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: 12/31/07
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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,
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burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Reports to Stockholders.
Markman
Core Growth Fund
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A Value-Added
Large Growth Strategy
12.31.2007
Annual Report
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Dear Fellow Shareholders,
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I have much to share with you about the wild year just passed. But before we
revisit 2007 (which was another successful year for the Fund) I'd like to step
back for a moment and look at a somewhat longer and perhaps more instructive
perspective. This is fitting since, with the end of 2007, we reached a small
historic milestone: the Fifth Anniversary of the Markman Core Growth Fund.(1)
We all know that investment approaches and management styles should be evaluated
over reasonably lengthy periods of time. In any given year or two, unsustainable
and unexplainable aberrations--good and bad--may occur that have little bearing
on longer term prospects. After three years, I believe one can slowly start to
sort through the confusion of short-term market static and begin to form
preliminary judgements. A five year period normally allows investors to observe
the dynamics and performance of a fund over a market cycle making it, by many
observers' estimation, the first significant time frame by which to fairly judge
an investment approach.
So though one is reminded that past performance is no guarantee of future
results, I am very pleased to report to shareholders that the results achieved
by the Markman Core Growth Fund over these past five years have been excellent.
Here are the facts for the five year period ending 12/31/07:
o Annualized compound rate of return: 19.08%
o Rank in Morningstar Large Cap Growth Category: 4th Percentile out of
1215 funds
o Rank in Lipper Large Cap Growth Category: 1st Percentile out of 503
funds
My reason for beginning this Annual Report with a longer term discussion of the
Fund's results--and the importance of this discussion--relates to how
performance is built over time, how excellence is measured, and how the media
and fund analysts far too often poorly prepare and ill-serve shareholders like
you.
As I write this, in the first week of 2008, the financial press is filled with
the usual stories about funds that shot the lights out in 2007. I'd be the last
to take any credit or kudos away from these 'hot' managers; as an investment
professional I know how hard it is to excel at any time. And it's always a great
experience to own a fund that has a fantastic year. Nevertheless, I have always
wondered whether the value of this annual exercise of reporting the best and
hottest is worth the time and effort; whether the payoff for investors seeking
guidance is really there. I learned long ago that there is an axiom that great
long-term investors never forget:
good returns + consistency > great returns + inconsistency
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(1) You may note that when we report historic returns for the Fund, the numbers
cover a period longer than the previous five years. That is because the Markman
Core Growth Fund was formed by the merger of three other funds at the end of
2002. We were required to carry forward the historical record of one of those
funds, a fund of funds called the Markman Moderate Allocation Portfolio. While
this Moderate Growth Fund had the same manager as the new Core Growth Fund, it's
philosophy, strategy and investment criteria were significantly different and do
not reflect that of the Core Growth Fund.
1
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Performance Comparisons Against Market Indices and Fund Peers
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[BAR CHART]
ONE YEAR
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MTRPX CLASS I 16.29%
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S&P 500 Index 5.49%
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RUSSELL 1000 Growth Index 11.82%
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Morningstar Large Cap Growth 12.34%
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Lipper Large Cap Growth 14.21%
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[BAR CHART]
THREE YEAR
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MTRPX CLASS I 13.20%
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S&P 500 Index 8.63%
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RUSSELL 1000 Growth Index 8.69%
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Morningstar Large Cap Growth 7.08%
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Lipper Large Cap Growth 8.66%
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[BAR CHART]
FIVE YEAR
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MTRPX CLASS I 19.08%
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S&P 500 Index 12.83%
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RUSSELL 1000 Growth Index 12.11%
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Morningstar Large Cap Growth 9.96%
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Lipper Large Cap Growth 11.74%
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[BAR CHART]
TEN YEAR
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MTRPX CLASS I 5.00%
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S&P 500 Index 5.91%
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RUSSELL 1000 Growth Index 3.83%
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Morningstar Large Cap Growth 0.89%
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Lipper Large Cap Growth 5.00%
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MTRPX Gross Fund Expenses for 2007: 1.70%
MTRPX Net Fund Expenses for 2007: 1.70%
The returns shown above are those of MTRPX Class I Shares, the Fund's oldest
share class.
The Russell 1000 Growth Index
Measures the performance of those stocks in the Russell 1000 with higher
price-to-book ratios and higher relative forecasted growth rates. An investment
cannot be made directly in the index.
Morningstar Large Cap Growth
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 valuation based on price
ratios and low dividend yields. Most of these portfolios focus on companies in
rapidly growing industries. (Does not reflect sales load.)
Lipper Large Cap Growth
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.
(Does not reflect sales load.)
An investor should carefully consider the investment objectives, risks, charges,
and expenses found in the prospectus. For a prospectus containing complete
information about the Markman Core Growth Fund, contact your financial
professional, call Markman at 800-707-2771, or visit the funds' website at
www.markman.com. Please read the prospectus carefully before investing or
sending money. Investment products offered are not FDIC insured, may lose value,
and have no bank guarantee.
Past performance is not a guarantee of future results.
2
Portfolio Data
Morningstar Category: Large Cap Growth
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Lipper Category: Large Cap Growth
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Five Year Beta
vs. Russell 1000 Growth Index: 1.29
vs. S&P 500 Index 1.10
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Five Year Alpha
vs. Russell 1000 Growth Index: 4.18
vs. S&P 500 Index 1.92
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Average Market Cap: $41.30 billion
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We can look at the year by year rankings of the Markman Core Growth Fund as of
12/31/07 and see how this plays out in the real world:
Year Morningstar Lipper
Large Cap Growth Large Cap Growth
Percentile Rank Percentile Rank
2003 1 2
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2004 9 5
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2005 35 29
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2006 4 1
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2007 33 36
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MTRPX 'Average'
Three Year Ranking 24 22
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MTRPX Actual
Three Year Ranking 10 8
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MTRPX 'Average'
Five Year Ranking 16 14
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MTRPX Actual
Five Year Ranking 4 1(2)
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What jumps out at you in this history is an interesting statistical quirk: our
actual longer-term ranking is higher than one might expect, given the
year-to-year performance. The reason, as the axiom says, is that consistency of
'good' results over time equates to excellence of long-term results. (On a side
note: This was probably the very first lesson I learned when I got into the
investment field in 1980. The first fund I ever put a client into was the
Templeton Growth Fund. At the time, the fund's sales literature showed an
impressive chart that showed the yearly returns of the fund since inception in
1954. What struck me was not just that the fund had the best overall 25 year
record in the industry--by a wide margin--but that this number one record was
built over a 25 year period during which the fund was never the number one fund
on a yearly return! )
Hot stuff! Come and get It!
A common result in the mutual fund world is for a fund to have a good year or
two, followed by a year of miserable relative performance. That's what makes
short-term performance chasing so hazardous, and what causes investment
professionals to cringe when they read the evergreen stories about funds that
had astonishing returns for the year just ending. Reporters and editors can
point all they want to their obligatory disclaimer about the dangers of
performance-chasing buried in the fifth paragraph of their story, but let's not
kid ourselves. The message these stories convey is "HOT STUFF! COME AND GET IT!"
It's no wonder that the average shareholder in most funds has returns much lower
than the actual return of the fund: money inflows regularly follow a year of hot
returns, only to suffer in the inevitable subsequent underperforming years.
By avoiding the far too common pattern of a couple of a 'great' years being
followed by a couple of 'bad' years, a fund can pull far ahead of even those
jack rabbits who get the occasional end of year kudos.
Process is a means, not an end
So how is this to be done? What sounds simple on the surface--avoid really bad
relative years--seems to be very difficult, particularly if one adheres to
conventional investment management approaches. Almost universally, investment
managers ply their craft by creating and executing what we call 'an investment
process.' By that, we mean the way a manager goes about researching, selecting
and monitoring investments for the portfolio. It is clear, from the wide range
of returns generated by funds in any given time period, that some investment
processes seem to work better than others at times, and that some individuals
seem to be more capable of executing a given process. Those who analyze funds
put great stock in a manager's process: how well reasoned it is and, most
particularly, how disciplined the manager is in executing the process over time.
Kudos are awarded based on a manager's ability to withstand short-term pain and
'stick to' his process through thick and thin.
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(2) The Markman Core Growth Fund is, in fact, not just in the top 1% but
actually the number two fund out of the 503 funds included in the Lipper
category over that period. Past performance is not a guarantee of future
results.
3
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Morningstar Star Ratings (Large Cap Growth Catagory)
o Three Years Four Stars (out of 1449 funds) * * * *
o Five Years Five Stars (out of 1215 funds) * * * * *
o Ten Years Two Stars (out of 554 funds) * *
o Overall Three Stars (out of 1449 funds) * * *
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 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 the scale and rated
separately, which may cause slight variation in the distribution percentages.)
Morningstar proprietary ratings on U.S.-domiciled funds reflect historical
risk-adjusted performance, and 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.
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Is this really wise? I'm not totally convinced. The fact is few 'processes'
continue to work well indefinitely. The nature of markets is constantly
changing, and there are times when new dynamics and relationships will negate
some of the advantages that a prior process offered. (Another Templeton side
note: I was at a meeting when Sir John related that he was forced to review and
change his approach a number of times over the years. He noted that, after a
while, the rest of the world caught up to--or on to--what he was doing and thus
negated whatever comparative advantage he had.) When a blind adherence to a
'process' that may have worked well in the past, but is currently failing, is
married to a fear of change, the end result is often lagging returns that
persist far longer than they ought. Those of us who follow fund management news
are well aware of the previously lionized value managers who, over the past few
years, have suddenly begun to turn in year after year of significantly sub par
performance. One notes that in many of these cases, there is very low turnover
in the portfolio. It's almost as if the manager is sending the message that "I
know this is not working, but I'm going to stick to my guns until the market
realizes I am right, regardless of how much pain we need to endure along the
way." I'm sorry, but that simply doesn't work for me. Investment managers should
never forget that it is ok to be wrong; it is not ok to stay wrong. You might
notice, though, that some fund managers have a hubristic tendency to blame
'mispricing' or irrationality in the market for investment decisions that move
against them. Admittedly, it does take something of an ego to accept
responsibility for the investment dollars of thousands of strangers, but I also
note in passing that the most legendary investors seem to be the most humble.
Sell early, sell often
I make no claim to infallibility. I, too, have my own history of trying to
'force' a particular view on a market that refuses to listen to me! I eventually
learned to heed the words of a wise speculator who ruefully noted that, "The
market can stay wrong longer than you can stay solvent."
Given my professional history and individual personality, I have come to accept
that the best 'process' in my view is to find great companies at good entry
points, then--and here's the important part--sell early and sell often. Sell
early. Sell often. And be willing to accept a number of small misjudgements in
order to possibly avoid big ones. Trust me when I say it's hard to even type
those words of heresy in the privacy of my own office, let alone utter them in
professional circles. It just isn't done. We're taught to hold for as long as
possible; to trade as infrequently as possible; to not second guess over and
over.
To be sure, there are times when that advice is correct; and there are investors
who are well-suited to that approach. I think, however, that it is entirely
possible that more investors have lost money than made money by following that
conventional advice. You see, while we always hear that the market it driven by
fear and greed, I think it is more accurate to say that the market is driven by
fear and hope. Greed is not the opposite of fear. Hope is the opposite of fear.
That's what makes hope the most dangerous of investment emotions.
Hopeful? I hope not
Hope, not greed, is the emotion that makes us hang on to losing positions far
longer than we should. Hope, not greed, is what makes us stick to our guns when
the world is telling us that our decisions are not working. Hope, not greed, is
what makes investors average down on devastatingly losing positions. Hope is
what ultimately makes otherwise smart investors ignore the reality in front of
them. The hopeful investor is capable of losing a fortune; the greedy investor
squeezes every nickel till it squeals and hates to lose a penny. I'd sooner
trust my money to a greedy investor than a hopeful investor every time.
4
The hopeful investor is never likely to sell early, as there is always hope that
things will get better. Though I am nothing if not an optimist, I have painfully
learned over the years that it is much easier to live with the regret of selling
too soon than the pain of selling too late. And you know what? If the sale was
really, really too soon; if, in hindsight I realize I missed something that
should have led me to hold on longer, well, there's no law that says you can't
buy back in again. Still better than staying too long at the party.
Without a doubt, those tactics create high turnover and certain potentially
negative tax consequences, and traditionalists don't like that. It is worth
noting our trading costs are among the lowest in the industry(3). And we have
not had a taxable capital gain distribution in five years due to tax loss
carryforwards. All we've produced are the results I outlined above. Will they
continue? We can only hope(!).
Top Five Weighted Sectors
Financial Services 24.7%
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Energy/Natural Resources 14.2%
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Metals and Mining 7.3%
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Leisure 6.7%
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Internet Commerce 6.4%
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Health Care/Medical 6.4%
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(3) Ian McDonald, Mutual Fund Trading Fees Drop, WALL ST. J., Aug. 12, 2005,
http://onlinewsj.com/article. Trading commissions, per Lipper, averaged .15% .
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Comparative Growth of a $10,000 Investment
Since Inception 1/28/95*
Average Annual Total Returns*
Since
1 Year 5 Year 10 Year Inception
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Class I 16.29% 19.08% 5.00% 7.95%
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Class A n/a n/a n/a 7.98%
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S&P 500 Index 5.49% 12.83% 5.91% 11.16%
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[LINE CHART]
Date S&P 500 Markman Fund
-------- ------- ------------
1/28/95 10000 10000
03/31/95 10769.99 10450
06/30/95 11798.16 11210
09/30/95 12735.84 12150
12/31/95 13502.68 12450.4
03/31/96 14227.29 13111
06/30/96 14865.88 13452
09/30/96 15325.43 13199
12/31/96 16602.85 13834
03/31/97 17047.89 14352
06/30/97 20024.28 15532
09/30/97 21524.05 16712
12/31/97 22142.2 16516
03/31/98 25230.82 17737
06/30/98 26063.44 18167
09/30/98 23470.12 16266
12/31/98 28469.26 19541
03/31/99 29887.77 21239
06/30/99 31994.41 21518
09/30/99 29996.68 21225
12/31/99 34459.88 26477
03/31/00 35250.19 26794
06/30/00 34313.59 23812
09/30/00 33981.09 23971
12/31/00 31322.41 19756
03/31/01 27607.57 14863
06/30/01 29222.62 16320
09/30/01 24932.74 11952
12/31/01 27598.05 15106
03/31/02 27673.91 14272
06/30/02 23965.61 12551
09/30/02 19824.35 11004
12/31/02 21497.19 11235
03/31/03 20820.24 10771
06/30/03 24025.1 13018
09/30/03 24660.95 14123.67
12/31/03 27663.67 16223
03/31/04 28131.96 17014
06/30/04 28616.28 16871
09/30/04 28080.58 16888.7
12/31/04 30672.67 18545.48
03/31/05 30013.21 17657.15
06/30/05 30424.39 19087.38
09/30/05 31520.73 20717.44
12/31/05 32178.54 20017.2
03/31/06 33532.58 21290.29
06/30/06 33049.38 20545.13
09/30/06 34921.95 20982.74
12/31/06 37260.75 23129.27
03/31/07 37499.14 23256.49
06/30/07 39853.53 24912.35
09/30/07 40662.71 25657.23
12/31/07 39307.95 26898
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
Class I Shares
Total 2003-2007 Returns
Annualized
S&P 500 MTRPX*
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12.83% 19.08%
[LINE CHART]
Date S&P 500 Markman Fund
-------- ------- ------------
1/1/03 10,000 10,000
03/31/03 9,685 9,587
06/30/03 11,176 11,587
09/30/03 11,472 12,571
12/31/03 12,869 14,440
03/31/04 13,086 15,144
06/30/04 13,312 15,016
09/30/04 13,062 15,032
12/31/04 14,268 16,507
03/31/05 13,961 15,716
06/30/05 14,153 16,989
09/30/05 14,663 18,440
12/31/05 14,969 17,817
03/31/06 15,599 18,950
06/30/06 15,374 18,287
09/30/06 16,245 18,676
12/31/06 17,333 20,587
03/31/07 17,444 20,700
06/30/07 18,539 22,174
09/30/07 18,916 22,837
12/31/07 18,286 23,938
Past performance is not predictive of future performance.
The charts reflect the performance of Class I shares of the portfolio, the
oldest class. The peformance of Class A shares will differ from that of Class I
shares because of differences in expenses. Inception of Class I shares was
1/28/95. Inception of Class A shares was 5/1/07.
* 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.
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5
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The Year in Review
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Top Ten Holdings
of the Stock Portfolio 12.31.07
Apple 5.67%
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Berkshire Hathaway Class B 4.52%
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Mastercard 4.45%
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Charles Schwab 4.18%
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Valero Energy 4.13%
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Potash Corp of Saskatchewan 4.12%
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Goldman Sachs 4.11%
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CME Group 4.04%
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McDonald's 3.94%
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Google 3.85%
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Oil Service HOLDRS 3.55%
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ConocoPhillips 3.37%
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Total in Top Ten 49.93%
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I am pleased to report that the Markman Core Growth Fund had another successful
year, finishing 2007 with a return of 16.29%. This compares favorably with our
relevant benchmark indices: The S&P 500 Index gained 5.49% and the Russell 1000
Growth Index(R) grew 11.82% That makes 2007 the fifth year in a row that we have
outperformed both the S&P 500 and Russell 1000 Indices on an after-tax basis(4).
Additionally, we again bested the average returns of our respective fund
categories, exceeding the 12.34% return of the Morningstar Large Cap Growth
category as well as the 14.21% return posted in the Lipper Large Cap Growth
category.
So I do not want to let this opportunity pass to thank every shareholder who had
the patience and faith to stick with our approach after the hard years of the
2000-2002 bear market. Nothing pleases me more than to be able to achieve
returns that justify your confidence. Again, thank you very much.
The positive 2007 numbers of our fund and the broad market averages mask,
however, the broad difficulties many investors experienced in 2007. The average
stock, as represented by the Value Line Arithmetic Index in 2007 was up only
around 1%. Ironically, it was investors in the typically more
conservative-oriented equities that suffered the greatest pain. For instance,
many value funds barely broke even, with a number of famous, previously very
successful value managers posting losses of 5-15%. REITs and real estate funds,
which had provided investors with market trouncing returns for a record seven
consecutive years saw losses well into the double digits. And the traditional
'widows and orphans' haven of blue chip bank stocks? Well-can you say sub-prime
losses?
The best returns in 2007 were to be found in areas on the very highest end of
the traditional risk spectrum: momentum oriented tech stocks, emerging markets,
and commodities. The irony of it all lies in the reality that in a year of
crises and panics, the investors who assumed the greatest traditional 'risks'
did the best. Once again proving the old adage that the market will do whatever
it needs to in order to confound, confuse and humiliate the maximum number of
people. I will admit to a lurking sense of uneasiness when I recall that the
last time we saw this dynamic was 1999, when mo-mo tech funds were the rage and
bland value funds were left in the performance dust. And we all know what
followed that year....
Fortunately, I think this bifurcated return dynamic had much more to do with
specific, event-driven realities than dysfunctional bubble-building. From my
perch, valuations in most of the broad indices seem entirely rational compared
to where we were at the previous market peak. As you can see from the chart
below, growth stocks, as measured by the Russell 1000 have adjusted to very
reasonable valuations over the past eight years and--relative to the 'historic'
relationship--could well be considered bargains compared to their value peers.
(source: Russell Investment Group)
(4) Past performance is no guarantee of future results.
6
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December 31, 1999 December 31, 2007
PE Expected PEG PE Expected PEG
Earnings Ratio* Earnings Ratio
Growth Growth
Russell 1000 Growth 55.2 22.4% 2.5 20.2 15.2 1.3
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Russell 1000 Value 19.6 12.3% 1.6 14.0 9.8 1.4
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*The PEG ratio is a stock's PE ratio divided by its earnings growth rate.
Performance Attribution
Much of our positive performance in 2007 is attributable to top ten holdings
like Apple, Google and Mastercard and to the nimble trading we performed in and
out of many minor and major positions along the way. We also saw good gains in
our broad energy holdings. Nevertheless, overall returns were held back by poor
showings in several picks that were former portfolio stalwarts. For instance,
Starbucks and Toyota, while remaining valuable global brands, suffered sharp
declines in stock prices. Of course, given our investment process, which
involves trading in and around prices, while we took some significant hits, we
fortunately did not ride these stocks all the way down to their current levels.
I can't reiterate often enough that there is a huge difference between a great
company and a great stock investment. Great companies' stocks regularly move
from undervalued to overvalued, from loved to hated. No law says we have to stay
along for the ride at all times. It is important for me to communicate to you
that a good portion of the earnings growth rate turnover in the fund is not so
much from changing the names of the stocks we own as it is from changing the
size of position in stocks we own for the long term. (Regarding some of the
aforementioned sales, I hasten to add, like General MacArthur, "I shall
return!")
I must admit I have always been particularly attracted to companies in the
financial sector, and believe I possess a generally good feel for their dynamics
and prospects. This has served us well over much of the last five years, but
caused difficulties in the clearly negative environment that most financials
labored in during 2007. Our forays into banks and homebuilders were early, but
fortunately very brief. Again, risk was ultimately reduced and losses capped by
our active tactical trading process. More on this when we discuss what I see
ahead in 2008.
As I look back on 2007, two portfolio manager 'woulda/shoulda/coulda's' stand
out for me. First, the portfolio was generally underweight in some of the
momentum oriented high tech flyers. We did own decent sized positions in Apple
and Google, but avoided Amazon completely and got into other momentum stocks
like Research in Motion, VMware and Intuitive Surgical only briefly and fairly
late in the game. (As you may have noticed over the years, the Fund generally
has lighter technology weightings than is common in our category.) A number of
other large cap growth funds found excess returns in these areas and I can't
help but wish I had, too. But I have little regret in these cases, as I continue
to believe that some of the 2007 momentum tech stocks could see rough sledding
in 2008 and that tech in general, while not overvalued, does not represent the
compelling growth opportunity many other managers think.
What I do kick myself about is our relatively small exposure to the broad
agriculture sector, including both machinery and soft commodities. By the time
you read this, that prior underweighting will probably have changed
substantially, so let's get right down to what we see and plan for 2008.
7
- --------------------------------------------------------------------------------
The Year Ahead
- --------------------------------------------------------------------------------
The last shall be first and the first shall be...first, too!
There are times when strong performance momentum in a sector carries over to the
new year. In those instances, just holding on for dear life to prior winners can
be a profitable strategy. Other years, we face a distinct shift in dynamic and
the prior year's laggards suddenly become star performers. Sometimes, though
rarely, we see both scenarios unfold at the same time, with both the momentum
trade and the contrarian trade paying off simultaneously. Yet that, I believe,
is what we are potentially facing in 2008, as I expect the momentum trade of
hard and soft commodities to persist alongside a contrarian trade in financials.
Let's look first at the commodities picture. Hard commodities, and by that we
mean oil, metals, etc., have generally been the main focus for many over the
past several years. The story is already well known: never before seen levels of
economic growth in emerging markets, combined with the increasing cost of
discovery and development have driven a broad range of hard commodity prices to
record levels. Skeptics would point out, rightly so, that this is by no means
the first commodities boom we've ever experienced. And so, even as prices rise,
many look fearfully for the exits lest the possible 'bubble' explode in their
face.
What is often missing in the discussion, is how this boom differs from what
we've seen before. In the past, much of the rise of commodity prices could be
attributed solely to supply imbalances. Once a relatively small increase of
supply was achieved, prices adjusted back down. Today, however, the supply side
of the equation has been skewed due to a permanent and significantly large
change in the demand side. Ten years ago, China made no real impact on the
demand side of the equation. Today, the world is confronted with the reality of
feeding the hard commodity needs of an economic engine that is attempting to
move 1.3 billion people into the 21st century. Add to that the needs of other
huge countries like India and you can see that the demand side of the hard
commodity equation involves numbers that simply were not plugged into any model
ten years ago.
As investors, it would be foolhardy for us to ignore the simple fact that one
third of the planet's population--a one third that had previously been 'off the
radar'--is racing as fast as they can toward modern development. Thus, even if
we prudently account for the inevitable corrections, the safest bet is that
upward pressures on prices simply will not disappear by magic. And while more
tin, copper, iron, oil and natural gas could and will be found, it's not as if
the world has not already searched for and developed these resources. Getting
that much more out of an already worked over planet is possible, but you can be
sure the cost of those endeavors will rise. Bottom line: in my view, both supply
and demand forces point to a long boom in hard commodities.
"One Word, Benjamin: Fertilizer"
But, as I noted, this is a well-mined (!) story. The soft commodity side of the
story, however, while certainly no secret, has been much less explored and acted
on by investors. What do we mean by the term 'soft commodities?' These are
agricultural commodities: corn, sugar, wheat, soybeans, etc. As an investor,
I've found it useful to broaden out the investment sector opportunities to what
I call the 'food complex.' The food complex includes, in addition to the
agriculture commodities, machinery, fertilizer, and seed.
So we circle back to emerging markets like China and India. Why should they
suddenly have such an impact on the food complex? It's not like these 2.5
billion people suddenly appeared on the scene, right? The key factor is the
nature of their diet. Use of grains is generally linked to population growth. As
world population growth leveled off in recent decades, so did grain use. Meat,
however, is linked to economic growth. Global growth is now in its fifth
consecutive year of expansion at a 4% plus rate. More significantly, growth
rates are substantially higher in those countries (China, India) where the
addition of meat to the diet is occurring at the fastest rate.
As was reported in December in the Economist magazine, "Higher incomes in India
and China have made hundreds of millions of people rich enough to afford meat
and other foods." In 1985, the average Chinese consumer ate 44 pounds of meat a
year; now he eats more than 110 pounds. In developing countries as a whole,
consumption of cereals has been flat since 1980, but demand for meat has
doubled.
8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The simple fact is that more grain is needed to produce a calorie of beef than a
calorie of cereal food. So even a small shift from a cereal-based diet to one
that includes greater portions of beef gets magnified in the production chain.
And because these are relatively tiny family by family changes, magnified over
tens of millions of families, I believe the trend is less likely to go into
sudden reversal, as compared to the way large building projects can come to a
sudden halt. So I see good relative consistency in this trend.
In addition, as if the demographic/prosperity angle on these commodities were
not enough of a tail wind, we have the whole ethanol craze impacting the
sector's dynamic. As more land is given over to corn production, that pressure
prices in the other grains, as well as making it more expensive to raise animals
for meat.
As we extend our thinking, we can see how there will be more work to be done in
agricultural bioengineering to make seed more productive and disease resistant,
in machinery to help raise and transport the goods to market, and, of course,
fertilizer.
None of this can or will prevent sudden and severe bouts of profit-taking in
these sectors, and we can expect severe corrections along the way. Nevertheless,
I can't remember when an investment theme had such strong fundamentals attached
to it. Hopefully we will profit from it in 2008.
Buy what you can't stand to buy
At some point in 2008, and I have no idea when, we will likely see a long term
low in the broad financial sector. I must be candid in that I have been far too
optimistic regarding how the subprime crisis would unfold and affect the banking
sector. It seems clear, as we begin 2008, that the effect is deeper and will be
more painfully felt than many had estimated.
Nevertheless, this will come to an end. Even the most controversial of
financials--Citigroup--for all its problems, possesses a deep and valuable
global franchise. Once we have finally gotten down to the bottom of the
cleansing action, the global financial system will still have business that it
will need companies like Citigroup to transact. The good news is that the growth
potential, long term, in global financial services has not really diminished;
the long term outlook is very bright. All we are awaiting is some indication
that stock prices have adjusted to the levels we need to once again be able to
confidently look forward and estimate gains, rather than look backward, trying
to estimate losses. That day will come. In anticipation, we will be diligent
about assembling our shopping list.
[PIE CHART]
Small (under 1.5 billion) 1.2%
------------------------------------------------------------
Mid (1.5-8 billion) 15.6%
------------------------------------------------------------
Large (over 8 billion) 83.2%
------------------------------------------------------------
Market Caps 12.31.07
(as a percentage of the stock portion of the portfolio)
9
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS December 31, 2007
- --------------------------------------------------------------------------------
Shares Market Value
COMMON STOCKS -- 99.2%
FINANCIAL -- 24.7%
600 Berkshire Hathaway, Inc.-Class B* $ 2,841,600
13,000 MasterCard, Inc. 2,797,600
102,760 The Charles Schwab Corp. 2,625,518
12,000 The Goldman Sachs Group, Inc. 2,580,600
3,700 CME Group, Inc. 2,538,200
15,080 Morningstar, Inc.* 1,172,470
7,200 Icahn Enterprises L.P. 933,984
$ 15,489,972
ENERGY/NATURAL RESOURCES -- 14.2%
37,095 Valero Energy Corp. $ 2,597,762
11,800 Oil Service HOLDRs Trust 2,230,436
24,000 ConocoPhillips 2,119,200
26,165 Peabody Energy Corp. 1,612,811
3,000 Petroleo Brasileiro S.A. - ADR 345,720
$ 8,905,929
METALS & MINING -- 7.3%
24,000 BHP Billiton Ltd. - ADR $ 1,680,960
20,000 ArcelorMittal - ADR 1,547,000
40,000 Companhia Vale do Rio Doce 1,306,800
$ 4,534,760
LEISURE -- 6.7%
42,080 McDonald's Corp. $ 2,478,933
23,000 Harley-Davidson, Inc. 1,074,330
6,000 Las Vegas Sands Corp.* 618,300
$ 4,171,563
INTERNET COMMERCE -- 6.4%
3,500 Google, Inc. - Class A* $ 2,420,180
4,100 Baidu.com, Inc. - ADR* 1,600,599
$ 4,020,779
HEALTH CARE/MEDICAL -- 6.4%
20,000 Express Scripts, Inc.* $ 1,460,000
17,000 Stryker Corp. 1,270,240
27,000 Teva Pharmaceutical
Industries Ltd. - ADR 1,254,960
$ 3,985,200
CONSUMER ELECTRONICS -- 5.7%
18,000 Apple, Inc.* $ 3,565,440
AGRICULTURE/FOOD PRODUCTS -- 5.0%
18,000 Potash Corp. of Saskatchewan $ 2,591,280
6,000 The Mosaic Co.* 566,040
$ 3,157,320
CONSUMER PRODUCTS -- 4.9%
28,000 Altria Group, Inc. $ 2,116,240
13,065 Procter & Gamble Co. 959,232
$ 3,075,472
ENGINEERING SERVICES -- 4.2%
64,000 ABB Ltd. $ 1,843,200
8,000 Jacobs Engineering Group, Inc.* 764,880
$ 2,608,080
TELECOMMUNICATIONS -- 3.9%
30,000 Vimpel-Communications $ 1,248,000
12,000 Mobile Telesystems 1,221,480
$ 2,469,480
TRANSPORTATION & DELIVERY -- 2.7%
12,000 DryShips, Inc. $ 928,800
24,000 Diana Shipping, Inc. 755,040
$ 1,683,840
REAL ESTATE INVESTMENT TRUST -- 2.5%
85,125 Annaly Mortgage Management, Inc. $ 1,547,573
HOMEBUILDERS/REAL ESTATE DEVELOPMENT -- 2.3%
40,000 The St. Joe Co. $ 1,420,400
INDUSTRIAL EQUIPMENT & COMPONENTS -- 2.3%
28,965 The Manitowoc Co., Inc. $ 1,414,361
TOTAL COMMON STOCKS $ 62,050,169
MONEY MARKET FUNDS -- 0.3%
217,673 5/3 Prime Money Market Fund $ 217,673
TOTAL INVESTMENT SECURITIES -- 99.5% $ 62,267,842
(Cost $52,165,738)
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.05% 276,649
NET ASSETS -- 100.0% $ 62,544,491
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
10
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2007
- --------------------------------------------------------------------------------
ASSETS
Investment securities:
At acquisition cost $ 52,165,738
============
At market value $ 62,267,842
Cash 345,586
Accrued income 49,748
Receivable for securities sold 15,029,789
Receivable for capital shares sold 22,915
Other assets 20,369
------------
TOTAL ASSETS 77,736,249
------------
LIABILITIES
Payable for securities purchased 15,108,756
Payable for capital shares redeemed 4,400
Payable to Adviser 45,307
Payable to other affiliates 14,612
Payable to Trustees 750
Other accrued expenses and liabilities 17,933
------------
TOTAL LIABILITIES 15,191,758
------------
NET ASSETS $ 62,544,491
============
Net assets consist of:
Paid-in capital $ 82,937,329
Accumulated net realized losses
from security transactions (30,494,942)
Net unrealized appreciation on investments 10,102,104
------------
NET ASSETS $ 62,544,491
============
Pricing of Class I Shares
Net assets attributable to Class I shares $ 62,209,732
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) 4,209,668
Net asset value, offering price and
redemption price per share $ 14.78
Pricing of Class A Shares
Net assets attributable to Class A shares $ 334,759
Shares of beneficial interest outstanding
(unlimited number of shares
authorized, no par value) 22,594
Net asset value, offering price and
redemption price per share $ 14.82
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2007(a)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 776,490
-----------
EXPENSES
Investment advisory fees 537,260
Professional fees 102,065
Sub transfer agent fees 71,891
Administration fees 55,000
Compliance fees and expenses 55,000
Custodian fees 48,849
Shareholder report costs 35,795
Accounting services fees 35,000
Registration fees 30,390
Transfer agent fees 30,000
Trustees fees and expenses 19,000
Postage and supplies 15,627
Distribution fees - Class A 240
Other expenses 18,363
-----------
TOTAL EXPENSES 1,054,480
-----------
NET INVESTMENT LOSS (277,990)
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
Net realized gains from security transactions 7,576,463
Net change in unrealized appreciation/
depreciation on investments 2,045,900
-----------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 9,622,363
-----------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 9,344,373
===========
(a) Except for Class A, which represents the period from commencement of
operations (May 1, 2007) through December 31, 2007.
11
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended For the Year Ended
December 31, 2007(a) December 31, 2006
FROM OPERATIONS
Net investment loss $ (277,990) $ (181,283)
Net realized gains from security transactions 7,576,463 5,472,693
Net change in unrealized appreciation/depreciation on investments 2,045,900 2,715,106
-------------- --------------
Net increase in net assets from operations 9,344,373 8,006,516
-------------- --------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS I
Proceeds from shares sold 10,010,824 4,862,373
Payments for shares redeemed (12,250,587)) (12,862,244)
-------------- --------------
Net decrease in net assets from Class I capital share transactions (2,239,763) (7,999,871)
-------------- --------------
CLASS A
Proceeds from shares sold 318,079 --
--------------
TOTAL INCREASE IN NET ASSETS 7,422,689 6,645
NET ASSETS
Beginning of year 55,121,802 55,115,157
-------------- --------------
End of year $ 62,544,491 $ 55,121,802
============== ==============
ACCUMULATED NET INVESTMENT INCOME $ -- $ 13,566
============== ==============
(a) Except for Class A shares, which represents the period from commencement
of operations (May 1, 2007) through December 31, 2007.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2007 2006 2005 2004 2003
---------- ---------- ---------- ---------- ----------
Net asset value at beginning of year $ 12.71 $ 11.00 $ 10.24 $ 9.02 $ 6.30
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) (0.07) (0.04) 0.05 0.07 0.08
Net realized and unrealized gains on
investments 2.14 1.75 0.76 1.22 2.72
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.07 1.71 0.81 1.29 2.80
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income -- -- (0.05) (0.07) (0.08)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year $ 14.78 $ 12.71 $ 11.00 $ 10.24 $ 9.02
========== ========== ========== ========== ==========
Total return 16.29% 15.55% 7.94% 14.31% 44.40%
========== ========== ========== ========== ==========
Net assets at end of year (000s) $ 62,210 $ 55,122 $ 55,115 $ 60,132 $ 59,614
========== ========== ========== ========== ==========
Ratio of net expenses to average net assets 1.70% 1.58% 1.58% 1.44% 1.50%
Ratio of net investment income (loss) to
average net assets (0.45%) (0.33%) 0.46% 0.71% 0.97%
Portfolio turnover rate 1,098% 799% 658% 472% 228%
See accompanying notes to financial statements.
12
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding Throughout The Period
- --------------------------------------------------------------------------------
CLASS A(a)
----------
Period Ended
December 31, 2007
Net asset value at beginning of period $ 13.28
----------
Income from investment operations:
Net investment income 0.00(b)
Net realized and unrealized gains
on investments 1.54
----------
Total from investment operations 1.54
----------
Net asset value at end of period $ 14.82
==========
Total return 11.60%(c)
==========
Net assets at end of period (000s) $ 335
==========
Ratio of net expenses to average net assets 1.70%(d)
Ratio of net investment income to average net assets 0.04%(d)
Portfolio turnover rate 1,098%
(a) Represents the period from commencement of operations (May 1, 2007)
through December 31, 2007.
(b) Amount is less than $0.01.
(c) Not annualized.
(d) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS December 31, 2007
- --------------------------------------------------------------------------------
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 to investors, the Markman Core
Growth Fund (the "Fund").
Effective May 1, 2007, the Fund is authorized to offer two classes of shares:
Class A shares and Class I shares. Each Class A and Class I share of the Fund
represents identical interests in the Fund's assets and has the same rights,
except that (i) Class A shares have adopted a Distribution Plan pursuant to Rule
12b-1 (Note 3) and (ii) certain other class specific expenses are borne solely
by the class to which such expenses are attributable.
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. Under normal market conditions, at least 35% of the Fund's assets
will be invested in the common stock of large U.S. companies selected for their
growth potential. The Fund may also invest in real estate investment trusts,
money market securities and high yield debt securities.
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, 2007, 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.
Short sales - The Fund may sell securities short. In a short sale, the Fund
sells stock it does not own and makes delivery with securities "borrowed" from a
broker. The Fund then becomes obligated to replace the security borrowed by
purchasing it at the market price at the time of replacement. This price may be
more or less than the price at which the security was sold by the Fund. Until
the security is replaced, the Fund is obligated to pay to the lender any
dividends or interest accruing during the period of the loan. In order to borrow
the security, the Fund may be required to pay a premium that would increase the
cost of the security sold. The proceeds of the short sale will be retained by
the broker, to the extent necessary to meet margin requirements, until the short
position is closed out. The amount of any gain will be decreased and the amount
of any loss increased by the amount of any premium, dividends or interest the
Fund may be required to pay in connection with a short sale.
When it engages in short sales, the Fund must also deposit in a segregated
account an amount of cash or U.S. Government securities equal to the difference
between (1) the market value of the securities sold short at the time they were
sold short and (2) the value of the collateral deposited with the broker in
connection with the short sale (not including the proceeds from the short sale).
Share valuation - The net asset value per share of each class of the Fund is
calculated daily by dividing the total value of assets attributable to that
class, minus liabilities attributable to that class, by the number of shares of
that class outstanding, rounded to the nearest cent. The offering and redemption
price per share are equal to the net asset value per share.
13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS December 31, 2007, continued
- --------------------------------------------------------------------------------
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.
Allocations - Investment income earned, realized capital gains and losses, and
unrealized appreciation and depreciation for the Fund is allocated daily to each
class of shares based upon its proportionate share of total net assets of the
Fund. Class specific expenses are charged directly to the class incurring the
expense. Common expenses, which are not attributable to a specific class, are
allocated daily to each class of shares based upon its proportionate share of
total net assets of the Fund.
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, 2007:
Tax cost of portfolio investments $ 55,937,938
------------
Gross unrealized appreciation on investments $ 8,338,978
Gross unrealized depreciation on investments (2,009,074)
------------
Net unrealized appreciation on investments 6,329,904
Capital loss carryforward (26,722,742)
------------
Accumulated deficit $(20,392,838)
================================================================================
During the year ended December 31, 2007, the Fund utilized $10,120,730 of
capital loss carry-forwards. As of December 31, 2007, the Fund had a net capital
loss carryforward of $26,722,742 of which $8,407,034 will expire in 2008,
$12,127,416 will expire in 2009 and $6,188,292 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 Fund paid no distributions to shareholders during the year ended December
31, 2007.
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 net investment losses.
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, 2007, the Fund made the following
reclassification:
Undistributed
Paid-in Net Investment Realized
Capital Income Capital Losses
($293,126) $ 264,424 $ 28,702
================================================================================
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. The Fund has analyzed its tax positions taken on Federal income
tax returns for all open years (December 31, 2004 through 2007) for purposes of
implementing FIN 48 and have concluded that no provision for income tax is
required in the financial statements.
2. Investment Transactions
During the year ended December 31, 2007, the cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments and government
securities amounted to $699,655,065 and $697,439,675, 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 JPMorgan Chase Bank, N.A.
("JPMorgan"), 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").
14
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS December 31, 2007, continued
- --------------------------------------------------------------------------------
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 is made at
the end of each calendar month, 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, 2007, the
Adviser's base fee was increased by $8,741 under the Performance Fee Adjustment.
The Adviser entered into an expense limitation agreement with the Trust with
respect to the Fund's Class A Shares (the "Expense Limitation Agreement").
Pursuant to the Expense Limitation Agreement, the Adviser has agreed to waive or
limit its fees and to assume other expenses so that the total annual operating
expenses of the Class A Shares of the Fund other than interest, taxes, brokerage
commissions, other expenditures which are capitalized in accordance with
generally accepted accounting principles, other extraordinary expenses not
incurred in the ordinary course of the Fund's business, and amounts payable
pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act, is
limited to 1.49% of the average daily net assets of the Class A Shares.
The Fund may, at a later date, reimburse the Adviser the management fees waived
or limited and other expenses assumed and paid by the Adviser pursuant to the
Expense Limitation Agreement provided the Fund has reached a sufficient asset
size to permit such reimbursement to be made without causing the total annual
expense ratio of the Class A Shares of the Fund to exceed the percentage limits
stated above. Consequently, no reimbursement by the Fund will be made unless:
(i) the total annual expense ratio of the Fund's Class A Shares is less than the
percentage stated above; and (ii) the payment of such reimbursement has been
approved by the Trust's Board of Trustees. The Adviser has agreed to maintain
the expense limitation with regard to Class A shares through May 1, 2008.
ADMINISTRATION, ACCOUNTING AND TRANSFER AGENCY AGREEMENT
Under the terms of the Administration, Accounting, and Transfer Agency Agreement
between the Trust and JPMorgan, JPMorgan supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services for the Fund. JPMorgan 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, JPMorgan 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. JPMorgan 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
JPMorgan an asset-based administrative fee and 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.
PLAN OF DISTRIBUTION
Effective May 1, 2007, IFS Fund Distributors, Inc. (the "Distributor") acts as
the Fund's Distributor and is registered as a broker-dealer under the Securities
and Exchange Act of 1934. The Distributor, which is the principal underwriter of
the Fund's shares, renders its services to the Fund pursuant to a distribution
agreement.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act, whereby it reimburses the Distributor or others in an amount not
to exceed 0.25% per annum of the average daily net assets of the Markman Core
Growth Fund Class A Shares for expenses incurred in the promotion and
distribution of Class A Shares of the Fund. These expenses include, but are not
limited to, the printing of prospectuses, statements of additional information,
and reports used for sales purposes, expenses of preparation of sales literature
and related expenses (including Distributor personnel), advertisements and other
distribution-related expenses, including a prorated portion of the Distributor's
overhead expenses attributable to the distribution of shares. Such payments are
made monthly. The 12b-1 fee includes, in addition to promotional activities, the
amount the Fund may pay to the Distributor or others as a service fee to
reimburse such parties for personal services provided to shareholders of the
Fund and/or the maintenance of shareholder accounts. Such Rule 12b-1 fees are
made pursuant to the Plan and distribution agreements entered into between such
service providers and the Distributor or the Fund directly.
UNDERWRITING AGREEMENT
IFS Fund Distributors, Inc. (the "Underwriter") is the Fund's principal
underwriter and, as such, acts as the exclusive agent for distribution of the
Fund's shares. Under the terms of the Underwriting Agreement between the Trust
and Underwriter, the Underwriter earned $11 and $263 from underwriting and
broker commissions on the sale of shares, respectively, for the year ended
December 31, 2007. During the year ended December 31, 2007, the Adviser paid
$11,427 of underwriting fees from its investment advisory fee.
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 JPMorgan to provide certain
compliance services on behalf of the Trust. Subject to the direction of the
Trustees of the Trust, JPMorgan developed and assisted in implementing a
compliance program for JPMorgan on behalf of the Fund and; provides
administrative support services to the Fund's Compliance Program and Chief
Compliance Officer. For these services, JPMorgan receives a quarterly fee from
the Trust.
15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS December 31, 2007, continued
- --------------------------------------------------------------------------------
4. Capital Share Transactions
Proceeds and payments from capital share transactions as shown on the Statements
of Changes in Net Assets are the result of the following capital share
transactions:
Markman Core Growth Fund
----------------------------------------
For the Year Ended For the Year Ended
December 31,2007(a) December 31, 2006
Class I
Shares sold 760,960 418,517
Shares redeemed (889,072) (1,092,606)
---------- ----------
Net decrease in shares outstanding (128,112) (674,089)
Shares outstanding, beginning of year 4,337,780 5,011,869
---------- ----------
Shares outstanding, end of year 4,209,668 4,337,780
========== ==========
Class A
Shares sold 22,594
----------
Shares outstanding, beginning of period --
----------
Shares outstanding, end of period 22,594
==========
(a) Except for Class A Shares, which represents the period from commencement
of operations (May 1, 2007) through December 31, 2007.
5. 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.
- --------------------------------------------------------------------------------
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"), a
series of the Markman MultiFund Trust, as of December 31, 2007, 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 or period 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 audit.
We conducted our audit 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, 2007, by correspondence with the custodian
and broker. 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, 2007, 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 or period in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Cincinnati, Ohio
February 19, 2008
16
- --------------------------------------------------------------------------------
ADDITIONAL NOTES December 31, 2007 (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 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 952-920-4848. Information on
the operation of the Public Reference Room may be obtained by calling
800-SEC-0330.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Fund, you incur ongoing costs, including investment
advisory fees, distribution (12b-1) fees, and other Fund expenses. The 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 (July 1, 2007 through December 31, 2007).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six
Months Ended December 31, 2007" 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, 2007 July 1, 2007 December 31, 2007 December 31, 2007*
Markman Core Growth Fund
Class A Actual 1.71% $ 1,000.00 $ 1,116.00 $ 9.12
-------------------------------------------------------------
Class A Hypothetical 1.71% $ 1,000.00 $ 1,016.59 $ 8.69
==================================================================================================
Class I Actual 1.96% $ 1,000.00 $ 1,162.90 $ 10.69
-------------------------------------------------------------
Class I Hypothetical 1.96% $ 1,000.00 $ 1,015.32 $ 9.96
==================================================================================================
* 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 [or 366] (to reflect the one-half year
period).
17
- --------------------------------------------------------------------------------
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: 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.
(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 Equitable Realty.
Edina, MN 55435
Age: 55
- -----------------------------------------------------------------------------------------------------------------------------------
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: 53 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: 57
(1) Each Trustee is elected to serve in accordance with the Declaration of Trust and By-Laws of the Trust until his or her successor
is duly elected and qualified.
====================================================================================================================================
Position(s)
Held With Term of Office and Principal Occupation(s)
Name/Address/Age Trust Length of Time Served During Last 5 yrs
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OFFICERS:
Judith E. Fansler Secretary Since Inception Chief Operations Officer,
6600 France Ave. South Treasurer Since May 2003 Markman Capital Management, Inc.
Edina, MN 55435 Chief
Compliance
Age: 56 Officer Since October 2004
====================================================================================================================================
The Statement of Additional Information contains additional information about
the Trustees and is available without charge upon request by calling
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 JPMorgan Chase Bank, N.A.
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
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.
18
Markman
Core Growth Fund
- ---------------------
A Value-Added
Large Growth Strategy
6600 France Avenue South
Minneapolis, Minnesota 55435
The Markman Core Growth Fund Annual Report
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 $27,800 for the December 31, 2007 fiscal year
and $24,400 for the December 31, 2006 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,
2007 or December 31, 2006 fiscal years.
(c) Tax Fees. Tax fees totaled $3,200 for the December 31, 2007 fiscal year and
$3,000 for the December 31, 2006 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, 2007 or
December 31, 2006 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 $3,200 for the
fiscal year ended December 31, 2007 and $3,000 for the fiscal year ended
December 31, 2006.
(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 3, 2008
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 3, 2008
By (Signature and Title)
/s/ Judith E. Fansler
- -------------------------
Judith E. Fansler
Treasurer and Chief Financial Officer
Date: March 3, 2008