AND MEETINGS........................30
SECTION 7.1. Voting Powers..........................................30
SECTION 7.2. Number of Votes and Manner of Voting; Proxies..........30
SECTION 7.3. Meetings...............................................31
SECTION 7.4. Record Dates...........................................31
SECTION 7.5. Quorum and Required Vote...............................32
SECTION 7.6. Action By Written Consent..............................32
SECTION 7.7. Inspection of Records..................................32
SECTION 7.8. Additional Provisions..................................32
<PAGE>
ARTICLE VIII. LIMITATION OF LIABILITY; INDEMNIFICATION.......................32
SECTION 8.1. Trustees, Shareholders, etc. Not Personally
Liable; Notice.....................................32
SECTION 8.2. Trustees' Good Faith Action; Expert Advice;
No Bond or Surety..................................33
SECTION 8.3. Indemnification of Shareholders........................34
SECTION 8.4. Indemnification of Trustees, Officers, etc.............34
SECTION 8.5. Compromise Payment.....................................35
SECTION 8.6. Indemnification Not Exclusive, etc.....................35
SECTION 8.7. Liability of Third Persons Dealing with Trustees.......36
ARTICLE IX. DURATION; REORGANIZATION; AMENDMENTS.............................36
SECTION 9.1. Duration and Termination of Trust......................36
SECTION 9.2. Reorganization.........................................36
SECTION 9.3. Amendments, etc........................................37
SECTION 9.4. Filing of Copies of Declaration and Amendments.........38
ARTICLE X. MISCELLANEOUS.....................................................38
SECTION 10.1. Governing Law..........................................38
SECTION 10.2. Counterparts...........................................38
SECTION 10.3. Reliance by Third Parties..............................38
SECTION 10.4. References; Headings...................................39
SECTION 10.5. Use of the Name Merriman...............................39
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
MERRIMAN INVESTMENT TRUST
This AGREEMENT AND DECLARATION OF TRUST, made at Boston, Massachusetts this
19th day of December, 1987, by and between the Settlor and the Trustee whose
signature is set forth below (the "Initial Trustee"),
W I T N E S S E T H T H A T :
WHEREAS, Abel J. Oliveira, an individual residing in Massachusetts (the
"Settlor"), proposes to deliver to the Initial Trustee the sum of one hundred
dollars ($100.00) lawful money of the United States of America in trust
hereunder and to authorize the Initial Trustee and all other Persons acting as
Trustees hereunder to employ such funds, and any other funds coming into their
hands or the hands of their successor or successors as such Trustees, to carry
on the business of an investment company, and as such of buying, selling,
investing in or otherwise dealing in and with stocks, bonds, debentures,
warrants and other Securities, and interests therein, or calls or puts with
respect to any of the same, or financial futures contracts, or such other and
further investment media and other property as the Trustees may deem advisable,
which are not prohibited by law or the terms of this Declaration; and
WHEREAS, the Initial Trustee is willing to accept such sum, together with
any and all additions thereto and the income or increments thereof, upon the
terms, conditions and trusts hereinafter set forth; and
WHEREAS, the assets held by the Trustees may be divided into separate
Funds, each with its own separate investment portfolio and investment
objectives, policies and purposes, and the beneficial interest in each such Fund
shall be divided into transferable Shares, there being a separate Series of
Shares for each Fund, all in accordance with the provisions hereinafter set
forth; and
WHEREAS, it is desired that the trust established hereby (the "Trust") be
managed and operated as a trust with transferable shares under the laws of
Massachusetts, of the type commonly known and referred to as a Massachusetts
business trust, in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Initial Trustee, for himself and his successors as
Trustees, hereby declares, and agrees with the Settlor, for himself and for all
Persons who shall hereafter become holders of Shares of Beneficial Interest of
the Trust, of any Series, that the Trustees will hold the sum delivered to them
upon the execution hereof, and all other and further cash, Securities and other
1
<PAGE>
property of every type and description which they may in any way acquire in
their capacity as such Trustees, together with the income therefrom and the
proceeds thereof, IN TRUST, to manage and dispose of the same for the benefit of
the holders from time to time of the Shares of the several Series being issued
and to be issued hereunder and in the manner and subject to the provisions
hereof, to wit:
ARTICLE I.
THE TRUST
SECTION 1.1. Name. The name of the Trust shall be "Merriman Investment
Trust", and so far as may be practicable the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which name
(and the word "Trust" wherever used in this Agreement and Declaration of Trust,
except where the context otherwise requires) shall refer to the Trustees in
their capacity as Trustees, and not individually or personally, and shall not
refer to the officers, agents or employees of the Trust or of such Trustees, or
to the holders of the Shares of Beneficial Interest of the Trust, of any Series.
If the Trustees determine that the use of such name is not practicable, legal or
convenient at any time or in any jurisdiction, or if the Trust is required to
discontinue the use of such name pursuant to Section 10.5 hereof, then subject
to that Section, the Trustees may use such other designation, or they may adopt
such other name for the Trust as they deem proper, and the Trust may hold
property and conduct its activities under such designation or name.
SECTION 1.2. Location. The Trust shall have an office in ___,
Massachusetts, unless changed by the Trustees to another location in
Massachusetts or elsewhere, but such office need not be the sole or principal
office of the Trust. The Trust may have such other offices or places of business
as the Trustees may from time to time determine to be necessary or expedient.
SECTION 1.3. Nature of Trust. The Trust shall be a trust with transferable
shares under the laws of The Commonwealth of Massachusetts, of the type referred
to in Section 1 of Chapter 182 of the Massachusetts General Laws and commonly
known as a Massachusetts business trust. The Trust is not intended to be, shall
not be deemed to be, and shall not be treated as, a general partnership, limited
partnership, joint venture, corporation or joint stock company. The Shareholders
shall be beneficiaries and their relationship to the Trustees shall be solely in
that capacity in accordance with the rights conferred upon them hereunder.
2
<PAGE>
SECTION 1.4. Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:
"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.
"Administrator" shall have the meaning designated in Section 5.2(b) hereof.
"Affiliated Person" shall have the meaning designated in the 1940 Act.
"By-Laws" shall mean the By-laws of the Trust, as amended from time to
time.
"Certificate of Designation" shall have the meaning designated in Section
6.1 hereof.
"Certificate of Termination" shall have the meaning designated in Section
6.1 hereof.
"Commission" shall have the meaning designated in the 1940 Act.
"Contracting Party" shall have the meaning designated in the preamble to
Section 5.2 hereof.
"Covered Person" shall have the meaning designated in Section 8.4 hereof.
"Custodian" shall have the meaning designated in Section 5.2(d) hereof.
"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as from time to
time in effect. References in this Agreement and Declaration of Trust to
"hereof," "herein" and "hereunder" shall be deemed to refer to the Declaration
of Trust generally, and shall not be limited to the particular text, Article or
Section in which such words appear.
"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.
"Distributor" shall have the meaning designated in Section 5.2(c) hereof.
"Dividend Disbursing Agent" shall have the meaning designated in Section
5.2(e) hereof.
3
<PAGE>
"Fund" or "Funds" shall mean one or more of the separate components of the
assets of the Trust which are now or hereafter established and designated under
or in accordance with the provisions of Article VI hereof.
"Fund Assets" shall have the meaning designated in Section 6.2(a) hereof.
"General Items" shall have the meaning designated in Section 6.2(a) hereof.
"Initial Trustee" shall have the meaning designated in the Preamble hereto.
"Investment Adviser" shall have the meaning designated in Section 5.2(a)
hereof.
"Majority of the Trustees" shall mean a majority of the Trustees in office
at the time in question. At any time at which there shall be only one (1)
Trustee in office, such phrase shall mean such Trustee.
"Majority Shareholder Vote," as used with respect to the election of any
Trustee at a meeting of Shareholders, shall mean the vote for the election of
such Trustee of a plurality of all outstanding Shares, without regard to Series,
represented in person or by proxy and entitled to vote thereon, provided that a
quorum (as determined in accordance with Section 7.5 hereof) is present, and as
used with respect to any other action required or permitted to be taken by
Shareholders, shall mean the vote for such action of the holders of that
majority of outstanding Shares (or where a separate vote of Shares of any
particular Series is to be taken, the affirmative vote of that majority of the
outstanding Shares of that Series) which consists of: (i) a majority of all
Shares (or of all Shares of the particular Series) represented in person or by
proxy and entitled to vote on such action at the meeting of Shareholders at
which such action is to be taken, provided that a quorum (as determined in
accordance with Section 7.5 hereof) is present; or (ii) if such action is to be
taken by written consent of Shareholders, a majority of all outstanding Shares
(or of all outstanding Shares of the particular Series) entitled to vote on such
action; provided, further, that (iii) as used with respect to any action
requiring the affirmative vote of "a majority of the outstanding voting
securities," as the quoted phrase is defined in the 1940 Act, of the Trust or of
any Fund, "Majority Shareholder Vote" shall mean the vote for such action at a
meeting of Shareholders of the smallest majority of all outstanding Shares of
the Trust (or the particular Series) entitled to vote on such action which
satisfies such 1940 Act voting requirement.
"1940 Act" shall mean the provisions of the Investment Company Act of 1940
and the rules and regulations thereunder, both as amended from time to time, and
4
<PAGE>
any order or orders thereunder which may from time to time be applicable to the
Trust.
"Person" shall mean and include individuals as well as corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, banks, trust companies, business trusts or any other
organizations or entities whatsoever established under the laws of any
jurisdiction whether or not considered to be legal entities, and governments and
agencies and political subdivisions thereof.
"Principal Underwriter" shall have the meaning designated in Section 5.2(c)
hereof.
"Prospectus," as used with respect to any Fund or Series of Shares, shall
mean the prospectus relating to such Fund or Series which constitutes part of
the currently effective Registration Statement of the Trust under the Securities
Act of 1933, as such prospectus may be amended or supplemented from time to
time.
"Securities" shall mean any and all bills, notes, bonds, debentures or
other obligations or evidences of indebtedness, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements or other money
market instruments, stocks, shares or other equity ownership interests, and
warrants, options, futures, "when issued" or "delayed delivery" contracts, or
other instruments representing rights to subscribe for, purchase, receive or
otherwise acquire or to sell, transfer, assign or otherwise dispose of, and
scrip, certificates, receipts or other instruments evidencing any ownership
rights or interests in, any of the foregoing, issued, guaranteed or sponsored by
any governments, political subdivisions or governmental authorities, agencies or
instrumentalities, by any individuals, firms, companies, corporations,
syndicates, associations or trusts, or by any other organizations or entities
whatsoever, irrespective of their forms or the names by which they may be
described, whether or not they be organized and operated for profit, and whether
they be domestic or foreign with respect to The Commonwealth of Massachusetts or
the United States of America.
"Securities of the Trust" shall mean any Securities issued by the Trust.
"Series" shall mean one or more of the series of Shares authorized by the
Trustees to represent the beneficial interest in one or more of the Funds.
"Settlor" shall have the meaning designated in the first "Whereas" clause
set forth above.
5
<PAGE>
"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of outstanding Shares
of any Series, and shall include a pledgee into whose name any such Shares are
transferred in pledge.
"Shareholder Servicing Agent" shall have the meaning designated in Section
5.2(f) hereof.
"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Fund of the Trust (as the context may require)
shall be divided from time to time, and includes fractions of Shares as well as
whole Shares. All references herein to "Shares" which are not accompanied by a
reference to any particular Series or Fund shall be deemed to apply to
outstanding Shares without regard to Series.
"Single Class Voting," as used with respect to any matter to be acted upon
at a meeting or by written consent of Shareholders, shall mean a style of voting
in which each holder of one or more Shares shall be entitled to one vote on the
matter in question for each Share standing in his name on the records of the
Trust, irrespective of Series, and all outstanding Shares of all Series shall
vote as a single class.
"Statement of Additional Information," as used with respect to any Fund or
Series of Shares, shall mean the statement of additional information relating to
such Fund or Series which constitutes part of the currently effective
Registration Statement of the Trust under the Securities Act of 1933, as such
statement of additional information may be amended or supplemented from time to
time.
"Transfer Agent" shall have the meaning designated in Section 5.2(e)
hereof.
"Trust" shall have the meaning designated in the fourth "Whereas" clause
set forth above.
"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the Trust or the
Trustees, and all interest, dividends, income, earnings, profits and gains
therefrom, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, and which at
such time is owned or held by, or for the account of, the Trust or the Trustees,
without regard to the Fund to which such property is allocated.
6
<PAGE>
"Trustees" shall mean, collectively, the Initial Trustee, so long as he
shall continue in office, and all other individuals who at the time in question
have been duly elected or appointed as Trustees of the Trust in accordance with
the provisions hereof and who have qualified and are then in office. At any time
at which there shall be only one (1) Trustee in office, such term shall mean
such single Trustee.
ARTICLE II.
PURPOSE OF THE TRUST
The purpose of the Trust shall be to engage in the business of being an
investment company, and as such of subscribing for, purchasing or otherwise
acquiring, holding for investment or trading in, borrowing, lending and selling
short, selling, assigning, negotiating or exchanging and otherwise disposing of,
and turning to account, realizing upon and generally dealing in and with, in any
manner, (i) Securities of all kinds, and (ii) precious metals and other
minerals, contracts to purchase and sell, and other interests of every nature
and kind in, such metals or minerals, and all as the Trustees in their
discretion shall determine to be necessary, desirable or appropriate, and to
exercise and perform any and every act, thing or power necessary, suitable or
desirable for the accomplishment of such purpose, the attainment of any of the
objects or the furtherance of any of the powers given hereby which are lawful
purposes, objects or powers of a trust with transferable shares of the type
commonly known as a Massachusetts business trust; and to do every other act or
acts or thing or things incidental or appurtenant to or growing out of or in
connection with the aforesaid objects, purposes or powers, or any of them, which
a trust of the type commonly known as a Massachusetts business trust is not now
or hereafter prohibited from doing, exercising or performing.
ARTICLE III.
POWERS OF THE TRUSTEES
SECTION 3.1. Powers in General. The Trustees shall have, without other or
further authorization, full, entire, exclusive and absolute power, control and
authority over, and the management of, the business of the Trust and over the
Trust Property, to the same extent as if the Trustees were the sole owners of
the business and property of the Trust in their own right, and with such powers
of delegation as may be permitted by this Declaration, subject only to such
limitations as may be expressly imposed by this Declaration of Trust or by
applicable law. The enumeration of any specific power or authority herein shall
not be construed as limiting the aforesaid power or authority or any specific
power or authority. Without limiting the foregoing, the Trustees may adopt
By-Laws not inconsistent with this Declaration of Trust providing for the
7
<PAGE>
conduct of the business and affairs of the Trust and may amend and repeal them
to the extent that such By-Laws do not reserve that right to the Shareholders;
they may select, and from time to time change, the fiscal year of the Trust;
they may adopt and use a seal for the Trust, provided, that unless otherwise
required by the Trustees, it shall not be necessary to place the seal upon, and
its absence shall not impair the validity of, any document, instrument or other
paper executed and delivered by or on behalf of the Trust; they may from time to
time in accordance with the provisions of Section 6.1 hereof establish one or
more Funds to which they may allocate such of the Trust Property, subject to
such liabilities, as they shall deem appropriate, each such Fund to be operated
by the Trustees as a separate and distinct investment portfolio and with
separately defined investment objectives and policies and distinct investment
purposes, all as established by the Trustees, or from time to time changed by
them; they may as they consider appropriate elect and remove officers and
appoint and terminate agents and consultants and hire and terminate employees,
any one or more of the foregoing of whom may be a Trustee; they may appoint from
their own number, and terminate, any one or more committees consisting of one or
more Trustees, including without implied limitation an Executive Committee,
which may, when the Trustees are not in session and subject to the 1940 Act,
exercise some or all of the power and authority of the Trustees as the Trustees
may determine; in accordance with Section 5.2 hereof they may employ one or more
Investment Advisers, Administrators and Custodians and may authorize any
Custodian to employ subcustodians or agents and to deposit all or any part of
the Securities held by the Trust in a system or systems for the central handling
of Securities, retain Transfer, Dividend Disbursing, Accounting or Shareholder
Servicing Agents or any of the foregoing, provide for the distribution of Shares
through one or more Distributors or Principal Underwriters, or otherwise; they
may set record dates or times for the determination of Shareholders entitled to
participate in, benefit from or act with respect to various matters; and in
general they may delegate to any officer of the Trust, to any committee of the
Trustees and to any employee, Investment Adviser, Administrator, Distributor,
Custodian, Transfer, Dividend Disbursing, Accounting or Shareholder Servicing
Agents, or any other agent or consultant of the Trust, such authority, powers,
functions and duties as they consider desirable or appropriate for the conduct
of the business and affairs of the Trust, including without implied limitation
the power and authority to act in the name of the Trust and of the Trustees, to
sign documents and to act as attorney-in- fact for the Trustees. Without
limiting the foregoing and to the extent not inconsistent with the 1940 Act or
other applicable law, the Trustees shall have power and authority:
(a) Investments. To invest and reinvest cash and other property forming
part of the Trust Property; to buy, for cash or on margin, and otherwise acquire
and hold, Securities created or issued by any Persons, including Securities
maturing after the possible termination of the Trust; to make payment therefor
8
<PAGE>
in any lawful manner in exchange for any of the Trust Property; and to hold cash
or other property uninvested without in any event being bound or limited by any
present or future law or custom in regard to investments by trustees;
(b) Disposition of Assets. To lend, sell, exchange, mortgage, pledge,
hypothecate, grant security interests in, encumber, negotiate, convey, transfer
or otherwise dispose of, and to trade in, any and all of the Trust Property,
free and clear of all trusts, for cash or on terms, with or without
advertisement, and on such terms as to payment, security or otherwise, all as
they shall deem necessary or expedient;
(c) Ownership Powers. To vote or give assent, or exercise any and all other
rights, powers and privileges of ownership with respect to, and to perform any
and all duties and obligations as owners of, any Securities or other property
forming part of the Trust Property, the same as any individual might do; to
exercise powers and rights of subscription or otherwise which in any manner
arise out of ownership of Securities, and to receive powers of attorney from,
and to execute and deliver proxies or powers of attorney to, such Person or
Persons as the Trustees shall deem proper, receiving from or granting to such
Person or Persons such power and discretion with relation to Securities or other
Property forming part of the Trust Property, all as they shall deem proper;
(d) Form of Holding. To hold any Security or other property, whether in
bearer, unregistered or other negotiable form, or in the name of the Trustees or
of the Trust or of the Fund to which such Securities or other property have been
assigned, or in the name of a Custodian, subcustodian or other nominee or
nominees, or otherwise, upon such terms, in such manner or with such powers as
the Trustees may determine and with or without indicating any trust or the
interest of the Trustees therein;
(e) Reorganization, etc. To consent to or participate in any plan for the
reorganization, consolidation or merger of any issuer, any Security of which is
or was held in the Trust or any Fund; to consent to any contract, lease,
mortgage, purchase or sale of property by any such issuer; and to pay calls or
subscriptions with respect to any Security forming part of the Trust Property;
(f) Voting Trusts, etc. To join with other holders of any Securities in
acting through a committee, depository, voting trustee or otherwise, and in that
connection to deposit any Security with, or transfer any Security to, any such
committee, depository or trustee, and to delegate to them such power and
authority with relation to any Security (whether or not so deposited or
9
<PAGE>
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depository or
trustee as the Trustees shall deem proper;
(g) Contracts, etc. To enter into, make and perform all such obligations,
contracts, agreements and undertakings of every kind and description, with any
Person or Persons, as the Trustees shall in their discretion deem expedient in
the conduct of the business of the Trust, for such terms as they shall see fit,
whether or not extending beyond the term of office of the Trustees, or beyond
the possible expiration of the Trust; to amend, extend, release or cancel any
such obligations, contracts, agreements or understandings; and to execute,
acknowledge, deliver and record all written instruments which they may deem
necessary or expedient in the exercise of their powers;
(h) Guarantees, etc. To endorse or guarantee the payment of any notes or
other obligations of any Person; to make contracts or guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage or pledge the
Trust Property or any part thereof to secure any part of or all such
obligations;
(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships, and any other combinations or associations;
(j) Insurance. To purchase and pay for entirely out of the Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business of the Trust, including, without limitation, insurance policies
insuring the Trust Property and payment of distributions and principal on
Securities included in the Trust Property, and insurance policies insuring the
Shareholders, Trustees, officers, employees, consultants, Investment Advisers,
Administrators, Distributors, Principal Underwriters, or other agents or
independent contractors, or any thereof (or any Person connected therewith), of
the Trust, individually, against all claims and liabilities of every nature
arising by reason of holding, being or having held any such office or position,
or by reason of any action alleged to have been taken or omitted by any such
Person in any such capacity, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify any such Person against such liability;
(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
10
<PAGE>
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust;
(l) Power of Collection and Litigation. To collect, sue for and receive all
sums of money coming due to the Trust, to employ counsel, and to commence,
engage in, prosecute, intervene in, join, defend, compound, compromise, adjust
or abandon, in the name of the Trust, any and all actions, suits, proceedings,
disputes, claims, controversies, demands or other litigation or legal
proceedings relating to the Trust, the business of the Trust, the Trust
Property, or the Trustees, officers, employees, agents and independent
contractors of the Trust, in their capacity as such, at law or in equity, or
before any other bodies or tribunals, and to compromise, arbitrate or otherwise
adjust any dispute to which the Trust may be a party, whether or not any suit is
commenced or any claim shall have been made or asserted;
(m) Issuance and Repurchase of Shares. To issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares of any Series, and subject to Article VI hereof, to
apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares of any Series any of the Fund Assets belonging to the Fund
to which such Series relates, whether constituting capital or surplus or
otherwise, to the full extent now or hereafter permitted by applicable law;
provided, that any Shares belonging to the Trust shall not be voted, directly or
indirectly;
(n) Offices. To have one or more offices, and to carry on all or any of the
operations and business of the Trust, in any of the States, Districts or
Territories of the United States of America, and in any and all foreign
countries, subject to the laws of such State, District, Territory or country;
(o) Expenses. To incur and pay any and all such expenses and charges as
they may deem advisable (including without limitation appropriate fees to
themselves as Trustees), and to pay all such sums of money for which they may be
held liable by way of damages, penalty, fine or otherwise;
(p) Agents, etc. To retain and employ any and all such servants, agents,
employees, attorneys, brokers, investment advisers, accountants, engineers,
escrow agents, depositories, consultants, ancillary trustees, custodians, agents
for collection, insurers, banks and officers, as they think best for the
business of the Trust or any Fund, to supervise and direct the acts of any of
the same, and to fix and pay their compensation and define their duties;
11
<PAGE>
(q) Accounts. To determine, and from time to time change, the method or
form in which the accounts of the Trust shall be kept;
(r) Valuation. Subject to the requirements of the 1940 Act, to determine
from time to time the value of all or any part of the Trust Property and of any
services, Securities, property or other consideration to be furnished to or
acquired by the Trust, and from time to time to revalue all or any part of the
Trust Property in accordance with such appraisals or other information as is, in
the Trustees' sole judgment, necessary and satisfactory;
(s) Indemnification. In addition to the mandatory indemnification provided
for in Article VIII hereof and to the extent permitted by law, to indemnify or
enter into agreements with respect to indemnification with any Person with whom
the Trust has dealings, including, without limitation, any independent
contractor, to such extent as the Trustees shall determine; and
(t) General. To do all such other acts and things and to conduct, operate,
carry on and engage in such other lawful businesses or business activities as
they shall in their sole and absolute discretion consider to be incidental to
the business of the Trust or any Fund, and to exercise all powers which they
shall in their discretion consider necessary, useful or appropriate to carry on
the business of the Trust or any Fund, to promote any of the purposes for which
the Trust is formed, whether or not such things are specifically mentioned
herein, in order to protect or promote the interests of the Trust or any Fund,
or otherwise to carry out the provisions of this Declaration.
SECTION 3.2. Borrowings; Financings; Issuance of Securities. Subject to the
requirements of the 1940 Act, the Trustees shall have power to borrow or in any
other manner raise such sum or sums of money, and to incur such other
indebtedness for goods or services, or for or in connection with the purchase or
other acquisition of property, as they shall deem advisable for the purposes of
the Trust, in any manner and on any terms, and to evidence the same by
negotiable or non- negotiable Securities which may mature at any time or times,
even beyond the possible date of termination of the Trust; to issue Securities
of any type for such cash, property, services or other consideration, and at
such time or times and upon such terms, as they may deem advisable; and to
reacquire any such Securities. Any such Securities of the Trust may, at the
discretion of the Trustees, be made convertible into Shares of any Series, or
may evidence the right to purchase, subscribe for or otherwise acquire Shares of
any Series, at such times and on such terms as the Trustees may prescribe.
12
<PAGE>
SECTION 3.3. Deposits. Subject to the requirements of the 1940 Act, the
Trustees shall have power to deposit any moneys or Securities included in the
Trust Property with any one or more banks, trust companies or other banking
institutions, whether or not such deposits will draw interest. Such deposits are
to be subject to withdrawal in such manner as the Trustees may determine, and
the Trustees shall have no responsibility for any loss which may occur by reason
of the failure of the bank, trust company or other banking institution with
which any such moneys or Securities have been deposited, other than liability
based on their gross negligence or willful fault.
SECTION 3.4. Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive.
SECTION 3.5. Further Powers; Limitations. In construing the provisions of
this Declaration of Trust, the presumption shall be in favor of a grant of power
to the Trustees. The Trustees shall not be required to obtain any court order to
deal with the Trust Property. The Trustees may limit their right to exercise any
of their powers through express restrictive provisions in the instruments
evidencing or providing the terms for any Securities of the Trust or in other
contractual instruments adopted on behalf of the Trust.
ARTICLE IV.
TRUSTEES AND OFFICERS
SECTION 4.1. Number, Designation, Election, Term, etc.
(a) Initial Trustee. Upon his execution of this Declaration of Trust or a
counterpart hereof or some other writing in which he accepts such Trusteeship
and agrees to the provisions hereof, the individual whose signature is affixed
hereto as Initial Trustee shall become the Initial Trustee hereof.
(b) Number. A Majority of the Trustees may increase or decrease the number
of Trustees to a number other than the number theretofore determined. No
decrease in the number of Trustees shall have the effect of removing any Trustee
from office prior to the expiration of his term, but the number of Trustees may
be decreased in conjunction with the removal of a Trustee pursuant to subsection
(e) of this Section 4.1.
13
<PAGE>
(c) Election and Term. The Trustee shall be elected by the Shareholders of
the Trust at a meeting of Shareholders held prior to the effective date of the
Registration Statement of the Trust under the 1940 Act, and the term of office
of any Trustees in office before such election shall terminate at the time of
such election. Subject to Section 16(a) of the 1940 Act and to the preceding
sentence of this subsection (c), the Trustees shall have the power to set and
alter the terms of office of the Trustees, and at any time to lengthen or
shorten their own terms or make their terms of unlimited duration, to elect
their own successors and, pursuant to subsection (f) of this Section 4.1, to
appoint Trustees to fill vacancies; provided, that Trustees shall be elected by
a Majority Shareholder Vote at any such time or times as the Trustees shall
determine that such action is required under Section 16(a) of the 1940 Act or,
if not so required, that such action is advisable.
(d) Resignation and Retirement. Any Trustee may resign his trust or retire
as a Trustee, by a written instrument signed by him and delivered to the other
Trustees or to any officer of the Trust, and such resignation or retirement
shall take effect upon such delivery or upon such later date as is specified in
such instrument.
(e) Removal. Any Trustee may be removed with or without cause at any time:
(i) by written instrument, signed by at least two-thirds (2/3) of the number of
Trustees prior to such removal, specifying the date upon which such removal
shall become effective; or (ii) by vote of Shareholders holding not less than
two-thirds (2/3) of all outstanding Shares of the Trust without regard to
Series, cast in person or by proxy at any meeting called for the purpose; or
(iii) by a written declaration signed by Shareholders holding not less than
two-thirds (2/3) of all outstanding Shares of the Trust without regard to Series
and filed with the Trust's Custodian.
(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including an increase in the number of Trustees, may (but unless
required by the 1940 Act need not) be filled by a Majority of the Trustees,
subject to the provisions of Section 16(a) of the 1940 Act, through the
appointment of such other individual as such remaining Trustees in their
discretion shall determine; provided, that if there shall be no Trustees in
office, such vacancy or vacancies shall be filled by Majority Shareholder Vote.
Any such appointment or election shall take effect immediately, except that any
such appointment or election in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in the number of Trustees to be effective at
a later date shall become effective only at or after the effective date of said
retirement, resignation or increase in the number of Trustees.
14
<PAGE>
(g) Acceptance of Trusts. Whenever any conditions to the appointment or
election of any individual as a Trustee hereunder who was not, immediately prior
to such election, acting as a Trustee shall have been satisfied, such individual
shall become a Trustee and the Trust Property shall vest in the new Trustee,
together with the continuing Trustees, without any further act or conveyance.
Such new Trustee shall accept such appointment or election in writing and agree
in such writing to be bound by the provisions hereof, but the execution of such
writing shall not be requisite to the effectiveness of the appointment or
election of a new Trustee.
(h) Effect of Death, Resignation, etc. No vacancy, whether resulting from
the death, resignation, retirement, removal or incapacity of any Trustee, an
increase in the number of Trustees or otherwise, shall operate to annul or
terminate the Trust hereunder or to revoke or terminate any existing agency or
contract created or entered into pursuant to the terms of this Declaration of
Trust. Until such vacancy is filled as provided in this Section 4.1, the
Trustees in office (if any), regardless of their number, shall have all the
powers granted to the Trustees and shall discharge all the duties imposed upon
the Trustees by this Declaration.
(i) Conveyance. In the event of the resignation or removal of a Trustee or
his otherwise ceasing to be a Trustee, such former Trustee or his legal
representative shall, upon request of the continuing Trustees, execute and
deliver such documents as may be required for the purpose of consummating or
evidencing the conveyance to the Trust or the remaining Trustees of any Trust
Property held in such former Trustee's name, but the execution and delivery of
such documents shall not be requisite to the vesting of title to the Trust
Property in the remaining Trustees, as provided in subsection (g) of this
Section 4.1 and in Section 4.13 hereof.
(j) No Accounting. Except to the extent required by the 1940 Act or under
circumstances which would justify his removal for cause, no Person ceasing to be
a Trustee (nor the estate of any such Person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.
(k) Filings. Whenever there shall be a change in the composition of the
Trustees, the Trust shall cause to be filed in the office of the Secretary of
The Commonwealth of Massachusetts, and in each other place where the Trust is
required to file amendments to this Declaration, a certificate executed by a
15
<PAGE>
Trustee or officer of the Trust as to the fact of the appointment or election of
an individual who was not theretofore a Trustee or as to the resignation,
removal or death of a Trustee, but the filing of such certificate shall not be
requisite to the effectiveness of any such appointment, election, resignation or
removal of a Trustee.
SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc. An annual
meeting of Trustees shall be held not later than the last day of the fourth
month after the end of each fiscal year of the Trust and special meetings may be
held from time to time, in each case, upon the call of such officers as may be
thereunto authorized by the By-Laws or vote of the Trustees, or by any two (2)
Trustees, or pursuant to a vote of the Trustees adopted at a duly constituted
meeting of the Trustees, and upon such notice as shall be provided in the
By-Laws. The Trustees may act with or without a meeting, and a written consent
to any matter, signed by a Majority of the Trustees, shall be equivalent to
action duly taken at a meeting of the Trustees, duly called and held. Except as
otherwise provided by the 1940 act or other applicable law, or by this
Declaration of Trust or the By-Laws, any action to be taken by the Trustees may
be taken by a majority of the Trustees present at a meeting of Trustees (a
quorum, consisting of at least a Majority of the Trustees, being present),
within or without Massachusetts. If authorized by the By-Laws, all or any one or
more Trustees may participate in a meeting of the Trustees or any Committee
thereof by means of conference telephone or similar means of communication by
means of which all Persons participating in the meeting can hear each other, and
participation in a meeting pursuant to such means of communication shall
constitute presence in person at such meeting. The minutes of any meeting thus
held shall be prepared in the same manner as a meeting at which all participants
were present in person.
SECTION 4.3. Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to an executive committee, and to one or
more other committees, or to any single Trustee, or to any other Person, the
doing of such things and the execution of such deeds or other instruments,
either in the name of the Trust or the names of the Trustees or as their
attorney or attorneys in fact, or otherwise as the Trustees may from time to
time deem expedient, and any agreement, deed, mortgage, lease or other
instrument or writing executed by the Trustee or Trustees or other Person to
whom such delegation was made shall be valid and binding upon the Trustees and
upon the Trust.
SECTION 4.4. Officers. The Trustees shall annually elect such officers or
agents, who shall have such powers, duties and responsibilities as the Trustees
may deem to be advisable, and as they shall specify by resolution or in the
By-Laws. Except as may be provided in the By-Laws, any officer elected by the
16
<PAGE>
Trustees may be removed at any time with or without cause. Any two (2) or more
offices may be held by the same individual.
SECTION 4.5. Compensation of Trustees and Officers. The Trustees shall fix
the compensation of all officers and Trustees. Without limiting the generality
of any of the provisions hereof, the Trustees shall be entitled to receive
reasonable compensation for their general services as such, and to fix the
amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal, accounting,
or other professional services, as they in good faith may deem reasonable. No
Trustee or officer resigning and (except where a right to receive compensation
for a definite future period shall be expressly provided in a written agreement
with the Trust, duly approved by the Trustees) no Trustee or officer removed
shall have any right to any compensation as such Trustee or officer for any
period following his resignation or removal, or any right to damages on account
of his removal, whether his compensation be by the month, by the year or
otherwise.
SECTION 4.6. Ownership of Shares and Securities of the Trust. Any Trustee,
and any officer, employee or agent of the Trust, and any organization in which
any such Person is interested, may acquire, own, hold and dispose of Shares of
any Series and other Securities of the Trust for his or its individual account,
and may exercise all rights of a holder of such Shares or Securities to the same
extent and in the same manner as if such Person were not such a Trustee,
officer, employee or agent of the Trust; and the Trust may issue and sell, or
cause to be issued and sold, and may purchase any such Shares or other
Securities from any such Person or any such organization, subject only to the
general limitations, restrictions or other provisions applicable to the sale or
purchase of Shares of such Series or other Securities of the Trust generally.
SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage in
Business; Authority of Trustees to Permit Others to Do Likewise. The Trustees,
in their capacity as Trustees, and (unless otherwise specifically directed by
vote of the Trustees) the officers of the Trust in their capacity as such, shall
not be required to devote their entire time to the business and affairs of the
Trust. Except as otherwise specifically provided by vote of the Trustees, or by
agreement in any particular case, any Trustee or officer of the Trust may
acquire, own, hold and dispose of, for his own individual account, any property,
and acquire, own, hold, carry on and dispose of, for his own individual account,
any business entity or business activity, whether similar or dissimilar to any
property or business entity or business activity invested in or carried on by
the Trust, and without first offering the same as an investment opportunity to
the Trust, and may exercise all rights in respect thereof as if he were not a
Trustee or officer of the Trust. The Trustees shall also have power, generally
17
<PAGE>
or in specific cases, to permit employees or agents of the Trust to have the
same rights (or lesser rights) to acquire, hold, own and dispose of property and
businesses, to carry on businesses, and to accept investment opportunities
without offering them to the Trust, as the Trustees have by virtue of this
Section 4.7.
SECTION 4.8. Reliance on Experts. The Trustees and officers may consult
with counsel, brokers, appraisers, accountants, investment bankers, securities
analysts or other Persons (any of which may be a firm in which one or more of
the Trustees or officers is or are members or otherwise interested) whose
profession gives authority to a statement made by them on the subject in
question, and who are reasonably deemed by the Trustees or officers in question
to be competent, and the advice or opinion of such Persons shall be full and
complete personal protection to all of the Trustees and officers in respect of
any action taken or suffered by them in good faith and in reliance on or in
accordance with such advice or opinion. In discharging their duties, Trustees
and officers, when acting in good faith, may rely upon financial statements of
the Trust represented to them to be correct by any officer of the Trust having
charge of its books of account, or stated in a written report by an independent
certified public accountant fairly to present the financial position of the
Trust. The Trustees and officers may rely, and shall be personally protected in
taking action, upon any instrument or other document believed by them to be
genuine.
SECTION 4.9. Surety Bonds. No Trustee, officer, employee or agent of the
Trust shall, as such, be obligated to give any bond or surety or other security
for the performance of any of his duties, unless required by applicable law or
regulation, or unless the Trustees shall otherwise determine in any particular
case.
SECTION 4.10. Apparent Authority of Trustees and Officers. No purchaser,
lender, transfer agent or other Person dealing with the Trustees or any officer
of the Trust shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by such officer, or to make
inquiry concerning or be liable for the application of money or property paid,
loaned or delivered to or on the order of the Trustees or of such officer.
SECTION 4.11. Other Relationships Not Prohibited. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, investment adviser,
principal underwriter or distributor, or agent of or for any Contracting Party
or of or for any parent or affiliate of any Contracting Party, or that any
18
<PAGE>
Contracting Party or any parent or affiliate thereof is a Shareholder or has an
interest in the Trust or any Fund, or that
(ii) any Contracting Party may have a contract providing for the rendering
of any similar services to one or more other corporations, trusts, associations,
partnerships, limited partnerships or other organizations, or have other
businesses or interests, shall not affect the validity of any contract for the
performance and assumption of services, duties and responsibilities to, for or
of the Trust and/or the Trustees or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust or to the Shareholders; provided, that,
in the case of any relationship or interest referred to in the preceding clause
(i) on the part of any Trustee or officer of the Trust, either (x) the material
facts as to such relationship or interest have been disclosed to or are known by
the Trustees not having any such relationship or interest and the contract
involved is approved in good faith by a majority of such Trustees not having any
such relationship or interest (even through such unrelated or disinterested
Trustees are less than a quorum of all of the Trustees), (y) the material facts
as to such relationship or interest and as to the contract have been disclosed
to or are known by the Shareholders entitled to vote thereon and the contract
involved is specifically approved in good faith by vote of the Shareholders, or
(z) the specific contract involved is fair to the Trust as of the time it is
authorized, approved or ratified by the Trustees or by the Shareholders.
SECTION 4.12. Payment of Trust Expenses. The Trustees are authorized to pay
or to cause to be paid out of the principal or income of the Trust, or partly
out of principal and partly out of income, and according to any allocation to
particular Funds made by them pursuant to Section 6.2(b) hereof, all expenses,
fees, charges, taxes and liabilities incurred or arising in connection with the
business and affairs of the Trust or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees, Investment Adviser,
Administrator, Distributor or Principal Underwriter, auditor, counsel,
Custodian, Transfer Agent, Dividend Disbursing Agent, Accounting Agent,
Shareholder Servicing Agent, and such other agents, consultants, and independent
19
<PAGE>
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur.
SECTION 4.13. Ownership of the Trust Property. Legal title to all the Trust
Property shall be vested in the Trustees as joint tenants, except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the Trust,
or of any particular Fund, or in the name of any other Person as nominee, on
such terms as the Trustees may determine; provided, that the interest of the
Trust and of the respective Fund therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office of a Trustee as provided in Section 4.1(c),
(d) or (e) hereof, such Trustee shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to Section 4.1(i) hereof.
ARTICLE V.
DELEGATION OF MANAGERIAL RESPONSIBILITIES
SECTION 5.1. Appointment; Action by Less than All Trustees. The Trustees
shall be responsible for the general operating policy of the Trust and for the
general supervision of the business of the Trust conducted by officers, agents
or employees of the Trust or by independent contractors, but the Trustees shall
not be required personally to conduct all the business of the Trust and,
consistent with their ultimate responsibility as stated herein, the Trustees may
appoint, employ or contract with one or more officers, employees or agents to
conduct, manage or supervise the operations of the Trust, and may grant or
delegate such authority to such officers, employees or agents as the Trustees
may, in their discretion, deem to be necessary or desirable, without regard to
whether such authority is normally granted or delegated by trustees. With
respect to those matters of the operation and business of the Trust which they
shall elect to conduct themselves, except as otherwise provided by this
Declaration or the By-Laws, if any, the Trustees may authorize any single
Trustee or defined group of Trustees or any committee consisting of a number of
Trustees less than the whole number of Trustees then in office without
specification of the particular Trustees required to be included therein, to act
for and to bind the Trust, to the same extent as the whole number of Trustees
could do, either with respect to one or more particular matters or classes of
matters, or generally.
20
<PAGE>
SECTION 5.2. Certain Contracts. Subject to compliance with the provisions
of the 1940 Act, but notwithstanding any limitations of present and future law
or custom in regard to delegation of powers by trustees generally, the Trustees
may, at any time and from time to time in their discretion and without limiting
the generality of their powers and authority otherwise set forth herein, enter
into one or more contracts with any one or more corporations, trusts,
associations, partnerships, limited partnerships, or other organizations or
individuals (any such Person being herein referred to as a "Contracting Party"),
to provide for the performance and assumption of some or all of the following
services, duties and responsibilities to, for or on behalf of the Trust or any
Fund, or the Trustees, and to provide for the performance and assumption of such
other services, duties and responsibilities in addition to those set forth
below, as the Trustees may deem appropriate:
(a) Advisory. An agreement whereby an investment adviser registered under
the Investment Advisers Act of 1940, as amended, shall undertake to furnish the
Trust or any Fund such management, investment advisory or supervisory,
administrative, accounting, legal, statistical and research facilities and
services, and such other facilities and services, if any, as the Trustees shall
from time to time consider desirable, all upon such terms and conditions as the
Trustees may in their discretion determine to be not inconsistent with this
Declaration, the applicable provisions of the 1940 Act or any applicable
provisions of the By-Laws (any such investment adviser being herein referred to
as an "Investment Adviser"). Any such advisory or management agreement and any
amendment thereto shall be subject to approval by a Majority Shareholder Vote at
a meeting of the Shareholders of the Trust. Notwithstanding any provisions of
this Declaration, the Trustees may authorize an Investment Adviser (subject to
such general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales, loans or exchanges of Securities on behalf of
the Trustees or may authorize any officer or employee of the Trust or any
Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of an Investment Adviser (and all without further action by the
Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees. The Trustees may, in their sole
discretion, call a meeting of Shareholders in order to submit to a vote of
Shareholders at such meeting the approval of continuance of any such investment
advisory or management agreement. If the Shareholders of any Fund should fail to
approve any such investment advisory or management agreement, the Investment
Adviser may nonetheless serve as Investment Adviser with respect to any other
Fund whose Shareholders shall have approved such contract.
21
<PAGE>
(b) Administration. An agreement whereby an agent, subject to the general
supervision of the Trustees and in conformity with any policies of the Trustees
with respect to the operations of the Trust and each Fund, will supervise all or
any part of the operations of the Trust and each Fund, and will provide all or
any part of the administrative and clerical personnel, office space and office
equipment and services appropriate for the efficient administration and
operations of the Trust and each Fund (any such agent being herein referred to
as an "Administrator").
(c) Distribution. An agreement providing for the sale of Shares of any one
or more Series to net the Trust not less than the net asset value per Share (as
described in Section 6.2(h) hereof) and pursuant to which the Trust may appoint
the other party to such agreement as its principal underwriter or sales agent
for the distribution of such Shares. The agreement shall contain such terms and
conditions as the Trustees may in their discretion determine to be not
inconsistent with this Declaration, the applicable provisions of the 1940 Act
and any applicable provisions of the By-Laws (any such agent being herein
referred to as a "Distributor" or a "Principal Underwriter," as the case may
be).
(d) Custodian. An agreement appointing a bank or trust company having an
aggregate capital surplus and undivided profits (as shown in its last published
report) of at least two million dollars ($2,000,000), and meeting the
requirements of Section 17(f) of the 1940 Act as custodian of the Securities and
similar investments of the Trust or of any Fund and of the accounting records in
connection therewith (any such custodian being herein referred to as a
"Custodian").
(e) Transfer and Dividend Disbursing Agency. An agreement with an agent to
maintain records of the ownership of outstanding Shares, the issuance and
redemption and the transfer thereof (any such agent being herein referred to as
a "Transfer Agent"), and to disburse any dividends declared by the Trustees and
in accordance with the policies of the Trustees or the instructions of any
particular Shareholder to reinvest any such dividends (any such agent being
herein referred to as a "Dividend Disbursing Agent").
(f) Shareholder Servicing. An agreement with an agent to provide service
with respect to the relationship of the Trust and its Shareholders, records with
respect to Shareholders and their Shares, and similar matters (any such agent
being herein referred to as a "Shareholder Servicing Agent").
(g) Accounting. An agreement with an agent to handle all or any part of the
accounting responsibilities, whether with respect to the Trust Property,
22
<PAGE>
Shareholders or otherwise (any such agent being herein referred to as an
"Accounting Agent").
The same Person may be a Contracting Party for some or all of the services,
duties and responsibilities to, for and of the Trust or the Trustees, and the
contracts with respect thereto may contain such terms interpretive of or in
addition to the delineation of the services, duties and responsibilities
provided for, including provisions that are not inconsistent with the 1940 Act
relating to the standard of duty of and the rights to indemnification of the
Contracting Party and others, as the Trustees may determine. Nothing herein
shall preclude, prevent or limit the Trust or a Contracting Party from entering
into subcontractual arrangements relative to any of the matters referred to in
subsections (a) through (g) of this Section 5.2.
ARTICLE VI.
FUND AND FUND SHARES
SECTION 6.1. Description of Funds and Shares.
(a) Shares; Funds; Series of Shares. The beneficial interest in the Trust
shall be divided into Shares having a nominal or par value of one cent ($.01)
per Share, and all of one class, of which an unlimited number may be issued. The
Trustees shall have the authority from time to time to establish and designate
one or more separate, distinct and independent Funds into which the assets of
the Trust shall be divided, and to authorize a separate Series of Shares for
each such Fund (each of which Series, including without limitation the Series
authorized in Section 6.2 hereof, shall represent interests only in the Fund
with respect to which such Series was authorized), as they deem necessary or
desirable. Except as otherwise provided as to a particular Fund herein, or in
the Certificate of Designation therefor, the Trustees shall have all the rights
and powers, and be subject to all the duties and obligations, with respect to
each such Fund and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
(b) Establishment, etc. of Funds; Authorization of Shares. The
establishment and designation of any Fund in addition to the Fund established
and designated in Section 6.2 hereof and the authorization of the Shares thereof
shall be effective upon the execution by a Majority of the Trustees (or by an
officer of the Trust pursuant to the vote of a Majority of the Trustees) of an
instrument setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Fund and the manner in which the
same may be amended (a "Certificate of Designation"). A Certificate of
23
<PAGE>
Designation may provide that the number of Shares of any such Series which may
be issued is unlimited, or may limit the number issuable. At any time that there
are no Shares outstanding of any particular Fund previously established and
designated, including any Fund established and designated in Section 6.2 hereof,
the Trustees may by an instrument (a "Certificate of Termination") executed by a
Majority of the Trustees (or by an officer of the Trust pursuant to the vote of
a Majority of the Trustees) terminate such Fund and the establishment and
designation thereof and the authorization of its Shares. Each Certificate of
Designation, Certificate of Termination and any instrument amending a
Certificate of Designation shall have the status of an amendment to this
Declaration of Trust, and shall be filed and become effective as provided in
Section 9.3 hereof.
(c) Character of Separate Funds and Shares Thereof. Each Fund established
hereunder shall be a separate component of the assets of the Trust, and the
holders of Shares of the Series representing the beneficial interest in the
assets of that Fund shall be considered Shareholders of such Fund, but such
Shareholders shall also be considered Shareholders of the Trust for purposes of
receiving reports and notices and, except as otherwise provided herein or in the
Certificate of Designation of a particular Fund as to such Fund, or as required
by the 1940 Act or other applicable law, the right to vote, all without
distinction by Series. The Trustees shall have exclusive power without the
requirement of Shareholder approval to establish and designate such separate and
distinct Funds, and to fix and determine the relative rights and preferences as
between the Shares of the respective Funds as to rights of redemption and the
price, terms and manner or redemption, special and relative rights as to
dividends and other distributions and on liquidation, sinking or purchase fund
provisions, conversion rights, and conditions under which the Shareholders of
the several Funds shall have separate voting rights or no voting rights.
(d) Consideration for Shares. The Trustees may issue Shares of any Series
for such consideration (which may include property subject to, or acquired in
connection with the assumption of, liabilities) and on such terms as they may
determine (or for no consideration if pursuant to a Share dividend or split-up),
all without action or approval of the Shareholders. All Shares when so issued on
the terms determined by the Trustees shall be fully paid and nonassessable (but
may be subject to mandatory contribution back to the Trust as provided in
Section 6.2(h) hereof). The Trustees may classify or reclassify any unissued
Shares, or any Shares of any Series previously issued and reacquired by the
Trust, into Shares of one or more other Funds that may be established and
designated from time to time.
24
<PAGE>
SECTION 6.2. Establishment and Designation of Certain Funds; General
Provisions for All Funds. Without limiting the authority of the Trustees set
forth in Section 6.1(a) hereof to establish and designate further Funds, there
is hereby established and designated the following Fund: "Merriman Timed
Government Fund." Shares of such Fund, and the Shares of any further Fund that
may from time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some further Fund at
the time of establishing and designating the same) have the following relative
rights and preferences:
(a) Assets Belonging to Funds. Any portion of the Trust Property allocated
to a particular Fund, and all consideration received by the Trust for the issue
or sale of Shares of such Fund, together with all assets in which such
consideration is invested or reinvested, all interest, dividends, income,
earnings, profits and gains therefrom, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of that Fund and shall irrevocably belong to that Fund for
all purposes, and shall be so recorded upon the books of account of the Trust,
and the Shareholders of such Fund shall not have, and shall be conclusively
deemed to have waived, any claims to the assets of any Fund of which they are
not Shareholders. Such consideration, assets, interest, dividends, income,
earnings, profits, gains and proceeds, together with any General Items allocated
to that Fund as provided in the following sentence, are herein referred to
collectively as "Fund Assets" of such Fund, and as assets "belonging to" that
Fund. In the event that there are any assets, interest, dividends, income,
earnings, profits, gains and proceeds which are not readily identifiable as
belonging to any particular Fund (collectively "General Items"), the Trustees
shall allocate such General Items to and among any one or more of the Funds
established and designated from time to time in such manner and on such basis as
they, in their sole discretion, deem fair and equitable; and any General Items
so allocated to a particular Fund shall belong to and be part of the Fund Assets
of that Fund. Each such allocation by the Trustees shall be conclusive and
binding upon the Shareholders of all Funds for all purposes.
(b) Liabilities of Funds. The assets belonging to each particular Fund
shall be charged with the liabilities in respect of that Fund and all expenses,
costs, charges and reserves attributable to that Fund, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as pertaining to any particular Fund shall be allocated and
charged by the Trustees to and among any one or more of the Funds established
and designated from time to time in such manner and on such basis as the
25
<PAGE>
Trustees in their sole discretion deem fair and equitable. The indebtedness,
expenses, costs, charges and reserves allocated and so charged to a particular
Fund are herein referred to as "liabilities of" that Fund. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Funds for all purposes. Any
creditor of any Fund may look only to the assets belonging to that Fund to
satisfy such creditor's debt.
(c) Dividends. Dividends and distributions on Shares of a particular Fund
may be paid with such frequency as the Trustees may determine, which may be
daily or otherwise pursuant to a standing resolution or resolutions adopted only
once or with such frequency as the Trustees may determine, to the Shareholders
of that Fund, from such of the income, accrued or realized, and capital gains,
realized or unrealized, and out of the assets belonging to that Fund, as the
Trustees may determine, after providing for actual and accrued liabilities of
that Fund. All dividends and distributions on Shares of a particular Fund shall
be distributed pro rata to the Shareholders of that Fund in proportion to the
number of such Shares held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that in
connection with any dividend or distribution program or procedure the Trustees
may determine that no dividend or distribution shall be payable on Shares as to
which the Shareholder's purchase order and payment have not been received by the
time established by the Trustees under such program or procedure, or that
dividends or distributions shall be payable on Shares which have been tendered
by the holder thereof for redemption or repurchase, but which have not yet been
redeemed or repurchased. Such dividends and distributions may be made in cash,
property or Shares of that Fund, or a combination thereof, as determined by the
Trustees, or pursuant to any program that the Trustees may have in effect at the
time for the election by each Shareholder of the mode of the making of such
dividend or distribution to that Shareholder. Any such dividend or distribution
paid in Shares shall be paid at the net asset value thereof as determined in
accordance with subsection (h) of this Section 6.2.
(d) Liquidation. In the event of the liquidation or dissolution of the
Trust, the Shareholders of each Fund of which Shares are outstanding shall be
entitled to receive, when and as declared by the Trustees, the excess of the
Fund Assets over the liabilities of such Fund. The assets so distributable to
the Shareholders of any particular Fund shall be distributed among such
Shareholders in proportion to the number of Shares of that Fund held by them and
26
<PAGE>
recorded on the books of the Trust. The liquidation of any particular Fund of
which Shares are outstanding may be authorized by a Majority of the Trustees.
(e) Voting. The Shareholders shall have the voting rights set forth in or
determined under Article VII hereof.
(f) Redemption by Shareholder. Each holder of Shares of a particular Fund
shall have the right at such times as may be permitted by the Trust, but no less
frequently than once each week, to require the Trust to redeem all or any part
of his Shares of that Fund at a redemption price equal to the net asset value
per Share of that Fund next determined in accordance with subsection (h) of this
Section 6.2 after such Shares are properly tendered for redemption; provided,
that the Trustees may from time to time, in their discretion, determine and
impose a fee for such redemption. Payment of the redemption price shall be in
cash; provided, however, that if the Trustees determine, which determination
shall be conclusive, that conditions exist which make payment wholly in cash
unwise or undesirable, the Trust may make payment wholly or partly in Securities
or other assets belonging to such Fund at the value of such Securities or assets
used in such determination of net asset value. Notwithstanding the foregoing,
the Trust may postpone payment of the redemption price and may suspend the right
of the holders of Shares of any Fund to require the Trust to redeem Shares of
that Fund during any period or at any time when and to the extent permissible
under the 1940 Act.
(g) Redemption at the Option of the Trust. Each Share of any Fund shall be
subject to redemption at any time at the option of the Trust at the redemption
price which would be applicable if such Share were then being redeemed by a
Shareholder pursuant to subsection (f) of this Section 6.2: (i) if the Trustees
determine in their sole discretion that failure to so redeem may have materially
adverse consequences to the holders of Shares of the Trust or of any Fund, or
(ii) upon such other conditions with respect to maintenance of Shareholder
accounts of a minimum amount as may from time to time be determined by the
Trustees and set forth in the then current Prospectus or Statement of Additional
Information of such Fund. Upon such redemption the holders of the Shares so
redeemed shall have no further right with respect thereto other than to receive
payment of such redemption price.
(h) Net Asset Value. The net asset value per Share of any Fund at any time
shall be the quotient obtained by dividing the value of the net assets of such
Fund at such time (being the current value of the assets belonging to such Fund,
less the then existing liabilities of such Fund) by the total number of Shares
27
<PAGE>
of that Fund then outstanding, all determined in accordance with the methods and
procedures, including without limitation those with respect to rounding,
established by the Trustees from time to time. The Trustees may determine to
maintain the net asset value per Share of any Fund at a designated constant
dollar amount and in connection therewith may adopt procedures not inconsistent
with the 1940 Act for the continuing declaration of income attributable to that
Fund as dividends payable in additional Shares of that Fund at the designated
constant dollar amount and for the handling of any losses attributable to that
Fund. Such procedures may provide that in the event of any loss each Shareholder
shall be deemed to have contributed to the shares of beneficial interest account
of that Fund his pro rata portion of the total number of Shares required to be
cancelled in order to permit the net asset value per Share of that Fund to be
maintained, after reflecting such loss, at the designated constant dollar
amount. Each Shareholder of the Trust shall be deemed to have expressly agreed,
by his investment in any Fund with respect to which the Trustees shall have
adopted any such procedure, to make the contribution referred to in the
preceding sentence in the event of any such loss.
(i) Transfer. All Shares of each particular Fund shall be transferable, but
transfers of Shares of a particular Fund shall be recorded on the Share transfer
records of the Trust applicable to that Fund only at such times as Shareholders
have the right to require the Trust to redeem Shares of that Fund and at such
other times as may be permitted by the Trustees.
(j) Equality. All Shares of each particular Fund shall represent an equal
proportionate interest in the assets belonging to that Fund (subject to the
liabilities of that Fund), and each Share of any particular Fund shall be equal
to each other Share thereof; but the provisions of this sentence shall not
restrict any distinctions permissible under subsection (c) of this Section 6.2
that may exist with respect to dividends and distributions on Shares of the same
Fund. The Trustees may from time to time divide or combine the Shares of any
particular Fund into a greater or lesser number of Shares of that Fund without
thereby changing the proportionate beneficial interest in the assets belonging
to that Fund or in any way affecting the rights of the holders of Shares of any
other Fund.
(k) Rights of Fractional Shares. Any fractional Share of any Series shall
carry proportionately all the rights and obligations of a whole Share of that
Series, including rights and obligations with respect to voting, receipt of
dividends and distributions, redemption and liquidation.
28
<PAGE>
(l) Conversion Rights. Subject to compliance with the requirements of the
1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Fund shall have the right to convert said Shares into Shares of
one or more other Funds in accordance with such requirements and procedures as
the Trustees may establish.
SECTION 6.3. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust or of a Transfer Agent or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series that
has been authorized. Certificates evidencing the ownership of Shares need not be
issued except as the Trustees may otherwise determine from time to time, and the
Trustees shall have power to call outstanding Share certificates and to replace
them with book entries. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of facsimile
signatures, the transfer of Shares and similar matters. The record books of the
Trust as kept by the Trust or any Transfer Agent or similar agent, as the case
may be, shall be conclusive as to who are the Shareholders and as to the number
of Shares of each Fund held from time to time by each such Shareholder.
The holders of Shares of each Fund shall upon demand disclose to the
Trustees in writing such information with respect to their direct and indirect
ownership of Shares of such Fund as the Trustees deem necessary to comply with
the provisions of the Internal Revenue Code of 1954, as amended, or to comply
with the requirements of any other authority.
SECTION 6.4. Investments in the Trust. The Trustees may accept investments
in any Fund of the Trust from such Persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any Distributor or
Principal Underwriter, Custodian, Transfer Agent or other Person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any such orders, whether or not conforming to such authorized terms.
SECTION 6.5. No Preemptive Rights. No Shareholder, by virtue of holding
Shares of any Fund, shall have any preemptive or other right to subscribe to any
additional Shares of that Fund, or to any Shares of any other Fund, or any other
Securities of the Trust.
SECTION 6.6. Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. Shares shall be deemed to be
personal property, giving only the rights provided herein. Ownership of Shares
29
<PAGE>
shall not entitle the Shareholder to any title in or to the whole or any part of
the Trust Property or any right to call for a partition or division of the same
or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. The death of a Shareholder during the continuance of the
Trust shall not operate to terminate the Trust or any Fund, nor to entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Declaration of Trust.
ARTICLE VII.
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.1. Voting Powers. Shareholders shall have power to vote only (i)
for the election or removal of Trustees as provided in Sections 4.1(c) and (e)
hereof, (ii) with respect to the approval or termination of any contract as to
which Shareholder action is required by the 1940 Act, (iii) with respect to any
termination or reorganization of the Trust or any Fund to the extent and as
provided in Sections 9.1 and 9.2 hereof, (iv) with respect to any amendment of
this Declaration of Trust to the extent and as provided in Section 9.3 hereof,
(v) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or any Fund, or the Shareholders of any of them (except that a
Shareholder of a particular Fund shall not in any event be entitled to maintain
a derivative or class action on behalf of any other Fund or the Shareholders
thereof), and (vi) with respect to such additional matters as may be required by
the 1940 Act, this Declaration of Trust, the By-Laws, or any registration with
the Commission or any State, or as the Trustees may consider necessary or
desirable. Each matter required or permitted to be voted upon at a meeting or by
written consent of Shareholders shall be submitted to a separate vote of the
outstanding Shares of each Fund entitled to vote thereon; provided, that (i)
when required by this Declaration or by the 1940 Act, actions of Shareholders
shall be taken by Single Class Voting and (ii) when the Trustees determine that
any matter to be submitted to a vote of Shareholders affects only the rights or
interests of Shareholders of one or more but not all Funds, then only the
Shareholders of the Funds so affected shall be entitled to vote thereon.
SECTION 7.2. Number of Votes and Manner of Voting; Proxies. On each matter
submitted to a vote of the Shareholders, each holder of Shares of any Series
shall be entitled to a number of votes equal to the number of Shares of such
Series standing in his name on the books of the Trust. There shall be no
cumulative voting in the election of Trustees. Shares may voted in person or by
proxy. A proxy with respect to Shares held in the name of two (2) or more
30
<PAGE>
Persons shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or prior to its
exercise and the burden of proving invalidity shall rest on the challenger.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, this Declaration of Trust or the
By-Laws to be taken by Shareholders.
SECTION 7.3. Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of Shareholders as herein provided, or upon any
other matter deemed the Trustees of to be necessary or desirable. Written notice
of any meeting of Shareholders shall be given or caused to be given by the
Trustees by mailing such notice at least seven (7) days before such meeting,
postage prepaid, stating the time, place and purpose of the meeting, to each
Shareholder entitled to vote or act at any such meeting at the Shareholder's
address as it appears on the records of the Trust. The Trustees shall promptly
call and give notice of a meeting of Shareholders for the purpose of voting upon
removal of any Trustee of the Trust when requested to do so in writing by
Shareholders holding not less than ten percent (10%) of the Shares then
outstanding. If the Trustees shall fail to call or give notice of any meeting of
Shareholders for a period of thirty (30) days after written application by
Shareholders at least ten percent (10%) of the Shares then outstanding
requesting that a meeting be called for any other purpose requiring action by
the Shareholders as provided herein or in the By-Laws, then Shareholders holding
at least ten percent (10%) of the Shares then outstanding may call and give
notice of such meeting, and thereupon the meeting shall be held in the manner
provided for herein in case of call thereof by the Trustees.
SECTION 7.4. Record Dates. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to participate in any dividend or distribution, or for the
purpose of any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding thirty (30) days (except at or in
connection with the termination of the Trust), as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date and time not more
than ninety (90) days prior to the date of any meeting of Shareholders or other
action as the date and time of record for the determination of Shareholders
entitled to vote at such meeting or any adjournment thereof or to be treated as
Shareholders of record for purposes of such other action, and any Shareholder
who was a Shareholder at the date and time so fixed shall be entitled to vote at
31
<PAGE>
such meeting or any adjournment thereof or to be treated as a Shareholder of
record for purposes of such other action, even though he has since that date and
time disposed of his Shares (other than through redemption or repurchase by the
Trust), and no Shareholder becoming such after that date and time shall be so
entitled to vote at such meeting or any adjournment thereof or to be treated as
a Shareholder of record for purposes of such other action.
SECTION 7.5. Quorum and Required Vote. Fifty percent (50%) of the Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, but any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice. A Majority Shareholder Vote shall decide any question, except
when a different vote is required or permitted by the 1940 Act or other
applicable law or by this Declaration of Trust or the By-Laws, or when the
Trustees shall in their discretion require a larger vote or the vote of a
majority or larger fraction of the Shares of one or more particular Series.
SECTION 7.6. Action By Written Consent. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof or of the Shares of any particular Series as
shall be required by the 1940 Act or by any provision of this Declaration of
Trust or the By-Laws or as shall be permitted by the Trustees) consent to the
action in writing and if the writings in which such consent is given are filed
with the records of the meetings of Shareholders, to the same extent and for the
same period as proxies given in connection with a Shareholders' meeting. Such
consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 7.7. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted stockholders of
a Massachusetts business corporation under the Massachusetts Business
Corporation Law.
SECTION 7.8. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.
ARTICLE VIII.
LIMITATION OF LIABILITY; INDEMNIFICATION
SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable; Notice.
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. No Shareholder shall be subject to
32
<PAGE>
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; and
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. The Trust (or if the
matter relates only to a particular Fund, that Fund) shall be solely liable for
any and all debts, claims, demands, judgments, decrees, liabilities or
obligations of any and every kind, against or with respect to the Trust or such
Fund in tort, contract or otherwise in connection with the assets or affairs of
the Trust or of such Fund, and all Persons dealing with the Trust or any Fund
shall be deemed to have agreed that resort shall be had solely to the Trust
Property or the Fund Assets of such Fund, as the case may be, for the payment or
performance thereof.
The Trustees shall use their best efforts to ensure that every note, bond,
contract, instrument, certificate or undertaking made or issued by the Trustees
or by any officer shall give notice that this Declaration of Trust is on file
with the Secretary of The Commonwealth of Massachusetts and shall recite to the
effect that the same was executed or made by or on behalf of the Trust or by
them as Trustees or officers, and not individually, and that the obligations of
such instrument are not binding upon any of them or Shareholders individually,
but are binding only upon the Trust Property, or the Fund Assets of the
particular Fund in question, as the case may be, but the omission thereof shall
not operate to bind any Trustee or officer or Shareholder individually, or to
subject the Fund Assets of any Fund to the obligations of any other Fund.
SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. 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
33
<PAGE>
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.
SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or former
Shareholder) of the Trust shall be charged or held to be personally liable for
any obligation or liability of the Trust solely by reason of being or having
been a Shareholder and not because of such Shareholder's acts or omissions or
for some other reason, the Trust (upon proper and timely request by the
Shareholder) shall assume the defense against such charge and satisfy any
judgment thereon, and the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives, or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled (but solely out of the assets of the Fund of which such Shareholder or
former Shareholder is or was the holder of Shares) to be held harmless from and
indemnified against all loss and expense arising from such liability.
SECTION 8.4. Indemnification of Trustees, Officers, etc. 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
34
<PAGE>
reasonable belief that his action was in or not opposed to the best 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 in question and against whom no other action,
suit or 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.
SECTION 8.5. Compromise Payment. 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 (i) or by independent legal
counsel 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.
SECTION 8.6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article VIII shall not be exclusive of or
affect any other 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
35
<PAGE>
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.
SECTION 8.7. Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
ARTICLE IX.
DURATION; REORGANIZATION; AMENDMENTS
SECTION 9.1. Duration and Termination of Trust. Unless terminated as
provided herein, the Trust shall continue without limitation of time and,
without limiting the generality of the foregoing, no change, alteration or
modification with respect to the Trust or any Fund or Series of Shares shall
operate to terminate the Trust. The Trust may be terminated at any time by a
Majority of the Trustees, subject to the favorable vote of the holders of not
less than a majority of the Shares outstanding and entitled to vote of each Fund
of the Trust, or by an instrument or instruments in writing without a meeting,
consented to by the holders of not less than a majority of such Shares, or by
such greater or different vote of Shareholders of any Series as may be
established by the Certificate of Designation by which such Series was
authorized. Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated
as may be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, Securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of Section 6.2(d) hereof.
SECTION 9.2. Reorganization. The Trustees may sell, convey and transfer all
or substantially all of the Trust Property, or the assets belonging to any one
or more Funds, to another trust, partnership, association, corporation or other
entity, or may transfer such assets to another Fund of the Trust, in exchange
for cash, Shares or other Securities (including, in the case of a transfer to
another Fund of the Trust, Shares of such other Fund), or to the extent
permitted by law then in effect, may merge or consolidate the Trust or any Fund
with any other trust, partnership, association, corporation or other entity, all
upon such terms and conditions and for such consideration when and as authorized
by a majority of the Trustees, subject to the favorable vote of the holders of
not less than a majority of the Shares outstanding and entitled to vote of each
Fund whose assets are affected by such transaction, or by an instrument or
36
<PAGE>
instruments in writing without a meeting, consented to by the holders of not
less than a majority of such Shares, or by such greater or different vote of
Shareholders of any Series as may be established by the Certificate of
Designation by which such Series was authorized. Following such transfer, the
Trustees shall distribute the cash, Shares or other Securities or other
consideration received in such transaction (giving due effect to the assets
belonging to and the liabilities of, and any other differences among, the
various Funds of which the assets have so been transferred) among the
Shareholders of the Fund of which the assets have been so transferred; and if
all of the assets of the Trust have been so transferred, the Trust shall be
terminated. Nothing in this Section 9.2 shall be construed as requiring approval
of Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations, and to
sell, convey or transfer less than substantially all of the Trust Property or
the assets belonging to any Fund or such organizations or entities.
SECTION 9.3. Amendments, etc. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall adversely affect the limitations on personal liability of any Shareholder
or Trustee or the prohibition of assessment upon the Shareholders (otherwise
than as permitted under Section 6.2(h)) without the express consent of each
Shareholder or Trustee involved. Subject to the foregoing, the provisions of
this Declaration of Trust (whether or not related to the rights of shareholders)
may be amended at any time, so long as such amendment does not adversely affect
the rights of any Shareholder with respect to matters to which such amendment is
or purports to be applicable and so long as such amendment is not in
contravention of applicable law, including the 1940 Act, by an instrument in
writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to the vote of a Majority of the Trustees). Any amendment to this
Declaration of Trust that adversely affects the rights of all Shareholders may
be adopted at any time by an instrument in writing signed by a Majority of the
Trustees (or by an officer of the Trust pursuant to a vote of a Majority of the
Trustees) when authorized to do so by the vote in accordance with Section 7.1
hereof of Shareholders holding a majority of all the Shares outstanding and
entitled to vote, without regard to Series, or if said amendment adversely
affects the rights of the Shareholders of less than all of the Funds, by the
vote of the holders of a majority of all of the Shares entitled to vote of each
Fund so affected. A Certificate of Designation establishing and designating any
Fund in addition to the Fund established and designated in Section 6.2 hereof
and authorizing the Shares thereof shall not constitute an amendment to this
Declaration which adversely affects the rights of any Shareholder. Subject to
the foregoing, any amendment shall be effective when an instrument containing
the terms thereof and a certificate (which may be a part of such instrument) to
37
<PAGE>
the effect that such amendment has been duly adopted, and setting forth the
circumstances thereof, shall have been executed by a Trustee or officer of the
Trust and filed as provided in Section 9.4 hereof.
SECTION 9.4. Filing of Copies of Declaration and Amendments. The original
or a copy of this Declaration and of each amendment hereto (including each
Certificate of Designation and Certificate of Termination) shall be kept at the
principal office of the Trust where it may be inspected by any Shareholder, and
one copy of each such instrument shall be filed with the Secretary of The
Commonwealth of Massachusetts, as well as with any other governmental office
where such filing may from time to time be required by the laws of
Massachusetts. A restated Declaration, integrating into a single instrument all
of the provisions of this Declaration which are then in effect and operative,
may be executed from time to time by a Majority of the Trustees and shall, upon
filing with the Secretary of The Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto.
ARTICLE X.
MISCELLANEOUS
SECTION 10.1. Governing Law. This Declaration of Trust is executed and
delivered in The Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the construction and effect of every
provision hereof shall be subject to and construed according to the laws of said
Commonwealth.
SECTION 10.2. Counterparts. This Declaration of Trust and any amendment
hereto may be simultaneously executed in several counterparts, each of which so
executed shall be deemed to be an original, and such counterparts, together,
shall constitute but one and the same instrument, which shall be sufficiently
evidenced by any such original counterpart.
SECTION 10.3. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records in the office of the Secretary of The
Commonwealth of Massachusetts appears to be a Trustee hereunder or an officer of
the Trust, certifying to: (i) the number or identity of Trustees or
Shareholders, (ii) the due authorization of the execution of any instrument or
writing, (iii) the form of any vote passed at a meeting of Trustees or
Shareholders, (iv) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration of Trust, (v) the form of any By-Law adopted, or the identity
of any officers elected, by the Trustees, or (vi) the existence or nonexistence
38
<PAGE>
of any fact or facts which in any manner relate to the affairs of the Trust,
shall be conclusive evidence as to the matters so certified in favor of any
Person dealing with the Trustees, or any of them, and the successors of such
Person.
SECTION 10.4. References; Headings. The masculine gender shall include the
feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part of this Declaration or control
or affect the meaning, construction or effect hereof.
SECTION 10.5. Use of the Name Merriman. Paul A. Merriman ("P.A.M.") has
consented to the use by the Trust and by each Fund and each Series thereof of
the identifying name "Merriman". Such consent is conditioned upon the Trust's
employment of P.A.M. or any entity owned or controlled by P.A.M. as Investment
Adviser to the Trust and to each Fund thereof. P.A.M. may require the Trust or
any Fund thereof to cease using the identifying word "Merriman" in the name of
the Trust or any Fund or any Series thereof if the Trust or any Fund thereof
ceases to employ P.A.M. or any affiliate thereof, as Investment Adviser.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal, for
himself and his assigns, and has thereby accepted the Trusteeship as the Initial
Trustee of Merriman Investment Trust hereby granted and agreed to the provisions
hereof, all as of the day and year first above written.
s/ Michael Vario
The undersigned Settlor of Merriman Investment Trust hereby accepts,
approves and authorizes the foregoing Agreement and Declaration of Trust of
Merriman Investment Trust.
Dated: December 19, 1987
s/ Abel J. Oliveira
39
<PAGE>
ACKNOWLEDGMENTS
M A S S A C H U S E T T S
Worcester, SS: December 19, 1987
Then personally appeared the above-named Michael Vario and acknowledged the
foregoing instrument to be his free act and deed.
Before me,
s/ Edward V. Fox
Notary Public
Justice of the Peace
Commission expires: 11/23/90
M A S S A C H U S E T T S
Worcester, SS: December 19, 1987
Then personally appeared the above-named Abel J. Oliveira and acknowledged
the foregoing instrument to be his free act and deed.
Before me,
s/ Edward V. Fox
Notary Public
Justice of the Peace
Commission expires: 11/23/90
40
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
DECLARATION OF TRUST
MERRIMAN INVESTMENT TRUST
The undersigned, being the Secretary of Merriman Investment Trust
(hereinafter referred to as the "Trust"), a Trust with transferable shares of
the type commonly called a Massachusetts business trust, does hereby certify
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 9.3 of the Agreement and Declaration of Trust dated December 19, 1987,
as amended (the "Declaration of Trust"), and by the affirmative vote of a
majority of the Trustees at a meeting duly called and held on March 18, 1997,
Merriman Strategic Equity Fund was established and designated, and the first
sentence of Section 6.2 of ARTICLE VI of the Declaration of Trust was amended to
read as follows:
Without limiting the authority of the Trustees set forth in
Section 6.1(a) hereof, to establish and designated further Funds,
there is hereby established and designated "Merriman Flexible Bond
Fund," "Merriman Growth & Income Fund," "Merriman Capital
Appreciation Fund," "Merriman Asset Allocation Fund," "Merriman
Leveraged Growth Fund" and "Merriman Strategic Equity Fund."
IN WITNESS WHEREOF, the undersigned has set his hand and seal this 27th
day of March, 1997.
/s/ William L. Notaro
William L. Notaro
Secretary
ACKNOWLEDGMENT
State of Washington }
} ss.
King County } March 17, 1997
Then personally appeared the above, William L. Notaro, and acknowledged the
foregoing instrument to be his free act and deed before me,
s/ Kimberly K. Drake
Notary Public
My Commission Expires: 2/25/2001
The foregoing amendment to the first sentence of Section 6.2 includes the
amendments made in Certificates of Amendment dated October 28, 1991, January 28,
1992, December 21, 1992, December 21, 1993 and March 27, 1997, and restates such
amendments.
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is entered into as of the date the registration statement of
the Merriman Investment Trust becomes effective with the Securities and Exchange
Commission by and between the MERRIMAN INVESTMENT TRUST, a Massachusetts
business trust (the "Trust"), and Merriman Investment Management Company, a
Washington limited partnership (the "Investment Manager"), registered as an
investment advisor under the Investment Advisers Act of 1940, as amended.
WHEREAS, the Trust is registered as a no-load, diversified, open-en
management investment company of the series type under the Investment Company
Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Investment Manager to furnish
investment advisory and administrative services to all series of the Trust, and
the Investment Manager is willing to so furnish such services;
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Investment Manager to act as
investment adviser to any series (hereinafter called "Funds") of the Trust for
the period and on the terms set forth in this Agreement. The Investment Manager
accepts such appointment and agrees to furnish the services herein set forth,
for the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Investment Adviser
with copies properly certified or authenticated of each of the following:
(a) The Trust's Declaration of Trust, filed with the State of Massachusetts
on January 15, 1988 (such Declaration, as presently in effect and as it shall
from time to time be amended, is herein called the "Declaration"); (b) The
Trust's By-Laws (such By-Laws, as presently in effect and as they shall from
time to time be amended, are herein called the "By-Laws"); (c) Resolutions of
the Trust's Board of Trustees authorizing the appointment of the Investment
Manager and approving this Agreement; (d) The Trust's Registration Statement on
Form N-1A under the 1940 Act and under the Securities Act of 1933 as amended,
(the "1933 Act"), relating to shares of beneficial interest of the Trust (herein
called the "Shares") as filed with the Securities and Exchange Commission and
all amendments thereto; (e) The Trust's Prospectuses (such Prospectuses, as
presently in effect and all amendments and supplements thereto are herein called
the "Prospectus").
The Trust will furnish the Investment Manager from time to time with
copies, properly certified or authenticated, of all amendments of or supplements
to the foregoing.
3. Management. Subject to the supervision of the Trust's Board of Trustees,
the Investment Manager will provide a continuous investment program for each of
the Trust's Funds, including investment research and management with respect to
all securities and investments and cash and cash equivalents in each of the
Trust's Funds. The Investment Manager will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Funds. The Investment Manager will provide the services under this Agreement in
accordance with each Fund's investment objectives, policies and restrictions as
stated in its Prospectus. The Investment Manager further agrees that it:
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT Page 2
(a) Will conform with all applicable Rules and Regulations of the
Securities and Exchange Commission and will, in addition, conduct its activities
under this Agreement in accordance with regulations of any other Federal and
State agencies which may now or in the future have jurisdiction over its
activities;
(b) Will place orders pursuant to its investment determinations for the
Funds either directly with the issuer or with any broker or dealer. In placing
orders with brokers or dealers, the Investment Manager will attempt to obtain
the best net price and the most favorable execution of its orders. Consistent
with this obligation, when the Investment Manager believes two or more brokers
or dealers are comparable in price and execution, the Investment Manger may
prefer brokers and dealers who provide the Funds with research advice and other
services, or who sell Fund shares. In no instance will portfolio securities be
purchased from or sold to the Investment Manager or any affiliated person of the
Investment Manager;
(c) Will hire all necessary executive personnel for the Trust, the salaries
and expenses of such personnel to be borne by the Investment Manager;
(d) Will hire, at the cost of the Trust, all non-executive personnel who
will provide clerical, accounting, and general office services as may be
required by and requested by the Trust, the salaries of such personnel to be
subject to the approval of the Trustees; (e) Will provide, at its own cost, all
office space, facilities and equipment necessary for the activities of the
Trust; and
Notwithstanding the foregoing, the Investment Manager may obtain the
services of an investment counselor or sub-advisor of its choice subject to the
Trust's approval. The cost of employing such counselor of sub-advisor will be
paid by the Investment Manager and not by the Trust.
4. Services Not Exclusive. The investment management services furnished by
the Investment Manager hereunder are not to be deemed exclusive, and the
Investment Manager shall be free to furnish similar services to others so long
as its services under this Agreement are not impaired thereby provided, however,
that without the written consent of the Trustees, the Investment Manager will
not serve as investment adviser to any other investment company having a similar
investment objective to that of any of the Funds of the Trust.
5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Manager hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Manager further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the Act.
6. Expenses. During the term of this Agreement, the Investment Manager will
pay al expenses incurred by it in connection with administration and investment
management of the Trust, and, in accordance with any Distribution Plan then in
effect, certain expenses incurred by or on behalf of the Trust in the promotion
and sale of the Shares.
Notwithstanding the foregoing, the Trust shall pay the expenses and costs
of the following:
(a) Taxes;
(b) Brokerage fees and commissions with regard to portfolio transaction
of the Funds;
(c) Interest charges, fees and expenses of the custodian of the
Funds' portfolio securities;
(d) Fees and expenses of the Funds' transfer agent and shareholder
servicing agents;
(e) Auditing and legal expenses;
(f) Cost of maintenance of the Trust's existence as a legal entity;
(g) Compensation of trustees who are not interested persons of the
Investment Manager as that term is defined by law;
<PAGE>
(h) Costs of Trust meetings;
(i) Federal and State registration fees and expenses;
(j) Costs of printing and mailing Prospectuses, reports and notices to
existing shareholders;
INVESTMENT MANAGEMENT AGREEMENT Page 3
(k) The Investment Management fee payable to the Investment Manger,
as provided in paragraph 7 herein; and
(l) Fees and expenses of the Funds' administrative service provider, if
any, who maintains the account books and records of the Funds, as
required by Rule 3a-3 of the 1940 Act, including the performance of
daily pricing of the Funds' shares in accordance with the Funds'
Prospectus.
It is understood that the Trust may desire to register its Funds' shares
for sale in certain states which impose expense limitations on mutual funds. The
Trust agrees that it will register share in such states only with the prior
written consent of the Investment Manager and, if consent is granted, the
Investment Manager agrees to reimburse the Trust for any excess expenses
incurred over the most stringent of such states' limitations.
7. Compensation. For the services provided and the expenses assumed by the
Investment Manager pursuant to this Agreement, the Trust will pay the Investment
Manager and the Investment Manager will accept as full compensation a management
fee, based upon the daily average net assets of each Fund of the Trust, computed
at the end of each month and payable within five (5) business days thereafter,
according to the Management Fee Schedule attached hereto.
8. Limitation of Liability. The Investment Manager shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of this Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Manager in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
9. Duration and Termination. This Agreement shall become effective upon the
date the registration statement of the Trust is declared effective by the
Securities and Exchange Commission and, unless sooner terminated as provided
herein, shall continue in effect for two years. Thereafter, this Agreement shall
be renewable for successive periods of one year each, provided such continuance
is specifically approved annually:
(a) By the vote of a majority of those members of the Board of Trustees who
are not parties to this Agreement or "interested persons" of any such party (as
defined in the 1940 Act), cast in person at a meeting called for the purpose of
voting on such approval; and (b) By vote of either the Board or a "majority" (as
that term is defined in the 1940 Act) of the outstanding voting securities of
each Fund of the Trust provided, however, that if the holders of any one Fund
fail to approve the agreement, Investment Manager may continue to act as
investment manager of the Fund(s) which did approve the agreement, and may
continue to act as investment manager for the Fund which did not approve the
agreement until new arrangements are made by such Fund.
Notwithstanding the foregoing, this Agreement may be terminated by any Fund
or by the Investment Manager at any time on sixty (60) days' written notice,
without the payment of any penalty, provided that termination by any Fund of the
Trust must be authorized either by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund. This Agreement will
automatically terminate in the event of its assignment (as that term is defined
in the 1940 Act). <PAGE>
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by a written
instrument signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No material amendment of this Agreement
shall be effective until approved by vote of the holders of a majority of the
Funds' outstanding voting securities (as defined in the 1940 Act).
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or
INVESTMENT MANAGEMENT AGREEMENT
otherwise, the remainder of the Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors.
12. Applicable Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Washington.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
Written.
Attest: MERRIMAN INVESTMENT TRUST
William L. Notaro By: Paul A. Meriman
Title: Secretary Title: President
Attest: MERRIMAN INVESTMENT MANAGEMENT COMPANY
Paul A. Merriman By: William L. Notaro
Title: President Title: Executive Vice President
<PAGE>
MANAGEMENT FEE SCHEDULE
Investment Management Agreement
Merriman Investment Trust
================================================================================
Compensation of the Investment Manager shall be in accordance with the
Investment Management Agreement, paragraph 7, according to the following
schedule:
Merriman Flexible Merriman Strategic All Other
Bond Fund Equity Fund Merriman Funds
Net Assets Annual Rate Annual Rate Annual Rate
- ---------- ----------------- ------------------ --------------
First $250 Million 1.000% 1.000% 1.250%
Second $250 Million 0.875% 1.000% 1.125%
All over $500 Million 0.750% 1.000% 1.000%
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
April 9, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRIMAN FLEXIBLE BOND FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 8,317,035
<INVESTMENTS-AT-VALUE> 8,655,621
<RECEIVABLES> 2,898,944
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 15,353
<TOTAL-ASSETS> 11,569,918
<PAYABLE-FOR-SECURITIES> 2,874,642
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,726
<TOTAL-LIABILITIES> 2,909,368
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,407,633
<SHARES-COMMON-STOCK> 835,640
<SHARES-COMMON-PRIOR> 840,288
<ACCUMULATED-NII-CURRENT> 31,335
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (117,004)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 338,586
<NET-ASSETS> 8,660,550
<DIVIDEND-INCOME> 635,445
<INTEREST-INCOME> 15,208
<OTHER-INCOME> 0
<EXPENSES-NET> 128,393
<NET-INVESTMENT-INCOME> 522,260
<REALIZED-GAINS-CURRENT> 13,766
<APPREC-INCREASE-CURRENT> 99,779
<NET-CHANGE-FROM-OPS> 635,805
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 521,876
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 186,797
<NUMBER-OF-SHARES-REDEEMED> 239,644
<SHARES-REINVESTED> 48,199
<NET-CHANGE-IN-ASSETS> (68,479)
<ACCUMULATED-NII-PRIOR> 30,951
<ACCUMULATED-GAINS-PRIOR> (130,770)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 128,393
<AVERAGE-NET-ASSETS> 8,605,158
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> .63
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRIMAN GROWTH & INCOME FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 7,963,454
<INVESTMENTS-AT-VALUE> 8,674,694
<RECEIVABLES> 81,202
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,353
<TOTAL-ASSETS> 8,761,249
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59,415
<TOTAL-LIABILITIES> 59,415
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,209,221
<SHARES-COMMON-STOCK> 747,250
<SHARES-COMMON-PRIOR> 825,525
<ACCUMULATED-NII-CURRENT> 36,648
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 744,725
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 711,240
<NET-ASSETS> 8,701,834
<DIVIDEND-INCOME> 355,548
<INTEREST-INCOME> 14,999
<OTHER-INCOME> 0
<EXPENSES-NET> 160,127
<NET-INVESTMENT-INCOME> 210,240
<REALIZED-GAINS-CURRENT> 1,090,916
<APPREC-INCREASE-CURRENT> (264,367)
<NET-CHANGE-FROM-OPS> 1,036,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 217,137
<DISTRIBUTIONS-OF-GAINS> 547,218
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,642
<NUMBER-OF-SHARES-REDEEMED> 184,316
<SHARES-REINVESTED> 70,399
<NET-CHANGE-IN-ASSETS> (646,461)
<ACCUMULATED-NII-PRIOR> 43,365
<ACCUMULATED-GAINS-PRIOR> 201,026
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 113,042
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 160,127
<AVERAGE-NET-ASSETS> 9,056,100
<PER-SHARE-NAV-BEGIN> 11.32
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 1.02
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0.69
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.65
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRIMAN CAPITAL APPRECIATION FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 15,725,626
<INVESTMENTS-AT-VALUE> 16,651,231
<RECEIVABLES> 63,680
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,188
<TOTAL-ASSETS> 16,725,099
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 60,287
<TOTAL-LIABILITIES> 60,287
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,368,480
<SHARES-COMMON-STOCK> 1,524,135
<SHARES-COMMON-PRIOR> 1,899,748
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,370,727
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 925,605
<NET-ASSETS> 16,664,812
<DIVIDEND-INCOME> 645,925
<INTEREST-INCOME> 18,851
<OTHER-INCOME> 0
<EXPENSES-NET> 341,338
<NET-INVESTMENT-INCOME> 323,438
<REALIZED-GAINS-CURRENT> 2,456,816
<APPREC-INCREASE-CURRENT> (1,896,938)
<NET-CHANGE-FROM-OPS> 883,316
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 385,016
<DISTRIBUTIONS-OF-GAINS> 1,914,315
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 183,143
<NUMBER-OF-SHARES-REDEEMED> 781,504
<SHARES-REINVESTED> 222,748
<NET-CHANGE-IN-ASSETS> (5,540,158)
<ACCUMULATED-NII-PRIOR> 61,578
<ACCUMULATED-GAINS-PRIOR> 828,226
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 232,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 341,338
<AVERAGE-NET-ASSETS> 18,747,574
<PER-SHARE-NAV-BEGIN> 11.69
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.37
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 1.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> 1.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MERRIMAN ASSET ALLOCATION FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 16,426,980
<INVESTMENTS-AT-VALUE> 17,636,266
<RECEIVABLES> 506,896
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 15,604
<TOTAL-ASSETS> 18,158,766
<PAYABLE-FOR-SECURITIES> 377,042
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,402
<TOTAL-LIABILITIES> 425,444
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,926,715
<SHARES-COMMON-STOCK> 1,526,903
<SHARES-COMMON-PRIOR> 2,018,881
<ACCUMULATED-NII-CURRENT> 223,937
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,373,384
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,209,286
<NET-ASSETS> 17,733,322
<DIVIDEND-INCOME> 842,686
<INTEREST-INCOME> 18,957
<OTHER-INCOME> 0
<EXPENSES-NET> 360,466
<NET-INVESTMENT-INCOME> 501,177
<REALIZED-GAINS-CURRENT> 1,604,204
<APPREC-INCREASE-CURRENT> (735,043)
<NET-CHANGE-FROM-OPS> 1,370,338
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 300,168
<DISTRIBUTIONS-OF-GAINS> 446,499
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 151,662
<NUMBER-OF-SHARES-REDEEMED> 711,787
<SHARES-REINVESTED> 68,147
<NET-CHANGE-IN-ASSETS> (4,899,168)
<ACCUMULATED-NII-PRIOR> 22,928
<ACCUMULATED-GAINS-PRIOR> 215,679
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 248,132
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 19,906,041
<PER-SHARE-NAV-BEGIN> 11.21
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0.24
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> 1.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> MERRIMAN LEVERAGED GROWTH FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 20,076,954
<INVESTMENTS-AT-VALUE> 21,427,749
<RECEIVABLES> 126,886
<ASSETS-OTHER> 1,151
<OTHER-ITEMS-ASSETS> 2,717
<TOTAL-ASSETS> 21,558,503
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 5,800,000
<OTHER-ITEMS-LIABILITIES> 64,376
<TOTAL-LIABILITIES> 5,864,376
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,640,366
<SHARES-COMMON-STOCK> 1,275,683
<SHARES-COMMON-PRIOR> 787,594
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 702,966
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,350,795
<NET-ASSETS> 15,694,127
<DIVIDEND-INCOME> 387,920
<INTEREST-INCOME> 15,970
<OTHER-INCOME> 0
<EXPENSES-NET> 510,954
<NET-INVESTMENT-INCOME> (107,064)
<REALIZED-GAINS-CURRENT> 1,400,388
<APPREC-INCREASE-CURRENT> (64,087)
<NET-CHANGE-FROM-OPS> 1,229,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 749,459
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 679,463
<NUMBER-OF-SHARES-REDEEMED> 256,850
<SHARES-REINVESTED> 65,476
<NET-CHANGE-IN-ASSETS> 6,007,797
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 159,101
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,334
<INTEREST-EXPENSE> 269,359
<GROSS-EXPENSE> 510,954
<AVERAGE-NET-ASSETS> 13,015,513
<PER-SHARE-NAV-BEGIN> 12.30
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 0.84
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.76
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.30
<EXPENSE-RATIO> 3.70
<AVG-DEBT-OUTSTANDING> 2,981,434
<AVG-DEBT-PER-SHARE> 2.58
</TABLE>
