PPM AMERICA FUNDS, N-1A, 1998-09-11

PPM AMERICA FUNDS
N-1A, 1998-09-11

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<PAGE>

As filed with the Securities and Exchange Commission on September 11, 1998

1933 Act Reg. No. 33
1940 Act File No. 811
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A
-------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO._

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO._

-------------------------------------
PPM America Funds
(Registrant)

225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606

Telephone Number: (312) 634-2500

Mark B. Mandich Janet D. Olsen
PPM America, Inc. Bell, Boyd & Lloyd
225 West Wacker, Three First National Plaza, #3300
Suite 1200 Chicago, Illinois 60606
Chicago, Illinois 60602

(Agents for Service)

-------------------------

Approximate Date of Proposed Public Offering: As soon as possible after the
effectiveness of the Registration Statement.

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

- --------------------------------------------------------------------------------

<PAGE>

PPM AMERICA FUNDS

Cross-reference sheet pursuant to rule 495(a) of Regulation C

PART A

PROSPECTUS

PPM AMERICA VALUE EQUITY FUND, PPM AMERICA SMALL CAP
VALUE EQUITY FUND AND PPM AMERICA HIGH YIELD BOND FUND

Item Location or Caption
- ------- ----------------------------------

1(a)-(b) Front and Back Covers

2(a) The Funds' Investment Objectives
(b) The Funds' Principal Investment Strategies
(c)(1) The Principal Risks of Investing in the Funds
(c)(2) Annual Investment Returns

3 The Funds' Fees and Expenses

4(a) More Information on the Funds' Objectives, Strategies and
Risks; Objectives
(b) More Information on the Funds' Objectives, Strategies and
Risks; How the Funds Invest
(c) More Information on the Funds' Objectives, Strategies and
Risks; Principal Risks of Investing in the Funds

5(a)-(b) Not Applicable

6(a)(1) & (a)(2) Management of the Funds; Investment Adviser
(a)(3) Not Applicable
(b) Not Applicable

7(a) Valuation of the Funds' Shares
(b) Shareholder Information; How to Purchase Shares
(c) Shareholder information; How to Redeem Shares
(d) Dividends, Distributions and Taxes; Dividends and
Distributions
(e) Dividends, Distributions and Taxes; Tax Consequences;
State and Local Taxes
(f) Not Applicable

8(a)-(c) Not Applicable

9 To be Filed by Amendment

<PAGE>

PART B

STATEMENT OF ADDITIONAL INFORMATION

PPM AMERICA VALUE EQUITY FUNDS, PPM AMERICA SMALL CAP
VALUE EQUITY FUND AND PPM AMERICA HIGH YIELD BOND FUND

Item Location or Caption
- ------- ----------------------------------

10(a) Front cover
(b) Table of contents

11(a) Information About the Funds
(b) Not Applicable

12(a) Information About the Funds; Investment Strategies
and Risks
(b) Investment Strategies and Risks; Investment Techniques
and Risks
(c) The Funds' Policies
(d) Investment Techniques and risks
(e) Not Applicable

13(a)-(d) Trustees and Officers of the Trust
(e) Not Applicable

14(a) Investment Adviser and Other Services
(b) Not Applicable
(c) Not Applicable

15(a) Investment Adviser and Other Services
(b) Investment Adviser and Other Services;
Principal Underwriter
(c)(1) Investment Adviser and Other Services
(c)(2) Not Applicable
(d) Investment Adviser and Other Services;
Accounting Services Agreement
(e)-(g) Not Applicable
(h)(1) Investment Adviser and Other Services:
Accounting Services Agreement

<PAGE>

(h)(2) Investment Adviser and Other Services;
Custodian and Transfer Agent
(h)(3) Investment Adviser and Other Services;
Custodian and Transfer Agent;
Independent Accountants
(h)(4) Not Applicable

16(a)-(e) Investment Adviser and Other Services;
Fund Transactions and Brokerage

17(a) Additional Information; Description of
Shares and Voting Rights
(b) Not Applicable

18(a) Purchase of Shares
(b) Not Applicable
(c) Valuation of the Funds' Shares
(d) Redemption of Shares

19(a) Tax Status
(b) Not Applicable

20(a) Investment Adviser and Other Services;
Principal Underwriter
(b)-(c) Not Applicable

21(a) Not Applicable
(b) Performance

22(a)-(c) To be Filed by Amendment

<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED _____________, 1998

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 BUT HAS NOT YET BECOME EFFECTIVE. 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 NOR SHALL
THERE BE ANY SALES 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.
- --------------------------------------------------------------------------------

PPM AMERICA FUNDS

PPM AMERICA VALUE EQUITY FUND
PPM AMERICA SMALL CAP VALUE EQUITY FUND
PPM AMERICA HIGH YIELD BOND FUND

[December 15, 1998]

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

<PAGE>

THE FUNDS' INVESTMENT OBJECTIVES:

PPM AMERICA VALUE EQUITY FUND AND PPM AMERICA SMALL CAP VALUE EQUITY FUND
- To increase the value of your shares through long-term growth of capital and
current income.

PPM AMERICA HIGH YIELD BOND FUND - To provide current income and to
increase the value of your shares through long-term growth of capital.

THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES:

PPM AMERICA VALUE EQUITY FUND - The Fund will invest at least 65% of its
assets in the common stocks of U.S. domiciled companies that have a market value
in excess of $2.5 billion and which PPM America (the Funds' investment adviser)
believes are undervalued relative to the stocks which comprise the S&P 500 Stock
Index. The Fund may also invest up to 25% of its assets in the common stocks of
U.S. exchange-traded foreign companies that PPM America believes are selling for
low prices.

PPM AMERICA SMALL CAP VALUE EQUITY FUND - The Fund will invest at least 65%
of its assets in the common stocks of U.S. domiciled companies that have a
market value less than $2.5 billion at the time of purchase and which PPM
America believes are undervalued relative to the value of those issuers that
have market values less than $2.5 billion. The Fund may also invest up to 25% of
its assets in the common stocks of U.S. exchange-traded foreign companies that
PPM America believes are selling for low prices.

PPM AMERICA HIGH YIELD BOND FUND - The Fund will invest at least 65% of its
assets in fixed-income securities that are higher-yielding, non-investment grade
corporate bonds with maturities exceeding three years. Moody's generally rates
these securities Ba or below, while S&P generally rates these securities BB or
below, although the Fund may invest in securities that are not rated if PPM
America believes these securities are of equivalent credit quality. The Fund
may invest in corporate bonds that Moody's rates Ca or S&P rates C, or in
unrated bonds that PPM America believes are of equivalent credit quality.

To increase the value of the Fund's shares, the Fund will invest in
corporate bonds that PPM America expects to increase in value because of
improvements in credit quality or rating or anticipated declines in interest
rates. The Fund may also invest up to 25% of its assets in equity securities to
seek to increase the value of the Fund's shares. The Fund may invest up to 25%
of its assets in U.S. dollar-denominated fixed-income or equity securities of
foreign companies.

THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS:

PPM AMERICA VALUE EQUITY FUND AND PPM AMERICA SMALL CAP VALUE EQUITY FUND
- A shareholder can lose money on its investment in either Fund or either Fund
could underperform other investments if:

- the stock market goes down;

<PAGE>

- value stocks fall out of favor with the stock market;

- the stock market continues to value the Funds' holdings lower than PPM
America expected;

- the Funds were incorrect in their assessment that a prospective
security was undervalued; or

- there are adverse political or economic events in foreign countries
that impact the value of the Funds' investments in foreign securities.

In addition, the Small Cap Value Equity Fund could underperform other
investments or lose money if the market for that Fund's investments is not
actively traded.

PPM AMERICA HIGH YIELD BOND FUND - A shareholder can lose money on its
investment in the Fund or the Fund could underperform other investments if:

- a corporate bond issuer does not make interest or principal payments
to the Fund when due;

- there is an economic downturn, a substantial period of rising interest
rates or a period of political uncertainty that affects the Fund's
investments;

- the markets for the Fund's investments are not actively traded; or

- the credit quality of the corporate bond issuer falls

ANNUAL INVESTMENT RETURNS:

Although the Funds' past performance will not necessarily indicate how the
Funds will perform in the future, the Funds will provide performance information
to investors to assist them in understanding that the Funds' returns may vary
and that there are possible risks associated with investing in the Funds. For a
discussion of PPM America's investment performance for its separately managed
accounts, refer to MANAGEMENT OF THE FUNDS.

THE FUNDS' FEES AND EXPENSES:

This table describes the fees and expenses that you will pay if you buy and
hold shares of the Funds.

SMALL CAP
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM VALUE EQUITY VALUE EQUITY HIGH YIELD
YOUR INVESTMENT) FUND FUND BOND FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases. . . . . . . . . . . . . . . . None None None
Maximum Deferred Sales Charge. . . . . . None None None
</TABLE>

<PAGE>

SMALL CAP
ANNUAL FUND OPERATING EXPENSES (EXPENSES VALUE EQUITY VALUE EQUITY HIGH YIELD
THAT ARE DEDUCTED FROM THE FUNDS' ASSETS) FUND FUND BOND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.80% 0.90% 0.65%
Distribution Fees None None None
Other Expenses(1) 0.30% 0.30% 0.30%
----------------------------------------
Total Annual Fund Operating Expenses(2) 1.10% 1.20% 0.95%
</TABLE>

- ---------------------------

(1) These expenses are based on estimated amounts for the fiscal year ending
December 31, 1999.
(2) PPM America has voluntarily agreed to reimburse the Funds if total annual
fund operating expenses exceed 1.00% for the Value Equity Fund, 1.10% for
the Small Cap Value Equity Fund and 0.85% for the High Yield Bond Fund.

EXAMPLE

The example below is intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds. The example assumes
that:

- you invest $10,000 in each Fund for the time periods indicated and
then redeem all of your shares at the end of those periods;

- your investment has a 5% return each year; and

- each Fund's operating expenses remain the same as shown under "Annual
Fund Operating Expenses," above.

Although your actual costs, and the Funds' returns, may be higher or lower,
based on these assumptions, your costs would be:

VALUE EQUITY SMALL CAP VALUE HIGH YIELD
FUND EQUITY FUND BOND FUND
- --------------------------------------------------------------------------
<S> <C> <C> <C>
ONE YEAR $112 $122 $ 97

THREE YEARS $350 $381 $303
</TABLE>

Taking into account the voluntary expense limitations by PPM America, the
actual costs for the one year and three year time periods described above would
be: Value Equity Fund -- $102 and $318; Small Cap Value Equity Fund -- $112 and
$350; and High Yield Bond Fund -- $87 and $271.

<PAGE>

MORE INFORMATION ON THE FUNDS' OBJECTIVES, STRATEGIES AND RISKS

OBJECTIVES:

PPM AMERICA VALUE EQUITY FUND AND PPM AMERICA SMALL CAP VALUE EQUITY FUND
- To increase the value of your shares through long-term growth of capital and
current income.

PPM AMERICA HIGH YIELD BOND FUND - To provide current income and to
increase the value of your shares through long-term growth of capital.

HOW THE FUNDS INVEST:

PPM AMERICA VALUE EQUITY FUND AND THE PPM AMERICA SMALL CAP VALUE EQUITY
FUND - The Value Equity Fund and Small Cap Value Equity Fund invest in common
stocks of companies that are primarily domiciled in the U.S., as well as
securities convertible into common stocks and securities having common stock
characteristics, such as rights and warrants to purchase common stocks.

PPM America buys and sells common stocks of companies based on the
philosophy that a diversified portfolio of undervalued equity securities will
outperform the market over the long term. PPM America generally will consider
stocks attractive for the PPM America Value Equity Fund if:

- they have below average valuation characteristics (E.G.,
price/earnings or price/cash flow ratio) relative to the stocks which
comprise the S&P 500 Index; or

- they have above average dividend yields relative to the stocks that
comprise the S&P 500 Index.

PPM America generally will consider stocks attractive for the PPM America
Small Cap Value Equity Fund if they have below average valuation characteristics
(e.g., price/earnings or price/cash flow ratio) relative to the stocks which
comprise the Russell 2000 Index.

The thrust of this approach is to seek investments where current investor
enthusiasm is low, as reflected in the stock's valuation. Exposure is reduced
when the investment community's perceptions improve and the stock approaches
fair valuation. PPM America takes a long-term investment approach by placing a
strong emphasis on its ability to determine attractive values and does not try
to determine short-term changes in the general market level.

PPM AMERICA HIGH YIELD BOND FUND - The High Yield Bond Fund's investments
in high yield securities are generally based on PPM America's analysis of
industry trends and individual security characteristics. PPM America conducts
credit analyses for each security considered for investment to evaluate its
attractiveness relative to its risk. PPM America also maintains a diversified
portfolio to limit credit exposure to individual issuers. PPM America tries to
identify those issuers whose financial condition is adequate to meet future
obligations, or has improved or is expected to improve in the future.

<PAGE>

From time to time, the High Yield Bond Fund may adopt a temporary defensive
position during adverse market, economic or other circumstances when PPM America
believes that action is needed to avoid losses. During periods when the Fund
has assumed a temporary defensive position, the Fund may not be able to achieve
its investment objective.

PRINCIPAL RISKS OF INVESTING IN THE FUNDS:

PPM AMERICA VALUE EQUITY FUND AND PPM AMERICA SMALL CAP VALUE EQUITY FUND
- Over time, stocks have shown greater growth potential than other types of
securities. In the short term, however, stock prices may fluctuate widely in
response to company, market, or economic news.

PPM AMERICA SMALL CAP VALUE EQUITY FUND - Stocks of small companies tend to
be more volatile and less liquid than stocks of large companies and have returns
that vary, sometimes significantly, from the overall stock market. As compared
to larger companies, small companies may:

- have a shorter history of operations,

- not have as great an ability to raise additional capital

- have a less diversified product line making them susceptible to market
pressure

- have a smaller public market for their shares

PPM AMERICA HIGH YIELD BOND FUND - Companies generally issue high yield
securities as a consequence of corporate restructuring or similar events, with
the issuer generally less able to make scheduled payments of interest and
principal. The secondary market for high yield securities is generally less
liquid than that for investment grade corporate securities. During periods of
economic downturns, rising interest rates or when there is reduced market
liquidity, high yield bond prices may become more volatile, which may cause the
fund to experience sudden and substantial price declines. Since the last major
economic recession, there has been a substantial increase in the use of
high-yield bond debt securities to fund highly leveraged corporate acquisitions
and restructurings, so past experience with high-yield securities in a prolonged
economic downturn may not provide an accurate indication of future performance
during similar periods.

MANAGEMENT OF THE FUNDS

INVESTMENT ADVISER

PPM America, Inc., located at 225 West Wacker Drive, Chicago, Illinois
60606, is the investment adviser to each of the Funds. PPM America currently
manages approximately $41 billion in assets.

<PAGE>

PPM America selects each of the Funds' investments under the supervision
of the Board of Trustees. PPM America makes investment decisions for each
Fund and places each Fund's purchase and sales orders.

As compensation for the services rendered by PPM America, each Fund pays
PPM America an advisory fee, calculated daily and paid monthly, at the annual
rate of 0.80% of the average daily net asset value of the PPM America Value
Equity Fund, 0.90% of the average daily net asset value of the PPM America
Small Cap Equity Fund and 0.65% of the average daily net asset value of the
PPM America High Yield Bond Fund.

PPM America has voluntarily agreed to reimburse each fund to the extent
that its total annual operating expenses exceed the following percent of each
Fund's average net assets: 1.00% in the case of PPM America Value Equity
Fund, 1.10% for the PPM America Small Cap Value Equity Fund and 0.85% in the
case of the PPM America High Yield Bond Fund. For the purpose of determining
whether a Fund is entitled to any expense reimbursement, that Fund's expenses
are calculated daily and any reimbursement is made monthly. PPM America's
agreement to limit each fund's expenses may be terminated by PPM America at
any time.

PPM America utilizes teams of investment professionals acting together to
manage the assets of the Funds. The teams meet regularly to review portfolio
holdings and to discuss purchase and sale activity. The teams adjust holdings
in the Funds as they deem appropriate in the pursuit of the Funds' investment
objectives.

PRIOR PERFORMANCE OF PPM AMERICA

The following tables reflect past investment performance achieved by
composites of portfolios having investment objectives, policies, strategies and
risks substantially similar to those of the Funds. The composites include all
discretionary, fee-paying accounts managed by PPM America, which may include
mutual funds, that have similar investment profiles. The data is provided to
illustrate the past performance of PPM America in managing substantially similar
accounts as measured against specified market indices and does not represent the
performance of the Funds. Mutual funds may incur certain administrative fees
and expenses that were not included in the composite returns shown, therefore,
fund returns may be lower. Investors should not consider this performance data
as an indication of future performance of the Funds or PPM America.

DIVERSIFIED EQUITY COMPOSITE. The accounts included in PPM America's
Diversified Equity Composite have substantially similar investment objectives
and strategies as the PPM America Value Equity Fund.

<PAGE>

- --------------------------------------------------------------------
ANNUAL NET RETURNS
- --------------------------------------------------------------------
Diversified Equity S&P/Barra
Year Composite Value Index(1)
- --------------------------------------------------------------------
<S> <C> <C>
1998(2) [ ] [ ]
- --------------------------------------------------------------------
1997 28.59% [ ]
- --------------------------------------------------------------------
1996 24.14% [ ]
- --------------------------------------------------------------------
1995 43.88% [ ]
- --------------------------------------------------------------------
1994 3.30% [ ]
- --------------------------------------------------------------------
1993 12.92% [ ]
- --------------------------------------------------------------------
1992 [ ](3) [ ](3)
- --------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------
Periods Ended Diversified Equity
September, 30 1998 Composite S&P/Barra Value Index
- --------------------------------------------------------------------
<S> <C> <C>
Three years [ ] [ ]
- --------------------------------------------------------------------
Five years [ ] [ ]
- --------------------------------------------------------------------
Since Inception [ ] [ ]
- --------------------------------------------------------------------
</TABLE>

Diversified Small Cap Equity Composite. The accounts included in PPM
America's Diversified Small Cap Equity Composite have substantially similar
investment objectives and strategies as PPM America Small Cap Value Equity Fund.

- --------------------------------------------------------------------
ANNUAL NET RETURNS
- --------------------------------------------------------------------
Diversified Small Russell 2000
Year Capitalization Equity Value Index(4)
- --------------------------------------------------------------------
<S> <C> <C>
1998(2) [ ] [ ]
- --------------------------------------------------------------------
1997 33.58% [ ]
- --------------------------------------------------------------------
1996 20.07% [ ]
- --------------------------------------------------------------------
1995 43.85% [ ]
- --------------------------------------------------------------------
1994 -0.80%(5) [ ](5)
- --------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------
AVERAGE ANNUAL
RETURNS
- --------------------------------------------------------------------
Periods Ended Diversified Small Cap Russell 2000
September 30, 1998 Equity Composite Value Index
- --------------------------------------------------------------------
<S> <C> <C>
Three years [ ] [ ]
- --------------------------------------------------------------------
Since Inception [ ] [ ]
- --------------------------------------------------------------------
</TABLE>

High Yield Composite. The accounts included in PPM America's High Yield
Composite have substantially similar investment objectives and strategies as the
PPM America High Yield Bond Fund.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------
ANNUAL NET RETURNS
- --------------------------------------------------------------------
Lehman High Yield
Year High Yield Composite Index(6)
- --------------------------------------------------------------------
<S> <C> <C>
1998(2) [ ] [ ]
- --------------------------------------------------------------------
1997 15.49% 12.77%
- --------------------------------------------------------------------
1996 13.32% 11.35%
- --------------------------------------------------------------------
1995(7) 7.19%(7) 6.01%(7)
- --------------------------------------------------------------------
</TABLE>

<PAGE>

- --------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
- --------------------------------------------------------------------
Periods Ended
[September 30], 1998 High Yield Composite Lehman High Yield Index
- --------------------------------------------------------------------
<S> <C> <C>
Three years [ ] [ ]
- --------------------------------------------------------------------
Since Inception [ ] [ ]
- --------------------------------------------------------------------
</TABLE>

NOTES TO PRESENTATION OF COMPOSITE PERFORMANCE:

(1) The S&P/Barra Value Index is constructed by ranking the securities in the
S&P 500 Index by price-to-book ratio and including the securities with the
lowest price-to-book ratios that represent approximately half of the market
capitalization of the S&P 500 Index. The S&P 500 Index is an unmanaged index
containing common stocks of 500 industrial, transportation, utility and
financial companies, regards as generally representative of the U.S. stock
market. The Index reflects the reinvestment of income, dividends and capital
gains distributions, if any, but does not reflect fees, brokerage commissions or
other expenses of investing.

(2) Audited numbers through September 30, 1998.

(3) For the period December 1, 1992 (composite inception) through December 31,
1994.

(4) The Russell 2000 Value Index is an index of common stocks with dividends
reinvested, which measures the performance of those Russell 2000 companies with
lower price-to-book ratios and lower forecasted growth values. The Russell 2000
Index is formed by taking the 3,000 largest U.S. companies and eliminating the
largest 1,000, leaving an unweighted index of 2,000 small companies. The
Russell 2000 Index is an unmanaged index and returns include reinvested
dividends.

(5) For the period April 1, 1994 (composite inception) through December 31,
1994.

(6) The Lehman High Yield Index is an unmanaged, total return index that covers
all fixed income securities having a maximum rating of Bal (including default
issues), a minimum amount outstanding of $100 million, and at least a 1 year
maturity; PIKS and Eurobonds excluded. The index is a fully invested index,
which includes reinvestment of income, but does not include any transaction
costs, management fees or other costs in its returns.

(7) For the period July 1, 1995 (composite inception) through December 31,
1995.

PPM America's representative composite performance data shown above were
calculated in accordance with recommended standards of the Association for
Investment Management and Research ("AIMR")(1). AIMR was not involved in the
preparation or verification of the data. PPM America received from
PricewaterhouseCoopers, LLP a Level II AIMR verification of each composite from
inception through September 30, 1998. A complete list of PPM America's
composites and copies of the verified presentations are available upon request.
- ---------------------

(1) AIMR is a non-profit membership and education organization with more than
33,000 members in 77 countries worldwide that, among other things, has
formulated a set of performance presentation standards for investment
advisers. These AIMR performance presentation standards are intended to
(i) promote full and fair presentations by investment advisers of their
performance results, and (ii) ensure uniformity in reporting so that
performance results of investment advisers are directly comparable.

<PAGE>

All annual returns presented were calculated net of the highest advisory
fee that could have been charged by PPM America to any account included in the
composite and were not calculated using actual fees charged.

The average annual total return is equivalent to the annual rate of return
which, if earned in each year of the indicated multi-year period, would produce
the actual cumulative rate of return over the time period.

The monthly returns of PPM America's composite are calculated by weighing
each account's monthly return by its beginning market value as a percent of the
total composite beginning market value. Quarterly returns are calculated by
linking the monthly composite returns through compounded multiplication.
Annual returns are calculated by linking the quarterly returns through
compounded multiplication.

The institutional private accounts that are included in PPM America's
composites are not subject to the same types of expenses to which the Funds are
subject, nor to the diversification requirements, specific tax restrictions and
investment limitations imposed on the funds by the Investment Company Act of
1940 or Subchapter M of the Internal Revenue Code. Consequently, the
performance results for PPM America's composite could have been adversely
affected if the institutional private accounts included in the composite had
been regulated as investment companies under the federal securities and tax
laws.

The investment results of PPM America's composite presented above are not
intended to predict or suggest the returns that might be experienced by the
Funds or an individual investor in the Funds. Investors should also be aware
that the use of a methodology different from that used above to calculate
performance could result in different performance data.

SHAREHOLDER INFORMATION

HOW TO PURCHASE SHARES

Shares of the Funds are offered to (i) qualified retirement plans
(including employer, municipality, union and association and other group
retirement plans), employee-benefit trusts, foundations and endowments, (ii)
certain financial institutions having sales or service agreements with the Funds
or a broker-dealer or financial institution with respect to sales of shares of
the funds, (iii) employees and officers of PPM America and its affiliates, or
(iv) any other institution or individual, at the sole discretion of PPM America.

The minimum initial investment in shares of a Fund is $500,000. That
high minimum is intended to help the Funds control their expenses, for the
benefit of all the Funds' shareholders. Employees and officers of PPM
America and its affiliates have a minimum initial investment of $1,000 and
PPM America may waive the minimum initial investment.

<PAGE>

for investing, depend upon the provisions of the qualified retirement plan and
whether the plan sponsor or administrator has contracted with the Funds or the
transfer agent for special processing services, including subaccounting. Other
institutional and eligible purchasers must arrange for services through the
transfer agent by calling 1-800 XXX-XXXX.

Shares of the Funds may be purchased at the net asset value per share next
determined after receipt of the purchase order. The Funds determine net asset
value as described under VALUATION OF THE FUNDS' SHARES each day that the Funds
are open for business.

INITIAL PURCHASE BY MAIL: Subject to acceptance by the Funds, an account
may be opened by completing and signing an Account Registration Form
(provided at the end of the prospectus) and mailing it to PPM America Funds,
c/o First Data Investor Services Group, P. O. Box 61503, 3200 Horizon Drive,
King of Prussia, PA 19406, together with a check ($500,000 minimum or $1,000
minimum for officers and employees of PPM America and its affiliates) payable
to PPM America Funds. The Funds do not accept third party checks. If an
investor's check fails to clear, the Funds will cancel the purchase and will
charge the investor $20.00 for any loses or fees incurred.

An investor should designate the Fund(s) requested on the Account
Registration Form. Subject to acceptance by the Fund(s), payment for the
purchase of shares received by mail will be credited at the net asset value per
share of the Fund next determined after receipt. Such payment need not be
converted into Federal Funds (monies credited to the Funds' Custodian Bank by a
Federal Reserve Bank) before acceptance by the Fund(s). Please note that
payments to investors who redeem shares purchased by check will not be made
until payment of the purchase has been collected, which may take up to fifteen
business days after purchase. Shareholders can avoid this delay by purchasing
shares by wire.

INITIAL PURCHASE BY WIRE: Subject to acceptance by a Fund, shares of a
Fund may also be purchased by wiring Federal Funds to the Trust's Custodian
Bank, Boston Safe Deposit & Trust Company (see instructions below). A
completed Account Registration Form should be forwarded to PPM America Funds,
c/o First Data Investor Services Group, P.O. Box 61503, 3200 Horizon Drive,
King of Prussia, PA 19406 in advance of the wire. Notification must be given
prior to the determination of net asset value.

Fund shares will be purchased at the net asset value per share next
determined after receipt of the purchase order. (Prior notification must also
be received from investors with existing accounts.) Instruct your bank to send
a Federal Funds Wire in a specified amount using the following wiring
instructions:

UMB Bank KCNA
For: First Data Investor Services Group
ABA #: 10-10-00695
-------------------------
Account #: 98-7037-071-9
-------------------------
FBO: (Fund Name, Account Number, and Account Registration)

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<PAGE>

Wires must be received before 4:00 p.m. (Eastern Time) to receive that day's
price. Federal Funds purchases will be accepted only on a day on which the
Funds are open for business. SEE CLOSED HOLIDAYS.

ADDITIONAL INVESTMENTS: Additional investments may be made at any time
(minimum additional investment $1,000) by mailing a check along with the section
of a recent account statement labelled __________, payable to PPM America
Funds to First Data Service Group, P.O. Box 412707, Kansas City, MO
64191-2791 or at the address noted under Initial Purchase by Mail or by
wiring Federal Funds to the Custodian Bank, as outlined above. Shares will
be purchased at the net asset value per share next determined after receipt
of the money for the purchase. Notification must be given to PPM America
Funds prior to the determination of net asset value.

OTHER PURCHASE INFORMATION: The Funds may suspend sales of shares of any
Fund or reject any purchase order when management believes doing so is in the
best interest of the Funds. If management in good faith believes that a
shareholder is purchasing and redeeming shares for market timing purposes, the
Funds may refuse to sell further shares of any Fund to such shareholder for up
to six months. The Funds also reserves the right, in their sole discretion, to
waive the minimum initial and additional investment amounts. In the interest of
economy and convenience, certificates for shares will not be issued.

HOW TO REDEEM SHARES

Fund shares may be redeemed by mail, or, if authorized, by telephone or by
facsimile. No charge is made for redemptions. The value of shares redeemed may
be more or less than the purchase price, depending on the net asset value at the
time of redemption, which is based on the market value of the investment
securities held by a Fund. SEE CLOSED HOLIDAYS AND VALUATION OF THE FUNDS'
SHARES.

BY MAIL: Each Fund will redeem shares at the net asset value next
determined after the request is received in good order. Requests should be
addressed to PPM America Funds, c/o First Data Investors Service Group, P. O.
Box 61503, 3200 Horizon Drive, King of Prussia, PA 19406.

To be in good order, redemption requests must include the following
documentation:

(a) A letter of instruction, if required, or a stock assignment specifying
the number of shares or dollar amount to be redeemed, signed by all
registered owners of the shares in the exact names in which the shares
are registered;

(b) Any required signature guarantees (see Signature Guarantees); and

(c) Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations.

11
<PAGE>

SIGNATURE GUARANTEES: To protect against fraud, signature guarantees are
required to enable the Funds to verify the identity of the person who has
authorized a redemption from an account. Signature guarantees are required for
(1) redemptions where the proceeds are to be sent to someone other than the
registered shareholder(s) and the registered address, and (2) share transfer
requests. Please contact PPM America Funds, c/o First Data Investors Services
Group, P. O. Box 61503, 3200 Horizon Drive, King of Prussia, PA 19406 for
further details.

BY TELEPHONE: Provided the Telephone Redemption Option has been authorized
by the shareholder on the Account Registration Form, a redemption of shares may
be requested by calling and requesting that the redemption proceeds be mailed to
the primary registration address or wired per previously received instructions.
Redemption of shares by telephone must be received by 4:00 p.m. (Eastern Time)
to receive that day's price. Receipt of proceeds by wire will cost $9.00
per transaction.

Neither National Planning Corporation, the Funds' distributor, nor the
Funds will be responsible for any loss, liability, cost, or expense for
acting upon telephone instructions that they reasonably believe to be
genuine. In order to confirm that telephone instructions in connection with
redemptions are genuine, the Funds and National Planning Corporation will
provide written confirmation of transactions initiated by telephone.

Payment of the redemption proceeds will ordinarily be made within three
business days after receipt of an order for a redemption although at times, it
may be up to seven days before proceeds are received by an investor. The Funds
may suspend the right of redemption or postpone the date of redemption at times
when the New York Stock Exchange ("NYSE"), is closed (SEE CLOSED HOLIDAYS), when
trading on the NYSE is restricted or under any emergency circumstances as
determined by the SEC or for such other periods as the SEC may permit.

If the Board of Trustees determines that it would be detrimental to the
best interests of the remaining shareholders of a Fund to make payment wholly or
partly in cash, the Fund may pay the redemption proceeds in whole or in part by
a distribution in-kind of readily marketable securities held by the Fund in lieu
of cash in conformity with applicable rules of the SEC. Investors may incur
brokerage charges on the sale of a Fund's securities received in such payments
of redemptions.

12
<PAGE>

SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE: Shares of each Fund may be exchanged for shares of
another Fund based on the respective net asset values of the shares involved.
There are no exchange fees. Exchange requests by telephone must be placed prior
to 4:00 p.m. (Eastern Time) to receive that day's price. Written exchange
requests should be sent to PPM America Funds, c/o First Data Investor Services
Group, P. O. Box 61503, 3200 Horizon Drive, King of Prussia, PA 19406.

Because an exchange of shares is a redemption from one Fund and purchase of
shares of another Fund, the above information regarding purchase and redemption
of shares applies to exchanges. Shareholders should note that an exchange is a
sale and purchase of shares and may result in a capital gain or loss for tax
purposes.

The Funds may refuse to accept any request for an exchange when, in their
opinion, the exchange privilege is being used as a tool for market timing. The
Funds may change the terms or conditions of the exchange privilege at any time,
but will try to give shareholders sixty days' notice of any change.

TRANSFER OF REGISTRATION: The registration of a Fund's shares may be
transferred by writing to PPM America Funds, c/o First Data Investor Services
Group, P. O. Box 61503, 3200 Horizon Drive, King of Prussia, PA 19406. As in
the case of redemptions, the written request must be received in good order as
defined above and should be signature guaranteed. Unless shares are being
transferred to an existing account, requests for transfer must be accompanied by
a completed Account Registration Form for the receiving party.

VALUATION OF THE FUNDS' SHARES

The price of the shares of each Fund is that fund's net asset value. Net
asset value per share is determined by dividing the total market value of a
Fund's investments and other assets, less any liabilities, by the total
outstanding shares of that fund. Net asset value per share is determined as of
the close of the NYSE (normally 4:00 p.m. Eastern Time) on each day the Funds
are open for business.

EQUITY FUNDS

Equity securities listed on a U.S. securities exchange or Nasdaq National
Market for which market quotations are available are valued at the last quoted
sale price on the day the valuation is made. Price information on listed equity
securities is taken from the exchange where the security is primarily traded.
Unlisted equity securities and listed U.S. equity securities not traded on the
valuation date or for which market quotations are not readily available
(including restricted securities), and securities, the value of which have been
materially affected by events, occurring after the close of the market on which
they principally trade, are determined in good faith at a fair value using
methods approved by the Board of Trustees.

13
<PAGE>

HIGH YIELD BOND FUND

Bonds and other fixed-income securities which are traded over the counter
and on an exchange will be valued according to the broadest and most
representative market, and it is expected that for bonds and other fixed-income
securities this ordinarily will be the over-the-counter market. However, bonds
and other fixed-income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. Bonds and other fixed-income securities not
priced in this manner are valued at the most recent quoted bid price, or when
stock exchange valuations are used, at the latest quoted sale price on the day
of valuation. If there is no such reported sale, the latest quoted bid price
will be used. In the absence of readily available market quotations (or when
in the view of PPM America, available market quotations do not accurately
reflect a security's fair value), securities are valued in good faith at a fair
value using methods approved by the Board of Trustees. Equity securities held
by the High Yield Bond Fund are valued as described above under "Equity Funds".

If a security is valued using fair value pricing because of an event that
occurred after the market close, the effect of this will be that the net asset
value will not be based on the last quoted price on the security, but on a price
which the Board of Trustees or their delegate believes reflects the current and
true price of the securely.

CLOSED HOLIDAYS: Currently, the weekdays on which the Funds are closed for
business and their shares are not priced are: New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. During these days, the price of
foreign securities held by the funds may change. As a result, the Funds' net
asset values may also change during these days, but Shareholders will not be
able to purchase or redeem the Funds' shares.

DIVIDENDS, DISTRIBUTIONS AND TAXES:

DIVIDENDS AND DISTRIBUTIONS: The Funds normally distribute substantially
all of their net investment income and net realized capital gains to
shareholders on an annual basis. If any Fund does not have income available to
distribute, as determined in compliance with the appropriate tax laws, no
distribution will be made. All dividends and capital gains distributions are
automatically paid in additional shares of the Funds unless the shareholder
elects otherwise. A shareholder may elect to receive cash by writing to the
Funds or by electing to do so on the Account Registration Form. Undistributed
net investment income is included in the Funds' net asset for the purposes of
calculating net asset value per share. Therefore, on the ex-dividend date, the
net asset value per share is reduced by the per share amount of the dividend.
Dividends paid shortly after the purchase of shares by an investor, although in
effect a return of capital, are taxable as ordinary income.

TAX CONSEQUENCES: The Funds intend to make distributions that may be taxed
as ordinary income. Capital gains distributions are taxable to shareholders at
capital gains rates.

14
<PAGE>

Each Fund will designate capital gains distributions to individual shareholders
as either subject to the federal capital gains rate imposed on property held for
more than 12 months or on property held for less than 12 months.
Distributions paid in January but declared by a Fund in October, November or
December of the previous year are taxable to shareholders in the previous year.
Exchanges and redemptions of shares in a Fund are taxable events.

STATE AND LOCAL TAXES: Shareholders should consult with their tax advisers
for the state and local income tax consequences of distributions from the Funds.

YEAR 2000 INFORMATION

As the year 2000 approaches, there is concern that some computer systems
used today are unable to process and calculate date-related information because
they are not programmed to distinguish between the year 2000 and the year 1900.
PPM America is taking steps to ensure that the computer systems on which the
smooth operation of the funds depends will continue to function properly. PPM
America will work with the service providers to the Funds, such as the transfer
agency, fund accountant and custodian to arrange for testing of internal and
external systems. Based on the information currently available, PPM America
does not anticipate any material impact on the delivery of services. There can
be no assurance, however, that the steps taken by PPM America in preparation for
the Year 2000 will be sufficient to avoid any adverse impact on the Funds.

15
<PAGE>

FOR MORE INFORMATION ABOUT THE FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:

Statement of Additional Information (SAI): The Funds' statements of additional
information includes additional information about the Funds and is incorporated
into this prospectus by reference.

You may obtain copies of the SAI and obtain other information or make inquiries
by contacting the Funds at:

PPM America Funds
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
800-XXX-XXXX
E-mail _____@____.com

Information about the Funds, their reports and SAI can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. Information on the operation of the public reference room may
be obtained by calling 1-800-SEC-0330.

Reports and other information about the Funds are also available on the SEC's
internet site at http:/www.sec.gov. You may obtain copies of this information,
upon payment of a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009.

Investment Company Act File No. 811-xxxxx

16
<PAGE>

PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED ____________, 1998

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. 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 NOR SHALL
THERE BY ANY SALES 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.
- --------------------------------------------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION

[DECEMBER 15, 1998]

PPM AMERICA FUNDS

PPM America Value Equity Fund
PPM America Small Cap Value Equity Fund
PPM America High Yield Bond Fund

- --------------------------------------------------------------------------------

This Statement of Additional Information is not a prospectus. It contains
information in addition to and more detailed than set forth in the Prospectus
and should be read in conjunction with the PPM America Funds' Prospectus, dated
[December 15, 1998]. The Prospectus may be obtained at no charge by calling
(800) xxx-xxxx, or writing PPM America Funds, 225 West Wacker Drive, Suite 1200,
Chicago, Illinois 60606.

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INFORMATION ABOUT THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT STRATEGIES AND RISKS. . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT TECHNIQUES AND RISKS. . . . . . . . . . . . . . . . . . . . . . . 2
THE FUNDS' POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . . 11
INVESTMENT ADVISER AND OTHER SERVICES. . . . . . . . . . . . . . . . . . . . 12
Principal Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . 14
Administrative Services Agreement . . . . . . . . . . . . . . . . . . . 14
Custodian and Transfer Agent. . . . . . . . . . . . . . . . . . . . . . 14
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . 14
Fund Transactions and Brokerage . . . . . . . . . . . . . . . . . . . . 15
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
VALUATION OF THE FUNDS' SHARES . . . . . . . . . . . . . . . . . . . . . . . 20
Equity Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
High Yield Bond Fund. . . . . . . . . . . . . . . . . . . . . . . . . . 20
PURCHASE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Exchange Privilege. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Transfer of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix -- Bond Ratings . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
Ratings by Moody's: . . . . . . . . . . . . . . . . . . . . . . . . . .A-1
</TABLE>

<PAGE>

INFORMATION ABOUT THE FUNDS

The PPM America Value Equity Fund ("Value Fund"), PPM America Small Cap
Value Equity Fund ("Small Cap Fund") and PPM America High Yield Bond Fund ("High
Yield Bond Fund")(each, a "Fund" and together, the "Funds") are series of PPM
America Funds (the "Trust"). The Trust is an open-end management investment
company organized under the laws of Massachusetts, by an Agreement and
Declaration of Trust dated September 9, 1998.

PPM America, Inc. ("PPM America") is the investment adviser to each of the
Funds. For a description of PPM America and its fees, see INVESTMENT ADVISER
AND OTHER SERVICES.

The discussion below supplements the description in the prospectus of the
Funds' investment objectives, strategies and risks.

INVESTMENT STRATEGIES AND RISKS

The Value Fund and Small Cap Fund invest to increase the value of an
investor's shares through long-term growth of capital and current income.

These funds will invest in common stocks of companies that are primarily
domiciled in the U.S., as well as securities convertible into common stocks and
securities having common stock characteristics, such as rights and warrants to
purchase common stocks.

- they have below average valuation characteristics (e.g.,
price/earnings or price/cash flow ratio) relative to the stocks which
comprise the S&P 500 Index; or
- they have above average dividend yields relative to the stocks that
comprise the S&P 500 Index

PPM America generally will consider stocks attractive for the Small Cap Fund if
they have below average valuation characteristics (e.g., price/earnings or
price/cash flow ratio) relative to the stocks which comprise the Russell 2000
Index.

The thrust of this approach is to seek investments where current investor
enthusiasm is low, as reflected in the stock's valuation. Exposure is reduced
when the investment community's perceptions improve and the company approaches
fair valuation. PPM America takes a long-term investment approach by placing a
strong emphasis on its ability to determine attractive values and does not try
to determine short-term changes in the general market level.

The High Yield Bond Fund invests to provide current income and to increase
the value of your shares through long-term growth of capital. The High Yield
Bond Fund may enter into repurchase agreements and firm commitment agreements
and may purchase securities on a

<PAGE>

when-issued basis. The fund also invests in foreign securities, which involves
special risks. Under normal market conditions, the High Yield Bond Fund invests
at least 65% of its total assets in high yielding, non-investment grade bonds.
Subject to this requirement, the High Yield Bond Fund may maintain assets in
cash or cash equivalents, including commercial bank obligations, commercial
paper and obligations issued or guaranteed by the U.S. Government.

Each of the Funds is a diversified investment company.

INVESTMENT TECHNIQUES AND RISKS

BANK OBLIGATIONS. Bank obligations include certificates of deposit,
bankers' acceptances, and other short-term debt obligations. Certificates of
deposit are short-term obligations of commercial banks. A bankers' acceptance
is a time draft drawn on a commercial bank by a borrower, usually in connection
with international commercial transactions. Certificates of deposit may have
fixed or variables rates. The Funds may invest in U.S. banks, foreign branches
of U.S. banks, U.S. branches of foreign banks, and foreign branches of foreign
banks.

COMMERCIAL PAPER. Commercial paper are short-term promissory notes issued
by corporations primarily to finance short-term credit needs. Certain notes may
have floating or variable rates.

FOREIGN GOVERNMENT SECURITIES. Foreign government securities are issued or
guaranteed by a foreign government, province, instrumentality, political
subdivision or similar until thereof.

HIGH YIELD BONDS. High yield bonds are fixed income securities offering
high current income that are in the lower rated categories or recognized rating
agencies or not rated. These lower-rated fixed income securities are
considered, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation
and generally will involve more credit risk than securities in the higher rated
categories.

High yield securities frequently are issued by corporations in the growth
stage of their development. They may also be issued in connection with a
corporate reorganization or a corporate takeover. Companies that issue such
high yielding securities often are highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risk associated
with acquiring the securities of such issuers generally is greater than is the
case with higher rated securities. For example, during an economic downturn or
recession, highly leveraged issuers of high yield securities may experience
financial stress. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
corporate developments, or the issuer's inability to meet specific projected
business forecasts, or the unavailability of additional financing. Adverse
publicity and investor perceptions regarding lower rated bonds, whether or not
based upon fundamental analysis, may also depress the price for such securities.
The risk of loss from default by the issuer is significantly greater for the

2
<PAGE>

holders of high yield securities because such securities are generally unsecured
and are often subordinated to other creditors of the issuer.

HYBRID INSTRUMENTS. Hybrid instruments have recently been developed and
combine the elements of futures contracts or options with those of debt,
preferred equity or a depository instrument. Often these hybrid instruments are
indexed to the price of a commodity, a particular currency, or a domestic or
foreign debt or equity securities index. Hybrid instruments may take a variety
of forms, including, but not limited to, debt instruments with interest or
principal payments or redemption terms determined by reference to the value of a
currency or commodity or securities index at a future point in time, preferred
stock with dividend rates determined by reference to the value of a currency, or
convertible securities with the conversion terms related to a particular
commodity.

REPURCHASE AGREEMENTS. A Repurchase Agreement may be considered a loan
collateralized by securities. The Funds must take physical possession of the
security or receive written confirmation of the purchase and a custodial or
safekeeping receipt from a third party or be recorded as the owner of the
security through the Federal Reserve Book Entry System. The Funds may invest in
open repurchase agreements which vary from the typical agreement in the
following respects: (1) the agreement has no set maturity, but instead matures
upon 24 hours' notice to the seller; and (2) the repurchase price is not
determined at the time the agreement is entered into, but is instead based on a
variable interest rate and the duration of the agreement.

SHORT-TERM CORPORATE DEBT SECURITIES. Short-term corporate debt securities
are outstanding non-convertible corporate debt securities (e.g., bonds and
debentures) which have one year or less remaining to maturity. Corporate notes
may have fixed, variable, or floating rates.

SUPRANATIONAL AGENCY SECURITIES. Supranational Agency Securities are
securities issued or guaranteed by certain supranational entities, such as the
International Development Bank.

U.S. GOVERNMENT AGENCY SECURITIES. U.S. Government Agency Securities are
issued or guaranteed by U.S. Government sponsored enterprises and federal
agencies. These include securities issued by the Federal National Mortgage
Association, Governmental National Mortgage Association, Federal Home Loan Bank,
Federal Land Banks, Farmers Home Administration, Banks for cooperatives, Federal
Intermediate Credit Banks, Federal Financing Bank, Farm Credit Banks, the Small
Business Association, Student Loan Marketing Association, and the Tennessee
Valley Authority. Some of these securities are supported by the full faith and
credit of the U.S. Treasury; the remainder are supported only by the credit of
the instrumentality, which may or may not include the right of the issuer to
borrow from the Treasury.

U.S. GOVERNMENT OBLIGATIONS. U.S. Government Obligations include bills,
notes, bonds, and other debt securities issued by the U.S. Treasury. These are
direct obligations of the U.S. Government and differ mainly in the length of
their maturities.

3
<PAGE>

VARIABLE RATE SECURITIES. Variable Rate Securities provide for a periodic
adjustment in the interest rate paid on the obligations. The terms of such
obligations must provide that interest rates are adjusted periodically based
upon some appropriate interest rate adjustment index as provided in the
respective obligations. The adjustment intervals may be regular and range from
daily up to annually, or may be event based, such as on a change in the prime
rate. Variable Rate Securities that cannot be disposed of promptly within seven
days and in the usual course of business without taking a reduced price will be
treated as illiquid and subject to the limitation on investments in illiquid
securities.

WARRANTS. The Funds may invest in warrants. Warrants have no voting
rights, pay no dividends and have no rights with respect to the assets of the
corporation issuing them. Warrants basically are options to purchase equity
securities at a specific price valid for a specific period of time. They do not
represent ownership of the securities, but only the right to buy them. Warrants
differ from call options in that warrants are issued by the issuer of the
security which may be purchased on their exercise, whereas call options may be
written or issued by anyone. The prices of warrants do not necessarily move
parallel to the price of the underlying securities.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS. The Funds may
purchase securities on a when-issued or delayed delivery basis ("When-Issued")
and may purchase securities on a forward commitment basis ("Forwards"). Any or
all of the Funds investments in debt securities may be in the form of
When-Issueds and Forwards. The price of such securities, which may be expressed
in yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment take place at a later date. Normally, the settlement date
occurs within 90 days of the purchase for When-Issueds, but may be substantially
longer for Forwards. During the period between purchase and settlement, no
payment is made by the Funds to the issuer and no interest accrues to the Funds.
The purchase of these securities will result in a loss if their value declines
prior to the settlement date. This could occur, for example, if interest rates
increase prior to settlement. The longer the period between purchase and
settlement, the greater the risks. At the time the Funds make the commitment to
purchase these securities, it will record the transaction and reflect the value
of the security in determining its net asset value. The Funds will segregate
for these securities by maintaining cash and/or liquid assets with its custodian
bank equal in value to commitments for them during the time between the purchase
and the settlement. Therefore, the longer this period, the longer the period
during which alternative investment options are not available to the Funds (to
the extent of the securities used for cover). Such securities either will
mature or, if necessary, be sold on or before the settlement date.

ZERO COUPON BONDS. Zero coupon bonds do not make regular interest
payments; rather, they are sold at a discount from face value. Principal and
accreted discount (representing interest accrued but not paid) are paid at
maturity. Strips are debt securities that are stripped of their interest after
the securities are issued, but otherwise are comparable to zero coupon bonds.
The market value of strips and zero coupon bonds generally fluctuates in
response to changes in interest rates to a greater degree than interest-paying
securities of comparable term and quality.

4
<PAGE>

RULE 144A SECURITIES. The High Yield Bond Fund may purchase securities
that have been privately placed but that are eligible for purchase and sale
under Rule 144A under the Securities Act of 1933 (the "1933 Act"). That Rule
permits certain qualified institutional buyers, such as the High Yield Bond
Fund, to trade in privately placed securities that have not been registered for
sale under the 1933 Act. PPM America, under the supervision of the Board of
Trustees of the Trust (the "Board"), will consider whether securities purchased
under Rule 144A are illiquid and thus subject to the High Yield Bond 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, PPM America will consider the
trading markets for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, PPM America 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 High Yield Bond
Fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the High Yield Bond 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 assets invested in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities.

OPTIONS ON SECURITIES AND INDEXES. The High Yield Bond Fund may purchase
and may sell both put options and call options on debt or other securities or
indexes in standardized contracts traded on national securities exchanges,
boards of trades, or similar entities, or quoted on Nasdaq, and 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. The writer of an option on an individual
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. 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 High Yield Bond Fund will write call options and put options only if
they are "covered." In the case of a call option on a security, the option is
"covered" if the High Yield Bond 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.

5
<PAGE>

If an option written by the High Yield Bond Fund expires, it realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the High Yield Bond Fund expires, it realizes a
capital loss equal to the premium paid.

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 High Yield Bond Fund desires.

The High Yield Bond 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 High Yield Bond 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 High Yield
Bond Fund will realize a capital gain or, if it is less, it 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 part or call option purchased by the High Yield Bond Fund is an asset of
the High Yield Bond Fund, valued initially at the premium paid for the option.
The premium received for an option written by the High Yield Bond 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 rated on an exchange or no closing price is
available, at the mean between the last bid and asked prices.

RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities markets and
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 High
Yield Bond Fund seeks to close out an option position. If the High Yield Bond
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, the High Yield Bond Fund
foregoes, 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 by the High Yield Bond
Fund, it would not be able to close out the option. If restrictions on exercise
were imposed, the High Yield Bond Fund might be unable to exercise an option it
has purchased.

6
<PAGE>

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The High Yield Bond
Fund may use interest rate futures contracts and index futures contracts. An
interest rate or index 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 exits in futures contracts covering a number of indexes as well as
the following financial instruments; U.S. Treasury bonds; U.S. Treasury notes;
GNMA Certificates; three-month U.S. Treasury bills; 90-day commercial paper;
bank certificates of deposit; Eurodollar certificates of deposit; and foreign
currencies. It is expected that other futures contract will be developed and
traded.

The High Yield Bond Fund may purchase and write call and put futures
options. Futures options possess many of the same characteristics as options on
securities and indexes (discussed above). A future 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 High Yield Bond Fund might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of security
prices, anticipated changes in interest rates or currency fluctuations that
might adversely affect either the value of its securities or the price of the
securities that it intends to purchase. Although other techniques could be used
to reduce exposure to security price, interest rate and currency fluctuations,
the High Yield Bond Fund may be able to achieve its exposure more effectively
and perhaps at a lower cost by using futures contracts and future options.

The success of any futures transaction depends on PPM America correctly
predicting changes in the level and direction of security prices, interest
rates, currency exchange rates and other factors. Should those predictions be
incorrect, the High Yield Bond Fund's return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, PPM America 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, the High Yield Bond
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 that is
returned to the High Yield

- ------------------------

(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.

7
<PAGE>

Bond Fund upon termination of the contract, assuming all contractual obligations
have been satisfied. The High Yield Bond Fund expects to earn interest income
on its initial margin deposits. A futures contract held by the High Yield Bond
Fund is valued daily at the official settlement price of the exchange on which
it is traded. Each day the High Yield Bond 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 High Yield Bond Fund does not represent a borrowing or loan by the High
Yield Bond Fund but is instead settlement between the High Yield Bond Fund and
the broker of the amount one would owe the other if the futures contract had
expired at the close of the previous trading day. In computing daily net asset
value the High Yield Bond Fund will mark-to-market its open futures positions.

The High Yield Bond Fund is also required to deposit and maintain 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 High Yield Bond 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 High Yield Bond Fund
realizes a capital gain, or if it is more, it realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the High Yield Bond Fund realizes a capital gain, or if it is less, it
realizes a capital loss. The transaction costs must also be included in these
calculations.

RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the
use of futures contracts and futures options as hedging techniques. 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 debt securities,
including technical influences in futures trading and futures options and
differences between the financial instruments and the instruments underlying the
standard contract available for trading in such respects as interest rate
levels, maturities, and creditworthiness of issuers. A decision as to whether,
when and how to hedge 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 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

8
<PAGE>

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.

There can be no assurance that a liquid market will exist at a time when
the High Yield Bond Fund seeks to close out a futures or a futures option
position. The High Yield Bond 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
futures, the High Yield Bond Fund may also use those investment vehicles,
provided the Board determines that their use is consistent with the investment
objective.

When purchasing a futures contract or writing a put on a futures contract,
the High Yield Bond 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
High Yield Bond 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 High Yield Bond
Fund.

The High Yield Bond 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 High Yield Bond 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 Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the High Yield Bond
Fund will use commodity futures or commodity options contracts solely for bona
fide hedging purposes within the meaning and intent of the 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 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 High Yield Bond
Fund, after taking into

9
<PAGE>

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
Commission Regulations) may be excluded in computing such 5%.

If the High Yield Bond Fund adopts a temporary defensive position, it will
invest in cash and cash equivalents, as well as U.S. Treasury securities.

THE FUNDS' POLICIES

Each Fund is subject to certain fundamental policies and restrictions that
may not be changed without shareholder approval. Shareholder approval means
approval by the lesser of (i) more than 50% of the outstanding voting securities
of the Trust (or a particular Fund if a matter affects just that Fund), or (ii)
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities of the Trust (or a particular
Fund) are present or represented by proxy. Upon otherwise indicated, all
restrictions apply at the time of investment. As fundamental policies, no Fund
may:

(1) Own more than 10% of the outstanding voting securities of any one
issuer and as to seventy-five percent (75%) of the value of the total assets of
each Fund, purchase the securities of any one issuer (except cash items and
"government securities" as defined under the Investment Company Act of 1940, as
amended (the "1940 Act"), if immediately after and as a result of such purchase,
the value of the holdings of a Fund in the securities of such issuer exceeds 5%
of the value of such Fund's total assets.

(2) Invest more than 25% of the value of their respective assets in any
particular industry (other than U.S. Government securities).

(3) Invest directly in real estate or interests in real estate; however, a
Fund may own debt or equity securities issued by companies engaged in those
businesses.

(4) Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this limitation
shall not prevent a Fund from purchasing or selling options, futures, swaps and
forward contracts or from investing in securities or other instruments backed by
physical commodities).

(5) Lend any security or make any other loan if, as a result, more than 33
1/3% of a Fund's total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt securities or
repurchase agreements).

(6) Act as an underwriter of securities issued by others, except to the
extent that a Fund may be deemed an underwriter in connection with the
deposition of portfolio securities of such Fund.

(7) Invest more than 15% of a Fund's net assets in securities that are
restricted as to disposition under federal securities with other legal or
contractual restrictions on resale. This

10
<PAGE>

limitation does not apply to securities eligible for resale pursuant to Rule
144A of the 1933 Act or commercial paper issued in reliance upon the exception
from registration contained in Section 4(2) of the Act, which have been
determined to be liquid in accordance with guidelines established by the Trust's
Board.

(8) The Fund will not issue senior securities except that they may borrow
money for temperature or emergency purposes (not for leveraging or investment)
in an amount not exceeding 25% of the value of their respective total assets
(including the amount borrowed) less liabilities (other than borrowings). If
borrowings exceed 25% of the value of a Fund's total assets by reason of a
decline in net assets, the Fund will reduce its borrowings within three business
days to the extent necessary to comply with the 25% limitation. This policy
shall not prohibit reverse repurchase agreements, deposits of assets to margin
or guarantee positions in futures, options, swaps and forward contracts, or the
segregation of assets in connection with such contracts.

Each Fund has the following additional investment restrictions that are
operating policies of the Funds and may be changed without shareholder approval:

(a) The Funds do not currently intend to sell securities short, unless
they own or have the right to obtain securities equivalent in kind and amount to
the securities sold short without the payment of any additional consideration
therefore, and provided that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.

(b) The Funds do not currently intend to purchase securities on margin,
except that the Funds may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that margin payments and other
deposits in connection with transactions in futures, options, swaps and forward
contracts shall not be deemed to constitute purchasing securities on margin.

(c) The Funds do not currently intend to (i) purchase securities of other
investment companies, except in the open market where no commission, except the
ordinary broker's commission is paid, or (ii) purchase or retain securities
issued by other open-end investment companies. Limitations (i) and (ii) do not
apply to money market funds or to securities received as dividends, through
offers of exchange, or as are result of a reorganization, consolidation, or
merger.

The investment objective of a Fund may be changed by the Board without
shareholder approval.

TRUSTEES AND OFFICERS OF THE TRUST

The officers of the Trust manage its day to day operations and are
responsible to the Board. The Board sets broad policies for each Fund and
choose the Trust's officers. The following is a list of the Trustees and
officers of the Trust and a statement of their present positions and principal
occupations during the past five years. The mailing address of the

11
<PAGE>

officers and Trustees, unless otherwise noted, is 225 W. Wacker Drive, Suite
1200, Chicago, Illinois 60606.

Position(s) Held With the Principal Occupations During
Name (Age) Funds Past 5 Years
- ------------------------ ---------------------------- ----------------------------------
<S> <C> <C>
Swanson, Russell W. (41) Trustee and President President, PPM America, Inc.
Mandich, Mark B. (38) Trustee, Chief Financial Officer Executive Vice President, Chief
and Treasurer Compliance Officer and
Treasurer, PPM America, Inc.
Nerud, Mark D. (32) Secretary and Assistant Chief Financial Officer,
Treasurer Jackson National Financial
Serices, LLC; Chief Operating
Officer and Treasurer, Jackson
National Financial Services, Inc.;
Assistant Vice President, Assistant
Controller and Senior Manager,
Jackson National Life Insurance
Company; Manager, Voyageur
Asset Management Company.
Brody, Richard S. (44) Vice President Executive Vice President, PPM
America, Inc.
White, James J., Jr. (38) Vice President Senior Managing Director-Marketing,
PPM America, Inc., Principal,
NFJ Investment Group
Alter, Mark L. (35) Vice President Managing Director-Trading,
PPM America, Inc.
Bianco, JoAnne M. (35) Vice President Director-Corporate Bond
Research, PPM America, Inc.
[_____________] Trustee [_____________]
[_____________] Trustee [_____________]
[_____________] Trustee [_____________]
</TABLE>

*The Trustees who are "interested persons" and officers as designated above
receive no compensation from the Trust. Trustees who are not interested persons
("Outside Trustees") will be paid $1,000 for each meeting they attend. It is
anticipated that the Outside Trustees will receive the following annual fees for
services as Trustee:

Trustee Aggregate Compensation from Trust
- ------------------------ ---------------------------------
<S> <C>
[ ] $4,000
[ ] $4,000
[ ] $4,000
</TABLE>

INVESTMENT ADVISER AND OTHER SERVICES

PPM America is the investment adviser to each Fund and provides each Fund
with professional investment supervision and management. PPM America is an
indirect, wholly-owned subsidiary of Prudential Portfolio Managers, Ltd., which
is in turn wholly-owned by Prudential Corporation plc, ("Prudential") one of the
largest life insurance companies in the

12
<PAGE>

United Kingdom. As of the date of this SAI, PPM America owns 100% of the issued
and outstanding shares of the Funds and is deemed to control the Funds under the
1940 Act.

Pursuant to an Investment Advisory Agreement, PPM America acts as the
Trust's investment adviser, furnishes office facilities and equipment, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. The
Investment Advisory Agreement continues in effect for each Fund from year to
year after its initial two-year term so long as its continuation is approved
at least annually by (i) a majority of the Trustees who are not parties to
such agreement or interested persons of any such party except in their
capacity as Trustees of the Trust, and (ii) the shareholders of each Fund or
the Board. It may be terminated at any time upon 60 days notice by either
party, or by a majority vote of the outstanding shares of a Fund with respect
to that Fund, and will terminate automatically upon assignment. If a new
fund is formed in the future as a series of the Trust, that series will be
subject to the Investment Advisory Agreement. The Investment Advisory
Agreement provides that PPM America shall not be liable for any error of
judgment, or for any loss suffered by the Funds in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of PPM America in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.

As compensation for the services rendered by PPM America, each fund pays
PPM America an advisory fee, calculated daily and paid monthly, at the annual
rate of .80% of the average daily net asset value of the Value Fund, .90% of the
average daily net asset value of the Small Cap Fund and .65% of the average
daily net asset value of the High Yield Bond Fund.

PPM America has voluntarily agreed to reimburse each Fund to the extent
that its total annual operating expenses exceed the following percent of the
Fund's average net assets: 1.00% in the case of Value Fund, 1.10% for the Small
Cap Fund and 0.85% in the case of the High Yield Bond Fund. For the purpose of
determining whether a Fund is entitled to any expense reimbursement, that Fund's
expenses are calculated daily and any reimbursement is made monthly. PPM
America's voluntary expense limitation may be terminated by PPM America at any
time.

The Trust pays the compensation of the Trustees who are not affiliated with
PPM America and all expenses (other than those assumed by PPM America),
including governmental fees, interest charges, taxes, membership dues in certain
industry association allocable to the Trust, fees and expenses of independent
certified public accountants, legal counsel, and any transfer agent, registrar,
and divided disbursing agent of the Trust, expenses of preparing, printing, and
mailing shareholders' reports, notices, proxy statements, and reports to
governmental offices and commissions, expenses connected with the execution,
recording, and settlement of portfolio security transactions, insurance,
calculating the net asset value of shares of the Trust, and expenses relating to
the issuance, registration, and qualification of shares of the Trust.

13
<PAGE>

PRINCIPAL UNDERWRITER

National Planning Corporation ("NPC"), 401 Wilshire Boulevard, Santa Monica,
California 90401, acts as the distributor to the Funds' shares. NPC is an
indirect, wholly-owned subsidiary of Prudential.

Shares of each Fund are offered for sale by NPC without any sales
commissions, 12b-1 fees or other charges to the Funds or their shareholders.
All distribution expenses relating to the Funds are paid by PPM America,
including the payment or reimbursement of any expenses incurred by NPC. The
Distribution Agreement will continue in effect through [November ___, _____] and
thereafter 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 Distribution 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 any auditing and filing
fees required in compliance with various state securities laws. PPM America
bears all sales and promotional expenses, including the cost of prospectuses and
other materials used for sales and promotional purposes by NPC. NPC offers the
funds' shares only on a best efforts basis.

ACCOUNTING SERVICES AGREEMENT

Jackson National Financial Services LLC 225 West Wacker Drive Suite
1200, Chicago IL 60606, ("JNFS") acts as the Funds' accounting agent. JNFS
is an indirect, wholly-owned subsidiary of Prudential. Pursuant to a
contract between the Trust and JNFS, JNFS provides accounting and
administrative services to the Funds. For its services, JNFS is paid $27,000
per Fund per year plus 0.04% of the daily average net assets of each Fund.

CUSTODIAN AND TRANSFER AGENT

Boston Safe Deposit & Trust Company, One Boston Place, Boston,
Massachusetts 02108, acts as custodian for each Fund of the Trust. The
custodian has custody of all securities and cash of the Trust and attends to the
collection of principal and income and payment for and collection of proceeds of
securities bought and sold by the Trust.

First Data Investors Services Group, P.O. Box 61503, 3200 Horizon Drive,
King of Prussia, Pennsylvania 19406, is the transfer agent and
dividend-paying agent for each Fund of the Trust.

INDEPENDENT ACCOUNTANTS

The Funds' independent accountants, PricewaterhouseCoopers LLP, 200 East
Randolph Drive, Chicago, Illinois 60601, audit and report on the Funds' annual
financial statements, prepare the Funds' federal income and excise tax returns,
and perform other professional accounting, auditing and advisory services when
engaged to do so by the Funds.

14
<PAGE>

FUND TRANSACTIONS AND BROKERAGE

PPM America places the orders for the purchase and sale of the Funds'
portfolio securities and options and futures contracts. Purchases and sales of
portfolio securities for the Value Equity Fund and the Small Cap Value Equity
Fund are ordinarily transacted through brokers, acting as agent and receiving a
commission, or through dealers acting as principal. Purchases and sales of
portfolio securities for the High Yield Fund are ordinarily transacted with
primary or secondary market makers acting as principal or agent for the
securities on a net basis. Transactions placed through dealers reflect the
spread between the bid and asked prices. Occasionally, each of the funds may
make purchases of underwritten issues at prices that include underwriting
discounts or selling concessions.

PPM America'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 also may enter into the decision. These include: PPM
America'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; PPM America's knowledge of the
financial stability of the broker or dealer selected. 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 PPM America while effecting
portfolio transactions. The general level of brokerage commissions paid is
reviewed by PPM America, and reports are made at least annually to the Board.

Before effecting brokerage transactions, PPM America determines in good
faith that the amount of such commission is reasonable in relation to the
factors set forth above, including the value of the brokerage and research
services provided by such broker viewed in terms of either that particular
transaction or PPM America's overall responsibilities to all its clients.

When more than one broker is believed to be capable of providing the best
combination of price and execution with respect to particular securities
transactions, PPM America generally will select brokers or dealers which provide
it with research services or products. Research and other products or services
so provided may relate to a specific transaction placed with such broker, but
for the most part the services so provided will consist of a wide variety of
information useful to PPM America and all of its clients, including the funds.
This material relates to general economic, interest rate, and equity and debt
market conditions as well as information on specific companies and industries.

Some of the types of products, research and services which may be paid for
with client commissions include: research reports, subscriptions and financial
and industry publications and research compilations, quantitative, economic,
international and market strategy services,

15
<PAGE>

compilations of securities prices, dividends and similar data bases, quotation
equipment and services, professional seminars, and the services of certain
economic or financial consultants. The above list contains some examples of the
services and products which may be acquired with client commissions; PPM America
may receive other types of products, research and services. The research
materials may be originated by the broker performing execution services or by
third parties who are paid by the broker. PPM America's ability to obtain such
products, research and services is an integral factor in the establishment of
PPM America's fees.

From time to time PPM America may receive products or services which are
used both as investment research and for administrative, marketing or other
non-research purposes. In those cases, PPM America makes a good faith effort to
determine the relative proportions of such products or services which constitute
"research." The portion of the cost of such products or services attributable
to research may be paid, in whole or in part, by brokerage commissions on client
transactions. The costs not attributable to research is paid by PPM America in
cash.

Research products or services may benefit any or all of PPM America's
clients and such products or services may not necessarily be used by PPM America
in connection with the account(s) which paid the commissions to the broker
providing such products or services.

PPM America also may advise clients, including the funds, regarding debt
issues or other fixed price offerings ("Fixed Price Offerings"). In such
situations, PPM America may direct that a portion of a Fixed Price Offering be
purchased for a client from a broker who provides "selling concessions" to PPM
America in the form of research services, products or analysis which will
consist of a wide variety of information and products useful to PPM America or
its clients in general. The direction of such purchases of Fixed Price
Offerings to particular brokers generally will not result in any added costs to
clients. Nevertheless, since PPM America derives a benefit from such selling
concessions which it would not otherwise have absent its relationship with its
clients, those arrangements may create a conflict of interest. In other words,
PPM America theoretically may have an incentive to use broker-dealers providing
it with selling concessions, even if such broker-dealers are not providing the
best qualitative execution services. Despite this incentive, PPM America uses
its best efforts to cause transactions to be executed in a manner consistent
with applicable law and its obligations to its clients, including the funds.

Transactions for each client account generally are completed independently.
PPM America, however, may purchase or sell the same securities or instruments
for a number of clients simultaneously. When possible, orders for the same
security are combined or "batched" to facilitate best execution and to reduce
brokerage commissions or other costs. PPM America effects batched transactions
in a manner designed to ensure that no participating client is favored over any
other client. Specifically, each client that participates in a batched
transaction will participate at the average share price for all of PPM America's
transactions in that security on that business day. Securities purchased or
sold in a batched transaction are allocated pro-rata, when possible, to the
participating client accounts in proportion to the size of the order placed for
each account. Each client that participates in a batched transaction is
assessed the pro rata costs associated with that transaction in proportion to
size of the order placed for that account. PPM America may, however, increase
or decrease the amount of securities allocated to each account if

16
<PAGE>

necessary to avoid holding odd-lot or small numbers of shares for particular
clients. Additionally, if PPM America is unable to fully execute a batched
transaction and PPM America determines that it would be impractical to allocate
a small number of securities among the accounts participating in the transaction
on a pro-rata basis, PPM America may allocate such securities in a manner
determined in good faith to be fair and equitable.

PERFORMANCE

From time to time the Funds may quote total return figures in sales
material. "Total Return" for a period is the percentage change in value during
the period of an investment in Fund shares, including the value of shares
acquired through reinvestment of all dividends and capital gains distributions.
"Average Annual Total Return" is the average annual compounded rate of change in
value represented by the Total Return for the period.

Average Annual Total Return will be computed as follows:

ERV = P(1+T) TO THE POWER OF n

Where: P = the amount of an assumed initial investment in Fund shares
T = average annual total return
n = number of years from initial investment to the end of the
period
ERV = ending redeemable value of shares held at the end of the
period

In addition, the High Yield Bond Fund may quote yield figures from time to
time. "Yield" is computed by dividing the net investment income per share
earned during a 30-day period (using the average number of shares entitled to
receive dividends) by the net asset value per share on the last day of the
period. The Yield formula provides for semiannual compounding which assumes
that net investment income is earned and reinvested at a constant rate and
annualized at the end of a six-month period.

6
The Yield formula is as follows: YIELD = 2[((a-b/cd)+1) -1].

Where: a = dividends and interest earned during the period. (For this
purpose, the High Yield Bond Fund will recalculate the yield to
maturity based on market value of each portfolio security on each
business day on which net asset value is calculated.)
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the ending net asset value of the High Yield Bond Fund for the
period.

Performance figures quoted by the Funds will assume reinvestment of all
dividends and distributions, but will not take into account income taxes payable
by shareholders. The Funds impose no sales charge and pay no distribution
("12b-1") expenses. Each Fund's performance is a function of conditions in the
securities markets, portfolio management, and operating expenses. Although
information such as yield and total return is useful in reviewing a Fund's
performance

17
<PAGE>

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 performance of a Fund may be compared
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 Funds.
Comparison of a Fund to an alternative investment should consider 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 Funds generally believe to be
accurate. The Funds may also refer to publicity (including performance
rankings) in newspapers, magazines, or other media from time to time. However,
the Funds assume no responsibility for the accuracy of such data. Newspapers
and magazines that might mention the Funds include, but are not limited to, the
following:

<TABLE>

<S> <C> <C> <C>
Barron's Global Finance Personal Investor
Boston Globe Institutional Investor Smart Money
Business Week Investor's Business Daily Stanger Reports
Changing Times Kiplinger's Personal Time
Chicago Tribune Finance USA Today
Chicago Sun-Times Los Angeles Times U.S. News and World
Crain's Chicago Money Report
Business Mutual Fund Letter The Wall Street Journal
Consumer Reports Mutual Funds Magazine Worth
Consumer Digest Morningstar
Financial World Newsweek
Forbes The New York Times
Fortune Pensions and Investments
</TABLE>

A Fund may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation. The performance of a
Fund may also be compared to the Morgan Stanley EAFE (Europe, Australasia
Far East) Index*, a generally accepted benchmark for performance of major
overseas markets, and to the following indexes or averages:

Dow-Jones Industrial Average*
First Boston High Yield Index
Lehman High Yield Index*
Merrill Lynch High Yield Index
Standard & Poor's 500 Stock Index*
Standard & Poor's/Barra Value Index *
Standard & Poor's 400 Industrials
Standard & Poor's Small Cap 600*

18
<PAGE>

Standard & Poor's Mid Cap 400*
Russell 1000
Russell 1000 Value
Russell 2000*
Russell 2000 Value*
Russell 2500*
Russell 2500 Value*
Wilshire 5000
New York Stock Exchange Composite Index
American Stock Exchange Composite Index
NASDAQ Composite
NASDAQ Industrials

* with dividends reinvested

In addition, each Fund may compare its performance to the following
indexes and averages: Lipper Equity Index Fund Average; Lipper High Yield
Fund Average, Value Line Index; Lipper Capital Appreciation Fund Average;
Lipper Growth Funds Average; Lipper Small Company Growth Funds Average;
Lipper General Equity Funds Average; Lipper Equity Funds Average; Lipper
Small Company Growth Fund Index; and Lehman Brothers Government/Corporate
Bond Index.

Lipper Indexes and Averages are calculated and published by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors the
performance of more than 1,000 funds. The Funds 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 a Fund to a different category or develop (and place a Fund into) a
new category, that Fund may compare its performance or ranking against other
funds in the newly assigned category, as published by the service. Each Fund
may also compare its performance or ranking against all funds tracked by Lipper
or another independent service, including Morningstar, Inc.

The Funds may cite their ratings, 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 a 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.

To illustrate the historical returns on various types of financial assets,
the Funds 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

19
<PAGE>

government bonds; intermediate-term government bonds; U.S. Treasury bills; and
Consumer Price Index.

VALUATION OF THE FUNDS' SHARES

As stated in the Fund's prospectus, the price of the shares of each Fund is
that Fund's net asset value. Net asset value per share is determined by
dividing the total market value of a Fund's investment and other assets, less
any liabilities, by the total outstanding shares of that Fund. Net asset value
per share is determined as of the close of the New York Stock Exchange ("NYSE")
(normally 4:00 p.m. Eastern Time) on each day the Funds are open for business.

Equity Funds

High Yield Bond Fund

Bonds and other fixed-income securities which are traded over the counter
and on an exchange will be valued according to the broadest and most
representative market, and it is expected that for bonds and other fixed-income
securities this ordinarily will be the over-the-counter market. However, bonds
and other fixed-income securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. Bonds and other fixed-income securities not
priced in this manner are valued at the most recent quoted bid price, or when
stock exchange valuations are used, at the latest quoted sale price on the day
of valuation. If there is no such reported sale, the latest quoted bid price
will be used. In the absence of readily available market quotations (or when in
the view of PPM America, available market quotations do not accurately reflect a
security's faire value), securities are valued in good faith at a fair value
using methods approved by the Board. Equity securities held by the High Yield
Bond Fund are valued as described above under "Equity Funds."

If a security is valued using fair value pricing because of an event that
occurred after the market close, the effect of this will be that the net asset
value will not be based

20
<PAGE>

on the last quoted price on the security, but on a price which the Board or
their delegate believes reflects the current and true price of the securely.

CLOSED HOLIDAYS: Currently, the weekdays on which the Funds are closed for
business and their shares are not priced are: New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. During these days, the price of
foreign securities held by the Funds may change. As a result, the Funds' net
asset values may also change during these days, but shareholders will not be
able to purchase or redeem the Funds' shares.

PURCHASE OF SHARES

Shares of the Funds are offered to (i) qualified retirement plans
(including employer, municipality, union and association and other group
retirement plans), employee-benefit trusts, foundations and endowments, (ii)
certain financial institutions having sales or service agreements with the Funds
or a broker-dealer or financial institution with respect to sales of shares of
the Funds, (iii) employees and officers of PPM America and its affiliates, or
(iv) any other institution or individual, at the sole discretion of PPM America.

The minimum initial investment in shares of a Fund is $500,000. That high
minimum is intended to help the Funds control their expenses, for the benefit of
all the Funds' shareholders. Employees and officers of PPM America and its
affiliates have a minimum initial investment of $1,000 and PPM America may waive
the minimum initial investment.

Investments by a qualified retirement plan are made by the plan sponsor or
administrator, who is responsible for transmitting all orders for the purchase,
redemption and exchange of Fund shares. The availability of an investment by a
plan participant in the Funds, and the procedures for investing, depend upon the
provisions of the qualified retirement plan and whether the plan sponsor or
administrator has contracted with the Funds or the transfer agent for special
processing services, including subaccounting. Other institutional and eligible
purchasers must arrange for services through the transfer agent by calling 1-800
XXX-XXXX.

Shares of the Funds may be purchased at the net asset value per share next
determined after receipt of the purchase order. The funds determine net asset
value as described under Valuation of the Funds' Shares each day that the Funds
are open for business. The Funds reserve the right in their sole discretion (i)
to suspend the offering of its shares (ii) to reject purchase orders, and (iii)
to reduce or waive the minimum for initial and subsequent investments.

21
<PAGE>

REDEMPTION OF SHARES

The Funds may suspend redemption privileges or postpone the date of payment
(i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the SEC, (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for the Funds to dispose of securities owned by them, or
fairly to determine the value of its assets, and (iii) for such other periods as
the SEC may permit.

The Funds have made an election with the SEC pursuant to Rule 18f-1 under
the 1940 Act to pay in cash all redemptions requested by any shareholder of
record limited in amount during any 90-day period to the lesser of $250,000 or
1% of the net assets of the portfolio at the beginning of such period. Such
commitment is irrevocable without the prior approval of the SEC. Redemptions in
excess of the above limits may be paid in whole or in part in investment
securities or in cash, as the Trustees may deem advisable; however, payment will
be made wholly in cash unless the Trustees believe that economic or market
conditions exist which would make such a practice detrimental to the best
interests of the Funds. If redemptions are paid in investment securities, such
securities will be valued as set forth in VALUATION OF THE FUNDS' SHARES and a
redeeming shareholder would normally incur brokerage expenses in converting
these securities to cash.

No charge is made by the portfolio for redemptions. Redemption proceeds
may be more or less than the shareholder's cost depending on the market value of
the securities held by the portfolio.

SHAREHOLDER SERVICES

Exchange Privilege

Exchange requests should be sent to PPM America Funds, c/o First Data
Investor Services Group, P.O. Box 61503, 3200 Horizon Drive, King of Prussia,
Pennsylvania 19406. Any such exchange will be based on the respective net
asset values of the shares involved. Before making an exchange, a
shareholder should consider the investment objectives of the Fund to be
purchased. Exchange requests may be made either by mail or telephone.
Requests received after 4:00 p.m. (Eastern Time) will be processed on the
next business day. The officers of the Fund reserve the right not to accept
any request for an exchange when, in their opinion, the exchange privilege is
being used as a tool for market timing.

22
<PAGE>

For federal income tax purposes, an exchange between portfolios of the Fund
is a taxable event, and, accordingly, a capital gain or loss may be realized.
It is likely, therefore, that a capital gain or loss would be realized on an
exchange between portfolios; you may want to consult your tax adviser for
further information in this regard. The exchange privilege may be modified or
terminated at any time.

TRANSFER OF SHARES

Shareholders may transfer shares of a Fund to another person by written
request to PPM America Funds, c/o First Data Investor Services Group, P.O.
Box 61503, 3200 Horizon Drive, King of Prussia, Pennsylvania 19406. As in
the case of redemptions, the written request must be received in good order
before any transfer can be made.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES - The Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
of each Fund and to divide or combine such shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Trust. Each share of a Fund represents an equal proportionate interest
in that Fund with each other share. Upon liquidation of a Fund, shareholders are
entitled to share pro rata in the net assets of such Fund available for
distribution to shareholders.

VOTING RIGHTS - Shareholders are entitled to one vote for each share
held. Shareholders may vote in the election of Trustees and on other matters
submitted to meetings of shareholders. No amendment may be made to the
Agreement and Declaration of Trust without the affirmative vote of a majority
of the outstanding shares of the Trust. The Trustees may, however, amend the
Agreement and Declaration of Trust without the vote or consent of
shareholders to:

- designate series of the Trust; or

- change the name of the Trust; or

- supply any omission, cure, correct, or supplement any ambiguous,
defective, or inconsistent provision to conform the Declaration of
Trust to the requirements of applicable federal or state regulations
if they deem it necessary.

Shares have no pre-exemptive or conversion rights. Shares are fully paid
and non-assessable, except as set forth in the prospectus. In regard to
termination, sale of assets, or change of investment restrictions, the right to
vote is limited to the holders of shares of the particular Fund affected by the
proposal. When a majority is required, it means the lesser of 67% or more of
the shares present at a meeting when the holders of

23
<PAGE>

more than 50% of the outstanding shares are present or represented by
proxy, or more than 50% of the outstanding shares.

SHAREHOLDER INQUIRIES - All inquiries regarding the Trust should be
directed to the Trust at the telephone number or address shown on the cover page
of the Prospectus.

TAX STATUS

The Trust's policy is to meet the requirements of Subchapter M of the
Internal Revenue Code. Each Fund intends to distribute taxable net investment
income and net realized capital gains to shareholders in amounts that will avoid
federal income or excise tax. All income, dividends, and capital gains
distribution, if any, on Fund shares are reinvested automatically in additional
shares of the Fund at the NAV determined on the first business day following the
record date, unless otherwise requested by a shareholder.

Each Fund of the Trust is treated as a separate entity for purpose of the
regulated investment company provisions of the Internal Revenue Code and,
therefore, the assets, income, and distributions of each Fund are considered
separately for purposes of determining whether or not the Fund qualifies as a
regulated investment company.

<PAGE>

APPENDIX -- BOND RATINGS

A rating by 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
credit-worthiness of an issuer. Consequently, PPM America believes that the
quality of debt securities in which the Funds invest 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 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 most 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 the Aaa bonds, 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.

A-1
<PAGE>

Ba. Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
other good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B. Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa. Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.

Ca. Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C. Bonds rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Ratings By Standard & Poor's:

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 a small degree.

A. Debt rated A has a very 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. Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

C. 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.

A-2
<PAGE>

NOTE: The ratings from AA to B may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the major rating
categories.

A-3
<PAGE>

PART C

OTHER INFORMATION
ITEM 23. Exhibits

(a) Conformed Copy of Amendment Declaration of Trust of the
Registrant

(b) Copy of By-Laws of the Registrant

(d) Investment Management Agreement*

(e) Underwriting Contract*

(f) Not Applicable

(g) Custodian Agreement*

(h) Transfer Agency Agreement; Accounting Services Agreement*

(i) Legal Opinion of Bell, Boyd & Lloyd*

(j) Consent of PricewaterhouseCoopers, LLP*

(k) Not Applicable

(l) Initial Capital Agreements*

(m) Not Applicable

(n) Financial Data Schedule*

(o) Not Applicable

* To be filed by amendment.

ITEM 24. Persons Controlled by or Under Common Control With Registrant.

The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with, the
Registrant within the meaning of this item.

ITEM 25. Indemnification.

Article VIII of Registrant's Agreement and Declaration of Trust (Exhibit (a)),
which Article is incorporated herein by reference, provides that Registrant
shall provide indemnification of its trustees and officers (including each
person who serves or has served at Registrant's request as a director, officer,
or trustee of another organization in which Registrant has any interest as a
shareholder, creditor or otherwise ("Covered Persons") under specified
circumstances.

Section 17(h) of the Investment Company Act of 1940 ("1940 Act") provides that
neither the Agreement and Declaration of Trust nor the By-Laws of Registrant,
nor any other instrument

C-1
<PAGE>

pursuant to which Registrant is organized or administered, shall contain any
provision which protects or purports to protect any trustee or officer or
Registrant against any liability to Registrant or its shareholders to which
he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct
of his office. In accordance with Section 17(h) of the 1940 Act, Article
VIII shall not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.

Unless otherwise permitted under the 1940 Act,

(i) Article VIII does not protect any person against any liability to
Registrant or to its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office;

(ii) in the absence of a final decision on the merits by a court or other
body before whom a proceeding was brought that a Covered Person was
not liable by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office, no indemnification is permitted under Article
VIII unless a determination that such person was not so liable is made
on behalf of Registrant by (a) the vote of a majority of the trustees
who are neither "interested persons" of Registrant, as defined in
Section 2(a)(19) of the 1940 Act, nor parties to the proceeding
("disinterested, non-party trustees"), or (b) an independent legal
counsel as express in a written opinion; and

(iii) Registrant will not advance attorneys' fees or other expenses incurred
by a Covered Person in connection with a civil or criminal action,
suit or proceeding unless Registrant receives an undertaking by or on
behalf of the Covered Person to repay the advance (unless it is
ultimately determined that he is entitled to indemnification) and (a)
the Covered Person provides security for his undertaking, or (b)
Registrant is insured against losses arising by reason of any lawful
advances, or (c) a majority of the disinterested, non-party trustees
of Registrant or an independent legal counsel as expressed in a
written opinion, determine, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the Covered Person ultimately will be found entitled
to indemnification.

Any approval of indemnification pursuant to Article VIII does not prevent the
recovery from any Covered Person of any amount paid to such Covered Person in
accordance with Article VIII as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in,
or not opposed to, the best interests of Registrant or to have been liable to
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
such Covered Person's office.

C-2
<PAGE>

Article VIII also provides that its indemnification provisions are not
exclusive.

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, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1940 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer, or controlling person of Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, 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 of whether such indemnification by it is against
public policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.

Registrant, its trustees and officers, its investment adviser, the other
investment companies advised by the adviser, and persons affiliated with them
are insured against certain expenses in connection with the defense of actions,
suits, or proceedings, and certain liabilities that might be imposed as a result
of such actions, suits, or proceedings. Registrant will not pay any portion of
the premiums for coverage under such insurance that would (1) protect any
trustee or officer against any liability to Registrant or its shareholders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office or (2) protect its investment adviser or principal underwriter, if
any, against any liability to Registrant or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence, in the performance or its duties, or by reason of its
reckless disregard of its duties and obligations under its contract or agreement
with the Registrant; for this purpose the Registrant will rely on an allocation
of premiums determined by the insurance company.

Registrant, its trustees, officers, employees and representatives and each
person, if any, who controls the Registrant within the meaning of Section 15 of
the Securities Act of 1933 are indemnified by the distributor of Registrant's
shares (the "distributor"), pursuant to the terms of the distribution
agreement, which governs the distribution of Registrant's shares, against any
and all losses, liabilities, damages, claims and expenses arising out of the
acquisition of any shares of the Registrant by any person which (i) may be based
upon any wrongful act by distributor or any of distributor's members, managers,
directors, officers, employees or representatives, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement, prospectus, Statement of Additional Information,
shareholder report or other information covering Shares filed or made public by
the Registrant or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon information furnished to the Registrant by
distributor in writing. In no case does the distributor's indemnity indemnify
an indemnified

C-3
<PAGE>

party against any liability to which such indemnified party would otherwise be
subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his reckless disregard
of its or his obligations and duties under the distribution agreement.

ITEM 26. Business and Other Connections of Investment Adviser.

PPM America is an indirect, wholly-owned subsidiary of Prudential Portfolio
Managers, Ltd., which is in turn wholly-owned by Prudential Corporation plc,
("Prudential") one of the largest life insurance companies in the United
Kingdom. PPM America acts as investment adviser to pension and profit sharing
plans, corporations or other business entities and registered and unregistered
investment companies.

For a two-year business history of officers and directors of PPM America,
please refer to the Form ADV of PPM America.

ITEM 27. Principal Underwriters.

Registrant's principal underwriter, National Planning Corporation ("NPC"), is an
indirect wholly-owned subsidiary of Prudential. The table below lists each
director or officer of NPC:

- ----------------------------------------------------------------------------
Name and Principal Position and Offices with Positions and Offices
Business Address Principal Underwriter with Registrant
- ----------------------------------------------------------------------------
Barrett, William Senior Vice President None
- ----------------------------------------------------------------------------
Cena, Linda Director of Operations None
- ----------------------------------------------------------------------------
Chiulli, Allan Vice President None
- ----------------------------------------------------------------------------
Dreffein, Mary S. Senior Vice President None
- ----------------------------------------------------------------------------
Elliot, Jay A. Senior Vice President None
- ----------------------------------------------------------------------------
Emanuel, Joseph D. Assistant Secretary None
- ----------------------------------------------------------------------------
Fram, Fred Vice President None
- ----------------------------------------------------------------------------
Hopping, Andrew B. Director None
- ----------------------------------------------------------------------------
Jack, Clifford J. Director, President and CEO None
- ----------------------------------------------------------------------------
Kemper, Dawna Vice President None
- ----------------------------------------------------------------------------
Kinder, Douglas K. Senior Vice President None
- ----------------------------------------------------------------------------
Kitter, Harry M. Senior Vice President, Chief None
Financial Officer, Chief
Operating Officer & Treasurer
- ----------------------------------------------------------------------------
Nerud, Mark Vice President Secretary and Assistant
Treasurer
- ----------------------------------------------------------------------------
Powell, Bradley J. Vice President None
- ----------------------------------------------------------------------------
Richardson, Scott Senior Vice President None
- ----------------------------------------------------------------------------
Simon, James L. Secretary, Director of None
Compliance
- ----------------------------------------------------------------------------
Steinbacher, Assistant Vice President None
Patricia R.
- ----------------------------------------------------------------------------
Thompson, April Director of Trading and None
Operations
- ----------------------------------------------------------------------------
Wells, Michael A. Director None
- ----------------------------------------------------------------------------

ITEM 28. Location of Accounts and Records.

Registrant maintains the records required to be maintained by it under Rules
31a-1(a), 31a-1(b) and 31a-2(a) under the Investment Company Act of 1940 at its
principal executive offices at 225 West Wacker Drive, Suite 1200, Chicago,
Illinois 60606. Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main office of Registrant's transfer agent or
custodian.

ITEM 29. Management Services.

Not applicable.

ITEM 30. Undertakings.

C-4
<PAGE>

Registrant hereby undertakes to comply with the provisions of Section 16(c) of
the 1940 Act with respect to the removal of Trustees and the calling of special
shareholder meetings by shareholders.

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 without charge.

C-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Chicago and state of Illinois on
September 11, 1998.

PPM America Funds

By /s/ Mark D. Nerud
---------------
Mark D. Nerud
Trustee

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

Name Title Date

/s/ Mark D. Nerud Sole Trustee)
----------------------
Mark D. Nerud )
)
)

)
)
)

)
) September 11, 1998
)

<PAGE>

PPM AMERICA FUNDS

AGREEMENT AND DECLARATION OF TRUST

This AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this
9th day of September 1998, by the Trustees hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as provided herein.

WITNESSETH that

WHEREAS, this Trust has been formed to carry on the business of an
investment company; and

WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth.

NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.

ARTICLE I
Name and Definitions

NAME

Section 1. This Trust shall be known as "PPM America Funds", and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.

DEFINITIONS

Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:

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<PAGE>

(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust, as amended from time to time;

(b) "Trustees" refers to the Trustees of the Trust named herein or elected
in accordance with Article IV;

(c) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time
to time or, if more than one series or class of Shares is authorized by the
Trustees, the equal proportionate transferable units into which each series
or class of Shares shall be divided from time to time;

(d) "Shareholder" means a record owner of Shares;

(e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;

(f) The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Principal Underwriter" and "Majority Shareholder Vote" (the 67%
or 50% requirement of the third sentence of Section 2(a)(42) of the 1940
Act, whichever may be applicable) shall have the meanings given them in the
1940 Act;

(g) "Declaration of Trust" shall mean this Amended and Restated Agreement
and Declaration of Trust as amended or restated from time to time;

(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time;

(i) The term "series" or "series of Shares" refers to the one or more
separate investment portfolios of the Trust into which the assets and
liabilities of the Trust may be divided and the Shares of the Trust
representing the beneficial interest of Shareholders in such respective
portfolios; and

(j) The term "class" or "class of Shares" refers to the division of Shares
into two or more classes as provided in Article III, Section 1 hereof.

ARTICLE II
Purpose of Trust

2
<PAGE>

The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character.

ARTICLE III
Shares

DIVISION OF BENEFICIAL INTEREST

Section 1. The Shares of the Trust shall be issued in one or more series
as the Trustees may, without shareholder approval, authorize. Each series shall
be preferred over all other series in respect of the assets allocated to that
series. The beneficial interest in each series shall at all times be divided
into Shares, without par value, each of which shall, except as provided in the
following sentence, represent an equal proportionate interest in the series with
each other Share of the same series, none having priority or preference over
another. The Trustees may, without shareholder approval, divide the Shares of
any series into two or more classes, Shares of each such class having such
preferences and special or relative rights and privileges (including conversion
rights, if any) as the Trustees may determine and as shall be set forth in the
Bylaws. The number of Shares authorized shall be unlimited. The Trustees may
from time to time divide or combine the Shares of any series or class into a
greater or lesser number without thereby changing the proportionate beneficial
interest in the series or class.

OWNERSHIP OF SHARES

Section 2. The ownership of Shares shall be recorded on the books of the
Trust or a transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer or similar
agent, as the case may be, shall be conclusive as to who are the Shareholders of
each series and class and as to the number of Shares of each series and class
held from time to time by each Shareholder.

3
<PAGE>

INVESTMENT IN THE TRUST

Section 3. The Trustees shall accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they or the
Bylaws from time to time authorize.

All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such series.

NO PREEMPTIVE RIGHTS

Section 4. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust.

STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY

Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this Declaration of Trust or the Bylaws. Every Shareholder
by virtue of having become a Shareholder shall be held to have expressly
assented and agreed to the terms of this Declaration of Trust and the Bylaws and
to have become a party thereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.

4
<PAGE>

ARTICLE IV
The Trustees

ELECTION

Section 1. A Trustee may be elected either by the Trustees or by the
Shareholders. There shall be not less than three Trustees. The number of
Trustees shall be fixed by the Trustees. Each Trustee elected by the Trustees
or the Shareholders shall serve until he or she retires, resigns, is removed or
dies or until the next meeting of Shareholders called for the purpose of
electing Trustees and until the election and qualification of his or her
successor. At any meeting called for the purpose, a Trustee may be removed by
vote of two-thirds of the outstanding shares. The initial Trustee, who shall
serve until the first meeting of Shareholders at which Trustees are elected and
until his successor is elected and qualified, or until he sooner dies, resigns
or is removed shall be Gregory T. Pusch.

EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE

Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.

POWERS

Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders; they may fill vacancies in or add to their number,
and may elect and remove such officers and appoint and terminate such agents as
they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Trustees are not in
session, exercise some or all of the power and authority of the Trustees as the
Trustees may determine; they may employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent or a Shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set record dates for the
determination of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees and to any agent or employee of the Trust or to
any such custodian or underwriter.

5
<PAGE>

Without limiting the foregoing, the Trustees shall have power and
authority:

(a) To invest and reinvest cash, and to hold cash uninvested;

(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all of the assets of the Trust;

(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;

(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;

(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of
the Trustees or of the Trust or in the name of a custodian, subcustodian or
other depositary or a nominee or nominees or otherwise;

(f) Subject to the provisions of Article III, Section 3, to allocate
assets, liabilities, income and expenses of the Trust to a particular
series of Shares or to apportion the same among two or more series,
provided that any liabilities or expenses incurred by or arising in
connection with a particular series of Shares shall be payable solely out
of the assets of that series; and to the extent necessary or appropriate to
give effect to the preferences and special or relative rights and
privileges of any classes of Shares, to allocate assets, liabilities,
income and expenses of a series to a particular class of Shares of that
series or to apportion the same among two or more classes of Shares of that
series;

(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which
is or was held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;

6
<PAGE>

(h) To join with other security holders in acting through a committee
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;

(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited
to claims for taxes;

(j) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;

(k) To borrow funds;

(l) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise
assume liability for payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all such obligations;

(m) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including without limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers or managers, principal
underwriters, or independent contractors of the Trust individually against
all claims and liabilities of every nature arising by reason of holding,
being or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter, or independent contractor, including any
action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person
against such liability; and

(n) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust.

7
<PAGE>

The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by trustees. Except as otherwise
provided herein or from time to time in the Bylaws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), within or without Massachusetts, including
any meeting held by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at a meeting, or by written consents of a majority of the
Trustees then in office.

PAYMENT OF EXPENSES BY TRUST

Section 4. The Trustees are authorized to pay or to cause to be paid out
of the assets of the Trust all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, or in connection with the
management thereof, including, but not limited to, the Trustees' compensation
and such expenses and charges for the services of the Trust's officers,
employees, investment adviser or manager, principal underwriter, auditor,
counsel, custodian, transfer agent, Shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular series of Shares shall be payable solely out of the assets of
that series.

OWNERSHIP OF ASSETS OF THE TRUST

Section 5. Title to all of the assets of each series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.

ADVISORY, MANAGEMENT AND DISTRIBUTION

Section 6. Subject to a favorable Majority Shareholder Vote, the Trustees
may, at any time and from time to time, contract for exclusive or nonexclusive
advisory and/or management services with any corporation, trust, association or
other organization (the "Manager"), every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine, including, without
limitation, authority to determine from time to time what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time, contract
with the Manager or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or

8
<PAGE>

principal underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.

The fact that:

(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that

(ii) any corporation, trust, association or other organization with which
an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or transfer, Shareholder servicing or other agency
contract with one or more other corporations, trusts, associations, or
other organizations, or has other business or interests, shall not affect
the validity of any such contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust or its Shareholders.

9
<PAGE>

ARTICLE V
Shareholders' Voting Powers and Meetings

VOTING POWERS

Section 1. Subject to the voting powers of one or more classes of shares
as set forth in this Declaration of Trust or in the Bylaws, the Shareholders
shall have power to vote only (i) for the election of Trustees as provided in
Article IV, Section 1, (ii) for the removal of Trustees as provided in Article
IV, Section 1, (iii) with respect to any Manager as provided in Article IV,
Section 6, (iv) with respect to any termination of this Trust to the extent and
as provided in Article IX, Section 4, (v) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article IX, Section 7,
(vi) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders, and (vii) with respect to such additional
matters relating to the Trust as may be required by this Declaration of Trust,
the Bylaws or any registration of the Trust with the Securities and Exchange
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall be voted in
the aggregate as a single class without regard to series or classes of shares,
except (1) when required by the 1940 Act or when the Trustees shall have
determined that the matter affects one or more series or classes of Shares
materially differently, Shares shall be voted by individual series or class; and
(2) when the Trustees have determined that the matter affects only the interests
of one or more series or classes, then only Shareholders of such series or
classes shall be entitled to vote hereon. There shall be no cumulative voting
in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. Until Shares of any series or
class are issued, the

10
<PAGE>

Trustees may exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the Bylaws to be taken by
Shareholders as to such series or class.

VOTING POWER AND MEETINGS

Section 2. Meetings of Shareholders of any or all series or classes may be
called by the Trustees from time to time for the purpose of taking action upon
any matter requiring the vote or authority of the Shareholders of such series or
classes as herein provided or upon any other matter deemed by the Trustees to be
necessary or desirable. Written notice of any meeting of Shareholders shall be
given or caused to be given by the Trustees by mailing such notice at least
seven days before such meeting, postage prepaid, stating the time, place and
purpose of the meeting, to each Shareholder entitled to vote at such meeting at
the Shareholder's address as it appears on the records of the Trust. If the
Trustees shall fail to call or give notice of any meeting of Shareholders for a
period of 30 days after written application by Shareholders holding at least 10%
of the then outstanding Shares of all series and classes entitled to vote at
such meeting requesting that a meeting be called for a purpose requiring action
by the Shareholders as provided herein or in the Bylaws, then Shareholders
holding at least 10% of the then outstanding Shares of all series and classes
entitled to vote at such meeting may call and give notice of such meeting, and
thereupon the meeting shall be held in the manner provided for herein in case of
call thereof by the Trustees. Notice of a meeting need not be given to any
Shareholder if a written waiver of notice, executed by him or her before or
after the meeting, is filed with the records of the meeting, or to any
Shareholder who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her.

QUORUM AND REQUIRED VOTE

Section 3. Thirty percent of Shares entitled to vote on a particular
matter shall be a quorum for the transaction of business on that matter at a
Shareholders' meeting, except that where any provision of law or of this
Declaration of Trust permits or requires that holders of any series or class
shall vote as an individual series or class, then thirty percent of the
aggregate number of Shares of that series or class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that series
or class. Any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held, within a reasonable time after the
date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by any provision of this Declaration of
Trust or the Bylaws, or by the 1940 Act, a majority of the Shares voted shall
decide any questions and a plurality shall elect a Trustee, provided that where
any provision of law or of this Declaration of Trust permits or requires that
the holders of any series or class shall vote as an individual series or class,
then a majority of the Shares of that series or class voted on the matter (or a
plurality with respect to the election of a Trustee) shall decide that matter
insofar

11
<PAGE>

as that series or class is concerned.

ACTION BY WRITTEN CONSENT

Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration of Trust or the Bylaws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.

ADDITIONAL PROVISIONS

Section 5. The Bylaws may include further provisions not inconsistent with
this Declaration of Trust, regarding of Shareholders' voting powers, the conduct
of meetings and related matters.

ARTICLE VI
Distributions, Redemptions and Repurchases

DISTRIBUTIONS

Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series out of the assets of
such series such amounts as the Trustees may determine. Any such distribution
to the Shareholders of a particular series shall be made to said Shareholders
pro rata in proportion to the number of Shares of such series held by each of
them, except to the extent otherwise required or permitted by the preferences
and special or relative rights and privileges of any classes of Shares of that
series, and any distribution to the Shareholders of a particular class of Shares
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such class held by each of them. Such distributions shall be made in
cash or Shares or a combination thereof as determined by the Trustees. Any such
distribution paid in Shares will be paid at the net asset value thereof as
determined in accordance with the Bylaws.

REDEMPTIONS AND REPURCHASES

Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for

12
<PAGE>

redemption as the Trustees may from time to time authorize; and the Trust will
pay therefor the net asset value thereof, as next determined in accordance with
the Bylaws. Payment for said Shares shall be made by the Trust to the
Shareholder within seven days after the date on which the request is made. The
obligation set forth in this Section 2 is subject to the provision that in the
event that any time the New York Stock Exchange is closed for other than
customary weekends or holidays, or, if permitted by rules of the Securities and
Exchange Commission, during periods when trading on the Exchange is restricted
or during any emergency which makes it impractical for the Trust to dispose of
its investments or to determine fairly the value of its net assets, or during
any other period permitted by order of the Securities and Exchange Commission
for the protection of investors, such obligation may be suspended or postponed
by the Trustees. The Trust may also purchase or repurchase Shares at a price
not exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.

REDEMPTIONS AT THE OPTION OF THE TRUST

Section 3. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with the Bylaws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular series or class of Shares equal to
or in excess of a percentage of the outstanding Shares of that series or class
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.

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ARTICLE VII
Compensation and Limitation of Liability of Trustees

COMPENSATION

Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.

LIMITATION OF LIABILITY

Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.

Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.

ARTICLE VIII
Indemnification

TRUSTEES, OFFICERS, ETC.

Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a

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Covered Person except with respect to any matter as to which such Covered Person
shall have been finally adjudicated in any such action, suit or other proceeding
(a) not to have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interests of the Trust or (b) to be liable to
the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office. Expenses, including counsel fees so incurred by any
such Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), shall be paid from time to time by the
Trust in advance of the final disposition of any such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Trust if it is ultimately determined that indemnification
of such expenses is not authorized under this Article, provided, however, that
either (a) such Covered Person shall have provided appropriate security for such
undertaking, (b)the Trust shall be insured against losses arising from any such
advance payments or (c) either a majority of the disinterested Trustees acting
on the matter (provided that a majority of the disinterested Trustees then in
office act on the matter), or independent legal counsel in a written opinion,
shall have determined, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that there is reason to believe that such
Covered Person will be found entitled to indemnification under this Article.

COMPROMISE PAYMENT

Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication by a court,
or by any other body before which the proceeding was brought, that such Covered
Person either (a) did not act in good faith in the reasonable belief that his or
her action was in the best interests of the Trust or (b) is liable to the Trust
or its Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, indemnification shall be provided if (a) approved as in the best
interests of the Trust, after notice that it involves such indemnification, by
at least a majority of the disinterested Trustees acting on the matter (provided
that a majority of the disinterested Trustees then in office act on the matter)
upon a determination, based upon a review of readily available facts (as opposed
to a full trial type inquiry) that such Covered Person acted in good faith in
the reasonable belief that his or her action was in the best interests of the
Trust and is not liable to the Trust or its Shareholders by reasons of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in

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the conduct of his or her office, or (b) there has been obtained an opinion in
writing of independent legal counsel, based upon a review of readily available
facts (as opposed to a full trial type inquiry) to the effect that such Covered
Person appears to have acted in good faith in the reasonable belief that his or
her action was in the best interests of the Trust and that such indemnification
would not protect such Person against any liability to the Trust to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. Any approval pursuant to this Section shall not prevent the
recovery from any Covered Person of any amount paid to such Coverd Person in
accordance with this Section as indemnification if such Covered Person is
subsequently adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's action was in
the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office.

INDEMNIFICATION NOT EXCLUSIVE

Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, (or who has
been exempted from being an "interested person" by any rule, regulation or order
of the Securities and Exchange Commission) and against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained
in this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.

SHAREHOLDERS

Section 4. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.

ARTICLE IX
Miscellaneous

TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE

Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or

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<PAGE>

the assets of that particular series of Shares for payment under such credit,
contract or claim, and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Nothing in this Declaration of Trust shall protect
any Trustee against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee.

Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officer or officers shall give notice that this
Declaration of Trust is on file with the Secretary of The Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustee or Trustees or as officer or officers
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.

TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY

Section 2. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.

LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES

Section 3. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.

DURATION AND TERMINATION OF TRUST

Section 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders

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<PAGE>

holding at least 66-2/3% of the Shares entitled to vote or by the Trustees by
written notice to the Shareholders. Any series of Shares may be terminated at
any time by vote of Shareholders holding at least 66-2/3% of the Shares of such
series entitled to vote or by the Trustees by written notice to the Shareholders
of such series.

Upon termination of the Trust or of any one or more series of Shares, after
paying or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated of the Trust or of the particular series
as may be determined by the Trustees, the Trust shall in accordance with such
procedures as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash or shares or other securities, or any combination
thereof, and distribute the proceeds to the Shareholders of the series involved,
ratably according to the number of Shares of such series held by the several
Shareholders of such series on the date of termination, except to the extent
otherwise required or permitted by the preferences and special or relative
rights and privileges of any classes of any series of Shares of the Trust,
provided that any distribution to the Shareholders of a particular class of any
series of Shares shall be made to such Shareholders pro rata in proportion to
the number of Shares of such class held by each of them.

DERIVATIVE AND CLASS ACTIONS

Section 5. No Shareholder shall bring or maintain any action, proceeding
or claim derivatively or as a class action on behalf of the Trust or the
Shareholders unless approved by the Trustees and, to the same extent required as
to stockholders of a Massachusetts business corporation, by the Shareholders. A
Trustee who is not an "interested person" of the Trust, as defined in the 1940
Act, shall not be disqualified from acting on such matter by reason of such
Trustee's service as a director or trustee of one or more other registered
investment companies having the same Manager or distributor.

FILING OF COPIES, REFERENCES, HEADINGS

Section 6. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or control or affect
the meaning, construction or

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<PAGE>

effect of this instrument. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.

APPLICABLE LAW

Section 7. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.

AMENDMENTS

Section 8. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which shall affect the holders of one or more
series or classes of Shares but not the holders of all outstanding series and
classes shall be authorized by vote of the Shareholders holding a majority of
the Shares entitled to vote of each series and class affected and no vote of
Shareholders of a series or class not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.

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IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in
the City of Boston, Massachusetts for himself and his assigns, as of the day and
year first above written.

/s/ Gregory T. Pusch
-----------------------------------
(SEAL) Gregory T. Pusch, Trustee

Trust Address: Business Address:
c/o Ropes & Gray c/o Ropes & Gray
One International Place One International Place
Boston, MA 02110 Boston, MA 02110

THE COMMONWEALTH OF MASSACHUSETTS

Boston,

September 9, 1998

Suffolk, ss.

Then personally appeared the above-named Trustee of PPM America Funds and
acknowledged the foregoing instrument to be his free act and deed, before me,

/s/ Donna Ugarte
---------------------------
Notary Public
My commission expires:

<PAGE>

BYLAWS
OF
PPM America Funds

ARTICLE 1
Agreement and Declaration of Trust and Principal Office

1.1 AGREEMENT AND DECLARATION OF TRUST. These Bylaws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of the Massachusetts business trust established by the
Declaration of Trust (the "Trust").

1.2 PRINCIPAL OFFICE OF THE TRUST. The principal office of the Trust shall be
located in Chicago, Illinois.

ARTICLE 2
Meetings of Trustees

2.1 REGULAR MEETINGS. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees.

2.2 SPECIAL MEETINGS. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.

2.3 NOTICE OF SPECIAL MEETINGS. It shall be sufficient notice to a Trustee of
a special meeting to send notice by mail at least forty-eight hours or by
telegram at least twenty-four hours before the meeting addressed to the Trustee
at his or her usual or last known business or residence address or to give
notice to him or her in person or by telephone at least twenty-four hours before
the meeting. Notice of a special meeting need not be given to any Trustee if a
written waiver of notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. Neither notice of a meeting nor a waiver of a notice need specify
the purposes of the meeting.

2.4 QUORUM. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to
time by a majority of the votes cast upon the question, whether or not a quorum
is present, and

<PAGE>

the meeting may be held as adjourned without further notice.

2.5 NOTICE OF CERTAIN ACTIONS BY CONSENT. If in accordance with the provisions
of the Declaration of Trust any action is taken by the Trustees by a written
consent of less than all of the Trustees, then prompt notice of any such action
shall be furnished to each Trustee who did not execute such written consent,
provided that the effectiveness of such action shall not be impaired by any
delay or failure to furnish such notice.

ARTICLE 3
Officers

3.1 ENUMERATION; QUALIFICATION. The officers of the Trust shall be a Chairman
of the Trustees, a President, a Treasurer, a Clerk and such other officers, if
any, as the Trustees from time to time may in their discretion elect. The Trust
may also have such agents as the Trustees from time to time may in their
discretion appoint. The Chairman of the Trustees and the President shall be a
Trustee and may but need not be a shareholder; and any other officer may but
need not be a Trustee or a shareholder. Any two or more offices may be held by
the same person. A Trustee may but need not be a shareholder.

3.2 ELECTION. The Chairman of the Trustees, the President, the Treasurer and
the Clerk shall be elected by the Trustees upon the occurrence of any vacancy in
any such office. Other officers, if any, may be elected or appointed by the
Trustees at any time. Vacancies in any such other office may be filled at any
time.

3.3 TENURE. The Chairman of the Trustees, the President, the Treasurer and the
Clerk shall hold office in each case until he or she dies, resigns, is removed
or becomes disqualified. Each other officer shall hold office and each agent
shall retain authority at the pleasure of the Trustees.

3.4 POWERS. Subject to the other provisions of these Bylaws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to the
office occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.

3.5 CHAIRMAN; PRESIDENT. Unless the Trustees otherwise provide, the Chairman
of the Trustees or, if there is none or in the absence of the Chairman of the
Trustees, the President shall preside at all meetings of the shareholders and of
the Trustees. Unless the Trustees otherwise provide, the President shall be the
chief executive officer.

3.6 TREASURER. Unless the Trustees shall provide otherwise, the

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Treasurer shall be the chief financial and accounting officer of the Trust, and
shall, subject to the provisions of the Declaration of Trust and to any
arrangement made by the Trustees with a custodian, investment adviser or
manager, or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the President.

3.7 CLERK. The Clerk shall record all proceedings of the shareholders and the
Trustees in books to be kept therefor, which books or a copy thereof shall be
kept at the principal office of the Trust. In the absence of the Clerk from any
meeting of the shareholders or Trustees, an Assistant Clerk, or if there be none
or if he or she is absent, a temporary Clerk chosen at such meeting shall record
the proceedings thereof in the aforesaid books.

3.8 RESIGNATIONS AND REMOVALS. Any Trustee or officer may resign at any time
by written instrument signed by him or her and delivered to the Chairman of the
Trustees, the President or the Clerk or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. The Trustees may remove any officer elected by them with or
without cause. Except to the extent expressly provided in a written agreement
with the Trust, no Trustee or officer resigning and no officer removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.

ARTICLE 4
Committees

4.1 QUORUM; VOTING. A majority of the members of any Committee of the Trustees
shall constitute a quorum for the transaction of business, and any action of
such a Committee may be taken at a meeting by a vote of a majority of the
members present (a quorum being present) or evidenced by one or more writings
signed by such a majority. Members of a Committee may participate in a meeting
of such Committee by means of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at a meeting.

ARTICLE 5
Reports

5.1 GENERAL. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
and Committees shall render such

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<PAGE>

additional reports as they may deem desirable or as may from time to time be
required by the Trustees.

ARTICLE 6
Fiscal Year

6.1 GENERAL. Except as from time to time otherwise provided by the Trustees,
the initial fiscal year of the Trust shall end on such date as is determined in
advance or in arrears by the Treasurer, and subsequent fiscal years shall end on
such date in subsequent years.

ARTICLE 7
Seal

7.1 GENERAL. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts", together with the name of the Trust and the year of its
organization cut or engraved thereon but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.

ARTICLE 8
Execution of Papers

8.1 GENERAL. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, the Vice Chairman, a Vice President or the Treasurer and need not
bear the seal of the Trust.

ARTICLE 9
Issuance of Shares and Share Certificates

9.1 SALE OF SHARES. Except as otherwise determined by the Trustees, the Trust
will issue and sell for cash or securities from time to time, full and
fractional shares of its shares of beneficial interest, such shares to be issued
and sold at a price of not less than the par value per share, if any, and not
less than the net asset value per share as from time to time determined in
accordance with the Declaration of Trust and these Bylaws and, in the case of
fractional shares, at a proportionate reduction in such price. In the case of
shares sold for securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the Trust as stated in
the Declaration of Trust and these Bylaws. The officers of the Trust are
severally authorized to take all such actions as may be necessary or desirable
to carry out this Section 9.1.

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<PAGE>

9.2 SHARE CERTIFICATES. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.

The Trustees may at any time authorize the issuance of share certificates.
In that event, each shareholder shall be entitled to a certificate stating the
number of shares of each class owned by him, in such form as shall be prescribed
from time to time by the Trustees. Such certificate shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer.
Such signatures may be facsimile if the certificate is signed by a transfer
agent or by a registrar. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall cease to be such officer
before such certificate is issued, it may be issued by the Trust with the same
effect as if he were such officer at the time of its issue.

9.3 LOSS OF CERTIFICATES. The transfer agent of the Trust, with the approval
of any two officers of the Trust, is authorized to issue and countersign
replacement certificates for the shares of the Trust which have been lost,
stolen or destroyed upon (i) receipt of an affidavit or affidavits of loss or
non-receipt and of an indemnity agreement executed by the registered holder or
his legal representative and supported by an open penalty surety bond, said
agreement and said bond in all cases to be in form and content satisfactory to
and approved by the President or the Treasurer, or (ii) receipt of such other
documents as may be approved by the Trustees.

9.4 ISSUANCE OF NEW CERTIFICATE TO PLEDGEE. A pledgee of shares transferred as
collateral security shall be entitled to a new certificate if the instrument of
transfer substantially describes the debt or duty that is intended to be secured
thereby. Such new certificate shall express on its face that it is held as
collateral security, and the name of the pledgor shall be stated thereon, who
alone shall be liable as a shareholder and entitled to vote thereon.

9.5 DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.

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<PAGE>

ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business

10.1 CERTAIN DEFINITIONS. When used herein the following words shall have the
following meanings: "Distributor" shall mean any one or more corporations, firms
or associations which have distributor's or principal underwriter's contracts in
effect with the Trust providing that redeemable shares issued by the Trust shall
be offered and sold by such Distributor. "Manager" shall
mean any corporation, firm or association which may at the time have an advisory
or management contract with the Trust.

10.2 LIMITATIONS ON DEALINGS WITH OFFICERS OR TRUSTEES. The Trust will not
lend any of its assets to the Distributor or Manager or to any officer or
director of the Distributor or Manager or any officer or Trustee of the Trust,
and shall not permit any officer or Trustee or any officer or director of the
Distributor or Manager to deal for or on behalf of the Trust with himself or
herself as principal or agent, or with any partnership, association or
corporation in which he or she has a financial interest; provided that the
foregoing provisions shall not prevent (a) officers and Trustees of the Trust or
officers and directors of the Distributor or Manager from buying, holding or
selling shares in the Trust or from being partners, officers or directors of or
otherwise financially interested in the Distributor or the Manager; (b)
purchases or sales of securities or other property if such transaction is
permitted by or is exempt or exempted from the provisions of the Investment
Company Act of 1940 or any Rule or Regulation thereunder and if such transaction
does not involve any commission or profit to any security dealer who is, or one
or more of whose partners, shareholders, officers or directors is, an officer or
Trustee of the Trust or an officer or director of the Distributor or Manager;
(c) employment of legal counsel, registrar, transfer agent, shareholder
servicing agent, dividend disbursing agent or custodian who is, or has a
partner, shareholder, officer or director who is, an officer or Trustee of the
Trust or an officer or director of the Distributor or Manager; (d) sharing
statistical, research, legal and management expenses and office hire and
expenses with any other investment company in which an officer or Trustee of the
Trust or an officer or director of the Distributor or Manager is an officer or
director or otherwise financially interested.

10.3 SECURITIES AND CASH OF THE TRUST TO BE HELD BY CUSTODIAN SUBJECT TO
CERTAIN TERMS AND CONDITIONS.

(a) All securities and cash owned by the Trust shall be held by or
deposited with one or more banks or trust companies having (according
to its last published

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<PAGE>

report) not less than $1,000,000 aggregate capital, surplus and
undivided profits (any such bank or trust company being hereby
designated as "Custodian"), provided such a Custodian can be found
ready and willing to act; subject to such rules, regulations and
orders, if any, as the Securities and Exchange Commission may adopt,
the Trust may, or may permit any Custodian to, deposit all or any part
of the securities owned by the Trust in a system for the central
handling of securities pursuant to which all securities of any
particular class or series of any issue deposited within the system
may be transferred or pledged by bookkeeping entry, without physical
delivery. The Custodian may appoint, subject to the approval of the
Trustees, one or more subcustodians.

(b) The Trust shall enter into a written contract with each Custodian
regarding the powers, duties and compensation of such Custodian with
respect to the cash and securities of the Trust held by such
Custodian. Said contract and all amendments thereto shall be approved
by the Trustees.

(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor Custodian;

(ii) require that the cash and securities owned by the Trust be
delivered directly to the successor Custodian; and

(iii) in the event that no successor Custodian can be
found, submit to the shareholders, before permitting delivery of
the cash and securities owned by the Trust otherwise than to a
successor Custodian, the question whether the Trust shall be
liquidated or shall function without a Custodian.

10.4 REPORTS TO SHAREHOLDERS. The Trust shall send to each shareholder of
record at least semi-annually a statement of the condition of the Trust and of
the results of its operations, containing all information required by applicable
laws or regulations.

10.5 DETERMINATION OF NET ASSET VALUE PER SHARE. Net asset value per share of
each class or series of shares of the Trust shall mean: (i) the value of all
the assets properly allocable

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to such class or series; (ii) less total liabilities properly allocable to such
class or series; (iii) divided by the number of shares of such class or series
outstanding, in each case at the time of each determination. Except as
otherwise determined by the Trustees, the net asset value per share of each
class or series shall be determined no less frequently than once daily, Monday
through Friday, on days on which the New York Stock Exchange is open for
trading, at such time or times that the Trustees set at least annually.

In valuing the portfolio investments of any class or series of shares for
the determination of the net asset value per share of such class or series,
securities for which market quotations are readily available shall be valued at
prices which, in the opinion of the Trustees or the person designated by the
Trustees to make the determination, most nearly represent the market value of
such securities, and other securities and assets shall be valued at their fair
value as determined by or pursuant to the direction of the Trustees, which in
the case of debt obligations, commercial paper and repurchase agreements may,
but need not, be on the basis of yields for securities of comparable maturity,
quality and type, or on the basis of amortized cost. Expenses and liabilities
of the Trust shall be accrued each day. Liabilities may include such reserves
for taxes, estimated accrued expenses and contingencies as the Trustees or their
designates may in their sole discretion deem fair and reasonable under the
circumstances. No accruals shall be made in respect of taxes on unrealized
appreciation of securities owned unless the Trustees shall otherwise determine.

ARTICLE 11
Shareholders

11.1 MEETINGS. A meeting of the shareholders shall be called by the Clerk
whenever ordered by the Trustees, the Chairman of the Trustees or requested in
writing by the holder or holders of at least one-tenth of the outstanding shares
entitled to vote at such meeting. If the Clerk, when so ordered or requested,
refuses or neglects for more than two days to call such meeting, the Trustees,
Chairman of the Trustees or the shareholders so requesting may, in the name of
the Clerk, call the meeting by giving notice thereof in the manner required when
notice is given by the Clerk.

11.2 ACCESS TO SHAREHOLDER LIST. Shareholders of record may apply to the
Trustees for assistance in communicating with other shareholders for the purpose
of calling a meeting in order to vote upon the question of removal of a Trustee.
When ten or more shareholders of record who have been such for at least six
months preceding the date of application and who hold in the aggregate shares
having a net asset value of at least $25,000 so apply, the

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Trustees shall within five business days either:

(i) afford to such applicants access to a list of names and addresses of
all shareholders as recorded on the books of the Trust; or

(ii) inform such applicants of the approximate number of shareholders of
record and the approximate cost of mailing material to them, and,
within a reasonable time thereafter, mail, at the applicants' expense,
materials submitted by the applicants, to all such shareholders of
record. The Trustees shall not be obligated to mail materials which
they believe to be misleading or in violation of applicable law.

11.3 RECORD DATES. For the purpose of determining the shareholders of any
class or series of shares of the Trust who are entitled to vote or act at any
meeting or any adjournment thereof, or who are entitled to receive payment of
any dividend or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date of any meeting
of shareholders or more than 60 days before the date of payment of any dividend
or of any other distribution, as the record date for determining the
shareholders of such class or series having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of record on such
record date shall have such right notwithstanding any transfer of shares on the
books of the Trust after the record date; or without fixing such record date the
Trustees may for any such purposes close the register or transfer books for all
or part of such period.

11.4 PROXIES. The placing of a shareholder's name on a proxy pursuant to
telephone or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.

ARTICLE 12
Preferences, Rights and Privileges of the
Trust's Classes of Shares

12.1 GENERAL. Each class of shares of the Trust or of a particular series of
the Trust, as the case may be, will represent interests in the same portfolio of
investments of the Trust (or that series) and be identical in all respects,
except as set forth below: (a) each class of shares shall be charged with the
expense of any Distribution Plan adopted by the Trust pursuant to Rule 12b-1
under the Investment Company Act of 1940

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with respect to such class of shares, (b) each class of shares will be charged
with any incremental shareholder servicing expense attributable solely to such
class, as determined by the Trustees, (c) each class of shares shall be charged
with any other expenses properly allocated to such class, as determined by the
Trustees and approved by the Securities and Exchange Commission, (d) each class
of shares shall vote as a separate class on matters which pertain to any
Rule 12b-1 Distribution Plan pertaining to such class of shares, (e) each class
of shares will have only such exchange privileges as may from time to time be
described in the Trust's prospectus with respect to such class, (f) each class
of shares shall bear such designation as may be approved from time to time by
the Trustees and (g) reinvestments of distributions from the Trust paid with
respect to the shares of a particular class will be paid in additional shares of
such class.

ARTICLE 13
Amendments to the Bylaws

13.1 GENERAL. These Bylaws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees, or by
one or more writings signed by such a majority.

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