<PAGE> 1
As filed with the Securities and Exchange Commission
on or about April 25, 1997
Registration No. 333-05265 811-07655
______________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 4 [X]
(Check appropriate box or boxes)
DRIEHAUS MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
25 EAST ERIE STREET
CHICAGO, ILLINOIS 60611
(Address of Principal Executive Offices, including Zip Code)
Mary H. Weiss, Secretary
Driehaus Mutual Funds
25 EAST ERIE STREET
CHICAGO, ILLINOIS 60611
(Name and Address of Agent for Service)
COPY TO:
CATHY G. O'KELLY
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601
Pursuant to Reg. Section 270.24f-2 under the Investment Company Act of
1940, Registrant has registered an indefinite number or amount of shares under
the Securities Act of 1933. The Rule 24f-2 Notice for the fiscal year ended
August 31, 1997 will be filed on or about October 30, 1997.
It is proposed that this filing will become effective (check appropriate box)
[x] immediately upon filing pursuant to paragraph (b); or
[ ] on (date) pursuant to paragraph (b); or
[ ] 60 days after filing pursuant to paragraph (a) (1); or
[ ] on May 1, 1997 pursuant to paragraph (a) (1); or
[ ] 75 days after filing pursuant to paragraph (a) (2); or
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
DRIEHAUS MUTUAL FUNDS
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
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<S> <C> <C>
PART A
Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . Summary
Item 3. Condensed Financial Information . . . . . . . . . . . . Financial Highlights; Investment Return
Item 4. General Description of Registrant . . . . . . . . . . . The Fund; Portfolio Investments and Strategies;
Restrictions on the Fund's Investments; Risks and
Investment Considerations
Item 5. Management of Fund . . . . . . . . . . . . . . . . . . Management of the Fund
Item 5A. Management's Discussion of Fund Performance . . . . . . Not Applicable
Item 6. Capital Stock and Other Securities . . . . . . . . . . Distributions and Taxes; Organization and Description of
Shares
Item 7. Purchase of Securities Being Offered . . . . . . . . . How to Purchase Shares; Net Asset Value
Item 8. Redemption or Repurchase . . . . . . . . . . . . . . . How to Redeem Shares
Item 9. Pending Legal Proceedings . . . . . . . . . . . . . . . Not Applicable
PART B.
Item 10. Cover Page . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . . . . . . . . . . . . Cover Page
Item 12. General Information and History . . . . . . . . . . . . General Information and History
Item 13. Investment Objectives and Policies . . . . . . . . . . Portfolio Investments and Strategies; Investment
Restrictions
Item 14. Management of the Fund . . . . . . . . . . . . . . . . Management
Item 15. Control Persons and Principal Holders of Securities . . Principal Shareholders
Item 16. Investment Advisory and Other Services . . . . . . . . Investment Advisory Services; Administrator; Custodian;
Independent Public Accountants
Item 17. Brokerage Allocation and Other Practices . . . . . . . Portfolio Transactions
Item 18. Capital Stock and Other Securities . . . . . . . . . . General Information and History
Item 19. Purchase, Redemption and Pricing of Securities Being
Offered . . . . . . . . . . . . . . . . . . . . . . . . Purchases and Redemptions
Item 20. Tax Status . . . . . . . . . . . . . . . . . . . . . . Additional Income Tax Considerations
Item 21. Underwriters . . . . . . . . . . . . . . . . . . . . . Distributor
Item 22. Calculation of Performance Data . . . . . . . . . . . . Investment Performance
Item 23. Financial Statements . . . . . . . . . . . . . . . . . Financial Information of Fund; Report of Independent
Auditors; Statement of Net Assets
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to the Registration Statement.
<PAGE> 3
The following information supplements the Driehaus Mutual Fund prospectus that
you have already received. Please file this Prospectus
Supplement with your records.
DRIEHAUS MUTUAL FUNDS
Supplement to Prospectus dated October 28, 1996
Financial Highlights
(For each share of the Fund outstanding throughout the period.)
The following Financial Highlights for the Driehaus International Growth Fund
(the "Fund") are based upon the unaudited period from October 28, 1996
(inception) through February 28, 1997.
<TABLE>
<CAPTION>
For the period from October 28, 1996
through February 28, 1997
---------------------------
<S> <C>
Net asset value, beginning of period $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (0.04)
Net gains on securities (both realized and unrealized) 1.16
Total from investment operations 1.12
LESS DISTRIBUTIONS:
Dividends from net investment income --
Distributions from capital gains --
Total distributions --
Net asset value, end of period $11.12
Total Return** 11.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $144,751
Ratio of expenses to average assets* 2.01%
Ratio of net investment income to average net assets* -1.34%
Portfolio Turnover** 135.53%
</TABLE>
_________________
* Annualized
** Not Annualized
Average commission rate paid per share on stock transactions for the period
ended February 26, 1997 was $0.0027. Foreign commissions usually are lower
than U.S. commissions when expressed as cents per share due to the lower per
share price of many non-U.S. securities.
The Fund
The Fund generally will invest in securities of issuers with market
capitalizations of greater than $300 million and will not invest in securities
of issuers with market capitalizations of less than $200 million. This
information supplements the sixth paragraph in the section entitled "The Fund
- -- Investment Objective and Polices" in the Fund's prospectus.
Portfolio Investment Strategies - Derivatives
Consistent with its objective, the Fund may invest in a broad array of
financial instruments referred to as derivatives. In addition to the types
of derivatives described in the second paragraph of the section entitled "Risks
and Investment Considerations - Derivatives," the Fund may enter into various
equity or interest rate transactions, such as swaps, caps, floors or collars
and may enter into various currency transactions such as currency forward
contracts, currency futures contracts, currency swaps or options on currencies.
In general, swaps are agreements pursuant to which the Fund contracts with a
bank or broker/dealer to receive a return based on or indexed to the
performance of an individual security or a basket of securities. The use of
currency transactions can result in the Fund incurring losses as a result of a
number of factors, including the
<PAGE> 4
imposition of exchange controls, suspension of settlements or the inability
to deliver or receive a specified currency. If types of derivatives other
than those described herein become available in the future, the Fund may also
use those investment vehicles, provided the Fund's Board of Trustees
determines that their use is consistent with the Fund's investment objective.
How to Purchase Shares
The Fund, at its option, may accept checks initiated by brokers or mutual fund
complexes. This information supplements the fourth paragraph in the section
entitled "How to Purchase Shares" in the Fund's prospectus.
Certain broker-dealers, financial institutions, or other service providers that
have entered into an agreement with the Distributor, Driehaus Securities
Corporation, may enter purchase orders on behalf of their customers by phone,
with payment to follow within several days as specified in the agreement. The
Fund may effect such purchase orders at the net asset value next determined
after receipt of the telephone purchase order. It is the responsibility of the
broker-dealer, financial institution, or other service provider to place the
order with the Funds on a timely basis. If payment is not received within the
time specified in the agreement, the broker-dealer, financial institution, or
other service provider could be held liable for any resulting fees or losses.
This updates the section entitled "How to Purchase Shares" in the Fund's
prospectus.
How to Redeem Shares - General Redemption Policies
The Fund, in its sole discretion, may accept telephonic redemption requests
from broker-dealers, financial institutions, or other service providers and,
under certain circumstances, from accounts that contain over $1,000,000 at the
time the redemption request is made. The Fund reserves the right to refuse a
telephone redemption if it believes it advisable to do so. Once a telephone
redemption request is placed it cannot be canceled or modified. Investors will
bear the risk of loss from fraudulent or unauthorized instructions received
over the telephone provided that the Fund reasonably believes that such
instructions are genuine. The Fund and its transfer agent employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
The Fund may incur liability if it does not follow these procedures. Because
of increased telephone volume, investors may experience difficulty in
implementing a telephone redemption during periods of dramatic economic or
market changes.
Investment Returns
As of March 31, 1997, the Fund's average annual total returns for the one-,
five- and since inception (July 1, 1990) periods were 13.21%, 18.27% and
15.92%, respectively. Performance is historical and does not represent future
results. Investment returns and principal value vary, and there may be a gain
or loss when shares are sold. The performance data includes the performance of
the Driehaus International Large Cap Fund, L.P. (the "Partnership") for the
periods before the Fund's registration statement became effective. The
Partnership was established on July 1, 1990 and the Fund succeeded to the
Partnership's assets on October 28, 1996. The Partnership was not registered
under the Investment Company Act of 1940 and thus was not subject to certain
investment and operational restrictions that are imposed by the 1940 Act. If
the Partnership had been registered under the 1940 Act, its performance may
have been adversely affected. The Partnership's performance has been restated
to reflect estimated expenses of the Fund.
The date of this supplement is April 25, 1997.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.............................. 1
FEE TABLE............................ 2
THE FUND............................. 3
INVESTMENT OBJECTIVE AND POLICIES.... 3
PORTFOLIO INVESTMENTS AND STRATEGIES. 4
RESTRICTIONS ON THE FUND'S
INVESTMENTS......................... 7
RISKS AND INVESTMENT CONSIDERATIONS.. 8
HOW TO PURCHASE SHARES............... 10
HOW TO REDEEM SHARES................. 11
NET ASSET VALUE...................... 12
DISTRIBUTIONS AND TAXES.............. 12
INVESTMENT RETURN.................... 14
MANAGEMENT OF THE FUND............... 15
ORGANIZATION AND DESCRIPTION OF
SHARES.............................. 16
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy not shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
This prospectus contains information about the Fund that a prospective investor
should know before investing and should be retained for future reference. A
Statement of Additional Information dated October 28, 1996, as amended from
time to time, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. It is available upon request without charge
from the Fund at the address or telephone number on this cover. The Fund is a
series of the Driehaus Mutual Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DRIEHAUS
INTERNATIONAL
GROWTH
FUND
PROSPECTUS OCTOBER 28, 1996
DRIEHAUS MUTUAL FUNDS
25 East Erie Street
Chicago, Illinois 60611
1-800-560-6111
The objective of the Fund is to maximize capital appreciation. The Fund pursues
its objective by investing primarily in the equity securities of foreign
companies.
There is no assurance that the Fund's objective will be achieved.
THE FUND MAY SELL AND PURCHASE DERIVATIVE SECURITIES, WHICH MAY BE CONSIDERED
SPECULATIVE. AN INVESTMENT IN THE FUND INVOLVES SIGNIFICANT RISKS. (SEE "RISKS
AND INVESTMENT CONSIDERATIONS.")
<PAGE> 6
SUMMARY
-------
The Driehaus International Growth Fund (the "Fund") is a series of the
Driehaus Mutual Funds, an open-end management investment company. The Fund is a
"no-load" fund. There are no sales charges.
INVESTMENT OBJECTIVES AND POLICIES. The Fund's investment objective is to
maximize capital appreciation. The Fund seeks to achieve its objective by
investing primarily in the equity securities of foreign companies. Under normal
market conditions, the Fund will invest substantially all its assets in at least
three countries other than the United States. The Fund currently intends to
invest primarily in foreign companies with market capitalizations of more than
$300 million (U.S.) using growth style investment criteria. The investment
adviser's investment philosophy of considering "market timeliness" when making
investment decisions generally results in a relatively high rate of portfolio
turnover, which generally increases the brokerage costs of the Fund. See "The
Fund -- Portfolio Investments and Strategy -- Portfolio Turnover and
Transactions." The investment adviser believes that over time the costs
associated with such turnover will be offset by higher performance. There can be
no assurance that the Fund's investment objective will be achieved. See "The
Fund -- Investment Objectives and Policies."
INVESTMENT RISKS. The Fund is intended for long-term investors who can accept
the risks entailed in investing in foreign securities following the investment
adviser's growth style investment philosophy. Since the Fund invests primarily
in foreign securities, investors should understand and consider carefully the
risks involved in foreign investing. Investing in foreign securities involves
certain considerations involving both risks and opportunities not typically
associated with investing in U.S. securities. Such risks include fluctuations
in exchange rates on foreign currencies, less public information, less
government supervision, less liquidity and greater price volatility. In
addition, the Fund expects to have substantial investments in emerging markets,
which may be subject to greater risks than other foreign investments, including
the risks of expropriation or other adverse political, social or diplomatic
developments that could affect investment in these nations. As a "non-
diversified" fund, the Fund will be able to invest a relatively high percentage
of its assets in a limited number of issues, therefore making the Fund more
susceptible to a single economic, political or regulatory occurrence than a
diversified fund. The Fund's investment adviser currently acts as portfolio
manager for Canadian investment companies, but does not have prior experience
managing a U.S. registered investment company. See "The Fund -- Risks and
Investment Considerations" and "Management of the Fund."
PURCHASES AND REDEMPTIONS. The minimum initial investment is $100,000.
Additional investments must be $20,000. See "Purchases of Shares." For
information on redeeming Fund shares see "Redemption of Shares."
NET ASSET VALUE. The purchase and redemption price of the Fund's shares is
its net asset value per share. The net asset value is determined as of the
close of regular trading on the New York Stock Exchange. See "Net Asset Value."
DIVIDENDS. The Fund normally distributes dividends of net investment income
and any net realized short-term and long-term capital gains annually.
Distributions will be reinvested automatically in additional Fund shares, unless
the investor makes a different election. See "Dividends and Taxes."
INVESTMENT ADVISER. Driehaus Capital Management, Inc. (the "Adviser")
provides management and investment advisory services to the Fund. For its
services to the Fund, the Adviser is paid a fee at the annual rate of 1.5% of
average net assets. See "Management of the Fund."
FINANCIAL HISTORY. Although the Fund was first established as a registered
investment company on June 5, 1996, it has succeeded to the assets of the
Driehaus International Large Cap Fund, L.P., a limited partnership organized on
July 1, 1990 (the "Limited Partnership"). The performance history included
herein is based upon the operations of the Limited Partnership, restated to
reflect the anticipated expenses of the Fund. In addition, the distributions
made by the Fund will reflect the basis in the investments carried forward from
the Limited Partnership. See "Distribution and Taxes."
<PAGE> 7
FEE TABLE
---------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases.................................. None
Sales Load Imposed on Reinvested Dividends....................... None
Deferred Sales Load.............................................. None
Redemption Fees*................................................. None
Exchange Fees.................................................... None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees.................................................. 1.50%
12b-1 Fees....................................................... None
Other Expenses (after expense reimbursements**).................. .75%
-----
Total Fund Operating Expenses (after expense reimbursements*).... 2.25%
=====
</TABLE>
- ----------------
* There is a $25 charge for payments of redemption proceeds by wire.
** The Adviser has agreed to reduce its fee and absorb other operating expenses
to the extent necessary to ensure that the total fund operating expenses
(other than interest, taxes, brokerage commissions and other portfolio
transaction expenses, capital expenditures and extra ordinary expenses) will
not exceed 2.25% of the average net assets of the Fund on an annual basis
for the first twelve months of the Fund's operations after the effective
date of the Fund's registration statement. Without expense reimbursement,
"Other Expenses" for the fiscal year ending September 30, 1997 are estimated
to be 0.75% and "Total Fund Operating Expenses" are estimated to be 2.25%.
EXAMPLE. The following example illustrates the expenses that an investor would
pay on a $1,000 investment assuming (1) 5% annual return and (2) redemption at
the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years
------ -------
<S> <C>
$24 $75
</TABLE>
The purpose of the preceding tables is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. As a new Fund, the percentages shown are estimates for the current
first year. NEITHER THE 5% RATE OF RETURN NOR THE FEES AND EXPENSES SHOWN ABOVE
SHOULD BE CONSIDERED INDICATIONS OF PAST OR FUTURE RETURNS, FEES OR EXPENSES.
ACTUAL, RETURNS, FEES AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE> 8
THE FUND
--------
The Driehaus International Growth Fund (the "Fund") is a series of the
Driehaus Mutual Funds (the "Trust"), an open-end management investment company.
Driehaus Capital Management, Inc. (the "Adviser") provides management and
investment advisory services to the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to maximize capital appreciation. The Fund
seeks to achieve its objective by investing primarily in the equity securities
of foreign companies. Under normal market conditions, the Fund will invest
substantially all (no less than 65%) of its assets in at least three countries
other than the United States. The Fund is a non-diversified investment company.
(See "Risks and Investment Considerations" for the risks associated with non-
diversification.) Current income is not a factor in the selection of portfolio
securities.
The Fund's investments in equity securities will principally be in growth
stocks. Growth stocks are stocks of companies whose earnings per share are
expected to grow faster than the market average. In selecting securities for
the Fund, the Adviser employs analyses identifying companies that have
demonstrated superior earnings growth potential and that, in the opinion of the
Adviser, have the potential for continued gains in the near future. Growth
stocks tend to trade at higher price to earnings (P/E) ratios than the general
market. The Fund currently intends to invest primarily in foreign companies with
market capitalizations of more than $300 million (U.S.).
The Fund's investments will be based on the Adviser's investment philosophy
that accelerating sales and earnings, consistent with high earnings quality and
market timeliness, are principal criteria for equity investment. Earnings
quality considers the extent to which current earnings are indicative of future
results. Market timeliness reflects the expectation of an upward movement in
the price of a particular stock in the near future. Information that may alert
the Adviser to such situations includes strong company earnings reports,
evidence of increased order backlogs, new product introductions, and industry
developments. This fundamental information is combined with technical analyses
(price and volume charts, rating services where available, etc.) in order to
reach an overall judgment about a security's attractiveness. The Adviser's
security selection will be made primarily using these company-specific criteria
and, to a significantly lesser extent, using macroeconomics or country specific
analyses.
In evaluating countries for investment and determining country and region
weightings, the Adviser considers numerous criteria including the current and
prospective growth rates of various economies, interest rate trends, inflation
rates, trade balances and currency trends. The Adviser also reviews technical
information on stock markets. The analysis may also include considerations
specific to a certain country or region of the world. For example, a rapid
increase in the middle class in a developing economy may signal increased demand
for consumer goods such as soft drinks, convenience foods or clothes.
Similarly, a decline in the value of a country's currency may increase demand
for its exports and reduce operating margins for companies which import most of
their products. Although, under normal market conditions, the Fund will be
invested in at least three countries other than the United States, there are no
maximum limitations on the number of countries in which the manager can or must
invest at a given time. There are also no specific limitations on the
percentage of assets that may be invested in securities of issuers located in
any one country at a given time.
The securities markets of less developed economies and of many developing
economies are sometimes referred to as "emerging securities markets." Although
the amount of the Fund's assets invested in emerging securities markets will
vary over time, the Adviser currently expects that a substantial portion of the
Fund's assets will be invested in emerging securities markets. Currently,
emerging markets generally include every country in the world other than the
United States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore and
most Western European countries. These markets are generally characterized by
limited trading volume and greater volatility and, as a result, the Fund may be
subject to greater risks to the extent of its investments in such markets.
Moreover, the Fund is not limited to a specific percentage of assets that may be
invested in a single emerging market country. Therefore, to the extent a
substantial portion of the Fund's assets are invested in a specific country,
3
<PAGE> 9
the Fund would be particularly subject to the risks associated with that
country. For a discussion of these risks, see "Risks and Investment
Considerations" below.
The Fund's investments in equity securities will generally be in companies
with market capitalizations of more than $300 million, although the Fund may
invest a significant amount in companies with lower market capitalizations.
Companies with lower market capitalizations. The Fund may also invest in
securities of issuers, that, together with any predecessors, have been in
continuous operation for less than three years. Companies with lower market
capitalizations as well as start-up companies may present greater opportunities
for capital appreciation, but may also involve greater risk. They may have
limited product lines, markets or financial resources, or may depend on a
limited management group. Their securities may trade less frequently and in
limited volume, and only in the over-the-counter market or on a regional
securities exchange. As a result, these securities may fluctuate in value more
than those of larger, more established companies.
Equity securities include common stocks, warrants or rights that are
convertible into common stock, preferred stock, debt securities that are
convertible into common stock and depositary receipts for those securities. The
Fund may purchase foreign securities in the form of American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs), European Depositary Receipts (EDRs),
or other securities representing underlying shares of foreign issuers. The Fund
may invest in sponsored or unsponsored ADRs. (For a description of ADRs, GDRs
and EDRs, see the Statement of Additional Information.) Generally, the Fund
would purchase ADRs, GDRs or EDRs, rather than directly investing in the
underlying shares of a foreign issuer, for liquidity, timing or transaction cost
reasons. For example, the Fund may purchase an ADR if the foreign market on
which the underlying security trades is not open for trading at the time the
investment decision is made.
In addition to equities, as a temporary defensive measure, the Fund may hold
up to 100% of its assets in cash or cash equivalents in domestic and foreign
currencies, invest in domestic and foreign money market securities (including
repurchase agreements), and purchase short-term debt securities of U.S. or
foreign government or corporate issuers. The Fund may also purchase such
securities if the Adviser believes they may be necessary to meet Fund liquidity
needs.
PORTFOLIO INVESTMENTS AND STRATEGIES
The Fund may utilize from time to time one or more of the investment practices
described below to assist it in reaching its investment objective. These
practices involve potential risks which are summarized below. In addition, the
Statement of Additional Information contains more detailed or additional
information about certain of these practices, the potential risks and/or the
limitations adopted by the Fund to reduce such risks.
CURRENCY HEDGING. Most of the Fund's portfolio will be invested in foreign
securities. As a result, in addition to the risk of change in the market value
of portfolio securities, the value of the portfolio in U.S. dollars is subject
to fluctuations in the exchange rate between the foreign currencies and the U.S.
dollar. When, in the opinion of the Adviser, it is desirable to limit or reduce
exposure in a foreign currency to moderate potential changes in the U.S. dollar
value of the portfolio, the Fund may enter into a forward currency exchange
contract to sell or buy such foreign currency (or another foreign currency that
acts as a proxy for that currency). Through the contract, the U.S. dollar value
of certain underlying foreign portfolio securities can be approximately matched
by an equivalent U.S. dollar liability. This technique is known as "currency
hedging." By locking in a rate of exchange, currency hedging is intended to
moderate or reduce the risk of change in the U.S. dollar value of the Fund's
portfolio only during the period of the forward contract. Forward contracts
usually are entered into with banks and broker-dealers; are not exchange traded;
and while they are usually for less than one year, may be renewed. A default on
a contract would deprive the Fund of unrealized profits or force the Fund to
cover its commitments for purchase or sale of currency, if any, at the current
market price.
The use of foreign currency contracts (for settlement or hedging) will not
eliminate fluctuations in the prices of the Fund's portfolio securities or
prevent loss if the price of such securities should decline. In addition, such
forward currency exchange contracts will diminish the benefit of the
appreciation in the U.S. dollar value of that
4
<PAGE> 10
foreign currency. (For further information on forward foreign currency exchange
transactions, see the Statement of Additional Information.)
SETTLEMENT TRANSACTIONS. When the Fund enters into a contract for the
purchase or sale of a foreign portfolio security, it usually is required to
settle the purchase transaction in the relevant foreign currency or receive the
proceeds of the sale in that currency. In either event, the Fund is obliged to
acquire or dispose of an appropriate amount of foreign currency by selling or
buying an equivalent amount of U.S. dollars. At or near the time of the
purchase or sale of the foreign portfolio security, the Fund may wish to lock in
the U.S. dollar value of a transaction at the exchange rate or rates then
prevailing between the U.S. dollar and the currency in which the security is
denominated. Known as "transaction hedging," this may be accomplished by
purchasing or selling such foreign securities on a "spot," or cash, basis.
Transaction hedging also may be accomplished on a forward basis, whereby the
Fund purchases or sells a specific amount of foreign currency, at a price set at
the time of the contract, for receipt or delivery at either a specified date or
at any time within a specified time period. In so doing, the Fund will attempt
to insulate itself against possible losses and gains resulting from a change in
the relationship between the U.S. dollar and the foreign currency during the
period between the date the security is purchased or sold and the date on which
payment is made or received and the transaction settled. Similar transactions
may be entered into by using other currencies if the Fund seeks to move
investments denominated in one currency to investments denominated in another.
The Fund may also settle certain trades in U.S. dollars, in which case the
broker will engage in any transaction hedging necessary and will build the cost
of the hedging into the cost of the securities traded.
CONVERTIBLE SECURITIES. By investing in convertible securities, the Fund
obtains the right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while earning higher
current income than would be available if the stock were purchased directly. In
determining whether to purchase a convertible, the Adviser will consider
substantially the same criteria that would be considered in purchasing the
underlying stock. While convertible securities purchased by the Fund are
frequently rated investment grade, the Fund also may purchase unrated securities
or securities rated below investment grade if the securities meet the Adviser's
other investment criteria. The Fund does not currently intend to invest more
than 5% of its total assets in below investment grade convertible securities.
Convertible securities rated below investment grade (a) tend to be more
sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than either common stock or conventional debt
securities. As a result, the Adviser's own investment research and analysis
tends to be more important in the purchase of such securities than other
factors.
DEBT SECURITIES. In pursuing its investment objective, under normal market
conditions, the Fund may invest up to 35% of its total assets in non-convertible
debt securities. Investments in such debt securities are limited to those that
are rated within the four highest grades (generally referred to as "investment
grade") assigned by a nationally or internationally recognized statistical
rating organization. Investments in unrated debt securities are limited to those
deemed to be of comparable quality by the Advisor. Securities in the fourth
highest grade may possess speculative characteristics. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security. The Adviser will, however, consider
that fact in determining whether the Fund should continue to hold the
security. The risks inherent in debt securities depend primarily on the term
and quality of the obligations in the Fund's portfolio, as well as on market
conditions. A decline in the prevailing levels of interest rates generally
increases the value of debt securities. Conversely, an increase in rates usually
reduces the value of debt securities.
PORTFOLIO TURNOVER AND TRANSACTIONS. The Fund will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
its investment objective and policies. Portfolio turnover is commonly measured
by dividing the cost of purchases in a portfolio by the average investment
(i.e., the cumulative total investment in the account at the end of each month,
divided by the number of months under consideration). High portfolio turnover
should result from the Fund's investment strategy, which considers market
timeliness (i.e., the likelihood or expectation that value of any stock
purchased will increase in the immediate future). Under normal market
conditions, only securities that increase in value shortly after purchase and
that generally continue to increase in value (although they may experience
temporary stagnant or declining periods) will be retained in the Fund's
portfolio. Securities sold by the Fund may be purchased again at a later date
when the Adviser perceives that the securities are again "timely." In addition,
adjustments to the portfolio of the Fund will be made when conditions affecting
relevant markets, particular industries or individual issues, warrant such
action. (See "Risks and Investment Considerations -- Portfolio Turnover.")
Purchases and sales of securities, futures or options on futures on an
exchange (including a board of trade), and options on securities may be effected
through securities brokers or futures commissions merchants that charge a
commission for their services. Orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Driehaus Securities
Corporation ("DSC"), an affiliate of the Adviser. In order for DSC to effect
any such transaction for the Fund, the commissions, fees or other remuneration
received by DSC
5
<PAGE> 11
must be reasonable and fair, compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities, futures or options on futures being purchased or
sold on an exchange during a comparable period of time. This standard would
allow DSC to receive no more than the remuneration that would be expected to be
received by an unaffiliated broker in a commensurate arms-length transaction.
Furthermore, the Board of Trustees, including a majority of the Trustees who are
not "interested" Trustees, has adopted procedures that are reasonably designed
to provide that any commissions, fees or other remuneration paid to DSC are
consistent with the foregoing standard. Brokerage transactions with DSC are
also subject to such fiduciary standards as may be imposed upon DSC by
applicable law. In light of these factors and the historical volatility of
foreign growth stocks, the Fund anticipates a higher portfolio turnover rate
(i.e., 200% to 300%, but may vary significantly from year to year). Portfolio
turnover may also be affected by sales of portfolio securities necessary to meet
cash requirements for redemptions of shares. The Fund anticipates that most
transactions for the purchase or sale of ADRs will be placed through DSC, so
long as the criteria for using an affiliated broker are met. (See "Management
of the Fund -- Portfolio Transactions.")
FOREIGN INVESTMENT COMPANIES. The Fund may invest in foreign investment
companies. Some of the countries in which the Fund invests may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government-approved or authorized investment vehicles,
which may include other investment companies. In addition, it may be less
expensive and more expedient for a Fund to invest in a foreign investment
company in a country that permits direct foreign investment. Investing through
such vehicles may involve layered fees or expenses. The Fund does not intend to
invest in such investment companies unless, in the judgment of the Adviser, the
potential benefits of such investments justify the payment of any associated
fees or expenses.
DERIVATIVES. Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including conventional exchange-
traded and non-exchange-traded options, futures contracts and futures options
("Derivatives"). (For these purposes, forward currency contracts are not
considered Derivatives.) In each case, the value of the instrument or security
is "derived" from the performance of an underlying asset or a "benchmark" such
as a security index, an interest rate, or a currency. The Fund does not expect
to invest more than 5% of its total assets in Derivatives.
Derivatives are most often used to manage investment risk or to create an
investment position indirectly because they are more efficient or less costly
than direct investment. They also may be used in an effort to enhance portfolio
returns, however, because of the uncertainties associated with their use
portfolio returns may be decreased by the use of Derivatives. See "Risks and
Investment Considerations."
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements, provided
that it will not invest more than 15% of its net assets in repurchase
agreements' maturing in more than seven days and any other illiquid securities.
A repurchase agreement involves the sale of securities to the Fund, with the
concurrent agreement of the seller to repurchase the securities at the same
price plus an amount representing interest at an agreed-upon interest rate,
within a specified time, usually less than one week, but, on occasion, at a
later time. Repurchase agreements entered into by the Fund will be fully
collateralized and will be marked-to-market daily. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and losses,
including: (a) possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto; (b) possible subnormal
levels of income and lack of access to income during this period; and (c)
expenses of enforcing its rights.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES: REVERSE REPURCHASE AGREEMENTS.
The Fund may purchase or sell securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such purchase commitments only with the
intention of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for investment reasons.
The Fund may utilize spot and forward foreign currency exchange transactions to
reduce the risk inherent in fluctuations in the exchange rate between one
currency and another when securities are purchased or sold on a when-issued or
delayed-delivery basis.
The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a
reverse repurchase agreement may be preferable to a regular sale and later
repurchase of securities because it avoids certain market risks and transaction
costs.
At the time the Fund enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, liquid
assets (cash, U.S. Government securities or other "high-grade" debt obligations)
of the Fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the Fund and held
by the custodian throughout the period of the obligation. The use of these
investment strategies, as well as borrowing under a line of credit as described
below, may increase net asset value fluctuation.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to broker-dealers and banks, provided that it may not lend securities if, as a
result, the aggregate value of all securities loaned would exceed 33 1/3% of its
total assets. Any such loan must be continuously secured by collateral (cash or
U.S. Governmental Securities). In the event of bankruptcy or other default of
the borrower, the Fund could experience both delays in liquidating the loan
collateral or recovering the loaned securities and losses.
6
<PAGE> 12
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not: (1) act as an underwriter for securities; (2) purchase or
sell real estate or commodities (except futures contracts and forward currency
contracts); (3) make loans (except that it may purchase debt obligations, invest
in repurchase agreements and loan portfolio securities, subject to certain
limitations); (4) borrow money (except that it may borrow up to 33 1/3% of its
total assets as a temporary measure for extraordinary or emergency purposes);
(5) invest 25% or more of its total assets in securities of issuers of any
particular industry (excluding U.S. Governmental securities); or (6) issue any
senior security (except to the extent permitted under the Investment Company Act
of 1940). The policies summarized in this paragraph and the Fund's investment
objective along with any investment policies designated as fundamental are
fundamental policies and, as such, can be changed only with the approval of a
"majority of the outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. All of the investment restrictions are set
forth in the Statement of Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No investment
is suitable for all investors. THE FUND IS INTENDED FOR LONG-TERM INVESTORS WHO
CAN ACCEPT THE RISKS ENTAILED IN INVESTING IN FOREIGN SECURITIES. Of course,
there can be no guarantee that the Fund will achieve its objective. In
addition, although the Adviser acts as portfolio manager for four Canadian
registered investment companies, it has not previously served as an investment
adviser for a U.S. registered investment company.
The Fund is NON-DIVERSIFIED, meaning that it is not limited in the proportion
of its assets that it may invest in the obligations of a single issuer or in a
single country. The Fund will, however, comply with diversification
requirements imposed by the Internal Revenue Code for qualification as a
regulated investment company. As a non-diversified fund, the Fund may invest a
greater proportion of its assets in the obligations of a small number of
issuers, and, may be subject to greater risk and substantial losses as a result
of changes in the financial condition or the market's assessment of the issuers.
FOREIGN INVESTING. Investing outside the United States involves different
opportunities and different risks than domestic investments. The Adviser
believes that it may be possible to obtain significant returns from the Fund's
portfolio of foreign investments and to achieve increased diversification in
comparison to a personal investment portfolio invested solely in United States
securities. An investor may gain increased diversification by adding securities
from various foreign countries which offer different investment opportunities,
are affected by different economic trends and whose stock markets do not move in
a manner parallel to United States markets. At the same time, these
opportunities and trends involve risks that may not be encountered in United
States investments.
Investors should understand and consider carefully the greater risks involved
in foreign investing. Investing in foreign securities--positions which are
generally denominated in foreign currencies--and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulations or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in the
securities of companies in developing as well as developed countries;
7
<PAGE> 13
and sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements. These risks are greater for
emerging market countries.
Although the Fund will try to invest in companies and governments of countries
having stable or improving political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, and other adverse political, social or
diplomatic developments that could affect investment in these nations.
The risks described above, including the risks of nationalization and
expropriation of assets, are typically increased to the extent that the fund
invests in issuers located in less developed and developing nations, whose
securities markets are sometimes referred to as "emerging securities markets."
Investments in securities located in such countries are speculative and subject
to certain special risks. Political and economic structure in many of these
countries may be in their infancy and developing rapidly, and such countries may
lack the social, political and economic characteristic of more developed
countries. Certain of these countries have in the past failed to recognize
private property rights and have at times nationalized and expropriated the
assets of private companies.
The currencies of certain emerging market countries have experienced a steady
devaluation relative to the U.S. dollar, and continued devaluations may
adversely affect the value of a fund's assets denominated in such currencies.
Many emerging market companies have experienced substantial, and in some periods
extremely high, rates of inflation for many years, and continued inflation may
adversely affect the economies and securities markets of such countries.
In addition, unanticipated political or social developments may affect the
values of the Fund's investments in these countries and the availability to the
fund of additional investments in these countries. The small size, limited
trading volume and relative inexperience of the securities markets in these
countries may make the Fund's investments in such countries illiquid and more
volatile than investments in more developed countries, and the Fund may be
required to establish special custodial or other arrangements before making
investments in these countries. There may be little financial or accounting
information available with respect to issuers located in these countries, and it
may be difficult as a result to assess the value or prospects of an investment
in such issuers.
The price of securities of small, rapidly growing companies is expected to
fluctuate more widely than the general market due to the difficulty in assessing
financial prospects of companies developing new products or operating in
countries with developing markets.
To the extent portfolio securities are issued by foreign issuers or
denominated in foreign currencies, the Fund's investment performance is affected
by the strength or weakness of the U.S. dollar against these currencies. If the
dollar falls relative to the Japanese yen, for example, the dollar value of a
yen-denominated stock held in the portfolio will rise even though the price of
the stock remains unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock will fall. (See the
discussion of portfolio and transaction hedging under "The Fund -- Portfolio
Investments and Strategies".)
PORTFOLIO TURNOVER. High portfolio turnover in any year may make it more
difficult to comply with the requirements of Subchapter M of the Internal
Revenue Code, may result in the payment by shareholders of greater amounts of
taxes, and may generate additional dealer mark-ups or underwriting commissions
as well as other transaction costs, including correspondingly higher annual
brokerage commissions.
DERIVATIVES. The Fund may invest in certain types of Derivatives including
options on securities and indexes, futures contracts and options on futures
contracts. The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of movements in
currency exchange rates, security prices, interest rates and other market
factors affecting the Derivative itself or the value of the underlying
8
<PAGE> 14
asset or benchmark. In addition, correlations in the performance of an
underlying asset to a Derivative may not be well established. Finally,
privately negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded Derivatives. For
additional information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide additional
revenue, or to hedge against changes in security prices, interest rates or
currency fluctuations, the Fund may: (1) purchase and write both call options
and put options on securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3) write options
on such futures contracts; and (4) purchase other types of forward or investment
contracts linked to individual securities, indexes, or other benchmarks. The
Fund may write a call or put option only if the option is covered. As the
writer of a covered call option, the Fund forgoes, during the option's life, the
opportunity to profit from increases in market value of the security covering
the call option above the sum of the premium and the exercise price of the
call. There can be no assurance that a liquid market will exist when the Fund
seeks to close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves a high degree
of leverage and may result in losses in excess of the amount of the margin
deposit. See "Portfolio Investment and Strategies -- Derivatives" in the
Statement of Additional Information for further information regarding the risks
associated with investing in Derivatives.
OTHER INVESTMENT PRACTICES. The Fund may lend portfolio securities. The risks
of such transactions are described more fully in the Statement of Additional
Information under "Portfolio Investment and Strategies."
HOW TO PURCHASE SHARES
----------------------
The initial purchase minimum per Fund account is $100,000. Subsequent
purchases must be at least $20,000. These minimums may be waived in the
discretion of Driehaus Securities Corporation ("DSC"), the Fund's Distributor.
Shares of the Fund are sold at the net asset value next calculated after
receipt of a purchase order and payment in good form. If an order is placed at
or prior to the close of regular trading on the New York Stock Exchange (the
"NYSE") (normally 3:00 p.m., Central time) on any business day, the purchase of
shares is executed at the net asset value determined as of the closing time that
day. If the order is placed after that time, it will be effected on the next
business day.
In order to purchase shares, an investor must fill out an Application. All
purchases are confirmed to the investor in writing except purchases made by
reinvestment of dividends, which will be confirmed quarterly. If no indication
is made on the Application, dividends and distributions payable by the Fund are
automatically reinvested in additional shares of the Fund.
Purchase orders must be submitted to the Fund together with payment for the
purchase price of the shares ordered and, in the case of a new account, a
completed Application, to Driehaus Mutual Funds c/o PFPC, P.O. Box 8855,
Wilmington, DE 19899-8855 or for overnight deliveries, to Driehaus Mutual Funds
c/o PFPC, 400 Bellevue Parkway, Suite 108, Wilmington, DE 19809-3710. Payment
may be made by check or wire transfer. Checks must be made payable to the Fund.
Checks from persons who are not advisory clients of the Adviser or who do not
have a brokerage account with Driehaus Securities Corporation must be bank or
certified checks. The Fund, at its option, may accept a check that is not a bank
or certified check. A purchase order on behalf of a client who has an investment
advisory account with the Adviser or a brokerage account with Driehaus
Securities Corporation is effected upon confirmation of a verified credit
balance at least equal to the amount of the purchase order (subject to the
minimum investment requirements set forth above).
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<PAGE> 15
Wire transfer instructions should be as follows: PNC Bank, N.A., ABA #: 031-
000-053, Credit: Driehaus Purchase Account, Bank Account #: 86-1108-2419,
Further Credit: (Shareholders Name/Acct #).
Individual Retirement Accounts ("IRAs") may be set up. For details, call
1-800-560-6111. Investors should also read the IRA Disclosure Statement and Bank
Custodial Agreement for further details on eligibility, service fees and tax
implications.
Each purchase order must be accepted by an authorized officer of the Trust and
is not binding until accepted and entered on the books of the Fund. The Fund
reserves the right not to accept any purchase order that it determines not to be
in the best interests of the Fund or its shareholders. The Fund also reserves
the right to change its investment minimums for any reason.
Shares of the Fund will not be offered in any state where the Fund is not
registered.
PURCHASES THROUGH THIRD PARTIES. Investors may purchase (or redeem) shares
through investment dealers or other financial institutions. These institutions
may charge for their services or place limitations on the extent to which you
may use the services offered by the Trust. There are no charges or limitations
imposed by the Trust, other than those described in this prospectus, if shares
are purchased (or redeemed) directly from the Trust.
HOW TO REDEEM SHARES
--------------------
BY WRITTEN REQUEST. Shares of the Fund may be redeemed by submitting a
written request in "good order" to the Fund at Driehaus Mutual Funds c/o PFPC,
P.O. Box 8855, Wilmington, DE 19899-8855. A redemption request will be
considered to have been received in good order if the following conditions are
satisfied:
(1) The request must be in writing, and must indicate the number of shares
or dollar amount to be redeemed and identify the shareholder's account
number;
(2) The request must be signed by the shareholder(s) exactly as the shares
are registered;
(3) Unless the proceeds of the redemption are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of
record, the signatures on the written redemption request must be
guaranteed by a commercial bank, trust company, savings and loan
association, federal savings bank, member firm of a national securities
exchange or other eligible financial institution.
(4) Corporations and associations must submit with each request a completed
certificate of authorization in a form of resolution acceptable to the
Fund; and
(5) The request must include other supporting legal documents as required
from organizations, executors, administrators, trustees, or other acting
on accounts not registered in their names.
GENERAL REDEMPTION POLICIES. A shareholder may not cancel or revoke a
redemption order once instructions have been received and accepted. The Fund
cannot accept a redemption request that specifies a particular date or price for
redemption or any special conditions.
The price at which a redemption order will be executed is the net asset
value next determined after proper redemption instructions are received. (See
"Net Asset Value".) Because the redemption price received depends upon the
Fund's net asset value per share at the time of redemption, it may be more or
less than the price originally paid for the shares and may result in a realized
capital gain or loss.
The Fund will generally mail payment for shares redeemed within seven days
after proper instructions are received. If so requested, the Fund will pay
proceeds by wire, usually on the next business day. The Fund is not responsible
for the efficiency of the federal wire system or the shareholder's financial
services firm or bank. The Fund currently charges the shareholder $25 for wire
transfers. The shareholder is responsible for any charges imposed by the
shareholder's firm or bank. There is a $5,000 wire redemption minimum.
Redemptions of shares
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<PAGE> 16
within 15 days after they have been purchased by check may be delayed until it
can be verified that payment for the purchase of those shares has been (or will
be) collected. Such delays may be avoided if shares are purchased by certified
or bank check or by wire transfer.
The Fund reserves the right to redeem shares in any account and send the
proceeds to the owner if immediately after a redemption, the shares in the
account do not have a value of at least $50,000. A shareholder would be
notified that the account is below the minimum and would be allowed 30 days to
increase the account before the redemption is processed.
Shares in any account maintained with the Fund may be redeemed by the Fund
to the extent necessary to reimburse the Fund for any loss it sustains that is
caused by a shareholder (such as losses from uncollected checks for the purchase
of shares, or any Fund liability under the Internal Revenue Code provisions on
backup withholding).
NET ASSET VALUE
---------------
The purchase and redemption price of the Fund's shares is its net asset
value per share. The net asset value of a share of the Fund is determined as of
the close of regular trading on the New York Stock Exchange ("NYSE") (normally
3:00 p.m., Central time) by dividing the difference between the values of the
Fund's assets and liabilities by the number of shares outstanding. Net asset
value will not be determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination will be made at 3:00
p.m., Central time.
In computing the net asset value of the Fund, the values of portfolio
securities are generally based upon market quotations. Depending upon local
convention or regulation, these market quotations may be the last sale price,
last bid or asked price, or the mean between the last bid and asked prices as
of, in each case, the close of the appropriate exchange or other designated
time. Trading in securities on European and Far Eastern Securities exchanges
and over-the-counter markets is normally completed at various times before the
close of business on each day on which the NYSE is open. Trading of these
securities may not take place on every NYSE business day. In addition, trading
may take place in various foreign markets on Saturdays or on other days when the
NYSE is not open and on which the Fund's net asset value is not calculated.
Therefore, such calculation does not take place contemporaneously with the
determination of the prices of many of the portfolio securities used in such
calculation and the value of the Fund's portfolio may be significantly affected
on days when shares of the fund may not be purchased or redeemed.
DISTRIBUTIONS AND TAXES
-----------------------
DISTRIBUTIONS. Income dividends for the Fund are normally declared and
paid annually. The Fund intends to distribute by the end of each calendar year
at least 98% of any net capital gains realized from the sale of securities
during the twelve-month period ended October 31 in that year. The Fund intends
to distribute any undistributed net investment income and net realized capital
gains in the following year.
All income dividends and capital gain distributions will be reinvested in
additional shares unless an investor elects to have distributions either (1)
paid by check; or (2) deposited by electronic transfer into a bank checking
account. Reinvestment into the same Fund account normally occurs one business
day after the record date. If an investor chooses to receive distributions in
cash, a distribution check normally will be mailed approximately 15 days after
the record date. The Fund reserves the right to reinvest the proceeds and
future distributions in additional Fund shares if distribution checks are
returned as undeliverable or are not presented for payment within six months.
U.S. FEDERAL INCOME TAXES. The Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code so that it
will not be subject to federal income tax to the extent its
11
<PAGE> 17
earnings are distributed. Distributions will be taxable, under federal income
tax law, whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in January but was
declared in October, November, or December of the prior calendar year is deemed
paid in the prior calendar year. When buying shares of the Fund on or before
the record date of a dividend, shareholders should be aware that the amount of
any forthcoming dividend payment, although in effect a return of capital to that
particular shareholder, will be taxable as described below. Moreover, because
the Fund succeeded to the tax basis of the assets of the Limited Partnership,
shareholders should be aware that as portfolio securities with pre-existing
capital gains are sold, the gains recognized will be distributed to Fund
shareholders as dividends and will be taxable.
Dividends derived from net investment income and net short-term capital
gain will be subject to federal income tax at ordinary rates. Distributions of
net long-term capital gains will be taxable as long-term capital gain regardless
of the length of time the shares have been held. Long-term capital gain
distributions received by individual shareholders will be taxed at a maximum
rate of 28%. It is not anticipated that dividends paid by the Fund will qualify
for the dividends received deduction available to corporate shareholders.
Gains and losses attributable to fluctuations on the value of foreign
currencies will be generally characterized as ordinary gain or loss.
The Fund will advise shareholders annually as to the source of
distributions for tax purposes. If a shareholder is not subject to tax on
income, the shareholder will not be required to pay federal income tax on these
amounts.
If a loss is realized on the sale of Fund shares held for six months or
less, any short-term loss resulting from the sale is recharacterized as long-
term to the extent of any long-term capital gain distributions received with
respect to those shares.
FOREIGN INCOME TAXES. Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries that entitle the Fund to a reduced rate of tax or exemption from tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of the Fund's assets to be invested within various
countries will fluctuate and the extent to which tax refunds will be recovered
is uncertain. The Fund intends to operate so as to qualify for treaty-reduced
tax rates where applicable.
To the extent that the Fund is liable for foreign income taxes, the Fund
also intends to elect and operate so as to meet the requirements of the U.S.
Internal Revenue Code to "pass through" to the Fund's shareholders foreign
income taxes paid, but there can be no assurance that the Fund will be able to
do so. If this election is made, shareholders will be able to claim a credit or
deduction on their income tax returns for, and will be required to treat as part
of the amounts distributed to them, their pro rata portion of the income taxes
paid by the Fund to foreign countries (which taxes relate primarily to
investment income). The shareholders of the Fund may claim a credit by reason
of the Fund's election, subject to certain limitations imposed by the Code.
Also, under the Code, no deduction for foreign taxes may be claimed by
individual shareholders who do not elect to itemize deductions on their federal
income tax returns; although such a shareholder may claim a credit for foreign
taxes and in any event will be treated as having taxable income in the amount of
the shareholder's pro rata share of foreign taxes paid by the Fund.
This discussion of U.S. and foreign taxation is not intended to be a full
discussion of income tax laws and their effect on shareholders. Investors may
wish to consult their own tax advisor. The foregoing information applies to
U.S. shareholders. Foreign shareholders should consult their tax advisors as to
the tax consequences of ownership of Fund shares.
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<PAGE> 18
BACKUP WITHHOLDING. The Trust may be required to withhold federal income
tax ("backup withholding") at a 31% rate from taxable dividend and redemption
proceeds paid to certain shareholders. Backup withholding may be required if:
. An investor fails to furnish your properly certified social security
or other tax identification number;
. An investor fails to certify that the investor's tax identification
number is correct or that the investor is not subject to backup
withholding due to the under-reporting of certain income;
. The Internal Revenue Service informs the Trust that the investor's tax
identification number is incorrect.
These certifications are contained in the Application that should be completed
and returned when opening an account. The Fund must promptly pay to the IRS all
amounts withheld. Therefore, it is usually not possible for the Fund to
reimburse a shareholder for amounts withheld. A shareholder may, however, claim
the amount withheld as a credit on the shareholder's federal income tax return.
INVESTMENT RETURN
-----------------
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the change in the
net asset value per share for a given period. A total return percentage may be
calculated by dividing the value of a share at the end of the period (including
reinvestment of distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual total return
may be calculated by finding the average annual compounded rate that would
equate a hypothetical $1,000 investment to the ending redeemable value.
Comparison of the Fund's total return with alternative investments should
consider differences between the Fund and the alternative investments, the
periods and methods used in calculation of the return being compared, and the
impact of taxes on alternative investments. Of course, past performance is not
necessarily indicative of future results.
Although the Fund commenced operations as a registered investment company on
October 28, 1996, it succeeded to the assets of the Limited Partnership, which
was managed following substantially the same investment objective, policies and
philosophies as are currently followed by the Fund. The investment returns of
the Limited Partnership, restated to reflect the expenses of the Fund as shown
in the Fee Table, for the period from inception of the Limited Partnership
through June 30, 1996 are shown below. The Limited Partnership was not
registered under the Investment Company Act of 1940 (the "1940 Act") and thus
was not subject to certain investment and operational restrictions imposed by
the 1940 Act. If the Limited Partnership had been registered under the 1940 Act,
its performance might have been adversely affected. Also shown for comparison is
the performance for the same time period for the Morgan Stanley Capital
International Europe, Australia and Far East Index (EAFE Index).
13
<PAGE> 19
DRIEHAUS INTERNATIONAL LARGE CAP FUND, L.P.
(PREDECESSOR FUND OF THE DRIEHAUS INTERNATIONAL GROWTH FUND)
TOTAL RETURN
SINCE INCEPTION ON JULY 1, 1990
<TABLE>
<CAPTION>
Total Return for the Years Ending
---------------------------------------------------------------------
Cumulative
Gain
Inception Inception 6 Months
through through Ended
June 30, 1996 Dec. 31, 1990 1991 1992 1993 1994 1995 June 30, 1996
--------------- ------------- ------ ------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Driehaus International
Large Cap Fund........... 168.9% -10.2% 21.7% 8.6% 73.7% -13.6% 18.1% 28.0%
EAFE Index (Europe,
Australia, Far East)
in US$*.................. 42.4% -12.9% 12.1% -12.2% 32.6% 7.8% 11.2% 4.5%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return for the Periods Ending June 30, 1996
----------------------------------------------------------------
Inception
through
June 30, 1996 5 Year 3 Year 1 Year
---------------- ------ ------ ------
<S> <C> <C> <C> <C>
Driehaus International Large Cap
Fund............................. 17.9% 20.6% 23.5% 44.5%
EAFE Index (Europe, Australia, Far
East) in US$*.................... 6.1% 10.0% 10.4% 13.3%
</TABLE>
- ----------------
* The Morgan Stanley Capital International Europe, Australia and Far East Index
(EAFE Index) is a widely recognized benchmark of non-US stock markets. It is
composed of a sample of companies representative of the market structure of 18
European and Pacific Basin countries. These eighteen countries are Australia,
Belgium, Denmark, Finland, France, Germany, Great Britain, Hong Kong, Italy,
Japan, Netherlands, New Zealand, Norway, Singapore, Malaysia, Spain, Sweden,
and Switzerland. The index included above is calculated in U.S. dollars,
includes the reinvestment of dividends and is net of foreign withholding taxes
based upon rates applicable to a Luxembourg holding company. The average
market capitalization of the securities in the EAFE Index was $4.7 billion as
of December, 1995. The unweighted average market capitalization of the
securities in the Driehaus International Large Cap Fund was $3.2 billion as of
December, 1995.
MANAGEMENT OF THE FUND
----------------------
TRUSTEES AND ADVISER. The Board of Trustees of the Trust has overall
management responsibility for the Fund. See the Statement of Additional
Information for the names of and additional information about the trustees and
officers. The Fund's Adviser, Driehaus Capital Management, Inc., 25 East Erie
Street, Chicago, Illinois 60611, is responsible for managing the Fund, subject
to the direction of the Board of Trustees. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940. The Adviser was
organized in 1982, and currently manages $2 billion in assets. The Adviser is
wholly owned by Richard H. Driehaus.
PORTFOLIO MANAGER. William R. Andersen, a Vice President of Adviser, has been
the portfolio manager of the Fund since the commencement of operations on
October 28, 1996. Prior to the Fund's commencement date, Mr. Andersen was the
portfolio manager for the Limited Partnership since its inception in July 1990.
Mr. Andersen has primary responsibility for making all investment decisions on
behalf of the Fund. He is assisted by portfolio analysts who specialize in
various markets, including Western Europe, Asia, emerging markets and Canada.
In addition to the Fund, Mr. Andersen is the portfolio manager for three
Canadian mutual funds, including a global fund.
14
<PAGE> 20
Mr. Andersen was born in 1959 and is a graduate of Stanford University, where
he received a B.A. in economics in 1981. In 1985, Mr. Andersen received his
M.B.A. from the University of Chicago, where he concentrated in finance. Mr.
Andersen is a Chartered Financial Analyst. Mr. Andersen has been employed by
DSC and the Adviser since 1985. From 1985 to 1989, Mr. Andersen was employed by
DSC as a security analyst and, as such, was responsible for several industry
groups in which DSC maintained investments for clients. In May 1989, while
continuing to act as a senior investment analyst for DSC, Mr. Andersen became a
portfolio manager for the Adviser.
FEES AND EXPENSES. In return for its services, the Adviser receives a monthly
fee from the Fund, computed and accrued daily, at an annual rate of 1.5% of
average net assets. This fee is higher than the fees paid by most mutual funds.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the purchase and
sale of portfolio securities and sale of portfolio securities and options and
futures transactions for the Fund. In doing so, the Adviser seeks to obtain the
best combination of price and execution, which involves a number of judgmental
factors. The Fund has been advised by the Adviser that it intends to execute
most transactions in ADRs through DSC, a registered broker-dealer and an
affiliate of the Adviser, to the extent that the combination of price and
execution are comparable to that of other broker-dealers. See also, "Portfolio
Investments and Strategies -- Portfolio Turnover and Transactions."
ADMINISTRATOR. PFPC Inc. ("PFPC"), 103 Bellevue Parkway, Wilmington, Delaware
19809, is the administrator for the Trust. In such capacity, PFPC assists the
Trust in all aspects of its administration and operation, including certain
accounting services. In compensation for its services, PFPC receives a monthly
fee based upon average net assets, with a minimum monthly fee of $9,500, plus
out-of-pocket expenses. PFPC has agreed to waive a portion of its fees during
the first year.
TRANSFER AGENT. PFPC is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR. The shares of the Fund are offered for sale through DSC, an
affiliate of the Adviser, without any sales commissions or charges to the Fund
or to its shareholders. DSC is located at 25 East Erie Street, Chicago,
Illinois 60611 and is wholly owned by Richard H. Driehaus. All distribution and
promotional expenses are paid by the Adviser, including any payments to DSC for
sales of Fund shares.
CUSTODIAN. Morgan Stanley Trust Company (the "Bank") is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign banks and
trust companies that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the Statement of
Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
--------------------------------------
The Trust is a Delaware business trust organized under an Agreement and
Declaration of Trust ("Declaration of Trust") dated May 31, 1996. The
Declaration of Trust may be amended by a vote of either the Trust's shareholders
or its trustees. The Trust may issue an unlimited number of shares, in one or
more series or classes as the Board may authorize. Currently, one series is
authorized and outstanding.
15
<PAGE> 21
DRIEHAUS MUTUAL FUNDS
Driehaus International Growth Fund
Supplement to Statement of Additional Information
dated October 28, 1996
Portfolio Investments and Strategies - Derivatives
Consistent with its objective, the Fund may invest in a broad array of
financial instruments and securities, commonly referred to as "derivatives."
The Fund may enter into swaps and similar transactions, such as caps, floors
and collars, involving or relating to currencies, securities, interest rates,
prices or other items. The Fund intends to use interest rate, currency and
index swaps as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay. A
swap transaction is an individually negotiated, non-standardized agreement
between two parties to exchange cash flows (and sometimes principal amounts)
measured by different interest rates, exchange rates, indices or prices, with
payments generally calculated by reference to a principal ("notional") amount
or quantity. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase
of a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Adviser and the Fund believe
such obligations do not constitute senior securities under the Investment
Company Act of 1940, as amended (the "1940 Act"), and, accordingly, will not
treat them as being subject to its borrowing restrictions. Swap contracts are
not traded on exchanges; rather, banks and dealers act as principals in these
markets. As a result, the Fund will be subject to the risk of the inability or
refusal to perform with respect to such contracts on the part of the
counterparties with which the Fund trades. If there is a default by a
counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market is generally not regulated by any
governmental authority. Participants in the swap markets are not required to
make continuous markets in the swap contracts they trade.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Principal Shareholders - As of March 31, 1997, the following persons owned of
record or beneficially five percent or more of the shares of the Fund:
<TABLE>
<CAPTION>
NAME PERCENTAGE OWNED
- ---- ----------------
<S> <C>
Mac & Co. 10.36%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15320-3198
Museum Associates DBA Los Angeles County Museum of Art 5.94%
5905 Wilshire Blvd.
Los Angeles, CA 90036
The Bank of New York Company 5.72%
One Wall Street, 12th Fl.
New York, NY 10286
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
Samuel H. Kress Foundation 5.38%
174 E. 80th St.
New York, NY 10021
</TABLE>
Management - The following chart sets forth updated data with respect to
trustees and officers of the trust:
<TABLE>
<CAPTION>
NAME; AGE; ADDRESS POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
TRUST
<S> <C> <C>
Richard H. Driehaus, Age 54 Chairman of the Board; Chairman of the Board and Chief Executive Officer of
25 East Erie Street President the Adviser and DSC
Chicago, IL 60601
Arthur B. Mellin, Age 54 Trustee President, Mellin Securities Incorporated
190 south LaSalle Street
Chicago, IL 69603
Robert F. Moyer, Age 50 Trustee; Vice President President and Chief Operating Officer of the Adviser
25 East Erie Street and DSC, since 1995; Senior Vice President prior
Chicago, IL 60601 thereto
A.R. Umans, Age 70 Trustee President and Chief Executive Officer, RHC/Spacemaster
1400 North 25th Avenue Corporation (manufacturing company)
Melrose Park, IL 60160
Daniel Zemanek, Age 54 Trustee President, Santa Fe Chicken and Executive Vice
2301 Leghorn President, Pollo Rey, Inc. (creator of Pollo Rey
Mountain View, CA 94043 restaurants), since 1996; brokered real estate loans
for private and institutional investors in California
from 1991-1996; President, Shell Realty from 1985-1991
William R. Andersen, Age 38 Vice President Vice President of the Adviser; Portfolio Manager of the
25 East Erie Street Adviser prior thereto
Chicago, IL 60601
Diane L. Wallace, Age 38 Vice President; Treasurer Senior Vice President-Operations of the Adviser and
25 East Erie Street DSC, since 1996; Vice President prior thereto
Chicago, IL 60601
Mary H. Weiss, Age 48 Vice President; Secretary Vice President, Secretary and Chief Legal Counsel of
25 East Erie Street the Adviser and DSC since February 1995; prior thereto,
Chicago, IL 60601 Assistant Regional Director, U.S. Securities and
Exchange Commission
</TABLE>
The financial statements appearing in the Driehaus International Growth Fund's
Semi-Annual Report to Shareholders are incorporated herein by reference. The
Report accompanies this document.
The date of this supplement is April 25, 1997.
<PAGE> 23
Statement of Additional Information Dated October 28, 1996
DRIEHAUS MUTUAL FUNDS
25 East Erie Street
Chicago, Illinois 60611
1-800-560-6111
DRIEHAUS INTERNATIONAL GROWTH FUND
The Driehaus International Growth Fund is a series of the Driehaus Mutual
Funds (the "Trust"). This Statement of Additional Information is not a
prospectus, but provides additional information that should be read in
conjunction with the Fund's prospectus dated October 28, 1996, and any
supplements thereto ("Prospectus"). The Prospectus may be obtained at no charge
by telephoning 800-560-6111.
TABLE OF CONTENTS
-----------------
Page
General Information and History.........................................
Portfolio Investments and Strategies....................................
Investment Restrictions.................................................
Purchases and Redemptions...............................................
Management..............................................................
Principal Shareholders..................................................
Investment Advisory Services............................................
Administrator...........................................................
Distributor.............................................................
Transfer Agent..........................................................
Custodian...............................................................
Independent Public Accountants..........................................
Portfolio Transactions..................................................
Additional Income Tax Considerations....................................
Investment Performance..................................................
Report of Independent Auditors Statement of Net Assets..................
Appendix--Ratings.......................................................
<PAGE> 24
GENERAL INFORMATION AND HISTORY
-------------------------------
As used herein, "the Fund" refers to the series of the Trust designated
Driehaus International Growth Fund. Currently, the Fund is the only series of
the Trust that is authorized and outstanding.
Driehaus Capital Management, Inc. (the "Adviser") provides management and
investment advisory services to the Fund.
Each share of a series is entitled to participate pro rata in any dividends
and other distributions declared by the Board on shares of that series, and all
shares of a series have equal rights in the event of liquidation of that series.
As a business trust, the Trust is not required to hold annual shareholder
meetings. However, special meetings may be called for purposes such as electing
or removing trustees, changing fundamental policies, or approving an investment
advisory contract. If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, the Trust will call a special meeting for the
purpose of voting upon the question of removal of a trustee or trustees and will
assist in the communications with other shareholders as if the Trust were
subject to Section 16(c) of the Investment Company Act of 1940. All shares of
all series of the Trust are voted together in the election of trustees. On any
other matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series, except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the Board of Trustees determines that the matter affects
only the interests of one or more series, in which case shareholders of the
unaffected series are not entitled to vote on such matters.
On October 28, 1996, the Fund succeeded to the assets of the Driehaus
International Large Cap Fund, L.P.
PORTFOLIO INVESTMENTS AND STRATEGIES
------------------------------------
FOREIGN SECURITIES
- ------------------
The Fund invests primarily in foreign securities, which may entail a
greater degree of risk (including risks relating to exchange rate fluctuations,
tax provisions, or expropriation of assets) than does investment in securities
of domestic issuers. The Fund may also purchase foreign securities in the form
of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receivables (GDRs), or other securities representing
underlying shares of foreign issuers. Positions in these securities are not
necessarily denominated in the same currency as the common stocks into which
they may be converted. ADRs are receipts typically issued by an American bank
or trust company evidencing ownership of the underlying securities. EDRs and
GDRs are European receipts evidencing a similar arrangement. Generally, ADRs
are designed for the U.S. securities markets and EDRs and GDRS are designed for
use in European and other foreign securities markets. EDRs and GDRs are not
necessarily denominated in the currency of the underlying security. The Fund
may invest in sponsored or unsponsored ADRs. ln the case of an unsponsored ADR,
the Fund is likely to bear its proportionate share of the expenses of the
depository and it may have greater difficulty in receiving shareholder
communications than it would have with a sponsored ADR.
With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, the Fund's investment performance is affected
by the strength or weakness of the U.S. dollar against these currencies. For
example, if the dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging under Currency
Exchange Transactions.)
B-1
<PAGE> 25
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements.
Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
Currency Exchange Transactions. Currency exchange transactions may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and broker-
dealers, are not exchange traded, and are usually for less than one year, but
may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The Fund's currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or portfolio positions, except to the extent
described below under "Synthetic Foreign Money Market Positions." Transaction
hedging is the purchase or sale of forward contracts with respect to specific
receivables or payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities. Portfolio hedging is the use of forward
contracts with respect to portfolio security positions denominated or quoted in
a particular currency. Portfolio hedging allows the Adviser to limit or reduce
exposure in a foreign currency by entering into a forward contract to sell or
buy such foreign currency (or another foreign currency that acts as a proxy for
that currency) so that the U.S. dollar value of certain underlying foreign
portfolio securities can be approximately matched by an equivalent U.S. dollar
liability. The Fund may not engage in portfolio hedging with respect to the
currency of a particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that particular currency, except that the Fund may
hedge all or part of its foreign currency exposure through the use of a basket
of currencies or a proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, the Fund may enter into a
forward contract where the amount of the foreign currency to be sold exceeds the
value of the securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund. The Fund may not
engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular currency, the
Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
B-2
<PAGE> 26
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
Synthetic Foreign Money Market Positions. The Fund may invest in money
market instruments denominated in foreign currencies. In addition to, or in
lieu of, such direct investment, the Fund may construct a synthetic foreign
money market position by (a) purchasing a money market instrument denominated in
one currency, generally U.S. dollars, and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that currency in exchange
for a different currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen could be
constructed by purchasing a U.S. dollar money market instrument, and entering
concurrently into a forward contract to deliver a corresponding amount of U.S.
dollars in exchange for Japanese yen on a specified date and at a specified rate
of exchange. Because of the availability of a variety of highly liquid short-
term U.S. dollar money market instruments, a synthetic money market position
utilizing such U.S. dollar instruments may offer greater liquidity than direct
investment in foreign currency money market instruments. The result of a direct
investment in a foreign currency and a concurrent construction of a synthetic
position in such foreign currency, in terms of both income yield and gain or
loss from changes in currency exchange rates, in general should be similar, but
would not be identical because the components of the alternative investments
would not be identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a foreign
currency, the synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the policy that, under normal conditions, the
Fund will invest at least 65% of its total assets in at least three countries
other than the United States.
LENDING OF PORTFOLIO SECURITIES
- -------------------------------
Subject to restriction (3) under Investment Restrictions in this Statement
of Additional Information, the Fund may lend its portfolio securities to broker-
dealers and banks. Any such loan must be continuously secured by collateral in
cash or cash equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
B-3
<PAGE> 27
paid by the issuer on the securities loaned, and would also receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities if, in the
Adviser's judgment, a material event requiring a shareholder vote would
otherwise occur before the loan was repaid. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in liquidating
the loan collateral or recovering the loaned securities and losses, including
(a) possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights.
REPURCHASE AGREEMENTS
- ---------------------
The Fund may invest in repurchase agreements, provided that it will not
invest more than 15% of net assets in repurchase agreements maturing in more
than seven days and any other illiquid securities. A repurchase agreement is a
sale of securities to the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of bankruptcy of the
seller, the Fund could experience both losses and delays in liquidating its
collateral.
WARRANTS
- --------
The Fund may purchase warrants, which are instruments that give holders the
right, but not the obligation, to buy shares of a company at a given price
during a specified period. Warrants are generally sold by companies intending to
issue stock in the future, or by those seeking to raise cash by selling shares
held in reserve.
B-4
<PAGE> 28
SHORT SALES
- -----------
The Fund may make short sales "against the box." In a short sale, the Fund
sells a borrowed security and is required to return the identical security to
the lender. A short sale "against the box" involves the sale of a security with
respect to which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables the Fund to obtain the current
market price of a security that it desires to sell but is unavailable for
settlement.
RULE 144A SECURITIES
- --------------------
The Fund may purchase securities that have been privately placed but that
are eligible for purchase and sale under Rule 144A under the 1933 Act. That
Rule permits certain qualified institutional buyers, such as the Fund, to trade
in privately placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of Trustees, will
consider whether securities purchased under Rule 144A are illiquid and thus
subject to the Fund's restriction of investing no more than 15% of its net
assets in illiquid securities. A determination of whether a Rule 144A security
is liquid or not is a question of fact. In making this determination, the
Adviser will consider the trading markets for the specific security, taking into
account the unregistered nature of a Rule 144A security. In addition, the
Adviser could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make a market, and
(4) nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and, if as
a result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
LINE OF CREDIT
- --------------
Subject to restriction (4) under Investment Restrictions in this Statement
of Additional Information, the Fund may establish and maintain a line of credit
with a major bank in order to permit borrowing on a temporary basis to meet
share redemption requests in circumstances in which temporary borrowing may be
preferable to liquidation of portfolio securities.
PORTFOLIO TURNOVER
- ------------------
The Fund will not consider portfolio turnover rate a limiting factor in
making investment decisions consistent with its investment objective and
policies. Portfolio turnover is commonly measured by dividing the cost of
purchases in a portfolio by the average investment (i.e., the cumulative total
investment in the account at the end of each month, divided by the number of
months under consideration). High portfolio turnover should result from the
Fund's investment strategy, which considers market timeliness (i.e., the
likelihood or expectation that value of any stock purchased will increase in the
immediate future). Under normal market conditions, only securities that
increase in value shortly after purchase and that generally continue to increase
in value (although they may experience temporary stagnant or declining periods)
will be retained in the Fund's portfolio. Securities sold by the Fund may be
purchased again at a later date when the Adviser perceives that the securities
are again "timely." In addition, adjustments to the portfolio of the Fund will
be made when conditions affecting relevant markets, particular
B-5
<PAGE> 29
industries or individual issues, warrants such action. High portfolio turnover
in any year may make it more difficult to comply with the requirements of
Subchapter M of the Internal Revenue Code, may result in the payment by
shareholders of greater amounts of taxes, and may generate additional dealer
mark-ups or underwriting commissions as well as other transaction costs,
including correspondingly higher annual brokerage commissions.
DERIVATIVES
- -----------
Consistent with its objective, the Fund may invest in a broad array of
financial instruments and securities, including conventional exchange-traded and
non-exchange-traded options, futures contracts and futures options
("Derivatives"). In each case, the value of the instrument or security is
"derived" from the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
Derivatives are most often used to manage investment risk or to create an
investment position indirectly because it is more efficient or less costly than
direct investment that cannot be readily established directly due to portfolio
size, cash availability, or other factors. They also may be used in an effort
to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability to
correctly predict changes in the levels and directions of movements in currency
exchange rates, security prices, interest rates and other market factors
affecting the Derivative itself or the value of the underlying asset or
benchmark. In addition, correlations in the performance of an underlying asset
to a Derivative may not be well established. Finally, privately negotiated and
over-the-counter Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
The Fund does not currently intend to invest more than 5% of its total
assets in Derivatives.
OPTIONS ON SECURITIES AND INDEXES
- ---------------------------------
The Fund may purchase and sell put options and call options on securities,
indexes or foreign currencies in standardized contracts traded on recognized
securities exchanges, boards of trade, or similar entities, or quoted on NASDAQ.
The Fund may purchase agreements, sometimes called cash puts, that may accompany
the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the purchaser
(holder) of the option, in return for a premium, the right to buy from (call) or
sell to (put) the seller (writer) of the option the security underlying the
option (or the cash value of the index) at a specified exercise price at any
time during the term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign currency has the
obligation upon exercise of the option to deliver the underlying security or
foreign currency upon payment of the exercise price or to pay the exercise price
upon delivery of the underlying security or foreign currency. Upon exercise,
the writer of an option on an index is obligated to pay the difference between
the cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. (An index is designed to reflect specified
facets of a particular financial or securities market, a specific group of
financial instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by the Fund expires, the Fund realizes a capital loss equal to the
premium paid.
B-6
<PAGE> 30
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an
option written by the Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
Risks Associated with Options. There are several risks associated with
transactions in options. For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when and
how to use options involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. If the Fund were unable to close out an
option that it had purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and become worthless.
If the Fund were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying security until the
option expired. As the writer of a covered call option on a security, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the Fund,
the Fund would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might be unable to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
- --------------------------------------------------
The Fund may use interest rate futures contracts, index futures contracts,
and foreign currency futures contracts. An interest rate, index or foreign
currency futures contract provides for the future sale by one party and purchase
by another party of a specified quantity of a financial instrument or the cash
value of an index/1/ at a specified price and time. A public market exists in
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index, the Value Line Composite Index, and the New
York Stock Exchange Composite Index) as well as financial instruments
(including, but not limited to: U.S. Treasury bonds,
- ----------------
/1/ A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of a securities index is a function of the value of
certain specified securities, no physical delivery of those securities is made.
B-7
<PAGE> 31
U.S. Treasury notes, Eurodollar certificates of deposit, and foreign
currencies). Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts will be developed
and traded.
The Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option,
the opposite is true. The Fund might, for example, use futures contracts to
hedge against or gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency fluctuations that
might adversely affect either the value of the Fund's securities or the price of
the securities that the Fund intends to purchase. Although other techniques
could be used to reduce or increase the Fund's exposure to stock price, interest
rate and currency fluctuations, the Fund may be able to achieve its exposure
more effectively and perhaps at a lower cost by using futures contracts and
futures options.
The Fund will only enter into futures contracts and futures options that
are standardized and traded on an exchange, board of trade, or similar entity,
or quoted on an automated quotation system.
The success of any futures transaction depends on the Adviser correctly
predicting changes in the level and direction of stock prices, interest rates,
currency exchange rates and other factors. Should those predictions be
incorrect, the Fund's return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures contracts, the
Adviser might have taken portfolio actions in anticipation of the same market
movements with similar investment results but, presumably, at greater
transaction costs.
When a purchase or sale of a futures contract is made by the Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on
its initial margin deposits. A futures contract held by the Fund is valued
daily at the official settlement price of the exchange on which it is traded.
Each day the Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
realizes a capital gain, or if it is less, the Fund realizes a capital loss.
The transaction costs must also be included in these calculations.
B-8
<PAGE> 32
RISKS ASSOCIATED WITH FUTURES
- -----------------------------
There are several risks associated with the use of futures contracts and
futures options. A purchase or sale of a futures contract may result in losses
in excess of the amount invested in the futures contract. In trying to increase
or reduce market exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in the portfolio
exposure sought. In addition, there are significant differences between the
securities and futures markets that could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
The degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options and the
related securities, including technical influences in futures and futures
options trading and differences between the securities markets and the
securities underlying the standard contracts available for trading. For
example, in the case of index futures contracts, the composition of the index,
including the issuers and the weighting of each issue, may differ from the
composition of the Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and creditworthiness of the
issues underlying the futures contract may differ from the financial instruments
held in the Fund's portfolio. A decision as to whether, when and how to use
futures contracts involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
- ----------------------------------
If other options, futures contracts, or futures options of types other than
those described herein are traded in the future, the Fund may also use those
investment vehicles, provided the Board of Trustees determines that their use is
consistent with the Fund's investment objective.
The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money,"/2/
would exceed 5% of the Fund's total assets.
- ----------------
/2/ A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.
B-9
<PAGE> 33
When purchasing a futures contract or writing a put option on a futures
contract, the Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is in-the-money
until the option expires or is closed out by the Fund.
The Fund may not maintain open short positions in futures contracts, call
options written on futures contracts or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent the Fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission ("CFTC")
Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the
Fund will use commodity futures or commodity options contracts solely for bona
fide hedging purposes within the meaning and intent of CFTC Regulation 1.3(z),
or, with respect to positions in commodity futures and commodity options
contracts that do not come within the meaning and intent of CFTC Regulation
1.3(z), the aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the assets of the Fund,
after taking into account unrealized profits and unrealized losses on any such
contracts it has entered into. In the case of an option that is in-the-money at
the time of purchase, the in-the-money amount (as defined in Section 190.01(x)
of the CFTC Regulations) may be excluded in computing such 5%.
As long as the Fund continues to sell its shares in certain states, the
Fund's options and futures transactions will also be subject to certain non-
fundamental investment restrictions set forth under Investment Restrictions in
this Statement of Additional Information.
TAXATION OF OPTIONS AND FUTURES
- -------------------------------
If the Fund exercises a call or put option that it holds, the premium paid
for the option is added to the cost basis of the security purchased (call) or
deducted from the proceeds of the security sold (put). For cash settlement
options and futures options exercised by the Fund, the difference between the
cash received at exercise and the premium paid is a capital gain or loss.
If a call or put option written by the Fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by the Fund was in-the-money at the time it was
written and the security covering the option was held for more than the long-
term holding period prior to the writing of the option, any loss realized as a
result of a closing purchase transaction will be long-term. The holding period
of the securities covering an in-the-money option will not include the period of
time the option is outstanding.
If the Fund writes an equity call option/3/ other than a "qualified covered
call option," as defined in the
- ----------------
/3/ An equity option is defined to mean any option to buy or sell stock, and
any other option the value of which is determined by reference to an index of
stocks of the type that is ineligible to be traded on a commodity futures
exchange (e.g., an option contract on a sub-index based on the price of nine
hotel/casino stocks). The definition of equity option excludes options on broad-
based stock indexes (such as the Standard & Poor's 500 index).
B-10
<PAGE> 34
Internal Revenue Code, any loss on such option transaction, to the extent it
does not exceed the unrealized gains on the securities covering the option, may
be subject to deferral until the securities covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is required to
recognize as income for each taxable year its net unrealized gains and losses as
of the end of the year on futures, futures options and non-equity options
positions ("year-end mark-to-market"). Generally, any gain or loss recognized
with respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses on
certain positions (including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities held by the Fund:
(1) will affect the holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon entry into the
hedge.
If the Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for the Fund to qualify for federal income tax treatment as a
regulated investment company, gains realized on the sale or other disposition of
securities held for less than three months must be limited to less than 30% of
the Fund's annual gross income. In order to avoid realizing excessive gains on
securities held less than three months, the Fund may be required to defer the
closing out of certain positions beyond the time when it would otherwise be
advantageous to do so.
The Fund distributes to shareholders annually any net capital gains that
have been recognized for federal income tax purposes (including year-end mark-
to-market gains) on options and futures transactions. Such distributions are
combined with distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the payments.
B-11
<PAGE> 35
INVESTMENT RESTRICTIONS
-----------------------
The Fund operates under the following fundamental investment restrictions,
which, together with the investment objective and fundamental policies, cannot
be changed without the approval of a "majority of the outstanding voting
securities," which is defined in the Investment Company Act of 1940 to mean the
lesser of (i) 67% of the Fund's shares present at a meeting where more than 50%
of the outstanding shares are present in person or by proxy or (2) more than 50%
of the Fund's outstanding shares. The Fund may not:
(1) act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on
disposition of securities acquired subject to legal or contractual
restrictions on resale;
(2) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate or interests therein), commodities,
or commodity contracts, except that it may enter into (a) futures and
options on futures and (b) forward currency contracts;
(3) make loans, but this restriction shall not prevent the Fund from
(a) buying a part of an issue of bonds, debentures, or other obligations,
(b) investing in repurchase agreements, or (c) lending portfolio
securities, provided that it may not lend securities if, as a result, the
aggregate value of all securities loaned would exceed 33 1/3% of its total
assets (taken at market value at the time of such loan);
(4) borrow, except that it may (a) borrow up to 33 1/3% of its total
assets, taken at market value at the time of such borrowing, as a temporary
measure for extraordinary or emergency purposes, but not to increase
portfolio income (the total of reverse repurchase agreements and such
borrowings will not exceed 33 1/3% of its total assets, and the Fund will
not purchase additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its total
assets) and (b) enter into transactions in options, futures, and options on
futures;
(5) invest in a security if 25% or more of its total assets (taken at
market value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry,/1/ except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; or
(6) issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
The Fund is also subject to the following non-fundamental restrictions and
policies, which may be changed by the Board of Trustees. The Fund may not:
(a) invest in companies for the purpose of exercising control or
management;
- ----------------
/1/ For purposes of this investment restriction, the Fund uses industry
classifications contained in Institutional Brokers Estimate System ("I/B/E/S")
Sector Industry Group Classification, published by I/B/E/S, an institutional
research firm.
B-12
<PAGE> 36
(b) purchase, except for securities acquired as part of a merger,
consolidation or acquisition of assets more than 3% of the stock of another
investment company (valued at time of purchase);
(c) mortgage, pledge, or hypothecate its assets, except as may be
necessary in connection with permitted borrowings or in connection with
options, futures, and options on futures;
(d) purchase securities on margin (except for use of short-term
credits as are necessary for the clearance of transactions), or sell
securities short unless (i) the Fund owns or has the right to obtain
securities equivalent in kind and amount to those sold short at no added
cost or (ii) the securities sold are "when issued" or "when distributed"
securities which the Fund expects to receive in a recapitalization,
reorganization, or other exchange for securities the Fund contemporaneously
owns or has the right to obtain and provided that transactions in options,
futures, and options on futures are not treated as short sales; and
(e) invest more than 15% of its net assets (taken at market value at
the time of a particular investment) in illiquid securities, including
repurchase agreements maturing in more than seven days.
B-13
<PAGE> 37
PURCHASES AND REDEMPTIONS
-------------------------
Purchases and redemptions are discussed in the Prospectus under the
headings How to Purchase Shares, How to Redeem Shares and Net Asset Value, and
that information is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment dealers or other
institutions. It is the responsibility of any such institution to establish
procedures insuring the prompt transmission to the Trust of any such purchase
order.
The Fund's net asset value is determined on days on which the New York
Stock Exchange (the "NYSE") is open for trading. The NYSE is regularly closed
on Saturdays and Sundays and on New Year's Day, the third Monday in February,
Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving,
and Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE
will be closed on the preceding Friday or the following Monday, respectively.
Net asset value will not be determined on days when the NYSE is closed unless,
in the judgment of the Board of Trustees, net asset value of the Fund should be
determined on any such day, in which case the determination will be made at 3:00
p.m., Central time.
The Trust intends to pay all redemptions in cash and is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net assets of the Trust during any 90-day period for any one shareholder.
However, redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of exchange traded securities. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in selling the
securities received in the redemptions.
Due to the relatively high cost of maintaining smaller accounts, as
described in the Prospectus the Trust reserves the right to redeem shares in any
account that does not have a value of at least $50,000 immediately after a
redemption. The Agreement and Declaration of Trust also authorizes the Trust to
redeem shares under certain other circumstances as may be specified by the Board
of Trustees.
The Trust reserves the right to suspend or postpone redemptions of shares
of the Fund during any period when: (a) trading on the NYSE is restricted, as
determined by the Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) an emergency,
as determined by the Securities and Exchange Commission, exists, making disposal
of portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
B-14
<PAGE> 38
MANAGEMENT
----------
The following table sets forth certain information with respect to the
trustees and executive officers of the Trust:
<TABLE>
<CAPTION>
NAME; ADDRESS AGE POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST
TRUST FIVE YEARS
<S> <C> <C> <C>
Richard H. Driehaus*/1/ 54 Chairman of the Board; Chairman of the Board and Chief
25 East Erie Street President Executive Officer of the Adviser and
Chicago, IL 60601 DSC
Arthur B. Mellin/2/ 53 Trustee President, Mellin Securities
190 South LaSalle Street Incorporated
Chicago, IL 60603
Robert F. Moyer*/1/ 49 Trustee; Vice President President and Chief Operating Officer
25 East Erie Street of the Adviser and DSC, since 1995;
Chicago, IL 60601 Senior Vice President prior thereto
A.R. Umans/1/,/2/ 69 Trustee President and Chief Executive Officer,
1400 North 25th Avenue RHC/Spacemaster Corporation
Melrose Park, IL 60160 (manufacturing company)
Daniel Zemanek/2/ 54 Trustee President, Pollo Rey, Inc.
2301 Leghorn (creator of Pollo Rey restaurants),
Mountain View, CA since 1996; brokered real estate loans
94043 for private and institutional investors
in California from 1991-1996; President Shell
Realty from 1985-1991.
William R. Andersen 37 Vice President Vice President of the Adviser;
25 East Erie Street Portfolio Manager of the Adviser
Chicago, IL 60601 prior thereto
Diane L. Wallace 37 Vice President; Senior Vice President-Operations of the
25 East Erie Street Treasurer Adviser and DSC, since 1996; Vice
Chicago, IL 60601 President prior thereto
Mary H. Weiss 48 Vice President; Secretary Vice President, Secretary and Chief
25 East Erie Street Legal Counsel of the Adviser and DSC
Chicago, IL 60601 since February 1995; prior thereto,
Assistant Regional Director, U.S.
Securities and Exchange Commission
</TABLE>
- ----------------
* Trustee who is an "interested person" of the Trust and of the Adviser,
as defined in the Investment Company Act of 1940.
/1/ Member of the Executive Committee of the Board of Trustees, which is
authorized to exercise all powers of the Board with certain statutory
exceptions.
/2/ Member of the Audit Committee of the Board, which makes recommendations
to the Board regarding the selection of auditors and confers with the auditors
regarding the scope and results of the audit.
B-15
<PAGE> 39
Officers and trustees affiliated with the Adviser serve without any
compensation from the Trust. In compensation for their services to the Trust,
trustees who are not "interested persons" of the Trust or the Adviser are paid
$2,500 for each Board meeting attended and $500 for each committee meeting
attended, and are reimbursed for out-of-pocket expenses. The Trust has no
retirement or pension plans. The following table sets forth estimated
compensation to be paid by the Trust during the Fund's first full fiscal year to
each of the non-interested trustees:
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF TRUSTEE FROM THE TRUST
--------------- --------------
<S> <C>
Arthur B. Mellin $10,500
A. R. Umans $10,500
Daniel Zemanek $10,500
</TABLE>
PRINCIPAL SHAREHOLDERS
----------------------
As of September 13, 1996, Richard H. Driehaus owned of record or
beneficially all the shares of the Fund as the result of his providing the
initial capitalization of the Fund.
INVESTMENT ADVISORY SERVICES
----------------------------
The Adviser provides office space and executive and other personnel to the
Fund and bears any sales or promotional expenses. The Fund pays all expenses
other than those paid by the Adviser, including but not limited to printing and
postage charges and securities registration and custodian fees and expenses
incidental to its organization.
The investment advisory agreement provides that the Adviser shall reimburse
the Fund to the extent that total annual expenses of the Fund (including fees
paid to the Adviser, but excluding taxes, interest, brokers' commissions and
other normal charges incident to the purchase and sale of portfolio securities
and expenses of litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which shares of the Fund
are being offered for sale to the public; provided, however, that the Adviser
shall not be required to reimburse the Fund an amount in excess of the
management fee from the Fund for such year. Currently the Fund is not offered
for sale in any state that imposes an expense limitation.
The advisory agreement also provides that neither the Adviser nor any of
its directors, officers, stockholders, agents, or employees shall have any
liability to the Trust or any shareholder of the Trust for any error of
judgment, mistake of law or any loss arising out of any investment, or for any
other act or omission in the performance by the Adviser of its duties under the
agreement, except for liability resulting from willful misfeasance, bad faith or
gross negligence on their part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the agreement.
Any expenses that are attributable solely to the organization, operation,
or business of the Fund shall be paid solely out of the Fund's assets. Any
expenses incurred by the Trust that are not solely attributable to a particular
series are apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
B-16
<PAGE> 40
ADMINISTRATOR
-------------
PFPC Inc. ("PFPC") is the administrator for the Trust. The asset based fee
for administrative services is:
.125% of the first $200 million of average net assets;
.09% of the next $200 million of average net assets;
.07% of the next $200 million of average net assets; and
.05% of average net assets in excess of $500 million.
DISTRIBUTOR
-----------
Shares of the Fund are distributed by DSC under a Distribution Agreement as
described under Management of the Fund in the Prospectus. The Distribution
Agreement continues in effect from year to year, provided such continuance is
approved annually (i) by a majority of the trustees or by a majority of the
outstanding voting securities of the Trust, and (ii) by a majority of the
trustees who are not parties to the Agreement or interested persons of any such
party. The Trust has agreed to pay all expenses in connection with registration
of its shares with the Securities and Exchange Commission and auditing and
filing fees in connection with registration of its shares under the various
state blue sky laws and assumes the cost of preparation of prospectuses and
other expenses. The Adviser bears all sales and promotional expenses, including
any payments to DSC for the sales of Fund shares.
As agent, DSC offers shares of the Fund to investors in states where the shares
are qualified for sale, at net asset value, without sales commissions or other
sales load to the investor. In addition, no sales commission or "12b-1" payment
is paid by the Fund. DSC offers the Fund's shares only on a best-efforts basis.
CUSTODIAN
---------
Morgan Stanley Trust Company (the "Bank") at One Pierrepont Plaza,
Brooklyn, NY 11201 is the custodian for the Trust. It is responsible for
holding all securities and cash of the Fund, receiving and paying for securities
purchased, delivering against payment securities sold, receiving and collecting
income from investments, making all payments covering expenses of the Fund, and
performing other administrative duties, all as directed by authorized persons.
The custodian does not exercise any supervisory function in such matters as
purchase and sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund.
Portfolio securities purchased in the U.S. are maintained in the custody of
the Bank or of other domestic banks or depositories. Portfolio securities
purchased outside of the U.S. are maintained in the custody of foreign banks and
trust companies that are members of the Bank's Global Custody Network and
foreign depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has been approved by
the Board of Trustees in accordance with regulations under the Investment
Company Act of 1940.
The Board of Trustees reviews, at least annually, whether it is in the best
interest of the Fund and its shareholders to maintain Fund assets in each of the
countries in which the Fund invests with particular foreign sub-custodians in
such countries, pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of the risks of
holding Fund assets in any such country (including risks of expropriation or
imposition of exchange controls), the operational capability and reliability of
each such foreign sub-custodian, and the impact of local laws on each such
custody arrangement. The Board of Trustees is aided in its review by the Bank,
which has assembled the network of foreign sub-custodians utilized by the Fund,
as well as by the Adviser and counsel. However, with respect to foreign sub-
custodians, there can be no assurance that the Fund, and the value of its
shares, will not be adversely affected by acts of foreign governments, financial
or operational difficulties of the foreign sub-custodians, difficulties and
costs of obtaining jurisdiction over, or enforcing
B-17
<PAGE> 41
judgments against, the foreign sub-custodians, or application of foreign law to
the Fund's foreign sub-custodial arrangements. Accordingly, an investor should
recognize that the non-investment risks involved in holding assets abroad are
greater than those associated with investing in the United States.
The Fund may invest in obligations of the custodian and may purchase or
sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The independent public accountants for the Trust are Arthur Andersen LLP.
The accountants audit and report on the Fund's annual financial statements,
review certain regulatory reports and the Fund's federal income tax returns, and
perform other professional accounting, auditing, tax and advisory services when
engaged to do so by the Trust.
PORTFOLIO TRANSACTIONS
----------------------
The Adviser places the orders for the purchase and sale of the Fund's
portfolio securities and options and futures contracts. The Adviser's
overriding objective in effecting portfolio transactions is to seek to obtain
the best combination of price and execution. The best net price, giving effect
to brokerage commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's knowledge of
negotiated commission rates currently available and other current transaction
costs; the nature of the security being traded; the size of the transaction; the
desired timing of the trade; the activity existing and expected in the market
for the particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and others which are
considered; the Adviser's knowledge of the financial stability of the broker or
dealer selected and such other brokers or dealers; and the Adviser's knowledge
of actual or apparent operational problems of any broker or dealer. Recognizing
the value of these factors, the Fund may pay a brokerage commission in excess of
that which another broker or dealer may have charged for effecting the same
transaction. Evaluations of the reasonableness of brokerage commissions, based
on the foregoing factors, are made on an ongoing basis by the Adviser's staff
while effecting portfolio transactions. The general level of brokerage
commissions paid is reviewed by the Adviser, and reports are made annually to
the Board of Trustees.
Orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, DSC, an affiliate of the Adviser. The Fund
has been advised the Adviser that it intends to execute most (or all)
transactions in ADRs through DSC. In order for DSC to effect any such
transaction for the Fund, the commissions, fees or other remuneration received
by DSC must be reasonable and fair, compared to the commissions, fees or other
remuneration paid to other brokers in connection with comparable transactions
involving similar securities, futures or options on futures being purchased or
sold on an exchange during a comparable period of time. This standard would
allow DSC to receive no more than the remuneration that would be expected to be
received by an unaffiliated broker in a commensurate arms-length transaction.
Furthermore, the Board of Trustees, including a majority of the Trustees who are
not "interested" Trustees, has adopted procedures that are reasonably designed
to provide that any commissions, fees or other remuneration paid to DSC are
consistent with the foregoing standard.
With respect to issues of securities involving brokerage commissions, when
more than one broker or dealer (other than DSC) is believed to be capable of
providing the best combination of price and execution with respect to a
particular portfolio transaction for the Fund, the Adviser often selects a
broker or dealer that has furnished it with research products or services such
as research reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment and services,
research-oriented computer software and services, and services of economic and
other consultants. Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any
B-18
<PAGE> 42
of the brokers or dealers; however, the Adviser uses an internal allocation
procedure to identify those brokers or dealers who provide it with research
products or services and the amount of research products or services they
provide, and endeavors to direct sufficient commissions generated by its
clients' accounts in the aggregate, including the Fund, to such brokers or
dealers to ensure the continued receipt of research products or services the
Adviser feels are useful. In certain instances, the Adviser may receive from
brokers and dealers products or services that are used both as investment
research and for administrative, marketing, or other non-research purposes. In
such instances, the Adviser will make a good faith effort to determine the
relative proportions of such products or services which may be considered as
investment research. The portion of the costs of such products or services
attributable to research usage may be defrayed by the Adviser (without prior
agreement or understanding, as noted above) through brokerage commissions
generated by transactions by clients (including the Fund), while the portions of
the costs attributable to non-research usage of such products or services is
paid by the Adviser in cash. No person acting on behalf of the Fund is
authorized, in recognition of the value of research products or services, to pay
a commission in excess of that which another broker or dealer might have charged
for effecting the same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the clients of the
Adviser and not all such research products or services are used in connection
with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio securities
transacted with a broker or dealer on a net basis, the Adviser may also consider
the part, if any, played by the broker or dealer in bringing the security
involved to the Adviser's attention, including investment research related to
the security and provided to the Fund.
The Trust may arrange for its custodian to act as a soliciting dealer to
accept any fees available to the custodian as a soliciting dealer in connection
with any tender offer for Fund portfolio securities, to the extent consistent
with best price and execution. If such arrangements are made the custodian will
credit any such fees received against its custodial fees.
ADDITIONAL INCOME TAX CONSIDERATIONS
------------------------------------
The Fund intends to comply with the special provisions of the Internal
Revenue Code that relieve it of federal income tax to the extent its net
investment income and capital gains are currently distributed to shareholders.
In order to qualify for such provisions, the Fund must maintain a diversified
portfolio, which requires that at the close of each quarter (i) at least 50% of
its total assets be represented by cash or cash items, Government securities,
securities of other investment companies and securities of other issuers in
which not greater than 5% of the Fund's assets are invested and not more than
10% of the outstanding voting securities of such issuer are held; and (ii) not
more than 25% of the total assets of the Fund are invested in the securities
(other than Government securities or the securities of other regulated
investment companies) of any one issuer.
Because dividend and capital gain distributions reduce net asset value, a
shareholder who purchases shares shortly before a record date will, in effect,
receive a return of a portion of his investment in such distribution. The
distribution would nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income tax purposes
the shareholder's original cost would continue as his tax basis.
To the extent the Fund invests in foreign securities, it may be subject to
withholding and other taxes imposed by foreign countries. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code.
Specifically, if more than 50% of the Fund's total assets at the close of any
fiscal year consist of stock or securities of foreign corporations, the Fund may
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign income taxes
paid by them, and (iii) deduct such pro rata shares in computing their taxable
incomes, or, alternatively, use them as foreign
B-19
<PAGE> 43
tax credits, subject to applicable limitations, against their United States
income taxes. Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata portion of foreign
taxes paid by the Fund, although such shareholders will be required to include
their share of such taxes in gross income. Shareholders who claim a foreign tax
credit may be required to treat a portion of dividends received from the Fund as
separate category income for purposes of computing the limitations on the
foreign tax credit available to such shareholders. Tax-exempt shareholders will
not ordinarily benefit from this election relating to foreign taxes. Each year,
the Fund will notify shareholders of the amount of (i) each shareholder's pro
rata share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country, if the Fund
qualifies to pass along such credit.
The Fund's options, futures and foreign currency transactions are subject
to special tax provisions that may accelerate or defer recognition of certain
gains or losses, change the character of certain gains or losses, or alter the
holding periods of certain of the Fund's securities.
The market-to-market rules of the Code may require the Fund to recognize
unrealized gains and losses on certain options and futures held by the Fund at
the end of the fiscal year. Under these provisions, 60% of any capital gain net
income or loss recognized will generally be treated as long-term and 40% as
short-term. However, although certain forward contracts and futures contracts
on foreign currency are market-to-market, the gain or loss is generally ordinary
under Section 988 of the Code. In addition, the straddle rules of the Code
would require deferral of certain losses realized on positions of a straddle to
the extent that the Fund had unrealized gains in offsetting positions at year
end.
A 4% excise tax is imposed on the excess of the required distribution for a
calendar year over the distributed amount for such calendar year. The required
distribution is the sum of 98% of the Fund's net investment income for the
calendar year plus 98% of its capital gain net income for the one-year period
ending October 31, plus any undistributed net investment income from the prior
calendar year, plus any undistributed capital gain net income from the one year
period ended October 31 in the prior calendar year, minus any overdistribution
in the prior calendar year. For purposes of calculating the required
distribution, foreign currency gains or losses occurring after October 31 are
taken into account in the following calendar year. The Fund intends to declare
or distribute dividends during the appropriate periods of an amount sufficient
to prevent imposition of the 4% excise tax.
A shareholder who redeems shares of the Fund will recognize capital gain or
loss for federal income tax purposes measured by the difference between the
value of the shares redeemed and the basis of the shares. If a shareholder
realizes a loss on the redemption of the Fund's shares and reinvests in shares
of the Fund within 30 days before or after the redemption, the transactions may
be subject to the wash sale rules resulting in a postponement of the recognition
of such loss for federal income tax purposes.
Investment income derived from foreign securities may be subject to foreign
income taxes withheld at the source. Because the amount of the Fund's
investments in various countries will change from time to time, it is not
possible to determine the effective rate of such taxes in advance.
Shareholders who are non-resident aliens are subject to U.S. withholding
tax on ordinary income dividends (whether received in cash or shares) at a rate
of 30% or such lower rate as prescribed by an applicable tax treaty.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may purchase the securities
of certain foreign investment funds or trusts called passive foreign investment
companies ("PFICs"). In addition to bearing their proportionate share of the
Fund's expenses (management fees and operating expenses), shareholders will also
indirectly bear similar expenses of such PFICs. Capital gains on the sale of
PFIC holdings will be deemed to be ordinary income regardless of how long the
Fund holds its investment. In addition, the Fund may be subject to corporate
income tax and an interest charge on certain dividends and capital gains earned
from PFICs, regardless of whether such income and gains are distributed to
shareholders.
B-20
<PAGE> 44
In accordance with tax regulations, the Fund intends to treat PFICs as sold
on the last day of the Fund's fiscal year and recognize any gains for tax
purposes at that time; losses will not be recognized. Such gains will be
considered ordinary income which the Fund will be required to distribute even
though it has not sold the security and received cash to pay such distributions.
INVESTMENT PERFORMANCE
----------------------
The Fund may quote certain total return figures from time to time. A
"Total Return" on a per share basis is the amount of dividends distributed per
share plus or minus the change in the net asset value per share for a period. A
"Total Return Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of the period and
subtracting one. For a given period, an "Average Annual Total Return" may be
computed by finding the average annual compounded rate that would equate a
hypothetical initial amount invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows: ERV = P(1+T)n
Where: P= a hypothetical initial payment of $1,000
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period at the end of the
period (or fractional portion thereof).
Investment performance figures assume reinvestment of all dividends and
distributions and do not take into account any federal, state, or local income
taxes which shareholders must pay on a current basis. They are not necessarily
indicative of future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful in reviewing
the Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In advertising and sales literature, the Fund may compare its performance
with that of other mutual funds, indexes or averages of other mutual funds,
indexes of related financial assets or data, and other competing investment and
deposit products available from or through other financial institutions. The
composition of these indexes or averages differs from that of the Fund.
Comparison of the Fund to an alternative investment should be made with
consideration of differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which the Fund believes to be generally
accurate. The Fund may also note its mention or recognition in newspapers,
magazines, or other media from time to time. However, the Fund assumes no
responsibility for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the following:
Architectural Digest Atlanta Constitution
Arizona Republic Barron's
Boston Herald Newsweek
Business Week The New York Times
Chicago Tribune No-Load Fund Investor
Chicago Sun-Times Pension World
Cleveland Plain Dealer Pensions and Investment
CNBC Personal Investor
Crain's Chicago Business Physicians Financial News
Consumer Reports Jane Bryant Quinn (syndicated column)
Consumer Digest The San Francisco Chronicle
Financial World Smart Money
B-21
<PAGE> 45
Forbes Smithsonian
Fortune Stanger's Investment Adviser
Fund Action Time
Gourmet Travel & Leisure
Investor's Business Daily United Mutual Fund Selector
Kiplinger's Personal Finance USA Today
Magazine U.S. News and World Report
Knight-Ridder The Wall Street Journal
Los Angeles Times Working Women
Money Worth
Mutual Fund Letter Your Money
Mutual Fund News Service
Mutual Fund Values (Morningstar)
The Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The Fund's performance may be compared to the following indexes or
averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect
recognized indicators of general the performance of stocks traded in the
U.S. stock market results.) indicated markets.)
EAFE Index
Financial Times Actuaries World Index (Ex-U.S.)
Morgan Stanley Capital International World Index
(These indexes are widely recognized indicators
of the international markets)
In addition, the Fund may compare performance to the indices
indicated below:
Lipper International & Global Funds Average
Lipper General Equity Funds Average
Lipper Equity Funds Average
Lipper International Fund Index
(The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.)
ICD International Equity Funds Average
ICD All Equity Funds Average
ICD General Equity Average*
ICD Global Equity Funds Average
ICD International Equity and Global Equity Funds Average
ICD Foreign Securities Index
Morningstar International Stock Average
Morningstar U.S. Diversified Average
Morningstar Equity Fund Average
Morningstar Hybrid Fund Average
Morningstar All Equity Funds Average
Morningstar General Equity Average**
*Includes ICD Aggressive Growth, Growth & Income, Long-Term Growth, and
Total Return Averages.
B-22
<PAGE> 46
**Includes Morningstar Aggressive Growth, Growth, Balanced Equity Income,
and Growth & Income Averages.
The ICD Indexes reflect the unweighted average total return of the largest
twenty funds within their respective category as calculated and published by
ICD.
The Lipper International Fund index reflects the net asset value weighted
return of the ten largest international funds.
The Lipper, ICD, and Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated, and published by
these independent services that monitor the performance of mutual funds. The
Fund may also use comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent service. Should
Lipper or another service reclassify the Fund to a different category or develop
(and place the Fund into) a new category, the Fund may compare its performance
or ranking with those of other funds in the newly assigned category, as
published by the service.
The Fund may also cite its rating, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on risk-
adjusted total return performance and is expressed in a star-rating format. The
risk-adjusted number is computed by subtracting the Fund's risk score (which is
a function of the Fund's monthly returns less the 3-month T-bill return) from
the Fund's load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five star, the next
22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled
two star, and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risk, or both.
Of course, past performance is not indicative of future results.
To illustrate the historical returns on various types of financial assets,
the Fund may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
B-23
<PAGE> 47
The Fund may also use hypothetical returns to be used as an example in a
mix of asset allocation strategies. One such example is reflected in the chart
below, which shows the effect of tax deferral on a hypothetical investment.
This chart assumes that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable Investment,
that both investments earn either 6%, 8% or 10% compounded annually, and that
the investor withdrew the entire amount at the end of the period. (A tax rate
of 39.6% is applied annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<TABLE>
<CAPTION>
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
----------------------------------------------
INTEREST RATE 6% 8% 10% 6% 8% 10%
-------------
COMPOUNDING
YEARS TAX-DEFERRED INVESTMENT TAXABLE INVESTMENT
----- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 82,067 97,780 97,780 117,014
20 62,943 75,543 59,362 68,109 68,109 78,351
15 41,684 47,304 40,358 44,675 44,675 49,514
10 24,797 26,820 24,453 26,165 26,165 28,006
5 11,178 11,613 11,141 11,546 11,546 11,965
1 2,072 2,096 2,072 2,096 2,096 2,121
</TABLE>
Dollar Cost Averaging. Dollar cost averaging is an investment strategy
that requires investing a fixed amount of money in Fund shares at set intervals.
This allows you to purchase more shares when prices are low and fewer shares
when prices are high. Over time, this tends to lower your average cost per
share.
Like any investment strategy, dollar cost averaging can't guarantee a
profit or protect against losses in a steadily declining market. Dollar cost
averaging involves uninterrupted investing regardless of share price and
therefore may not be appropriate for every investor.
B-24
<PAGE> 48
APPENDIX--RATINGS
-----------------
RATINGS IN GENERAL
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 Adviser believes that the
quality of debt securities in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings to the various
factors involved in credit analysis. 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 rating 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 of
corporate debt securities used by Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Corporation ("S&P").
RATINGS BY MOODY'S
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 an exceptionally stable
margin and principal is secure. Although the various protective elements are
likely to change, such changes as can be visualized are more unlikely to impair
the fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa 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 which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
B-25
<PAGE> 49
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay interest and
repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C1. This rating is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears. The D rating is also used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Foreign debt is rated on the same basis as domestic debt measuring the
creditworthiness of the issuer; ratings of foreign debt do not take into account
currency exchange and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol should not be
taken as an indication that an obligation will exhibit no volatility or
variability in total return.
B-26
<PAGE> 50
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
<S> <C> <C>
- ---------------------------------------------------------
EQUITY SECURITIES -- 98.0%
- ---------------------------------------------------------
EUROPE -- 37.2%
UNITED KINGDOM -- 5.7%
Dr. Solomon Group
PLC-ADR**................ 65,000 $ 1,600,625
Flextech PLC**............. 145,300 1,810,929
Iona Technology
PLC-ADR**................ 100,000 2,012,500
Millennium & Copthorne
Hotels PLC............... 200,000 1,226,788
PizzaExpress PLC........... 160,000 1,603,133
-----------
8,253,975
-----------
FINLAND -- 5.5%
Huhtamki OY................ 32,600 1,530,151
Raision Tehtaat OY......... 41,500 3,796,738
TT Tieto OY................ 30,000 2,571,599
-----------
7,898,488
-----------
SWEDEN -- 4.6%
Mo Och Domsjo AB........... 60,800 1,931,782
Pricer AB**................ 63,750 2,595,719
WM Data AB................. 24,000 2,185,110
-----------
6,712,611
-----------
GERMANY -- 3.8%
Porche AG.................. 3,150 3,612,428
SAP AG (Pref.)............. 11,799 1,817,436
-----------
5,429,864
-----------
NORWAY -- 3.7%
Nera ASA................... 38,950 1,897,150
Tomra Systems ASA.......... 185,000 3,502,695
-----------
5,399,845
-----------
</TABLE>
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
<S> <C> <C>
- ---------------------------------------------------------
RUSSIA -- 3.1%
Rostelecom**............... 210,000 $ 825,300
Rostelecom (Pref.)**....... 300,000 867,000
Surgutneftegaz**........... 1,200,000 986,400
Unified Energy System**.... 4,000,000 912,000
Unified Energy System
(Pref.)**................ 5,050,000 949,400
-----------
4,540,100
-----------
SPAIN -- 2.7%
Tele Pizza SA**............ 86,500 3,922,766
-----------
FRANCE -- 2.6%
Dassault Systemes S.A. --
ADR**.................... 60,000 3,742,500
-----------
CZECH REPUBLIC -- 1.3%
SPT Telekom AS**........... 14,800 1,925,120
-----------
IRELAND -- 1.1%
CBT Group PLC -- ADR**..... 30,500 1,662,250
-----------
TURKEY -- 1.1%
Dogan Sirketler Grubu
Holdings AS.............. 43,949,000 1,544,843
-----------
NETHERLANDS -- 0.8%
ASM Lithograph Holding
NV**..................... 16,700 1,110,550
-----------
HUNGARY -- 0.7%
Richter Gedeon Rt. --
GDR**.................... 14,700 1,010,625
-----------
ITALY -- 0.5%
Telecom Italia Mobile SpA.. 284,000 743,240
-----------
Total Europe............... 53,896,777
-----------
</TABLE>
Notes to Financial Statements are an integral part of this Schedule.
3
<PAGE> 51
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
<S> <C> <C>
- ---------------------------------------------------------
FAR EAST -- 31.4%
MALAYSIA -- 9.9%
Berjaya Sports Toto BHD.... 663,000 $ 3,845,491
IJM Corp. BHD.............. 141,000 377,674
Lityan Holdings BHD........ 88,000 1,311,475
MBF Capital BHD............ 1,914,000 3,931,768
Multi-Purpose Holdings
BHD...................... 877,000 2,084,142
Star Publications.......... 378,000 1,659,564
UMW Holdings BHD........... 222,000 1,171,386
-----------
14,381,500
-----------
HONG KONG -- 6.0%
China Everbrite -- IHD Pac
Ltd...................... 2,048,000 1,520,779
China Overseas Land &
Investment............... 4,776,000 2,790,945
China Resources Enterprises
Ltd...................... 660,000 1,483,069
Cosco Pacific Group........ 730,000 1,018,157
Guangnan Holdings.......... 1,200,000 1,689,181
Silver Grant International
Industries Ltd........... 219,000 234,742
-----------
8,736,873
-----------
INDONESIA -- 6.0%
PT Bank Dagang Nasional
Indonisia (Foreign)...... 832,500 859,949
PT Lippo Securities
(Local).................. 5,000,000 3,495,409
PT Ramayana Lestari Sentosa
(Local)**................ 300,000 723,079
PT Ramayana Lestari Sentosa
(Foreign)**.............. 1,321,500 3,185,169
PT Steady Safe
Transportation Service
(Foreign)................ 293,300 385,599
-----------
8,649,205
-----------
SINGAPORE -- 3.9%
Datacraft Asia Ltd......... 1,260,000 2,772,000
Steamers Maritime
Holdings................. 1,450,000 1,494,217
Thakral Corporation Ltd.... 1,340,000 1,353,400
-----------
5,619,617
-----------
</TABLE>
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
<S> <C> <C>
- ---------------------------------------------------------
PHILIPPINES -- 3.4%
Bank Of Philippine
Islands.................. 143,000 $ 1,032,295
Belle Corp.**.............. 3,687,500 1,176,862
International Container
Terminal Services, Inc... 1,082,500 658,055
La Tondena Distillers
Inc...................... 726,000 2,027,394
-----------
4,894,606
-----------
JAPAN -- 2.0%
Sony Corp.................. 20,000 1,442,172
TDK Corp................... 22,000 1,471,645
-----------
2,913,817
-----------
TAIWAN -- 0.2%
ASE Test Ltd.**............ 10,000 218,750
-----------
Total Far East............. 45,414,368
-----------
SOUTH AMERICA -- 12.2%
BRAZIL -- 9.4%
Companhia Paulista de Forca
e Luz**.................. 9,960,000 1,374,937
Eletricidade De Sao Paulo
S.A.**................... 8,190,000 1,589,535
Ericsson Telecommunicacoes
S.A...................... 41,796,000 1,116,972
Lojas Arapua S.A........... 60,000,000 1,455,618
Petroleo Brasileiro S.A.... 10,800,000 2,147,465
Telecommunicacoes
Brasileiras S.A.......... 29,900,000 2,782,057
Telecommunicacoes De Sao
Paulo S.A................ 8,280,000 2,245,076
Telecommunicacoes Rio de
Janeiro S.A.............. 3,862,000 562,159
Vitech America, Inc.**..... 25,000 343,750
-----------
13,617,569
-----------
CHILE -- 2.1%
Santa Isabel SA............ 100,000 3,000,000
-----------
PERU -- 0.7%
Telefonica De Peru S.A..... 50,000 1,100,000
-----------
Total South America........ 17,717,569
-----------
</TABLE>
Notes to Financial Statements are an integral part of this Schedule.
4
<PAGE> 52
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
SCHEDULE OF INVESTMENTS
FEBRUARY 28, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
<S> <C> <C>
- ---------------------------------------------------------
NORTH AMERICA -- 11.6%
MEXICO -- 7.7%
Desc SA de CV.............. 156,000 $ 998,557
Femento Economica Mexicano
SA....................... 720,000 3,018,262
Grupo Financiero Banamex
ACCIVAL, SA de CV........ 770,000 1,814,948
Grupo Iusacell S.A. --
ADR**.................... 158,000 1,777,500
Panamerican Beverage Inc... 38,000 2,142,250
San Louis Corp. S.A. --
CPO...................... 240,000 1,439,849
-----------
11,191,366
-----------
CANADA -- 3.1%
Abacan Resources Corp.**... 133,000 1,207,056
Cott Corp.................. 250,000 2,460,938
Gulfstream Resources Ltd... 81,000 812,194
-----------
4,480,188
-----------
BERMUDA -- 0.8%
Central European Media
Enterprises Ltd.**....... 33,500 1,130,624
-----------
Total North America........ 16,802,178
-----------
AFRICA -- 3.3%
SOUTH AFRICA -- 3.3%
Dimension Data Holdings
Ltd.**................... 331,400 961,437
First Nationwide Bank...... 320,000 1,963,847
Investec Bank Ltd.......... 16,500 515,510
Nedcor Ltd................. 78,100 1,324,615
-----------
4,765,409
-----------
Total Africa............... 4,765,409
-----------
</TABLE>
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
<S> <C> <C>
- ---------------------------------------------------------
MIDDLE EAST -- 2.2%
ISRAEL -- 2.2%
Bank Leumi Le, Israel...... 710,579 $ 1,173,316
Gilat Satellite Networks
Ltd.**................... 40,000 1,165,000
Memco Software Ltd.**...... 51,000 905,250
-----------
3,243,566
-----------
Total Middle East.......... 3,243,566
-----------
Total Equity Securities
(cost $127,190,473)...... 141,839,867
-----------
RIGHTS & WARRANTS -- 0.4%
- ---------------------------------------------------------
INDONESIA -- 0.3%
PT Bank Dagang Nasional
Indonesia (Rights)**..... 624,375 382,199
-----------
HONG KONG -- 0.1%
Guangnan Holdings
(Warrants)**............. 207,142 135,091
-----------
Total Rights & Warrants
(Cost $200,354).......... 517,290
-----------
- ---------------------------------------------------------
TOTAL INVESTMENTS (COST
$127,390,827*)............. 98.4% 142,357,157
Other Assets in Excess of
Liabilities................ 1.6% 2,393,641
---------- -----------
Net Assets................... 100.0% 144,750,798
=========================================================
* Aggregate cost for federal income tax purposes was
$125,188,474. The aggregate gross unrealized
appreciation (depreciation) for all securities is as
follows:
</TABLE>
<TABLE>
<CAPTION>
Book Basis Tax Basis
---------- ---------
<S> <C> <C>
Gross Appreciation.......... $17,102,483 $19,323,499
Gross Depreciation.......... 2,136,153 2,154,815
----------- -----------
Net Appreciation........ $14,966,330 $17,168,684
=========== ===========
</TABLE>
** Non-income producing security.
Notes to Financial Statements are an integral part of this Schedule.
5
<PAGE> 53
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
SCHEDULE OF INVESTMENTS BY INDUSTRY
FEBRUARY 28, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
-------- ----------
<S> <C>
Agricultural.......................... 1.3%
Appliances............................ 1.0%
Automobiles........................... 3.3%
Banking............................... 3.3%
Beverages............................. 6.7%
Broadcast & Publishing................ 3.2%
Computer Manufacturers................ 0.2%
Computer Software..................... 10.3%
Construction.......................... 0.3%
Data Processing....................... 1.8%
Drugs................................. 0.7%
Electric Equipment.................... 2.9%
Electronic Systems/Devices............ 2.0%
Energy Sources........................ 3.6%
Financial Services.................... 8.1%
Foods & Households.................... 1.1%
Forest Products....................... 1.3%
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
-------- ----------
<S> <C>
Leisure & Tourism..................... 3.5%
Machinery............................. 3.2%
Mining................................ 1.0%
Multi-Industry........................ 3.2%
Real Estate........................... 3.9%
Restaurants........................... 3.8%
Retailing - Foods..................... 4.7%
Retailing - Goods..................... 4.7%
Semi Conductors/Components............ 0.1%
Telecommunications.................... 13.6%
Telecommunications Equipment.......... 0.9%
Transportation........................ 2.0%
Transportation Shipping............... 0.5%
Utilities............................. 2.2%
Other Assets Less Liabilities......... 1.6%
------
TOTAL................................. 100.0%
======
</TABLE>
Notes to Financial Statements are an integral part of this Schedule.
6
<PAGE> 54
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the period October 28, 1996 (commencement of operations) through February
28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Table below sets forth financial data for a share of capital stock
outstanding throughout the period presented.
<TABLE>
<S> <C>
Net asset value, beginning of period........................ $ 10.00
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss....................................... $ (0.04)
Net gains on investments (both realized and unrealized)... 1.16
--------
Total from investment operations........................ 1.12
--------
LESS DISTRIBUTIONS:
Dividends from net investment income...................... --
Distributions from capital gains.......................... --
--------
Total distributions..................................... --
--------
Net asset value, end of period.............................. $ 11.12
========
Total Return................................................ 11.20%**
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)...................... $144,751
Ratio of expenses to average net assets................... 2.01%*
Ratio of net investment loss to average net assets........ (1.34)%*
Portfolio turnover........................................ 135.53%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
Average commission rate paid per share on stock transactions for the period
ended February 28, 1997 was $0.0027. Foreign commissions usually are lower than
U.S. commissions when expressed as cents per share due to the lower per share
price of many non-U.S. securities.
This report has been prepared for Shareholders and may be distributed to others
only preceded or accompanied by a current prospectus.
Notes to Financial Statements are an integral part of this Schedule.
7
<PAGE> 55
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (Cost $127,390,827)........ $142,357,157
Cash.................................................... 893,021
Receivables:
Dividends.......................................... 18,318
Interest........................................... 49,988
Investment securities sold......................... 4,340,333
Prepaid insurance....................................... 20,578
Deferred organizational costs........................... 92,434
------------
- ----------------------------------------------------------------------------
TOTAL ASSETS................................... 147,771,829
------------
- ----------------------------------------------------------------------------
LIABILITIES:
Investment securities purchased......................... 2,277,934
Accrued expenses........................................ 176,803
Payable to affiliates................................... 566,294
------------
- ----------------------------------------------------------------------------
TOTAL LIABILITIES.............................. 3,021,031
------------
- ----------------------------------------------------------------------------
NET ASSETS.................................................. $144,750,798
============
SHARES OUTSTANDING.......................................... 13,015,084
============
NET ASSET VALUE PER SHARE................................... $ 11.12
============
============================================================================
NET ASSETS CONSISTED OF THE FOLLOWING AT FEBRUARY 28, 1997:
Paid-in capital......................................... $133,449,095
Undistributed net investment loss....................... (492,085)
Undistributed net realized loss*........................ (2,837,441)
Undistributed net realized foreign exchange loss........ (334,839)
Unrealized foreign exchange loss........................ (262)
Unrealized appreciation on investments.................. 14,966,330
------------
NET ASSETS..................................... $144,750,798
============
* Undistributed net realized gain for federal income tax
purposes was $588,563.
============================================================================
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
8
<PAGE> 56
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the period October 28, 1996 (commencement of operations) through February
28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends.......................................... $ 119,888
Interest........................................... 125,374
-----------
- ---------------------------------------------------------------------------
Total income..................................... 245,262
-----------
- ---------------------------------------------------------------------------
Expenses:
Investment advisory fee............................ 548,536
Administration fee (net of waived fees of
$11,100)........................................... 45,749
Professional fees.................................. 23,645
Federal and state registration fees................ 15,154
Custodian fee...................................... 61,246
Transfer agent fees................................ 900
Trustees' fees..................................... 13,052
Amortization of organization costs................. 7,566
Miscellaneous...................................... 21,499
-----------
- ---------------------------------------------------------------------------
Total expenses................................... 737,347
-----------
- ---------------------------------------------------------------------------
Net investment loss....................... (492,085)
-----------
- ---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from security transactions............ (2,837,441)
Net realized foreign exchange loss...................... (334,839)
Net unrealized foreign exchange loss.................... (262)
Change in unrealized appreciation of investments........ 14,966,330
-----------
- ---------------------------------------------------------------------------
Net gain on investments................... 11,793,788
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $11,301,703
===========
===========================================================================
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
9
<PAGE> 57
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period October 28, 1996 (commencement of operations) through February
28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss................................ $ (492,085)
Net realized loss from security transactions....... (2,837,441)
Net realized foreign exchange loss................. (334,839)
Net unrealized foreign exchange loss............... (262)
Change in unrealized appreciation of investments... 14,966,330
------------
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from
operations................................... 11,301,703
------------
- -----------------------------------------------------------------------------------------------
Capital share transactions:
Net increase in net assets derived from capital
share transactions............................... 133,348,683
------------
Total increase in net assets....................... 144,650,386
------------
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period..................................... 100,412
------------
End of period........................................... $144,750,798
============
===============================================================================================
</TABLE>
Capital share transactions are as follows:
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
Shares purchased................................... 13,027,460 $133,578,683
Shares reinvested.................................. -- --
Shares redeemed.................................... (22,417) (230,000)
---------- ------------
Net increase from capital share transactions... 13,005,043 $133,348,683
========== ============
=============================================================================================
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
10
<PAGE> 58
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Driehaus International Growth Fund (the "Fund") is a series of the
Driehaus Mutual Funds (the "Trust"), an open-end management investment company.
The Trust is a Delaware business trust organized under an Agreement and
Declaration of Trust dated May 31, 1996 and may issue an unlimited number of
full and fractional units of beneficial interest (shares) without par value. The
Fund was seeded on September 13, 1996 with the sale and issuance of 10,000
shares of its common stock to Richard H. Driehaus, the Chairman of the Board and
President of the Fund. The Fund commenced operations on October 28, 1996, as the
successor to the assets of the Driehaus International Large Cap Fund, L.P. (the
"Partnership"), a limited partnership organized on July 1, 1990, through a
transfer of $85,727,972 of assets in exchange for 8,572,797.2 shares of the
Fund.
The Fund's investment objective is to maximize capital appreciation by
investing primarily in the equity securities of foreign companies with market
capitalizations of more than $300 million (U.S.) using growth style investment
criteria.
The year end of the Fund is August 31.
SECURITIES VALUATION AND TRANSACTIONS
Depending upon local convention or regulation, equity securities may be
valued at the last sale price, last bid price, or the mean between the last bid
and asked prices as of, in each case, the close of the appropriate exchange or
other designated time. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Trust's Board of Trustees.
Securities transactions are accounted for on trade date. The cost of
investments sold is determined by the use of specific identification method for
both financial reporting and income tax purposes. Interest income is recorded on
an accrual basis. Dividend income, net of non-reclaimable foreign taxes
withheld, is recorded on the ex-dividend date. For the period from inception to
February 28, 1997, $30,333 of non-reclaimable foreign taxes were withheld.
The Fund determines income and expenses, daily. This change in net asset
value is allocated daily.
FEDERAL INCOME TAXES
No provision is made for Federal income taxes as it is the Fund's intention
to qualify as a regulated investment company and to make all the required
distributions to its shareholders in amounts sufficient to relieve the Fund from
all or substantially all Federal income and excise taxes.
FOREIGN CURRENCY TRANSLATION
Foreign currency is translated into U.S. dollar values based upon the
current rates of exchange on the date of the Fund's valuation. Net realized
foreign exchange gains or losses which are reported by the Fund result from
sales of foreign currencies, currency gains and losses arising from changes in
exchange rates between the trade and settlement dates on forward contracts
underlying securities transactions, and the difference between the amounts
accrued for dividends, interest, and reclaimable foreign withholding taxes and
the amounts actually received or paid in U.S. dollars for these items. Net
unrealized foreign exchange gains and losses result from changes in the U.S.
dollar value of assets and liabilities, (other than investments in securities)
which are denominated in foreign currencies, as a result of changes in exchange
rates.
11
<PAGE> 59
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
The Fund does not isolate that portion of the results of operations which
results from fluctuations in foreign exchange rates on investments held. These
fluctuations are included with the net realized and unrealized gains or losses
which result from changes in the market prices of investments.
DEFERRED ORGANIZATION COSTS
Organization costs incurred by the Fund have been deferred and are amortized
over a period of 60 months from the date the Fund commenced operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net increases or decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
B. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND TRANSACTIONS WITH
AFFILIATES
Richard H. Driehaus, the Chairman and President of the Fund, is also the
Chairman of the Board, director, and sole shareholder of Driehaus Capital
Management, Inc., a registered investment adviser, and of Driehaus Securities
Corporation, a registered broker-dealer.
Driehaus Capital Management, Inc. ("DCM") serves as the Fund's investment
adviser. In return for its services to the Fund, DCM receives a monthly fee,
computed and accrued daily at an annual rate of 1.5% of average net assets. The
amount accrued to DCM during the period from inception to February 28, 1997 is
$548,536 and is included in Payable to affiliates. DCM agreed to reduce its fee
and absorb other operating expenses to the extent necessary to ensure that the
total Fund operating expenses (other than interest, taxes, brokerage commissions
and other portfolio transaction expenses, capital expenditures and extraordinary
expenses) will not exceed 2.25% of the average net assets of the Fund on an
annual basis for the first twelve months of the Fund's operations after the
effective date of the Fund's registration statement. As of February 28, 1997, no
fees have yet been absorbed.
PFPC Inc., a wholly owned, indirect subsidiary of PNC Bank, serves as the
Fund's administrative and accounting agent. In compensation for its services,
PFPC receives a monthly fee based upon average net assets, with a minimum
monthly fee of $9,500, plus out-of-pocket expenses. PFPC has agreed to waive a
portion of its minimum fees during the first year of the Fund's operations. As
of February 28, 1997, $11,100 has been waived. PFPC Inc. also acts as the Fund's
transfer agent and dividend disbursing agent.
DCM advanced certain organization costs to the Fund. As of February 28,
1997, $17,758 of organizational costs advanced is included in Payable to
affiliates.
Certain officers of the Trust are also officers of the Adviser. No such
officers received compensation from the Fund.
Driehaus Securities Corporation ("DSC") acts as the Fund's distributor and
underwriter. In addition, DSC executes all domestic exchange agency trades for
the Fund in American Depository Receipts (ADR'S) or other publicly traded equity
interests representing shares in foreign companies and, if applicable, any U.S.
securities the Fund might trade. For these brokerage services, DSC charges
commissions at a rate equal to 8 cents/share. For the period ended February 28,
1997, DSC received $74,960 in commissions. A portion of these commissions is
paid to DSC's clearing broker for clearing charges.
12
<PAGE> 60
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
C. INVESTMENT TRANSACTIONS
The aggregate purchases, excluding the securities transferred from the
Partnership, and sales of investments securities, other than short-term
obligations, for the period October 28, 1996 through February 28, 1997, were as
follows:
<TABLE>
<S> <C> <C>
Purchases -- $188,868,026
Sales -- $141,202,069
</TABLE>
D. RESTRICTED SECURITIES
The Fund may purchase securities that have been privately placed but that
are eligible for purchase and sale under rule 144A under the Securities and
Exchange Act of 1933. At February 28, 1997, there were no such securities in the
Fund's portfolio.
E. OFF BALANCE SHEET RISKS
The Fund's investments in foreign securities may entail risks due to the
potential for political and economic instability in the countries where the
issuers of these securities are located. In addition, foreign exchange
fluctuations could affect the value of positions held. These risks are generally
intensified in emerging markets. It is the Advisor's policy to continuously
monitor its exposure to these risks.
13
<PAGE> 61
DRIEHAUS MUTUAL FUNDS
FORM N-1A
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. FINANCIAL STATEMENTS:
(i) Financial Statements included in Part A of the Registration
Statement:
Financial Highlights
(ii) Financial Statements included in Part B of the Registration
Statement:
Statement of Net Assets at September 13, 1996
Report of Independent Auditors
Statement of Assets and Liabilities at February 28, 1997
(unaudited)
Statement of Operations for the period ended February 28, 1997
(unaudited)
Statement of Changes in Net Assets for the period ended
February 28, 1997 (unaudited)
Schedule of Investments at February 28, 1997
Notes to financial statements
b. EXHIBITS:
(1) Declaration of Trust of Registrant./1/
(2) Bylaws of Registrant./1/
(3) None.
(4) None.
(5) Management Agreement. /2/
(6) Distribution Agreement. /2/
(7) None.
(8) Custodian Services Agreement /2/
(9.1) Transfer Agency Agreement /2/
(9.2) Administration Agreement /2/
(10) Not applicable.
(11) Consent of independent accountants.
(12) Not applicable.
(13) Investment Letter of initial investor in
Registrant. /2/
(14) None.
(16) Not applicable.
(18) Not applicable.
(19) Powers of attorney. /2/
(27) Financial Data Schedule.
/1/ Incorporated by reference to the initial registration statement filed
on June 5, 1996.
/2/ Incorporated by reference to Pre-Effective Amendment No. 1 under the
Securities Act of 1933 (Amendment No. 1 under the Investment Company Act of
1940) filed on October 7, 1996.
C-1
<PAGE> 62
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Inapplicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1997, there were 253 holders of record of
Shares of Registrant.
ITEM 27. INDEMNIFICATION.
Article V of Registrant's Declaration of Trust, filed herewith
as Exhibit 1, provides for the indemnification of Registrant's trustees,
officers, employees and agents against liabilities incurred by them in
connection with the defense or disposition of any action or proceeding in which
they may be involved or with which they may be threatened, while in office or
thereafter, by reason of being or having been in such office, except with
respect to matters as to which it has been determined that they acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their office ("Disabling Conduct").
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officers, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
<TABLE>
<CAPTION>
Name Position with Adviser Other Business, Profession, Vocation or
---- --------------------- ---------------------------------------
Employment
----------
<S> <C> <C>
Richard H. Driehaus Chairman of Board, CEO Chairman of Board, CEO of Driehaus
Securities Corporation ("DSC")
William R. Andersen Vice President None
Mark Genovise Vice President None
Robert F. Moyer President, COO President, COO of DSC
Diane L. Wallace Senior Vice President-Operations Senior Vice President-Operations of DSC
Mary H. Weiss Vice President, Secretary, Chief Vice President, Secretary and Chief Legal
Legal Officer Officer of DSC
</TABLE>
C-2
<PAGE> 63
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Not applicable.
(b) Information for officers and directors of Driehaus
Securities Corporation ("DSC") is set forth below. The principal business
address of each is 25 East Erie Street, Chicago, Illinois 60611.
<TABLE>
<CAPTION>
NAME POSITION WITH DSC POSITION WITH REGISTRANT
<S> <C> <C>
Richard H. Driehaus Chairman of Board; CEO President
Robert F. Moyer President; COO Vice President; Trustee
Diane L. Wallace Senior Vice President-Operations Vice President, Treasurer
Mary H. Weiss Vice President; Secretary; Chief Vice President; Secretary
Legal Officer
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All such accounts, books and other documents are maintained (i) at the
offices of the Registrant, (ii) at the offices of Registrant's investment
adviser, Driehaus Capital Management, Inc., and the Registrant's distributor,
Driehaus Securities Corporation, Inc., 25 East Erie Street, Chicago, Illinois
60611 and 1 East Erie Street, Chicago, Illinois, or (iii) at the offices of
Registrant's custodian, Morgan Stanley Trust Company, One Pierrepont Plaza,
Brooklyn, NY 11201, transfer agent, PFPC, 103 Bellevue Parkway, Wilmington,
Delaware 19809, or administrator, PFPC, 103 Bellevue Parkway, Wilmington,
Delaware 19809.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
C-3
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on the 24th day of April, 1997.
DRIEHAUS MUTUAL FUNDS
By: /s/ Richard H. Driehaus
--------------------------------
Richard H. Driehaus, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Richard H. Driehaus President and Trustee (Principal April 24, 1997
------------------------------------- Executive Officer)
Richard H. Driehaus
/s/ Arthur B. Mellin* Trustee April 24, 1997
-------------------------------------
Arthur B. Mellin
/s/ Robert F. Moyer Trustee April 24, 1997
-------------------------------------
Robert F. Moyer
/s/ A.R. Umans* Trustee April 24, 1997
-------------------------------------
A.R. Umans
/s/ Daniel Zemanek* Trustee April 24, 1997
-------------------------------------
Daniel Zemanek
/s/ Diane L. Wallace Treasurer (Principal Financial and April 24, 1997
------------------------------------- Accounting Officer)
Diane L. Wallace
</TABLE>
* Robert F. Moyer signs this document pursuant to powers of attorney filed in
Registrant's Pre-Effective Amendment No. 3 filed on or about October 21, 1996.
/s/ Robert F. Moyer
- --------------------------------------
Robert F. Moyer
<PAGE> 65
EXHIBIT INDEX
DRIEHAUS MUTUAL FUNDS
FORM N-1A REGISTRATION STATEMENT
(1) Declaration of Trust of Registrant./1/
(2) Bylaws of Registrant./1/
(3) None.
(4) None.
(5) Management Agreement./2/
(6) Distribution Agreement./2/
(7) None.
(8) Custodian Services Agreement./2/
(9.1) Transfer Agency Agreement./2/
(9.2) Administration Agreement./2/
(10) Not applicable.
(11) Consent of independent accountants.
(12) Not applicable.
(13) Investment Letter of initial investor in Registrant./2/
(14) None.
(16) Not applicable.
(18) Not applicable.
(19) Powers of attorney./2/
(27) Financial Data Schedule.
- -------------------
/1/ Incorporated by reference to the initial registration statement filed
on June 5, 1996.
/2/ Incorporated by reference to Pre-Effective Amendment No. 1 under the
Securities Act of 1933 (Amendment No. 1 under the Investment Company Act of
1940) filed on October 7, 1996.
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated September 13, 1996, and to all references to our firm included in or made
a part of this Registration Statement on Form N-1A of Driehaus International
Growth Fund.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois,
April 22, 1997
C-6
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001016073
<NAME> DRIEHAUS MUTUAL FUNDS
<SERIES>
<NUMBER> 1
<NAME> DRIEHAUS INTERNATIONAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 127,390,827
<INVESTMENTS-AT-VALUE> 142,357,157
<RECEIVABLES> 4,408,639
<ASSETS-OTHER> 113,012
<OTHER-ITEMS-ASSETS> 893,021
<TOTAL-ASSETS> 147,771,829
<PAYABLE-FOR-SECURITIES> 2,277,934
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 743,097
<TOTAL-LIABILITIES> 3,021,031
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133,449,095
<SHARES-COMMON-STOCK> 13,015,084
<SHARES-COMMON-PRIOR> 10,041
<ACCUMULATED-NII-CURRENT> (492,085)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,172,280)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,966,068
<NET-ASSETS> 144,750,798
<DIVIDEND-INCOME> 119,888
<INTEREST-INCOME> 125,374
<OTHER-INCOME> 0
<EXPENSES-NET> 737,347
<NET-INVESTMENT-INCOME> (492,085)
<REALIZED-GAINS-CURRENT> (3,172,280)
<APPREC-INCREASE-CURRENT> 14,966,068
<NET-CHANGE-FROM-OPS> 11,301,703
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,027,460
<NUMBER-OF-SHARES-REDEEMED> 22,417
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 144,650,386
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 548,536
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 737,347
<AVERAGE-NET-ASSETS> 107,740,244
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.12
<EXPENSE-RATIO> 2.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
