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
- --------------------------------------------------------------------------------
(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
Date of reporting period: 06/30/05
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, 100 F Street, NE,
Washington, DC 20549. 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
CORE FUND
-----------------------
For investors too smart
to do it themselves(R)
-----------------------
- --------------------------------------------------------------------------------
Semi-Annual Report
- --------------------------------------------------------------------------------
June 30, 2005
(Unaudited)
------------------------
Dear Fellow Shareholders
------------------------
Mid Year Check-Up
Your Fund's returns for the first six months of 2005 were good, relative to the
overall market and our respective benchmarks. This was largely due to a strong
second quarter in which we were the top performing fund in Morningstar's Large
Cap Growth category. The Markman Total Return Core Fund gained 2.93% from
January 1 through June 30, 2005. Over the same period, the S&P 500 Index lost
0.81%.
Additionally, we did well against our comparative benchmark blend. (This is a
blend of 80% of the S&P 500 Index return with 20% of the return of the Lehman
Intermediate Government Bond Index.) The result of this blend was a loss of
0.33% for the first six months of 2005.
The Markman Total Return Core Fund also ranked highly, year-to-date, against its
fund peers in Morningstar and Lipper categories. Our return placed us in the 4th
highest percentile of Morningstar's Large Cap Growth category and the 6th
highest percentile of the Lipper Flexible Fund category. This marks the third
calendar year in a row (every year since we created the Markman Total Return
Core Fund) that we are tracking in the top ten percent of both the Morningstar
and Lipper categories. (Though there are no assurances that we will finish the
year at these levels.)
Strong First Half Performance Against
Market Indices and Fund Peers
[The following table was represented as a bar chart in the printed material.]
-1.96% -0.81% -0.33% 0.25% 2.93%
Morningstar(1) S&P 500 Blend Lipper(2) MTRPX
(1) THE MORNINGSTAR LARGE CAP BLEND CATEGORY: Funds that have portfolios that
are fairly representative of the overall stock market in both size, growth
rates, and price. These funds tend to invest across the spectrum of U.S.
industries.
(2) THE LIPPER FLEXIBLE PORTFOLIO CATEGORY: Funds that allocate investments
across various asset classes, including domestic common stocks, bonds and
money market instruments, with a focus on total return.
Past performance is not a guarantee of future results.
- --------------------------------------------------------------------------------
First Half Market Dynamics:
Rational for All, Frustrating for Many
The past six months contained its fair share of short term irrationality and
media-induced 'panics du jour.' Looking back, though, I have to admit that this
was one of the more rational periods in the markets. Certainly, we were not
subjected to the same level of noise and distraction--a presidential campaign,
multi-color terror alerts, etc.--that roiled markets and frayed nerves in 2004.
What seems to have been the connecting theme thus far in 2005 is disbelief.
Disbelief that the economy is continuing to grow steadily and surely. Disbelief
that the housing market will continue to boom. Disbelief that oil prices would
continue to rise. Disbelief that it would be possible for long term interest
rates to decline, even as the Federal Reserve tightened.
It was this very skepticism--this disbelief in the face of a market that was
actually acting rationally--that caused many intelligent investors to actually
lose money in the first half of 2005. Ironically, the best two performing
sectors--real estate and energy--were the very ones most avoided by those whose
fear of 'bubbles' caused them to doubt their own eyes.
Fortunately, we went into 2005 with healthy allocations to real estate and
energy. Additionally, we had significant positions in the Health Care/Medical
sector, our best performers being United Health Group and Cerner. Retailing was
also strong for us, with Sears Holding Corp and Chico's producing returns well
ahead of the market. These helped to offset first half weakness in holdings such
as Starbucks, Symantic and Ceradyne. (All three of which I continue to have
great confidence in.)
- --------------------------------------------------------------------------------
1 June 30, 2005
As I've written on a number of occasions, we take the term "Core Fund"
seriously. My intention is to try to construct the kind of 'Steady Eddie' fund
that you can hold as the foundation of your overall portfolio. As our Prospectus
states, "we seek maximum total return with reduced risk." That is why
significant resources are devoted to attempting to find a comfortable
balance--over the short to intermediate term--between return potential and
overall stability.
- --------------------------------------------------------------------------------
Top Ten Holdings
Of the Stock Portfolio 6/30/05
- --------------------------------------------------------------------------------
Valero Energy 4.6%
- --------------------------------------------------------------------------------
Cerner Systems 4.5%
- --------------------------------------------------------------------------------
Cendant Corporation 4.4%
- --------------------------------------------------------------------------------
UnitedHealth Group 4.4%
- --------------------------------------------------------------------------------
Apple Computer 4.3%
- --------------------------------------------------------------------------------
Oil Service Holders 4.2%
- --------------------------------------------------------------------------------
Toll Brothers 4.2%
- --------------------------------------------------------------------------------
Vornado Realty 4.2%
- --------------------------------------------------------------------------------
Starbucks Corp 3.7%
- --------------------------------------------------------------------------------
St. Joe Company 3.5%
- --------------------------------------------------------------------------------
Total in Top Ten 42.0%
- --------------------------------------------------------------------------------
Every day I see a number of stocks that I believe have the potential to 'shoot
the lights out.' (For example, I was--and still am--sorely tempted to have some
biotech in the portfolio.) I rarely take the bait, though. Too much risk, in my
estimation. By the same token, I hesitate to let a single position get much
above 5% of the portfolio, even though some stocks we own could possibly merit
larger allocations. Recall, we have a required 20% minimum allocation to
income-producing, lower-market-correlated asset classes such as bonds, REITs and
cash. This, I believe, helps to smooth out some of the always present bumps in
the road.
But being cautious alone is relatively easy. Grafting superior upside potential
onto that root of caution is where the real work begins. I don't claim to have
all the answers, but what works for me are two basic tactics: first, limit the
number of positions in the portfolio. As of June 30, we held 25 stocks over and
above our stability base of bonds, REITs and cash. Most of these positions
ranged from 2-4% of assets. There are a number of long time fund observers,
myself included, who believe that a well run concentrated portfolio like this
has the potential to outperform a typical diversified fund portfolio of 70-150
positions.
Secondly, I try to use the Fund's size and cost structure to our advantage. We
are a small fund. In addition, our costs of trading, as measured by commissions
paid per trade, is among the lowest in the industry. These two things give me
the freedom and flexibility to trade quickly and frequently. (More on this later
in the Report.) This ability to take rapid advantage of opportunities, or to
quickly avoid danger has contributed greatly to our performance since we changed
our structure at the end of 2002.
In this era of specialized portfolios and rigid management directives, this
often delicate balancing has become something of a 'lost art.' Except in real
life for real people like you. It still is what most of us try to do with our
overall portfolio, is it not? To maximize return with what we feel is reasonable
risk? If this seems a bit of a digression from the specific review of the first
half of 2005, understand that I take the time to do so because many of my
thoughts and actions make more sense in the context of this core fund
perspective.
Signposts Indicate Clear Road Conditions
As many of you know, I have an optimistic personality. And so, when I do my
research and assemble my facts and figures, I have to guard against what is
called 'data mining.' Data mining is where one consciously, or unconsciously,
searches for information that supports one's preconceived opinions, ignoring
conflicting and contradictory data.
- --------------------------------------------------------------------------------
Market Caps 6/30/05
(As a percentage of the stock/EFT portion
of the portfolio, not including REITS)
Small (under $1.5l billion) 4.3%
- --------------------------------------------------------------------------------
Mid ($1.5-$8 billion) 31.5%
- --------------------------------------------------------------------------------
Large (over $8 billion) 64.2%
- --------------------------------------------------------------------------------
[PIE CHART]
- --------------------------------------------------------------------------------
For that reason, I make a point of assembling the opinions of managers and
analysts who are generally bearish on the market and certain stocks we own. They
almost always have perspectives, and arrive at conclusions, that I would never
come to myself. Having diligently done that, I must say that, in my opinion, the
weight of the evidence has not been this strongly against the bearish argument
and for the bullish argument in almost three years.
I'm genuinely surprised at the breadth and depth of the positive statistics on
the economy and the market that have been piling up over the past six months.
These positive data points are more than just euphoric spins by permabulls. They
are specific, factual, and difficult to refute.
Those who are cautious or even bearish on the market point to a number of
factors:
o The Fed continues to raise interest rates. This could not only put a
damper on the red hot real estate market it could eventually, as it did in
2000, precipitate a broad and general slowdown in the economy. This would
obviously be bad for the market.
- --------------------------------------------------------------------------------
Markman Total Return Core Fund 2
o Labor costs continue to go up at a better than expected rate, giving rise
to increased fears of inflation.
o Oil prices show little sign of stabilizing. Increased costs for energy
acts as a hidden tax on the global economy. At some point it must lead to
a slowdown.
o Terrorism.
o Higher commodity prices are increasing manufacturing costs. Since
companies are having trouble passing those costs along to consumers,
margins must eventually get squeezed.
o Slower growth in the economy, combined with greater inflation could lead
to a period of stagflation.
o 90's speculation is back! (Example: Google) This always ends badly, if
you've already forgotten.
o The Federal Budget is once more out of control. We're asking foreigners to
finance the mountain of debt we're accumulating. What if they stop buying
our Treasury debt?
o We've already lost--to low cost foreign companies--many of our good
manufacturing jobs here in America. Now we're outsourcing service jobs to
places like India. The middle class is being destroyed.
o Long term bond yields have declined even as short term rates have gone up.
This 'flattening' of the yield curve is, historically, a generally
reliable predictor of a coming recession.
o Housing is a bubble and when it bursts, the staggering amount of financial
losses will devastate the economy.
- --------------------------------------------------------------------------------
Asset Allocation 6/30/05
(As a percentage of the stock portion of the portfolio)
Stocks/ETFs 78.7%
- --------------------------------------------------------------------------------
Bonds 2.1%
- --------------------------------------------------------------------------------
REITs 18.8%
- --------------------------------------------------------------------------------
Cash 0.4%
- --------------------------------------------------------------------------------
[PIE CHART]
- --------------------------------------------------------------------------------
On the positive side of the ledger, Bulls point to any number of real time
factual indicators that business and the markets are--and should
remain--healthy:
o The advance/decline line is in an uptrend, signaling that more stocks are
advancing than declining. This increase breadth in the market is a
tangible sign of health. It means that even though the broad averages
(which are dominated by a just a few very large companies) are going
nowhere, most stocks are, indeed, going up. Interestingly, this is the
exact opposite from the dynamic we saw at the late stages of the bubble in
1999/2000. At that time, the broad averages were rising sharply even as
the broader list of underlying stocks were deteriorating in price.
o Overall productivity in the economy remains at a high level.
o The number of business bankruptcies fell 10% in June from a year earlier.
o Estimated growth rates in the overall economy are being adjusted upward.
o Delinquency rates on home mortgages stand at 4.2%, down from 4.5% a year
ago, suggesting a financially healthier consumer.
o Corporate profits are at an all time high.
o Cash on hand held by corporations is at an all time high.
o Fewer investment professionals with their own money at risk are shorting
stocks than ever before. As of spring 2005, the NYSE specialist short sale
ratio is at its lowest level ever. This has historically been a reliable
indicator of market bottoms.
o Earnings growth continues stronger than expected, pushing PE levels down
further than expected at this point in the bull market. While a case could
be made that prices don't have to go up from here, it is hard to see a big
decline commencing from these not so high levels.
o Strong economic growth is producing tax receipts above projections, thus
reducing the future budget deficit well below what was projected even
twelve months ago.
o The strong real estate market has produced an unexpected increase in
property tax receipts, helping to improve the financial health of state
and local governments.
o Employment numbers continue to improve, slowly, but steadily.
The most interesting take-away from these two lists is how the bear case rests
largely on fears of what might happen sometime down the road. The bull case is
based on a reality of statistics and dynamics in place here and now. Certainly,
a skeptic could point out that things change, and those bullish data points
could very well deteriorate, leading to vindication for the bears. Perhaps so.
But that is still not likely to happen across the board, at a rapid pace. It
takes time for the storm clouds to form and roll in, let alone for the rain to
fall.
We thus remain fully invested in those companies we feel have the best chance of
price appreciation over the near to intermediate term (six to 18 months).
- --------------------------------------------------------------------------------
3 June 30, 2005
The Total Return Core Fund Pyramid
With thousand of stocks to choose from, every fund manager constructs models
that attempt to distill the large universe of options down to a more manageable
list of possibilities. Various fundamental statistical screens are often
employed that rank stocks on any number of criteria: size, sales, earnings,
growth rates, etc. A wide range of technical analysis tools are also employed by
many. Most managers develop, over time, a methodology that they feel works best
for them, rigorously working that methodology to refine it as best they can. The
fund world is populated with excellent practitioners of various schools: classic
value investors like the legendary David Dreman, intensely management-focused
successful growth investors like Ron Baron, or stock pickers like Robert Olstein
who pour over financial statements looking for that seam of information that
allows them to gain an edge.
I spent the better part of two decades assembling portfolios of mutual funds for
clients and had the privilege and pleasure of speaking with many of the best
fund managers of our time: John Templeton, Michael Price, Robert Sanborn, Jean
Marie Eveillard, just to name a few. I've listened to the most aggressive growth
stock pickers as well as skeptics who would cautiously and patiently wait in
cash until they saw what they were convinced was a low risk value play. There
are guys who profit handsomely from picking special situation turnarounds,
buying when every one else is holding their nose from the stench; and others who
play the high stakes price momentum game.
Because so much of my practical 'education' has been learned over the years by
closely watching a variety of managers, I've grown to feel comfortable looking
at stocks from a number of different perspectives. Growth, value, international,
or any variation and combination--it's all the same to me. Each discipline is
just another tool to help find the maximum number of stocks that we feel has the
potential for substantial gain.
With so many often contradictory styles, I've found it necessary to structure
the portfolio around an overall model that helps me keep the various approaches
under control and in proper proportion. This is how I came to develop the
Portfolio Pyramid you see reproduced here. Within it come together the various
styles and techniques I use. It also serves to illustrate my belief that even
though numbers and statistics seem to be the fuel of the market, ultimately all
the decisions are made by humans. And when all is said and done, it's a market
of stories and emotions, likes and dislikes, fear and greed, hopes and dreams.
By giving more 'human' descriptors to my portfolio components, I can better
weigh the overall 'emotional tone' of the portfolio.
Here is a simple bullet explanation for each layer in the pyramid. As with most
investment pyramids, the risk increases the higher you go in the pyramid.
High
Caloric
-----------
The New
New Thing
--------------
Over There
--------------------
Unjustified Skepticism
--------------------------
Underfollowed Quality
--------------------------------
Emerging Bluechips
-------------------------------------
Steady Streams of Stablizing Income
-------------------------------------------
- --------------------------------------------------------------------------------
Steady Streams of Stabilizing Income: A foundation layer of investments that
show a low correlation to the overall stock market and generate a strong current
income stream. This would include the REIT's we own as well as our bond and
money market funds.
- --------------------------------------------------------------------------------
Emerging Bluechips: Companies that have many of the traditional characteristics
of 'blue chip' stocks (healthy balance sheets, strong market positions,
consistent financial results, etc.) but that for reasons of size, length of
history, or other are not yet considered 'blue chip' by the broader investment
community. An example in our current portfolio would be United Health Group.
- --------------------------------------------------------------------------------
Underfollowed Quality: Companies with excellent management, consistent operating
results and strong market positions that are not followed by as many major Wall
Street analysts as they might be. Example: Pentair.
- --------------------------------------------------------------------------------
Unjustified Skepticism: Companies that Wall Street has, in our opinion,
misunderstood, whose prospects are grossly underestimated. A couple of great
examples over the past year have been Toll Brothers and Valero Energy.
- --------------------------------------------------------------------------------
Over There: Our International exposure, normally in emerging markets. An example
in the current portfolio would be Mobil Telesys, a Russian wireless phone
company.
- --------------------------------------------------------------------------------
The New New Thing: Companies building strong positions in totally new markets
with revolutionary new products, where comparisons are difficult and thus
subject to analyst confusion and error. Example in our current portfolio: Apple
Computer and XM Satellite Radio.
- --------------------------------------------------------------------------------
High Caloric: Healthy growth companies with excellent management that have a
secular growth story that we believe justifies a controversially high PE. An
example in our current portfolio would be Starbucks.
- --------------------------------------------------------------------------------
Our pyramid is more a framework for a thought process than a rigid model. Some
companies may, in fact, fall into more than one category. In addition, stocks
may move from one category to another as events unfold.
- --------------------------------------------------------------------------------
Markman Total Return Core Fund 4
---------------------
Our Trading Strategy:
---------------------
What you should know about turnover, trading costs,
and the opportunities that come from being small
I'm happy to have the opportunity to continue our practice of clearly disclosing
the commissions paid in the course of running the Markman Total Return Core
Fund. For the first six months of 2005, we incurred total commission costs of
$27,420. This is below the amount of $28,887 paid during the comparable period
in 2004. It translates to a cost of about 5 basis points, or 5 hundredths of one
percent (.05%). This compares favorably with the trading costs associated with
the average fund as reported in a 2003 Lipper study. We will continue to work to
keeps costs down as much as we can.
It is important that you be aware of what the actual trading costs incurred by
you, as a shareholder, are. Without this knowledge, there is another statistic
that, looked at in isolation, might lead you to conclude that your costs might
be considerably higher. I speak of the Fund's Turnover Rate. This number
measures how frequently we buy and sell shares for the Fund. The Fund's
Portfolio Turnover Rate has been high from the very beginning. It is
considerably above that of most of our peers.
Expense for Trading
Average cost per share for commission paid
[GRAPHIC]
Typical of many funds 5(cent) per share(3)
- --------------------------------------------------------------------------------
Markman Total Return
Portfolio Cost 0.33(cent) per share
- --------------------------------------------------------------------------------
It is almost universally acknowledged that high turnover in a fund can be
harmful to shareholders, for two main reasons. Generally speaking, higher
turnover is associated with higher trading costs. It also can contribute to the
unnecessary yearly distribution of taxable capital gains to shareholders who
might prefer to defer gains for longer periods.
Neither of these are true of the Markman Total Return Core Fund.
As noted above, even with our higher turnover our actual trading costs are
considerably lower than most funds. In addition, we have the advantage of
working with a substantial tax loss carryforward which has reduced taxable
capital gain distributions for the past two years to zero. The same will be true
in 2005. Even though we have substantial profits booked from investments sold,
we expect no taxable capital gain distribution this year. (As in previous years,
there may be a small taxable income and dividend distribution estimated to be
less than 1% as in the past two years.)
The Conventional Buy and Hold Wisdom:
Exceptions and Opportunities-Friction and Displacement
Trading commissions are like friction. The greater the friction, the more wear
will be sustained. If the commission one pays per trade is high, it would seem
to make sense to limit the number of trades you make; otherwise the friction
caused by each trade would result in significant erosion to your capital. In the
old days of high fixed commissions and full commission brokers, prudence
generally dictated that trades should be few and far between. If your capital
were being nicked by 1%, 2% or more with every transaction, one would have to be
very right, very often to overcome that drag.
But what if that friction were significantly reduced? What if commissions were
so low as to make trading nearly frictionless? Then the judgment on the wisdom
of a particular trade would be based more on its success or failure, than the
cost.
As for the Markman Total Return Core Fund, the entire commission cost for the
first six months of 2005 cost the Fund less than one cent from the net asset
value. We believe this is hardly a devastating erosion of capital.
Large mutual funds and institutional investors, by definition, take large
positions, often owning tens of millions of shares of a company's stock. So when
the big players of the investment world move, you can often see the impact in
stock prices.
I call this 'dynamic displacement.' (When you sit in a bathtub you displace the
water, making the level rise when you enter and go down when you exit. The
bigger the body, the more the displacement.) The net effect is that the
institution could force prices up when entering the market and down when
selling. So even though the commission rate paid by the institution may be very
low, the impact cost to that institution could be many times higher. Is it any
wonder, then, that the 'industry' tends to see the world through a long term buy
and hold lens?
- --------------------------------------------------------------------------------
(3) Source: Richard Titelbaum, "Know a Fund's Costs? Look Deeper", NEW YORK
TIMES., February 9, 2003. To our knowledge, this is the most recent broad
study available. We believe, however, that over the past year, costs have
been reduced somewhat from those previously reported.
- --------------------------------------------------------------------------------
5 June 30, 2005
But displacement is only part of the story. Even under the best of
circumstances, with the most careful execution and the most minimal
displacement, carefully assembling or selling large institutional positions can
take weeks or months, during which time the market continues to move. The result
is the final shares being purchased or sold at a price considerably different
than that of the initial purchases. This, too, can work to the institution's
disadvantage.
But what if displacement were significantly reduced? What if the time needed to
take or eliminate a position were measured in hours, not weeks? The tactic of
using more frequent purchases and sales to capture a series of gains or to avoid
risk then becomes not only feasible, but prudent.
This is where we find ourselves in the Markman Total Return Core Fund. With our
small size, we are able to build and sell positions quickly with far less worry
about potential price displacement. We thus have the freedom to make frequent
forays into the market, increasing and decreasing positions in a way larger
funds sometimes cannot.
The overall bottom line is that our small size, combined with our extremely low
trading costs, enable us to move quickly and frequently, attempting to
opportunistically capture potential gains and avoid possible losses.
Does it work? The proof is in the NAV.
Spotlight On.....
- --------------------------------------------------------------------------------
Chico's CHS
- --------------------------------------------------------------------------------
Chico's is a retailer of exclusively designed private label, mid market/upscale
women's clothing and accessories. A number of strong elements attract me to this
stock. First, they key in on a prime retailing demographic: affluent women age
35 and up. There is an enormous amount of discretionary income here and much
less fashion fickleness than among younger demographics. For all its potential,
this market has been surprisingly underserved, enabling Chico's to establish a
strong position among weak challengers.
Management is among the best in the specialty retailing business, and this shows
up in their fashion, marketing and customer loyalty strategies. Fashion-wise,
Chico's, along with its red hot White House/Black Market division, knows what
their mature customer wants: functionality, good design, and mature-buyer
flattering fashion that fits. Seems like a no-brainer to me, but the fashion
retailing world, like so much else of corporate America, spends so much time
obsessing about youth that they seem to have missed the needs--and deep
pocketbooks--in this demographic.
The overall operation is run remarkably well, and growth has been torrid, yet
controlled. Chico's management has been intelligently working to cement customer
loyalty through their Passport Club program, which rewards frequent customers.
Chico's remarkable success will certainly breed increased competition as time
goes by, but their customer group is constantly expanding and is large enough to
handle more entrants without significantly impacting growth. Chico's falls in
the "High Caloric" band of our pyramid. Like other stocks in this category, it
sports a high premium PE to the market and some of its peers. But as is typical
of stocks at the top of our pyramid, we feel this is a story that has a long way
to run, with its valuation justified by their strong market position, loyal
customer base, fashion savviness and management skill.
- --------------------------------------------------------------------------------
UnitedHealth Group UNH
- --------------------------------------------------------------------------------
Unless you've been living in a cave for the past several years, it is clear that
health care--its delivery and costs--is possibly the single biggest domestic
issue facing America today. No other economic issue affects as many Americans;
no other economic issue impacts a larger share of our national wealth. It is
only restating the obvious to say that those companies that clearly recognize
the nature of the problem and come up with productive solutions will stand to
generate huge profits. We think it is already clear that one of those companies
will be--already is--UnitedHealth Group.
UnitedHealth Group is a diversified healthcare insurance and services company.
About 75% of UnitedHealth Group's revenue comes from risk-based health insurance
products. But they are also moving rapidly and aggressively into fee based
business sectors that provide administrative, consulting and technology services
in the healthcare field.
The company is extremely well run. Its expansion strategy in recent years has
been astoundingly well executed: intelligent acquisitions has diversified its
customer base, while costs have been very effectively managed and controlled.
The result has been an earnings juggernaut, the strength and length of which has
left many on Wall Street breathless. What makes UnitedHealth Group such a
compelling holding is that it has both defensive and aggressive characteristics,
making it an almost ideal long term core holding for the Fund.
- --------------------------------------------------------------------------------
Markman Total Return Core Fund 6
Here's an astonishing piece of information: Chico's, a specialty retailer with a
$7 billion market cap is followed by 16 analysts. UnitedHealth Group, a $64
billion major player in a vital segment of our economy is followed by 14
analysts. For all of its success, UnitedHealth Group is still clearly an
'Emerging Blue Chip' in our pyramid. (with the added kicker of 'Underfollowed
Quality' characteristics).
- --------------------------------------------------------------------------------
Valero Energy VLO
- --------------------------------------------------------------------------------
Valero is the second largest oil refiner in the U.S. and the largest refiner of
'sour' crude. Sour crude is lower quality oil that contains higher amounts of
sulfur, a major pollutant. Most refiners were built to process what is called
'light sweet crude.' (Light sweet is the oil whose price we hear reported on the
news.) Light sweet is easier and less expensive to process. Because of sour's
difficulty to process, it sells at a discount to light sweet. By being able to
refine cheaper sour crude, Valero is positioned to benefit enormously when
demand heats up and discounts for sour crude widen. The discount has grown from
about three dollars a barrel a few years ago to about eight dollars a barrel
today. (In 2004 it was as high as $18 a barrel!)
Valero management has made some very savvy strategic moves. Years ago, they took
what looked to be a big risk, purchasing additional sour crude refining
facilities when prices were much lower. They are now reaping the rewards of that
decision by being able to process larger amounts of sour at much higher prices.
Little new refining capacity has been added in the U.S. for a generation, with
the only gains coming from existing refineries being upgraded. This lack of
capacity simply won't change for a very long time. First of all, refineries
can't be built just anywhere. They must have ready access to crude, which means
they are typically located in coastal regions, relatively close to where oil
takers can unload. Increased environmental sensitivities have made new
construction in these most likely areas least feasible. In any case, refineries
are enormously complex structures, so even if a decision to build was made
today, it could take as long as 7-10 years to actually get a new one on line.
The story is relatively simple, and Valero management has been clear and candid
in telling it. Yet Wall Street can't seem to believe it is true. Valero
continues to grow at a 20% plus rate, and still sells for a PE of about 10. For
some reason that I cannot fathom, many analysts think Valero is not going to
earn what they say they are going to earn. Maybe these analysts do know
something that no one else does; I can only note that they are the same group
that claimed that oil would not stay above $35 per barrel.
With oil prices at current levels, we believe Valero is a veritable money
machine, and is the classic poster child for a stock in our 'Unjustified
Skepticism' category.
- --------------------------------------------------------------------------------
Infosys Technologies INFY
- --------------------------------------------------------------------------------
Information outsourcing. Even though the political heat from last year's
Presidential campaign has died down a bit, information outsourcing still remains
a huge and growing trend in our economy. Infosys, an Indian company, is not only
India's largest outsourcing company, it is a 'pure play.' (That is, it is not
involved with any other business except IT outsourcing.)
Perspective is important when looking at companies like Infosys. Twenty-five
years ago, when the first large scale manufacturing jobs began to be moved
overseas, we saw and heard howls of protest and disbelief. Strange as it may
sound, there were many back then that felt that the trend could be reversed.
Think what kind of a world we would be living in if all those manufacturing jobs
were not being handled more efficiently overseas. It is my belief that
everything would cost much more, and there would be far less prosperity than
there is now.
Given the capabilities of today's technology, it makes little difference 'where'
the back office for many companies are. In fact, wages aside, having operations
halfway around the world actually makes it possible to work around the clock.
With its large, educated, English speaking labor pool, India is and in my
opinion, will no doubt remain, the leader in global IT outsourcing.
Infosys, specifically, has a lot going for it. It is very well run, and ranks
among the most desirable Indian firms to work for. Management has not been
resting on its laurels; the same visionary entrepeneurship that enabled Infosys
to get a head start in software IT outsourcing is driving management to
diversify. Solutions in retail, health care, energy and transportation are high
on the list of management initiatives.
Infosys stock has already seen substantial appreciation. Though the most dynamic
days may be behind it, we feel its future potential earnings growth will
continue at a sufficient rate to make the stock a valuable addition to our
portfolio. Infosys is one of the holdings in the "Over There" band of the
investment pyramid.
- --------------------------------------------------------------------------------
7 June 30, 2005
PORTFOLIO OF INVESTMENTS
Markman Total Return Core Fund--June 30, 2005 (Unaudited)
Shares Market Value
COMMON STOCKS 96.8%
REAL ESTATE INVESTMENT TRUST -- 18.8%
- -------------------------------------------------------------------------------
29,000 Vornado Realty Trust $ 2,331,600
- -------------------------------------------------------------------------------
34,000 Rayonier, Inc. 1,803,020
- -------------------------------------------------------------------------------
21,000 The Mills Corporation 1,276,590
- -------------------------------------------------------------------------------
48,000 Nationwide Health Properties, Inc. 1,133,280
- -------------------------------------------------------------------------------
45,000 Realty Income Corporation 1,126,800
- -------------------------------------------------------------------------------
46,000 BioMed Realty Trust, Inc. 1,097,100
- -------------------------------------------------------------------------------
33,000 LaSalle Hotel Properties 1,082,730
- -------------------------------------------------------------------------------
15,000 Novastar Financial, Inc. 587,250
- -------------------------------------------------------------------------------
$10,438,370
ENERGY/NATURAL RESOURCES -- 12.7%
- -------------------------------------------------------------------------------
32,000 Valero Energy Corporation $ 2,531,520
- -------------------------------------------------------------------------------
23,000 Oil Service HOLDRs Trust 2,345,310
- -------------------------------------------------------------------------------
19,000 PetroChina Company Ltd. - ADR 1,395,550
- -------------------------------------------------------------------------------
7,000 Utilities HOLDRs Trust 777,560
- -------------------------------------------------------------------------------
$ 7,049,940
HEALTH CARE/MEDICAL -- 11.8%
- -------------------------------------------------------------------------------
37,000 Cerner Corporation* $ 2,514,890
- -------------------------------------------------------------------------------
47,000 UnitedHealth Group, Inc. 2,450,580
- -------------------------------------------------------------------------------
52,000 Teva Pharmaceutical Industries Ltd. - ADR 1,619,280
- -------------------------------------------------------------------------------
$ 6,584,750
RETAIL -- 9.2%
- -------------------------------------------------------------------------------
40,000 Starbucks Corporation* $ 2,066,400
- -------------------------------------------------------------------------------
50,000 Chico's FAS, Inc.* 1,714,000
- -------------------------------------------------------------------------------
9,000 Sears Holdings Corporation* 1,348,830
- -------------------------------------------------------------------------------
$ 5,129,230
HOMEBUILDERS/REAL ESTATE DEVELOPMENT -- 7.7%
- -------------------------------------------------------------------------------
24,000 The St. Joe Company $ 1,956,960
- -------------------------------------------------------------------------------
23,000 Toll Brothers, Inc.* 2,335,650
- -------------------------------------------------------------------------------
$ 4,292,610
FINANCIAL -- 7.5%
- -------------------------------------------------------------------------------
100,000 Doral Financial Corporation $ 1,654,000
- -------------------------------------------------------------------------------
27,000 Washington Mutual, Inc. 1,098,630
- -------------------------------------------------------------------------------
25,000 Commerce Bancorporation, Inc. 757,750
- -------------------------------------------------------------------------------
20,000 East West Bancorporation, Inc. 671,800
- -------------------------------------------------------------------------------
$ 4,182,180
SOFTWARE & SERVICES -- 6.2%
105,000 Symantec Corporation* $ 2,282,700
- -------------------------------------------------------------------------------
15,000 Infosys Technologies Ltd. 1,162,050
- -------------------------------------------------------------------------------
$ 3,444,750
INDUSTRIAL EQUIPMENT & COMPONENTS -- 5.5%
- -------------------------------------------------------------------------------
71,000 Ceradyne, Inc.* $ 1,708,970
- -------------------------------------------------------------------------------
31,000 Pentair, Inc. 1,327,110
- -------------------------------------------------------------------------------
$ 3,036,080
CONSUMER SERVICES -- 4.4%
- -------------------------------------------------------------------------------
110,000 Cendant Corporation $ 2,460,700
- -------------------------------------------------------------------------------
CONSUMER ELECTRONICS -- 4.3%
- -------------------------------------------------------------------------------
65,000 Apple Computer, Inc.* $ 2,392,650
- -------------------------------------------------------------------------------
LEISURE -- 3.4%
- -------------------------------------------------------------------------------
39,000 Royal Caribbean Cruises Ltd. $ 1,886,040
- -------------------------------------------------------------------------------
MEDIA -- 3.3%
- -------------------------------------------------------------------------------
55,000 XM Satellite Radio Holdings, Inc.* $ 1,851,300
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 2.0%
- -------------------------------------------------------------------------------
33,000 Mobile Telesystems $ 1,110,450
- -------------------------------------------------------------------------------
TOTAL COMMON STOCKS $53,859,050
BOND FUNDS -- 2.1%
- -------------------------------------------------------------------------------
54,491 PIMCO Emerging Markets Bond Fund - INST Class $ 608,663
- -------------------------------------------------------------------------------
74,393 Northeast Investors Trust 563,901
TOTAL BOND FUNDS $ 1,172,564
MONEY MARKET FUNDS -- 0.4%
- -------------------------------------------------------------------------------
196,636 5/3 Prime Money Market Fund $ 196,636
- -------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES $55,228,250
(Cost $45,944,378) 99.3%
OTHER ASSETS IN EXCESS OF
LIABILITIES 0.7% 366,696
NET ASSETS 100.0% $55,594,946
* Non-income producing security.
ADR - American Depository Receipt
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Markman Total Return Core Fund 8
STATEMENT OF ASSETS AND LIABILITIES June 30, 2005 (Unaudited)
ASSETS
Investment securities:
At acquisition cost $ 45,944,378
============
At value $ 55,228,250
Accrued income 55,439
Receivable for securities sold 3,984,825
Receivable for capital shares sold 3
Other Assets 20,946
------------
TOTAL ASSETS 59,289,463
------------
LIABILITIES
Payable for securities purchased 3,636,300
Payable for capital shares redeemed 5,877
Payable to Adviser 38,406
Payable to affiliates 11,730
Payable to Trustees 1,385
Other accrued expenses and liabilities 819
------------
TOTAL LIABILITIES 3,694,517
------------
NET ASSETS $ 55,594,946
============
Net assets consist of:
Paid-in capital $ 96,426,026
Undistributed net investment income 34,270
Accumulated net realized losses
from security transactions (50,149,222)
------------
Net unrealized appreciation on investments 9,283,872
============
NET ASSETS $ 55,594,946
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 5,272,979
============
Net asset value, offering price and
redemption price per share $ 10.54
============
See accompanying notes to financial statements.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2005 (Unaudited)
INVESTMENT INCOME
Dividends (Net of withholding taxes of $1,274) $ 449,346
------------
EXPENSES
Investment advisory fees 215,110
Professional fees 27,694
Compliance fees and expenses 27,500
Administration fees 24,980
Sub transfer agent fees 24,949
Accounting services fees 17,251
Transfer agent fees 16,604
Custodian fees 15,174
Registration fees 14,546
Shareholder report costs 11,838
Postage and supplies 9,935
Trustees fees and expenses 9,783
Other expenses 7,398
------------
TOTAL EXPENSES 422,762
------------
NET INVESTMENT INCOME 26,584
------------
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gains from security transactions 1,243.348
Net change in unrealized appreciation/depreciation
on investments 59,458
------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS 1,302,806
------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 1,329,390
============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
9 June 30, 2005
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months For the Year Ended
Ended June 30, 2005 December 31, 2004
(Unaudited)
FROM OPERATIONS
Net investment income $ 26,584 $ 414,248
Net realized gains from security transactions 1,243,348 12,216,594
Net change in unrealized appreciation/depreciation on investments 59,458 (4,815,559)
------------ ------------
Net increase in net assets from operations 1,329,390 7,815,283
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income -- (414,247)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 2,231,192 5,988,905
Net asset value of shares issued in reinvestment of
distributions to shareholders -- 405,838
Payments for shares redeemed (8,097,146) (13,277,933)
------------ ------------
Net decrease in net assets from capital share transactions (5,865,954) (6,883,190)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,536,564) 517,846
NET ASSETS
Beginning of period 60,131,510 59,613,664
------------ ------------
End of period $ 55,594,946 $ 60,131,510
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 34,270 $ 7,686
CAPITAL SHARE ACTIVITY ------------ ------------
Sold 226,013 655,480
Reinvested -- 39,633
Redeemed (824,803) (1,434,730)
------------ ------------
Net decrease in shares outstanding (598,790) (739,617)
Shares outstanding, beginning of period 5,871,769 6,611,386
------------ ------------
Shares outstanding, end of period 5,272,979 5,871,769
============ ============
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Selected Per Share Data and Ratios
for a Share Outstanding Throughout Each Period
For the Six Months
Ended June 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2005 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2004 2003 2002 2001 2000
Net asset value at beginning of period $ 10.24 $ 9.02 $ 6.30 $ 8.69 $ 11.67 $ 16.69
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income 0.01 0.07 0.08 0.18 0.24 0.11
Net realized and unrealized gains (losses)
on investments 0.29 1.22 2.72 (2.40) (2.98) (4.35)
------- ------- ------- ------- ------- -------
Total from investment operations 0.30 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 period $ 10.54 $ 10.24 $ 9.02 $ 6.30 $ 8.69 $ 11.67
======= ======= ======= ======= ======= =======
Total return 2.93%(b) 14.31% 44.40% (25.63%) (23.54%) (25.38%)
======= ======= ======= ======= ======= =======
Net assets at end of period (000s) $55,594 $60,132 $59,614 $52,296 $37,546 $64,572
======= ======= ======= ======= ======= =======
Ratio of net expenses to average net assets 1.54%(c) 1.44% 1.50% 0.96% 0.95% 0.95%
Ratio of net investment income to average
net assets 0.10%(c) 0.71% 0.97% 1.89% 2.32% 0.64%
Portfolio turnover rate 326%(c) 472% 228% 145%(a) 162% 142%
(a) This calculation does not include securities acquired in connection with
certain acquisitions in 2002.
(b) Not annualized.
(c) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Markman Total Return Core Fund 10
NOTES TO FINANCIAL STATEMENTS June 30, 2005 (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. The Trust offers one series of shares to investors, the
Markman Total Return Core Fund (the Fund) (formerly the Markman Total Return
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 Fund. The performance and
accounting history of the Markman Moderate Allocation Portfolio is being assumed
by the Fund. The total returns of the Fund are therefore those of the Markman
Moderate Allocation Portfolio for periods prior to December 30, 2002.
The Fund seeks maximum total return with reduced risk by investing in individual
securities, open-end mutual funds, closed-end funds and exchange traded funds.
The Fund seeks to minimize risk through careful allocation among asset classes,
security size, 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 NASDAQ are valued at the NASDAQ Official Closing
Price. Shares of open-end mutual funds and money market funds in which the Fund
invests are valued at their respective net asset values as reported by the
underlying funds. Securities for which market quotations are not readily
available, or are unreliable, 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 Fund 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 Fund records distributions of short-term
capital gains made by mutual funds in which the Fund invests as dividend income
and long-term capital gains made by mutual funds in which the Fund invests as
realized capital 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 Fund'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 Fund
so qualifies and distributes at least 90% of its taxable net income, the Fund
(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 Fund'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.
As of December 31, 2004, the Fund had a net capital loss carryforward 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 carryforwards, brought forward as a
result of the acquisitions in 2002, may apply. Based on such limitations, unless
the tax law changes, approximately $18,039,838 of these losses will expire
unutilized.
As of June 30, 2005, the Fund's federal tax cost of securities was $46,023,099
resulting in net unrealized appreciation of $9,205,151 derived from $9,289,648
of gross unrealized appreciation less $84,497 of gross unrealized depreciation.
The tax character of distributions paid by the Fund 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 six months ended June 30, 2005, the cost of purchases and proceeds
from sales of portfolio securities, other than short-term investments and
government securities, amounted to $176,337,847 and $179,144,258, 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 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.
- --------------------------------------------------------------------------------
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)
============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11 June 30, 2005
INVESTMENT MANAGEMENT AGREEMENT
The Fund's investments are managed by the Adviser pursuant to the terms of an
Investment Management Agreement. Effective May 1, 2005, the Fund pays the
Adviser a fee (Total Fee) composed of: (1) a base fee, calculated daily and paid
monthly, at an annual rate of 0.85% of the Fund's average daily net assets (the
Base Fee), and (2) a Performance Fee Adjustment that will add to or subtract
from the Base Fee depending on the performance of the Fund in relation to the
investment performance of the S&P 500 Index (the "Index"), the Fund's benchmark
index, for the preceding twelve month period (the "performance fee adjustment").
The Base Fee will be decreased in a series of breakpoints as the total assets
under management for the Fund increase. The break points, and the corresponding
Base Fee are as follows:
- --------------------------------------------------------------------------------
$0 - $200 million 0.85%
- --------------------------------------------------------------------------------
Next $150 million 0.80%
(on assets from $200 - $350 million)
- --------------------------------------------------------------------------------
Next $150 million 0.75%
(on assets from $350 - $500 million)
- --------------------------------------------------------------------------------
Next $150 million 0.70%
(on assets from $500 - $650 million)
- --------------------------------------------------------------------------------
Next $150 million 0.65%
(on assets from $650 - $800 million)
- --------------------------------------------------------------------------------
All additional dollars 0.60%
(on assets over $800 million)
- --------------------------------------------------------------------------------
The maximum yearly Performance Fee Adjustment would be 10 basis points, or
one-tenth of a percent, up or down. The Performance Fee Adjustment will not be
applied until the agreement has been in effect for 12 months (the "Initial
Period"). For the Initial Period, the Adviser will receive the Base Fee. The
Performance Fee Adjustment will be made at the end of each calendar month, after
the Initial Period, based on the performance of the Fund relative to the Index
for the preceding twelve months, to determine the Total Fee payable for that
month.
Prior to May 1, 2005, the Fund paid 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 Fund. See Note 5.
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 Fund. IFS coordinates the preparation of tax
returns for the Fund, reports to shareholders of the Fund, 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 Fund'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 Fund. For the performance of these services, the Fund pays IFS a monthly
base fee, an asset-based fee, and a fee based on the number of shareholder
accounts. In addition, the Fund 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. 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 Fund and; provide administrative support services to the Fund's
Compliance Program and Chief Compliance Officer.
4. Commitments and Contingencies
The Fund indemnifies the Trust's officers and Trustees for certain liabilities
that might arise from their performance of their duties to the Fund.
Additionally, in the normal course of business, the Fund enters into contracts
that contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the
Fund that have not yet occurred. However, based on experience, the Fund expects
the risk of loss to be remote.
5. Special Meeting of Shareholders
On April 15, 2005, a Special Meeting of Shareholders of the Fund was held to
approve or disapprove a new Management Agreement for the Fund with Markman
Capital Management, Inc.
The Change was approved as follows:
- --------------------------------------------------------------------------------
Number of Shares
For Against Abstain
2,593,046 433,001 40,098
- --------------------------------------------------------------------------------
ADDITIONAL NOTES (Unaudited)
Proxy Voting Guidelines
The Adviser is responsible for exercising the voting rights associated with the
securities purchased and held by the Fund. 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 June
30, 2005 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 files a complete listing of portfolio holdings as of the end of the
first and third quarters of each fiscal year on Form N-Q. 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 Fund, 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
Fund expenses. This example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund 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 (January 1, 2005 through June 30, 2005).
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 June 30, 2005" to estimate the expenses you paid on your account
during this period.
- --------------------------------------------------------------------------------
Markman Total Return Core Fund 12
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund'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 Fund 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
Annualized 6 Months Ended Account Value Account Value 6 Months Ended
June 30, 2005 June 30, 2005 January 1, 2005 June 30, 2005 June 30, 2005*
Markman Total Return Portfolio
Actual 1.54% 2.93% $1,000.00 $1,029.30 $7.75
- --------------------------------------------------------------------------------------------------------------------------------
Hypothetical 1.54% 2.48% $1,000.00 $1,017.16 $7.70
- --------------------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the Fund's annualized expense ratio, multiplied by
the average account value over the period, multiplied by [number of days
in most recent fiscal half-year/365] (to reflect the one-half year
period).
- --------------------------------------------------------------------------------
Advisory Agreement Approval Disclosure
At a meeting held on February 1, 2005, the Board of Trustees, including a
majority of the Independent Trustees, approved a new Investment Management
Agreement (the "New Agreement"), subject to shareholder approval. The Trustees
reviewed carefully the Adviser's proposal to increase the base management fee
and institute a performance based fee adjustment. The Trustees determined that
the Adviser's actions in keeping Fund expenses low, particularly trading costs
for Fund portfolio securities, and the uncompensated shareholder services
provided by the Adviser, warranted an increase in the base management fee
payable to the Adviser. The Trustees noted the significant expenses incurred by
the Adviser and concluded that the increase in the advisory fee would permit the
Adviser to maintain and improve the quality of services provided to
shareholders, as well as to allow the Adviser to compensate its staff at
competitive levels necessary to attract and retain qualified portfolio
management personnel. In addition, the Board considered that the Performance Fee
Adjustment would further align the interests of management with the interests of
shareholders. For example, the Performance Fee Adjustment for a period in which
the Fund underperformed the Fund's benchmark would be negative, thereby
decreasing the Adviser's management fee.
In considering approval of the New Agreement, the Board of Trustees carefully
evaluated information furnished by the Adviser that the Board deemed necessary
to determine whether the New Agreement would be in the best interests of the
Fund and its shareholders. In making the recommendation to approve the New
Agreement, the Trustees gave careful consideration to all factors deemed to be
relevant to the Fund, including, but not limited to: (1) the nature, extent and
the quality of the services expected to be rendered to the Fund by the Adviser,
including the history, reputation, qualification and background of the Adviser
as well as the qualifications of its key personnel; (2) the performance of the
Fund as compared to similar mutual funds and relevant indices; (3) the level of
fees paid to the Adviser as compared to similar mutual funds; (4) the financial
condition of the Adviser; (5) economies of scale; and (6) that the Fund will not
bear the expenses of preparing and mailing proxy materials to shareholders.
The Board's analysis of these factors is set forth below. The Independent
Trustees were advised by separate independent legal counsel throughout the
process.
Nature, Extent and Quality of Adviser Services. The Board considered the level
and depth of knowledge of the Adviser. The Board concluded that the Adviser's
knowledge of and experience in managing investments qualified the Adviser to
manage the Fund's portfolio. In evaluating the quality of services provided by
the Adviser, the Board took into account its familiarity with the Adviser's
management through Board meetings, conversations and reports during the
preceding year. The Board took into account the Adviser's willingness to
consider and implement organizational and operational changes designed to
improve investment results and lower fees and expenses. The Board also took into
account the Adviser's compliance policies and procedures and its policies and
procedures regarding the prevention of market timing. The Board noted that it
had previously concluded that the Adviser has implemented a compliance program
reasonably designed to prevent material violations of the federal securities
laws. The Board also considered the Adviser's efforts in marketing the Fund and
the Adviser's role in coordinating the activities of the Funds' other service
providers, as well as the services that the Adviser provides to the Fund's
shareholders.
Expenses and Performance. The Board concluded that the Fund consistently
outperformed the S&P 500 during calendar year 2004. The Board compared the
advisory fees and total expense ratios for the Fund with various comparative
data, including the industry median and average advisory fees and expense ratios
in the Fund's Morningstar and Lipper categories for the calendar year ended
December 31, 2004. The Board concluded that the Fund's advisory fee and expense
ratio were below both the average and the median fees of other mutual funds in
the Fund's Morningstar and Lipper categories. The Board considered the Fund's
recent performance results and noted that the Board reviews on a quarterly basis
information about the Fund's performance results, portfolio composition and
investment strategies. The Board noted that it had also recently considered this
expense and performance information in reapproving the Current Agreement in
November 2004.
Adviser's Compensation and Profitability. The Board also took into consideration
the financial condition and profitability of the Adviser and any indirect
benefits derived by the Adviser from the Adviser's relationship with the Fund.
The Board concluded that the Adviser has the financial wherewithal to perform
the services under the New Agreement. The Board concluded further that any
indirect benefits the Adviser derives from its relationship with the Fund are
incidental to the management fee the Adviser earns.
Economies of Scale. The Board considered the effective fees under the New
Agreement as a percentage of assets at different asset levels and possible
economies of scale that could be achieved in the future. The Board concluded
that the schedule of breakpoints in the base management fee under the New
Agreement would benefit Fund shareholders as the Fund realizes economies of
scale.
Conclusion. In considering the approval of the New Agreement, the Board,
including the Independent Trustees, did not identify any single factor as
controlling. The Board reached the following conclusions regarding the New
Agreement, among others: (a) the Adviser has demonstrated that it possesses the
capability and resources to perform the duties required of it under the New
Agreement; (b) the Adviser maintains an appropriate compliance program; (c)
performance of the Fund is reasonable in relation to the performance of funds
with similar investment objectives and to relevant indices; and (d) the proposed
new management fee is reasonable in relation to those of similar funds and to
the services to be provided by the Adviser. Based on their conclusions, the
Board determined that approval of the New Agreement would be in the best
interests of the Fund and its shareholders.
- --------------------------------------------------------------------------------
13 June 30, 2005
- --------------------------------------------------------------------------------
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/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 Core Fund 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 Core Fund through these discount brokers.
For additional forms or answers to any questions just contact the Markman Total
Return Core Fund (between the hours of 8:30 AM and 5:30 PM EST). Toll-free:
800-707-2771.
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.
Markman
TOTAL RETURN
CORE FUND
- -----------------------
For investors too smart
to do it themselves(R)
- -----------------------
Investment Adviser
Markman Capital Management, Inc.
6600 France Avenue South
Minneapolis, Minnesota 55435
Telephone: 952-920-4848
Toll-free: 800-395-4848
Shareholder Services
c/o Integrated Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
Toll-free: 800-707-2771
Authorized for distribution only if preceded or accompanied by a current
prospectus.
- --------------------------------------------------------------------------------
Markman Total Return Core Fund 14
Markman
TOTAL RETURN
CORE FUND
- -----------------------
For investors too smart
to do it themselves(R)
- -----------------------
6600 France Avenue South
Minneapolis, Minnesota 55435
Item 2. Code of Ethics.
Not required in semiannual report filings.
Item 3. Audit Committee Financial Expert.
Not required in semiannual report filings.
Item 4. Principal Accountant Fees and Services.
Not required in semiannual report filings.
Item 5. Audit Committee of Listed Companies.
Not applicable and not required in semiannual report filings.
Item 6. Schedule of Investments.
The schedule is included as part of The Markman Total Return Portfolio
Semiannual Report file under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds.
Not applicable.
Item 8. Portfolio Managers of Closed-End Funds.
Not Applicable.
Item 9. Purchases of Equity Securities by Closed-End Funds.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. 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 12. Exhibits.
(a) (1) Code of Ethics. Not required in semi-annual report filing.
(a) (2) The certification required by Rule 30a-2 of the Investment Company
Act of 1940, as amended (the "1940 Act") is attached hereto.
(b) The certification required by Rule 30a-2(b) of the 1940 Act and Section 906
of the Sarbanes-Oxley Act of 2002 is attached hereto.
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: September 7, 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: September 7, 2005
By (Signature and Title)
/s/ Judith E. Fansler
- -------------------------------------
Judith E. Fansler
Treasurer and Chief Financial Officer
Date: September 7, 2005