MoniResearch Verification of Mert's High Yield Returns

MoniResearch Corporation
PO Box 1907 Woodland, WA 98674
Steve Shellans, President
Phone 1-360-225-0703

January 12, 2011

Merit Advisors, Inc.
13905 Quail Pointe Drive, Ste A
Oklahoma City, OK 73134

Gentlemen:

At your request, we have back tested your traditional high yield bond model by applying its buy and sell signals to the Lipper High Yield Index. We confirmed that these signals were applied to a variety of high yield mutual funds in real time over the years. However, the application of these signals to the Lipper Index must be considered hypothetical.

  1. The account was assumed to be funded with $100,000 on Dec. 29, 2000, ten years ago.
  2. Whenever you showed a buy signal, the account was invested in the Lipper High Yield Index on that day. On the infrequent occasions when you made partial switches between that Index and the defensive instrument, our backtest conformed to this protocol.
  3. Whenever you showed a sell signal, the account was invested in 3-Month Treasury Bills. This rate is typical of money market funds. Partial switches were honored.
  4. For analysis purposes, all positions were considered to be liquidated on Dec. 31, 2010. 
  5. A management fee of 1.6% per year was used, assessed quarterly in arrears. Therefore, the performance shown is net of Merit's management fees.

The performance calculations were done using a precision time-weighted rate of return. This method is endorsed by the Association for Investment Management and Research (AIMR), the financial Analysts Federation (FAF), the National Association of Active Investment Managers (NAAIM), and the Institute for Chartered Financial Analysts (ICFA), and is widely regarded in the financial community as being the most accurate and meaningful.

The following table summarizes Merit's managed results, compared to a buy/hold strategy.

 
Compound Ave. ROR
% of Time Invested
MNR Risk-Adjusted ROR
Ulcer Index
Ending Acct. Balance
Buy-Hold 9.50% 100.0 7.86% 30.0 $248,048
Merit 14.07% 66.8 13.95% 2.2 $373,528

 
Alpha
Beta
Avg Mo. Return
Std Dev.
Sharpe
R
R-Sq
Buy-Hold 0 1 0.80% 9.6  0.75  
Merit 8.44 0.42 1.12% 5.5  2.10 0.73  0.53 

MoniResearch Corporation (MRC) has been tracking the performance of money managers for more than 30 years. From March 1986, MRC published the MoniResearch Newsletter, a publication devoted to tracking the performance of active money managers. The personal credentials of the president of MRC include a Bachelor of Science degree from MIT, a Master of Science degree in Computer science from the Stevens Institute of Technology and over 30 years’ experience. MRC’s work has appeared in the Wall Street Journal, Barron’s, Money Magazine, Financial Planning Magazine, The Journal of Portfolio Management, The Journal of Financial Planning, Institutional Investor and many other lay and professional publications.

Sincerly,

Steve Shellans, President

The use of the Lipper Index should not be construed as Lipper's endorsement of Merit's management service. Returns from Merit's high yield bond service are NOT BANK GUARANTEED, NOT FDIC INSURED and MAY LOSE MONEY. Before you invest, you should obtain and study the fund's prospectus. All investment strategies have the potential for profit or loss. Performance results are presented net of fees and reflect the reinvestment of dividends and capital gains. There are no assurances that any portfolio will match or outperform any particular benchmark. Investors cannot invest directly in Lipper's Indices. Therefore, actual client results varied from the performance shown in this report. Please see additional disclosures.