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
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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
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Date of fiscal year end: 12/31
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Date of reporting period: 06/30/06
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 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 Core Growth Fund logo]
formerly Markman Total Return Core Fund
06.30.2006
Semi-Annual Report
A Sobering First Half
The financial markets, both globally and here in the U.S., careened and skidded
to a disappointing mid year pause. While starting the year strongly, the Markman
Core Growth Fund was not immune to the across the board dislocations that
occurred in the May/June sell-off, and we finished the first half of 2006 with a
return of 2.64%, compared to the 2.71% return of the S&P 500 Index. Most of our
peers, however, did not fare even this well: the Morningstar Large Cap Growth
Fund category averaged -0.92% and the Lipper Multi-Cap Growth category averaged
- -0.11%.
We continue to perform well against other funds of our type. Year-to-date, we
rank in the 9th percentile in our Morningstar category and the 20th percentile
in our Lipper category. For the three year period ending June 30, 2006 we are
ranked in the top 1% of our Morningstar category and the 12th percentile in our
Lipper category. We are pleased that the broad changes in approach
- --specifically moving to a portfolio constructed primarily of common stocks as
opposed to mutual funds--that was implemented January 1, 2003, seems to have
paid off thus far for Fund participants.
Overall performance was enhanced by profitable positions and/or trades in a
number of stocks, including Norfolk Southern, Chicago Mercantile Exchange, India
Fund, Boeing, Starbucks, Vornado Realty and Oil Service HOLDRs. Conversely, our
returns suffered from our holdings in United Health, Apple, Chico's, Quality
Systems, St. Jude and Zimmer Holdings, among others. The single most important
contributor to our outperformance compared to our large cap growth peers was the
relatively low weighting we gave to stocks in the large cap tech sector. Names
like Dell, Intel, and Microsoft--staples of most large cap growth
funds--continue to disappoint, from a stock price standpoint. They are
conspicuous by their absence in our portfolio.
Sharp eyed readers might note that our underperformers included positions in the
health care sector, reinforcing my warning in our 2005 Annual Report that "stock
prices and mega trends don't always move in lock-step." While the larger `ageing
boomer' theme still, in our opinion, has long term validity, we took our
tactical cue from the old proverb: `Do not push the river. It will flow by
itself.'
Accordingly, though we still favor this sector long term, we sold and/or traded
around our positions in an effort to preserve capital and create at least some
short term value. We closed out our Zimmer position at an average price above
$65/share. By June 30 it was below $57/share. We exited St. Jude at an average
price some $12-$13 above the $32.42 it closed at on June 30. That said, the fact
that the market is punishing these stocks does not necessarily reflect the
genuine longer term prospects for these companies. So I fully expect to see them
play a role in our investment strategy and will look to re-enter at favorable
price points.
We treated UnitedHealth slightly differently. This stock suffered from a one-two
punch of general market disdain for health related stocks coupled with an
unfolding options scandal. Because we felt so strongly about the underlying
fundamentals and the intrinsic value of the company, we took the tactical course
of not fully exiting, but merely `trading around' the volatility. We
significantly reduced our position by the spring and by the end of June were
once again building it up at lower prices. Because we believe the short term
risks have been fully discounted in the current price, do not be surprised to
once again see UnitedHealth as one of our larger positions.
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First Half of 2006 Performance Against Market Index and Fund Peers
[BAR CHART]
MTRPX 2.64%
S&P 500 2.70%
Morningstar Large Cap Growth -0.92%
Lipper Multi-Cap Growth -0.11%
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Top Ten Holdings
of the Stock Portfolio
06.30.06
Google 3.8%
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Apple Computer 3.8%
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Chicago Mercantile 3.6%
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Valero Energy 3.5%
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Vornado Realty 3.4%
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Capital One 3.3%
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Oil Service HOLDRs 3.3%
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Catepillar, Inc. 3.3%
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Quest Diagnostics 3.2%
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Sears 3.1%
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Total in Top Ten 34.3%
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(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.
1
First Half Dynamics: Sound and Fury, Signifying...Something?
The extreme volatility (both up and down) that we saw in the first half of the
year was, in and of itself, not much of a surprise. Markets, as J.P. Morgan
noted a century ago, fluctuate. What was surprising was the fact that this
volatility unfolded in the face of virtually no change in the underlying
fundamentals in global and domestic markets. By most major broad
measures--growth, inflation, interest rates, energy and commodity prices, little
happened that would be cause for alarm. In fact, with the exception of the
continued strength in oil prices, most metrics changed in directions that would
normally be considered positive for financial markets.
For example, commodity prices moderated, suggesting that future materials-based
inflation pressure in the system may abate. Employment continued to be strong,
indicating that consumer spending would not likely decline significantly in the
near term. Synchronized global growth also continued. And for all the obsession
with how harshly the Federal Reserve might act, interest rates crept up only
modestly. By June 30, the yield on the ten year Treasury note was all of 5.22%.
Given that the average yield on this maturity during the 1995-1999 boom was
5.44%, it is hard to lend much credence to the `Fed as economy killer' theory.
At least for now.
To be sure, geopolitical uncertainty continues to be a wildcard, much feared by
the financial markets. We see the effect of this uncertainty in the risk premium
added to the price of oil, and to the flight to safer, `higher quality'
investments that occurred in the second quarter. Yet is it not true that global
uncertainty has been with us for some time? Is it really that much different
now? Or are we mistaken to put too much weight on the financial implications of
the picture we see nightly on the TV?
Because by most generally accepted measures, we believe the U.S. stock market
could not, as a whole, be considered overvalued. Forward PE ratios on the S&P
500 Index, currently at about 14 times are, in fact, somewhat below historic
norms. Certainly they are nowhere near the 25 times we saw at the last market
peak. This suggests that we are unlikely to enter a sharp and prolonged bear
market, regardless of potential exogenous events. A sharp decline from these
levels would only serve to bring the market to such an attractive valuation
level that a subsequent counter rally would likely occur.
We can add to this generally benign picture the fact that corporate America
appears to be awash with cash. This cash is funding increased dividends, stock
buybacks and mergers--all of which must be counted as positives. Yet still, the
market struggles.
Making Money In Malaise
Judging by the malaise afflicting many of the former large cap favorites like
Microsoft, Dell, GE, Intel, eBay and Yahoo, the multiple contraction that began
with the market peak in 2000 has yet to fully run its course. Our best guess is
that this is the story the market is straining to telegraph to investors. This
can't help but be an extreme disappointment to those who are looking for
leadership from some of the former `generals' of the market. Historically, much
of the gain achieved in a typical bull market is due to simple multiple
expansion. So if we indeed continue to see multiples stabilize at best--or
continue to contract--the market is unlikely to make much headway, even in the
face of improving underlying fundamentals.
If we are unlikely to have the luxury of riding a `rising tide' in the market,
individual stock selection--and smart short term tactical overlays--will be the
only way to carry the day. Broad market calls, and sector bets have little
chance to create much value. We will be looking to fill the portfolio with
companies that are exceeding expectations by a wide enough margin that they can
hopefully skirt the overall market multiple contraction issue. And we will also
continue to remain willing to use market volatility as an opportunity to `trade
around' positions in an effort to create value even in a trendless environment.
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Some Final Good News For Taxable Shareholders: We are happy to report to you
that our tax profile continues to be favorable. It is a near certainty that the
Fund will have no taxable distributions for 2006.
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We continue to perform well against other funds of our type. Year-to-date, we
rank in the 9th percentile in our Morningstar category and the 20th percentile
in our Lipper category. For the three year period ending June 30, 2006 we are
ranked in the top 1% of our Morningstar category and the 12th percentile in our
Lipper category.
Asset Allocation 06.30.06 [PIE CHART 1]
Stocks 99.1%
Cash 0.9%
Market Caps 06.30.06 [PIE CHART 2]
Small (under 1.5 billion) 5.4%
Mid (1.5-8 billion) 6.3%
Large (over 8 billion) 87.7%
2
Spotlight On:
Johnson & Johnson JNJ
Johnson & Johnson is a diversified health care company, with strong global
leadership position in three important areas: pharmaceuticals, medical devices,
and consumer products. This kind of diversification, while not without its own
sector specific risks, makes J&J less sensitive to the overall economic cycle.
In what might be a late stage of the bull market, with investors seeking less
risky investment options, the benefit of this cannot be overestimated.
The overall stability and balance of the company, and it's already awesome cash
generating potential, was further enhanced earlier this year with the
acquisition of Pfizer's Consumer Products Division. In addition to recognized
global brands such as Tylenol, BAND-AID, Mylanta, Stay-Free, Reach, and their
famous Johnson Baby line of products, J&J now will own the Listerine, Nicorette,
Visine, Sudafed, Benadryl and Zantac brands, among others. Concerns from some
quarters about the amount J&J paid for these assets depressed the stock
temporarily, but we think those are niggling short term worries that miss the
larger and longer term global branding and growth picture.
Recent investor disdain for large caps has pressured J&J shares, even as
business continues to thrive. This has created a very attractive valuation
environment, with the stock now selling for a PE at the low end of its ten year
historic range. With over $17 billion of cash in the `till,' and additional
large infusions from operations, management finds itself in a position to
increase value from any smart combination of stock buybacks, dividend increases,
and acquisitions.
Bottom line for investors: J&J management is among the most respected in the
business, the company is a leader in several of the strongest global growth
markets, the financial health of the company is rock solid, and it pays a
healthy, regularly increasing dividend. When we hear the media talk about a
`flight to quality,' we believe this is just the kind of stock that one
envisions.
Toyota Motor Corp TM
Toyota continues it's seemingly inexorable march toward global domination in the
auto industry. And it's no wonder. With a line up of vehicles that year after
year rank high in design, production quality, and technical innovation, they
seem to effortlessly execute what Detroit seems to find difficult if not
impossible to do.
There are so many things to like about this stock. Financially, Toyota is in
great shape. The company sports an A+ credit rating, interest expense is only
about 1% of operating income, and they are free of the enormous burden of legacy
costs that hobble Ford and GM. Toyota's $20 billion cash hoard (Surprise fact:
that cash alone is greater than the entire value of GM) represents a potent
force for creating shareholder value thorough increased R&D as well as
shareholder buybacks. From a design and productivity standpoint, there is simply
no other automaker that is quicker to the mass market with the latest in cutting
edge technology. Wrap this in stylishly innovative packages produced with
industry-leading quality control manufacturing and it's no wonder that the
phrase `discounted new Toyota model' has become something of an oxymoron.
Even though its shares have soared some 50% over the past year in an otherwise
lackluster market, we find Toyota to still be very attractively valued. Its
current PE is not only some 35% below the median PE for the past ten years, it
is actually about 20% below the average yearly low PE for the past ten years.
This is a company whose market share and mindshare has grown enormously over the
past decade.
3
So the question is not why we own it, but rather, why do so few others own it?
In our view, Wall Street seems to be in something of a time warp/denial/self
destructive rut when it comes to the automakers. While Ford and GM's woes are
almost daily news, Toyota continues to garner highly positive attention on many
fronts. Yet while 18 U.S. analysts follow GM, and 19 follow Ford, only two
follow Toyota. Institutions--who you would think would know better--own some 88%
of GM, 52% of Ford, yet only about 3% of Toyota. Daily trading volume in GM is
seven times greater than Toyota. In our opinion, Wall Street's take on the auto
industry is so 1964!
This is more than just a weird point of curiosity. This virtual ignorance of one
of the world's major manufacturers is a dynamic that won't last forever. The
performance imperative will, at some point, demand that even the most parochial
managers drop their obsession with a Detroit that overpromises and
underdelivers. When that happens, the flow of funds to Toyota stock can only
help to support a price floor that will further enhance this investment's
attractiveness.
Vornado Realty Trust VNO
Many stock pickers like to talk about how important management of a company is.
I think this is sometimes over-hyped in an unconscious effort to put a human
face on investment decisions. The exception is in the real estate sector. Here,
the decisions of management are of a scale and impact far larger than those of a
typical corporate chieftain. Latch on to the right real estate CEO and they can
help make one an awful lot of money. Ecce, Vornado.
Vornado, the nation's fourth largest REIT, owns a diversified portfolio of
properties covering office, retail and specialty investments. The majority of
its revenues, though, come from the over 110 office properties, representing
some 30 million square feet, owned in the New York City and Washington
DC/northern Virginia markets.
There are any number of reasons for Vornado to be our single favorite REIT. We
like that its core portfolio is in the two strong, supply constrained markets of
New York and Washington DC. Its largest tenant, representing some 5% of total
revenues, is the U.S. government, so creditworthiness is not an issue; the fact
that no other tenant represents more than 1% of total revenue largely insulates
Vornado from the risk of any individual tenant defaults.
We also see the focus on the New York City office market as a plus. Manhattan
commercial real estate continues to be extremely strong, with vacancy rates at
levels that give landlords like Vornado extreme pricing leverage. Of course,
this concentration in the New York and DC markets carries risk if the local
economies slows, but we feel that potential scenario is not likely to unfold any
time in the foreseeable future.
But when all is said and done, what separates Vornado from other equally good
large commercial REITS is Chairman and CEO Steve Roth. Forget about Trump; it is
Roth who is the colorful, savvy, hard nosed developer who has succeeded by truly
thinking outside the box.
With his roots in humble discount retailing, Roth has, through sheer force of
will, imagination and astonishingly good purchases parlayed a small strip mall
discount retailer into the largest landlord in Manhattan, with a host of trophy
properties to show for his efforts. He was among the first--if not the first--to
recognize that the real value in some struggling retailers was in the underlying
real estate their store sat on. After assuming control of the fabled but
troubled Alexander's department store he redeveloped the site of its former
flagship store (across the street from Bloomingdales in Manhattan) into luxury
office and condo space. Shares of Alexander's, of which Vornado has about one
third ownership, have tripled in the last three years.
This real estate variation of the `silk purse out of a sow's ear' was followed
similarly by legendary investor Eddie Lampert's transformation of Kmart into
Sears Holding Corp (SHLD). While the rest of Wall Street in 2004 scratched its
head wondering what Lampert was up to, Roth bought a large hunk of Sears's stock
at under $35 per share. Two years later the shares are worth $155. (As you know,
we also own shares of Sears.)
Even though Vornado shares have had an impressive run for some time, there are a
number of deals in the works, among them a mega redevelopment of the Madison
Square Garden site in New York City, that have the potential to further propel
these shares upward.
4
PORTFOLIO OF INVESTMENTS June 30, 2006 (Unaudited)
Shares Market Value
COMMON STOCKS 99.5%
FINANCIAL - 14.7%
4,000 The Chicago Mercantile Exchange $ 1,964,600
21,000 Capital One Financial Corporation 1,794,450
11,000 Goldman Sachs Group 1,654,730
25,000 streetTRACKS Gold Trust* 1,530,750
13,000 Franklin Resources, Inc. 1,128,530
$ 8,073,060
ENERGY/NATURAL RESOURCES 12.8%
29,000 Valero Energy Corporation $ 1,929,080
12,000 Oil Service HOLDRs Trust 1,793,040
30,000 Peabody Energy Corporation 1,672,500
38,000 BHP Billiton Ltd. - ADR 1,636,660
$ 7,031,280
HEALTH CARE/MEDICAL 10.2%
29,000 Quest Diagnostics, Inc. $ 1,737,680
27,000 Johnson & Johnson 1,617,840
25,000 UnitedHealth Group, Inc. 1,119,500
30,000 Cerner Corporation* 1,113,300
$ 5,588,320
RETAIL 8.7%
11,000 Sears Holdings Corporation* $ 1,703,240
45,000 Starbucks Corporation* 1,699,200
60,000 Select Comfort Corporation* 1,378,200
$ 4,780,640
INDUSTRIAL EQUIPMENT & COMPONENTS 6.7%
24,000 Caterpillar, Inc. $ 1,787,520
10,000 Terex Corporation* 987,000
20,000 The Manitowoc Company, Inc. 890,000
$ 3,664,520
LEISURE 5.8%
60,000 Hilton Hotels Corporation $ 1,696,800
45,000 McDonald's 1,512,000
$ 3,208,800
DEFENSE 5.8%
36,000 Raytheon Company $ 1,604,520
32,000 Ceradyne, Inc.* 1,583,680
$ 3,188,200
Shares Market Value
CONSUMER SERVICES 5.7%
23,000 Altria Group, Inc. $ 1,688,890
26,000 Procter & Gamble Co. 1,445,600
$ 3,134,490
TRANSPORTATION & DELIVERY 4.3%
22,000 Norfolk Southern Corporation $ 1,170,840
10,000 FedEx Corporation 1,168,600
$ 2,339,440
INTERNET COMMERCE 3.8%
5,000 Google Inc. - Class A* $ 2,096,650
CONSUMER ELECTRONICS 3.7%
36,000 Apple Computer, Inc.* $ 2,056,320
REAL ESTATE INVESTMENT TRUST 3.4%
19,000 Vornado Realty Trust $ 1,853,450
AUTOMOTIVE 3.0%
16,000 Toyota Motor Corp. $ 1,673,440
MEDIA 2.6%
47,000 The Walt Disney Company $ 1,410,000
SOFTWARE & SERVICES 2.5%
45,000 Adobe Systems, Inc.* $ 1,366,200
AGRICULTURE/FOOD PRODUCTS 2.5%
33,000 Archer-Daniels-Midland Company $ 1,362,240
AIRCRAFT 2.4%
16,000 Boeing Company $ 1,310,560
HOMEBUILDERS - 0.9%
20,000 Toll Brothers, Inc.* $ 511,400
TOTAL COMMON STOCKS $ 54,649,010
MONEY MARKET FUNDS - 0.9%
509,159 5/3 Prime Money Market Fund $ 509,159
TOTAL INVESTMENTS SECURITIES 100.4% $ 55,158,169
(Cost $50,213,139)
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%) (244,512)
NET ASSETS - 100.0% $ 54,913,657
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006 (Unaudited)
ASSETS
Investment securities:
At acquisition cost $ 50,213,139
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At market value $ 55,158,169
Accrued income 28,310
Receivable for securities sold 3,772,062
Other assets 23,493
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TOTAL ASSETS 58,982,034
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LIABILITIES
Payable for securities purchased 3,945,617
Payable for capital shares redeemed 43,333
Payable to Adviser 37,531
Payable to other affiliates 11,203
Payable to Trustees 394
Other accrued expenses and liabilities 30,299
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TOTAL LIABILITIES 4,068,377
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NET ASSETS $ 54,913,657
============
Net assets consist of:
Paid-in capital $ 91,691,706
Accumulated net investment loss (58,304)
Accumulated net realized losses
from security transactions (41,664,775)
Net unrealized appreciation on investments 4,945,030
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NET ASSETS $ 54,913,657
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) 4,863,736
============
Net asset value, offering price and
redemption price per share $ 11.29
============
See accompanying notes to financial statements.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2006 (Unaudited)
INVESTMENT INCOME
Dividends $ 381,810
------------
EXPENSES
Investment advisory fees 240,264
Professional fees 34,269
Compliance fees and expenses 27,500
Administration fees 25,000
Sub transfer agent fees 24,723
Accounting services fees 15,000
Transfer agent fees 15,000
Custodian fees 14,851
Shareholder report costs 14,556
Registration fees 11,658
Postage and supplies 10,314
Trustees fees and expenses 8,819
Other expenses 6,057
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TOTAL EXPENSES 448,011
------------
NET INVESTMENT INCOME (66,201)
------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains from security transactions 1,954,580
Net change in unrealized appreciation/depreciation
on investments (396,068)
------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 1,558,512
------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 1,492,311
============
See accompanying notes to financial statements.
6
STATEMENTS OF CHANGES IN NET ASSETS
For the Six
Months Ended For the Year
June 30, Ended
2006 December 31,
(Unaudited) 2005
------------ ------------
FROM OPERATIONS
Net investment income $ (66,201) $ 259,007
Net realized gains from
security transactions 1,954,580 7,623,834
Net change in unrealized
appreciation/depreciation
on investments (396,068) (3,883,316)
------------ ------------
Net increase in net assets from operations 1,492,311 3,999,525
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income -- (266,678)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 2,727,866 4,058,376
Net asset value of shares issued in
reinvestment of distributions
to shareholders -- 260,837
Payments for shares redeemed (4,421,677) (13,068,413)
------------ ------------
Net decrease in net assets from
capital share transactions (1,693,811) (8,749,200)
------------ ------------
TOTAL DECREASE IN NET ASSETS (201,500) (5,016,353)
NET ASSETS
Beginning of period 55,115,157 60,131,510
------------ ------------
End of period $ 54,913,657 $ 55,115,157
============ ============
ACCUMULATED NET INVESTMENT INCOME (LOSS) $ (58,304) $ 7,897
============ ============
CAPITAL SHARE ACTIVITY
Sold 236,435 391,401
Reinvested -- 23,712
Redeemed (384,568) (1,275,013)
------------ ------------
Net decrease in shares outstanding (148,133) (859,900)
Shares outstanding,
beginning of period 5,011,869 5,871,769
------------ ------------
Shares outstanding,
end of period 4,863,736 5,011,869
============ ============
FINANCIAL HIGHLIGHTS Selected Per Share Data and Ratios for a Share Outstanding
Throughout Each Period
Period
Ended
June 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2006 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 2005 2004 2003 2002 2001
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at
beginning of period $ 11.00 $ 10.24 $ 9.02 $ 6.30 $ 8.69 $ 11.67
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from
investment operations:
Net investment income 0.01 0.05 0.07 0.08 0.18 0.24
Net realized and unrealized
gains (losses) on
investments 0.28 0.76 1.22 2.72 (2.40) (2.98)
------------ ------------ ------------ ------------ ------------ ------------
Total from
investment operations 0.29 0.81 1.29 2.80 (2.22) (2.74)
------------ ------------ ------------ ------------ ------------ ------------
Less distributions:
Dividends from net
investment income -- (0.05) (0.07) (0.08) (0.17) (0.24)
------------ ------------ ------------ ------------ ------------ ------------
Net asset value at
end of period $ 11.29 $ 11.00 $ 10.24 $ 9.02 $ 6.30 $ 8.69
============ ============ ============ ============ ============ ============
Total return 2.64%(b) 7.94% 14.31% 44.40% (25.63%) (23.54%)
============ ============ ============ ============ ============ ============
Net assets at
end of period (000s) $ 54,914 55,115 $ 60,132 $ 59,614 $ 52,296 $ 37,546
============ ============ ============ ============ ============ ============
Ratio of net expenses
to average net assets 1.60%(c) 1.58% 1.44% 1.50% 0.96% 0.95%
Ratio of net investment
income to average net assets (0.24%)(c) 0.46% 0.71% 0.97% 1.89% 2.32%
Portfolio turnover rate 952%(c) 658% 472% 228% 145%(a) 162%
(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.
7
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NOTES TO FINANCIAL STATEMENTS June 30, 2006 (Unaudited)
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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 Core Growth Fund (the Fund) (formerly the Markman Total Return Core
Fund). 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 long term growth of capital by investing in securities including
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 (stocks, bonds, cash), security size (large cap, mid-cap, small
cap), investment style (growth, value), 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 that 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 continue 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.
The following information is computed on a tax basis as of December 31, 2005:
- --------------------------------------------------------------------------------
Tax cost of portfolio
investments $ 50,333,680
------------
Gross unrealized
appreciation on
investments $ 5,800,010
Gross unrealized
depreciation on
investments (1,245,106)
------------
Net unrealized
appreciation on
investments 4,554,904
Capital loss carryforward (42,819,423)
Other temporary
differences (5,841)
------------
Accumulated deficit $(38,270,360)
===============================================================================
During the year ended December 31, 2005, the Fund utilized $7,616,247 of capital
loss carryforwards. As of December 31, 2005, the Fund had a net capital loss
carryforward of $42,819,423 of which $10,901,646 will expire in 2008,
$15,969,227 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, 2006, the Fund's federal tax cost of securities was $50,587,825
resulting in net unrealized appreciation of $4,570,344 derived from $5,028,380
of unrealized gross appreciation less $458,036 gross unrealized depreciation.
The tax character of distributions paid by the Fund for the year ended December
31, 2005 was as follows:
- --------------------------------------------------------------------------------
From ordinary Income $ 266,678
================================================================================
2. Investment Transactions
During the six months ended June 30, 2006, the cost of purchases and proceeds
from sales of portfolio securities, other than short-term investments and
government securities amounted to $257,201,482 and $254,936,009, respectively.
8
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 Investment Services,
Inc. (Integrated) (formerly Integrated Fund Services, Inc.), the administrative
services agent, shareholder servicing and transfer agent, and accounting
services agent for the Trust.
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 was not
applied until the agreement had been in effect for 12 months ended April 30,
2006 (the "Initial Period"). For the Initial Period, the Adviser received only
the Base Fee. The Performance Fee Adjustment is 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. During the six months ended June 30, 2006, the Adviser earned
$1,923 under the Performance Fee Adjustment.
ADMINISTRATION, ACCOUNTING AND TRANSFER AGENCY AGREEMENT
Under the terms of the Administration, Accounting, and Transfer Agency Agreement
between the Trust and Integrated, Integrated supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services for the Fund. Integrated 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 materials for meetings of the Board of Trustees. In
addition, Integrated 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. Integrated
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 Integrated a monthly base administrative fee, an asset- based accounting
fee, and a transfer agent 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, subject to approval by the board of trustees. The Chief
Compliance Officer and his or her designees perform the duties and
responsibilities in accordance with Rule 38a-1 under the Investment Company Act
of 1940, as amended. The Chief Compliance Officer, among other things, oversees
an annual review of the policies and procedures of the Trust and its service
providers and provides a summary report of his or her findings to the Board of
Trustees. The Chief Compliance Officer's compensation is paid by the Adviser and
the Trust reimburses the Adviser for such costs.
In addition, the Trust has contracted with Integrated to provide certain
compliance services on behalf of the Trust. Subject to the direction of the
Trustees of the Trust, Integrated developed and assisted in implementing a
compliance program for Integrated on behalf of the Fund and; provides
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.
9
- --------------------------------------------------------------------------------
ADDITIONAL NOTES June 30, 2006 (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 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 ongoing costs, including investment
advisory 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, 2006 through June 30, 2006).
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, 2006" 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 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 Beginning Ending Expenses Paid
Annualized Account Value Account Value Six Months Ended
June 30, 2006 January 1, 2006 June 30, 2006 June 30, 2006*
----------------- ----------------- ----------------- -----------------
Markman Core Growth Fund
Actual 1.60% $ 1,000.00 $ 1,026.40 $ 8.04
---------------------------------------------------------------------------
Hypothetical 1.60% $ 1,000.00 $ 1,016.86 $ 8.00
---------------------------------------------------------------------------
* 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).
10
- --------------------------------------------------------------------------------
Stay Informed
- --------------------------------------------------------------------------------
Check for net asset values and more.Portfolio/Strategy Updates online
www.markman.com
Call for Bob Markman's weekly market overview and portfolio activity report
800-975-5463
For up-to-the-minute net asset values and account values, all the PriceLine
800-536-8679
For a prospectus, application forms, assistance in completing an application, or
general administrative questions, call our HelpLine
800-707-2771
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 Core Growth 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 Core Growth Fund through these discount brokers.
For additional forms or answers to any questions just contact the Markman Core
Growth Fund, between the hours of 8:30 AM and 5:30 PM EST, toll-free
800-707-2771.
- --------------------------------------------------------------------------------
Management of the Trust (Unaudited)
Listed in below are the Trustees and principal 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
Name/Address/Age Trust Length of Time Served During Last 5 yrs Trustee Fund 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: 54
(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 Fund.
==============================================================================================================================
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
Name/Address/Age Trust Length of Time Served During Last 5 yrs Trustee Fund 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: 53
- ------------------------------------------------------------------------------------------------------------------------------
Melinda S. Machones Trustee Since Inception Director of Technology 1 St. Luke's
6600 France Ave. South and Strategy, Duluth Hospital;
Edina, MN 55435 New Tribune; Self-employed St. Luke's
Age: 51 management and technology Foundation;
consultant; Director of Marshall
Information Technologies, School
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: 55
(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(1) 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
Compliance
Age: 55 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.
Authorized for distribution only if preceded or accompanied by a current
prospectus.
Investment Adviser Shareholder Services
Markman Capital Management, Inc. c/o Integrated Investment Services, Inc.
6600 France Avenue South P.O. Box 5354
Minneapolis, Minnesota 55435 Cincinnati, Ohio 54201-5354
Telephone: 952-920-4848 Toll-free: 800-707-2771
Toll-free: 800-395-4848
11
MARKMAN
CORE GROWTH FUND
- ------------------------
For investors too smart
to do it themselves.
6600 France Avenue South
Minneapolis, MN 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 Core Growth Portfolio Semiannual
Report file under Item 1 of this Form.
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
Companies and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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), the registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and procedures
are effective as of a date within 90 days of the filing date of this report.
(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 second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Not applicable in semiannual filing.
(a)(2) Certifications required by Item 12(a) of Form N-CSR are filed herewith.
(a)(3) Not applicable.
(b) Certifications required by Item 12(b) of Form N-CSR are filed herewith.
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: August 31, 2006
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: August 31, 2006
By (Signature and Title)
- -----------------------
/s/ Judith E. Fansler
Judith E. Fansler
Treasurer and Chief Financial Officer
Date: August 31, 2006