PPM AMERICA FUNDS
ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
DEAR SHAREHOLDER:
This report relates to the operations of the PPM America Funds for the period
ended December 31, 1999. The following Money Manager commentaries, graphs and
tables provide you with information regarding each Funds' performance during the
period.
[PPM AMERICA LOGO]
PPM AMERICA VALUE EQUITY FUND
PPM AMERICA, INC.
TEAM MANAGEMENT
OBJECTIVE:
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
the adviser believes are undervalued relative to the stocks which comprise the
S&P 500 Index. The Fund may also invest up to 25% of its assets in the common
stocks of U.S. exchange-traded foreign companies that the adviser believes are
selling for low prices.
MONEY MANAGER COMMENTARY:
The U.S. equity market rose to unprecedented valuation levels in 1999 with the
S&P 500 Stock Index producing its fifth consecutive 20%+ annual return. This
represents the best cumulative 5-year return in recorded market history since
1926. The market in 1999, however, was quite narrow. The rise was driven by the
technology sector and the stocks of a relative handful of very large companies.
The technology sector rose almost 79% for the year and its weighting reached
over 25% of the overall S&P 500 Index by year-end. This was almost double the
weighting of the sector at the end of 1998. The largest 25 stocks (by market
capitalization) represented approximately 43% of the overall S&P 500 Index and
the largest 10 stocks alone comprised 25% by the end of the year.
PPM America's investment philosophy is based on the belief that a diversified
portfolio of undervalued stocks will outperform the market over the long-term.
We use a fundamental research process that seeks to identify stocks that are at
significant valuation discounts to the market for temporary and/or
non-fundamental reasons. The Fund's investments are priced at a significantly
lower-than-market price/earnings ratio (compared to the S&P 500 Index) and a
higher-than-market dividend yield. The Fund has larger-than-index weightings in
the auto, financial, transportation and basic material sectors. Due to their
extremely high valuations, the Fund has relatively low exposures to the
technology and health care sectors.
Unfortunately, we believe that the market's euphoria over the internet and other
technology sectors has led many investors (both institutional and retail) to
ignore valuation principles and fundamentals. The result is that value-oriented
investors like us significantly underperformed the overall market and growth
stock investors. The Fund's return for 1999 was a disappointing - 0.82% compared
to the 21.04% return of the overall S&P 500 Index. We remain committed to our
investment principles and our belief in the long-term benefits of value
investing.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PPM AMERICA VALUE EQUITY FUND, THE S&P 500 INDEX AND THE
S&P 500/BARRA VALUE INDEX
[LINE GRAPH]
<TABLE>
<CAPTION>
PPM AMERICA VALUE EQUITY S&P 500/BARRA VALUE
FUND S&P 500 INDEX INDEX
------------------------ ------------- -------------------
<S> <C> <C> <C>
12/23/1998 10000.00 10000.00 10000.00
12/31 10130.00 10009.00 10047.00
10110.00 10428.00 10250.00
9950.00 10104.00 10029.00
3/31 10010.00 10508.00 10333.00
11091.00 10915.00 11224.00
11091.00 10657.00 11022.00
6/30 11372.00 11248.00 11445.00
10911.00 10897.00 11093.00
10471.00 10843.00 10811.00
9/30 9990.00 10546.00 10388.00
10130.00 11213.00 10975.00
10050.00 11441.00 10911.00
12/31/1999 10048.00 12115.00 11321.00
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN
1
year... -0.82%
Since
inception*... 0.47%
Past performance is not
predictive of future
performance. Investment
return and principal
value will fluctuate so
that an investor's
shares, when redeemed,
may be more or less than
their original cost.
Performance numbers are
net of all Fund operating
- --------------- expenses.
* Inception date December 23, 1998.
1
<PAGE>
[PPM AMERICA LOGO]
PPM AMERICA SMALL CAP VALUE EQUITY FUND
PPM AMERICA, INC.
TEAM MANAGEMENT
OBJECTIVE:
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 the adviser believes are undervalued relative to the value
of those issuers that have similar market values. The Fund may also invest up to
25% of its assets in the common stocks of U.S. exchange-traded foreign companies
that the adviser believes are selling for low prices.
MONEY MANAGER COMMENTARY:
The U.S. equity market rose to unprecedented valuation levels in 1999 with the
S&P 500 Stock Index producing its fifth consecutive 20%+ annual return. This
represents the best cumulative 5-year return in recorded market history since
1926. The overall small cap sector of the market also participated with the
Russell 2000 Index up over 21%. Performance, however, was driven by the
technology sector. As a result, the Russell 2000 Growth Index outperformed the
Russell 2000 Value Index by its widest margin since the inception of these
indices. The Russell 2000 Growth Index rose 43.10% for the year while the
Russell 2000 Value Index actually fell 1.49%. A significant portion of this
difference occurred just in the fourth quarter, as the Russell 2000 Growth Index
rose 33.39% for the quarter while the Russell 2000 Value Index rose only 1.53%.
Most industry sectors in the Russell 2000 Value Index produced negative returns
for the year while the technology sector in the Russell 2000 Growth Index rose
almost 108%.
PPM America's investment philosophy is based on the belief that a diversified
portfolio of undervalued stocks will outperform the market over the long-term.
We use a fundamental research process that seeks to identify stocks that are at
significant valuation discounts to the market for temporary and/or
non-fundamental reasons. The thrust of this approach is to seek investments
where current investor enthusiasm is low with the expectation that superior
returns will be generated as the investment community's perceptions of these
stocks improve. The Fund has larger-than-index weightings in the auto, bank,
apparel and basic material sectors. Due to their extremely high valuations, the
Fund has relatively low exposures to the technology and healthcare sectors.
Unfortunately, we believe that the market's euphoria over the internet and other
technology sectors has led many investors (both institutional and retail) to
ignore valuation principles and fundamentals. The result is that value-oriented
investors like us significantly underperformed the overall small cap market and
growth stock investors. The Fund's return for 1999 was -13.36% compared to the
21.35% return of the Russell 2000 Index. We remain committed to our investment
principles and our belief in the long-term benefits of value investing.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PPM AMERICA SMALL CAP VALUE EQUITY FUND, THE RUSSELL 1000 VALUE INDEX AND THE
RUSSELL 2000 INDEX
[LINE GRAPH]
<TABLE>
<CAPTION>
PPM AMERICA SMALL CAP
VALUE EQUITY FUND RUSSELL 1000 VALUE INDEX RUSSELL 2000 INDEX
--------------------- ------------------------ ------------------
<S> <C> <C> <C>
12/23/1998 10000.00 10000.00 10000.00
12/31 10388.00 10064.00 10432.00
9928.00 10149.00 10567.00
9328.00 9980.00 9715.00
3/31 8987.00 10170.00 9865.00
9928.00 11113.00 10748.00
10308.00 10963.00 10906.00
6/30 10368.00 11272.00 11396.00
10288.00 10924.00 11082.00
9668.00 10496.00 10674.00
9/30 9287.00 10114.00 10674.00
9267.00 10662.00 10719.00
9087.00 10572.00 11372.00
12/31/1999 9001.00 10606.00 12659.00
</TABLE>
AVERAGE ANNUAL
TOTAL RETURN
1
year... -13.36%
Since
inception*... -9.76%
Past performance is not
predictive of future
performance. Investment
return and principal
value will fluctuate so
that an investor's
shares, when redeemed,
may be more or less than
their original cost.
Performance numbers are
net of all Fund operating
- --------------- expenses.
* Inception date December 23, 1998.
2
<PAGE>
[PPM AMERICA LOGO]
PPM AMERICA HIGH YIELD BOND FUND
PPM AMERICA, INC.
TEAM MANAGEMENT
OBJECTIVE:
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. The Fund may also invest up to 25% of its assets in U.S.
dollar-denominated fixed-income or equity securities of foreign companies.
MONEY MANAGER COMMENTARY:
The U.S. high yield market, as measured by the Lehman Brothers High Yield Index,
returned 2.39% in 1999, outperforming all other domestic fixed income sectors
for the year. As interest rates rose throughout the year, most fixed income
classes posted negative returns, and 30-year Treasuries had their worst year
ever. The high yield market, however, started the year out strong. While
Treasury yields rose over 100 basis points in the first half of the year, high
yield spreads contracted by a similar amount. Primary issuance was healthy and
investor demand was robust. Heading into the second half of 1999, market
sentiment changed. Inflation fears surfaced and escalating default rates caught
the market's attention. During the next several months, the high yield market
earned negative returns. New issue supply was limited, as deals were cancelled
due to lack of investor demand. Finally, as the year drew to a close, a rally in
the equity markets and stabilization in interest rates led to a rebound in the
high yield market. New issuance resumed and the year ended positively, with
November and December posting healthy returns.
Our approach to managing the fund is based on relative value. We focus on
purchasing individual securities which are attractively priced and have the
potential to outperform the benchmark, within the context of industry weightings
which are derived from the same factors. In 1999, this approach led to an
emphasis on single-B rated credits, but security and industry selection were
generally defensive.
The Fund returned 1.83% for the period from inception on June 7, 1999 through
December 31, 1999, outperforming the Lehman Brothers High Yield Index of - 0.02%
by 185 basis points. Most of the outperformance occurred during the month of
October, when the Funds' defensive positioning benefited its performance during
this period of difficult high yield market conditions.
We expect the high yield market conditions to improve in 2000, with expected
returns trending closer to historical averages. The Lehman Brothers High Yield
Index has returned an annual average of 11.69% over the last 15 years.
Underpinning our outlook is the expectation for continued solid GDP growth and
greater stability in interest rates. Current yields on high yield bonds are
approaching historical peaks, making the asset class attractive and compensating
investors for the higher default rates. After lighter supply in 1999, and a
relatively large cash buildup by investors concerned about Y2K, demand is
expected to be healthy. Major risks include greater than expected interest rate
increases, equity market volatility, a surge in supply that the market is unable
to adequately absorb, and another significant uptick in default rates, after
what appeared to be a moderation in the second half of 1999.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PPM AMERICA HIGH YIELD BOND FUND AND THE
LEHMAN BROTHERS HIGH YIELD INDEX
[LINE GRAPH]
<TABLE>
<CAPTION>
PPM AMERICA HIGH YIELD BOND
FUND LEHMAN BROTHERS HIGH YIELD INDEX
--------------------------- --------------------------------
<S> <C> <C>
6/07/1999 10000.00 10000.00
6/30 10000.00 9979.00
10040.00 10019.00
10000.00 9908.00
9/30 9960.00 9837.00
9980.00 9772.00
10100.00 9887.00
12/31/1999 10183.00 9998.00
</TABLE>
TOTAL RETURN FOR THE PERIOD
FROM JUNE 7, 1999* TO
DECEMBER 31, 1999...........
1.83%
Past performance is not
predictive of future
performance. Investment
return and principal
value will fluctuate so
that an investor's
shares, when redeemed,
may be more or less than
their original cost.
Performance numbers are
net of all Fund operating
expenses.
- ---------------
* Commencement of operations.
3
<PAGE>
PPM AMERICA FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except net asset value per share)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PPM AMERICA PPM AMERICA PPM AMERICA
VALUE SMALL CAP HIGH YIELD
EQUITY FUND VALUE EQUITY FUND BOND FUND
---------------------- ----------------------- -----------------------
<S> <C> <C> <C>
ASSETS
Investments in securities, at cost ................. $ 25,926 $ 25,569 $ 25,285
======== ======== ========
Investments in securities, at value ................ $ 22,959 $ 22,193 $ 24,641
Cash ............................................... -- -- 277
Receivables:
Dividends and interest ............................. 48 14 556
Reimbursement from adviser ......................... 12 9 7
-------- -------- --------
TOTAL ASSETS ....................................... 23,019 22,216 25,481
-------- -------- --------
LIABILITIES
Cash overdraft ..................................... 121 56 --
Payable:
Advisory fees ...................................... 15 17 14
Other liabilities .................................. 18 18 19
-------- -------- --------
TOTAL LIABILITIES .................................. 154 91 33
-------- -------- --------
NET ASSETS ......................................... $ 22,865 $ 22,125 $ 25,448
======== ======== ========
NET ASSETS CONSIST OF:
Paid-in capital .................................... $ 25,834 $ 25,366 $ 26,307
Distributions in excess of net
investment income................................... -- -- (7)
Accumulated net realized gain (loss)
on investments ..................................... (2) 135 (208)
Net unrealized depreciation on investments ......... (2,967) (3,376) (644)
-------- -------- --------
NET ASSETS ......................................... $ 22,865 $ 22,125 $ 25,448
======== ======== ========
TOTAL SHARES OUTSTANDING (NO PAR VALUE),
UNLIMITED SHARES AUTHORIZED ........................ 4,738 5,019 5,271
======== ======== ========
NET ASSET VALUE PER SHARE .......................... $ 4.83 $ 4.41 $ 4.83
======== ======== ========
</TABLE>
See notes to the financial statem1ents.
4
<PAGE>
PPM AMERICA FUNDS
STATEMENTS OF OPERATIONS
(in thousands)
FOR THE PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PPM AMERICA PPM AMERICA PPM AMERICA
VALUE SMALL CAP HIGH YIELD
EQUITY FUND VALUE EQUITY FUND BOND FUND*
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends .......................................... $ 375 $ 373 $ --
Interest ........................................... 15 12 1,421
-------- -------- --------
TOTAL INVESTMENT INCOME ............................ 390 385 1,421
-------- -------- --------
EXPENSES
Advisory fees ...................................... 120 152 93
Custodian fees ..................................... 6 4 3
Portfolio accounting fees .......................... 33 34 21
Professional fees .................................. 20 19 17
Registration fees .................................. 10 10 10
Transfer agent fees ................................ 23 23 11
Other .............................................. 12 13 10
-------- -------- --------
TOTAL OPERATING EXPENSES ........................... 224 255 165
Less reimbursement from adviser .................... 74 69 44
-------- -------- --------
NET EXPENSES ....................................... 150 186 121
-------- -------- --------
NET INVESTMENT INCOME .............................. 240 199 1,300
-------- -------- --------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gain (loss) on investments ............ 616 358 (208)
Net change in unrealized appreciation
(depreciation) on investments ...................... (3,025) (3,753) (644)
-------- -------- --------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ......... (2,409) (3,395) (852)
-------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $(2,169) $(3,196) $ 448
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
* For the period beginning June 7, 1999 (commencement of operations).
See notes to the financial statements.
5
<PAGE>
PPM AMERICA FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
PPM AMERICA
PPM AMERICA VALUE PPM AMERICA SMALL CAP HIGH YIELD
EQUITY FUND VALUE EQUITY FUND BOND FUND
------------------- ------------- -------------------------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
YEAR DECEMBER 23, YEAR DECEMBER 23, JUNE 7,
ENDED 1998* TO ENDED 1998* TO 1999* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1999
--------------- -------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................ $ 240 $ 5 $ 199 $ 8 $ 1,300
Net realized gain (loss) on investments .......... 616 -- 358 -- (208)
Net change in unrealized appreciation
(depreciation) on investments ................ (3,025) 58 (3,753) 378 (644)
-------- -------- -------- -------- --------
Net increase (decrease) in net assets
from operations .............................. (2,169) 63 (3,196) 386 448
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ....................... (240) (5) (199) (8) (1,307)
From net realized gains on investments ........... (618) -- (223) -- --
-------- -------- -------- -------- --------
Total distributions to shareholders .............. (858) (5) (422) (8) (1,307)
-------- -------- -------- -------- --------
SHARE TRANSACTIONS:
Proceeds from the sale of shares ................. 20,000 5,100 15,000 10,000 25,000
Reinvestment of distributions .................... 729 5 357 8 1,307
Cost of shares redeemed .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Net increase in net assets from share
transactions ................................. 20,729 5,105 15,357 10,008 26,307
-------- -------- -------- -------- --------
NET INCREASE IN NET ASSETS ......................... 17,702 5,163 11,739 10,386 25,448
NET ASSETS BEGINNING OF PERIOD ..................... 5,163 -- 10,386 -- --
-------- -------- -------- -------- --------
NET ASSETS END OF PERIOD ........................... $ 22,865 $ 5,163 $ 22,125 $ 10,386 $ 25,448
======== ======== ======== ======== ========
DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME ................................ $ -- $ -- $ -- $ -- $ (7)
======== ======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations.
See notes to the financial statements.
6
<PAGE>
PPM AMERICA FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PPM AMERICA PPM AMERICA PPM AMERICA
VALUE SMALL CAP VALUE HIGH YIELD
EQUITY FUND EQUITY FUND BOND FUND
-------------------------------- ----------------------------- --------------
PERIOD FROM PERIOD FROM PERIOD FROM
YEAR DECEMBER 23, YEAR DECEMBER 23, JUNE 7,
ENDED 1998* TO ENDED 1998* TO 1999* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998 1998
--------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD ................ $ 5.06 $ 5.00 $ 5.19 $ 5.00 $ 5.00
INCOME FROM OPERATIONS:
Net investment income ............................ 0.05 0.01 0.04 0.01 0.26
Net realized and unrealized gains
(losses) on investments ......................... (0.10) 0.06 (0.73) 0.19 (0.17)
--------- ----------- -------- ------- ---------
Total income (loss) from operations .............. (0.05) 0.07 (0.69) 0.20 0.09
--------- ----------- -------- ------- ---------
LESS DISTRIBUTIONS:
From net investment income
(0.05) (0.01) (0.04) (0.01) (0.26)
From net realized gains on investment
transactions .................................... (0.13) -- (0.05) -- --
--------- ----------- -------- ------- ---------
Total distributions .............................. (0.18) (0.01) (0.09) (0.01) (0.26)
--------- ----------- -------- ------- ---------
Net increase (decrease) .......................... (0.23) 0.06 (0.78) 0.19 (0.17)
--------- ----------- -------- ------- ---------
NET ASSET VALUE, END OF PERIOD ...................... $ 4.83 $ 5.06 $ 4.41 $ 5.19 $ 4.83
========= =========== ======== ======= =========
TOTAL RETURN (A) .................................... (0.82)% 1.24% (13.36)% 3.86% 1.83%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......... $ 22,865 $ 5,163 $ 22,125 $10,386 $ 25,448
Ratio of net operating expenses to
average net assets (b) .......................... 1.00% 1.00% 1.10% 1.10% 0.85%
Ratio of net investment income to
average net assets (b) .......................... 1.60% 4.76% 1.18% 3.81% 9.14%
Portfolio turnover ............................... 45.51% -- 52.51% -- 31.54%
RATIO INFORMATION ASSUMING NO EXPENSE
REIMBURSEMENT OR FEES PAID INDIRECTLY
Ratio of expenses to average net
assets (b) ...................................... 1.49% 5.42% 1.51% 3.26% 1.16%
Ratio of net investment income to
average net assets (b) .......................... 1.11% 0.34% 0.77% 1.65% 8.83%
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations.
(a) Assumes investment at net asset value at the beginning of the period,
reinvestment of all distributions, and a complete redemption of the
investment at the net asset value at the end of the period. Total return is
not annualized for the periods less than one year.
(b) Annualized for the periods less than one year.
See notes to the financial statements.
7
<PAGE>
- -------------------------------------------------------------------------------
PPM AMERICA FUNDS
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
PPM America Funds (the "Trust") is an open-end management investment
company comprised of PPM America Value Equity Fund, PPM America Small Cap Value
Equity Fund and PPM America High Yield Bond Fund (collectively the "Funds"). The
Trust is organized under the laws of Massachusetts. The Trust is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940
(the "1940 Act").
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
SECURITY VALUATION -- 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. Unlisted
securities and listed securities not traded on the valuation date or for which
market quotations are not readily available, are determined in good faith at a
fair value using methods approved by the Board of Trustees. Bonds are valued on
the basis of prices furnished by pricing services which takes into account
institutional size trading in similar groups of securities. Securities with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions
are accounted for on the trade date. Dividend income is recorded on the
ex-dividend date. Interest income, including level-yield amortization of
discounts and premiums, is accrued daily. Realized gains and losses are
determined on the specific identification basis.
UNREGISTERED SECURITIES -- A Fund may own certain investment securities
which are unregistered and thus restricted to resale. These securities are
valued by the Funds after giving due consideration to pertinent factors
including prices of related registered securities, recent private sales, market
conditions and the issuer's financial performance. Where future dispositions of
the securities require registration under the Securities Act of 1933, the Funds
have the right to include their securities in such registration generally
without cost to the Funds. The Funds have no right to require registration of
unregistered securities.
REPURCHASE AGREEMENTS -- A Fund may invest in repurchase agreements. A
repurchase agreement involves the purchase of a security by a Fund and a
simultaneous agreement (generally by a bank or broker-dealer) to repurchase that
security back from the Fund at a specified price and date or upon demand.
Securities pledged as collateral for repurchase agreements are held by the
Funds' custodian bank until the maturity of the repurchase agreement. Procedures
for all repurchase agreements have been designed to assure that the daily market
value of the collateral is in excess of the repurchase agreement in the event of
default.
DISTRIBUTIONS TO SHAREHOLDERS -- The Funds normally declare and pay
dividends from net investment income annually, but may do so more frequently to
avoid excise tax. Distributions of net realized capital gains, if any, will be
distributed at least annually.
FEDERAL INCOME TAXES -- The Funds' policy is to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute income in amounts that will avoid federal income or
excise taxes for each Fund. A Fund may periodically make reclassifications among
certain of its capital accounts as a result of the recognition and
characterization of certain income and capital gain distributions determined
annually in accordance with federal tax regulations which may differ from
generally accepted accounting principles.
8
<PAGE>
- --------------------------------------------------------------------------------
PPM AMERICA FUNDS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENT MANAGEMENT FEES AND TRANSACTIONS WITH AFFILIATES
Each Fund has an investment advisory agreement with PPM America, Inc.
("PPM America"). Each Fund pays an advisory fee, calculated daily and paid
monthly, based on average daily net assets, at the annual rate of 0.80% for the
PPM America Value Equity Fund, 0.90% for the PPM America Small Cap Value Equity
Fund and 0.65% for the PPM America High Yield Bond Fund.
Jackson National Financial Services, LLC ("JNFS"), an affiliate, provides
fund accounting and administrative services to the Funds. For its services, JNFS
is paid $27,000 per Fund per year plus 0.04% of the average daily net assets of
each Fund.
PPM America has voluntarily agreed to reimburse each of the Funds for
total annual operating expenses (excluding advisory fees) which exceed 0.20% of
the Fund's average daily net assets. These voluntary reimbursements may be
modified or discontinued at any time.
Trustees and officers of the Trust who are affiliated persons receive no
compensation from the Trust. Trustees who are not interested persons of the
Trust, as defined in the 1940 Act, collectively received $8,000 in compensation
from the Trust for the year ended December 31, 1999.
The Trust's distributor is National Planning Corporation, an affiliate.
Prudential Plc and Jackson National Life Insurance Company, both
affiliates of PPM America, own substantially all of the outstanding shares of
the Trust.
NOTE 4. SECURITY TRANSACTIONS
During the period ended December 31, 1999, the cost of purchases and
proceeds from sales and maturities of securities, other than short-term
investments, were as follows (in thousands):
COST OF PROCEEDS FROM SALES
PURCHASES AND MATURITIES
--------- --------------
PPM America Value Equity Fund ............... $ 27,054 $ 6,939
PPM America Small Cap Value Equity Fund ..... 24,214 9,021
PPM America High Yield Bond Fund ............ 32,460 7,639
The federal income tax cost basis and gross unrealized appreciation and
depreciation on investments as of December 31, 1999, were as follows (in
thousands):
<TABLE>
<CAPTION>
TAX GROSS GROSS UNREALIZED
COST UNREALIZED UNREALIZED APPRECIATION
BASIS APPRECIATION DEPRECIATION (DEPRECIATION)
----- ------------ ------------ --------------
<S> <C> <C> <C> <C>
PPM America Value Equity Fund ............... $ 25,974 $ 707 $ (4,278) $ (3,571)
PPM America Small Cap Value Equity Fund ..... 25,764 936 (3,951) (3,015)
PPM America High Yield Bond Fund ............ 25,286 271 (916) (645)
</TABLE>
At December 31, 1999, the PPM America High Yield Bond Fund had accumulated
net realized capital loss carryovers for federal income tax purposes of $197,391
(expiring in 2007), which may be used to offset future capital gains.
9
<PAGE>
- --------------------------------------------------------------------------------
PPM AMERICA FUNDS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5. FUND TRANSACTIONS
Transactions of fund shares (in thousands) for the period ended December
31, 1999, were as follows:
<TABLE>
<CAPTION>
SHARES DISTRIBUTIONS SHARES NET
PURCHASED REINVESTED REDEEMED INCREASE
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
PPM America Value Equity Fund .............. 3,565 152 - 3,717
PPM America Small Cap Value Equity Fund .... 2,935 82 - 3,017
PPM America High Yield Bond Fund ........... 5,000 271 - 5,271
</TABLE>
Transactions of fund shares (in thousands) for the period ended December
31, 1998, were as follows:
<TABLE>
<CAPTION>
SHARES DISTRIBUTIONS SHARES NET
PURCHASED REINVESTED REDEEMED INCREASE
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
PPM America Value Equity Fund .............. 1,020 1 - 1,021
PPM America Small Cap Value Equity Fund .... 2,000 2 - 2,002
</TABLE>
10
<PAGE>
PPM AMERICA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
COMMON STOCKS - 99.57%
AEROSPACE & DEFENSE - 3.97%
Lockheed Martin Corp. 23,800 $ 521
United Technologies Corp. 6,000 390
-----------
911
APPAREL - 3.58%
Liz Claiborne Inc. 8,700 327
V.F. Corp. 16,500 495
-----------
822
AUTO MANUFACTURERS - 4.04%
Ford Motor Co. 8,900 476
General Motors Corp. 6,200 451
-----------
927
AUTO PARTS & EQUIPMENT - 3.58%
Delphi Automotive Systems Corp. 23,400 369
TRW Inc. 8,700 452
-----------
821
BANKS - 7.08%
Bank of America Corp. 10,700 537
Chase Manhattan Corp. 5,000 388
KeyCorp 21,700 480
Union Planters Corp. 5,600 221
-----------
1,626
CHEMICALS - 2.09%
Rohm & Haas Co. 11,800 480
ELECTRIC - 3.86%
FirstEnergy Corp. 19,300 438
GPU Inc. 15,000 449
-----------
887
ELECTRONICS - 2.01%
Parker Hannifin Corp. 9,000 462
FOREST PRODUCTS & PAPER - 3.80%
Fort James Corp. 16,800 460
Mead Corp. 9,500 413
-----------
873
HEALTHCARE - 2.27%
Columbia/HCA Healthcare Corp. 17,800 522
HOME FURNISHINGS - 1.65%
Maytag Corp. 7,900 379
INSURANCE - 8.63%
Aetna Inc. 9,300 519
American Financial Group Inc. 8,700 229
American General Corp. 3,000 228
<PAGE>
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
Cigna Corp. 5,600 $ 451
Hartford Financial Services
Group Inc. 11,700 554
-----------
1,981
IRON & STEEL - 1.96%
Nucor Corp. 8,200 450
LEISURE TIME - 1.38%
Brunswick Corp. 14,200 316
MANUFACTURING - 5.00%
Cooper Industries Inc. 7,700 311
ITT Industries Inc. 10,400 348
PPG Industries Inc. 7,800 488
-----------
1,147
METALS & MINING - 2.31%
Phelps Dodge Corp. 7,900 530
OFFICE & BUSINESS EQUIPMENT - 3.28%
Harris Corp. 12,800 342
Xerox Corp. 18,100 411
-----------
753
OIL & GAS PRODUCERS - 6.37%
Ashland Inc. 12,000 395
Chevron Corp. 2,600 225
Occidental Petroleum Corp. 20,900 452
Phillips Petroleum Co. 8,300 390
-----------
1,462
PACKAGING & CONTAINERS - 0.89%
Pactiv Corp. (a) 19,300 205
RETAIL - 6.53%
Federated Department Stores Inc.
(a) 11,600 587
K Mart Corp. (a) 53,200 535
Sears, Roebuck & Co. 12,400 377
-----------
1,499
SAVINGS & LOANS - 5.88%
Charter One Financial Inc. 28,200 539
Sovereign Bancorp Inc. 43,300 323
Washington Mutual Inc. 18,800 489
-----------
1,351
SOFTWARE - 2.10%
Computer Associates
International Inc. 6,900 483
TELECOMMUNICATIONS - 11.05%
Bell Atlantic Corp. 6,800 419
BellSouth Corp. 7,400 346
CenturyTel Inc. 7,000 332
GTE Corp. 6,000 423
SBC Communications Inc. 9,800 478
US West Inc. 7,500 540
-----------
2,538
See notes to the financial statements.
11
<PAGE>
PPM AMERICA VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
TOBACCO - 2.87%
Philip Morris Cos. Inc. 16,400 $ 380
RJ Reynolds Tobacco Holdings Inc. 15,800 278
-----------
658
TRANSPORTATION - 3.39%
Burlington Northern Santa Fe
Corp. 14,900 361
CSX Corp. 13,300 417
-----------
778
-----------
Total Common Stocks
(cost $25,828) 22,861
-----------
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
SHORT TERM INVESTMENTS - 0.43%
MONEY MARKET FUND - 0.43%
Dreyfus Cash Management
Plus, 5.53% (b) 98,346 $ 98
-----------
Total Short Term Investments
(cost $98) 98
-----------
TOTAL INVESTMENTS - 100%
(cost $25,926) $ 22,959
===========
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Dividend yields change daily to reflect current market conditions. Rate is
the quoted yield as of December 31, 1999.
See notes to the financial statements.
12
<PAGE>
PPM AMERICA SMALL CAP VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
COMMON STOCKS - 99.77%
AEROSPACE & DEFENSE - 5.35%
Alliant Techsystems Inc. (a) 10,300 $ 642
GenCorp Inc. 55,300 546
-----------
1,188
APPAREL - 7.00%
Columbia Sportswear Co. (a) 30,500 656
Garan Inc. 14,100 404
Nautica Enterprises Inc. (a) 43,600 493
-----------
1,553
AUTO PARTS & EQUIPMENT - 3.05%
Superior Industries
International Inc. 25,200 676
BANKS - 7.81%
CCB Financial Corp. 7,100 309
GBC Bancorp 11,300 218
Hudson United Bancorp 24,205 619
Peoples Heritage Financial Group
Inc. 39,000 588
-----------
1,734
BUILDING MATERIALS - 2.63%
Omnova Solutions Inc. 75,300 584
CHEMICALS - 2.56%
Ferro Corp. 25,800 568
COMMERICAL SERVICES - 2.96%
Franklin Covey Co. (a) 87,500 656
ELECTRIC - 3.56%
Black Hills Corp. 17,500 388
Sierra Pacific Resources 23,200 402
-----------
790
ELECTRICAL COMPONENTS & EQUIPMENT - 2.94%
Lanier Worldwide Inc. (a) 168,600 653
FOOD - 2.62%
Bob Evans Farms Inc. 37,700 582
HAND & MACHINE TOOLS - 2.98%
Kennametal Inc. 19,700 662
HEALTHCARE - 2.66%
Triad Hospitals Inc. (a) 39,100 591
HOME BUILDERS - 2.56%
Champion Enterprises Inc. (a) 66,500 569
HOUSEWARES - 2.42%
National Presto Industries Inc. 15,100 536
<PAGE>
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
INSURANCE - 3.99%
American Financial Group Inc. 21,100 $ 557
ReliaStar Financial Corp. 8,400 329
-----------
886
IRON & STEEL - 7.60%
AK Steel Holding Corp. 47,300 893
Cleveland-Cliffs Inc. 25,500 793
-----------
1,686
LEISURE TIME - 2.83%
Brunswick Corp. 28,200 627
MACHINERY - 10.15%
Esterline Technologies Corp. (a) 66,900 774
Flowserve Corp. 41,500 705
Tecumsah Products Co. 16,400 774
-----------
2,253
MANUFACTURING - 3.18%
Lancaster Colony Corp. 21,300 706
OFFICE & BUSINESS EQUIPMENT - 2.36%
Steelcase Inc. 43,600 523
OIL & GAS PRODUCERS - 6.69%
Peoples Energy Corp. 11,600 389
Ultramar Diamond Shamrock Corp. 32,200 731
WD-40 Co. 16,500 365
-----------
1,485
SAVINGS & LOANS - 5.23%
Astoria Financial Corp. 17,900 545
Sovereign Bancorp Inc. 82,500 615
-----------
1,160
SHIPBUILDING - 2.76%
Newport News Shipbuilding Inc. 22,300 613
TRANSPORTATION - 3.88%
Frozen Food Express Industries
Inc. 57,600 223
GATX Corp. 18,900 638
-----------
861
-----------
Total Common Stocks
(cost $25,518) 22,142
-----------
See notes to the financial statements.
13
<PAGE>
PPM AMERICA SMALL CAP VALUE EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
SHORT TERM INVESTMENTS - 0.23%
MONEY MARKET FUND - 0.23%
Dreyfus Cash Management Plus,
5.53% (b) 51,470 $ 51
-----------
Total Short Term Investments
(cost $51) 51
-----------
TOTAL INVESTMENTS - 100%
(cost $25,569) $ 22,193
===========
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Dividend yields change daily to reflect current market conditions. Rate is
the quoted yield as of December 31, 1999.
See notes to the financial statements.
14
<PAGE>
PPM AMERICA HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
CORPORATE BONDS - 95.78%
AEROSPACE & DEFENSE - 1.73%
Fairchild Corp., 10.75%,
04/15/2009 $ 500,000 $ 427
BANKS - 0.41%
Sovereign Bancorp,
10.25%, 05/15/2004 30,000 30
10.50%, 11/15/2006 70,000 71
-----------
101
BEVERAGES - 2.05%
National Wine & Spirits Inc.,
10.125%, 01/15/2009 500,000 504
BUILDING MATERIALS - 8.88%
Brand Scaffold Services Inc.,
10.25%, 02/15/2008 500,000 453
Juno Lighting Inc., 11.875%,
07/01/2009 400,000 368
NCI Building Systems Inc.,
9.25%, 05/01/2009 500,000 474
Nortek Inc., 9.125%, 09/01/2007 500,000 484
Schuff Steel Co., 10.50%,
06/01/2008 500,000 409
-----------
2,188
CHEMICALS - 2.53%
Georgia Gulf Corp., 10.375%,
11/01/2007 (c) 100,000 104
Lyondell Chemical Co., 10.875%,
05/01/2009 500,000 519
-----------
623
COMMERCIAL SERVICES - 1.94%
Marsulex Inc., 9.625%, 07/01/2008 500,000 479
DIVERSIFIED FINANCIAL SERVICES - 4.00%
DVI Inc., 9.875%, 02/01/2004 500,000 491
Knology Holdings Inc., (Step-Up
Bond), 11.875%, 10/15/2007 (a) 750,000 494
-----------
985
ELECTRICAL COMPONENTS & EQUIPMENT - 1.99%
Integrated Circuit Systems Inc.,
11.50%, 05/15/2009 500,000 490
ENTERTAINMENT - 7.54%
Alliance Atlantis Communications
Corp., 13.00%, 12/15/2009 300,000 292
Hollywood Casino Shreveport/
Shreveport Capital Corp.,
13.00%, 08/01/2006 (c) 400,000 427
Imax Corp., 7.875%, 12/01/2005 500,000 469
Lady Luck Gaming Corp.,
11.875%, 03/01/2001 190,000 190
<PAGE>
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (000'S)
- -----------------------------------------------------------
Waterford Gaming LLC, 9.50%,
03/15/2010 (c) $ 489,000 $ 480
-----------
1,858
FOOD - 4.02%
Agrilink Foods Inc., 11.875%,
11/01/2008 500,000 493
Canadaigua Brands Inc., 8.625%,
08/01/2006 500,000 498
-----------
991
HAND & MACHINE TOOLS - 1.98%
Applied Power Inc., 8.75%,
04/01/2009 500,000 489
HEALTHCARE - 4.01%
LifePoint Hospitals Holdings
Inc., 10.75%, 05/15/2009 500,000 522
Tenet Healthcare Corp., 8.125%,
12/01/2008 500,000 467
-----------
989
HOME FURNISHINGS - 1.99%
Windmere-Durable Holdings Inc.,
10.00%, 07/31/2008 500,000 491
LODGING - 1.81%
HMH Properties, 7.875%,
08/01/2008 500,000 446
MANUFACTURING - 3.57%
Prestolite Electric Inc.,
9.625%, 02/01/2008 500,000 391
Repap New Brunswick, 9.00%,
06/01/2004 500,000 489
-----------
880
MEDIA - 4.14%
Echostar DBS Corp., 9.375%,
02/01/2009 500,000 501
Insight Midwest LP, 9.75%,
10/01/2009 (c) 500,000 519
-----------
1,020
OFFICE & BUSINESS EQUIPMENT - 0.91%
General Binding Corp., 9.375%,
06/01/2008 500,000 224
PACKAGING & CONTAINERS - 6.23%
Packaging Corp. of America,
9.625%, 04/01/2009 500,000 514
Riverwood International Corp.,
10.25%, 04/01/2006 500,000 509
U.S. Can Corp., 10.125%,
10/15/2006 500,000 511
-----------
1,534
RETAIL - 8.93%
APCOA Inc., 9.25%, 03/15/2008 500,000 354
See notes the financial statements.
15
<PAGE>
PPM AMERICA HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNTS (000)
- -----------------------------------------------------------
Buhrmann U.S. Inc., 12.25%,
11/01/2009 $ 400,000 $ 415
Finlay Enterprises Inc., 9.00%,
05/01/2008 500,000 440
Jo-Ann Stores Inc., 10.375%,
05/01/2007 500,000 489
Stater Brothers Holdings Inc.,
10.75%, 08/15/2006 500,000 501
-----------
2,199
SEMICONDUCTORS - 1.98%
Hadco Corp., 9.50%, 06/15/2008 500,000 488
SOFTWARE - 2.09%
PSINet Inc., 11.00%, 08/01/2009 500,000 515
TELECOMMUNICATIONS - 23.05%
Adelphia Business Solutions
Inc., 12.00%, 11/01/2007 500,000 527
AT&T Canada Inc., (Step-Up Bond),
9.95%, 06/15/2008 (a) 750,000 590
Crown Castle International
Corp., (Step- Up Bond), 10.375%,
05/15/2011 (a) 750,000 470
KMC Telecom Holdings Inc., 13.50%
05/15/2009 (c) 500,000 492
Metromedia Fiber Network Inc.,
10.00% 12/15/2009 500,000 514
Nextel Communications Inc.,
(Step-Up Bond), 9.95%, 02/15/2008
(a) 750,000 530
NEXTLINK Communications Inc.,
10.75%, 06/01/2009 500,000 516
Primus Telecommunications Group
Inc., 11.25%, 01/15/2009 500,000 482
<PAGE>
SHARES OR ARKET
PRINCIPAL VALUE
AMOUNTS M (000)
- -----------------------------------------------------------
RCN Corp., 10.125%, 01/15/2010 $ 500,000 $ 499
Rogers Cablesystems Ltd., 10.00%,
12/01/2007 500,000 535
Williams Communications Group
Inc., 10.875%, 10/01/2009 500,000 524
-----------
5,679
-----------
Total Corporate Bonds
(cost $24,273) 23,600
-----------
GOVERNMENT SECURITIES - 2.02%
SOVEREIGN - 2.02%
Republic of Argentina, 11.75%,
04/07/2009 500,000 498
-----------
Total Government Securities
(cost $469) 498
-----------
SHORT TERM INVESTMENTS - 2.20%
MONEY MARKET FUND - 2.20%
Dreyfus Cash Management Plus,
5.53% (b) 543,170 543
-----------
Total Short Term Investments
(cost $543) 543
-----------
TOTAL INVESTMENTS - 100%
(cost $25,285) $ 24,641
===========
- --------------------------------------------------------------------------------
(a) Denotes deferred interest security that receives no current coupon
payments until a predetermined date at which time the stated coupon rate
becomes effective.
(b) Dividend yields change daily to reflect current market conditions. Rate is
the quoted yield as of December 31, 1999.
(c) 144a security. Certain conditions for public sale may exist.
See notes to the financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of PPM America Funds
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of PPM America Value Equity Fund, PPM
America Small Cap Value Equity Fund and PPM America High Yield Bond Fund
(hereafter referred to as the "Trust") at December 31, 1999, and the results of
each of their operations, changes in each of their net assets and the financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999, by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Chicago, Illinois
February 4, 2000
17
