<PAGE> 1
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S LETTER
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
For the period from September 1, 1997 through August 31, 1998, the fund's
total return was 16.50%, compared to -0.14% for the Morgan Stanley Capital
International EAFE Index and -1.06% for the Lipper International Fund Index
average.
For the entire period, the Fund continued its large weighting in Europe with
holdings in the technology, financial and telecom sectors which are among the
largest weightings. We continue to be underweighted and extremely cautious about
the prospects for Japan, which has recently slipped from slow growth into
recession. We do, however, have positions in some companies there which are
doing well despite the difficult environment.
During the past six months, the Asia crisis has turned into a general
emerging market crisis. It now appears that the series of crises in the past 18
months will have an unfavorable impact on the world's mature economies. It is
too early to tell how severe this will be but we have made some shifts in the
portfolio to reflect this less certain short term environment. We are also
beginning to see some opportunities emerging from the crisis in Asia and remain
very optimistic about that part of the world over the long term.
The performance information in this annual report is as of August, 31, 1998,
which was the close of the Fund's fiscal year. For updated information about
Fund performance, please call the Fund.
I would like to extend a special welcome to new shareholders of the Fund, as
well as to thank all of you for your continued support.
Sincerely,
William R Anderson
William R. Andersen
Portfolio Manager
October 16, 1998
Investment Philosophy: We seek to achieve superior investment returns
primarily by investing in companies outside the U.S. that are currently
demonstrating rapid growth in their sales and earnings and which, in our
judgement, have the ability to continue or accelerate their growth rates in the
future. We manage our portfolio actively (above average turnover) to insure that
we are fully invested in companies that meet these criteria.
1
<PAGE> 2
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DRIEHAUS EAFE
-------- ----
<S> <C> <C>
Year ended 8/31/98 16.50% -0.14%
Three Years ended 8/31/98 20.56% 5.51%
Five Years ended 8/31/98 17.08% 5.53%
Since Inception (7/1/90 -- 8/31/98) 16.65% 5.17%
</TABLE>
Performance is historical and does not represent future results. Investment
returns and principal value vary, and you may have a gain or loss when you sell
shares.
<TABLE>
<CAPTION>
EAFE DRIEHAUS
<S> <C> <C>
Jul-90 100000.00 100000.00
86601.00 78801.40
89754.80 87098.90
102746.00 93572.90
Jun-91 105643.00 88467.00
105258.00 96051.30
109228.00 97660.60
117111.00 86071.10
Jun-92 126030.00 87890.80
118282.00 89215.50
118606.00 85772.90
135240.00 96054.30
Jun-93 142834.00 105716.00
163373.00 112727.00
206030.00 113701.00
175484.00 117676.00
Jun-94 170382.00 123688.00
190949.00 123808.00
177981.00 122545.00
169343.00 124827.00
Jun-95 186111.00 125734.00
207588.00 130976.00
210166.00 136279.00
239371.00 140217.00
Jun-96 268940.00 142436.00
253440.00 142257.00
261596.00 144520.00
270985.00 142257.00
Jun-97 307522.00 160718.00
320208.00 159586.00
299239.00 147090.00
368797.00 168726.00
Jun-98 404569.00 170518.00
Aug-98 351762.00 150907.00
</TABLE>
The "Driehaus" performance data shown above includes the performance of the
Driehaus International Large Cap Fund, L.P. (the "Partnership"), the Fund's
predecessor, 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 the expenses of the Fund.
Performance data presented measures change in the value of an investment in
the Fund, assuming reinvestment of all dividends and capital gains. Average
annual total return reflects annualized change.
The graph compares the results of a $100,000 investment in the Fund, on July
1, 1990 (the date of the Partnership's inception), with all dividends and
capital gains reinvested, with the EAFE Index with dividends reinvested.
The EAFE Index (Morgan Stanley Capital International Europe, Australia and
Far East Index) is a widely recognized benchmark of non-U.S. stock markets. It
is an unmanaged index composed of a sample of companies representative of the
market structure of 18 European and Pacific Basin countries. Data is in U.S.
dollars and includes reinvestment of dividends.
2
<PAGE> 3
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of Driehaus International Growth Fund:
We have audited the accompanying statement of assets and liabilities of
DRIEHAUS INTERNATIONAL GROWTH FUND (the "Fund"), including the schedules of
investments and investments by industry, as of August 31, 1998, and the related
statement of operations for the year then ended, statements of changes in net
assets for the periods indicated thereon, and financial highlights for the
periods indicated thereon. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Driehaus International Growth Fund as of August 31, 1998, and the results of its
operations for the year then ended, changes in its net assets for the periods
indicated thereon, and financial highlights for the periods indicated thereon,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
October 23, 1998
3
<PAGE> 4
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
- ----------------------------------------------------------
<S> <C> <C>
EQUITY SECURITIES -- 94.2%
- ----------------------------------------------------------
EUROPE -- 87.5%
FRANCE -- 16.9%
Accor SA................... 25,839 $ 5,954,775
Atos SA**.................. 11,145 2,551,470
Axa........................ 44,740 5,147,750
Cap Gemini SA.............. 49,700 7,820,812
Dassault Systemes SA....... 31,115 1,574,177
Dassault Systemes SA --
ADR...................... 13,141 611,057
Equant NV**................ 30,640 1,290,924
Equant NV -- ADR**......... 34,030 1,399,484
France Telecom SA.......... 54,600 4,004,924
PSA Peugeot Citroen........ 16,075 2,679,167
Societe Television
Francaise................ 29,815 4,409,189
Unibail (Union du Credit-
Bail Immobilier)......... 2,576 311,212
Valeo SA................... 12,499 939,011
------------
38,693,952
------------
UNITED KINGDOM -- 14.5%
Bank of Scotland........... 421,677 4,314,285
COLT Telecom Group
PLC -- ADR**............. 49,075 7,066,800
Misys PLC.................. 20,922 928,404
Orange PLC**............... 500,080 5,945,462
Pearson PLC................ 234,325 3,912,024
Vodafone Group
PLC -- ADR............... 86,929 10,920,455
------------
33,087,430
------------
ITALY -- 11.5%
Arnoldo Mondadori Editore
SpA...................... 510,440 4,861,752
Banca Commerciale
Italiana................. 813,420 5,460,604
Banca di Roma**............ 2,672,000 5,158,952
Credito Italiano SpA....... 890,031 4,276,908
Ericsson SpA............... 45,390 2,297,041
Telecom Italia Mobile
SpA...................... 648,968 4,259,801
------------
26,315,058
------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Number Market
of Value
Shares (Note A)
<S> <C> <C>
GERMANY -- 10.0%
Continental AG............. 158,850 $ 4,197,544
Mannesmann AG.............. 26,640 2,469,870
MobilCom AG................ 7,535 2,038,092
ProSieben Media AG
(Pref.).................. 94,655 4,959,497
SAP AG (Pref.)............. 6,379 3,754,672
Sixt AG (Pref.)............ 12,945 2,370,973
Volkswagen AG.............. 41,695 3,073,615
------------
22,864,263
------------
SWEDEN -- 9.7%
Electrolux AB -- B......... 222,420 3,547,360
Hennes & Mauritz AB -- B... 113,920 7,901,408
Kinnevik AB -- B........... 118,377 3,746,700
Skandinaviska Enskilda
Banken -- A.............. 309,160 3,879,636
Societe Europeenne de
Communication SA
A -- ADR**............... 2,174 61,820
Societe Europeenne de
Communication SA
B -- ADR**............... 19,566 538,237
WM Data AB -- B............ 66,027 2,595,914
------------
22,271,075
------------
SWITZERLAND -- 6.4%
Adecco SA.................. 12,008 5,595,774
Baloise Holding Ltd. ...... 4,332 3,306,642
Jelmoli Holding AG......... 2,285 2,709,442
Schweizerische
Rueckversicherungs-
Gesellschaft............. 1,330 2,943,519
------------
14,555,377
------------
FINLAND -- 6.3%
Nokia Corp. -- ADR......... 95,391 6,373,311
Raisio Group PLC........... 357,995 4,736,089
Tieto Corp. -- B........... 104,759 3,318,370
------------
14,427,770
------------
SPAIN -- 3.4%
Banco Central
Hispanoamericano SA...... 59,125 554,673
Telefonica SA.............. 57,480 2,199,180
Tele Pizza SA**............ 547,995 5,049,463
------------
7,803,316
------------
</TABLE>
Notes to Financial Statements are an integral part of this Schedule.
4
<PAGE> 5
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Market
of Value
Shares (Note A)
- ----------------------------------------------------------
<S> <C> <C>
IRELAND -- 2.6%
Allied Irish Banks PLC..... 249,795 $ 3,425,351
CBT Group PLC -- ADR **.... 52,419 2,463,693
------------
5,889,044
------------
NETHERLANDS -- 2.3%
CMG PLC.................... 175,806 5,300,444
------------
NORWAY -- 1.5%
Merkantildata ASA.......... 313,315 3,508,165
------------
PORTUGAL -- 1.3%
Telecel -- Comunicacoes
Pessoais SA.............. 18,837 3,076,511
------------
GREECE -- 1.0%
Hellenic Telecommunication
Organization SA.......... 99,633 2,303,393
------------
TURKEY -- 0.1%
Akbank T.A.S. ............. 15,496,000 284,699
------------
RUSSIA -- 0.0%
Novosibirsk Telephone**.... 4,000 16,000
------------
Total Europe............... 200,396,497
------------
FAR EAST -- 4.4%
JAPAN -- 4.4%
Fuji Heavy Industries
Ltd...................... 606,000 3,206,190
Mazda Motor Corp.**........ 389,000 1,292,166
NTT Data Corp.............. 1,100 3,957,787
Shimano Inc................ 68,000 1,531,553
------------
9,987,696
------------
Total Far East............. 9,987,696
------------
MIDDLE EAST -- 1.4%
ISRAEL -- 1.4%
ECI Telecommunications
Ltd. -- ADR.............. 119,345 3,281,987
------------
Total Middle East.......... 3,281,987
------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Number Market
of Value
Shares (Note A)
- ----------------------------------------------------------
<S> <C> <C>
SOUTH AMERICA -- 0.7%
BRAZIL -- 0.7%
Telecomunicacoes de Sao
Paulo SA (Pref.)......... 5,486,660 $ 797,161
Telesp Celular SA -- B
(Pref.)**................ 12,660,960 742,263
------------
1,539,424
------------
Total South America........ 1,539,424
------------
NORTH AMERICA -- 0.2%
MEXICO -- 0.2%
Cifra SA de CV -- V**...... 1 1
Corporacion Interamericana
de Entretenimiento
SA -- B**................ 350,657 513,523
Grupo Financiero Banamex
Accival SA de CV -- B**.. 192 168
------------
513,692
------------
Total North America........ 513,692
------------
- ----------------------------------------------------------
TOTAL INVESTMENTS (COST
$182,789,480).............. 94.2% 215,719,296
Other Assets in Excess of
Liabilities................ 5.8% 13,368,948
---------- ------------
Net Assets..................... 100.0% $229,088,244
==========================================================
</TABLE>
<TABLE>
<S> <C> <C>
The federal income tax basis and unrealized appreciation
(depreciation) for all securities is as follows:
</TABLE>
<TABLE>
<S> <C>
Basis.................................... $182,789,480
============
Gross Appreciation....................... $ 43,474,674
Gross Depreciation....................... (10,544,858)
------------
Net Appreciation..................... $ 32,929,816
============
</TABLE>
** Non-income producing security.
Notes to Financial Statements are an integral part of this Schedule.
5
<PAGE> 6
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
SCHEDULE OF INVESTMENTS BY INDUSTRY
AUGUST 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- -------- ----------
<S> <C>
Appliances............................. 1.5%
Automobiles............................ 4.5%
Banking................................ 12.0%
Basic Industry......................... 1.9%
Broadcast & Publishing................. 7.9%
Business & Publishing Services......... 6.3%
Computer Software & EDP Services....... 12.6%
Electrical & Electronics............... 1.0%
Electronic Components.................. 1.0%
Foods & Household Products............. 2.1%
Industrial Components.................. 2.2%
Insurance.............................. 5.0%
Leisure & Tourism...................... 2.8%
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY NET ASSETS
- -------- ----------
<S> <C>
Machinery.............................. 1.1%
Merchandising.......................... 1.2%
Office/Communications Equipment........ 1.4%
Real Estate............................ 0.1%
Recreation............................. 0.7%
Retailing -- Foods..................... 2.2%
Retailing -- Goods..................... 3.5%
Telecommunications..................... 21.7%
Technology/Multi-Industry.............. 1.5%
Other Assets Less Liabilities.......... 5.8%
------
TOTAL.................................. 100.0%
======
</TABLE>
Notes to Financial Statements are an integral part of this Schedule.
6
<PAGE> 7
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (Cost $182,789,480)........ $215,719,296
Cash.................................................... 12,528,535
Receivables:
Dividends.......................................... 407,301
Interest........................................... 18,179
Investment securities sold......................... 5,440,178
Fund shares sold................................... 8,647
Prepaid insurance....................................... 4,158
Deferred organizational costs........................... 78,232
------------
- --------------------------------------------------------------------------
TOTAL ASSETS................................... 234,204,526
------------
- --------------------------------------------------------------------------
LIABILITIES:
Investment securities purchased......................... 3,886,902
Fund shares purchased................................... 742,113
Net unrealized depreciation on foreign currency forward
contracts.............................................. 37,812
Accrued expenses........................................ 112,576
Payable to affiliates................................... 336,879
------------
- --------------------------------------------------------------------------
TOTAL LIABILITIES.............................. 5,116,282
------------
- --------------------------------------------------------------------------
NET ASSETS.................................................. $229,088,244
============
SHARES OUTSTANDING.......................................... 18,484,156
============
NET ASSET VALUE PER SHARE................................... $ 12.39
============
==========================================================================
NET ASSETS CONSISTED OF THE FOLLOWING AT AUGUST 31, 1998:
Paid-in capital......................................... $190,779,795
Undistributed net investment loss....................... (1,202,312)
Undistributed net realized gain......................... 7,963,083
Undistributed net realized foreign exchange loss........ (1,384,760)
Unrealized foreign exchange gain........................ 2,622
Unrealized appreciation of investments.................. 32,929,816
------------
NET ASSETS..................................... $229,088,244
============
==========================================================================
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
7
<PAGE> 8
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the year ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME (LOSS):
Income:
Dividends (net of non-reclaimable foreign taxes of
$122,120).......................................... $ 2,300,361
Interest........................................... 678,841
-----------
- ---------------------------------------------------------------------------
Total income..................................... 2,979,202
-----------
- ---------------------------------------------------------------------------
Expenses:
Investment advisory fee............................ 3,343,049
Administration fee................................. 268,069
Professional fees.................................. 128,982
Federal and state registration fees................ 33,258
Custodian fee...................................... 212,518
Transfer agent fees................................ 41,646
Trustees' fees..................................... 45,734
Amortization of organization costs................. 28,630
Miscellaneous...................................... 79,628
-----------
- ---------------------------------------------------------------------------
Total expenses................................... 4,181,514
-----------
- ---------------------------------------------------------------------------
Net investment loss............................ (1,202,312)
-----------
- ---------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from security transactions............ 8,389,493
Net realized foreign exchange loss...................... (1,384,760)
Net change in unrealized appreciation of investments.... 23,608,944
Net change in unrealized foreign exchange gain.......... 26,693
-----------
- ---------------------------------------------------------------------------
Net realized and unrealized gain on
investments.................................... 30,640,370
- ---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $29,438,058
===========
===========================================================================
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
8
<PAGE> 9
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
from the
commencement
of operations
For the year October 28, 1996
ended through
August 31, 1998 August 31, 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment loss................................ $ (1,202,312) $ (784,650)
Net realized and unrealized gain on investments.... 30,640,370 22,693,875
------------ ------------
Net increase in net assets resulting from
operations................................... 29,438,058 21,909,225
------------ ------------
- ------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income.............................. -- --
Capital gains...................................... (18,667,191) --
------------ ------------
Total distributions to shareholders............ (18,667,191) --
------------ ------------
- ------------------------------------------------------------------------------------------------------
Capital share transactions:
Proceeds from sales of shares...................... 86,666,536 166,480,305
Reinvestment of distributions...................... 18,666,482 --
Cost of shares redeemed............................ (67,560,735) (7,944,848)
------------ ------------
Net increase in net assets derived from capital
share transactions........................... 37,772,283 158,535,457
------------ ------------
Total increase in net assets................... $ 48,543,150 $180,444,682
------------ ------------
- ------------------------------------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------------------------------------
Beginning of period..................................... $180,545,094 $ 100,412
------------ ------------
End of period........................................... $229,088,244 $180,545,094
============ ============
======================================================================================================
Capital share transactions are as follows:
Shares purchased................................... 6,694,016 15,894,033
Shares reinvested.................................. 1,840,876 --
Shares redeemed.................................... (5,222,930) (731,880)
------------ ------------
Net increase from capital share transactions... 3,311,962 15,162,153
============ ============
======================================================================================================
</TABLE>
Notes to Financial Statements are an integral part of this Statement.
9
<PAGE> 10
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
For the period
from the
commencement
of operations
For the year October 28, 1996
ended through
August 31, 1998 August 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 11.90 $ 10.00
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss....................................... (0.07) (0.05)
Net gains on investments (both realized and unrealized)... 1.77 1.95
-------- --------
Total income from investment operations............ 1.70 1.90
-------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income...................... 0.00 0.00
Distributions from capital gains.......................... (1.21) 0.00
-------- --------
Total distributions................................ (1.21) 0.00
-------- --------
Net asset value, end of period.............................. $ 12.39 $ 11.90
======== ========
Total Return....................................... 16.50%* 19.00%**
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)...................... $229,088 $180,545
Ratio of expenses to average net assets*.................. 1.88% 2.11%
Ratio of net investment loss to average net assets*....... (0.54)% (0.67)%
Portfolio turnover........................................ 219.78%* 380.02%**
</TABLE>
- --------------------------------------------------------------------------------
* Annualized
** Not Annualized
Notes to Financial Statements are an integral part of this Schedule.
10
<PAGE> 11
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Driehaus International Growth Fund (the "Fund") is a series of the
Driehaus Mutual Funds (the "Trust"), a registered 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 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.
The fund seeks to maximize capital appreciation. To do so, the Fund invests
primarily in the equity securities of foreign companies. In general, the Fund
invests in companies with market capitalizations of over $300 million and will
not invest in securities of issuers with market capitalizations of less than
$200 million.
SECURITIES VALUATION AND TRANSACTIONS
Depending upon local convention or regulation, equity securities may be
valued at 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. 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. At August 31, 1998, there
were no securities for which market quotations were not available.
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.
The Fund accrues 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 under Subchapter M of the Internal
Revenue Code 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.
During the year, the Fund made a reclassification of $5,628,357 from
undistributed net realized loss to paid-in capital to reflect the
characterization of certain income and capital gains distributions for federal
income tax purposes in accordance with the American Institute of Certified
Public Accountants' Statement of Position 93-2, "Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain and Return of Capital
Distributions by Investment Companies." This adjustment is the result of the
realization and distribution of unrealized gains that were transferred into the
Fund from the Partnership at the commencement of operations on October 28, 1996.
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 currency gains and losses on transaction hedges 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
11
<PAGE> 12
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
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.
Net realized foreign exchange gains or losses on portfolio hedges result
from the non-speculative use of forward contracts with respect to portfolio
positions denominated or quoted in a particular currency in order to reduce or
limit exposure in that currency. The fund engaged in no portfolio hedging during
the year ended August 31, 1998.
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 being
amortized over a period of 60 months. The remaining amortization period for
these costs is 37 months.
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 of the Board and President of the Trust,
is also the Chairman of the Board, sole 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 year ended August 31, 1998 was $3,343,049 of
which $336,879 is included in Payable to affiliates.
Driehaus Securities Corporation ("DSC") acted as the Fund's distributor
through December 18, 1997. Subsequent to this time Driehaus Mutual Funds became
self-distributed.
DSC acts as a broker for the Fund for domestically traded securities. For
the year ended August 31, 1998, the Fund paid a total of $2,214,060 in brokerage
commissions to all brokers. During that period DSC traded 6,261,040 shares and
received $222,998 in commissions. A portion of these commissions is, in turn,
paid by DSC to third parties for clearing and floor brokerage services.
Certain officers of the Trust are also officers of DCM and DSC. No such
officers received compensation from the Fund.
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 Inc. receives a monthly fee based upon average net assets plus
out-of-pocket expenses. PFPC Inc. also acts as the Fund's transfer agent and
dividend disbursing agent.
12
<PAGE> 13
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
C. FOREIGN CURRENCY FORWARD CONTRACTS
At August 31, 1998, the Fund had foreign currency forward contracts
outstanding under which it is obligated to exchange currencies at specified
future dates. At August 31, 1998, the Fund's currency transactions are limited
to transaction hedging.
The contractual amounts of foreign currency forward contracts do not
necessarily represent the amounts potentially subject to risk. The measurement
of the risks associated with these instruments is meaningful only when all
related and offsetting transactions are considered. Risks arise from the
possible inability of counter parties to meet the terms of their contracts and
from movements in currency values.
The Fund had the following outstanding contracts at August 31, 1998:
Transaction Hedges:
Foreign Currency Purchases:
<TABLE>
<CAPTION>
Unrealized
Appreciation
US Dollars Settlement (Depreciation)
Sold Foreign Currency Purchased Date at August 31, 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$ 123,769 727,141 French Franc September 1998 $ (224)
599,591 3,607,141 French Franc September 1998 13,279
269,871 1,625,190 French Franc September 1998 6,257
31,089 187,032 French Franc September 1998 689
84,246 506,822 French Franc September 1998 1,866
73,270 128,150 Deutsche Mark September 1998 (404)
153,383 93,652 Pounds Sterling September 1998 3,597
459,056 280,254 Pounds Sterling September 1998 10,683
345,252 208,788 Pounds Sterling September 1998 4,664
645,656 63,334 Irish Punt September 1998 2,423
--------
$ 57,536
- ----------------------------------------------------------------------------
</TABLE>
Transaction Hedges:
Foreign Currency Sales:
<TABLE>
<CAPTION>
Unrealized
Appreciation
US Dollars Settlement (Depreciation)
Purchased Foreign Currency Sold Date at August 31, 1998
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$2,399,361 14,449,194 French Franc September 1998 $(55,626)
539,402 970,439 Deutsche Mark September 1998 (12,391)
265,756 38,220,971 Japanese Yen September 1998 (5,585)
231,210 32,901,170 Japanese Yen September 1998 (2,397)
315,483 192,626 Pounds Sterling September 1998 (7,399)
513,479 313,479 Pounds Sterling September 1998 (11,950)
--------
$(95,348)
--------
Net unrealized depreciation $(37,812)
========
- ----------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
- --------------------------------------------------------------------------------
DRIEHAUS INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
D. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of investment securities, other than
short-term obligations, for the year ended August 31, 1998, were as follows:
<TABLE>
<S> <C>
Purchases $467,022,061
Sales $454,260,739
</TABLE>
E. 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 August 31, 1998, there were no such securities in the
Fund's portfolio.
F. LINES OF CREDIT
Driehaus Mutual Funds has a $5 million committed line of credit and a $5
million un-committed line of credit. These lines of credit are available
primarily to meet large, unexpected shareholder withdrawals. For the year ended
August 31, 1998, no borrowing was made on these lines of credit.
G. LONG TERM CAPITAL GAINS DISTRIBUTION
The Fund distributed a total Long Term Capital Gain Dividend of $1,131,486
during the year ending August 31, 1998. Of this Long Term Capital Gain Dividend
amount, the fund made 28 Percent Rate Gain Distribution of $273,367 and a 20
Percent Rate Gain distribution of $858,119.
H. FOREIGN TAX CREDIT PASS THROUGH
During the year ended August 31, 1998, the Fund made an election under
Internal Revenue Code Section 853 to pass through foreign taxes paid in the
amount of $183,375 to shareholders.
I. 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 DCM's policy to continuously monitor the
Fund's exposure to these risks.
14
<PAGE> 15
Directors & Officers
Richard H. Driehaus
Chairman of the Board & President
Arthur B. Mellin
Trustee
Robert F. Moyer
Vice President & Trustee
A.R. Umans
Trustee
Daniel Zemanek
Trustee
William R. Andersen
Vice President
Diane L. Wallace
Vice President & Treasurer
Mary H. Weiss
Vice President & Secretary
Robert H. Buchen
Vice President
Martin A. Brown
Vice President
Investment Adviser
DRIEHAUS CAPITAL MANAGEMENT, INC.
25 East Erie Street
Chicago, IL 60611
Distributor
DRIEHAUS MUTUAL FUNDS
25 East Erie Street
Chicago, IL 60611
Administrator & Transfer Agent
PFPC INC.
400 Bellevue Parkway
Suite 108
Wilmington, DE 19809
Custodian
MORGAN STANLEY TRUST COMPANY
One Pierrepont Plaza
Brooklyn, NY 11201
[DRIEHAUS MUTUAL FUNDS LOGO]
DRIEHAUS INTERNATIONAL GROWTH FUND
Distributed by:
DRIEHAUS MUTUAL FUNDS
ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1998
This report has been prepared for the shareholders
of the Fund and is not an offering to sell or buy
any Fund securities. Such offering is only made
by the Fund's prospectus.
