<PAGE>
Securities Act File No. 33-20420
Investment Company Act File No. 811-5487
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 24 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Post-Effective Amendment No. 24 [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)
[ X ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on January 31, 2000, pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
Graphic Omitted MERRIMAN INVESTMENT TRUST
PROSPECTUS HIGH YIELD BOND FUND
FEBRUARY XX, 2001
GROWTH & INCOME FUND
CAPITAL APPRECIATION FUND
ASSET ALLOCATION FUND
LEVERAGED GROWTH FUND
This prospectus contains important information you should
know before investing in our family of defensively managed,
NO LOAD mutual funds.
Throughout this prospectus, Merriman Investment Trust is
referred to as the "Trust," each portfolio of the Trust is
referred to as a "Fund," collectively "Funds." The terms
"we," "us" and "our" refer to the investment manager of the
Funds, Merriman Investment Management Company.
Please read the prospectus carefully and keep it with your
investment records. Please call or e-mail us if you need
more information before you invest. Our toll-free number is
1-800-423-4893. Our web site is www.merrimanfunds.com and
our E-mail address is [email protected].
As with all mutual funds, the Securities and Exchange
Commission has not approved or disapproved these securities
or made a judgement about the accuracy or adequacy of this
prospectus. Anyone who tells you otherwise is committing a
crime.
INSIDE
============================================================
Summary of Investments, Risks and Performance..............2
Shareholder Information...................................11
Investment Approach and Risks.............................18
Management of the Funds...................................24
Financial Highlights......................................25
<PAGE>
Summary of investments, risks & performance
We know you have investment choices. There are over 9,000 mutual funds from
which to choose, many of which may be right for you. Thank you for taking the
time to consider the Merriman Funds.
Investment Objectives
High Yield
Bond Fund High Income, with some consideration to growth of
capital
Growth & Long-term growth of capital, income
Income Fund and, secondarily, preservation of capital
Capital
Appreciation Fund Capital appreciation
Asset High total return
Allocation Fund consistent with reasonable risk
Leveraged Capital appreciation
Growth Fund through the use of leverage and other investment
practices
Principal Investment Strategies
All Merriman Funds invest primarily in the shares of unaffiliated investment
companies, referred to throughout this prospectus as "mutual funds," "underlying
funds," or "funds."
DEFENSIVE MANAGEMENT - ALL FUNDS
We follow a defensive strategy designed to protect capital
from stock and bond market declines. Sometimes called market
timing, our strategy is to be "in the market" when it is
going up and "out of the market" when it is going down. We
perform technical research and analysis to identify changes
in market trends and respond according to the degree of the
strength or weakness of such trends. We evaluate broad
markets, discrete market sectors, individual mutual funds
and classes of funds separately and may move investments
from one sector or underlying fund or class of funds to
another in response to market shifts. If we are successful
in avoiding market exposure during market declines, you
should experience greater returns than with an equivalent
investment portfolio held through periods of market decline.
BROAD DIVERSIFICATION - ALL FUNDS
Investing primarily in the shares of other mutual funds
complements our defensive strategy by providing broad
diversification. It also enables us to blend a wide range of
investment objectives and approaches, takes advantage of
many portfolio management strengths, skills and talents and
provides access to institutional funds not available to
individual investors. Our screening begins with an analysis
of the investment objectives, policies, and strategies of
many mutual funds. We select funds primarily based upon the
degree to which they will enhance the Fund's ability to
achieve its investment objectives. We use absolute and
risk-adjusted performance evaluations, including relative
strength and volatility, over various time periods and
market cycles, to identify funds for investment. We will
generally invest at least 65% of each Fund's total assets in
funds having investment objectives and strategies consistent
with the respective Fund's objectives.
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TYPES OF INVESTMENTS
HIGH YIELD BOND FUND
The mutual funds included in the Fund's portfolio will
invest primarily in non-investment grade corporate bonds,
commonly called "junk bonds." To a lesser extent, they may
invest in lower quality preferred and convertible
securities, equities and in the securities of foreign
issuers.
GROWTH & Income Fund
The mutual funds included in the Fund's portfolio will
generally have investment objectives of growth, growth &
income or income. They may invest in common stocks, bonds
and securities convertible into common stocks, both domestic
and foreign.
Capital Appreciation Fund
Mutual funds included in the Fund's portfolio will generally
have a growth or aggressive growth oriented objective. They
may invest in common stocks or securities convertible into
common stocks, both domestic and foreign. We may also invest
in funds having other than growth or aggressive growth
objectives if, in our opinion, the investment would enhance
the ability of the Fund to achieve its objective.
ASSET ALLOCATION FUND
We allocate the Fund's assets among five market segments:
domestic and international equities, domestic and
international fixed income, and precious metals. We are
flexible with respect to the percentage allocated to each
market segment, but can generally be expected to have the
majority of Fund assets allocated to the equities and fixed
income market segments.
LEVERAGED GROWTH FUND
Except for its use of leverage (borrowing), the investment
policies of the Leveraged Growth Fund are the same as those
of the Capital Appreciation Fund, described above. We may
borrow money for investment purposes. Such borrowing,
commonly known as leverage, amplifies the effect upon net
asset value of increases and decreases in the market value
of the Fund's portfolio. We use leverage in conjunction with
our defensive management strategy when we believe a rising
trend in the stock market, accompanied by little risk of
decline, is strongly indicated. We may borrow up to $1 for
each $2 of net assets.
Principal Risks
In any investment there is a degree of risk which must be assumed by the
investor. To obtain greater rewards generally requires taking greater risks.
Merriman Funds are no different. The value of Fund shares will fluctuate and you
could lose money. The Funds are designed for long-term investors, including
tax-deferred retirement plans. Consider investing if you can accept the risks
accompanying the Funds' defensive approach to stock and bond investing. You
should not invest your short-term savings or emergency reserve money.
DEFENSIVE MANAGEMENT - ALL FUNDS
The principal risk of the defensive strategy employed by the
Funds is that we could be wrong in our expectations about market
trends and the consequent deployment of Fund assets. If we are
wrong in our expectations, opportunities for gains or income may
be lost or you could lose money.
BROAD DIVERSIFICATION - ALL FUNDS
The Funds invest in shares of mutual funds which engage in a
myriad of strategies and approaches to the investment markets. By
investing in other mutual funds, investors indirectly pay higher
operating costs than if they invested directly in the underlying
funds. We try to mitigate these double-tiered costs by selecting
funds having superior management skills, better performance
potential and lower operational costs than most.
We have no control over, and frequently no knowledge of, the
day-to-day operations of underlying funds. Simply put, we may
invest in a fund thinking they will do one thing, when in fact
they may do something entirely different. Thus, we may lose the
benefit we expected and incur risks we did not anticipate.
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There are regulatory restrictions on the percentage ownership we
may take in underlying funds. These limitations may prevent us
from purchasing the mutual funds we consider most desirable. In
certain cases, underlying funds are permitted to make redemptions
in securities rather than in cash. In such case, we would incur
additional brokerage costs to liquidate the securities so
received.
EQUITY SECURITIES
GROWTH & INCOME,
CAPITAL APPRECIATION,
ASSET ALLOCATION AND
LEVERAGED GROWTH FUNDS
These Funds invest in mutual funds which, in turn, invest in
equity securities. Equity securities are subject to greater price
fluctuation than debt securities. While this increases risk, it
offers the potential for greater reward. The prices of equity
securities change in response to many factors, including the
issuer's earnings history and forecast, the value of its assets,
economic conditions, interest rates, investor perceptions and
market liquidity. Underlying funds may emphasize investment in
particular sectors of the stock market or in particular types of
companies. Any such emphasis carries with it increased risks of a
special nature related to the sector or type of company.
Underlying funds that use strategies such as options and futures
to protect their investments or increase their income carry a
risk that the prices of the options and futures do not correlate
with the values of the securities in the fund's portfolio.
FIXED INCOME SECURITIES
HIGH YIELD BOND,
GROWTH & INCOME AND
ASSET ALLOCATION
FUNDS
These Funds invest in mutual funds which, in turn, invest in
fixed income securities. The risks of fixed income securities
include interest rate risk, credit risk and call risk. 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. Credit Risk is
associated with a borrower failing to make payments of interest
and principal when due. Credit risk increases as overall
portfolio quality decreases. 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.
HIGH YIELD BONDS
HIGH YIELD
BOND FUND
The High Yield Bond Fund invests primarily in mutual funds which
invest their assets in non-investment grade corporate bonds, or
"junk bonds." Junk bonds generally provide higher yields than
higher quality securities, producing greater interest income for
their investors. But they are regarded, on balance, as
predominately speculative because they involve greater credit
risk, including the risk of default or price fluctuation due to
changes in the credit-worthiness of the issuer and because they
are usually unsecured and may be subordinated to other creditors'
claims. Price changes may occur because of developments in the
issuing company, the economy or the political environment. They
are also subject to greater general market risk than higher
quality debt securities, which means their prices may decline
significantly and rapidly during periods of general market
decline or regional economic difficulty. Non-investment grade
bonds may at times be difficult to value or sell at a fair price.
Credit ratings on such bonds may not necessarily reflect their
actual market risk. Call risk also tends to be greater for junk
bonds in cases where the financial condition of an issuer
improves, enabling it to refinance its debt at more favorable
terms. Junk bonds are less sensitive to interest rate risk than
higher quality securities.
FOREIGN SECURITIES & CURRENCIES - ALL FUNDS
Underlying funds in which the Funds invest may, in turn, invest
their assets, in the securities of foreign issuers. Securities
issued by foreign companies or governments present risks beyond
those of domestic issuers. Such risks include political or
economic instability, changes in foreign currency exchange rates,
a lower level of regulation and accountability, and less publicly
available information. Prices of foreign securities may be more
volatile and less liquid than domestic securities.
4
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LEVERAGE
LEVERAGED GROWTH
FUND
The Leveraged Growth Fund may borrow (use leverage) up to $1 for
each $2 of net assets for investment purposes and the underlying
funds in which all the Funds invest may use leverage. The use of
leverage is a speculative technique, involving the payment of
interest and other loan costs. Earnings may not be sufficient to
offset costs, forcing the fund to sell portfolio securities when
it is not advantageous to do so. This could result in higher than
normal portfolio turnover, which usually generates higher
transaction costs and expenses. Leverage magnifies the borrowing
fund's net asset value per share fluctuation.
Past Performance
The degree to which performance varies from year to year is one measure of risk.
The bar charts below show this year-to-year performance for the past 10 calendar
years for each Fund. The tables below the bar charts compare each Fund's
performance over time to a broad-based securities market index. The High Yield
Bond Fund* is compared to the Salomon Broad Investment Grade (BIG) Index, an
unmanaged index of non-investment grade bonds. The other Funds are compared to
the Standard & Poor's 500 Index, an unmanaged stock index of the 500 largest
publicly traded companies. Both the bar charts and the tables below assume
reinvestment of dividends and distributions. Remember that past performance is
not necessarily an indication of how the Funds will perform in the future.
Note: A graph appears at this location in the text.
HIGH YIELD BOND FUND*
Year-by Year Total Return (%) As of 12/31 each year
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
6.12 13.32 4.55 14.45 -2.86 14.58 7.57 5.78 4.25 2.89
Year to date return through 09/30/00 was 1.45%
Best Quarter Q3 '91 +6.92% Worst Quarter Q1 '92 -4.02%
Average Annual Total Return As of 12/31/99
1 Year 5 Years 10 Years
High Yield Bond Fund* 2.89% 6.93% 6.92%
Salomon BIG Index (0.83)% 7.73% 7.75%
* The Flexible Bond Fund changed its name to The High Yield Bond Fund and
changed its investment objective accordingly, effective January 1, 2000. The
data shown above reflect the Fund's performance prior to this change, and should
not be considered indicative of what the performance might have been if the Fund
had operated as a high yield fund. Please see "Historical Performance Data of
Merriman Capital Management, Inc., page 8, for a discussion of the historical
performance of other accounts managed by an affiliate of the Investment Manager
using investment styles and strategies substantially similar to those of the
High Yield Fund.
5
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Note: A graph appears at this location in the text.
GROWTH & Income Fund
Year-by Year Total Return (%) As of 12/31 each year
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
3.84 19.19 -1.28 2.76 -0.16 17.69 15.01 13.10 20.35 14.49
Year to date total return through 09/30/00 was -7.16%
Best Quarter Q4 '99 +13.05% Worst Quarter Q2 '00 -5.61%
Average Annual Total Return As of 12/31/99
1 Year 5 Years 10 Years
Growth & Income Fund 14.49% 16.09% 10.20%
S&P 500 Index 21.03% 28.53% 18.18%
Note: A graph appears at this location in the text.
CAPITAL APPRECIATION FUND
Year-by Year Total Return (%) As of 12/31 each year
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
3.13 21.90 4.19 3.64 -0.62 14.85 10.32 9.89 16.80 21.57
Year to date total return through 09/30/00 was -6.96%
Best Quarter Q4 '99 +19.02% Worst Quarter Q4 '97 -7.48%
Average Annual Total Return As of 12/31/99
1 Year 5 Years 10 Years
Capital Appreication Fund 21.57% 14.60% 10.29%
S&P 500 Index 21.03% 28.53% 18.18%
Note: A graph appears at this location in the text.
ASSET ALLOCATION FUND
Year-by Year Total Return (%) As of 12/31 each year
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
1.02 12.28 2.80 18.54 -2.88 10.53 10.47 5.83 10.60 16.27
Year to date total return through 09/30/00 was -5.34%
Best Quarter Q4 '99 +11.69% Worst Quarter Q4 '97 -5.48%
Average Annual Total Return As of 12/31/99
1 Year 5 Years 10 Years
Growth & Income Fund 16.27% 10.69% 8.35%
S&P 500 Index 21.03% 28.53% 18.18%
6
<PAGE>
Note: A graph appears at this location in the text.
LEVERAGED GROWTH FUND
Year-by Year Total Return (%) As of 12/31 each year
1993 1994 1995 1996 1997 1998 1999
3.75 -0.15 17.06 11.99 12.22 24.37 29.98
Year to date total return through 09/30/00 was -8.28%
Best Quarter Q4 '99 +25.02% Worst Quarter Q2 '00 -11.43%
Average Annual Total Return As of 12/31/99
From Inception
1 Year 5 Years (May 27, 1992)
Growth & Income Fund 29.98% 18.91% 13.10%
S&P 500 Index 21.03% 28.53% 20.83%
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER TRANSACTION EXPENSES
These are fees paid directly from your investment. Many mutual
funds charge their shareholders fees such as sales commissions,
redemption fees and exchange fees. The Merriman Funds are no-load
funds, which means that, except for the special services noted
below, you will not pay shareholder fees.
Our transfer agent imposes certain service fees: a $12 "wire fee"
if you request that your redemption proceeds be wired to your
bank account; a $5 fee if you request an exchange of shares by
telephone (there is no charge for exchanges made by mail).
ANNUAL FUND OPERATING EXPENSES
These are expenses that are deducted from Fund assets. Operating
expenses include fees for portfolio management, maintenance of
shareholder accounts, shareholder servicing, accounting and other
services. While the Funds pay these expenses, you bear them
indirectly, as the table below demonstrates.
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF
YOU BUY AND HOLD SHARES OF THE FUNDS.
<TABLE>
<CAPTION>
HIGH YIELD GROWTH & CAPITAL ASSET LEVERAGED
BOND INCOME APPRECIATION ALLOCATION GROWTH
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Management Fees 1.00% 1.25% 1.25% 1.25% 1.25%
Interest Expenses 0.14%
Other Expense 0.65% 0.56% 0.53% 0.59% 0.49% 0.63%
---- ---- ---- ---- ---- ----
Total Fund
Operating Expense 1.65%* 1.81% 1.78% 1.84% 1.88%
</TABLE>
* Prior to voluntary expense reimbursement from investment manager. After
reimbursement, 1.50%. Voluntary reimbursement may be terminated at any
time.
7
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EXAMPLE
This example is intended to help you compare the cost of
investing in the Merriman Funds with the cost of investing
in other mutual funds.
The example assumes that you invest $10,000 in a Fund for
the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based upon these
assumptions your costs would be as follows:
<TABLE>
<CAPTION>
HIGH YIELD GROWTH & CAPITAL ASSET LEVERAGED
BOND INCOME APPRECIATION ALLOCATION GROWTH
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
1 Year $ 168 $ 184 $ 181 $ 187 $191
3 Years 520 569 560 579 591
5 Years 897 980 964 995 1,016
10 Years 1,955 2,127 2,095 2,159 2,201
</TABLE>
HISTORICAL HIGH YIELD PERFORMANCE DATA
OF MERRIMAN CAPITAL MANAGEMENT, INC.
HIGH YIELD BOND FUND
The following tables present historical performance data for
all accounts that have been managed by Merriman Capital
Management, Inc. ("Merriman Capital"), an affiliate of the
Investment Manager, and that have substantially similar
(although not necessarily identical) objectives and policies
to those of the Fund. These accounts have been managed using
investment styles and strategies substantially similar to
those to be used in managing the Fund. These figures do not
represent the performance of the Fund. The Fund has recently
changed its investment objective to become a high yield bond
fund and does not yet have a performance record as a high
yield bond fund. The Fund's actual performance as a high
yield bond fund may be higher or lower, and past performance
of these accounts is no guarantee of future results.
The composite figures shown in the tables presented below
were calculated in the following manner.
* The investment process, including the resources
available to the portfolio manager and the supervisory
review used by Merriman Capital, will be used by the
Investment Manager. As a practical matter, there is no
significant distinction between the process used in
determining the investment management decisions of
Merriman Capital and the Investment Manager.
* The accounts included in the composite are not mutual
funds and are not subject to the same rules and
regulations (for example, diversification and liquidity
requirements and restrictions on transactions with
affiliates) as the Fund or to the same types of
expenses or inflow and outflow of funds. These
differences might have affected the performance figures
shown below.
* The composite figures have been calculated by weighting
the performance of each account by the level of the
account's total assets at the beginning of each monthly
or quarterly period. Accounts were added to the
composite as of the first full quarter under management
and excluded at the end of the last full quarter under
management. Accordingly, the number of accounts
included in the composite and their value vary by
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quarter from three (3) ($638,841.52) at the beginning
of 1994, to two (2) ($562,987.80) in the most recent
quarter.
* The performance of each of the accounts in the
composite may have been influenced by the level of the
account's total assets. Had an account's assets been
different, its performance might have been higher or
lower.
* The figures shown below represent the performance of
the composite's accounts. They are not the performance
of the Fund. Figures show total returns. Total return
shows you how much an investment has changed in value
over the stated time period and includes both capital
appreciation and income. The first table reflects
average annual total returns. This smoothes out
variations in annual performance by averaging returns
over the stated period. The second table shows actual
total returns for each one year period.
* To provide you with additional information, these
composite performance figures are presented two
different ways. The "Gross of Fees and Charges" row
reflects the composite's gross performance - that is
performance before any deductions for fees or expenses.
These figures are hypothetical and presented for
information only; they do not reflect actual
performance of the accounts because the accounts have
paid fees and expenses. The tables also include a "Net
of Fees and Charges" section, which reflects
adjustments of the gross performance to reflect the
deduction of all of the fees and expenses that the Fund
or a shareholder is projected to pay as shown in the
"Fees and Expenses" section at the beginning of the
Prospectus. Like the gross figures, the net figures are
hypothetical, because they do not reflect the actual
fees and charges paid by the accounts. The net figures
assume the account was opened at the beginning of the
period and was closed at the end of the period. To the
extent the Fund's expenses deviate from the
projections, the "Net of Fees and Charges" figures will
be inaccurate. The effect of the deviation would be
greater over longer periods due to compounding. The net
figures shown - that is, the performance results after
all applicable deductions - are equal to or lower than
the actual net results of the included accounts.
* Both tables include figures for the Morningstar
Composite of High Yield Bond Funds so that you can
compare Merriman Capital's performance to the
performance of other high yield bond funds. The Index
reflects advisory fees and other fees or charges.
Average Annual Total
Returns
This is not the
High Yield
Bond Fund's performance
<TABLE>
<CAPTION>
FOR PERIODS ENDED DECEMBER 31, 1999
ONE TWO THREE FOUR FIVE SIX
YEAR YEARS YEARS YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C>
Composite of 4.51% 6.23% 8.25% 9.48% 10.84% 8.90%
Similar Accounts (1)
Net of Fees 3.88% 5.71% 7.79% 9.07% 10.45% 8.52%
and Charges(2)
Gross of Fees 5.45% 7.25% 9.31% 10.58% 11.96% 10.02%
and Charges (3)
Morningstar High
Yield Fund Composite(4) 4.23% 1.97% 5.63% 7.62% 9.38% 7.10%
</TABLE>
(1) Merriman Capital began managing accounts with
substantially similar objectives and policies to those
of the Fund on May 27, 1993
(2) Reflects the reinvestment of dividends and
distributions, and the deduction of all fees and
expenses that the Fund or a shareholder is projected to
pay. To the extent the Fund's expenses deviate from the
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<PAGE>
projections, the "Net of Fees and Charges" figures will
be inaccurate. The effect of the deviation would be
greater over longer periods due to compounding.
(3) Does not reflect the deductions of any fees, charges or
expenses. These figures are hypothetical and presented
for information only; they do not reflect actual
performance of the accounts because the accounts paid
fees and expenses. If these fees and expenses were
included, the performance figures would be lower.
(4) An unmanaged composite of other high yield bond funds
and includes 12b-1 fees, advisory fees and other
expenses. The composite also reflects reinvestment of
dividends and distributions.
TOTAL RETURNS
ON AN
ANNUAL BASIS
THIS IS NOT THE HIGH YIELD
FUND'S PERFORMANCE
<TABLE>
<CAPTION>
For Each Year Ended December 31,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Composite of 4.51% 7.99% 12.39% 13.30% 16.46% -0.31%
Similar Accounts (1)
Net of Fees 3.88% 7.57% 12.09% 13.01% 16.15% -0.66%
and charges (2)
Gross of Fees 5.45% 9.07% 13.55% 14.50% 17.65% 0.84%
and Charges (3)
Morningstar
High Yield Fund
Composite (4) 4.23% -0.24% 13.37% 13.83% 16.73% -3.63%
</TABLE>
(1) Merriman Capital began managing accounts with similar
objectives and policies to those of the Fund on May 27,
1993.
(2) Reflects the reinvestment of dividends and
distributions, and the deduction of all fees and
expenses that the Fund or a shareholder is projected to
pay. To the extent the Fund's expenses deviate from the
projections, the "Net of Fees and Charges" figures will
be inaccurate. The effect of the deviation would be
greater over longer periods due to compounding.
(3) Does not reflect the deductions of any fees, charges or
expenses. These figures are hypothetical and presented
for information only; they do not reflect actual
performance of the accounts because the accounts paid
fees and expenses. If these fees and expenses were
included, the performance figures would be lower.
(4) An unmanaged composite of other high yield bond funds
and includes 12b-1 fees, advisory fees and other
expenses. The composite also reflects reinvestment of
dividends and distributions.
10
<PAGE>
SHAREHOLDER INFORMATION
HOW TO PURCHASE SHARES
GETTING HELP
You may receive help opening accounts from the Trust by
calling toll-free, 1-800-423-4893, by E-mail at
[email protected] or by writing to the Trust at 1200
Westlake Avenue N, Suite 700, Seattle, WA 98109.
PRICING OF SHARES
The value of Fund shares rises and falls constantly. There
are no sales commissions charged to investors, which means
that 100% of your money is used to buy shares at the Fund's
net asset value. Net asset value is based upon the market
value of the portfolio securities owned by the Fund. The per
share price of your purchase is determined at the next
calculation of net asset value after your purchase order is
received by the transfer agent in proper order. Net asset
value is calculated at the close of trading of the New York
Stock Exchange (currently 4:00 p.m., New York time) on each
day that the Exchange is open for trading.
ACCOUTN MINIMUMS AND GENERAL POLICIES
The minimum initial investment in each Fund is $5,000
($2,000 for IRA accounts; no minimum for Automatic
Investment Plan accounts). (Some broker-dealers, such as
Charles Schwab & Company, may accommodate investors who wish
to invest less than $5,000.) Subsequent investments must be
at least $100.
You may purchase shares by mail with payment by check, or by
telephone with payment by bank wire or Automated Clearing
House (ACH) transfer. You may also place orders through a
broker-dealer, who may charge you a fee for its services.
Individual Retirement Accounts, corporate or self-employed
retirement plans and Systematic Withdrawal Plans generally
require special or supplemental application forms to open
accounts. Payment for shares purchased should accompany the
Account Application or purchase order as described herein.
Payment must be made in U.S. dollars. Checks must be drawn
on U.S. Banks. Third party checks will not be accepted.
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.
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 $25 fee) incurred by a Fund or the transfer
agent. It is the policy of the Funds not to accept
applications under circumstances or in amounts considered
disadvantageous to shareholders. For example, if an
individual previously tried to purchase shares with a bad
check, or the proper social security or tax identification
number is omitted, the Fund reserves the right not to accept
future applications from such individual. The U. S. Postal
Service or other independent delivery services are not
agents of the Funds. Therefore, deposit in the mail or with
such services of purchase applications or redemption
requests does not constitute receipt by the transfer agent
or the Trust.
PURCHAE BY MAIL
To open an account by mail, complete and sign the Account
Application form accompanying the Prospectus. Be sure to
indicate in which Fund(s) you wish your investment to buy
shares, and make your check payable to that Fund. The
application and your check should be mailed to Merriman
Mutual Funds, c/o Firstar Mutual Funds Services, LLC, 3rd
Floor, PO Box 701, Milwaukee, Wisconsin 53201-0701. The
foregoing address should also be used for all written
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shareholder communication to the transfer agent unless you
are using an express or overnight delivery service. Mail
orders for subsequent investments should include, when
possible, the Additional Investment Form 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 Mutual
Funds Services, LLC, 3rd Floor, 615 E. Michigan Street,
Milwaukee, WI 53202.
PURCHASE BY TELEPHONE WITH PAYMENT BY BANK WIRE
To establish a new account or add to an existing account by
bank wire, please call Firstar Mutual Funds Services, LLC,
1-800-224-4743, before wiring funds, to advise them of your
forthcoming investment, the dollar amount, the account
registration, and to obtain a confirmation number. This will
insure prompt and accurate handling of your investment.
Please instruct your bank to use the following wiring
instructions:
WIRE TO: Firstar Bank Milwaukee, N.A.,
777 E. Wisconsin Avenue, Milwaukee, WI 53202
ABA Number 0750-00022
FOR CREDIT TO: Firstar Mutual Funds Services, LLC,
Account No. 112-952-137
FOR FURTHER CREDIT TO: (Fund Name) , (Shareholder Account Number),
(Shareholder Name/Registration)
It is important that the bank wire contain all the
information and that Firstar Mutual Funds Services, LLC
receives prior telephone notification to ensure proper
credit. The Fund and its transfer agent are not responsible
for the consequences of delays resulting from the banking or
Federal Reserve wire system, or from incomplete wiring
instructions.
PURCHASE BY TELEPHONE WITH PAYMENT BY ACH TRANSFER
The Automated Clearing House (ACH) system allows you to
purchase shares by an electronic transfer of funds from your
bank checking account, money market account, NOW account or
savings account. ACH transfer may not be used for your
initial share purchase. Please follow the procedures under
"Purchase By Mail" or "Purchase by Telephone with Bank Wire"
for your first purchase. Only bank accounts held at domestic
financial institutions that are ACH members can be used for
ACH purchases. Your shares will be purchased at the net
asset value determined as of the close of regular trading on
the date that the transfer agent receives payment (in
amounts of $100 or more) for shares purchased by electronic
funds transfer through the ACH system. Most transfers are
completed within three business days after your call to
place the order. To preserve flexibility, the Fund may
revise or remove the ability to purchase shares by telephone
or may charge a fee for such service, although currently the
Fund does not expect to charge a fee.
Investors in the Fund may also request by telephone a change
of address, a change of investments made through an
Automated Investment Plan (see below), and a change in the
manner in which dividends are received.
AUTOMATIC INVESTMENT PLAN
The Automatic Investment Plan allows you to purchase shares
by an electronic transfer of funds at regular monthly
intervals from your bank checking account, money market
account, NOW account or savings account. There is no minimum
initial investment when you enroll in the Automatic
Investment Plan. Your account will be debited and shares
will be purchased at regular monthly intervals of your
choosing. You may join the Automatic Investment Plan by
completing that portion of the New Account Application or
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filling out a separate Automatic Investment Plan Application
which you may obtain from the Fund or the transfer agent.
You may cancel your participation in the Plan or change the
amount of purchase or the day each month on which the shares
are purchased at any time by calling 1-800-224-4743 or by
writing to the Fund, c/o Firstar Mutual Funds Services, LLC,
P.O. Box 701, Milwaukee, Wisconsin 53201-0701. The change or
cancellation will be effective five business days following
receipt.
Each investment through the Automatic Investment Plan must
be at least $100 and not more than $50,000. For you to
participate in the Plan, your bank or other financial
institution must be an Automated Clearing House member. It
will take about 15 days for Firstar to process your
Automatic Investment Plan enrollment. The Fund may modify or
terminate the Automatic Investment Plan at any time or
charge a service fee, although no such fee is currently
contemplated.
STOCK CERTIFICATES
Certificates will not be issued for your shares unless you
request them. In order to facilitate redemptions and
transfers, most shareholders elect not to receive
certificates. If you lose a certificate, you may incur delay
and expense in replacing it.
HOW TO REDEEM SHARES
GETTING HELP
If you need help redeeming shares or are uncertain of the
requirements for redemption, please contact the transfer
agent, at 1-800-224-4743, or write to the address shown
below under the caption "Redemption by Mail." Knowledgeable,
friendly personnel will be happy to assist you.
PRICING AND TIMING
Because the value of Fund shares rises and falls constantly
based upon the market value of its portfolio securities,
your redemption price per share may be more or less than the
price per share you paid for them. If the transfer agent
receives your redemption order prior to the close of trading
on the New York Stock Exchange (currently 4:00 p.m. New York
time), your shares will be redeemed at the net asset value
calculated as of that business day's close of trading.
Otherwise, your order will redeem shares as of the next
business day's close.
GENERAL REDEMPTION GUIDELINES
You may redeem (sell) shares by mail or telephone. You may
also redeem your shares through a broker-dealer who may
charge you a fee for its services. To avoid delays in
processing, please follow the policies described below.
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 from the date
of purchase for your check to clear. Redemption requests
from retirement accounts must indicate an election not to
have Federal Tax withheld or they will be subject to
withholding. A Fund may suspend the right of redemption or
postpone the date at times when the New York Stock Exchange
is closed, or under any emergency circumstances as may be
determined by the Securities and Exchange Commission.
The Funds expect normally to make all redemptions in cash.
Circumstances could arise, however, under which a Fund may
wish to make redemptions "in kind" (in marketable securities
from its portfolio). A shareholder receiving an "in kind"
redemption, would incur brokerage fees upon disposition of
such securities.
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
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brings his account net asset value up to $2,000 or more
during the notice period, the account will not be redeemed.
Be advised that such redemptions from retirement plans for
which Firstar Mutual Funds Services, LLC serves as Custodian
may be subject to tax withholding.
PAYMENT OF REDEMPTION PROCEEDS
You may have your redemption proceeds sent to you by check,
bank wire or ACH transfer. Proceeds will be sent to you,
typically, within one or two business days, but no later
than seven days after receipt of your redemption request.
There is no charge for check redemptions. If you choose to
have the proceeds wired, the transfer agent will charge your
account $12 to pay for the wire transfer. If you elected the
ACH option on the Account Application Form, you may choose
to have your proceeds sent by electronic funds transfer to
your bank account 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.
REDEMPTION BY MAIL
Your regular mail request should be addressed to Merriman
Mutual Funds, c/o Firstar Mutual Funds Services, LLC, 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 Mutual Funds
Services, LLC, 3rd Floor, 615 E. Michigan Street, Milwaukee,
Wisconsin 53202-5207. Your request must include:
* Your share certificates, if issued;
* 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;
* Signature guarantee(s) (see "Signature Guarantees,"
below); and
* Other supporting legal documents, if required in the
case of estates, trusts, guardianships, custodianships,
corporations, partnerships, pension or profit sharing
plans, and other organizations.
If not directed otherwise, a check for your redemption
proceeds will be sent to your address on record with the
Fund.
REDEMPTION BY TELEPHONE
You may make telephone redemptions (in amounts of $1,000 or
more) unless you declined the privilege on the Account
Application Form. (However, telephone redemption requests
for IRA accounts will not be accepted.) To make a telephone
redemption, call the transfer agent at 1-800-224-4743. The
transfer agent will act upon any telephone instructions it
believes to be genuine, to redeem shares from your account.
Your Account Application Form specifies the person(s), bank,
account number and/or address to receive your redemption
proceeds. Once your account has been opened you may cancel
the privilege by telephone or letter. Written instructions
with signature(s) guaranteed (see "Signature Guarantees,"
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. 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.
RISKS OF TELEPHONE TRANSACTIONS
The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such
procedures may include, among others, requiring some form of
personal identification prior to acting upon telephone
instructions, providing written confirmation of all such
transactions and/or tape recording all telephone
instructions. Assuming procedures such as those listed above
have been followed, the Fund will not be liable for any
loss, cost or expense for acting upon an investor's
telephone instructions or for any unauthorized telephone
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<PAGE>
redemption. As a result of this policy, the investor will
bear the risk of any loss unless the Fund has failed to
follow such procedure(s).
You cannot redeem shares by telephone if you hold the stock
certificates representing the shares you are redeeming or if
you paid for the shares with a personal, corporate, or
government check and your payment has been on the transfer
agent's books for less than 12 days. During drastic economic
and market changes, telephone redemption services may be
difficult to implement. If an investor is unable to contact
the transfer agent by telephone, shares may also be redeemed
by following the instructions for redeeming by mail.
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:
* Mail order redemptions in amounts greater than $25,000,
* Change of registration requests, and
* 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:
* On the written request for redemption,
* On a separate instrument of assignment ("stock power")
which should specify the total number of shares to be
redeemed, or
* 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.
HOW TO EXCHANGE SHARES
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 any of three Firstar
money market funds described below. There is no fee for
exchanges made by mail, but the transfer agent will charge
your account a $5.00 exchange fee every time you make an
exchange by telephone. 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 the New York Stock
Exchange, currently 4:00 p.m., on each day the exchange is
open for business).
Once an exchange request is made, either in writing or by
telephone, it may not be modified or canceled. The Trust
reserves the right to limit the number of exchanges or to
otherwise prohibit or restrict a shareholder(s) from making
exchanges at any time, should the Trustees determine that it
would be in the best interest of our shareholders to do so.
A shareholder(s) will be given at least 10 days written
notice prior to imposing restrictions or prohibition on
Exchange Privileges. An exchange, for tax purposes,
constitutes the sale of the shares of one fund and the
purchase of those of another; consequently, the sale will
usually involve either a capital gain or loss to the
shareholder for Federal income tax purposes. During drastic
economic and market changes, telephone exchange services may
be difficult to implement. The exchange privilege is only
available in states where the exchange may legally be made.
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<PAGE>
For further information about the Firstar Funds, call the
transfer agent at 1-800-224-4743, or write to Firstar Mutual
Funds Services, LLC, Mutual Fund Services - 3rd Floor,
PO Box 701, Milwaukee, Wisconsin 53201-0701.
The Firstar Money Market Funds made available to Merriman
Fund shareholders under this Exchange Privilege are: Firstar
U.S. Government Money Market Fund, Firstar Money Market Fund
and Firstar Tax-Exempt Money Market Fund. They 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 Firstar Funds,
Inc. whereby the Investment Manager receives 2/10 of 1% of
the average daily net value of shares of any fund offered by
Firstar Funds, Inc. which are beneficially owned by
shareholders of the Merriman Funds in return for providing
support services to said shareholders on behalf of Firstar.
OTHER SHAREHOLDER SERVICES
SYSTEMATIC WITHDRAWAL PLAN
The 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 AND OTHER RETIREMENT PLANS
Plan forms for the regular deductible IRA, Roth
nondeductible IRA, Simplified Employee Pension-Individual
Retirement Accounts ("SEP-IRA") and Savings Incentive Match
Plans ("SIMPLE") are furnished by the Trust 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 Funds. A $12.50 annual
maintenance fee per account (maximum of $25 for multiple
Merriman Fund IRA accounts) is charged by Firstar Mutual
Funds Services, LLC, who acts as IRA Custodian. A $15 fee
applies for each transfer to a Successor Custodian, each
distribution to a participant and for each refund of an
excess contribution. Shareholders who have an IRA or other
retirement plan must indicate on their redemption request
whether or not to withhold Federal income tax. Redemption
requests must indicate an election not to have Federal tax
withheld or they will be subject to withholding. If you are
uncertain of the redemption requirements, please contact
Firstar Mutual Funds Services, LLC 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
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to assist investors in establishing tax-deferred plans,
including those which permit investments in vehicles other
than the Merriman Funds.
TOLL-FREE INFORMATION LINES
The Funds provide toll-free information lines, staffed
during business hours for your convenience. Friendly,
experienced personnel answer your questions, solve problems
and provide current price quotes. For information about
opening accounts, retirement plans, requests for
prospectuses and account applications, call between 10 a.m.
and 7 p.m. Eastern Time, 800-423-4893. For information about
existing accounts, telephone exchanges and redemptions and
for assistance with investing by wire, call between 9 a.m.
and 8 p.m. Eastern Time, 800-224-4743.
SHAREHOLDER FEES
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 GAINS AND TAXES
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Shareholders will receive dividends from net investment
income, if any, quarterly for the High Yield Bond Fund and
annually for the other Funds. 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. You may receive dividends and/or capital gains
distributions in cash rather than shares of the Fund by so
indicating on the Account Application Form or by notifying
the Trust. 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 CONSEQUENCES
The Funds intend to make distributions that may be taxable
to shareholders, whether received in cash or reinvested in
additional Fund shares. Dividends from net investment income
and short-term capital gains will ordinarily be taxable to
shareholders as ordinary income. Long-term capital gains
distributions are taxable as long-term capital gains
regardless of how long shares of the Fund have been held.
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.
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Borrowing by the Leveraged Growth Fund may cause some of its
portfolio securities to be treated as "debt-financed."
Dividends paid to corporate shareholders from earnings on
such securities would be ineligible for the 70%
dividends-received deduction which might otherwise be
available to corporate shareholders.
Exchanges and redemptions are taxable events for Federal
income tax purposes; accordingly, capital gains or losses
may be realized.
Income (including dividends and distributions of short-term
capital gains) received by a Fund from underlying funds,
interest received on money market instruments, and net
short-term capital gains received by the Fund on the sale of
underlying fund shares, will be distributed by the Fund and
will be taxable to shareholders at ordinary income tax
rates. Investors in the Fund may experience a greater tax
liability than would result if they invested directly in the
underlying funds.
Distributions of long-term capital gains received by a Fund
from underlying funds, as well as net long-term capital
gains realized by a Fund from the sale (or redemption) of
underlying fund shares or other securities held by a Fund
for more than one year, will be distributed by the Fund and
will be taxable to shareholders as long-term capital gains
(even if the shareholder has held the shares for less than
six months). However, if a shareholder who has received a
capital gains distribution suffers a loss on the sale of his
shares not more than six months after purchase, the loss
will be treated as a long-term capital loss to the extent of
the capital gains distribution received.
For purposes of determining the character of income received
by a Fund when an underlying fund distributes long-term
capital gains to the Fund, the Fund will treat the
distribution as a long-term capital gain, even if it has
held shares of the underlying fund for less than one year.
However, any loss incurred by the Fund on the sale of that
underlying fund's shares after holding them for less than
six months will be treated as a long-term capital loss to
the extent of the gain distribution.
INVESTMENT APPROACH AND RISKS
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.
IMPLEMENTATION OF INVESTMENT OBJECTIVES
We follow a disciplined, systematic approach to the investment markets which
couples broad diversification with market timing. We believe that our approach
will result in less volatility and greater long-term total returns than by an
approach which emphasizes individual stock selection in a portfolio held through
periods of market growth and decline.
DEFENSIVE MANAGEMENT - ALL FUNDS
All the Funds employ a defensive strategy designed to reduce exposure to "market
risk," the investment risk associated with general stock and bond market
declines. In other words, we try to anticipate stock and bond market trends in
order to be "in the market" when it is going up and "out of the market" when it
is going down. This is sometimes called market timing. When we anticipate rising
market cycles, we fully invest Fund assets in the market. To preserve capital we
liquidate portfolio investments into money market instruments when we anticipate
market declines. We adjust the degree to which we respond to anticipated market
trends based upon our analysis of the strength or weakness of such trends.
Because various market sectors may not move in the same direction or with the
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same intensity at the same time, we may move Fund investments from weaker
sectors into stronger ones. For temporary defensive purposes, if we determine
that there is a substantial risk of a broad market decline because of adverse
market, economic, political or other conditions, we could retreat from the
market completely and invest 100% of a Fund's assets in money market
instruments.
FIXED INCOME PORTFOLIOS
HIGH YIELD BOND,
GROWTH & INCOME AND
ASSET ALLOCATION FUNDS
Underlying funds comprising the High Yield Bond Fund and
fixed income portions of the Growth & Income and Asset
Allocation Funds' portfolios invest, generally, in debt
securities, both domestic and foreign, having maturities
from 5 to 25 years. We invest aggressively in such mutual
funds when our technical analysis determines that favorable
conditions for investment exist. For the Growth & Income and
Asset Allocation Funds, this would generally be when the
trend in interest rates is stable to declining. In the case
of the High Yield Fund, this would generally be when
favorable prospects exist for obtaining high yields without
undue risk of price declines due to eroding credit, economic
and market conditions. We shift to mutual funds emphasizing
shorter maturities, higher quality investments or money
market instruments when, in our opinion, favorable
investment conditions no longer exist. By being fully
invested when market conditions are favorable, we believe
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 higher quality, shorter-term maturities and
money market instruments when interest rate, credit,
economic and market conditions are unfavorable, we may avoid
decreases in the market value of fixed income portfolio
investments, while we continue to earn interest income on
the alternative investments.
EQUITY PORTFOLIOS
CAPITAL APPRECIATION,
LEVERAGED GROWTH
AND PORTIONS OF THE
GROWTH & INCOME AND
ASSET ALLOCATION FUNDS
Underlying funds in the equity portfolios invest, generally,
in common stocks and securities convertible into common
stocks, both domestic and foreign. We will fully invest in
qualifying mutual funds when we anticipate a generally
rising trend in the equities market accompanied by little
risk of decline. But when we believe there is a risk of
market decline, we will adjust the portfolio to preserve
capital by liquidating market investments into money market
instruments. There are thousands of equity-oriented mutual
funds available, offering a multitude of investment
objectives and approaches. They cover various market sectors
and their management styles and performance histories vary
greatly. Some funds excel in rising markets, others in
stable or declining markets. We analyze and respond to the
various equity sectors separately. Thus, we could be fully
invested in one or more sectors or individual mutual funds,
while liquidating others. Our equity analysis evaluates
various technical data such as stock and stock index price
changes, market volume, momentum and other relevant
technical and economic data.
PROPRIETARY ANALYTICAL MODELS
We use an interrelated group of proprietary, econometric
analytical models to control the timing of portfolio
transactions. These models analyze diverse market technical
data to assist us in projecting trend changes in market
prices. Simply put, they generate buy and sell signals. The
models are used to analyze broad markets or discrete market
sectors. Even individual mutual funds may be monitored and
technically evaluated by the models. We may respond to buy
and sell signals generated for broad markets as well as for
discrete sectors or individual mutual 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.
BROAD DIVERSIFICATION - ALL FUNDS
In an effort to gain broad diversification, all Funds invest
primarily in the shares of unaffiliated investment
companies. These include "open-end" and "closed-end" funds,
or unit investment trusts. Open-end funds, which will
comprise the majority of Fund investments, continuously sell
their shares to the public and will purchase (redeem) their
shares from shareholders. "Closed-end" funds and unit
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investment trusts are typically traded on the open market
and do not continuously sell and redeem their shares. Mutual
funds give us several advantages over direct investment in
individual securities:
* Broader diversification.
* An excellent complement to the Funds' defensive
management strategy.
* A wide range of investment approaches, with over 9,000
funds in operation.
* Many professional portfolio management strengths,
skills and talents.
* Access to institutional funds not available to
individual investors.
All other factors being equal, we will prefer open-end
mutual funds which do not charge sales commissions or
redemption fees over other alternatives. But when we believe
the potential investment merits outweigh the added
transaction costs, we may invest in open-end mutual funds
that charge sales commissions or redemption fees and may
also purchase closed-end mutual funds or unit investment
trusts, in transactions involving customary brokerage fees.
Wherever possible, we will take advantage of volume
purchasing or other investment programs which reduce or
eliminate such transaction costs. The mutual funds in which
the Funds invest may incur distribution expenses in the form
of "12b-1 fees."
Under normal conditions, we will invest at least 65% of each
Fund's total assets in mutual funds having investment
objectives and strategies consistent with the respective
Fund's objectives. But we may invest in mutual funds which
do not share similar investment objectives as the Fund
making the investment. We select mutual funds primarily
based upon the degree to which we believe they will 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 those 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. Those willing to take greater
risk can generally be expected to outperform their more
conservative peers in rising market periods, but are also
likely to 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.
Our screening begins with an analysis of the investment
objectives, policies, and strategies of many mutual funds.
Acceptable candidates are then subjected to absolute and
risk-adjusted performance evaluation over various time
periods and market cycles. Each candidate is compared to
peer funds in their respective asset class. 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 we evaluate in selecting suitable mutual funds for
inclusion in a Fund's portfolio. All funds must be
registered in the United States, and we will not invest more
than 25% of a Fund's total assets in any one underlying fund
or in funds which concentrate their investments in any one
industry.
20
<PAGE>
OTHER IMPORTANT STRATEGIES
ACTIVE TRADING - ALL FUNDS
The Funds' strategy of defensive management results in
active trading. The Funds have no restrictions on portfolio
turnover, which 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.) Our strategy during volatile market conditions could
occasionally produce turnover rates exceeding 300%. High
portfolio turnover may result in greater capital gains (and
taxes on those gains) than with less active portfolios. To
the extent a Fund invests in mutual funds involving sales
commissions, redemption or brokerage fees, higher
transaction costs would impact shareholder returns. 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.
MONEY MARKET INSTRUMENTS - ALL FUNDS
Each Fund may invest in money market instruments as an
interest-earning substitute for cash-even up to 100% of
their assets for temporary defensive purposes. 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 our judgment. Mutual funds investing at least 80%
of their assets in money market instruments, or which hold
themselves out to be money market funds, are included in the
definition of money market instruments.
MASTER DEMAND NOTES
Master Demand Notes are unsecured debt obligations of U.S.
corporations which are redeemable upon demand. Master Demand
Notes permit a fund to invest fluctuating amounts at varying
rates of interest pursuant to direct arrangements between
the fund and the issuing corporation. We 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. Our
investment in the Master Demand Notes of any given issuer,
together with any other securities of such issuer, will be
limited to 5% of a Fund's total assets. Underlying funds may
invest up to 100% of their assets in Master Demand Notes.
INVESTMENT RISKS
Like all investments, the Funds involve risk. Because of risk, the value of Fund
shares will fluctuate and you could lose money. You should not invest your
short-term savings or emergency reserve money.
FIXED INCOME
INVESTMENT RISKS
HIGH YIELD BOND,
GROWTH & INCOME
AND ASSET ALLOCATION
FUNDS
The High Yield Bond Fund invests primarily, and the Growth &
Income and Asset Allocation Funds invest a portion of their
assets, in mutual funds which, in turn, invest in fixed
income securities. There are three types of risk associated
with fixed income investment: Interest Rate Risk, Credit
Risk and Call Risk.
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
21
<PAGE>
prices rise. Interest Rate Risk increases as average
maturity increases. The table illustrates the probable
effect of a 1% change in interest rates on three investment
grade bonds of varying maturities. Thus, to the extent an
underlying fund is invested in long-term maturities, its
interest rate risk will be high. We invest in long-term bond
funds only when we believe interest rates will be stable or
declining. Non-investment grade bonds are less subject to
interest rate risk than higher rated debt securities.
PERCENT INCREASE (DECREASE) IN THE
PRICE OF A PAR BOND YIELDING 5%
BOND 1% INTEREST 1% INTEREST
MATURITY RATE INCREASE RATE INCREASE
Short
2.5 years -2.29% +2.35%
Intermediate
10 years -7.43% +8.17%
Long
20 years -11.55% +13.67%
CREDIT RISK is associated with a borrower failing to make
payments of interest and principal when due. Credit Risk
increases as 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
non-investment grade 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. A
close-to-home example of this is when homeowners refinance
their home mortgages when interest rates fall. 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. Call
risk is also greater in cases where the financial condition
of issuers of non-investment grade bonds improves, allowing
them to refinance their debt at more favorable interest
rates.
NON-INVESTMENT GRADE SECURITIES RISKS
HIGH YIELD BOND,
GROWTH & INCOME
AND ASSET ACLLOCATION
FUNDS
The High Yield Bond Fund and, to a much lesser extent, the
Asset Allocation and Growth & Income Funds may invest in
mutual funds which invest in junk bonds. Junk bonds
generally provide higher yields than higher quality
securities, producing greater interest income for their
investors. But they 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.
Based upon information obtainable to us pertaining to
portfolio composition of underlying funds, the Asset
Allocation and Growth & Income Funds seek to limit their
exposure to non-investment grade securities (so called "junk
bonds") to 10% and 5% of their assets, respectively.
Non-investment grade 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. Non-investment grade 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
22
<PAGE>
available. Each Fund attempts to minimize fixed income risk
through broad diversification. 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. We will invest, through underlying funds, in
non-investment grade securities only if we believe the
investment opportunity mitigates the assumed risk.
EQUITY INVESTMENT RISKS
GROWTH & INCOME,
CAPITAL APPRECIATION,
ASSET ALLOCATION AND
LEVERAGED GROWTH FUNDS
The Growth & Income, Capital Appreciation, Asset Allocation
and Leveraged Growth Funds invest in underlying funds which,
in turn, invest in equity securities. Equity securities are
subject to fluctuations in the stock market, which has
periods of increasing and decreasing values along with long
periods of lackluster performance. Stocks have greater
volatility than debt securities. While greater volatility
increases risk, it offers the potential for greater reward.
The defensive strategy and broad diversification employed by
the Funds will not eliminate risk.
Underlying funds may emphasize investment in particular
sectors of the stock market or on particular types of
companies. Any such emphasis carries with it increased risks
of a special nature related to the sector or type of
company. Funds that use strategies such as options and
futures to protect their investments or increase their
income carry a risk that the prices of the options and
futures do not correlate with the values of the securities
in the fund's portfolio.
FOREIGN SECURITIES AND CURRENCY RISKS - ALL FUNDS
Underlying funds in which the Funds invest may, in turn,
invest up to 100% of their assets, in the securities of
foreign issuers. These issuers and the foreign securities
markets in which their securities are traded may not be as
highly regulated as domestic issues, there may be less
information publicly available about them and foreign
auditing requirements may not be the same as domestic
requirements. There may be delays in some countries in
settling securities transactions, in some cases up to six
months. In addition, foreign currency exchange rates may
adversely affect an underlying fund's value. Other political
and economic developments, including the possibility of
expropriation, confiscatory taxation, exchange controls or
other governmental restrictions could adversely affect
value. Under the Investment Company Act of 1940 (the "1940
Act"), a mutual fund may maintain its foreign securities in
the 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.
23
<PAGE>
LEVERAGE
LEVERAGED GROWTH FUND
The Leveraged Growth Fund may borrow (use leverage) for
investment purposes. In addition, the underlying funds in
which all the Funds invest may use leverage. The use of
leverage is a speculative technique, involving risks not
assumed by funds which do not employ leverage. The cost of
borrowed money may fluctuate with changing market rates of
interest. The fund using leverage 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 using leverage 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 higher transaction costs and expenses. When
employed, leveraging will tend to exaggerate the borrowing
fund's net asset value per share fluctuation. Net asset
value per share will increase more when a 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 increased investment
asset base-which fluctuates-is accompanied by a fixed
obligation in connection with the borrowed money.
The 1940 Act requires the fund using leverage to maintain
continuous asset coverage (that is, total assets including
loans, less liabilities exclusive of loans) of 300% of the
amount borrowed. If market fluctuations or other reasons
cause the required 300% asset coverage to decline, the
leveraged fund may be forced 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.
MANAGEMENT OF THE FUNDS
INVESTMENT MANAGER
Merriman Investment Management Company (Mimco) has been
investment manager of each Fund since Funds of the Trust
were first offered to the public in 1988. Management of the
Funds is Mimco's sole concern. Mimco's address is: 1200
Westlake Avenue North, Suite 700, Seattle, WA 98109. Its
duties include on-going management of the Fund's investment
portfolio and business affairs. In addition, the investment
manager provides certain executive officers to the Trust and
supplies office space and equipment not otherwise provided
by the Funds. The investment manager's compensation during
the last fiscal year, based on each Fund's average net
assets, was 1.00% from the High Yield Bond Fund and 1.25%
from each of the other Funds.
PORTFOLIO MANAGERS
Paul A. Merriman, the President and Chief Executive Officer
of the Investment Manager, founded the Trust in 1987, and
has been the principal officer responsible for the operation
of the computerized technical defensive management
disciplines ("models") employed by the Funds. He is also
founder and President of Merriman Capital Management, Inc.,
an investment advisory firm affiliated with the Investment
Manager from which the Funds will be obtaining defensive
management recommendations.
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 and for the day-to-day management of the Funds'
operations since the Trust was founded in 1987. Mr. Notaro
is an investment adviser with extensive executive and
operational experience in the securities field.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table for each Fund (on the following page) is intended
to help you understand the Fund's financial performance for the past five years.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Tait, Weller & Baker,
whose report, along with the Funds' financial statements, are included in the
Annual Report, which is available upon request.
<TABLE>
High Yield BOND FUND *
For a share outstanding throughout each year
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.96 $ 10.15 $ 10.74 $ 10.36 $ 10.23
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.43 0.46 0.63 0.60 0.63
Net gains (losses) on securities
(both realized and unrealized) (0.17) (0.19) (0.32) 0.38 0.13
----- ----- ----- ---- ----
Total from investment operations 0.26 0.27 0.31 0.98 0.76
---- ---- ---- ---- ----
Less Distributions
From investment income (0.43) (0.46) (0.67) (0.60) (0.63)
From capital gains - - (0.23) - -
----- ----- ----- ----- -----
Total distributions (0.43) (0.46) (0.90) (0.60) (0.63)
----- ----- ----- ----- -----
Net asset value, end of year $ 9.79 $ 9.96 $ 10.15 $ 10.74 $ 10.36
======= ======= ======= ======= =======
Total Return 2.66% 2.71% 3.03% 9.64% 7.62%
Net assets, end of year ($000's) $ 7,172 $ 7,976 $ 7,500 $ 9,220 $ 8,661
Ratio of expenses to average net assets 1.65%* 1.57%* 1.50% 1.46% 1.49%
Ratio of net investment income to average
net assets 4.27% 4.52% 5.93% 5.54% 6.05%
Portfolio turnover rate 774.04% 435.08% 206.12% 172.73% 139.77%
</TABLE>
* The Flexible Bond Fund changed its name to The High Yield Bond Fund and
changed its investment objective accordingly, effective January 1, 2000. The
data shown above reflect the Fund's performance prior to this change, and should
not be considered indicative of what the performance might have been if the Fund
had operated as a high yield fund.
<TABLE>
GROWTH & INCOME FUND
For a share outstanding throughout each year
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.34 $ 9.87 $ 12.96 $ 11.65 $ 11.32
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.13 0.08 0.32 0.19 0.27
Net gains (losses) on securities
(both realized and unrealized) 0.44 1.40 (0.17) 2.40 1.02
---- ---- ----- ---- ----
Total from investment operations 0.57 1.48 0.15 2.59 1.29
---- ---- ---- ---- ----
Less Distributions
From investment income (0.02) (0.15) (0.27) (0.24) (0.27)
From capital gains (0.78) (0.86) (2.97) (1.04) (0.69)
----- ----- ----- ----- -----
Total distributions (0.80) (1.01) (3.24) (1.28) (0.96)
----- ----- ----- ----- -----
Net asset value, end of year $ 10.11 $ 10.34 $ 9.87 $ 12.96 $ 11.65
======= ======= ======= ======= =========
Total Return 4.96% 13.61% 2.99% 24.11% 12.18%
Net assets, end of year ($000's) $ 8,323 $ 8,762 $ 8,518 $ 9,514 $ 8,702
Ratio of expenses to average net assets 1.81% 1.79% 1.75% 1.71% 1.77%
Ratio of net investment income
to average net assets 1.23% 0.68% 2.61% 1.42% 2.33%
Portfolio turnover rate 371.80% 276.73% 280.78% 105.11% 133.00%
</TABLE>
* Prior to reimbursement from advisor
25
<PAGE>
<TABLE>
CAPITAL APPRECIATION FUND
For a share outstanding throughout each year
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.99 $ 9.06 $ 12.02 $ 10.93 $ 11.69
Income from investment operations
Net investment income 0.26 0.15 0.19 0.06 0.19
Net gains (losses) on securities
(both realized and unrealized) 0.89 1.19 (0.74) 2.13 0.37
---- ---- ----- ---- ----
Total from investment operations 1.15 1.34 (0.55) 2.19 0.56
---- ---- ----- ---- ----
Less Distributions
From investment income (0.13) (0.06) (0.20) (0.06) (0.22)
From capital gains (0.99) (0.35) (2.21) (1.04) (1.10)
----- ----- ----- ----- -----
Total distributions (1.12) (0.41) (2.41) (1.10) (1.32)
----- ----- ----- ----- -----
Net asset value, end of year $ 10.02 $ 9.99 $ 9.06 $ 12.02 $ 10.93
======= ======= ======= ======== ========
Total Return 10.73% 14.83% (3.87)% 21.93% 5.69%
Net assets, end of year ($000's) $12,095 $12,243 $12,644 $ 15,567 $ 16,665
Ratio of expenses to average net assets 1.78% 1.81% 1.81% 1.79% 1.84%
Ratio of net investment income
to average net assets 1.69% 1.47% 1.64% 0.58% 1.74%
Portfolio turnover rate 469.11% 310.65% 446.18% 114.36% 254.77%
</TABLE>
<TABLE>
ASSET ALLOCATION FUND
For a share outstanding throughout each year
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 10.41 $ 9.70 $ 11.88 $ 11.61 $ 11.21
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.30 0.28 0.40 0.26 0.30
Net gains (losses) on securities
(both realized and unrealized) 0.33 0.84 (0.76) 1.27 0.50
---- ---- ----- ---- ----
Total from investment operations 0.63 1.12 (0.36) 1.53 0.80
---- ---- ----- ---- ----
Less Distributions
From investment income (0.26) (0.08) (0.48) (0.33) (0.16)
From capital gains (0.50) (0.33) (1.34) (0.93) (0.24)
----- ----- ----- ----- -----
Total distributions (0.76) (0.41) (1.82) (1.26) (0.40)
----- ----- ----- ----- -----
Net asset value, end of year $ 10.28 $ 10.41 $ 9.70 $ 11.88 $ 11.61
======= ======= ======= ======= =======
Total Return 5.73% 11.69% (2.57)% 14.43% 7.41%
Net assets, end of year ($000's) $ 9,604 $10,641 $12,168 $16,543 $17,733
Ratio of expenses to average net assets 1.84% 1.84% 1.84% 1.78% 1.82%
Ratio of net investment income
to average net assets 2.75% 2.63% 3.63% 2.26% 2.53%
Portfolio turnover rate 437.61% 327.72% 351.19% 161.57% 204.55%
</TABLE>
26
<PAGE>
<TABLE>
LEVERAGED GROWTH FUND
For a share outstanding throughout each year
<CAPTION>
YEARS ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 12.57 $ 10.66 $ 14.85 $ 12.30 $ 12.30
------- ------- ------- ------- -------
Income from investment operations
Net investment income 0.32 (0.06) 0.06 (0.20) (0.08)
Net gains (losses) on securities
(both realized and unrealized) 1.65 2.63 (1.18) 3.33 0.84
---- ---- ----- ---- ----
Total from investment operations 1.97 2.57 (1.12) 3.13 0.76
---- ---- ----- ---- ----
Less Distributions
From investment income - - (0.06) - -
From capital gains (1.58) (0.66) (3.01) (0.58) (0.76)
----- ----- ----- ----- -----
Total distributions (1.58) (0.66) (3.07) (0.58) (0.76)
----- ----- ----- ----- -----
Net asset value, end of year $ 12.96 $ 12.57 $ 10.66 $ 14.85 $ 12.30
======= ======= ======= ======= =======
Total Return 14.67% 24.33% (6.71)% 26.66% 6.85%
Net assets, end of year ($000's) $20,704 $18,754 $15,488 $17,785 $15,694
Ratio of expenses to average net assets (a) 1.88% 2.60% 3.13% 4.13% 3.70%
Ratio of net investment income
to average net assets 2.26% (0.46)% 0.46% (1.52)% (0.78)%
Portfolio turnover rate 440.73% 307.56% 351.46% 130.36% 247.36%
</TABLE>
(a) Expenses include interest expense of 0.14%, 0.83%, 1.38%,
2.36% and 1.95% for 2000, 1999, 1998, 1997 and 1996,
respectively
INFORMATION RELATING TO OUTSTANDING DEBT DURING THE YEAR SHOWN BELOW.
<TABLE>
<CAPTION>
Average Average Average
Amount of Debt Amount of Debt Number of Shares 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, 2000 - $ 196,311 1,585,622 $0.12
September 30, 1999 - $1,708,403 1,475,597 $1.16
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
</TABLE>
27
<PAGE>
ADDITIONAL INFORMATION
The Merriman Investment Trust provides additional information, at no cost, about
the High Yield Bond Fund, the Growth & Income Fund, the Capital Appreciation
Fund, the Asset Allocation Fund and the Leveraged Growth Fund in its Annual and
Semi-Annual Reports to Shareholders and its Statement of Additional Information
(SAI), both of which are incorporated by reference in their entirety into this
Prospectus.
CONTACT THE MERRIMAN FUNDS
Call us toll-free 1-800-423-4893 if you want to receive the
SAI and the Funds' annual and semi-annual reports. During
business hours, friendly, experienced personnel will answer
your questions, provide investment forms and applications,
assist with shareholder needs and provide current share
prices. After hours, current prices are provided
electronically and you may leave messages for our service
personnel to be addressed the next business day. You may
also write to us: The Merriman Funds, 1200 Westlake Avenue,
North, Suite 700, Seattle, WA 98109. Web Site:
www.merrimanfunds.com. E-mail: [email protected].
CONTACT THE S.E.C.
Contact the Securities and Exchange Commission. Information
about The Merriman Investment Trust, including the SAI can
be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC.
Information on the operation of the public reference room
may be obtained by calling the Commission at 1-202-942-8090.
Reports and other information about The Merriman Investment
Trust and the Funds are also available on the EDGAR Database
on the Commission's Internet site at http://www.sec.gov.
Copies of this information may be obtained, after paying a
duplicating fee: by electronic request at the following
E-mail address, [email protected], or; by writing the
Commission's Public Reference Section, Washington, DC
20549-0102.
Investment Company Act File No. 811-5487
GRAPHIC OMITTED MERRIMAN
INVESTMENT TRUST
28
<PAGE>
GRAPHIC OMITTED MERRIMAN
INVESTMENT TRUST
STATEMENT HIGH YIELD BOND FUND
OF ADDITIONAL INFORMATION
February XX, 2001 GROWTH & INCOME FUND
CAPITAL APPRECIATION FUND
ASSET ALLOCATION FUND
LEVERAGED GROWTH FUND
This Statement of Additional Information is not a
prospectus. A copy of the Funds' prospectus, dated February
XX, 2001, is available without charge upon written or
telephone request to The Merriman Investment Trust, as shown
below:
Mail: The Merriman Investment Trust
1200 Westlake Avenue, North, Suite 700
Seattle, WA 98108
Phone: 1-800-423-4893 or 1-206-285-8877
Email: [email protected]
The SAI should be read in conjunction with the prospectus
for an understanding of the Funds. The Annual Report of the
Merriman Investment Trust is incorporated by reference into
the SAI, and is also available free of charge by calling or
writing.
TABLE OF CONTENTS
INTRODUCTION ..............................................1
INVESTMENT OBJECTIVES AND POLICIES ........................1
Defensive Management ....................................1
Broad Diversification....................................2
Types of Investments.....................................3
Other Strategies and Techniques..........................4
Hedging Strategies, Options and Futures Contracts .......8
Other Transactions .....................................12
INVESTMENT RESTRICTIONS ..................................12
SPECIAL SHAREHOLDER SERVICES .............................14
Regular Account ........................................14
Systematic Withdrawal Plan .............................15
Retirement Plans .......................................15
Exchange Privilege .....................................17
Redemptions in Kind ....................................17
Transfer of Registration ...............................17
PURCHASE OF SHARES .......................................18
REDEMPTION OF SHARES .....................................18
NET ASSET VALUE DETERMINATION ............................18
TRUSTEES AND OFFICERS ....................................19
5% SHAREHOLDERS ..........................................20
INVESTMENT MANAGER .......................................20
MANAGEMENT AND OTHER SERVICES ............................21
BROKERAGE ................................................22
ADDITIONAL TAX INFORMATION ...............................22
CAPITAL SHARES AND VOTING ................................23
FINANCIAL STATEMENTS AND REPORTS..........................24
PERFORMANCE...............................................24
APPENDIX .................................................26
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INTRODUCTION
This Statement of Additional Information is designed to be read in conjunction
with the Prospectus for a complete understanding of the business of the Trust
and its Funds. Definitions used in the Prospectus have the same meaning in this
SAI.
Merriman Investment Trust (the "Trust"), a Massachusetts business trust
organized in 1987, is an open-end, management investment company. The Trust is
designed to provide an opportunity for investors to pool their money to achieve
economies of scale and professional management. The Trust currently issues
shares of five diversified portfolios ("Funds"), and the Board of Trustees may
establish additional portfolios at any time. The Funds are the Merriman High
Yield Bond Fund (the "High Yield Bond Fund"), the Merriman Growth & Income Fund
(the "Growth & Income Fund"), the Merriman Capital Appreciation Fund (the
"Capital Appreciation Fund"), the Merriman Asset Allocation Fund (the "Asset
Allocation Fund") and the Merriman Leveraged Growth Fund (the "Leveraged Growth
Fund"). The Funds' principal strategies, including their election to invest
their assets primarily in the shares of other mutual funds are described in the
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
As discussed in the Prospectus with respect to each of the Funds, we employ two
key strategies in seeking to accomplish the Funds' investment objectives:
Defensive Management, sometimes called market timing, and Broad Diversification,
which we attempt to accomplish by investing in other, unaffiliated mutual funds.
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, 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 Merriman Capital
Management, Inc. ("MCMI"), 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 MCMI since August, 1983,
and the International Model since January, 1988, to manage investments for
MCMI'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, MCMI 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.
DEFENSIVE
MANAGEMENT RISKS
We try to minimize market risk through the defensive management strategies
described in the prospectus. Our defensive strategies involve the use of
analytical tools and techniques which seek to anticipate changes in market
trends which impact the securities markets in which the Funds' invest. Based
upon our expectation of such trend changes, we restructure the Funds' investment
portfolios to maximize potential returns or avoid losses. We can not assure you
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that we will be consistently accurate in our expectations or in our subsequent
portfolio restructuring. If we are wrong in our expectations, opportunities for
gains or income may be lost or you could lose money.
BROAD
DIVERSIFICATION
As described in the Prospectus, the Funds invest primarily in the shares of
other investment companies (commonly called "mutual funds"). The mutual funds in
which the Funds invest will be registered in the United States and will be
managed by a number of investment advisors. We 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 Funds believe that this risk exposure is effectively reduced by
investing in a diversified portfolio of mutual funds.
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.
BROAD
DIVERSIFICATION RISKS
The Funds may own shares of mutual funds which invest up to 100% of their assets
in equity securities (including securities convertible into common stock) or 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). Such securities
may be domestic or foreign and of varying quality. The underlying funds may
concentrate their investments in one industry and invest up to 15% of their
total assets in illiquid securities. They 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. Simply put, they may engage in a myriad of strategies and
approaches to the investment markets.
HIGHER COSTS. Although the Funds will invest in a number of mutual funds, this
practice will not eliminate all risks. By investing in underlying funds,
investors indirectly pay higher operating costs than if they invested directly
in the underlying funds. To offset higher costs, we attempt to identify and
invest in underlying funds which have demonstrated superior management skills,
better performance and lower operational costs than most. We monitor over 3,000
mutual funds in our investment screening process. These funds have expense
ratios ranging from 0.02% to 9.47%, with an average of 1.60%. While we remain
flexible with respect to the expense ratios of underlying funds, we seek to
maintain a portfolio average ranging from 0.80% to 1.50%.
LACK OF CONTROL OVER UNDERLYING FUNDS. We have no control over, or day-to-day
knowledge of, the investment decisions of the underlying funds. For example, it
is possible that the management of one underlying fund may be purchasing a
particular security at or near the same time that 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 mutual funds
poses certain correlation problems. For example, we may invest in an underlying
fund in anticipation of rising market prices while, at the same time, the
underlying fund may be investing defensively. In such event, the Fund would lose
the expected benefit of its ownership of the underlying fund either for as long
as it retained its investment or until the management of the underlying fund
repositioned its portfolio. Through their investment in mutual funds, the Funds
may indirectly concentrate their assets in one industry. Such indirect
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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.
REGULATORY CONSIDERATIONS. A Fund, together with its affiliates (including the
other Funds and the privately managed accounts of the Investment Manager and its
affiliates), may not invest in an underlying fund if, as a result, the Fund and
its affiliates together own more than 3% of the total assets of the underlying
fund. We will monitor the holdings of each Fund and of any such privately
managed accounts in order to comply with the limitations. An underlying fund
may, under the 1940 Act, elect not to redeem shares in excess of 1% of such
underlying fund's outstanding shares during any period of less than 30 days.
Therefore, should a Fund hold greater than 1% of an underlying fund's shares,
the holdings in excess of 1% would be considered illiquid securities and,
together with other such securities, would be subject to fundamental Fund
policies limiting such holdings to 10% of that Fund's total assets. Because of
these limitations, a Fund may not be able to purchase the shares of certain
mutual funds we believe to be most desirable, but may have to seek alternate
investments. An underlying fund may, under certain conditions, elect to effect
redemptions we order 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 we believe 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.
TYPES OF
INVESTMENTS
HIGH YIELD
BOND FUND
The underlying 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, we seek to
have the majority of the Fund's assets invested in mutual funds which invest in
non-investment grade corporate bonds (those rated BB or below by Standard &
Poor's Corporation ("S&P") or Ba or below by Moody's Investors Service, Inc.
("Moody's")). But we are flexible as to the mix of portfolio securities with
respect to issuer, type, maturity, and quality. We invest in those segments of
the fixed-income market which, in our opinion, afford the greatest opportunities
to achieve the Fund's objectives. From time to time we may emphasize long,
intermediate or short maturities, higher or lower yields or quality grades. To
the extent information is available to us relating to the portfolio composition
of the funds in which we invest, we will limit investments in the securities of
foreign issuers to no more than 35% of total assets. Under normal conditions,
the Fund will have at least 65% of its assets invested in funds which invest
primarily in non-investment grade fixed income securities.
GROWTH &
INCOME FUND
The underlying 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. We will include funds in the Fund's
portfolio which, in our opinion, offer the best available prospects-when taken
as a whole for long-term growth of capital and income.
CAPITAL
APPRECIATION FUND
Underlying funds included in the Fund's portfolio will generally have a growth
or aggressive growth oriented 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. We may also invest in funds having other than
growth or aggressive growth objectives if, in our opinion, the investment would
enhance the ability of the Fund to achieve its objective of capital
appreciation. As one 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
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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 we use, will not be considered as
a significant factor in the selection of securities for investment. Under normal
conditions, the Fund will have at least 65% of its assets invested in mutual
funds which invest primarily for growth or capital appreciation.
ASSET
ALLOCATION FUND
We allocate the Fund's assets among five market segments: domestic and
international equities, domestic and international fixed income, 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). We are flexible with respect to the percentage
allocation to each market segment, but can generally be expected to have the
majority of Fund assets allocated to the equities and fixed income market
segments. By allocating Fund 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. We believe that such diversification will
reduce risks to the Fund and its shareholders. Defensive management strategies
will be applied separately as to each segment of the Fund's portfolio.
LEVERAGED
GROWTH FUND
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.
The Fund may borrow money for investment purposes as we deem appropriate. Such
borrowing, commonly known as leverage, exaggerates the effect upon net asset
value of increases and decreases in the market value of the Fund's portfolio.
Accordingly, we will use leverage, in conjunction with our defensive management
strategy, only when we believe a rising trend in the stock market, accompanied
by little risk of decline, is strongly indicated. We may pledge the Fund's
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, we may borrow up to $1 for
each $2 of net assets.
OTHER STRATEGIES
AND TECHNIQUES
FIXED INCOME
INVESTMENTS
HIGH YIELD BOND, GROWTH & INCOME
AND ASSET ALLOCATION FUNDS
U.S. GOVERNMENT SECURITIES. Underlying funds may invest in U.S. Government
Securities which include, for our purposes, 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 when issued), U.S. Treasury
notes (mature in one to seven years when issued), and U.S. Treasury bonds
(mature in more than seven years when issued), 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. Obligations of GNMA, FNMA and FHLMC may include direct pass-through
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"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. To the extent we can ascertain the portfolio composition of underlying
funds, we limit each Fund's investment in such Certificates to 5% of the Fund's
total assets.
CORPORATE DEBT SECURITIES. Underlying funds may invest in corporate debt
securities, which include investment grade and non-investment grade 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). Non-investment
grade debt securities (so called "junk bonds") are securities which are rated BB
or below by S&P or Ba or below by Moody's. To the extent we can ascertain the
portfolio composition of underlying funds, we limit the Asset Allocation and
Growth & Income Funds' investments in non-investment grade bonds to 10% and 5%,
respectively, of the Fund's total assets. The Appendix contains a more detailed
description of Moody's and S&P's ratings.
LENDING PORTFOLIO
SECURITIES
In order to earn additional income on its portfolio securities, each Fund and
the underlying funds in which the Funds invest may lend up to 33% of the value
of its portfolio securities to brokers, dealers and other financial
institutions, provided that such loans are callable at any time by the Fund and
are at all times secured by collateral, consisting of cash or U.S. Government
Securities, or any combination thereof, equal to not less than 100% of the
market value, determined daily, of the securities loaned. Although the
limitation on the amount of securities any Fund may lend is a fundamental
policy, the particular practices followed in connection with such loans are not
deemed fundamental and may be changed by the Board of Trustees without the vote
of the Fund's shareholders. While each Fund reserves the right to lend its
portfolio securities, it has not done so in the past and has no present
intention of doing so in the future.
DELAYED DELIVERY
AND WHEN-ISSUED SECURITIES
Underlying funds and the High Yield Bond, Growth & Income and Asset Allocation
Funds may 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 High Yield Bond, Growth & Income and Asset
Allocation Funds reserve the right to purchase Delayed Delivery and When-Issued
securities, they have not done so in the past and have no present intention of
doing so in the current fiscal year.
ZERO COUPON
BONDS
The High Yield 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
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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.
HIGH YIELD
BONDS
The High Yield Bond Fund, Growth & Income and Asset Allocation Funds may,
directly or through investment in underlying funds, invest in High Yield Bonds,
or so-called "junk bonds." To the extent information about underlying funds is
available to us, the Growth & Income and Asset Allocation Funds attempt to limit
investment in high yield bonds to 10% of their respective total assets. The
underlying funds in which the Funds invest may invest up to 100% of their assets
in High Yield Bonds. You should familiarize yourself with the risks of investing
in High Yield Bonds. (See also the Prospectus, "Fixed Income Investments.") You
should be aware that the widespread expansion of government, consumer and
corporate debt within our economy has made the corporate sector, especially
cyclically sensitive industries, more vulnerable to economic downturns or
increased interest rates. An economic downturn could severely disrupt the market
for High Yield Bonds and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest, leading to an increased
risk of default. If the issuer of a bond defaulted, the holder may incur
additional expenses to seek recovery. Periods of economic uncertainty and change
can be expected to result in increased volatility of market prices of High Yield
Bonds and, consequently, to the extent held by a Fund or underlying funds, the
value of the Fund. High Yield Bonds structured as zero coupon securities are
affected to a greater extent by interest rate changes and thereby tend to be
more volatile than securities which pay interest periodically.
High Yield Bonds may contain redemption or call provisions. If an issuer
exercises these in a declining interest rate market, a fund holding such bonds
would have to replace the security with a lower yielding security, resulting in
a decreased return for the shareholders. Conversely, a High Yield Bond's value
will decrease in a rising interest rate market, as will the net asset value of
any fund holding them. If a fund experiences unexpected net redemptions, it may
be forced to sell its High Yield Bonds at a time when it would not otherwise
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 you 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. See the Appendix,
"Description of Bond Ratings".
While the High Yield Bond, Growth & Income and Asset Allocation Funds reserve
the right to invest directly in high-yield bonds, they have not done so in the
past and have no present intention of doing so in the current fiscal year.
CONCENTRATION
An underlying mutual fund may concentrate its investments in a single industry
(but the Funds limit investment in any one underlying fund to no more than 25%
of the total assets of each Fund). The value of shares of such an underlying
fund may be subject to greater market fluctuation because investment
alternatives within a single industry are more limited than for the market as a
whole.
BORROWING
The Leveraged Growth Fund borrows for investment purposes as described in the
Prospectus. The High Yield 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
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might otherwise require untimely disposition of the Fund's securities.
Underlying funds in which the Funds invest may borrow up to 33.3% of total
assets for the purpose of increasing portfolio holdings. Because of such
leveraging, the effects of market price fluctuations on the portfolio net asset
value of the Leverage Growth Fund and underlying funds will be exaggerated.
Interest and other transaction costs would be incurred in connection with
borrowing.
ILLIQUID AND
RESTRICTED SECURITIES
The Funds may invest not more than 10%, and underlying funds not more than 15%
(money market funds are limited to 10%) of their respective net assets in
illiquid securities (repurchase agreements maturing in over seven days, certain
over-the-counter options and other securities for which there is no readily
available market, ) and restricted securities (securities which would be legally
restricted from resale). If a fund holding such securities decides to sell them,
a considerable period of time could elapse until it is able to sell them. During
that period, the market value of such securities (and therefore the market value
of the particular fund) could decline.
FOREIGN ISSUERS
AND CURRENCIES
Each Fund reserves the right to make direct investments in foreign securities
(up to 5% of its respective total assets). During the past year the Funds have
not made such investments, and each Fund has no present intention of doing so
within the current fiscal year. However, an underlying fund may invest up to
100% of its assets, in the securities of foreign issuers. These issuers and the
foreign securities markets in which their securities are traded may not be as
highly regulated as domestic issues, there may be less information publicly
available about them and foreign auditing requirements may not be the 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 and the underlying funds may purchase debt 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
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therefore resell the instrument promptly. Under guidelines issued by the
Trustees, the Investment Manager will carefully consider the credit worthiness
of any vendor of repurchase agreements prior to entering into a repurchase
agreement and will monitor such vendor's credit worthiness during the term of
the repurchase agreement. Repurchase agreements can be considered as loans
"collateralized" by the Resold Securities, such agreements being defined as
"loans" in the Investment Company Act of 1940, as amended (the "1940 Act"). The
return on such "collateral" may be more or less than that from the repurchase
agreement. The market value of the resold securities will be marked to market
daily and monitored so that the value of the "collateral" is at all times at
least equal to the value of the loan, including the accrued interest earned
thereon. All Resold Securities will be held by the Fund's custodian either
directly or through a securities depository. While the Funds limit their direct
repurchase agreement transactions to U.S. Government Securities, underlying
funds may not have such limitations. Lower quality securities underlying a
repurchase agreement transaction would involve potentially greater risk.
SHORT
SELLING
An underlying fund may engage in short selling (the sale of a security it does
not own). In order to make delivery, it borrows the needed securities from a
broker and replaces them at a later time by purchasing them in the open market.
The price paid may be more or less than the price received when the securities
were sold short. The broker retains the proceeds from the short sale 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. 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.
HEDGING STRATEGIES-
OPTIONS AND FUTURES CONTRACTS
The Investment Manager may employ, but has not employed and has no present
intention to employ during the current fiscal year, 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.
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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
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
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securities underlying the call are expected to decline or remain stable. When
the fund writes a covered put option, it gains a premium payment but, so long as
the option remains open, assumes an obligation to purchase the underlying
security at the strike price from the purchaser of the put, even though the
current price of the security may fall below the strike price. A fund would
normally write a put option when the price of the securities underlying the put
are expected to rise or remain stable. If the price were to decline, the fund
might be required to purchase the underlying securities from the holder of the
put at a price greater than the current market price. So long as the option
writer's obligation remains open, the writer may be assigned an exercise notice
through the Options Clearing Corporation. The writer would, in such case, be
required to deliver, in the case of a call, or take delivery, in the case of a
put, the underlying security against payment of the exercise price. Upon
expiration of the option, the obligation terminates. A fund may purchase options
in closing transactions to terminate its obligations under options it has
written. A closing transaction is the purchase of an option covering the same
underlying security having the same strike price and expiration date (assuming
availability of a secondary market) as the option the fund seeks to "close out."
Once an option is exercised, the writer may not enter into a closing
transaction. If the cost of a closing transaction, plus transaction costs, is
greater than the premium received by the fund upon writing the original option,
the fund will incur a loss in the transaction.
OPTIONS ON TREASURY BONDS AND NOTES. Interest in Treasury Bonds and Notes tends
to center on the most recently auctioned issues. The Exchanges, however, will
not indefinitely continue to introduce new options series with expirations to
replace expiring options on particular issues, but will likely limit new issues
to a limited number of new expirations while allowing old expirations introduced
at the commencement of options trading to run their course. Thus, options
trading on each new series of Bonds or Notes will be phased out and there will
no longer be a full range of expiration dates available for every series on
which options are traded.
OPTIONS ON TREASURY BILLS. Writers of Treasury Bill call options cannot provide
in advance for their potential exercise settlement obligations by acquiring and
holding the exact underlying security, because the deliverable Treasury Bill
changes from week to week.
OPTIONS - SECONDARY MARKET. If a fund, as a covered call option writer, is
unable to effect a closing transaction because a liquid secondary market is not
available at the time the fund desires to effect such a transaction, the fund
will not be able to sell the security underlying the call option until the
option expires or the fund delivers the underlying security upon exercise. There
are several reasons that a liquid secondary market may not exist at any given
time. They include: insufficient trading interest in certain options;
restrictions on certain transactions imposed by an Exchange; trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; interruption of the normal
operations on an Exchange; inadequate facilities of an Exchange or the OCC to
handle trading volume; or a decision by one or more Exchanges to discontinue the
trading of options (or a particular series or class of options), in which event
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
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Certificates on the Chicago Board of Trade and with respect to U.S. Treasury
bills on the International Monetary Market at the Chicago Mercantile Exchange.
STOCK INDEX FUTURES CONTRACTS. An underlying fund might sell a futures contract
to hedge an anticipated decline in stock market prices, in lieu of, or to
supplement hedging individual securities in the fund's portfolio. Conversely, a
fund might purchase a futures contract in anticipation of a rise in stock market
prices. Stock Index Futures Contracts obligate the seller to deliver (and the
purchaser to take) cash to settle the futures transaction, or to enter into an
offsetting contract. No physical delivery of the underlying stocks in the index
is made. Futures Contracts can be purchased and sold on the Standard & Poor's
500 Index on the Chicago Mercantile Exchange and on the Major Market Index on
the Chicago Board of Trade.
OPTIONS ON STOCK INDICES AND FUTURES CONTRACTS. Underlying funds may also
purchase options on futures contracts and may write (sell) covered options to
buy or sell futures contracts. An option on a futures contract gives the
purchaser, in return for a premium paid, the right to assume a position in the
futures contract (a purchase if the option is a call and a sale if the option is
a put). The writer, if the option is exercised, is required to assume an
offsetting futures position (a sale if a call and a purchase if a put). Exercise
of the option is accompanied by the delivery of the accumulated cash balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the strike price of the option on
the futures contract. A fund may enter into "closing" transactions on futures
contracts and options thereon in order to terminate existing positions.
An underlying fund may purchase or sell options on Government Futures Contracts.
Those currently available include options on futures contracts on U.S. Treasury
Bonds, U.S. Treasury Notes and Cash Settled GNMA's on the Chicago Board of
Trade. Options on Government Futures Contracts are similar to options on other
securities, except that the related investment is a futures contract. Thus, the
buyer of a call option obtains the right to purchase a futures contract at a
specified price during the life of the option, and the buyer of a put option
obtains the right to sell a futures contract at a specified price during the
life of the option. The options are traded on an expiration cycle based on the
expiration cycle of the underlying futures contract.
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.
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At any time prior to expiration of the futures contract, a fund may elect to
close its position by taking an offsetting position which will operate to
terminate the fund's position in the futures contract. While futures contracts
on U.S. Government securities provide for the delivery and acceptance of
securities, most futures contracts, including stock index futures contracts, are
terminated by entering into offsetting transactions. Because of the low margin
deposits required, futures trading involves a high degree of leverage. As a
result, a relatively small price movement in a futures contract may result in
immediate and substantial loss, as well as gain, to the investor. For example,
if at the time of purchase, 10% of the value of the futures contract is
deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit, if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the offsetting securities positions of the portfolio which are being
hedged would, in most cases, substantially alleviate the loss incurred in the
futures contract. In addition, a fund would presumably have sustained comparable
losses if, instead of the futures contract, the fund had invested in the
underlying financial instrument and sold it after the decline. Furthermore, in
the case of a futures contract purchase, in order to be certain that a fund has
sufficient assets to satisfy its obligations under a futures contract, the fund
earmarks to the futures contract money market instruments equal in value to the
current price of the underlying instrument less the margin deposit.
A clearing corporation associated with the commodity exchange on which a Futures
Contract trades assumes responsibility for the completion of transactions and
guarantees that Futures Contracts will be performed.
The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in stock market and/or interest rates,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events. A decision of whether, when, and
how to hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or interest
rate trends.
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.
OTHER
TRANSACTIONS
The Funds intend to invest primarily in mutual funds as described herein and in
the Prospectus. But they may also, subject to the limitations described in the
Prospectus and this SAI, invest directly in any equity or fixed-income security
that the underlying funds may hold. Such direct investment would be made only
when, in the opinion of the Investment Manager, the expected benefits would
exceed that available by investment in funds.
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:
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(1) Issue senior securities, borrow money or pledge its assets, except that
each Fund may borrow from banks as a temporary measure for extraordinary or
emergency purposes in amounts (taken at the lower of cost or current value)
not exceeding 5% or, in order to meet redemption requests which might
otherwise require untimely disposition of portfolio securities, 33.3% of
its total assets (not including the amount borrowed) and may pledge its
assets to secure such loans. So long as loans are outstanding, the Fund(s)
(except for the Leveraged Growth Fund) will not purchase any securities.
For the purpose of this restriction, collateral arrangements and initial
and variation margin with respect to the purchase and sale of delayed
delivery and when-issued securities, futures contracts and options are not
deemed to be a pledge of assets and neither such arrangements nor the
purchase or sale of futures contracts or options are deemed to be the
issuance of a senior security. In addition to the foregoing, the Leveraged
Growth Fund may borrow for investment purposes as set forth elsewhere in
the Prospectus and Statement of Additional Information;
(2) Make loans of money or securities, except the Fund may (a) purchase debt
obligations in accordance with its investment objectives and policies, (b)
lend its portfolio securities (up to 33% of the value of its total assets)
as permitted under the Investment Company Act of 1940, as amended, and (c)
invest in repurchase agreements (but repurchase agreements having a
maturity of longer than 7 days, together with illiquid assets, are limited
to 10% of the Fund's total assets);
(3) Invest more than 25% of the Fund's total assets in the securities of any
one investment company, except as part of a merger, consolidation of other
acquisition.
(4) Purchase or sell commodities or commodity contracts, real estate or other
interests in real estate except that the Fund may: invest in (a) securities
secured by real estate, securities of companies which invest or deal in
real estate; and (b) futures contracts and options thereon (subject to
number 5, 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
High Yield Bond Fund and the Asset Allocation Fund pertaining to U.S.
Government Securities, all Funds except the High Yield Bond Fund pertaining
to stocks and stock indices and the Asset Allocation Fund pertaining to
commodities and currencies related to its portfolio securities, the Fund
may: (a) purchase put and call options: (b) write covered put and call
options provided that the aggregate value of the obligations underlying the
put options will not exceed 50% of the net assets: (c) purchase and sell
futures contracts; and (d) purchase options on futures contracts and sell
covered options thereon, provided that the aggregate premiums paid on all
such options which are held at any time do not exceed 20% of the Fund's net
assets and the aggregate margin deposits required on all such futures
contracts or options thereon held at any time do not exceed 5% of the
Fund's total assets.
(6) As to 75% of it's total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (U.S. Government
Securities are not subject to this limitation);
(7) Purchase more than 10% of the outstanding voting securities or of any class
of securities of any one issuer (U.S. Government Securities are not subject
to this limitation);
(8) Invest more than 25% of the value of its total assets in any industry or
group of industries other than investment companies (except that U.S.
Government Securities are not subject to these limitations);
(9) Invest more than 5% of its total assets in securities of issuers (other
than U.S. Government Securities and investment companies) which together
with their predecessors, have a record of less than three years' continuous
operation;
(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;
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(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 and in the Statement of Additional Information;
(17) Make short sales of securities or maintain a short position, except short
sales "against the box." (A short sale is made by selling a security a Fund
does not own. A short sale is "against the box" to the extent that a Fund
contemporaneously owns or has the right to obtain at no additional cost
securities identical to those sold short.) (The purchase of put options as
described in the prospectus is not a short position for the purposes of
this restriction.);
(18) Participate on a joint or joint and several basis in any trading account in
securities;
(19) Purchase foreign securities in excess of 5% of the Fund's total assets
(ADRs 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
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
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specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in a shareholder account may be requested by a
shareholder.
SYSTEMATIC
WITHDRAWAL PLAN
Shareholders owning shares of a Fund with a value of $10,000 or more may
establish a Systematic Withdrawal Plan. A shareholder may receive monthly or
quarterly payments, in amounts of not less than $50 per payment, by authorizing
the Transfer Agent to redeem the necessary number of shares periodically (each
month), or quarterly in the months of January, April, July and October) in order
to make the payments requested. Share certificates for the shares being redeemed
must be held by the Transfer Agent. If a check is used to pay the redemption
proceeds, it will be made payable to the designated recipient and mailed within
7 days of the valuation date. If the designated recipient is other than the
registered shareholder, the signature of each shareholder must be guaranteed on
the application (see "Signature Guarantees" in the Prospectus). A corporation
(or partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. There is no charge for the
use of this plan. Shareholders should be aware that such systematic withdrawals
may deplete or use up entirely their initial investment and may result in
realized long-term or short-term capital gains or losses. The Systematic
Withdrawal Plan may be terminated at any time by the Trust upon thirty day's
written notice or by a shareholder upon written notice to the Transfer Agent.
Applications and further details may be obtained by calling the Transfer Agent
at 1-800-224-4743, or by writing to Merriman Mutual Funds, c/o Firstar Trust
Company, 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)
Shares of the Fund may be purchased as an investment for an IRA account,
including those established by employers as Simplified Employee Pension-IRAs
("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 ("the
Code"), and assistance in opening a plan may be obtained from the Trust by
calling 1-800-423-4893. The following discussion is intended as a general and
abbreviated summary of the applicable provisions of the Code and related
Treasury regulations currently in effect. It should not be relied upon as a
substitute for obtaining personal tax or legal advice.
DEDUCTIBLE IRA. Generally, a person may make deductible contributions out of
earned income to an IRA up to $2,000 each year. However, persons who are active
participants in employer sponsored pension plans ("Employer Plans") are subject
to certain restrictions on deductibility under the Internal Revenue Code of
1986, as amended by the Taxpayer Relief Act of 1997 ("the Code"). The
restrictions for the calendar year 1998, applicable to active participants in
Employer Plans, are as follows:
A single person who has an adjusted gross income of $30,000 or more, but not
exceeding $40,000, is allowed to deduct a portion of his IRA contribution. That
portion decreases proportionately to the extent the individual's income exceeds
$30,000. No deduction is allowed where the single person's adjusted gross income
exceeds $40,000.
15
<PAGE>
A married couple filing a joint return with adjusted gross income of $50,000 or
more, but not exceeding $60,000, is also allowed to deduct a portion of their
IRA contributions. That portion decreases proportionately to the extent the
couple's adjusted gross income exceeds $50,000. No deduction is allowed where
the couple's adjusted gross income exceeds $60,000.
A married couple filing jointly where one spouse does not participate and the
other spouse does participate in an Employer Plan, the spouse who does not
participate may deduct IRA contributions up to $2,000, but this deduction is
phased out where the couple's adjusted gross income ranges from $150,000 to
$160,000. No deduction is allowed where the couple's adjusted gross income
exceeds $160,000.
NONDEDUCTIBLE IRA. Individuals may make nondeductible contributions to the
extent they are not eligible to make deductible IRA contributions. The Roth IRA
allows individuals to contribute up to $2,000 ($4,000 for joint filers) annually
out of earned income. Eligibility to contribute to a Roth IRA is phased out as
adjusted gross income rises from $95,000 to $110,000 for single filers and from
$150,000 to $160,000 for joint filers.
ROLLOVER TO A ROTH IRA. Amounts from existing deductible or nondeductible IRAs
may be rolled over to a Roth IRA without the 10% early distribution penalty
described below, unless the Taxpayer's adjusted gross income exceeds $100,000.
However, regular income tax will be due on any existing taxable amounts that are
rolled over from a current IRA.
TAXATION OF IRAS UPON DISTRIBUTION. An investment in Fund shares through IRA
deductible or nondeductible contributions is advantageous because the deductible
contributions, income, dividends and capital gains distributions earned on your
Fund shares are generally not taxable to you as long as the Funds remain in your
IRA, but may be taxable to you when distributed. Distributions from IRAs are
generally taxable as ordinary income when distributed to the extent of earnings
and deductible contributions. Nondeductible contributions are not taxable.
Because Roth IRA distributions are considered to come from nondeductible
contributions first, no tax or penalty will result until all nondeductible
contributions have been withdrawn. Distributions rolled over into another IRA
("Rollover Contributions") in accordance with certain rules under Section
408(d)(3) of the Code are tax-free, as are distributions made in the case of
death or disability. In addition, earnings which accumulated tax-free on a Roth
IRA are distributed tax-free to the extent that they are made with respect to
Qualified Distributions. Qualified Distributions are distributions that are made
(1) at least five years after the first year that a contribution was made to the
Roth IRA and (2) after the age of 59-1/2, after the death or disability of an
individual, or for qualified first-time home purchase expenses subject to a
$10,000 lifetime maximum.
Most distributions from IRAs made before age 59-1/2 are subject to an early
distribution penalty tax equal to 10% of the distribution (in addition to any
regular income tax which may be due). Nondeductible contributions are not
subject to the penalty. Penalty-free distributions are allowed for up to $10,000
of first-time home buying expenses. Penalty-free distributions are also allowed
for money used to pay qualified higher education expenses (including graduate
level course expenses) of the taxpayer, the taxpayer's spouse, or a child or
grandchild of the taxpayer (or of the taxpayer's spouse). Qualified expenses
include tuition, fees, books, supplies, required equipment, and room and board
at a post-secondary educational institutional. Qualified expenses are reduced by
certain scholarships and veterans' benefits and the excluded income on
qualifying U.S. savings bonds. Penalty-free distributions are also allowed for
Rollover Contributions, in the case of death or disability, made in the form of
certain periodic payments, used to pay certain medical expenses or used to
purchase health insurance for an unemployed individual. You will incur other
penalties if you fail to begin distribution of accumulated IRA amounts by April
1 following the year in which you attain age 70-1/2, but this does not apply to
the Roth IRA..
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.
16
<PAGE>
HOW TO ESTABLISH
RETIREMENT ACCOUNTS
All the foregoing retirement plan options require special applications or plan
documents. Please call the Trust at 1-800-423-4893 to obtain information
regarding the establishment of retirement plan accounts. In the case of IRA and
certain other pre-qualified plans, nominal fees will be charged in connection
with plan establishment, custody and maintenance, all of which are detailed in
plan documents. You may wish to consult with your attorney or other tax advisor
for specific advice concerning your tax status and plans.
EXCHANGE
PRIVILEGE
Shareholders may exchange shares (in amounts of $1,000 or more) of any Merriman
Fund for shares of any other Merriman Fund or for shares of the Firstar U.S.
Government Money Market Fund, the Firstar Money Market Fund or the Firstar
Tax-Exempt Money Market Fund. A current prospectus of the Firstar 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 Company, 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.
17
<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 at the close
on the date of receipt; an order received after the close of the Exchange will
be executed at the price computed at the close 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 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
18
<PAGE>
bid price. However, U.S. Government Securities and other fixed income securities
may be valued on the basis of prices provided by an independent pricing service
when such prices are believed to reflect the fair market value of such
securities. The prices provided by a pricing service are determined without
regard to bid or last sale prices but take into account securities prices,
yields, maturities, call features, ratings, institutional size trading in
similar groups of securities and developments related to specific securities.
Stock exchange and NASDAQ securities are priced at the latest quoted sale on the
date of valuation. Short-term debt securities which mature in 60 days or less
are valued at amortized cost if their original term to maturity from the date of
purchase was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their term to maturity from the date of purchase exceeded 60
days, unless the Trustees determine that such valuation does not represent fair
value. Short-term debt securities which mature in more than 60 days are valued
at last sale or current bid quotations. Securities and other assets for which no
quotations are readily available will be valued in good faith at fair value
using methods determined by the Board of Trustees.
TRUSTEES AND OFFICERS
The business of the Funds is managed by the Board of Trustees under
Massachusetts law.. The Trustees elect officers who are responsible for the
day-to-day operations of the Funds and who execute policies formulated by the
Trustees. Some officers and Trustees of the Trust are also officers and control
persons of the Funds' investment manager, as shown below.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS HELD PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH THE TRUST DURING PAST 5 YEARS
<S> <C> <C>
David A. Ederer, Age 58 ** Trustee Since 1974, Managing Partner of D.A. Ederer Company, a private
4919 NE Laurelcrest Lane investment company. In connection therewith, Mr. Ederer serves
Seattle, WA 98105 as an Executive Officer and holds a substantial ownership
position in numerous industrial and service companies.
Paul A. Merriman, Age 57 * President and Since 1983, President and Chief Executive Officer of Merriman
1200 Westlake Ave N, Suite 700 Trustee Capital Management, Inc. an investment advisory firm. Since
Seattle, WA 98109 October 1987, General Partner of Merriman Investment
Management Company, the Trust's Investment Manager.
William L. Notaro, Age 58 * Executive Vice Since 1981, owner of Wm. L. Notaro & Company, a Seattle
2914 Kennewick Place, N.E. President, Investment Advisory firm. Since October 1987, Exec. Vice
Renton, WA 98056 Secretary, President and Chief Operating Officer of Merriman Investment
Treasurer & Trustee Management Company, the Trust's Investment Manager
Ben W. Reppond, Age 54 ** Since 1981, President and Chief Executive Officer, the Reppond
6965 N.E. Buck Lake Road Trustee Co., Inc., an insurance brokerage firm.
Hansville, WA 98340
Donald E. West, Age 69 ** Retired Boeing Company Management Engineer
4655 - 90th Avenue SE Trustee
Mercer Island, WA 98040
</TABLE>
* These Trustees are "interested persons" of the Trust, by virtue of their
positions with the Investment Manager.
** These trustees are members of the Audit Committee.
As of November 30, 2000, the Trustees and officers owned, as a group, 20,175
shares (1.28%) of the Leveraged Growth Fund, 10,217 shares (1.26%) of the Growth
& Income Fund and less than 1% of the outstanding shares of the High Yield Bond
Fund, the Capital Appreciation Fund, and the Asset Allocation Fund.
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,
2000, remuneration of the Trustees and officers, in the aggregate, by the Trust,
was $2,400. The Funds do not provide pension or retirement benefits to the
Trustees and officers. The compensation of the Trustees, which is borne by the
Funds in the ratio of their respective average net assets, for the fiscal year
ended September 30, 2000, was as follows:
19
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION RECEIVED FROM:
FLEXIBLE GROWTH CAPITAL ASSET LEVERAGED TOTAL
NAME AND POSITION BOND & INCOME APPRECIATION ALLOCATION GROWTH FUND
FUND FUND FUND FUND FUND COMPLEX
<S> <C> <C> <C> <C> <C> <C>
David A. Ederer $99.76 $115.86 $166.07 $133.14 $285.17 $800.00
Trustee
Paul A. Merriman - - - - - -
President & Trustee
William L. Notaro - - - - - -
Exec. Vice President,
Secretary, Treasurer
and Trustee
Ben W. Reppond $99.76 $115.86 $166.07 $133.14 $285.17 $800.00
Trustee
Donald E. West $99.76 $115.86 $166.07 $133.14 $285.17 $800.00
Trustee
</TABLE>
CODES OF ETHICS
The Funds and the Funds' investment manager have adopted codes of ethics under
rule 17j-1 of the Investment Company Act. Under such codes of ethics personnel
of the Funds and the investment manager are permitted to invest in securities,
including securities that may be purchased or held by the Funds.
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 November 30, 2000:
<TABLE>
<S> <C> <C> <C>
High Yield Bond Fund Charles Schwab & Company, Inc. 32.18% Record1
San Francisco, California 94104-4122
Ruth E. Kane, Trustee 8.30% Record &
Albert E. Kane Trust Beneficial
657 Okanogan Ave, #431
Wenatchee, WA 98801-6408
Growth & Income Fund James L. Fishel 6.78% Record &
Royce Fishel, Co-Trustees Beneficial
Royce C. Fishel Trust
6420 E Valley Ct.
Nashville, TN 37205-3533
Charles Schwab & Company, Inc. 6.11% Record1
San Francisco, California 94104-4122
Leveraged Growth Fund Charles Schwab & Company, Inc. 6.34% Record1
San Francisco, California 94104-4122
</TABLE>
1 Charles Schwab & Co., Inc., broker-dealers, have advised the
Trust that no individual client beneficially owned so much as 5%
of the Fund.
20
<PAGE>
INVESTMENT MANAGER
Merriman Investment Management Company (the "Investment Manager") manages the
Funds' investments pursuant to an Investment Management Agreement as described
in the Prospectus. Compensation of the Investment Manager, based upon the Fund's
daily average net assets, is at the following annual rates:
High Yield Bond Fund All Other 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%
In the event that additional series or funds are authorized by the Trustees,
each additional fund would compute investment fees separately. See the
Prospectus for a description of the services provided to the Funds by the
Investment Manager.
Advisory fees paid to the Investment Manager have been as follows:
<TABLE>
<CAPTION>
FISCAL PERIOD HIGH YIELD GROWTH & CAPITAL ASSET LEVERAGED
ENDED BOND INCOME APPRECIATION ALLOCATION GROWTH
SEPTEMBER 30, FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
2000 $69,560(1) $115,081 $166,013 $132,510 $278,802
1999 $80,844(1) $111,256 $162,528 $143,246 $226,149
1998 $85,479 $113,251 $174,405 $177,587 $209,381
</TABLE>
(1) The Investment Manager made expense reimbursements of $9,708 and $5,550 to
the High Yield Bond Fund for the years ended September 30, 2000 and 1999,
respectively. Advisory fees paid, net of such reimbursements, were $59,852
and $75,294, respectively.
The Investment Manager has agreed to limit each Fund's expenses. In the event
that a Fund's expenses exceed such limits, the Investment Manager 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 Investment Manager has voluntarily reduced the expense limit, based upon
average net assets, to 2% of the first $15 million, 1.5% of the next $35
million, and 1% of all over $50 million for the Capital Appreciation, Asset
Allocation, and Growth & Income Funds, to 2% of the first $15 million, 1.5% of
the next $15 million, and 1% of all over $30 million for the Leveraged Growth
Fund (exclusive of interest expense), and to 1.5% of the first $30 million, 1%
of all over $30 million for the High Yield Bond Fund.
Paul A. Merriman is President and Trustee of the Trust. A company he wholly
owns, Merriman Capital Management, 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.
The Investment Manager provides a continuous investment management program,
furnishes the services and pays the compensation of the executive officers of
the Trust, provides suitable office space, necessary small office equipment,
utilities, general purpose forms and supplies used at the offices of the Trust.
Each Fund will pay all of its own expenses not assumed by the Investment
Manager, including, but not limited to, the following: custodian, stock transfer
and dividend disbursing fees and expenses; clerical employees and junior level
officers of the Trust as and if approved by the Board of Trustees; taxes;
expenses of the issuance and redemption of shares (including stock certificates,
registration and qualification fees and expenses); costs and expenses of
membership and attendance at meetings of certain associations which may be
deemed by the trustees to be of overall benefit to each Fund and its
shareholders; legal and auditing expenses; and the cost of stationery and forms
prepared exclusively for the Funds. General Trust expenses are allocated among
the series, or Funds, on a fair and equitable basis by the Board of Trustees,
which may be based on relative net assets of each Fund (on the date the expense
is paid) or the nature of the services performed and the relative applicability
to each Fund.
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<PAGE>
MANAGEMENT AND OTHER SERVICES
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 for the Funds.
As such, 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.
Firstar Trust Company also serves as Fund Accounting Servicing Agent As such, it
provides portfolio accounting services, expense accrual and payment services,
Fund valuation and financial reporting services, tax accounting services and
compliance control services. Firstar Trust Company's compensation, as Fund
Accounting Servicing Agent, is $27,400 for each Fund plus the cost of quotation
services subscriptions. Such compensation, for the fiscal years ended September
30, 2000, 1999 and 1998 was $139,575, $131,613 and $132,834, respectively.
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. 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. No brokerage commissions were paid during the past
three fiscal years by any Fund.
ADDITIONAL TAX INFORMATION
Each Fund is qualified and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code). Failure to qualify would subject a Fund to federal income
tax on its income and capital gains. As a qualified 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").
22
<PAGE>
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. Each 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.
Each Fund, including any additional fund(s) which might be created by the
Trustees, is treated as a separate tax entity for Federal Income Tax purposes.
DIVIDENDS AND DISTRIBUTIONS. 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, may 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.
CAPITAL SHARES AND VOTING
Shares of each Fund, when issued, are fully paid and non-assessable and have no
preemptive or conversion rights. 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.
23
<PAGE>
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.
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.).
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, 2000 (together
with the report of the independent auditors), are included in the Trust's Annual
Reports to Shareholders, respectively, 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 and Semi-Annual Reports are
available free of charge and will accompany the Statement of Additional
Information whenever it is requested by a shareholder or prospective investor.
PERFORMANCE
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 for
each Fund for the indicated period ended on September 30, 2000, is set forth
below:
Fund One Year Five Year Ten Year
Name Period Period Period
High Yield Bond Fund (1) 2.66% 5.09% 6.82%
Growth & Income Fund 4.96% 11.31% 9.24%
Capital Appreciation Fund 10.73% 9.50% 9.50%
Asset Allocation Fund 5.73% 7.17% 7.78%
Leveraged Growth Fund 14.67% 12.46% 10.70%(2)
(1) The High Yield Bond Fund changed its investment objective,
effective January 1, 2000. The data shown reflects performance
prior to the change. Performance would have been different if the
Fund had been operated as a high yield bond fund.
(2) Since inception of the Leveraged Growth Fund, May 1992.
Performance quotations should not be considered as representative of the Funds'
performance for any specified period in the future.
The Funds' performance may be compared in sales literature to the performance of
other mutual funds having similar objectives or to standardized indices or other
measures of domestic, international or global investment performance. In
particular, the Funds may compare their performance to the S & P 500 Index,
which is generally considered to be representative of the performance of
unmanaged common stocks that are publicly traded in the U.S. securities markets.
The High Yield Bond Fund may compare its performance to one or more broad based
high yield bond indices.
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 23. EXHIBITS
(a) Restated Declaration of Trust - Incorporated by reference, Post-Effective
Amendment No. 15, filed April 11, 1997, Accession No. 0000830274-97-000001;
CERTIFICATE OF AMENDMENT TO THE DECLARATION OF TRUST, DATED December 20,
2000 , ENCLOSED.
(b) By-Laws - Incorporated by reference, Post-Effective Amendment No. 21, filed
November 29, 1999, Accession No. 0000830274-99-000013.
(c) Instruments Defining the Rights of Security Holders -
`See Declaration of Trust, Articles VI, VII and VIII, Incorporated by
reference, Post-Effective Amendment
No. 15, filed April 11, 1997, Acession No. 0000830274-97-000001.
See By Laws, Articles I, VI and VII, Incorporated by reference, Post-
Effective Amendment No. 21, filed November 29, 1999,
Accession No. 0000830274-99-000013.
(d) Investment Management Agreement - Incorporated by reference, Post-Effective
Amendment No. 21, filed November 29, 1999, Accession No.
0000830274-99-000013.
(e) Underwriting Contracts - None, Not Applicable.
(f) Bonus or Profit Sharing Contracts - None, Not Applicable
(g) Custodian Agreement - Incorporated by reference, Post-Effective Amendment
No. 21, filed November 29, 1999,
Accession No. 0000830274-99-000013.
(h) Other Material Contracts - Incorporated by reference, Post-Effective
Amendment No. 21, filed November 29, 1999,
Accession No. 0000830274-99-000013.
(1) Shareholder Services Agreement - Enclosed.
(2) Fund Accounting Services Agreement - Enclosed.
(3) Powers of Attorney - Enclosed.
(i) Legal Opinion - Incorporated by reference, Post-Effective Amendment No. 21,
filed November 29, 1999,
Accession No. 0000830274-99-000013.
(j) Consent of Independent Auditors - Enclosed
(k) Omitted Financial Statements - Annual Report to Shareholders, September 30,
1999 - Incorporated by reference,
Filed November 23, 1999, Accession No. 0000830274-99-000012
(l) Initial Capital Agreements - None, Not Applicable.
(m) Rule 12b-1 Plan - None, Not Applicable.
(n) Financial Data Schedule - Enclosed
(o) Rule 18f-3 Plan - None, Not Applicable.
(p) Codes of Ethics adopted by Registrant and Adviser - Incorporated by
reference, Filed January 28, 2000, Accession No. 0000830274-00-000002
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons controlled by or under common control with the
Registrant.
ITEM 25. 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
<PAGE>
Trustees, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice; and (iii) in discharging
their duties, the Trustees, when acting in good faith, shall be entitled to rely
upon the books of account of the Trust and upon written reports made to the
Trustees by any officer appointed by them, any independent public accountant,
and (with respect to the subject matter of the contract involved) any officer,
partner or responsible employee of a Contracting Party. The Trustees as such
shall not be required to give any bond or surety or any other security for the
performance of their duties."
Concerning indemnification by the Trust, or Fund of the Trust, section 8.4
states, "Subject to the limitations set forth in this Section 8.4, the Trust
shall indemnify (from the assets of the Fund or Funds to which the conduct in
question relates) each of its Trustees and officers, including Persons who serve
at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise (referred to hereinafter, together with such Person's heirs,
executors, administrators or other legal representatives, as a "Covered Person")
against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that his action
was in or not opposed to the bet interests of the Trust or (ii) had acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office (either and both of the conduct
described in clauses (i) and (ii) above being referred to hereinafter as
"Disabling Conduct"). A determination that the Covered Person is entitled to
indemnification may be made by (i) a final decision on the merits by a court or
other body before whom the proceeding was brought that such Covered Person was
not liable by reason of Disabling Conduct, (ii) dismissal of a court action or
an administrative proceeding against such Covered Person for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination, based upon a
review of the facts, that such Covered Person was not liable by reason of
Disabling Conduct by (a) vote of a majority of a quorum of Trustees who are
neither "interested persons" of the Trust as the quoted phrase is defined in
Section 2(a)(19) of the 1940 Act nor parties to the action, suit or other
proceeding on the same or similar grounds is then or has been pending or
threatened (such quorum of such Trustees being referred to hereinafter as the
"Disinterested Trustees"), or (b) an independent legal counsel in a written
opinion. Expenses, including accountants' and counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Fund
or Funds to which the conduct in question related in advance of the final
disposition of any such action, suit or proceeding; provided, that the Covered
Person shall have undertaken to repay the amounts so paid if it is ultimately
determined that indemnification of such expenses is not authorized under this
Article VIII and if (i) the Covered Person shall have provided security for such
undertaking, (ii) the Trust shall be insured against losses arising by reason of
any lawful advances, or (iii) a majority of the Disinterested Trustees, or an
independent legal counsel in a written opinion, shall have determined, based on
a review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the Covered Person ultimately will be
entitled to indemnification hereunder."
Regarding compromise payments, the Declaration of Trust states, "As to any
matter disposed of by a compromise payment by any Covered Person referred to in
Section 8.4 hereof, pursuant to a consent decree or otherwise, no such
indemnification either for said payment or for any other expenses shall be
provided unless such indemnification shall be approved (i) by a majority of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Disinterested Trustees pursuant to clause (ii) shall
not prevent the recovery from any Covered Person of any amount paid to such
Covered Person in accordance with either of such clauses as indemnification if
such Covered Person is subsequently adjudicated by a court of competent
jurisdiction not to have acted in good faith in the reasonable belief that such
Covered Person's action was in or not opposed to the best interests of the Trust
or to have been liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office."
Finally, Section 8.6 states that, "The right of indemnification provided by
this Article VIII shall not be exclusive of or affect any of the rights to which
any Covered Person may be entitled. Nothing contained in this Article VIII shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other Persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of any such Person."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons by the
Trust's Declaration of Trust and By-Laws, or otherwise, the Trust has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Trust of expenses incurred or
paid by a director, officer or controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
<PAGE>
Trust will, unless, in the opinion of its counsel, the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Trust reserves the right to purchase Professional Indemnity insurance
coverage, the terms and conditions of which would conform generally to the
standard coverage available to the investment company industry. Such coverage
for the Trust would generally include losses incurred on account of any alleged
negligent act, error or omission committed in connection with the operation of
the Trust, but excluding losses incurred arising out of any dishonest,
fraudulent, criminal or malicious act committed or alleged to have been
committed by the Trust. Such coverage for trustees and officers would generally
include losses incurred by reason of any actual or alleged breach of duty,
neglect, error, misstatement, misleading statement or other act of omission
committed by such person in such a capacity, but would generally exclude losses
incurred on account of personal dishonesty, fraudulent breach of trust, lack of
good faith or intention to deceive or defraud, or willful failure to act
prudently. Similar coverage by separate policies may be afforded the investment
manager and its directors, officers and employees. Notwithstanding the
foregoing, no insurance will be purchased which protects or purports to protect
any officer or trustee for actions constituting willful misfeasance, bad faith,
gross negligence or reckless disregard of duties.
ITEM 26. 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 27. PRINCIPAL UNDERWRITERS
None - Not Applicable.
ITEM 28. 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 29. 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 30. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual (and
semi-annual, if applicable) report to shareholders, upon request and without
charge.
The Registrant, if requested to do so by the holders of at least 10% of the
Registrant's outstanding shares, undertakes to call a meeting of shareholders
for the purpose of voting upon the question of removal of a trustee or trustees
and further undertakes to assist in communications with other shareholders as
required by Section 16(c) of the Investment Company Act of 1940.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
Seattle, and State of Washington on the 20th day of December, 2000.
MERRIMAN INVESTMENT TRUST
By: /s/ Paul A. Merriman
Paul A. Merriman
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
/s/ David A. Ederer * Trustee 12/20/2000
David A. Ederer Date
/s/ Paul A. Merriman Trustee and President 12/20/2000
Paul A. Merriman Date
/s/ William L. Notaro Trustee, Executive Vice President, 12/20/2000
William L. Notaro Secretary and Treasurer Date
/s/ Ben W. Reppond * Trustee 12/20/2000
Ben W. Reppond Date
/s/ Donald E. West * Trustee 12/20/2000
Donald E. West Date
* Signed by Paul A. Merriman under Powers of Attorney dated 2/28/88.
<PAGE>
EXHIBITS
MERRIMAN INVESTMENT TRUST
FORM N-1A
INDEX OF EXHIBITS
(Numbers coincide with Item 23 of Form N-1A)
(a) Certificate of Amemdment to the Declaration of Trust - Enclosed
(j) Consent of Independent Auditors - Enclosed
(n) Financial Data Schedule - Enclosed
<PAGE>
