UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-8820
---------------------------------------------
Markman MultiFund Trust
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
6600 France Avenue South, Minneapolis, Minnesota 55435
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert J. Markman, 6600 France Avenue South, Minneapolis, Minnesota 55435
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (952) 920-4848
----------------------------
Date of fiscal year end: 12/31
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Date of reporting period: 6/30/03
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
- --------------------------------------------------------------------------------
MARKMAN
TOTAL RETURN
PORTFOLIO
SEMI-ANNUAL REPORT
June 30, 2003
Unaudited
- --------------------------------------------------------------------------------
================================================================================
OFF TO A GOOD START
- --------------------------------------------------------------------------------
Dear Total Return Portfolio Shareholder,
This is the first opportunity I've had to report to you (in an extended written
format) since the reorganization late last year that created the Total Return
Portfolio. So I am pleased (and yes, a little relieved) that we have gotten off
to a good start together. The merging of the three Multifunds into one Total
Return Portfolio was not a move taken lightly. And although the overwhelming
majority of shareholders approved of the reorganization, it is understandable
that many of you were watching and waiting to see whether our revamped
structure, with its added flexibility, would indeed work out for you. I am
hopeful that you can be confident now that you made the right decision in
staying with the Total Return Portfolio.
2003 PERFORMANCE:
For the six-month period ended June 30, 2003, the portfolio gained 15.87%. This
compares favorably to the S&P 500 return of 11.60%. I want to remind
shareholders that for long-term stability purposes the Markman Total Return
Portfolio must at all times hold at least 20% of the Portfolio's assets in bond
and money market securities. Our comparative benchmark return, which takes into
account this mandated diversification, blends 80% of the S&P 500 return with 20%
of the return of the Lehman Intermediate Government Bond Index. This blend
returned 9.75% for the first six months of 2003.
In this past quarter, the Total Return Portfolio gained 20.53%, well ahead of
the returns of both the S&P 500's 15.23% and our blended benchmark, which gained
12.50%.
I don't want to sound like a killjoy, but just for the record I think it's
unlikely that another 20% quarter will reoccur in the near term. We have in the
relatively short time we have been executing our new model outperformed the
broad market. But given the moderated level of risk I hope to maintain in the
Portfolio, I wouldn't want you to always expect our degree of out performance
relative to the market to continue to that extent in the future.
OUR THOUGHTS ON 2003'S INVESTMENT ENVIRONMENT:
The year began with all of us still nursing deep wounds from the bear market of
the previous three years. One cannot overestimate the importance of how that
trauma is still impacting the decisions of millions of investors, journalists
and corporate managers on a day-to-day basis. This weight of recent bad
experience has forced many investors out of the market, back to the sidelines,
emotionally unwilling to risk the loss of even one more dollar. This is the
trauma that drives the media, with its congenital 20/20 hindsight and ingrained
habit of living only in the 48-hour news cycle moment, to highlight risk at
Nasdaq 1500, blithely forgetting how it hyped reward at Nasdaq 5000. And this
same trauma convinces many corporate managers to play their cards closer to the
vest than normal, not wanting to spend and expand until they are completely sure
it's safe to come out of their foxholes again.
[BAR CHARTS OMITTED]
---------------------------------------------------------------
PERFORMANCE: MARKMAN TOTAL RETURN PORTFOLIO
11.60% 9.75% 15.87% 15.23% 12.50% 20.53%
--------------------------- ---------------------------
S&P 500 Blend MTRP S&P 500 Blend MTRP
--------------------------- ---------------------------
6 months ended June 30, 2003 3 months ended June 30, 2003
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1
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FROM MR. T TO BARNEY FIFE
So it seemed that by mid-winter the financial world and many of its denizens had
completed the transformation from the aggressive Mr. T of 1999 ("I pity the fool
who doesn't own internet stocks...") to the emasculated and jittery Mayberry
Deputy Barney Fife--facial ticks and all--of early 2003.
It was with that Barney Fife-like posture that investors and the media
confronted the looming war in Iraq. "Yikes! The economy strugglin', people out
of work, and now we're goin' to war against a country that could use biological
and chemical weapons against us? What the heck do we do now, Andy?!"
If a war that many thought would ignite further flames of terrorism wasn't
enough, we continued to be fed the steady drip, drip, of corporate scandals
large and small. Adding insult to injury, investors looking to just rest a while
in safe cash investments found that their yields were fast approaching zero. By
the time the second quarter ended, deflation fears had pushed interest rates
down to their lowest level since Bill Haley and the Comets led the Hit Parade.
On the back of all this worry, gloom and tension what did the stock market do?
It rallied hugely, once again doing exactly what it needed to hurt and humiliate
the maximum number of investors.
HOW WE'VE HANDLED THINGS: CALL ME "BARNEY T"
I confess I spent the better part of the last six months refereeing a battle
between my optimistic and pessimistic selves. On most any given day I could have
very easily argued the macro case for both the bull and bear scenario. Unlike
many other funds, the Markman Total Return Portfolio does not have to adhere to
a given style, sector, market cap or investment stance on a regular basis. With
the exception of our 20% minimum bond/cash requirement, I have a lot of
flexibility to gear the portfolio to what I feel is the most productive in a
particular market environment. The Markman Total Return Portfolio is multi-cap,
multi-style, multi-asset class. In this respect it more closely resembles a
portfolio you yourself as an experienced, knowledgeable investor might assemble
if you had the inclination and resources.
Generally we start from what I consider to be a "neutral" stance for a long-term
growth investor. This would equate to a 75%/25% stock/bond mix, with the stock
portion weighted towards what we feel to be more stable growth and value
selections. If we develop a negative outlook on the markets, we can
theoretically go much heavier in bonds or cash. Conversely, if we feel we are in
a strong bull phase, the portfolio could be weighted more heavily in higher
beta, more volatile stock investments. The decisions as to how this long-term
growth portfolio is composed are made with certain assumptions:
o That our investor has learned that the only growth that counts is what you
preserve in difficult markets.
o That yield, along with capital appreciation will be increasingly important
in years to come.
o That we'd like as much shorter term stability as possible without killing
the goose that lays the long-term growth eggs.
o That we are willing at times to take some opportunistically aggressive
moves if conditions warrant.
Given the environment, and the flexibility the portfolio affords, what was my
thinking....
YES...NO...MAYBE... (PART I)
The Barney in me noted that while it did appear that the long and sickening
slide was over, there were few tangible proofs of new sustainable growth. Or at
least large enough growth to justify the current level of stock prices. Price
earning ratios were still high by the historic standards we normally see at the
beginning of new bull markets. Far too many folks were singing the same hopeful
"second half growth" song that proved so wrong and costly in years past.
Investors, particularly in the tech sector, seemed all too ready to get giddily
optimistic and party like it's 1999, even though there were precious few signs
of actual recovery in technology spending on the corporate level.
The fact that employment was stubbornly remaining unimproved, even
deteriorating, created concerns that our consumer led economy could very well
soften in the coming year. And then, of course, there was the constant wild
card, the hanging sword of some future terrorist attack. Barney's advice: stop
[TEXT INSERT]
On the back of all this worry, gloom and tension what did the stock market do?
It rallied hugely, once again doing exactly what it needed to hurt and humiliate
the maximum number of investors.
[END TEXT INSERT]
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2
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thinking about a big upward move and concentrate on simply preserving what
you've got until things get a bit healthier.
On days when I listened to my inner Barney I forced myself to lighten up on
tech, biotech and leveraged index funds (selling or reducing positions in Rydex
Titan and Rydex OTC and Biotech Holders Trust). While that served to help reduce
the short-term volatility of the Portfolio, it also reduced our return
potential. I also, in hindsight, may have put too large a premium on booking
short-term profits, out of fear that the unexpectedly large and quick gains we
saw in some stocks would vanish in the next market downdraft. So as they rallied
I took some money off the table in positions like Select Comfort, Royal
Caribbean, Capital One and Apollo. These fine companies remain among our largest
holdings, but I sure would have liked to have owned even more as they continued
to move higher. I console myself only by remembering that regrets at selling too
soon are a textbook sign of a bull market, just as regrets at selling too late
tend to be the refrain of a bear market.
YES...NO...MAYBE... (PART II)
While my inner Barney contemplated keeping the proceeds in cash, my inner Mr. T
was exhorting me to see the glass as at least half full. There were plenty of
reasons for optimism: After three double-digit down years, it would have been an
historic anomaly for the market to have a bad fourth. Corporate America had
spent the past three years getting lean and much more fiscally fit. Persistent
productivity gains have enabled profitability to return to many companies across
many industries. "Repair the balance sheet!" is the new cry in corporate
America, and many companies that were considered financial road kill just six
months earlier seem to have gained a new lease on life.
The Federal Reserve was doing just about everything in its power to spur growth,
and Congress, while allowing the deficit to grow once again, was nevertheless
embarking on a spending spree that was also stimulative.
By the beginning of the second quarter, a record amount of cash was sitting on
the sidelines in individual and institutional money markets. With short-term
rates dipping below 1% many observed that it was just a matter of time before at
least some of that cash shifted to stocks. This rate decline had also produced a
record bond rally. Bond prices have risen over the past two years as stocks
declined, creating an asset allocation imbalance that institutions were forced
to address. They would be forced to move money out of bonds in to stocks.
Increased liquidity, the mother's milk of any stock market rally seemed to be a
reality too powerful to ignore.
Thus, the inner Mr. T kept me invested for most of the year at a level close to
our maximum allowable allocation in equities. We took care, though, to steer
clear of stocks and sectors where things were "priced for perfection." Thus we
were, and remain, under-weighted in tech.
Plenty of other opportunities presented themselves: We could take advantage of
"headline risk" by purchasing companies that we felt were being unfairly
punished for acts that were no longer relevant to their future prospects (AOL,
Tyco). Or we could pounce on solid companies that were depressed, temporarily we
believed, by events external to their actual operations (Royal Caribbean and the
Iraq war). Or we could identify low risk, easy to understand companies that were
firing on all cylinders with little to stand in their way (Select Comfort).
Overall, as you can see from our portfolio, we placed the emphasis on relatively
low PE consumer discretionary and financial stocks that were growing at
sustainable rates well above their market multiples.
OVERACHIEVING BONDS
Our bond positions are generally intended to be a leavening element, included to
help smooth out short-term volatility on the path of long term growth. This
year, we are in a unique position where our bond allocation produced stock-like
growth results. Our decision to allocate heavily to high yield and emerging
market bond funds (what turned out to be the two best performing classes of
bonds thus far in 2003) paid off. The bond allocation returned 13.61% for the
first half of the year.
During most of the first half, emerging market bonds represented the lion's
share of our bond allocation. Almost all of it was invested in the PIMCO
Emerging Market Bond Fund. Once the decision to allocate to emerging market debt
was made, it didn't take a genius to conclude that this fund, with its low
expenses, excellent track record, and solid management under Mohamed El-Erian
would be difficult to beat.
Our largest high yield holding, Northeast Investors Trust, has been somewhat of
a disappointment lately, in
[TEXT INSERT]
While my inner Barney contemplated keeping the proceeds in cash, my inner Mr. T
was exhorting me to see the glass as at least half full.
[END TEXT INSERT]
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3
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[SIDEBAR]
TOP TEN HOLDINGS as of 6/30/2003
- ---------------------------------------
Pimco Emerging Markets
Bond Fund 9.5%
- ---------------------------------------
Northeast Investors Trust 4.7%
- ---------------------------------------
E*Trade 4.5%
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Countrywide Financial 4.3%
- ---------------------------------------
SanDisk 4.3%
- ---------------------------------------
Select Comfort 4.2%
- ---------------------------------------
Apollo Group 4.0%
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Berkshire Hathaway B 4.0%
- ---------------------------------------
AOL Time Warner, Inc. 3.8%
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Cendant 3.5%
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Total in Top Ten 46.8%
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- ---------------------------------------
MARKET CAPS OF STOCK HOLDINGS
(As a percentage of the stock portion
of the portfolio)
- ---------------------------------------
Small Cap
(under $1.5 billion) 26.4%
- ---------------------------------------
Mid Cap
($1.5-10 billion) 32.5%
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Large Cap
(over $10 billion) 41.1%
- ---------------------------------------
- ---------------------------------------
STOCK PORTFOLIO CHARACTERISTICS
(6/30/03)
- ---------------------------------------
Number of positions 23
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Forward P/E Ratio 18.3
- ---------------------------------------
Earnings growth rate 20.5
- ---------------------------------------
[END SIDEBAR]
no small part because they eschewed some of the more speculative sectors of the
junk bond market that have rebounded spectacularly. But I'm OK with that; slow
and steady in the junk bond arena tends to win the race over time, as a look at
Northeast's record will show. We've invested many dollars over many years with
this management and have great confidence that they will ultimately navigate
these somewhat treacherous waters successfully. All told, however, it is not
reasonable to expect this level of performance to continue much longer for high
yield and emerging market bonds. The easy money, as they say, has been made. Yet
I don't expect these markets to tumble any time soon. Given the huge amount of
dollars sloshing around looking for a home in fixed income at rates better than
3%, and given my expectation for at least a moderately benign economic
landscape, these areas should still lead the bond market through the rest of the
year.
OUTLOOK FOR THE SECOND HALF
As I write this over the Fourth of July weekend, it seems a lot easier to hear
the snorting bull outside my window than the growling bear. This market "wants"
to go higher. I believe the fundamental realities may not support the case for
higher prices in many sectors--particularly tech stocks, which have been on fire
for three months. But I cannot deny the existence in the market today of the two
greatest short-term forces any market can experience--liquidity and momentum.
It's a pretty solid bet that they are likely to drive prices up from where they
were June 30. While it is tempting to try to play that short term move, unless
underlying fundamentals improve soon, the run up will likely end badly as have
so many others in the past three years. And I have no intention of letting that
happen to us.
I don't want to sound too curmudgeonly about all this; I'll be the first to
acknowledge that there are a good number of compelling emerging growth stories
out there. But I can't shake the creepy feeling we're replaying the same awful
tape, with investors manically bidding up the stock prices of companies that
have shown no signs of making any money in the foreseeable future. We don't have
to play that game. There are many other companies with remarkable growth stories
that are much more easily understandable, much more reliable, and ultimately
safer. And that's where you'll find us: seeking out solid growth opportunities
that give us the potential to build and, just as importantly, retain wealth.
Sincerely,
/s/ Bob Markman
Bob Markman
[text insert]
Investors are manically bidding up the stock prices of companies that have shown
no signs of making any money in the foreseeable future
[end text insert]
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4
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MUTUAL FUND REFORMS
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One of the biggest issues to hit the mutual fund world in years is being hotly
debated within the industry and Congress. The controversy centers on how funds
incur and account for various costs. I want to take this opportunity to tell you
where we stand on some of the relevant issues.
TRADING COSTS
Many observers feel shareholders are paying far too much for the services they
receive and are not given relevant and specific information to help them
determine if that indeed is the case. For instance, it might surprise you that
the actual costs of trading, the commissions to buy and sell stock, are not
included in the more easily accessible information given to shareholders. One
would think that this would be a basic element of a fund's "expense ratio." It's
not. And we're not talking peanuts here. According to The Wall Street Journal, a
recent review of thousands of stock funds found that the funds studied paid
about 0.46% of their assets annually in trading commissions. When you factor in
how that number is skewed downward by low cost, low turnover index funds, you
can see how commissions for many managed funds may reach 1% or more. Through
June 30, The Markman Total Return Portfolio has paid trading commissions that
amount to less than 0.07% of the portfolio.
Most funds pay stock commissions of up to 5 cents per share. In the opinion of
many, that's much too high. The Markman Total Return Portfolio pays, on average,
under seven tenths of one cent per share in commissions.
SOFT DOLLARS
This discrepancy is largely due to what are called "soft dollar arrangements."
Here's how it works: ABC Fund manager agrees to process trades through XYZ
Brokerage, allowing them to earn a hefty commission of say, 5 cents per share.
XYZ, in turn will give ABC a "credit" for a certain dollar amount of those
commissions that can be used to purchase items and services to help run ABC's
business. XYZ benefits by getting high commissions, ABC benefits by having some
of its business expenses picked up. You, the shareholder, are left with the tab,
the cost of which is buried in a way that makes it highly unlikely you'll ever
see it. It's perfectly legal, but it's not a system designed to keep down costs.
Markman Capital as manager of the Markman Total Return Portfolio does not accept
any soft dollars. Everything we need to run the portfolio, we pay for out of our
management fee. That's how we can keep your commissions down so low.
TURNOVER RATES AND COSTS
With such high commissions the norm, it's no wonder investors are often urged to
generally avoid funds with very high turnover rates. The more trading a manager
does, the more those hidden commissions eat into your return. Though the Markman
Total Return Portfolio has a turnover rate higher than many other funds, it is
more than offset by the low cost structure we work within.
================================================================================
5
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PORTFOLIO OF INVESTMENTS
Markman Total Return Portfolio--June 30, 2003 (Unaudited)
- --------------------------------------------------------------------------------
SHARES FUND MARKET VALUE
MUTUAL BOND FUND 20.7%
452,030 PIMCO Emerging Markets Bond Fund - INS $ 4,945,208
.................................................................................
342,796 Northeast Investors Trust 2,457,849
.................................................................................
135,257 PIMCO Total Return Fund - INS 1,487,827
.................................................................................
103,800 Dreyfus High Yield Strategies Fund 511,734
.................................................................................
83,900 Senior High Income Portfolio, Inc. 503,400
.................................................................................
35,000 Alliance World Dollar Government Fund II 421,050
.................................................................................
85,000 Credit Suisse High Yield Bond Fund 408,000
.................................................................................
TOTAL MUTUAL BOND FUND $ 10,735,068
------------
MUTUAL STOCK FUND 6.1%
45,600 Cohen & Steers Premium Income Realty Fund, Inc. $ 725,040
.................................................................................
45,108 ProFunds UltraOTC ProFund 686,099
.................................................................................
90,000 iShares MSCI Japan Index Fund 654,300
.................................................................................
10,000 iShares MSCI Pacific Ex-Japan Index Fund 588,100
.................................................................................
31,600 Scudder RREEF Real Estate Fund, Inc. 522,980
.................................................................................
TOTAL MUTUAL STOCK FUND $ 3,176,519
------------
COMMON STOCKS 73.1%
FINANCIAL 15.9%
275,000 E*TRADE Group, Inc.* $ 2,337,499
.................................................................................
32,000 Countrywide Financial Corporation 2,226,240
.................................................................................
850 Berkshire Hathaway, Inc. - Class B 2,065,500
.................................................................................
31,500 Capital One Financial Corporation* 1,549,170
.................................................................................
$ 8,178,409
------------
CONSUMER SERVICES 13.1%
34,000 Apollo Group, Inc. 2,099,840
.................................................................................
100,000 Cendant Corporation* 1,832,000
.................................................................................
77,000 Coinstar, Inc.* 1,452,220
.................................................................................
62,000 Royal Caribbean Cruises Ltd. 1,435,920
.................................................................................
$ 6,819,980
------------
MANUFACTURING 9.7%
55,000 Raytheon Company $ 1,806,200
.................................................................................
43,000 Winnebago Industries, Inc. 1,629,700
.................................................................................
85,000 Tyco International Ltd. 1,613,300
.................................................................................
$ 5,049,200
------------
SPECIALTY RETAILING 9.3%
132,250 Select Comfort Corporation $ 2,166,255
.................................................................................
65,900 Jo-Ann Stores, Inc. 1,667,270
.................................................................................
61,056 Petsmart, Inc. 1,017,804
.................................................................................
$ 4,851,329
------------
ELECTRONICS 8.7%
55,000 SanDisk Corporation* $ 2,219,250
.................................................................................
130,114 Flextronics International Ltd. 1,351,884
.................................................................................
345,000 Nortel Networks Corporation* 931,500
.................................................................................
$ 4,502,634
------------
MEDIA 8.6%
121,570 AOL Time Warner, Inc. $ 1,956,062
.................................................................................
32,000 InterActiveCorp* 1,266,240
.................................................................................
154,069 Spanish Broadcasting System, Inc.* 1,255,662
.................................................................................
$ 4,477,964
------------
MEDICAL AND HEALTH 7.8%
26,000 Quest Diagnostics, Inc. $ 1,658,800
.................................................................................
46,000 The Cooper Companies, Inc. 1,599,420
.................................................................................
11,800 Amgen 783,992
.................................................................................
4,042,212
.................................................................................
TOTAL COMMON STOCKS $ 37,921,728
------------
MONEY MARKET FUNDS 0.9%
489,990 5/3 Prime Money Market Fund $ 489,990
.................................................................................
TOTAL INVESTMENT SECURITIES
(Cost $44,578,686) 100.8% $ 52,323,305
.................................................................................
LIABILITIES IN EXCESS OF
OTHER ASSETS (0.8%) (417,904)
.................................................................................
NET ASSETS 100.0% $ 51,905,401
================================================================================
* Non-income producing security. See accompanying notes to financial statements.
================================================================================
6
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STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost $ 44,578,686
==============
At market value $ 52,323,305
Accrued income 32,102
Receivable for securities sold 28,164
Receivable for capital shares sold 112
Receivable from Adviser 65,364
Other assets 16,868
--------------
TOTAL ASSETS 52,465,915
--------------
LIABILITIES
Payable for securities purchased 489,645
Payable for capital shares redeemed 21,025
Accrued advisory fees 32,334
Payable to affiliates 2,507
Other accrued expenses and liabilities 15,003
--------------
TOTAL LIABILITIES 560,514
--------------
NET ASSETS $ 51,905,401
==============
Net assets consist of:
Paid-in capital $ 113,251,362
Undistributed net investment income 29,100
Accumulated net realized losses
from security transactions (69,119,680)
Net unrealized appreciation on investments 7,744,619
--------------
NET ASSETS $ 51,905,401
==============
Shares of beneficial interest outstanding
(unlimited number of, no par value) 7,111,976
==============
Net asset value, redemption price and
offering price per share $ 7.30
==============
See accompanying notes to financial statements.
================================================================================
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 389,496
--------------
EXPENSES (Note 3)
Investment advisory fees 180,241
Recoupment of previously waived or
reimbursed expenses 45,129
Administrative services fees 22,738
Professional fees 18,527
Postage and supplies 18,336
Accounting services fees 14,876
Transfer agent fees 14,876
Shareholder report costs 12,458
Custodian fees 9,917
Registration fees 9,163
Trustees fees 9,096
Other expenses 5,039
--------------
TOTAL EXPENSES 360,396
--------------
NET INVESTMENT INCOME 29,100
--------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized loss from security transactions (875,872)
Net change in unrealized appreciation/
depreciation on investments 7,956,735
--------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 7,080,863
--------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 7,109,963
==============
See accompanying notes to financial statements.
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7
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STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------
For the Six For the Year
Months Ended Ended
June 30, 2003 December 31,
(Unaudited) 2002
FROM OPERATIONS
Net investment income $ 29,100 $ 471,728
Net realized losses from security transactions (875,872) (7,586,682)
Net change in unrealized appreciation/
depreciation on investments 7,956,735 (927,265)
-----------------------------
Net increase (decrease) in net assets from operations 7,109,963 (8,042,219)
-----------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income -- (432,877)
-----------------------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 1,853,681 2,435,148
Proceeds from shares issued in connection
with acquisitions (Note 4) -- 37,275,307
Net asset value of shares issued in reinvestment
of distributions to shareholders -- 424,464
Payments for shares redeemed (9,353,853) (16,910,293)
-----------------------------
Net increase (decrease) in net assets
from capital share transactions (7,500,172) 23,224,626
-----------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (390,209) 14,749,530
NET ASSETS
Beginning of period 52,295,610 37,546,080
-----------------------------
End of period $ 51,905,401 $ 52,295,610
=============================
CAPITAL SHARE ACTIVITY
Sold 279,980 333,079
Shares issued in connection with acquisitions (Note 4) -- 5,905,324
Reinvested -- 66,318
Redeemed (1,475,485) (2,317,274)
-----------------------------
Net increase (decrease) in shares outstanding (1,195,505) 3,987,447
Shares outstanding, beginning of period 8,307,481 4,320,034
-----------------------------
Shares outstanding, end of period 7,111,976 8,307,481
=============================
See accompanying notes to financial statements.
===============================================================================================================================
FINANCIAL HIGHLIGHTS Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------------------------------------------------------
For the Six Year Ended Year Ended Year Ended Year Ended Year Ended
Months Ended December 31, December 31, December 31, December 31, December 31,
June 30, 2003 2002 2001 2000 1999 1998
(Unaudited)
Net asset value at beginning of period $ 6.30 $ 8.69 $ 11.67 $ 16.69 $ 13.35 $ 11.90
-------- -------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.00(a) 0.18 0.24 0.11 0.31 0.12
Net realized and unrealized gains
(losses) on investments 1.00 (2.40) (2.98) (4.35) 4.43 2.06
-------- -------- -------- -------- -------- --------
Total from investment operations 1.00 (2.22) (2.74) (4.24) 4.74 2.18
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- (0.17) (0.24) (0.10) (0.29) (0.12)
Distributions in excess of
net investment income -- -- -- -- -- (0.04)
Distributions from net realized gains -- -- -- (0.68) (1.11) (0.57)
-------- -------- -------- -------- -------- --------
Total distributions -- (0.17) (0.24) (0.78) (1.40) (0.73)
-------- -------- -------- -------- -------- --------
Net asset value at end of period $ 7.30 $ 6.30 $ 8.69 $ 11.67 $ 16.69 $ 13.35
======== ======== ======== ======== ======== ========
Total return 15.87%(b) (25.63%) (23.54%) (25.38%) 35.49% 18.32%
======== ======== ======== ======== ======== ========
Net assets at end of period (000s) $ 51,905 $ 52,296 $ 37,546 $ 64,572 $100,799 $ 83,799
======== ======== ======== ======== ======== ========
Ratio of net expenses to average net assets 1.50%(c) 0.96% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment income
to average net assets 0.12%(c) 1.89% 2.32% 0.64% 1.98% 0.84%
Portfolio turnover rate 288%(c) 145%(d) 162% 142% 68% 117%
(a) Amount rounds to less than $0.01.
(b) Not annualized.
(c) Annualized.
(d) This calculation does not include securities acquired in the acquisitions
(see Note 4).
See accompanying notes to financial statements.
================================================================================
8
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NOTES TO FINANCIAL STATEMENTS June 30, 2003 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Markman MultiFund Trust (the Trust) is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end diversified management
investment company. The Trust was organized as a Massachusetts business trust on
September 7, 1994. As of December 30, 2002, the Trust offers one series of
shares to investors, the Markman Total Return Portfolio (the Portfolio). Prior
to December 30, 2002, the Markman Conservative Allocation Porfolio, the Markman
Aggressive Allocation Portfolio and the Markman Moderate Allocation Portfolio
were series of the Trust. Effective December 30, 2002, the Markman Aggressive
Allocation Portfolio, Markman Conservative Allocation Portfolio and Markman
Moderate Allocation Portfolio each exchanged substantially all of their
respective net assets for shares of the Portfolio (see Note 4). The performance
and accounting history of the Markman Moderate Allocation Portfolio is being
assumed by the Portfolio. The average annual total returns of the Portfolio are
therefore those of the Markman Moderate Allocation Portfolio for periods prior
to December 30, 2002.
The Portfolio seeks maximum total return with reduced risk by investing in
individual securities, open-end mutual funds, closed-end funds and exchange
traded funds. The Portfolio seeks to minimize risk through allocation among
asset classes and through global diversification.
The following is a summary of the Trust's significant accounting policies:
SECURITIES VALUATION -- Shares of common stocks, closed-end funds and exchange
traded funds are valued as of the close of business of the regular session of
trading on the New York Stock Exchange (normally 4:00 p.m., Eastern time).
Shares of open-end mutual funds and money market funds in which the Portfolio
invests are valued at their respective net asset values as reported by the
underlying funds. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees.
SHARE VALUATION -- The net asset value per share of the Portfolio is calculated
daily by dividing the total value of assets, less liabilities, by the number of
shares outstanding, rounded to the nearest cent. The offering and redemption
price per share are equal to the net asset value per share.
INVESTMENT INCOME -- Dividend income is recorded on the ex-dividend date. For
financial reporting purposes, the Portfolio records distributions of short-term
capital gains made by mutual funds in which the Portfolio invests as dividend
income and long-term capital gains made by mutual funds in which the Portfolio
invests as realized gains.
DISTRIBUTIONS TO SHAREHOLDERS -- Distribu-tions to shareholders arising from net
investment income and net realized capital gains, if any, are distributed at
least once each year. Income distributions and capital gain distributions are
determined in accordance with income tax regulations.
SECURITY TRANSACTIONS -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
ESTIMATES -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
FEDERAL INCOME TAX -- It is the Portfolio's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which the
Portfolio so qualifies and distributes at least 90% of its taxable net income,
the Portfolio (but not the shareholders) will be relieved of federal income tax
on the income distributed. Accordingly, no provision for income taxes has been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Portfolio's intention to declare and pay as
dividends in each calendar year at least 98% of its net investment income
(earned during the calendar year) and 98% of its net realized capital gains
(earned during the twelve months ended October 31) plus undistributed amounts
from prior years.
The Portfolio files a tax return annually using tax accounting methods required
under provisions of the Code that may differ from accounting principles
generally accepted in the United States, the basis on which these financial
statements are prepared. The differences arise primarily from the treatment of
short-term gain distributions made by mutual funds in which the Portfolio
invests and the deferral of certain losses under Federal income tax regulations.
Accordingly, the amount of net investment income and net realized capital gain
or loss reported in the financial statements may differ from that reported in
the Portfolio's tax return and, consequently, the character of distributions to
shareholders reported in the Statements of Changes in Net Assets and the
Financial Highlights may differ from that reported to shareholders for federal
income tax purposes. As a result of such differences, reclassifications are made
to the components of net assets to conform to accounting principles generally
accepted in the United States.
The following information is computed on a tax basis as of December 31, 2002:
- --------------------------------------------------------------------------------
Cost of portfolio investments $ 36,671,107
------------
Gross unrealized appreciation on investments $ 355,553
Gross unrealized depreciation on investments (668,898)
------------
Net unrealized depreciation on investments (313,345)
Capital loss carryforward (68,142,579)
------------
Accumulated deficit $(68,455,924)
============
- --------------------------------------------------------------------------------
As of June 30, 2003, the Portfolio had a net capital loss carryforward of
$68,142,579 of which $16,482,151 will expire in 2008, $35,711,878 will expire in
2009 and $15,948,550 will expire in 2010. To the extent future capital gains are
offset by capital loss carryforwards, such gains will
================================================================================
9
================================================================================
not be distributed. Based on certain provisions in the Internal Revenue Code,
various limitations regarding the future utilization of these carryforwards,
brought forward as a result of the acquisitions described in Note 4, may apply.
Based on such limitations, unless the tax law changes, approximately $18,039,838
of these losses will expire unutilized.
2. INVESTMENT TRANSACTIONS
During the six months ended June 30, 2003, the cost of purchases and proceeds
from sales of portfolio securities, other than short-term investments, amounted
to $79,730,420 and $63,002,050, respectively.
3. TRANSACTIONS WITH AFFILIATES
The Chairman of the Board and President of the Trust is also the President of
Markman Capital Management, Inc. (the Adviser). Certain other Trustees and
officers of the Trust are also officers of the Adviser or of Integrated Fund
Services, Inc. (IFS), the administrative services agent, shareholder servicing
and transfer agent, and accounting services agent for the Trust.
INVESTMENT MANAGEMENT AGREEMENT
The Portfolio's investments are managed by the Adviser pursuant to the terms of
an Investment Management Agreement. Effective December 30, 2002, the Portfolio
pays the Adviser an investment management fee, computed and accrued daily and
paid monthly, at an annual rate of 0.75% of average daily net assets of the
Portfolio. The Adviser has agreed to contractually limit total annual operating
expenses of the Portfolio to 1.50% of average daily net assets through December
31, 2003 and therefore will waive its advisory fee and/or reimburse other
expenses of the Portfolio to maintain this operating expense ratio. If the
Portfolio's expenses fall below 1.50% within three years after the Adviser has
made such a waiver/reimbursement, the Portfolio, subject to the approval of the
Board of Trustees, will reimburse the Adviser up to an amount not to exceed its
expense limitation.
For the six months ended June 30, 2003, the advisor was recouped $45,129 of fees
waived in prior years.
ADMINISTRATION, ACCOUNTING AND TRANSFER AGENCY AGREEMENT
Under the terms of the Administration, Accounting, and Transfer Agency Agreement
between the Trust and IFS, IFS supplies non-investment related statistical and
research data, internal regulatory compliance services and executive and
administrative services for the Portfolio. IFS coordinates the preparation of
tax returns for the Portfolio, reports to shareholders of the Portfolio, reports
to and filings with the Securities and Exchange Commission and state securities
commissions and necessary materials for meetings of the Board of Trustees. In
addition, IFS maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of the Portfolio's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. IFS also
calculates the daily net asset value per share and maintains the financial books
and records of the Portfolio. For the performance of these services, the
Portfolio pays IFS a monthly base fee, an asset-based fee, and a fee based on
the number of shareholder accounts. In addition, the Portfolio pays
out-of-pocket expenses including, but not limited to, postage and supplies.
4. ACQUISITIONS
On December 30, 2002, the Portfolio acquired all of the net assets of the
Markman Aggressive Allocation Portfolio, Markman Conservative Allocation
Portfolio and Markman Moderate Allocation Portfolio pursuant to a Plan of
Reorganization approved by their respective shareholders on December 27, 2002.
The acquisition was accomplished by a tax-free exchange of 5,905,324 shares of
the Portfolio (valued at $37,275,307) for the 3,983,745 and 1,275,901 shares of
Markman Aggressive Allocation Portfolio and Markman Conservative Allocation
Portfolio, respectively, outstanding on December 30, 2002. Additionally,
effective December 30, 2002, all shares of the Markman Moderate Allocation
Portfolio, the "accounting survivor," were exchanged on a one-for-one, tax-free
basis for shares of the Portfolio. Markman Aggressive Allocation Portfolio and
Markman Conservative Allocation Portfolio's net assets at that date, $27,522,748
and $9,752,559, respectively, including unrealized appreciation of $1,894,987
and unrealized depreciation of $209,310, respectively, and accumulated net
realized losses from security transactions of $42,445,473 and $6,241,643,
respectively, were combined with those of the accounting survivor, and
ultimately, the Portfolio. The aggregate net assets of the Markman Moderate
Allocation Portfolio, Markman Aggressive Allocation Portfolio and Markman
Conservative Allocation Portfolio immediately before the acquisition were
$17,071,232, $27,522,748 and $9,752,559, respectively. The combined net assets
of the Portfolio immediately following the acquisitions were $54,346,539.
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (Unaudited)
On December 27, 2002, a special meeting of shareholders of the Trust was held to
approve or disapprove an Agreement and Plan of Reorganization for the Markman
MultiFunds Trust. The total number of shares of the Markman Aggressive
Allocation Portfolio, Markman Conservative Allocation Portfolio and Markman
Moderate Allocation Portfolio present by proxy represented 60.045%, 69.989% and
64.743%, respectively, of the shares entitled to vote at the meeting. The
Agreement and Plan of Reorganization was approved as follows:
- --------------------------------------------------------------------------------
NUMBER OF SHARES
For Against Abstain
.................................................................................
Markman Aggressive Allocation Portfolio 2,425,375 145,274 10,840
.................................................................................
Markman Conservative Allocation Portfolio 867,195 82,731 5,898
.................................................................................
Markman Moderate Allocation Portfolio 1,732,390 125,406 20,208
.................................................................................
- --------------------------------------------------------------------------------
================================================================================
10
================================================================================
STAY INFORMED
- --------------------------------------------------------------------------------
WEBSITE PROVIDES UPDATES ON-LINE
For expanded performance information, portfolio allocations updated regularly,
on-line access to the Prospectus and forms, and other helpful information, log
on to
www.markman.com
THESE FORMS ARE AVAILABLE:
o Account Application
o IRA Application
o Roth IRA Application
o IRA transfer request
o Roth IRA Conversion Request
o Dollar Cost Averaging Application
o Systematic Withdrawal Plan Request
o Automatic Investment Request
o Company Retirement Account Application
o Company Retirement Plan Prototype
[includes Profit Sharing, Money Purchase, 401(k)]
o 403(b) Plan and Application
The minimum direct investment is $25,000. If you want to invest less than
$25,000, you may purchase the Markman Total Return Portfolio through: Charles
Schwab & Company (800-266-5623), Fidelity Investments (800-544-7558), and TD
Waterhouse (800-934-4443), among others. There is no transaction fee when you
purchase the Markman Total Return Portfolio through these discount brokers.
For additional forms or answers to any questions just contact the Markman Total
Return Portfolio (between the hours of 8:30 AM and 5:30 PM EST). Toll-free:
800-707-2771.
[SIDEBAR]
PORTFOLIO/STRATEGY UPDATE
800-975-5463
Bob Markman's weekly market overview and portfolio activity report.
ONLINE
www.markman.com
Check for net asset values and more.
PRICELINE
800-536-8679
Up-to-the-minute net asset values and account values.
HELPLINE
800-707-2771
For a prospectus, an application form, assistance in completing an application,
or for general administrative questions.
[END SIDEBAR]
MARKMAN INVESTMENT ADVISER SHAREHOLDER SERVICES
TOTAL RETURN Markman Capital Management, Inc. c/o Integrated Fund Services, Inc.
PORTFOLIO 6600 France Avenue South P.O. Box 5354
- -------------------------- Minneapolis, Minnesota 55435 Cincinnati, Ohio 54201-5354
FOR THE INVESTOR TOO SMART Telephone: 952-920-4848 Toll-free: 800-707-2771
TO DO IT THEMSELVES Toll-free: 800-395-4848
Authorized for distribution only if preceded or accompanied by a current
prospectus.
================================================================================
11
ITEM 2. CODE OF ETHICS. Not applicable to Semiannual Reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable to Semiannual
Reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable to Semiannual
Reports.
ITEMS 5-6. RESERVED
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED END
MANAGEMENT INVESTMENT COMPANIES. Not Applicable.
ITEM 8. RESERVED
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or
persons performing similar functions, have concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of
a date within 90 days of the filing date of this report.
(b) There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) (1) Code of Ethics. Not Applicable
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Markman MultiFund Trust
--------------------------------------------------------------------
By (Signature and Title)
/s/ Robert J. Markman
- --------------------------
Robert J. Markman
President
Date: September 5, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
/s/ Robert J. Markman
- --------------------------
Robert J. Markman
President
Date: September 5, 2003
By (Signature and Title)
/s/ Judith E. Fansler
- --------------------------
Judith E. Fansler
Treasurer Chief Financial Officer
Date: September 5, 2003