<PAGE>
MERRIMAN
Graphic Omitted INVESTMENT TRUST
MERRIMAN MERRIMAN INVESTMENT TRUST
FLEXIBLE BOND FUND 1200 Westlake Ave N, Suite 700
Seattle, WA 98109
MERRIMAN 1-800-423-4893
GROWTH & INCOME FUND 1-206-285-8877
www.merrimanfunds.com
MERRIMAN
CAPITAL APPRECIATION INVESTMENT MANAGER
FUND Merriman Investment
Management Company
MERRIMAN 1200 Westlake Ave N, Suite 700
ASSET ALLOCATION Seattle, WA 98109
FUND
CUSTODIAN AND
MERRIMAN TRANSFER AGENT
LEVERAGED GROWTH Firstar Mutual Fund Services, LLC
FUND PO BOX 701
Milwaukee, WI 53201
ANNUAL REPORT 1-800-224-4743
YEAR ENDED FUND COUNSEL
September 30, 2000 Sullivan & Worcester
Boston, Massachusetts
OFFICERS & Trustees
PAUL A. MERRIMAN, President and Trustee
WILLIAM L. NOTARO, Executive Vice President,
Secretary, Treasurer, and Trustee
DAVID A. EDERER, Trustee
BEN W. REPPOND, Trustee
DONALD E. WEST, Trustee
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Dear Fellow Shareholder:
The Merriman Mutual Funds completed another fiscal year on September 30, 2000,
and I am pleased to report that all of our funds produced positive returns for
the period. Nevertheless, we are still disappointed in our performance. All the
assets in our funds are governed by timing systems that normally thrive in
volatile markets. But this year, the volatility has been extreme, preventing our
systems from taking full advantage of the market's swings in both directions.
The performance of each fund during the year is detailed later in this letter.
To summarize: the Merriman Flexible Bond Fund produced a total return of 2.7
percent; the Merriman Growth and Income Fund rose 5.0 percent; the Merriman
Capital Appreciation Fund was up 10.7 percent; the Merriman Asset Allocation
Fund was up 5.7 percent; and the Merriman Leveraged Growth Fund was up 14.7
percent.
MANAGING RISKS
At the heart of our investing philosophy is the management of risk, and on the
following pages you'll find a description of how we use market-timing to do
that. Managing risk is a universal human experience. We manage risk when we
walk, for instance being sure to keep our balance, to look before we walk across
a street, walk off a curb or descend a flight of stairs. We manage risks when
we're driving, watching out for others and constantly balancing our need for
safety with our need for progress.
Investment risks always exist, whether they are ignored or confronted. Very few
investors give risk management the serious consideration that it deserves. The
great bull market of the past few years has perhaps fooled many people into
thinking that double-digit annual returns are not only normal but essentially a
birthright. I speak to thousands of investors every year, and it's obvious that
most of them like to focus their thoughts and their investment decisions on high
returns that they hope to achieve. Relatively few have thought systematically
and seriously about the risks they incur in seeking those returns. And fewer
still have a concrete plan for how they will respond to the inevitable losses
that are part of any long-term investment strategy.
At Merriman Mutual Funds, we take risk management very seriously, and I want to
share some of our thinking with you. The biggest risk investors face is having
their money in the wrong type of asset. Common types of assets include bonds,
stocks, real estate, precious metals, futures contracts and the like. This risk
extends to choices within each asset type. For instance, within the general
category of stocks, the major choices that make the most difference are U.S.
companies vs. international ones, small companies vs. large ones, value stocks
vs. growth stocks.
One of our fundamental beliefs is that wide global diversification is the best
course for most investors, and we apply it in each of our funds. We all know
that the Standard & Poor's 500 Index has been a high-performing asset class for
the past five years. And we all know (or we should know) that it hasn't always
been that way and it won't always be that way in the future. Yet many investors
cannot resist the lure of recent performance, and they are taking more risk than
they realize by keeping most or all of their equity investments in large U.S.
equities - which in the early 1970s experienced a greater than 40 percent loss
before turning around.
Accordingly, all our fund portfolios are highly diversified. One result is that
our results are never as good as that of the top performing asset class. But
this reduces our funds' volatility and exposure to the risk of a bear market in
any single asset class.
Once an investor achieves proper diversification, there remain only two
significant risk factors left to deal with: market risk and event risk. MARKET
RISK is the possibility that an entire asset class may be affected by some trend
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such as a recession, a change of political leadership or a widespread financial
crisis such as the one that hit many Asian countries in 1998. EVENT RISK is the
possibility that a market downturn will be triggered by some sudden event such
as an assassination, a war or a natural disaster.
Our funds manage market risk through the use of mechanical market-timing
systems. While such systems are imperfect and cannot eliminate all temporary
losses, we believe our systems have been and will continue to be effective in
protecting investors from the largest losses.
Protection against event risk is another matter. No timing system can warn in
advance of a sudden collapse of a government or a natural or man-made disaster.
By definition, such events (and their aftermath) occur without warning. However,
market timing may have the added benefit of being the most effective possible
shield against event risk because investors who use timing could happen to be
out of the market when the event occurs.
Our funds use a combination of timing entire asset classes such as U.S. bonds
and equities, and individual fund timing, which is applied to many of the funds
in which we invest. Because of all this timing, for the majority of the time at
least some of each of our funds' assets are in cash or cash equivalents. This
tends to reduce our performance during bull markets. But it provides investors
with an extra measure of protection that they can't find anywhere else. And it
tends to reduce our funds' volatility.
THE OUTLOOK
We are often asked for our views of the months and quarters just ahead, and our
answers are all the same: We aren't qualified to forecast the future, and we
don't try to do so.
We understand the reasons many investors are bullish, and they have much
validity. Inflation is extremely low. Interest rates are under control. The U.S.
economy continues to grow. Overall, the world is at peace, and many national
economies are evolving. Technology is rapidly creating new products and
services. Medical care is improving rapidly. Productivity is increasing.
We also understand why many investors are bearish, and we think they have much
validity. By historical standards such as book value and earnings per share,
U.S. stock prices are seriously overpriced. Escalating demand for Internet
stocks sometimes seems to be based more on phantom hopes than on solid business
models. The current wave of Baby Boom investors that is pouring retirement funds
into the stock market has never experienced a prolonged bear market and may be
shocked into panic selling when one occurs. The U.S. stock market indexes have
become overly dependent on a relatively small number of large technology stocks
such as Microsoft and Intel.
We are neither bears nor bulls. We believe that in the long term, the world's
equity markets will continue their upward climb, eventually rewarding patient
investors who are willing to assume the risks of uncertainty. But at the same
time we believe the current market levels are so high that they are filled with
potential danger. We are certain that major bear markets lie ahead, though we
cannot predict when or how they will hit.
The investments of the Merriman Mutual Funds are not managed based on any
particular view of the future. Instead, we are trend-followers with a mechanical
investment strategy that is designed to make money and preserve capital
whichever way the market turns.
MARKET TIMING - DIFFERENT FROM THE AVERAGES
Our funds have globally diversified portfolios and they use timing to move into
and out of the markets and the funds in which they invest. Because of that,
their performance is not directly comparable to that of the popular untimed
indexes such as the Dow Jones Industrial Average, the S&P 500 and EAFE.
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This presents a challenge to you as an investor: What is the proper benchmark by
which such funds should be measured? There is no perfect answer. The charts that
accompany this letter compare the performance of our equity Funds with the
Standard and Poor's 500 Index and our Flexible Bond Fund with the Salomon BIG
Index, both popular, broad-based indexes.
However, we think the best comparison for each of our funds is the performance,
without timing, of mutual funds that invest in the same asset classes as the
funds in our portfolios. The best data we have is from Morningstar, which tracks
thousands of mutual funds. Using that data, we use what we call an Appropriate
Benchmark for each of our funds, as follows:
Our Capital Appreciation and Leveraged Growth funds each allocate up to 65
percent of their assets to U.S. equity funds and up to 35 percent to
international equity funds. (Within each allocation, investments are switched
between equity funds and cash, according to our timing systems.) The Appropriate
Benchmark for these two funds is the performance of a theoretical portfolio,
always fully invested, composed of equal parts of U.S. growth, aggressive growth
and small-cap funds (with 65 percent weighting for the whole) and foreign equity
funds, with 35 percent weighting.
The Appropriate Benchmark for the Growth & Income Fund is a portfolio made up of
U.S. growth and income funds and foreign stock funds, weighted 65 percent and 35
percent, respectively.
The Appropriate Benchmark for the Asset Allocation Fund is a theoretical
portfolio, always fully invested and weighted as follows: foreign stock funds,
30 percent; U.S. growth funds, 10 percent; U.S. aggressive growth funds, 10
percent; U.S. small-cap funds, 10 percent; U.S. corporate high-yield bond funds,
10 percent; U.S. corporate high-quality bond funds, 5 percent; international
bond funds, 15 percent; specialty precious metals funds, 10 percent.
The Appropriate Benchmark for the Flexible Bond Fund is a theoretical portfolio,
always fully invested and weighted as follows: U.S. corporate high-quality bond
funds, 40 percent; U.S. corporate high-yield bond funds, 25 percent; world bond
funds, 35 percent.
The reason we use timing is that bear markets can quickly erase months or even
years of gains. Our top priority is to manage this risk in order to defend
investors' capital while striving to achieve favorable returns.
However, in prolonged bull markets, timing inevitably underperforms a
buy-and-hold approach. There are two reasons for that. First, timing has no way
to "add value" to a rising market. Even when all signals indicate buy, the timer
who is 100 percent invested has no advantage over the buy-and-hold investor who
is 100 percent invested.
Second, bull markets are punctuated with temporary declines, some of which
inevitably trigger one or more timing models into cautionary sell signals. At
the moment of such a signal, there is absolutely no way to know whether it
indicates the start of a real bear market or whether it will turn out to be only
a false alarm.
There is no reliable way that timers can avoid such counterproductive trades.
This is why our equity funds have underperformed the markets during the strong
bull market of the past few years.
As a shareholder in the Merriman Mutual Funds, I don't like this performance
penalty any more than anyone else. But I regard it as a necessary cost of
protecting my capital from major declines. It is somewhat akin to the cost of
insuring my home. I'd rather not pay the insurance premium. But I know that a
fire or some other disaster is possible, and I'd much rather buy insurance than
assume all the risk myself.
Likewise as an investor, I'd much rather pay the underperformance penalty, and
protect my investments from a bear market, than leave myself exposed without a
defensive strategy. And personally I am certain that a bear market is more
likely to threaten my portfolio than a fire is likely to threaten my home.
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HOW WE MANAGE THESE FUNDS
As an investor, I want long-term results. Yet I want to know my assets are being
actively protected every moment the markets are open. We believe our
shareholders deserve nothing less than that. While our investment focus is on
long-term results, we manage our funds in the short-term. Every business day, we
track current market trends that affect every asset in our portfolio, and we are
always ready to act on any new signals from our timing models to guide us as we
attempt to maximize gains and minimize losses.
MERRIMAN FLEXIBLE BOND FUND
The Merriman Flexible Bond Fund invests in a broad spectrum of fixed-income
securities that in our belief offer the best opportunities to achieve attractive
returns with below-average volatility. The Fund's present investment policy is
to maintain a balance of 35 percent in international bonds, 25 percent in U.S.
high-yield bonds and the remaining 40 percent in high-grade U.S. government and
corporate bonds. When our timing systems indicate declining markets, we shift
assets to money-market instruments and other cash equivalents.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Flexible Bond Fund and the Salomon Big
Index.
Start Date 10-06-88
End Date 09-30-00
Beginning Value $10,000
End Value - Merriman Flexible Bond Fund $19,353
End Value - Salomon Big Index $21,764
Average Annual Total Return of
Merriman Flexible Bond Fund 1YR 5YR 10YR Since Inception
2.66% 5.09% 6.82% 6.63%
In the 12 months ending September 30, the Fund appreciated 2.7 percent.
According to Morningstar, an untimed portfolio of the same balance of funds (the
Appropriate Benchmark for this fund), would have gained 3.5 percent. According
to Morningstar, the Fund's volatility over the past five years was 42 percent
less than that of the Appropriate Benchmark.
MERRIMAN GROWTH AND INCOME FUND
The Growth and Income Fund invests primarily in growth-and-income funds,
employing the same balance of domestic and international funds, and similar
timing models to preserve capital, as does the Capital Appreciation Fund. For
the 12 months ending September 30, the Fund's total return was up 5.0 percent. A
similar mix of domestic and international funds without timing, (the Appropriate
Benchmark for this fund) was up 13.2 percent. According to Morningstar data, the
Fund's volatility over the past five years was 47 percent less than that of the
Appropriate Benchmark.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Growth & Income Fund and the S&P 500
Index.
Start Date 12-29-88
End Date 09-30-00
Beginning Value $10,000
End Value - Merriman Growth & Income Fund $24,218
End Value - S&P 500 Index $58,997
Average Annual Total Return of
Merriman Growth & Income Fund 1YR 5YR 10YR Since Inception
4.96% 11.31% 9.24% 8.80%
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MERRIMAN CAPITAL APPRECIATION FUND
The Merriman Capital Appreciation Fund seeks growth of capital by investing in
U.S. and international growth, aggressive growth and small-cap funds. Our
present investment policy allocates 65 percent of the portfolio to U.S. equity
funds and 35 percent to international equity funds. As with all our funds,
whenever our timing models indicate the risk of loss is greater than the
potential for gain, we take defensive action and move into money market
instruments or other cash equivalents.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Capital Appreciation Fund and the S&P
500 Index.
Start Date 05-02-89
End Date 09-30-00
Beginning Value $10,000
End Value - Merriman Capital Appreciation Fund $24,821
End Value - S&P 500 Index $58,997
Average Annual Total Return of
Merriman Capital Appreciation Fund 1YR 5YR 10YR Since Inception
10.73% 9.50% 9.50% 8.60%
In the year ended September 30, the Fund was up 10.7 percent. A similar mix of
domestic and international funds without timing, (the Appropriate Benchmark for
this fund) was up 27.0 percent. According to Morningstar, the Fund's volatility
over the past five years was 43 percent less than that of the Appropriate
Benchmark.
MERRIMAN ASSET ALLOCATION FUND
The Asset Allocation Fund spreads its investments among five major asset groups
and applies market timing to each one. The Fund's present investment policy is
to maintain 30 percent of the portfolio in domestic equity funds, 30 percent in
international equity funds, 15 percent in U.S. bond funds, 15 percent in
international bond funds and 10 percent in gold funds. For the year ending
September 30, the Fund's total return was up 5.7 percent. According to
Morningstar data, an untimed portfolio of the same balance of funds, (the
Appropriate Benchmark for this fund) would have gained 12.8 percent. The Asset
Allocation Fund's volatility over the past five years was 53 percent less than
that of multi-asset global funds tracked by Morningstar.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Asset Allocation Fund and the S&P 500
Index.
Start Date 05-02-89
End Date 09-30-00
Beginning Value $10,000
End Value - Merriman Asset Allocation Fund $21,180
End Value - S&P 500 Index $58,997
Average Annual Total Return of
Merriman Asset Allocation Fund 1YR 5YR 10YR Since Inception
5.73% 7.17% 7.78% 7.35%
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MERRIMAN LEVERAGED GROWTH FUND
The Leveraged Growth Fund's defensive strategy uses market timing systems
similar to those of the Capital Appreciation Fund and maintains a similar
balance of domestic and international funds. During rising markets, this Fund
takes a more aggressive approach in order to seek above-average returns. The
Fund may borrow up to $1 for every $2 of its net assets in order to make
additional investments when our timing models indicate a high probability of
gain.
NOTE: A graph appears at this location in the text comparing the change in value
of a $10,000 investment in the Merriman Leveraged Growth Fund and the S&P 500
Index.
Start Date 05-27-92
End Date 09-30-00
Beginning Value $10,000
End Value - Merriman Leveraged Growth Fund $23,370
End Value - S&P 500 Index $41,181
Average Annual Total Return of
Merriman Leveraged Growth Fund 1YR 5YR Since Inception
14.67% 12.46% 10.70%
For the 12 months ended September 30, the Fund's total return was up 14.7
percent, compared with a gain of 27.0 percent for a similar mix of domestic and
international equity funds held without timing or leverage, (the Appropriate
Benchmark for this fund). According to Morningstar, the Fund's volatility over
the past five years was 17 percent less than that of the Appropriate Benchmark.
IN SUMMARY
While U.S. stocks have provided rich rewards for investors in recent years, we
do not believe that most investors, especially the many who began their
investment experience in the 1990s, are prepared psychologically for the serious
losses that could occur in a prolonged bear market. This lack of preparation is
likely to lead many people into untimely, emotional investment decisions that
will compound whatever damage their portfolios suffer as a result of market
swings.
In our view, broad diversification, coupled with automatic, mechanical timing,
is the best way investors can avoid such untimely decisions and minimize market
risks while they attempt to preserve and grow their capital. We appreciate your
confidence in the Merriman Mutual Funds and in our defensive approach to
investing. We will continue to closely watch each of your investments every
business day, and we hope to have another favorable report for you next year.
Sincerely,
Paul A. Merriman
President
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MERRIMAN FLEXIBLE BOND FUND
Portfolio of Investments
September 30, 2000
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC BOND FUNDS: 22.64%
----------------------------
36,050 AIM Strategic Income Fund....................... $ 343,918
35,923 Federated High Income Bond Fund ................ 339,830
45,692 Federated High Yield Trust ..................... 339,491
35,129 Liberty-Stein Roe High Yield Fund .............. 301,762
29,585 Strong High Yield Bond Fund .................... 298,824
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Total Domestic Bond Funds
(Cost $1,668,381)............................... 1,623,825
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INTERNATIONAL BOND FUNDS: 13.49%
---------------------------------
36,644 Federated Intl Income Fund - Class A ............ 318,434
73,060 Scudder Global Bond Fund ........................ 648,772
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Total International Bond Funds
(Cost $974,869).................................. 967,206
-------
MONEY MARKET FUNDS: 50.05%
--------------------------
346,257 AIM Cash Reserves Fund .......................... 346,257
314,404 Am Cent-Benham Prime Money Mkt Fund ............. 314,404
303,341 Am Cent-Benham Gov't Agency Fund ................ 303,341
315,082 Columbia Daily Income Fund ...................... 315,082
349,308 Dreyfus Institutional Money Market Fund ......... 349,308
318,204 Federated Money Market Trust .................... 318,204
311,691 Fidelity Cash Reserves Fund ..................... 311,691
326,386 Rydex US Govt Money Market Fund ................. 326,386
379,436 Scudder Cash Investment Trust ................... 379,436
1,572 Scudder US Treasury Money Fund .................. 1,572
312,117 Stein Roe Cash Reserves Fund .................... 312,117
312,109 Strong Money Market Fund ........................ 312,109
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Total Money Market Funds
(Cost $3,589,907)................................ 3,589,907
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Principal
Amount
------
SHORT-TERM DEMAND NOTES: 13.77%
--------------------------------
$304,100 American Family Demand Note
6.24% 12/01/00.................................. 304,100
353,500 Firstar Bank Milwaukee, NA
6.29%, 10/02/00.................................. 353,500
330,000 Wisconsin Electric Demand Note
6.24% 12/30/00.................................. 330,000
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Total Short-Term Demand Notes
(Cost $987,600).................................. 987,600
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Total Investment in Securities
(Cost $7,220,757) (a)......................99.95% 7,168,538
Assets in Excess
of Liabilities........................... 0.05% 3,660
---- -----
NET ASSETS................................100.00% $7,172,198
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(a)Cost for federal income tax purposes is the same and net unrealized
depreciation consists of:
Gross unrealized appreciation.................... $ 2,565
Gross unrealized depreciation.................... (54,784)
-------
Net Unrealized Depreciation...................... $ (52,219)
============
See Accompanying Notes to Financial Statements
8
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MERRIMAN GROWTH & Income Fund
Portfolio of Investments
September 30, 2000
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 60.50%
------------------------------
10,805 Am Century Income & Growth Fund ...................$ 351,593
54,408 Dreyfus Founders Growth & Income Fund .............. 397,177
9,543 Fidelity Growth & Income Fund ...................... 427,631
17,401 INVESCO Value Equity Fund .......................... 446,868
9,912 Janus Growth & Income Fund ......................... 415,715
23,736 Neuberger Guardian Fund ............................ 453,113
15,556 Pilgrim Growth & Income Fund ....................... 368,527
21,236 SAFECO Income Fund ................................. 416,871
22,409 Salomon Brothers Investors Value Fund .............. 501,732
16,724 Scudder Growth & Income Fund ....................... 451,537
25,761 Value Line Convertible Fund ........................ 428,923
8,920 WPG Growth and Income Fund ......................... 375,620
-------
Total Domestic Equity Funds
(Cost $5,094,262)................................... 5,035,307
---------
INTERNATIONAL EQUITY FUNDS: 4.04%
----------------------------------
31,268 Liberty-Stein Roe International Fund
(Cost $342,681)..................................... 336,128
-------
Money Market Funds: 32.70%
266,311 AIM Cash Reserves Fund ............................. 266,311
420,519 Columbia Daily Income Fund ......................... 420,519
186 INVESCO Cash Reserves Fund ......................... 186
46,196 Janus Cash Equivalent Fund ......................... 46,196
378,073 Janus Govt Money Market Fund ....................... 378,073
20,059 SAFECO Money Market Fund ........................... 20,059
408,339 Scudder Cash Investment Trust ...................... 408,339
408,486 Scudder US Treasury Money Fund ..................... 408,486
419,949 Strong Money Market Fund ........................... 419,949
351,000 Strong Heritage Money Market Fund .................. 351,000
2,701 WPG Govt Money Market Fund ......................... 2,701
-----
Total Money Market Funds
(Cost $2,721,819)................................... 2,721,819
---------
Principal
Amount
------
SHORT-TERM DEMAND NOTES: 1.83%
--------------------------------
$152,400 Firstar Bank Milwaukee, NA
6.29%, 10/02/00
(Cost $152,400)..................................... 152,400
-------
Total Investment in Securities
(Cost $8,311,162) (a) ...........................99.07% 8,245,654
Other Assets
Less Liabilities.................................0.93% 77,289
----- ------
NET ASSETS......................................100.00% $8,322,943
======= ==========
(a)Cost for federal income tax purposes is the same and net unrealized
depreciation consists of:
Gross unrealized appreciation................................... $ 59,116
Gross unrealized depreciation................................... (124,624)
--------
Net Unrealized Depreciation..................................... $ (65,508)
===========
See Accompany Notes to Financial Statements
9
<PAGE>
Merriman Capital Appreciation Fund
Portfolio of Investments
September 30, 2000
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 51.67%
------------------------------
11,805 American Century Select Fund.....................$ 629,569
13,416 American Century Ultra Fund ...................... 591,895
40,936 Federated Large Cap Growth Fund .................. 606,257
20,172 Federated Stock Trust ............................ 722,953
20,511 Fidelity Disciplined Equity Fund ................. 648,974
18,550 Fidelity Stock Selector Fund ..................... 607,138
20,203 INVESCO Program Dynamics Fund .................... 644,466
6,478 Liberty-Stein Roe Growth Stock Fund .............. 386,506
23,877 Scudder Large Company Value Fund ................. 689,338
27,683 Value Line Fund .................................. 722,249
-------
Total Domestic Equity Funds
(Cost $6,230,252)................................. 6,249,345
---------
INTERNATIONAL EQUITY FUNDS: 5.59%
----------------------------------
18,115 Scudder Global Discovery Fund
(Cost $640,000)................................... 676,411
-------
MONEY MARKET FUNDS: 40.62%
---------------------------
595,106 Columbia Daily Income Fund ....................... 595,106
1,109,778 Dreyfus Founders Money Market Fund ............... 1,109,778
568,142 Federated Money Market Trust ..................... 568,142
498,381 Lexington Money Market Fund ...................... 498,381
1,223,990 Rydex US Govt Money Market Fund................... 1,223,990
312,909 USAA Money Market Fund ........................... 312,909
604,688 USAA Treasury Money Market Fund .................. 604,688
-------
Total Money Market Funds
(Cost $4,912,994)................................. 4,912,994
---------
PRINCIPAL
AMOUNT
------
Short-Term Demand Notes: 3.14%
$379,600 Firstar Bank Milwaukee, NA
6.29%, 10/02/00
(Cost $379,600)................................... 379,600
-------
Total Investment in Securities
(Cost $12,162,846) (a)........................101.02% 12,218,350
Liabilities in Excess
of Other Assets..............................(1.02)% (123,065)
----- --------
NET ASSETS ...................................100.00% $12,095,285
======= ===========
(a) Cost for federal income tax purposes is the same and net unrealized
appreciation consists of:
Gross unrealized appreciation...................... $ 144,440
Gross unrealized depreciation...................... (88,936)
-------
Net Unrealized Appreciation........................ $ 55,504
==========
See Accompanying Notes to Financial Statements
10
<PAGE>
MERRIMAN ASSET ALLOCATION FUND
Portfolio of Investments
September 30, 2000
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC BOND FUNDS: 9.76%
---------------------------
61,158 Federated High Yield Trust..........................$ 454,402
47,619 Fidelity Advisor High Yield Bond Fund .............. 482,856
-------
Total Domestic Bond Funds
(Cost $964,184)..................................... 937,258
-------
DOMESTIC EQUITY FUNDS: 21.82%
------------------------------
9,481 American Century Select Fund........................$ 505,638
15,128 INVESCO Program Dynamics Fund ...................... 482,587
18,472 Scudder Large Company Value Fund ................... 533,274
13,586 Stein Roe Capital Opportunity Fund ................. 573,852
-------
Total Domestic Equity Funds
(Cost $2,020,000)................................... 2,095,351
---------
INTERNATIONAL BOND FUNDS: 9.12%
--------------------------------
40,271 American Cent-Intl Bond Fund ....................... 384,990
13,586 Scudder Global Bond Fund ........................... 491,395
-------
Total International Bond Funds
(Cost $896,083)..................................... 876,385
-------
MONEY MARKET FUNDS: 56.31%
---------------------------
519,902 Dreyfus Founders Money Market Fund ................. 519,902
292,006 AIM Cash Reserves Fund ............................. 292,006
468,990 Columbia Daily Income Fund ......................... 468,990
469,040 Federated Money Market Trust ....................... 469,040
101,184 Federated Short Term US Govt Fund .................. 101,184
9,697 Fidelity Daily Money Market Fund ................... 9,697
399,207 Fidelity US Govt Reserves Fund ..................... 399,207
269,864 INVESCO Cash Reserves Fund ......................... 269,864
4,588 INVESCO US Govt Money Mkt Fund ..................... 4,588
213,614 Lexington Money Market Trust ....................... 213,614
217,585 Liberty-Stein Roe Cash Reserves Fund ............... 217,585
1,431,220 Rydex US Govt Money Market Fund..................... 1,431,220
363,503 Scudder Cash Investment Trust ...................... 363,503
535,091 USAA Money Market Fund ............................. 535,091
113,008 USAA Treasury Money Market Fund .................... 113,008
-------
Total Money Market Funds
(Cost $5,408,499)................................... 5,408,499
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 3.00%
-------------------------------
$287,900 Firstar Bank Milwaukee, NA,
6.29%, 10/02/00
(Cost $287,900)..................................... 287,900
-------
Total Investment in Securities
(Cost $9,576,666............................(a)100.01% 9,605,393
Liabilities in Excess
of Other Assets..............................(0.01%) (984)
----- ----
NET ASSETS.....................................100.00% $9,604,409
======= ==========
(a) Cost for federal income tax purposes is the same and net unrealized
appreciation consists of:
Gross unrealized appreciation...........................$ 87,127
Gross unrealized depreciation........................... (58,400)
-------
Net Unrealized Appreciation.............................$ 28,727
==========
See Accompanying Notes to Financial Statements
11
<PAGE>
Merriman Leveraged Growth Fund
Portfolio of Investments
September 30, 2000
MARKET VALUE
SHARES (NOTE 2A)
------ ---------
DOMESTIC EQUITY FUNDS: 65.76%
------------------------------
45,790 Dreyfus Founders Growth Fund.........................$ 1,060,953
67,877 Federated Large Cap Growth Fund ...................... 1,005,265
32,970 Federated Stock Trust ................................ 1,181,651
33,893 Fidelity Disciplined Equity Fund ..................... 1,072,375
34,055 Fidelity Stock Selector Fund ......................... 1,114,628
16,897 Fidelity Trend Fund .................................. 1,135,299
41,308 INVESCO Endeavor Fund ................................ 1,138,442
20,825 INVESCO Program Dynamics Fund ........................ 664,322
44,477 Liberty-Stein Roe Disciplined Stock Fund.............. 894,423
26,215 Neuberger Berman Genesis Fund......................... 1,215,098
41,621 Scudder Large Company Value Fund ..................... 1,201,599
35,611 Value Line Fund ...................................... 929,092
17,126 Value Line Leveraged Growth Fund ..................... 1,001,333
---------
Total Domestic Equity Funds
(Cost $13,430,473).................................... 13,614,480
----------
INTERNATIONAL EQUITY FUNDS: 5.27%
----------------------------------
29,228 Scudder Global Discovery Fund
(Cost $1,034,000)..................................... 1,091,391
---------
MONEY MARKET FUNDS: 14.94%
---------------------------
47,741 Columbia Daily Income Fund ........................... 47,741
963,900 Dreyfus Founders Money Market Fund ................... 963,900
979,573 Federated Treasury Obligation Fund ................... 979,573
44,969 Fidelity Cash Reserves Fund .......................... 44,969
26,215 Neuberger Berman Cash Reserves Fund .................. 26,215
2,522 Rydex US Govt Money Market Fund ...................... 2,522
1,027,516 USAA Money Market Fund ............................... 1,027,516
---------
Total Money Market Funds
(Cost $3,092,436)..................................... 3,092,436
---------
PRINCIPAL
AMOUNT
------
SHORT-TERM DEMAND NOTES: 14.24%
--------------------------------
$1,008,350 American Family Demand Note
6.24% , 12/01/00...................................... 1,008,350
1,008,200 Firstar Bank Milwaukee, NA
6.29%, 10/02/00....................................... 1,008,200
933,100 Sara Lee Demand Notes
6.22% , 01/21/01...................................... 933,100
-------
Total Short-Term Demand Notes
(Cost $2,949,650)..................................... 2,949,650
---------
Total Investment in Securities
(Cost $20,506,559) (a)........................100.21% 20,747,957
Liabilities in Excess
of Other Assets.............................. (0.21%) (43,614)
----- -------
NET ASSETS....................................100.00% $20,704,343
======= ===========
(a) Cost for federal income tax purposes is the same and net unrealized
appreciation consists of:
Gross unrealized appreciation.........................$ 351,878
Gross unrealized depreciation......................... (110,480)
--------
Net Unrealized Appreciation........................... $241,398
========
See Accompanying Notes to Financial Statements
12
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 2000
<CAPTION>
MERRIMAN MERRIMAN MERRIMAN MERRIMAN
MERRIMAN GROWTH & CAPITAL ASSET LEVERAGED
FLEXIBLE BOND INCOME APPRECIATION ALLOCATION GROWTH
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Assets
Investments in securities, at market value
(identified cost $7,220,757, $8,311,162,
$12,162,846, $9,576,666 and $20,506,559,
respectively) (Note 2) $7,168,538 $8,245,654 $12,218,350 $9,605,393 $20,747,957
Cash - - - - 35
Dividends and interest receivable 34,660 96,904 16,601 31,110 13,983
Receivable for capital stock sold 1,616 208 100 100 100
----- --- --- --- ---
Total assets 7,204,814 8,342,766 12,235,051 9,636,603 20,762,075
--------- --------- ---------- --------- ----------
Liabilities
Accrued management fees 5,078 8,873 12,820 10,037 21,779
Other accrued expenses 7,932 9,991 17,706 21,722 35,953
Payable for capital stock repurchased 4,934 - 109,207 - -
Distributions payable 5,852 - - - -
Other 8,820 959 33 435 -
----- --- -- --- -----
Total liabilities 32,616 19,823 139,766 32,194 57,732
------ ------ ------- ------ ------
Net Assets
(Applicable to 732,713, 822,995, 1,207,437, 934,546,
and 1,597,348 shares of beneficial interest with no
par value, unlimited number of shares authorized) $7,172,198 $8,322,943 $12,095,285 $9,604,409 $20,704,343
========== ========== =========== ========== ===========
Pricing of Shares
Net asset value, offering and redemption price per share
$ 7,172,198 / 732,713 shares $ 9.79
==========
$ 8,322,943 / 822,995 shares $ 10.11
==========
$12,095,285 / 1,207,437 shares $ 10.02
===========
$ 9,604,409 / 934,546 shares $ 10.28
==========
$20,704,343 / 1,597,348 shares $ 12.96
===========
Net assets
At September30, 2000, net assets consisted of:
Paid-in capital $7,348,843 $7,605,695 $10,459,826 $8,450,967 $16,754,756
Undistributed net investment income 1,297 93,618 183,612 220,108 503,400
Accumulated net realized gain (loss) (125,723) 689,138 1,396,343 904,607 3,204,789
Unrealized appreciation (depreciation) on investments (52,219) (65,508) 55,504 28,727 241,398
------- ------- ------ ------ -------
$7,172,198 $8,322,943 $12,095,285 $9,604,409 $20,704,343
========== ========== =========== ========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
13
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
Year Ended September 30, 2000
<CAPTION>
MERRIMAN MERRIMAN MERRIMAN MERRIMAN
MERRIMAN GROWTH & CAPITAL ASSET LEVERAGED
FLEXIBLE BOND INCOME APPRECIATION ALLOCATION GROWTH
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment Income
Interest $ 40,279 $ 16,803 $ 46,157 $ 25,273 $ 48,778
Dividends 359,721 261,809 415,099 458,475 872,428
------- ------- ------- ------- -------
Total investment income 400,000 278,612 461,256 483,748 921,206
------- ------- ------- ------- -------
Expenses
Management fees (Note 3) 69,560 115,081 166,013 132,510 278,802
Accounting services 15,925 20,447 28,796 23,662 50,745
Custodian fees 4,115 4,023 4,999 4,552 7,388
Transfer agent fees 10,281 10,315 11,562 10,634 14,457
Interest expense (Note 4) - - - - 31,669
Professional services 5,933 7,616 10,710 9,125 15,883
Registration fees 4,542 4,443 8,108 8,163 8,052
Insurance and other 3,112 3,029 5,040 4,824 7,689
Printing 381 556 922 352 2,294
Trustees fees 230 351 432 122 827
--- --- --- --- ---
Expenses before reimbursement 114,079 165,861 236,582 193,944 417,806
------- ------- ------- ------- -------
Reimbursement by advisor (Note 3) 9,708 - - - -
----- ------- ------- ------- -------
Total expenses 104,371 165,861 236,582 193,944 417,806
------- ------- ------- ------- -------
Net investment income 295,629 112,751 224,674 289,804 503,400
------- ------- ------- ------- -------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) from security
transactions (42,267) 345,720 877,664 701,306 2,305,448
Capital gain distributions from regulated
investment companies - 343,481 518,751 203,630 901,137
Net decrease in unrealized appreciation
of investments (69,730) (334,675) (210,733) (548,398) (879,589)
------- -------- -------- -------- --------
Net realized and unrealized gain (loss) on
investments (111,997) 354,526 1,185,682 356,538 2,326,996
-------- ------- --------- ------- ---------
Net increase in net assets resulting from
operations $183,632 $ 467,277 $1,410,356 $ 646,342 $2,830,396
======== ========== ========== ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
14
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
MERRIMAN FLEXIBLE MERRIMAN GROWTH &
BOND FUND INCOME FUND
--------- -----------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 295,629 $ 365,141 $ 112,751 $ 60,996
Net realized gain (loss) on investments (42,267) (84,374) 345,720 148,916
Capital gain distributions from regulated investment
companies - 10,554 343,481 514,131
Net increase (decrease) in unrealized appreciation
on investments (69,730) (87,584) (334,675) 387,813
------- ------- -------- -------
Net increase in net assets resulting from operations 183,632 203,737 467,277 1,111,856
Distributions to shareholders:
Distributions from net realized gain on investments - - (646,201) (585,865)
Distributions from net investment income (295,086) (364,405) (19,133) (118,817)
Capital share transactions:
Increase (decrease) in net assets resulting from capital
share transactions (Note 6) (692,437) 636,822 (240,656) (163,743)
- -------- ------- -------- --------
Total increase (decrease) (803,891) 476,154 (438,713) 243,431
Net assets
Beginning of year 7,976,089 7,499,935 8,761,656 8,518,225
--------- --------- --------- ---------
End of year* $7,172,198 $7,976,089 $8,322,943 $8,761,656
========== ========== ========== ==========
* Including undistributed net investment income of: $ 1,297 $ 754 $ 93,618 $ -
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MERRIMAN CAPITAL MERRIMAN ASSET
APPRECIATION FUND ALLOCATION FUND
----------------- ---------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,SEPTEMBER 30,SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 224,674 $ 191,325 $ 289,804 $ 301,271
Net realized gain on investments 877,664 628,899 701,306 110,347
Capital gain distributions from regulated investment
companies 518,751 538,537 203,630 354,918
Net increase (decrease) in unrealized appreciation
on investments (210,733) 469,582 (548,398) 530,941
-------- ------- -------- -------
Net increase in net assets resulting from operations 1,410,356 1,828,343 646,342 1,297,477
Distributions to shareholders:
Distributions from net realized gain on investments (1,168,230) (469,197) (488,871) (381,247)
Distributions from net investment income (150,636) (81,751) (254,217) (93,129)
Capital share transactions:
Decrease in net assets resulting from capital
share transactions (Note 6) (239,273) (1,678,023) (939,733) (2,350,512)
-------- ---------- -------- ----------
Total decrease (147,783) (400,628) (1,036,479) (1,527,411)
Net assets
Beginning of year 12,243,068 12,643,696 10,640,888 12,168,299
---------- ---------- ---------- ----------
End of year* $12,095,285 $12,243,068 $ 9,604,409 $10,640,888
=========== =========== =========== ===========
* Including undistributed net investment income of: $ 183,612 $ 109,574 $ 220,108 $ 208,142
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
15
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<CAPTION>
MERRIMAN LEVERAGED
GROWTH FUND
-----------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Operations:
Net investment income (loss) $ 503,400 $ (82,463)
Net realized gain on investments 2,305,448 1,408,667
Capital gain distributions from regulated
investment companies 901,137 1,018,656
Net increase (decrease) in unrealized
appreciation on investments (879,589) 1,366,712
-------- ---------
Net increase in net assets resulting from operations 2,830,396 3,711,572
Distributions to shareholders:
Distributions from net realized gain on investments (2,344,927) (937,419)
Capital share transactions:
Increase in net assets resulting from capital share
transactions (Note 6) 1,464,890 492,014
--------- -------
Total increase 1,950,359 3,266,167
Net assets
Beginning of year 18,753,984 15,487,817
---------- ----------
End of year* $20,704,343 $18,753,984
=========== ===========
* Including undistributed net investment income of: $ 503,400 $ -
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
16
<PAGE>
<TABLE>
MERRIMAN LEVERAGED GROWTH FUND
STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Dividends and interest received $ 327,874 $ 405,890
Operating expenses paid (391,002) (470,786)
Net purchases of short-term investments 1,103,326 (3,802,246)
Purchases of portfolio securities (74,136,318) (52,185,135)
Proceeds from sales of portfolio securities 72,476,656 55,488,967
Long-term capital gain distributions received 1,499,797 1,018,656
--------- ---------
Net cash provided by operating activities 880,333 455,346
------- -------
Cash flows from financing activities:
Proceeds from capital shares sold 7,020,879 5,015,242
Payments on capital shares redeemed (7,843,146) (5,420,614)
Cash dividends paid * (57,870) (50,113)
Net increase (decrease) in loan payable to custodian bank - -
-------- -------
Net cash used for financing activities (880,137) (455,485)
-------- --------
Net change in cash 196 (139)
Cash at beginning of year (161) (22)
---- ---
Cash (overdraft) at end of year $ 35 $ (161)
========== ==========
Reconciliation of net increase in net assets resulting from operations to net
cash provided by (used for) operating activities:
Net increase in net assets resulting from operations $2,830,396 $3,711,572
---------- ----------
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by (used for) operating activities:
(Increase) decrease in investment securities (1,993,042) (3,273,793)
(Increase) decrease in dividends and interest receivable 5,328 17,940
(Increase) decrease in investment securities sold 10,847 -
Increase (decrease) in accrued management fees 2,317 3,238
Increase (decrease) in other accrued expenses 24,487 (3,611)
------ ------
Total Adjustments (1,950,063) (3,256,226)
---------- ----------
Net cash provided by operating activities $ 880,333 $ 455,346
========== ==========
</TABLE>
* Non-cash financing activities included herein consist of reinvestment of
distributions to shareholders of $2,287,057 and $887,306 respectively.
See Accompanying Notes to Financial Statements
17
<PAGE>
MERRIMAN MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FLEXIBLE BOND FUND
(for a share outstanding throughout the year)
Year 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 or losses on securities
(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 realized 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) $ 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 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>
<TABLE>
<CAPTION>
GROWTH & INCOME FUND
(for a share outstanding throughout the year)
Year 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 or losses on securities
(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 realized 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) $ 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 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
See Accompanying Notes to Financial Statements
18
<PAGE>
MERRIMAN MUTUAL FUNDS
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CAPITAL APPRECIATION FUND
(for a share outstanding throughout the year)
Year 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 or losses on securities
(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 realized 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) $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 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>
<CAPTION>
ASSET ALLOCATION FUND
(for a share outstanding throughout the year)
Year 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 or losses on securities
(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 realized 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) $ 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 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>
See Accompanying Notes to Financial Statements
19
<PAGE>
<TABLE>
Merriman Mutual Funds
Financial Highlights (continued)
<CAPTION>
Leveraged Growth Fund
(for a share outstanding throughout the year)
Year 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 (loss) 0.32 (0.06) 0.06 (0.20) (0.08)
Net gains or losses on securities
(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 realized 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) $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 income (loss) 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 NUMBER
AMOUNT OF DEBT AMOUNT OF DEBT OF SHARES AVERAGE AMOUNT OF
OUTSTANDING AT OUTSTANDING OUTSTANDING DEBT PER SHARE
YEAR ENDED END OF YEAR DURING THE YEAR DURING THE YEAR DURING THE YEAR
---------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
September 30, 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>
See Accompanying Notes to Financial Statements
20
<PAGE>
MERRIMAN INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Merriman Flexible Bond Fund, Merriman Growth & Income Fund, Merriman
Capital Appreciation Fund, Merriman Asset Allocation Fund, and Merriman
Leveraged Growth Fund (the "Funds") are separate series of Merriman Investment
Trust (the "Trust") which is registered under the Investment Company Act of
1940, as amended, as a diversified open-end management company. The Trust was
organized in 1987 as a Massachusetts Business Trust and may issue an unlimited
number of shares of beneficial interest without par value in separate classes of
"funds."
Each fund has specific investment objectives: The objectives of the
Flexible Bond Fund are income, preservation of capital and, secondarily, growth
of capital. The objectives of the Growth & Income Fund are long-term growth of
capital, income and, secondarily, preservation of capital. The objective of the
Capital Appreciation Fund is capital appreciation. The objectives of the Asset
Allocation Fund are high total return consistent with reasonable risk. The
objective of the Leveraged Growth Fund is capital appreciation through the use
of leverage and other investment practices.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed in the preparation of the Trust's financial statements. The policies
are in conformity with generally accepted accounting principles.
A. SECURITY VALUATION. Short-term debt securities are valued at amortized
cost, which approximates market value. Investments in regulated investment
companies (mutual funds) are valued at the net asset value per share.
B. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income or excise tax provision is
required.
C. INCOME RECOGNITION. Dividend income and distributions to shareholders are
recorded on the "ex-dividend" date. Interest income is accrued daily.
D. SECURITY TRANSACTIONS. Security transactions are recorded on the trade
date. Realized gains and losses from security transactions are determined
using the identified cost basis.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net income and capital gains
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for post-October
losses.
F. USE OF ESTIMATES IN FINANCIAL STATEMENTS. In preparing financial statements
in conformity with generally accepted accounting principles, management
makes estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements, as well as the
reported amounts of income and expenses during the report period. Actual
results may differ from these estimates.
NOTE 3 - INVESTMENT MANAGEMENT AGREEMENT
Merriman Investment Management Company (the "Manager") receives investment
advisory fees from the Funds. As compensation for its services, the Manager is
paid a fee which is calculated at an annual rate based on the average daily net
assets of each Fund as follows:
Flexible Bond All Other
Fund Funds
On the first $250 million 1.000% 1.250%
On the next $250 million .875% 1.125%
On all above $500 million .750% 1.000%
The Manager has agreed to limit each Fund's expenses. In the event that a Fund's
expenses exceed any such limitations, the Manager either waives its fees and/or
reimburses such fund to the extent required to conform to such limitations.
Currently, the maximum expense which each Fund may incur, expressed as a
percentage of average net assets, is 2.5% of the first $30 million, 2% of the
next $70 million, and 1.5% of all over $100 million.
The Manager has voluntarily reduced the expense limit to 2% of the first $15
million in net assets, 1.5% on the next $35 million, and 1% of net assets over
$50 million for the Merriman Capital Appreciation Fund, the Merriman Asset
Allocation Fund, and the Merriman Growth & Income Fund, to 2% of the first $15
million in net assets, 1.5% of the next $15 million in net assets, and 1% of net
assets over $30 million for the Merriman Leveraged Growth Fund (exclusive of
interest expense), and to 1.5% on the first $30 million in net assets and 1.0%
of net assets over $30 million for the Merriman Flexible Bond Fund.
For the year ended September 30, 2000, the Advisor made expense reimbursements
in the amount of $9,708 to the Merriman Flexible Bond Fund.
Certain trustees and officers of the trust are also officers of the Manager.
NOTE 4 - BANK LINE OF CREDIT
The Merriman Leveraged Growth Fund pays $14,000 per year (included in
interest expense) to maintain an unsecured $7,000,000 bank line of credit;
borrowings under this arrangement bear interest at the bank's prime rate. No
compensating balances are required. Balance outstanding at September 30, 2000
was $0.
NOTE 5 - (SEE FOLLOWING)
NOTE 6 - (SEE FOLLOWING)
21
<PAGE>
MERRIMAN INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CAPITAL SHARES
At September 30, 2000, there were an unlimited number of no par value
shares of beneficial interest authorized. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
MERRIMAN FLEXIBLE BOND FUND MERRIMAN GROWTH & Income Fund
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SETPEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........... 172,516 $1,716,908 211,281 $2,149,600 44,676 $ 479,525 57,835 $ 605,966
Shares issued in
reinvestment of
distributions...... 27,014 267,864 30,471 306,733 59,420 647,080 67,030 684,375
------ ------- ------ ------- ------ ------- ------ -------
199,530 1,984,772 241,752 2,456,333 104,096 1,126,605 124,865 1,290,341
Shares redeemed.......(267,846) (2,677,209) (179,288) (1,819,511) (128,757) (1,367,261) (140,428) (1,454,084)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net increase
(decrease) (68,316) $ (692,437) 62,464 $ 636,822 (24,661) $(240,656) (15,563) $ (163,743)
======= ========== ====== ========= ======= ========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
MERRIMAN CAPITAL APPRECIATION FUND MERRIMAN ASSET ALLOCATION FUND
---------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold .......... 622,385 $6,622,017 93,407 $929,648 21,382 $ 232,323 62,981 $636,697
Shares issued in
reinvestment of
distributions ..... 121,358 1,307,020 55,577 543,541 66,390 720,991 45,752 457,519
------- --------- ------ ------- ------ ------- ------ -------
743,743 7,929,037 148,984 1,473,189 87,772 953,314 108,733 1,094,216
Shares redeemed ..... (761,274) (8,168,310) (319,717) (3,151,212) (175,271) (1,893,047) (341,204) (3,444,728)
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Net decrease ......... (17,531) $ (239,273) (170,733) $(1,678,023) (87,499) $(939,733) (232,471) $(2,350,512)
======= ========== ======== =========== ======= ========= ======== ===========
</TABLE>
MERRIMAN LEVERAGED GROWTH FUND
------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
---- ----
SHARES VALUE SHARES VALUE
------ ----- ------ -----
Shares sold........... 497,652 $7,020,979 414,476 $5,025,322
Shares issued in
reinvestment of
distributions...... 161,858 2,287,057 73,400 887,306
------- --------- ------ -------
659,510 9,308,036 487,876 5,912,628
Shares redeemed....... (553,555)(7,843,146) (449,613) (5,420,614)
-------- ---------- -------- ----------
Net increase.......... 105,955 $1,464,890 38,263 $ 492,014
======= ========== ====== =========
NOTE 6 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities other than short-term investments and
money market funds for the year ended September 30, 2000 were as follows:
PURCHASES SALES
--------- -----
Merriman Flexible Bond Fund.............$22,849,027 $22,966,862
Merriman Growth & Income Fund............22,801,551 21,047,782
Merriman Capital Appreciation Fund.......37,171,829 36,340,604
Merriman Asset Allocation Fund...........27,381,421 29,315,911
Merriman Leveraged Growth Fund...........74,136,318 72,465,828
22
<PAGE>
Report of Independent Certified Public Accountants
To The Board of Trustees and Shareholders of Merriman Investment Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of the Merriman Investment Trust, consisting of
the Merriman Flexible Bond Fund, Merriman Growth & Income Fund, Merriman Capital
Appreciation Fund, Merriman Asset Allocation Fund, and Merriman Leveraged Growth
Fund as of September 30, 2000, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, the statement of cash flows of Merriman
Leveraged Growth Fund for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 2000, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Merriman Investment Trust at September
30, 2000, and the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
Merriman Leveraged Growth cash flows for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania Tait, Weller & Baker
October 19, 2000
23
<PAGE>
Graphic Omitted MERRIMAN
INVESTMENT TRUST
1200 Westlake Avenue North Suite 700
Seattle, Washington 98109
1-800-423-4893
24
<PAGE>
