Doug Rao, Portfolio Manager
January through March 2008
The Flexible Capital Fund recorded a total return of -10.64% during the first calendar quarter of 2008. That result represented a moderate degree of underperformance as compared to the Fund's primary benchmark, the S&P 500 Index, which had a total quarterly return of -9.44%. Pursuant to a fee waiver agreement with Marsico Capital Management, LLC, the total annual operating expenses for the Flexible Capital Fund are capped at 0.75%.1 This fee waiver may be terminated at any time after December 31, 2008.
The table below provides the Flexible Capital Fund's longer-term investment results through March 31, 2008, as compared to the S&P 500 Index:
| Average Annual Returns | ||||
| One Year | Since Inception (12/29/2006)2 | Total Annual Operating Expenses | ||
| (Gross) | (Net) | |||
| Flexible Capital Fund | -0.33% | 2.21% | 2.47%1 3 | 1.22%1 3 |
| S&P 500 Index | -5.08% | -3.60% | ||
The performance data quoted represent past performance, and past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance information quoted above. To obtain performance information current to the most recent month end, please call 888-860-8686 or click here.4
This commentary highlights Fund performance over a single calendar quarter, and the Fund had only 15 months of operating history as of March 31, 2008. Shareholders should keep in mind that the Fund is intended for long-term investors who hold their shares for substantially longer periods of time. You should also keep in mind that our views on all securities and investments discussed in this commentary are subject to change at any time. References to specific securities, sectors, and industries discussed in this commentary are not recommendations to buy or sell the securities or investments, and the Fund may not necessarily hold these securities or investments today.5
The Fund's quarterly performance was a near-wash, relative to the S&P 500 Index, with a variety of negative and some positive factors impacting the end result. From a "big picture" perspective, the Fund's two most significant "Achilles heels" during the first calendar quarter of 2008 were its holdings in the Financials and Consumer Discretionary sectors, which declined by -28% and -16%, respectively, in aggregate. The Fund had substantial allocations during the quarter in both sectors, which amplified the impact of the individual stock holdings; at quarter-end approximately one-third of the Fund's net assets were invested in these areas.
With regard to Financials, a number of holdings in the Diversified Financials and Banks industries were the primary detractors from performance. In Diversified Financials, FCStone Group, Inc., which specializes in providing commodity risk management services, fell -43% prior to being sold. IntercontinentalExchange, Inc., an electronic marketplace operator for futures and over-the-counter energy contracts, declined -28% prior to being sold. Bovespa Holding S.A. (-30%), Oaktree Capital Group (-16%), and Lehman Brothers Holdings Inc. (-21% prior to being sold) also were among the Fund's weakest-performing individual positions. With respect to the Fund's banking industry holdings, two savings and loan companies weighed heavily on performance: Washington Mutual, Inc. fell -40% prior to being sold and Meta Financial Group Inc. declined -31% prior to being sold.
The Fund's Consumer Discretionary positions–especially those in the Media, Automobiles & Components, and Retailing industry groups–did not, in general, fare well during the first quarter. More specifically, MDC Partners Inc. (Class A), an advertising holding company, swooned by -26%. Retailing company Saks Inc. skidded -25%. And, Continental AG, a German manufacturer of tires, brakes, vehicle control systems and other automobile parts, fell by -36% prior to being sold.
Several other factors negatively impacted performance and deserve mention here. A few of the Fund's oil services and production positions struggled, including Diamond Offshore Drilling, Inc., CGG Veritas, and Anadarko Petroleum Corp. Each of these holdings was sold prior to quarter-end. Health services provider WellPoint, Inc., which announced a reduced profit outlook, fell -44% prior to being sold.
On the other side of the performance ledger, there were a number of performance "positives" in the quarter, revolving around specific stock selections. There was no major, central theme that characterized these holdings; they were scattered around a wide variety of sectors and industries. They included MasterCard Inc. (Class A), Petrohawk Energy Corp., Gilead Sciences, Inc., BJ's Wholesale Club, Inc., Vail Resorts, Inc., Duff & Phelps Corp. (Class A), Monsanto Co., ArcelorMittal (NYSE Listed Shares), Vestas Wind Systems A/S, CVS Caremark Corp., and QUALCOMM, Inc. All of these positions performed well compared to the overall market and partially mitigated the negative performance factors mentioned above.
The Fund's cash and cash equivalent positions averaged approximately 13% during the first calendar quarter of 2008. Cash levels were generally higher than what we would typically expect, and were primarily attributable to the Fund's relatively small size and our view that holding some cash, in the context of the overall uncertainty and volatility of the markets, was appropriate. The cash holdings helped to provide some protection to the Fund's assets during the quarter.
As of March 31, 2008, the Fund's primary economic sector allocations were Consumer Discretionary, Financials, Consumer Staples, Information Technology, and Industrials. During the quarter, health care-related holdings were reduced, while holdings in the Capital Goods industry were increased, primarily through the additions of Vestas Wind Systems and Honeywell International Inc.
Sincerely,
A. Douglas Rao
Portfolio Manager
1Prior to June 1, 2007, the written expense limitation agreement relating to the Flexible Capital Fund limited total expenses of the Fund (excluding interest, taxes, acquired fund fees and expenses, litigation, brokerage and extraordinary expenses) to an annual rate of 1.60% of the Fund's average net assets. Effective June 1, 2007, the expense limitation agreement was amended so that the total expenses of the Fund (excluding interest, taxes, acquired fund fees and expenses, litigation, brokerage and extraordinary expenses) will not exceed 0.75% of its average daily net assets. This agreement may be terminated at any time after December 31, 2008. Please see the prospectus dated February 1, 2008 for more information.
2The Flexible Capital Fund may invest in initial public offerings ("IPOs") of common stock or other equity or debt securities issued by a corporate issuer. A significant portion of the Fund's "since inception" returns may be attributable to its investments in IPOs. There can be no assurance that similar contributions to the Fund's performance from IPOs will continue in the future.
3The total annual operating expenses are reflective of the information disclosed in the Fund's prospectus dated February 1, 2008. Please see the prospectus for more information.
4Total returns are based on net change in NAV assuming reinvestment of distributions. The performance returns for the Flexible Capital Fund reflect a fee waiver in effect; in the absence of such a waiver, the returns would be reduced. A redemption fee of 2% may be imposed on redemptions or exchanges of Fund shares owned for 30 days or less. Please see the prospectus for more information.
5On March 31, 2008, the following securities comprised these percentages of the net assets of the Marsico Flexible Capital Fund: FCStone Group (0.0%); IntercontinentalExchange, Inc. (0.0%); Bovespa Holding S.A. (1.9%); Oaktree Capital Group (3.3%); Lehman Brothers Holdings, Inc. (0.0%); Washington Mutual, Inc. (0.0%); Meta Financial Group Inc. (0.0%); MDC Partners Inc. (2.7%); Saks Inc. (2.2%); Continental AG (0.0%); Diamond Offshore Drilling, Inc. (0.0%); CGG Veritas (0.0%); Anadarko Petroleum Corp. (0.0%); WellPoint, Inc. (0.0%); MasterCard Inc. (6.3%); Petrohawk Energy Corp. (2.8%); Gilead Sciences, Inc. (3.3%); BJ's Wholesale Club, Inc. (2.1%); Vail Resorts, Inc. (2.3%); Duff & Phelps Corp. (Class A) (3.1%); Monsanto Co. (1.0%); ArcelorMittal (2.5%); Vestas Wind Systems A/S (1.8%); CVS Caremark Corp. (4.5%); QUALCOMM, Inc. (3.3%); and Honeywell International Inc. (2.4%).
2The Flexible Capital Fund may invest in initial public offerings ("IPOs") of common stock or other equity or debt securities issued by a corporate issuer. A significant portion of the Fund's "since inception" returns may be attributable to its investments in IPOs. There can be no assurance that similar contributions to the Fund's performance from IPOs will continue in the future.
3The total annual operating expenses are reflective of the information disclosed in the Fund's prospectus dated February 1, 2008. Please see the prospectus for more information.
4Total returns are based on net change in NAV assuming reinvestment of distributions. The performance returns for the Flexible Capital Fund reflect a fee waiver in effect; in the absence of such a waiver, the returns would be reduced. A redemption fee of 2% may be imposed on redemptions or exchanges of Fund shares owned for 30 days or less. Please see the prospectus for more information.
5On March 31, 2008, the following securities comprised these percentages of the net assets of the Marsico Flexible Capital Fund: FCStone Group (0.0%); IntercontinentalExchange, Inc. (0.0%); Bovespa Holding S.A. (1.9%); Oaktree Capital Group (3.3%); Lehman Brothers Holdings, Inc. (0.0%); Washington Mutual, Inc. (0.0%); Meta Financial Group Inc. (0.0%); MDC Partners Inc. (2.7%); Saks Inc. (2.2%); Continental AG (0.0%); Diamond Offshore Drilling, Inc. (0.0%); CGG Veritas (0.0%); Anadarko Petroleum Corp. (0.0%); WellPoint, Inc. (0.0%); MasterCard Inc. (6.3%); Petrohawk Energy Corp. (2.8%); Gilead Sciences, Inc. (3.3%); BJ's Wholesale Club, Inc. (2.1%); Vail Resorts, Inc. (2.3%); Duff & Phelps Corp. (Class A) (3.1%); Monsanto Co. (1.0%); ArcelorMittal (2.5%); Vestas Wind Systems A/S (1.8%); CVS Caremark Corp. (4.5%); QUALCOMM, Inc. (3.3%); and Honeywell International Inc. (2.4%).
Not authorized for distribution unless preceded or accompanied by a current Marsico Funds prospectus.
The distributor of the Marsico Funds is UMB Distribution Services, LLC.
