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: 12/31/06
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Item 1. Reports to Stockholders.
The Markman Core Growth Fund Annual Report
[LOGO]
Markman
Core Growth Fund
- ----------------
A Value-Added
Large Growth Strategy
12.31.2006
Annual Report
* * * * *
Dear Fellow Shareholders,
I am pleased to report that the Markman Core Growth Fund had another successful
year, finishing 2006 with a return of 15.55%. It was a difficult year for large
cap growth managers, and many other funds in the large cap growth arena
struggled: the Morningstar Large Cap Growth Fund category averaged only a 5.68%
return; the same category as measured by Lipper Analytical Services returned
only 5.59%. Thus, our level of 2006 out-performance relative to our peers placed
us in the 4th percentile in our Morningstar category and the 2nd percentile in
our Lipper category.
We also performed well compared to broader market indices. Your Fund finished
more than six percentage points ahead of the broad market index most comparable
to the large cap growth fund category--the Russell 1000 Growth Index--which
gained 9.07% in 2006. Our 15.55% return was just slightly below the 15.79% gain
in the S&P 500 Index. On an after tax basis, however, we once again surpassed
the S&P 500 for the fourth consecutive year. Although there is no guarantee of
future results, we have now finished ahead of both the Russell 1000 Growth Index
and the S&P 500 Index--after tax--every year since we made the transition to
the Core Growth Fund portfolio strategy at the end of 2002.
[PHOTO]
Bob Markman, Manager of the Markman Core Growth Fund
1
Peer Group Rankings
At the end of 2002 our portfolio composition changed from exclusively
mutual funds to a portfolio primarily of large cap growth stocks. Since
that change, the Markman Core Growth Fund has achieved consistently
superior results relative to other large cap growth funds.
(1= highest percentile; 100= lowest percentile)
Morningstar Lipper
Large Cap Growth(1) Large Cap Growth(2)
One Year 4th percentile 2nd percentile
Three Years 5th percentile 1st percentile
Five Years 3rd percentile 1st percentile
Morningstar Ratings(3)
Three Years * * * * * out of 1,405 funds
Five Years * * * * * out of 1,109 funds
Overall * * * * out of 1,405 funds
Clearing the High Bar of Consistency
The Markman Core Growth Fund is one of only five large cap growth funds (out of
1,109 funds) to rank in the top 5% of Morningstar's Large Cap Growth Fund
category over each of the past one, three and five year periods ending 12/31/06.
(1) Funds that invest in big U.S. companies (stocks in the top 70% of the
capitalization of the U.S. market) that are projected to grow faster than
other large cap stocks. Growth is defined based on fast or high growth
rates for earnings, sales, book value and cash flow, and high valuations
based on price ratios and low dividend yields. Most of these portfolios
focus on companies in rapidly growing industries.
(2) Funds that by portfolio practice invest at least 75% of their equity
assets in companies with a market capitalization greater than 300% of the
median market cap of the S&P Mid-Cap 400 Index. These funds normally
invest in companies with earnings expected to grow significantly faster
than the earnings of the stocks represented in a major unmanaged stock
index and will have above average valuation ratios compared to the U.S.
diversified large cap funds universe.
(3) For each fund with at least a three-year history, Morningstar calculates a
Morningstar Rating based on a Morningstar Risk-Adjusted Return measure
that accounts for variation in a fund's monthly performance (including the
effects of sales charges, loads, and redemption fees), placing more
emphasis on downward variations and rewarding consistent performance.
The top 10 percent of funds in a category receive five stars, the next
22.5 percent receive four stars, and the next 35 percent receive three
stars, the next 22.5 percent receive two stars and the bottom 10 percent
receive one star. (Each share class is counted as a fraction of one fund
within this scale and rated separately, which may cause slight variations
in the distribution percentages.) Morningstar proprietary ratings on
U.S.-domiciled funds reflect historical risk-adjusted performance, are
subject to change every month. They are derived from a weighted average of
the performance figures associated with its three-, five- and ten-year (if
applicable) Morningstar Rating metrics.
Past performance is not a guarantee of future results.
2
I attribute much of our success in 2006 to the actively managed approach we take
to the portfolio. As I have discussed in depth in previous reports, the Core
Growth Fund has the benefit of tax loss carry-forwards with which we can offset
capital gains, in addition to the low commission rates we have negotiated on
your behalf. This gives us the freedom to implement higher turnover rates than
many other funds, without subjecting shareholders to the normally expected
negative consequences of high taxes and costs. Active use of this flexibility
proved invaluable in 2006. While our turnover rate was, admittedly, particularly
high this year (more later in this report), the benefits were indisputable. At
the end of 2006 we did a revealing bit of analysis: how would the Fund have done
if we had made no trades in 2006, keeping the portfolio as it was on January 1,
2006 intact through the end of the year? Shockingly, but perhaps not so
surprisingly, our returns would have been under 5%, a lot closer to the
underperforming numbers put up by many of our peers.
The Year in the Markets and the Portfolio
As I saw it, the markets in this past year were dominated by three main stories:
energy prices, the slowdown in residential real estate--and this may surprise
you--the 'incredibly shrinking' U.S. stock market. These stories played out in
the context of the ever present low background noise of the market's obsession
with the Federal Reserve's stance on interest rates.
Energy
In last year's Annual Report, under the headline "Mullah This Over: Oil Prices
Are Likely to Go Up Even Higher," I noted my belief that continued global growth
and geopolitical instability would combine to drive oil prices higher.
Ultimately, though, those price increases would moderate growth/increase
supply/enhance conservation efforts--all of which could combine to help drive
prices back down again. "High prices solve high prices," is how I put it. As it
happens, oil prices, which began the year at about $63, spiked up to $77 by mid
July, only to then steadily decline back down to $60 by year end.
[PHOTO]
"As I saw it, the markets in this past year were dominated by three main
stories: energy prices, the slowdown in residential real estate--and this may
surprise you--the 'incredibly shrinking' U.S. stock market."
3
The price rise through mid-year, in hindsight, did not seem to have much of an
effect on growth. Currently, with the price relief given to both consumers and
business due to the recent decline, many observers--myself included--are even
more optimistic about the prospects for continued growth. As we begin the New
Year, the path of least resistance on energy prices continues to be downward.
Where prices ultimately decline to before rebounding again is anyone's guess.
All we know for sure is that markets almost always extend to extremes, on both
upward and downward moves, before changing course.
The most important net takeaway here is that any pressure on the consumer that
may be the result of weakening home prices seems likely to be cushioned by the
extra pocket money from lower gas, heating and cooling prices. We have reduced
our energy exposure to about half of what it was at mid year 2006, and are
currently underweighted relative to the market. If, however, we continue to see
precipitous declines in oil prices, we are likely to once again increase our
allocations in hopes of catching some profits on the next bounce back up.
Residential Real Estate
We finally began the long anticipated, oft-predicted decline in residential real
estate. How could it not be otherwise, after such a long and extended run up
over the past several years? Once again, though, the media really blew the
coverage. Certainly, on both coasts, and in other selected high priced, unique
markets (where many reporters and analysts live, work and vacation) a
McMansion/condo bubble had developed that finally burst. But the reality in the
broader housing market was more along the lines of a mere slowdown in sales than
in actual significant price reductions. In fact, many markets, including
bellwether areas such as Southern California continued to see price increases.
The financial markets, focused as they are on units sold by homebuilders, or
speculation in high priced condos, reacted as if there was a nationwide housing
crash.
To be sure, many markets are very soft. Few homeowners are getting the prices
they'd like, or thought they could get 12 months ago. But that hardly
constitutes a 'crash.' In addition, much to the surprise of many housing
doomsayers, the softness in real estate has not translated into a consumer
shutdown. In fact, if we're looking to make money out of all this--and that is
our mission here, right?--the folks to watch are the CEOs of the homebuilders
themselves. They are most likely, in my estimation, to provide the primary
contrarian indicator. They were at their most optimistic, busy increasing supply
at record rates in the summer of 2005 as prices--in hindsight--were hitting
their peaks. This past summer, after declines of 40-60% in their stock prices,
it was one long pessimistic face after another on builder conference calls as we
heard of supply and inventory cuts. It would not surprise me if that newly found
pessimism did not coincide with a long term market bottom in homebuilder stock
prices. As in our energy notes above, the laws of supply and demand are
inexorable and ultimately, 'price corrects price.'
Performance Comparisons Against Market Indices and Fund Peers
[BAR CHART]
ONE YEAR
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MTRPX 15.55%
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S&P 500 15.79%
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RUSSELL 1000 Growth Index 9.07%
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Morningstar Large Cap Growth 5.68%
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Lipper Large Cap Growth 5.59%
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[BAR CHART]
THREE YEAR
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MTRPX 12.55%
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S&P 500 10.44%
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RUSSELL 1000 Growth Index 6.87%
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Morningstar Large Cap Growth 3.08%
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Lipper Large Cap Growth 6.25%
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[BAR CHART]
FIVE YEAR
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MTRPX 8.89%
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S&P 500 6.19%
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RUSSELL 1000 Growth Index 2.69%
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Morningstar Large Cap Growth -.089%
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Lipper Large Cap Growth 1.91%
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[BAR CHART]
TEN YEAR
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MTRPX 5.27%
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S&P 500 8.42%
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RUSSELL 1000 Growth Index 5.44%
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Morningstar Large Cap Growth n/a
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Lipper Large Cap Growth 5.28%
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THE S&P 500 is a broad market-weighted index of 500 widely held common stocks.
An investment cannot be made directly in the index.
THE RUSSELL 1000 GROWTH INDEX measures the performance of those stocks in the
Russell 100 with higher price-to-book ratios and higher relative forecasted
growth rates. An investment cannot be made directly in the index.
Past performance is not a guarantee of future results.
4
We sold out of all of our homebuilders earlier in 2006 and currently have, for
the first time in years, no position in the sector. From a technical standpoint,
we may well again test the summer of 2006 lows; a successful test will signal,
to me, the time has arrived to 'back up the truck' once more in the home
building sector. Of course, we continue to hold positions in real estate through
our REITS. Vornado Realty, one of our largest holdings, manages a portfolio of
commercial real estate in the NYC and Washington DC markets; and AvalonBay is an
upscale apartment owner/manager.
The Incredible Shrinking Stockmarket
All markets share basic similarities: sellers place goods out in public for
buyers to examine and, hopefully, buy. This is true of your local mom and pop
grocer as well as the trillion dollar global financial exchanges. In general, if
demand stays constant while the quantity of goods is reduced, prices are likely
to go up. It is thus interesting to note that the supply of shares on the U.S.
market fell substantially last year. Mergers, acquisitions and buybacks are
taking shares out of public hands faster than companies are issuing new stock.
The value of U.S. shares dropped by the most since 1984, and the European market
shrunk for the first time ever. While last year was a big year for initial
public offerings, these were overwhelmed by the $400 billion in new cash
takeovers and $600 millon in corporate buybacks. We thus saw the U.S. market
contract by 3.1% net, half again greater than the 2% drop in 2005. Before 2005,
the last time the market contracted was in 1988.(1)
It seems likely that this trend will continue for some time, for three main
reasons. With interest rates still very low, deals are inexpensive to finance;
there is an enormous amount of liquidity sloshing around the global financial
system, looking for a place to be put to work; and the folks with those dollars
believe (correctly or not) that assets are undervalued and money can be made
buying them up at premiums to their current market price.
What makes this round of deal making so interesting to watch is the
astonishingly large amount of money involved, and the consequent size of the
deals contemplated.
Make no mistake--none of this buyout talk assures us of a positive year in the
market. All we can reasonably take away is that it is a net positive ingredient
that could help an aging bull market last a bit longer: like sand thrown under
what otherwise might be spinning tires in 2007.
- ----------
(1) Alistair Barr, US Market Shrinks By 600 Billion, CBS Market Watch, Dec.
29, 2006,
http://www.marketwatch.com/news/story/incredible-shrinking-stock-market-means/story.
Comparative Growth of a $10,000 Investment
Since Inception 1/28/95*
Average Annual Total Returns*
1 Year 5 Year 10 Year
-------------------------------------------
15.55% 8.89% 5.27%
[LINE CHART]
Markman
Date Fund S&P 500
- -------- ------- -------
01/26/95 10,000 10,000
03/31/95 10,450 10,770
06/30/95 11,210 11,798
09/30/95 12,150 12,736
12/31/95 12,450 13,503
03/31/96 13,111 14,227
06/30/96 13,452 14,866
09/30/96 13,199 15,325
12/31/96 13,834 16,603
03/31/97 14,352 17,048
06/30/97 15,532 20,024
09/30/97 16,712 21,524
12/31/97 16,516 22,142
03/31/98 17,737 25,231
06/30/98 18,167 26,063
09/30/98 16,266 23,470
12/31/98 19,541 28,469
03/31/99 21,239 29,888
06/30/99 21,518 31,994
09/30/99 21,225 29,997
12/31/99 26,477 34,460
03/31/00 26,794 35,250
06/30/00 23,812 34,314
09/30/00 23,971 33,981
12/31/00 19,756 31,322
03/31/01 14,863 27,608
06/30/01 16,320 29,223
09/30/01 11,952 24,933
12/31/01 15,106 27,598
03/31/02 14,272 27,674
06/30/02 12,551 23,966
09/30/02 11,004 19,824
12/31/02 11,235 21,497
03/31/03 10,771 20,820
06/30/03 13,018 24,025
09/30/03 14,124 24,661
12/31/03 16,223 27,664
03/31/04 17,014 28,132
06/30/04 16,871 28,616
09/30/04 16,889 28,081
12/31/04 18,545 30,673
03/31/05 17,657 30,013
06/30/05 19,087 30,424
09/30/05 20,717 31,521
12/31/05 20,017 32,179
03/31/06 21,290 33,533
06/30/06 20,545 33,049
09/30/06 20,983 34,922
12/31/06 23,129 37,261
Past performance is not predictive of future performance.
Comparative Growth of a $10,000 Investment
Since Operation of Fund as Core Growth Fund 1/1/03
Total 2003-2006 Returns Annualized
S&P 500 MTRPX*
------------------------
14.74% 19.79%
[LINE CHART]
Markman
Date Fund S&P 500
- -------- ------- -------
12/31/02 10,000 10,000
03/31/03 9,587 9,685
06/30/03 11,587 11,176
09/30/03 12,571 11,472
12/31/03 14,440 12,869
03/31/04 15,144 13,086
06/30/04 15,016 13,312
09/30/04 15,032 13,062
12/31/04 16,507 14,268
03/31/05 15,716 13,961
06/30/05 16,989 14,153
09/30/05 18,440 14,663
12/31/05 17,817 14,969
03/31/06 18,950 15,599
06/30/06 18,287 15,374
09/30/06 18,676 16,245
12/31/06 20,587 17,333
Past performance is not predictive of future performance.
* Performance numbers for all periods prior to December 30, 2002 are those
of the Markman Moderate Allocation Portfolio, the Markman Core Growth
Portfolio's performance predecessor.
The performance of the Fund above does not reflect the deduction of taxes
that a shareholder would pay on Fund distributions or the redemption of
Fund shares.
5
Top Ten Holdings
Toyota Motor 4.87%
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Apple Computer 4.61%
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Goldman Sachs 4.33%
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Sears Holdings 4.26%
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United Health Group 4.18%
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Vornado Realty 4.18%
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Altria 4.04%
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Berkshire Hathaway B 3.98%
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Google 3.75%
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Time Warner 3.75%
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Total in Top Ten 41.95%
Holdings Data
[PIE CHART]
Large Cap 91.9%
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Mid Cap 8.1%
Average Market Cap: $51.84 Billion
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Top Three Weighted Sectors:
Financial 16.8%
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Health Care/Medical 15.4%
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Consumer Electronics 7.8%
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Portfolio Management Notes
Rethinking Big Picture Thinking
It is in the nature of these reports to drift into 'big picture' discussions
about the economy and market sectors. It is, I suppose, a necessary evil. We
swim in a sea of news coverage about the financial world, and it is natural for
a shareholder to want to know how his/her manager is making sense of it all. But
I call the exercise a necessary evil because, while fun, it often leads managers
down unproductive paths.
Speaking for myself alone, as I look back over the years, most of the
regrettable choices I've made have been as a result of getting 'married' to a
well reasoned big-picture thesis that, unfortunately, never really panned out as
expected in the real world. There is a tendency, once the 'story' is written, to
stay too long trying to fit reality to the script, even when events are proving
otherwise.
Conversely, the successes you have grown to expect from this corner have been
largely due to the wise selection and relatively frequent trading of individual
stocks, one by one, with minimal attention given to long term, big picture
theses. This past year, when we last performed a study of the long term results
in the Markman Core Growth Fund we saw that the returns were overwhelmingly
generated by the individual stock selection and proactive trading, rather than
the sector allocation.
In noting this, I am not claiming that generating results primarily through
individual stock selection is in any way superior to getting good results
through smart sector allocation. My point, for information purposes only, is
that bottom up stock selection combined with active trading is what works in
this office. And it also helps to illustrate why we had a successful 2006 while
many other smart growth managers struggled. Here's an example.
In the 2005 Annual Report I wrote about a theme I called "Forever Young? Boomers
Turn 60!" I noted my belief that mushrooming demographically-driven health care
spending would benefit stocks in the broad medical/health sector. It all
sounded very good--on paper. The reality of 2006 was far different.
Health care and medical stocks were huge disappointments and greatly
underperformed the broad market. The Dow Jones Healthcare Index gained only
about 4%. Even worse, had I held onto our health/medical stocks exactly as owned
on the first day of the year, their net result would have been negative 1% for
the group as a whole. Fortunately, active management helped push our actual
results up to about 8% for this portion of our portfolio, but health care was
nevertheless a drag on the Fund during 2006. So much for the short term impact
of 'inevitable' long term trends! It helps to understand why many large cap fund
managers, taking a more 'leisurely' buy and hold approach, underperformed in
2006.
I have written in previous reports about the many forces that could drive up and
sustain higher oil prices. Here, too, I am beginning to get a little
uncomfortable with the all too pat big picture scenario of "Increasing demand/
reducing resources/geopolitical supply risk" used as the support for higher and
higher energy prices. It is all beginning to sound too much like the new
paradigm tech talk of the late 1990's. And we all know how that ended. This is
not to say that I've suddenly morphed into an energy bear. Far from it. I
suppose my current thinking is more along the line of that of an opportunistic
agnostic. I have no dog in this fight and am committed only to simply using the
inevitable volatility to help make us money.
All this is by way of saying that while I will likely continue to write about
trends and big picture scenarios, I am more than ever on guard not to buy into
this story too deeply in actual execution. The old saying, "Man plans, God
laughs" is never truer than in the solemn pronouncements of market gurus.
6
Trading Mechanics
You probably know by now that, thanks to the Fund's tax loss carry forwards, the
Fund currently does not have adverse tax consequences from taking profits on
trades that work out well. Our gains have been tax-free, from a capital gain
standpoint, since 2002 and should continue to be so for at least the next couple
of years. In addition, the Fund's cost of trading, as measured by the commission
rate we pay on trades, continues to be among the lowest in the fund industry.
The commissions we paid in 2006, $64,923 added 12 basis points (.12%) to the
overall cost of the fund. This is some 20% below the average cost for stock
funds.(1) These favorable mechanical dynamics give me the freedom to engage in
the active trading techniques that have helped create the excellent results we
enjoy in the Markman Core Growth Fund.
Over the past year I have looked closely at my trading in the Fund with an eye
to see if I could reduce the frequency of trading without negatively impacting
results. I began to implement some ideas in the fourth quarter of 2006 and am
very pleased to report to you that the results have been better than I could
have ever anticipated.
We reduced the number of trades and the percentage turnover by better than half
in the fourth quarter as compared to the previous nine months of 2006.
Annualized commissions were reduced by greater than 60% from the previous nine
months. Although I cannot guarantee anything, if we continue along those lines,
I expect the net savings to shareholders in 2007 to be about 7 basis points
(.07%).
Most importantly, these changes seemed to have no negative impact on returns. In
fact, one might even make a case that returns actually improved during this
period. The Markman Core Growth Fund returned 10.23% in the fourth quarter of
2006. This was substantially ahead of the 6.69% fourth quarter return of the S&P
500 Index and the 5.92% return of the Russell 1000 Growth Index. Our 10.23% gain
placed us in the 3rd percentile of our Morningstar Large Cap Growth Fund
category for the fourth quarter.
What Worked, What Didn't.
We had some dogs in the portfolio in 2006. Some of the names we started the year
with--Chico's, XMSR, eBay and St. Jude Medical--were nightmares for investors.
We took our lumps on these and they proved to be a significant drag on our
returns. Candidly, I was surprised by how quickly Chico's went from a fashion
retailer that seemed to execute with flawless precision to one that could do
nothing right. They were justly punished by the market. XM Radio continued to
struggle with costs far beyond the date I thought they would finally turn the
corner and they, too, were taken to the market woodshed. As we begin 2007, eBay
remains in the portfolio--barely and on probation!
Winners included Apple, Boeing, infrastructure pays like Manitowoc and Terex,
and foreign allocations such as India Fund and the Japan I Shares. The most
significant gainers--and here we have an admitted 'good news/bad news'
situation--were our REIT allocations. The good news is that we had a solid
presence in REITS throughout the year and they were among our best performers.
The bad news is that I cut back on this sector far too early.
We began the year with 13.4% of the portfolio in REITS. This was a very high
allocation for a large cap growth fund, but one that had paid off handsomely for
us in past years. Like many managers, I began to be concerned that the run in
REITS had extended to levels that put us in danger of giving up a chunk of those
gains. In the course of the first six months of 2006, I took profits in much of
our REIT holdings. In hindsight, this was the wrong move. REITS, as we now know,
went on to have another banner year. Fortunately, we continued to have a good
chunk of the portfolio in this sector (one, Vornado Realty, is actually one of
our top ten holdings) and reaped suitable rewards.
Once again there were a number of individually small moves made in the portfolio
that either enhanced returns, avoided losses, or just simply reduced short term
volatility. I always have to remind myself that there is a fine line between
stubbornness and conviction. As the metaphorical captain of the Fund's ship, I
continue to be guided by one of my favorite sayings: "Don't complain about the
wind. Don't wait for it to change. Just adjust the damn sails."
/s/ Bob Markman
- ---------------
- ----------
(1) Ian McDonald, Mutual Fund Trading Fees Drop, WALL ST. J., Aug. 12, 2005,
http://onlinewsj.com/article. Trading commissions, per Lipper, averaged
.15%
[PHOTO]
"I always have to remind myself that there is a fine line between stubbornness
and conviction. As the metaphorical captain of the Fund's ship, I continue to be
guided by one of my favorite sayings: 'Don't complain about the wind. Don't wait
for it to change. Just adjust the damn sails.'"
7
Killer Competitors
Investors are often urged--and correctly so--to look to 'best of breed' stocks.
These are companies that possess size, management skill, financial health and
product or service offerings that clearly set them apart from their competition.
I sometimes stretch this metaphor further to describe companies that stand out
even among the best of breed as ultimate 'best in show.' These are the true long
term keepers. Among these great companies there still is another special type, a
creature that cuts a well recognized path through the economic jungle; a
carnivore among herbivores, a company that makes executives at even the best of
breed companies break into cold sweats. They are the "Killer Competitors."
What makes a great company a Killer Competitor? It's the corporate ability to
not just think outside the box, but to see around corners. It's the skill to
seemingly bend time itself, to act at a speed believed to be impossible. It's
the management courage to take--and make work--an imaginative leap that others
fear could be career ending. It's the possession of a Crayola box of 32 colors
when the competition is stuck working with just eight.
In my reports over the past year I've highlighted two such companies: Apple and
Toyota. Since then, even one who might never read the financial press could not
help but hear about how these two companies are marching to an astonishing level
of dominance in their respective industries. Toyota continues to execute almost
flawlessly, producing a mix of design, engineering and market savvy that puts
the stumbling best efforts of Ford and GM to shame.
Apple, while igniting passions both pro and con is undeniably the one company
calling the tune in the global music, video and now cell phone industries. Has
one relatively small company ever had such an impact in multiple industries
simultaneously? Watching these companies roll out their game plans and
strategies is a delight--unless you are one of their competitors. That's because
the song that seems to keep playing in the background in the lives of these
companies is Sinatra's "The Best Is Yet to Come."
In this year's Annual Report, I will share with you my thoughts on a third entry
into this rarified category of Killer Competitors: Goldman Sachs (GS).
8
Spotlight on Goldman Sachs
Goldman Sachs, a global investment banking, securities and investment management
firm, is probably 'the most awesomely powerful corporate entity you know little
about.' (If you stopped 100 Americans on the street and asked them what Goldman
Sachs does, I expect most would guess that it is a department store!) But they
are the quintessential 'smartest guys in the room' and are the gold standard in
every area in which they compete.
Goldman's business is divided into three main segments. About 15% of their
profits come from investment banking. This is the term used to cover activities
like mergers, acquisitions, initial public offerings, and leveraged buyouts.
Some 17% of Goldman's profits derive from asset management activities, among
them providing wealth management services to the rich and uber-rich. (According
to Goldman, 43% of the Forbes 400 list of richest Americans are clients.) But
the bulk of their earnings--68%--are derived from trading and investments. Here,
Goldman hopes to profit from both the markets they make in investments that
others trade in as well as the trading they do in their own company accounts.
Goldman aggressively integrates these three main areas so that they feed each
other to create a well-oiled, seamless money-making machine.
There are, of course, other investment firms that are built with much the same
components, among them Lehman Brothers, Bear Stearns, and Merrill Lynch. What
separates Goldman Sachs from these competitors, in my opinion, is the unmatched
quality of their senior management. While it goes without saying that all of
these companies have very savvy people at the helm, it is Goldman management
that U.S. Presidents of both parties tap to run the finances of our country. Two
of the last five U.S. Treasury Secretaries were Goldman CEOs: Robert Rubin under
Bill Clinton, and now Henry Paulson under George Bush. Impressive, if not a
little scary.
Goldman is a powerful earnings machine, and measured by almost any valuation
metric it stands head and shoulders above its competitors. So it's no surprise
that the price of its shares has doubled in the past two years. Yet even after
this run of outperformance, Goldman Sachs' shares are priced at a discount to
its peers. The reason for this is that Wall Street simply doesn't understand
and/or trust Goldman's ability to continue to generate enormous profits in what
has traditionally been a highly cyclical business. In addition, many feel
Goldman's increasing reliance on its trading activities to generate outsized
profits subjects the company to the risks that merit a margin of safety in its
valuation.
I believe these concerns are grossly overstated. Certainly, all financial firms
are exposed to specific sector risks. While on the surface Goldman may seem more
aggressively positioned in the financial markets than its peers, it's breadth of
activities and depth of management more than compensates for this risk. In
financial services, more so than most other industries, management is destiny.
One could make a case that, given the proven superiority of Goldman management,
the shares should sell at a premium to its peers, not a discount.
9
PORTFOLIO OF INVESTMENTS December 31, 2006
Shares Market Value
COMMON STOCKS 96.9%
FINANCIAL 16.8%
16,000 Franklin Resources, Inc. $ 1,762,720
12,000 Goldman Sachs Group 2,392,200
11,000 MasterCard, Inc. 1,083,390
9,000 Capital One Financial Corporation 691,380
2,300 The Chicago Mercantile Exchange 1,172,425
600 Berkshire Hathaway, Inc. - Class B* 2,199,600
$ 9,301,715
HEALTH CARE/MEDICAL 15.4%
43,000 UnitedHealth Group, Inc. $ 2,310,390
28,000 Johnson & Johnson 1,848,560
27,000 Quest Diagnostics, Inc. 1,431,000
24,000 Cerner Corporation* 1,092,000
23,000 Zimmer Holdings, Inc.* 1,802,740
$ 8,484,690
CONSUMER ELECTRONICS 7.8%
42,000 Hewlett-Packard Company $ 1,729,980
30,000 Apple Computer, Inc.* 2,545,200
$ 4,275,180
CONSUMER SERVICES 7.0%
26,000 Altria Group, Inc. $ 2,231,320
25,000 Procter & Gamble Co. 1,606,750
$ 3,838,070
MEDIA 6.9%
95,000 Time Warner, Inc. $ 2,069,100
50,000 The Walt Disney Company 1,713,500
$ 3,782,600
RETAIL 6.8%
40,000 Starbucks Corporation* $ 1,416,800
14,000 Sears Holdings Corporation* 2,351,020
$ 3,767,820
ENERGY/NATURAL RESOURCES 6.4%
30,000 Valero Energy Corporation $ 1,534,800
25,000 Peabody Energy Corporation 1,010,250
7,000 PetroChina Company Ltd. - ADR 985,460
$ 3,530,510
REAL ESTATE INVESTMENT TRUST 5.8%
19,000 Vornado Realty Trust $ 2,308,500
7,000 AvalonBay Communities, Inc. 910,350
$ 3,218,850
INTERNET COMMERCE 5.3%
28,000 eBay, Inc.* $ 841,960
4,500 Google Inc. - Class A* 2,072,160
$ 2,914,120
AUTOMOTIVE 4.9%
20,000 Toyota Motor Corp. $ 2,686,200
LEISURE 4.0%
30,000 McDonald's $ 1,329,900
10,000 Las Vegas Sands Corp.* 894,800
$ 2,224,700
SOFTWARE & SERVICES 4.0%
27,000 Adobe Systems, Inc.* $ 1,110,240
20,000 Infosys Technologies Ltd. 1,091,200
$ 2,201,440
DEFENSE 3.4%
25,000 General Dynamics $ 1,858,750
AIRCRAFT 2.4%
15,000 Boeing Company $ 1,332,600
TOTAL COMMON STOCKS $53,417,245
INTERNATIONAL STOCK FUNDS 2.2%
11,000 iShares FTSE/Xinhua China 25
Index Fund $ 1,225,950
MONEY MARKET FUNDS 1.0%
525,612 5/3 Prime Money Market Fund $ 525,612
TOTAL INVESTMENT SECURITIES 100.1% $55,168,807
(Cost $47,112,603)
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%) (47,005)
NET ASSETS 100.0% $55,121,802
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
ASSETS
Investment securities:
At acquisition cost $ 47,112,603
============
At market value $ 55,168,807
Accrued income 50,421
Receivable for capital shares sold 422
Other assets 20,153
------------
TOTAL ASSETS 55,239,803
------------
LIABILITIES
Payable for capital shares redeemed 27,152
Payable to Adviser 40,288
Payable to other affiliates 9,167
Payable to Trustees 37
Other accrued expenses and liabilities 41,357
------------
TOTAL LIABILITIES 118,001
------------
NET ASSETS $ 55,121,802
============
Net assets consist of:
Paid-in capital $ 85,152,139
Undistributed net investment income 13,566
Accumulated net realized losses
from security transactions (38,100,107)
Net unrealized appreciation on investments 8,056,204
------------
NET ASSETS $ 55,121,802
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) 4,337,780
============
Net asset value, offering price and
redemption price per share $ 12.71
============
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006
INVESTMENT INCOME
Dividends $ 698,438
------------
EXPENSES
Investment advisory fees 458,115
Professional fees 75,500
Compliance fees and expenses 55,000
Administration fees 50,000
Sub transfer agent fees 49,000
Custodian fees 38,200
Accounting services fees 30,000
Transfer agent fees 30,000
Shareholder report costs 27,000
Registration fees 24,825
Trustees fees and expenses 19,000
Postage and supplies 11,000
Other expenses 12,081
------------
TOTAL EXPENSES 879,721
------------
NET INVESTMENT LOSS (181,283)
------------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gains from security transactions 5,472,693
Net change in unrealized appreciation/depreciation
on investments 2,715,106
------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 8,187,799
------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 8,006,516
============
See accompanying notes to financial statements.
11
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended For the Year Ended
December 31, 2006 December 31, 2005
FROM OPERATIONS
Net investment income (loss) $ (181,283) $ 259,007
Net realized gains from security transactions 5,472,693 7,623,834
Net change in unrealized appreciation/depreciation on investments 2,715,106 (3,883,316)
------------ ------------
Net increase in net assets from operations 8,006,516 3,999,525
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income -- (266,678)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 4,862,373 4,058,376
Net asset value of shares issued in reinvestment of distributions to
shareholders -- 260,837
Payments for shares redeemed (12,862,244) (13,068,413)
------------ ------------
Net decrease in net assets from capital share transactions (7,999,871) (8,749,200)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 6,645 (5,016,353)
NET ASSETS
Beginning of year 55,115,157 60,131,510
------------ ------------
End of year $ 55,121,802 $ 55,115,157
------------ ------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 13,566 $ 7,897
============ ============
CAPITAL SHARE ACTIVITY
Sold 418,517 391,401
Reinvested -- 23,712
Redeemed (1,092,606) (1,275,013)
------------ ------------
Net decrease in shares outstanding (674,089) (859,900)
Shares outstanding, beginning of year 5,011,869 5,871,769
------------ ------------
Shares outstanding, end of year 4,337,780 5,011,869
============ ============
FINANCIAL HIGHLIGHTS Selected Per Share Data and Ratios for a Share Outstanding
Throughout Each Year
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Net asset value at beginning of year $ 11.00 $ 10.24 $ 9.02 $ 6.30 $ 8.69
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss) (0.04) 0.05 0.07 0.08 0.18
Net realized and unrealized gains
(losses) on investments 1.75 0.76 1.22 2.72 (2.40)
--------- --------- --------- --------- ---------
Total from investment operations 1.71 0.81 1.29 2.80 (2.22)
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income -- (0.05) (0.07) (0.08) (0.17)
--------- --------- --------- --------- ---------
Net asset value at end of year $ 12.71 $ 11.00 $ 10.24 $ 9.02 $ 6.30
========= ========= ========= ========= =========
Total return 15.55% 7.94% 14.31% 44.40% (25.63%)
========= ========= ========= ========= =========
Net assets at end of year (000s) $ 55,122 $ 55,115 $ 60,132 $ 59,614 $ 52,296
========= ========= ========= ========= =========
Ratio of net expenses to average net assets 1.58% 1.58% 1.44% 1.50% 0.96%
Ratio of net investment income (loss)
to average net assets (0.33%) 0.46% 0.71% 0.97% 1.89%
Portfolio turnover rate 799% 658% 472% 228% 145%(a)
(a) This calculation does not include securities acquired in connection with
certain acquisitions in 2002.
See accompanying notes to financial statements.
12
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS December 31, 2006
- --------------------------------------------------------------------------------
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 was 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.
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this Statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. As of December 31, 2006, the Fund does not believe the
adoption of SFAS No. 157 will impact the amounts reported in the financial
statements, however, additional disclosures may be required about the inputs
used to develop the measurements and the effect of certain of the measurements
reported on the statement of changes in net assets for a fiscal period.
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 income 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, 2006:
Tax cost of portfolio investments $ 48,355,672
------------
Gross unrealized appreciation on investments $ 7,650,303
Gross unrealized depreciation on investments (837,168)
------------
Net unrealized appreciation on investments 6,813,135
Capital loss carryforward (36,843,472)
------------
Accumulated deficit $(30,030,337)
================================================================================
During the year ended December 31, 2006, the Fund utilized $5,975,951 of capital
loss carryforwards. As of December 31, 2006, the Fund had a net capital loss
carryforward of $36,843,472 of which $9,654,340 will expire in 2008, $12,127,416
will expire in 2009 and $15,061,716 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.
The tax character of distributions paid by the Fund for the years ended December
31, 2006 and 2005 was as follows:
- --------------------------------------------------------------------------------
2006 2005
From ordinary
Income $ -- $ 266,678
================================================================================
13
Certain reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements have been made to the components
of capital. Reclassifications result primarily from the difference in the tax
treatment of income received from REIT securities and distributions in excess of
net investment income. These reclassifications have no impact on the net assets
or net asset value per share of the Fund and are designed to present the Fund's
capital accounts on a tax basis. For the year ended December 31, 2006, the Fund
made the following reclassification:
- --------------------------------------------------------------------------------
Undistributed
Paid-in Net Investment Realized
Capital Income Capital Gains
($233,507) $ 186,952 $ 46,555
================================================================================
On July 13, 2006, the FASB released FASB Interpretation No. 48 "Accounting for
Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the evaluation of tax positions
taken or expected to be taken in the course of preparing the Funds' tax returns
to determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or expense in
the current year. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of the
effective date. Recent SEC guidance allows implementing FIN 48 in fund NAV
calculations as late as the fund's last NAV calculation in the first required
financial statement reporting period. As a result, the Fund will incorporate FIN
48 in its semi-annual report on June 30, 2007.
2. Investment Transactions
During the year ended December 31, 2006, the cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments and government
securities, amounted to $433,473,378 and $438,425,500, 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 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 (Investment Advisory 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 assets 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 Investment
Advisory Fee payable for that month. During the year ended December 31, 2006,
the Adviser's base fee was reduced by $15,013 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 1940 Act. 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. For these services, Integrated receives a quarterly fee from
the Trust.
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.
14
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of the Markman MultiFund Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Markman Core Growth Fund (the
"Fund"), formerly known as the Markman Total Return Core Fund, a series of the
Markman MultiFund Trust, as of December 31, 2006, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Markman Core Growth Fund as of December 31, 2006, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Cincinnati, Ohio
February 5, 2007
15
- --------------------------------------------------------------------------------
ADDITIONAL NOTES December 31, 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 (July 1, 2006 through December 31, 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 Six Months Ended
December 31, 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
December 31, 2006 July 1, 2006 December 31, 2006 December 31, 2006*
Markman Core Growth Fund
Actual 1.56% $1,000.00 $1,125.80 $ 8.36
--------- --------- --------- ---------
Hypothetical 1.56% $1,000.00 $1,017.24 $ 7.93
--------- --------- --------- ---------
* 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).
16
- --------------------------------------------------------------------------------
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: 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.
(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: 54
- ------------------------------------------------------------------------------------------------------------------------------------
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: 52 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: 56
(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
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, call 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
17
Markman
Core Growth Fund
- ----------------
A Value-Added
Large Growth Strategy
6600 France Avenue South
Minneapolis, Minnesota 55435
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to its principal executive officers and principal
financial officers. During the period covered by this report, no amendments were
made to the provisions of the code of ethics, nor did the registrant grant any
waivers, including any implicit waivers, from the provisions of the code of
ethics.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Trustees has determined that the registrant has at
least one audit committee financial expert serving on its audit committee. Mr.
Michael J. Monahan is the registrant's "audit committee financial expert" and is
"independent" (as each term is defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
a) Audit Fees. Audit fees totaled $24,400 for the December 31, 2006 fiscal year
and $23,000 for the December 31, 2005 fiscal year, including fees associated
with the annual audit and filings of the registrant's Form N-1A and Form N-SAR.
(b) Audit-Related Fees. There were no audit-related fees for the December 31,
2006 or December 31, 2005 fiscal years.
(c) Tax Fees. Tax fees totaled $3,000 for the December 31, 2006 fiscal year and
$2,225 for the December 31, 2005 fiscal year and consisted of fees for tax
compliance services during both years.
(d) All Other Fees. There were no other fees for the December 31, 2006 or
December 31, 2005 fiscal years.
(e) (1) Audit Committee Pre-Approval Policies. The Audit Committee's
pre-approval policies describe the types of audit, audit-related, tax and other
services that may receive the general pre-approval of the Audit Committee. The
pre-approval policies provide that annual audit service fees, tax services not
specifically granted pre-approval, services exceeding pre-approved cost levels
and other services that have not received general pre-approval will be subject
to specific pre-approval by the Audit Committee. The pre-approval policies
further provide that the Committee may grant general pre-approval to other audit
services (statutory audits and services associated with SEC registration
statements, periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings), audit-related
services (accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "audit services," assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities, agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters and assistance with
internal control reporting requirements under Form N-SAR and Form N-CSR), tax
services that have historically been provided by the auditor that the Committee
believes would not impair the independence of the auditor and are consistent
with the SEC's rules on auditor independence and permissible non-audit services
classified as "all other services" that are routine and recurring services.
(e) (2) All services described in paragraphs (b) through (d) of Item 4 were
approved by the Audit Committee.
(f) Not applicable
(g) The aggregate non-audit fees for services to the registrant, its investment
adviser and any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant were $3,000 for the
fiscal year ended December 31, 2006 and $2,225 for the fiscal year ended
December 31, 2005.
(h) Not applicable
Item 5. Audit Committee of Listed Companies.
Not applicable
Item 6. Schedule of Investments.
The Schedule of Investments in securities of unaffiliated issuers is included in
the Annual Report.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End 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.
The registrant does not have procedures by which shareholders may recommend
nominees to its Board of Trustees.
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) The Code of Ethics for Senior Financial Officers was filed on March 3,
2006 with Form N-CSR for period ending December 31, 2005 and is hereby
incorporated by reference.
(a)(2) The certifications required by Item 12(a)(2) 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: March 6, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
/s/ Robert J. Markman
- -------------------------------
Robert J. Markman
President
Date: March 6, 2007
By (Signature and Title)
/s/ Judith E. Fansler
- -------------------------------
Judith E. Fansler
Treasurer and Chief Financial Officer
Date: March 6, 2007