(Front Cover)
Markman MultiFunds
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Prospectus
May 1, 1999
This Prospectus has information about the Portfolios that you should know before
you invest. Please read it carefully and keep with your investment records.
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved them and has not
passed on the accuracy or adequacy of the information in this Prospectus. Anyone
who informs you otherwise is committing a criminal offense.
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Markman INVESTMENT ADVISER SHAREHOLDER SERVICES DISTRIBUTOR
MULTIFUNDS Markman Capital Management, Inc. c/o Countrywide Fund Services, Inc. Markman Securities, Inc.
- ----------------------- 6600 France Avenue South 312 Walnut Street, 21st Floor 6600 France Avenue South
For investors too smart Minneapolis, MN 55435 Cincinnati, OH 45202-3874 Minneapolis, Minnesota 55435
to do it themselves(sm) Toll-free: 1-800-395-4848 Toll-free: 1-800-707-2771 Telephone: 612-920-4848
Telephone: (612) 920-4848 Toll-free: 1-800-395-4848
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HIGHLIGHTS
Markman MultiFund Trust (the "Trust") is an open-end diversified management
investment company. It consists of four separate series portfolios. We refer to
each portfolio in this prospectus as a "Portfolio" and the four together as the
"Portfolios." "We" are Markman Capital Management, Inc. The Portfolios seek to
achieve their investment objectives by investing in shares of other open-end
investment companies. The Portfolios, as well as the other open-end investment
companies in which they invest, are commonly called "mutual funds." This
strategy results in greater expenses than you would incur if you invested
directly in mutual funds.
Each Portfolio may invest in either load or no-load mutual funds. The Portfolios
will not pay a sales load to buy shares of an underlying load fund. Instead the
Portfolios will use available quantity discounts or waivers to avoid paying a
sales load.
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Table of Contents
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Risk/Return Summary ...................................................... 2
Performance Summary ...................................................... 3
Expense Information ...................................................... 4
Investment Objectives and Strategies ..................................... 5
How We Invest ............................................................ 5
Risk Considerations ...................................................... 6
Management of the Trust .................................................. 6
Determination of Net Asset Value ......................................... 7
How to Purchase Shares ................................................... 7
How to Redeem Shares ..................................................... 8
Shareholder Services ..................................................... 9
Dividends, Distributions and Taxes ....................................... 9
Financial Highlights ..................................................... 10
Appendix ................................................................. A-1
1
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RISK/RETURN SUMMARY
WHAT ARE THE PORTFOLIOS' INVESTMENT OBJECTIVES?
The MARKMAN AGGRESSIVE ALLOCATION PORTFOLIO seeks capital appreciation without
regard to current income.
The MARKMAN MODERATE ALLOCATION PORTFOLIO seeks growth of capital and a
reasonable level of current income.
The MARKMAN CONSERVATIVE ALLOCATION PORTFOLIO seeks to provide current income
and low to moderate growth of capital.
The MARKMAN INCOME ALLOCATION PORTFOLIO seeks to provide high current income and
low share price fluctuation.
WHAT ARE THE PORTFOLIOS' PRINCIPAL INVESTMENT STRATEGIES?
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STRATEGIES FOR ALL PORTFOLIOS
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The objective of each of the Portfolios is to match a combination of underlying
mutual funds to the goals and tolerance for risk of each Portfolio. (The mutual
funds in which the Portfolios may invest are referred to in this prospectus as
the "underlying funds.")
Each Portfolio seeks to achieve its investment objective by investing in a
portfolio of other open-end mutual funds. Some mutual funds invest in particular
types of securities (for example, equity or debt), some concentrate in certain
industries, and others may invest in a variety of securities to achieve a
particular type of return or tax result. A Portfolio may invest up to 25% of its
total assets in any one underlying fund. A Portfolio will maintain its assets
invested in a number of underlying funds. Each Portfolio may invest in shares of
the same mutual funds; however, the percentage of each Portfolio's assets so
invested will vary depending upon the Portfolio's investment objective. Based on
our asset allocation analysis, we determine a mix of funds appropriate for each
Portfolio. We manage the risk to which the Portfolios are exposed by varying the
concentration of asset classes in the Portfolios. The Portfolios expect to be
fully invested in underlying mutual funds at all times. To provide liquidity as
well as to assist in achieving the Portfolios' investment objectives, each
Portfolio may invest in money market mutual funds.
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AGGRESSIVE ALLOCATION PORTFOLIO
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At least 65% of the Portfolio will be invested in mutual funds that invest
primarily in common stocks. In most conditions, the Portfolio will be at least
90% invested in funds that invest in common stocks. We do not expect that the
Portfolio will engage in activities that attempt to hedge or reduce short-term
market volatility. This Portfolio will tend to have concentrated positions in
various funds and those funds may have concentrated positions among certain
market sectors or styles of investing. At times, the Portfolio will invest in a
mix of large-cap, small-cap, growth, value and international stock funds, while
at other times, investments in one or more of these types of funds may be
reduced or even eliminated.
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MODERATE ALLOCATION PORTFOLIO
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Normally, 50-75% of the portfolio will be invested in mutual funds that invest
primarily in common stocks. Up to 50% of the portfolio may at times be invested
in bond funds of varying types. The stock funds that we use in the Moderate
Allocation Portfolio will, in many instances, be similar or identical to those
used by the Aggressive Allocation Portfolio and may include the full range of
types of funds discussed above. By reducing the percentage of these allocations,
and adding bond funds to the allocation, we attempt to diminish the risk and
volatility compared to the Aggressive Portfolio. At times, the Portfolio will be
invested in a broad mix of bond funds, with varying maturities and credit
qualities, while at other times, a larger emphasis will be given to one type of
bond fund. The Portfolio will normally be fully invested.
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CONSERVATIVE ALLOCATION PORTFOLIO
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Normally the allocation to stock funds in the Portfolio will be in the 30-60%
range. Bond and money market funds may comprise as much as 70% of the Portfolio
at times. The stock funds used will be similar or identical to those used in the
Aggressive and Moderate Allocation Portfolios and may include the full range of
types of funds discussed above. The percentage of the Portfolio they represent,
however, will be lower. In the selection of bond funds for the Portfolio, a
greater emphasis (than that in the Moderate Portfolio) will be placed on whether
the bond funds have the potential to add short-term stability which typically
will be bond funds of a shorter duration and/or a higher investment grade.
("Duration" refers to the length of time before an individual bond matures.
"Investment grade" refers to the credit quality of a bond as established by a
recognized rating agency.) The Conservative Portfolio, like the Moderate
Portfolio, may invest in a mix of bond funds of varying types.
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INCOME ALLOCATION PORTFOLIO
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The Income Allocation Portfolio will invest at least 85% of its assets in mutual
funds which invest primarily in bond and other fixed-income securities.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIOS?
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RISKS FOR ALL PORTFOLIOS
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Any investment involves risk. Even though the Portfolios may invest in a number
of mutual funds, this investment strategy cannot eliminate investment risk.
There is no assurance that the Portfolios will achieve their investment
objectives. There is a risk that you could lose money by investing in the
Portfolios. By investing in other mutual funds, the Portfolios incur greater
expenses than you would incur if you invested directly in mutual funds.
The largest risk associated with all of the Markman MultiFunds relates to the
emphasis placed on our judgement in assembling the Portfolios of underlying
funds. This increased reliance on our judgement exposes you to the risk that we
could be incorrect in our evaluations and assumptions and thus may make
allocation decisions that may not prove profitable.
To the extent a Portfolio is invested in stock funds, the return on and value of
an investment in the Portfolio will fluctuate in response to stock market
movements. Stocks and other equity securities are subject to market risks (rapid
increase or decrease in value or liquidity of the security) and fluctuations in
value due to earnings, economic conditions and other factors beyond our control.
To the extent a Portfolio is invested in bond funds, the return on and value of
an investment in the Portfolio will fluctuate with changes in interest rates.
Typically a rise in interest rates causes a decline in the market value of
fixed-income securities. Other factors may affect the market price and yield of
fixed-income securities, including investor demand, changes in the financial
condition of issuers of securities, and domestic and worldwide economic
conditions.
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The Portfolios may invest in an underlying fund which is non-diversified and
which therefore normally can be expected to have greater volatility than a
diversified fund. The allocation of the assets of the Aggressive Allocation
Portfolio among the underlying funds is expected to result in the Portfolio
incurring more risk than the Markman Moderate Allocation Portfolio which, in
turn, can be expected to incur more risk than the Markman Conservative
Allocation Portfolio which, in turn, can be expected to incur more risk than the
Markman Income Allocation Portfolio. The Aggressive Allocation Portfolio is
appropriate for investors with long-term time horizons who are prepared to
assume greater risks and experience greater short-term volatility in exchange
for the potential for greater returns over time.
An underlying fund may concentrate its investments within one industry. The
value of the shares of such a fund may be subject to greater market fluctuation
than an investment in a fund that invests in a broader range of securities.
An underlying fund may invest in high yield, high-risk, lower-rated securities,
commonly known as "junk bonds." Such fund's investment in such securities is
subject to additional risk factors such as increased possibility of default,
illiquidity of the security, and changes in value based on public perception of
the issuer of the security.
An underlying fund may invest in foreign securities. Such investments may be
subject to additional risks that are not typically associated with investing in
domestic securities, such as changes in currency rates and political
developments.
PERFORMANCE SUMMARY
The bar charts and performance tables shown below provide an indication of the
risks of investment in the Portfolios by showing the changes in the performance
of the Portfolios from year to year since the Portfolios' inception and by
showing how the average annual returns of the Portfolios compare to those of a
broad-based securities market index. No performance information is presented for
the Income Allocation Portfolio, as that Portfolio had not yet commenced the
public offering of its shares as of the date of this Prospectus. How the
Portfolios have performed in the past is not necessarily an indication of how
the Portfolios will perform in the future.
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AGGRESSIVE ALLOCATION PORTFOLIO
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1996 11.7%
1997 19.0%
1998 26.2%
During the period shown in the bar chart, the highest return for a quarter was
31.32% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -15.06% during the quarter ended September 30, 1998.
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MODERATE ALLOCATION PORTFOLIO
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1996 11.1%
1997 19.4%
1998 18.3%
During the period shown in the bar chart, the highest return for a quarter was
20.14% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -10.47% during the quarter ended September 30, 1998.
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CONSERVATIVE ALLOCATION PORTFOLIO
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1996 13.4%
1997 14.3%
1998 10.8%
During the period shown in the bar chart, the highest return for a quarter was
12.25% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -5.66% during the quarter ended September 30, 1998.
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AVERAGE ANNUAL TOTAL RETURNS
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For Periods Ended December 31, 1998
SINCE INCEPTION
ONE YEAR (JANUARY 26, 1995)
Aggressive Allocation Portfolio 26.17% 22.22%
Wilshire 5000 Equity Index* 23.43% 27.92%
Standard & Poor's 500 Index** 28.58% 30.41%
Moderate Allocation Portfolio 18.32% 18.58%
Wilshire 5000 Equity Index* 23.43% 27.92%
Standard & Poor's 500 Index** 28.58% 30.41%
Conservative Allocation Portfolio 10.83% 14.37%
Wilshire 5000 Equity Index* 23.43% 27.92%
Lehman Intermediate Gov't Bond Index*** 8.49% 8.36%
* The Wilshire 5000 Equity Index measures the performance of all U.S.
headquartered equity securities with readily available price data.
** The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stock prices.
*** The Lehman Intermediate Government Bond Index is generally considered to be
representative of the performance of a portfolio of U.S. Government
securities of intermediate maturities.
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EXPENSE INFORMATION
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SHAREHOLDER TRANSACTION EXPENSES
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Sales Load Imposed on Purchases None
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Sales Load Imposed on Reinvested Dividends None
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Deferred Sales Load None
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Exchange Fee None
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Redemption Fee None1
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1 A wire transfer fee is charged in the case of redemptions made by wire.
Such fee is subject to change and is currently $8.00. See "How to Redeem
Shares."
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ANNUAL PORTFOLIO OPERATING EXPENSE
(expenses that are deducted from Portfolio assets)
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Income Conservative Moderate Aggressive
Allocation Allocation Allocation Allocation
Portfolio Portfolio Portfolio Portfolio
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Management Fees* 0.65% 0.95% 0.95% 0.95%
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Distribution (12b-1) Fees** None None None None
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Other Expenses*** 0.00% 0.00% 0.00% 0.00%
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Total Annual Portfolio
Operating Expenses 0.65% 0.95% 0.95% 0.95%
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* We will voluntarily waive each Portfolio's fees and expenses to the extent
necessary to keep total Portfolio operating expenses no greater than 0.65%
for the Income Allocation Portfolio and 0.95% for the Conservative,
Moderate and Aggressive Allocation Portfolios. Unlike most other mutual
funds, the management fees paid by the Portfolios include transfer agency,
pricing, custodial, auditing, legal services, and general administrative
and other operating expenses. Management fees paid by the Portfolios do not
include brokerage commissions, taxes, interest, fees and expenses of
non-interested Trustees or extraordinary expenses.
** Although the Portfolios do not directly impose distribution (12b-1) fees,
the underlying funds in which the Portfolios invest may impose 12b-1 or
service fees.
*** Does not include fees and expenses of the non-interested Trustees. Markman
Capital Management, Inc. is contractually required to reduce its management
fee in an amount equal to each Portfolio's allocable portion of such fees
and expenses which, during the fiscal year ended December 31, 1998,
amounted to .04%, .02% and .02% of the average daily net assets of the
Conservative Allocation Portfolio, the Moderate Allocation Portfolio and
the Aggressive Allocation Portfolio, respectively. See "Management of the
Trust."
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EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in a Portfolio for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Portfolio's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
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Income Allocation Portfolio $ 66 $ 208
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Conservative Allocation Portfolio $ 97 $ 303 $ 525 $1,166
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Moderation Allocation Portfolio $ 97 $ 303 $ 525 $1,166
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Total Annual Portfolio
Operating Expenses 0.65% 0.95% 0.95% 0.95%
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INVESTMENT OBJECTIVES AND STRATEGIES
Each Portfolio seeks to achieve its investment objective by investing in a
portfolio of other open-end mutual funds. Each Portfolio may invest in load or
no-load mutual funds. The Portfolios will not pay a sales load to buy shares of
an underlying load fund. Instead the Portfolios will use available quantity
discounts or waivers to avoid paying a sales load. The level of diversification
the Portfolios obtain from being invested in a number of underlying funds
reduces the risk associated with an investment in a single underlying fund. Each
Portfolio has its own investment objectives and strategies designed to meet
different investment goals.
A Portfolio may not purchase shares of any closed-end investment company or of
any investment company that is not registered with the Securities and Exchange
Commission. Each Portfolio's investment objective may be changed by the Board of
Trustees of the Trust without shareholder approval, as long as notice has been
given to shareholders. Unless other-wise indicated, all investment practices and
limitations of the Portfolios are non-fundamental policies which may be changed
by the Board of Trustees without shareholder approval.
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MARKMAN AGGRESSIVE ALLOCATION PORTFOLIO
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The investment objective of the Markman Aggressive Allocation Portfolio is
capital appreciation without regard to current income. At least 65% of the total
assets of the Aggressive Allocation Portfolio will be invested in mutual funds
that invest primarily in common stocks. In most conditions, the Portfolio will
be at least 90% invested in funds that invest in common stocks.
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MARKMAN MODERATE ALLOCATION PORTFOLIO
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The investment objective of the Markman Moderate Allocation Portfolio is to
provide growth of capital and a reasonable level of current income. The mutual
funds in the Moderate Allocation Portfolio will invest primarily in common
stocks and bonds. Normally, 50-75% of the portfolio will be invested in mutual
funds that invest primarily in common stocks. Up to 50% of the portfolio may at
times be invested in bond funds of varying types.
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MARKMAN CONSERVATIVE ALLOCATION PORTFOLIO
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The investment objective of the Markman Conservative Allocation Portfolio is to
provide current income and low to moderate growth of capital. The mutual funds
in the Conservative Allocation Portfolio will invest primarily in common stocks
and bonds. Normally the allocation to stock funds in the Portfolio will be in
the 30-60% range. Bond and money market funds may comprise as much as 70% of the
Portfolio at times.
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MARKMAN INCOME ALLOCATION PORTFOLIO
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The investment objective of the Markman Income Allocation Portfolio is to
provide high current income and low share price fluctuation. The mutual funds in
the Income Allocation Portfolio will invest primarily in bonds. At times, the
Portfolio will be invested in a broad mix of bond funds, with varying maturities
and credit qualities, while at other times, a larger emphasis will be given to
one type of bond fund. The Income Allocation Portfolio may also invest in equity
mutual funds, but will limit the amount of its investments in such underlying
funds to 15% of its assets.
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ALL PORTFOLIOS
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Each Portfolio may also invest in mutual funds which invest primarily in long-
or short-term bonds and various other types of fixed-income securities (such as
securities issued or guaranteed or insured by the U.S. Government, its agencies
or instrumentalities, commercial paper, preferred stock and convertible
debentures) whenever we believe that such mutual funds are consistent with a
Portfolio's investment objective. Long-term bonds typically have an average
maturity of greater than ten years. Short-term bonds typically have an average
maturity of less than three years.
These mutual funds may invest in investment grade bonds (bonds rated in the four
highest ratings categories by Standard & Poor's Corporation ("S&P") (AAA, AA, A
and BBB) or Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A and Baa)) or
in bonds that are not considered investment grade (bonds rated Ba or below by
Moody's or BB or below by S&P). Non-investment grade bonds are higher yielding,
high-risk securities commonly known as "junk bonds." Underlying funds may have
the ability to invest in debt securities rated as low as D. For a description of
ratings of debt securities, see "Quality Ratings of Debt Securities" in the
Statement of Additional Information.
The underlying funds may also invest in money market funds and money market or
short-term debt instruments. The underlying funds may actively trade their
portfolios resulting in higher brokerage commissions and increased realization
of taxable capital gains which may affect the Portfolios' overall performance.
They may invest up to 100% of their assets in the securities of foreign issuers
and engage in foreign currency transactions with respect to such investments.
They may invest up to 25% of their assets in one security.
HOW WE INVEST
We believe it is our primary job to make judgements as to what types of fund
investments may be the most beneficial in any given time period. We study and
analyze the markets on an ongoing basis to arrive at a viewpoint that indicates
what asset classes, sectors and styles of investing may hold the greatest
potential. We then assemble a portfolio of funds that emphasize these judgements
and conclusions.
This willingness to emphasize our conclusions may, at times, lead to portfolio
allocations that are less diversified than those found in other funds of funds.
For example, there have been times when our equity analysis led us to conclude
that small-cap funds were not likely to add much value to the Portfolios in the
current market cycle. While other funds of funds, or other similarly run
portfolios, may have under those circumstances reduced their small-cap
allocation, we would more likely--and indeed, have--totally eliminated the
allocation to small caps. Similar judgement and allocation moves have been made
in other areas such as emerging markets, government bond funds, international
funds, etc.
The point we wish to emphasize is that, although the various Portfolios have
ranges of stock and bond allocations, we have made no specific commitment to
what types of stock or bond funds will be used for those allocations. Thus,
while there may be times when the stock allocation of a portfolio will consist
of a traditional mix of large-cap, small-cap, growth, value, and international
stock funds, there may also be times when one or more of those allocations may
be significantly reduced or even eliminated based on our judgement.
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Similar judgements are made with the bond fund allocations for the Portfolios.
Thus, there may be times when a broad mix of funds with varying maturities and
credit quality characteristics will be used. There also may be times when the
focus of our bond fund allocation is narrower, with a larger emphasis given to
one type of bond fund.
This method of assembling a mutual fund portfolio puts a great deal of emphasis
on the subjective judgements of the portfolio manager.
Once we have made our judgements as to what types of funds are most likely to
produce the results we desire, we then research funds within that asset class to
determine which specific funds to put in the Portfolios. Some of the things we
look at are track record of the fund or fund manager over various time periods;
costs associated with the fund; size of the fund and what, if any, changes have
or are likely to occur; tax efficiency of the fund; managerial style; and to
what degree the portfolio aligns with our current thinking about the markets.
When choosing managed funds, as opposed to index funds, we tend to favor what
are called "focused" funds. These are funds that own a smaller number of stocks,
usually around 20-25, than traditional mutual funds that may own 100-200 stocks.
If we are relying on a manager to get results, we want a portfolio focused on
only those managers' best ideas. We believe we are more likely to get this in a
portfolio of fewer stocks.
In order to create the potential for a predictable range of risk, volatility and
return among our four Portfolios, we attempt to use identical or similar funds
in each portfolio. What differs among the Portfolios is not what funds are used
as much as the percentage allocations of those funds. By doing so, we feel we
may avoid the problem of variable performance among underlying funds creating
risk/return dynamics that we have not anticipated.
RISK CONSIDERATIONS
The largest risk associated with all of the Markman MultiFunds relates to the
emphasis placed on our judgement in assembling the Portfolios of underlying
funds. This increased reliance on our judgement exposes you to the risk that we
could be incorrect in our evaluations and assumptions and thus may make
allocation decisions that may not prove profitable.
To the extent a Portfolio is invested in stock funds, the value of the Portfolio
will be affected by changes in the stock markets. Stock markets and stock prices
can be volatile. Market action will affect the Portfolio's net asset value per
share, which fluctuates as the values of the Portfolio's securities change. Not
all stock prices change uniformly or at the same time and not all stock markets
move in the same direction at the same time. Various factors can affect a
stock's price (for example, poor earnings reports by an issuer, loss of major
customers, major litigation against an issuer, or changes in general economic
conditions or in government regulations affecting an industry). Not all of these
factors can be predicted.
All of the Markman Multifund Portfolios will, at given times, invest in
underlying funds that hold focused portfolios. To the extent that these funds
own a smaller number of stocks than more widely diversified funds, the risk
associated with any individual stock holding of such a portfolio is magnified.
To the extent a Portfolio is invested in bond funds, it will be subject to the
risks of bond investing. In general, the current value of bonds varies inversely
with changes in prevailing interest rates. If interest rates increase after a
bond is purchased, the value of that security will normally decline. If
prevailing interest rates decrease after a bond is purchased, however, its
market price will normally rise. The value of long-term bonds generally
fluctuates more widely when interest rates change than do short-term bonds.
The allocation of the assets of the Aggressive Allocation Portfolio among the
underlying funds is expected to result in the Portfolio incurring more risk than
the Markman Moderate Allocation Portfolio which, in turn, can be expected to
incur more risk than the Markman Conservative Allocation Portfolio which, in
turn, can be expected to incur more risk than the Markman Income Allocation
Portfolio.
In the case of an issuer that concentrates in a particular industry or industry
group, events may occur that impact that industry or industry group more
significantly than the stock market as a whole. An investment in a
non-diversified investment company can normally be expected to have greater
fluctuations in value than an investment in a fund that includes a broader range
of investments. To the extent a Portfolio invests in diversified investment
companies that do not have a policy of concentration, the impact of conditions
affecting an industry or industry group will be decreased.
An investment in foreign securities may be subject to risks not typically
associated with investing in domestic securities. For example, such investment
may be adversely affected by changes in currency rates and exchange control
regulations, future political and economic developments, and the possibility of
seizure or nationalization of companies, or the imposition of withholding taxes
on income.
Investment decisions by the investment advisers of the underlying funds are made
independently of the Portfolios. At any particular time, one underlying fund may
be purchasing shares of an issuer whose shares are being sold by another
underlying fund. As a result, a Portfolio would incur indirectly certain
transaction costs without accomplishing any investment purpose.
You could invest directly in the underlying funds. By investing in mutual funds
indirectly through the Portfolios, you bear not only your proportionate share of
the expenses of the Portfolios but also, indirectly, similar expenses (including
operating costs and investment advisory fees) of the underlying funds. You may
indirectly bear expenses paid by underlying funds related to the distribution of
such mutual funds' shares. As a result of the Portfolios' policies of investing
in other mutual funds, you may receive taxable capital gains distributions to a
greater extent than would be the case if you invested directly in the underlying
funds. See "Dividends, Distributions and Taxes."
MANAGEMENT OF THE TRUST
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THE TRUSTEES
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The business and affairs of the Trust are managed under the direction of the
Board of Trustees. Additional information about the Trustees and the executive
officers of the Trust may be found in the Statement of Additional Information
under "Trustees and Officers."
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THE ADVISER
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We are Markman Capital Management, Inc. and we serve as the investment adviser
to the Portfolios. We maintain our principal office at 6600 France Avenue South,
Minneapolis, Minnesota 55435. In addition to serving as investment adviser to
the Trust and its Portfolios, we provide investment supervisory services on a
continuous basis to individuals, pension and profit sharing plans, corporations,
partnerships, trusts and estates (including charitable organizations). Pursuant
to an Investment Management Agreement with the Trust, we are responsible for the
investment management of each Portfolio's assets, including the responsibility
for making investment decisions and placing orders for the purchase and sale of
the Portfolios' investments. Unlike most mutual funds, the management fees paid
by the Portfolios to us include transfer agency, pricing, custodial, auditing
and legal services, and general administrative and other operating expenses
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of each Portfolio except brokerage commissions, taxes, interest, fees and
expenses of non-interested Trustees and extraordinary expenses.
For the services provided to the Portfolios, we receive from each Portfolio a
fee, payable monthly, at the annual rate of 0.65% of the Income Allocation
Portfolio's average daily net assets and 0.95% of the average daily net assets
of each of the Conservative, Moderate and Aggressive Allocation Portfolios. We
are contractually obligated to reduce our management fee in an amount equal to
each Portfolio's allocable portion of the fees and expenses of the Trust's
non-interested Trustees. Most investment companies pay lower investment
management fees. Most of such investment companies, however, also pay, in
addition to an investment management fee, certain of their own expenses, while
we pay almost all of the Portfolios' expenses, as described above, out of
investment management fees we receive from the Portfolios.
Robert J. Markman, Chairman of the Board of Trustees and President of the Trust,
serves as the Portfolio Manager of the Trust and is responsible for the
day-to-day management of the Portfolios. Mr. Markman has served as President of
Markman Capital since its organization in September 1990.
Markman Capital Management, Inc. specializes in the construction and management
of no-load mutual fund portfolios for our clients. As of the date of this
Prospectus, we provide investment management services to over 400 client
accounts and have assets under management in excess of $400 million.
- --------------------------------------------------------------------------------
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
Markman Securities, Inc. (the "Distributor") is the principal underwriter of the
Portfolios. The Distributor is a wholly-owned subsidiary of Markman Capital and
is located at the same address.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
We place orders for the purchase and sale of portfolio securities for a
Portfolio's accounts with brokers or dealers, selected by us in our discretion,
or directly with the underlying funds or in privately arranged transactions in
which a premium may be paid by a Portfolio.
Each Portfolio is actively managed and has no restrictions upon portfolio
turnover. Each Portfolio's rate of portfolio turnover may be greater than that
of many other mutual funds. A 100% annual portfolio turnover rate would be
achieved if each security in a Portfolio's portfolio (other than securities with
less than one year remaining to maturity) were replaced once during the year.
Trading also may result in realization of capital gains that would not otherwise
be realized, and shareholders are taxed on such gains when distributed from that
Portfolio. See "Dividends, Distributions and Taxes." There is no limit on and we
cannot control the portfolio turnover rates of the underlying funds.
DETERMINATION OF NET ASSET VALUE
The share price (net asset value) of the shares of each Portfolio is determined
as of the close of the regular session of trading on the New York Stock Exchange
(normally at 4:00 p.m., Eastern time). The Portfolios are open for business on
each day the New York Stock Exchange is open for business. The net asset value
per share of each Portfolio is calculated by dividing the sum of the value of
the securities held by the Portfolio plus cash or other assets minus all
liabilities (including estimated accrued expenses) by the total number of
outstanding shares of the Portfolio, rounded to the nearest cent. The price at
which a purchase or redemption of a Portfolio's shares is effected is based on
the next calculation of net asset value after the order is placed.
Shares of the underlying funds are valued at their respective net asset values
under the 1940 Act. The underlying funds value securities in their portfolios
for which market quotations are readily available at their current market value
(generally the last reported sale price) and all other securities and assets at
fair value pursuant to methods established in good faith by the board of
directors of the underlying mutual fund. Money market funds with portfolio
securities that mature in one year or less may use the amortized cost or
penny-rounding methods to value their securities. Securities having 60 days or
less remaining to maturity generally are valued at their amortized cost, which
approximates market value.
If market quotations are not readily available, securities are valued at their
fair value as determined in good faith in accordance with procedures established
by and under the general supervision of the Board of Trustees. The net asset
value per share of each Portfolio will fluctuate with the value of the
securities it holds.
HOW TO PURCHASE SHARES
Shares of each Portfolio are sold without a sales charge at the next price
calculated after receipt of an order in proper form by the Portfolios. Your
initial investment in a Portfolio ordinarily must be at least $25,000, except
that the Trust reserves the right, in its sole discretion, to waive the minimum
initial investment amount for certain investors, or to waive or reduce the
minimum initial investment for tax-deferred retirement plans. The minimum
initial investment is waived for purchases by Trustees, officers and employees
of the Trust, of the Transfer Agent, and of Markman Capital and private clients
of Markman Capital, including members of such persons' immediate families. Each
Portfolio also reserves the right to waive the minimum initial investment for
financial intermediaries. All purchase payments are invested in full and
fractional shares. The Trust may reject any purchase order.
Shares of each Portfolio are sold on a continuous basis at the net asset value
next determined after receipt of a purchase order by the Trust. Due to time
constraints involved in the pricing of shares of mutual funds such as the
Portfolios, the net asset value of Portfolio shares reported in newspapers will
lag the Portfolios' actual net asset value by one business day. Direct purchase
orders received by the Transfer Agent by 4:00 p.m., Eastern time, are confirmed
at that day's net asset value. Purchase orders received by dealers prior to 4:00
p.m., Eastern time, on any business day and transmitted to the Transfer Agent by
5:00 p.m., Eastern time, that day are confirmed at the net asset value
determined as of the close of the regular session of trading on the New York
Stock Exchange on that day. It is the responsibility of dealers to transmit
properly completed orders so that they will be received by the Transfer Agent by
5:00 p.m., Eastern time. Dealers or other agents may charge you a fee for
effecting transactions. Direct investments received by the Transfer Agent after
4:00 p.m., Eastern time, and orders received from dealers after 5:00 p.m. are
confirmed at the net asset value next determined on the following business day.
You may open an account and make an initial investment in any Portfolio by
sending a check and a completed account application form to Markman MultiFund
Trust, c/o Shareholder Services, P.O. Box 5354, Cincinnati, Ohio 45201-5354.
Checks should be made payable to the Markman MultiFund Trust.
The Trust mails you confirmations of all purchases or redemptions of shares of
the Portfolios. Certificates representing shares are not issued. The Trust and
the Distributor reserve the rights to limit the amount of investments and to
refuse to sell to any person.
7
<PAGE>
The Portfolios' account application contains certain provisions in favor of the
Trust, the Distributor, the Transfer Agent and certain of their affiliates,
excluding such entities from certain liabilities (including, among others,
losses resulting from unauthorized shareholder transactions) relating to the
various services (for example, telephone redemptions and exchanges) made
available to investors.
If an order to purchase shares is cancelled because your check does not clear,
you will be responsible for any resulting losses or fees incurred by the Trust
or the Transfer Agent in the transaction.
You may also purchase shares of the Portfolios by bank wire. Please call the
Transfer Agent (Nationwide call toll-free 800-707-2771) for instructions. You
should be prepared to give the name in which the account is to be established,
the address, telephone number, and taxpayer identification number for the
account, and the name of the bank that will wire the money. Your investment in a
Portfolio will be made at the Portfolio's net asset value next determined after
your wire is received together with a completed account application. If the
Trust does not receive timely and complete account information, there may be a
delay in the investment of money and any accrual of dividends. To make an
initial wire purchase, you must mail a completed account application to the
Transfer Agent. Your bank may impose a charge for sending your wire. There is
presently no fee for receipt of wired funds, but the Transfer Agent reserves the
right to charge shareholders for this service upon thirty days' prior notice to
shareholders.
You may purchase and add shares to your account by mail or by bank wire. Checks
should be sent to Markman MultiFund Trust, c/o Shareholder Services, P.O. Box
5354, Cincinnati, Ohio 45201-5354. Checks should be made payable to the Markman
MultiFund Trust. Bank wires should be sent as outlined above. Each additional
purchase request must contain the account name and number to permit proper
crediting.
- --------------------------------------------------------------------------------
NO TRANSACTION FEE PROGRAM
- --------------------------------------------------------------------------------
If you purchase a minimum of $25,000 of shares of the Portfolios (either in a
Portfolio or spread across two or more Portfolios) through a discount broker and
we do not participate in that discount broker's no transaction fee program, we
will reimburse you for the amount of the transaction fee that you paid the
discount broker for that purchase within a week of us receiving a copy of your
trade confirmation.
HOW TO REDEEM SHARES
You may redeem shares of the Portfolios on each day that the Trust is open for
business. You will receive the net asset value per share next determined after
receipt by the Transfer Agent of your redemption request in the form described
below. Payment is normally made within three business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Portfolios by certified check or by wire.
- --------------------------------------------------------------------------------
BY TELEPHONE
- --------------------------------------------------------------------------------
You may redeem shares by telephone. The proceeds will be sent by mail to the
address designated on your account or wired directly to your existing account in
any commercial bank or brokerage firm in the United States as designated on the
application. To redeem by telephone, call the Transfer Agent (Nationwide call
toll-free 800-707-2771). The redemption proceeds will usually be sent by mail or
by wire within three business days after receipt of your telephone instructions.
IRA accounts are not redeemable by telephone.
Unless you have specifically notified the Transfer Agent not to honor redemption
requests by telephone, the telephone redemption privilege is automatically
available to you. You may change the bank or brokerage account designated under
this procedure at any time by writing to the Transfer Agent with the signature
guaranteed by any eligible guarantor institution (including banks, brokers and
dealers, credit unions, national securities exchanges, registered securities
associations, clearing agencies and savings associations) or by completing a
supplemental telephone redemption authorization form. Contact the Transfer Agent
to obtain this form. Further documentation will be required to change the
designated account if shares are held by a corporation, fiduciary or other
organization.
The Transfer Agent reserves the right to suspend the telephone redemption
privilege with respect to any account if the name(s) or the address on the
account has been changed within the previous 30 days.
Neither the Trust, the Transfer Agent, nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine or for any loss, damage, cost or expense in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. Such procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
- --------------------------------------------------------------------------------
BY MAIL
- --------------------------------------------------------------------------------
You may redeem any number of shares from your account by sending a written
request to the Transfer Agent. The request must state the number of shares or
the dollar amount to be redeemed and your account number. The request must be
signed exactly as your name appears on the Trust's account records. If the
shares to be redeemed have a value of $25,000 or more, your signature must be
guaranteed by any of the eligible guarantor institutions outlined above. If the
name(s) or the address on your account has been changed within 30 days of your
redemption request, you will be required to request the redemption in writing
with your signature guaranteed, regardless of the value of the shares being
redeemed.
Written redemption requests may also direct that the proceeds be deposited
directly in a domestic bank or brokerage account designated on your account
application for telephone redemptions. Proceeds of redemptions requested by mail
are mailed within three business days following receipt of instructions in
proper form.
- --------------------------------------------------------------------------------
THROUGH BROKER-DEALERS
- --------------------------------------------------------------------------------
You may also redeem shares of the Portfolios by placing a wire redemption
request through a securities broker or dealer. Unaffiliated broker-dealers or
other agents may charge you a fee for this service. You will receive the net
asset value per share next determined after receipt by the Trust or its agent of
your wire redemption request. It is the responsibility of broker-dealers to
promptly transmit wire redemption orders.
- --------------------------------------------------------------------------------
ADDITIONAL REDEMPTION INFORMATION
- --------------------------------------------------------------------------------
If your instructions request a redemption by wire, the proceeds will be wired
directly to your existing account in any commercial bank or brokerage firm in
the United States as designated on your application and you will be charged an
$8 processing fee. The Trust reserves the right, upon thirty days' written
notice, to change the processing fee. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire.
8
<PAGE>
In the event that wire transfer of funds is impossible or impracticable, the
redemption proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly in your
account with a commercial bank or other depository institution by way of an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account if at any time the value of your
shares is less than $25,000 (based on actual amounts invested, unaffected by
market fluctuations) or such other minimum amount as the Trust may determine
from time to time. After notification to you of the Trust's intention to close
your account, you will be given sixty days to increase the value of your account
to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the
Portfolios may make payment for shares redeemed in portfolio securities of the
Portfolios taken at current value.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shares of the Portfolios may be exchanged for each other at net asset value. You
may request an exchange by sending a written request to the Transfer Agent. The
request must be signed exactly as your name appears on the Trust's account
records. Exchanges may also be requested by telephone. An exchange will be
effected at the next determined net asset value after receipt of a request by
the Transfer Agent.
Exchanges may only be made for shares of Portfolios then offered for sale in
your state of residence and are subject to the applicable minimum initial
investment requirements. The exchange privilege may be modified or terminated by
the Board of Trustees upon 60 days' prior notice to you.
SHAREHOLDER SERVICES
Contact the Transfer Agent (Nationwide call toll-free 1-800-707-2771) for
additional information about the shareholder services described below.
- --------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
If the shares in your account have a value of at least $25,000, you may elect to
receive, or may designate another person to receive, monthly or quarterly
payments in a specified amount. There is no charge for this service.
- --------------------------------------------------------------------------------
ACCESS TO THE PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
If the shares in your account have a value of at least $100,000, you may contact
Mr. Robert Markman directly by telephone. If you qualify, call the Transfer
Agent at the above telephone number to obtain your special access toll-free
telephone number direct to Mr. Markman.
- --------------------------------------------------------------------------------
TAX-DEFERRED RETIREMENT PLANS
- --------------------------------------------------------------------------------
Shares of the Portfolios are available for purchase in connection with the
following tax-deferred retirement plans:
- -- Keogh Plans for self-employed individuals
- -- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs
- -- Qualified pension and profit-sharing plans for employees, including those
profit-sharing plans with a 401(k) provision
- -- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code.
- --------------------------------------------------------------------------------
DIRECT DEPOSIT PLANS
- --------------------------------------------------------------------------------
Shares of the Portfolios may be purchased through direct deposit plans offered
by certain employers and government agencies. These plans enable you to have all
or a portion of your payroll or social security checks transferred automatically
to purchase shares of the Portfolios.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
- --------------------------------------------------------------------------------
You may make automatic monthly investments in the Portfolios from your bank,
savings and loan or other depository institution account. The minimum initial
investment must be $25,000 under the plan. The Transfer Agent pays the costs
associated with these transfers, but reserves the right, upon thirty days'
written notice, to make reasonable charges for this service. A depository
institution may impose its own charge for debiting your account, which would
reduce the return from an investment in the Portfolios.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). In any year in
which a Portfolio qualifies as a regulated investment company and distributes
substantially all of its investment company taxable income (which includes,
among other items, the excess of net short-term capital gains over net long-term
capital losses) and its net capital gains (the excess of net long-term capital
gains over net short-term capital losses) the Portfolio will not be subject to
federal income tax to the extent it distributes such income and capital gains in
the manner required under the Code.
Income received by a Portfolio from a mutual fund owned by that Portfolio
(including dividends and distributions of short-term capital gains) will be
distributed by the Portfolio (after deductions for expenses) and will be taxable
to you as ordinary income. Because the Portfolios are actively managed and may
realize taxable net short-term capital gains by selling shares of a mutual fund
in its portfolio with unrealized portfolio appreciation, investing in a
Portfolio rather than directly in the underlying funds may result in increased
tax liability to you since the Portfolio must distribute its gains in accordance
with certain rules under the Code.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) received by a Portfolio from the underlying
funds, as well as net long-term capital gains realized by a Portfolio from the
purchase and sale (or redemption) of mutual fund shares or other securities held
by a Portfolio for more than one year, will be distributed by the Portfolio and
will be taxable to you as long-term capital gains (even if you have held the
shares for less than one year). If a shareholder who has received a capital
gains distribution suffers a loss on the sale of his or her shares not more than
six months after purchase, the loss will be treated as a long-term capital loss
to the extent of the capital gains distribution
9
<PAGE>
received. Long-term capital gains, including distributions of net capital gains,
are currently subject to a maximum federal tax rate of 20%, which rate is less
than the maximum rate imposed on other types of taxable income. Capital gains
may be advantageous since, unlike ordinary income, they may be offset by capital
losses.
For purposes of determining the character of income received by a Portfolio when
an underlying fund distributes net capital gains to a Portfolio, the Portfolio
will treat the distribution as a long-term capital gain, even if the Portfolio
has held shares of the underlying fund for less than one year. Any loss incurred
by a Portfolio on the sale of such mutual fund's shares held for six months or
less, however, will be treated as a long-term capital loss to the extent of the
gain distribution.
The tax treatment of distributions from a Portfolio is the same whether the
distributions are received in additional shares or in cash. Shareholders
receiving distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share received equal to the net asset
value of a share of the Portfolio on the reinvestment date.
A Portfolio may invest in mutual funds with capital loss carryforwards. If such
a mutual fund realizes capital gains, it will be able to offset the gains
to the extent of its loss carryforwards in determining the amount of capital
gains which must be distributed to shareholders. To the extent that gains are
offset in this manner, distributions to a Portfolio and its shareholders will
not be characterized as capital gain dividends but may be ordinary income.
Redemptions of shares of the Portfolios are taxable events on which you may
realize a gain or loss. An exchange of a Portfolio's shares for shares of
another Portfolio will be treated as a sale of such shares and any gain on the
transaction may be subject to federal income tax.
Each year the Trust will notify you of the tax status of dividends and
distributions made during the year. Depending upon your residence for tax
purposes, distributions may also be subject to state and local taxes, including
withholding taxes. You should consult your own tax adviser regarding the tax
consequences of ownership of shares of a Portfolio in your particular
circumstances.
Each Portfolio will distribute investment company taxable income and any net
realized capital gains at least annually. All dividends and distributions will
be reinvested automatically at net asset value in additional shares of the
Portfolio making the distribution, unless you notify the Portfolio in writing of
your election to receive distributions in cash.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolios' financial performance. Certain information reflects financial
results for a single Portfolio share. The total returns in the table represent
the rate that an investor would have earned or lost on an investment in the
Portfolios (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along with
the Portfolios' financial statements, are included in the Statement of
Additional Information, which is available upon request. No information is
presented for the Income Allocation Portfolio, as that Portfolio had not yet
commenced the public offering of its shares as of the date of this Prospectus.
- --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Conservative Allocation Portfolio
1/26/95- 1/1/96- 1/1/97- 1/1/98-
12/31/95(A) 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 10.00 $ 10.97 $ 11.49 $ 11.82
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.19 0.28 0.33 0.25
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 1.61 1.19 1.31 1.03
- --------------------------------------------------------------------------------------------------------
Total from investment operations 1.80 1.47 1.64 1.28
- --------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.28) (0.30) (0.28)
- --------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.04) (0.18) (0.15) (0.02)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.60) (0.49) (0.86) (0.47)
- --------------------------------------------------------------------------------------------------------
Total distributions (0.83) (0.95) (1.31) (0.77)
- --------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 10.97 $ 11.49 $ 11.82 $ 12.33
- --------------------------------------------------------------------------------------------------------
Total return 18.00% 13.41% 14.27% 10.83%
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000's) $ 9,852 $42,579 $36,680 30,467
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.95%(B) 0.95% 0.95% 0.95%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets 3.02%(B) 3.21% 2.38% 1.70%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 176% 104% 48% 165%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Moderate Allocation Portfolio
1/26/95- 1/1/96- 1/1/97- 1/1/98-
12/31/95(A) 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 10.00 $ 11.31 $ 11.49 $ 11.90
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06 0.18 0.26 0.12
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 2.39 1.08 1.96 2.06
- --------------------------------------------------------------------------------------------------------
Total from investment operations 2.45 1.26 2.22 2.18
- --------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.06) (0.18) (0.26) (0.12)
- --------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.24) (0.14) (0.21) (0.04)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.84) (0.76) (1.34) (0.57)
- --------------------------------------------------------------------------------------------------------
Total distributions (1.14) (1.08) (1.81) (0.73)
- --------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 11.31 $ 11.49 $ 11.90 $ 13.35
- --------------------------------------------------------------------------------------------------------
Total return 24.50% 11.11% 19.38% 18.32%
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000's) $38,988 $78,627 $86,388 83,799
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.95%(B) 0.95% 0.95% 0.95%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets 0.77%(B) 1.34% 1.96% 0.84%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 141% 280% 82% 117%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Aggressive Allocation Portfolio
1/26/95- 1/1/96- 1/1/97- 1/1/98-
12/31/95(A) 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 10.00 $ 11.79 $ 12.26 $ 12.74
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.01 0.05 0.01 (0.09)
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 3.11 1.34 2.32 3.42
- --------------------------------------------------------------------------------------------------------
Total from investment operations 3.12 1.39 2.33 3.33
- --------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.01) (0.05) (0.01) (0.00)
- --------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.23) (0.11) (0.19) (0.00)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.09) (0.76) (1.65) (0.06)
- --------------------------------------------------------------------------------------------------------
Total distributions (1.33) (0.92) (1.85) (0.06)
- --------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 11.79 $ 12.26 $ 12.74 $ 16.01
- --------------------------------------------------------------------------------------------------------
Total return 31.21% 11.72% 18.96% 26.17%
- --------------------------------------------------------------------------------------------------------
Net assets at end of period (000's) $42,325 $84,329 $84,401 $91,615
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.95%(B) 0.95% 0.95% 0.95%
- --------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets 0.15% 0.34% 0.05% (0.62%)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 204% 340% 141% 101%
- --------------------------------------------------------------------------------------------------------
</TABLE>
(A) Represents the period from the initial public offering of shares (January
26, 1995) through December 31, 1995.
(B) Annualized.
10
<PAGE>
APPENDIX
For a more detailed description of the types of securities and investment
techniques described in this Appendix, see "Investment Objectives and Policies"
in the Statement of Additional Information.
- --------------------------------------------------------------------------------
INDUSTRY CONCENTRATION
- --------------------------------------------------------------------------------
An underlying fund may concentrate its investments within one industry. The
value of the shares of such a fund may be subject to greater market fluctuation
than an investment in a fund that invests in a broader range of securities.
- --------------------------------------------------------------------------------
HIGH YIELD SECURITIES AND THEIR RISKS
- --------------------------------------------------------------------------------
An underlying fund may invest in high yield, high-risk, lower-rated securities,
commonly known as "junk bonds." Such fund's investment in such securities is
subject to the risk factors outlined below.
YOUTH AND GROWTH OF THE HIGH YIELD BOND MARKET
The high yield, high risk market has at times been subject to substantial
volatility. An economic downturn or increase in interest rates may have a more
significant effect on such securities as well as on the ability of securities'
issuers to repay principal and interest. Issuers of such securities may be of
low creditworthiness and the securities may be subordinated to the claims of
senior lenders. During periods of economic downturn or rising interest rates,
the issuers of high yield, high risk securities may have greater potential for
insolvency.
SENSITIVITY OF INTEREST RATE AND ECONOMIC CHANGES
The prices of high yield, high risk securities have been found to be less
sensitive to interest rate changes than higher-rated investments but are more
sensitive to adverse economic changes or individual corporate developments.
Yields on high yield, high risk securities will fluctuate over time.
Furthermore, in the case of high yield, high risk securities structured as zero
coupon or pay-in-kind securities, their market prices are affected to a greater
extent by interest rate changes and thereby tend to be more volatile than market
prices of securities which pay interest periodically and in cash.
PAYMENT EXPECTATIONS
Certain securities held by an underlying fund, including high yield, high risk
securities, may contain redemption or call provisions. If an issuer exercises
these provisions in a declining interest rate market, such fund would have to
replace the security with a lower yielding security, resulting in a decreased
return for the investor. Conversely, a high yield, high risk security's value
will decrease in a rising interest rate market, as will the value of the
underlying fund's assets.
LIQUIDITY AND VALUATION
The secondary market may at times become less liquid or respond to adverse
publicity or investor perceptions, making it more difficult for an underlying
fund to accurately value high yield, high risk securities or dispose of them. To
the extent such fund owns or may acquire illiquid or restricted high yield, high
risk securities, these securities may involve special registration
responsibilities, liabilities and costs, and liquidity difficulties, and
judgment will play a greater role in valuation because there is less reliable
and objective data available.
TAXATION
Special tax considerations are associated with investing in high yield bonds
structured as zero coupon or pay-in-kind securities. An underlying fund will
report the interest on these securities as income even though it receives no
cash interest until the security's maturity or payment date.
CREDIT RATINGS
Credit ratings evaluate the safety of principal and interest payments, not the
market value risk of high yield, high risk securities. Since credit rating
agencies may fail to change the credit ratings in a timely manner to reflect
subsequent events, the investment adviser to an underlying fund should monitor
the issuers of high yield, high risk securities in the fund's portfolio to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to attempt to assure the
securities' liquidity so the fund can meet redemption requests. To the extent
that an underlying fund invests in high yield, high risk securities, the
achievement of the fund's investment objective may be more dependent on the
underlying fund's own credit analysis than is the case for higher quality bonds.
A-1
<PAGE>
Investment forms may be ordered by calling 1-800-707-2771.
The minimum direct investment is $25,000. If you want to invest less than
$25,000, you may purchase the Markman MultiFunds (except for the Income
Allocations Portfolio) through:
Charles Schwab & Company (1-800-266-5623) Jack White and Company
(1-800-323-3263) Fidelity Investments (1-800-544-7558) Waterhouse Securities
(1-800-934-4443) There is NO TRANSACTION FEE if you purchase from one of these
discount brokers.
FOR ADDITIONAL FORMS OR ANSWERS TO ANY QUESTIONS, call the Markman MultiFunds at
1-800-707-2771 between the hours of 8:30 AM and 7:30 PM EST. For a CURRENT
UPDATE ON OUR VIEWS ON THE MARKET and what funds are in each of the portfolios
call the Hotline at 1-800-975-5463.
For UPDATED FUND PRICES AS OF THE CLOSE OF THE PREVIOUS DAY AND ACCESS TO YOUR
ACCOUNT BALANCE, call 1-800-536-8679.
To order additional prospectuses call 1-800-395-4848.
Our Internet Home Page (for net asset values, current portfolios, and more) is
www.markman.com/funds.htm
INVESTMENT ADVISER
Markman Capital Management, Inc.
6600 France Avenue South
Minneapolis, Minnesota 55435
ADMINISTRATOR AND TRANSFER AGENT
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02210
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP
425 Walnut Street
Cincinnati, Ohio 45202
LEGAL COUNSEL
Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W.
Washington, D.C. 20036
DISTRIBUTOR
Markman Securities, Inc.
6600 France Avenue South
Minneapolis, Minnesota 55435
Additional information about the Portfolios is included in the Statement of
Additional Information ("SAI"), which is incorporated by reference in its
entirety. Additional information about the Portfolios' investments is available
in the Portfolios' annual and semiannual reports to shareholders. In the
Portfolios' annual report, you will find a discussion of the market conditions
and strategies that significantly affected the Portfolios' performance during
their last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Portfolios, or to make inquiries about the Portfolios,
please call 1-800-707-2771.
Information about the Portfolios (including the SAI) can be reviewed and copied
at the Securities and Exchange Commission's public reference room in Washington,
D.C. Information about the operation of the public reference room can be
obtained by calling the Commission at 1-800-SEC-0330. Reports and other
information about the Portfolios are available on the Commission's Internet site
at http://www.sec.gov. Copies of information on the Commission's Internet site
may be obtained, upon payment of a duplicating fee, by writing to: Securities
and Exchange Commission, Public Reference Section, Washington, D.C. 20549-6009.
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<TABLE>
<S> <C> <C>
Markman
MULTIFUNDS
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For investors too smart
to do it themselves(sm)
INVESTMENT ADVISER SHAREHOLDER SERVICES DISTRIBUTOR
Markman Capital Management, Inc. c/o Countrywide Fund Services, Inc. Markman Securities, Inc.
6600 France Avenue South 312 Walnut Street, 21st Floor 6600 France Avenue South
Minneapolis, MN 55435 Cincinnati, OH 45202-3874 Minneapolis, Minnesota 55435
Toll-free: 1-800-395-4848 Toll-free: 1-800-707-2771 Telephone: 612-920-4848
Telephone: (612) 920-4848 Toll-free: 1-800-395-4848
</TABLE>
<PAGE>
This Statement of Additional Information is not a prospectus, but expands upon
and supplements the information contained in the Prospectus of Markman MultiFund
Trust (the "Trust") dated May 1, 1999, as supplemented from time to time. The
Statement of Additional Information should be read in conjunction with the
Prospectus. The Trust's Prospectus may be obtained by writing to the Trust at
the above address or by telephoning the Trust nationwide toll-free at
1-800-707-2771.
INVESTMENT ADVISER SHAREHOLDER SERVICES
Markman Capital Management, Inc. c/o Countrywide Fund Services, Inc.
6660 France Avenue South, Suite 565 312 Walnut Street, 21st Floor
Minneapolis, MN 55435 Cincinnati, OH 45202-3874
Toll-free: 1-800-395-4848 Toll-free: 1-800-707-2771
Telephone: (612) 920-4848
<PAGE>
TABLE OF CONTENTS
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INVESTMENT OBJECTIVES AND POLICIES.............................................3
INVESTMENT RESTRICTIONS.......................................................15
QUALITY RATINGS OF DEBT SECURITIES............................................17
TRUSTEES AND OFFICERS.........................................................20
PRINCIPAL SECURITY HOLDERS....................................................23
INVESTMENT MANAGER............................................................23
TRANSFER AGENT AND ADMINISTRATOR..............................................24
CALCULATION OF SHARE PRICE....................................................25
TAXES.........................................................................25
REDEMPTION OF SHARES..........................................................26
SPECIAL REDEMPTIONS...........................................................26
CUSTODIAN.....................................................................26
AUDITORS AND LEGAL COUNSEL....................................................27
DISTRIBUTOR...................................................................27
PORTFOLIO TRANSACTIONS........................................................27
PERFORMANCE INFORMATION.......................................................27
A. Total Return.........................................................27
B. Non-Standardized Total Return........................................29
C. Other Information Concerning Fund Performance........................30
DESCRIPTION OF THE TRUST......................................................34
ANNUAL REPORT.................................................................35
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INVESTMENT OBJECTIVES AND POLICIES
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Markman MultiFund Trust (the "Trust") is an open-end, diversified
management investment company, registered as such under the Investment Company
Act of 1940. The Trust currently offers four separate portfolios (series), each
with different investment objectives (the "Portfolios"). The Portfolios seek to
achieve their investment objectives by investing in shares of other open-end
investment companies ("mutual funds"). As of the date hereof, the Trust's series
are:
MARKMAN AGGRESSIVE ALLOCATION PORTFOLIO (formerly Markman Aggressive Growth
Fund) seeks capital appreciation without regard to current income.
MARKMAN MODERATE ALLOCATION PORTFOLIO (formerly Markman Moderate Growth
Fund) seeks long-term growth of capital and a reasonable level of income.
MARKMAN CONSERVATIVE ALLOCATION PORTFOLIO (formerly Markman Conservative
Growth Fund) seeks to provide current income and low to moderate growth of
capital.
MARKMAN INCOME ALLOCATION PORTFOLIO seeks to provide high current income
and low share price fluctuation.
At times, a Portfolio may invest all or a portion of its assets in money
market mutual funds. The Portfolio may not achieve its investment objective
during periods when it has taken such a temporary defensive position.
Set forth below is additional information with respect to the types of
securities and investment techniques of the underlying funds.
FOREIGN SECURITIES
An underlying fund may invest up to 100% of its assets in securities of foreign
issuers. Investments in foreign securities involve risks and considerations that
are not present when a Portfolio invests in domestic securities.
EXCHANGE RATES
Since an underlying fund may purchase securities denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value of
the underlying fund's (and accordingly a Portfolio's) assets from the
perspective of U.S. investors. Changes in foreign currency exchange rates may
also affect the value of dividends and interest earned, gains and losses
realized on the sale of securities and net investment income and gains, if any,
to be distributed by a mutual fund. An underlying fund may seek to protect
itself against the adverse effects of currency exchange rate fluctuations by
entering into currency-forward, futures or options contracts. Hedging
transactions will not, however, always be fully effective in protecting against
adverse exchange rate fluctuations. Furthermore, hedging transactions involve
transaction costs and the risk that the underlying fund will lose money, either
because exchange rates move in an unexpected direction, because another party to
a hedging contract defaults, or for other reasons.
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EXCHANGE CONTROLS
The value of foreign investments and the investment income derived from them may
also be affected by exchange control regulations. Although it is expected that
underlying funds will invest only in securities denominated in foreign
currencies that are fully exchangeable into U.S. dollars without legal
restriction at the time of investment, there is no assurance that currency
controls will not be imposed after the time of investment. In addition, the
value of foreign fixed-income investments will fluctuate in response to changes
in U.S. and foreign interest rates.
LIMITATIONS OF FOREIGN MARKETS
There is often less information publicly available about a foreign issuer than
about a U.S. issuer. Foreign issuers are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign issuers are less liquid and at
times more volatile than securities of comparable U.S. issuers. Foreign
brokerage commissions, custodial expenses, and other fees are also generally
higher than for securities traded in the United States. Foreign settlement
procedures and trade regulations may involve certain risks (such as delay in
payment or delivery of securities or in the recovery of an underlying fund's
assets held abroad) and expenses not present in the settlement of domestic
investments. A delay in settlement could hinder the ability of an underlying
fund to take advantage of changing market conditions, with a possible adverse
effect on net asset value. There may also be difficulties in enforcing legal
rights outside the United States.
FOREIGN LAWS, REGULATIONS AND ECONOMIES
There may be a possibility of nationalization or expropriation of assets,
imposition of currency exchange controls, confiscatory taxation, political or
financial instability, and diplomatic developments that could affect the value
of an underlying fund's investments in certain foreign countries. Legal remedies
available to investors in certain foreign countries may be more limited than
those available with respect to investments in the United States or in other
foreign countries. The laws of some foreign countries may limit an underlying
fund's ability to invest in securities of certain issuers located in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth or gross national
product, inflation rate, capital reinvestment, resource self-sufficiency and
balance of payment positions.
FOREIGN TAX CONSIDERATIONS
Income received by an underlying fund from sources within foreign countries may
be reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Any such taxes paid by an underlying fund will reduce the
net income of the underlying fund available for distribution to the Portfolios.
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EMERGING MARKETS
Risks may be intensified in the case of investments by an underlying fund in
emerging markets or countries with limited or developing capital markets.
Security prices in emerging markets can be significantly more volatile than in
more developed nations. Countries with emerging markets may have relatively
unstable governments, present the risk of nationalization of businesses,
restrictions on foreign ownership, or prohibitions on repatriation of assets,
and may have less protection of property rights than more developed countries.
The economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Securities of issuers located in countries with emerging markets may have
limited marketability and may be subject to more abrupt or erratic price
movements. Debt obligations of developing countries may involve a high degree of
risk, and may be in default or present the risk of default. Governmental
entities responsible for repayment of the debt may be unwilling to repay
principal and interest when due, and may require renegotiation or rescheduling
of debt payments.
CALCULATION OF NET ASSET VALUE
Foreign securities in which the underlying funds may invest may be listed
primarily on foreign stock exchanges that may trade on days when the New York
Stock Exchange is not open for business. Accordingly, the net asset value of an
underlying fund may be significantly affected by such trading on days when
neither Markman Capital nor you have access to the underlying funds and the
Portfolios.
FOREIGN CURRENCY TRANSACTIONS
An underlying fund may enter into forward contracts to purchase or sell an
agreed-upon amount of a specific currency at a future date that may be any fixed
number of days from the date of the contract agreed upon by the parties at a
price set at the time of the contract. Under such an arrangement, a fund would,
at the time it enters into a contract to acquire a foreign security for a
specified amount of currency, purchase with U.S. dollars the required amount of
foreign currency for delivery at the settlement date of the purchase; the
underlying fund would enter into similar forward currency transactions in
connection with the sale of foreign securities. The effect of such transactions
would be to fix a U.S. dollar price for the security to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the particular foreign currency during the period between the
date the security is purchased or sold and the date on which payment is made or
received (usually 3 to 14 days). While forward contracts tend to minimize the
risk of loss due to a decline in the value of the currency involved, they also
tend to limit any potential gain that might result if the value of such currency
were to increase during the contract period.
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TEMPORARY DEFENSIVE POSITION
An underlying fund may temporarily hold all or a portion of its assets in
short-term obligations such as bank debt instruments (certificates of deposit,
bankers' acceptances and time deposits), money market mutual funds, commercial
paper, U.S. Government obligations having a maturity of less than one year or
repurchase agreements. An underlying fund may not achieve its investment
objective during periods when it has taken such a temporary defensive position.
REPURCHASE AGREEMENTS
An underlying fund may enter into repurchase agreements with banks and
broker-dealers under which it acquires securities, subject to an agreement with
the seller to repurchase the securities at an agreed-upon time and an
agreed-upon price. Repurchase agreements involve certain risks, such as default
by, or insolvency of, the other party to the repurchase agreement. An underlying
fund's right to liquidate its collateral in the event of a default could involve
certain costs, losses or delays. To the extent that proceeds from any sale upon
default of the obligation to repurchase are less than the repurchase price, the
underlying fund could suffer a loss.
ILLIQUID AND RESTRICTED SECURITIES
An underlying fund may invest up to 15% of its net assets in securities for
which there is no readily available market ("illiquid securities"). This figure
includes securities whose disposition would be subject to legal restrictions
("restricted securities") and repurchase agreements having more than seven days
to maturity. Illiquid and restricted securities are not readily marketable
without some time delay. This could result in the underlying fund being unable
to realize a favorable price upon disposition of such securities, and in some
cases might make disposition of such securities at the time desired by the
mutual fund impossible.
The 1940 Act provides that a mutual fund whose shares are purchased by a
Portfolio is obliged to redeem shares held by the Portfolio only in an amount up
to 1% of the underlying mutual fund's outstanding securities during any period
of less than 30 days. Accordingly, shares held by a Portfolio in excess of 1% of
an underlying mutual fund's outstanding securities will be considered not
readily marketable securities that, together with other such securities, may not
exceed 15% of that Portfolio's net assets. However, since each Portfolio has
elected to reserve the right to pay redemption requests by a distribution in
kind of securities from its portfolio, instead of in cash, these positions may
be treated as liquid. Under certain circumstances an underlying fund may
determine to make payment of a redemption by a Portfolio (wholly or in part) by
a distribution in kind of securities from its portfolio, instead of in cash. As
a result, a Portfolio may hold securities distributed by an underlying fund
until such time as we determine it appropriate to dispose of such securities.
Such disposition will impose additional costs on the Portfolio.
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LOANS OF PORTFOLIO SECURITIES
An underlying fund may lend its portfolio securities as long as: (1) the loan is
continuously secured by collateral consisting of U.S. Government securities or
cash or cash equivalents maintained on a daily mark-to-market basis in an amount
at least equal to the current market value of the securities loaned; (2) the
underlying fund may at any time call the loan and obtain the securities loaned;
(3) the underlying fund will receive any interest or dividends paid on the
loaned securities; and (4) the aggregate market value of the securities loaned
will not at any time exceed one-third of the total assets of the underlying
fund. Lending portfolio securities involves risk of delay in the recovery of the
loaned securities and in some cases, the loss of rights in the collateral if the
borrower fails.
SHORT SALES
An underlying fund may sell securities short. In a short sale the underlying
fund sells stock it does not own and makes delivery with securities "borrowed"
from a broker. The underlying 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 underlying fund. Until the security is replaced, the underlying
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 underlying 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.
When it engages in short sales, an underlying 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). An underlying fund will incur a loss as a result of a short sale if
the price of the security increases between the date of the short sale and the
date on which the underlying fund replaces the borrowed security. The underlying
fund will realize a gain if the security declines in price between such dates.
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 underlying fund may be
required to pay in connection with a short sale.
SHORT SALES "AGAINST THE BOX"
A short sale is "against the box" if at all times when the short position is
open the underlying fund owns an equal amount of the securities or securities
convertible into, or exchangeable without further consideration for, securities
of the same issue as the securities sold short. Such a transaction serves to
defer a gain or loss for federal income tax purposes.
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INDUSTRY CONCENTRATION
An underlying fund may concentrate its investments within one industry. The
value of the shares of such a fund may be subject to greater market fluctuation
than an investment in a fund that invests in a broader range of securities.
MASTER DEMAND NOTES
An underlying fund (particularly an underlying money market fund) may invest up
to 100% of its assets in master demand notes. These are unsecured obligations of
U.S. corporations redeemable upon notice that permit investment by a mutual fund
of fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the mutual fund and the issuing corporation. Because master
demand notes are direct arrangements between the mutual fund and the issuing
corporation, there is no secondary market for the notes. The notes are, however,
redeemable at face value plus accrued interest at any time.
OPTIONS
An underlying fund may write (sell) listed call options ("calls") if the calls
are covered through the life of the option. A call is covered if the underlying
fund owns the optioned securities. When an underlying fund writes a call, it
receives a premium and gives the purchaser the right to buy the underlying
security at any time during the call period (usually not more than nine months
in the case of common stock) at a fixed exercise price regardless of market
price changes during the call period. If the call is exercised, the underlying
fund will forgo any gain from an increase in the market price of the underlying
security over the exercise price.
An underlying fund may purchase a call on securities to effect a "closing
purchase transaction." This is the purchase of a call covering the same
underlying security and having the same exercise price and expiration date as a
call previously written by the fund on which it wishes to terminate its
obligation. If the fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security until the call previously
written by the fund expires (or until the call is exercised and the fund
delivers the underlying security).
An underlying fund may write and purchase put options ("puts"). When a fund
writes a put, it receives a premium and gives the purchaser of the put the right
to sell the underlying security to the underlying fund at the exercise price at
any time during the option period. When an underlying fund purchases a put, it
pays a premium in return for the right to sell the underlying security at the
exercise price at any time during the option period. An underlying fund also may
purchase stock index puts, which differ from puts on individual securities in
that they are settled in cash based upon values of the securities in the
underlying index rather than by delivery of the underlying securities. Purchase
of a stock index put is designed to protect against a decline in the value of
the portfolio generally rather than an individual security in the portfolio. If
any put is not exercised or sold, it will become worthless on its expiration
date.
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A mutual fund's option positions may be closed out only on an exchange which
provides a secondary market for options of the same series, but there can be no
assurance that a liquid secondary market will exist at any given time for any
particular option.
A custodian, or a securities depository acting for it, generally acts as escrow
agent for the securities upon which the underlying fund has written puts or
calls, or as to other securities acceptable for such escrow so that no margin
deposit is required of the underlying fund. Until the underlying securities are
released from escrow, they cannot be sold by the fund.
In the event of a shortage of the underlying securities deliverable in the
exercise of an option, the Options Clearing Corporation has the authority to
permit other generally comparable securities to be delivered in fulfillment of
option exercise obligations. If the Options Clearing Corporation exercises its
discretionary authority to allow such other securities to be delivered, it may
also adjust the exercise prices of the affected options by setting different
prices at which otherwise ineligible securities may be delivered. As an
alternative to permitting such substitute deliveries, the Options Clearing
Corporation may impose special exercise settlement procedures.
OPTIONS TRADING MARKETS
Options in which the underlying funds will invest are generally listed on
Exchanges. Options on some securities may not, however, be listed on any
Exchange but traded in the over-the-counter market. Options traded in the
over-the-counter market involve the additional risk that securities dealers
participating in such transactions would fail to meet their obligations to the
fund.
FUTURES CONTRACTS
An underlying fund may enter into futures contracts for the purchase or sale of
debt securities and stock indexes. A futures contract is an agreement between
two parties to buy and sell a security or an index for a set price on a future
date. Futures contracts are traded on designated "contract markets" which,
through their clearing corporations, guarantee performance of the contracts. A
financial futures contract sale creates an obligation by the seller to deliver
the type of financial instrument called for in the contract in a specified
delivery month for a stated price. A financial futures contract purchase creates
an obligation by the purchaser to take delivery of the type of financial
instrument called for in the contract in a specified delivery month at a stated
price. The specific instruments delivered or taken, respectively, at settlement
date are not determined until on or near such date. The determination is made in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made. Futures contracts are traded in the United States only on
commodity exchanges or boards of trade (known as "contract markets") approved
for such trading by the Commodity Futures Trading Commission, and must be
executed through a futures commission merchant or brokerage firm that is a
member of the relevant contract market.
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Closing out a futures contract sale is effected by purchasing a futures contract
for the same aggregate amount of the specific type of financial instrument or
commodity with the same delivery date. If the price of the initial sale of the
futures contract exceeds the price of the offsetting purchase, the seller is
paid the difference and realizes a gain. On the other hand, if the price of the
offsetting purchase exceeds the price of the initial sale, the seller realizes a
loss. The closing out of a futures contract purchase is effected by the
purchaser entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if the purchase
price exceeds the offsetting sale price, the purchaser realizes a loss.
An underlying fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the securities held by an underlying fund will fall,
thus reducing its net asset value. This interest rate risk may be reduced
without the use of futures as a hedge by selling such securities and either
reinvesting the proceeds in securities with shorter maturities or by holding
assets in cash. This strategy, however, entails increased transaction costs in
the form of dealer spreads and brokerage commissions and would typically reduce
the fund's average yield as a result of the shortening of maturities.
The sale of financial futures contracts serves as a means of hedging against
rising interest rates. As interest rates increase, the value of an underlying
fund's short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of the
fund's investments being hedged.
An underlying fund may purchase interest rate futures contracts in anticipation
of a decline in interest rates when it is not fully invested. As such purchases
are made, an underlying fund would probably expect that an equivalent amount of
futures contracts will be closed out.
Unlike when an underlying fund purchases or sells a security, no price is paid
or received by the fund upon the purchase or sale of a futures contract. Upon
entering into a contract, the underlying fund is required to deposit with its
custodian in a segregated account in the name of the futures broker an amount of
cash and/or U.S. Government securities. This is known as "initial margin."
Initial margin is similar to a performance bond or good faith deposit which is
returned to an underlying fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied. Futures contracts also
involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance margin," to and
from the broker (or the custodian) are made on a daily basis as the price of the
underlying security or commodity fluctuates, making the long and short positions
in the futures contract more or less valuable. This is known as "marking to the
market."
An underlying fund may elect to close some or all of its futures positions at
any time prior to their expiration in order to reduce or eliminate a hedge
position then currently held by the fund. The underlying fund may close its
positions by taking opposite positions that will operate to
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terminate the fund's position in the futures contracts. Final determinations of
variation margin are then made, additional cash is required to be paid by or
released to the underlying fund, and the fund realizes a loss or a gain. Such
closing transactions involve additional commission costs.
A stock index futures contract may be used to hedge an underlying fund's
portfolio with regard to market risk as distinguished from risk related to a
specific security. A stock index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. A stock index futures contract does not require the physical
delivery of securities, but merely provides for profits and losses resulting
from changes in the market value of the contract to be credited or debited at
the close of each trading day to the respective accounts of the parties to the
contract. On the contract's expiration date, a final cash settlement occurs.
Changes in the market value of a particular stock index futures contract reflect
changes in the specified index of equity securities on which the future is
based.
In the event of an imperfect correlation between the futures contract and the
portfolio position that is intended to be protected, the desired protection may
not be obtained and the fund may be exposed to risk of loss. Further,
unanticipated changes in interest rates or stock price movements may result in a
poorer overall performance for the fund than if it had not entered into futures
contracts on debt securities or stock indexes.
The market prices of futures contracts may also be affected by certain factors.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, you may close futures contracts through offsetting transactions,
which could distort the normal relationship between the securities and futures
markets. Second, the deposit requirements in the futures market are less
stringent than margin requirements in the securities market. Accordingly,
increased participation by speculators in the futures market may also cause
temporary price distortions.
Positions in futures contracts may be closed out only on an exchange or board of
trade providing a secondary market for such futures. There is no assurance that
a liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time.
In order to assure that mutual funds have sufficient assets to satisfy their
obligations under their futures contracts, the underlying funds are required to
establish segregated accounts with their custodians. Such segregated accounts
are required to contain an amount of cash, U.S. Government securities and other
liquid securities equal in value to the current value of the underlying
instrument less the margin deposit.
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The risk to an underlying fund from investing in futures is potentially
unlimited. Gains and losses on investments in options and futures depend upon
the underlying fund's investment adviser's ability to predict correctly the
direction of stock prices, interest rates and other economic factors.
OPTIONS ON FUTURES CONTRACTS
An underlying fund may also purchase and sell listed put and call options on
futures contracts. An option on a futures contract gives the purchaser the right
in return for the premium paid, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put), at a specified exercise price at any time during the option period. When
an option on a futures contract is exercised, delivery of the futures position
is accompanied by cash representing the difference between the current market
price of the futures contract and the exercise price of the option. The
underlying fund may also purchase put options on futures contracts in lieu of,
and for the same purpose as, a sale of a futures contract. An underlying fund
may also purchase such put options in order to hedge a long position in the
underlying futures contract in the same manner as it purchases "protective puts"
on securities.
The holder of an option may terminate the position by selling an option of the
same series. There is, however, no guarantee that such a closing transaction can
be effected. An underlying fund is required to deposit initial and maintenance
margin with respect to put and call options on futures contracts written by it
pursuant to brokers' requirements similar to those applicable to futures
contracts described above and, in addition, net option premiums received will be
included as initial margin deposits.
In addition to the risks which apply to all options transactions, there are
several risks relating to options on futures contracts. The ability to establish
and close out positions on such options is subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop. In comparison with the use of futures contracts, the purchase of
options on futures contracts involves less potential risk to a fund because the
maximum amount of risk is the premium paid for the option (plus transaction
costs). There may, however, be circumstances when the use of an option on a
futures contract would result in a loss to an underlying fund when the use of a
futures contract would not, such as when there is no movement in the prices of
the underlying securities. Writing an option on a futures contract involves
risks similar to those arising in the sale of futures contracts, as described
above.
HEDGING
An underlying fund may employ many of the investment techniques described above
for investment and hedging purposes. Although hedging techniques generally tend
to minimize the risk of loss that is hedged against, they also may limit the
potential gain that might have resulted had the hedging transaction not
occurred. Also, the desired protection generally resulting from hedging
transactions may not always be achieved.
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WARRANTS
An underlying fund may invest in warrants. Warrants are options to purchase
equity securities at specific prices valid for a specified period of time. The
prices do not necessarily move in parallel to the prices of the underlying
securities. Warrants have no voting rights, receive no dividends and have no
rights with respect to the assets of the issuer. If a warrant is not exercised
within the specified time period, it becomes worthless and the mutual fund loses
the purchase price and the right to purchase the underlying security.
LEVERAGE
An underlying fund may borrow on an unsecured basis from banks to increase its
holdings of portfolio securities. Under the 1940 Act, such fund is required to
maintain continuous asset coverage of 300% with respect to such borrowings and
to sell (within three days) sufficient portfolio holdings in order to restore
such coverage if it should decline to less than 300% due to market fluctuation
or otherwise. Such sale must occur even if disadvantageous from an investment
point of view. Leveraging aggregates the effect of any increase or decrease in
the value of portfolio securities on the underlying fund's net asset value. In
addition, money borrowed is subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances) which
may or may not exceed the interest and option premiums received from the
securities purchased with borrowed funds.
HIGH YIELD SECURITIES AND THEIR RISKS
An underlying fund may invest in high yield, high-risk, lower-rated securities,
commonly known as "junk bonds." Such fund's investment in such securities is
subject to the risk factors outlined below.
YOUTH AND GROWTH OF THE HIGH YIELD BOND MARKET
The high yield, high risk market has at times been subject to substantial
volatility. An economic downturn or increase in interest rates may have a more
significant effect on such securities as well as on the ability of securities'
issuers to repay principal and interest. Issuers of such securities may be of
low creditworthiness and the securities may be subordinated to the claims of
senior lenders. During periods of economic downturn or rising interest rates,
the issuers of high yield, high risk securities may have greater potential for
insolvency.
SENSITIVITY OF INTEREST RATE AND ECONOMIC CHANGES
The prices of high yield, high risk securities have been found to be less
sensitive to interest rate changes than higher-rated investments but are more
sensitive to adverse economic changes or individual corporate developments.
Yields on high yield, high risk securities will fluctuate over time.
Furthermore, in the case of high yield, high risk securities structured as zero
coupon or pay-in-kind securities, their market prices are affected to a greater
extent by interest rate changes and thereby tend to be more volatile than market
prices of securities which pay interest periodically and in cash.
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PAYMENT EXPECTATIONS
Certain securities held by an underlying fund, including high yield, high risk
securities, may contain redemption or call provisions. If an issuer exercises
these provisions in a declining interest rate market, such fund would have to
replace the security with a lower yielding security, resulting in a decreased
return for the investor. Conversely, a high yield, high risk security's value
will decrease in a rising interest rate market, as will the value of the
underlying fund's assets.
LIQUIDITY AND VALUATION
The secondary market may at times become less liquid or respond to adverse
publicity or investor perceptions, making it more difficult for an underlying
fund to accurately value high yield, high risk securities or dispose of them. To
the extent such fund owns or may acquire illiquid or restricted high yield, high
risk securities, these securities may involve special registration
responsibilities, liabilities and costs, and liquidity difficulties, and
judgment will play a greater role in valuation because there is less reliable
and objective data available.
TAXATION
Special tax considerations are associated with investing in high yield bonds
structured as zero coupon or pay-in-kind securities. An underlying fund will
report the interest on these securities as income even though it receives no
cash interest until the security's maturity or payment date.
CREDIT RATINGS
Credit ratings evaluate the safety of principal and interest payments, not the
market value risk of high yield, high risk securities. Since credit rating
agencies may fail to change the credit ratings in a timely manner to reflect
subsequent events, the investment adviser to an underlying fund should monitor
the issuers of high yield, high risk securities in the fund's portfolio to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to attempt to assure the
securities' liquidity so the fund can meet redemption requests. To the extent
that an underlying fund invests in high yield, high risk securities, the
achievement of the fund's investment objective may be more dependent on the
underlying fund's own credit analysis than is the case for higher quality bonds.
ASSET-BACKED SECURITIES
An underlying fund may invest in mortgage pass-through securities, which are
securities representing interests in pools of mortgage loans secured by
residential or commercial real property in which payments of both interest and
principal on the securities are generally made monthly, in effect passing
through monthly payments made by individual borrowers on mortgage loans which
underlie the securities (net of fees paid to the issuer or guarantor of the
securities). Early repayment of principal on some
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mortgage-related securities (arising from prepayments of principal due to sale
of the underlying property, refinancing, or foreclosure, net of fees and costs
which may be incurred) may expose an underlying fund to a lower rate of return
upon reinvestment of principal. Also, if a security subject to prepayment has
been purchased at a premium, the value of the premium would be lost in the event
of prepayment.
Like other fixed-income securities, when interest rates rise, the value of a
mortgage-related security generally will decline; however, when interest rates
are declining, the value of mortgage-related securities with prepayment features
may not increase as much as other fixed income securities.
An underlying fund may invest in collateralized mortgage obligations ("CMOs"),
which are hybrid mortgage-related instruments. Similar to a bond, interest and
pre-paid principal on a CMO are paid, in most cases, semiannually. CMOs are
collateralized by portfolios of mortgage pass-through securities and are
structured into multiple classes with different stated maturities. Monthly
payments of principal, including prepayments, are first returned to investors
holding the shortest maturity class; investors holding the longer maturity
classes receive principal only after the first class has been retired.
Other mortgage-related securities in which an underlying fund may invest include
other securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans on real property, such as CMO
residuals or stripped mortgage-backed securities, and may be structured in
classes with rights to receive varying proportions of principal and interest. In
addition, the underlying funds may invest in other asset-backed securities that
have been offered to investors or will be offered to investors in the future.
Several types of asset-backed securities have already been offered to investors,
including certificates for automobile receivables, which represent undivided
fractional interests in a trust whose assets consist of a pool of motor vehicle
retail installment sales contracts and security interest in the vehicles
securing the contracts.
INVESTMENT RESTRICTIONS
-----------------------
FUNDAMENTAL INVESTMENT POLICIES. Each Portfolio has adopted certain
fundamental investment policies. These fundamental investment policies cannot be
changed unless the change is approved by the lesser of (1) 67% of more of the
voting securities present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present or represented by
proxy, or (2) more than 50% of the outstanding voting securities of the
Portfolio. These fundamental policies provide that a Portfolio may not:
1. Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests therein, except that a Portfolio may
purchase securities issued by issuers, including real estate
investment trusts, which invest in real estate or interests therein.
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<PAGE>
2. Make loans.
3. Purchase the securities of an issuer if one or more of the Trustees or
officers of the Trust individually owns more than one half of 1% of
the outstanding securities of such issuer and together beneficially
own more than 5% of such securities.
4. Make short sales of securities.
5. Invest in puts, calls, straddles, spreads or combinations thereof.
6. Purchase securities on margin, except that a Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities.
7. Purchase or acquire commodities or commodity contracts.
8. Act as an underwriter of securities of other issuers except to the
extent that in selling portfolio securities, it may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
9. Issue senior securities, except as appropriate to evidence
indebtedness that the Portfolio is permitted to incur.
10. Purchase or sell interests in oil, gas or other mineral leases,
exploration or development programs (although it may invest in
companies which own or invest in such interests).
11. Invest more than 25% of its total assets in the securities of
investment companies which themselves concentrate although each
Portfolio will itself concentrate its investments in investment
companies.
As non-fundamental policies a Portfolio may not:
1. Invest in securities for the purpose of exercising control over or
management of the issuer.
2. Purchase securities of any closed-end investment company or any
investment company the shares of which are not registered in the
United States.
3. Invest in real estate limited partnerships.
The mutual funds in which the Portfolios may invest may, but need not, have
the same investment policies as a Portfolio. Although all of the Portfolios may
from time to time invest in shares of the same underlying mutual fund, the
percentage of each Portfolio's assets so invested may vary, and the Portfolios'
investment adviser will determine that such investments are consistent with the
investment objectives and policies of each Portfolio.
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QUALITY RATINGS OF DEBT SECURITIES
----------------------------------
STANDARD & POOR'S CORPORATION (S&P) BOND RATINGS
An S&P corporate bond rating is a current assessment of the credit
worthiness of an obligor, with respect to a specific obligation. This assessment
may take into consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a security
inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform any audit in connection with the ratings and may, on occasion, rely
on unaudited financial information.
The ratings are based, in varying degrees, on the following considerations:
(a) likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (b) nature of and provisions of the obligation; and (c)
protection afforded by and relative position of the obligation in the event of
bankruptcy reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights. To provide more detailed indications of
credit quality, ratings from "AA" to "CCC" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.
S&P's bond ratings are as follows:
AAA - Bonds rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A - Bonds rated A have strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Bonds rated BBB are regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
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BB, B, CCC, CC - Bonds rated BB, B, CCC or CC are regarded on balanced, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's NOTE RATINGS
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria are used in making that assessment: (a)
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note), and (b) Source of
payment (the more dependent the issue is on the market for its refinancing, the
more likely it will be treated as a note).
S&P's Note ratings are as follows:
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
SP-3 - Speculative capacity to pay principal and interest.
Demand Bonds: S&P assigns "Dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature. The first rating
addresses the likelihood of repayment of principal and interest as due, and the
second rating addresses only the demand feature. The long-term debt rating
symbols are used for bonds to denote the long-term maturity and the commercial
paper ratings symbols are used to denote the put options (for example,
"AAA/A-1+"). For the newer "Demand Notes," S&P note rating symbols, combined
with the commercial paper symbols, are used (for example, SP-1+/A-1+").
MOODY'S CORPORATE BOND RATINGS
Moody's bond ratings are as follows:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or
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by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes and
are considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3, in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Ba - Bonds that are rated Baa are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time, may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
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C - Bonds rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
MOODY'S NOTE RATINGS
Moody's ratings for short-term obligations will be designated Moody's
Investment Grade (MIG). This distinction is in recognition of the differences
between short-term credit risk and long-term risk. Factors affecting the
liquidity of the borrower are uppermost in importance in short-term borrowing,
while various factors of major importance in bond risk are of lesser importance
over the short run.
Rating symbols and their meanings follow:
MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG 2 - This designation denotes high quality. Margins of protection are
ample, although not so large as in the preceding group.
MIG 3 - This designation denotes favorable quality. All security elements
are accounted for, but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 - This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and, although not
distinctly or predominantly speculative, there is specific risk.
TRUSTEES AND OFFICERS
---------------------
The following is a list of the Trustees and executive officers of the Trust
and their aggregate compensation from the Trust for the fiscal year ended
December 31, 1998. As described below, certain of the executive officers of the
Trust are affiliates of organizations that provide services to the Trust. These
organizations are Markman Capital Management, Inc., the Portfolios' investment
adviser, Markman Securities, Inc., the Portfolios' principal underwriter, and
Countrywide Fund Services, Inc., the Portfolios' transfer agent and
administrator. Emilee Markman is married to Robert J. Markman.
COMPENSATION
NAME AGE POSITION HELD FROM TRUST
- -------------------- --- ------------- ------------
Richard Edwin Dana 52 Trustee $6,000
+Peter Dross 42 Trustee 6,500
*Judith E. Fansler 48 Trustee 0
+Susan Gale 46 Trustee 6,500
Susan M. Lindgren 34 Trustee 6,000
*Richard W. London 56 Trustee 0
Melinda S. Machones 44 Trustee 5,250
*Emilee Markman 45 Trustee 6,000
*Robert J. Markman 47 Chairman of the Board 0
of Trustees and President
+Michael J. Monahan 48 Trustee 6,500
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Robert L. Bennett 57 Treasurer 0
Tina D. Hosking 30 Secretary 0
* An "interested person" of the Trust as such term is defined in the
Investment Company Act of 1940.
+ Member of Audit Committee.
The principal occupations of the Trustees and executive officers of the
Trust during the past five years are set forth below:
RICHARD EDWIN DANA, 748 Goodrich Avenue, Saint Paul, Minnesota 55105 --
Managing Member, JET Construction and Remodeling L.L.C.
PETER DROSS, 717 East River Road, Minneapolis, Minnesota 55455 -- Director
of Development, The Center for Victims of Torture, Minneapolis, Minnesota
(provider of treatment and rehabilitation services to survivors of
politically-motivated torture).
JUDITH E. FANSLER, 6600 France Avenue South, Suite 565, Edina, Minnesota
55435 -- Chief Operating Officer, Markman Capital Management, Inc.
SUSAN GALE, 235 King Creek Road, Golden Valley, Minnesota 55416 --
Homemaker and a realtor with Edina Realty.
SUSAN M. LINDGREN, 5560 Nathan Lane #1, Plymouth, Minnesota 55442 --
Partner and Executive Director of VISTAR Integrated Programs International,
Plymouth, Minnesota (experiential education company) (February 1996 Present).
She was previously President/Sole Proprietor, Anything is Possible and
kidvironments, Andover, Minnesota (Anything is Possible was a consulting firm
offering customized experiential work shops for personal effectiveness, team
building and leadership; kidvironments created custom interior and exterior
environments for children of any age); Contract Employee, Lifespring, San
Rafael, California (Lifespring offers experiential personal effectiveness
courses internationally); Executive Vice President, Personal Empowerment
Resource Center! ("PERC!"), Minneapolis, Minnesota (PERC! offered experiential
personal effectiveness courses).
RICHARD W. LONDON, 6600 France Avenue South, Suite 565, Edina, Minnesota
55435 -- Chief Financial Officer, Markman Capital Management, Inc., and Vice
President, Treasurer, Director and Chief Financial Officer of Markman
Securities, Inc.
MELINDA S. MACHONES, 2138 Ponderosa Circle, Duluth, Minnesota 55811 --
Director of Information Technologies, The College of St. Scholastica (December
1994 to Present); Principal, INDUS Systems (computer consulting) (September
1993-December 1994).
EMILEE MARKMAN, 5132 Mirror Lakes Drive, Edina, Minnesota 55436 --
Executive Director, Markman Capital Foundation.
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ROBERT J. MARKMAN, 6600 France Avenue South, Suite 565, Edina, Minnesota
55435 -- President, Treasurer and Secretary, Markman Capital Management, Inc.
MICHAEL J. MONAHAN, One Shelby Place, St. Paul, Minnesota 55116 -- Vice
President, External Relations, Ecolab Inc. (June 1994 - Present) (provider of
premium institutional cleaning and sanitizing products and services worldwide);
Vice President, Investor Relations, Ecolab Inc. (May 1992 - June 1994).
ROBERT L. BENNETT, 312 Walnut Street, Cincinnati, Ohio, is First Vice
President and Chief Operations Officer of Countrywide Fund Services, Inc. (a
registered transfer agent). He is also Treasurer of Albemarle Investment Trust,
Atalanta/Sosnoff Investment Trust, Dean Family of Funds, The New York State
Opportunity Funds, Profit Funds Investment Trust, Wells Family of Real Estate
Funds, Williamsburg Investment Trust and The Winter Harbor Fund and Assistant
Treasurer of Boyar Value Fund, Inc., Brundage, Story and Rose Investment Trust
and Schwartz Investment Trust (all of which are registered investment
companies).
TINA D. HOSKING, 312 Walnut Street, Cincinnati, Ohio, is Assistant Vice
President and Associate General Counsel of Countrywide Fund Services, Inc. She
is also Secretary of Albemarle Investment Trust, Atalanta/Sosnoff Investment
Trust, The Bjurman Funds, Brundage, Story and Rose Investment Trust, Boyar Value
Fund, Inc., Dean Family of Funds, The New York State Opportunity Funds, Profit
Funds Investment Trust, The Thermo Opportunity Fund, Inc., UC Investment Trust,
Wells Family of Real Estate Funds, Williamsburg Investment Trust and The Winter
Harbor Fund and Assistant Secretary of The Gannett Welsh & Kotler Funds, The
James Advantage Funds, Lake Shore Family of Funds, Schwartz Investment Trust and
The Westport Funds.
The Trustees who are not employed by the Adviser each receive a $3,000
annual retainer to be paid $750 per quarter, plus a $750 fee for each Board
meeting attended. Audit Committee members each receive an annual retainer of
$500.
The Trust's Declaration of Trust provides that the Trust will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved as a result of their positions
with the Trust, unless, as to liability to the Trust or its shareholders, it is
finally adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust and its Portfolios. In the case of settlement, such
indemnification will not be provided unless it has been determined by a court or
other body approving the settlement or other disposition, or by a reasonable
determination, based upon a review of readily available facts, by vote of a
majority of disinterested Trustees or in a written opinion of independent
counsel, that such officers or Trustees have not engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of their duties.
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PRINCIPAL SECURITY HOLDERS
--------------------------
As of January 18, 1999, Charles Schwab & Co., Inc., 101 Montgomery Street,
San Francisco, California 94104, owned of record 13.0% of the outstanding shares
of the Markman Aggressive Allocation Portfolio, 18.5% of the outstanding share s
of the Markman Moderate Allocation Portfolio and 9.1% of the outstanding shares
of the Markman Conservative Allocation Portfolio. As of such date, Landscape
Structures Inc. Profit Sharing Plan, 601 7th Street South, Delano, Minnesota
55369, owned of record 7.0% of the outstanding shares of the Markman Aggressive
Allocation Portfolio.
As of January 18, 1999, the Trustees and officers of the Trust as a group
owned of record and beneficially less than 1% of the outstanding shares of the
Trust and of each Portfolio.
INVESTMENT MANAGER
------------------
Markman Capital Management, Inc. ("Markman Capital") serves as investment
manager to the Trust and its Portfolios pursuant to a written investment
management agreement. Markman Capital is a Minnesota corporation organized in
1990, and is a registered investment adviser under the Investment Advisers Act
of 1940, as amended. Robert J. Markman, Chairman of the Board of Trustees and
President of the Trust, is the controlling shareholder of Markman Capital and
its President, Treasurer and Secretary. Markman Capital is the sole shareholder
of Markman Securities, Inc., the Portfolios' principal underwriter. Richard W.
London and Judith E. Fansler, employees of Markman Capital, also serve as
Trustees of the Trust.
Certain services provided by Markman Capital under the investment
management agreement are described in the Prospectus. In addition to those
services, Markman Capital may, from time to time, provide the Portfolios with
office space for managing their affairs, with the services of required executive
personnel, and with certain clerical services and facilities. These services are
provided without reimbursement by the Portfolios for any costs incurred. As
compensation for its services, each Portfolio pays Markman Capital a fee based
upon average daily net asset value. This fee is computed daily and paid monthly.
The rate at which the fee is paid is described in the Prospectus. For the fiscal
year ended December 31, 1998, the Markman Aggressive Allocation Portfolio, the
Markman Moderate Allocation Portfolio and the Markman Conservative Allocation
Portfolio paid advisory fees of $777,300, $771,113 and $304,465, respectively.
For the fiscal year ended December 31, 1997, the Markman Aggressive Allocation
Portfolio, the Markman Moderate Allocation Portfolio and the Markman
Conservative Allocation Portfolio paid advisory fees of $779,884, $784,937 and
$354,506, respectively. For the fiscal year ended December 31, 1996, the Markman
Aggressive Allocation Portfolio, the Markman Moderate Allocation Portfolio and
the Markman Conservative Allocation Portfolio paid advisory fees of $847,620,
$772,803 and $270,354, respectively.
Markman Capital pays out of the investment management fees it receives from
the Portfolios, all the expenses of the Portfolios except brokerage commissions,
taxes, interest, fees and expenses of the non-interested Trustees of the Trust
and extraordinary expenses. Markman Capital is contractually required to reduce
its management fee in an amount equal to
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each Portfolio's allocable portion of the fees and expenses of the
non-interested Trustees. The investment management agreement with Markman
Capital provides that if the total expenses of a Portfolio in any fiscal year
exceed the permissible limits applicable to the Portfolio in any state in which
shares of the Portfolio are then qualified for sale, the compensation due
Markman Capital for such fiscal year shall be reduced by the amount of such
excess by a reduction or refund thereof at the time such compensation is payable
after the end of each calendar month during such fiscal year of the Portfolio,
subject to readjustment during the Portfolio's fiscal year.
By its terms, the Trust's investment management agreement remains in effect
from year to year, subject to annual approval by (a) the Board of Trustees or
(b) a vote of the majority of a Portfolio's outstanding voting securities;
provided that in either event continuance is also approved by a majority of the
Trustees who are not interested persons of the Trust, by a vote cast in person
at a meeting called for the purpose of voting such approval. The Trust's
investment management agreement may be terminated at any time, on sixty days'
written notice, without the payment of any penalty, by the Board of Trustees, by
a vote of the majority of a Portfolio's outstanding voting securities, or by
Markman Capital. The investment management agreement automatically terminates in
the event of its assignment, as defined by the Investment Company Act of 1940
and the rules thereunder.
TRANSFER AGENT AND ADMINISTRATOR
--------------------------------
The Board of Trustees of the Trust has approved an Administration,
Accounting and Transfer Agency Agreement among the Trust, Countrywide Fund
Services, Inc. ("Countrywide") and Markman Capital. Pursuant to such Agreement,
Countrywide serves as the Trust's transfer and dividend paying agent and
performs shareholder service activities. Countrywide also calculates daily net
asset value per share and maintains such books and records as are necessary to
enable it to perform its duties. The administrative services necessary for the
operation of the Trust and its Portfolios provided by Countrywide include among
other things (i) preparation of shareholder reports and communications, (ii)
regulatory compliance, such as reports to and filings with the Securities and
Exchange Commission and state securities commissions and (iii) general
supervision of the operation of the Trust and its Portfolios, including
coordination of the services performed by Markman Capital, the custodian,
independent accountants, legal counsel and others. In addition, Countrywide
furnishes office space and facilities required for conducting the business of
the Trust and pays the compensation of the Trust's officers and employees
affiliated with Countrywide. For these services, Countrywide receives from
Markman Capital, out of the investment advisory fee paid to Markman Capital by
each Portfolio, a base fee of $15,000, an additional fee based upon the number
of shareholder accounts, and an additional fee at the annual rate of .04% of
aggregate average daily net assets of the Portfolios up to $200 million, .03% of
such assets between $200 million and $500 million, and .02% of such assets in
excess of $500 million. For the fiscal years ended December 31, 1998, 1997 and
1996, Markman Capital paid fees of $278,938, $283,156 and $283,773,
respectively, to Countrywide. Countrywide also receives reimbursement for
certain out-of-pocket expenses incurred in rendering such services.
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<PAGE>
Countrywide is a wholly-owned subsidiary of Countrywide Financial Services,
Inc., which in turn is a wholly-owned subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending. Countrywide and its affiliates
currently provide administrative and distribution services for certain other
registered investment companies. The Portfolios will not invest in these funds
or in any other fund which may in the future be affiliated with Countrywide or
any of its affiliates. The principal business address of Countrywide is 312
Walnut Street, 21st Floor, Cincinnati, Ohio 45202-5354.
CALCULATION OF SHARE PRICE
--------------------------
The share price (net asset value) of the shares of each Portfolio is
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) on each day the Trust is open
for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. The Trust may also be open for business on other
days in which there is sufficient trading in any Portfolio's securities that its
net asset value might be materially affected. For a description of the methods
used to determine the share price, see "Determination of Net Asset Value" in the
Prospectus.
TAXES
-----
The Prospectus describes generally the tax treatment of distributions by
the Portfolios. This section of the Statement of Additional Information includes
additional information concerning federal taxes.
Each Portfolio has qualified and intends to qualify annually for the
special tax treatment afforded a "regulated investment company" under Subchapter
M of the Internal Revenue Code so that it does not pay federal taxes on income
and capital gains distributed to shareholders. To so qualify a Portfolio must,
among other things, (i) derive at least 90% of its gross income in each taxable
year from dividends, interest, payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currency, or
certain other income (including but not limited to gains from options, futures
and forward contracts) derived with respect to its business of investing in
stock, securities or currencies; and (ii) diversify its holdings so that at the
end of each quarter of its taxable year the following two conditions are met:
(a) at least 50% of the value of the Portfolio's total assets is represented by
cash, U.S. Government securities, securities of other regulated investment
companies and other securities (for this purpose such other securities will
qualify only if the Portfolio's investment is limited in respect to any issuer
to an amount not greater than 5% of the Portfolio's assets and 10% of the
outstanding voting securities of such issuer) and (b) not more than 25% of the
value of the Portfolio's assets is invested in securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies).
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<PAGE>
A Portfolio's net realized capital gains from securities transactions will
be distributed only after reducing such gains by the amount of any available
capital loss carryforwards. Capital losses may be carried forward to offset any
capital gains for eight years, after which any undeducted capital loss remaining
is lost as a deduction.
A federal excise tax at the rate of 4% will be imposed on the excess, if
any, of a Portfolio's "required distribution" over actual distributions in any
calendar year. Generally, the "required distribution" is 98% of a Portfolio's
ordinary income for the calendar year plus 98% of its net capital gains
recognized during the one year period ending on October 31 of the calendar year
plus undistributed amounts from prior years. The Portfolios intend to make
distributions sufficient to avoid imposition of the excise tax.
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
REDEMPTION OF SHARES
--------------------
Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend the right to redeem its shares or postpone the date of
payment upon redemption for more than three business days (i) for any period
during which the New York Stock Exchange is closed (other than customary weekend
or holiday closings) or trading on the exchange is restricted; (ii) for any
period during which an emergency exists as a result of which disposal by a
Portfolio of securities owned by it is not reasonably practicable or it is not
reasonably practicable for a Portfolio fairly to determine the value of its net
assets; or (iii) for such other periods as the Securities and Exchange
Commission may permit for the protection of shareholders of the Trust.
SPECIAL REDEMPTIONS
-------------------
If the Board of Trustees of the Trust determines that it would be
detrimental to the best interests of the remaining shareholders of a Portfolio
to make payment wholly or partly in cash, that Portfolio may pay the redemption
price in whole or in part by a distribution in kind of securities (mutual fund
shares) from the portfolio of that Portfolio, instead of in cash, in conformity
with applicable rules of the Securities and Exchange Commission. The Trust will,
however, redeem shares solely in cash up to the lesser of $250,000 or 1% of its
net assets during any 90-day period for any one shareholder. The proceeds of
redemption may be more or less than the amount invested and, therefore, a
redemption may result in a gain or loss for federal income tax purposes.
CUSTODIAN
---------
Pursuant to a Custodian Agreement between the Trust, State Street Bank and
Trust Company ("State Street") and Markman Capital, State Street provides
custodial services to the Trust and each of the Portfolios. The principal
business address of State Street is 225 Franklin Street, Boston, Massachusetts
02110.
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AUDITORS AND LEGAL COUNSEL
--------------------------
The firm of Arthur Andersen LLP has been selected as independent public
accountants for the Trust for the fiscal year ending December 31, 1999. Arthur
Andersen LLP, 425 Walnut Street, Cincinnati, Ohio, performs an annual audit of
the Trust's financial statements and advises the Portfolios as to certain
accounting matters.
Sullivan & Worcester LLP, Washington, D.C., is legal counsel to the Trust.
DISTRIBUTOR
-----------
Markman Securities, Inc. (the "Distributor") is the principal underwriter
of the Portfolios, and, as such, the exclusive agent of distribution of shares
of the Portfolios. The Distributor is obligated to sell the shares, to or
through qualified securities dealers or others, on a best efforts basis only
against purchase orders for the shares. Shares of the Portfolios are offered to
the public on a continuous basis. The Distributor is a wholly-owned subsidiary
of Markman Capital and is located at the same address as Markman Capital.
Richard W. London is both a Trustee of the Trust and Vice President, Secretary,
Director and Chief Financial Officer of the Distributor.
PORTFOLIO TRANSACTIONS
----------------------
Markman Capital is responsible for decisions to buy and sell securities for
the Portfolios and for the placement of the Portfolios' portfolio business and
negotiation of commissions, if any, paid on these transactions.
The Portfolios will arrange to be included within a class of investors
entitled not to pay sales charges by purchasing load fund shares under letters
of intent, rights of accumulation, cumulative purchase privileges and other
quantity discount programs.
Each Portfolio may purchase shares of underlying funds which charge a
redemption fee. A redemption fee is a fee imposed by an underlying fund upon
shareholders (such as a Portfolio) redeeming shares of such fund within a
certain period of time (such as one year). The fee is payable to the underlying
fund. Accordingly, if a Portfolio were to invest in an underlying fund and, as a
result of redeeming shares in such underlying fund, incur a redemption fee, the
redeeming Portfolio would bear such redemption fee. The Portfolios will not,
however, invest in shares of a mutual fund that is sold with a contingent
deferred sales load.
PERFORMANCE INFORMATION
-----------------------
A. TOTAL RETURN
From time to time, quotations of a Portfolio's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures may be calculated in the following manner:
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Total return is computed by finding the average annual compounded rates of
return over the designated periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period assuming a
hypothetical $1,000 payment made at the beginning of the designated
period
The calculation set forth above is based on the further assumptions that:
(i) all dividends and distributions of a Portfolio during the period were
reinvested at the net asset value on the reinvestment dates; and (ii) all
recurring expenses that were charged to all shareholder accounts during the
applicable period were deducted.
Total returns quoted in advertising reflect all aspects of a Portfolio's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Portfolio's net asset value per share (NAV)
over the period. Average annual returns are calculated by determining the growth
or decline in value of a hypothetical historical investment in a Portfolio over
a stated period, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%, which is
the steady annual return rate that would equal 100% growth on a compounded basis
in ten years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that a Portfolio's performance
is not constant over time, but changes from year to year, and that average
annual returns represent averaged figures as opposed to the actual year-to-year
performance of the Portfolio.
The average annual total returns of the Portfolios for the one year period
ended December 31, 1998 and for the period since inception (January 26, 1995)
are as follows: One Year Since Inception
Aggressive Allocation Portfolio 26.17% 22.22%
Moderate Allocation Portfolio 18.32% 18.58%
Conservative Allocation Portfolio 10.83% 14.37%
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<PAGE>
B. NONSTANDARDIZED TOTAL RETURN
In addition to the performance information described above, a Portfolio may
provide total return information for designated periods, such as for the most
recent rolling six months or most recent rolling twelve months. A Portfolio may
quote unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, and/or a series of
redemptions over any time period. Total returns may be broken down into their
components of income and capital (including capital gains and changes in share
price) in order to illustrate the relationship of these factors and their
contributions to total return. Total returns and other performance information
may be quoted numerically or in a table, graph or similar illustration.
The total returns of the Portfolios for the period from the initial public
offering of shares on January 26, 1995 through December 31, 1998 were 120.01%,
95.41% and 69.48% for the Markman Aggressive Allocation Portfolio, the Markman
Moderate Allocation Portfolio and the Markman Conservative Allocation Portfolio,
respectively.
C. OTHER INFORMATION CONCERNING FUND PERFORMANCE
A Portfolio may quote its performance in various ways, using various types
of comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
a Portfolio in advertising is historical and is not intended to indicate future
returns. A Portfolio's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of a Portfolio's shares when
redeemed may be more or less than their original cost.
A Portfolio may compare its performance over various periods to various
indices or benchmarks, including the performance record of the Standard & Poor's
500 Composite Stock Price Index (S&P), the Dow Jones Industrial Average (DJIA),
the NASDAQ Industrial Index, the Ten Year Treasury Benchmark and the cost of
living (measured by the Consumer Price Index, or CPI) over the same period.
Comparisons may also be made to yields on certificates of deposit, treasury
instruments or money market instruments. The comparisons to the S&P and DJIA
show how such Portfolio's total return compared to the record of a broad average
of common stock prices (S&P) and a narrower set of stocks of major industrial
companies (DJIA). The Portfolio may have the ability to invest in securities or
underlying funds not included in either index, and its investment portfolio may
or may not be similar in composition to the indices. Figures for the S&P and
DJIA are based on the prices of unmanaged groups of stocks, and unlike the
Portfolio's returns, their returns do not include the effect of paying brokerage
commissions and other costs of investing.
Comparisons may be made on the basis of a hypothetical initial investment
in the Portfolio (such as $1,000), and reflect the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (that is, their
cash value at the time they were reinvested). Such
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<PAGE>
comparisons may also reflect the change in value of such an investment assuming
distributions are not reinvested. Tax consequences of different investments may
not be factored into the figures presented.
A Portfolio's performance may be compared in advertising to the performance
of other mutual funds in general or to the performance of particular types of
mutual funds, especially those with similar objectives.
Other groupings of funds prepared by Lipper Analytical Services, Inc.
("Lipper") and other organizations may also be used for comparison to the
Portfolio. Although Lipper and other organizations such as Investment Company
Data, Inc. ("ICD"), CDA Investment Technologies, Inc. ("CDA") and Morningstar
Investors, Inc. ("Morningstar"), include funds within various classifications
based upon similarities in their investment objectives and policies, investors
should be aware that these may differ significantly among funds within a
grouping.
From time to time a Portfolio may publish the ranking of the performance of
its shares by Morningstar, an independent mutual fund monitoring service that
ranks mutual funds, including the Portfolio, in broad investment categories
(equity, taxable bond, tax-exempt and other) monthly, based upon each
Portfolio's one, three, five and ten-year average annual total returns (when
available) and a risk adjustment factor that reflects Portfolio performance
relative to three-month U.S. treasury bill monthly returns. Such returns are
adjusted for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral (3),
below average (2) and lowest (1). Ten percent of the funds, series or classes in
an investment category receive 5 stars, 22.5% receive 4 stars, 35% receive 3
stars, 22.5% receive 2 stars, and the bottom 10% receive one star.
From time to time, in reports and promotional literature, a Portfolio's
yield and total return will be compared to indices of mutual funds and bank
deposit vehicles such as Lipper's "Lipper - Fixed Income Fund Performance
Analysis," a monthly publication which tracks net assets, total return, and
yield on approximately 1,700 fixed income mutual funds in the United States.
Ibbotson Associates, CDA Wiesenberger and F.C. Towers are also used for
comparison purposes as well as the Russell and Wilshire Indices. Comparisons may
also be made to Bank Certificates of Deposit, which differ from mutual funds,
such as the Portfolios, in several ways. The interest rate established by the
sponsoring bank is fixed for the term of a CD, there are penalties for early
withdrawal from CDs, and the principal on a CD is insured. Comparisons may also
be made to the 10 year Treasury Benchmark.
Performance rankings and ratings reported periodically in national
financial publications such as Money Magazine, Forbes, Business Week, The Wall
Street Journal, Micropal, Inc., Morningstar, Stanger's, Barron's, etc. will also
be used.
Ibbotson Associates of Chicago, Illinois (Ibbotson) and others provide
historical returns of the capital markets in the United States. A Portfolio may
compare its performance to the long-term performance of the U.S. capital markets
in order to demonstrate general long-term risk versus
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<PAGE>
reward investment scenarios. Performance comparisons could also include the
value of a hypothetical investment in common stocks, long-term bonds or
treasuries. A Portfolio may discuss the performance of financial markets and
indices over various time periods.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
decimals of the New York Stock Exchange (NYSE), plus stocks listed on the
American Stock Exchange (AMEX) and over-the-counter (OTC) with the same or less
capitalization as the upper bound of the NYSE ninth decile.
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index which includes nearly
all Aaa- and Aa-rated bonds. Returns on intermediate-term government bonds are
based on a one-bond portfolio constructed each year, containing a bond which is
the shortest noncallable bond available with a maturity not less than 5 years.
This bond is held for the calendar year and returns are recorded. Returns on
long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month-end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI.
Other widely used indices that the Portfolios may use for comparison
purposes include the Lehman Bond Index, the Lehman Aggregate Bond Index, The
Lehman GNMA Single Family Index, the Lehman Government/Corporate Bond Index, the
Salomon Brothers Long-Term High Yield Index, the Salomon Brothers Non-Government
Bond Index, the Salomon Brothers Non-U.S. Government Bond Index, the Salomon
Brothers World Government Bond Index and the J.P. Morgan Government Bond Index.
The Salomon Brothers World Government Bond Index generally represents the
performance of government debt securities of various markets throughout the
world, including the United States. Lehman Government/Corporate Bond Index
generally represents the performance of intermediate and long-term government
and investment grade corporate debt securities. The Lehman Aggregate Bond Index
measures the performance of U.S. corporate bond issues, U.S. government
securities and mortgage-backed securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The foregoing bond indices are unmanaged
indices of securities that do not reflect reinvestment of capital gains or take
investment costs into consideration, as these items are not applicable to
indices.
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<PAGE>
The Portfolios may also discuss in advertising the relative performance of
various types of investment instruments, such as stocks, treasury securities and
bonds, over various time periods and covering various holding periods. Such
comparisons may compare these investment categories to each other or to changes
in the CPI.
A Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, the
investor invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares had been purchased at those intervals. In evaluating
such a plan, investors should consider their ability to continue purchasing
shares through periods of low price levels.
The Portfolios may be available for purchase through retirement plans or
other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually, compounded monthly, would have an
after-tax value of $2,009 after ten years, assuming tax was deducted from the
return each year at a 31% rate. An equivalent tax-deferred investment would have
an after-tax value of $2,178 after ten years, assuming tax was deducted at a 31%
rate from the deferred earnings at the end of the ten year period.
Evaluations of Portfolio performance made by independent sources may also
be used in advertisements concerning the Portfolios, including reprints of, or
selections from, editorials or articles about the Portfolio. These editorials or
articles may include quotations of performance from other sources such as Lipper
or Morningstar. Sources for Portfolio performance information and articles about
the Portfolios may include the following:
BANXQUOTE, an on-line source of national averages for leading money market
and bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
BARRON'S, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
BUSINESS WEEK, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA INVESTMENT TECHNOLOGIES, INC., an organization which provides
performance and ranking information through examining the dollar results of
hypothetical mutual fund investments and comparing these results against
appropriate market indices.
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<PAGE>
CHANGING TIMES. THE KIPLINGER MAGAZINE, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
CONSUMER DIGEST, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.
FINANCIAL WORLD, a general business/financial magazine that includes a
"Market Watch" department reporting on activities in the mutual fund industry.
FORBES, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
FORTUNE, a national business publication that periodically rates the
performance of a variety of mutual funds.
IBM MONEY FUND REPORT, a weekly publication reporting on the performance of
the nation's money market funds, summarizing money market fund activity, and
including certain averages as performance benchmarks, specifically "IBM Money
Fund Average," and "IBM Government Money Fund Average."
IBBOTSON ASSOCIATES, INC., a company specializing in investment research
and data.
INVESTMENT COMPANY DATA, INC., an independent organization which provides
performance ranking information for broad classes of mutual funds.
INVESTOR'S DAILY, a daily newspaper that features financial, economic, and
business news.
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND PERFORMANCE ANALYSIS, a
weekly publication of industry-wide mutual fund averages by type of fund.
MONEY, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.
MUTUAL FUND VALUES, a bi-weekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
THE NEW YORK TIMES, a nationally distributed newspaper which regularly
covers financial news.
PERSONAL INVESTING NEWS, a monthly news publication that often reports on
investment opportunities and market conditions.
PERSONAL INVESTOR, a monthly investment advisory publication that includes
a "Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
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<PAGE>
SUCCESS, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.
USA TODAY, a nationally distributed newspaper.
U.S. NEWS AND WORLD REPORT, a national business weekly that periodically
reports mutual fund performance data.
WALL STREET JOURNAL, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
WIESENBERGER INVESTMENT COMPANIES SERVICES, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' background, management policies, salient features,
management results, income and dividend records, and price ranges.
WORKING WOMAN, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
When comparing yield, total return and investment risk of shares of a
Portfolio with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Portfolios. For example, certificates of deposit may have fixed rates of
return and may be insured as to principal and interest by the FDIC, while a
Portfolio's returns will fluctuate and its share values and returns are not
guaranteed. Money market accounts offered by banks also may be insured by the
FDIC and may offer stability of principal. U.S. Treasury securities are
guaranteed as to principal and interest by the full faith and credit of the U.S.
government. Money market mutual funds may seek to offer a fixed price per share.
The performance of the Portfolios is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of a
Portfolio for any period in the future. The performance of a Portfolio is a
function of many factors including its earnings, expenses and number of
outstanding shares. Fluctuating market conditions, purchases and sales of
underlying funds, sales and redemptions of shares of beneficial interest, and
changes in operating expenses are all examples of items that can increase or
decrease a Portfolio's performance.
DESCRIPTION OF THE TRUST
------------------------
The Trust is an open-end, diversified series management investment company
established as an unincorporated business trust under the laws of The
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated September
7, 1994.
The Trustees of the Trust have authority to issue an unlimited number of
shares of beneficial interest in an unlimited number of series or Portfolios,
each share without par value. Currently, the Trust offers four Portfolios. When
issued, shares of the Portfolios are fully paid, non-
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<PAGE>
assessable and freely transferable. Each share in a particular Portfolio
represents an equal proportionate interest in that Portfolio with each other
share of that Portfolio and is entitled to such dividends and distributions as
are declared by the Trustees of the Trust. Upon any liquidation of a Portfolio,
shareholders of that Portfolio are entitled to share pro rata in the net assets
of that Portfolio available for distribution. Shares of the Trust entitle their
holders to one vote per share (with proportionate voting for fractional shares.)
Shareholders in one of the Portfolios have no interest in, or rights upon
liquidation of, any of the other Portfolios.
Shareholders of each Portfolio have the right to vote for the election of
Trustees and on any matters which by law or the provisions of the Declaration of
Trust they may be entitled to vote upon. The Trust will normally not hold annual
meetings of shareholders to elect Trustees. If less than a majority of the
Trustees of the Trust holding office have been elected by shareholders, a
meeting of shareholders of the Trust will be called to elect Trustees. Under the
Declaration of Trust of the Trust and the Investment Company Act of 1940, the
record holders of not less than two-thirds of the outstanding shares of the
Trust may remove a Trustee by votes cast in person or by proxy at a meeting
called for the purpose or by a written declaration filed with the Trust's
custodian bank. The Trustees are required to call a meeting for the purpose of
considering the removal of any person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. Except as described above, the Trustees will continue to hold office and
may appoint successor Trustees. In compliance with applicable provisions of the
Investment Company Act of 1940, shares of the mutual funds owned by the Trust
will be voted in the same proportion as the vote of all other holders of shares
of such funds.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust of the Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the
Portfolios or the Trustees. The Declaration of Trust of the Trust provides for
indemnification out of the Trust's property for all loss and expense of any
shareholder held personally liable for obligations of the Trust and its
Portfolios. Accordingly, the risk of a shareholder of the Trust incurring a
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations. The
likelihood of such circumstances is remote.
ANNUAL REPORT
-------------
The Portfolios' financial statements as of December 31, 1998 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
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<PAGE>
Markman
MULTIFUNDS
Annual
Report
December 31, 1998
Aggressive Allocation Portfolio
Moderate Allocation Portfolio
Conservative Allocation Portfolio
<PAGE>
- --------------------------------------------------------------------------------
A look back:
Markets, Attitude, Performance
- --------------------------------------------------------------------------------
After experiencing a year like 1998, which packed so much into a brief
twelve-month period, one struggles to distill some moral or investment lesson
from the chaos. In dizzying succession, we as investors were asked to react to
tragedy, farce, soap opera, euphoria, despair, greed, and fear.
What was so fascinating -- and instructive -- to me was the assumption that we
were supposed to react to these events. From the original Lewinsky revelations
last January, down through the Russian collapse, the hedge fund debacle, the
ongoing Asia deflation scare, and the impeachment mini-series (accompanied, of
course, by the wrenching sound of a 20% market decline in 90 days!), there were
certainly plenty of reasons to make precipitous and panicked short-term moves.
There was no shortage of pundits solemnly predicting that any or all of these
events could, would, should, possibly, and at some point, derail the U.S.
economy and plunge a red-hot market into nuclear winter.
- --------------------------------------------------------------------------------
New and Better Comparative Indices
- ----------------------------------
This past year the Funds of Funds Association developed a new system of
categorizing multifunds. Three main categories were established: Conservative,
Moderate, and Growth. The purpose was twofold: first, to group funds of similar
risk objective together so that investors and the media would not err in
comparing apples to oranges, and second, to help investors make realistic
performance comparisons within legitimate peer groupings.
Markman Capital Management, the adviser to the Markman MultiFunds, is a founding
member of the Funds of Funds Association. The categories were established based
on the degree of daily price changes (volatility) compared to the S&P 500 in
1997. The funds in the Conservative group have maintained volatility less than
40% of that of the S&P 500 Index, although some may be higher from time to time.
The funds in the Moderate group have maintained volatility between 40% and 60%
of that of the S&P 500 Index, although some may be higher and some may be lower
from time to time. The funds in the Growth group have maintained volatility
between 60% and 100% of that of the S&P 500 Index, although some may be higher
and some may be lower from time to time. All funds of funds (as so categorized
by Morningstar, Inc.) with inception dates of February 1, 1995, or earlier are
included in these indices. These indices are not audited as part of the
financial statement audit.
Independent data from Lipper Analytical Services is used to calculate the
average returns within the three categories. We will be including these numbers
in our performance comparisons. We believe this will give a valuable perspective
on how we perform relative to our peers.
- --------------------------------------------------------------------------------
<PAGE>
It seemed to us that, while some of these disaster scenarios were thoughtfully
constructed, they were still just "possibilities." Contrasted with these
possibilities were hard and indisputable facts: inflation was dead;
- --------------------------------------------------------------------------------
The winds of change constantly blow through the financial markets, and
relationships and dynamics that had previously existed can never be taken for
granted.
- --------------------------------------------------------------------------------
interest rates were declining significantly with several beneficial effects;
lower interest rates supported a higher P/E on growth stocks; lower rates also
acted as a de facto tax cut for the consumer, with massive mortgage refinancing
pumping billions of new spendable dollars into the economy. While some
companies, particularly in the obvious commodity area, were hurt by the Asian
crisis, we never saw the massive and broad collapse in earnings. In fact,
bellwether large caps like Dell, Microsoft, GE, and Ford posted record numbers.
Add to all this the huge increase in measured bearish sentiment (always a good
contrarian indicator) and the stage was set for something unexpected. As we
wrote to you on September 30, "...we believe that not only have we seen the lows
for the year, we are likely to finish 1998 a good deal higher than we are now.
The market may be pricing in a worst case scenario. Anything less and a big
rally could ensue." Facts over fear.
We took advantage of what we called the "media and professional panic" of last
summer and fall to aggressively redeploy much of our Portfolios. We recognized
that this was going to continue to be a difficult environment for small cap
funds, value funds, and international funds. At the same time, large U.S. stock
funds -- particularly the techs -- looked to us like fantastic opportunities. So
we jettisoned the laggards and questionables and loaded up the shopping cart
with pure U.S. large cap plays. And it couldn't have turned out better.
We are replacing the S&P 500 index as our broad-based index for the Aggressive
Allocation Portfolio and Moderate Allocation Portfolio, and the Lehman
Intermediate Government Bond Index for the Conservative Allocation Portfolio,
with the Wilshire 5000 Stock Index for all Portfolios. The Wilshire 5000 Stock
Index is the broadest of all stock indices, covering Nasdaq Stock Market stocks
and all stocks traded on the New York Stock Exchange and American Stock
Exchange. It is a market-value weighted index. Although it does not include
bonds, and therefore does not completely represent our holdings, it remains the
closest broad-based index available within the guidelines established by the
Securities and Exchange Commission. The Wilshire 5000 Stock Index gained 23.4%
in 1998.
For the year, the S&P 500 returned 28.6% and the Lehman Intermediate Government
Bond Index gained 8.6%. The fourth quarter was our best three-month period since
inception. The Conservative Allocation gained 12.25%, the Moderate Allocation
gained 20.14%, and the Aggressive Allocation gained 31.32%. This strong finish
to the year enabled all three Portfolios to beat the average Fund of Funds for
the year. The chart below shows how we did in 1998 against our managed portfolio
peers.
- --------------------------------------------------------------------------------
1998 Returns
Markman Aggressive Allocation 26.17%
Average Growth Fund of Funds 17.32%
- --------------------------------------------------------------------------------
Markman Moderate Allocation 18.32%
Average Moderate Fund of Funds 12.73%
- --------------------------------------------------------------------------------
Markman Conservative Allocation 10.83%
Average Conservative Fund of Funds 9.83%
- --------------------------------------------------------------------------------
Also helping returns in the later part of the year was our decision in the
Conservative and Moderate Portfolios to use the rally in U.S. Treasuries as an
opportunity to sell our zero coupon bond funds. Most of those dollars were
reallocated into temporarily depressed high-yield bond funds. Again, the timing
was fortuitous: after a difficult summer, high-yield bond funds far outperformed
Treasuries in the fourth quarter.
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Jan 31, Dec 31,
1995 1998
---- ----
Markman Conservative Allocation Portfolio $10,000 $16,948
Wilshire 5000 $10,000 $24,436
Lehman Intermediate Government Bond Index $10,000 $13,692
*Funds of Funds Conservative $10,000 $16,572
Past performance is not predicative of future performance.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Jan 31, Dec 31,
1995 1998
---- ----
Markman Moderate Allocation Portfolio $10,000 $19,541
Wilshire 5000 $10,000 $24,436
S&P 500 $10,000 $28,235
*Funds of Funds Moderate $10,000 $19,015
Past performance is not predicative of future performance.
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Jan 31, Dec 31,
1998 1998
---- ----
Markman Aggressive Allocation Portfolio $10,000 $22,001
Wilshire 5000 $10,000 $24,436
S&P 500 $10,000 $28,235
*Funds of Funds Growth $10,000 $20,324
Past performance is not predicative of future performance.
- --------------------------------------------------------------------------------
*See inside front cover "New and Better Comparative Indices" for an explanation
of these indices.
I also want to take this opportunity to discuss another important
performance-related point. One of our primary responsibilities is to make sure
we've done all we can to create
- --------------------------------------------------------------------------------
We took advantage of what we called the "media and professional panic" of last
summer and fall to aggressively redeploy much of our Portfolios.
- --------------------------------------------------------------------------------
Portfolios that reflect, in real life, the nature of the label we've given them:
Conservative, Moderate, Aggressive. While this might seem obvious and simple to
do, the real life execution sometimes becomes quite complex. For example, this
past year, theoretically "riskier" high P/E growth funds held up better in the
market decline than many of their more "cautious" value fund brethren. Real
estate funds, often touted as lower risk, defensive investments, ended the year
with double digit losses!
The winds of change constantly blow through the financial markets, and
relationships and dynamics that had previously existed can never be taken for
granted. One of the most important jobs we do for our shareholders is to keep on
top of these risk/reward dynamics, adjusting our holdings as soon as we identify
a shift in fortunes. Last year clearly demonstrated just how vital that kind of
research and attention can be. When you review the remarkably regular spread of
our returns (and the daily results that built up to them), we hope you agree
that we've succeeded in that task.
<PAGE>
- --------------------------------------------------------------------------------
Our view as the year begins
It is hard to imagine a serious and extended setback for the market while the
macroeconomic picture remains so very positive. As the year begins, unemployment
is at its lowest level in over 25 years.
Not only are jobs plentiful, but they're paying better than ever: real,
inflation-adjusted wages are rising faster than they have for quite some time.
Historically low interest rates have, over the past year, created a boom in
housing along with all the other economic activity tied to the buying and
remodeling of homes. Those not moving or remodeling have taken advantage of
lower mortgage rates to refinance, freeing up sometimes hundreds of dollars per
month in new spendable cash flow. (For the middle class, this is like a
multibillion dollar tax cut.)
As I've said, the story the pundits missed last year was that the U.S. consumer
- -- the real engine of our economy -- was in a powerful position. Even more
amazing is that this still isn't fully appreciated. In fact, the biggest risk we
run this year is not recession (how can rational observers still say that?) but
an economy too strong for the Federal Reserve to tolerate.
Interest rates are likely to stay steady with perhaps a small upward bias to
reflect accelerating economic activity both here and abroad. The implications
for the bond market are substantial. We will probably see a reverse of last
year's bond dynamic. Treasuries will be in for some tough sledding while
high-yield corporates (junk) will again have the wind at their backs. As you'll
see, we've positioned the Portfolios accordingly.
Small cap stocks should do better this year. That doesn't mean, however, that
they will outperform large stocks. We continue to firmly believe that both the
domestic and global economic environments greatly favor large
- --------------------------------------------------------------------------------
We continue to firmly believe that both the domestic and global economic
environments greatly favor large caps and see no investment benefit to be gained
from blind and unthinking small cap diversification.
- --------------------------------------------------------------------------------
caps and see no investment benefit to be gained from blind and unthinking small
cap diversification.
Similarly, while I can see periods of exciting rebounds in selected overseas
markets, the risks continue to far outweigh the available gains. We are far
better off playing the potential for Asian and European growth by investing in
U.S. multinationals.
Technology, in its many shapes and variations, will continue to be a driving
force in the economy and in our Portfolios. We intend to maintain our
overweighting in tech stocks, particularly in the Aggressive Allocation.
Overall, I am extremely optimistic about 1999 and think that potentially
significant gains are possible. The road to those potential rewards, however,
will no doubt be strewn with potholes producing gut-wrenching declines.
Manias like those we are currently experiencing in Internet stocks have a way of
exploding and sliming all investors when they do. Just where the spark will come
from (and when), no one knows. After all, this time last year the pundits
thought Russia was on the road to healthy capitalist development; six months
later it suffered a fatal stroke that almost brought down the entire world
economy!
It is thus ever more important that I stress that I intend to keep the
Aggressive Allocation fully invested in a mix of potentially volatile funds.
Since I am confident in their long-term prospects, I am comfortable letting the
short-term chips fall where they may. On the other hand, my intention in the
Conservative Allocation is just the opposite. I will be taking all reasonable
efforts to achieve relative stability in that Portfolio. The Moderate
Allocation, as always, will split the difference.
The bottom line is that whatever your personal outlook and strategy are, we will
work hard to create and manage a portfolio that can meet your expectations.
[PHOTO OMITTED]
/s/ Bob Markman
<PAGE>
- --------------------------------------------------------------------------------
Aggressive Allocation Portfolio
- --------------------------------------------------------------------------------
OUR GOAL: To achieve high long-term growth. A fully invested portfolio, largely
stock oriented, will be maintained at all times, thus creating realively high
volatility.
We made no tactical moves of any significance here during the last quarter of
1998. As is obvious from our return over the past three months (up 31.32%), we
clearly had the Portfolio positioned right in the sweet spot of the market. By
the fourth quarter, we had completed our focusing of the Aggressive Portfolio on
large cap U.S. funds.
While many (if not most) fund observers continue to tout the relative "values"
in small cap and international funds, we remain convinced that large caps will
continue to lead the way for some time to come. (What I find fascinating is that
it's gotten to the point where our approach -- buying the Intels, GEs, and
Microsofts of the world -- is actually a contrarian position. Incredible.)
Technology -- particularly, again, large cap technology -- remains the dominant
theme in the Portfolio.
I cannot stress too strongly that this is an aggressive stance. The overwhelming
large cap U.S. stance, coupled with our tech overweighting, does create higher
short-term volatility. For those, however, who have patience and fortitude, it
also gives us the potential to maximize returns over time. One can also make the
case that long term, investing in large, dominant companies entails less risk of
disappointment than hopeful speculation in emerging markets, small caps, and the
like.
- --------------------------------------------------------------------------------
Content Breakdown
- --------------------------------------------------------------------------------
(Unaudited)
[GRAPHIC OMITTED]
U.S. Stocks ............. 96%
International Stocks .... 0%
Bonds ................... 0%
Cash .................... 4%
- --------------------------------------------------------------------------------
PORTFOLIO COMAPRISON (Unaduited)
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Markman Aggressive Funds of Funds Association
Allocation Portfolio Growth Index
-------------------- ------------
12 months ending 12/98 26.2% 17.3%
3 years annualized 18.8% 16.0%
Annualized since inception* 22.3% 19.7%
* from Februay 1, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
Markman Aggressive Allocation Portfolio -- December 31, 1998
- --------------------------------------------------------------------------------------------------
Fund Shares Market Value % of Total Status**
(Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus Twenty Fund 333,640 $ 17,782,997 19.4%
- --------------------------------------------------------------------------------------------------
The Rydex Series OTC Fund* 330,524 13,670,490 14.9% -
- --------------------------------------------------------------------------------------------------
Stein Roe Growth Stock Fund* 312,953 13,554,002 14.8% -
- --------------------------------------------------------------------------------------------------
The Rydex Series Nova Fund 359,995 11,962,639 13.1%
- --------------------------------------------------------------------------------------------------
White Oak Growth Stock Fund* 227,709 9,270,051 10.1% -
- --------------------------------------------------------------------------------------------------
PBHG Large Cap 20 Fund* 354,099 7,680,401 8.4% new
- --------------------------------------------------------------------------------------------------
ProFunds Ultra OTC 220,850 5,267,267 5.8% new
- --------------------------------------------------------------------------------------------------
Transamerica Premier Equity Fund* 205,490 5,092,036 5.6% -
- --------------------------------------------------------------------------------------------------
Marsico Focus Fund* 241,680 3,656,615 4.0%
- --------------------------------------------------------------------------------------------------
ProFunds UltraBull 201,542 2,960,655 3.2% new
- --------------------------------------------------------------------------------------------------
Miscellaneous-- Money Market Fund 312,077 312,077 0.3% -
- --------------------------------------------------------------------------------------------------
Total Investments (Cost $66,152,202) 91,209,230 99.6%
- --------------------------------------------------------------------------------------------------
Other Assets and Liabilities, Net 405,427 0.4%
- --------------------------------------------------------------------------------------------------
Net Assets $ 91,614,657 100.0%
============ ======
</TABLE>
See accompanying notes to financial statements.
* Non-income producing security
** A "+" indicates an increase and "-" indicates a decrease of 1% or greater,
compared to end of prior quarter; "new" means did not appear in prior
quarter.
<PAGE>
- --------------------------------------------------------------------------------
Moderate Allocation Portfolio
- --------------------------------------------------------------------------------
Our Goal: To blend our Conservative and Aggressive approaches in a
middle-of-the-road portfolio that aims for higher return than a Conservative
approach but lower volatility than an Aggressive stance.
The fourth quarter adjustments in the Moderate Allocation Portfolio reflected
our continuing process of "blending" the strongest ideas from the Conservative
and Aggressive Portfolios. Our equity positions remained much the same and
appeared to be the right place to be, helping propel the Portfolio to a 20.14%
gain for the quarter.
We sold the last of our zero coupon bond fund position and added to our
high-yield bond fund holdings.
Allocating correctly within the stock/ bond matrix enabled us to achieve an
18.32% return for the year, well ahead of the 12.73% return of the average
moderate fund of funds. Given the generally balanced approach of most moderate
growth funds of funds, our margin of success last year is large and significant.
We think it confirms the validity of our approach of mixing large cap U.S. stock
funds with opportunistic allocations of strongly-trending bond sectors.
- --------------------------------------------------------------------------------
Content Breakdown
- --------------------------------------------------------------------------------
(Unaudited)
[GRAPHIC OMITTED]
U.S. Stocks ............. 74%
International Stocks .... 0%
Bonds ................... 19%
Cash .................... 7%
- --------------------------------------------------------------------------------
PORTFOLIO COMAPRISON (Unaduited)
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Markman Moderate Funds of Funds Association
Allocation Portfolio Moderate Index
-------------------- --------------
12 months ending 12/98 18.3% 12.7%
3 years annualized 16.2% 15.8%
Annualized since inception* 18.6% 17.8%
* from Februay 1, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
Markman Moderate Allocation Portfolio -- December 31, 1998
- --------------------------------------------------------------------------------------------------
Fund Shares Market Value % of Total Status**
(Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus Twenty Fund 362,963 $ 19,345,926 23.1% +
- --------------------------------------------------------------------------------------------------
Marsico Focus Fund* 1,010,951 15,295,686 18.3% +
- --------------------------------------------------------------------------------------------------
The Rydex Series Nova Fund 410,464 13,639,712 16.3% +
- --------------------------------------------------------------------------------------------------
Northeast Investors Trust 894,333 9,363,662 11.2% -
- --------------------------------------------------------------------------------------------------
Paap America-- Abroad Fund 280,901 9,025,354 10.8% +
- --------------------------------------------------------------------------------------------------
INVESCO High Yield Fund 1,203,374 7,749,731 9.2% new
- --------------------------------------------------------------------------------------------------
The Rydex Series OTC Fund 151,085 6,248,856 7.4% new
- --------------------------------------------------------------------------------------------------
The Oakmark Fund 87,479 3,133,489 3.7%
- --------------------------------------------------------------------------------------------------
Total Investments (Cost $69,963,946) 83,802,416 100.0%
- --------------------------------------------------------------------------------------------------
Other Assets and Liabilities, Net (3,341) 0.0%
- --------------------------------------------------------------------------------------------------
Net Assets $ 83,799,075 100.0%
============ ======
</TABLE>
See accompanying notes to financial statements.
* Non-income producing security
** A "+" indicates an increase and "-" indicates a decrease of 1% or greater,
compared to end of prior quarter; "new" means did appear in prior quarter.
<PAGE>
- --------------------------------------------------------------------------------
Conservative Allocation Portfolio
- --------------------------------------------------------------------------------
Our Goal: To capture returns close to those of a typical portfolio cautiously
balanced among stocks, bonds, and money market funds while keeping short-term
volatility closer to that of an intermediate bond portfolio.
Our research continues to show that many previously unquestioned dogmas about
cautious asset allocation no longer stand up under scrutiny. Commonly accepted
choices such as REITs, large and small value stocks, international
diversification, etc., have -- perversely -- created greater volatility and not
the stability hoped for.
Accordingly, we have refocused our stock/ bond/cash allocations by simplifying
our stock exposure. We believe that emphasizing large cap U.S. stock funds will
produce a consistency of dynamic not possible in a more broad-based, eclectic
mix. While simplifying our equity exposure entails a possibility of greater
short-term volatility, we believe we can offset that by a concurrent increase in
our bond and cash allocations.
Tactically, in the fourth quarter, we took advantage of the panic rally in
Treasuries to sell our zero coupon bond funds and "buy low" into the temporarily
depressed high-yield market. The results have been very satisfying. Our 12.25%
return for the quarter was the best three-month period ever for the Conservative
Allocation. Our stock funds have, in fact, moved so far, so fast that we
anticipate reducing our positions slightly in the first part of 1999.
- --------------------------------------------------------------------------------
Content Breakdown
- --------------------------------------------------------------------------------
(Unaudited)
[GRAPHIC OMITTED]
U.S. Stocks ............. 42%
International Stocks .... 0%
Bonds ................... 49%
Cash .................... 9%
- --------------------------------------------------------------------------------
PORTFOLIO COMAPRISON (Unaduited)
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Markman Conservative Funds of Funds Association
Allocation Portfolio Conservative Index
-------------------- ------------------
12 months ending 12/98 10.8% 9.8%
3 years annualized 12.8% 11.7%
Annualized since inception* 14.4% 13.7%
* from Februay 1, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
Markman Conservative Allocation Portfolio -- December 31, 1998
- ----------------------------------------------------------------------------------------------------
Fund Shares Market Value % of Total Status**
(Unaudited)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janus Twenty Fund 139,173 $ 7,417,931 24.3% -
- ----------------------------------------------------------------------------------------------------
Marsico Focus Fund* 431,431 6,527,544 21.4% new
- ----------------------------------------------------------------------------------------------------
Northeast Investors Trust 460,450 4,820,909 15.8% +
- ----------------------------------------------------------------------------------------------------
INVESCO High Yield Fund 704,161 4,534,795 14.9% +
- ----------------------------------------------------------------------------------------------------
PIMCO Total Return Fund-- Institutional 366,456 3,862,441 12.7% new
- ----------------------------------------------------------------------------------------------------
PIMCO High Yield Fund-- Institutional 268,311 3,034,594 10.0% new
- ----------------------------------------------------------------------------------------------------
Miscellaneous-- Money Market Fund 473,315 473,315 1.6%
- ----------------------------------------------------------------------------------------------------
Total Investments (Cost $27,591,540) 30,671,529 100.7%
- ----------------------------------------------------------------------------------------------------
Other Assets and Liabilities, Net (204,781) (0.7)%
- ----------------------------------------------------------------------------------------------------
Net Assets $ 30,466,748 100.0%
============ ======
</TABLE>
See accompanying notes to financial statements.
* Non-income producing security
** A "+" indicates an increase and "-" indicates a decrease of 1% or greater,
compared to end of prior quarter; "new" means did not appear in prior
quarter.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities o December 31, 1998
<TABLE>
<CAPTION>
Markman Markman Markman
Conservative Moderate Aggressive
Allocation Allocation Allocation
Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------
ASSETS
Investments in securities:
<S> <C> <C> <C>
At acquisition cost .......................... $ 27,591,540 $ 69,963,946 $ 66,152,202
============ ============ ============
At value (Note 1) ............................ $ 30,671,529 $ 83,802,416 $ 91,209,230
Cash ............................................ -- 11,953 --
Receivable for capital shares sold .............. 23,622 94,827 589,079
Dividends receivable ............................ 73,370 60,213 835
------------ ------------ ------------
Total Assets ................................. 30,768,521 83,969,409 91,799,144
------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for capital shares redeemed ............. 35,262 57,506 104,162
Distributions payable to shareholders ........... 241,831 47,325 11,093
Payable to affiliates (Note 3) .................. 24,680 65,503 69,232
------------ ------------ ------------
Total Liabilities ............................ 301,773 170,334 184,487
------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------
NET ASSETS ...................................... $ 30,466,748 $ 83,799,075 $ 91,614,657
============ ============ ============
Net assets consist of:
Paid-in capital ................................. $ 27,386,759 $ 70,038,040 $ 66,727,044
Distributions in excess of net realized
gains ........................................ -- (77,435) (169,415)
Net unrealized appreciation on
investments .................................. 3,079,989 13,838,470 25,057,028
------------ ------------ ------------
Net Assets ...................................... $ 30,466,748 $ 83,799,075 $ 91,614,657
============ ============ ============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) (Note 4) ....................... 2,470,464 6,277,762 5,723,622
============ ============ ============
Net asset value, redemption price and offering
price per share (Note 1) ..................... $ 12.33 $ 13.35 $ 16.01
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Statements of Operations o For the Year Ended December 31, 1998
Markman Conservative Markman Moderate Markman Aggressive
Allocation Portfolio Allocation Portfolio Allocation Portfolio
INVESTMENT INCOME
<S> <C> <C> <C>
Dividend income ......................... $ 887,302 $ 1,477,067 $ 277,983
------------ ------------ ------------
EXPENSES
Investment advisory fees ................ 304,465 771,113 777,300
Independent trustees' fees .............. 14,250 14,250 14,250
------------ ------------ ------------
Total expenses (note 3) ................. 318,715 785,363 791,550
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............... 568,587 691,704 (513,567)
------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) from
security transactions .................. 1,067,694 3,062,796 (231,303)
Capital gain distributions from
other investment companies ............. 515,255 1,388,199 1,291,832
Net change in unrealized appreciation/
depreciation on investments ............. 1,106,083 8,491,783 18,912,136
------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS ....................... 2,689,032 12,942,778 19,972,665
------------ ------------ ------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ............................ $ 3,257,619 $ 13,634,482 $ 19,459,098
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets o For the Years Ended December 31, 1998 and 1997
Markman Conservative Markman Moderate Markman Aggressive
Allocation Portfolio Allocation Portfolio Allocation Portfolio
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) ............. $ 568,587 $ 923,212 $ 691,704 $ 1,645,556 $ (513,567) $ 45,400
Net realized gains (losses)
from security transactions ............ 1,067,694 1,417,864 3,062,796 6,181,757 (231,303) 7,715,287
Capital gain distributions
from other investment
companies ............................. 515,255 1,498,259 1,388,199 3,734,672 1,291,832 2,595,928
Net change in unrealized
appreciation/depreciation
on investments ........................ 1,106,083 1,268,051 8,491,783 3,184,691 18,912,136 3,812,227
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
from operations ....................... 3,257,619 5,107,386 13,634,482 14,746,676 19,459,098 14,168,842
------------ ------------ ------------ ------------ ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment
income ................................ (657,761) (835,373) (691,704) (1,645,585) (21,208) (24,224)
Distributions in excess of net
investment income (Note 1) .............. (45,764) (416,485) (260,772) (1,325,397) -- (1,125,463)
Distributions from net realized gains .... (1,102,192) (2,379,863) (3,393,190) (8,443,248) (340,273) (9,531,600)
------------ ------------ ------------ ------------ ------------ ------------
Decrease in net assets from
Distributions to shareholders ......... (1,805,717) (3,631,721) (4,345,666) (11,414,230) (361,481) (10,681,287)
------------ ------------ ------------ ------------ ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (Note 4):
Proceeds from shares sold ................ 11,129,490 12,294,435 12,188,071 18,522,359 16,927,645 19,230,794
Net asset value of shares issued in
reinvestment of distributions
to shareholders ....................... 1,563,886 3,578,467 4,298,339 11,294,729 350,390 10,481,739
Payments for shares redeemed ............. (20,358,721) (23,247,508) (28,364,444) (25,388,050) (29,162,161) (33,127,820)
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in net assets
from capital share transactions ...... (7,665,345) (7,374,606) (11,878,034) 4,429,038 (11,884,126) (3,415,287)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS: ........................... (6,213,443) (5,898,941) (2,589,218) 7,761,484 7,213,491 72,268
NET ASSETS:
Beginning of year ........................ 36,680,191 42,579,132 86,388,293 78,626,809 84,401,166 84,328,898
------------ ------------ ------------ ------------ ------------ ------------
End of year .............................. $ 30,466,748 $ 36,680,191 $ 83,799,075 $ 86,388,293 $ 91,614,657 $ 84,401,166
============ ============ ============ ============ ============ ============
UNDISTRIBUTED NET
INVESTMENT INCOME ........................ $ -- $ 89,174 $ -- $ -- $ -- $ 21,208
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1998 1997 1996 1995(A)
- -----------------------------------------------------------------------------------------------------
MARKMAN CONSERVATIVE ALLOCATION PORTFOLIO o FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
<S> <C> <C> <C> <C>
Net asset value at beginning
of period ...................... $ 11.82 $ 11.49 $ 10.97 $ 10.00
--------- --------- --------- ---------
Income from investment
operations:
Net investment income ........ 0.25 0.33 0.28 0.19
Net realized and unrealized
gains on investments ....... 1.03 1.31 1.19 1.61
--------- --------- --------- ---------
Total from investment
operations ...................... 1.28 1.64 1.47 1.80
--------- --------- --------- ---------
Less distributions:
Dividends from net
investment income .......... (0.28) (0.30) (0.28) (0.19)
Distributions in excess
of net investment income ... (0.02) (0.15) (0.18) (0.04)
Distributions from net
realized gains ............. (0.47) (0.86) (0.49) (0.60)
--------- --------- --------- ---------
Total distributions ............... (0.77) (1.31) (0.95) (0.83)
--------- --------- --------- ---------
Net asset value at end of period .. $ 12.33 $ 11.82 $ 11.49 $ 10.97
========= ========= ========= =========
Total return ...................... 10.83% 14.27% 13.41% 18.00%
========= ========= ========= =========
Net assets at end of
period (000's) .................. $ 30,467 $ 36,680 $ 42,579 $ 9,852
========= ========= ========= =========
Ratio of expenses to average
net assets ...................... 0.95% 0.95% 0.95% 0.95%(B)
Ratio of net investment income
to average net assets ........... 1.70% 2.38% 3.21% 3.02%(B)
Portfolio turnover rate ........... 165% 48% 104% 176%
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARKMAN MODERATE ALLOCATION PORTFOLIO o FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
<S> <C> <C> <C> <C>
Net asset value at beginning
of period .................... $ 11.90 $ 11.49 $ 11.31 $ 10.00
--------- --------- --------- ---------
Income from investment operations:
Net investment income ........ 0.12 0.26 0.18 0.06
Net realized and unrealized
gains on investments ....... 2.06 1.96 1.08 2.39
--------- --------- --------- ---------
Total from investment
operations ................... 2.18 2.22 1.26 2.45
--------- --------- --------- ---------
Less distributions:
Dividends from net
investment income .......... (0.12) (0.26) (0.18) (0.06)
Distributions in excess
of net investment income ... (0.04) (0.21) (0.14) (0.24)
Distributions from net
realized gains ............. (0.57) (1.34) (0.76) (0.84)
--------- --------- --------- ---------
Total distributions ............... (0.73) (1.81) (1.08) (1.14)
--------- --------- --------- ---------
Net asset value at end
of period .................... $ 13.35 $ 11.90 $ 11.49 $ 11.31
========= ========= ========= =========
Total return ...................... 18.32% 19.38% 11.11% 24.50%
========= ========= ========= =========
Net assets at end of
period (000's) ............... $ 83,799 $ 86,388 $ 78,627 $ 38,988
========= ========= ========= =========
Ratio of expenses to average
net assets ................... 0.95% 0.95% 0.95% 0.95%(B)
Ratio of net investment income
to average net assets ........ 0.84% 1.96% 1.34% 0.77%(B)
Portfolio turnover rate ........... 117% 82% 280% 141%
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARKMAN AGGRESSIVE ALLOCATION PORTFOLIO o FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
<S> <C> <C> <C> <C>
Net asset value at beginning
of period .................... $ 12.74 $ 12.26 $ 11.79 $ 10.00
--------- --------- --------- ---------
Income from investment operations
Net investment income (loss) . (0.09) 0.01 0.05 0.01
Net realized and unrealized
gains on investments ....... 3.42 2.32 1.34 3.11
--------- --------- --------- ---------
Total from investment operations .. 3.33 2.33 1.39 3.12
--------- --------- --------- ---------
Less distributions:
Dividends from net investment
income ..................... (0.00) (0.01) (0.05) (0.01)
Distributions in excess of
net investment income ...... (0.00) (0.19) (0.11) (0.23)
Distributions from net
realized gains ............. (0.06) (1.65) (0.76) (1.09)
--------- --------- --------- ---------
Total distributions ............... (0.06) (1.85) (0.92) (1.33)
--------- --------- --------- ---------
Net asset value at end of period .. $ 16.01 $ 12.74 $ 12.26 $ 11.79
========= ========= ========= =========
Total return ...................... 26.17% 18.96% 11.72% 31.21%
========= ========= ========= =========
Net assets at end of period (000's) $ 91,615 $ 84,401 $ 84,329 $ 42,325
========= ========= ========= =========
Ratio of expenses to average
net assets ................... 0.95% 0.95% 0.95% 0.95%(B)
Ratio of net investment income
(loss) to average net assets . (0.62%) 0.05% 0.34% 0.15%(B)
Portfolio turnover rate ........... 101% 141% 340% 204%
</TABLE>
(A) Represents the period from the initial public offering of shares (January
26, 1995) through December 31, 1995.
(B) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 three series of shares to investors: the
Markman Conservative Allocation Portfolio, the Markman Moderate Allocation
Portfolio and the Markman Aggressive Allocation Portfolio (collectively, the
Funds). The Trust was capitalized on November 28, 1994, when the Funds'
investment adviser, Markman Capital Management, Inc. (the Adviser), purchased
the initial shares of each Fund at $10.00 per share. The public offering of
shares of the Funds commenced on January 26, 1995. The Trust had no operations
prior to the public offering of shares except for the initial issuance of shares
to the Adviser.
The Markman Conservative Allocation Portfolio seeks to provide current income
and low to moderate growth of capital. The Markman Moderate Allocation Portfolio
seeks growth of capital and a reasonable level of current income. The Markman
Aggressive Allocation Portfolio seeks capital appreciation without regard to
current income.
The following is a summary of the Trust's significant accounting policies:
Securities valuation -- The Funds' portfolio securities are valued as of the
close of business of the regular session of trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time). Shares of open-end, management
investment companies (mutual funds) in which the Funds invest are valued at
their respective net asset values as determined under the 1940 Act. Such mutual
funds value securities in their portfolios for which market quotations are
readily available at their current market value (generally the last reported
sale price) and all other securities and assets at fair value pursuant to
methods established in good faith by the Board of Trustees or Directors of the
underlying mutual fund. Money market funds in which the Funds also invest
generally value securities in their portfolios on an amortized cost basis, which
approximates market.
Share valuation -- The net asset value per share of each Fund is calculated
daily by dividing the total value of that Fund's assets, less liabilities, by
the number of shares outstanding, rounded to the nearest cent. The offering and
redemption price per share of each Fund 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 Funds record distributions of short-term and
long-term capital gains made by mutual funds in which the Funds invest as
realized gains. For tax purposes, the short-term portion of such distributions
is treated as dividend income by the Funds.
Distributions to shareholders -- Distributions to shareholders arising from each
Fund's 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, which
may differ from generally accepted accounting principles.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which a 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 each Fund's intention to declare 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
twelve months ended October 31) plus undistributed amounts from prior years.
Each of the Funds files a tax return annually using tax accounting methods
required under provisions of the Code which may differ from GAAP, the basis on
which these financial statements are prepared. The differences arise primarily
from the treatment of short-term gain distributions made by mutual funds in
which the Funds invest and the deferral of certain losses under Federal income
tax regulations. Accordingly, the amount of net investment income and net
realized capital gain or loss reported in the financial statements may differ
from that reported in the Fund's tax return and, consequently, the character of
distributions to shareholders reported in the Statements of Changes in Net
Assets and the Financial Highlights may differ from that reported to
shareholders for Federal income tax purposes. As a result of such differences,
reclassifications were made to the components of net assets to conform to
generally accepted accounting principles.
The following information is based upon the federal income tax cost of portfolio
investments as of December 31, 1998:
- --------------------------------------------------------------------------------
Markman Markman Markman
Conservative Moderate Aggressive
Allocation Allocation Allocation
Portfolio Portfolio Portfolio
Gross unrealized appreciation $ 3,316,868 $ 14,099,548 $ 24,889,142
Gross unrealized depreciation (236,879) (338,517) (1,530)
------------ ------------ ------------
Net unrealized appreciation $ 3,079,989 $ 13,761,031 $ 24,887,612
============ ============ ============
Federal income tax cost of
portfolio investments $ 27,591,540 $ 70,041,385 $ 66,321,618
============ ============ ============
The difference between the acquisition cost and the federal income tax cost of
portfolio investments is due to certain timing differences in the recognition of
capital losses under GAAP and income tax regulations.
- --------------------------------------------------------------------------------
<PAGE>
2. Investment Transactions
During the year ended December 31, 1998, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$54,074,703 and $61,869,045, respectively, for the Markman Conservative
Allocation Portfolio, $95,944,327 and $108,110,112, respectively, for the
Markman Moderate Allocation Portfolio, and $83,025,374 and $93,822,592,
respectively, for the Markman Aggressive Allocation Portfolio.
3. Transactions with Affiliates
The Chairman of the Board and President of the Trust is also the President of
Markman Capital Management, Inc. (the Adviser). Certain other trustees and
officers of the Trust are also officers of the Adviser or of Countrywide Fund
Services, Inc. (CFS), the administrative services agent, shareholder servicing
and transfer agent, and accounting services agent for the Trust.
INVESTMENT ADVISORY AGREEMENT
The Funds' investments are managed by the Adviser pursuant to the terms of an
Investment Management Agreement.
Each Fund pays the Adviser an investment management fee, computed and accrued
daily and paid monthly, at an annual rate of 0.95% of average daily net assets
of each Fund. The Adviser pays all operating expenses of the Funds except
brokerage commissions, taxes, interest, fees and expenses of independent
Trustees and any extraordinary expenses. In addition, the Adviser is
contractually obligated to reduce its investment management fee in an amount
equal to each Fund's allocable portion of the fees and expenses of the Trust's
independent Trustees.
ADMINISTRATION, ACCOUNTING AND TRANSFER AGENCY AGREEMENT
Under the terms of the Administration, Accounting, and Transfer Agency Agreement
between the Trust, the Adviser and CFS, CFS supplies non-investment related
statistical and research data, internal regulatory compliance services and
executive and administrative services for each of the Funds. CFS supervises the
preparation of tax returns for the Funds, reports to shareholders of the Funds,
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, CFS maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of each Fund's shares, acts as dividend and distribution disbursing
agent and performs other shareholder service functions. CFS also calculates the
daily net asset value per share and maintains the financial books and records of
each Fund. For the performance of these services, the Adviser, out of its
investment management fee, pays CFS a monthly base fee, an asset based fee, and
a fee based on the number of shareholder accounts. In addition, the Adviser pays
out-of-pocket expenses including but not limited to, postage and supplies.
4. Bank Loans
The Trust has an unsecured $10,000,000 bank line of credit; borrowings under
this arrangement bear interest at a rate determined by the bank at the time of
borrowing. For the year ended December 31, 1998, the Trust had no borrowings on
this line of credit. No compensating balances are required.
5. Fund Share Transactions
Proceeds and payments from capital share transactions as shown in the Statements
of Changes in Net Assets are the result of the following capital share
transactions for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MARKMAN CONSERVATIVE MARKMAN MODERATE MARKMAN AGGRESSIVE
ALLOCATION PORTFOLIO ALLOCATION PORTFOLIO ALLOCATION PORTFOLIO
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 934,987 1,007,092 970,847 1,475,542 1,234,363 1,394,595
Shares issued in reinvestment
of distributions to
shareholders 126,836 302,747 321,973 949,137 21,885 822,743
Shares redeemed (1,695,443) (1,912,551) (2,273,277) (2,009,044) (2,158,375) (2,470,930)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
shares outstanding (633,620) (602,712) (980,457) 415,635 (902,127) (253,592)
Shares outstanding,
beginning of year 3,104,084 3,706,796 7,258,219 6,842,584 6,625,749 6,879,341
---------- ---------- ---------- ---------- ---------- ----------
Shares outstanding,
end of year 2,470,464 3,104,084 6,277,762 7,258,219 5,723,622 6,625,749
========== ========== ========== ========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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To the Shareholders and Board of Trustees of the Markman MultiFund Trust:
We have audited the statements of assets and liabilities, including the
portfolios of investments, of the Markman MultiFund Trust (comprising,
respectively, the Markman Conservative Allocation Portfolio, the Markman
Moderate Allocation Portfolio and the Markman Aggressive Allocation Portfolio),
as of December 31, 1998, and the related statements of operations, the
statements of changes in net assets, and the financial highlights for the
periods indicated thereon. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. 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 each
of the respective portfolios constituting the Markman MultiFund Trust as of
December 31, 1998, the results of their operations, the changes in their net
assets, and their financial highlights for the periods Indicated thereon, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
January 13, 1999
<PAGE>
- --------------------------------------------------------------------------------
Stay Informed
- --------------------------------------------------------------------------------
1-800-975-5463
PORTFOLIO/STRATEGY UPDATE
To hear Bob Markman's weekly market
overview and MultiFund activity report.
www.markman.com/funds.htm
ONLINE
Check for net asset values and more.
1-800-536-8679
PRICELINE
For up-to-the-minute net asset values
and account values.
1-800-707-2771
HELPLINE
For a prospectus, an application form,
for assistance in completing an application,
or for general administrative questions.
- --------------------------------------------------------------------------------
New, Improved Web Site
If you haven't checked out the MultiFunds web site (www.markman.com/funds.htm),
you may want to take a look. We have expanded performance information, portfolio
allocations updated biweekly, on-line access to the Prospectus, and more with a
lot more coming. Plus, we're interested in your comments and suggestions.
These forms are available:
o Account Application
o IRA Application
o Roth IRA Application
o IRA Transfer Request
o Dollar Cost Averaging Application
o Systematic Withdrawal Plan Request
o Automatic Investment Request
o Company Retirement Account Application
o Company Retirement Plan Prototype [includes Profit Sharing, Money Purchase,
401(k)]
o 403(b) Plan and Application
The minimum direct investment is $25,000. If you want to invest less than
$25,000, you may purchase The Markman MultiFunds through: Charles Schwab &
Company (1-800-266-5623), Jack White and Company (1-800-323-3263), Fidelity
Investments (1-800-544-7558), and Waterhouse Securities (1-800-934-4443), among
others. There is no transaction fee when you purchase the Markman MultiFunds
through these discount brokers.
For additional forms or answers to any questions just contact The Markman
MultiFunds (between the hours of 8:30 AM and 5:30 PM EST)
Toll-free: 1-800-707-2771
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Markman Investment Adviser Shareholder Services
- ---------------- MULTIFUNDS Markman Capital Management, Inc. c/o Countrywide Fund Services, Inc.
NO-LOAD ---------- 6600 France Ave. So. 312 Walnut Street, 21st Floor
100% MUTUAL FUND For investors too smart Minneapolis, Minnesota 55435 Cincinnati, Ohio 45202-3874
COUNCIL to do it themselves Telephone: 612-920-4848 Telephone: 513-629-2070
- ---------------- Toll-free: 1-800-395-4848 Toll-free: 1-800-707-2771
</TABLE>
Authorized for distribution only if preceded or accompanied by a current
prospectus.
- --------------------------------------------------------------------------------
<PAGE>
Markman
MULTIFUNDS
- ---------- FIRST CLASS
For investors too smart
to do it themselves
6600 France Avenue South
Minneapolis, Minnesota 55435
