THE MARSICO INVESTMENT FUND
STATEMENT OF ADDITIONAL INFORMATION
Dated JANUARY 18, 1999,
As Supplemented on April 22, 1999
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the prospectus for The Marsico Investment Fund dated
January 18, 1999, 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 Financial Group,
Inc., P.O. Box 3210, Milwaukee, WI 53201-3210.
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TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.............................................1
TYPES OF SECURITIES AND INVESTMENT TECHNIQUES..................................3
TRUSTEES AND OFFICERS.........................................................23
INVESTMENT ADVISORY AND OTHER SERVICES........................................27
DISTRIBUTION PLAN.............................................................28
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................29
PERFORMANCE INFORMATION.......................................................31
TAX STATUS....................................................................33
NET ASSET VALUE...............................................................37
CAPITAL STRUCTURE.............................................................38
HOW TO BUY AND SELL SHARES....................................................39
HOW TO EXCHANGE...............................................................41
FINANCIAL STATEMENTS..........................................................43
DISTRIBUTION..................................................................54
SERVICE PROVIDERS.............................................................54
APPENDIX - A: GLOSSARY OF INVESTMENT TERMS.....................................1
APPENDIX - B: RATINGS OF INVESTMENT SECURITIES.................................1
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INTRODUCTION
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INVESTMENT OBJECTIVES AND POLICIES
The Marsico Focus Fund ("Focus Fund") is a non-diversified fund that seeks
long-term growth of capital.
The Marsico Growth & Income Fund ("Growth & Income Fund") is a diversified
fund that seeks long-term capital growth with a limited emphasis on income. The
Growth & Income Fund places a stronger emphasis on the growth objective but
invests at least 25% of its total assets in securities that have income
potential.
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
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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 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.
ADDITIONAL INVESTMENT RESTRICTIONS
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.
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(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").
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 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. Marsico Capital will take reasonable steps to bring a Fund into
compliance with this policy if the level of illiquid investments exceeds 15%.
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
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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 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 disclosure 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.
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 5% 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.
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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.
PASS-THROUGH SECURITIES
The Growth & Income Fund and the Focus Fund may invest up to 25% and 5% of
their respective total assets in various types of pass-through securities, such
as mortgage-backed securities and asset-backed securities. 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.
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Freddie Mac 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. Freddie Mac 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.
Fannie Mae issues guaranteed mortgage pass-through certificates ("Fannie
Mae Certificates"). Fannie Mae Certificates resemble GNMA Certificates in that
each Fannie Mae 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 Fannie Mae 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.
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.
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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.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS. To the extent described in the Prospectus, each Fund 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.
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.
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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 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,
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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, 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
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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
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contracts generally are traded in an interbank market conducted directly between
traders (usually large commercial banks) and their customers. Unlike futures
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
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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 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
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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.
OPTIONS ON SECURITIES. In an effort to increase current income, the Growth
& Income Fund 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 Growth & Income Fund may write and buy
options on the same types of securities that the Fund 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.
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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 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
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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 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.
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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. The Growth & Income 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 the 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
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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.
ADDITIONAL DERIVATIVE INSTRUMENT RISKS
Additional risks inherent in the use of derivative instruments include:
o the risk that interest rates, securities prices and currency markets
will not move in the direction that the Portfolio Manager anticipates;
o imperfect correlation between the price of derivative instruments and
movement in the prices of the securities, interest rates or currencies
being hedged;
o the fact that skills needed to use these strategies are different from
those needed to select portfolio securities;
o inability to close out certain hedged positions to avoid adverse tax
consequences;
o 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;
o 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
o 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.
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.
DEPOSITARY RECEIPTS
The Funds may invest in sponsored and unsponsored American Depositary
Receipts ("ADRs"), which are receipts issued by an American bank or trust
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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.
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.
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 Growth & Income Fund and the Focus Fund may invest up to 25% and 5% of
their respective total assets in debt securities that are rated below investment
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grade (i.e., 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 stated limit for investments in high-yield investments by each
Fund unless the portfolio manager deems such securities to be the equivalent of
investment grade securities.
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. High-yield securities are more
vulnerable to real or perceived economic changes, political changes or adverse
developments specific to the issuer. 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.
CREDIT RISK. The value of lower quality securities generally is more
dependent on the ability of the issuer to meet interest and principal payments
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.
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 other factors, foreign securities
purchased by the Funds may be subject to greater price fluctuation than
securities of U.S. companies.
- 20 -
<PAGE>
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.
INVESTMENTS IN THE SHARES OF OTHER INVESTMENT COMPANIES
To a limited extent, each Fund may purchase securities of other investment
companies. The Adviser does not expect either Fund to invest more that 5% of its
total assets in shares issues by other investment companies and, in no instance,
- 21 -
<PAGE>
will such investments exceed the levels set forth in Section 12(d)(1)(A) of the
1940 Act. The Adviser anticipates investing in shares of other investment
companies primarily as a means to invest cash in Funds consisting of short-term
money market instruments and U.S. government securities. To the extent that the
Funds invest in other investment companies, the Funds may incur duplicate
investment advisory and other fees.
- 22 -
<PAGE>
TRUSTEES AND OFFICERS
The business and affairs of the Funds are managed under the direction of
the Board of Trustees. The Trustees and Officers of the Funds and their
principal occupations during the past five years are set forth below.
<TABLE>
<CAPTION>
POSITIONS HELD WITH THE PRINCIPAL OCCUPATIONS
NAME, ADDRESS AND AGE FUND DURING THE PAST FIVE YEARS
<S> <C> <C>
Thomas F. Marsico (1)(2) Trustee, President, Chief Executive Chairman and Chief Executive Officer,
1200 17th Street Officer, and Chief Investment Marsico Capital Management, LLC
Suite 1300 Officer (September 1997 - present); Executive
Denver, CO 80202 Vice President, Janus Investment Fund
DOB: 1955 (1990 - 1997).
J. Jeffrey Riggs (1) Trustee President, Essex Financial Group, Inc.
8400 East Prentice Avenue (Commercial Mortgage Bank) (More than
Suite 1310 five years); Principal, Metropolitan
Englewood, CO 80111 Homes, Inc. (January 1992 - Present);
DOB: 1953 Principal, Baron Properties, LLC
(January 1997 - Present).
Rono Dutta Trustee Senior Vice President - Planning, United
1200 E. Algonquin Road Airlines (November 1994 - Present); other
Elk Grove Village, IL 60007 positions with United Airlines (1985 -
DOB: 1951 1994); previously, manager for planning,
Bell & Howell, and management consultant,
Booz, Allen and Hamilton.
Theodore S. Halaby Trustee Partner, Halaby, Cross & Schluter (law
1873 South Ballaire firm) (October 1998 - present); Partner,
Suite 1400 Halaby, Cross, Lichty & Schluter (law
Denver, CO 80222 firm) (January 1996 - September 1998);
DOB: 1940 Partner, Halaby, Cross, Lichty, Schluter
& Buck (law firm)(October 1994 - December
1995); Partner, Halaby, McCrea & Cross
(law firm) more than five years).
- 23 -
<PAGE>
PRINCIPAL OCCUPATIONS
DURING THE PAST FIVE YEARS
NAME, ADDRESS AND AGE POSITIONS HELD WITH THE FUND
Walter A. Koelbel, Jr. Trustee President, and other positions, Koelbel
5291 Yale Circle and Company (Real Estate Development
Denver, CO 80222 Company) (December 1976 - present)
DOB: 1952
Larry A. Mizel Trustee President, M.D.C. Holdings, Inc.
Suite 900 (Homebuilding and Mortgage Banking)
3600 South Yosemite Street (March 1996 - present); Chairman and
Denver, CO 80237 Chief Executive Officer, M.D.C.
DOB: 1942 Holdings, Inc. (More than five years.
Federico Pena Trustee Senior Adviser, Vestar Capital Partners
1225 17th Street (August 1998 - present); Secretary,
Denver, CO 80202 U.S. Department of Energy (March 1997 -
DOB: 1947 July 1998); Secretary, U.S. Department
of Transportation (January 1993 -
February 1997)
Michael D. Rierson Trustee Vice President, University Advancement at
P. O. Box 248073 University of Miami (September 1998 -
Coral Gables FL 33124 present); Associate Dean, Kenan-Flagler
DOB: 1952 Business School at University of North
Carolina at Chapel Hill (November 1993 -
September 1998); Various positions at
Duke University, Durham, N.C.(October
1983 - November 1993).
</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.
- 24 -
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING THE PAST FIVE YEARS
NAME, ADDRESS AND AGE POSITIONS HELD WITH THE FUND
<S> <C> <C>
Christopher J. Marsico (2) Vice President, Treasurer, and Vice President and Chief Operating
1200 17th Street Chief Financial Officer Officer, Marsico Capital Management, LLC
Suite 1300 (September 1997 - Present); Vice
Denver, CO 80202 President, Corporate Development, U S
DOB: 1961 WEST, Inc.(February 1997 - September
1997); Vice President, West Capital
Corporation (January 1996 - January
1997); Vice President, US WEST Financial
Services, Inc.(March 1986 - December 1996).
Christie L. Austin Assistant Treasurer Vice President and Chief Financial
1200 17th Street Officer, Marsico Capital Management, LLC
Suite 1300 (October 1997 - Present); President and
Denver, CO 80202 Chief Financial Officer, Englewood
DOB: 1956 Mortgage Corporation (October 1986 -
September 1997).
Sander M. Bieber Assistant Secretary Partner, Dechert Price & Rhoads
1775 Eye Street, NW (law firm) (more than five years).
Washington, DC 20005
DOB: 1950
</TABLE>
(2) Thomas F. Marsico and Christopher J. Marsico are brothers.
- 25 -
<PAGE>
COMPENSATION RECEIVED FROM FUNDS
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Estimated Annual
Compensation From Accrued As Part of Benefits Upon Total Compensation
the Funds Funds' Expenses Retirement From Funds
<S> <C> <C> <C> <C>
Thomas F. Marsico $ 0 $ 0 $ 0 $ 0
Barbara M. Japha $ 0 $ 0 $ 0 $ 0
J. Jeffrey Riggs $ 15,000 $ 0 $ 0 $ 15,000
Rono Dutta $ 4,000 $ 0 $ 0 $ 4,000
Theodore S. Halaby $ 14,000 $ 0 $ 0 $ 14,000
Walter A. Koelbel, Jr. $ 16,000 $ 0 $ 0 $ 16,000
Larry A. Mizel $ 14,000 $ 0 $ 0 $ 14,000
Federico Pena $ 0 $ 0 $ 0 $ 0
Michael D. Rierson $ 0 $ 0 $ 0 $ 0
</TABLE>
* Ms. Japha resigned from the Board of Trustees effective February 1, 1999.
As of September 30, 1998, the Trustees and Executive Officers of the Trust owned
less than 1% of the outstanding shares of the Focus Fund and approximately 1.50%
of the outstanding shares of the Growth & Income Fund. As of September 30, 1998,
the Funds were not aware of any entities that owned a controlling interest
(ownership of greater than 25%) or beneficially owned 5% or more of the
outstanding shares of either Fund.
- 26 -
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT. 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. For the year ended September
30, 1998, the Adviser was paid $2,590,083 by the Focus Fund and $774,854 by the
Growth & Income Fund, of which $249,672 was waived.
The Investment Advisory Agreement, with respect to each Fund, will continue
in effect for a period of two years from its effective date, unless a period of
shorter duration is agreed to by the Trust and the Adviser. 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).
As described in the Prospectus, 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% for the Focus Fund and 1.50%
for the Growth & Income Fund. Pursuant to this agreement, each Fund has agreed
that through the period ending January 1, 2000, each Fund will reimburse the
Adviser for any fee waivers or expense reimbursements made pursuant to this
agreement, since the inception of each Fund, provided that any such waivers or
reimbursements made by a Fund will not cause the Fund's expense limitation to
exceed the amounts set forth above. Under this arrangement, the Adviser may be
reimbursed for fee waivers or expense reimbursements that occurred from the
inception of the Funds.
For purposes of the Investment Company Act of 1940, as amended,
NationsBank, N.A. ("NationsBank") is deemed to have a controlling interest in
Marsico Capital Management, LLC ("MCM"), the investment adviser to the Trust.
NationsBank acquired its controlling interest in MCM in February 1999 by
purchasing a 50% ownership interest in MCM. It is not expected that this
transaction will affect MCM's day-to-day operations, its investment process, or
its portfolio management team. NationsBank, a national banking association
having its principal place of business in Charlotte, North Carolina, is a
subsidiary of BankAmerica Corporation.
- 27 -
<PAGE>
ADMINISTRATION AGREEMENT. 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. For the year ended
September 30, 1998, the Administrator received fees under the Administration
Agreement of $168,841 from the Focus Fund and $96,299 from the Growth & Income
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 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 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
- 28 -
<PAGE>
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.
For the fiscal period ended September 30, 1998, the following 12b-1
payments were made under the Plan:
<TABLE>
<CAPTION>
Focus Fund Growth & Income Fund Total
<S> <C> <C> <C>
Advertising $ 41,090.81 $ 12,881.82 $ 53,972.63
Printing and Mailing of $ 134,098.23 $ 49,014.75 $ 183,112.98
Prospectuses to other than
current shareholders
Compensation to Underwriters $ 53,312.99 $ 18,698.63 $ 72,011.62
Compensation to Broker-Dealers $ 524,063.41 $ 143,990.61 $ 668,054.02
Other* $ 9,223.74 $ 3,312.29 $ 12,536.03
Total $ 761,789.18 $ 227,898.10 $ 989,687.28
</TABLE>
* This includes consulting fees, miscellaneous shipping, filing and travel
expenses, and storage of printed items.
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 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.
- 29 -
<PAGE>
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; the use of brokerage credits to reduce
service fees as contemplated in a board approved program, 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.
For the year ended September 30, 1998, the Focus Fund paid $1,417,890 and
the Growth & Income Fund paid $446,704, in commissions to brokers. The Funds did
not pay any commissions to brokers who were affiliated with the Fund, Marsico
Capital, or Sunstone Distribution Services, and any affiliated person of the
foregoing.
During the fiscal year ending September 30, 1998, the Funds directed
brokerage transactions to brokers because of research services provided. The
amount of such transactions and related commissions were as follows: for the
Focus Fund, $212,496 in research commissions and $275,565,061 in research
commission transactions; for the Growth & Income Fund, $55,478 in research
commissions and $73,877,374 in research commission transactions.
During the Funds' fiscal year ended September 30, 1998, the Funds acquired
securities of Merrill Lynch & Co. , one of the primary brokers used in executing
the Funds'; portfolio transactions. As of September 30, 1998, the Funds held no
securities of their regular brokers or dealers.
- 30 -
<PAGE>
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
T = ----------
(ERV/P - 1
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.
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
- 31 -
<PAGE>
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 Index.
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 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.
- 32 -
<PAGE>
Risk/return spectrums also may depict funds that invest in both domestic
and foreign securities or a combination of bond and equity securities.
The total return for the fiscal period ended September 30, 1998 for the
Focus Fund and Growth & Income Fund were 23.60% and 15.40%, respectively.
Returns for the Funds are based on net change in NAV and are unannualized.
Performance figures for each of the three quarters and nine month period for the
Growth & Income Fund, and for the quarter ended March 31 for the Focus Fund,
reflect fee waivers in effect. In the absence of fee waivers, total returns
would be reduced. The investment return and principal value of an investment in
the Funds will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
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.
- 33 -
<PAGE>
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.
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
- 34 -
<PAGE>
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.
Under certain circumstances, the Fund may recognize gain from a
constructive sale of an "appreciated financial position" it holds if it enters
into a short sale, forward contract or other transaction that substantially
reduces the risk of loss with respect to the appreciated position. In that
event, the Fund would be treated as if it had sold and immediately repurchased
the property and would be taxed on any gain (but not loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
Fund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the Fund's holding period and the application of various loss
deferral provisions of the Code. Constructive sale treatment does not apply to
transactions closed in the 90-day period ending with the 30th day after the
close of the taxable year, if certain conditions are met.
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 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.
- 35 -
<PAGE>
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.
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.
- 36 -
<PAGE>
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 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
Shares are purchased at their net asset value per share. Each Fund
calculates its net asset value (NAV) as follows:
(Value of Fund Assets)-(Fund Liabilities)
NAV Per Share: ----------------------------------------
Number of Outstanding Shares
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.
- 37 -
<PAGE>
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.
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 use 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 at 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.
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.
- 38 -
<PAGE>
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).
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 BUY AND SELL 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.
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<PAGE>
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.
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 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.
- 40 -
<PAGE>
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, 10th,
15th, and 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, 10th, 15th,
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.
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.
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<PAGE>
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
for Marsico shares of Nations Prime Fund, as described in the Prospectus.
----------
Sunstone Financial Group, Inc., the Funds' transfer agent, receives a
service fee from the nations Prime 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
Marsico shares of Nations Prime Fund. Sunstone Financial Group, Inc. is an
affiliate of the Funds' distributor.
- 42 -
<PAGE>
FINANCIAL STATEMENTS
MARSICO FOCUS FUND
September 30, 1998
<TABLE>
<CAPTION>
Schedule of Investments
Number Market Value Percent
of Shares in Dollars of Net Assets
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS
Aerospace and Defense
Gulfstream Aerospace Corporation* 1,007,570 $ 40,554,693 4.72%
Airlines
UAL Corporation* 556,265 36,052,925 4.20
Automotive - Cars & Light Trucks
Ford Motor Company 1,043,278 48,968,861 5.70
Beverages - Non-Alcoholic
Coca-Cola Enterprises Inc. 957,958 24,188,439 2.82
Brewery
Anheuser-Busch Companies, Inc. 441,665 23,849,910 2.78
Cable Television
MediaOne Group, Inc.* 1,374,630 61,085,121 7.12
Computer Software
Microsoft Corporation* 395,053 43,480,521 5.07
Computers - Information Technology
IMS Health Inc. 346,241 21,445,302 2.50
Computers - Memory Devices
EMC Corporation* 1,500,375 85,802,695 10.00
Computers - Micro
International Business Machines
Corporation 213,591 27,339,648 3.18
Cosmetics & Toiletries
L'OREAL 49,778 23,156,486 2.70
Cruise Lines
Carnival Corporation 1,123,136 35,729,764 4.16
Diversified Financial Services
Associates First Capital Corporation 652,955 42,605,314 4.96
Diversified Manufacturing Operations
General Electric Company 319,134 25,391,099 2.96
Medical - Drugs
Pfizer Inc. 289,749 30,695,285 3.58
Warner-Lambert Company 688,936 52,014,668 6.06
---------------------------
82,709,953 9.64
Multimedia
Time Warner Inc. 804,452 70,439,828 8.21
Networking Products
Cisco Systems, Inc.* 688,170 42,537,508 4.96
Retail - Apparel/Shoe
The Gap, Inc. 223,987 11,815,314 1.38
Retail - Building Products
The Home Depot, Inc. 575,329 22,725,495 2.65
Super-Regional Banks
Norwest Corporation 728,044 26,073,076 3.04
U.S. Bancorp 347,247 12,348,971 1.44
----------------------------
- 43 -
<PAGE>
38,422,047 4.48
Telecommunication Equipment
Lucent Technologies Inc. 73,502 5,076,232 0.59
----------------------------
Total Common Stocks (cost $827,524,811) 813,377,155 94.78
----------------------------
PREFERRED STOCKS
Automotive - Cars & Light Trucks
Porsche AG 5,777 10,032,217 1.17
----------------------------
Total Preferred Stocks (cost $10,084,388) 10,032,217 1.17
----------------------------
Principal/ Market Value Percent of
Shares in Dollars Net Assets
- ----------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
SSgA Money Market Fund 65,088 $ 5,088 0.00%
Federal Home Loan Bank,
4.95%, 10/1/98 $18,000,0 18,000,000 2.10
----------------------------
Total Short-Term Investments (cost $18,065,088) 18,065,088 2.10
----------------------------
Total Investments (cost $855,674,287) 841,474,460 98.05
Other Assets less Liabilities 16,782,198 1.95
---------------------------
NET ASSETS $ 858,256,658 100.00%
----------------------------
* Non-income producing.
See notes to financial statements.
</TABLE>
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<PAGE>
MARSICO GROWTH & INCOME FUND
September 30, 1998
<TABLE>
<CAPTION>
Schedule of Investments
Number Market Value Percent
of Shares in Dollars of Net Assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS
Aerospace and Defense
Gulfstream Aerospace Corporation* 191,916 7,724,619 2.93%
Airlines
Delta Air Lines, Inc. 64,823 6,304,037 2.39
UAL Corporation* 75,815 4,913,760 1.87
-------------------------
11,217,797 4.26
Applications Software
PeopleSoft, Inc.* 124,825 4,072,416 1.54
Automotive - Cars & Light Trucks
Chrysler Corporation 106,882 5,116,976 1.94
Ford Motor Company 190,070 8,921,411 3.39
General Motors Corporation 91,060 4,979,844 1.89
-------------------------
19,018,231 7.22
Beverages - Non-Alcoholic
Coca-Cola Enterprises Inc. 133,474 3,370,219 1.28
Brewery
Anheuser-Busch Companies, Inc. 129,546 6,995,484 2.65
Building - Residential/Commercial
M.D.C. Holdings, Inc. 265,188 4,889,404 1.86
Cable Television
MediaOne Group, Inc.* 237,531 10,555,284 4.01
Computer Software
Microsoft Corporation* 97,941 10,779,631 4.09
Computers - Information Technology
IMS Health Inc. 119,448 7,398,310 2.81
Computers - Memory Devices
EMC Corporation* 208,900 11,946,469 4.53
Computers - Micro
International Business Machines
Corporation 54,088 6,923,264 2.63
Cruise Lines
Carnival Corporation 204,043 6,491,118 2.46
Diversified Financial Services
Associates First Capital Corporation 80,144 5,229,396 1.98
Diversified Manufacturing Operations
General Electric Company 70,327 5,595,392 2.12
Finance - Credit Card
MBNA Corporation 121,651 3,482,260 1.32
Finance - Mortgage Loan Banker
Fannie Mae 69,618 4,472,956 1.70
Hotels & Motels
Four Seasons Hotels, Inc. 69,472 1,424,176 0.54
Medical - Drugs
Pfizer Inc. 72,429 7,672,947 2.91
Schering-Plough Corporation 83,556 8,653,268 3.28
Warner-Lambert Company 121,609 9,181,479 3.49
------------------------
- 45 -
<PAGE>
25,507,694 9.68
Multimedia
Time Warner Inc. 157,451 13,786,803 5.23
Networking Products
Cisco Systems, Inc.* 114,544 7,080,282 2.69
Oil Companies - Integrated
British Petroleum Company PLC 102,510 8,943,997 3.39
Radio
Clear Channel Communications, Inc.* 43,650 2,073,375 0.79
Rental - Auto & Equipment
The Hertz Corporation 174,418 7,216,545 2.74
Retail - Apparel/Shoe
The Gap, Inc. 89,092 4,699,603 1.78
Retail - Building Products
The Home Depot, Inc. 173,946 6,870,867 2.61
Super-Regional Banks
Northern Trust Corporation 113,714 7,760,980 2.95
Norwest Corporation 184,261 6,598,847 2.50
U.S. Bancorp 139,502 4,961,040 1.88
----------------------------
19,320,867 7.33
Telecommunication Equipment
Lucent Technologies Inc. 109,037 7,530,368 2.86
Transportation - Rail
Kansas City Southern Industries, Inc. 182,380 6,383,300 2.42
----------------------------
Total Common Stocks (cost $244,161,306) 241,000,127 91.45
----------------------------
Number Market Value Percent
of Shares in Dollars of Net Assets
- --------------------------------------------------------------------------------
CORPORATE BONDS
Building - Residential/Commercial
M.D.C. Holdings, Inc., 8.375%, 2/1/08 2,700,000 2,598,750 0.98
Resorts/Theme Parks
Premier Parks, Inc., 12.000%, 8/15/03 2,400,000 2,604,000 0.99
--------------------------
Total Corporate Bonds (cost $5,239,693) 5,202,750 1.97
---------------------------
U.S. GOVERNMENT OBLIGATIONS
U.S. Treasury Bonds, 5.50%, 8/15/28 10,899,000 11,756,228 4.46
---------------------------
II. Total U.S. Government Obligations
(cost $11,756,238) 11,756,228 4.46
---------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal/ Market Value Percent of
A. Shares in Dollars Net Assets
<S> <C> <C> <C>
SSgA Money Market Fund 23,005 $ 23,005 0.01%
Federal Home Loan Bank,
4.95%, 10/1/98 $36,700,000 36,700,000 13.93
-----------------------
Total Short-Term Investments
(cost $36,723,005) 36,723,005 13.94
-----------------------
III. Total Investments (cost $297,880,242) 294,682,110 111.82
- 46 -
<PAGE>
Liabilities less Other Assets (31,162,903) (11.82)
-------------------------
NET ASSETS $263,519,207 100.00%
-------------------------
* Non-income producing.
See notes to financial statements.
</TABLE>
- 47 -
<PAGE>
THE MARSICO INVESTMENT FUND
September 30, 1998
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
Growth & Income
Focus Fund Fund
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (cost $855,674,287 and
$297,880,242, respectively) $ 841,474,460 $ 294,682,110
Interest and dividends receivable 201,897 206,898
Receivable for investments sold 24,748,502 20,555,721
Receivable for capital stock sold 3,237,230 2,341,762
Organizational expenses, net of
accumulated amortization 117,008 117,008
Prepaid expenses and other assets 121,517 41,026
------------------------------------------
Total Assets 869,900,614 317,944,525
------------------------------------------
LIABILITIES
Payable for investments purchased 5,735,060 53,218,545
Payable for capital stock redeemed 4,600,812 795,585
Accrued investment advisory fee 578,888 138,423
Accrued distribution fee 200,107 59,828
Accrued expenses and other liabilities 529,089 212,937
Total Liabilities 11,643,956 54,425,318
-----------------------------------------
Net Assets $ 858,256,658 $ 263,519,207
-----------------------------------------
NET ASSETS CONSIST OF
Paid-in-capital $ 912,084,861 $ 281,804,013
Accumulated net realized loss on investments (40,064,112) (15,144,125)
Accumulated net realized gain on foreign
currency transactions 433,914 57,257
Net unrealized depreciation on investments and
foreign currency translations (14,198,005) (3,197,938)
------------------------------------------
Net Assets $ 858,256,658 $ 263,519,207
-----------------------------------------
Shares Outstanding, $0.001 par value
(Unlimited shares authorized) 69,444,196 22,832,879
Net Asset Value, Redemption Price, and
Offering Price Per Share (Net Assets/
Shares Outstanding) $ 12.36 $ 11.54
</TABLE>
- 48 -
<PAGE>
THE MARSICO INVESTMENT FUND
Period Ended September 30, 1998*
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
Growth & Income
Focus Fund Fund
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest $ 1,585,603 $ 650,283
Dividends (net of $25,835 and $9,949 of
non-reclaimable foreign withholding taxes) 2,338,610 598,844
-----------------------------------------
Total Investment Income 3,924,213 1,249,127
EXPENSES
Investment advisory fees 2,590,083 774,854
Distribution fees 761,789 227,898
Transfer agent fees and expenses 565,809 194,772
Federal and state registration fees 333,695 114,038
Printing and postage expenses 110,314 35,320
Fund administration fees 168,841 96,299
Custody and fund accounting fees 95,468 52,745
Professional fees 53,346 53,346
Trustees' fees and expenses 46,593 46,593
Amortization of organizational costs 20,581 20,581
Miscellaneous 9,831 6,057
-----------------------------------------
Total expenses 4,756,350 1,622,503
Less waiver of fees - (249,672)
Less expenses paid indirectly (18,219) (5,442)
Net Expenses 4,738,131 1,367,389
-----------------------------------------
Net Investment Loss (813,918) (118,262)
-----------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments (40,087,882) (15,147,236)
Net realized gain on foreign currency transactions 433,914 57,257
Change in unrealized depreciation on investments
and foreign currency translations (14,198,005) (3,197,938)
-----------------------------------------
Net Loss on Investments (53,851,973) (18,287,917)
-----------------------------------------
Net Decrease in Net Assets Resulting
from Operations $ (54,665,891) $ (18,406,179)
*From December 31, 1997 (commencement of operations).
See notes to financial statements.
</TABLE>
- 49 -
<PAGE>
THE MARSICO INVESTMENT FUND
Period Ended September 30, 1998*
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Growth &
Focus Fund Income Fund
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment loss $ (813,918) $ (118,262)
Net realized loss on investments (40,087,882) (15,147,236)
Net realized gain on foreign currency transactions 433,914 57,257
Change in unrealized depreciation on investments
and foreign currency translations (14,198,005) (3,197,938)
----------------------------------------
Net decrease in net assets resulting
from operations (54,665,891) (18,406,179)
---------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from sale of shares 1,280,834,349 368,490,350
Redemption of shares (367,961,800) (86,614,964)
----------------------------------------
Net increase from capital share transactions 912,872,549 281,875,386
----------------------------------------
Total Increase in Net Assets 858,206,658 263,469,207
NET ASSETS
Beginning of period 50,000 50,000
----------------------------------------
End of period $ 858,256,658 $ 263,519,207
TRANSACTIONS IN SHARES
Shares sold 97,469,724 29,846,080
Shares redeemed (28,030,528) (7,018,201)
----------------------------------------
Net increase 69,439,196 22,827,879
*From December 31, 1997 (commencement of operations).
See notes to financial statements.
</TABLE>
- 50 -
<PAGE>
THE MARSICO INVESTMENT FUND
September 30, 1998
Notes to Financial Statements
1. Organization
The Marsico Investment Fund (the "Trust") was organized 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 Focus Fund and the Growth & Income Fund (collectively, the "Funds") are
separate investment portfolios of the Trust. 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 Growth & Income Fund is a diversified fund,
as defined in the 1940 Act, that seeks long-term growth of capital with a
limited emphasis on income. The Funds commenced operations on December 31, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP") for investment companies. The presentation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
(a) Investment Valuation - A security traded on a recognized stock exchange is
valued at the last sale price prior to the time when assets are valued on the
principal exchange on which the security is traded. If no sale is reported on
the valuation date, 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 closing price. Debt securities which will mature
in more than 60 days are valued at prices furnished by a pricing service.
Securities which will mature in 60 days or less are valued at amortized cost,
which approximates market value. Any securities for which market quotations are
not readily available are valued at their fair value as determined in good faith
by the Funds' investment adviser pursuant to guidelines established by the Board
of Trustees.
(b) Organization Costs - Costs incurred by the Funds in connection with their
organization, registration and the initial public offering of shares have been
deferred and will be amortized over the period of benefit, but not to exceed
five years. If any of the original shares of a Fund are redeemed by any holder
thereof 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. The pro rata share by which the proceeds are reduced will be
derived by dividing the number of original shares of the Funds being redeemed by
the total number of original shares outstanding at the time of redemption.
(c) Expenses - The Funds are charged for those expenses that are directly
attributable to each fund, such as advisory and custodian fees. Expenses that
are not directly attributable to a fund are typically allocated among the funds
in proportion to their respective net assets. The Funds' expenses may be reduced
by voluntary Advisory waivers and uninvested cash balances earning interest or
credits. Such credits are included in Expenses Paid Indirectly in the Statement
of Operations.
(d) Federal Income Taxes - Each Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment company
and to make the requisite distributions of income to its shareholders which will
be sufficient to relieve it from all or substantially all federal and state
income and excise taxes.
- 51 -
<PAGE>
(e) Distributions to Shareholders - Dividends from net investment income and net
realized capital gains, if any, will be declared and paid at least annually.
Distributions to shareholders are recorded on the ex-dividend date. Each Fund
may periodically make reclassifications among certain of its capital accounts as
a result of the timing and characterization of certain income and capital gains
distributions determined in accordance with federal tax regulations, which may
differ from GAAP. These reclassifications are due to differing treatments for
items such as deferral of wash sales, foreign currency transactions, net
operating losses, and Post-October capital losses. Accordingly, at September 30,
1998, reclassifications were recorded to decrease net investment loss by
$813,918 and $118,262, decrease accumulated net realized loss on investments by
$23,770 and $3,111 and decrease paid-in capital by $837,688 and $121,373 in the
Focus and Growth & Income Funds, respectively.
(f) Forward Currency Transactions and Futures Contracts - The Funds enter into
forward currency contracts in order to reduce their exposure to changes in
foreign currency exchange rates on their foreign holdings and to lock in the
U.S. dollar cost of firm purchase and sale commitments for securities
denominated in foreign currencies. A forward currency contract is a commitment
to purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the U.S. dollar cost
of the original contract and the value of the foreign currency in U.S. dollars
upon closing of such contract is included in net realized gain or loss from
foreign currency transactions.
Forward currency contracts held by the Funds are fully collateralized by
other securities. If held by the Funds, such collateral would be in the
possession of the Funds' custodian. The collateral would be evaluated daily to
ensure its market value equals or exceeds the current market value of the
corresponding forward currency contracts.
Currency gain and loss is also calculated on payables and receivables that
are denominated in foreign currencies. The payables and receivables are
generally related to security transactions and income. The change in net
appreciation/depreciation of the payables and receivables is recorded as
unrealized appreciation/depreciation on investments and foreign currency
translations.
Futures contracts are marked to market daily and the resultant variation
margin is recorded as an unrealized gain or loss. When a contract is closed, a
realized gain or loss is recorded equal to the difference between the opening
and closing value of the contract. Generally, open forward and futures contracts
are marked to market (i.e., treated as realized and subject to distribution) for
federal income tax purposes at fiscal year end.
Foreign-denominated assets and forward currency contracts may involve more
risks than domestic transactions, including currency risk, political and
economic risk, regulatory risk and market risk. Risks may arise from the
potential inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of foreign currencies relative to the U.S.
dollar.
The Funds may enter into "futures contracts" and "options" on securities,
financial indexes and foreign currencies, forward contracts, and interest rate
swaps and swap-related products. The Funds intend to use such derivative
instruments primarily to hedge or protect from adverse movements in securities
prices, currency rates or interest rates. The use of futures contracts and
options may involve risks such as the possibility of illiquid markets or
imperfect correlation between the value of the contracts and the underlying
securities, or that the counterparty will fail to perform its obligations.
(g) Other - Investment transactions are accounted for on a trade date basis.
Each Fund determines the gain or loss realized from the investment transactions
by comparing the original cost of the security lot sold with the net sale
proceeds. Dividend income is recognized on the ex-dividend date. Certain
dividends from foreign securities will be recorded as soon as the Trust is
informed of the dividend if such information is obtained subsequent to the
ex-dividend date. Interest income is recognized on an accrual basis.
3. INVESTMENT ADVISORY AGREEMENT
The Funds have an agreement with Marsico Capital Management, LLC (the "Adviser")
to furnish investment advisory services to the Funds. Under the terms of this
- 52 -
<PAGE>
agreement, the Adviser is compensated at the rate of 0.85% of the average daily
net assets of each of the Focus and Growth & Income Funds. The Adviser has
agreed to voluntarily reduce fees for expenses (exclusive of brokerage,
interest, taxes and extraordinary expenses) that exceed the expense limitation
of 1.60% and 1.50% for the Focus and the Growth & Income Funds, respectively,
until January 1, 1999. A fee of $249,672 was waived in the Growth & Income Fund.
The Adviser has an agreement with the Funds that allows the Adviser the ability
to seek reimbursement of any waivers made to its advisory fee, subject to the
Funds' ability to effect such reimbursement and remain in compliance with
applicable voluntary expense limitations.
4. SERVICE AND DISTRIBUTION PLAN
The Funds have adopted a Service and Distribution 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, of up to 0.25% of a
Fund's average daily net assets.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the period ended September 30, 1998 were as
follows:
Growth &
Focus Fund Income Fund
- ----------------------------------------------------------------------------
Purchase
U.S. Government - $ 11,756,238
Other $ 1,471,447,701 416,499,825
Sales
U.S. Government - -
Other 594,208,304 151,953,272
The cost of securities on a tax basis for the Focus and Growth & Income Funds is
$869,192,826 and $299,847,060, respectively. At September 30, 1998, gross
unrealized appreciation and depreciation on investments for federal income tax
purposes were as follows:
Growth &
Focus Fund Income Fund
- ----------------------------------------------------------------------------
Unrealized Appreciation $ 21,180,077 $ 8,035,192
(Unrealized Depreciation) (48,898,443) (13,200,142)
------------------------------------------
Net Unrealized Depreciation
on Investments $ (27,718,366) $ (5,164,950)
At September 30, 1998, the Focus and Growth & Income Funds had deferred
Post-October capital losses of $26,111,659 and $13,120,050, respectively. To the
extent the Funds realize net capital gains, taxable distributions to its
shareholders will be offset by any unused capital loss carryovers.
- 53 -
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
The Marsico Investment Fund
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Marsico Focus Fund and the
Marsico Growth & Income Fund (constituting The Marsico Investment Fund,
hereafter referred to as the "Trust") at September 30, 1998, and the results of
each of their operations, the changes in each of their net assets and the
financial highlights for the period December 31, 1997 (commencement of
operations) through September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
November 2, 1998
DISTRIBUTION
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 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 $25,000 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 Marsico Capital, and not charged to the Funds thereafter.
During the year ended September 30, 1998, The Distributor received as
compensation $53,313 from the Focus Fund and $18,699 from the Growth & Income
Fund.
Certain officers and directors of Marsico Capital are also officers and
trustees of the Trust.
SERVICE PROVIDERS
Investment Adviser
Marsico Capital Management, LLC, 1200 17th Street, Suite 1300, Denver, CO 80202
Administrator
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400, Milwaukee,
WI, 53202.
Counsel
Dechert Price & Rhoads, 1775 Eye St., NW, Washington DC 20006-2401.
- 54 -
<PAGE>
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston, MA 02110.
Independent Accounts
PricewaterhouseCoopers LLP, 950 Seventeenth Street, Denver, CO 80202
Transfer And Dividend Disbursing Agent
Sunstone Financial Group, Inc., LLC, 207 East Buffalo Street, Suite 400,
Milwaukee, WI, 53202.
- 55 -
<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 SAI 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."
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
A-1
<PAGE>
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.
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
A-2
<PAGE>
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 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.
A-3
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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.
A-4
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APPENDIX - B
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.
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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.
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.
B-2
