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
The Markman MultiFund Trust
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(Exact name of registrant as specified in charter)
6600 France Avenue South, Minneapolis, Minnesota 55435
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(Address of principal executive offices) (Zip code)
Robert J. Markman, 6600 France Avenue South, Minneapolis, Minnesota 55435
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(Name and address of agent for service)
Registrant's telephone number, including area code: (952) 920-4848
Date of fiscal year end: 12/31
Date of reporting period: 12/31/04
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
Success in a
Difficult Year
Reduction in
Trading Costs
Introducing a
New Name
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Annual Report
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December 31, 2004
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THE YEAR IN REVIEW
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Dear Fellow Shareholders,
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2004 was another year of good results for your Total Return Portfolio, with a
gain of 14.31%. This compares favorably to the gains in the Dow (+5.31%), the
S&P 500 (+10.88%) and the Nasdaq (+9.15%). We also did very well against our
benchmark blend.
Recall that for long term stability purposes, the Portfolio invests at least 20%
of its assets in income producing investments such as money markets, bonds, or
REITS. We typically have more than 20% in those allocations. Because of this
ongoing investment in income-producing securities, in addition to comparisons to
the broad stock averages, we have created an alternative Benchmark Comparison.
This will help you get a fuller understanding of the Portfolio's performance.
The Benchmark is a blend of 80% of the S&P 500 return and 20% of the return of
the Lehman Intermediate Government Bond Index. This blend returned 9.21% in
2004.
The Markman Total Return Portfolio also ranked highly this past year against
fund peers in both our Morningstar and Lipper categories for the 12 month period
ending December 31, 2004. Our returns placed the Portfolio in the 8th percentile
of Morningstar's Large Cap Blend Category and the 2nd percentile of Lipper's
Flexible Portfolio Category (1st percentile=best, 100th percentile= worst). Each
year now, since the restructuring of the Portfolio in 2002, we have ranked in
the top ten percent of our fund peer groups. This is especially noteworthy given
the vastly differing natures of 2003 and 2004. One would more likely expect that
a fund that did well in an environment like 2003, a year marked by a strong
bounce off the long term bear market low, might lag a bit more in the choppy,
trendless, sputtering market of 2004.
Investment Pros Struggle in 2004
This last year proved much more difficult for many mutual funds than 2003. In
2003 a sizeable majority of funds met or beat their comparative market index. In
2004, however, only a small percentage did better than their benchmark. A
majority of managers in eight of the nine 'style boxes' trailed their relevant
indexes. According to Morningstar, only 10.9% of funds in our category--large
cap blend--actually beat the index. You'll be pleased to know that one of the
'successes' in the category was your fund: The Markman Total Return Portfolio.
As you know, it is our aim for the Total Return Portfolio to fill the role of a
'core' fund for your wealth management. So consistency of positive results looms
large on our list of investment goals.
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Our aim for the Total Return Portfolio to fill the role of a 'core' fund for
your wealth management.
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The statistic mentioned earlier about how few managed funds actually beat the
indices in 2004 is a reflection of how difficult and frustrating the investment
environment was last year. Our results again confirm that the flexible, eclectic
approach we've developed continues to have the potential to keep us on the
'right' side of the markets.
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Top Ten Holdings
of the Stock Portfolio 12/31/04
Toll Brothers 3.6%
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Symantec 3.6%
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Starbucks 3.3%
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Pentair 3.0%
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Vornado Realty 2.7%
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Kmart 2.7%
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Cooper Companies 2.7%
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Franklin Resources 2.7%
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XM Satellite Radio 2.6%
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Royal Caribbean 2.6%
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Total in Top Ten 29.5%
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Less flexible funds unfortunately often found themselves on the wrong side of
conventional wisdom. A number of managers underweighted energy and commodity
stocks, missing out on the huge run up in those sectors. We, too, began the year
underweighted. But our manageable size and flexible approach enabled us to
quickly and opportunistically capture trading profits in positions as varied as
a very small company like Knightsbridge Tankers (under $500 million market cap)
and Schlumberger, the large energy services company which sports a $35 billion
plus market cap.
We also caught some 'breaks.' After a long period of research, in early June we
took a position in Mandalay Resort
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Markman Total Return Portfolio 1
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What's in a name?
We're changing our name from the Markman Total Return Portfolio to The Markman
Total Return Core Fund. Such a small change--why go through the trouble? We
think the new name better reflects that this Fund was created to be something of
a "one-stop" fund for smart investors. By encompassing an all cap, all style,
global growth and income approach, we aim to be a solid foundation for your
growth portfolio. (With our broad and flexible approach, one might even consider
the Fund to be a complete portfolio in itself for investors with the appropriate
investment strategy.) Core funds are often viewed as the "steady Eddies" that
you can count on year in and year out. And while it may not be the most exciting
and glamorous route to take, it sounds pretty good to us.
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Asset Allocation 12/31/04
(As a percentage of net assets)
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Stocks 77.7%
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Bonds 8.1%
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REITS 12.3%
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Cash 1.9%
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[PIE CHART OMITTED]
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Group, commencing buying at $58 per share. The very next day, MGM Mirage
surprised the market by announcing an offer to buyout Mandalay for $70.
Fortunate, if nothing else.
Tactically, given the risks that we saw in 2004, I felt it prudent to 'choke up
on the bat' and look to hit for average, not power. That led to some high
trading turnover and relatively short term holds. While I think that was an
appropriate tactic for a fund like ours and helped us to achieve our good
results, we also have to acknowledge that it caused us to fall short on some
opportunities. For example, the Portfolio accumulated a position in Chicago
Mercantile Exchange (CME) in the early summer. Between August and November, with
the market going absolutely nowhere, CME gained over 25%. We felt the valuations
were getting a bit stretched and thus sold off pieces on the way up, selling the
final shares which had been bought for $123 and change for $163 and change. We
felt good about this tidy little profit in a drifting market, then I watched in
dismay as CME proceeded to continue its climb to over $200.
Looking forward, my sense is that the Fund's 2005 tactics will be more oriented
to slightly longer term holds. As always, the driver of our strategy continues
to be how we can best produce good growth results while attempting to moderate
risk.
Making Sense of 2004: The "Beach Ball" Market
2004 makes more sense if we start by imagining the market as a beach ball
floating in the water. You can push down on the ball and make it go beneath the
surface of the water, but as soon as you let up on your downward pressure, the
ball will rebound back up. In fact, depending on the pressure in the ball, it
may even shoot up well above the surface of the water. In many ways, the
investment arena in 2004 was just like that beach ball, which helps explain the
most unusual and unexpected characteristic of the stock and bond markets in
2004: the fact that they refused to go down and stay down, despite having any
number of reasons on numerous occasions to do so.
Here's just a partial list of the negative or troubling circumstances the market
confronted:
1. Daily images of carnage and disarray from Iraq
2. Concerns about job creation and outsourcing
3. The depressing effect of a bitter Presidential campaign with the
inevitable emphasis on the 'crisis du jour' that could only be
solved by voting 'correctly'
4. Ongoing multicolored terror alerts
5. An enormous rise in energy prices, with oil spiking from the $30's
in January to above $50 by the fall
6. Four increases in interest rates by the Federal Reserve
As these events and dynamics unfolded, they served to push the market down,
holding it back from any significant rally. The beach ball was being held under
water. Fortunately, there was still plenty of air in the ball--positives
exerting potential upward pressure. Among these offsetting positives were:
o Corporate earnings were growing at a rate even greater than analysts had
expected.
o Outside of a few minor hiccups, the economy continued to expand at a
reasonable enough pace to forestall any thoughts of a slide back into
recession.
o The increase in oil prices--and the mid year spike at the gas pump--did
not appear to put any damper on consumer spending, or the broad economy,
as feared by many.
o We began to see, for the first time since the mid 1990's, synchronized
global growth.
o Quietly, beneath the media din, corporate America continued its steady
progress toward greater financial health. Balance sheets were
strengthened. Large cash piles were amassed.
Once enough of the forces exerting downward pressure abated, the
ball--market--was able to shoot violently above the surface once again. And so
it should not be a surprise, in hindsight, to see that once the Presidential
election concluded with a clear winner and no rerun of the 2000 debacle, once
oil prices began to stabilize, once we saw that the consumer was not going to
retreat into spending hibernation, the market experienced its big rally of the
year.
In fact, the entire gain for the major averages came in the last three months of
the year. If there was anything in last year that would serve as a reminder of
the wisdom of keeping calm and patient more often, that would be it. (But that
would make for pretty boring CNBC viewing, wouldn't it?)
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Comparative growth of a $10,000 investment: Since Inception 1/26/95(A)
[THE FOLLOWING TABLE WAS DEPICTED AS A MOUNTAIN GRAPH IN THE PRINTED MATERIAL]
Markman Moderate
Allocation Fund
(until 12/31/02)
Markman Total
Return Portfolio
S&P 500 (1/1/03-12/31/04) Comparative Blend
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01/26/95 10,000 10,000 10,000
03/31/95 10,770 10,450 10,682
06/30/95 11,798 11,210 11,597
09/30/95 12,736 12,150 12,370
12/31/95 13,503 12,450 13,049
03/31/96 14,227 13,111 13,591
06/30/96 14,866 13,452 14,098
09/30/96 15,325 13,199 14,495
12/31/96 16,603 13,834 15,528
03/31/97 17,048 14,352 15,861
06/30/97 20,024 15,532 18,164
09/30/97 21,524 16,712 19,346
12/31/97 22,142 16,516 19,876
03/31/98 25,231 17,737 22,154
06/30/98 26,063 18,167 22,821
09/30/98 23,470 16,266 21,217
12/31/98 28,469 19,541 24,843
03/31/99 29,888 21,239 25,820
06/30/99 31,994 21,518 27,266
09/30/99 29,997 21,225 25,959
12/31/99 34,460 26,477 29,046
03/31/00 35,250 26,794 29,674
06/30/00 34,314 23,812 29,152
09/30/00 33,981 23,971 29,082
12/31/00 31,322 19,756 27,492
03/31/01 27,608 14,863 25,049
06/30/01 29,223 16,320 26,242
09/30/01 24,933 11,952 23,421
12/31/01 27,598 15,106 25,417
03/31/02 27,674 14,272 25,460
06/30/02 23,966 12,551 22,927
09/30/02 19,824 11,004 19,979
12/31/02 21,497 11,235 21,366
03/31/03 20,820 10,771 20,868
06/30/03 24,025 13,018 23,508
09/30/03 24,661 14,124 23,999
12/31/03 27,664 16,223 26,327
03/31/04 28,132 17,014 26,800
06/30/04 28,616 16,871 27,046
09/30/04 28,081 16,889 26,763
12/31/04 30,673 18,545 28,751
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Average Annual Returns*
1 Year 5 Year Since Inception**
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14.31% (6.87%) 6.42%
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Past performance is not predictive of future performance.
* The performance of the above portfolio does not reflect the deduction of taxes
that a shareholder would pay on Portflio distributions or the redemption of
Portfolio shares.
** The Fund's inception was January 26, 1995.
Comparative growth of a $10,000 investment:
Since Inception of Total Return Portfolio 1/1/03
[THE FOLLOWING WAS DEPICTED AS A MOUNTAIN GRAPH IN THE PRINTED MATERIAL]
Markman Total
S&P 500 Comparative Blend Return Portfolio
------- ----------------- -----------------
12/31/02 10,000 10,000 10,000
03/31/03 9,685 9,767 9,587
06/30/03 11,176 11,003 11,587
09/30/03 11,472 11,232 12,571
12/31/03 12,869 12,322 14,440
03/31/04 13,086 12,544 15,144
06/30/04 13,312 12,659 15,016
09/30/04 13,062 12,526 15,032
12/31/04 14,268 13,457 16,507
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Total 2003-2004 Returns
S&P 500 Blend MTRPX
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42.68% 34.57% 65.06%
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Past performance is not predictive of future performance.
* The performance of the above portfolio does not reflect the deduction of taxes
that a shareholder would pay on Portflio distributions or the redemption of
Portfolio shares.
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(A) Performance numbers for all periods prior to December 30, 2002 are those of
the Markman Moderate Allocation Portfolio, the Markman Total Return Portfolio's
performance predecessor.
Performance: Markman Total Return Portfolio
[THE FOLLOWING WAS DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
1 Year
ended December 31, 2004
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Blend 9.21
S&P 500 10.88
MTRPX 14.31
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[THE FOLLOWING WAS DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
3 Years
ended December 31, 2004
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Blend 4.19
S&P 500 3.58
MTRPX 7.08
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[THE FOLLOWING WAS DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
5 Years
ended December 31, 2004
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Blend -0.20
S&P 500 -2.30
MTRPX(A) -6.87(A)
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[THE FOLLOWING WAS DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Since Inception
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Blend 11.21
S&P 500 11.94
MTRPX(A) 6.42(A)
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(A) Performance numbers for all periods prior to December 30, 2002 are those of
the Markman Moderate Allocation Portfolio, the Markman Total Return Portfolio's
performance predecessor.
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2 December 31, 2004 Markman Total Return Portfolio 3
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Trading Costs Decline Again
I have long been amazed that disclosure of one of the largest single costs to
run a mutual fund--trading commissions--is not required to be placed in a
fund's Annual Report. That is not to say it is never reported. You can find any
fund's trading expenses in its Statement of Additional Information. You say
you've never heard of the Statement of Additional Information? Well, that's my
point. Why bury this important piece of information in a place few shareholders
will ever venture?
From the start of the Total Return Portfolio we have clearly disclosed our
commission expenses in our Annual Reports. In last year's Annual Report, I noted
that commissions paid totaled $74,078, adding about 13 basis points (.13%) to
the cost of managing the Fund for you. This was less than one third the
estimated cost (.41%) for the average fund in a recent Lipper study.(1)
I am pleased to report that we have been able to further reduce the cost to
shareholders. Our total trading commissions in 2004 were $53,447, about 28%
below our already low level for 2003! This dollar amount represents less than
ten basis points (.10%).
Don't be Misled by Our Turnover Ratio
It is important that you be aware of our low trading costs not merely to
understand how we are attempting to keep overall expenses down; we also want
these facts disclosed to help assure you that our trading costs are relativly
low despite our often high turnover ratio. It is conventional wisdom in the fund
world that high turnover rates inevitably lead to higher than average trading
costs. But not for us.
The bottom line is that we maintain the flexibility to trade how and when we see
fit, and still are able to keep the trading commissions in your Fund to a level
among the lowest in the industry.
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Real Estate:
Bubble or Beach Ball?
The beach ball metaphor helps explain some of the violent and misguided moves by
investment professionals in more narrow sectors as well. It's my sense that more
analysts and managers made more bad calls more often in real estate than in any
other sector of the market. Skepticism abounded, and the Portfolio used those
doubts to help generate gains.
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Expense for Trading
Average cost per share for commission paid
Typical of many funds 5(cent) per share(2)
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Markman Total Return Portfolio Cost 0.33(cent) per share
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In the first part of the year, investors foresaw the prospect of rising interest
rates due to a stronger economy. The conventional conclusion was that rising
rates would be bad for real estate, both for homebuilders that would get hurt by
rising mortgage rates and income producing REITS that would see increased
competition for investor dollars from bonds as yields went up. Investors who had
been fortunate to have owned these stocks were sitting on gains of 50-150% over
just the previous 12 months. Panic ensued as they tried to exit all at the same
time with their profits intact. The result was that certain quality homebuilders
like Toll Brothers and well run REITS like Mills Corp plummeted some 20-30% in a
mere six week period of time.
We are long term bulls on real estate and were heavily invested in both
home-builders and REITS last year. So the impact of the spring panic sell-off on
our Fund was severe. We declined some 12% during a period when the S&P gave up
only 4%. That was not what we wanted, particularly given our goal of prudent
risk and stability. The irony was that this downside volatility was caused by
the very same portions of the portfolio that we perceived as being the lowest
risk!
Of course soon it became apparent that the real estate bears had panicked at the
wrong time for the wrong reason (It's not rocket science to assume that if
interest rates were to rise due to a stronger economy, that very same healthy
environment could be good, not bad, for homebuilders and owners of shopping
malls!). Once investors came to their senses, the downward pressure on the big
real estate beach ball was removed. And because the real fundamentals were
actually better than expected, the rebound was, well, violent. From the spring
lows through the end of the year, these groups of stocks had fantastic runs.
Toll shot back up 75% and Mills Corp gained back 50%.
We continue to remain extremely positive on real estate. The Fund begins 2005
with its largest ever allocation to real estate broadly diversified across raw
land, shopping malls, timber, office buildings, specialty medical real estate
and high end homebuilders. Fair warning: it won't be unusual if we experience
more of the same short term volatility, as misinformed investors once again
panic about real estate bubbles; it seems to be in the water. But as long as the
underlying fundamentals remain sound, we expect real estate to continue to
support our total return objectives.
(1) Source: John Hechinger, "Decifering Funds' Hidden Costs", WALL ST J., Mar
17, 2004 @ D1, D3(2)
(2) Source: Richard Titelbaum, "Know a Fund's Costs? Look Deeper", NEW YORK
TIMES., February 9, 2003
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4 December 31, 2004
The Environment Going Forward
As we move through what, hopefully is the third year of this bull market, the
questions begin to be raised: "Is the best behind us? Will we soon see the
market stall out and decline once again?" Fortunately, both history and a bit of
common sense suggests the answer might be no. We've gone 27 months since the
October 2002 low, with the S&P 500 gaining more than 50% in that time. But the
median length of a post WW II bull market has been 51 months with a median gain
of 105%. So it is credible to expect that a positive tone will likely persist
for at least some time to come.
In the past five years we've gone from euphoria (1999) to gloom (2002) and now
seem to have settled back into an ongoing point/counterpoint: the economy is
good/bad, prices are too high/too low, jobs are growing/leaving...the list goes
on and on. This is a good thing. Solid market advances are much more likely to
come on the back of steady, ongoing, healthy skepticism and debate than on new
era euphoria. That said, beyond the daily noise and static produced by the
media, I'm inclined to think that the evidence points more to a potential boom
than to a deterioration.
Let's consider three major points:
1. In our view corporate America is now in its best shape in many a year. The
joint impact of the market crash and recent corporate scandals forced companies
to run leaner, more productively and more transparently. The fact that dividend
growth is accelerating is as good a factual indication as you'll get that
corporations have repaired their balance sheets, and are producing large amounts
of cash to pay out to shareholders. There is now some $600 billion in cash on
the books of companies in the S&P 500. Mooty's Investor Service says the ratio
of cash to dept on the balance sheets of the nation's non-finacial companies is
the highest in 35 years.(3) In our opinion, hale and hearty corporate patients
don't, by and large, suddenly decline in health.
2. Ten Central European nations, non-entities in the global economy as recently
as fifteen years ago, joined the European Union in 2004. Russia, India, and
China, minor blips on the global economic radar screen a decade ago are all
experiencing substantial growth With growth comes the need for consumer
products, modernization of industrial infrastructure, communica tions networks,
financial services, and more. All won't be placid: many issues, even crises,
will no doubt arise from the emergence of these new economies. The larger
reality is that we will be integrating economies of countries that collectively
represent 40% the population on the planet. That represents countless cell
phones, iPods, cups of Starbucks coffee, need for medical technologies, etc,
etc. In our opinion when all is said and done, this enormous addition to
potential global growth can't help but be good for U.S. companies.
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Market Caps 12/31/04
(As a percentage of the stock portion of the portfolio)
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Small (under $1.5 billion) 14.9%
Medium ($1.5-$10 billion) 34.9%
Large (over $10 billion) 50.2%
[PIE CHART OMITTED]
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3. Wealth, wealth, wealth. Let's not be shy about the fact: The U.S. is awash in
money. Even with the bursting of the great market bubble, the U.S. economy is
larger and more flush with cash than at the peak of the tech mania in 2000. More
Americans are 'richer' than ever before. In addition to the corporate cash noted
earlier, in the past two years we've seen an increase in household assets five
times greater than the increase in household liability. In fact, household
wealth is rising at a pace that matches the gains seen in the late 1990s.(4)
What had traditionally been considered small market, high end products and
services now are developing almost mass market appeal, due to technologies that
enable customization across even across a broader market. This is producing
significant tailwinds for innovative and well run companies in a number of
industries.
Still, I have no idea exactly what the market will do this year. Predicting the
moves of the broad market is a genuine sucker's game; it's not for nothing that
the market has been called "The Great Humiliator." What I am willing to predict
is that some of these real and powerful forces and themes may create lift for a
number of stocks in 2005. Our job will be to identify as many as possible.
(3) Source: Howard Gold, BARRONS ONLINE January 1, 2005.
(4) Source: James Cooper and Kathleen Matigan, BUSINESS WEEK, December 27, 2004,
page 40.
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Markman Total Return Portfolio 5
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Accessible Stories
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I want to share with you some thoughts on a few of our larger hold- ings.
These four companies not only stand to benefit from the real Iand powerful
forces previously noted, they are also what I like to call 'accessible stories.'
They are the kind of opportunities we make a point to look for: companies whose
strategy and competitive advantage can be communicated in a clear and simple
narrative that, investment-jargon free, makes sense.
- -------------------------------
Starbucks SBUX
- -------------------------------
Starbucks has an advantage over most other companies; nothing helps regular and
repeat business like a caffeine withdrawal headache. Of course, all this success
is made possible by management that has carefully and intelligently built what
is now a unique global brand out of what had previously been a mere commodity.
While even fans won't dispute that the stock is very richly priced, it is one
story where the growth prospects seem to go on well into the distance. Consider
the growth implications of these numbers: McDonalds currently has some 30,000
stores worldwide. Starbucks has 8,000. It's not hard to imagine a world where
there are as many Starbucks as McDonald's. That's a lot of growth still ahead
for the company. And each location has the potential to become increasingly
profitable by both selling additional items (from CD's to croissants) and
increasing prices. (A price increase this past fall was met with a major ho-hum
by customers.)
Again, while it is normally a good idea to stay away from such 'expensive'
stocks, there does come along from time to time a storied company that more than
justifies such an investment. Just this past spring legendary value investor
Warren Buffet confessed that one of his worst mistakes was not buying Wal-Mart
because its shares always looked overval-ued. He was quoted saying "that
thumb-sucking has cost us in the current area of $10 billion."(5)
================================================================================
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Toll Brothers TOL
- -------------------------------
For some time, homebuilders have been the Rodney Dangerfields of the stock
market: they 'don't get no respect.' These are companies that are growing
earnings twice as fast as the S&P, yet are selling for half the multiple of the
market. Lack of respect? Seems more like insanity to me.
Because homebuilders are inherently not a 'sexy' investment story like the
latest tech gadget or telecom merger, Wall Street analysts appear to have been
stubbornly slow on the uptake in understanding how the entire industry has been
transformed. Homebuilding used to be a small, localized, 'mom and pop' kind of
industry. In many instances it was generally poorly run, with sloppy financial
controls and thus subject to wild boom/bust swings. This lack of reliability led
homebuilding stocks to be tagged with a deservedly low multiple.
The last decade, though, has seen a considerable consolidation in the business,
with substantial growth in the larger regional and national homebuilders. Large
homebuilders control an increasing share of the market. These multi-billion
dollar public firms bring a new found corporate professionalism to the table:
more disciplined financials, greater clout to handle the ever increasing
regulatory hurdles involved in the land approval process; and the valuable
economies of scale that inevitably accompany increased size.
Of course, no investment story is bullet-proof. Conventional wisdom often
suggests that a slowdown in the economy or a substantial rise in interest rates
could impact homebuilders, particularly on the lower price end of the market. In
our view however, barring the most extreme moves in rates or economic health,
the homebuilding industry has something of a built-in 'regulator' that argues
for a stable and secure investment story. Higher interest rates would likely be
the result of a stronger economy, and healthier consumer, thus possibly
offsetting the slowing effect of higher rates. Conversely, a slower economy
could result in lower rates, thus making homes more affordable, thus offsetting
the dampening effects of a less healthy buyer.
Our analysis of all these pros and cons leads us to the conclusion that Toll
Brothers is one of the safest plays in the homebuilding sector. Toll specializes
in the upper middle and luxury market. It is thus largely sheltered from the
dampening of demand that could be caused by a rise in interest rates. After all,
when one is buying a million-dollar retirement home, does an extra fraction of a
percent on a mortgage rate make much of a difference? We are just now entering a
decade long period in which the baby boom demographic bulge--the richest
generation ever to exist on the planet--will be reaching retirement age. This
represents a huge market for builders like Toll. Last but by no means least,
Toll is fortunate to have management that is among the best respected in the
business, and is 34% owned by its directors and executives.
When a company benefiting from these sustainable long term tailwinds can be
bought for a multiple half its growth rate, the only question is: why don't we
own more? Well, that's what short term dips are for.
(5)Source: Jason Zweig, CNN.MONEY.COM, April 3, 2004.
- --------------------------------------------------------------------------------
6 December 31, 2004
- -------------------------------
XM Satellite Radio XMSR
- -------------------------------
What investor wouldn't want the chance to take a time machine back thirty years
and buy cable TV properties? Too bad we can't. But what cable was to broadcast
TV in the last quarter of the 20th century, we believe satellite radio will be
to broadcast radio in the first quarter of the 21st century.
The concept is breathtakingly simple. Throw a few satellites up in orbit and
then bounce programming off them to an individual's receiver. The receiver costs
about $100 and the ongoing service runs $10-12 per month. The advantage: no
static, a national footprint with no dead spots even in the most remote areas,
and hundreds of stations, many commercial free, to choose from. Given that
option, would you ever opt to listen to the same obnoxious local top forty
station ever again? Few doubt that the pitch to the consumer is compelling. Many
on Wall Street, though, question the economics. Understandably so, as XM and its
competitor, Sirius Satellite Radio, are really still in the start-up stage and
are yet to be profitable.
But you don't have to wear rose colored glasses to see that the potential here
is astounding. It was just this past year that XM grew to over 3 million
subscribers. Sirius now has just over one million. That may sound like a large
number, but consider that there are over 200 million cars on the road. And
that's just in the U.S. alone. About 17 million new cars are sold each year in
America. We believe in a couple of years, satellite radio will be an available
option on almost every car offered by a major manufacturer. (XM currently has
deals with Toyota and GM, among others.) What then is a reasonable guess as to
the percentage of cars that will have satellite radio? 10%? 25%? 40%? Add to
those potential numbers additional subscribers for boats, homes, and offices
and, well, you can do the math pretty easily. We could potentially see 15-50
million subscribers by the end of the decade.
As the satellite radio business scales up, there will be significant marketing
costs, but they will have an advantage even over cable TV in that there will be
relatively little additional infrastructure cost: no cables to lay--it's all
beamed by satellite! The real propellant to profitability, in our opinion, will
be the inevitability of at least some of the stations carrying advertising.
Combine subscription income with advertising income in a low overhead scalable
model and you have a classic cash cow.
One last note: Great businesses inevitably breed competition. We note, though,
that XM and Sirius are the only two companies to be granted licenses from the
FCC. Any new entrant would need not only a license, but need to build and
install and sell the whole range of hardware infrastructure that XM and Sirius
already have in place. Once one clears the hurdle of whether satellite radio is
a viable business, we believe that XM is a much better value as an investment
than Sirius.
================================================================================
- -------------------------------
Royal Caribbean Cruises RCL
- -------------------------------
If you've never taken a cruise, the industry may seem like a strange, almost
quaint space. Images of Captain Stubing's Love Boat, or dowdy matrons on the QE
2 may come to mind. And though stereotypes always have their genesis in at least
some little truth, the reality is that cruise lines are one of the best kept
growth secrets on Wall Street, and Royal Caribbean is plowing full speed ahead.
Cruising as a vacation option is steadily gaining in popularity for a number of
reasons: There's the convenience of being able to visit multiple destinations
without the hassle of traveling from place to place by land or air with the
accompanying packing and unpacking. Many find the variety and all inclusive
nature of a large ship a safe and easy way to satisfy diverse family needs.
There's no doubt, cruising has become more mainstream and family oriented over
the past few years.
But most importantly, a cruise can be one of travel's great bargains. A
seven-day cruise to four islands can cost as much as 24-40% less than a
comparable land-based vacation.
Royal Caribbean, after navigating some rough waters a few years ago, now is
positioned to continue to reap huge benefits from the increased popularity of
cruise vacations. It boasts one of the newest and most innovative fleets in the
industry and has expanded operations to regional ports such as New Orleans,
Savanah, GA, and Philadelphia. With more ports within driving distance, an
increased number of customers can save the cost of airfare, making the vacation
that much more affordable.
More significant is that strong demand is causing vacationers to book further in
advance, allowing the company to raise prices and reduce last minute discounts.
What we think will be the big kicker in the equation, though, is the continuing
differential in price between a sea and land vacation. This 'spread' represents
an opportunity for Royal Caribbean to steadily raise prices enough to
significantly increase earnings and still remain extremely competitive on cost.
With Royal Caribbean, we think we've found something of an investment trifecta:
positive demographics support growth, minimal competition (due to industry
consolidation, the top two lines, Royal Caribbean and Carnival dominate), and
strong ability to raise prices without affecting sales. Concerns about energy
costs are minimal, as the cost of fuel represents less than 5% of gross
revenues. It is our view that it will take a major recession or safety concern
certainly much larger than what we exist with now to derail these shares. From
our perch, we can clearly see that the wind is at the back of these big ships.
- --------------------------------------------------------------------------------
Markman Total Return Portfolio 7
PORTFOLIO OF INVESTMENTS Markman Total Return Portfolio--December 31, 2004
Shares MarketValue
COMMON STOCKS 90.0%
REAL ESTATE INVESTMENT TRUST -- 12.3%
21,500 Vornado Realty Trust $ 1,636,796
30,000 Rayonier, Inc. 1,467,300
22,000 The Mills Corporation 1,402,720
50,000 Nationwide Health Properties, Inc. 1,187,500
30,000 LaSalle Hotel Properties 954,900
15,000 Novastar Financial, Inc. 742,500
$ 7,391,716
HEALTH CARE/MEDICAL -- 10.0%
23,000 The Cooper Companies, Inc. $ 1,623,570
20,000 Fisher Scientific International, Inc.* 1,247,600
14,000 UnitedHealth Group, Inc. 1,232,420
21,000 Sierra Health Services, Inc.* 1,157,310
25,000 Teva Pharmaceutical Industries Ltd.-ADR 746,500
$ 6,007,400
ENERGY/NATURAL RESOURCES -- 9.5%
25,000 Valero Energy Corporation $ 1,135,000
25,000 Transocean, Inc.* 1,059,750
14,000 Alliance Resource Partners 1,036,000
40,000 BHP Billiton Ltd. - ADR 960,800
10,000 Peabody Energy Corporation 809,100
17,000 Teekay Shipping Corporation 715,870
$ 5,716,520
FINANCIAL -- 8.7%
23,000 Franklin Resources, Inc. $ 1,601,950
40,000 UICI 1,356,000
19,000 Commerce Bancorporation, Inc. 1,223,600
25,000 Portfolio Recovery Associates* 1,030,500
$ 5,212,050
RETAIL -- 8.4%
32,000 Starbucks Corporation* $ 1,995,520
16,500 Kmart Holding Corporation* 1,632,675
32,000 Urban Outfitters, Inc. 1,420,800
$ 5,048,995
INDUSTRIAL EQUIPMENT & COMPONENTS -- 7.1%
41,000 Pentair, Inc. $ 1,785,960
26,000 Ceradyne, Inc. 1,487,460
20,000 Mine Safety Appliances Company 1,014,000
$ 4,287,420
HOMEBUILDERS/REAL ESTATE DEVELOPMENT -- 5.8%
32,000 Toll Brothers, Inc.* $ 2,195,520
20,000 The St. Joe Company 1,284,000
$ 3,479,520
SOFTWARE & SERVICES -- 5.1%
85,000 Symantec Corporation $ 2,189,600
13,000 Infosys Technologies Ltd. 901,030
$ 3,090,630
MEDIA -- 5.1%
42,000 XM Satellite Radio Holdings, Inc.* $ 1,580,040
75,000 Time Warner, Inc.* 1,458,000
$ 3,038,040
LEISURE -- 5.0%
29,000 Royal Caribbean Cruises Ltd. $ 1,578,760
44,000 McDonald's 1,410,640
$ 2,989,400
TELECOMMUNICATIONS -- 4.7%
75,000 AT&T Corporation $ 1,429,500
407,000 Nortel Networks Corporation* 1,420,430
$ 2,849,930
TRANSPORTATION & DELIVERY -- 3.7%
35,000 Norfolk Southern Corporation $ 1,266,650
10,000 FedEx Corporation 984,900
$ 2,251,550
INTERNET COMMERCE -- 2.6%
13,500 eBay, Inc.* $ 1,569,780
CONSUMER ELECTRONICS -- 2.0%
19,000 Apple Computer, Inc. $ 1,223,600
TOTAL COMMON STOCKS $54,156,551
BOND FUNDS -- 8.1%
287,223 PIMCO Emerging Markets
Bond Fund - INST Class $ 3,119,244
223,666 Northeast Investors Trust 1,760,250
TOTAL BOND FUNDS $ 4,879,494
MONEY MARKET FUNDS -- 1.9%
1,115,966 5/3 Prime Money Market Fund $ 1,115,966
TOTAL INVESTMENT SECURITIES $60,152,011
(Cost $50,927,597) 100%
LIABILITIES IN EXCESS OF
OTHER ASSETS 0.0% (20,501)
NET ASSETS 100.0% $60,131,510
* Non-income producing security.
ADR - American Depository Receipt
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
8 December 31, 2004
STATEMENT OF ASSETS
AND LIABILITIES December 31, 2004
ASSETS
Investment securities:
At acquisition cost $ 50,927,597
=============
At market value $ 60,152,011
Accrued income 76,042
Receivable for capital shares sold 6,808
Other Assets 33,213
-------------
TOTAL ASSETS 60,268,074
-------------
LIABILITIES
Income distributions payable 8,409
Payable for capital shares redeemed 63,414
Payable to Adviser 38,149
Payable to affiliates 9,145
Payable to Trustees 102
Other accrued expenses and liabilities 17,345
-------------
TOTAL LIABILITIES 136,564
-------------
NET ASSETS $ 60,131,510
=============
Net assets consist of:
Paid-in capital $ 102,291,980
Undistributed net investment income 7,686
Accumulated net realized losses
from security transactions (51,392,570)
Net unrealized appreciation on investments 9,224,414
-------------
NET ASSETS $ 60,131,510
=============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 5,871,769
=============
Net asset value, offering price and
redemption price per share $ 10.24
=============
See accompanying notes to financial statements
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
INVESTMENT INCOME
Dividends (Net of withholding taxes of $1,048) $ 1,249,497
-------------
EXPENSES
Investment advisory fees 436,483
Administration fees 55,000
Sub transfer agent fees 50,000
Professional fees 52,000
Compliance fees and expenses 43,750
Transfer agent fees 35,000
Accounting services fees 35,000
Postage and supplies 20,000
Registration fees 23,932
Custodian fees 26,000
Shareholder report costs 23,000
Trustees fees and expenses 21,000
Other expenses 14,084
-------------
TOTAL EXPENSES 835,249
-------------
NET INVESTMENT INCOME 414,248
-------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains from security transactions 12,216,594
Net change in unrealized appreciation/depreciation
on investments (4,815,559)
-------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS 7,401,035
-------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 7,815,283
=============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Markman Total Return Portfolio 9
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended For the Year Ended
December 31, 2004 December 31, 2003
FROM OPERATIONS
Net investment income $ 414,248 $ 507,879
Net realized gains from security transactions 12,216,594 4,625,636
Net change in unrealized appreciation/depreciation on investments (4,815,559) 14,252,089
------------ ------------
Net increase in net assets from operations 7,815,283 19,385,604
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (414,247) (507,876)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 5,988,905 4,229,619
Net asset value of shares issued in reinvestment of distributions to shareholders 405,838 496,866
Payments for shares redeemed (13,277,933) (16,286,159)
------------ ------------
Net decrease in net assets from capital share transactions (6,883,190) (11,559,674)
------------ ------------
TOTAL INCREASE IN NET ASSETS 517,846 7,318,054
NET ASSETS
Beginning of year 59,613,664 52,295,610
------------ ------------
End of year $ 60,131,510 $ 59,613,664
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 7,686 $ 3
------------ ------------
CAPITAL SHARE ACTIVITY
Sold 655,480 572,074
Reinvested 39,633 55,085
Redeemed (1,434,730) (2,323,254)
------------ ------------
Net decrease in shares outstanding (739,617) (1,696,095)
Shares outstanding, beginning of year 6,611,386 8,307,481
------------ ------------
Shares outstanding, end of year 5,871,769 6,611,386
============ ============
See accompanying notes to financial statements.
====================================================================================================================================
FINANCIAL HIGHLIGHTS Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Year
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
Net asset value at beginning of year $ 9.02 $ 6.30 $ 8.69 $ 11.67 $16.69
-------- -------- -------- ------- ------
Income (loss) from investment operations:
Net investment income 0.07 0.08 0.18 0.24 0.11
Net realized and unrealized gains (losses)
on investments 1.22 2.72 (2.40) (2.98) (4.35)
-------- -------- -------- ------- ------
Total from investment operations 1.29 2.80 (2.22) (2.74) (4.24)
-------- -------- -------- ------- ------
Less distributions:
Dividends from net investment income (0.07) (0.08) (0.17) (0.24) (0.10)
Distributions from net realized gains -- -- -- -- (0.68)
-------- -------- -------- ------- ------
Total distributions (0.07) (0.08) (0.17) (0.24) (0.78)
-------- -------- -------- ------- ------
Net asset value at end of year $ 10.24 $ 9.02 $ 6.30 $ 8.69 $ 11.67
======== ======== ======== ======== =======
Total return 14.31% 44.40% (25.63%) (23.54%) (25.38%)
======== ======== ======== ======== =======
Net assets at end of year (000s) $ 60,132 $ 59,614 $ 52,296 $ 37,546 $64,572
======== ======== ======== ======== =======
Ratio of net expenses to average net assets 1.44% 1.50% 0.96% 0.95% 0.95%
Ratio of net investment income to average net assets 0.71% 0.97% 1.89% 2.32% 0.64%
Portfolio turnover rate 472% 228% 145%(a) 162% 142%
(a) This calculation does not include securities acquired in connection with
certain acquisitions in 2002.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
10 December 31, 2004
NOTES TO FINANCIAL STATEMENTS December 31, 2004
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. 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 Portfolio, 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. The performance and accounting history of the Markman
Moderate Allocation Portfolio is being assumed by the Portfolio. The 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).
Securities which are quoted by NAS-DAQ are valued at the NASDAQ Official Closing
Price. 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 - Distributions 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 U.S.
generally accepted accounting principles (GAAP) 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 calendar year) plus undistributed amounts from prior years.
The following information is computed on a tax basis as of December 31, 2004:
- --------------------------------------------------------------------------------
Cost of portfolio
investments $ 51,868,402
============
Gross unrealized
appreciation on
investments $ 9,279,954
Gross unrealized
depreciation on
investments (996,345)
------------
Net unrealized
appreciation on
investments 8,283,609
Capital loss carryforward (50,435,670)
Other temporary differences (8,409)
------------
Accumulated deficit $(42,160,470)
============
- --------------------------------------------------------------------------------
During the year ended December 31, 2004, the Portfolio utilized $12,826,391 of
capital loss carryforwards. As of December 31, 2004, the Portfolio had a net
capital loss carryfor-ward of $50,435,670 of which $12,148,952 will expire in
2008, $22,338,168 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 not be distributed. Based on certain provisions in the Internal
Revenue Code, various limitations regarding the future utilization of these
carry-forwards, brought forward as a result of certain acquisitions in 2002, may
apply. Based on such limitations, unless the tax law changes, approximately
$18,039,838 of these losses will expire unutilized.
- --------------------------------------------------------------------------------
Markman Total Return Portfolio 11
The tax character of distributions paid by the Portfolio for the years ended
December 31, 2004 and 2003 was as follows:
- --------------------------------------------------------------------------------
2004 2003
From ordinary
Income $ 414,247 $ 507,876
- --------------------------------------------------------------------------------
2. Investment Transactions
During the year ended December 31, 2004, the cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments and government
securities, amounted to $257,655,932 and $265,044,232, 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. 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.
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.
COMPLIANCE SERVICES
The Trust has contracted with the Adviser to provide the Chief Compliance
Officer to the Trust. The Chief Compliance Officer and his or her designees will
perform the duties and responsibilities in accordance with Rule 38a-1 under the
Investment Company Act of 1940, as amended. The Chief Compliance Officer will,
among other things, oversee an annual review of the policies and procedures of
the Trust and its service providers and will provide a summary report of his or
her findings to the Board of Trustees for their approval. The Chief Compliance
Officer's compensation will be paid by the Adviser and the Trust will reimburse
the Adviser for such costs.
In addition, the Trust has contracted with IFS to provide certain compliance
services on behalf of the Trust. Subject to the direction of the Trustees of the
Trust, IFS shall develop and assist in implementing a compliance program for IFS
on behalf of the Portfolio and; provide administrative support services to the
Portfolio's Compliance Program and Chief Compliance Officer.
4. Commitments and Contingencies
The Portfolio indemnifies the Trust's officers and Trustees for certain
liabilities that might arise from their performance of their duties to the
Portfolio. Additionally, in the normal course of business, the Portfolio enters
into contracts that contain a variety of representations and warranties and
which provide general indemnifications. The Portfolio's maximum exposure under
these arrangements is unknown, as this would involve future claims that may be
made against the Portfolio that have not yet occurred. However, based on
experience, the Portfolio expects the risk of loss to be remote.
5. Subsequent Events
On January 4, 2005, the Trustees approved the name change of the Portfolio to
Markman Total Return Core Fund.
On February 1, 2005, the Board of Trustees approved a change to the investment
management agreement between the Portfolio and the Adviser increasing the
base-management fee payable to the Adviser, and adding a performance-based fee
adjustment and a series of breakpoints. The new management agreement is subject
to shareholder approval.
- --------------------------------------------------------------------------------
12 December 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
of the Markman MultiFund Trust
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Markman Total Return Portfolio (the
"Fund"), a series of the Markman MultiFund Trust, as of December 31, 2004, and
the related statement 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, and
the financial highlights for each of the three years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights presented herein for each of the two years in the period ended
December 31, 2001 were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on the financial highlights in
their report dated January 11, 2002.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian.
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 the
Markman Total Return Portfolio as of December 31, 2004, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 1, 2005
- --------------------------------------------------------------------------------
Markman Total Return Portfolio 13
ADDITIONAL NOTES (Unaudited)
Dividends Received Deduction
For corporate shareholders, 100% of the total ordinary income paid during the
current fiscal year ended December 31, 2004, qualifies for the corporate
dividends received deduction.
Proxy Voting Guidelines
The Adviser is responsible for exercising the voting rights associated with the
securities purchased and held by the Portfolio. A description of the policies
and procedures the Adviser uses in fulfilling this responsibility and
information regarding how those proxies were voted during the twelve month
period ended December 31, 2004 are available without charge, upon request, by
calling 1-952-920-4848. They are also available on the Securities and Exchange
Commission's website at http://www.sec.gov.
Quarterly Portfolio Disclosure
The Trust will file a complete listing of portfolio holdings as of the end of
the first and third quarters of each fiscal year on Form N-Q beginning with the
September 2004 quarter. The complete listing (i) is available on the
Commission's website; (ii) may be reviewed and copied at the Commission's Public
Reference Room in Washington, DC; and (iii) will be made available to
shareholders upon request by calling 1-952-920-4848. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Schedule of Shareholder Expenses
As a shareholder of the Portfolio, you incur two types of costs: (1) transaction
costs, including reinvested dividends or other distributions; and (2) ongoing
costs, including investment advisory fees; distribution (12b-1) fees; and other
Portfolio expenses. This example is intended to help you understand your ongoing
costs (in dollars) of investing in the Portfolio and to compare these costs with
the ongoing costs of investing in other mutual funds. The example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period (July 1, 2004 through December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line,together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six
Months Ended December 31, 2004" to estimate the expenses you paid on your
account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Portfolio's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Portfolio's actual return. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing costs of
investing in the Portfolio and other funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Net Expense Ratio Total Return Beginning Ending Expenses Paid During
Annualized Six Months Ended Account Value Account Value the Six Months Ended
December 31, 2004 December 31, 2004 July 1, 2004 December 31, 2004 December 31, 2004*
Markman Total Return Portfolio
Actual 1.44% 9.92% $1,000.00 $1,099.20 $7.60
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Hypothetical 1.44% 2.51% $1,000.00 $1,017.90 $7.30
- ------------------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio of 1.44%, multiplied
by the average account value over the period, multiplied by [number of days in
most recent fiscal half-year/366] (to reflect the one-half year period).
- --------------------------------------------------------------------------------
14 December 31, 2004
MANAGEMENT OF THE TRUST (Unaudited)
Listed in the charts below is basic information regarding the Trustees and
officers of the Markman MultiFund Trust (the "Trust").
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Other
Portfolios in Directorships
Position(s) Fund Complex Held by Trustee
Held With Term of Office(1) and Principal Occupation(s) Overseen by Outside the Fund
Name/Address/Age Trust Length of Time Served During Last 5 yrs Trustee Complex
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE:
Robert J. Markman(2) Chairman of Since Inception President, Treasurer and 1 N/A
6600 France Ave. South the Board Secretary of Markman
Edina, MN 55435 and President Capital Management, Inc.
Age: 53
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(1) Each Trustee is elected to serve in accordance with the Declaration of Trust
and By-Laws of the Trust until his or her successor is duly elected and
qualified.
(2) Mr. Markman is an "interested person" of the Trust as defined in the
Investment Company Act of 1940, as amended, because of his relationship with
Markman Capital Management, Inc. Markman Capital Management, Inc. serves as the
investment adviser to the Trust and, accordingly, as investment adviser to the
Portfolio.
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Other
Portfolios in Directorships
Position(s) Fund Complex Held by Trustee
Held With Term of Office(1) and Principal Occupation(s) Overseen by Outside the Fund
Name/Address/Age Trust Length of Time Served During Last 5 yrs Trustee Complex
- ------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES:
Susan Gale-Levy Trustee Since Inception Real Estate Advisor; 1 N/A
6600 France Ave. South Edina Realty.
Edina, MN 55435
Age: 52
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Melinda S. Machones Trustee Since Inception Director of Technology 1 N/A
6600 France Ave. South and Strategy, Duluth
Edina, MN 55435 New Tribune; Self-employed
Age: 50 management and technology
consultant; Director of
Information Technologies,
The College of St. Scholastica.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Monahan Trustee Since Inception Vice President-External 1 N/A
6600 France Ave. South Relations, Ecolab.
Edina, MN 55435
Age: 54
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(1) Each Trustee is elected to serve in accordance with the Declaration of Trust
and By-Laws of the Trust until his or her successor is duly elected and
qualified.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s)
Held With Term of Office and Principal Occupation(s)
Name/Address/Age Trust Length of Time Served During Last 5 yrs
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OFFICERS:
Judith E. Fansler Secretary Since Inception Chief Operations Officer;
6600 France Ave. South Treasurer Since May 2003 Markman Capital Management, Inc.
Edina, MN 55435 Chief
Age: 54 Compliance
Officer Since October 2004
- ------------------------------------------------------------------------------------------------------------------------------------
The Statement of Additional Information contains additional information about
the Trustees and is available without charge upon request by calling
1-800-707-2771.
- --------------------------------------------------------------------------------
Markman Total Return Portfolio 15
- --------------------------------------------------------------------------------
Stay Informed
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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/Roth Application
o IRA transfer request
o Systematic Withdrawal Plan Request
o Automatic Investment Request
o Company Retirement Account Application
o 403(b) Plan and Application
The minimum direct investment is $5,000. If you want to invest less than $5,000,
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.
[LOGO] Investment Adviser Shareholder Services
Markman Markman Capital Management, Inc. c/o Integrated Fund Services, Inc.
TOTAL RETURN 6600 France Avenue South P.O. Box 5354
PORTFOLIO Minneapolis, Minnesota 55435 Cincinnati, Ohio 45201-5354
- ----------------------- Telephone: 952-920-4848 Toll-free: 800-707-2771
For investors too smart Toll-free: 800-395-4848
to do it themselves(R)
Authorized for distribution only if preceded or accompanied by a current
prospectus.
- --------------------------------------------------------------------------------
16 December 31, 2004
[LOGO]
Markman
TOTAL RETURN
PORTFOLIO
- -----------------------
For investors too smart
to do it themselves(R)
6600 France Avenue South
Minneapolis, Minnesota 55435
- --------------------------------------------------------------------------------
FIRST CLASS
- --------------------------------------------------------------------------------
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to its principal executive officer and principal
financial officer. During the period covered by this report, no amendments were
made to the provisions of the code of ethics, nor did the registrant grant any
waivers, including any implicit waivers, from the provisions of the code of
ethics.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Trustees has determined that the registrant has at
least one audit committee financial expert serving on its audit committee. Mr.
Michael J. Monahan is the registrant's "audit committee financial expert" and is
"independent" (as each term is defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. Audit fees totaled $20,200 for the December 31, 2004 fiscal year
and $19,000 for the December 31, 2003 fiscal year, including fees associated
with the annual audit and filings of the registrant's Form N-1A and Form N-SAR.
(b) Audit-Related Fees. There were no audit-related fees for the December 31,
2004 or December 31, 2003 fiscal years.
(c) Tax Fees. Tax fees totaled $2,100 for the December 31, 2004 fiscal year and
$2,000 for the December 31, 2003 fiscal year and consisted of fees for tax
compliance services during both years.
(d) All Other Fees. There were no other fees for the December 31, 2004 or
December 31, 2003 fiscal years.
(e) (1) Audit Committee Pre-Approval Policies. The Audit Committee's
pre-approval policies describe the types of audit, audit-related, tax and other
services that may receive the general pre-approval of the Audit Committee. The
pre-approval policies provide that annual audit service fees, tax services not
specifically granted pre-approval, services exceeding pre-approved cost levels
and other services that have not received general pre-approval will be subject
to specific pre-approval by the Audit Committee. The pre-approval policies
further provide that the Committee may grant general pre-approval to other audit
services (statutory audits and services associated with SEC registration
statements, periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings), audit-related
services (accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "audit services," assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities, agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters and assistance with
internal control reporting requirements under Form N-SAR and Form N-CSR), tax
services that have historically been provided by the auditor that the Committee
believes would not impair the independence of the auditor and are consistent
with the SEC's rules on auditor independence and permissible non-audit services
classified as "all other services" that are routine and recurring services.
(e)(2) All services described in paragraphs (b) through (d) of Item 4 were
approved by the Audit Committee.
(f) Not applicable
(g) The aggregate non-audit fees for services to the registrant, its investment
adviser and any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant were $2,100 for the
fiscal year ended December 31, 2004 and $2,000 for the fiscal year ended
December 31, 2003, including services provided prior to May 6, 2003, the
effective date of the pre-approval process.
(h) Not applicable
Item 5. Audit Committee of Listed Registrants.
Not applicable
Item 6. Schedule of Investments.
The Schedule of Investments in securities of unaffiliated issuers is included in
the Annual Report.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant does not have procedures by which shareholders may recommend
nominees to its Board of Trustees.
Item 11. Controls and Procedures.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940), as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that the registrant's disclosure controls and procedures are
effective.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
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 12. Exhibits.
(a)(1) Code of Ethics for Senior Financial Officers is filed herewith
(a)(2) Certifications required by Item 12(a) of Form N-CSR are filed herewith.
(a)(3) Not applicable.
(b) Certification required by Item 12(b) of Form N-CSR is filed herewit
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) The Markman MultiFund Trust
By (Signature and Title)
/s/ Robert J. Markman
- ---------------------------------
Robert J. Markman
President
Date: March 11, 2005
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: March 11, 2005
By (Signature and Title)
/s/ Judith E. Fansler
- ---------------------------------
Judith E. Fansler
Treasurer and Chief Financial Officer
Date: March 11, 2005