<PAGE>
MERRIMAN MERRIMAN INVESTMENT TRUST
INVESTMENT TRUST 1200 Westlake Ave N, Suite 700
Seattle, WA 98109
MERRIMAN 1-800-423-4893
FLEXIBLE BOND FUND 1-206-285-8877
www.merrimanfunds.com
MERRIMAN
GROWTH & INCOME FUND
INVESTMENT MANAGER
MERRIMAN Merriman Investment
CAPITAL APPRECIATION Management Company
FUND 1200 Westlake Ave N, Suite 700
Seattle, WA 981098
MERRIMAN
ASSET ALLOCATION CUSTODIAN AND
FUND TRANSFER AGENT
Firstar Trust Company
MERRIMAN PO Box 701
LEVERAGED GROWTH Milwaukee, WI 53201
FUND 1-800-224-4743
FUND COUNSEL
ANNUAL REPORT Sullivan & Worcester
Boston, Massachusetts
YEAR ENDED
SEPTEMBER 30, 1998
Officers & Trustees
Paul A. Merriman, President and Trustee
William L. Notaro, Executive Vice President,
Secretary, Treasurer, and Trustee
David A. Ederer, Trustee
Ben W. Reppond, Trustee
Donald E. West, Trustee
<PAGE>
Dear Fellow Shareholder:
I'm pleased to report on another fiscal year for the Merriman Mutual Funds for
the 12 months ended September 30. While the future, as always, is uncertain, we
remain as committed as ever to our strategy of combining proper asset allocation
and time-tested mechanical timing systems. We know of no better way investors
can achieve reasonable rates of return while protecting their assets from the
ravages of bear markets.
The performance of each of our five funds in the year ended September 30 is
detailed later in this letter. To summarize: the Merriman Flexible Bond Fund
gained 3.03 percent; the Merriman Growth and Income Fund was up 2.99 percent;
the Merriman Capital Appreciation Fund was down -3.87 percent;; the Merriman
Asset Allocation Fund was down 2.57 percent and the Merriman Leveraged Growth
Fund was down 6.71 percent.
THE ECONOMY
During this period, the U.S. economy remained the strongest of any major nation
in the world. However, it was not immune to the economic problems which surfaced
last year in Asia and have spread worldwide. As usual, the signals are mixed.
The U.S. gross domestic product grew 3.3 percent in the third quarter of 1998,
nearly twice the rate of the second quarter and far above analysts' expectation
of a 2.1 percent gain.
Consumer spending, by far the largest component of GDP, was up 3.9 percent,
outpacing wage increases. In September, the savings rate of U.S. consumers
(after-tax dollars left over after spending) turned negative, -0.2 percent, for
the first time since 1933. Combined, these statistics suggest consumers
maintained their purchasing pace, using credit or dipping into their savings
when the cash ran out. This situation, of course, cannot continue indefinitely,
and a slowdown in spending in the coming months is widely forecast.
U.S. imports in the third quarter rose 3.4 percent, far below the 9.3 percent
gain in the second quarter. U.S. manufacturing activity fell in October for the
fifth straight month, and export orders fell for the 10th straight month.
Twice this fall, the Federal Reserve Open Market Committee reduced interest
rates, and Fed officials said they see considerably slower growth next year, but
not a recession. Inflation, measured at an annual rate of 0.8 percent in the
third quarter of this year, reached its lowest level since 1963.
All these indicators were reflected in the U.S. stock market. The market peaked
in July, then fell sharply in August and September, making the third quarter of
1998, the last quarter of our fiscal year, the worst for U.S. mutual funds in
eight years.
In the 12 months ending September 30, the Standard & Poor's 500 Index gained 9.1
percent and the Nasdaq composite index gained 0.5 percent. The Russell 2000
Index, representing U.S. small-cap stocks, fell 19.0 percent. The Morgan Stanley
Europe Asia and Far East index known as EAFE fell 8.3 percent. The market's
declines experienced in the summer and early fall were shocking in their speed
and severity to many Baby Boomer investors who have never lived through a real
bear market.
Although U.S. and international stock markets unexpectedly roared back to life
in late October and early November, the size, duration and effects of that rally
are all unknown.
Despite the continuing problems in many regions of the world, we maintain our
belief that U.S. equity investors are well served to have up to 35 percent of
their portfolios in funds that hold international stocks. Stocks of large U.S.
companies have done remarkably well in the past half dozen years. But that won't
always be the case, and another time will come when gains in international
<PAGE>
investments will offset losses in the U.S. In eight calendar years since 1970
(1971, 1972, 1977, 1978, 1985, 1980, 1987 and 1994), gains in international
investments were two to six times as great as those in the U.S. That's why
international funds make up a significant part of our funds' equity investments.
THE OUTLOOK
We are often asked for our views of the months and quarters just ahead, and our
answers are always the same. We understand the reasons many people are bullish,
and we think they have much validity. We also understand why many investors are
bearish, or at least quite fearful, and we think those reasons have much
validity. However, we don't take sides or make predictions, because we haven't
found any reliable way to forecast the future.
We are not bulls, although we believe (and we hope for investors' sake) that the
world's equity markets are likely to continue their long-term upward bias. We
are not bears, although we believe the current market levels are filled with
potential danger and we are certain that major bear markets lie ahead. Instead,
we are trend-followers with a mechanical investment strategy designed to make
money whichever way the market turns.
MARKET TIMING - DIFFERENT FROM THE AVERAGES
Our funds have globally diversified portfolios and they use timing to move into
and out of the markets and the funds in which they invest. Because of that,
their performance is not directly comparable to that of the popular untimed
indexes such as the Dow Jones Industrial Average, the S&P 500 and EAFE.
This presents a challenge to you as an investor: What is the proper benchmark by
which such funds should be measured? There is no perfect answer. The charts that
accompany this letter compare the performance of our equity Funds with the
Standard and Poors 500 Index and our Flexible Bond Fund with the Salomon BIG
Index, both popular, broad-based indexes.
However, we think the best comparison for each of our funds is the performance,
without timing, of mutual funds that invest in the same asset classes as the
funds in our portfolios. The best data we have is from Morningstar, which tracks
thousands of mutual funds. Using that data, we have constructed what we call an
Appropriate Benchmark for each of our funds, as follows:
Our Capital Appreciation, Growth & Income and Leveraged Growth funds each
allocate up to 65 percent of their assets to U.S. equity funds and up to 35
percent to international equity funds. (Within each allocation, investments are
switched between equity funds and cash, according to our timing systems.) For
these three funds, the Appropriate Benchmark is the performance, without timing,
of a theoretical portfolio, always fully invested, made up of all U.S. equity
funds and all international equity funds, weighted at 65 percent and 35 percent,
respectively.
The Appropriate Benchmark for our Asset Allocation Fund is the performance,
without timing, of a theoretical portfolio, always fully invested and weighted
as follows: all U.S. equity funds, 30 percent; all international equity funds,
30 percent; all U.S. bond funds, 15 percent; all international bond funds, 15
percent; and all gold stock funds, 10 percent. Those are the weightings we use
in our Fund.
The Appropriate Benchmark for the Merriman Flexible Bond Fund is the
performance, without timing, of a theoretical portfolio, always fully invested
and weighted as follows: all U.S. corporate bond funds, 40 percent; all
international bond funds, 35 percent/ and all U.S. high-yield bond funds, 25
percent. Those are the weightings we use in our Fund.
The reason we use timing is simple: Bull markets are wonderful, but they never
last forever, as many investors were startled to learn this year. It's every bit
as normal for markets to fall as to rise. And when they fall, they can quickly
erase months or even years of gains. We believe this is a serious detriment to
investors, emotionally as well as financially. Our top priority is to manage
this risk in order to defend investors' capital while striving to achieve
favorable returns.
However, in prolonged bull markets, timing inevitably underperforms a
buy-and-hold approach. There are two reasons for that. First, timing has no way
to "add value" to a rising market. Even when all signals indicate buy, the timer
who is 100 percent invested has no advantage over the buy-and-hold investor who
is 100 percent invested.
<PAGE>
Second, bull markets are punctuated with temporary declines, some of which
inevitably trigger one or more timing models into cautionary sell signals. At
the moment of such a signal, there is absolutely no way to know whether it
indicates the start of a real bear market or whether it will turn out to be only
a false alarm. Inevitably, some sell signals are followed by buy signals that
put investors back into the market at higher prices than when they sold.
There is no reliable way that timers can avoid such counterproductive trades.
Even though the resulting losses are usually relatively small, those losses
induce a performance penalty compared with buy-and-hold investing. This is why
our funds have underperformed the markets during the strong bull market of the
past few years.
As a shareholder in the Merriman Mutual Funds, I don't like this performance
penalty any more than anyone else. But I regard it as a necessary cost of
protecting my capital from major declines. It is somewhat akin to the cost of
insuring my home. I'd rather not pay the insurance premium. But I know that a
fire or some other disaster is possible, and I'd much rather buy insurance than
assume all the risk myself.
Likewise as an investor, I'd much rather pay the underperformance penalty, and
protect my investments from a bear market, than leave myself exposed without a
defensive strategy. And personally I am certain that there are greater odds of a
bear market threatening my portfolio than of a fire threatening my home.
HOW WE MANAGE THESE FUNDS
As an investor, I want long-term results. Yet I want to know my assets are being
actively protected every moment the markets are open. We believe our
shareholders deserve nothing less than that. While our investment focus is on
long-term results, we manage our funds in the short-term. Every business day, we
track current market trends that affect every asset in our portfolio, and we are
always ready to act on any new signals from our timing models to guide us as we
attempt to maximize gains and minimize losses.
MERRIMAN FLEXIBLE BOND FUND
The Merriman Flexible Bond Fund invests in a broad spectrum of fixed-income
securities that in our belief offer the best opportunities to achieve attractive
returns with below-average volatility. The Fund's present investment policy is
to maintain a balance of 35 percent in international bonds, 25 percent in U.S.
high-yield bonds and the remaining 40 percent in high-grade U.S. government and
corporate bonds. When our timing systems indicate declining markets, we shift
assets to money-market instruments and other cash equivalents.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Flexible Bond Fund and the Salomon Big
Index.
Start Date 10-06-88
End Date 09-30-98
Begining Value $10,000
End Value - Merriman Flexible Bond Fund $20,469
End Value - Salomon Big Index $24,437
Average Annual Total Return of
Merriman Flexible Bond Fund 1YR 5YR 10YR Since Inception
3.03% 5.79% 7.43% 7.42%
In the 12 months ending September 30, according to Morningstar, the average U.S.
bond fund produced a total return of 6.6 percent. The Fund appreciated 3.0
percent, compared with a gain of 2.5 percent for the same balance of U.S. and
international bond funds, (the Appropriate Benchmark for this fund). According
to Morningstar, the Fund's volatility is about 29 percent less than the average
U.S. bond fund and 58 percent less than the average international bond fund.
<PAGE>
MERRIMAN GROWTH AND INCOME FUND
The Growth and Income Fund invests primarily in growth-and-income funds,
employing the same balance of domestic and international funds, and similar
timing models to preserve capital, as does the Capital Appreciation Fund. For
the 12 months ending September 30, the Fund's total return was up 3.0 percent. A
similar mix of domestic and international funds without timing, (the Appropriate
Benchmark for this fund) was down 13.8 percent. Morningstar data indicate the
Fund's volatility was 51 percent less than the average of those funds.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Growth and Income Fund and the S&P 500
Index.
Start Date 12-29-88
End Date 09-30-98
Begining Value $10,000
End Value - Merriman Growth & Income Fund $22,605
End Value - S&P 500 Index $47,702
Average Annual Total Return of
Merriman Growth & Income Fund 1YR 5YR Since Inception
2.99% 10.73% 8.72%
MERRIMAN CAPITAL APPRECIATION FUND
The Merriman Capital Appreciation Fund seeks growth of capital by investing in
U.S. and international growth, aggressive growth and small-cap funds. Our
present investment policy allocates 65 percent of the portfolio to U.S. equity
funds and 35 percent to international equity funds. As with all our funds,
whenever our timing models indicate the risk of loss is greater than the
potential for gain, we take defensive action and move into money market
instruments or other cash equivalents.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Capital Appreciation Fund and the S&P
500 Index.
Start Date 05-02-89
End Date 09-30-98
Begining Value $10,000
End Value - Merriman Capital Appreciation Fund $20,174
End Value - S&P 500 Index $40,737
Average Annual Total Return of
Merriman Capital Appreciation Fund 1YR 5YR Since Inception
(3.87)% 7.23% 7.73%
In the year ended September 30, the Fund was down 3.9 percent. A similar mix of
domestic and international funds without timing, (the Appropriate Benchmark for
this fund) was down 13.8 percent. According to Morningstar, the volatility of
the Fund was 45 percent lower than the average of funds in the growth,
aggressive growth, small-cap and international equity categories. We believe
this makes the Capital Appreciation Fund an excellent choice for investors who
seek growth as well as preservation of capital with wide diversification.
<PAGE>
MERRIMAN ASSET ALLOCATION FUND
The Asset Allocation Fund spreads its investments among five major asset groups
and applies market timing to each one. The Fund's present investment policy is
to maintain 30 percent of the portfolio in domestic equity funds, 30 percent in
international equity funds, 15 percent in U.S. bond funds, 15 percent in
international bond funds and 10 percent in gold funds.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Asset Allocation Fund and the S&P 500
Index.
Start Date 05-02-89
End Date 09-30-98
Begining Value $10,000
End Value - Merriman Asset Allocation Fund $19,046
End Value - S&P 500 Index $40,737
Average Annual Total Return of
Merriman Asset Allocation Fund 1YR 5YR Since Inception
(2.57)% 5.99% 7.08%
For the year ending September 30, the Fund's total return was down 2.6 percent.
According to Morningstar data, an untimed portfolio of the same balance of
funds, (the Appropriate Benchmark for this fund) would have lost 12.0 percent.
The Asset Allocation Fund's volatility was about 26 percent less than
multi-asset global funds tracked by Morningstar.
MERRIMAN LEVERAGED GROWTH FUND
The Leveraged Growth Fund's defensive strategy uses market timing systems
similar to those of the Capital Appreciation Fund and maintains a similar
balance of domestic and international funds. During rising markets, this Fund
takes a more aggressive approach in order to seek above-average returns. The
Fund may borrow up to $1 for every $2 of its net assets in order to make
additional investments when our timing models indicate a high probability of
gain.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Leveraged Growth Fund and the S&P 500
Index.
Start Date 05-27-92
End Date 09-30-98
Begining Value $10,000
End Value - Merriman Leveraged Growth Fund $16,393
End Value - S&P 500 Index $28,452
Average Annual Total Return of
Merriman Leveraged Growth Fund 1YR 5YR Since Inception
(6.71)% 9.37% 8.11%
For the 12 months ended September 30, the Fund's total return was down 6.7
percent, compared with a loss of 13.8 percent for a similar mix of domestic and
international equity funds held without timing or leverage, (the Appropriate
Benchmark for this fund). According to Morningstar, the Fund's volatility was
about 26 percent less than the average of growth, aggressive growth and
small-cap funds and 19 percent less than that of the average international fund.
<PAGE>
IN SUMMARY
While U.S. stocks have provided rich rewards for investors in recent years, this
year illustrates how quickly a severe correction can erase prior gains. We
believe most investors, especially the many who began their investment
experience in the 1990s, are not prepared psychologically for the serious losses
that could occur in a prolonged bear market. This lack of preparation is likely
to lead many people into untimely, emotional investment decisions that will
compound whatever damage their portfolios suffer as a result of market swings.
In our view, broad diversification, coupled with automatic, mechanical timing,
is the best way investors can avoid such untimely decisions and minimize market
risks while they attempt to preserve and grow their capital. We appreciate your
confidence in the Merriman Mutual Funds and in our defensive approach to
investing. We will continue to closely watch each of your investments every
business day, and we look forward to (though we cannot guarantee) having a
favorable report for you next year.
Sincerely,
Paul A. Merriman
President
<PAGE>
MERRIMAN FLEXIBLE BOND FUND
Portfolio of Investments
September 30, 1998
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
HIGH GRADE CORPORATE BOND FUNDS: 38.64%
----------------------------------------
261,785 Babson Bond Trust L.T.......... .................$ 421,474
30,579 Columbia Fixed Inc Securities Fund ............... 421,071
27,614 Dreyfus A Bonds Plus Fund ........................ 405,381
40,742 Fidelity Intermediate Bond Fund .................. 423,712
28,207 Scudder Income Fund .............................. 384,459
46,875 Stein Roe Intermediate Bond Fund ................. 421,406
36,907 Strong Corporate Bond Fund ....................... 420,368
-------
Total High Grade Corporate Bond Funds
(Cost $2,872,398)................................. 2,897,871
---------
INTERNATIONAL BOND FUNDS: 32.86%
--------------------------------
39,819 Am Cent-Benham Intl Bond Fund .................... 490,570
40,501 Federated Intl Income Fund Class A ............... 447,136
50,685 Fidelity Adv Emerging Mkts Inc Fund .............. 363,411
42,891 Fidelity International Fund ...................... 377,867
53,391 Scudder Emerging Mkts Income Fund ................ 349,711
44,211 Scudder Global Bond Fund ......................... 435,916
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Total International Bond Funds
(Cost $2,384,989)................................. 2,464,611
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MONEY MARKET FUNDS: 22.42%
--------------------------
472,937 AIM Invsmt Port Dollar Fund Class A ............ 472,937
367,177 Federated Investors Treasury Obl Fund .......... 367,177
364,254 Federated Master Trust Fund .................... 364,254
25,858 Fidelity Daily Money Market Portfolio .......... 25,858
45,695 Fidelity US Govt Res Money Mkt Fund ............ 45,695
366,431 INVESCO Cash Reserves Fund ..................... 366,431
39,124 Strong Money Market Fund ....................... 39,124
------
Total Money Market Funds
(Cost $1,681,476) .............................. 1,681,476
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 5.66%
-------------------------------
$ 366,300 Firstar Bank Milwaukee, NA
5.0937%, 3/12/99................................ 366,300
58,000 General Mills, Inc.
4.9487%, 2/15/99................................ 58,000
------
Total Short-Term Demand Notes
(Cost $424,300)....................................... 424,300
-------
Total Investment in Securities
(Cost $7,363,163) (a)......................... 99.58% 7,468,258
Other Assets
Less Liabilities............................. 0.42% 31,677
---- ------
NET ASSETS....................................100.00% $7,499,935
======= ==========
(a)Cost for federal income tax purposes is the same and
net unrealized appreciation consists of:
Gross unrealized appreciation....................... $ 136,115
Gross unrealized depreciation......................... (31,020)
-------
Net Unrealized Appreciation..........................$ 105,095
==========
See Accompanying Notes to Financial Statements
8
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MERRIMAN GROWTH & INCOME FUND
Portfolio of Investments
September 30, 1998
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 52.15%
------------------------------
16,142 Am Cent Income & Growth Fund.... ..............$ 402,087
18,213 Columbia Common Stock Fund ..................... 408,890
8,109 Fidelity Equity Income Fund .................... 402,188
10,201 Fidelity Growth & Income Fund .................. 393,948
15,808 Janus Growth & Income Fund ..................... 405,953
20,554 Lexington Growth & Income Fund ................. 411,075
18,675 Neuberger & Berman Guardian Fund ............... 400,578
20,231 SAFECO Equity Fund ............................. 412,919
18,389 SAFECO Income Fund ............................. 400,324
19,465 Salomon Brothers Inv Fund Class O .............. 393,778
11,038 WPG Growth & Income Fund ....................... 410,838
-------
Total Domestic Equity Funds
(Cost $4,561,224)............................... 4,442,578
---------- ---------
MONEY MARKET FUNDS: 25.93%
---------------------------
410,106 AIM Invt Port Dollar Fund Class A ................ 410,106
5,973 Am Cent Benham Govt Agency Fund .................. 5,973
5,101 Columbia Daily Income Fund ....................... 5,101
14,333 Fidelity US Govt Res Money Mkt Fund .............. 14,333
856,715 INVESCO Cash Reserves Fund ....................... 856,715
412,736 Janus Money Market Fund .......................... 412,736
7,029 Neuberger Cash Reserves Fund ..................... 7,029
4,214 SAFECO Money Market Fund ......................... 4,214
423,913 Value Line Cash Fund ............................. 423,913
68,866 WPG Govt Money Market Fund ....................... 68,866
------
Total Money Market Funds
(Cost $2,208,986)................................. 2,208,986
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 21.71%
---------------------------------
$ 337,500 American Family Financial Services, Inc
4.9628%, 7/26/99.................................. 337,500
349,800 Firstar Bank Milwaukee, NA
5.0937%, 3/12/99.................................. 349,800
370,000 General Mills, Inc
4.9487%, 2/15/99.................................. 370,000
397,500 Pitney Bowes, Inc
4.9487%, 2/3/99................................... 397,500
394,200 Warner Lambert Co
4.963%, 7/26/99................................... 394,200
-------
Total Short-Term Demand Notes
(Cost $1,849,000)................................. 1,849,000
---------
Total Investment in Securities
(Cost $8,619,210) (a) ..........................99.79% 8,500,564
Other Assets
Less Liabilities................................0.21% 17,661
----- ------
NET ASSETS.....................................100.00% $8,518,225
======= ==========
(a)Cost for federal income tax purposes is the same and
net unrealized depreciation consists of:
Gross unrealized appreciation.....................$ -
Gross unrealized depreciation...................... (118,646)
--------
Net Unrealized Depreciation.........................$ (118,646)
=============
See Accompanying Notes to Financial Statements
9
<PAGE>
MERRIMAN CAPITAL APPRECIATION FUND
Portfolio of Investments
September 30, 1998
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 53.82%
------------------------------
22,825 Am Cent 20th Century Growth Fund ............... $622,197
33,021 Columbia Special Fund .......................... 633,679
17,633 Federated Stock Trust .......................... 618,549
12,954 Fidelity Trend Fund ............................ 592,117
31,605 Founders Discovery Fund ........................ 619,773
35,124 Founders Growth Fund ........................... 626,605
31,424 SAFECO Growth Fund ............................. 615,906
23,923 Scudder Large Co Value Fund .................... 613,635
25,264 Stein Rowe Special Fund ........................ 618,468
27,935 USAA Aggressive Growth Fund .................... 621,283
33,368 Value Line Fund ................................ 623,321
-------
Total Domestic Equity Funds
(Cost $6,999,420)............................... 6,805,533
---------
INTERNATIONAL EQUITY FUNDS: 4.95%
----------------------------------
21,995 Scudder Global Fund
(Cost $635,000)................................. 625,542
-------
MONEY MARKET FUNDS: 33.57%
---------------------------
1,272,606 Am Cent Benham Prime Money Mkt Fund ............ 1,272,606
3,417 Columbia Daily Income Fund ..................... 3,417
446,668 Fidelity Cash Reserve Fund ..................... 446,668
636,284 INVESCO Cash Reserves Fund ..................... 636,284
605,000 INVESCO US Govt Money Mkt Fund ................. 605,000
630,447 Neuberger Cash Reserves Fund ................... 630,447
619,257 USAA Money Market Fund ......................... 619,257
30,508 Value Line Cash Fund ........................... 30,508
------
Total Money Market Funds
(Cost $4,244,187)............................... 4,244,187
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 7.57%
-------------------------------
$ 453,800 Firstar Bank Milwaukee, NA
5.0937%, 3/12/99................................. 453,800
502,900 General Mills, Inc
4.9487%, 2/15/99................................. 502,900
-------
Total Short-Term Demand Notes
(Cost $956,700).................................. 956,700
-------
Total Investment in Securities
(Cost $12,835,307)........................(a).99.91% 12,631,962
Other Assets Less Liabilities..................0.09% 11,734
----- ------
NET ASSETS ..................................100.00% $12,643,696
======= ===========
(a) Cost for federal income tax purposes is the same and net unrealized
depreciation consists of:
Gross unrealized appreciation....................$ -
Gross unrealized depreciation..................... (203,345)
--------
Net Unrealized Depreciation......................$ (203,345)
=============
See Accompanying Notes to Financial Statements
10
<PAGE>
MERRIMAN ASSET ALLOCATION FUND
Portfolio of Investments
September 30, 1998
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 24.08%
------------------------------
12,534 Am Cent 20th Century Select Fund ............... $592,104
16,634 Federated Stock Trust .......................... 583,532
30,073 SAFECO Growth Fund ............................. 589,428
17,320 Scudder Development Fund ....................... 577,806
26,408 USAA Aggressive Growth Fund .................... 587,307
-------
Total Domestic Equity Funds
(Cost $3,018,373)............................... 2,930,177
---------
INTERNATIONAL EQUITY FUNDS: 4.86%
----------------------------------
20,783 Scudder Global Fund
(Cost $600,000)................................. 591,063
-------
HIGH GRADE CORPORATE BOND FUNDS: 5.60%
---------------------------------------
172,942 Babson Bond Trust L.T .......................... 278,437
29,614 Scudder Income Fund ............................ 403,644
-------
Total High Grade Corporate Bond Funds
(Cost $674,523)................................. 682,081
-------
INTERNATIONAL BOND FUNDS: 10.20%
---------------------------------
30,049 Federated Intl Income Fund Class A ............. 331,743
82,877 Fidelity Advisor Emerging Mkts Inc Fund ........ 594,226
35,840 Fidelity International Fund .................... 315,752
-------
Total International Bond Funds
(Cost $1,221,610)............................... 1,241,721
---------
GOLD FUNDS: 11.05%
-------------------
44,557 Am Century Global Gold Fund .................... 278,481
129,834 INVESCO Strategic Gold Fund .................... 259,669
85,910 Lexington Gold Fund ............................ 283,503
38,525 Scudder Gold Fund .............................. 252,721
48,096 USAA Gold Fund.................................. 269,820
-------
Total Gold Funds
(Cost $1,228,546)............................... 1,344,194
---------
MONEY MARKET FUNDS: 41.29%
---------------------------
1,233,679 AIM Invst Port Dollar Fund Class A .............. 1,233,679
7,991 Am Cent Benham Prime Money Mkt Fund ............. 7,991
614,238 Federated Investors Treas Oblig Fund ............ 614,238
17,317 Federated Master Trust Fund ..................... 17,317
223,428 Fidelity Cash Reserve Fund ...................... 223,428
313,280 Fidelity US Govt Res Money Mkt Fund ............. 313,280
613,644 Founders Money Market Fund ...................... 613,644
374,347 INVESCO Cash Reserves Fund ...................... 374,347
615,000 INVESCO US Govt Money Mkt Fund .................. 615,000
14,760 Scudder Cash Invst Trust Fund ................... 14,760
849,636 Stein Roe Cash Reserves Fund .................... 849,636
146,523 USAA Money Market Fund .......................... 146,523
-------
Total Money Market Funds
(Cost $5,023,843)................................ 5,023,843
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 2.80%
-------------------------------
$ 341,200 Firstar Bank Milwaukee, NA,
5.0937%, 3/12/99
(Cost $341,200).................................. 341,200
-------
Total Investment in Securities
(Cost $12,108,095) (a).........................99.88% 12,154,279
Other Assets
Less Liabilities............................ 0.12% 14,020
---- ------
NET ASSETS....................................100.00% $12,168,299
======= ===========
(a) Cost for federal income tax purposes is the same and net unrealized
appreciation consists of:
Gross unrealized appreciation................... $ 154,091
Gross unrealized depreciation................... (107,907)
--------
Net Unrealized Appreciation..................... $ 46,184
==========
See Accompanying Notes to Financial Statements
11
<PAGE>
MERRIMAN LEVERAGED GROWTH FUND
Portfolio of Investments
September 30, 1998
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 83.45%
-----------------------------
28,977 Am Century 20th Century Growth Fund .............. $789,927
76,296 Am Century 20th Century Heritage Fund ............ 744,649
16,399 Am Century 20th Century Select Fund .............. 774,669
41,672 Babson Growth Fund ............................... 783,021
40,822 Columbia Special Fund ............................ 783,367
21,722 Federated Stock Trust ............................ 762,006
29,548 Fidelity Disciplined Equity Fund ................. 769,130
39,012 Founders Discovery Fund .......................... 765,032
43,514 Founders Growth Fund ............................. 776,297
39,502 Robertson Stephens Emerg Grth Fund ............... 683,772
38,783 SAFECO Growth Fund ............................... 760,137
29,538 Scudder Large Co Value Fund ...................... 757,650
31,881 Stein Roe Special Fund ........................... 780,436
19,703 Strong Opportunity Fund .......................... 704,572
33,977 USAA Aggressive Growth Fund ...................... 755,640
41,330 Value Line Fund .................................. 772,045
20,107 Value Line Leveraged Growth Fund ................. 762,655
-------
Total Domestic Equity Funds
(Cost $13,181,367)................................ 12,925,005
----------
INTERNATIONAL EQUITY FUNDS: 5.14%
----------------------------------
106,369 Scudder Pacific Opportunity Fund
(Cost $785,000)................................... 795,637
-------
MONEY MARKET FUNDS: 10.41%
---------------------------
3,864 Columbia Daily Income Fund ....................... 3,864
30,000 Fidelity US Govt Res Money Mkt Fund .............. 30,000
5,995 Founders Money Market Fund ....................... 5,995
791,231 INVESCO Cash Reserves Fund ....................... 791,231
5,000 Scudder US Treasury Money Mkt Fund ............... 5,000
775,690 Stein Roe Cash Reserves Fund ..................... 775,690
-------
Total Money Market Funds
(Cost $1,611,780)................................. 1,611,780
---------- ---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 0.96%
-------------------------------
$ 148,700 Firstar Bank Milwaukee, NA
5.0937%, 3/12/99
(Cost $148,700)................................... 148,700
-------
Total Investment in Securities
(Cost $15,726,847) (a).......................99.96% 15,481,122
Other Assets
Less Liabilities.............................0.04% 6,695
----- -----
NET ASSETS..................................100.00% $ 15,487,817
======= ============
(a) Cost for federal income tax purposes is the same and net unrealized
depreciation consists of:
Gross unrealized appreciation.................... $ 15,563
Gross unrealized depreciation.................... (261,288)
--------
Net Unrealized Depreciation...................... $(245,725)
=========
See Accompanying Notes to Financial Statements
12
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1998
<CAPTION>
MERRIMAN MERRIMAN MERRIMAN MERRIMAN
MERRIMAN GROWTH & CAPITAL ASSET LEVERAGED
FLEXIBLE BOND INCOME APPRECIATION ALLOCATION GROWTH
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at market value
(identified cost $7,363,163, $8,619,210,
$12,835,307, $12,108,095 and $15,726,847,
respectively) (Note 2) $7,468,258 $8,500,564 $12,631,962 $ 12,154,279 $ 15,481,122
Cash (overdraft) 19,030 584 (40) 5,901 (22)
Dividends and interest receivable 31,112 33,954 43,968 44,420 37,251
Receivable for capital stock sold 760 288 - 225 767
--- --- --- ---
Total assets 7,519,160 8,535,390 12,675,890 12,204,825 15,519,118
--------- --------- ---------- ---------- ----------
LIABILITIES
Accrued management fees 5,447 8,715 13,201 12,558 16,224
Other accrued expenses 5,923 8,450 18,993 23,196 15,077
Payable for capital stock repurchased 726 - - 772 -
Distributions payable 7,129 - - - -
-----
Total liabilities 19,225 17,165 32,194 36,526 31,301
------ ------ ------ ------ ------
NET ASSETS
(Applicable to 738,565, 863,219, 1,395,701, 1,254,516, and 1,453,130 shares
of beneficial interest with no par value, unlimited number
of shares authorized) $7,499,935 $8,518,225 $12,643,696 $12,168,299 $15,487,817
========== ========== =========== =========== ===========
PRICING OF SHARES
Net asset value, offering and redemption
price per share
$ 7,499,935 / 738,565 shares $ 10.15
==========
$ 8,518,225 / 863,219 shares $ 9.87
==========
$12,643,696 / 1,395,701 shares $ 9.06
==========
$12,168,299 / 1,254,516 shares $ 9.70
===========
$15,487,817 / 1,453,130 shares $ 10.66
==========
NET ASSETS
At September 30, 1998, net assets consisted of:
Paid-in capital $7,404,458 $8,009,555 $12,377,122 $11,741,214 $14,797,852
Undistributed net investment income 18 41,168 - - -
Accumulated net realized gain (loss) (9,636) 586,148 469,919 380,901 935,690
Unrealized appreciation (depreciation)
on investments 105,095 (118,646) (203,345) 46,184 (245,725)
------- -------- -------- ------ --------
$7,499,935 $8,518,225 $12,643,696 $12,168,299 $15,487,817
========== ========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
13
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
Year ended September 30, 1998
<CAPTION>
MERRIMAN MERRIMAN MERRIMAN MERRIMAN
MERRIMAN GROWTH & CAPITAL ASSET LEVERAGED
FLEXIBLE BOND INCOME APPRECIATION ALLOCATION GROWTH
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 14,984 $ 25,623 $ 29,991 $ 32,825 $ 31,652
Dividends 634,049 369,311 452,799 744,551 571,075
------- ------- ------- ------- -------
Total investment income 649,033 394,934 482,790 777,376 602,727
------- ------- ------- ------- -------
EXPENSES
Management fees (Note 3) 85,479 113,251 174,405 177,587 209,381
Accounting services 19,080 19,058 28,866 30,932 34,898
Custodian fees 3,249 3,155 4,696 5,211 5,544
Transfer agent fees 6,783 7,696 17,995 17,900 21,786
Interest expense (Note 4) - - - - 230,843
Professional services 6,018 6,138 9,285 9,758 11,197
Registration fees 4,957 3,867 8,662 9,476 8,268
Insurance and other 3,433 3,488 6,557 7,236 306
Printing 1,413 1,442 2,476 2,556 2,922
Trustees fees 274 255 400 500 507
--- --- --- --- ---
Total expenses 130,686 158,350 253,342 261,156 525,652
------- ------- ------- ------- -------
Net investment income 518,347 236,584 229,448 516,220 77,075
------- ------- ------- ------- ------
REALIZED AND UNREALIZED GAIN (LOSS)ON INVESTMENTS
Net realized gain from security transactions 10,873 1,176,879 1,736,994 1,276,292 2,559,464
Capital gain distributions from regulated
investment companies 12,656 426,459 602,938 411,558 1,019,123
Net decrease in unrealized appreciation
of investments (287,604) (1,546,066) (3,123,146) (2,584,191) (4,752,006)
-------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments (264,075) 57,272 (783,214) (896,341) (1,173,419)
-------- ------ -------- -------- ----------
Net increase (decrease) in net assets
resulting from operations $ 254,272 $ 293,856 $ (553,766) $ (380,121) $(1,096,344)
========== ========== ========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
14
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
MERRIMAN FLEXIBLE MERRIMAN GROWTH &
BOND FUND INCOME FUND
--------- -----------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 518,347 $ 513,832 $ 236,584 $ 129,552
Net realized gain on investments 10,873 256,067 1,176,879 870,904
Capital gain distributions from regulated investment
companies 12,656 17,291 426,459 256,262
Net increase (decrease) in unrealized appreciation on
investments (287,604) 54,113 (1,546,066) 716,179
-------- ------ ---------- -------
Net increase in net assets resulting from operations 254,272 841,303 293,856 1,972,897
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments (189,519) - (2,141,643) (747,438)
Distributions from net investment income (550,400) (513,096) (195,416) (166,200)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from
capital share transactions (Note 5) (1,233,968) 230,793 1,047,075 (246,740)
---------- ------- --------- --------
Total increase (decrease) (1,719,615) 559,000 (996,128) 812,519
NET ASSETS
Beginning of year 9,219,550 8,660,550 9,514,353 8,701,834
--------- --------- --------- ---------
End of year* $7,499,935 $9,219,550 $8,518,225 $9,514,353
========== ========== ========== ==========
* Including undistributed net investment income of: $ 18 $ 32,071 $ 41,168 $ -
========== ========= ========== =========
</TABLE>
<TABLE>
MERRIMAN CAPITAL MERRIMAN ASSET
APPRECIATION FUND ALLOCATION FUND
----------------- ---------------
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 229,448 $ 89,880 $ 516,220 $ 381,940
Net realized gain on investments 1,736,994 526,544 1,276,292 99,855
Capital gain distributions from regulated investment
companies 602,938 416,968 411,558 339,133
Net increase (decrease) in unrealized appreciation
on investments (3,123,146) 1,994,196 (2,584,191) 1,421,089
---------- --------- ---------- ---------
Net increase (decrease) in net assets resulting from
operations (553,766) 3,027,588 (380,121) 2,242,017
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments (2,717,812) (1,466,440) (1,744,120) (1,375,201)
Distributions from net investment income (229,448) (89,880) (631,484) (490,612)
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from capital
share transactions (Note 5) 577,330 (2,568,688) (1,619,333) (1,566,169)
------- ---------- ---------- ----------
Total decrease (2,923,696) (1,097,420) (4,375,058) (1,189,965)
NET ASSETS
Beginning of year 15,567,392 16,664,812 16,543,357 17,733,322
---------- ---------- ---------- ----------
End of year* $12,643,696 $15,567,392 $ 12,168,299 $16,543,357
=========== =========== ============ ===========
* Including undistributed net investment income of: $ - $ - $ - $ 115,264
========== ========== =========== ===========
</TABLE>
See Accompany Notes to Financial Statements
15
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
MERRIMAN LEVERAGED
GROWTH FUND
-----------
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 77,075 $ (242,377)
Net realized gain on investments 2,559,464 209,024
Capital gain distributions from regulated
investment companies 1,019,123 741,886
Net increase (decrease) in unrealized appreciation
on investments (4,752,006) 3,155,486
---------- ---------
Net increase (decrease) in net assets resulting
from operations (1,096,344) 3,864,019
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments (3,585,901) (710,872)
Distributions from net investment income (77,075) -
CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets resulting from
capital share transactions (Note 5) 2,461,888 (1,062,025)
--------- ----------
Total increase (decrease) (2,297,432) 2,091,122
NET ASSETS
Beginning of year 17,785,249 15,694,127
---------- ----------
End of year* $15,487,817 $17,785,249
=========== ===========
* Including undistributed net investment income of: $ - $ -
=========== ===========
</TABLE>
See Accompany Notes to Financial Statements
16
<PAGE>
<TABLE>
MERRIMAN LEVERAGED GROWTH FUND
STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends and interest received $ 566,248 $ 544,041
Operating expenses paid (567,681) (650,899)
Net purchases of short-term investments (613,973) 627,256
Purchases of portfolio securities (60,596,479) (25,418,536)
Proceeds from sales of portfolio securities 69,411,863 25,469,473
---------- ----------
Net cash provided by operating activities 8,199,978 571,335
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital shares sold 2,917,335 2,575,686
Payments on capital shares redeemed (3,948,058) (4,315,499)
Cash dividends paid * (171,132) (32,384)
Net increase (decrease) in loan payable to custodian bank (7,000,000) 1,200,000
---------- ---------
Net cash used for financing activities (8,201,855) (572,197)
---------- --------
Net change in cash (1,877) (862)
Cash at beginning of year 1,855 2,717
----- -----
Cash at end of year $ (22) $ 1,855
========== ==========
RECONCILIATION OF NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations $(1,096,344) $3,864,019
----------- ----------
Adjustments to reconcile net increase (decrease) in net assets resulting from
operations to net cash provided by (used for) operating activities:
(Increase) decrease in investment securities 9,374,830 (3,428,203)
(Increase) decrease in dividends and interest receivable (36,479) 125,414
Decrease in deferred organization expenses - 1,151
Increase (decrease) in accrued management fees (1,474) 1,799
Increase (decrease) in other accrued expenses (40,555) 7,155
------- -----
Total Adjustments 9,296,322 (3,292,684)
--------- ----------
Net cash provided by operating activities $8,199,978 $ 571,335
========== ==========
</TABLE>
* Non-cash financing activities included herein consist of reinvestment of
distributions to shareholders of $3,491,844 and $678,488, respectively.
See Accompanying Notes to Financial Statements
17
<PAGE>
<TABLE>
MERRIMAN MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
<CAPTION>
FLEXIBLE BOND FUND
(for a share outstanding throughout the year)
Year Ended September 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.74 $ 10.36 $ 10.23 $ 9.94 $ 10.97
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.63 0.60 0.63 0.55 0.42
Net gains or losses on securities
(realized and unrealized) (0.32) 0.38 0.13 0.29 (0.37)
----- ---- ---- ---- -----
Total from investment operations 0.31 0.98 0.76 0.84 0.05
---- ---- ---- ---- ----
Less distributions:
From investment income (0.67) (0.60) (0.63) (0.55) (0.42)
From realized capital gains (0.23) - - - (0.66)
----- -----
Total distributions (0.90) (0.60 ) (0.63) (0.55) (1.08)
----- ----- ----- ----- -----
Net asset value, end of year $ 10.15 $ 10.74 $ 10.36 $ 10.23 $ 9.94
======= ======= ======= ======= =======
Total return 3.03% 9.64% 7.62% 8.63% 0.36%
Net assets, end of year ($000) $ 7,500 $ 9,220 $ 8,661 $ 8,592 $10,542
Ratio of expenses to average net assets 1.50% 1.46% 1.49% 1.50% 1.50%
Ratio of net income to average net assets 5.93% 5.54% 6.05% 5.17% 3.89%
Portfolio turnover rate 206.12% 172.73 % 139.77% 291.46% 472.49%
</TABLE>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND
(for a share outstanding throughout the year)
Year Ended September 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.96 $ 11.65 $ 11.32 $ 10.86 $ 10.92
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.32 0.19 0.27 0.24 0.11
Net gains or losses on securities
(realized and unrealized) (0.17) 2.40 1.02 1.29 (0.04)
----- ---- ---- ---- -----
Total from investment operations 0.15 2.59 1.29 1.53 0.07
---- ---- ---- ---- ----
Less distributions:
From investment income (0.27) (0.24) (0.27) (0.21) (0.13)
From realized capital gains (2.97) (1.04) (0.69) (0.86) -
----- ----- ----- -----
Total distributions (3.24) (1.28) (0.96) (1.07) (0.13)
----- ----- ----- ----- -----
Net asset value, end of year $ 9.87 $ 12.96 $ 11.65 $ 11.32 $ 10.86
======= ======= ======= ======= =======
Total return 2.99% 24.11% 12.18% 15.41% 0.62%
Net assets, end of year ($000) $ 8,518 $ 9,514 $ 8,702 $ 9,348 $10,701
Ratio of expenses to average net assets 1.75% 1.71% 1.77% 1.76% 1.90%
Ratio of net income to average net assets 2.61% 1.42% 2.33% 2.10% 0.87%
Portfolio turnover rate 280.78% 105.11% 133.00% 78.64% 240.27%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
MERRIMAN MUTUAL FUNDS
FINANCIAL HIGHLIGHTS (continued)
CAPITAL APPRECIATION FUND
(for a share outstanding throughout the year)
Year Ended September 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.02 $ 10.93 $ 11.69 $ 10.82 $ 11.63
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.19 0.06 0.19 0.09 0.19
Net gains or losses on securities
(realized and unrealized) (0.74) 2.13 0.37 1.56 (0.38)
----- ---- ---- ---- -----
Total from investment operations (0.55) 2.19 0.56 1.65 (0.19)
----- ---- ---- ---- -----
Less distributions:
From investment income (0.20) (0.06) (0.22) (0.07) (0.16)
From realized capital gains (2.21) (1.04) (1.10) (0.71) (0.46)
----- ----- ----- ----- -----
Total distributions (2.41) (1.10) (1.32) (0.78) (0.62)
----- ----- ----- ----- -----
Net asset value, end of year $ 9.06 $ 12.02 $ 10.93 $ 11.69 $ 10.82
======= ======= ======= ======= =======
Total return (3.87)% 21.93% 5.69% 16.43% (1.64)%
Net assets end of year ($000) $12,644 $15,567 $16,665 $22,205 $25,579
Ratio of expenses to average net assets 1.81% 1.79% 1.84% 1.78% 1.58%
Ratio of net income to average net assets 1.64% 0.58% 1.74% 0.80% 1.70%
Portfolio turnover rate 446.18% 114.36% 254.77% 146.40% 344.25%
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION FUND
(for a share outstanding throughout the year)
Year Ended September 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 11.88 $ 11.61 $ 11.21 $ 11.22 $ 11.97
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.40 0.26 0.30 0.25 0.19
Net gains or losses on securities
(realized and unrealized) (0.76) 1.27 0.50 0.62 0.15
----- ---- ---- ---- ----
Total from investment operations (0.36) 1.53 0.80 0.87 0.34
----- ---- ---- ---- ----
Less distributions:
From investment income (0.48) (0.33) (0.16) (0.25) (0.20)
From realized capital gains (1.34) (0.93) (0.24) (0.63) (0.89)
----- ----- ----- ----- -----
Total distributions (1.82) (1.26) (0.40) ( 0.88) (1.09)
----- ----- ----- - ---- -----
Net asset value, end of year $ 9.70 $ 11.88 $ 11.61 $ 11.21 $ 11.22
======= ======= ======= ======= =======
Total return (2.57)% 14.43% 7.41% 8.49% 2.91%
Net assets end of year ($000) $12,168 $16,543 $17,733 $22,632 $29,984
Ratio of expenses to average net assets 1.84% 1.78% 1.82% 1.76% 1.56%
Ratio of net income to average net assets 3.63% 2.26% 2.53% 2.11% 1.63%
Portfolio turnover rate 351.19% 161.57% 204.55% 288.45% 449.55%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
MERRIMAN MUTUAL FUNDS
FINANCIAL HIGHLIGHTS (continued)
LEVERAGED GROWTH FUND
(for a share outstanding throughout the year)
Year Ended September 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 14.85 $ 12.30 $ 12.30 $ 10.42 $ 10.41
------- ------- ------- ------- -------
Income from investment operations
Net investment income (loss) 0.06 (0.20) (0.08) (0.04) 0.07
Net gains or losses on securities
(realized and unrealized) (1.18) 3.33 0.84 2.33 0.03
----- ---- ---- ---- ----
Total from investment operations (1.12) 3.13 0.76 2.29 0.10
----- ---- ---- ---- ----
Less distributions:
From investment income (0.06) - - (0.07) (0.09)
From realized capital gains (3.01) (0.58) (0.76) (0.34) -
----- ----- ----- -----
Total distributions (3.07) (0.58) (0.76) (0.41) (0.09)
----- ----- ----- ----- -----
Net asset value, end of year $ 10.66 $ 14.85 $ 12.30 $ 12.30 $ 10.42
======= ======= ======= ======= =======
Total return (6.71)% 26.66% 6.85% 22.85% 0.91%
Net assets end of year ($000) $15,488 $17,785 $15,694 $ 9,686 $ 5,459
Ratio of expenses to average net
assets (a) 3.13% 4.13% 3.70% 2.82% 2.06%
Ratio of net income (loss) to average
net assets 0.46% (1.52)% (0.78)% (0.68)% 0.62%
Portfolio turnover rate 351.46% 130.36% 247.36% 87.50% 379.64%
</TABLE>
(a) Expenses include interest expense of 1.38%, 2.36%, 1.95% and 1.01% for 1998,
1997, 1996 and 1995, respectively.
INFORMATION RELATING TO OUTSTANDING DEBT DURING THE YEAR SHOWN BELOW.
<TABLE>
<CAPTION>
Average Average Number
Amount of Debt Amount of Debt of Shares Average Amount of
Outstanding at Outstanding Outstanding Debt per Share
Year ended End of Year During the Year During the Year During the Year
<S> <C> <C> <C> <C>
September 30, 1998 $ - $2,521,205 1,403,276 $1.80
September 30, 1997 $7,000,000 $4,295,452 1,250,115 $3.44
September 30, 1996 $5,800,000 $2,981,434 1,156,941 $2.58
September 30, 1995 $4,000,000 $779,589 656,687 $1.19
</TABLE>
20
<PAGE>
MERRIMAN INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Merriman Flexible Bond Fund, Merriman Growth & Income Fund, Merriman Capital
Appreciation Fund, Merriman Asset Allocation Fund, and Merriman Leveraged Growth
Fund (the "Funds") are separate series of Merriman Investment Trust (the
"Trust") which is registered under the Investment Company Act of 1940, as
amended, as a diversified open-end management company. The Trust was organized
in 1987 as a Massachusetts Business Trust and may issue an unlimited number of
shares of beneficial interest without par value in separate classes of "funds."
Each fund has specific investment objectives: The objectives of the Flexible
Bond Fund are income, preservation of capital and, secondarily, growth of
capital. The objectives of the Growth & Income Fund are long-term growth of
capital, income and, secondarily, preservation of capital. The objective of the
Capital Appreciation Fund is capital appreciation. The objectives of the Asset
Allocation Fund are high total return consistent with reasonable risk. The
objective of the Leveraged Growth Fund is capital appreciation through the use
of leverage and other investment practices.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed in the preparation of the Trust's financial statements. The policies
are in conformity with generally accepted accounting principles.
A. SECURITY VALUATION. Short-term debt securities are valued at amortized
cost, which approximates market value. Investments in regulated investment
companies (mutual funds) are valued at the net asset value per share.
B. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income or excise tax provision is
required.
C. INCOME RECOGNITION. Dividend income and distributions to shareholders are
recorded on the "ex-dividend" date. Interest income is accrued daily.
D. SECURITY TRANSACTIONS. Security transactions are recorded on the trade
date. Realized gains and losses from security transactions are determined
using the identified cost basis.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net income and capital gains
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for post-October
losses.
F. USE OF ESTIMATES IN FINANCIAL STATEMENTS. In preparing financial statements
in conformity with generally accepted accounting principles, management
makes estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements, as well as the
reported amounts of income and expenses during the report period. Actual
results may differ from these estimates.
NOTE 3 - INVESTMENT MANAGEMENT AGREEMENT
Merriman Investment Management Company (the "Manager") receives investment
advisory fees from the Funds. As compensation for its services, the Manager is
paid a fee which is calculated at an annual rate based on the average daily net
assets of each Fund as follows:
FLEXIBLE BOND ALL OTHER
FUND FUNDS
---- -----
On the first $250 million 1.000% 1.250%
On the next $250 million .875% 1.125%
On all above $500 million .750% 1.000%
The Manager has agreed to limit each Fund's expenses. In the event that a Fund's
expenses exceed any such limitations, the Manager either waives its fees and/or
reimburses such fund to the extent required to conform to such limitations.
Currently, the maximum expense which each Fund may incur, expressed as a
percentage of average net assets, is 2.5% of the first $30 million, 2% of the
next $70 million, and 1.5% of all over $100 million.
The Manager has voluntarily reduced the expense limit to 2% of the first $15
million in net assets, 1.5% on the next $35 million, and 1% of net assets over
$50 million for the Merriman Capital Appreciation Fund, the Merriman Asset
Allocation Fund, and the Merriman Growth & Income Fund, to 2% of the first $15
million in net assets, 1.5% of the next $15 million in net assets, and 1% of net
assets over $30 million for the Merriman Leveraged Growth Fund (exclusive of
interest expense), and to 1.5% on the first $30 million in net assets and 1.0%
of net assets over $30 million for the Merriman Flexible Bond Fund.
There were no reimbursements made for the year ending September 30, 1998.
Certain trustees and officers of the trust are also officers of the Manager.
NOTE 4 - BANK LINE OF CREDIT
The Merriman Leveraged Growth Fund pays $14,000 per year to maintain an
unsecured $7,000,000 bank line of credit; borrowings under this arrangement bear
interest at the bank's prime rate. No compensating balances are required.
Balance outstanding at September 30, 1998 was $0.
NOTE 5 - (SEE FOLLOWING)
NOTE 6 - (SEE FOLLOWING)
21
<PAGE>
MERRIMAN INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL SHARES
At September 30, 1998, there were an unlimited number of no par value shares of
beneficial interest authorized. Transactions in capital shares were as follows:
<TABLE>
MERRIMAN FLEXIBLE BOND FUND MERRIMAN GROWTH & INCOME FUND
--------------------------- -----------------------------
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........... 120,276 $1,244,591 280,944 $2,964,179 91,829 $ 921,821 55,591 $ 653,181
Shares issued in
reinvestment of
distributions...... 67,777 691,809 45,339 477,703 247,885 2,284,641 81,475 896,229
------ ------- ------ ------- ------- --------- ------ -------
188,053 1,936,400 326,283 3,441,882 339,714 3,206,462 137,066 1,549,410
Shares redeemed.......(308,064) (3,170,368) (303,348) (3,211,089) (210,649) (2,159,387) (150,162) (1,796,150)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net increase
(decrease) (120,011)$(1,233,968 22,935 $ 230,793 129,065 $1,047,075 (13,096) $ (246,740)
======== =========== ====== ========= ======= ========== ======= ==========
</TABLE>
<TABLE>
MERRIMAN CAPITAL APPRECIATION FUND MERRIMAN ASSET ALLOCATION FUND
---------------------------------- ------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold .......... 62,795 $ 592,751 103,803 $1,122,921 78,757 $ 789,442 151,724 $1,719,250
Shares issued in
reinvestment of
distributions ..... 335,412 2,928,073 152,931 1,547,665 244,854 2,305,794 171,398 1,818,529
------- --------- ------- --------- ------- --------- ------- ---------
398,207 3,520,824 256,734 2,670,586 323,611 3,095,236 323,122 3,537,779
Shares redeemed ..... (297,864)(2,943,494) (485,512) (5,239,274) (461,409) (4,714,569) (457,711) (5,103,948)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net increase
(decrease) 100,343 $ 577,330 (228,778) $(2,568,688) (137,798) $(1,619,333) (134,589)$(1,566,169)
======= ========= ======== =========== ======== =========== ======== ===========
</TABLE>
MERRIMAN LEVERAGED GROWTH FUND
------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
SHARES VALUE SHARES VALUE
------ ----- ------ -----
Shares sold........... 253,147 $2,918,102 201,597 $2,574,986
Shares issued in
reinvestment of
distributions...... 340,688 3,491,844 57,160 678,488
------- --------- ------ -------
593,835 6,409,946 258,757 3,253,474
Shares redeemed.......(338,631) (3,948,058) (336,514) (4,315,499)
-------- ---------- -------- ----------
Net increase
(decrease) 255,204 $2,461,888 (77,757)$ (1,062,025)
======= ========== ======= ============
NOTE 6 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities other than short-term investments and money
market funds for the year ended September 30, 1998 were as follows:
Purchases Sales
--------- -----
Merriman Flexible Bond Fund..............$13,695,940 $13,547,212
Merriman Growth & Income Fund............ 19,592,452 24,035,087
Merriman Capital Appreciation Fund....... 45,815,542 52,311,486
Merriman Asset Allocation Fund........... 31,907,746 38,891,029
Merriman Leveraged Growth Fund........... 60,596,479 69,411,863
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Trustees and Shareholders of Merriman Investment Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Merriman Investment Trust, consisting of
the Merriman Flexible Bond Fund, Merriman Growth & Income Fund, Merriman Capital
Appreciation Fund, Merriman Asset Allocation Fund, and Merriman Leveraged Growth
Fund as of September 30, 1998, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, the statement of cash flows of Merriman
Leveraged Growth Fund for each of the two years in the period then ended and the
financial highlights each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Merriman Investment Trust at September
30, 1998, and the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
Merriman Leveraged Growth cash flows for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania Tait, Weller & Baker
October 23, 1998
