March 1, 2000
(Revised October 11, 2000)
STATEMENT OF ADDITIONAL INFORMATION
MARKMAN MULTIFUND TRUST
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 March 1, 2000, 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 Markman MultiFund Trust
6660 France Avenue South, Suite 565 221 East Fourth Street, Suite 300
Minneapolis, MN 55435 Cincinnati, OH 45202
Toll-free: 1-800-395-4848 Toll-free: 1-800-707-2771
Telephone: (612) 920-4848
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TABLE OF CONTENTS
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INVESTMENT OBJECTIVES AND POLICIES.............................................3
INVESTMENT RESTRICTIONS.......................................................15
QUALITY RATINGS OF DEBT SECURITIES............................................16
TRUSTEES AND OFFICERS.........................................................20
PRINCIPAL SECURITY HOLDERS....................................................22
INVESTMENT MANAGER............................................................23
TRANSFER AGENT AND ADMINISTRATOR..............................................24
CALCULATION OF SHARE PRICE....................................................24
TAXES.........................................................................25
REDEMPTION OF SHARES..........................................................26
SPECIAL REDEMPTIONS...........................................................26
CUSTODIAN.....................................................................26
AUDITORS AND LEGAL COUNSEL....................................................26
PORTFOLIO TRANSACTIONS........................................................27
PERFORMANCE INFORMATION.......................................................27
A. Total Return.........................................................27
B. Non-Standardized Total Return........................................28
C. Other Information Concerning Fund Performance........................29
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
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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.
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.
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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.
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
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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.
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.
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
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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 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
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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.
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
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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.
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
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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.
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.
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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 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.
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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.
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.
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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.
QUALITY RATINGS OF DEBT SECURITIES
----------------------------------
STANDARD & POOR'S RATINGS GROUP (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.
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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.
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).
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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 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.
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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.
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.
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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, 1999. 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 53 Trustee $6,000
+Peter Dross 44 Trustee 6,500
*Judith E. Fansler 49 Trustee 0
+Susan Gale 47 Trustee 6,500
Susan M. Lindgren 35 Trustee 4,500
*Richard W. London 57 Trustee 0
Melinda S. Machones 45 Trustee 6,000
*Emilee Markman 46 Trustee 6,000
*Robert J. Markman 48 Chairman of the Board 0
of Trustees and President
+Michael J. Monahan 49 Trustee 6,500
Theresa M. Samocki 30 Treasurer 0
Tina D. Hosking 31 Secretary 0
* An "interested person" of the Trust as such term is defined in the
Investment Company Act 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.
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SUSAN M. LINDGREN, 12015 Third Avenue North, Plymouth, Minnesota 55441 --
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, 4403 Country Club Road, Edina, Minnesota 55424 -- Executive
Director, Markman Capital Foundation.
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).
THERESA M. SAMOCKI, 221 East Fourth Street, Cincinnati, Ohio, is Vice
President - Fund Accounting of Integrated Fund Services, Inc. (a registered
transfer agent) and IFS Fund Distributors, Inc. (a registered broker-dealer).
TINA D. HOSKING, 221 East Fourth Street, Cincinnati, Ohio, is Vice
President and Associate General Counsel of Integrated Fund Services, Inc. and
IFS Fund Distributors, Inc.
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
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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.
PRINCIPAL SECURITY HOLDERS
--------------------------
As of February 11, 2000, Charles Schwab & Co., Inc., 101 Montgomery Street,
San Francisco, California 94104, owned of record 13.05% of the outstanding
shares of the Markman Aggressive Allocation Portfolio, 17.19% of the outstanding
shares of the Markman Moderate Allocation Portfolio and 11.91% of the
outstanding shares of the Markman Conservative Allocation Portfolio. As of such
date, Markman Capital Management, 6600 France Avenue, #565, Minneapolis,
Minnesota 55435 owned of record 11.14% of the outstanding shares of the Markman
Income Allocation Portfolio. As of such date, Landscape Structures Inc. Profit
Sharing Plan, 601 7th Street South, Delano, Minnesota 55369, owned of record
6.61% of the outstanding shares of the Markman Aggressive Allocation Portfolio.
As of such date, Daniel H. Kalish, 8600 Boulevard East, North Bergen, New Jersey
07047, owned of record 14.50% of the outstanding shares of the Markman Income
Allocation Portfolio. As of such date, Thomas S. Jackson and Judith N. Jackson,
215 Mountain Road, Wilton, Connecticut 06897, owned of record 6.71% and 6.34% of
the outstanding shares of the Markman Income Allocation Portfolio, respectively.
As of such date, Burton A. Lieb IRA Account/ Margaret C. Anderson POA, 12 Red
Rock Lane, Laguna Niguel, California 92677, owned of record 5.42% of the
outstanding shares of the Markman Income Allocation Portfolio. As of such date,
Raymond J. Morton IRA Account, 5317 Burchette Road, Tampa, Florida 33647, owned
of record 9.06% of the outstanding shares of the Markman Income Allocation
Portfolio. As of such date, Margaret G. Anderson IRA Rollover Account, 12 Red
Rock Lane, Laguna Niguel, California owned of record 6.67% of the outstanding
shares of the Markman Income Allocation Portfolio. As of such date, Carol B.
Windham, 1710 Fry Street, St. Paul, Minnesota 55113, owned of record 6.47% of
the outstanding shares of the Markman Income Allocation Portfolio. As of such
date, Charles Amundsen/Viola Amundsen, 6048 West Broadway, Apartment 15, New
Hope, Minnesota 55428, owned of record 5.53% of the outstanding shares of the
Markman Income Allocation Portfolio. As of such date, Carl Marks Living Trust,
Carl Marks, TTEE DTD 8/8/96, 7590 Carmen NW, North Canton, Ohio 44720, owned of
record 17.38% of the outstanding shares of the Markman Income Allocation
Portfolio. As of such date, Richard G. Robinson/Patricia M.E. Robinson, 1381
Cypress Point Lane, Apartment 206, Ventura, California 93003, owned of record
7.25% of the outstanding shares of the Markman Income Allocation Portfolio.
As of February 11, 2000, 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.
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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, 1999, the Markman Aggressive Allocation Portfolio, the
Markman Moderate Allocation Portfolio, the Markman Conservative Allocation
Portfolio and the Markman Income Allocation Portfolio paid advisory fees of
$972,333, $811,956, $292,256 and $1,857, respectively. 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.
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 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
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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, Integrated Fund
Services, Inc. ("Integrated") and Markman Capital. Pursuant to such Agreement,
Integrated serves as the Trust's transfer and dividend paying agent and performs
shareholder service activities. Integrated 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 Integrated 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, Integrated 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 Integrated.
For these services, Integrated 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, 1999, 1998 and 1997, Markman Capital paid fees
of $316,825, $278,938 and $283,156, respectively, to Integrated. Integrated also
receives reimbursement for certain out-of-pocket expenses incurred in rendering
such services.
Integrated is a wholly-owned subsidiary of IFS Holdings, Inc., which in
turn is a wholly-owned indirect subsidiary of The Western and Southern Life
Insurance Company. Integrated and its affiliates currently provide
administrative and distribution services for certain other registered investment
companies. The principal business address of Integrated is 221 East Fourth
Street, Suite 300, Cincinnati, Ohio 45202.
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
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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).
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.
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<PAGE>
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.
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, 2000. 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.
26
<PAGE>
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:
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 = 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.
27
<PAGE>
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, 1999 and for the period since inception are as follows:
One Year Since Inception
-------- ---------------
Aggressive Allocation Portfolio 49.88% 27.47%
(Inception: January 26, 1995)
Moderate Allocation Portfolio 35.49% 21.90%
(Inception: January 26, 1995)
Conservative Allocation Portfolio 24.99% 16.49%
(Inception: January 26, 1995)
Income Allocation Portfolio n/a 3.30%
(Inception: May 1, 1999)
B. NON-STANDARDIZED 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.
28
<PAGE>
The total returns for the Markman Aggressive Allocation Portfolio, the
Markman Moderate Allocation Portfolio and the Markman Conservative Allocation
Portfolio, for the period from the initial public offering of shares on January
26, 1995 through December 31, 1999 were 120.01%, 95.41% and 69.48% respectively.
The total return for the Markman Income Allocation Portfolio for the period from
the public offering of shares on May 1, 1999 through December 31, 1999 was
3.30%.
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 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.
29
<PAGE>
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 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.
30
<PAGE>
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.
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,
31
<PAGE>
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.
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.
32
<PAGE>
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.
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
33
<PAGE>
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-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.
34
<PAGE>
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, 1999 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
35
<PAGE>
Markman
MULTIFUNDS
Annual
Report
December 31, 1999
AGGRESSIVE ALLOCATION PORTFOLIO
MODERATE ALLOCATION PORTFOLIO
CONSERVATIVE ALLOCATION PORTFOLIO
INCOME ALLOCATION PORTFOLIO
<PAGE>
--------------------------------------------------------------------------------
LOOKING BACK:
--------------------------------------------------------------------------------
AS WE'VE SAID MANY TIMES BEFORE, the market always manages to confound at least
some of the conventional wisdom. Even so, I've never, in almost two decades in
the investment business, seen so many conventional views from the beginning of
the year turn out to be so incredibly wrong by the end of the year. The chart
below shows how dangerous it was to listen to the legion of chin-rubbing,
furrow-browed "prudent" pundits as 1999 began.
--------------------------------------------------------------------------------
THE "PRUDENT" PUNDITS SAID... WHAT ACTUALLY HAPPENED...
--------------------------------------------------------------------------------
* The S&P 500, after four 20%+ * The S&P gained over 20% with
years, could not repeat again with dividends reinvested, its fifth
solid gains. straight great year.
--------------------------------------------------------------------------------
* After such a multi-year runup in * While the stock market soared,
the stock market, it might be a bonds experienced their worst
good idea to take some chips off decline in a generation.
the table and reallocate to bonds.
--------------------------------------------------------------------------------
* Y2K disruptions could throw the * Y2 what?
U.S. economy into a reces-sion, or
at least cause a severe decline in
the stock market as investors pull
out dollars. To be sure, markets
overseas that have prepared less
than we have will be severely
impacted.
--------------------------------------------------------------------------------
* Market "leadership" is much too * Leadership stayed in the same few
narrow. This bull market cannot favorites with the split widening
continue to move up on the backs between the haves and have nots.
of just a few favorite stocks. The Amazingly, even on the Nasdaq,
market will need to broaden out to which gained over 85% for the
survive and prosper. year, almost half the stocks
actually lost money!
--------------------------------------------------------------------------------
* Growth stocks have appreciated too * Growth once again trounced value
far, too fast. Value stocks are by a huge margin. The S&P mid-cap
the smarter bet now for investors growth index rose over 50% while
looking to buy low and ride the the mid-cap value index was
market up. virtually unchanged.
--------------------------------------------------------------------------------
* The Internet bubble will burst! * Maybe so...someday. In the
These valuations are simply meantime, some Internet funds
unsustainable! Repent ye dot-com posted gains in 1999 of over 200%.
sinners! Arghhh....
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Markman
<PAGE>
--------------------------------------------------------------------------------
1999 IN PERSPECTIVE
--------------------------------------------------------------------------------
Given how absurdly off base the conventional wisdom was last year, I can't help
taking this opportunity to dig back in the archives and reprint what we wrote in
last year's annual report:
--------------------------------------------------------------------------------
WHAT WE SAID LAST YEAR:
o "It's hard to imagine a serious and extended setback for the market..."
o "The biggest risk we run this year is not recession, but an economy too
strong for the Federal Reserve to tolerate."
o "Treasuries will be in for some tough sledding..."
o "Small-cap stocks should do better this year. That doesn't mean, however,
that they will outperform large stocks."
o "Technology...will continue to be a driving force in the economy. We intend
to maintain our overweighting in tech stocks..."
o "Overall, I am extremely optimistic about 1999 and think that potentially
significant gains are possible."
--------------------------------------------------------------------------------
No doubt it was our good fortune to see the year unfold quite as we anticipated,
which in turn led to the superior per-formance of all of the Markman MultiFund
Portfolios. As you can see by the accompanying charts and graphs, all of the
Portfolios significantly out-performed their comparative Fund of Fund and
general market index bench-marks. The Aggressive Allocation Portfolio's 49.88%
return is, of course, attributable to the overweighting in technology-oriented
fund investments that we were committed to -- and stuck with -- even when media
pundits shouted to head for the hills.
On the other end of the volatility spec-trum, the Conservative Allocation
Portfolio's 24.97% return outdistanced its peers not only by having an equity
allocation that showed superior perfor-mance, but also by our choice of bond
investments. As we've noted, bonds had a lousy year. We foresaw at the
begin-ning of the year that the high quality/government bond choices one would
normally see in a conservative-type portfolio simply wouldn't do the job in
1999. We opted to over-allocate into high-yield bond funds. Many eye-brows were
raised by our use of "junk" bond funds for cautious investors, but we felt that,
given the economic picture, junk was likely to hold its value much more than
high-quality bonds. And the reality was that even though the high-yield funds
did not perform as well as we had hoped, they did manage to turn in positive
returns for the year, greatly outperforming their higher quality brethren.
As always, the Moderate Allocation Portfolio continually plays a balancing act
between the zip of the Aggressive Allocation and the caution of the Conservative
Allocation. Given how well our choices were at the extremes, it is not
surprising that the Moderate Allocation, with its 35.49% return, did so much
better than its Fund of Fund peers.
The Income Allocation did not open to investors until May 1, and has not yet had
one full year of operation. Still, even in the short period of time it has been
available, it, too, has outper- formed its peer group. Given how dif-ficult it
is to create significant value in the bond arena, we are particularly pleased
with the degree to which it did better than its peers.
Kudos to you, too, the Markman MultiFund shareholders who also did what few
expected at the beginning of 1999: you stayed the course, didn't panic, and, in
many cases, moved intelligently to take advantage of opportunities as the year
unfolded.
----------------------------------------------
1999 RETURNS
----------------------------------------------
MARKMAN AGGRESSIVE ALLOCATION 49.88%
Average Growth Fund of Funds 24.36%
S&P 500 20.89%
----------------------------------------------
MARKMAN MODERATE ALLOCATION 35.49%
Average Moderate Fund of Funds 18.36%
S&P 500 20.89%
----------------------------------------------
MARKMAN CONSERVATIVE ALLOCATION 24.97%
Average Conservative Fund of Funds 11.40%
S&P 500 20.89%
----------------------------------------------
MARKMAN INCOME ALLOCATION* 3.27%
Average Income Fund of Funds -1.39%
Lipper General Bond Fund Index -0.95%
----------------------------------------------
The Funds of Funds Association provides monthly performance indices for funds of
funds. It divides asset allocation funds of funds into Conservative, Moderate,
and Growth categories based on their degree of daily price volatility compared
to the S&P 500 in 1998. Income funds of funds have 85% or more of their assets
invested in bond funds. Independent data from Lipper Analytical Services is used
to calculate the average returns within these categories. These indices are not
audited as part of the financial statement audit. Markman Capital Management,
the adviser to the Markman MultiFunds, is a founding member of the Funds of
Funds Association. Additional information is available at www.fundsoffunds.org.
* From May 1, 1999
--------------------------------------------------------------------------------
Markman
1
<PAGE>
---------------------------------------------------------
[GRAPHIC OMITTED]
DEC 31, 1999
------------
S&P 500 $34,175
Markman Aggressive Allocation Portfolio $33,509
Funds of Funds Growth $25,291
Past performance is not predictive of future performance.
---------------------------------------------------------
[GRAPHIC OMITTED]
DEC 31, 1999
------------
S&P 500 $34,175
Markman Moderate Allocation Portfolio $27,048
Funds of Funds Moderate $22,368
Past performance is not predictive of future performance.
---------------------------------------------------------
[GRAPHIC OMITTED]
DEC 31, 1999
------------
S&P 500 $34,175
Markman Conservative Allocation Portfolio $21,409
Funds of Funds Conservative $18,428
Lehman Intermediate Government Bond Index $13,754
Past performance is not predictive of future performance.
---------------------------------------------------------
[GRAPHIC OMITTED]
DEC 31, 1999
------------
Markman Income Allocation Portfolio $10,327
Lipper General Bond Fund Index $9,906
Funds of Funds Income $9,861
Past performance is not predictive of future performance.
---------------------------------------------------------
LOOKING AHEAD:
Our Take on 2000
ALL THE INGREDIENTS ARE IN PLACE TO MAKE 2000 ANOTHER GREAT YEAR IN THE MARKET.
First among the factors that investors must consider is the simple reality that
we've passed through the dreaded Y2K transition intact. Over the past year, many
billions of dollars and tens of thousands of man hours have been spent making
sure that the world would not grind to a screeching halt as 2000 hit. Much of
that effort displaced other purchases and activities that would normally have
occurred last year. Now, those resources -- both financial and human -- will be
directed to other, more productive areas of technology. After some potential
slowing during the first part of the year, we expect technology spending to
accelerate to levels far above what most analysts are anticipating.
Another "big picture" positive that will affect on returns in 2000 is the
continued overseas recovery and global expansion that finally seems to be firmly
in place after the disruptions of 1997-1998. This bodes well for the large U.S.
growth investments that dominate our portfolios. Over a third of the profits
from companies in the S&P come from non-U.S. sources. These over-seas
operations, previously a drag on recent performance, are now in a position to
add financial tailwind to U.S. large caps.
Once again, we begin the year having to listen to the yammering of ersatz
investment gurus who continue to deny the reality of the information-based
economy. By obsessing about whether stock prices are too high over the short
term, they are once again missing the big story evolving right under their
noses: With each passing day, more and more of our economy becomes connected to
the evolving technological world fabric. This is not a fad. This is not a bubble
(at least in the sense that we have always understood bubbles, as something of
no real value that will eventually burst leaving behind little or nothing). Cell
phones, Email, Internet commerce, and the many other growth areas of technology
that didn't even exist a decade ago are transforming economic man at a rate and
to a degree that no other technology burst has ever done before in the history
of man. Comparing computers to the railroads of the last century is like
comparing sixteen wheelers to golf carts. What makes this information revolution
so potent is the speed with which it evolves and transforms. Think of the wealth
that was created worldwide during the course of the 150-year Industrial
Revolution. Then think of that same level of wealth creation compressed into a
generation or two. That's the potent dynamic we are faced with. When long-term
investors ignore this larger picture for the sake of concerns about temporary
short-term valuations, the result is wealth-creation suicide.
There is one thing, though, that the nervous nellies are right about. As the
information revolution continues to unfold, many of the companies now attracting
attention in the market will ultimately fail. I might even be so bold as to say
that most of them won't survive. The ones that do, however, will grow in such an
exponential way as to over-whelm the effects of the losers. Of course, with very
few exceptions, it's probably impossible to predict who will still be left
standing ten years from now. That's why now, more than ever, mutual funds loom
large as the smart way to make money in the twenty-first century. By
constructing a well-diversified pool of companies at the leading edge of
technology, we significantly reduce the risk that we won't benefit from the
dynamic growth ahead of us. We all know that in recent years many investors, for
tax or performance reasons, have migrated away from funds to buying individual
stocks. For some, initially, this may look like a good move. Ultimately, though,
in the fast-changing complex world of technology, the risks and dangers of this
approach far outweigh the potential benefits.
The managers of the underlying funds we own have discussed with us how they, on
their level, attempt to participate in the upside potential of the information
revolution while avoiding the most egregious risks. This is what is commonly
referred to as the "bricks and mortar" approach to profiting from the technology
boom. With this strategy, investors are directed to look beyond the companies
making big news vying for consumer attention, such as ebay, Amazon.com,
Priceline, Dell and the like and focus instead on those companies that make the
stuff that these better-known names use to do their business. Companies like Sun
Microsystems, Oracle, Qualcomm, Broadcomm and Cisco, to name just a few. The
strategy here says that it doesn't really matter who makes the piece of plastic
surrounding the cell phone or computer hard
--------------------------------------------------------------------------------
Once again, we begin the year having to listen to the yammering of ersatz
investment gurus who continue to deny the reality of the information-based
economy.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Markman
2 and 3
<PAGE>
drive. It's the people who create and make the guts underneath the plastic that
will ultimately be the winners. On the Internet, don't obsess about who is
selling what to consumers. Focus on the companies that are creating and selling
the technologies that enable the consumer to be reached in the first place.
Some call this the "pick and shovel" strategy. This reference uses the example
of the 1849 gold rush as a lesson in how to benefit from a "mania." As we all
know, for every prospector who made his fortune in the California gold fields,
many more went bust. In all that uncertainty, however, the merchants who sold
the forty-niners the picks, shovels, and other essen-tials made -- and kept --
secure for-tunes. (I just read that in most mining boomtowns, the most
prosperous person was the woman who did the miners' laundry!)
That said, I can assure you that technology stocks, and the funds that own them,
will experience some extreme volatility this year. So what else is new? What you
as shareholders have learned -- and what other, ostensibly smart investors have
yet to learn -- is that volatility is not the same as risk. Short-term
fluctuations matter little in long-term investments. If anything, these
fluctuations give the superior managers to whom we've entrusted your dollars
opportunities to buy at bargain prices.
Nevertheless, I can be a technology bull without being a Pollyanna about some of
the potential pain we have to endure in order to reap those long-term gains. So
hang in there, folks, and don't let the short-term noise and static make you
lose sight of what's really important long term.
Our overall approach and strategy as we move ahead in 2000 remains the same as
that which rewarded us so well in 1999. We remain convinced that the best
opportunities, particularly on a risk-adjusted basis, are here in the U.S. We
also continue to believe that large U.S. companies will dominate the economic
landscape. Given that an increasingly large percentage of our economic growth is
coming from the technology sector, we will overweight that area in an attempt to
stay ahead of the curve, rather than simply play catch-up.
[PHOTO]
/s/ Bob Markman
--------------------------------------------------------------------------------
Shameless Book Promotion Department
[GRAPHIC]
Bob has written a book that "tells all" about what works and doesn't work in the
mutual fund world. HAZARDOUS TO YOUR WEALTH: EXTRAORDINARY POPULAR DELUSIONS AND
THE MADNESS OF MUTUAL FUND EXPERTS shows up the conventional wisdom for the odd
collection of dangerous myths it really is. Bob shares with you, in depth, how
he looks at the world and investments. It will give you great insights as to how
we achieved the kind of performance that made 1999 a year to remember in the
Markman MultiFunds. It's a fun, easy read and is available now at bookstores
everywhere as well as on the Net at Amazon.com. Bob urges everyone to buy
multiple copies for all of your family members.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Mutual funds loom large as the smart way to make money in the twenty-first
century. By constructing a well-diversified pool of companies at the leading
edge of technology, we significantly reduce the risk that we won't benefit from
the dynamic growth ahead of us.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Markman
4
<PAGE>
--------------------------------------------------------------------------------
AGGRESSIVE ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
OUR GOAL: TO ACHIEVE HIGH LONG-TERM GROWTH CONSISTENT WITH REASONABLE
DIVERSIFICATION. A FULLY INVESTED PORTFOLIO, LARGELY STOCK ORIENTED, WILL BE
MAINTAINED AT ALL TIMES, THUS CREATING RELATIVELY HIGH VOLATILITY.
The Aggressive Allocation Portfolio benefited all year from its disciplined
overweighting in funds that were heavy own-ers of technology stocks. Those of
you who followed the daily and weekly short-term price movements of the Fund
(and you know who you are -- tsk, tsk) know that while this strategic move that
we made back in 1998 has increased the very short-term volatility of the
portfolio, it has also enabled us to finally participate in the leading edge of
equity investing.
As we went into the fourth quarter, we began to see more and more solid
indications that the tech rally, which previ-ously had been largely concentrated
in large-cap stocks, was spreading out into the second and third tier names. We
moved on this trend by taking positions in Pin Oak Aggressive Stock Fund and
Firsthand Technology Innovators Fund. Both of these funds work the small- to
mid-cap spectrum of the technology arena and have shown a remarkable ability in
the past to be in the right stocks at the right time. Technology Innovators
closed to new investors a couple of months ago, but we are still able to buy it
and I expect it to be one of our larger holdings before long.
By walking our talk from an allocation standpoint, and holding our ground when
things looked grim in October, we were able to make the most of the "melt up" in
the final two months of the year. The Portfolio's fourth quarter gain of 33.4%
was the largest quarterly gain we've ever achieved.
Of course, the funds we own in turn own more than just technology stocks.
Financials and health loom large in our strategy. This enables us to look long
term with our overall strategy of allocating the Portfolio to what we and our
fund managers feel are the best U.S. growth companies available.
---------------------------------------------
CONTENT BREAKDOWN
---------------------------------------------
Unaudited
[GRAPHIC OMITTED]
U.S. Stocks . . . . . . . . . . . . . . 92%
International Stocks . . . . . . . . . . 2%
Bonds . . . . . . . . . . . . . . . . . 0%
Cash . . . . . . . . . . . . . . . . . . 6%
PORTFOLIO COMPARISON (Unaudited)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
Markman Aggressive Funds of Funds Association
Allocation Portfolio Growth Index
12 months ending 12/99 49.9% 24.4%
--------------------------------------------------------------------------------
3 years annualized 31.0% 19.9%
--------------------------------------------------------------------------------
Annualized since inception* 27.5% 20.7%
--------------------------------------------------------------------------------
*from February 1, 1995
<TABLE>
<CAPTION>
==============================================================================================
PORTFOLIO OF INVESTMENTS
Markman Aggressive Allocation Portfolio-- December 31, 1999
----------------------------------------------------------------------------------------------
Fund Shares Market Value % of Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Rydex Series OTC Fund* 333,051 $ 27,430,062 20.1%
----------------------------------------------------------------------------------------------
Janus Twenty Fund 320,642 26,751,134 19.6%
----------------------------------------------------------------------------------------------
Davis New York Venture Fund, Inc.-- Class Y 631,904 18,331,529 13.4%
----------------------------------------------------------------------------------------------
White Oak Growth Stock Fund* 295,445 18,057,612 13.2%
----------------------------------------------------------------------------------------------
Liberty-Stein Roe Growth Stock Fund* 293,608 16,262,962 11.9%
----------------------------------------------------------------------------------------------
Marsico Focus Fund* 305,967 7,174,921 5.3%
----------------------------------------------------------------------------------------------
Transamerica Premier Equity Fund* 211,131 6,747,743 5.0%
----------------------------------------------------------------------------------------------
Pin Oak Aggressive Stock Fund* 107,144 5,755,794 4.2%
----------------------------------------------------------------------------------------------
The Internet Fund* 101,260 5,034,659 3.7%
----------------------------------------------------------------------------------------------
Firsthand Technology Innovators Fund* 92,152 4,548,638 3.3%
----------------------------------------------------------------------------------------------
Miscellaneous-- Money Market Fund 602,857 602,857 0.4%
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $77,825,586) 136,697,911 100.1%
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET (335,851) (0.1)%
----------------------------------------------------------------------------------------------
NET ASSETS $ 136,362,060 100.0%
============= =====
----------------------------------------------------------------------------------------------
* Non-income producing security. See accompanying notes to financial statements.
</TABLE>
--------------------------------------------------------------------------------
Markman
5
<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 Moderate Allocation Portfolio was fortunate in 1999 to be in the position to
blend our successful Conservative and Aggressive strategies. Of course, the
driving force in the Portfolio has been its exposure to the large-cap growth
sector of the U.S. market. During the fall of 1999, we further enhanced the
return potential of the Portfolio by adding to our technology positions. We
increased the Rydex OTC share of the portfolio and added both The Internet Fund
and Firsthand Technology Innovators Fund to the mix.
As with the Conservative Allocation, we have taken steps to offset the increased
volatility of these new positions by shifting our fixed-income strategy away
from the high-yield sector toward the very short end of the yield curve. We no
longer have positions in high-yield bonds; most of those dollars have, as in the
Conservative Allocation, been reallocated to Pimco Short Term Bond Fund and
Strong Advantage.
The overall allocation to equities remains at the high end of the range that we
consider reasonable for this portfolio. This is a reflection of our continued
positive outlook on the economy and the markets.
---------------------------------------------
CONTENT BREAKDOWN
---------------------------------------------
Unaudited
[GRAPHIC OMITTED]
U.S. Stocks . . . . . . . . . . . . . . 69%
International Stocks . . . . . . . . . . 2%
Bonds . . . . . . . . . . . . . . . . . 17%
Cash . . . . . . . . . . . . . . . . . . 12%
PORTFOLIO COMPARISON (Unaudited)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
Markman Moderate Funds of Funds
Allocation Portfolio Association Moderate Index
12 months ending 12/99 35.5% 18.4%
--------------------------------------------------------------------------------
3 years annualized 24.2% 16.9%
--------------------------------------------------------------------------------
Annualized since inception* 21.9% 18.9%
--------------------------------------------------------------------------------
*from February 1, 1995
<TABLE>
<CAPTION>
==============================================================================================
PORTFOLIO OF INVESTMENTS
Markman Moderate Allocation Portfolio-- December 31, 1999
----------------------------------------------------------------------------------------------
Fund Shares Market Value % of Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Twenty Fund 256,396 $ 21,391,126 21.2%
----------------------------------------------------------------------------------------------
Marsico Focus Fund* 847,847 19,882,017 19.7%
----------------------------------------------------------------------------------------------
The Rydex Series OTC Fund* 174,011 14,331,538 14.2%
----------------------------------------------------------------------------------------------
PIMCO Short Term Fund-- Institutional 1,011,708 10,066,493 10.0%
----------------------------------------------------------------------------------------------
Davis New York Venture Fund, Inc.-- Class Y 270,587 7,849,720 7.8%
----------------------------------------------------------------------------------------------
Strong Advantage Fund-- Institutional 760,645 7,507,563 7.5%
----------------------------------------------------------------------------------------------
Paap America-Abroad Fund* 174,078 6,136,262 6.1%
----------------------------------------------------------------------------------------------
Firsthand Technology Innovators Fund* 81,762 4,035,768 4.0%
----------------------------------------------------------------------------------------------
The Internet Fund* 43,175 2,146,660 2.1%
----------------------------------------------------------------------------------------------
Miscellaneous-- Money Market Fund 7,786,336 7,786,336 7.7%
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $69,142,268) 101,133,483 100.3%
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET (334,715) (0.3)%
----------------------------------------------------------------------------------------------
NET ASSETS $ 100,798,768 100.0%
============= ======
* Non-income producing security. See accompanying notes to financial statements.
----------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
Markman
6
<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.
Although we remain careful in the Conservative Allocation not to let our
enthusiasm with the market get the better of us, we did think it prudent to take
advantage of the late summer, early fall weakness to add to our equity
positions. We took small positions in Rydex OTC and Firsthand Technology
Innovators to get our market exposure consistent with our overall view of where
the strength is and would be. As you can see from the pie chart below, our stock
exposure is now 48%, low relative to many other balanced portfolios, but still
higher than the 37% figure as of 9/30/99.
The added volatility inherent in this slightly higher equity allocation has, in
our estimation, been offset by the tactical shift we have taken with the
fixed-income portion of the portfolio. During the fourth quarter we sold all
existing bond positions, which consisted mostly of high-yield bonds. This was in
no way a reflection of our feelings about those particular funds. We continue to
see them as excellent investments in the right situation. In this case, however,
we are looking for a fixed-income component that will give us a greater
assurance of ongoing stability. Thus we have shift-ed the allocation to
short-term bond and money market funds. Funds such as Pimco Short Term Bond and
Strong Advantage provide very high ongoing stability, which, along with our
money market position, will help to stabilize the volatility that our equity
positions present us.
Since we are very bullish on the economy's strength, one of the biggest
potential risks we foresee in 2000 is on the interest rate front. Should rates
increase, we are assured of higher stability by sticking to the short end of the
bond maturity range. Indeed, if rising rates cause a significant setback in
stock prices, we would have resources in those bond positions to deploy back
into stocks at lower prices.
---------------------------------------------
CONTENT BREAKDOWN
---------------------------------------------
Unaudited
[GRAPHIC OMITTED]
U.S. Stocks . . . . . . . . . . . . . . 48%
International Stocks . . . . . . . . . . 1%
Bonds . . . . . . . . . . . . . . . . . 38%
Cash . . . . . . . . . . . . . . . . . . 13%
PORTFOLIO COMPARISON (Unaudited)
--------------------------------------------------------------------------------
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
Markman Conservative Funds of Funds Association
Allocation Portfolio Conservative Index
12 months ending 12/99 25.0% 11.4%
--------------------------------------------------------------------------------
3 years annualized 16.5% 11.5%
--------------------------------------------------------------------------------
Annualized since inception* 16.5% 13.0%
--------------------------------------------------------------------------------
*from February 1, 1995
<TABLE>
<CAPTION>
==============================================================================================
PORTFOLIO OF INVESTMENTS
Markman Conservative Allocation Portfolio-- December 31,1999
----------------------------------------------------------------------------------------------
Fund Shares Market Value % of Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PIMCO Short-Term Fund-- Institutional 683,188 $ 6,797,716 19.7%
----------------------------------------------------------------------------------------------
Marsico Focus Fund* 289,450 6,787,594 19.6%
----------------------------------------------------------------------------------------------
Strong Advantage Fund-- Institutional 659,225 6,506,555 18.8%
----------------------------------------------------------------------------------------------
Janus Twenty Fund 63,513 5,298,879 15.3%
----------------------------------------------------------------------------------------------
Firsthand Technology Value Fund* 22,145 2,004,544 5.8%
----------------------------------------------------------------------------------------------
The Rydex Series OTC Fund* 24,120 1,986,493 5.7%
----------------------------------------------------------------------------------------------
Selected American Shares 52,882 1,893,186 5.5%
----------------------------------------------------------------------------------------------
Miscellaneous-- Money Market Fund 3,116,087 3,116,087 9.0%
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $27,329,672) 34,391,054 99.4%
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET 207,844 0.6%
----------------------------------------------------------------------------------------------
NET ASSETS $ 34,598,898 100.0%
============= ======
* Non-income producing security. See accompanying notes to financial statements.
----------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
Markman
7
<PAGE>
--------------------------------------------------------------------------------
INCOME ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
OUR GOAL: TO PROVIDE HIGH CURRENT INCOME AND LOW SHARE PRICE FLUCTUATION.
The Income Allocation, from its inception in the Spring of 1999, has faced a
challenging market dynamic. How does one achieve a high current yield and
stability of principal in an environment that is negative for bonds? It helped
enormously that we were fortunate to have made the tactical decision that
high-yield bonds would likely give us the best total return in 1999. Over half
of the Fund's portfolio has been allocated to this area. This is, to be sure, a
much higher allocation to high yields than other income funds have. And,
admittedly, it is, on paper, not the most cautious of allocations. But, as we
always say, "stable is as stable does." If this mar-ket dictates that the best
return is to be found at the lower end of the quality range, we see no reason to
mindlessly ignore reality for the sake of dogmatic adherence to traditional bond
allocations.
Additionally, as is no doubt obvious by now, we also received an extra bit of
tailwind in the portfolio by our minor allocation to stock funds. This enabled
us to maintain a positive total return profile, something few of our peers were
able to achieve.
We go into 2000 more positive than ever about the prospects for this Portfolio.
While we expect the sled-ding to continue to be rough for the bond market, we do
think high yield will perform better than last year and will once again far
outperform higher quality bond choices. This should be good news for
shareholders as it will allow us to maintain a high dividend and produce
potentially superior total return numbers.
---------------------------------------------
CONTENT BREAKDOWN
---------------------------------------------
Unaudited
[GRAPHIC OMITTED]
U.S. Stocks . . . . . . . . . . . . . . 16%
International Stocks . . . . . . . . . . 0%
Bonds . . . . . . . . . . . . . . . . . 65%
Cash . . . . . . . . . . . . . . . . . . 19%
PORTFOLIO COMPARISON (Unaudited)
[GRAPHIC OMITTED]
--------------------------------------------------------------------------------
Markman Income Funds of Funds Association
Allocation Portfolio Income Index
8 months ending 12/99* 3.3% -1.4%
--------------------------------------------------------------------------------
3 years annualized N/A N/A
--------------------------------------------------------------------------------
Annualized since inception* N/A N/A
--------------------------------------------------------------------------------
*Inception: May 1, 1999
<TABLE>
<CAPTION>
==============================================================================================
PORTFOLIO OF INVESTMENTS
Markman Income Allocation Portfolio-- December 31, 1999
----------------------------------------------------------------------------------------------
Fund Shares Market Value % of Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PIMCO Total Return Fund-- Institutional 36,514 $ 361,494 19.1%
----------------------------------------------------------------------------------------------
Northeast Investors Trust 34,536 337,421 17.8%
----------------------------------------------------------------------------------------------
Fidelity Capital & Income Fund 34,192 317,645 16.8%
----------------------------------------------------------------------------------------------
INVESCO High Yield Fund 49,140 315,967 16.7%
----------------------------------------------------------------------------------------------
Marsico Growth & Income Fund* 6,429 140,537 7.4%
----------------------------------------------------------------------------------------------
White Oak Growth Stock Fund* 2,028 123,974 6.5%
----------------------------------------------------------------------------------------------
Miscellaneous-- Money Market Fund 298,375 298,375 15.7%
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $1,880,614) 1,895,413 100.0%
----------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET 668 0.0%
----------------------------------------------------------------------------------------------
NET ASSETS $ 1,896,081 100.0%
============= ======
* Non-income producing security. See accompanying notes to financial statements.
----------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
Markman
8
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES o December 31, 1999
Markman Markman Markman Markman
Income Conservative Moderate Aggressive
Allocation Allocation Allocation Allocation
Portfolio Portfolio Portfolio Portfolio
=============================================================================================================================
ASSETS
Investments in securities:
<S> <C> <C> <C> <C>
At acquisition cost ...................................... $ 1,880,614 $ 27,329,672 $ 69,142,268 $ 77,825,586
============= ============= ============= =============
At value (Note 1) ........................................ $ 1,895,413 $ 34,391,054 $ 101,133,483 $ 136,697,911
Receivable for capital shares sold ......................... -- 321,025 6,275 44,485
Dividends receivable ....................................... 2,087 16,857 13,377 1,891
Other assets ............................................... 421 4,592 459 8,985
------------- ------------- ------------- -------------
TOTAL ASSETS ............................................. 1,897,921 34,733,528 101,153,594 136,753,272
------------- ------------- ------------- -------------
=============================================================================================================================
LIABILITIES
Payable for capital shares redeemed ........................ 1,000 59,895 223,171 176,909
Distributions payable to shareholders ...................... -- 47,884 54,076 111,487
Payable to affiliates (Note 3) ............................. 840 26,851 77,579 102,816
------------- ------------- ------------- -------------
TOTAL LIABILITIES ........................................ 1,840 134,630 354,826 391,212
------------- ------------- ------------- -------------
=============================================================================================================================
NET ASSETS ................................................. $ 1,896,081 $ 34,598,898 $ 100,798,768 $ 136,362,060
============= ============= ============= =============
Net assets consist of:
Paid-in capital ............................................ $ 1,888,248 $ 27,535,956 $ 68,805,045 $ 77,659,150
Undistributed net investment income ........................ -- 1,560 2,508 --
Distributions in excess of net realized gains .............. -- -- -- (169,415)
Accumulated net realized losses from security transactions . (6,966) -- -- --
Net unrealized appreciation on investments ................. 14,799 7,061,382 31,991,215 58,872,325
------------- ------------- ------------- -------------
NET ASSETS ................................................. $ 1,896,081 $ 34,598,898 $ 100,798,768 $ 136,362,060
============= ============= ============= =============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) (Note 5) ...... 189,166 2,439,128 6,039,826 6,141,519
============= ============= ============= =============
Net asset value, redemption price and offering
price per share (Note 1) ................................. $ 10.02 $ 14.18 $ 16.69 $ 22.20
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
Markman
9
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
======================================================================================================================
STATEMENTS OF OPERATIONS o For the year ended December 31, 1999(A)
Markman Markman Markman Markman
Income Conservative Moderate Aggressive
Allocation Allocation Allocation Allocation
Portfolio Portfolio Portfolio Portfolio
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividend income ......................................... $ 22,154 $ 1,559,127 $ 2,547,549 $ 195,676
------------ ------------ ------------ ------------
EXPENSES
Investment advisory fees ................................ 1,857 292,256 811,956 972,333
Independent trustees' fees .............................. -- 14,000 14,000 14,000
------------ ------------ ------------ ------------
TOTAL EXPENSES (NOTE 3) ................................. 1,857 306,256 825,956 986,333
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ............................ 20,297 1,252,871 1,721,593 (790,657)
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions .. (7,411) 1,547,664 5,902,722 8,966,456
Capital gain distributions from
other investment companies ............................ 445 442,856 1,546,791 3,183,646
Net change in unrealized appreciation/
depreciation on investments ........................... 14,799 3,981,393 18,152,745 33,815,297
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ........ 7,833 5,971,913 25,602,258 45,965,399
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .............. $ 28,130 $ 7,224,784 $ 27,323,851 $ 45,174,742
============ ============ ============ ============
<CAPTION>
========================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
Markman Income Markman Conservative
Allocation Portfolio Allocation Portfolio
Period ended Year ended Year ended
Dec. 31, 1999(A) Dec. 31, 1999 Dec. 31, 1998
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) ................... $ 20,297 $ 1,252,871 $ 568,587
Net realized gains (losses) from
security transactions ........................ (7,411) 1,547,664 1,067,694
Capital gain distributions from
other investment companies ................... 445 442,856 515,255
Net change in unrealized appreciation/
depreciation on investments .................. 14,799 3,981,393 1,106,083
------------- ------------- -------------
Net increase in net assets from operations ..... 28,130 7,224,784 3,257,619
------------- ------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ........... (20,297) (1,097,151) (657,761)
Distributions in excess of
net investment income (Note 1) ............... -- -- (45,764)
Return of capital .............................. (11,458) -- --
Distributions from net realized gains .......... -- (1,647,858) (1,102,192)
------------- ------------- -------------
Decrease in net assets from
distributions to shareholders ................ (31,755) (2,745,009) (1,805,717)
------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (Note 4):
Proceeds from shares sold ...................... 2,939,910 7,944,542 11,129,490
Net asset value of shares issued in reinvestment
of distributions to shareholders ............. 31,755 2,697,126 1,563,886
Payments for shares redeemed ................... (1,071,959) (10,989,293) (20,358,721)
------------- ------------- -------------
Net increase (decrease) in net assets from
capital share transactions ................... 1,899,706 (347,625) (7,665,345)
------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........ 1,896,081 4,132,150 (6,213,443)
NET ASSETS:
Beginning of period ............................ -- 30,466,748 36,680,191
------------- ------------- -------------
End of period .................................. $ 1,896,081 $ 34,598,898 $ 30,466,748
============= ============= =============
UNDISTRIBUTED NET INVESTMENT INCOME ............ $ -- $ 1,560 $ --
============= ============= =============
<CAPTION>
Markman Moderate Markman Aggressive
Allocation Portfolio Allocation Portfolio
Year ended Year ended Year ended Year ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) ................... $ 1,721,593 $ 691,704 $ (790,657) $ (513,567)
Net realized gains (losses) from
security transactions ........................ 5,902,722 3,062,796 8,966,456 (231,303)
Capital gain distributions from
other investment companies ................... 1,546,791 1,388,199 3,183,646 1,291,832
Net change in unrealized appreciation/
depreciation on investments .................. 18,152,745 8,491,783 33,815,297 18,912,136
------------- ------------- ------------- -------------
Net increase in net assets from operations ..... 27,323,851 13,634,482 45,174,742 19,459,098
------------- ------------- ------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ........... (1,607,343) (691,704) -- (21,208)
Distributions in excess of
net investment income (Note 1) ............... -- (260,772) -- --
Return of capital .............................. -- -- -- --
Distributions from net realized gains .......... (6,205,785) (3,393,190) (10,222,408) (340,273)
------------- ------------- ------------- -------------
Decrease in net assets from
distributions to shareholders ................ (7,813,128) (4,345,666) (10,222,408) (361,481)
------------- ------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS (Note 4):
Proceeds from shares sold ...................... 12,400,277 12,188,071 23,265,400 16,927,645
Net asset value of shares issued in reinvestment
of distributions to shareholders ............. 7,759,052 4,298,339 10,110,921 350,390
Payments for shares redeemed ................... (22,670,359) (28,364,444) (23,581,252) (29,162,161)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
capital share transactions ................... (2,511,030) (11,878,034) 9,795,069 (11,884,126)
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........ 16,999,693 (2,589,218) 44,747,403 7,213,491
NET ASSETS:
Beginning of period ............................ 83,799,075 86,388,293 91,614,657 84,401,166
------------- ------------- ------------- -------------
End of period .................................. $ 100,798,768 $ 83,799,075 $ 136,362,060 $ 91,614,657
============= ============= ============= =============
UNDISTRIBUTED NET INVESTMENT INCOME ............ $ 2,508 $ -- $ -- $ --
============= ============= ============= =============
</TABLE>
(A) Except for the Markman Income Allocation Portfolio which represents the
period from the initial public offering of shares (May 1, 1999) through
December 31, 1999.
See accompanying notes to financial statements.
--------------------------------------------------------------------------------
Markman
10
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
================================================================================
MARKMAN INCOME ALLOCATION PORTFOLIO o FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding throughout the Period
Period ended
December 31, 1999(A)
Net asset value at beginning of period ..................... $ 10.00
----------
Income from investment operations:
Net investment income .................................... 0.24
Net realized and unrealized gains on investments ......... 0.08
----------
Total from investment operations ........................... 0.32
----------
Less distributions:
Dividends from net investment income ..................... (0.24)
Return of capital ........................................ (0.06)
----------
Total distributions ........................................ (0.30)
----------
NET ASSET VALUE AT END OF PERIOD ........................... $ 10.02
==========
TOTAL RETURN ............................................... 3.27%(B)
==========
NET ASSETS AT END OF PERIOD (000'S) ........................ $ 1,896
==========
Ratio of expenses to average net assets .................... 0.64%(C)
Ratio of net investment income to average net assets ....... 6.97%(C)
Portfolio turnover rate .................................... 78%(C)
(A) Represents the period from the initial public offering of shares (May 1,
1999) through December 31, 1999.
(B) Not annualized.
(C) Annualized.
<TABLE>
<CAPTION>
=================================================================================================================================
MARKMAN CONSERVATIVE ALLOCATION PORTFOLIO o FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding throughout Each Period
Year ended Year ended Year ended Year ended Period ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995(A)
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ............. $ 12.33 $ 11.82 $ 11.49 $ 10.97 $ 10.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ............................ 0.55 0.25 0.33 0.28 0.19
Net realized and unrealized gains on investments . 2.53 1.03 1.31 1.19 1.61
--------- --------- --------- --------- ---------
Total from investment operations ................... 3.08 1.28 1.64 1.47 1.80
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income ............. (0.49) (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 ............ (0.74) (0.47) (0.86) (0.49) (0.60)
--------- --------- --------- --------- ---------
Total distributions ................................ (1.23) (0.77) (1.31) (0.95) (0.83)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD ................... $ 14.18 $ 12.33 $ 11.82 $ 11.49 $ 10.97
========= ========= ========= ========= =========
TOTAL RETURN ....................................... 24.97% 10.83% 14.27% 13.41% 18.00%
========= ========= ========= ========= =========
NET ASSETS AT END OF PERIOD (000'S) ................ $ 34,599 $ 30,467 $ 36,680 $ 42,579 $ 9,852
========= ========= ========= ========= =========
Ratio of expenses to average net assets ............ 0.95% 0.95% 0.95% 0.95% 0.95%(B)
Ratio of net investment income to average net assets 3.89% 1.70% 2.38% 3.21% 3.02%(B)
Portfolio turnover rate ............................ 78% 165% 48% 104% 176%
</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.
--------------------------------------------------------------------------------
Markman
11
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=================================================================================================================================
MARKMAN MODERATE ALLOCATION PORTFOLIO o FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding throughout Each Period
Year ended Year ended Year ended Year ended Period ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995(A)
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ............. $ 13.35 $ 11.90 $ 11.49 $ 11.31 $ 10.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ............................ 0.31 0.12 0.26 0.18 0.06
Net realized and unrealized gains on investments . 4.43 2.06 1.96 1.08 2.39
--------- --------- --------- --------- ---------
Total from investment operations ................... 4.74 2.18 2.22 1.26 2.45
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income ............. (0.29) (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 ............ (1.11) (0.57) (1.34) (0.76) (0.84)
--------- --------- --------- --------- ---------
Total distributions ................................ (1.40) (0.73) (1.81) (1.08) (1.14)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD ................... $ 16.69 $ 13.35 $ 11.90 $ 11.49 $ 11.31
========= ========= ========= ========= =========
TOTAL RETURN ....................................... 35.49% 18.32% 19.38% 11.11% 24.50%
========= ========= ========= ========= =========
NET ASSETS AT END OF PERIOD (000'S) ................ $ 00,799 $ 83,799 $ 86,388 $ 78,627 $ 38,988
========= ========= ========= ========= =========
Ratio of expenses to average net assets ............ 0.95% 0.95% 0.95% 0.95% 0.95%(B)
Ratio of net investment income to average net assets 1.98% 0.84% 1.96% 1.34% 0.77%(B)
Portfolio turnover rate ............................ 68% 117% 82% 280% 141%
<CAPTION>
=================================================================================================================================
MARKMAN AGGRESSIVE ALLOCATION PORTFOLIO o FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Tthroughout Each Period
Year ended Year ended Year ended Year ended Period ended
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995(A)
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ............. $ 16.01 $ 12.74 $ 12.26 $ 11.79 $ 10.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income (loss) ..................... (0.13) (0.09) 0.01 0.05 0.01
Net realized and unrealized gains on investments . 8.12 3.42 2.32 1.34 3.11
--------- --------- --------- --------- ---------
Total from investment operations ................... 7.99 3.33 2.33 1.39 3.12
--------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income ............. -- -- (0.01) (0.05) (0.01)
Distributions in excess of net investment income . -- -- (0.19) (0.11) (0.23)
Distributions from net realized gains ............ (1.80) (0.06) (1.65) (0.76) (1.09)
--------- --------- --------- --------- ---------
Total distributions ................................ (1.80) (0.06) (1.85) (0.92) (1.33)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD ................... $ 22.20 $ 16.01 $ 12.74 $ 12.26 $ 11.79
========= ========= ========= ========= =========
TOTAL RETURN ....................................... 49.88% 26.17% 18.96% 11.72% 31.21%
========= ========= ========= ========= =========
NET ASSETS AT END OF PERIOD (000'S) ................ $ 136,362 $ 91,615 $ 84,401 $ 84,329 $ 42,325
========= ========= ========= ========= =========
Ratio of expenses to average net assets ............ 0.95% 0.95% 0.95% 0.95% 0.95%(B)
Ratio of net investment income (loss)
to average net assets ............................ (0.76)% (0.62)% 0.05% 0.34% 0.15%(B)
Portfolio turnover rate ............................ 56% 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..
--------------------------------------------------------------------------------
Markman
12
<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 four series of shares to investors: the
Markman Income Allocation Portfolio, 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
(except for the Markman Income Allocation Portfolio) at $10.00 per share. The
public offering of shares of such 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 public offering of shares of the Markman
Income Allocation Portfolio commenced on May 1, 1999.
The Markman Income Allocation Portfolio seeks to provide high current income and
low share price fluctuation. 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 (normally 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.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
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 Fund 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
--------------------------------------------------------------------------------
Markman
13
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 are made to the components of net assets to conform to
generally accepted accounting principles.
The following information is based on the federal income tax cost of portfolio
investments as of December 31, 1999:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
MARKMAN MARKMAN MARKMAN MARKMAN
INCOME CONSERVATIVE MODERATE AGGRESSIVE
ALLOCATION ALLOCATION ALLOCATION ALLOCATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross unrealized appreciation $ 28,425 $ 7,067,427 $ 32,000,130 $58,702,910
Gross unrealized depreciation (13,626) (6,045) (8,915) --
----------- ------------ ------------ -----------
Net unrealized appreciation . $ 14,799 $ 7,061,382 $ 31,991,215 $58,702,910
Federal income tax cost of
portfolio investments ....... $ 1,880,614 $ 27,329,672 $ 69,142,268 $77,995,001
=========== ============ ============ ===========
--------------------------------------------------------------------------------------------------
</TABLE>
2. INVESTMENT TRANSACTIONS
During the period ended December 31, 1999, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$1,812,482 and $222,831, respectively, for the Markman Income Allocation
Portfolio; $24,156,535 and $28,608,839, respectively, for the Markman
Conservative Allocation Portfolio; $58,533,209 and $73,043,945, respectively,
for the Markman Moderate Allocation Portfolio; and $60,409,495 and $57,993,346,
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
offi-cers 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
man-agement fee, computed and accrued daily and paid monthly, at an annual rate
of 0.95% of average daily net assets of the Markman Conservative Allocation
Portfolio, the Markman Moderate Allocation Portfolio and the Markman Aggressive
Allocation Portfolio and 0.65% of the average daily net assets of the Markman
Income Allocation Portfolio. 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
CFS 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. As of December 31, 1999, no Funds in the Trust had outstanding
borrowings under the line of credit. The maximum amount outstanding during the
year ended December 31, 1999, for the Markman Moderate Allocation Portfolio was
$722,000 at an interest rate of 6.00%.
--------------------------------------------------------------------------------
Markman
14
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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, 1999, and December 31, 1998 (A):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
MARKMAN INCOME MARKMAN CONSERVATIVE
ALLOCATION PORTFOLIO ALLOCATION PORTFOLIO
Period ended Year ended Year ended
Dec. 31, 1999 (A) Dec. 31, 1999 Dec. 31, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares sold ........................... 294,119 609,311 934,987
Shares issued in reinvestment of
distributions to shareholders ......... 3,181 190,206 126,836
Shares redeemed ....................... (108,134) (830,853) (1,695,443)
---------- ---------- ----------
Net increase (decrease) in
shares outstanding .................... 189,166 (31,336) (633,620)
Shares outstanding, beginning of period -- 2,470,464 3,104,084
---------- ---------- ----------
Shares outstanding, end of period ..... 189,166 2,439,128 2,470,464
========== ========== ==========
<CAPTION>
MARKMAN MODERATE MARKMAN AGGRESSIVE
ALLOCATION PORTFOLIO ALLOCATION PORTFOLIO
Year ended Year ended Year ended Year ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1999 Dec. 31, 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ........................... 856,136 970,847 1,270,649 1,234,363
Shares issued in reinvestment of
distributions to shareholders ......... 464,892 321,973 455,447 21,885
Shares redeemed ....................... (1,558,964) (2,273,277) (1,308,199) (2,158,375)
---------- ---------- ---------- ----------
Net increase (decrease) in
shares outstanding .................... (237,936) (980,457) 417,897 (902,127)
Shares outstanding, beginning of period 6,277,762 7,258,219 5,723,622 6,625,749
---------- ---------- ---------- ----------
Shares outstanding, end of period ..... 6,039,826 6,277,762 6,141,519 5,723,622
========== ========== ========== ==========
(A) Except for the Markman Income Allocation Portfolio which represents the period from the initial
public offering of shares (May 1, 1999) through December 31, 1999.
------------------------------------------------------------------------------------------------------
</TABLE>
6. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
On December 31, 1999, the Markman Conservative Allocation Portfolio declared and
paid a long-term capital gain of $0.4702 per share and a short-term capital gain
distribution of $0.2673 per share, the Markman Moderate Allocation Portfolio
declared and paid a long-term capital gain of $0.9933 per share and a short-term
capital gain distribution of $0.1773 per share, and the Markman Aggressive
Allocation Portfolio declared and paid a long-term capital gain of $1.1328 per
share and a short-term capital gain distribution of $0.6629 per share. In
January of 2000, shareholders will be provided with Form 1099-DIV which reports
the amount and tax status of the capital gain distributions paid during calendar
year 1999.
--------------------------------------------------------------------------------
Markman
15
<PAGE>
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE MARKMAN MULTIFUND TRUST:
We have audited the accompanying statements of assets and liabilities, including
the port-folios of investments, of the Markman MultiFund Trust (comprising,
respectively, the Markman Income Allocation Portfolio, the Markman Conservative
Allocation Portfolio, the Markman Moderate Allocation Portfolio, and the Markman
Aggressive Allocation Portfolio), as of December 31, 1999, and the related
statements of operations, the statement 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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1999, 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, 1999, 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 7, 2000
<PAGE>
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STAY INFORMED
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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.
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RECENT SERVICE IMPROVEMENT
As a fund of funds, we cannot price our fund shares daily until all of the
underlying funds we own have transmitted their own daily share price. In the
past, the underlying funds we owned have not priced their shares in time for us
to get our shares priced before the cutoff for net asset value transmittal to
newspapers around the country. This leads to the frustrating, and sometimes
con-fusing, situation of our share price in the newspaper being one day behind.
All independent funds of funds, not just us, have this same problem. But we were
sick of it. So after almost five years of everyone in the industry telling us
that it was impossible to do anything about it, we decided to do something about
it.
A mixture of team work, cajoling, and quick action by all our support
organizations, has enabled us -- on most days -- to get the current daily share
price into the national system in time for it to show up in your paper on the
correct date. Thus, barring the usual glitches that are bound to happen from
time to time, the price you see in the paper each day will now be the correct
price for that day's market trading. To the best of our knowledge, we are the
only inde-pendent fund of funds that has been able to accomplish this, and we're
pleased to be able to start the new millennium by providing you with information
that is timely and accurate.
These forms are available:
o Account Application
o IRA Application
o Roth IRA Application
o IRA Transfer Request
o Roth IRA Conversion 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), Fidelity Investments (1-800-544-
7558), and T. D. Waterhouse (1-800-934-4448), 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
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<TABLE>
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<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(sm) 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.
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Markman
<PAGE>
Markman
MULTIFUNDS
---------------------- FIRST CLASS
For investors too smart
to do it themselves (sm)
6600 France Avenue South
Minneapolis, Minnesota 55435
