<PAGE>
THE MARSICO INVESTMENT FUND
DECEMBER 15, 1997
The Marsico Investment Fund (the "Trust") is an open-end investment
company (a mutual fund) that currently offers two investment portfolios, the
Marsico Focus Fund and the Marsico Growth & Income Fund (collectively, the
"Funds").
The Marsico Focus Fund (the "Focus Fund") is a non-diversified fund
that seeks long-term growth of capital by normally investing in a core
position of 20-30 common stocks.
The Marsico Growth & Income Fund (the "Growth & Income Fund") is a
diversified fund that seeks long-term growth of capital with a limited
emphasis on income. Although the Growth & Income Fund normally invests at
least 25% of its total assets in securities that have income potential, it
emphasizes equity securities selected for their growth potential.
Marsico Capital Management, LLC (the "Adviser") serves as the
investment adviser to the Funds. Thomas F. Marsico, President and Chief
Executive Officer of the Adviser, manages the investment program of the Funds.
The Focus Fund is designed for long-term investors who seek growth of
capital and who can tolerate the greater risks associated with investments in
common stocks. The Focus Fund is not designed as a short-term trading vehicle
and should not be relied upon for short-term financial needs.
The Growth & Income Fund is designed for long-term investors who seek
growth of capital with a limited emphasis on income. The Growth & Income Fund
is not designed for investors who desire a consistent level of income nor is
it a short-term trading vehicle and should not be relied upon for short-term
financial needs.
This Prospectus describes concisely the information about the Funds that
you ought to know before investing. Please read it carefully and retain it
for future reference.
More information about the Funds is contained in a Statement of
Additional Information that has been filed with the Securities and Exchange
Commission. To obtain a free copy, call 1-888-860-8686. The Statement of
Additional Information, which may be revised from time-to-time, is dated
December 12, 1997 and is hereby incorporated by reference into this
Prospectus.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
<PAGE>
THE MARSICO INVESTMENT FUND
PROSPECTUS - DECEMBER 15, 1997
AT A GLANCE
- ------------------------------
The Marsico Investment Fund (the "Trust") is an open-end investment company (a
mutual fund) that currently offers two investment portfolios, the Marsico Focus
Fund and the Marsico Growth & Income Fund (collectively, the "Funds").
The Marsico Focus Fund (the "Focus Fund") is a non-diversified fund that
seeks long-term growth of capital by normally investing in a core position of
20-30 common stocks.
The Marsico Growth & Income Fund (the "Growth & Income Fund") is a
diversified fund that seeks long-term growth of capital with a limited emphasis
on income. Although the Growth & Income Fund normally invests at least 25% of
its total assets in securities that have income potential, it emphasizes equity
securities selected for their growth potential.
Marsico Capital Management, LLC (the "Adviser") serves as the investment
adviser to the Funds. Thomas F. Marsico, Chairman and Chief Executive Officer of
the Adviser, manages the investment program of the Funds.
The Focus Fund is designed for long-term investors who seek growth of capital
and who can tolerate the greater risks associated with investments in common
stocks. The Focus Fund is not designed as a short-term trading vehicle and
should not be relied upon for short-term financial needs.
The Growth & Income Fund is designed for long-term investors who seek growth
of capital with a limited emphasis on income. The Growth & Income Fund is not
designed for investors who desire a consistent level of income nor is it a
short-term trading vehicle and should not be relied upon for short-term
financial needs.
This Prospectus describes concisely information about the Funds that you
should consider before investing. Please read it carefully and retain it for
future reference.
More information about the Funds is contained in a Statement of Additional
Information that has been filed with the Securities and Exchange Commission. To
obtain a free copy, call 1-888-860-8686. The Statement of Additional
Information, which may be revised from time-to-time, is dated Dec. 15, 1997 and
is hereby incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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2 PROSPECTUS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Summary 4
Overview of the Funds 6
Risk Factors 12
Management of the Trust 16
Portfolio Transactions
and Brokerage 19
Investing in the Funds 20
How to Purchase Shares of
the Funds 20
How to Exchange 24
How to Sell (Redeem)
Shares of the Funds 25
Shareholder Services 29
Distribution and Service
Plan 30
Dividends and
Distributions 31
Taxes 31
Fund Performance 32
Share Price and
Determination of Net
Asset Value 33
Capital Structure 34
Other Service Providers 34
Information for
Shareholders 35
Appendix A 36
</TABLE>
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3 PROSPECTUS
<PAGE>
EXPENSE SUMMARY
Shareholder Transaction Expenses are charges that you pay when buying or selling
shares of the Funds. Annual Fund Operating Expenses are paid out of the Funds'
assets and include fees for portfolio management, maintenance of shareholder
accounts, general administration of the Funds, shareholder servicing, accounting
and other services.
The following table sets forth certain costs and expenses that an investor is
expected to incur either directly or indirectly as a shareholder of the Funds
for the current fiscal year.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
FOCUS FUND GROWTH & INCOME FUND
<S> <C> <C>
Maximum Sales Load Imposed on
Purchases None None
Maximum Sales Load Imposed on
Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees (a) None None
Exchange Fees None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
FOCUS FUND GROWTH & INCOME FUND
<S> <C> <C>
Management Fees 0.85% 0.85%
12b-1 Fees (b) 0.25% 0.25%
Other Expenses
(after reimbursement) (c) 0.50% 0.40%
Total Fund Operating Expenses
(after expense reimbursement)
(d) 1.60% 1.50%
</TABLE>
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4 PROSPECTUS
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EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Funds. These amounts are based on payment by
the Funds of operating expenses at the levels set forth in the above table, and
are also based on the following assumptions:
An investor would pay the following expenses on a $1,000 investment, assuming
(i) a hypothetical 5% annual return and (ii) redemption at the end of the
following time periods:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
<S> <C> <C>
Focus Fund $ 16 $ 50
Growth & Income Fund $ 15 $ 47
</TABLE>
PLEASE NOTE THAT THE ABOVE EXAMPLE IS AN ESTIMATE OF THE EXPENSES TO BE INCURRED
BY SHAREHOLDERS OF THE FUNDS. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE
REFLECTED ABOVE.
(a) A fee of $10 is charged for each wire redemption.
(b) The maximum level of distribution expenses is 0.25% per annum of each Fund's
average net assets. See "Distribution and Service Plan" on page 30 for further
details. The distribution expenses for long-term shareholders may total more
than the maximum sales charge that would have been permissible if imposed
entirely as an initial sales charge.
(c) Such expenses include custodian, transfer agency and administration fees and
other customary Fund expenses.
(d) The Adviser has voluntarily agreed to limit the total expenses of each Fund
(excluding interest, taxes, brokerage and extraordinary expenses) to an annual
rate of 1.60% of the Focus Fund's average net assets and 1.50% of the Growth &
Income Fund's average net assets until January 1, 1999. After such date, the
expense limitations may be terminated or revised at any time. Absent the expense
limitations, it is expected that the annual operating expenses of the Focus Fund
and the Growth & Income Fund would be 1.65% of the average net assets of each
Fund.
The purpose of the preceding table is to assist investors in understanding
the various costs and expenses that an investor in the Funds will bear, directly
or indirectly. The preceding example should not be considered representative of
past or future investment returns and operating expenses, which may be more or
less than those shown.
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5 PROSPECTUS
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OVERVIEW OF THE FUNDS
This section takes a closer look at each Fund's investment objective, policies
and the securities in which it may invest. Please carefully review the "Risk
Factors" section of this Prospectus for a more detailed discussion of the risks
associated with certain investment techniques and refer to Appendix A for a more
detailed description of investment terms used throughout this Prospectus. You
should carefully consider your own investment goals, time horizon and risk
tolerance before investing in the Funds.
Policies that are noted as "fundamental" cannot be changed without a
shareholder vote. All other policies, including the Funds' investment
objectives, are not fundamental and may be changed by the Trustees of the Trust
(the "Trustees") without a shareholder vote. If there is a material change in
the Funds' objectives or policies, you should consider whether either Fund
remains an appropriate investment for you.
THE FOCUS FUND
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INVESTMENT OBJECTIVE
The investment objective of the Focus Fund is long-term growth of capital. It is
a non-diversified fund that pursues its objective by normally investing in a
core position of 20-30 common stocks.
TYPES OF INVESTMENTS
The Focus Fund invests primarily in common stocks selected for their growth
potential. The Focus Fund may invest to a lesser degree in other types of
securities, including preferred stock, warrants, convertible securities and debt
securities. The Portfolio Manager utilizes both a "top down" and "bottom up"
approach to building the portfolio. The "top down" approach takes into
consideration such macro-economic factors as interest rates, inflation, the
regulatory environment, and the global competitive landscape. This approach also
analyzes such factors as the most attractive global investment opportunities,
industry consolidation, and the sustainability of economic trends. With respect
to the "bottom up" approach, the Portfolio Manager seeks to identify individual
companies with earnings growth potential that may not be recognized by the
market at large. Although themes may emerge in the Focus Fund, securities are
generally selected without regard to any defined industry sector or other
similarly defined selection procedure. Realization of income is not a
significant investment consideration. Any income realized on the Focus Fund's
investments will be incidental to its objective.
The Focus Fund may also invest up to 25% of its total assets in mortgage-and
asset-backed securities, up to 10% of its total assets in zero coupon, pay-in-
kind and step coupon securities, and without limit in indexed/structured
securities. The Focus Fund will invest less than 35% of its net assets in
high-yield/ high-risk securities. See "Risk Factors" on page 14. The Focus Fund
may also purchase high-grade commercial paper, certificates of deposit and
repurchase
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6 PROSPECTUS
<PAGE>
agreements. Such securities may offer growth potential because of anticipated
changes in interest rates, credit standing, currency relationships or other
factors. The Focus Fund may also invest in short-term debt securities as a means
of receiving a return on idle cash.
The Focus Fund may hold cash or cash equivalents and invest without limit in
U.S. Government obligations and short-term debt securities or money market
instruments if the Portfolio Manager determines that a temporary defensive
position is advisable or to meet anticipated redemption requests. In other
words, the Focus Fund does not always stay fully invested in stocks and bonds.
Cash or similar investments are a residual - they represent the assets that
remain after the Portfolio Manager has committed available assets to desirable
investment opportunities. When the Focus Fund's cash position increases, it may
not participate in stock market advances or declines to the extent that it would
if it remained more fully invested in common stocks.
The Focus Fund may invest without limit in foreign equity and debt
securities. The Focus Fund may invest directly in foreign securities denominated
in a foreign currency and not publicly traded in the United States. Other ways
of investing in foreign securities include depositary receipts or shares and
passive foreign investment companies. Foreign securities are generally selected
on a stock-by-stock basis without regard to any defined allocation among
countries or geographic regions. However, certain factors such as expected
levels of inflation, government policies influencing business conditions, the
outlook for currency relationships and prospects for economic growth among
countries, regions or geographic areas may warrant greater consideration in
selecting foreign securities. See "Risk Factors" on page 12. The Focus Fund may
use options, futures, forward currency contracts and other types of derivatives
for hedging purposes. See "Risk Factors" on page 13. The Focus Fund may purchase
securities on a when-issued, delayed delivery or forward commitment basis.
INVESTMENT POLICIES
In investing its assets, the Focus Fund will follow the general policies listed
below. To the extent permitted under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules thereunder, the percentage limitations
included in these policies and elsewhere in this Prospectus apply only at the
time of purchase of the security. For example, if the Focus Fund exceeds a limit
as a result of market fluctuations or the sale of other securities, it will not
be required to dispose of any securities.
CLASSIFICATION. The 1940 Act classifies investment companies as either
diversified or non-diversified. The Focus Fund is deemed to be a non-diversified
fund under the 1940 Act. The Focus Fund, however, has adopted the following
requirements as fundamental policies:
/ / The Focus Fund may not own more than 10% of the outstanding voting shares of
any issuer.
/ / With respect to 50% of its total assets, the Focus Fund will not purchase a
security of any issuer (other than cash items and U.S. government
securities, as defined in the 1940 Act) if such purchase would cause the
Focus Fund's holdings of that issuer to
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7 PROSPECTUS
<PAGE>
amount to more than 5% of the Fund's total assets.
/ / The Focus Fund will invest no more than 25% of its total assets in a single
issuer (other than U.S. government securities).
The Focus Fund reserves the right to become a diversified fund by limiting the
investments in which more than 5% of its total assets are invested. A non-
diversified fund has the ability to take larger positions in a smaller number of
issuers. Because the appreciation or depreciation of a single stock may have a
greater impact on the net asset value of a non-diversified fund, its share price
can be expected to fluctuate more than a comparable diversified fund.
INDUSTRY CONCENTRATION. As a fundamental policy, the Focus Fund will not invest
25% or more of its total assets in any particular industry (excluding U.S.
government securities).
PORTFOLIO TURNOVER. The Focus Fund generally intends to purchase securities for
long-term investment rather than short-term gains. However, short-term
transactions may result from liquidity needs, securities having reached a price
or yield objective, changes in interest rates or the credit standing of an
issuer, or by reason of economic or other developments not foreseen at the time
of the investment decision. Changes are made in the Focus Fund's portfolio
whenever its Portfolio Manager believes such changes are desirable. Portfolio
turnover rates are generally not a factor in making buy and sell decisions.
To a limited extent, the Focus Fund may purchase securities in anticipation
of relatively short-term price gains. The Focus Fund may also sell one security
and simultaneously purchase the same or a comparable security to take advantage
of short-term differentials in bond yields or securities prices. Increased
portfolio turnover may result in higher costs for brokerage commissions, dealer
mark-ups and other transaction costs and may also result in taxable capital
gains.
ILLIQUID INVESTMENTS. The Focus Fund may invest up to 15% of its net assets in
illiquid investments, including restricted securities or private placements that
are not deemed to be liquid by the Adviser. An illiquid investment is a security
or other position that cannot be disposed of quickly in the normal course of
business. The Adviser will take reasonable steps to bring the Focus Fund in
compliance with this policy if the level of illiquid investments exceeds 15% of
the Fund's net assets. Some securities cannot be sold to the U.S. public because
of their terms or because of SEC regulations. The Adviser will follow guidelines
established by the Fund's Board of Trustees ("Trustees") in making liquidity
determinations for Rule 144A securities and other securities, including
privately placed commercial paper.
BORROWING AND LENDING. The Focus Fund may borrow money and lend securities or
other assets, as follows:
/ / As a fundamental policy, the Focus Fund may borrow money for temporary or
emergency purposes in amounts up to 33-1/3% of its total assets.
/ / The Focus Fund may mortgage or pledge securities as security for borrowings
in amounts up to 15% of its net assets.
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8 PROSPECTUS
<PAGE>
/ / As a fundamental policy, the Focus Fund may lend securities or other assets
if, as a result, no more than 25% of its total assets would be lent to other
parties.
Please refer to the Statement of Additional Information for other fundamental
and non-fundamental policies of the Focus Fund.
THE MARSICO
GROWTH & INCOME FUND
- ------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Growth & Income Fund is long-term growth of
capital with a limited emphasis on income. The Growth & Income Fund is a
diversified fund. Under normal circumstances, the Growth & Income Fund pursues
its objective by investing up to 75% of its total assets in equity securities
selected primarily for their growth potential and at least 25% of its total
assets in securities that have income potential. The Growth & Income Fund
normally emphasizes the growth component. However, the Growth & Income Fund may
reduce the growth component of its portfolio to 25% of its total assets.
TYPES OF INVESTMENTS
The Growth & Income Fund may invest in any combination of common stock,
preferred stock, warrants, convertible securities and debt securities. However,
it is expected that the Growth & Income Fund will emphasize investments in
common stocks. The Growth & Income Fund may shift assets between the growth and
income components of its portfolio based on the Portfolio Manager's analysis of
relevant market, financial and economic conditions. If the Portfolio Manager
believes that growth securities will provide better returns than the yields then
available or expected on income-producing securities, then the Growth & Income
Fund will place a greater emphasis on the growth component. The Portfolio
Manager utilizes both a "top down" and "bottom up" approach to building the
portfolio. The "top down" approach takes into consideration such macro-economic
factors as interest rates, inflation, the regulatory environment, and the global
competitive landscape. This approach also analyzes such factors as the most
attractive global investment opportunities, industry consolidation and the
sustainability of economic trends. With respect to the "bottom up" approach, the
Portfolio Manager seeks to identify individual companies with earnings growth
potential that may not be recognized by the market at large. Although themes may
emerge in the Growth & Income Fund, securities are generally selected without
regard to any defined industry sector or other similarly defined selection
procedure.
Because income is a part of the investment objective of the Growth & Income
Fund, the Portfolio Manager may also consider dividend-paying characteristics in
selecting equity securities for the Growth & Income Fund. The Growth & Income
Fund may also find opportunities for capital growth from debt securities because
of anticipated changes in interest rates, credit standing, currency
relationships or other factors. Investors in the Growth & Income Fund should
keep in mind that the Fund is not designed to produce a consistent level of
income.
The Growth & Income Fund may also invest up to 25% of its total assets
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9 PROSPECTUS
<PAGE>
in mortgage- and asset-backed securities, up to 10% of its total assets in zero
coupon, pay-in-kind and step coupon securities, and without limit in
indexed/structured securities. The Growth & Income Fund will invest less than
35% of its net assets in high-yield/ high-risk securities. See "Risk Factors" on
page 14. The Growth & Income Fund may also purchase high-grade commercial paper,
certificates of deposit and repurchase agreements. The Growth & Income Fund may
also invest in short-term debt securities as a means of receiving a return on
idle cash.
The Growth & Income Fund may hold cash or cash equivalents and invest without
limit in U.S. Government obligations and short-term debt securities or money
market instruments if the Portfolio Manager determines that a temporary
defensive position is advisable or to meet anticipated redemption requests. In
other words, the Growth & Income Fund does not always stay fully invested in
stocks and bonds. Cash or similar investments are a residual--they represent the
assets that remain after the Portfolio Manager has committed available assets to
desirable investment opportunities. When the Growth & Income Fund's cash
position increases, it may not participate in stock market advances or declines
to the extent that it would if it remained more fully invested in common stocks.
The Growth & Income Fund may invest without limit in foreign equity and debt
securities. The Growth & Income Fund may invest directly in foreign securities
denominated in a foreign currency and not publicly traded in the United States.
Other ways of investing in foreign securities include depositary receipts or
shares and passive foreign investment companies. Foreign securities are
generally selected on a company-by-company basis without regard to any defined
allocation among countries or geographic regions. However, certain factors such
as expected levels of inflation, government policies influencing business
conditions, the outlook for currency relationships and prospects for economic
growth among countries, regions or geographic areas may warrant greater
consideration in selecting foreign securities. See "Risk Factors" on page 12.
The Growth & Income Fund may use options, futures, forward currency contracts
and other types of derivatives for hedging purposes. See "Risk Factors" on page
13. The Fund may purchase securities on a when-issued, delayed delivery or
forward commitment basis.
INVESTMENT POLICIES
In investing its portfolio assets, the Growth & Income Fund will follow the
general policies listed below. To the extent permitted under the 1940 Act and
the rules thereunder, the percentage limitations included in these policies and
elsewhere in this Prospectus apply at the time of purchase of the security. For
example, if the Growth & Income Fund exceeds a limit as a result of market
fluctuations or the sale of other securities, it will not be required to dispose
of any securities.
CLASSIFICATION. The Growth & Income Fund qualifies as a diversified fund under
the 1940 Act and is subject to the following fundamental policies:
/ / The Growth & Income Fund may not own more than 10% of the outstanding voting
shares of any issuer.
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10 PROSPECTUS
<PAGE>
/ / With respect to 75% of its total assets, the Growth & Income Fund will not
purchase a security of any issuer (other than cash items and U.S. government
securities, as defined in the 1940 Act) if such purchase would cause the
Growth & Income Fund's holdings of that issuer to amount to more than 5% of
the Growth & Income Fund's total assets.
/ / The Growth & Income Fund will invest no more than 25% of its total assets in
a single issuer (other than U.S. government securities).
INDUSTRY CONCENTRATION. As a fundamental policy, the Growth & Income Fund will
not invest 25% or more of its total assets in any particular industry (excluding
U.S. government securities).
PORTFOLIO TURNOVER. The Growth & Income Fund generally intends to purchase
securities for long-term investment rather than short-term gains. However,
short-term transactions may result from liquidity needs, securities having
reached a price or yield objective, changes in interest rates or the credit
standing of an issuer, or by reason of economic or other developments not
foreseen at the time of the investment decision. Changes are made in the Growth
& Income Fund's portfolio whenever its Portfolio Manager believes such changes
are desirable. Portfolio turnover rates are generally not a factor in making buy
and sell decisions.
To a limited extent, the Growth & Income Fund may purchase securities in
anticipation of relatively short-term price gains. The Growth & Income Fund may
also sell one security and simultaneously purchase the same or a comparable
security to take advantage of short-term differentials in bond yields or
securities prices. Increased portfolio turnover may result in higher costs for
brokerage commissions, dealer mark-ups and other transaction costs and may also
result in taxable capital gains.
ILLIQUID INVESTMENTS. The Growth & Income Fund may invest up to 15% of its net
assets in illiquid investments, including restricted securities or private
placements that are not deemed to be liquid by the Adviser. An illiquid
investment is a security or other position that cannot be disposed of quickly in
the normal course of business. The Adviser will take reasonable steps to bring
the Growth & Income Fund in compliance with this policy if the level of illiquid
investments exceeds 15% of the Fund's net assets. Some securities cannot be sold
to the U.S. public because of their terms or because of Securities and Exchange
Commission regulations. The Adviser will follow guidelines established by the
Trustees in making liquidity determinations for Rule 144A securities and other
securities, including privately placed commercial paper.
BORROWING AND LENDING. The Growth & Income Fund may borrow money and lend
securities or other assets, as follows:
/ / As a fundamental policy, the Growth & Income Fund may borrow money for
temporary or emergency purposes in amounts up to 33-1/3% of its total
assets.
/ / The Growth & Income Fund may mortgage or pledge securities as security for
borrowings in amounts up to 15% of its net assets.
/ / As a fundamental policy, the Growth & Income Fund may lend
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11 PROSPECTUS
<PAGE>
securities or other assets if, as a result, no more than 25% of its total
assets would be lent to other parties.
A complete list of the Funds' objectives, policies and restrictions, both
fundamental and non-fundamental, is set forth in the Statement of Additional
Information. In order to provide a degree of flexibility, the Funds' investment
objectives, as well as other policies which are not deemed fundamental, may be
modified by the Trustees without shareholder approval. Any change in the Funds'
investment objectives may result in the Funds having investment objectives
different from the objectives which the shareholders considered appropriate at
the time of investment in the Funds. However, the Funds will not change any of
their investment objectives, policies or investment restrictions in any material
respect without written notice to shareholders sent at least 30 days in advance
of any such change.
RISK FACTORS
INVESTING IN COMMON STOCKS. The fundamental risk associated with any common
stock fund is the risk that the value of the stocks it holds might decrease.
Stock values may fluctuate in response to the activities of an individual
company or in response to general market and/or economic conditions.
Historically, common stocks have provided greater long-term returns and have
entailed greater short-term risks than other investment choices. Smaller or
newer issuers are more likely to realize more substantial growth as well as
suffer more significant losses than larger or more established issuers.
Investments in such companies can be both more volatile and more speculative.
SPECIAL SITUATIONS. The Funds may invest in "special situations" from time to
time. A special situation arises when, in the opinion of the Funds' Portfolio
Manager, the securities of a particular issuer will be recognized and appreciate
in value due to a specific development with respect to that issuer. Developments
creating a special situation might include, among others, a new product or
process, a technological breakthrough, a management change or other
extraordinary corporate event, or differences in market supply of and demand for
the security. Investment in special situations may carry an additional risk of
loss in the event that the anticipated development does not occur or does not
attract the expected attention.
FOREIGN SECURITIES. Investments in foreign securities, including those of
foreign governments, may involve greater risks than investing in comparable
domestic securities.
Securities of some foreign companies and governments may be traded in the
United States, but most foreign securities are traded primarily in foreign
markets. The risks of foreign investing include:
/ / Currency Risk. A Fund may buy the local currency when it buys a foreign
currency denominated security and sell the local currency when it sells
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12 PROSPECTUS
<PAGE>
the security. As long as a Fund holds a foreign security, its value will be
affected by the value of the local currency relative to the U.S. dollar.
When a Fund sells a foreign denominated security, its value may be worth
less in U.S. dollars even though the security increases in value in its home
country. U.S. dollar denominated securities of foreign issuers may also be
affected by currency risk.
/ / Political and Economic Risk. Foreign investments may be subject to
heightened political and economic risks, particularly in underdeveloped or
developing countries which may have relatively unstable governments and
economies based on only a few industries. In some countries, there is the
risk that the government may take over the assets or operations of a company
or that the government may impose taxes or limits on the removal of a Fund's
assets from that country. Each Fund may invest in emerging market countries.
Emerging market countries involve greater risks such as immature economic
structures, national policies restricting investments by foreigners and
different legal systems.
/ / Regulatory Risk. There may be less government supervision of foreign
markets. Foreign issuers may not be subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
domestic issuers. There may be less publicly available information about
foreign issuers than domestic issuers.
/ / Market Risk. Foreign securities markets, particularly those of
underdeveloped or developing countries, may be less liquid and more volatile
than domestic markets. Certain markets may require payment for securities
before delivery and delays may be encountered in settling securities
transactions. In some foreign markets, there may not be protection against
failure by other parties to complete transactions. There may be limited
legal recourse against an issuer in the event of a default on a debt
instrument.
/ / Transaction Costs. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally higher
than those involved in domestic transactions.
Foreign securities purchased indirectly (e.g., depositary receipts) are subject
to many of the above risks, including currency risk, because their values depend
on the performance of a foreign security denominated in its home currency.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS. The Funds may enter into
futures contracts on securities, financial indices and foreign currencies and
options on such contracts ("futures contracts") and may invest in options on
securities, financial indices and foreign currencies ("options"), forward
contracts and interest rate swaps and swap-related products (collectively
"derivative instruments"). The Funds intend to use derivative instruments to
hedge the value of their portfolios against potential adverse movements in
securities prices, foreign currency markets or interest rates. Please refer to
Appendix A to this Prospectus and the Statement of Additional Information for a
more detailed discussion of these instruments.
The use of derivative instruments exposes the Funds to additional
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13 PROSPECTUS
<PAGE>
investment risks and transaction costs. Risks inherent in the use of derivative
instruments include:
/ / the risk that interest rates, securities prices and currency markets will
not move in the direction that the Portfolio Manager anticipates;
/ / imperfect correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates or currencies
being hedged;
/ / the fact that skills needed to use these strategies are different from those
needed to select portfolio securities;
/ / inability to close out certain hedged positions to avoid adverse tax
consequences;
/ / the possible absence of a liquid secondary market for any particular
instrument and possible exchange-imposed price fluctuation limits, either of
which may make it difficult or impossible to close out a position when
desired;
/ / leverage risk, or the risk that adverse price movements in an instrument can
result in a loss substantially greater than a Fund's initial investment in
that instrument (in some cases, the potential loss is unlimited); and
/ / particularly in the case of privately negotiated instruments, the risk that
the counterparty will fail to perform its obligations, which could leave a
Fund worse off than if it had not entered into the position.
Although the Funds believe the use of derivative instruments will benefit the
Funds, the Funds' performance could be worse than if the Funds had not used such
instruments if the Portfolio Manager's judgment proves incorrect. When a Fund
invests in a derivative instrument, it may be required to segregate cash and
other liquid assets or certain portfolio securities with its custodian to
"cover" the Fund's position. Assets segregated or set aside generally may not be
disposed of so long as a Fund maintains the positions requiring segregation or
cover. Segregating assets could diminish the Fund's return due to the
opportunity losses of foregoing other potential investments with the segregated
assets.
HIGH-YIELD/HIGH-RISK SECURITIES. High-yield/high-risk securities (or "junk"
bonds) are debt securities rated below investment grade by the primary rating
agencies such as Standard & Poor's Ratings Services ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's").
The value of lower quality securities generally is more dependent on the
ability of the issuer to meet interest and principal payments (i.e., credit
risk) than is the case for higher quality securities. Conversely, the value of
higher quality securities may be more sensitive to interest rate movements than
lower quality securities. Issuers of high-yield securities may not be as strong
financially as those issuing bonds with higher credit ratings. Investments in
such companies are considered to be more speculative than higher quality
investments.
Issuers of high-yield securities are more vulnerable to real or perceived
economic changes (for instance, an economic downturn or prolonged period of
rising interest rates), political changes or adverse developments specific to
the issuer. The market for lower quality securities is generally less liquid
than the market for higher quality securities. Adverse publicity and investor
- -----------------------------------------------------------------------
14 PROSPECTUS
<PAGE>
perceptions as well as new or proposed laws may also have a greater negative
impact on the market for lower quality securities. The Funds will not purchase
debt securities rated below "CCC-" by Standard & Poor's or "Caa" by Moody's. The
Funds may also purchase unrated bonds of foreign and domestic issuers.
Please refer to the Statement of Additional Information for a description of
bond rating categories.
REPURCHASE AGREEMENTS. A repurchase agreement involves the obligation of the
seller to pay the agreed-upon price, which obligation is in effect secured by
the value (at least equal to the amount of the agreed-upon resale price and
marked-to-market daily) of the underlying security or "collateral." A Fund may
engage in a repurchase agreement with respect to any security in which it is
authorized to invest. A risk associated with repurchase agreements is the
failure of the seller to repurchase the securities as agreed, which may cause a
Fund to suffer a loss if the market value of such securities declines before
they can be liquidated on the open market. In the event of bankruptcy or
insolvency of the seller, a Fund may encounter delays and incur costs in
liquidating the underlying security. Repurchase agreements that mature in more
than seven days will be subject to the 15% limit on illiquid investments. While
it is not possible to eliminate all risks from these transactions, it is the
policy of the Funds to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by the Adviser.
SHORT SALES. Each Fund may engage in "short sales against the box." This
technique involves selling either a security that a Fund owns, or a security
equivalent in kind and amount to the security sold short that a Fund has the
right to obtain, for delivery at a specified date in the future, without the
payment of additional cost. A Fund will enter into a short sale against the box
to hedge against anticipated declines in the market price of portfolio
securities. If the value of the securities sold short increases prior to the
scheduled delivery date, a Fund loses the opportunity to participate in the
gain.
ILLIQUID OR RESTRICTED SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid securities, for which there is a limited trading market and
for which a low trading volume of a particular security may result in abrupt and
erratic price movements. A Fund may be unable to dispose of its holdings in
illiquid securities at acceptable prices and may have to dispose of such
securities over extended periods of time. Each Fund may invest in (i) securities
that are sold in private placement transactions between their issuers and their
purchasers and that are neither listed on an exchange nor traded
over-the-counter, and (ii) securities that are sold in transactions between
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933, as amended. Such securities are subject to contractual or legal
restrictions on subsequent transfer. As a result of the absence of a public
trading market, such restricted securities may in turn be less liquid and more
difficult to value than publicly traded securities. Although these securities
may be resold in privately negotiated
- -----------------------------------------------------------------------
15 PROSPECTUS
<PAGE>
transactions, the prices realized from the sales could, due to illiquidity, be
less than those originally paid by a Fund or less than their fair value and in
some instances, it may be difficult to locate any purchaser. In addition,
issuers whose securities are not publicly traded may not be subject to the
disclo-
sure and other investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed or Rule 144A securities
held by a Fund are required to be registered under the securities laws of one or
more jurisdictions before being resold, a Fund may be required to bear the
expenses of registration. Securities which are freely tradable under Rule 144A
may be treated as liquid if the Trustees of the Fund are satisfied that there is
sufficient trading activity and reliable price information. Investing in Rule
144A securities could have the effect of increasing the level of illiquidity of
the Fund's portfolio to the extent that qualified institutional buyers become,
for a time, uninterested in purchasing such 144A securities.
See Appendix A for risks associated with certain other investments.
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed under the direction of the
Trustees. The Statement of Additional Information contains the name and
background information of each Trustee.
INVESTMENT ADVISER
Marsico Capital Management, LLC ("Marsico Capital" or the "Adviser"), located at
1200 17th Street, Suite 1300, Denver, CO 80202, serves as the investment adviser
to the Funds pursuant to an Investment Advisory and Management Agreement (the
"Agreement") entered into with the Trust, which provides that the Adviser will
furnish continuous investment advisory and management services to the Funds.
Thomas F. Marsico is Chairman and Chief Executive Officer and has voting control
of Marsico Capital. Prior to forming Marsico Capital in September 1997, Mr.
Marsico had 18 years of experience as a securities analyst/portfolio manager.
The Adviser supervises and manages the investment portfolio of the Funds, and
subject to such policies as the Trustees may determine, directs the purchase or
sale of investment securities in the day-to-day management of the Funds'
investment portfolio. Under the Agreement, the Adviser, at its own expense and
without reimbursement from the Trust, furnishes office space and all necessary
office facilities, equipment and executive personnel for making the investment
decisions necessary for managing the Funds and will pay the salaries and fees of
all officers and trustees of the Trust (except the fees paid to disinterested
Trustees). For the foregoing, the Adviser receives a fee of 0.85% per annum of
the average daily net assets of each Fund.
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16 PROSPECTUS
<PAGE>
BACKGROUND OF PORTFOLIO MANAGER
Mr. Marsico manages the investment program of the Funds and is primarily
responsible for the day-to-day management of the Funds' portfolios. Prior to
forming Marsico Capital, Mr. Marsico served as the Portfolio Manager of the
Janus Twenty Fund from January 31, 1988 through August 11, 1997 and served in
the same capacity for the Janus Growth & Income Fund from May 31, 1991 (the
Fund's inception date) through August 11, 1997. The average annual returns for
the Janus Twenty Fund and the Janus Growth & Income Fund from the date on which
Mr. Marsico began serving as Portfolio Manager of each Fund through August 7,
1997 (the last date for which performance data is available) were 22.38% and
21.19%, respectively. On August 11, 1997, the date on which Mr. Marsico ceased
serving as the Portfolio Manager to both the Janus Twenty Fund and the Janus
Growth & Income Fund, the Janus Twenty Fund had approximately $6 billion in net
assets, and the Janus Growth & Income Fund had approximately $1.7 billion in net
assets. As Portfolio Manager of the Janus Twenty Fund and the Janus Growth &
Income Fund, Mr. Marsico had full discretionary authority over the selection of
investments for those funds. Average annual returns for the one-year, three-year
and five-year periods ended August 7, 1997 and for the period during which Mr.
Marsico managed those funds through August 7, 1997 compared with the performance
of the Standard & Poor's 500 Composite Stock Price Index were:
<TABLE>
<CAPTION>
JANUS JANUS
TWENTY GROWTH & INCOME S&P 500
FUND(a) FUND(a) INDEX(b)
<S> <C> <C> <C>
One Year
(8/8/96 - 8/7/97) 48.21% 47.77% 46.41%
Three Years
(8/11/94 - 8/7/97) 32.07% 31.13% 30.63%
Five Years
(8/13/92 - 8/7/97) 20.02% 21.16% 20.98%
During Period of Management by Janus Twenty:
Mr. Marsico 22.38% 21.19% 18.20%(c)
(through 8/7/97) Janus
Growth &
Income:
18.59%(d)
</TABLE>
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
(b) The Standard & Poor's 500 Composite Stock Price Index is an unmanaged index
of common stocks that is considered to be generally representative of the United
States stock market. The Index is adjusted to reflect reinvestment of dividends.
(c) This figure represents the average annual return of the S&P 500 Index
during the period that Mr. Marsico managed the Janus Twenty Fund through August
7, 1997.
(d) This figure represents the average annual return of the S&P 500 Index
during the period that Mr. Marsico managed the Janus Growth & Income Fund
through August 7, 1997.
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17 PROSPECTUS
<PAGE>
The Janus Twenty Fund has substantially similar investment policies, strategies
and objectives as those of the Focus Fund, while the investment policies,
strategies and objectives of the Janus Growth & Income Fund are substantially
similar to those of the Growth & Income Fund. Historical performance is not
indicative of future performance. For a majority of the periods shown above, the
expenses of the Janus Twenty Fund and the Janus Growth & Income Fund were lower
than the anticipated expenses of the Focus Fund and Growth & Income Fund,
respectively. Higher expenses, of course, affect a fund's performance. The Janus
Twenty Fund and the Janus Growth & Income Fund are separate funds and their
historical performance is not indicative of the potential performance of the
Focus Fund and the Growth & Income Fund, respectively. The Janus Twenty Fund and
the Janus Growth & Income Fund were the only investment vehicles that Mr.
Marsico managed during the period he was employed at Janus Capital Corporation
that have substantially similar objectives, policies and strategies as those of
the Funds. Share prices and investment returns will fluctuate reflecting market
conditions, as well as changes in company-specific fundamentals of portfolio
securities.
ADMINISTRATION
Pursuant to an Administration Agreement (the "Administration Agreement"),
Sunstone Financial Group, Inc. (the "Administrator"), 207 East Buffalo Street,
Suite 400, Milwaukee, WI, 53202, prepares and files all federal income and
excise tax returns and state income tax returns (other than those required to be
made by the Trust's Custodian or Transfer Agent), oversees the Trust's insurance
relationships, reviews drafts of the Trust's registration statement and proxy
statements, prepares securities registration compliance filings pursuant to
state securities laws, compiles data for and prepares required notices and
reports to the Securities and Exchange Commission, prepares financial statements
for annual and semiannual reports to investors, monitors compliance with the
Funds' investment policies and restrictions, prepares and monitors the Funds'
expense accruals and causes all appropriate expenses to be paid from Fund
assets, monitors the Funds' status as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, maintains and/or coordinates
with the other service providers the maintenance of the accounts, books and
other documents required pursuant to Rule 31a-1 under the 1940 Act and generally
assists in the Trust's administrative operations. The Administrator, at its own
expense and without reimbursement from the Trust, furnishes office space and all
necessary office facilities, equipment, supplies and clerical and executive
personnel for performing the services required to be performed by it under the
Administration Agreement. For the foregoing, the Administrator receives from the
Funds a fee, computed daily and payable monthly, based on the Funds' average net
assets at the annual rate beginning at 0.14% and decreasing as the assets of
each Fund reach certain levels, subject to a minimum fee of $62,500 per Fund.
The Trust pays all of its own expenses, including, without limitation, the cost
of preparing and printing its registration statements required under the
Securities
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18 PROSPECTUS
<PAGE>
Act of 1933 and the 1940 Act and any amendments thereto, the expense of
registering its shares with the Securities and Exchange Commission and in the
various states, advisory and administration fees, costs of organization and
maintenance of corporate existence, the printing and distribution costs of
prospectuses mailed to existing investors, reports to investors, reports to
government authorities and proxy statements, costs of meetings of shareholders,
fees paid to trustees who are not interested persons of the Adviser, interest
charges, taxes, legal expenses, association membership dues, auditing services,
insurance premiums, brokerage commissions and expenses in connection with
portfolio transactions, fees and expenses of the custodian of the Trust's
assets, charges of securities pricing services, printing and mailing expenses
and charges and expenses of dividend disbursing agents, accounting services and
stock transfer agents.
DISTRIBUTION
Sunstone Distribution Services, LLC ("Distributor") acts as agent for the Funds
in the distribution of their Shares and, in such capacity, solicits orders for
the sale of Shares, advertises, and pays the costs of the advertising, office
space and its personnel involved in such activities.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, AND FUND ACCOUNTING
State Street Bank and Trust Company ("State Street") has been retained to act as
Custodian of the Funds' investments and to provide accounting services for the
Funds. Sunstone Investor Services, LLC ("Transfer Agent") serves as the Funds'
Transfer and Dividend Disbursing Agent. Neither the Custodian nor the Transfer
and Dividend Disbursing Agent has any part in deciding the Funds' investment
policies or which securities are to be purchased or sold for the Funds'
portfolio.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Trustees, decisions to buy and sell securities
for the Funds and negotiation of their brokerage commission rates are made by
the Adviser. In selecting a broker to execute each particular transaction, the
Adviser may take a number of factors into consideration, only one of which may
be the best net price available. Among the additional factors the Adviser may
take into consideration when selecting a broker are the research and investment
services that a broker may provide. Accordingly, the cost of the brokerage
commissions to the Funds in any transaction may be greater than that available
from other brokers if the difference is reasonably justified by other aspects of
the portfolio execution services being offered. See "Portfolio Transactions and
Brokerage" in the Statement of Additional Information.
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19 PROSPECTUS
<PAGE>
INVESTING IN THE FUNDS
Shares of the Funds may be purchased by contacting the Transfer Agent, as
discussed below. They may also be purchased through an account that you maintain
with a securities broker or other financial institution ("Financial Service
Agents"). See "How to Purchase Shares of the Funds--Purchases Through Financial
Service Agents" on page 22.
If you wish to purchase shares of the Funds directly, please refer to the
purchase instructions described under "How to Purchase Shares of the Funds" on
page 20.
All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. No cash, credit cards or third party checks will be accepted. A $20 fee
will be charged against an investor's account for any payment check returned to
the Transfer Agent for insufficient funds, stop payment, closed account or other
reasons. The investor will also be responsible for any losses suffered by the
Funds as a result. Trust management reserves the right to reject any purchase
order for Fund shares.
The Funds will not accept your account if you are investing for another
person as attorney-in-fact. The Funds will not accept accounts with "Power of
Attorney" or "POA" in the registration section of the Account Application.
If you have any questions, a Fund telephone representative will be pleased to
provide the information that you need. Please call the following toll-free
number: 1-888-860-8686.
HOW TO PURCHASE SHARES OF THE FUNDS
TO OPEN AN ACCOUNT
- ----------------------------------------------------------------
BY MAIL
Complete and sign the Account Application. (To establish an IRA, complete an IRA
Application.) Make your check payable to either the Marsico Focus Fund or the
Marsico Growth & Income Fund. By Mail, send to:
The Marsico Investment Fund
Sunstone Investor Services, LLC
P.O. Box 3210
Milwaukee, WI 53201-3210
BY OVERNIGHT COURIER
Send to:
The Marsico Investment Fund
Sunstone Investor Services, LLC
207 East Buffalo Street
Suite 315
Milwaukee, WI 53202
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20 PROSPECTUS
<PAGE>
TO ADD TO AN ACCOUNT BY MAIL OR COURIER
- ----------------------------------------------------------------
Make your check payable to either the Marsico Focus Fund or the Marsico Growth &
Income Fund and mail it to the address shown on the previous page. Put your
account name, address and account number on your check. Subsequent investment
forms will be included with each shareholder statement. A shareholder wishing to
add to an account should complete this form and include it with the check.
Alternatively, include with your check a note indicating your account number,
your name and your address.
TO OPEN AN ACCOUNT BY TELEPHONE
- ----------------------------------------------------------------
Telephone transactions may not be used for initial purchases. If you want to
make subsequent telephone transactions, please select this service on your
Account Application or call 1-888-860-8686 to set up the option. Call
1-888-860-8686 to make your purchase from a bank checking or money market
account by electronic funds transfer.
TO ADD TO AN ACCOUNT BY TELEPHONE
- ----------------------------------------------------------------
Specify account name, address and account number. This service must be
established by you in advance by following the instructions above. Most
transfers are completed within three business days after your call to place the
order.
TO OPEN AN ACCOUNT BY WIRE
- ----------------------------------------------------------------
To ensure proper credit to your account, you must call the Transfer Agent at
1-888-860-8686 for instructions and to obtain an investor account number prior
to wiring the funds. Funds should be wired through the Federal Reserve System as
follows:
UMB Bank, n.a.
ABA#: 101000695
For Credit to:
The Marsico Investment Fund
A/C#: 987-085-8118
For further credit to:
(investor account number)
(name or account registration)
(SSN or TIN)
(identify which fund to purchase)
TO ADD TO AN ACCOUNT BY WIRE
- ----------------------------------------------------------------
Follow instructions above. Please note that wires may be rejected if they do not
contain complete account information.
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21 PROSPECTUS
<PAGE>
THE MINIMUM PURCHASE REQUIREMENTS, WHICH MAY BE ALTERED IN CERTAIN
CIRCUMSTANCES, ARE:
<TABLE>
<CAPTION>
INITIAL
INVESTMENT ADDITIONAL INVESTMENT
<S> <C> <C>
Regular Accounts $ 2,500 $ 100
IRAs and IRA Rollovers 1,000 100
Non-Working Spousal IRAs 500 100
SEP-IRAs 500 100
Gifts to Minors 500 50
Automatic Investment Plan 1,000 50
</TABLE>
PURCHASES BY MAIL
Your Account Application, if properly filled out and accompanied by payment in
the form of a check made payable to either the Marsico Focus Fund or the Marsico
Growth & Income Fund, will be processed upon receipt by the Transfer Agent. If
the Transfer Agent receives your order and payment by the close of trading
(currently 4:00 p.m. New York City time) on the New York Stock Exchange
("NYSE"), your shares will be purchased at the net asset value calculated at the
close of trading on that day. If received after that time, your shares will be
purchased at the net asset value determined as of the close of trading on the
next business day. If you contemplate needing to exchange or redeem your
investment shortly after purchase, you should purchase the shares by wire as
discussed above.
PURCHASES THROUGH FINANCIAL SERVICE AGENTS
If you are investing through a Financial Service Agent, please refer to their
program materials for any additional special provisions or conditions that may
be different from those described in this Prospectus. Financial Service Agents
have the responsibility of transmitting purchase orders and funds, and of
crediting their customers' accounts following redemptions, in a timely manner in
accordance with their customer agreements and this Prospectus.
If you place an order for shares of either Fund through a Financial Service
Agent, in accordance with such Financial Service Agent's procedures and such
Financial Service Agent then transmits your order to the Transfer Agent before
the close of trading on the NYSE on that day, then your purchase will be
processed at the net asset value calculated at the close of trading on the NYSE
on that day. The Financial Service Agent must promise to send to the Transfer
Agent immediately available funds in the amount of the purchase price in
accordance with the Transfer Agent's procedures. If payment is not received
within the time specified, the Transfer Agent may rescind the transaction and
the Financial Service Agent will be held liable for any resulting fees or
losses.
PURCHASES BY TELEPHONE
Only bank accounts held at domestic financial institutions that are Automated
Clearing House (ACH) members can be used for telephone transactions. Telephone
transactions may not be used for
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22 PROSPECTUS
<PAGE>
initial purchases. Your account must already be established prior to initiating
telephone purchases. Your shares will be purchased at the net asset value
determined as of the close of trading on the date that the Transfer Agent
receives payment for shares purchased by electronic funds transfer through the
ACH system. Most transfers are completed within three business days after your
call to place the order. To preserve flexibility, the Funds may revise or remove
the ability to purchase shares by phone, or may charge a fee for such service,
although currently, the Funds do not expect to charge a fee. Investors in the
Funds may also request by telephone a change of address, a change in investments
made through an Automatic Investment Plan (see page 29) and a change in the
manner in which dividends are received (see page 31).
The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures may include, among
others, requiring some form of personal identification prior to acting upon
telephone instructions, providing written confirmations of all such transactions
and/or tape recording all telephone instructions. Assuming procedures such as
the above have been followed, the Funds will not be liable for any loss, cost or
expense for acting upon an investor's telephone instructions or for any
unauthorized telephone redemption. As a result of this policy, the investor will
bear the risk of any loss unless the Funds have failed to follow such
procedure(s).
PURCHASES BY WIRE
Shares purchased by wire will be purchased at the net asset value next
determined after the Funds receive your wired funds and all required information
is provided in the wire instructions. Wiring instructions are listed on page 21
of this Prospectus. You should contact your bank (which will need to be a
commercial bank that is a member of the Federal Reserve System) for information
on sending funds by wire, including any charges that your bank may make for
these services. The wire instructions will determine the terms of the purchase
transaction. If the wired funds are received in good order (as described on page
26) prior to the close of trading on the NYSE (currently 4:00 p.m. New York City
time), your shares will be purchased at the net asset value calculated at the
close of trading on that day. If received after that time, your shares will be
purchased at the net asset value determined as of the close of trading on the
next business day.
If you purchase your initial shares by wire, the Transfer Agent must first
receive a completed account application and have issued an account number to
you. The account number must be included in the wiring instructions set forth on
page 21 of this Prospectus. An Account Application also must be received by the
Transfer Agent to establish shareholder privileges and to verify your account
information. Payment of redemption proceeds may be delayed and taxes may be
withheld unless the Funds receive a properly completed and executed Account
Application.
MISCELLANEOUS PURCHASE INFORMATION
Federal regulations require that you provide a certified taxpayer identification
number whenever you open or reopen an account. Congress has mandated
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23 PROSPECTUS
<PAGE>
that if any shareholder fails to provide and certify to the accuracy of the
shareholder's Social Security number or other taxpayer identification number,
the Fund will be required to withhold 31% of all dividends, distributions and
payments, including redemption proceeds, from such shareholder as a backup
withholding procedure.
For reasons of economy and convenience, the Funds will not issue share
certificates.
The Funds understand that some Financial Service Agents may impose certain
conditions on their clients which are in addition to or different from those
described in this Prospectus, and, to the extent permitted by applicable
regulatory authorities, may charge their clients direct fees. Moreover,
investors may be charged a fee if they effect transactions in Fund shares
through a broker or agent. Certain Financial Service Agents may receive
compensation from the Funds. Certain Financial Service Agents may enter into
agreements with the Funds which permit them to confirm purchase orders on behalf
of customers by phone, with payment to follow no later than the Funds' pricing
on the following business day. If payment is not received by such time, the
Financial Service Agent could be held liable for resulting fees or losses.
HOW TO EXCHANGE
The Trust offers an exchange program whereby shares of any Marsico Fund may be
exchanged for shares of another Marsico Fund that is available for investment at
any time. Such exchanges will be executed on the basis of the relative net asset
values of the shares exchanged. The shares exchanged must have a current value
that equals or exceeds the minimum investment that is required for the Fund
whose shares are being acquired. You may make additional exchanges of $500 or
more. An exchange is considered to be a sale of shares for federal income tax
purposes on which a shareholder may realize a taxable gain or loss. New accounts
will be registered in the same manner as the existing accounts and will have the
same privileges, unless otherwise specified. A shareholder may make an exchange
request by calling the Funds at 1-888-860-8686 or by providing written
instructions to the Funds.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. If a shareholder is unable to contact the Funds by
telephone, a shareholder may also mail the exchange request to the Funds at the
address listed under "HOW TO SELL (REDEEM) SHARES OF THE FUNDS" on page 25. The
Funds reserve the right to modify or terminate the exchange privilege described
above at any time and to reject any exchange request. If an exchange request is
received by the Transfer Agent in good order (as described on page 26) by the
end of trading hours on the NYSE (currently 4:00 p.m. New York City time)
("Valuation Time"), on any day that the NYSE is open ("Business Day"), the
exchange usually will occur on that day. Any shareholder who
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24 PROSPECTUS
<PAGE>
wishes to make an exchange should review the current prospectus of the Fund in
which he or she wishes to invest before making the exchange.
In addition to the ability to exchange among the Funds, you may exchange all
or a portion of your investment from each Fund to the Marsico Northern Money
Market Fund (the "Money Market Fund"), which is managed by Northern Trust
Company. This expanded exchange feature is subject to the minimum purchase
amounts set forth in this Prospectus ($2,500 minimum, $100 subsequent). Any
shareholder who wishes to make an exchange into the Money Market Fund must
obtain the Money Market Fund prospectus from the Funds by calling 1-888-860-8686
and read it carefully before authorizing any investment in shares of the Money
Market Fund. Please note that when exchanging from a Fund to the Money Market
Fund, you will begin accruing income from the Money Market Fund the day
following the exchange. When exchanging less than all of the balance from the
Money Market Fund to a Fund, your exchange proceeds will exclude accrued and
unpaid income from the Money Market Fund through the date of exchange. When
exchanging your entire balance from the Money Market Fund, accrued income will
automatically be exchanged into a Fund when the income is collected and paid
from the Money Market Fund, at the end of the month.
Because of the risks associated with common stock investments, the Funds are
intended to be long-term investment vehicles and not designed to provide
investors with a means of speculating on short-term stock market movements. In
addition, because excessive trading can hurt the Funds' performance and
shareholders, the Funds reserve the right to temporarily or permanently
terminate, with or without advance notice, the exchange privilege of any
investor who makes excessive use of the exchange privilege (more than six
exchanges per calendar year). Your exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of a Fund's assets. This option will be suspended for a period of 15 days
following a telephonic address change.
AUTOMATIC EXCHANGE PLAN. You may make automatic monthly exchanges among Marsico
Fund accounts and Money Market Fund accounts ($50 minimum per transaction). You
must meet the Funds' minimum initial investment requirements before this plan is
established. Shareholders wishing to make use of the Funds' Automatic Exchange
Plan must so indicate on the Account Application. To establish the Automatic
Exchange Plan after an account is open, call the Funds at 1-888-860-8686.
HOW TO SELL (REDEEM) SHARES OF THE FUNDS
You may sell (redeem) your shares at any time. The Funds make payment by check
for the shares redeemed within seven days after receiving your properly
- -----------------------------------------------------------------------
25 PROSPECTUS
<PAGE>
completed request. However, the right of redemption may be suspended or payment
may be postponed when an emergency exists such that it is not reasonably
practical for the Funds to determine the fair market value of their net assets.
Payment of redemption proceeds with respect to shares purchased by check will
not be made until the check or payment received for investment has cleared,
which may take up to 15 days from the purchase date. This allows the Transfer
Agent to verify that the check used to purchase Fund shares will not be returned
due to insufficient funds and is intended to protect the remaining investors
from loss.
Payment of the redemption proceeds for shares of the Funds where an investor
requests wire payment will normally be made in federal funds on the next
business day. The Transfer Agent will wire redemption proceeds only to the bank
and account designated on the Account Application or in written instructions
subsequently received by the Transfer Agent, and only if the bank is a
commercial bank that is a member of the Federal Reserve System. The Transfer
Agent currently charges a $10 fee for each payment made by wire of redemption
proceeds, which fee will be deducted from your redemption proceeds.
PROCEDURE FOR
REQUESTING REDEMPTION
You may request the sale of your shares either by mail or courier or by
telephone as described below.
BY MAIL:
Sale requests should be mailed to:
The Marsico Investment Fund
Sunstone Investor Services, LLC
P.O. Box 3210
Milwaukee, WI 53201-3210
BY OVERNIGHT COURIER:
The requests should be sent to:
The Marsico Investment Fund
207 East Buffalo Street
Suite 315
Milwaukee, WI 53202
The selling price of each share being redeemed will be the net asset value
per share next calculated after receipt of all required documents in good order.
Good order means that the request must include:
/ / Your Marsico Investment Fund account number.
/ / The name of the fund the shares of which you want to redeem.
/ / The number of shares or dollar amount to be sold (redeemed). (If the dollar
amount requested to be redeemed is greater than the current account value,
as determined by the net asset value on the effective date of the
redemption, the entire account balance will be redeemed.)
/ / The signatures of all account owners exactly as they are registered on the
account.
/ / Any required signature guarantees.
/ / Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships.
/ / In the case of shares being redeemed from an IRA or IRA/SEP Plan, a
statement of whether or not federal income tax should be withheld (in the
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26 PROSPECTUS
<PAGE>
absence of any statement, federal tax will be withheld).
A signature guarantee of each owner is required to redeem shares in the
following situations: (i) if you change ownership on your account; (ii) when you
want the redemption proceeds sent to a different address from that registered on
the account; (iii) if the proceeds are to be made payable to someone other than
the account's owner(s); (iv) any redemption transmitted by federal wire transfer
to a bank other than your bank of record; and (v) if a change of address request
has been received by the Transfer Agent within the last 15 days. In addition,
signature guarantees are required for all redemptions of $50,000 or more from
any shareholder account.
Signature guarantees are designed to protect both you and the Fund from
fraud. Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/ dealers, municipal securities broker/
dealers, government securities broker/ dealers, national securities exchanges,
registered securities associations or clearing agencies deemed eligible by the
Securities and Exchange Commission. Notaries public cannot provide signature
guarantees.
BY TELEPHONE:
Shares of the Funds may also be sold by calling the Transfer Agent at
1-888-860-8686. Only bank accounts held at domestic financial institutions that
are Automated Clearing House (ACH) members can be used for telephone
transactions. In order to utilize this procedure for telephone redemption, a
shareholder must have previously elected this procedure in writing, which
election will be reflected in the records of the Transfer Agent, and the
redemption proceeds must be mailed directly to the investor or transmitted to
the investor's predesignated account at a domestic bank. To change the
designated account, send a written request with signature(s) guaranteed to the
Transfer Agent. To change the address, call the Transfer Agent at 1-888-860-8686
or send a written request with signature(s) guaranteed to the Transfer Agent.
Telephone redemptions must be for at least $500 and for no more than $50,000.
Any written redemption requests received within 15 days after an address change
must be accompanied by a signature guarantee and no telephone redemptions will
be allowed within 15 days of such a change. The Funds reserve the right to limit
the number of telephone redemptions by an investor. Once made, telephone
redemption requests may not be modified or canceled. The selling price of each
share being redeemed will be the Fund's per share net asset value next
calculated after receipt by the Transfer Agent of the telephone redemption
request.
The Funds will not be liable for following instructions communicated by
telephone that they reasonably believe to be genuine. See "Purchases by
Telephone" on page 22 for discussion of liability for telephone errors.
During periods of substantial economic or market changes, telephone
redemptions may be difficult to implement. If an investor is unable to contact
the Transfer Agent by telephone, shares may also be redeemed by delivering the
redemption request to the Transfer Agent by mail as previously described.
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27 PROSPECTUS
<PAGE>
REDEMPTION AT
THE OPTION OF THE FUND
The Funds reserve the right to redeem shares held in any account if the net
asset value remains below $500 in order to relieve the Funds of the cost of
maintaining very small accounts. Before such involuntary redemption, the Funds
will give the shareholder 30 days' written notice to bring the account up to
$500 before any action is taken. This minimum balance requirement does not apply
to IRAs and other tax-sheltered investment accounts. The right of redemption
shall not apply if the value of a shareholder's account drops below $500 as the
result of market action.
REDEMPTION IN-KIND. The Funds reserve the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption of a Fund's
shares by making payment in whole or in part in securities chosen by a Fund and
valued in the same way as they would be valued for purposes of computing a
Fund's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash after they have
redeemed their shares. The Funds have elected, however, to be governed by Rule
18f-1 under the 1940 Act, so that a Fund is obligated to redeem its shares
solely in cash up to the lesser of $250,000 or 1% of its net asset value during
any 90 day period for any one shareholder of a Fund.
MISCELLANEOUS
REDEMPTION INFORMATION
Any redemption or transfer of ownership request for corporate accounts will
require the following written documentation:
1. A written Letter of Instruction signed by the required number of authorized
officers, along with their respective positions. For redemption requests in
excess of $50,000, the written request must be signature guaranteed.
Signature guarantees can be obtained from most banks, credit unions or
savings associations, or from broker/dealers, national securities exchanges,
registered securities associations or clearing agencies deemed eligible by
the Securities and Exchange Commission. Notaries public cannot provide
signature guarantees.
2. A certified Corporate Resolution that states the date the Resolution was
adopted and who is empowered to act, transfer or sell assets on behalf of
the corporation.
3. If the Corporate Resolution is more than 60 days old from the date of the
transaction request, a Certificate of Incumbency from the Corporate
Secretary which specifically states that the officer or officers named in
the resolution have the authority to act on the account. The Certificate of
Incumbency must be dated within 60 days of the requested transaction. If the
Corporate Resolution confers authority on officers by title and not by name,
the Certificate of Incumbency must name the officer(s) and their title(s).
When redeeming shares from the Money Market Fund, if you redeem less than all of
the balance of your account, your redemption proceeds will exclude accrued and
unpaid income through the
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28 PROSPECTUS
<PAGE>
date of the redemption. When redeeming your entire balance from the Money Market
Fund, accrued income will be paid separately when the income is collected and
paid from the Money Market Fund, at the end of the month.
SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN
The Funds offer an Automatic Investment Plan whereby an investor may
automatically purchase shares of the Funds on a regular basis ($50 minimum per
transaction). Under the Automatic Investment Plan, an investor's designated bank
or other financial institution debits a pre-authorized amount on the investor's
account each designated period and applies the amount to the purchase of a
Fund's shares. The Automatic Investment Plan must be implemented with a
financial institution that is a member of the Automated Clearing House (ACH).
Also, the designated Fund must have a currently effective registration in those
states in which it is required. You may enroll in the Automatic Investment Plan
by completing the appropriate section of the Account Application. If you wish to
establish an Automatic Investment Plan after your account has been opened,
please contact the Transfer Agent at 1-888-860-8686.
Automatic Investment Plan transactions are scheduled for the 5th and/or 20th
of every month. Transactions also may be scheduled monthly, quarterly,
semi-annually or annually. No service fee is currently charged by the Funds for
participation in the Automatic Investment Plan. A $20 fee will be imposed by the
Funds if sufficient funds are not available in your account or your account has
been closed at the time of the automatic transaction and your purchase will be
canceled. You will also be responsible for any losses suffered by the Funds as a
result. You may adopt the Automatic Investment Plan at the time the account is
opened by completing the appropriate section of the Account Application. Changes
to bank information must be made in writing and signed by all registered holders
of the account with signatures guaranteed. A full redemption of all funds from
your account will automatically discontinue Automatic Investment Plan
privileges. Termination instructions must be received by the Funds five business
days prior to the effective date of termination.
SYSTEMATIC WITHDRAWAL PLAN
The Funds offer a Systematic Withdrawal Plan which allows you to designate that
a fixed amount ($100 minimum per transaction limited to those shareholders with
a balance of $10,000 or greater upon commencement of participation in the
Systematic Withdrawal Plan) be distributed to you at regular intervals. The
redemption takes place on the 5th and/or 20th of the month but if the day you
designate falls on a Saturday, Sunday, or legal holiday, the distribution shall
be made on the prior business day. Any changes made to the distribution
information must be made in writing and signed by each registered holder of the
account with signatures guaranteed.
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29 PROSPECTUS
<PAGE>
The Systematic Withdrawal Plan may be terminated by you at any time without
charge or penalty, and the Funds reserve the right to terminate or modify the
Systematic Withdrawal Plan upon 60 days' written notice. Withdrawals involve
redemption of funds and may result in a gain or loss for federal income tax
purposes. An application for participation in the Systematic Withdrawal Plan may
be obtained from the Transfer Agent by calling 1-888-860-8686.
RETIREMENT PLANS
The Funds offer retirement plans that may allow investors to shelter some of
their income from taxes. Descriptions of the plans, application forms, as well
as descriptions of applicable service fees and certain limitations on
contributions and withdrawals, are available by calling the Transfer Agent at
1-888-860-8686.
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a Distribution and Service Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. The Plan authorizes payments by each Fund in
connection with the distribution of its shares at an annual rate, as determined
from time-to-time by the Trustees, of up to 0.25% of a Fund's average daily net
assets.
Payments may be made by the Funds under the Plan for the purpose of financing
any activity primarily intended to result in the sales of shares of the Funds as
determined by the Trustees. Such activities typically include: advertising;
compensation of the Funds' distributor; compensation for sales and sales
marketing activities of Financial Service Agents and others, such as dealers or
distributors; shareholder account servicing; production and dissemination of
prospectuses and sales and marketing materials; and capital or other expenses of
associated equipment, rent, salaries, bonuses, interest and other overhead. To
the extent any activity is one which the Funds may finance without a Plan, the
Funds may also make payments to finance such activity outside of the Plan and
not subject to its limitations. Payments under the Plan are not tied exclusively
to actual distribution and service expenses, and the payments may exceed
distribution and service expenses actually incurred.
Administration of the Plan is regulated by Rule 12b-1 under the 1940 Act,
which includes requirements that the Trustees receive and review at least
quarterly reports concerning the nature and qualification of expenses which are
made, that the Trustees approve all agreements implementing the Plan and that
the Plan may be continued from year-to-year only if the Trustees conclude at
least annually that continuation of the Plan is likely to benefit shareholders.
In approving the Plan, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties, that there is a
reasonable likelihood that the Plan will benefit the Funds and their
shareholders.
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30 PROSPECTUS
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Focus Fund and the Growth & Income Fund intend to pay dividends from net
investment income and net realized capital gains (not offset by capital loss
carryovers) on an annual basis. Investors may elect to reinvest all income
dividends and capital gains distributions in shares of the Funds or in cash as
designated on the Account Application. If the investor does not specify an
election, all income dividends and capital gains distributions will be
automatically reinvested in full and fractional shares of the Funds calculated
to the nearest 1,000th of a share. Shares will be purchased at the net asset
value in effect on the business day after the dividend record date and will be
credited to the investor's account on such date. Reinvested dividends and
distributions receive the same tax treatment as those paid in cash.
An investor may change his or her election at any time by calling the
Transfer Agent at 1-888-860-8686 or by sending written notification to The
Marsico Investment Fund, Sunstone Investor Services, P.O. Box 3210, Milwaukee,
WI 53201-3210. The election is effective for distributions with a dividend
record date on or after the date that the Transfer Agent receives notice of the
election.
TAXES
FEDERAL TAXES
Below is a summary of certain federal income tax considerations affecting the
Funds and their shareholders. More information is contained in the Statement of
Additional Information. Potential investors should consult their tax advisers
about the impact of owning fund shares on their particular tax situations,
including the application of any state or local taxes.
Each Fund intends to elect to be treated and to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended. A regulated investment company generally is not subject to
federal income tax on its investment company taxable income distributed in a
timely manner to its shareholders.
Dividends paid by a Fund out of net ordinary income and distributions of net
short-term capital gains are taxable to the Fund's U.S. shareholders as ordinary
income. Dividends from net ordinary income may be eligible for the corporate
dividends-received deduction.
Distributions by a Fund of net capital gains (the excess of net long-term
capital gains over net short-term capital losses) to U.S. shareholders are
generally taxable to the shareholders at the applicable mid-term or long-term
capital gains rate, regardless of how long the shareholder has held shares of
the Fund.
A dividend or capital gains distribution declared by a Fund in October,
November or December, but paid during January of the following year will be
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31 PROSPECTUS
<PAGE>
considered to be paid on December 31 of the year it was declared.
If the value of shares is reduced below a shareholder's cost as a result of a
distribution by a Fund, the distribution will be taxable even though it, in
effect, represents a return of invested capital. Investors considering buying
shares just prior to a dividend or capital gain distribution payment date should
be aware that, although the price of shares purchased at that time may reflect
the amount of the forthcoming distribution, those who purchase just prior to the
record date for a distribution may receive a distribution which will be taxable
to them.
A dividend or capital gains distribution with respect to shares of a Fund
held by a tax-deferred or qualified plan, such as an IRA, retirement plan or
corporate pension or profit sharing plan, will not be taxable to the plan.
Distributions from such plans will be taxable to individual participants under
applicable tax rules without regard to the character of the income earned by the
qualified plan.
Shareholders will be advised annually as to the federal tax status of
dividends and capital gains distributions made by each Fund for the preceding
year. Distributions by the Funds generally will be subject to state and local
taxes.
FOREIGN INCOME TAXES
Investment income received by the Funds from sources within foreign countries
may be subject to foreign income taxes withheld at the source. It is not
expected that the Funds will be able to "pass through" these taxes to
shareholders but such taxes generally will be deductible by the Fund.
FUND PERFORMANCE
From time-to-time, the Fund may advertise its "average annual total return" over
various periods of time. This total return figure shows the average percentage
change in value of an investment in the Funds from the beginning date of the
measuring period to the ending date of the measuring period. The figure reflects
changes in the price of the Funds' shares and assumes that any income dividends
and/or capital gains distributions made by the Funds during the period are
reinvested in shares of the Funds. Figures will be given for recent one-, five-
and ten-year periods (when applicable), and may be given for other periods as
well (such as from commencement of the Funds' operations, or on a year-by-year
basis). When considering "average" total return figures for periods longer than
one year, investors should note that the Funds' annual total return for any one
year in the period might have been greater or less than the average for the
entire period. The Funds also may use "aggregate" total return figures for
various periods, representing the cumulative change in value of an investment in
the Fund for the specific period (again reflecting changes in the Funds' share
price and assuming reinvestment of dividends and distributions). Aggregate total
returns may be shown by means of schedules,
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32 PROSPECTUS
<PAGE>
charts or graphs, and may indicate subtotals of the various components of total
return (that is, the change in value of initial investment, income dividends and
capital gains distributions).
The Funds may quote the average annual total and/or aggregate total return
for various time periods in advertisements or communications to shareholders.
Each Fund may also compare its performance to that of other mutual funds with
similar investment objectives and to stock and other relevant indices or to
rankings prepared by independent services or industry publications. For example,
each Fund's total return may be compared to data prepared by Lipper Analytical
Services, Inc., Morningstar, Value Line Mutual Fund Survey and CDA Investment
Technologies, Inc. Total return data as reported in such national financial
publications as The Wall Street Journal, The New York Times, Investor's Business
Daily, USA Today, Barron's, Money, and Forbes, as well as in publications of a
local or regional nature, may be used in comparing Fund performance.
Each Fund's total return may also be compared to such indices as the:
/ / Dow Jones Industrial Average
/ / Standard & Poor's 500 Composite Stock Price Index
/ / NASDAQ Composite OTC Index or NASDAQ Industries Index
/ / Consumer Price Index
/ / Russell 2000 Index
Further information on performance measurement may be found in the Statement of
Additional Information.
SHARE PRICE AND DETERMINATION OF NET ASSET VALUE
Shares are purchased at their net asset value per share. Each Fund calculates
its net asset value (NAV) as follows:
<TABLE>
<S> <C>
(Value of Funds Assets)-(Fund
Liabilities)
NAV=
Number of Outstanding Shares
</TABLE>
Net asset value is determined as of the end of trading hours on the NYSE
(currently 4:00 p.m. New York City time) on days that the NYSE is open.
A security listed or traded on a recognized stock exchange or quoted on
NASDAQ is valued at its last sale price prior to the time when assets are valued
on the principal exchange on which the security is traded or on NASDAQ. If no
sale is reported at that time, the most current bid price will be used. All
other securities for which over-the-counter market quotations are readily
available are valued at the most current bid price. Where quotations are not
readily available, the Funds' investments are valued at fair value as determined
by management and approved in good faith by the Trustees. Debt securities which
will mature in more than 60 days are valued at prices furnished by a pricing
service approved by the Trustees subject to review and determination of the
appropriate price by Marsico Capital, whenever a furnished price is
significantly different from the previous day's furnished price. Securities
which will mature in 60 days or less are valued at amortized cost, which
approximates market value.
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33 PROSPECTUS
<PAGE>
Generally, trading in foreign securities, as well as U.S. Government
securities and certain cash equivalents and repurchase agreements, is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value of the
shares of the Funds are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the NYSE.
Occasionally, events affecting the value of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the NYSE, which will not be reflected in the computation of net asset value. If
during such periods, events occur which materially affect the value of such
securities, the securities will be valued at their fair market value as
determined by management and approved in good faith by the Trustees.
For purposes of determining the net asset value per share of each Fund, all
assets and liabilities initially expressed in foreign currencies will be
converted into United States dollars at the mean between the bid and offer
prices of such currencies against United States dollars furnished by a pricing
service approved by the Trustees.
CAPITAL STRUCTURE
DESCRIPTION OF SHARES
The Trust is organized as a series fund which permits it to issue its authorized
capital stock in one or more series, each such series representing a separate
investment portfolio.
The Trust is authorized to issue an unlimited number of shares of beneficial
interest. The Trustees may, at their discretion, classify additional series
within the Trust without further action by the shareholders. Each share
outstanding entitles the holder to one vote. Generally, shares of all series
will be voted together as one class, except where voting by a series is required
by law. There will normally be no meetings of the shareholders for the purpose
of electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. Trustees can be
removed at any meeting of Shareholders by a vote of at least two-thirds of the
Trust's outstanding shares. As of the date of this Prospectus, Marsico Capital
owned all the outstanding shares of each Fund and thereby controlled each Fund.
It is contemplated that the public offering of the shares of each Fund will
reduce Marsico Capital's holdings to less than 5% of each Fund's total
outstanding shares.
OTHER SERVICE PROVIDERS
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005, has passed
upon the validity of the shares offered by this Prospectus and also acts as
counsel to the Trust.
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34 PROSPECTUS
<PAGE>
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 950 Seventeenth Street, Denver, CO 80202, has been
selected to serve as independent accountants of the Trust for the fiscal year
ending September 30, 1998.
INFORMATION FOR SHAREHOLDERS
The Funds will provide the following statements and reports to keep the investor
current regarding the status of his or her investment account:
CONFIRMATION STATEMENTS
Except for Automatic Investment Plans, after each transaction that affects the
account balance or account registration.
ACCOUNT STATEMENTS
Quarterly.
FINANCIAL REPORTS
At least semiannually. Annual reports will include audited financial statements.
To reduce Fund expenses, one copy of each report will be mailed to each taxpayer
identification number even though the investor may have more than one account in
the Fund.
Investors who have questions about their specific accounts, have general
questions or wish to have additional information should call the Funds at
1-888-860-8686. In addition, investors who wish to make a change in their
address of record, a change in investments made through an Automatic Investment
Plan or a change in the manner in which dividends are received may also do so by
calling the Fund at that number.
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35 PROSPECTUS
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary provides a more detailed description of some of the types of
securities and other instruments in which the Funds may invest. The Funds may
invest in these instruments to the extent permitted by its investment objective
and policies. The Funds are not limited by this discussion and may invest in any
other types of instruments not precluded by the policies discussed elsewhere in
this Prospectus. Please refer to the Statement of Additional Information for a
more detailed discussion of certain instruments. An asterisk ("*") next to a
security indicates that each Fund will invest less than 5% of its net assets in
that security.
I. EQUITY AND DEBT SECURITIES
BONDS are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from 1
to 270 days issued by banks, corporations and other borrowers to investors
seeking to invest idle cash. For example, the Funds may purchase commercial
paper issued under Section 4(2) of the Securities Act of 1933.
COMMON STOCK represents a share of ownership in a company and usually carries
voting rights and earns dividends. Unlike preferred stock, dividends on common
stock are not fixed but are declared at the discretion of the issuer's board of
directors.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio.
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based corporation that
entitle the holder to dividends and capital gains on the underlying security.
Receipts include those issued by domestic banks (American Depositary Receipts),
foreign banks (Global or European Depositary Receipts) and broker-dealers
(depositary shares).
FIXED-INCOME SECURITIES are securities that pay a specified rate of return. The
term generally includes short- and long-term government, corporate and municipal
obligations that pay a specified rate of interest or coupons for a specified
period of time and preferred stock, which pays fixed dividends.
HIGH-YIELD/HIGH-RISK SECURITIES are securities that are rated below investment
grade by the primary rating agencies (e.g., BB or lower by Standard & Poor's and
Ba or lower by Moody's). Other terms commonly used to describe such securities
include "lower rated bonds," "noninvestment grade bonds" and "junk bonds."
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36 PROSPECTUS
<PAGE>
INVERSE FLOATERS* are debt instruments whose interest bears an inverse
relationship to the interest rate on another security. The Funds will not invest
more than 5% of their respective net assets in inverse floaters.
MORTGAGE- AND ASSET-BACKED SECURITIES are shares in a pool of mortgages or other
debt. These securities are generally pass-through securities, which means that
principal and interest payments on the underlying securities (less servicing
fees) are passed through to shareholders on a pro rata basis. These securities
involve prepayment risk, which is the risk that the underlying mortgages or
other debt may be refinanced or paid off prior to their maturities during
periods of declining interest rates. In that case, the Portfolio Manager may
have to reinvest the proceeds from the securities at a lower rate. Potential
market gains on a security subject to prepayment risk may be more limited than
potential market gains on a comparable security that is not subject to
prepayment risk.
PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS") are any foreign corporations
which generate certain amounts of passive income or hold certain amounts of
assets for the production of passive income. Passive income includes dividends,
interest, royalties, rents and annuities. Income tax regulations may require the
Fund to recognize income associated with the PFIC prior to the actual receipt of
any such income.
PAY-IN-KIND BONDS are debt securities that normally give the issuer an option to
pay cash at a coupon payment date or give the holder of the security a similar
bond with the same coupon rate and a face value equal to the amount of the
coupon payment that would have been made.
PREFERRED STOCK is a class of stock that generally pays dividends at a specified
rate and has preference over common stock in the payment of dividends and
liquidation. Preferred stock generally does not carry voting rights.
REPURCHASE AGREEMENTS involve the purchase of a security by the Fund and a
simultaneous agreement by the seller (generally a bank or dealer) to repurchase
the security from the Fund at a specified date or upon demand. This technique
offers a method of earning income on idle cash. These securities involve the
risk that the seller will fail to repurchase the security, as agreed. In that
case, the Fund will bear the risk of market value fluctuations until the
security can be sold and may encounter delays and incur costs in liquidating the
security.
REVERSE REPURCHASE AGREEMENTS* involve the sale of a security by the Fund to
another party (generally a bank or dealer) in return for cash and an agreement
by the Fund to buy the security back at a specified price and time. This
technique will be used primarily to provide cash to satisfy unusually heavy
redemption requests.
RULE 144A SECURITIES are securities that are not registered for sale to the
general public under the Securities Act of 1933, but that may be resold to
certain institutional investors.
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37 PROSPECTUS
<PAGE>
STANDBY COMMITMENTS are obligations purchased by the Fund from a dealer that
give the Fund the option to sell a security to the dealer at a specified price.
STEP COUPON BONDS are debt securities that trade at a discount from their face
value and pay coupon interest. The discount from the face value depends on the
time remaining until cash payments begin, prevailing interest rates, liquidity
of the security and the perceived credit quality of the issuer.
STRIP BONDS are debt securities that are stripped of their interest (usually by
a financial intermediary) after the securities are issued. The market value of
these securities generally fluctuates more in response to changes in interest
rates than interest-paying securities of comparable maturity.
TENDER OPTION BONDS* are relatively long-term bonds that are coupled with the
agreement of a third party (such as a broker, dealer or bank) to grant the
holders of such securities the option to tender the securities to the
institution at periodic intervals.
U.S. GOVERNMENT SECURITIES include direct obligations of the U.S. government
that are supported by its full faith and credit. Treasury bills have initial
maturities of less than one year, Treasury notes have initial maturities of one
to ten years and Treasury bonds may be issued with any maturity but generally
have maturities of at least ten years. U.S. government securities also include
indirect obligations of the U.S. government that are issued by federal agencies
and government sponsored entities. Unlike Treasury securities, agency securities
generally are not backed by the full faith and credit of the U.S. government.
Some agency securities are supported by the right of the issuer to borrow from
the Treasury, others are supported by the discretionary authority of the U.S.
government to purchase the agency's obligations and others are supported only by
the credit of the sponsoring agency.
VARIABLE AND FLOATING RATE SECURITIES have variable or floating rates of
interest and, under certain limited circumstances, may have varying principal
amounts. These securities pay interest at rates that are adjusted periodically
according to a specified formula, usually with reference to some interest rate
index or market interest rate. The floating rate tends to decrease the
security's price sensitivity to changes in interest rates.
WARRANTS are securities, typically issued with preferred stocks or bonds, that
give the holder the right to buy a proportionate amount of common stock at a
specified price, usually at a price that is higher than the market price at the
time of issuance of the warrant. The right may last for a period of years or
indefinitely.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD TRANSACTIONS generally involve the
purchase of a security with payment and delivery at some time in the
future--i.e., beyond normal settlement. The Funds do not earn interest on such
securities until settlement, and the Funds bear the risk of market value
fluctuations in between the purchase and settlement dates. New issues of
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38 PROSPECTUS
<PAGE>
stocks and bonds, private placements and U.S. government securities may be sold
in this manner.
ZERO COUPON BONDS are debt securities that do not pay interest at regular
intervals, but are issued at a discount from face value. The discount
approximates the total amount of interest the security will accrue from the date
of issuance to maturity. The market value of these securities generally
fluctuates more in response to changes in interest rates than in interest-paying
securities of comparable maturity.
II. FUTURES, OPTIONS
AND OTHER DERIVATIVES
FORWARD CONTRACTS are contracts to purchase or sell a specified amount of
property for an agreed upon price at a specified time. Forward contracts are not
currently exchange traded and are typically negotiated on an individual basis.
The Fund may enter into forward currency contracts to hedge against declines in
the value of securities denominated in, or whose value is tied to, a currency
other than the U.S. dollar or to reduce the impact of currency appreciation on
purchases of such securities. It may also enter into forward contracts to
purchase or sell securities or other financial indices.
FUTURES CONTRACTS are contracts that obligate the buyer to receive and the
seller to deliver an instrument or money at a specified price on a specified
date. The Fund may buy and sell futures contracts on foreign currencies,
securities and financial indices including interest rates or an index of U.S.
government, foreign government, equity or fixed-income securities. The Fund may
also buy options on futures contracts. An option on a futures contract gives the
buyer the right, but not the obligation, to buy or sell a futures contract at a
specified price on or before a specified date. Futures contracts and options on
futures are standardized and traded on designated exchanges.
INDEXED/STRUCTURED SECURITIES are typically short- to intermediate-term debt
securities whose value at maturity or interest rate is linked to currencies,
interest rates, equity securities, indices, commodity prices or other financial
indicators. Such securities may be positively or negatively indexed (i.e., their
value may increase or decrease if the reference index or instrument
appreciates). Indexed/structured securities may have return characteristics
similar to direct investments in the underlying instruments and may be more
volatile than the underlying instruments. The Fund bears the market risk of an
investment in the underlying instruments, as well as the credit risk of the
issuer.
INTEREST RATE SWAPS involve the exchange by two parties of their respective
commitments to pay or receive interest (e.g., an exchange of floating rate
payments for fixed rate payments).
OPTIONS are the right, but not the obligation, to buy or sell a specified amount
of securities or other assets on or before a fixed date at a predetermined
price. The Fund may purchase and write put and call options on securities,
securities indices and foreign currencies.
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39 PROSPECTUS
<PAGE>
THE MARSICO INVESTMENT FUND
The Marsico Focus Fund
The Marsico Growth & Income Fund
- ------------------------------
PROSPECTUS
December 15, 1997
INVESTMENT ADVISER
Marsico Capital Management, LLC
ADMINISTRATOR
Sunstone Financial Group, Inc.
DISTRIBUTOR
Sunstone Distribution Services, LLC
COUNSEL
Dechert Price & Rhoads
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRANSFER AND DIVIDEND
DISBURSING AGENT
Sunstone Investor Services, LLC
CUSTODIAN
State Street Bank and Trust Company
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[LOGO]
<PAGE>
THE MARSICO INVESTMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 15, 1997
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus for The Marsico Investment Fund dated
December 15, 1997, as amended from time to time, a copy of which may be obtained
without charge by calling 1-888-860-8686 or writing to Sunstone Investor
Services, LLC, P.O. Box 3210, Milwaukee, WI 53201-3210.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES........................................ 1
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES............................. 3
TRUSTEES AND OFFICERS..................................................... 17
INVESTMENT ADVISORY AND OTHER SERVICES.................................... 19
DISTRIBUTION PLAN......................................................... 19
PORTFOLIO TURNOVER........................................................ 20
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 20
PERFORMANCE INFORMATION................................................... 20
TAX STATUS................................................................ 22
NET ASSET VALUE........................................................... 26
CAPITAL STRUCTURE......................................................... 26
HOW TO REDEEM SHARES...................................................... 27
HOW TO EXCHANGE........................................................... 27
FINANCIAL STATEMENTS...................................................... 27
APPENDIX.................................................................. A-1
</TABLE>
i
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INVESTMENT OBJECTIVES AND POLICIES
The Marsico Focus Fund ("Focus Fund") is a nondiversified fund that seeks
long-term growth of capital. Under normal conditions, this Fund concentrates its
investments in a core position of 20-30 common stocks.
The Marsico Growth & Income Fund ("Growth & Income Fund") is a diversified
fund that seeks both long-term capital growth and current income. The Growth &
Income Fund places a stronger emphasis on the growth objective and normally
invests up to 75% of its total assets in equity securities selected primarily
for their growth potential and at least 25% of its total assets in securities
that have income potential. In unusual circumstances, the Fund may reduce the
growth component of its portfolio to 25% of its total assets.
FUNDAMENTAL INVESTMENT RESTRICTIONS
As indicated in the Prospectus, the Funds are subject to certain fundamental
policies and restrictions that may not be changed without shareholder approval.
Shareholder approval means approval by the lesser of (i) more than 50% of the
outstanding voting securities of the Trust (or a particular Fund if a matter
affects just that Fund), or (ii) 67% or more of the voting securities present at
a meeting if the holders of more than 50% of the outstanding voting securities
of the Trust (or a particular Fund) are present or represented by proxy. As
fundamental policies, each Fund may not:
(1) Invest 25% or more of the value of their respective total assets in
any particular industry (other than U.S. government securities).
(2) Invest directly in real estate; however, the Funds may own debt or
equity securities issued by companies engaged in those businesses.
(3) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent the Funds from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
(4) Lend any security or make any other loan if, as a result, more than
25% of a Fund's total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt securities
or repurchase agreements).
(5) Act as an underwriter of securities issued by others, except to the
extent that a Fund may be deemed an underwriter in connection with the
disposition of portfolio securities of such Fund.
(6) Issue senior securities, except as permitted under the Investment
Company Act of 1940.
(7) Borrow money, except that the Funds may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of their respective total assets (including
the amount borrowed) less liabilities (other than borrowings). If borrowings
exceed 33 1/3% of the value of a Fund's total assets by reason of a decline
in net assets, the Fund will reduce its borrowings within three days to the
extent necessary to comply with the 33 1/3% limitation. This policy shall
not prohibit reverse repurchase agreements, deposits of assets to margin or
guarantee positions in futures, options, swaps or forward contracts, or the
segregation of assets in connection with such contracts. Neither Fund will
purchase securities while its borrowings exceed 5% of that Fund's total
assets.
In addition to the foregoing, as a fundamental policy, the Growth & Income
Fund may not own more than 10% of the outstanding voting securities of any one
issuer and, as to seventy-five percent (75%) of the value of its total assets,
purchase the securities of any one issuer (except cash items and "government
securities" as defined under the Investment Company Act of 1940, as amended (the
"1940 Act")), if
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<PAGE>
immediately after and as a result of such purchase, the value of the holdings of
the Growth & Income Fund in the securities of such issuer exceeds 5% of the
value of the Growth & Income Fund's total assets.
As a fundamental policy, the Focus Fund may not own more than 10% of the
outstanding voting securities of any one issuer and, as to fifty percent (50%)
of the value of its total assets, purchase the securities of any one issuer
(except cash items and "government securities" as defined under the Investment
Company Act of 1940, as amended (the "1940 Act")), if immediately after and as a
result of such purchase, the value of the holdings of the Focus Fund in the
securities of such issuer exceeds 5% of the value of the Focus Fund's total
assets.
The Trustees have adopted additional investment restrictions for the Funds.
These restrictions are operating policies of the Funds and may be changed by the
Trustees without shareholder approval. The additional investment restrictions
adopted by the Trustees to date include the following:
(a) A Fund will not (i) enter into any futures contracts and related
options for purposes other than bona fide hedging transactions within the
meaning of Commodity Futures Trading Commission ("CFTC") regulations if the
aggregate initial margin and premiums required to establish positions in
futures contracts and related options that do not fall within the definition
of bona fide hedging transactions will exceed 5% of the fair market value of
a Fund's net assets, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; and (ii) enter
into any futures contracts if the aggregate amount of such Fund's
commitments under outstanding futures contracts positions would exceed the
market value of its total assets.
(b) The Funds do not currently intend to sell securities short, unless
they own or have the right to obtain securities equivalent in kind and
amount to the securities sold short without the payment of any additional
consideration therefor, and provided that transactions in futures, options,
swaps and forward contracts are not deemed to constitute selling securities
short.
(c) The Funds do not currently intend to purchase securities on margin,
except that the Funds may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments and
other deposits in connection with transactions in futures, options, swaps
and forward contracts shall not be deemed to constitute purchasing
securities on margin.
(d) A Fund may not mortgage or pledge any securities owned or held by
such Fund in amounts that exceed, in the aggregate, 15% of that Fund's net
asset value, provided that this limitation does not apply to reverse
repurchase agreements, deposits of assets to margin, guaranteed positions in
futures, options, swaps or forward contracts, or the segregation of assets
in connection with such contracts.
(e) The Funds do not currently intend to purchase any securities or
enter into a repurchase agreement if, as a result, more than 15% of their
respective net assets would be invested in repurchase agreements not
entitling the holder to payment of principal and interest within seven days
and in securities that are illiquid by virtue of legal or contractual
restrictions on resale or the absence of a readily available market. The
Trustees, or the Funds' investment adviser acting pursuant to authority
delegated by the Trustees, may determine that a readily available market
exists for securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, as amended, ("Rule 144A Securities"), or any
successor to such rule, and Section 4(2) commercial paper. Accordingly, such
securities may not be subject to the foregoing limitation.
(f) The Funds may not invest in companies for the purpose of exercising
control of management.
For purposes of the Funds' restriction on investing in a particular
industry, the Funds will rely primarily on industry classifications as published
by Bloomberg L.P. To the extent that Bloomberg L.P. classifications are so broad
that the primary economic characteristics in a single class are materially
different, the Funds may further classify issuers in accordance with industry
classifications as published by the Securities and Exchange Commission ("SEC").
2
<PAGE>
Except as otherwise noted herein and in the Funds' prospectus, a Fund's
investment objectives and policies may be changed by a vote of the Trustees
without a vote of shareholders.
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES
ILLIQUID INVESTMENTS
Each Fund may invest up to 15% of its net assets in illiquid investments
(i.e., securities that are not readily marketable). The Trustees have authorized
Marsico Capital Management, LLC ("Marsico Capital") to make liquidity
determinations with respect to its securities, including Rule 144A Securities
and commercial paper. Under the guidelines established by the Trustees, Marsico
Capital will consider the following factors: 1) the frequency of trades and
quoted prices for the obligation; (2) the number of dealers willing to purchase
or sell the security and the number of other potential purchasers; 3) the
willingness of dealers to undertake to make a market in the security; and 4) the
nature of the security and the nature of marketplace trades, including the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer. In the case of commercial paper, Marsico Capital will
also consider whether the paper is traded flat or in default as to principal and
interest and any ratings of the paper by a nationally recognized statistical
rating organization ("NRSRO"). A foreign security that may be freely traded on
or through the facilities of an offshore exchange or other established offshore
securities market is not deemed to be a restricted security subject to these
procedures.
ZERO COUPON, PAY-IN-KIND AND STEP COUPON SECURITIES
Each Fund may invest up to 10% of its assets in zero coupon, pay-in-kind and
step coupon securities. Zero coupon bonds are issued and traded at a discount
from their face value. They do not entitle the holder to any periodic payment of
interest prior to maturity. Step coupon bonds trade at a discount from their
face value and pay coupon interest. The coupon rate is low for an initial period
and then increases to a higher coupon rate thereafter. The discount from the
face amount or par value depends on the time remaining until cash payments
begin, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. Pay-in-kind bonds normally give the issuer an
option to pay cash at a coupon payment date or give the holder of the security a
similar bond with the same coupon rate and a face value equal to the amount of
the coupon payment that would have been made.
Current federal income tax law requires holders of zero coupon securities
and step coupon securities to report the portion of the original issue discount
on such securities that accrues during a given year as interest income, even
though the holders receive no cash payments of interest during the year. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986 and the regulations thereunder (the "Code"), a Fund must distribute
its investment company taxable income, including the original issue discount
accrued on zero coupon or step coupon bonds. BECAUSE A FUND WILL NOT RECEIVE
CASH PAYMENTS ON A CURRENT BASIS IN RESPECT OF ACCRUED ORIGINAL-ISSUE DISCOUNT
PAYMENTS, IN SOME YEARS THAT FUND MAY HAVE TO DISTRIBUTE CASH OBTAINED FROM
OTHER SOURCES IN ORDER TO SATISFY THE DISTRIBUTION REQUIREMENTS UNDER THE CODE.
A Fund might obtain such cash from selling other portfolio holdings which might
cause that Fund to incur capital gains or losses on the sale. Additionally,
these actions are likely to reduce the assets to which Fund expenses could be
allocated and to reduce the rate of return for that Fund. In some circumstances,
such sales might be necessary in order to satisfy cash distribution requirements
even though investment considerations might otherwise make it undesirable for a
Fund to sell the securities at the time.
Generally, the market prices of zero coupon, step coupon and pay-in-kind
securities are more volatile than the prices of securities that pay interest
periodically and in cash and are likely to respond to changes in interest rates
to a greater degree than other types of debt securities having similar
maturities and credit quality.
3
<PAGE>
PASS-THROUGH SECURITIES
The Funds may invest in various types of pass-through securities, such as
mortgage-backed securities, asset-backed securities and participation interests.
A pass-through security is a share or certificate of interest in a pool of debt
obligations that have been repackaged by an intermediary, such as a bank or
broker-dealer. The purchaser of a pass-through security receives an undivided
interest in the underlying pool of securities. The issuers of the underlying
securities make interest and principal payments to the intermediary which are
passed through to purchasers, such as the Funds. The most common type of pass-
through securities are mortgage-backed securities. Government National Mortgage
Association ("GNMA") Certificates are mortgage-backed securities that evidence
an undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that principal is paid back monthly by the borrowers over the term of
the loan rather than returned in a lump sum at maturity. A Fund will generally
purchase "modified pass-through" GNMA Certificates, which entitle the holder to
receive a share of all interest and principal payments paid and owned on the
mortgage pool, net of fees paid to the "issuer" and GNMA, regardless of whether
or not the mortgagor actually makes the payment. GNMA Certificates are backed as
to the timely payment of principal and interest by the full faith and credit of
the U.S. government.
The Federal Home Loan Mortgage Corporation ("FHLMC") issues two types of
mortgage pass-through securities: mortgage participation certificates ("PCs")
and guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made and owned on the underlying pool. FHLMC guarantees timely payments of
interest on PCs and the full return of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semiannually and return principal once a year in guaranteed minimum payments.
This type of security is guaranteed by FHLMC as to timely payment of principal
and interest but it is not guaranteed by the full faith and credit of the U.S.
government.
The Federal National Mortgage Association ("FNMA") issues guaranteed
mortgage pass-through certificates ("FNMA Certificates"). FNMA Certificates
resemble GNMA Certificates in that each FNMA Certificate represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. This type of security is guaranteed by FNMA as to timely payment of
principal and interest but it is not guaranteed by the full faith and credit of
the U.S. government.
Except for GMCs, each of the mortgage-backed securities described above is
characterized by monthly payments to the holder, reflecting the monthly payments
made by the borrowers who received the underlying mortgage loans. The payments
to the security holders (such as the Funds), like the payments on the underlying
loans, represent both principal and interest. Although the underlying mortgage
loans are for a specified period of time, such as 20 or 30 years, the borrowers
can, and typically do, pay them off sooner. Thus, the security holders
frequently receive prepayments of principal in addition to the principal that is
part of the regular monthly payments. A portfolio manager will consider
estimated prepayment rates in calculating the average weighted maturity of a
Fund. A borrower is more likely to prepay a mortgage that bears a relatively
high rate of interest. This means that in times of declining interest rates,
higher yielding mortgage-backed securities held by a Fund might be converted to
cash and that a Fund would be forced to accept lower interest rates when that
cash is used to purchase additional securities in the mortgage-backed securities
sector or in other investment sectors. Additionally, prepayments during such
periods will limit a Fund's ability to participate in as large a market gain as
may be experienced with a comparable security not subject to prepayment.
Asset-backed securities represent interests in pools of consumer loans and
are backed by paper or accounts receivables originated by banks, credit card
companies or other providers of credit. Generally, the originating bank or
credit provider is neither the obligor nor the guarantor of the security, and
interest and principal payments ultimately depend upon payment of the underlying
loans by individuals.
4
<PAGE>
DEPOSITARY RECEIPTS
The Funds may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs, in registered form, are designed for use in U.S. securities
markets. Unsponsored ADRs may be created without the participation of the
foreign issuer. Holders of these ADRs generally bear all the costs of the ADR
facility, whereas foreign issuers typically bear certain costs in a sponsored
ADR. The bank or trust company depositary of an unsponsored ADR may be under no
obligation to distribute shareholder communications received from the foreign
issuer or to pass through voting rights. The Funds may also invest in European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and in other
similar instruments representing securities of foreign companies. EDRs are
receipts issued by a European financial institution evidencing an arrangement
similar to that of ADRs. EDRs, in bearer form, are designed for use in European
securities markets.
OTHER INCOME-PRODUCING SECURITIES
Other types of income producing securities that the Funds may purchase
include, but are not limited to, the following types of securities:
VARIABLE AND FLOATING RATE OBLIGATIONS. These types of securities are
relatively long-term instruments that often carry demand features permitting the
holder to demand payment of principal at any time or at specified intervals
prior to maturity.
STANDBY COMMITMENTS. These instruments, which are similar to a put, give a
Fund the option to obligate a broker, dealer or bank to repurchase a security
held by that Fund at a specified price.
TENDER OPTION BONDS. Tender option bonds are relatively long-term bonds
that are coupled with the agreement of a third party (such as a broker, dealer
or bank) to grant the holders of such securities the option to tender the
securities to the institution at periodic intervals.
INVERSE FLOATERS. Inverse floaters are debt instruments whose interest
bears an inverse relationship to the interest rate on another security. The
Funds will not invest more than 5% of their respective net assets in inverse
floaters.
The Funds will purchase standby commitments, tender option bonds and
instruments with demand features primarily for the purpose of increasing the
liquidity of their portfolios.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
In a repurchase agreement, a Fund purchases a security and simultaneously
commits to resell that security to the seller at an agreed-upon price on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed-
upon incremental amount that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed-upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed-upon resale price and marked-to-
market daily) of the underlying security or "collateral." A Fund may engage in a
repurchase agreement with respect to any security in which it is authorized to
invest. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities decline before they can be
liquidated on the open market. In the event of bankruptcy or insolvency of the
seller, a Fund may encounter delays and incur costs in liquidating the
underlying security. Repurchase agreements that mature in more than seven days
will be subject to the 15% limit on illiquid investments. While it is not
possible to eliminate all risks from these transactions, it is the policy of the
Funds to limit repurchase agreements to those parties whose creditworthiness has
been reviewed and found satisfactory by Marsico Capital.
5
<PAGE>
A Fund may use reverse repurchase agreements to provide cash to satisfy
unusually heavy redemption requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities, or to earn additional
income on portfolio securities, such as Treasury bills or notes. In a reverse
repurchase agreement, a Fund sells a portfolio security to another party, such
as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase agreement
is outstanding, a Fund will maintain cash and appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. The
Funds will enter into reverse repurchase agreements only with parties that
Marsico Capital deems creditworthy. Using reverse repurchase agreements to earn
additional income involves the risk that the interest earned on the invested
proceeds is less than the expense of the reverse repurchase agreement
transaction. This technique may also have a leveraging effect on the Fund's
portfolio, although the Fund's intent to segregate assets in the amount of the
reverse repurchase agreement minimizes this effect.
HIGH-YIELD/HIGH-RISK SECURITIES
The Funds may invest up to 35% of net assets in debt securities that are
rated below investment grade (E.G., securities rated BB or lower by Standard &
Poor's Ratings Services ("Standard &Poor's") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's")). Lower-rated securities involve a higher degree of
credit risk, which is the risk that the issuer will not make interest or
principal payments when due. In the event of an unanticipated default, a Fund
would experience a reduction in its income, and could expect a decline in the
market value of the securities so affected. The Funds will not purchase debt
securities rated lower than "CCC-" by Standard & Poor's or "Caa" by Moody's.
Each Fund may invest in unrated debt securities of foreign and domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may not have as broad a market. Unrated debt securities will be
included in the 35% limit of each Fund unless the portfolio manager deems such
securities to be the equivalent of investment grade securities.
Investing in high-yield/high risk securities involves certain risks,
including the following:
FINANCIAL AND MARKET RISKS. Investments in high-yield/high risk securities
involve a high degree of financial and market risks that can result in
substantial or, at times, even total losses. Issuers of such securities may have
substantial capital needs and may become involved in bankruptcy or
reorganization proceedings. Among the problems involved in investments in such
issuers is the fact that it may be difficult to obtain information about the
condition of such issuers. The market prices of such securities also are subject
to abrupt and erratic movements and above average price volatility, and the
spread between the bid and asked prices of such securities may be greater than
normally expected.
DISPOSITION OF PORTFOLIO SECURITIES. Although the Funds generally will
purchase securities for which the portfolio manager expects an active market to
be maintained, high-yield/high-risk securities may be less actively traded than
other securities and it may be difficult to dispose of substantial holdings of
such securities at prevailing market prices. The Funds will limit holdings of
any securities to amounts that the portfolio manager believes could be readily
sold, and holdings of such securities would, in any event, be limited so as not
to limit the Funds' ability to readily dispose of securities to meet
redemptions.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS. The Funds may enter into contracts for the purchase or
sale for future delivery of fixed-income securities, foreign currencies or
contracts based on financial indices, including indices of U.S. government
securities, foreign government securities, equity or fixed-income securities.
U.S. futures contracts are traded on exchanges which have been designated
"contract markets" by the CFTC and must be executed through a futures commission
merchant ("FCM"), or brokerage firm, which is a member of the relevant contract
market. Through their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.
6
<PAGE>
The buyer or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, both the buyer and seller are required to deposit "initial
margin" for the benefit of the FCM when the contract is entered into. Initial
margin deposits are equal to a percentage of the contract's value, as set by the
exchange on which the contract is traded, and may be maintained in cash or
certain other liquid assets by the Funds' custodian for the benefit of the FCM.
Initial margin payments are similar to good faith deposits or performance bonds.
Unlike margin extended by a securities broker, initial margin payments do not
constitute purchasing securities on margin for purposes of the Fund's investment
limitations. If the value of either party's position declines, that party will
be required to make additional "variation margin" payments for the benefit of
the FCM to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. In the event of
the bankruptcy of the FCM that holds margin on behalf of a Fund, that Fund may
be entitled to return of margin owed to such Fund only in proportion to the
amount received by the FCM's other customers. Marsico Capital will attempt to
minimize the risk by careful monitoring of the creditworthiness of the FCMs with
which the Funds do business and by depositing margin payments in a segregated
account with the Funds' custodian.
The Funds intend to comply with guidelines of eligibility for exclusion from
the definition of the term "commodity pool operator" adopted by the CFTC and the
National Futures Association, which regulate trading in the futures markets. The
Funds will use futures contracts and related options primarily for bona fide
hedging purposes within the meaning of CFTC regulations. To the extent that the
Funds hold positions in futures contracts and related options that do not fall
within the definition of bona fide hedging transactions, the aggregate initial
margin and premiums required to establish such positions will not exceed 5% of
the fair market value of a Fund's net assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into.
Although a Fund will segregate cash and liquid assets in an amount
sufficient to cover its open futures obligations, the segregated assets would be
available to that Fund immediately upon closing out the futures position, while
settlement of securities transactions could take several days. However, because
a Fund's cash that may otherwise be invested would be held uninvested or
invested in other liquid assets so long as the futures position remains open,
such Fund's return could be diminished due to the opportunity losses of
foregoing other potential investments.
A Fund's primary purpose in entering into futures contracts is to protect
that Fund from fluctuations in the value of securities or interest rates without
actually buying or selling the underlying debt or equity security. For example,
if the Fund anticipates an increase in the price of stocks, and it intends to
purchase stocks at a later time, that Fund could enter into a futures contract
to purchase a stock index as a temporary substitute for stock purchases. If an
increase in the market occurs that influences the stock index as anticipated,
the value of the futures contracts will increase, thereby serving as a hedge
against that Fund not participating in a market advance. This technique is
sometimes known as an anticipatory hedge. To the extent a Fund enters into
futures contracts for this purpose, the segregated assets maintained to cover
such Fund's obligations with respect to the futures contracts will consist of
other liquid assets from its portfolio in an amount equal to the difference
between the contract price and the aggregate value of the initial and variation
margin payments made by that Fund with respect to the futures contracts.
Conversely, if a Fund holds stocks and seeks to protect itself from a decrease
in stock prices, the Fund might sell stock index futures contracts, thereby
hoping to offset the potential decline in the value of its portfolio securities
by a corresponding increase in the value of the futures contract position. A
Fund could protect against a decline in stock prices by selling portfolio
securities and investing in money market instruments, but the use of futures
contracts enables it to maintain a defensive position without having to sell
portfolio securities.
If a Fund owns Treasury bonds and the portfolio manager expects interest
rates to increase, that Fund may take a short position in interest rate futures
contracts. Taking such a position would have much the same effect as that Fund
selling Treasury bonds in its portfolio. If interest rates increase as
anticipated, the
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value of the Treasury bonds would decline, but the value of that Fund's interest
rate futures contract would increase, thereby keeping the net asset value of
that Fund from declining as much as it may have otherwise. If, on the other
hand, a portfolio manager expects interest rates to decline, that Fund may take
a long position in interest rate futures contracts in anticipation of later
closing out the futures position and purchasing the bonds. Although a Fund can
accomplish similar results by buying securities with long maturities and selling
securities with short maturities, given the greater liquidity of the futures
market than the cash market, it may be possible to accomplish the same result
more easily and more quickly by using futures contracts as an investment tool to
reduce risk.
The ordinary spreads between prices in the cash and futures markets, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial margin and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal price relationship between the cash
and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery of the instrument underlying a futures contract. To the extent
participants decide to make or take delivery, liquidity in the futures market
could be reduced and prices in the futures market distorted. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of the foregoing
distortions, a correct forecast of general price trends by the portfolio manager
still may not result in a successful use of futures.
Futures contracts entail risks. Although the Funds believe that use of such
contracts will benefit the Funds, a Fund's overall performance could be
adversely affected by entering into such contracts if the portfolio manager's
investment judgment proves incorrect. For example, if a Fund has hedged against
the effects of a possible decrease in prices of securities held in its portfolio
and prices increase instead, that Fund will lose part or all of the benefit of
the increased value of these securities because of offsetting losses in its
futures positions. In addition, if a Fund has insufficient cash, it may have to
sell securities from its portfolio to meet daily variation margin requirements.
Those sales may be, but will not necessarily be, at increased prices which
reflect the rising market and may occur at a time when the sales are
disadvantageous to such Fund.
The prices of futures contracts depend primarily on the value of their
underlying instruments. Because there are a limited number of types of futures
contracts, it is possible that the standardized futures contracts available to a
Fund will not match exactly such Fund's current or potential investments. A Fund
may buy and sell futures contracts based on underlying instruments with
different characteristics from the securities in which it typically invests--for
example, by hedging investments in portfolio securities with a futures contract
based on a broad index of securities--which involves a risk that the futures
position will not correlate precisely with the performance of such Fund's
investments.
Futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments closely correlate with a Fund's
investments. Futures prices are affected by factors such as current and
anticipated short-term interest rates, changes in volatility of the underlying
instruments and the time remaining until expiration of the contract. Those
factors may affect securities prices differently from futures prices. Imperfect
correlations between a Fund's investments and its futures positions also may
result from differing levels of demand in the futures markets and the securities
markets, from structural differences in how futures and securities are traded,
and from imposition of daily price fluctuation limits for futures contracts. A
Fund may buy or sell futures contracts with a greater or lesser value than the
securities it wishes to hedge or is considering purchasing in order to attempt
to compensate for differences in historical volatility between the futures
contract and the securities, although this may not be successful in all cases.
If price changes in a Fund's futures positions are poorly correlated with its
other investments,
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its futures positions may fail to produce desired gains or result in losses that
are not offset by the gains in that Fund's other investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of three days for some
types of securities, the futures markets can provide superior liquidity to the
securities markets. Nevertheless, there is no assurance that a liquid secondary
market will exist for any particular futures contract at any particular time. In
addition, futures exchanges may establish daily price fluctuation limits for
futures contracts and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is reached, it may be impossible for a Fund to enter
into new positions or close out existing positions. If the secondary market for
a futures contract is not liquid because of price fluctuation limits or
otherwise, a Fund may not be able to promptly liquidate unfavorable futures
positions and potentially could be required to continue to hold a futures
position until the delivery date, regardless of changes in its value. As a
result, such Fund's access to other assets held to cover its futures positions
also could be impaired.
OPTIONS ON FUTURES CONTRACTS. The Funds may buy and write put and call
options on futures contracts. An option on a future gives a Fund the right (but
not the obligation) to buy or sell a futures contract at a specified price on or
before a specified date. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price of
the futures contract upon which it is based or the price of the underlying
instrument, ownership of the option may or may not be less risky than ownership
of the futures contract or the underlying instrument. As with the purchase of
futures contracts, when a Fund is not fully invested it may buy a call option on
a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures' price at the expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in that Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures' price at expiration of the option is higher than the exercise
price, a Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which that Fund is
considering buying. If a call or put option a Fund has written is exercised,
such Fund will incur a loss which will be reduced by the amount of the premium
it received. Depending on the degree of correlation between the change in the
value of its portfolio securities and changes in the value of the futures
positions, a Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices or rising interest rates.
The amount of risk a Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
FORWARD CONTRACTS. A forward contract is an agreement between two parties
in which one party is obligated to deliver a stated amount of a stated asset at
a specified time in the future and the other party is obligated to pay a
specified amount for the assets at the time of delivery. The Funds may enter
into forward contracts to purchase and sell government securities, equity or
income securities, foreign currencies or other financial instruments. Forward
contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
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contracts, which are standardized contracts, forward contracts can be
specifically drawn to meet the needs of the parties that enter into them. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated exchange.
The following discussion summarizes the Fund's principal uses of forward
foreign currency exchange contracts ("forward currency contracts"). A Fund may
enter into forward currency contracts with stated contract values of up to the
value of that Fund's assets. A forward currency contract is an obligation to buy
or sell an amount of a specified currency for an agreed price (which may be in
U.S. dollars or a foreign currency). A Fund will exchange foreign currencies for
U.S. dollars and for other foreign currencies in the normal course of business
and may buy and sell currencies through forward currency contracts in order to
fix a price for securities it has agreed to buy or sell ("transaction hedge"). A
Fund also may hedge some or all of its investments denominated in a foreign
currency or exposed to foreign currency fluctuations against a decline in the
value of that currency relative to the U.S. dollar by entering into forward
currency contracts to sell an amount of that currency (or a proxy currency whose
performance is expected to replicate or exceed the performance of that currency
relative to the U.S. dollar) approximating the value of some or all of its
portfolio securities denominated in that currency ("position hedge") or by
participating in options or futures contracts with respect to the currency. A
Fund also may enter into a forward currency contract with respect to a currency
where the Fund is considering the purchase or sale of investments denominated in
that currency but has not yet selected the specific investments ("anticipatory
hedge"). In any of these circumstances a Fund may, alternatively, enter into a
forward currency contract to purchase or sell one foreign currency for a second
currency that is expected to perform more favorably relative to the U.S. dollar
if the portfolio manager believes there is a reasonable degree of correlation
between movements in the two currencies ("cross-hedge").
These types of hedging minimize the effect of currency appreciation as well
as depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent value of the proceeds of or rates of return on a Fund's foreign
currency denominated portfolio securities. The matching of the increase in value
of a forward contract and the decline in the U.S. dollar equivalent value of the
foreign currency denominated asset that is the subject of the hedge generally
will not be precise. Shifting a Fund's currency exposure from one foreign
currency to another removes that Fund's opportunity to profit from increases in
the value of the original currency and involves a risk of increased losses to
such Fund if its portfolio manager's projection of future exchange rates is
inaccurate. Proxy hedges and cross-hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which hedged
securities are denominated. Unforeseen changes in currency prices may result in
poorer overall performance for a Fund than if it had not entered into such
contracts.
The Funds will cover outstanding forward currency contracts by maintaining
liquid portfolio securities
denominated in or whose value is tied to, the currency underlying the forward
contract or the currency being hedged. To the extent that a Fund is not able to
cover its forward currency positions with underlying portfolio securities, the
Funds' custodian will segregate cash or other liquid assets having a value equal
to the aggregate amount of such Fund's commitments under forward contracts
entered into with respect to position hedges, cross-hedges and anticipatory
hedges. If the value of the securities used to cover a position or the value of
segregated assets declines, a Fund will find alternative cover or segregate
additional cash or liquid assets on a daily basis so that the value of the
covered and segregated assets will be equal to the amount of such Fund's
commitments with respect to such contracts. As an alternative to segregating
assets, a Fund may buy call options permitting such Fund to buy the amount of
foreign currency being hedged by a forward sale contract or a Fund may buy put
options permitting it to sell the amount of foreign currency subject to a
forward buy contract.
While forward contracts are not currently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event,
the Funds' ability to utilize forward contracts may be
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restricted. In addition, a Fund may not always be able to enter into forward
contracts at attractive prices and may be limited in its ability to use these
contracts to hedge Fund assets.
OPTIONS ON FOREIGN CURRENCIES. The Funds may buy and write options on
foreign currencies in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in the
U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, a Fund may buy put options on
the foreign currency. If the value of the currency declines, such Fund will have
the right to sell such currency for a fixed amount in U.S. dollars, thereby
offsetting, in whole or in part, the adverse effect on its portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may buy call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
the adverse movements in exchange rates. As in the case of other types of
options, however, the benefit to a Fund from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, a Fund could sustain losses on transactions in foreign
currency options that would require such Fund to forego a portion or all of the
benefits of advantageous changes in those rates.
The Funds may also write options on foreign currencies. For example, to
hedge against a potential decline in the U.S. dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange rates, a Fund
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised and the decline in value of portfolio securities will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, a Fund could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow that Fund to hedge the increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium. If exchange rates do not move in the
expected direction, the option may be exercised and a Fund would be required to
buy or sell the underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign currencies, a
Fund also may lose all or a portion of the benefits which might otherwise have
been obtained from favorable movements in exchange rates.
The Funds may write covered call options on foreign currencies. A call
option written on a foreign currency by a Fund is "covered" if that Fund owns
the foreign currency underlying the call or has an absolute and immediate right
to acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currencies held in its portfolio. A
call option is also covered if a Fund has a call on the same foreign currency in
the same principal amount as the call written if the exercise price of the call
held (i) is equal to or less than the exercise price of the call written or (ii)
is greater than the exercise price of the call written, if the difference is
maintained by such Fund in cash or other liquid assets in a segregated account
with the Funds' custodian.
The Funds also may write call options on foreign currencies for
cross-hedging purposes. A call option on a foreign currency is for cross-hedging
purposes if it is designed to provide a hedge against a decline due to an
adverse change in the exchange rate in the U.S. dollar value of a security which
a Fund owns or has the right to acquire and which is denominated in the currency
underlying the option. Call options on foreign currencies which are entered into
for cross-hedging purposes are not covered. However, in such circumstances, a
Fund will collateralize the option by segregating cash or other liquid assets in
an amount not less than the value of the underlying foreign currency in U.S.
dollars marked-to-market daily.
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OPTIONS ON SECURITIES. In an effort to increase current income and to
reduce fluctuations in net asset value, the Funds may write covered put and call
options and buy put and call options on securities that are traded on United
States and foreign securities exchanges and over-the-counter. The Funds may
write and buy options on the same types of securities that the Funds may
purchase directly.
A put option written by a Fund is "covered" if that Fund (i) segregates cash
not available for investment or other liquid assets with a value equal to the
exercise price of the put with the Funds' custodian or (ii) holds a put on the
same security and in the same principal amount as the put written and the
exercise price of the put held is equal to or greater than the exercise price of
the put written. The premium paid by the buyer of an option will reflect, among
other things, the relationship of the exercise price to the market price and the
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates.
A call option written by a Fund is "covered" if that Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Funds'
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also deemed to be covered if a Fund holds a call on
the same security and in the same principal amount as the call written and the
exercise price of the call held (i) is equal to or less than the exercise price
of the call written or (ii) is greater than the exercise price of the call
written if the difference is maintained by that Fund in cash and other liquid
assets in a segregated account with its custodian.
The Funds also may write call options that are not covered for cross-hedging
purposes. A Fund collateralizes its obligation under a written call option for
cross-hedging purposes by segregating cash or other liquid assets in an amount
not less than the market value of the underlying security, marked-to-market
daily. A Fund would write a call option for cross-hedging purposes, instead of
writing a covered call option, when the premium to be received from the
cross-hedge transaction would exceed that which would be received from writing a
covered call option and its portfolio manager believes that writing the option
would achieve the desired hedge.
The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or bought, in the case of
a put option, since with regard to certain options, the writer may be assigned
an exercise notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains the amount of
the premium. This amount, of course, may, in the case of a covered call option,
be offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill the obligation to buy the underlying security at the
exercise price, which will usually exceed the then-current market value of the
underlying security.
The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. However, a
writer may not effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, an investor who is the holder of an option may
liquidate its position by effecting a "closing sale transaction." This is
accomplished by selling an option of the same series as the option previously
bought. There is no guarantee that either a closing purchase or a closing sale
transaction can be effected.
In the case of a written call option, effecting a closing transaction will
permit a Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both. In the case of a
written put option, such transaction will permit a Fund to write another put
option to the extent that the exercise price is secured by other liquid assets.
Effecting a closing transaction also will permit a Fund to use the cash or
proceeds from the concurrent sale of any securities subject to the option
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for other investments. If a Fund desires to sell a particular security from its
portfolio on which it has written a call option, such Fund will effect a closing
transaction prior to or concurrent with the sale of the security.
A Fund will realize a profit from a closing transaction if the price of the
purchase transaction is less than the premium received from writing the option
or the price received from a sale transaction is more than the premium paid to
buy the option. A Fund will realize a loss from a closing transaction if the
price of the purchase transaction is more than the premium received from writing
the option or the price received from a sale transaction is a less than the
premium paid to buy the option. Because increases in the market of a call option
generally will reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by a Fund.
An option position may be closed out only where a secondary market for an
option of the same series exists. If a secondary market does not exist, the Fund
may not be able to effect closing transactions in particular options and the
Fund would have to exercise the options in order to realize any profit. If a
Fund is unable to effect a closing purchase transaction in a secondary market,
it will not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise. The absence of a liquid
secondary market may be due to the following: (i) insufficient trading interest
in certain options, (ii) restrictions imposed by a national securities exchange
("Exchange") on which the option is traded on opening or closing transactions or
both, (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances that interrupt normal operations on an
Exchange, (v) the facilities of an Exchange or of the Options Clearing
Corporation ("OCC") may not at all times be adequate to handle current trading
volume, or (vi) one or more Exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would continue to be exercisable in
accordance with their terms.
A Fund may write options in connection with buy-and-write transactions. In
other words, a Fund may buy a security and then write a call option against that
security. The exercise price of such call will depend upon the expected price
movement of the underlying security. The exercise price of a call option may be
below ("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money")
the current value of the underlying security at the time the option is written.
Buy-and-write transactions using in-the-money call options may be used when it
is expected that the price of the underlying security will remain flat or
decline moderately during the option period. Buy-and-write transactions using
at-the-money call options may be used when it is expected that the price of the
underlying security will remain fixed or advance moderately during the option
period. Buy-and-write transactions using out-of-the-money call options may be
used when it is expected that the premiums received from writing the call option
plus the appreciation in the market price of the underlying security up to the
exercise price will be greater than the appreciation in the price of the
underlying security alone. If the call options are exercised in such
transactions, a Fund's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the difference between that
Fund's purchase price of the security and the exercise price. If the options are
not exercised and the price of the underlying security declines, the amount of
such decline will be offset by the amount of premium received.
The writing of covered put options is similar in terms of risk and return
characteristics to buy-and-write transactions. If the market price of the
underlying security rises or otherwise is above the exercise price, the put
option will expire worthless and a Fund's gain will be limited to the premium
received. If the market price of the underlying security declines or otherwise
is below the exercise price, a Fund may elect to close the position or take
delivery of the security at the exercise price and that Fund's return will be
the
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premium received from the put options minus the amount by which the market price
of the security is below the exercise price.
A Fund may buy put options to hedge against a decline in the value of its
portfolio. By using put options in this way, a Fund will reduce any profit it
might otherwise have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.
A Fund may buy call options to hedge against an increase in the price of
securities that it may buy in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any, realized by such
Fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to that Fund.
EURODOLLAR INSTRUMENTS. A Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Fund might use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
SWAPS AND SWAP-RELATED PRODUCTS. A Fund may enter into interest rate swaps,
caps and floors on either an asset-based or liability-based basis, depending
upon whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis (i.e., the two payment streams are
netted out, with a Fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of a Fund's
obligations over its entitlement with respect to each interest rate swap will be
calculated on a daily basis and an amount of cash or other liquid assets having
an aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Funds' custodian. If a Fund enters
into an interest rate swap on other than a net basis, it would maintain a
segregated account in the full amount accrued on a daily basis of its
obligations with respect to the swap. A Fund will not enter into any interest
rate swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is rated in one of the three
highest rating categories of at least one NRSRO at the time of entering into
such transaction. Marsico Capital will monitor the creditworthiness of all
counterparties on an ongoing basis. If there is a default by the other party to
such a transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and as agents
utilizing standardizing swap documentation. Marsico Capital has determined that,
as a result, the swap market has become relatively liquid. Caps and floors are
more recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent a
Fund sells (i.e., writes) caps and floors, it will segregate cash or other
liquid assets having an aggregate net asset value at least equal to the full
amount accrued on a daily basis, of its obligations with respect to any caps or
floors.
There is no limit on the amount of interest rate swap transactions that may
be entered into by a Fund. These transactions may in some instances involve the
delivery of securities or other underlying assets by a Fund or its counterparty
to collateralize obligations under the swap. Under the documentation currently
used in those markets, the risk of loss with respect to interest rate swaps is
limited to the net amount of the payments that a Fund is contractually obligated
to make. If the other party to an interest rate swap that is not collateralized
defaults, a Fund would risk the loss of the net amount of the payments that it
contractually is entitled to receive. A Fund may buy and sell (i.e., write) caps
and floors without limitation, subject to the segregation requirement described
above.
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ADDITIONAL RISKS OF OPTIONS ON FOREIGN CURRENCIES, FORWARD CONTRACTS AND
FOREIGN INSTRUMENTS. Unlike transactions entered into by the Funds in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain Exchanges, such as the Philadelphia
Stock Exchange and the Chicago Board Options Exchange, subject to SEC
regulation. Similarly, options on currencies may be traded over-the-counter. In
an over-the-counter trading environment, many of the protections afforded to
Exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the buyer of an option
cannot lose more than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, an option writer and buyer or seller
of futures or forward contracts could lose amounts substantially in excess of
any premium received or initial margin or collateral posted due to the potential
additional margin and collateral requirements associated with such positions.
Options on foreign currencies traded on Exchanges are within the
jurisdiction of the SEC, as are other securities traded on Exchanges. As a
result, many of the protections provided to traders on organized Exchanges will
be available with respect to such transactions. In particular, all foreign
currency option positions entered into on an Exchange are cleared and guaranteed
by the OCC, thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on an Exchange may be more readily available
than in the over-the-counter market, potentially permitting a Fund to liquidate
open positions at a profit prior to exercise or expiration, or to limit losses
in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
is subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, options on U.S. government securities, futures contracts,
options on futures contracts, forward contracts and options on foreign
currencies may be traded on foreign exchanges and over-the-counter in foreign
countries. Such transactions are subject to the risk of governmental actions
affecting trading in or the prices of foreign currencies or securities. The
value of such positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) low trading volume.
GENERAL CHARACTERISTICS OF FOREIGN SECURITIES.
Foreign securities involve certain inherent risks that are different from
those of domestic issuers, including political or economic instability of the
issuer or the country of issue, diplomatic developments which could affect U.S.
investments in those countries, changes in foreign currency and exchange rates
and the possibility of adverse changes in investment or exchange control
regulations. As a result of these and
15
<PAGE>
other factors, foreign securities purchased by the Funds may be subject to
greater price fluctuation than securities of U.S. companies.
Most foreign stock markets are not as large or liquid as in the United
States, fixed commissions on foreign stock exchanges are generally higher than
the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign stock exchanges, brokers and
companies than in the United States. Investors should recognize that foreign
markets have different clearance and settlement procedures and in certain
markets there have been times when settlements have been unable to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when assets
of the Funds are uninvested and no return is earned thereon. The inability of
the Funds to make intended security purchases due to settlement problems could
cause the Funds to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems either could result
in losses to the Funds due to subsequent declines in value of the portfolio
security or, if the Funds have entered into a contract to sell the security,
could result in a possible liability to the purchaser. Payment for securities
without delivery may be required in certain foreign markets. Further, the Fund
may encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. Foreign governments can also levy confiscatory
taxes, expropriate assets, and limit repatriations of assets. Typically, there
is less publicly available information about a foreign company than about a U.S.
company, and foreign companies may be subject to less stringent reserve,
auditing and reporting requirements. It may be more difficult for the Funds'
agents to keep currently informed about corporate actions such as stock
dividends or other matters which may affect the prices of portfolio securities.
Communications between the United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Because investments in foreign securities will usually involve currencies of
foreign countries, and because the Funds may hold foreign currencies, the value
of the assets of the Funds as measured in U.S. dollars may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange
control regulations, and the Funds may incur costs in connection with
conversions between various currencies. Although the Funds value their assets
daily in terms of U.S. dollars, they do not intend to convert their holdings of
foreign currencies into U.S. dollars on a daily basis. The Funds will do so from
time to time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Funds at one rate, while offering a lesser
rate of exchange should the Funds desire to resell that currency to the dealer.
The Funds will conduct their foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward foreign currency exchange
contracts or purchasing or writing put or call options on foreign currencies.
16
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and Officers of the Funds and their principal occupations
during the past five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE POSITIONS HELD WITH THE FUND THE PAST FIVE YEARS
- ------------------------------- ---------------------------------- ---------------------------------------------
<S> <C> <C>
Thomas F. Marsico (1) Trustee, President, Chief Chairman and Chief Executive Officer, Marsico
1200 17th Street Executive Officer, and Chief Capital Management, LLC (September 1997 -
Suite 1300 Investment Officer present); Executive Vice President, Janus
Denver, CO 80202 Investment Fund (1990 - 1997).
DOB: 1955
Barbara M. Japha (1) Trustee, Vice President, and President and General Counsel, Marsico
1200 17th Street Secretary Capital Management, LLC (September 1997 -
Suite 1300 present); Vice President - Law, U S WEST,
Denver, CO 80202; Inc. (September 1989 - September 1997)
DOB: 1953
Theodore S. Halaby Trustee Partner, Halaby, Cross, Lichty & Schluster
1873 South Ballaire (law firm) (January 1996 - present);
Suite 1400 partner, Halaby, Cross, Lichty, Schluster &
Denver, CO 80222 Buck (law firm) (October 1994 - December
DOB: 1940 1995); Partner, Halaby, McCrea & Cross (law
firm) (more than five years).
Walter A. Koelbel, Jr. Trustee President, and other positions, Koelbel and
5291 Yale Circle Company (Real Estate Development Company)
Denver, CO 80222 (December 1976 - Present);
DOB: 1952
Larry A. Mizel Trustee President, M.D.C. Holdings, Inc.
Suite 900 (Homebuilding and Mortgage Banking) (March
3600 South Yosemite Street 1996-Present); Chairman and Chief Executive
Denver, CO 80237 Officer, M.D.C. Holdings, Inc. (More than
DOB: 1942 five years); President, C Ventures, Inc.
</TABLE>
- ------------------------
(1) Trustees who are "interested persons" of the Funds, as defined in the
Investment Company Act of 1940, as amended, (the "1940 Act"). The Trustees
of the Funds who are officers or employees of the investment adviser receive
no remuneration from the Funds. Each of the other Trustees is paid an annual
retainer of $12,000 and a fee of $1,000 for each meeting attended and is
reimbursed for the expenses of attending meetings.
17
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS AND AGE POSITIONS HELD WITH THE FUND THE PAST FIVE YEARS
- ------------------------------- ---------------------------------- ---------------------------------------------
<S> <C> <C>
J. Jeffrey Riggs Trustee President, Essex Financial Group, Inc.
8400 East Prentice Avenue (Commercial Mortgage Bank) (More than five
Suite 1310 years); Principal, Metropolitan Homes, Inc.
Englewood, CO 80111 (January 1992 - Present); Principal, Baron
DOB: 1953 Properties, LLC (January 1997 - Present).
Christopher J. Marsico Vice President, Treasurer, and Vice President and Chief Operating Officer,
1200 17th Street Chief Financial Officer Marsico Capital Management, LLC (September
Suite 1300 1997 - present); Vice President, Corporate
Denver, CO 80202 Development, U S WEST, Inc. (February 1997
DOB: 1961 - September 1997); Vice President, U S WEST
Capital Corporation (January 1996 - January
1997); Vice President, U S WEST Financial
Services, Inc. (March 1986 - December
1996).
Christie L. Austin Assistant Treasurer Vice President and Chief Financial Officer,
1200 17th Street Marsico Capital Management, LLC (October
Suite 1300 1997 - Present); President and Chief
Denver, CO 80202 Financial Officer, Englewood Mortgage
DOB: 1956 Corporation (October 1986 - September
1997).
Steffanie Rufenacht Assistant Secretary Various positions with Janus Capital
1200 17th Street Corporation (February 1993 - October 1997).
Suite 1300
Denver, CO 80202
DOB: 1964
Sander M. Bieber Assistant Secretary Partner, Dechert Price & Rhoads (law firm)
1500 K Street, N.W. (more than five years).
Washington, D.C. 20005
DOB: 1950
</TABLE>
18
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser of the Funds is Marsico Capital Management, LLC. Under the terms
of the Advisory Agreement, Marsico Capital furnishes overall investment
management for the Funds, provides research and credit analysis, oversees the
purchase and sales of portfolio securities, maintains books and records with
respect to the Funds' securities transactions and provides periodic and special
reports to the Board of Trustees as required.
For the advisory services provided and expenses assumed by it, the Adviser
has agreed to a fee from each Fund, computed daily and payable monthly, at an
annual rate of 0.85% of average daily net assets.
The Trust's Advisory Agreement, with respect to each Fund, will continue in
effect for a period of two years from its effective date. If not sooner
terminated, the Advisory Agreement will continue in effect for successive one
year periods thereafter, provided that each continuance is specifically approved
annually by (a) the vote of a majority of the Board of Trustees who are not
parties to the Advisory Agreement or interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on approval,
and (b) either (i) with respect to a Fund, the vote of a majority of the
outstanding voting securities of that Fund, or (ii) the vote of a majority of
the Board of Trustees. The Advisory Agreement is terminable by vote of the Board
of Trustees, or with respect to a Fund, by the holders of a majority of the
outstanding voting securities of that Fund, at any time without penalty, on 60
days' written notice to the Adviser. The Adviser may also terminate its advisory
relationship with a Fund without penalty on 90 days' written notice to the
Trust. The Advisory Agreement terminates automatically in the event of its
assignment (as defined in the 1940 Act).
DISTRIBUTION PLAN
The Funds have adopted a Distribution and Service Plan (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Funds in
connection with the distribution of their shares at an annual rate, as
determined from time-to-time by the Board of Trustees, or up to 0.25% of the
Funds' average daily net assets. Payments may be made by the Funds under the
Plan for the purpose of financing any activity primarily intended to result in
the sales of shares of the Funds as determined by the Board of Trustees. Such
activities typically include advertising; compensation for sales and sales
marketing activities of Financial Service Agents and others, such as dealers or
distributors; shareholder account servicing; production and dissemination of
prospectuses and sales and marketing materials; and capital or other expenses of
associated equipment, rent, salaries, bonuses, interest and other overhead. To
the extent any activity is one which the Funds may finance without a Plan, the
Funds may also make payments to finance such activity outside of the Plan and
not subject to its limitations. Payments under the Plan are not tied exclusively
to actual distribution and service expenses, and the payments may exceed
distribution and service expenses actually incurred.
Administration of the Plan is regulated by Rule 12b-1 under the 1940 Act,
which includes requirements that the Board of Trustees receive and review at
least quarterly reports concerning the nature and qualification of expenses
which are made, that the Board of Trustees approve all agreements implementing
the Plan and that the Plan may be continued from year-to-year only if the Board
of Trustees concludes at least annually that continuation of the Plan is likely
to benefit shareholders.
PORTFOLIO TURNOVER
While it is difficult to predict, the investment adviser expects that the
annual portfolio turnover rates of each Fund will not exceed 100%. Higher
portfolio turnover rates (considered to be annual turnover rates of 100% or more
of a Fund's portfolio) involve greater transaction costs to the Funds and may
result in the realization of net capital gains which would be taxable to
shareholders when distributed.
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<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Trustees, decisions to buy and sell
securities for the Funds and negotiation of their brokerage commission rates are
made by the Adviser. Transactions on United States stock exchanges involve the
payment by the Funds of negotiated brokerage commissions. There is generally no
stated commission in the case of securities traded in the over-the-counter
market but the price paid by the Funds usually includes an undisclosed dealer
commission or mark-up. In certain instances, the Funds may make purchases of
underwritten issues at prices which include underwriting fees.
In selecting a broker to execute each particular transaction, the Adviser
takes the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker; the size and
difficulty in executing the order; and the value of the expected contribution of
the broker to the investment performance of the Funds on a continuing basis.
Accordingly, the cost of the brokerage commissions to the Funds in any
transaction may be greater than that available from other brokers if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. For example, the Adviser will consider the research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of the Funds or the Adviser's other clients. Such
research and investment services include statistical and economic data and
research reports on particular companies and industries as well as research
software. Subject to such policies and procedures as the Trustees may determine,
the Adviser shall not be deemed to have acted unlawfully or to have breached any
duty solely by reason of its having caused the Funds to pay a broker that
provides research services to the investment adviser an amount of commission for
effecting a portfolio investment transaction in excess of the amount another
broker would have charged for effecting that transaction, if the investment
adviser determines in good faith that such amount of commission was reasonable
in relation to the value of the research service provided by such broker viewed
in terms of either that particular transaction or the investment adviser's
ongoing responsibilities with respect to the Funds.
Research and investment information is provided by these and other brokers
at no cost to the Adviser and is available for the benefit of other accounts
advised by the investment adviser and its affiliates, and not all of the
information will be used in connection with the Funds. While this information
may be useful in varying degrees and may tend to reduce the Adviser's expenses,
it is not possible to estimate its value and in the opinion of the Adviser it
does not reduce the Adviser's expenses in a determinable amount. The extent to
which the Adviser makes use of statistical, research and other services
furnished by brokers is considered by the investment adviser in the allocation
of brokerage business but there is no formula by which such business is
allocated. The Adviser does so in accordance with its judgment of the best
interests of the Funds and their shareholders.
PERFORMANCE INFORMATION
From time to time, quotations of the Funds' performances may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated in the following manner.
AVERAGE ANNUAL TOTAL RETURN
Average annual total return is the average annual compounded rate of return
for periods of one year, five years and ten years, all ended on the last day of
a recent calendar quarter. Average annual total return quotations reflect
changes in the price of a Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by computing the average
annual compounded rates of return of a hypothetical investment over such
periods, according to the following formula (average annual total return is then
expressed as a percentage):
1/n
20
<PAGE>
T = (ERV/P) - 1
<TABLE>
<S> <C> <C>
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
</TABLE>
It should be noted that average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund will vary based on changes in market conditions and
the level of the Fund's expenses.
In connection with communicating its average annual total return to current
or prospective shareholders, the Funds also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
COMPARISON OF PORTFOLIO PERFORMANCE
Comparison of the quoted non-standardized performance of various investments
is valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.
In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Examples include, but are not limited to the Dow Jones Industrial Average, the
Consumer Price Index, Standard & Poor's 500 Composite Stock Price Index (S&P
500), the NASDAQ OTC Composite Index, the NASDAQ Industrials Index, and the
Russell 2000 Index.
From time to time, in advertising, marketing and other Fund literature, the
performance of a Fund may be compared to the performance of broad groups of
mutual funds with similar investment goals, as tracked by independent
organizations such as Investment Company Data, Inc., Lipper Analytical Services,
Inc., CDA Investment Technologies, Inc., Morningstar, Inc., Value Line Mutual
Fund Survey and other independent organizations. When these organizations'
tracking results are used, a Fund will be compared to the appropriate fund
category, that is, by fund objective and portfolio holdings or the appropriate
volatility grouping, where volatility is a measure of a Fund's risk. From time
to time, the average price-earnings ratio and other attributes of a Fund's or
the model portfolio's securities, may be compared to the average price-earnings
ratio and other attributes of the securities that comprise the S&P 500.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in a Fund. The
description may include a "risk/return spectrum" which compares a Fund to broad
categories of funds, such as money market, bond or equity funds, in terms of
potential risks and returns. Money market funds are designed to maintain a
constant $1.00 share price and have a fluctuating yield. Share price, yield and
total return of a bond fund will fluctuate. The share price
21
<PAGE>
and return of an equity fund also will fluctuate. The description may also
compare a Fund to bank products, such as certificates of deposit. Unlike mutual
funds, certificates of deposit are insured up to $100,000 by the U.S. government
and offer a fixed rate of return.
Risk/return spectrums also may depict funds that invest in both domestic and
foreign securities or a combination of bond and equity securities.
TAX STATUS
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, each Fund generally must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of its assets is represented by
cash, U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities and the
securities of other regulated investment companies).
As a regulated investment company, a Fund generally will not be subject to
U.S. federal income tax on income and gains that it distributes to shareholders,
if at least 90% of each Fund's investment company taxable income (which
includes, among other items, dividends, interest and the excess of any net
short-term capital gains over net long-term capital losses) for the taxable year
is distributed. Each Fund intends to distribute substantially all of such
income.
Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, each Fund intends to make distributions in accordance with the
calendar year distribution requirement.
A distribution will be treated as paid on December 31 of the current
calendar year if it is declared by a Fund in October, November or December of
that year with a record date in such a month and paid by that Fund during
January of the following year. Such distributions will be taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
22
<PAGE>
ORIGINAL ISSUE DISCOUNT
Certain debt securities acquired by the Funds may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by a Fund, original issue discount that accrues on a debt
security in a given year generally is treated for federal income tax purposes as
interest and, therefore, such income would be subject to the distribution
requirements applicable to regulated investment companies.
Some debt securities may be purchased by the Funds at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS; STRADDLES
A Fund's transactions in foreign currencies, forward contracts, options and
futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund, defer Fund losses, and affect the
determination of whether capital gains and losses are characterized as long-term
or short-term capital gains or losses. These rules could therefore, in turn,
affect the character, amount, and timing of distributions to shareholders. These
provisions also may require the Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if they were closed out), which
may cause the Fund to recognize income without receiving cash with which to make
distributions in amounts necessary to satisfy its distribution requirements for
relief from income and excise taxes. Each Fund will monitor its transactions and
may make such tax elections as Fund management deems appropriate with respect to
foreign currency, options, futures contracts, forward contracts, or hedged
investments. The Funds' status as regulated investment companies may limit their
transactions involving foreign currency, futures, options, and forward
contracts.
Certain transactions undertaken by a Fund may result in "straddles" for
federal income tax purposes. The straddle rules may affect the character of
gains (or losses) realized by a Fund, and losses realized by the Fund on
positions that are part of a straddle may be deferred under the straddle rules,
rather than being taken into account in calculating the taxable income for the
taxable year in which the losses are realized. In addition, certain carrying
charges (including interest expense) associated with positions in a straddle may
be required to be capitalized rather than deducted currently. Certain elections
that a Fund may make with respect to its straddle positions may also affect the
amount, character and timing of the recognition of gains or losses from the
affected positions.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES
Each Fund will maintain accounts and calculate income by reference to the
U.S. dollar for U.S. federal income tax purposes. Some of a Fund's investments
will be maintained and income therefrom calculated by reference to certain
foreign currencies, and such calculations will not necessarily correspond to the
Fund's distributable income and capital gains for U.S. federal income tax
purposes as a result of fluctuations in currency exchange rates. Furthermore,
exchange control regulations may restrict the ability of a Fund to repatriate
investment income or the proceeds of sales of securities. These restrictions and
limitations may limit a Fund's ability to make sufficient distributions to
satisfy the 90% distribution
23
<PAGE>
requirement for qualification as a regulated investment company. Even if a fund
so qualified, these restrictions could inhibit its ability to distribute all of
its income in order to be fully relieved of tax liability.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues income or other receivables (including
dividends) or accrues expenses or other liabilities denominated in a foreign
currency and the time a Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
date of the acquisition of the security or other instrument and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains or losses, increase or
decrease the amount of the Funds' investment company taxable income available to
be distributed to its shareholders as ordinary income. If section 988 losses
exceed other investment company taxable income during a taxable year, a Fund
would not be able to make any ordinary dividend distributions, or distributions
made before the losses were realized would be recharacterized as a return of
capital to shareholders, or, in some cases, as capital gain, rather than as an
ordinary dividend.
PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions were received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they were
realized and reported as ordinary income. Any mark-to-market losses and any loss
from an actual disposition of Fund shares would be deductible as ordinary losses
to the extent of any net mark-to-market gains included in income in prior years.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gains, may be increased or decreased substantially
as compared to a fund that did not invest in PFIC shares.
24
<PAGE>
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by a Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by a Fund, may qualify
for the dividends received deduction. However, the revised alternative minimum
tax applicable to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated by a Fund
as capital gain dividends, are taxable to shareholders at the applicable
mid-term or long-term capital gains rate, whether paid in cash or in shares,
regardless of how long the shareholder has held a Fund's shares, and they are
not eligible for the dividends received deduction. Shareholders will be notified
annually as to the U.S. federal tax status of distributions, and shareholders
receiving distributions in the form of newly issued shares will receive a report
as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by a Fund, such distribution generally will be taxable
even though it represents a return of invested capital. Investors should be
careful to consider the tax implications of buying shares of a Fund just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of shares of a Fund, a shareholder will
realize a taxable gain or loss depending upon the amount realized and the
shareholder's basis in the shares. A gain or loss will be treated as capital
gain or loss if the shares are capital assets in the shareholder's hands and
generally will be long-term or short-term, depending upon the shareholder's
holding period for the shares. Any loss realized on a redemption, sale or
exchange will be disallowed to the extent the shares disposed of are replaced
(including through reinvestment of dividends) within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the disposition of a
Fund's shares held by the shareholder for six months or less will be treated for
tax purposes as a long-term capital loss to the extent of any distributions of
capital gain dividends received or treated as having been received by the
shareholder with respect to such shares.
BACKUP WITHHOLDING
The Funds will be required to report to the Internal Revenue Service (the
"IRS") all distributions and gross proceeds from the redemption of the Funds'
shares, except in the case of certain exempt shareholders. All distributions and
proceeds from the redemption of a Fund's shares will be subject to withholding
of federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Funds with
and to certify the shareholder's correct taxpayer identification number or
social security number, (2) the IRS notifies the shareholder or the Funds that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he or she is not subject to
backup withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
OTHER TAXATION
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ
25
<PAGE>
significantly from those summarized above. This discussion does not address all
of the tax consequences applicable to the Funds or shareholders, and
shareholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund.
NET ASSET VALUE
A Fund's net asset value per share will be calculated separately from the
per share net asset value of the other fund of the Trust. "Assets belonging to"
a fund consist of the consideration received upon the issuance of shares of the
particular fund together with all net investment income, earnings, profits,
realized gains/losses and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Trust not belonging to a particular series. Each fund will be
charged with the direct liabilities of that fund and with a share of the general
liabilities of the Trust's funds. Subject to the provisions of the Charter,
determinations by the Trustees as to the direct and allocable expenses, and the
allocable portion of any general assets, with respect to a particular fund are
conclusive.
CAPITAL STRUCTURE
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Delaware Business Trust on October 1, 1997. The Trust's Trust Instrument
authorizes the Board of Trustees to issue an unlimited number of shares of
beneficial interest. Each share of the Funds has equal voting, dividend,
distribution and liquidation rights.
Shares of the Trust have no preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. When issued for
payment as described in the Prospectus, the Trust's shares will be fully paid
and non-assessable.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the aggregate and
not by class or series except as otherwise required by the 1940 Act or
applicable Delaware law.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of each fund
affected by the matter. A fund is affected by a matter unless it is clear that
the interests of each Fund in the matter are substantially identical or that the
matter does not affect any interest of the Fund. Under Rule 18f-2 the approval
of an investment advisory agreement or 12b-1 distribution plan or any change in
a fundamental investment policy would be effectively acted upon with respect to
a fund only if approved by a majority of the outstanding shares of such Fund.
However, the rule also provides that the ratification of independent
accountants, the approval of principal underwriting contracts and the election
of directors may be effectively acted upon by shareholders of the Trust voting
without regard to particular funds.
Notwithstanding any provision of Delaware law requiring for any purpose the
concurrence of a proportion greater than a majority of all votes entitled to be
cast at a meeting at which a quorum is present, the affirmative vote of the
holders of a majority of the total number of shares of the Trust outstanding (or
of a class or series of the Trust, as applicable) will be effective, except to
the extent otherwise required by the 1940 Act and rules thereunder. In addition,
the Trust Instrument provides that, to the extent consistent with Delaware law
and other applicable law, the By-Laws may provide for authorization to be given
by the affirmative vote of the holders of less than a majority of the total
number of shares of the Trust outstanding (or of a class or series).
26
<PAGE>
If requested to do so by the holders of at least 10% of the Trust's
outstanding shares, the Trust will call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee, and to assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act.
HOW TO REDEEM SHARES
The right of redemption may be suspended, or the date of payment postponed
beyond the normal seven-day period by the Funds, under the following conditions
authorized by the 1940 Act: (1) for any period (a) during which the New York
Stock Exchange is closed, other than customary weekend or holiday closings, or
(b) during which trading on the New York Stock Exchange is restricted; (2) for
any period during which an emergency exists as a result of which (a) disposal by
the Fund of securities owned by it is not reasonably practical, or (b) it is not
reasonably practical for a Fund to determine the fair value of its net assets;
and (3) for such other periods as the Securities and Exchange Commission may by
order permit for the protection of the Fund's shareholders.
The value of shares of a Fund on redemption may be more or less than the
shareholder's cost, depending upon the market value of that Fund's assets at the
time. Shareholders should note that if a loss has been realized on the sale of
shares of a Fund, the loss may be disallowed for tax purposes if shares of the
same Fund are purchased within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future which would, in the
opinion of the Board of Trustees, make it undesirable for the Funds to pay for
redemptions in cash. In such cases the Board may authorize payment to be made in
portfolio securities of the Funds. However, the Funds are obligated under the
1940 Act to redeem for cash all shares presented for redemption by any one
shareholder up to $250,000 (or 1% of a Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are valued at the
same value assigned to them in computing the net asset value per share.
Shareholders receiving such securities generally will incur brokerage costs on
their sales.
HOW TO EXCHANGE
As explained in the Prospectus, the Trust offers an exchange program whereby
shares of any Marsico Fund may be exchanged for shares of another Marsico Fund
that is available for investment at any time. In addition, shareholders may
exchange all or a portion of their investment from each Fund to the Northern
Money Market Fund, as provided in the Prospectus. Sunstone Investor Services,
LLC, the Funds' transfer agent, receives a service fee from the Northern Money
Market Fund at the annual rate of 0.25 of 1% of the average daily net asset
value of the shares of the Funds exchanged into the Northern Money Market Fund.
Sunstone Investor Services, LLC is an affiliate of the Funds' administrator and
distributor.
FINANCIAL STATEMENTS
The Statement of Assets and Liabilities of the Funds as of December 8, 1997,
set forth below, has been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Trustees
of The Marsico Investment Fund
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Marsico
Focus Fund and Marsico Growth & Income Fund (constituting The Marsico Investment
Fund, hereafter referred to as the "Fund") at December 8, 1997, in conformity
with generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, CO
December 8, 1997
28
<PAGE>
THE MARISCO INVESTMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 8, 1997
ASSETS
<TABLE>
<CAPTION>
MARSICO MARSICO GROWTH &
FOCUS FUND INCOME FUND
----------- -----------------
<S> <C> <C>
Cash.............................................................................. $ 50,000 $ 50,000
Prepaid initial registration expenses............................................. 22,643 22,643
Deferred organizational costs..................................................... 69,500 69,500
----------- --------
TOTAL ASSETS.................................................................. 142,143 142,143
----------- --------
LIABILITIES
Accrued professional fees......................................................... 59,000 59,000
Accounts Payable.................................................................. 2,500 2,500
Payable to Trustees............................................................... 8,000 8,000
Payable to Advisor................................................................ 22,643 22,643
----------- --------
TOTAL LIABILITIES............................................................. 92,143 92,143
NET ASSETS........................................................................ $ 50,000 $ 50,000
----------- --------
----------- --------
Shares of beneficial interest; unlimited authorized shares........................ $ 50,000 $ 50,000
----------- --------
Shares outstanding................................................................ 5000 5000
----------- --------
----------- --------
Net asset value, redemption price and offering price per share.................... $ 10.00 $ 10.00
----------- --------
----------- --------
</TABLE>
The accompanying notes to the Statement of Assets and Liabilities are an
integral part of this statement.
29
<PAGE>
MARISCO INVESTMENT FUND
BALANCE SHEET DETAIL
DECEMBER 8, 1997
<TABLE>
<S> <C>
DEFERRED ORGANIZATIONAL COSTS:
Legal--incurred and billed................................................... $27,997.63
Incurred and un-billed....................................................... $67,000.00
To be incurred............................................................... $20,000.00
----------
Total Legal................................................................ $114,997.63
----------
AUDIT FEES..................................................................... $ 3,000.00
Trustee's Fees--organizational meeting......................................... $ 4,000.00
Sunstone Financial--Organizational Fee......................................... $ 5,000.00
----------
TOTAL DEFERRED ORGANIZATIONAL COSTS............................................ $126,997.63
----------
----------
REGISTRATION FEES--PD BY ADVISOR...............................................
----------
Both funds................................................................. 45,285.00
----------
----------
</TABLE>
30
<PAGE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 8, 1997
NOTE 1--ORGANIZATION AND REGISTRATION
The Marsico Investment Fund (the "Trust") was established on October 1,
1997, as a Delaware Business Trust and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. The Trust currently offers two investment portfolios, the
Marsico Focus Fund and the Marsico Growth & Income Fund (collectively, the
"Funds" or individually, the "Fund"). The Trust has had no operations other than
those relating to organizational matters, including the sale of 5,000 shares of
beneficial interest to each Fund to capitalize the Funds ("Original Shares"),
which were sold to Marsico Capital Management (the "Advisor" or "Marsico
Capital") on December 4, 1997, for cash in the amount of $100,000.
Estimated organization costs of $139,000 will be amortized on a straight
line basis over 60 months. Initial registration expenses of $22,643 will be
amortized over one year. If any of the Original Shares are redeemed prior to the
end of the amortization period, the redemption proceeds will be reduced by the
pro rata share of the unamortized expenses as of the date of redemption based on
the number of Original Shares outstanding at the redemption date.
NOTE 2--INVESTMENT ADVISORY AND OTHER AGREEMENTS
Marsico Capital serves as the Trust's investment advisor. As compensation
for its services to the Trust, Marsico Capital receives an investment advisory
fee at an annual rate of 0.85% of the average daily net assets of each Fund
which is accrued daily and paid monthly.
The Trust has entered into an administration agreement with Sunstone
Financial Group, Inc. (the "Administrator"). The administrative services
agreement provides for an annual fee of 0.14% on each Fund's first $50 million
of average daily net assets and 0.10% from $50 million to $100 million of
average daily net assets, 0.04% from $100 million to $350 million and 0.01% on
average daily net assets over $350 million, and is subject to a minimum annual
fee of $62,500 per Fund.
The Trust has entered into an agreement with State Street Bank and Trust
Company ("State Street") to provide custodial services and fund accounting. The
Trust pays a fee at an annual rate of 0.04% on each Fund's first $100 million of
average daily net assets, 0.02% on the next $100 million, and 0.01% on the
balance of average daily net assets. The Fund also pays for various
out-of-pocket expenses that are estimated to be 0.02% of average daily net
assets.
The Trust has entered into an agreement with Sunstone Investor Services LLC
("Transfer Agent") to provide transfer agency services. The Trust pays an annual
base fee of $14 per shareholder account open and $3 per shareholder account
closed, with a minimum annual fee of $15,000 per fund. Transfer Agent is also
paid certain fees related to set-up costs, processing and out-of-pocket
expenses.
The Trust has entered into a distribution agreement with Sunstone
Distribution Services, LLC (the "Distributor"). Under the agreement, the
Distributor serves as each Fund's principal underwriter and acts as exclusive
agent for the Funds in selling their shares to the public. For the marketing and
distribution services provided, the Funds will pay the Distributor a fee at the
annual rate of 0.0175% of each Fund's average daily net assets subject to a
minimum annual fee of $15,000 per Fund. These fees are limited to .25% of each
Fund's average daily net assets. If the fees exceed .25% of each Fund's average
daily net assets, neither Fund will pay the difference. Any amount in excess of
.25% will be borne by the Advisor, and not charged to the Funds thereafter.
Certain officers and directors of Marsico Capital are also officers and
trustees of the Trust.
31
<PAGE>
APPENDIX
RATINGS OF INVESTMENT SECURITIES
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Fund's investment adviser believes that the
quality of debt securities in which the Fund invests should be continuously
reviewed. A rating is not a recommendation to purchase, sell or hold a security,
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the ratings services
from other sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. and Standard & Poor's Corporation.
MOODY'S INVESTORS SERVICE, INC. RATINGS
Aaa--Bonds rated Aaa are judged to be 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. Although 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 bonds.
Aa--Bonds rated Aa are judged to be 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 bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are to be
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 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.
Ba--Bonds rated Ba 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
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds 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 bonds 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 bonds are often in default or have other marked shortcomings.
A-1
<PAGE>
STANDARD & POOR'S CORPORATION RATING
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and
interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and interest
and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, 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 among such bonds and CC the highest degree of
speculation. Although such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-2
