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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANIES
Investment Company Act file number 811-07655
Driehaus Mutual Funds
(Exact name of registrant as specified in charter)
25 East Erie Street
Chicago, IL 60611
Chicago, IL 60611
(Address of principal executive offices) (Zip code)
Mary H. Weiss
Driehaus Capital Management LLC
25 East Erie Street
Chicago, IL 60611
Driehaus Capital Management LLC
25 East Erie Street
Chicago, IL 60611
(Name and address of agent for service)
Registrant’s telephone number, including area code: 312-587-3800
Date of fiscal year end: December 31
Date of reporting period: December 31, 2010
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
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Item 1. | Reports to Stockholders |
The Reports to Shareholders are attached herewith.
Driehaus Mutual Funds Trustees & Officers Richard H. Driehaus President & Trustee A.R. Umans Chairman of the Board Francis J. Harmon Trustee Daniel F. Zemanek Trustee Robert H. Gordon Senior Vice President Michelle L. Cahoon Vice President & Treasurer Janet L. McWilliams Assistant Vice President & Chief Compliance Officer Diane J. Drake Secretary Michael P. Kailus Assistant Secretary William H. Wallace, III Assistant Secretary Investment Adviser Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 Distributor Driehaus Securities LLC 25 East Erie Street Chicago, IL 60611 Administrator BNY Mellon Investment Servicing (US) Inc. 4400 Computer Drive Westborough, MA 01581 Transfer Agent BNY Mellon Investment Servicing (US) Inc. 101 Sabin Street Pawtucket, RI 02862 Custodian The Northern Trust Company 50 South LaSalle Street Chicago, IL 60603 | Annual Report to Shareholders December 31, 2010 Driehaus International Discovery Fund Driehaus Emerging Markets Growth Fund Driehaus International Small Cap Growth Fund Driehaus Global Growth Fund Driehaus Mid Cap Growth Fund Driehaus Large Cap Growth Fund Distributed by: Driehaus Securities LLC This report has been prepared for the shareholders of the Funds and is not an offering to sell or buy any Fund securities. Such offering is only made by the Funds’ prospectus. |
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Annual Report to Shareholders
December 31, 2010
Investment Philosophy:
The Adviser seeks to achieve superior investment returns primarily by investing in global companies that are currently demonstrating rapid growth in their sales and earnings and which, in its judgement, have the ability to continue or accelerate their growth rates in the future. The Adviser manages the portfolios actively (above average turnover) to ensure that the Funds are fully invested, under appropriate market conditions, in companies that meet these criteria. Investors should note that investments in overseas markets can pose more risks than U.S. investments, and the international Funds’ share prices are expected to be more volatile than those of the U.S.-only Funds. In addition, the Funds’ returns will fluctuate with changes in stock market conditions, currency values, interest rates, government regulations, and economic and political conditions in countries in which the Funds invest. These risks are generally greater when investing in emerging markets.
Driehaus International Discovery Fund
Driehaus Emerging Markets Growth Fund
Driehaus International Small Cap Growth Fund
Driehaus Global Growth Fund
Driehaus Mid Cap Growth Fund
Driehaus Large Cap Growth Fund
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Dear Fellow Shareholders,
The Driehaus International Discovery Fund (“Fund”) returned 13.47% for the year ended December 31, 2010. This return was below the performance of the Morgan Stanley Capital International (“MSCI”) All Country World ex USA Growth Index (“Benchmark”) (which returned 14.79% for the year) and above the performance of the MSCI All Country World ex USA Index (which returned 11.59%), which are the Fund’s two primary benchmark indices.
As 2010 came to a close, the broader environment for equities was bullish as multiple factors were favorable for both corporate earnings and equity multiples. Over the summer months of 2010, the U.S. economic indicators paused and caused equities to pull back as investors were concerned about a dreaded possible “double dip”. Then, many economic statistics re-accelerated beginning in September and continued to do so through year-end. In the U.S. (and globally), manufacturing data, consumer spending, jobless claims and other factors continued to improve. This served as a tailwind for corporate earnings which overall continue to positively exceed expectations. Despite uncertainties regarding fiscal policy, U.S. monetary policy continues to be supportive of equity prices as the second round of quantitative easing began and served as a further market catalyst. Finally, as bonds sold off and risk appetites increased, funds began to flow from the fixed income markets to the equity markets. In spite of the ongoing concerns over the prospects of the sovereign debt contagion from some European countries, which remained an issue throughout the year, European stock markets closed the year mixed. The key markets of Germany and the U.K. rose solidly, each finishing at 2-year highs. In Asia, despite large investments in companies with exposure to emerging economies, markets traded to end the year mixed. Generally, Asian markets sold down mid-year but recovered to end 2010 in flat to positive territory.
Over the course of 2010, a key contributor to performance versus the Benchmark was the Fund’s selection of holdings in the materials and industrials sectors. In addition, stock selection in both Canada and the United Kingdom positively contributed to the performance of the Fund.
Within Canada, Silver Wheaton Corp. (SLW CN) was a holding that contributed to the Fund’s performance in 2010. The company purchases and sells by-product silver from operating mines. It has long-term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece, and the United States. Throughout the year the company reported record quarterly and annual production, sales, earnings, and cash flows from operations. In many cases their attributable proven and probable reserves more than doubled, which increases earning potential moving forward.
Additionally, through bottom-up stock selection, we found attractive opportunities that benefited the portfolio in the energy sector. One of the holdings that contributed to the Fund’s performance in 2010 was Pacific Rubiales Energy Corp. (“Pacific Rubiales”) (PRE CN). Pacific Rubiales is an independent oil and gas exploration and production company focused on identifying growth opportunities primarily within Columbia’s Eastern Llanos Basin, as well as in other areas in Colombia and northern Peru. Pacific Rubiales continues to ramp up oil production from its key Rubiales field while de-risking its other assets through exploratory drilling.
Certain areas detracted from Fund performance. Two sectors where allocation and stock selection negatively affected the performance of the Fund versus the Benchmark were the information technology and consumer discretionary sectors. Additionally, holdings in Japan and Greece detracted from Fund performance versus the Benchmark.
Alpha Bank A.E. (ALPHA GA) was the Fund’s largest detractor from performance. Alpha Bank A.E. is a banking and financial services company in Greece, offering a range of services, including retail, small and medium-sized enterprise and corporate banking, credit cards, asset management, investment banking, private banking, brokerage, leasing and factoring. The high reliance on short-term European Central Bank facilities together with falling deposit balances weighed on liability margins of Greek banks causing the stock to suffer. Further, Greek banks are facing earnings headwinds in the form of falling pre-provision profits and higher impairment charges. The sovereign outlook remains negative for the time being, and adds to the risk of capital shortfall in the event of debt restructuring.
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Within the industrials sector, Aegean Marine Petroleum Network Inc. (NYSE: ANW), detracted from Fund performance. The company is an independent physical supplier and marketer of refined marine fuel and lubricants. It procures marine fuel from refineries and oil producers, and resells to a diversified customer base, representing all segments of the shipping industry, including tankers, container ships and dry-bulk carriers, among others. The company’s shares fell throughout the year as the company’s earnings continually came in below consensus expectations and a lack of clarity regarding future taxes, blended gross margin and further growth negatively impacted the stock. Further, the negative sentiment overhanging Greece adversely impacted the stock.
While we remain positive on the near to intermediate outlook for U.S. active growth management, we continue to monitor potential risks including: an acceleration in inflation; sovereign debt and austerity overseas; rising analyst expectations, which have been increasing since September of 2010 (many sentiment indicators are at levels not seen since 2007); and state and municipal debt in the U.S. We continue to monitor the dichotomy of the emerging economies’ general desire to restrain capital inflows, while simultaneously seeking to combat inflation. Typically, central banks seek to control inflation through interest rate hikes; however, we have only seen a very gradual willingness on the part of emerging market central banks to raise interest rates. Inherent in this stance is the view that if they raise interest rates too rapidly, capital inflows will be exacerbated by investors seeking higher interest rates. This would translate into unwelcomed currency appreciation, hampering their competitiveness. Generally, we do have a healthy outlook for growth across much of the emerging world, but we continue to be mindful of the potential for exogenous macro events, particularly in the developed economies. In terms of changes to the Fund, we took the opportunity to reduce our significant underweight in Europe as the Euro came under pressure in November (i.e. we increased exposure). However, we opted to focus on high quality European consumer staples and health care companies as we have ongoing concerns about economic growth in 2011.
As always, we at Driehaus Capital Management LLC thank you for your interest in the Driehaus International Discovery Fund and would like to express our gratitude to you as shareholders for your continued confidence in our management capabilities. As we move into the next calendar year, we remain focused on uncovering opportunities consistent with the Driehaus growth investment philosophy and managing the unique risks and opportunities presented by the non-U.S. equity markets on behalf of our shareholders.
Sincerely,
Daniel M. Rea | David Mouser | |
Portfolio Manager | Assistant Portfolio Manager |
Performance is historical and does not represent future results.
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Driehaus International Discovery Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains. Average annual total return reflects annualized change.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $10,000 investment in the Fund since December 31, 1998 (the date of the Fund’s inception), with all dividends and capital gains reinvested, with the indicated indices (and dividends reinvested) for the same period.
Since Inception | ||||||||||||||||||||||
Average Annual Total Returns as of 12/31/10 | 1 Year | 3 Years | 5 Years | 10 Years | (12/31/98 - 12/31/10) | |||||||||||||||||
Driehaus International Discovery Fund (DRIDX)1 | 13.47% | −8.70% | 3.23% | 8.63% | 16.68% | |||||||||||||||||
MSCI AC World ex USA Index2 | 11.59% | −4.59% | 5.28% | 5.97% | 5.87% | |||||||||||||||||
MSCI AC World ex USA Growth Index3 | 14.79% | −4.45% | 5.59% | 4.71% | 4.08% | |||||||||||||||||
1 | The returns for the periods prior to July 1, 2003, reflect fee waivers and/or reimbursements without which performance would have been lower. |
2 | The Morgan Stanley Capital International All Country World ex USA Index (MSCI AC World ex USA Index) is a market capitalization-weighted index designed to measure equity market performance in 44 global developed and emerging markets, excluding the U.S. Data is in U.S. dollars. Source: Morgan Stanley Capital International Inc. |
3 | The Morgan Stanley Capital International All Country World ex USA Growth Index (MSCI AC World ex USA Growth Index) is a subset of the MSCI AC World ex USA Index and is composed only of the MSCI AC World ex USA Index stocks which are categorized as growth stocks. Data is in U.S. dollars. Source: Morgan Stanley Capital International Inc. |
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Driehaus International Discovery Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
EQUITY SECURITIES — 98.4% | ||||||||
EUROPE — 47.4% | ||||||||
United Kingdom — 7.2% | ||||||||
Antofagasta PLC | 143,320 | $ | 3,601,992 | |||||
ARM Holdings PLC | 613,290 | 4,047,483 | ||||||
Johnson Matthey PLC | 119,277 | 3,789,935 | ||||||
Lloyds Banking Group PLC** | 3,803,340 | 3,895,843 | ||||||
Michael Page International PLC | 575,442 | 4,979,267 | ||||||
Rockhopper Exploration PLC** | 691,877 | 3,964,214 | ||||||
24,278,734 | ||||||||
France — 7.6% | ||||||||
Alcatel-Lucent** | 1,391,901 | 4,054,821 | ||||||
Remy Cointreau SA | 66,253 | 4,687,900 | ||||||
Safran SA | 145,752 | 5,161,397 | ||||||
Technip SA | 51,633 | 4,767,737 | ||||||
Vallourec SA | 23,723 | 2,491,719 | ||||||
Zodiac Aerospace | 60,761 | 4,563,185 | ||||||
25,726,759 | ||||||||
Russia — 6.0% | ||||||||
Magnit — SP GDR | 160,941 | 4,715,571 | ||||||
Mechel — SP ADR | 84,853 | 2,480,253 | ||||||
Mobile TeleSystems — SP ADR | 150,732 | 3,145,777 | ||||||
Sberbank RF | 1,576,729 | 5,371,916 | ||||||
Uralkali — SP GDR | 126,128 | 4,631,420 | ||||||
20,344,937 | ||||||||
Germany — 5.4% | ||||||||
Dialog Semiconductor PLC** | 134,638 | 3,064,003 | ||||||
Henkel AG & Co. KGaA | 79,496 | 4,102,118 | ||||||
Infineon Technologies AG** | 283,536 | 2,638,223 | ||||||
Rheinmetall AG | 61,674 | 4,958,941 | ||||||
SGL Carbon SE** | 96,638 | 3,488,669 | ||||||
18,251,954 | ||||||||
Sweden — 5.0% | ||||||||
Modern Times Group — B | 32,968 | 2,181,315 | ||||||
Nobia AB** | 457,401 | 4,097,509 | ||||||
Swedbank AB — A** | 396,658 | 5,532,033 | ||||||
Volvo AB — B** | 296,270 | 5,220,015 | ||||||
17,030,872 | ||||||||
Ireland — 4.3% | ||||||||
ICON PLC — SP ADR** | 170,533 | 3,734,673 | ||||||
Paddy Power PLC | 90,997 | 3,733,123 | ||||||
Shire PLC | 141,215 | 3,397,173 | ||||||
Smurfit Kappa Group PLC** | 383,985 | 3,745,795 | ||||||
14,610,764 | ||||||||
Denmark — 3.2% | ||||||||
AP Moller-Maersk AS — B | 458 | 4,147,252 | ||||||
Novo Nordisk AS — B | 34,796 | 3,923,716 | ||||||
Novozymes AS — B | 18,882 | 2,630,187 | ||||||
10,701,155 | ||||||||
Netherlands — 2.8% | ||||||||
Chicago Bridge & Iron Co. NV** | 107,705 | 3,543,494 | ||||||
CNH Global NV** | 124,943 | 5,964,779 | ||||||
9,508,273 | ||||||||
Switzerland — 2.8% | ||||||||
Panalpina Welttransport Holding AG** | 31,304 | 4,034,366 | ||||||
Temenos Group AG** | 41,330 | 1,719,505 | ||||||
Xstrata PLC | 159,220 | 3,737,225 | ||||||
9,491,096 | ||||||||
Norway — 1.4% | ||||||||
DnB NOR ASA | 332,512 | 4,667,095 | ||||||
Turkey — 1.0% | ||||||||
Turkiye Is Bankasi — C | 1,004,615 | 3,578,616 | ||||||
Finland — 0.7% | ||||||||
Outotech OYJ | 38,552 | 2,382,164 | ||||||
Total EUROPE | �� | 160,572,419 | ||||||
FAR EAST — 29.9% | ||||||||
Japan — 10.4% | ||||||||
FANUC Corp. | 24,464 | 3,757,434 | ||||||
Fast Retailing Co., Ltd. | 21,817 | 3,474,490 | ||||||
Isuzu Motors, Ltd. | 901,404 | 4,096,786 | ||||||
Keihin Corp. | 160,890 | 3,626,416 | ||||||
Komatsu, Ltd. | 117,427 | 3,553,617 | ||||||
Makita Corp. | 118,420 | 4,842,399 | ||||||
Sony Corp. | 125,491 | 4,524,106 | ||||||
Sumco Corp.** | 38,922 | 556,097 | ||||||
Toho Titanium Co., Ltd. | 130,442 | 3,152,201 | ||||||
Toshiba Corp. | 658,567 | 3,585,252 | ||||||
35,168,798 | ||||||||
China — 7.5% | ||||||||
Anhui Conch Cement Co., Ltd. — H | 1,080,008 | 5,064,622 | ||||||
China Coal Energy Co., Ltd. — H | 2,662,901 | 4,159,070 | ||||||
Ctrip.com International, Ltd. — ADR** | 86,859 | 3,513,447 | ||||||
Lenovo Group, Ltd. | 5,772,905 | 3,698,676 | ||||||
Ping An Insurance Group Company of China, Ltd. — H | 311,140 | 3,478,549 | ||||||
Shenguan Holdings Group, Ltd. | 2,363,026 | 3,094,844 | ||||||
Want Want China Holdings, Ltd. | 2,661,560 | 2,331,878 | ||||||
25,341,086 | ||||||||
Australia — 4.9% | ||||||||
Boart Longyear Group | 1,413,963 | 6,594,665 | ||||||
Coca-Cola Amatil, Ltd. | 314,015 | 3,487,949 |
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus International Discovery Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
Cochlear, Ltd. | 44,205 | $ | 3,635,560 | |||||
CSL, Ltd. | 75,027 | 2,784,803 | ||||||
16,502,977 | ||||||||
India — 2.1% | ||||||||
ICICI Bank, Ltd. — SP ADR | 80,204 | 4,061,531 | ||||||
Larsen & Toubro, Ltd. — GDR | 68,480 | 3,034,349 | ||||||
7,095,880 | ||||||||
Singapore — 1.7% | ||||||||
Genting Singapore PLC** | 2,084,064 | 3,556,395 | ||||||
SembCorp Marine, Ltd. | 545,714 | 2,283,465 | ||||||
5,839,860 | ||||||||
South Korea — 1.6% | ||||||||
KEPCO Engineering & Construction, Inc. | 28,770 | 2,294,198 | ||||||
Samsung Electro-Mechanics Co., Ltd. | 30,209 | 3,300,657 | ||||||
5,594,855 | ||||||||
Taiwan — 1.0% | ||||||||
E Ink Holdings, Inc.** | 1,599,000 | 3,241,161 | ||||||
Malaysia — 0.7% | ||||||||
Axiata Group BHD** | 1,578,611 | 2,431,783 | ||||||
Total FAR EAST | 101,216,400 | |||||||
SOUTH AMERICA — 11.5% | ||||||||
Brazil — 8.3% | ||||||||
BR Malls Participacoes SA | 402,600 | 4,147,265 | ||||||
Fibria Celulose SA — SP ADR** | 195,281 | 3,124,496 | ||||||
Hypermarcas SA** | 285,678 | 3,854,932 | ||||||
Itau Unibanco Holding SA — PREF ADR | 104,811 | 2,516,512 | ||||||
OGX Petroleo e Gas Participacoes SA** | 452,100 | 5,354,389 | ||||||
PDG Realty SA Empreendimentos e Participacoes | 629,400 | 3,833,273 | ||||||
Vale SA — SP ADR | 152,045 | 5,256,196 | ||||||
28,087,063 | ||||||||
Colombia — 1.3% | ||||||||
Ecopetrol SA — SP ADR | 97,665 | 4,260,147 | ||||||
Argentina — 1.1% | ||||||||
MercadoLibre, Inc.** | 58,679 | 3,910,955 | ||||||
Peru — 0.8% | ||||||||
Credicorp, Ltd. | 24,018 | 2,855,980 | ||||||
Total SOUTH AMERICA | 39,114,145 | |||||||
NORTH AMERICA — 8.0% | ||||||||
Canada — 7.2% | ||||||||
Crew Energy, Inc.** | 256,830 | 4,933,574 | ||||||
Eastern Platinum, Ltd.** | 2,182,299 | 3,884,813 | ||||||
Niko Resources, Ltd. | 18,192 | 1,887,811 | ||||||
Pacific Rubiales Energy Corp. | 163,492 | 5,549,487 | ||||||
Petrobank Energy & Resources, Ltd.** | 85,640 | 2,174,806 | ||||||
Petrominerales, Ltd. | 52,668 | 1,756,483 | ||||||
SEMAFO, Inc.** | 249,190 | 2,694,149 | ||||||
Silver Wheaton Corp.** | 41,325 | 1,620,083 | ||||||
24,501,206 | ||||||||
United States — 0.8% | ||||||||
SXC Health Solutions Corp.** | 62,428 | 2,675,664 | ||||||
Total NORTH AMERICA | 27,176,870 | |||||||
AFRICA — 1.6% | ||||||||
South Africa — 1.6% | ||||||||
Impala Platinum Holdings, Ltd. | 87,473 | 3,093,390 | ||||||
Randgold Resources, Ltd. — ADR | 27,910 | 2,297,830 | ||||||
5,391,220 | ||||||||
Total AFRICA | 5,391,220 | |||||||
Total EQUITY SECURITIES (Cost $250,546,177) | 333,471,054 | |||||||
TOTAL INVESTMENTS (COST $250,546,177) | 98.4 | % | $ | 333,471,054 | ||||
Other Assets In Excess Of Liabilities | 1.6 | % | 5,368,711 | |||||
Net Assets | 100.0 | % | $ | 338,839,765 | ||||
The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows:
Basis: | $ | 259,454,142 | ||
Gross Appreciation | $ | 87,284,981 | ||
Gross Depreciation | (13,268,069 | ) | ||
Net Appreciation | $ | 74,016,912 | ||
** Non-income producing security
ADR — American Depository Receipt
GDR — Global Depository Receipt
PREF ADR — Preferred American Depository Receipt
SP ADR — Sponsored American Depository Receipt
SP GDR — Sponsored Global Depository Receipt
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus International Discovery Fund
Schedule of Investments
December 31, 2010
Regional Weightings*
Western Europe | 40.4% | |||
Asia/Far East Ex-Japan | 19.5% | |||
South America | 11.5% | |||
Japan | 10.4% | |||
North America | 8.0% | |||
Eastern Europe | 7.0% | |||
Africa | 1.6% |
Top Ten Holdings*
Boart Longyear Group | 1.9% | |||
CNH Global NV | 1.8% | |||
Pacific Rubiales Energy Corp. | 1.6% | |||
Swedbank AB — A | 1.6% | |||
Sberbank RF | 1.6% | |||
OGX Petroleo e Gas Participacoes SA | 1.6% | |||
Vale SA — SP ADR | 1.6% | |||
Volvo AB — B | 1.5% | |||
Safran SA | 1.5% | |||
Anhui Conch Cement Co., Ltd. — H | 1.5% |
* | All percentages are stated as a percent of net assets at December 31, 2010. |
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus International Discovery Fund
Schedule of Investments
December 31, 2010
Percent of | ||||
Industry | Net Assets | |||
Aerospace & Defense | 2.9% | |||
Air Freight & Logistics | 1.2% | |||
Auto Components | 1.1% | |||
Automobiles | 1.2% | |||
Beverages | 2.4% | |||
Biotechnology | 0.8% | |||
Chemicals | 3.3% | |||
Commercial Banks | 9.6% | |||
Communications Equipment | 1.2% | |||
Computers & Peripherals | 2.2% | |||
Construction & Engineering | 5.3% | |||
Construction Materials | 1.5% | |||
Containers & Packaging | 1.1% | |||
Electrical Equipment | 1.0% | |||
Electronic Equipment, Instruments & Components | 1.9% | |||
Energy Equipment & Services | 1.4% | |||
Food & Staples Retailing | 1.4% | |||
Food Products | 1.6% | |||
Health Care Equipment & Supplies | 1.1% | |||
Health Care Technology | 0.8% | |||
Hotels, Restaurants & Leisure | 3.2% | |||
Household Durables | 3.7% | |||
Household Products | 1.2% | |||
Industrial Conglomerates | 1.5% | |||
Insurance | 1.0% | |||
Internet Software & Services | 1.2% | |||
Life Sciences Tools & Services | 1.1% | |||
Machinery | 8.3% | |||
Marine | 1.2% | |||
Media | 0.6% | |||
Metals & Mining | 9.4% | |||
Oil, Gas & Consumable Fuels | 10.0% | |||
Paper & Forest Products | 0.9% | |||
Personal Products | 1.1% | |||
Pharmaceuticals | 2.2% | |||
Professional Services | 1.5% | |||
Real Estate Management & Development | 1.2% | |||
Semiconductors & Semiconductor Equipment | 3.0% | |||
Software | 0.5% | |||
Specialty Retail | 1.0% | |||
Wireless Telecommunication Services | 1.6% | |||
Other Assets in Excess of Liabilities | 1.6% | |||
TOTAL | 100.0% | |||
Notes to Financial Statements are an integral part of this Schedule.
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Dear Fellow Shareholders,
The Driehaus Emerging Markets Growth Fund (“Fund”) returned 23.56% for the year ended December 31, 2010. This return was above the performance of the Morgan Stanley Capital International (“MSCI”) Emerging Markets Index (which returned 19.19% for the year) and the MSCI Emerging Markets Growth Index (“Benchmark”) (which returned 19.60%), which represent the Fund’s two major benchmark indices.
Two major factors shaped the global economy as the year came to a close. First, we observed generally stronger than expected economic readings and upward revisions to the 2011 consensus growth forecasts in the U.S. Additionally, the U.S. Federal Reserve Board engaged in the second round of quantitative easing. The combination of these factors overlapping with the ongoing global economic recovery created an environment of accelerating, commodity-led inflation in emerging markets. This led to a significant divergence in equity market performance between countries that produce and export commodities relative to those that are deficient. From a policy perspective, we saw gradual interest rate increases in several markets including India, China, South Korea and Brazil, accompanied with an increasing focus on the reduction of stimulus measures introduced in response to the credit crisis. We expect this trend of policy normalization to continue in 2011 in many primary emerging economies.
Over the course of 2010, a key contributor to performance was the Fund’s selection of holdings in the consumer discretionary and materials sectors versus the Benchmark. In addition, stock selection in both China and Taiwan positively contributed to the performance of the Fund. Additionally, during the first half of 2010, a smaller cap bias benefitted Fund performance whereas in the latter stages of the year the portfolio shifted towards large cap exposure, reflective of a rotation towards more cyclical sectors.
Within the materials sector, Uralkali (URKA LI) was an example of a holding that contributed to performance in 2010. The Russia-based company is engaged in the chemical industry and specializes in the production of potash fertilizers. During 2010, Uralkali announced the merger with Silvinit, which will create the third largest global potash producer. We moved to a substantial overweight position in Russia towards the end of the year, as we anticipated an improving earnings outlook in commodity-related securities within the country.
Additionally, through bottom-up stock selection, we found attractive opportunities that benefited the portfolio in the energy sector. One of the holdings that contributed to the Fund’s performance in 2010 was Pacific Rubiales Energy Corp. (“Pacific Rubiales”) (PRE CN). Pacific Rubiales is an independent oil and gas exploration and production company focused on identifying growth opportunities primarily within Columbia’s Eastern Llanos Basin, as well as in other areas in Colombia and northern Peru. Pacific Rubiales continues to ramp up oil production from its key Rubiales field while de-risking its other assets through exploratory drilling.
Despite the relatively robust returns within the emerging markets, not all holdings contributed positively to performance. Two sectors where stock selection detracted from Fund performance versus the Benchmark were the telecommunication services and utilities sectors. Additionally, holdings in South Korea and Israel detracted from Fund performance versus the Benchmark.
Within South Korea, KT Corporation (030200 KS), detracted from Fund performance. KT Corporation is an integrated telecommunications service provider. Its services include personal communications services, mobile telecommunications services and high speed downlink access including wireless Internet and video multimedia communications services. Although KT Corporation had the foresight to procure the iPhone for the Korean market, the investment outlook for the Korean telecom sector is not encouraging, given that the greater penetration of smartphone subscribers is likely to be offset by increased marketing efforts and tariff discounts.
Within the information technology sector, E Ink Holdings Inc. (8069 TT) was one of the Fund’s largest detractors from performance. E Ink Holdings Inc. is principally engaged in the research, development, production and distribution of thin film transistor (TFT) related displays. The company provides e-paper display products, which are applied in electronic books and electronic readers, as well as TFT liquid crystal display panels and modules, which are applied in automobile and entertainment systems, aerospace and marine navigation products, among others. It distributes its products primarily in Asia, Europe and the Americas. Toward the latter part of 2010, E Ink’s share price suffered due to local talks on potential flat sales and other market noise regarding proprietary and competing technology.
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As we move into 2011, we see the risk-reward becoming increasingly favorable in cyclical and inflation resistant stocks within emerging markets. As such, we have been incrementally positioning toward these segments of the market where we are finding timely ideas that fit our growth philosophy. From a macro perspective, we continue to monitor the dichotomy of the emerging economies’ general desire to restrain capital inflows, while simultaneously seeking to combat inflation. Typically, central banks seek to control inflation through interest rate hikes; however, we have only seen a very gradual willingness on the part of emerging market central banks to raise interest rates. Inherent in this stance is the view that if they raise interest rates too rapidly, capital inflows will be exacerbated by investors seeking higher interest rates. This would translate into unwelcomed currency appreciation, hampering export competitiveness. We also continue to monitor the ramifications of unconventional tightening policies, particularly in China, that are aimed at controlling asset prices and reining in liquidity. Going forward, we anticipate that inflation may start to abate in markets such as China and India beginning in the second half of 2011 as a result of monetary tightening and reversion of commodity inflation. Generally, we do have a positive structural outlook for growth across much of the emerging world, but we continue to be mindful of tactical obstacles (e.g., policy normalization in response to rising inflationary fears) as well as the potential for exogenous macro events and the associated reliance of emerging markets on external capital.
As always, we at Driehaus Capital Management LLC thank you for your interest in the Driehaus Emerging Markets Growth Fund and would like to express our gratitude to you as shareholders for your continued confidence in our management capabilities.
Sincerely,
Howard Schwab | Chad Cleaver | |
Portfolio Manager | Assistant Portfolio Manager |
Performance is historical and does not represent future results.
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Driehaus Emerging Markets Growth Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains. Average annual total return reflects annualized change.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $10,000 investment in the Fund since December 31, 1997 (the date of the Fund’s inception), with all dividends and capital gains reinvested, with the indicated indices (and dividends reinvested) for the same period.
Since Inception | ||||||||||||||||||||||
Average Annual Total Returns as of 12/31/10 | 1 Year | 3 Years | 5 Years | 10 Years | (12/31/97 - 12/31/10) | |||||||||||||||||
Driehaus Emerging Markets Growth Fund (DREGX)1 | 23.56% | −1.44% | 13.99% | 17.40% | 16.38% | |||||||||||||||||
MSCI Emerging Markets Index2 | 19.19% | −0.03% | 13.11% | 16.23% | 10.98% | |||||||||||||||||
MSCI Emerging Markets Growth Index3 | 19.60% | −2.23% | 11.18% | 13.65% | 9.70% | |||||||||||||||||
1 | The returns for the periods prior to July 1, 2003, reflect fee waivers and/or reimbursements without which performance would have been lower. |
2 | The Morgan Stanley Capital International Emerging Markets Index (MSCI Emerging Markets Index) is a market capitalization-weighted index designed to measure equity market performance in 21 global emerging markets. Data is in U.S. dollars. Source: Morgan Stanley Capital International Inc. |
3 | The Morgan Stanley Capital International Emerging Markets Growth Index (MSCI Emerging Markets Growth Index) is a subset of the MSCI Emerging Markets Index and includes only the MSCI Emerging Markets Index stocks which are categorized as growth stocks. Data is in U.S. dollars. Source: Morgan Stanley Capital International Inc. |
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Driehaus Emerging Markets Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
EQUITY SECURITIES — 94.7% | ||||||||
FAR EAST — 46.0% | ||||||||
China — 17.7% | ||||||||
ASM Pacific Technology, Ltd. | 721,400 | $ | 9,118,664 | |||||
China Coal Energy Co., Ltd. — H | 2,447,713 | 3,822,977 | ||||||
China Construction Bank Corp. — H | 14,169,500 | 12,706,028 | ||||||
China Unicom (Hong Kong), Ltd. | 6,626,000 | 9,479,354 | ||||||
CNOOC, Ltd. | 1,767,000 | 4,191,987 | ||||||
Cosco Pacific, Ltd. | 8,572,000 | 14,932,184 | ||||||
GOME Electrical Appliances Holdings, Ltd.** | 30,874,847 | 11,122,063 | ||||||
Hengdeli Holdings, Ltd. | 9,115,323 | 5,429,697 | ||||||
Kunlun Energy Co., Ltd. | 6,826,000 | 10,590,979 | ||||||
Li & Fung, Ltd. | 1,860,000 | 10,792,250 | ||||||
PetroChina Co., Ltd. — H | 6,354,000 | 8,305,455 | ||||||
Ping An Insurance Group Company of China, Ltd. — H | 751,000 | 8,396,189 | ||||||
Shanghai Electric Group Co., Ltd. — H | 16,634,000 | 10,978,337 | ||||||
Sohu.com, Inc.** | 75,093 | 4,767,655 | ||||||
Tencent Holdings, Ltd. | 284,700 | 6,186,423 | ||||||
West China Cement, Ltd.** | 23,515,136 | 8,622,136 | ||||||
Xingda International Holdings, Ltd. | 7,635,000 | 8,251,081 | ||||||
147,693,459 | ||||||||
Taiwan — 9.0% | ||||||||
Catcher Technology Co., Ltd. | 2,246,000 | 8,319,517 | ||||||
Delta Electronics, Inc. | 1,621,000 | 7,922,504 | ||||||
Formosa Chemicals & Fibre Corp. | 3,918,000 | 13,195,946 | ||||||
Hon Hai Precision Industry Co., Ltd. | 2,899,000 | 11,682,901 | ||||||
Huaku Development Co., Ltd. | 488,000 | 1,479,574 | ||||||
Taiwan Mobile Co., Ltd. | 4,317,000 | 10,319,994 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. | 6,119,000 | 14,900,588 | ||||||
TPK Holding Co., Ltd.** | 326,000 | 7,491,297 | ||||||
75,312,321 | ||||||||
South Korea — 8.0% | ||||||||
Dongkuk Steel Mill Co., Ltd. | 294,725 | 9,115,206 | ||||||
Hyundai Department Store Co., Ltd. | 34,042 | 4,184,385 | ||||||
Hyundai Mobis | 16,132 | 4,044,016 | ||||||
KB Financial Group, Inc. | 189,856 | 10,037,325 | ||||||
LG Display Co., Ltd. | 120,010 | 4,208,651 | ||||||
Samsung Electronics Co., Ltd. | 24,150 | 20,194,158 | ||||||
Samsung Engineering Co., Ltd. | 5,930 | 1,003,225 | ||||||
Samsung Heavy Industries Co., Ltd. | 129,700 | 4,708,468 | ||||||
SK Energy Co., Ltd. | 52,382 | 8,954,188 | ||||||
66,449,622 | ||||||||
India — 6.1% | ||||||||
Cipla, Ltd. | 687,883 | 5,688,899 | ||||||
ICICI Bank, Ltd. | 389,479 | 9,974,112 | ||||||
ITC, Ltd. | 2,535,709 | 9,904,094 | ||||||
Larsen & Toubro, Ltd.** | 101,937 | 4,512,106 | ||||||
Petronet LNG, Ltd. | 3,651,017 | 10,202,272 | ||||||
Tata Consultancy Services, Ltd. | 406,948 | 10,608,497 | ||||||
50,889,980 | ||||||||
Indonesia — 2.6% | ||||||||
PT Perusahaan Gas Negara | 20,696,000 | 10,164,240 | ||||||
PT United Tractors Tbk | 4,471,000 | 11,810,189 | ||||||
21,974,429 | ||||||||
Thailand — 1.4% | ||||||||
Siam Commercial Bank Public Co., Ltd. — NVDR | 1,408,000 | 4,834,235 | ||||||
Sino Thai Engineering & Construction Public Co., Ltd. — NVDR | 14,990,551 | 6,663,572 | ||||||
11,497,807 | ||||||||
Malaysia — 0.7% | ||||||||
Axiata Group BHD** | 3,800,105 | 5,853,899 | ||||||
Philippines — 0.5% | ||||||||
Ayala Land, Inc. | 10,715,500 | 4,025,956 | ||||||
Total FAR EAST | 383,697,473 | |||||||
EUROPE — 17.5% | ||||||||
Russia — 8.5% | ||||||||
LUKOIL — SP ADR | 212,649 | 12,014,668 | ||||||
Magnit — SP GDR | 433,006 | 12,687,076 | ||||||
Mechel — SP ADR | 295,996 | 8,651,963 | ||||||
Mining and Metallurgical Co. Norilsk Nickel — ADR | 349,025 | 8,261,422 | ||||||
Sberbank RF | 4,030,725 | 13,732,680 | ||||||
Uralkali — SP GDR | 431,675 | 15,851,106 | ||||||
71,198,915 | ||||||||
Switzerland — 2.6% | ||||||||
Weatherford International, Ltd.** | 578,344 | 13,186,243 | ||||||
Xstrata PLC | 345,348 | 8,106,038 | ||||||
21,292,281 | ||||||||
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Emerging Markets Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
United Kingdom — 1.9% | ||||||||
SABMiller PLC | 282,831 | $ | 9,950,233 | |||||
Tullow Oil PLC | 307,256 | 6,040,687 | ||||||
15,990,920 | ||||||||
France — 1.6% | ||||||||
Technip SA | 140,831 | 13,004,185 | ||||||
Luxembourg — 1.5% | ||||||||
Tenaris SA — ADR | 250,365 | 12,262,878 | ||||||
Poland — 0.7% | ||||||||
PKO Bank Polski SA** | 420,282 | 6,154,312 | ||||||
Turkey — 0.7% | ||||||||
Turk Telekomunikasyon AS | 1,456,922 | 6,133,415 | ||||||
Total EUROPE | 146,036,906 | |||||||
SOUTH AMERICA — 14.5% | ||||||||
Brazil — 14.0% | ||||||||
Banco do Brasil SA | 1,041,000 | 19,691,205 | ||||||
BRF-Brasil Foods SA | 574,800 | 9,518,827 | ||||||
Companhia Brasileira de Distribuicao Grupo Pao de Acucar — Pref. A | 400,100 | 16,536,663 | ||||||
Companhia de Concessoes Rodoviarias | 295,889 | 8,275,980 | ||||||
HRT Participacoes em Petroleo SA** | 5,633 | 5,446,364 | ||||||
Itau Unibanco Holding SA | 525,716 | 12,481,005 | ||||||
OGX Petroleo e Gas Participacoes SA** | 349,100 | 4,134,522 | ||||||
PDG Realty SA Empreendimentos e Participacoes | 1,156,296 | 7,042,261 | ||||||
Petroleo Brasileiro SA — ADR | 458,167 | 17,337,039 | ||||||
Vale SA — SP ADR | 480,412 | 16,607,843 | ||||||
117,071,709 | ||||||||
Argentina — 0.5% | ||||||||
Banco Macro SA — ADR | 80,687 | 4,050,487 | ||||||
Total SOUTH AMERICA | 121,122,196 | |||||||
NORTH AMERICA — 6.4% | ||||||||
Mexico — 4.2% | ||||||||
Genomma Lab Internacional SAB de CV — B** | 3,362,950 | 8,163,663 | ||||||
Grupo Financiero Banorte SAB de CV — O | 2,392,016 | 11,369,339 | ||||||
Mexichem SAB de CV | 2,916,200 | 10,436,926 | ||||||
Wal-Mart de Mexico SAB de CV — V | 1,693,500 | 4,839,159 | ||||||
34,809,087 | ||||||||
Canada — 2.2% | ||||||||
Eastern Platinum, Ltd.** | 4,955,214 | 8,821,009 | ||||||
Pacific Rubiales Energy Corp. | 291,187 | 9,883,899 | ||||||
18,704,908 | ||||||||
Total NORTH AMERICA | 53,513,995 | |||||||
AFRICA — 6.1% | ||||||||
South Africa — 6.1% | ||||||||
African Bank Investments, Ltd. | 1,168,739 | 6,874,935 | ||||||
Aspen Pharmacare Holdings, Ltd.** | 232,134 | 3,242,300 | ||||||
Barloworld, Ltd. | 423,113 | 4,303,388 | ||||||
FirstRand, Ltd. | 3,063,697 | 9,073,659 | ||||||
Gold Fields, Ltd. | 554,475 | 10,150,996 | ||||||
Kumba Iron Ore, Ltd. | 35,789 | 2,306,251 | ||||||
Sasol, Ltd. | 280,781 | 14,759,597 | ||||||
50,711,126 | ||||||||
Total AFRICA | 50,711,126 | |||||||
MIDDLE EAST — 4.2% | ||||||||
Israel — 2.4% | ||||||||
Check Point Software Technologies, Ltd.** | 186,834 | 8,642,941 | ||||||
Israel Chemicals, Ltd. | 695,032 | 11,914,554 | ||||||
20,557,495 | ||||||||
Qatar — 1.0% | ||||||||
Qatar National Bank | 158,613 | 8,058,054 | ||||||
Egypt — 0.8% | ||||||||
Commercial International Bank Egypt SAE | 795,571 | 6,496,135 | ||||||
Total MIDDLE EAST | 35,111,684 | |||||||
Total EQUITY SECURITIES (Cost $700,893,868) | 790,193,380 | |||||||
TOTAL INVESTMENTS (COST $700,893,868) | 94.7 | % | $ | 790,193,380 | ||||
Other Assets In Excess Of Liabilities | 5.3 | % | 44,117,318 | |||||
Net Assets | 100.0 | % | $ | 834,310,698 | ||||
The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows:
Basis: | $ | 707,796,149 | ||
Gross Appreciation | $ | 95,370,500 | ||
Gross Depreciation | (12,973,269 | ) | ||
Net Appreciation | $ | 82,397,231 | ||
** Non-income producing security
ADR — American Depository Receipt
GDR — Global Depository Receipt
NVDR — Non-Voting Depository Receipt
SP ADR — Sponsored American Depository Receipt
SP GDR — Sponsored Global Depository Receipt
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Emerging Markets Growth Fund
Schedule of Investments
December 31, 2010
Regional Weightings*
Asia/Far East Ex-Japan | 46.0% | |||
South America | 14.5% | |||
Eastern Europe | 9.9% | |||
Western Europe | 7.6% | |||
North America | 6.4% | |||
Africa | 6.1% | |||
Middle East | 4.2% |
Top Ten Holdings*
Samsung Electronics Co., Ltd. | 2.4% | |||
Banco do Brasil SA | 2.4% | |||
Petroleo Brasileiro SA — ADR | 2.1% | |||
Vale SA — SP ADR | 2.0% | |||
Companhia Brasileira de Distribuicao Grupo Pao de Acucar — Pref. A | 2.0% | |||
Uralkali — SP GDR | 1.9% | |||
Cosco Pacific, Ltd. | 1.8% | |||
Taiwan Semiconductor Manufacturing Co., Ltd. | 1.8% | |||
Sasol, Ltd. | 1.8% | |||
Sberbank RF | 1.6% |
* | All percentages are stated as a percent of net assets at December 31, 2010. |
Notes to Financial Statements are an integral part of this Schedule.
13
Table of Contents
Driehaus Emerging Markets Growth Fund
Schedule of Investments
December 31, 2010
Percent of | ||||
Industry | Net Assets | |||
Auto Components | 0.5% | |||
Beverages | 1.2% | |||
Chemicals | 6.2% | |||
Commercial Banks | 14.3% | |||
Computers & Peripherals | 1.0% | |||
Construction & Engineering | 1.5% | |||
Construction Materials | 1.0% | |||
Distributors | 1.3% | |||
Diversified Financial Services | 1.9% | |||
Diversified Telecommunication Services | 1.9% | |||
Electrical Equipment | 1.3% | |||
Electronic Equipment, Instruments & Components | 3.8% | |||
Energy Equipment & Services | 4.6% | |||
Food & Staples Retailing | 4.1% | |||
Food Products | 1.1% | |||
Gas Utilities | 1.2% | |||
Household Durables | 0.8% | |||
Insurance | 1.0% | |||
Internet Software & Services | 1.3% | |||
IT Services | 1.3% | |||
Machinery | 2.0% | |||
Metals & Mining | 9.6% | |||
Multiline Retail | 0.5% | |||
Oil, Gas & Consumable Fuels | 13.9% | |||
Pharmaceuticals | 2.0% | |||
Real Estate Management & Development | 0.7% | |||
Semiconductors & Semiconductor Equipment | 5.3% | |||
Software | 1.0% | |||
Specialty Retail | 2.0% | |||
Tobacco | 1.2% | |||
Trading Companies & Distributors | 0.5% | |||
Transportation Infrastructure | 2.8% | |||
Wireless Telecommunication Services | 1.9% | |||
Other Assets in Excess of Liabilities | 5.3% | |||
TOTAL | 100.0% | |||
Notes to Financial Statements are an integral part of this Schedule.
14
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Dear Fellow Shareholders,
The Driehaus International Small Cap Growth Fund1 (“Fund”) returned 27.13% for the year ended December 31, 2010. This return was slightly below the performance of the Morgan Stanley Capital International (“MSCI”) All Country World ex USA Small Cap Growth Index (“Benchmark”) (which returned 27.53% for the year) and above the performance of the MSCI World ex USA Small Cap Index (which returned 24.90%), which are the Fund’s two primary benchmark indices.
As 2010 came to a close, the broader environment for equities was bullish as multiple factors were favorable for both corporate earnings and equity multiples. Over the summer months of 2010, the U.S. economic indicators paused and caused equities to pull back as investors were concerned about a dreaded possible “double dip”. Then, many economic statistics re-accelerated beginning in September and continued to do so through year-end. In the U.S. (and globally), manufacturing data, consumer spending, jobless claims and other factors continued to improve. This served as a tailwind for corporate earnings which overall continue to positively exceed expectations. Despite uncertainties regarding fiscal policy, U.S. monetary policy continues to be supportive of equity prices as the second round of quantitative easing began and served as a further market catalyst. Finally, as yields rallied, risk appetites increased further and funds began to flow from the fixed income markets to the equity markets. In spite of the ongoing concerns over the prospects of the sovereign debt contagion from some European countries, which remained an issue throughout the year, European stock markets closed the year mixed. The key markets of Germany and the U.K. rose solidly, each finishing at 2-year highs. In Asia, despite large investments in companies with exposure to emerging economies, markets traded to end the year mixed. Generally, Asian markets sold down mid-year but recovered to end 2010 in flat to positive territory.
Over the course of 2010, a key contributor to performance versus the Benchmark was the Fund’s selection of holdings in the consumer discretionary and consumer staples sectors. In addition, stock selection in China and Mexico positively contributed to the performance of the Fund compared to the Benchmark. During the year, the Fund’s exposure to China substantially decreased and the Fund’s exposure to Mexico remained slightly overweight.
Within the consumer discretionary sector, Dufry Group (DUFN SW), favorably contributed to performance. The Switzerland-based retail company engages in the travel retail sector. The company offers a range of products aimed at travelers and operates a chain of retail outlets. During the year, the company benefited from growing revenue and net profits. Total revenue reflects an increase in demand for the company’s products and services, especially in Central America and the Caribbean, South America and in North American geographic segments. Net profit for the period reflects improved gross profit and operating margins as well as lower interest expenses.
Additionally, through bottom-up stock selection, we found attractive opportunities that benefited the portfolio in Mexico. One of the holdings in Mexico that contributed to the Fund’s performance in 2010 was Genomma Lab Internacional SAB de CV (LABB MM). The company is primarily engaged in the pharmaceutical industry and specializes in the production, distribution and sale of a variety of over the counter (OTC) medicines and personal care products. During the year, the company benefited from growing revenue and net profits. Total revenue reflects an increase in demand for the company’s products and services in Mexico and other foreign segments. Net income for the period benefited from a lower loss on foreign exchange differences as well as significantly increased other financial income.
Certain areas detracted from Fund performance. Two sectors where holdings negatively affected the performance of the Fund versus the Benchmark were the information technology and energy sectors. Additionally, holdings in Thailand and South Korea detracted from Fund performance versus the Benchmark.
In the information technology sector, AsiaInfo-Linkage Inc. (NASDAQ: ASIA) was an example of a holding that detracted from performance. The company provides telecommunications software solutions and information technology security products and services in China. Its operations are organized into two divisions: AsiaInfo Technologies (China) Inc. and Lenovo-AsiaInfo Technologies, Inc. During the year, the company reported mixed results as revenue expectations missed analyst estimates due to delayed contracts which caused management to lower 2010 revenue guidance. The combined companies face growth challenges from a lack of abundant new markets, meaning growth will mainly come from upgrades and new products for existing customers, cross selling opportunities, and Southeast Asia markets.
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Similarly, stock selection in the energy sector also detracted from the performance of the Fund in 2010, including holdings such as Rockhopper Exploration PLC (RKH LN). The United Kingdom-based company is engaged in the exploration and exploitation of oil and gas exploration licenses on its acreage in the North Falkland Basin. Sea Lion and Ernest are the primary oil targets of the company. During the year, the company reported no revenue and a net loss from operations. The lack of revenue reflects the company still being in the development stage while the net loss is attributed to an increase in administrative expenses, increased exploration and evaluation expenses.
As we enter 2011, we continue to underweight emerging markets broadly, due to our view on the short term risk/reward dynamics and inflation concerns. From a long term/structural perspective we continue to be very bullish on emerging markets and are watching for appropriate entry points in many stocks across a broad array of sectors. We are becoming increasingly, albeit modestly and slowly, positive on Japan due to improving macroeconomic data and improving company specific earnings news, particularly in industrial and information technology sectors building upon domestic consumption and consumer themes, although we do continue to maintain a slight underweight in Japan. We continue to have overweights in several European countries including the United Kingdom, Switzerland, Germany and Italy, with overweights in the industrials, information technology and health care sectors. We expect the environment to continue to be choppy and rotational between a macro driven/reflation environment and a stock picking environment until we have further clarity on the sustainability of global growth and earnings. Ultimately we expect the market to continue to slowly transition to more of a stock pickers market, where the market rewards those areas that are growing and executing on a sustainable basis.
As always, we at Driehaus Capital Management LLC thank you for your interest in the Driehaus International Small Cap Growth Fund and would like to express our gratitude to you as shareholders for your continued confidence in our management capabilities. As we move into the next calendar year, we remain focused on uncovering opportunities consistent with the Driehaus growth investment philosophy and managing the unique risks and opportunities presented by the non-U.S. equity markets on behalf of our shareholders.
Sincerely,
David Mouser | Howard Schwab | Ryan Carpenter | ||
Co-Portfolio Manager | Co-Portfolio Manager | Assistant Portfolio Manager |
1 | The Driehaus International Small Cap Growth Fund closed to new investors on December 29, 2010. |
Performance is historical and does not represent future results.
16
Table of Contents
Driehaus International Small Cap Growth Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains. Average annual total return reflects annualized change.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $10,000 investment in the Fund since August 1, 2002 (the date of the Predecessor Limited Partnership’s inception), with all dividends and capital gains reinvested, with the indicated indices (and dividends reinvested) for the same period.
Fund Only | Including Predecessor Limited Partnership | |||||||||||||||||||||
Average Annual Total Returns | Since Inception | Since Inception | ||||||||||||||||||||
as of 12/31/10 | 1 Year | 3 Years | (09/17/07 - 12/31/10) | 5 Years | (08/1/02 - 12/31/10) | |||||||||||||||||
Driehaus International Small Cap Growth Fund (DRIOX)1 | 27.13% | −2.57% | 2.92% | 12.94% | 22.38% | |||||||||||||||||
MSCI World ex USA Small Cap Index2 | 24.90% | −0.42% | −0.82% | 4.16% | 13.82% | |||||||||||||||||
MSCI AC World ex USA Small Cap Growth Index3 | 27.53% | −0.68% | −0.04% | 6.86% | 14.31% | |||||||||||||||||
1 | The Driehaus International Small Cap Growth Fund (the “Fund”) performance shown above includes the performance of the Driehaus International Opportunities Fund, L.P. (the “Predecessor Limited Partnership”), the Fund’s predecessor, for the periods before the Fund’s registration statement became effective. The Predecessor Limited Partnership, which was established on August 1, 2002, was managed with substantially the same investment objective, policies and philosophies as are followed by the Fund. The Fund succeeded to the Predecessor Limited Partnership’s assets on September 17, 2007. The Predecessor Limited Partnership was not registered under the Investment Company Act of 1940, as amended (“1940 Act”), and thus was not subject to certain investment and operational restrictions that are imposed by the 1940 Act. If the Predecessor Limited Partnership had been registered under the 1940 Act, its performance may have been adversely affected. The Predecessor Limited Partnership’s performance has been restated to reflect estimated expenses of the Fund. The returns for the periods prior to January 1, 2010, reflect fee waivers and/or reimbursements without which performance would have been lower. |
2 | The Morgan Stanley Capital International World ex USA Small Cap Index (MSCI World ex USA Small Cap Index) is a market capitalization-weighted index designed to measure the equity performance in 23 global developed markets, excluding the U.S., and is composed of stocks which are categorized as small capitalization stocks. Data is in U.S. dollars. Source: Morgan Stanley Capital International, Inc. |
3 | The Morgan Stanley Capital International All Country World ex USA Small Cap Growth Index (MSCI AC World ex USA Small Cap Growth Index) is a market capitalization-weighted index designed to measure equity performance in 44 global developed markets and emerging markets, excluding the U.S., and is composed of stocks which are categorized as small capitalization growth stocks. Data is in U.S. dollars. Source: Morgan Stanley Capital International, Inc. |
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Driehaus International Small Cap Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
EQUITY SECURITIES — 93.6% | ||||||||
EUROPE — 49.1% | ||||||||
United Kingdom — 11.2% | ||||||||
Aveva Group PLC | 47,929 | $ | 1,206,071 | |||||
Melrose PLC | 1,051,187 | 5,096,961 | ||||||
Michael Page International PLC | 469,564 | 4,063,111 | ||||||
Restaurant Group PLC | 753,197 | 3,229,328 | ||||||
Rightmove PLC | 99,788 | 1,211,955 | ||||||
Spectris PLC | 225,824 | 4,615,765 | ||||||
Spirax-Sarco Engineering PLC | 82,438 | 2,485,735 | ||||||
Telecity Group PLC** | 491,279 | 3,603,018 | ||||||
Victrex PLC | 145,071 | 3,354,229 | ||||||
28,866,173 | ||||||||
Germany — 10.9% | ||||||||
Bertrandt AG | 50,995 | 3,755,475 | ||||||
Dialog Semiconductor PLC** | 207,667 | 4,725,948 | ||||||
Hugo Boss AG — Pref. | 45,996 | 3,472,765 | ||||||
KUKA AG** | 113,798 | 2,524,350 | ||||||
Pfeiffer Vacuum Technology AG | 38,863 | 4,570,101 | ||||||
Tognum AG | 194,364 | 5,123,181 | ||||||
Wincor Nixdorf AG | 47,579 | 3,879,030 | ||||||
28,050,850 | ||||||||
Switzerland — 9.2% | ||||||||
Dufry Group** | 20,096 | 2,703,825 | ||||||
Ferrexpo PLC | 806,320 | 5,228,381 | ||||||
Gategroup Holding AG** | 48,510 | 2,653,782 | ||||||
Panalpina Welttransport Holding AG** | 29,048 | 3,743,619 | ||||||
Sulzer AG | 17,747 | 2,704,757 | ||||||
Temenos Group AG** | 164,912 | 6,861,045 | ||||||
23,895,409 | ||||||||
Italy — 5.6% | ||||||||
DiaSorin SpA | 140,077 | 6,029,265 | ||||||
Safilo Group SpA** | 216,798 | 3,856,028 | ||||||
Yoox SpA** | 364,535 | 4,686,204 | ||||||
14,571,497 | ||||||||
France — 4.7% | ||||||||
Faurecia** | 88,213 | 2,549,740 | ||||||
Ingenico SA | 110,251 | 3,991,890 | ||||||
Rhodia SA | 166,923 | 5,520,752 | ||||||
12,062,382 | ||||||||
Norway — 2.1% | ||||||||
Marine Harvest | 2,520,478 | 2,665,161 | ||||||
Subsea 7, Inc.** | 107,208 | 2,790,875 | ||||||
5,456,036 | ||||||||
Finland — 1.5% | ||||||||
Ramirent Oyj | 296,294 | 3,900,012 | ||||||
Netherlands — 1.1% | ||||||||
ASM International NV** | 78,415 | 2,776,322 | ||||||
Spain — 1.0% | ||||||||
Viscofan SA | 66,461 | 2,518,720 | ||||||
Denmark — 1.0% | ||||||||
FLSmidth & Co. AS | 26,174 | 2,496,315 | ||||||
Luxembourg — 0.7% | ||||||||
AZ Electronic Materials SA** | 402,444 | 1,945,083 | ||||||
Ireland — 0.1% | ||||||||
Smurfit Kappa Group PLC** | 40,175 | 391,909 | ||||||
Total EUROPE | 126,930,708 | |||||||
FAR EAST — 26.9% | ||||||||
Japan — 12.1% | ||||||||
Anritsu Corp. | 517,000 | 4,272,780 | ||||||
Asics Corp. | 154,000 | 1,980,244 | ||||||
CyberAgent, Inc. | 1,173 | 2,557,224 | ||||||
Keihin Corp. | 107,400 | 2,420,766 | ||||||
M3, Inc. | 744 | 3,738,786 | ||||||
Makino Milling Machine Co., Ltd.** | 633,000 | 5,215,876 | ||||||
Miraca Holdings, Inc. | 100,700 | 4,055,783 | ||||||
Nabtesco Corp. | 148,400 | 3,165,769 | ||||||
Nifco, Inc. | 93,000 | 2,521,160 | ||||||
United Arrows, Ltd. | 84,564 | 1,281,115 | ||||||
31,209,503 | ||||||||
China — 4.7% | ||||||||
AAC Acoustic Technologies Holdings, Inc. | 891,478 | 2,379,859 | ||||||
Comba Telecom Systems Holdings, Ltd. | 136,633 | 154,338 | ||||||
Haitian International Holdings, Ltd. | 2,215,000 | 2,311,091 | ||||||
O-Net Communications Group, Ltd.** | 1,866,000 | 1,310,771 | ||||||
Ports Design, Ltd. | 832,000 | 2,296,007 | ||||||
Sa Sa International Holdings, Ltd. | 1,988,000 | 1,240,454 | ||||||
Shenguan Holdings Group, Ltd. | 985,816 | 1,291,119 | ||||||
Trinity, Ltd. | 1,184,000 | 1,247,550 | ||||||
12,231,189 | ||||||||
Australia — 3.8% | ||||||||
Boart Longyear Group | 1,266,095 | 5,905,015 | ||||||
Bradken, Ltd. | 424,891 | 3,915,545 | ||||||
9,820,560 | ||||||||
South Korea — 2.3% | ||||||||
Duksan Hi-Metal Co., Ltd.** | 188,201 | 3,366,359 | ||||||
Hyundai Mipo Dockyard Co., Ltd. | 13,752 | 2,714,290 | ||||||
6,080,649 | ||||||||
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus International Small Cap Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
India — 1.0% | ||||||||
Jubilant Foodworks, Ltd.** | 190,743 | $ | 2,668,653 | |||||
Singapore — 1.0% | ||||||||
Goodpack, Ltd. | 1,590,000 | 2,539,837 | ||||||
Thailand — 1.0% | ||||||||
Sino Thai Engineering & Construction Public Co., Ltd. — NVDR | 5,672,200 | 2,521,396 | ||||||
Taiwan — 1.0% | ||||||||
E Ink Holdings, Inc.** | 1,217,000 | 2,466,850 | ||||||
Total FAR EAST | 69,538,637 | |||||||
NORTH AMERICA — 12.3% | ||||||||
Canada — 10.7% | ||||||||
Alamos Gold, Inc. | 136,868 | 2,604,388 | ||||||
Bankers Petroleum, Ltd.** | 319,070 | 2,438,833 | ||||||
Canadian Western Bank | 133,092 | 3,796,127 | ||||||
CGI Group, Inc. — A** | 295,745 | 5,115,975 | ||||||
Cineplex, Inc. | 110,982 | 2,501,364 | ||||||
Crew Energy, Inc.** | 210,995 | 4,053,107 | ||||||
Eastern Platinum, Ltd.** | 1,420,351 | 2,528,433 | ||||||
Petrominerales, Ltd. | 82,801 | 2,761,421 | ||||||
Viterra, Inc.** | 207,941 | 1,940,755 | ||||||
27,740,403 | ||||||||
Mexico — 1.6% | ||||||||
Genomma Lab Internacional SAB de CV — B** | 1,634,271 | 3,967,242 | ||||||
Total NORTH AMERICA | 31,707,645 | |||||||
SOUTH AMERICA — 5.3% | ||||||||
Brazil — 5.3% | ||||||||
BR Properties SA | 215,100 | 2,353,142 | ||||||
Even Construtora e Incorporadora SA | 509,200 | 2,634,957 | ||||||
Iguatemi Empresa de Shopping Centers SA | 53,300 | 1,332,500 | ||||||
Localiza Rent a Car SA | 152,100 | 2,446,428 | ||||||
OdontoPrev SA | 182,300 | 2,755,366 | ||||||
Totvs SA | 20,700 | 2,107,410 | ||||||
13,629,803 | ||||||||
Total SOUTH AMERICA | 13,629,803 | |||||||
Total EQUITY SECURITIES (Cost $202,867,520) | 241,806,793 | |||||||
EXCHANGE-TRADED FUNDS — 0.9% | ||||||||
AFRICA — 0.9% | ||||||||
South Africa — 0.9% | ||||||||
NewGold Issuer, Ltd.** | 166,264 | 2,322,017 | ||||||
Total AFRICA | 2,322,017 | |||||||
Total EXCHANGE-TRADED FUNDS (Cost $1,993,428) | 2,322,017 | |||||||
TOTAL INVESTMENTS (COST $204,860,948) | 94.5 | % | $ | 244,128,810 | ||||
Other Assets In Excess Of Liabilities | 5.5 | % | 14,317,268 | |||||
Net Assets | 100.0 | % | $ | 258,446,078 | ||||
The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows:
Basis: | $ | 207,892,229 | ||
Gross Appreciation | $ | 40,482,784 | ||
Gross Depreciation | (4,246,203 | ) | ||
Net Appreciation | $ | 36,236,581 | ||
** Non-income producing security
NVDR — Non-Voting Depository Receipt
Regional Weightings*
Western Europe | 49.1% | |||
Asia/Far East Ex-Japan | 14.8% | |||
North America | 12.3% | |||
Japan | 12.1% | |||
South America | 5.3% | |||
Africa | 0.9% |
Top Ten Holdings*
Temenos Group AG | 2.7% | |||
DiaSorin SpA | 2.3% | |||
Boart Longyear Group | 2.3% | |||
Rhodia SA | 2.1% | |||
Ferrexpo PLC | 2.0% | |||
Makino Milling Machine Co., Ltd. | 2.0% | |||
Tognum AG | 2.0% | |||
CGI Group, Inc. — A | 2.0% | |||
Melrose PLC | 2.0% | |||
Dialog Semiconductor PLC | 1.8% |
* | All percentages are stated as a percent of net assets at December 31, 2010. |
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus International Small Cap Growth Fund
Schedule of Investments
December 31, 2010
Percent of | ||||
Industry | Net Assets | |||
Air Freight & Logistics | 2.4% | |||
Auto Components | 2.9% | |||
Chemicals | 3.4% | |||
Commercial Banks | 1.5% | |||
Commercial Services & Supplies | 1.0% | |||
Communications Equipment | 1.5% | |||
Computers & Peripherals | 1.5% | |||
Construction & Engineering | 4.2% | |||
Containers & Packaging | 0.2% | |||
Electrical Equipment | 2.0% | |||
Electronic Equipment, Instruments & Components | 5.9% | |||
Energy Equipment & Services | 1.1% | |||
Food Products | 3.3% | |||
Health Care Equipment & Supplies | 2.3% | |||
Health Care Providers & Services | 2.6% | |||
Health Care Technology | 1.5% | |||
Hotels, Restaurants & Leisure | 2.3% | |||
Household Durables | 1.0% | |||
Internet & Catalog Retail | 1.8% | |||
Internet Software & Services | 1.4% | |||
IT Services | 2.0% | |||
Machinery | 13.4% | |||
Media | 1.5% | |||
Metals & Mining | 4.0% | |||
Oil, Gas & Consumable Fuels | 3.6% | |||
Other | 1.9% | |||
Pharmaceuticals | 1.5% | |||
Professional Services | 3.0% | |||
Real Estate Management & Development | 1.4% | |||
Road & Rail | 1.0% | |||
Semiconductors & Semiconductor Equipment | 5.0% | |||
Software | 3.9% | |||
Specialty Retail | 2.0% | |||
Textiles, Apparel & Luxury Goods | 5.0% | |||
Trading Companies & Distributors | 1.5% | |||
Other Assets in Excess of Liabilities | 5.5% | |||
TOTAL | 100.0% | |||
Notes to Financial Statements are an integral part of this Schedule.
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Dear Fellow Shareholders,
The Driehaus Global Growth Fund (“Fund”) returned 19.00% for the year ended December 31, 2010.1 This return was above the performance of the Fund’s primary benchmark index, Morgan Stanley Capital International All Country World Growth Index (“Benchmark”), which returned 15.49% for the year.
As 2010 came to a close, the broader environment for equities was bullish as multiple factors were favorable for both corporate earnings and equity multiples. Over the summer months of 2010, the U.S. economic indicators paused and caused equities to pull back as investors were concerned about a dreaded possible “double dip”. Then, many economic statistics re-accelerated beginning in September and continued to do so through year-end. In the U.S. (and globally), manufacturing data, consumer spending, jobless claims and other factors continued to improve. This served as a tailwind for corporate earnings which overall continue to positively exceed expectations. Despite uncertainties regarding fiscal policy, U.S. monetary policy continues to be supportive of equity prices as the second round of quantitative easing began and served as a further market catalyst. Finally, as bonds sold off and risk appetites increased, funds began to flow from the fixed income markets to the equity markets. In spite of the ongoing concerns over the prospects of the sovereign debt contagion from some European countries, which remained an issue throughout the year, European stock markets closed the year mixed. The key markets of Germany and the U.K. rose solidly, each finishing at 2-year highs. In Asia, despite large investments in companies with exposure to emerging economies, markets traded to end the year mixed. Generally, Asian markets sold down mid-year but recovered to end 2010 in flat to positive territory.
Over the course of 2010, a key contributor to performance versus the Benchmark was the Fund’s selection of holdings in the consumer discretionary and materials sectors. In addition, stock selection in both the United States and Canada positively contributed to the performance of the Fund.
Within the consumer discretionary sector, Las Vegas Sands Corp. (NYSE: LVS) was a holding that contributed to the Fund’s performance in 2010. The company, which develops multi-use integrated resorts worldwide, saw strong results during the year driven by its exposure to the high growth gaming markets in both Macau and Singapore.
Additionally, through bottom-up stock selection, we found attractive opportunities that benefited the portfolio in the materials sector. One of the holdings that contributed to the Fund’s performance in 2010 was Silver Wheaton Corp. (SLW CN). The Canadian company purchases and sells by-product silver from operating mines. It has long-term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece, and the United States. Throughout the year the company reported record quarterly and annual production, sales, earnings, and cash flows from operations. In many cases their attributable proven and probable reserves more than doubled, which increases earning potential moving forward.
Certain areas detracted from Fund performance. Two sectors where stock selection negatively affected the performance of the Fund were the energy and financials sectors. Additionally, holdings in Brazil and Greece detracted from Fund performance versus the Benchmark.
Thoratec Corp. (NASDAQ: THOR) was the Fund’s largest detractor from performance. The company develops, manufactures, and markets proprietary medical devices used for circulatory support. Share prices were negatively affected when its competitor, HeartWare International, announced that its five-ounce implantable pump saw positive results in a study. This device, although not yet approved in the U.S., competes with Thoratec Corp.’s HeartMate II device, which is double the weight making it less attractive for consumers than a lighter alternative.
Within Greece, Aegean Marine Petroleum Network Inc. (NYSE: ANW), detracted from Fund performance. The company is an independent physical supplier and marketer of refined marine fuel and lubricants. It procures marine fuel from refineries and oil producers, and resells to a diversified customer base, representing all segments of the shipping industry, including tankers, container ships and dry-bulk carriers, among others. The company’s shares fell throughout the year as the company’s earnings continually came in below consensus expectations and a lack of clarity regarding future taxes, blended gross margin and further growth negatively impacted the stock. Further, the negative sentiment overhanging Greece adversely impacted the stock.
While we remain positive on the near to intermediate outlook for U.S. active growth management, we continue to monitor potential risks including: an acceleration in inflation; sovereign debt and austerity overseas; rising analyst expectations, which have been increasing since September of 2010 (many sentiment indicators are at
21
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levels not seen since 2007); and state and municipal debt in the U.S. We continue to monitor the dichotomy of the emerging economies’ general desire to restrain capital inflows, while simultaneously seeking to combat inflation. Typically, central banks seek to control inflation through interest rate hikes; however, we have only seen a very gradual willingness on the part of emerging market central banks to raise interest rates. Inherent in this stance is the view that if they raise interest rates too rapidly, capital inflows will be exacerbated by investors seeking higher interest rates. This would translate into unwelcomed currency appreciation, hampering their competitiveness. Generally, we do have a healthy outlook for growth across much of the emerging world, but we continue to be mindful of the potential for exogenous macro events, particularly in the developed economies. In terms of changes to the Fund, we took the opportunity to reduce our significant underweight in Europe as the Euro came under pressure in November (i.e. we increased exposure). However, we opted to focus on high quality European consumer staples and health care companies as we have ongoing concerns about economic growth in 2011.
As always, we at Driehaus Capital Management LLC thank you for your interest in the Driehaus Global Growth Fund and would like to express our gratitude to you as shareholders for your continued confidence in our management capabilities. As we move into the next calendar year, we remain focused on uncovering opportunities consistent with the Driehaus growth investment philosophy and managing the unique risks and opportunities presented by the global equity markets on behalf of our shareholders.
Sincerely,
Daniel M. Rea |
Portfolio Manager |
1 | During this period, the Fund’s returns reflect fee waivers and/or reimbursements without which performance would have been lower. |
Performance is historical and does not represent future results.
22
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Driehaus Global Growth Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains. Average annual total return reflects annualized change.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $10,000 investment in the Fund since May 1, 2008 (the date of the Fund’s inception), with all dividends and capital gains reinvested, with the indicated index (and dividends reinvested) for the same period.
Since Inception | ||||||||||
Average Annual Total Returns as of 12/31/10 | 1 Year | (05/01/08 - 12/31/10) | ||||||||
Driehaus Global Growth Fund (DRGGX)1 | 19.00 | % | −3.74 | % | ||||||
MSCI AC World Growth Index2 | 15.49 | % | −1.88 | % | ||||||
1 The returns for the period reflect fee waivers and/or reimbursements without which performance would have been lower.
2 | The Morgan Stanley Capital International All Country World Growth Index (MSCI AC World Growth Index) is a subset of the MSCI All Country World Index (MSCI ACWI) and includes only the MSCI ACWI stocks which are categorized as growth stocks. The MSCI ACWI is a free float-adjusted market-capitalization weighted index that is designed to measure the equity market performance of 24 developed and 21 emerging markets. Data is in U.S. dollars. Source: Morgan Stanley Capital International Inc. |
23
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Driehaus Global Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
EQUITY SECURITIES — 96.0% | ||||||||
NORTH AMERICA — 55.4% | ||||||||
United States — 52.6% | ||||||||
Acme Packet, Inc.** | 6,739 | $ | 358,245 | |||||
Acorda Therapeutics, Inc.** | 12,718 | 346,693 | ||||||
Allscripts Healthcare Solutions, Inc.** | 18,929 | 364,762 | ||||||
American Express Co. | 11,813 | 507,014 | ||||||
Apple Inc.** | 3,074 | 991,549 | ||||||
Aruba Networks, Inc.** | 19,798 | 413,382 | ||||||
BE Aerospace, Inc.** | 24,523 | 908,087 | ||||||
Celgene Corp.** | 9,779 | 578,330 | ||||||
Chipotle Mexican Grill, Inc.** | 1,100 | 233,926 | ||||||
Ciena Corp.** | 28,941 | 609,208 | ||||||
Citrix Systems, Inc.** | 7,625 | 521,626 | ||||||
Comerica, Inc. | 8,916 | 376,612 | ||||||
Cree, Inc.** | 3,944 | 259,870 | ||||||
Crocs, Inc.** | 19,803 | 339,027 | ||||||
Deere & Co. | 9,442 | 784,158 | ||||||
Discovery Communications, Inc. — A** | 13,000 | 542,100 | ||||||
DSW, Inc. — A** | 7,861 | 307,365 | ||||||
Edwards Lifesciences Corp.** | 10,095 | 816,080 | ||||||
EMC Corp.** | 24,171 | 553,516 | ||||||
F5 Networks, Inc.** | 3,015 | 392,432 | ||||||
Fifth Third Bancorp | 26,770 | 392,984 | ||||||
Finisar Corp.** | 21,511 | 638,662 | ||||||
Fortinet, Inc.** | 11,560 | 373,966 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 5,021 | 602,972 | ||||||
General Motors Co.** | 10,633 | 391,932 | ||||||
Goldman Sachs Group, Inc. | 4,474 | 752,348 | ||||||
Google, Inc. — A** | 876 | 520,318 | ||||||
Green Mountain Coffee Roasters, Inc.** | 11,863 | 389,818 | ||||||
Halliburton Co. | 11,258 | 459,664 | ||||||
Illumina, Inc.** | 12,475 | 790,167 | ||||||
IntercontinentalExchange, Inc.** | 3,089 | 368,054 | ||||||
Las Vegas Sands Corp.** | 15,490 | 711,766 | ||||||
MGIC Investment Corp.** | 53,173 | 541,833 | ||||||
Monster Worldwide, Inc.** | 17,434 | 411,965 | ||||||
Nektar Therapeutics** | 39,795 | 511,366 | ||||||
Netflix, Inc.** | 2,883 | 506,543 | ||||||
OmniVision Technologies, Inc.** | 12,044 | 356,623 | ||||||
PACCAR, Inc. | 10,620 | 609,800 | ||||||
priceline.com, Inc.** | 2,025 | 809,089 | ||||||
Riverbed Technology, Inc.** | 10,267 | 361,090 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 12,322 | 748,931 | ||||||
Stillwater Mining Co.** | 26,685 | 569,725 | ||||||
Target Corp. | 8,427 | 506,716 | ||||||
Terex Corp.** | 17,064 | 529,667 | ||||||
The Coca-Cola Co. | 8,025 | 527,804 | ||||||
The Hershey Co. | 12,974 | 611,724 | ||||||
Thoratec Corp.** | 19,373 | 548,643 | ||||||
United Therapeutics Corp.** | 10,095 | 638,206 | ||||||
US Airways Group, Inc.** | 40,432 | 404,724 | ||||||
Valassis Communications, Inc.** | 19,693 | 637,069 | ||||||
Whole Foods Market, Inc. | 12,256 | 620,031 | ||||||
WMS Industries, Inc.** | 15,218 | 688,462 | ||||||
27,736,644 | ||||||||
Canada — 2.8% | ||||||||
Pacific Rubiales Energy Corp. | 29,142 | 989,181 | ||||||
SEMAFO, Inc.** | 23,690 | 256,127 | ||||||
Silver Wheaton Corp.** | 6,242 | 244,708 | ||||||
1,490,016 | ||||||||
Total NORTH AMERICA | 29,226,660 | |||||||
EUROPE — 19.1% | ||||||||
Russia — 4.1% | ||||||||
Mechel — SP ADR | 14,295 | 417,843 | ||||||
Mobile TeleSystems — SP ADR | 25,230 | 526,550 | ||||||
Sberbank RF | 152,864 | 520,808 | ||||||
Uralkali — SP GDR | 18,769 | 689,198 | ||||||
2,154,399 | ||||||||
United Kingdom — 3.9% | ||||||||
Diageo PLC | 28,140 | 519,892 | ||||||
Johnson Matthey PLC | 16,486 | 523,830 | ||||||
Lloyds Banking Group PLC** | 403,040 | 412,843 | ||||||
Rockhopper Exploration PLC** | 105,650 | 605,338 | ||||||
2,061,903 | ||||||||
France — 2.7% | ||||||||
Sodexo | 7,920 | 545,795 | ||||||
Technip SA | 5,704 | 526,701 | ||||||
Vallourec SA | 3,225 | 338,734 | ||||||
1,411,230 | ||||||||
Ireland — 1.9% | ||||||||
ICON PLC — SP ADR** | 16,832 | 368,621 | ||||||
Shire PLC | 26,602 | 639,957 | ||||||
1,008,578 | ||||||||
Germany — 1.8% | ||||||||
Infineon Technologies AG** | 43,494 | 404,699 | ||||||
SGL Carbon SE** | 14,612 | 527,499 | ||||||
932,198 | ||||||||
Switzerland — 1.3% | ||||||||
Xstrata PLC | 30,000 | 704,163 | ||||||
Norway — 1.0% | ||||||||
Telenor ASA | 33,502 | 544,295 | ||||||
Netherlands — 1.0% | ||||||||
Chicago Bridge & Iron Co. NV** | 16,424 | 540,350 | ||||||
Denmark — 0.8% | ||||||||
Novo Nordisk AS — B | 3,530 | 398,055 | ||||||
Notes to Financial Statements are an integral part of this Schedule.
24
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Driehaus Global Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
Turkey — 0.6% | ||||||||
Turkiye Is Bankasi — C | 93,660 | $ | 333,633 | |||||
Total EUROPE | 10,088,804 | |||||||
FAR EAST — 13.0% | ||||||||
China — 7.5% | ||||||||
China Coal Energy Co., Ltd. — H | 339,478 | 530,216 | ||||||
China Lilang, Ltd. | 365,950 | 564,970 | ||||||
Ctrip.com International, Ltd. — ADR** | 11,540 | 466,793 | ||||||
Focus Media Holding, Ltd. — ADR** | 22,288 | 488,776 | ||||||
Lenovo Group, Ltd. | 877,776 | 562,387 | ||||||
Ping An Insurance Group Company of China, Ltd. — H | 50,376 | 563,204 | ||||||
Trina Solar, Ltd. — SP ADR** | 16,499 | 386,407 | ||||||
Xueda Education Group — SP ADR** | 37,141 | 418,579 | ||||||
3,981,332 | ||||||||
Japan — 3.1% | ||||||||
FANUC Corp. | 3,800 | 583,643 | ||||||
Komatsu, Ltd. | 13,100 | 396,437 | ||||||
Sony Corp. | 14,763 | 532,224 | ||||||
Sumco Corp.** | 6,950 | 99,298 | ||||||
1,611,602 | ||||||||
India — 1.2% | ||||||||
ICICI Bank, Ltd. — SP ADR | 12,045 | 609,959 | ||||||
South Korea — 0.7% | ||||||||
Samsung Electro-Mechanics Co., Ltd. | 3,452 | 377,168 | ||||||
Singapore — 0.5% | ||||||||
Genting Singapore PLC** | 164,221 | 280,238 | ||||||
Total FAR EAST | 6,860,299 | |||||||
SOUTH AMERICA — 7.8% | ||||||||
Brazil — 5.8% | ||||||||
Fibria Celulose SA — SP ADR** | 27,774 | 444,384 | ||||||
Hypermarcas SA** | 40,328 | 544,185 | ||||||
Itau Unibanco Holding SA — PREF ADR | 22,692 | 544,835 | ||||||
OGX Petroleo e Gas Participacoes SA** | 64,559 | 764,596 | ||||||
Vale SA — SP ADR | 21,317 | 736,929 | ||||||
3,034,929 | ||||||||
Colombia — 1.2% | ||||||||
Ecopetrol SA — SP ADR | 14,919 | 650,767 | ||||||
Argentina — 0.8% | ||||||||
MercadoLibre, Inc.** | 6,104 | 406,832 | ||||||
Total SOUTH AMERICA | 4,092,528 | |||||||
AFRICA — 0.7% | ||||||||
South Africa — 0.7% | ||||||||
Randgold Resources, Ltd. — ADR | 4,307 | 354,595 | ||||||
Total AFRICA | 354,595 | |||||||
Total EQUITY SECURITIES (Cost $38,998,755) | 50,622,886 | |||||||
TOTAL INVESTMENTS (COST $38,998,755) | 96.0 | % | $ | 50,622,886 | ||||
Other Assets In Excess Of Liabilities | 4.0 | % | 2,095,818 | |||||
Net Assets | 100.0 | % | $ | 52,718,704 | ||||
The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows:
Basis: | $ | 39,957,197 | ||
Gross Appreciation | $ | 12,140,232 | ||
Gross Depreciation | (1,474,543 | ) | ||
Net Appreciation | $ | 10,665,689 | ||
** Non-income producing security
ADR — American Depository Receipt
PREF ADR — Preferred American Depository Receipt
SP ADR — Sponsored American Depository Receipt
SP GDR — Sponsored Global Depository Receipt
Regional Weightings*
North America | 55.4% | |||
Western Europe | 14.4% | |||
Asia/Far East Ex-Japan | 9.9% | |||
South America | 7.8% | |||
Eastern Europe | 4.7% | |||
Japan | 3.1% | |||
Africa | 0.7% |
Top Ten Holdings*
Apple Inc. | 1.9% | |||
Pacific Rubiales Energy Corp. | 1.9% | |||
BE Aerospace, Inc. | 1.7% | |||
Edwards Lifesciences Corp. | 1.5% | |||
priceline.com, Inc. | 1.5% | |||
Illumina, Inc. | 1.5% | |||
Deere & Co. | 1.5% | |||
OGX Petroleo e Gas Participacoes SA | 1.5% | |||
Goldman Sachs Group, Inc. | 1.4% | |||
Starwood Hotels & Resorts Worldwide, Inc. | 1.4% |
* | All percentages are stated as a percent of net assets at December 31, 2010. |
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Global Growth Fund
Schedule of Investments
December 31, 2010
Percent of | ||||
Industry | Net Assets | |||
Aerospace & Defense | 1.7% | |||
Airlines | 0.8% | |||
Automobiles | 0.7% | |||
Beverages | 2.0% | |||
Biotechnology | 3.0% | |||
Capital Markets | 1.4% | |||
Chemicals | 2.3% | |||
Commercial Banks | 6.0% | |||
Communications Equipment | 5.3% | |||
Computers & Peripherals | 4.0% | |||
Construction & Engineering | 1.0% | |||
Consumer Finance | 1.0% | |||
Diversified Consumer Services | 0.8% | |||
Diversified Financial Services | 0.7% | |||
Diversified Telecommunication Services | 1.0% | |||
Electrical Equipment | 1.0% | |||
Electronic Equipment, Instruments & Components | 0.7% | |||
Energy Equipment & Services | 1.9% | |||
Food & Staples Retailing | 1.2% | |||
Food Products | 1.9% | |||
Health Care Equipment & Supplies | 2.6% | |||
Health Care Technology | 0.7% | |||
Hotels, Restaurants & Leisure | 7.0% | |||
Household Durables | 1.0% | |||
Insurance | 1.1% | |||
Internet & Catalog Retail | 2.5% | |||
Internet Software & Services | 2.5% | |||
Life Sciences Tools & Services | 2.2% | |||
Machinery | 6.1% | |||
Media | 3.2% | |||
Metals & Mining | 7.4% | |||
Multiline Retail | 1.0% | |||
Oil, Gas & Consumable Fuels | 6.7% | |||
Paper & Forest Products | 0.8% | |||
Personal Products | 1.0% | |||
Pharmaceuticals | 2.9% | |||
Semiconductors & Semiconductor Equipment | 2.9% | |||
Software | 1.7% | |||
Specialty Retail | 0.6% | |||
Textiles, Apparel & Luxury Goods | 1.7% | |||
Thrifts & Mortgage Finance | 1.0% | |||
Wireless Telecommunication Services | 1.0% | |||
Other Assets in Excess of Liabilities | 4.0% | |||
TOTAL | 100.0% | |||
Notes to Financial Statements are an integral part of this Schedule.
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Dear Fellow Shareholders,
The Driehaus Mid Cap Growth Fund (“Fund”) returned 26.59% for the year ended December 31, 2010.1 This return was slightly above the performance of the Fund’s benchmark index, the Russell Midcap Growth Index (the “Benchmark”), which gained 26.39% for the same period.
As a whole, 2010 was a strong year for the U.S. equity markets. However, there were many macro related events that caused fluctuation throughout the calendar year. While Europe’s sovereign debt issues were present at the beginning of 2010, the first four months were relatively quiet from a macro standpoint. However, in May, Greece was placed under considerable pressure by the credit markets and signs coming from China were for further tightening. At this point we reduced some risk (beta) in mid cap by lowering our energy and industrials weight while increasing our health care weight. Throughout most of the summer there was concern in the U.S. of a potential “double dip.” In late August and early September, the market outlook in the U.S. improved greatly. At this time U.S. Federal Reserve Board Chairman Ben Bernanke signaled Quantitative Easing 2 (“QE2”) and U.S. economic figures began to come out ahead of consensus estimates, which reduced “double dip” worries. It was also at this point that the markets had faced a correction and consolidation over the previous four months, which set up a strong finish to the year. During the rest of the year, economic figures continued to come in ahead of expectations, earnings reports remained strong, and in early November we had a shift in power in Congress and official announcement of QE2, which lent further support to the U.S. equity market. Finally, in December, Congress extended and expanded the Bush-era tax cuts, providing further tailwinds to the outlook for U.S. equity markets.
The top performing sectors in the Benchmark during 2010 were consumer discretionary, where we had an overweight, and information technology, where we were slightly underweight. The bottom performing sectors in the Benchmark were utilities, where we had an underweight, and telecommunication services, where we had an overweight.
Over the course of 2010, a key contributor to performance was the Fund’s selection of holdings in the information technology and energy sectors versus the Benchmark. During the year the Fund’s exposure to the materials and information technology sectors decreased; however, exposure to the energy and health care sectors increased, and both remained an overweight position throughout much of the year versus the Benchmark.
Within the information technology sector, Rovi Corp. (NASDAQ: ROVI), was an example of a holding that contributed to performance in 2010. Rovi Corp., formerly Macrovision Solutions Corporation, provides a set of solutions that are embedded in its customers’ products and services and used by consumers. The company’s offerings include interactive program guides (IPGs); embedded licensing technologies (such as recommendations and search capability), standards based media connectivity middleware, media recognition technologies, licensing of its database of descriptive information about television, movie, music, books, and game content, and content protection technologies and services. During the year, the company posted better-than-expected results driven by better-than-expected revenue due to the ongoing digitalization from analog devices and new international IPG wins. Further, management reaffirmed the 2010 revenue outlook and slightly raised their earnings per share outlook.
Additionally, within the consumer discretionary sector, Deckers Outdoor Corp. (NASDAQ: DECK) was a holding that contributed to the Fund’s performance in 2010. The company engages in the design, production, marketing, and brand management of footwear and accessories for outdoor activities and everyday casual lifestyle use. The company has experienced profitability and momentum from their UGG Australia brand which has launched new retail venues; 2010 was UGG’s 13th consecutive year of double- digit sales growth. UGG announced that it will partner with Tom Brady to launch its first men’s marketing initiative in 2011, its highest profile marketing initiative. The company looks to further broaden the brand beyond the core women’s product line. The accelerating footwear and boot business in the current season is likely to create further upward bias to the company’s annual results.
Despite the positive returns within the U.S. market, not all holdings contributed positively to performance. Two sectors where allocation and stock selection detracted from Fund performance were the industrials and health care sectors.
Thoratec Corp. (NASDAQ: THOR) was the Fund’s largest detractor from performance. The company develops, manufactures, and markets proprietary medical devices used for circulatory support. Share prices were
27
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negatively affected when its competitor, HeartWare International, announced that its five-ounce implantable pump saw positive results in a study. This device, although not yet approved in the U.S., competes with Thoratec Corp.’s HeartMate II device, which is double the weight making it less attractive for consumers than a lighter alternative.
Within the industrials sector, Hertz Global Holdings, Inc. (NYSE: HTZ), also detracted from the performance of the Fund in 2010. Hertz Global Holdings, Inc. is a general use car rental brand and is engaged in equipment rental businesses in the United States and Canada. The company and its independent licensees and associates accept reservations for car rentals at approximately 8,100 locations in approximately 145 countries. During the year, the company announced the acquisition of Dollar Thrifty Automotive Group, Inc. The stock underperformed due to fears of a double dip recession as the company’s revenue is tied to global business travel trends.
As we enter 2011, we maintain a constructive view on the U.S. equity markets due to fiscal and monetary accommodation, along with a continued gradual economic improvement. With the increased visibility and stability in markets we could see lowered correlations, which stand to benefit active management in general, and also increased flows toward equities as investors seek higher returns. There remain both near-term and intermediate term risks, which we continue to monitor. In the near term elevated sentiment and expectations could create some near-term pull backs in the market. Intermediate concerns for markets are increases in inflation, austerity and sovereign risk spreading to the U.S., and over tightening in emerging markets.
As always, we at Driehaus Capital Management LLC thank you for your interest in the Driehaus Mid Cap Growth Fund and would like to express our gratitude to you as shareholders for your continued confidence in our management capabilities.
Sincerely,
Dan Wasiolek | Michael Schmidt | |
Portfolio Manager | Assistant Portfolio Manager |
1 | During this period, the Fund’s returns reflect fee waivers and/or reimbursements without which performance would have been lower. |
Performance is historical and does not represent future results.
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Driehaus Mid Cap Growth Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains. Average annual total return reflects annualized change.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $10,000 investment in the Fund since January 1, 1999, with all dividends and capital gains reinvested, with the indicated index (and dividends reinvested) for the same period.
Fund Only | Including Predecessor Limited Partnership | |||||||||||||||||||||||||
Average Annual Total Returns | Since Inception | Since Inception | ||||||||||||||||||||||||
as of 12/31/10 | 1 Year | (04/27/09 - 12/31/10) | 3 Years | 5 Years | 10 Years | (01/01/99 - 12/31/10) | ||||||||||||||||||||
Driehaus Mid Cap Growth Fund (DRMGX)1 | 26.59% | 33.02% | −10.00% | 6.27% | 0.55% | 8.81% | ||||||||||||||||||||
Russell Midcap Growth Index2 | 26.39% | 37.18% | 0.97% | 4.88% | 3.12% | 5.09% | ||||||||||||||||||||
1 | The Driehaus Mid Cap Growth Fund (the “Fund”) performance shown above includes the performance of the Driehaus Institutional Mid Cap, L.P. (the “Predecessor Limited Partnership”), one of the Fund’s predecessors, for the periods before the Fund’s registration statement became effective. The Predecessor Limited Partnership, which was established on July 1, 1986, was managed with substantially the same investment objective, policies and philosophies as are followed by the Fund. The Fund succeeded to the Predecessor Limited Partnership’s assets together with the assets of the Driehaus Mid Cap Investors, L.P. on April 27, 2009. The Predecessor Limited Partnership was not registered under the Investment Company Act of 1940, as amended (“1940 Act”), and thus was not subject to certain investment and operational restrictions that are imposed by the 1940 Act. If the Predecessor Limited Partnership had been registered under the 1940 Act, its performance may have been adversely affected. The Predecessor Limited Partnership’s performance has been restated to reflect estimated expenses of the Fund. The returns for the period reflect fee waivers and/or reimbursements without which performance would have been lower. |
2 | The Russell Midcap Growth Index measures the performance of those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. Source: Russell Indices |
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Driehaus Mid Cap Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
EQUITY SECURITIES — 78.6% | ||||||||
CONSUMER DISCRETIONARY — 19.1% | ||||||||
Specialty Retail — 4.1% | ||||||||
Advance Auto Parts, Inc. | 5,735 | $ | 379,370 | |||||
Dick’s Sporting Goods, Inc.** | 4,080 | 153,000 | ||||||
DSW, Inc. — A** | 9,042 | 353,542 | ||||||
885,912 | ||||||||
Textiles, Apparel & Luxury Goods — 3.4% | ||||||||
Deckers Outdoor Corp.** | 4,515 | 360,026 | ||||||
Lululemon Athletica, Inc.** | 4,835 | 330,811 | ||||||
Vera Bradley, Inc.** | 1,070 | 35,310 | ||||||
726,147 | ||||||||
Hotels, Restaurants & Leisure — 2.4% | ||||||||
Panera Bread Co. — A** | 2,860 | 289,461 | ||||||
Wynn Resorts, Ltd. | 2,145 | 222,737 | ||||||
512,198 | ||||||||
Internet & Catalog Retail — 2.3% | ||||||||
priceline.com, Inc.** | 1,273 | 508,627 | ||||||
Auto Components — 1.9% | ||||||||
Tenneco, Inc.** | 9,985 | 410,983 | ||||||
Media — 1.9% | ||||||||
Focus Media Holding, Ltd. — ADR** | 18,415 | 403,841 | ||||||
Multiline Retail — 1.6% | ||||||||
Dollar Tree, Inc.** | 6,085 | 341,247 | ||||||
Leisure Equipment & Products — 0.9% | ||||||||
Polaris Industries, Inc. | 2,616 | 204,100 | ||||||
Household Durables — 0.6% | ||||||||
Harman International Industries, Inc.** | 2,679 | 124,038 | ||||||
Total CONSUMER DISCRETIONARY | 4,117,093 | |||||||
INFORMATION TECHNOLOGY — 17.9% | ||||||||
Software — 7.7% | ||||||||
Check Point Software Technologies, Ltd.** | 6,978 | 322,802 | ||||||
Fortinet, Inc.** | 4,843 | 156,671 | ||||||
Informatica Corp.** | 5,331 | 234,724 | ||||||
RealPage, Inc.** | 5,302 | 163,991 | ||||||
Rovi Corp.** | 10,999 | 682,048 | ||||||
Solera Holdings, Inc. | 1,788 | 91,760 | ||||||
1,651,996 | ||||||||
Semiconductors & Semiconductor Equipment — 4.3% | ||||||||
Atmel Corp.** | 19,502 | 240,265 | ||||||
Cavium Networks, Inc.** | 2,111 | 79,542 | ||||||
Cree, Inc.** | 1,337 | 88,095 | ||||||
Cypress Semiconductor Corp.** | 17,109 | 317,885 | ||||||
OmniVision Technologies, Inc.** | 7,176 | 212,481 | ||||||
938,268 | ||||||||
Communications Equipment — 3.4% | ||||||||
F5 Networks, Inc.** | 3,534 | 459,985 | ||||||
Finisar Corp.** | 3,675 | 109,111 | ||||||
Riverbed Technology, Inc.** | 4,601 | 161,817 | ||||||
730,913 | ||||||||
IT Services — 1.7% | ||||||||
VeriFone Systems, Inc.** | 9,428 | 363,544 | ||||||
Internet Software & Services — 0.8% | ||||||||
Monster Worldwide, Inc.** | 7,483 | 176,823 | ||||||
Total INFORMATION TECHNOLOGY | 3,861,544 | |||||||
HEALTH CARE — 13.1% | ||||||||
Health Care Equipment & Supplies — 4.5% | ||||||||
Edwards Lifesciences Corp.** | 4,350 | 351,654 | ||||||
HeartWare International, Inc.** | 787 | 68,918 | ||||||
Hill-Rom Holdings, Inc. | 3,689 | 145,236 | ||||||
NxStage Medical, Inc.** | 3,688 | 91,757 | ||||||
ResMed, Inc.** | 1,476 | 51,129 | ||||||
Thoratec Corp.** | 6,181 | 175,046 | ||||||
Varian Medical Systems, Inc.** | 1,155 | 80,018 | ||||||
963,758 | ||||||||
Biotechnology — 3.2% | ||||||||
Alexion Pharmaceuticals, Inc.** | 4,908 | 395,339 | ||||||
Incyte Corp.** | 5,276 | 87,371 | ||||||
United Therapeutics Corp.** | 3,448 | 217,983 | ||||||
700,693 | ||||||||
Health Care Technology — 1.7% | ||||||||
Allscripts Healthcare Solutions, Inc.** | 10,988 | 211,739 | ||||||
SXC Health Solutions Corp.** | 3,696 | 158,411 | ||||||
370,150 | ||||||||
Pharmaceuticals — 1.6% | ||||||||
ViroParma, Inc.** | 19,620 | 339,818 | ||||||
Health Care Providers & Services — 1.1% | ||||||||
HMS Holdings Corp.** | 3,760 | 243,535 | ||||||
Life Sciences Tools & Services — 1.0% | ||||||||
Illumina, Inc.** | 3,339 | 211,492 | ||||||
Total HEALTH CARE | 2,829,446 | |||||||
ENERGY — 8.7% | ||||||||
Oil, Gas & Consumable Fuels — 6.7% | ||||||||
Brigham Exploration Co.** | 15,429 | 420,286 | ||||||
Concho Resources, Inc.** | 2,222 | 194,803 | ||||||
Oasis Petroleum, Inc.** | 13,632 | 369,700 | ||||||
Rosetta Resources, Inc.** | 12,318 | 463,650 | ||||||
1,448,439 | ||||||||
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Mid Cap Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
Energy Equipment & Services — 2.0% | ||||||||
CARBO Ceramics, Inc. | 1,267 | $ | 131,185 | |||||
Complete Production Services, Inc.** | 6,230 | 184,097 | ||||||
McDermott International, Inc.** | 5,821 | 120,436 | ||||||
435,718 | ||||||||
Total ENERGY | 1,884,157 | |||||||
INDUSTRIALS — 8.7% | ||||||||
Machinery — 3.4% | ||||||||
AGCO Corp.** | 7,382 | 373,972 | ||||||
Joy Global, Inc. | 2,635 | 228,586 | ||||||
Kennametal, Inc. | 3,228 | 127,377 | ||||||
729,935 | ||||||||
Aerospace & Defense — 2.8% | ||||||||
BE Aerospace, Inc.** | 9,736 | 360,524 | ||||||
Triumph Group, Inc. | 2,824 | 252,494 | ||||||
613,018 | ||||||||
Road & Rail — 1.4% | ||||||||
Genesee & Wyoming, Inc. — A** | 3,932 | 208,199 | ||||||
Ryder System, Inc. | 1,687 | 88,804 | ||||||
297,003 | ||||||||
Airlines — 0.7% | ||||||||
United Continental Holdings, Inc.** | 6,030 | 143,635 | ||||||
Electrical Equipment — 0.4% | ||||||||
Polypore International, Inc.** | 2,432 | 99,055 | ||||||
Total INDUSTRIALS | 1,882,646 | |||||||
MATERIALS — 4.3% | ||||||||
Metals & Mining — 2.5% | ||||||||
Allied Nevada Gold Corp.** | 9,160 | 241,000 | ||||||
Stillwater Mining Co.** | 14,212 | 303,426 | ||||||
544,426 | ||||||||
Chemicals — 1.8% | ||||||||
CF Industries Holdings, Inc. | 1,736 | 234,620 | ||||||
Solutia, Inc.** | 6,323 | 145,935 | ||||||
380,555 | ||||||||
Total MATERIALS | 924,981 | |||||||
CONSUMER STAPLES — 4.0% | ||||||||
Food & Staples Retailing — 1.3% | ||||||||
Whole Foods Market, Inc. | 5,282 | 267,216 | ||||||
Beverages — 1.2% | ||||||||
Hansen Natural Corp.** | 4,893 | 255,806 | ||||||
Food Products — 1.1% | ||||||||
Green Mountain Coffee Roasters, Inc.** | 7,226 | 237,446 | ||||||
Personal Products — 0.4% | ||||||||
Nu Skin Enterprises, Inc. — A | 3,050 | 92,293 | ||||||
Total CONSUMER STAPLES | 852,761 | |||||||
TELECOMMUNICATION SERVICES — 1.7% | ||||||||
Wireless Telecommunication Services — 1.7% | ||||||||
Crown Castle International Corp.** | 6,598 | 289,190 | ||||||
NII Holdings, Inc.** | 1,845 | 82,398 | ||||||
371,588 | ||||||||
Total TELECOMMUNICATION SERVICES | 371,588 | |||||||
FINANCIALS — 1.1% | ||||||||
Capital Markets — 0.6% | ||||||||
T. Rowe Price Group, Inc. | 1,818 | 117,334 | ||||||
Commercial Banks — 0.5% | ||||||||
Comerica, Inc. | 2,673 | 112,908 | ||||||
Total FINANCIALS | 230,242 | |||||||
Total EQUITY SECURITIES (Cost $12,474,356) | 16,954,458 | |||||||
TOTAL INVESTMENTS (COST $12,474,356) | 78.6 | % | $ | 16,954,458 | ||||
Other Assets In Excess Of Liabilities | 21.4 | % | 4,618,147 | |||||
Net Assets | 100.0 | % | $ | 21,572,605 | ||||
The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows:
Basis: | $ | 12,495,946 | ||
Gross Appreciation | $ | 4,546,104 | ||
Gross Depreciation | (87,592 | ) | ||
Net Appreciation | $ | 4,458,512 | ||
** Non-income producing security
ADR — American Depository Receipt
Notes to Financial Statements are an integral part of this Schedule.
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Table of Contents
Driehaus Mid Cap Growth Fund
Schedule of Investments
December 31, 2010
Top Ten Holdings*
Rovi Corp. | 3.2% | |||
priceline.com, Inc. | 2.4% | |||
Rosetta Resources, Inc. | 2.1% | |||
F5 Networks, Inc. | 2.1% | |||
Brigham Exploration Co. | 1.9% | |||
Tenneco, Inc. | 1.9% | |||
Focus Media Holding, Ltd. — ADR | 1.9% | |||
Alexion Pharmaceuticals, Inc. | 1.8% | |||
Advance Auto Parts, Inc. | 1.8% | |||
AGCO Corp. | 1.7% |
* | All percentages are stated as a percent of net assets at December 31, 2010. |
Notes to Financial Statements are an integral part of this Schedule.
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Dear Fellow Shareholders,
The Driehaus Large Cap Growth Fund (“Fund”) returned 21.36% for the year ended December 31, 2010.1 This return was above the performance of the Fund’s benchmark index, the Russell 1000 Growth Index (the “Benchmark”), which gained 16.72% for the same period.
As a whole, 2010 was a strong year for the U.S. equity markets. However, there were many macro related events that caused fluctuation throughout the calendar year. While Europe’s sovereign debt issues were present at the beginning of 2010, the first four months were relatively quiet from a macro standpoint. However, in May, Greece was placed under considerable pressure by the credit markets and signs coming from China were for further tightening. At this point we reduced risk (beta) in large cap by lowering our energy and materials weight. Throughout most of the summer there was concern in the U.S. of a potential “double dip.” In late August and early September, the market outlook in the U.S. improved greatly. At this time U.S. Federal Reserve Board Chairman Ben Bernanke signaled Quantitative Easing 2 (“QE2”) and U.S. economic figures began to come out ahead of consensus estimates, which reduced “double dip” worries. It was also at this point that the markets had faced a correction and consolidation over the previous four months, which set up a strong finish to the year. It was at this time that we added risk (beta) back to the large cap portfolio by increasing weightings in energy and materials and lowering our staples and health care weightings. During the rest of the year, economic figures continued to come in ahead of expectations, earnings reports remained strong, and in early November we had a shift in power in Congress and official announcement of QE2, which lent further support to the U.S. equity market. Finally, in December, Congress extended and expanded the Bush-era tax cuts, providing further tailwinds to the outlook for U.S. equity markets.
The top performing sectors in the Russell 1000 Growth Index during 2010 were consumer discretionary, where we had a large overweight, and industrials, where we had an underweight. Due to stock selection, the Fund outperformed the Benchmark in both sectors. The bottom performing sectors in the Russell 1000 Growth Index were utilities and health care.
Over the course of 2010, a key contributor to performance was the Fund’s selection of holdings in the information technology and consumer discretionary sectors versus the Benchmark.
Within the information technology sector, Apple Inc. (NASDAQ: AAPL), was an example of a holding that contributed to performance in 2010. Apple Inc. designs, manufactures and markets a range of personal computers, mobile communication and media devices and portable digital music players, and sells a range of related software, services, peripherals, networking solutions, and third-party digital content and applications. During the year, the company reported better-than-expected iPad and iPhone sales. We continue to see further upside to consensus estimates driven by both the iPad and iPhone products.
Additionally, within the consumer discretionary sector, Las Vegas Sands Corp. (NYSE: LVS) was a holding that contributed to the Fund’s performance in 2010. The company, which develops multi-use integrated resorts worldwide, saw strong results during the year driven by its exposure to the high growth gaming markets in both Macau and Singapore.
Despite the positive returns within the U.S. market, not all holdings contributed positively to performance. Two sectors where allocation and stock selection detracted from Fund performance compared to the Benchmark were the energy and materials sectors.
Anadarko Petroleum Corp. (NYSE: APC) was one of the Fund’s largest detractors from performance. The company engages in the exploration and production of oil and gas properties primarily in the United States, the deep waters of the Gulf of Mexico, and Algeria. The Gulf oil spill affected the stock as the company has an interest share in the well. Many oil companies’ stock prices suffered due to the increased regulatory scrutiny resulting from the incident.
Within the materials sector, Alcoa Inc. (NYSE: AA), also detracted from the performance of the Fund in 2010. The company is engaged in the production and management of primary aluminum, fabricated aluminum, and alumina combined. Its products are used worldwide in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, and industrial applications. The company struggled at the beginning of the year due to rising cash costs of production for alumina/aluminum as their prices have been affected by increased energy costs, which represent a significant percentage of the production costs.
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As we enter 2011, we maintain a constructive view on the U.S. equity markets due to fiscal and monetary accommodation, along with a continued gradual economic improvement. With the increased visibility and stability in markets we could see lowered correlations, which stand to benefit active management in general, and also increased flows toward equities as investors seek higher returns. There remain both near-term and intermediate term risks, which we continue to monitor. In the near term elevated sentiment and expectations could create some near-term pull backs in the market. Intermediate concerns for markets are increases in inflation, austerity and sovereign risk spreading to the U.S., and over tightening in emerging markets.
As always, we at Driehaus Capital Management LLC thank you for your interest in the Driehaus Large Cap Growth Fund and would like to express our gratitude to you as shareholders for your continued confidence in our management capabilities.
Sincerely,
Dan Wasiolek | Michael Schmidt | |
Portfolio Manager | Assistant Portfolio Manager |
1 | During this period, the Fund’s returns reflect fee waivers and/or reimbursements without which performance would have been lower. |
Performance is historical and does not represent future results.
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Driehaus Large Cap Growth Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains. Average annual total return reflects annualized change.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $10,000 investment in the Fund since January 1, 2008 (the date of the Predecessor Limited Partnership’s inception), with all dividends and capital gains reinvested, with the indicated index (and dividends reinvested) for the same period.
Fund Only | Including Predecessor Limited Partnership | |||||||||||||||||
Average Annual Total Returns | Since Inception | Since Inception | ||||||||||||||||
as of 12/31/10 | 1 Year | (04/27/09 - 12/31/10) | 3 Years | (01/01/08 - 12/31/10) | ||||||||||||||
Driehaus Large Cap Growth Fund (DRLGX)1 | 21.36% | 26.97% | −5.44% | −5.44% | ||||||||||||||
Russell 1000 Growth Index2 | 16.72% | 29.46% | −0.47% | −0.47% | ||||||||||||||
1 | The Driehaus Large Cap Growth Fund (the “Fund”) performance shown above includes the performance of the Driehaus Large Cap Growth Fund, L.P. (the “Predecessor Limited Partnership”), the Fund’s predecessor, for the periods before the Fund’s registration statement became effective. The Predecessor Limited Partnership, which was established on January 1, 2008, was managed with substantially the same investment objective, policies and philosophies as are followed by the Fund. The Fund succeeded to the Predecessor Limited Partnership’s assets on April 27, 2009. The Predecessor Limited Partnership was not registered under the Investment Company Act of 1940, as amended (“1940 Act”), and thus was not subject to certain investment and operational restrictions that are imposed by the 1940 Act. If the Predecessor Limited Partnership had been registered under the 1940 Act, its performance may have been adversely affected. The Predecessor Limited Partnership’s performance has been restated to reflect estimated expenses of the Fund. The returns for the period reflect fee waivers and/or reimbursements without which performance would have been lower. |
2 | The Russell 1000 Growth Index measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Index measures the performance of the 1000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. Source: Russell Indices |
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Driehaus Large Cap Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
EQUITY SECURITIES — 92.8% | ||||||||
INFORMATION TECHNOLOGY — 27.9% | ||||||||
Software — 11.2% | ||||||||
Check Point Software Technologies, Ltd.** | 11,988 | $ | 554,565 | |||||
Citrix Systems, Inc.** | 6,586 | 450,548 | ||||||
Oracle Corp. | 19,599 | 613,449 | ||||||
Rovi Corp.** | 12,245 | 759,312 | ||||||
2,377,874 | ||||||||
Computers & Peripherals — 6.9% | ||||||||
Apple Inc.** | 3,581 | 1,155,087 | ||||||
EMC Corp.** | 12,951 | 296,578 | ||||||
1,451,665 | ||||||||
Communications Equipment — 4.9% | ||||||||
Cisco Systems, Inc.** | 18,009 | 364,322 | ||||||
F5 Networks, Inc.** | 3,349 | 435,906 | ||||||
Juniper Networks, Inc.** | 6,361 | 234,848 | ||||||
1,035,076 | ||||||||
Internet Software & Services — 3.0% | ||||||||
Baidu, Inc. — SP ADR** | 1,026 | 99,040 | ||||||
Google, Inc. — A** | 912 | 541,701 | ||||||
640,741 | ||||||||
Semiconductors & Semiconductor Equipment — 1.2% | ||||||||
ARM Holdings PLC — SP ADR | 2,872 | 59,594 | ||||||
Broadcom Corp. — A | 4,434 | 193,101 | ||||||
252,695 | ||||||||
IT Services — 0.7% | ||||||||
Cognizant Technology Solutions Corp. — A** | 2,041 | 149,585 | ||||||
Total INFORMATION TECHNOLOGY | 5,907,636 | |||||||
CONSUMER DISCRETIONARY — 27.0% | ||||||||
Hotels, Restaurants & Leisure — 7.9% | ||||||||
Las Vegas Sands Corp.** | 19,270 | 885,456 | ||||||
McDonald’s Corp. | 6,594 | 506,155 | ||||||
Starbucks Corp. | 2,868 | 92,149 | ||||||
Yum! Brands, Inc. | 3,845 | 188,597 | ||||||
1,672,357 | ||||||||
Internet & Catalog Retail — 6.0% | ||||||||
Amazon.com, Inc.** | 3,471 | 624,780 | ||||||
Netflix, Inc.** | 365 | 64,130 | ||||||
priceline.com, Inc.** | 1,423 | 568,560 | ||||||
1,257,470 | ||||||||
Multiline Retail — 4.7% | ||||||||
Dollar General Corp.** | 16,311 | 500,258 | ||||||
Target Corp. | 8,306 | 499,440 | ||||||
999,698 | ||||||||
Automobiles — 3.0% | ||||||||
Ford Motor Co.** | 37,905 | 636,425 | ||||||
Textiles, Apparel & Luxury Goods — 2.9% | ||||||||
NIKE, Inc. — B | 7,079 | 604,688 | ||||||
Media — 1.6% | ||||||||
Discovery Communications, Inc. — A** | 8,130 | 339,021 | ||||||
Specialty Retail — 0.9% | ||||||||
AutoZone, Inc.** | 726 | 197,900 | ||||||
Total CONSUMER DISCRETIONARY | 5,707,559 | |||||||
INDUSTRIALS — 9.6% | ||||||||
Machinery — 8.6% | ||||||||
Caterpillar, Inc. | 5,271 | 493,682 | ||||||
Cummins, Inc. | 4,773 | 525,078 | ||||||
Deere & Co. | 5,639 | 468,319 | ||||||
PACCAR, Inc. | 5,563 | 319,427 | ||||||
1,806,506 | ||||||||
Aerospace & Defense — 1.0% | ||||||||
BE Aerospace, Inc.** | 5,836 | 216,107 | ||||||
Total INDUSTRIALS | 2,022,613 | |||||||
ENERGY — 9.2% | ||||||||
Energy Equipment & Services — 6.4% | ||||||||
Cameron International Corp.** | 8,143 | 413,094 | ||||||
Halliburton Co. | 4,557 | 186,062 | ||||||
Seadrill, Ltd. | 8,702 | 295,172 | ||||||
Weatherford International, Ltd.** | 19,980 | 455,544 | ||||||
1,349,872 | ||||||||
Oil, Gas & Consumable Fuels — 2.8% | ||||||||
Pioneer Natural Resources Co. | 4,313 | 374,455 | ||||||
Whiting Petroleum Corp.** | 1,833 | 214,809 | ||||||
589,264 | ||||||||
Total ENERGY | 1,939,136 | |||||||
HEALTH CARE — 8.7% | ||||||||
Biotechnology — 1.9% | ||||||||
Alexion Pharmaceuticals, Inc.** | 2,709 | 218,210 | ||||||
Celgene Corp.** | 3,119 | 184,458 | ||||||
402,668 | ||||||||
Pharmaceuticals — 1.8% | ||||||||
Hospira, Inc.** | 1,513 | 84,259 | ||||||
Shire PLC — ADR | 4,247 | 307,398 | ||||||
391,657 | ||||||||
Health Care Equipment & Supplies — 1.8% | ||||||||
Edwards Lifesciences Corp.** | 2,228 | 180,112 | ||||||
ResMed, Inc.** | 5,706 | 197,656 | ||||||
377,768 | ||||||||
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Large Cap Growth Fund
Schedule of Investments
December 31, 2010
Number | Market | |||||||
of | Value | |||||||
Shares | (Note A) | |||||||
Health Care Providers & Services — 1.6% | ||||||||
Express Scripts, Inc.** | 6,375 | $ | 344,569 | |||||
Health Care Technology — 1.6% | ||||||||
Cerner Corp.** | 3,543 | 335,664 | ||||||
Total HEALTH CARE | 1,852,326 | |||||||
MATERIALS — 3.5% | ||||||||
Metals & Mining — 1.9% | ||||||||
Freeport-McMoRan Copper & Gold, Inc. | 1,473 | 176,893 | ||||||
Goldcorp, Inc. | 5,033 | 231,417 | ||||||
408,310 | ||||||||
Chemicals — 1.6% | ||||||||
Potash Corp. of Saskatchewan, Inc. | 2,167 | 335,517 | ||||||
Total MATERIALS | 743,827 | |||||||
TELECOMMUNICATION SERVICES — 3.0% | ||||||||
Wireless Telecommunication Services — 3.0% | ||||||||
American Tower Corp. — A** | 12,226 | 631,351 | ||||||
Total TELECOMMUNICATION SERVICES | 631,351 | |||||||
CONSUMER STAPLES — 2.3% | ||||||||
Food & Staples Retailing — 2.3% | ||||||||
Costco Wholesale Corp. | 6,813 | 491,967 | ||||||
Total CONSUMER STAPLES | 491,967 | |||||||
FINANCIALS — 1.6% | ||||||||
Commercial Banks — 0.9% | ||||||||
Fifth Third Bancorp | 13,608 | 199,765 | ||||||
Capital Markets — 0.7% | ||||||||
T. Rowe Price Group, Inc. | 2,198 | 141,859 | ||||||
Total FINANCIALS | 341,624 | |||||||
Total EQUITY SECURITIES (Cost $15,022,314) | 19,638,039 | |||||||
TOTAL INVESTMENTS (COST $15,022,314) | 92.8 | % | $ | 19,638,039 | ||||
Other Assets In Excess Of Liabilities | 7.2 | % | 1,530,859 | |||||
Net Assets | 100.0 | % | $ | 21,168,898 | ||||
The federal income tax basis and unrealized appreciation (depreciation) for all investments is as follows:
Basis: | $ | 15,120,155 | ||
Gross Appreciation | $ | 4,688,972 | ||
Gross Depreciation | (171,088 | ) | ||
Net Appreciation | $ | 4,517,884 | ||
** Non-income producing security
ADR — American Depository Receipt
SP ADR — Sponsored American Depository Receipt
Top Ten Holdings*
Apple Inc. | 5.5% | |||
Las Vegas Sands Corp. | 4.2% | |||
Rovi Corp. | 3.6% | |||
Ford Motor Co. | 3.0% | |||
American Tower Corp. — A | 3.0% | |||
Amazon.com, Inc. | 3.0% | |||
Oracle Corp. | 2.9% | |||
NIKE, Inc. — B | 2.9% | |||
priceline.com, Inc. | 2.7% | |||
Check Point Software Technologies, Ltd. | 2.6% |
* | All percentages are stated as a percent of net assets at December 31, 2010. |
Notes to Financial Statements are an integral part of this Schedule.
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Table of Contents
Driehaus | Driehaus | |||||||
International | Emerging | |||||||
Discovery | Markets Growth | |||||||
Fund | Fund | |||||||
ASSETS: | ||||||||
Investments, at cost | $ | 250,546,177 | $ | 700,893,868 | ||||
Investments, at market value | $ | 333,471,054 | $ | 790,193,380 | ||||
Foreign currency* | 3,338,698 | 25,548,242 | ||||||
Cash | — | 23,397,695 | ||||||
Receivables: | ||||||||
Dividends | 211,809 | 284,580 | ||||||
Interest | 46 | 174 | ||||||
Investment securities sold | 7,029,607 | 32,822,907 | ||||||
Fund shares sold | 18,947 | 2,380,939 | ||||||
Net unrealized appreciation on unsettled foreign currency forward contracts from transaction hedges | — | — | ||||||
Prepaid expenses | 15,390 | 33,385 | ||||||
TOTAL ASSETS | 344,085,551 | 874,661,302 | ||||||
LIABILITIES: | ||||||||
Payables: | ||||||||
Due to custodian | 1,285,467 | — | ||||||
Investment securities purchased | 2,653,608 | 38,388,207 | ||||||
Fund shares redeemed | 725,482 | 696,150 | ||||||
Net unrealized depreciation on unsettled foreign currency forward contracts from transaction hedges | 43,029 | 16,908 | ||||||
Due to affiliates | 435,031 | 1,023,266 | ||||||
Foreign taxes | — | 14,447 | ||||||
Audit and tax fees | 22,400 | 22,400 | ||||||
Accrued expenses | 80,769 | 189,226 | ||||||
TOTAL LIABILITIES | 5,245,786 | 40,350,604 | ||||||
NET ASSETS | $ | 338,839,765 | $ | 834,310,698 | ||||
SHARES OUTSTANDING (Unlimited shares authorized, no par value) | 11,192,624 | 25,907,534 | ||||||
NET ASSET VALUE | $ | 30.27 | $ | 32.20 | ||||
NET ASSETS CONSISTED OF THE FOLLOWING AT DECEMBER 31, 2010: | ||||||||
Paid-in capital | $ | 548,290,440 | $ | 706,129,683 | ||||
Accumulated net investment income (loss) | (5,520,759 | ) | (4,238,683 | ) | ||||
Accumulated net realized gain (loss) | (286,957,907 | ) | 42,268,455 | |||||
Unrealized net foreign exchange gain (loss) | 103,114 | 851,731 | ||||||
Unrealized net appreciation (depreciation) on investments | 82,924,877 | 89,299,512 | ||||||
NET ASSETS | $ | 338,839,765 | $ | 834,310,698 | ||||
* | The cost of foreign currency was $3,224,403, $24,620,962, $9,607,191, $1,445,718, $0 and $0, respectively. |
Notes to Financial Statements are an integral part of these Statements.
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Statements of Assets and Liabilities
December 31, 2010
December 31, 2010
Driehaus | Driehaus | Driehaus | Driehaus | |||||||||||||
International | Global | Mid Cap | Large Cap | |||||||||||||
Small Cap | Growth | Growth | Growth | |||||||||||||
Growth Fund | Fund | Fund | Fund | |||||||||||||
$ | 204,860,948 | $ | 38,998,755 | $ | 12,474,356 | $ | 15,022,314 | |||||||||
$ | 244,128,810 | $ | 50,622,886 | $ | 16,954,458 | $ | 19,638,039 | |||||||||
9,945,942 | 1,531,069 | — | — | |||||||||||||
5,679,522 | — | 4,750,079 | 1,621,491 | |||||||||||||
203,635 | 11,226 | 344 | 2,110 | |||||||||||||
78 | — | 48 | 86 | |||||||||||||
2,907,423 | 1,679,049 | 43,240 | 53,843 | |||||||||||||
562,251 | — | 25,000 | — | |||||||||||||
13,322 | — | — | — | |||||||||||||
10,118 | 7,980 | 10,091 | 10,106 | |||||||||||||
263,451,101 | 53,852,210 | 21,783,260 | 21,325,675 | |||||||||||||
— | 393,772 | — | — | |||||||||||||
4,520,784 | 621,486 | 172,156 | 114,955 | |||||||||||||
84,286 | — | 616 | 140 | |||||||||||||
— | 6,596 | — | — | |||||||||||||
317,343 | 63,776 | 3,454 | 6,255 | |||||||||||||
— | 825 | — | — | |||||||||||||
22,400 | 22,400 | 19,200 | 19,200 | |||||||||||||
60,210 | 24,651 | 15,229 | 16,227 | |||||||||||||
5,005,023 | 1,133,506 | 210,655 | 156,777 | |||||||||||||
$ | 258,446,078 | $ | 52,718,704 | $ | 21,572,605 | $ | 21,168,898 | |||||||||
26,754,918 | 5,851,320 | 1,575,718 | 1,534,982 | |||||||||||||
$ | 9.66 | $ | 9.01 | $ | 13.69 | $ | 13.79 | |||||||||
$ | 237,481,618 | $ | 39,807,084 | $ | 16,474,077 | $ | 16,113,501 | |||||||||
(890,575 | ) | (518,937 | ) | — | — | |||||||||||
(17,762,595 | ) | 1,720,997 | 618,426 | 439,672 | ||||||||||||
349,768 | 85,429 | — | — | |||||||||||||
39,267,862 | 11,624,131 | 4,480,102 | 4,615,725 | |||||||||||||
$ | 258,446,078 | $ | 52,718,704 | $ | 21,572,605 | $ | 21,168,898 | |||||||||
Notes to Financial Statements are an integral part of these Statements.
39
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Statements of Operations
For the year ended December 31, 2010
For the year ended December 31, 2010
Driehaus | Driehaus | |||||||
International | Emerging | |||||||
Discovery | Markets Growth | |||||||
Fund | Fund | |||||||
INVESTMENT INCOME (LOSS): | ||||||||
Income: | ||||||||
Dividends* | $ | 3,120,514 | $ | 9,463,795 | ||||
Interest | 1,578 | 9,643 | ||||||
Total income | 3,122,092 | 9,473,438 | ||||||
Expenses: | ||||||||
Investment advisory fee | 5,058,686 | 9,590,271 | ||||||
Administration fee | 289,728 | 440,819 | ||||||
Professional fees | 80,712 | 137,563 | ||||||
Audit and tax fees | 67,974 | 78,466 | ||||||
Federal and state registration fees | 16,057 | 75,480 | ||||||
Custodian fees | 47,892 | 186,948 | ||||||
Transfer agent fees | 91,618 | 127,177 | ||||||
Trustees’ fees | 19,362 | 28,698 | ||||||
Chief compliance officer fees | 9,063 | 9,063 | ||||||
Reports to shareholders | 33,625 | 69,919 | ||||||
Miscellaneous | 39,007 | 47,672 | ||||||
Total expenses | 5,753,724 | 10,792,076 | ||||||
Investment advisory fees recaptured (waived) | — | — | ||||||
Transfer agent fees waived | — | — | ||||||
Fees paid indirectly | (18,260 | ) | (379,425 | ) | ||||
Net expenses | 5,735,464 | 10,412,651 | ||||||
Net investment income (loss) | (2,613,372 | ) | (939,213 | ) | ||||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: | ||||||||
Net realized gain (loss) from security transactions | 50,710,985 | 161,804,595 | ||||||
Net realized foreign exchange gain (loss)** | (226,233 | ) | (2,126,752 | ) | ||||
Net change in unrealized foreign exchange gain (loss) | 105,509 | 812,157 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (6,308,110 | ) | (15,487,396 | ) | ||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 44,282,151 | 145,002,604 | ||||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 41,668,779 | $ | 144,063,391 | ||||
* | Dividends are net of $371,370, $849,016, $108,448, $23,202, $0 and $688 non-reclaimable foreign taxes withheld, respectively. |
** | Net realized foreign exchange gain (loss) is net of $120,883, $1,080,720, $155,324, $18,040, $0 and $0 of Brazilian foreign transaction tax, respectively. |
Notes to Financial Statements are an integral part of these Statements.
40
Table of Contents
Statements of Operations
For the year ended December 31, 2010
For the year ended December 31, 2010
Driehaus | Driehaus | Driehaus | Driehaus | |||||||||||||
International | Global | Mid Cap | Large Cap | |||||||||||||
Small Cap | Growth | Growth | Growth | |||||||||||||
Growth Fund | Fund | Fund | Fund | |||||||||||||
$ | 2,017,540 | $ | 313,022 | $ | 52,517 | $ | 99,036 | |||||||||
1,783 | — | 1,356 | 1,431 | |||||||||||||
2,019,323 | 313,022 | 53,873 | 100,467 | |||||||||||||
3,156,041 | 624,349 | 150,988 | 144,180 | |||||||||||||
213,498 | 88,420 | 50,121 | 50,334 | |||||||||||||
55,381 | 24,534 | 16,489 | 16,620 | |||||||||||||
54,269 | 50,475 | 40,100 | 40,100 | |||||||||||||
19,704 | 15,965 | 20,340 | 20,561 | |||||||||||||
53,562 | 9,081 | 5,946 | 6,064 | |||||||||||||
52,708 | 38,678 | 38,510 | 37,947 | |||||||||||||
17,146 | 13,043 | 11,870 | 11,874 | |||||||||||||
9,063 | 9,063 | 9,063 | 9,063 | |||||||||||||
19,211 | 12,262 | 11,127 | 11,133 | |||||||||||||
30,077 | 18,699 | 17,751 | 17,764 | |||||||||||||
3,680,660 | 904,569 | 372,305 | 365,640 | |||||||||||||
— | 97,994 | (90,076 | ) | (67,291 | ) | |||||||||||
— | (3,000 | ) | (18,000 | ) | (18,000 | ) | ||||||||||
(52,349 | ) | (605 | ) | — | — | |||||||||||
3,628,311 | 998,958 | 264,229 | 280,349 | |||||||||||||
(1,608,988 | ) | (685,936 | ) | (210,356 | ) | (179,882 | ) | |||||||||
52,324,576 | 6,468,635 | 2,231,602 | 1,834,936 | |||||||||||||
(305,960 | ) | (7,441 | ) | — | — | |||||||||||
326,476 | 80,490 | — | — | |||||||||||||
3,677,913 | 2,452,231 | 1,530,998 | 1,720,320 | |||||||||||||
56,023,005 | 8,993,915 | 3,762,600 | 3,555,256 | |||||||||||||
$ | 54,414,017 | $ | 8,307,979 | $ | 3,552,244 | $ | 3,375,374 | |||||||||
Notes to Financial Statements are an integral part of these Statements.
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Statements of Changes in Net Assets
Driehaus International | Driehaus Emerging Markets | |||||||||||||||
Discovery Fund | Growth Fund | |||||||||||||||
For the year | For the year | For the year | For the year | |||||||||||||
ended | ended | ended | ended | |||||||||||||
December 31, 2010 | December 31, 2009 | December 31, 2010 | December 31, 2009 | |||||||||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||||||||||
Operations: | ||||||||||||||||
Net investment income (loss) | $ | (2,613,372 | ) | $ | 216,307 | $ | (939,213 | ) | $ | (1,159,835 | ) | |||||
Net realized gain (loss) on investments and foreign currency transactions | 50,484,752 | (9,933,556 | ) | 159,677,843 | 93,979,512 | |||||||||||
Net change in unrealized gain (loss) on investments and foreign currency transactions | (6,202,601 | ) | 135,297,619 | (14,675,239 | ) | 112,926,105 | ||||||||||
Net increase (decrease) in net assets resulting from operations | 41,668,779 | 125,580,370 | 144,063,391 | 205,745,782 | ||||||||||||
Distributions to shareholders: | ||||||||||||||||
Net investment income | (6,325,312 | ) | (1,485,266 | ) | (15,972,778 | ) | — | |||||||||
Capital gains | — | — | (72,514,637 | ) | — | |||||||||||
Total distributions to shareholders | (6,325,312 | ) | (1,485,266 | ) | (88,487,415 | ) | — | |||||||||
Capital share transactions: | ||||||||||||||||
Proceeds from shares sold | 14,634,310 | 22,398,438 | 278,323,660 | 196,160,470 | ||||||||||||
Reinvestment of distributions | 6,266,379 | 1,470,033 | 87,406,427 | — | ||||||||||||
Cost of shares redeemed | (81,819,068 | ) | (85,669,884 | ) | (162,907,606 | ) | (89,587,667 | ) | ||||||||
Redemption fees | 4,014 | 5,455 | 70,228 | 117,387 | ||||||||||||
Net increase (decrease) in net assets derived from capital share transactions | (60,914,365 | ) | (61,795,958 | ) | 202,892,709 | 106,690,190 | ||||||||||
Total increase (decrease) in net assets | (25,570,898 | ) | 62,299,146 | 258,468,685 | 312,435,972 | |||||||||||
NET ASSETS: | ||||||||||||||||
Beginning of period | $ | 364,410,663 | $ | 302,111,517 | $ | 575,842,013 | $ | 263,406,041 | ||||||||
End of period | $ | 338,839,765 | $ | 364,410,663 | $ | 834,310,698 | $ | 575,842,013 | ||||||||
Accumulated net investment income (loss) | $ | (5,520,759 | ) | $ | 1,472,102 | $ | (4,238,683 | ) | $ | 259,085 | ||||||
Capital share transactions are as follows: | ||||||||||||||||
Shares issued | 535,857 | 995,748 | 8,734,081 | 8,468,503 | ||||||||||||
Shares reinvested | 210,493 | 55,327 | 2,763,403 | — | ||||||||||||
Shares redeemed | (2,955,630 | ) | (4,179,412 | ) | (5,283,366 | ) | (4,094,955 | ) | ||||||||
Net increase (decrease) from capital share transactions | (2,209,280 | ) | (3,128,337 | ) | 6,214,118 | 4,373,548 | ||||||||||
* | Fund commenced operations on April 27, 2009. |
Notes to Financial Statements are an integral part of these Statements.
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Table of Contents
Statements of Changes in Net Assets
Driehaus International | Driehaus Global | Driehaus Mid Cap | Driehaus Large Cap | |||||||||||||||||||||||||||||
Small Cap Growth Fund | Growth Fund | Growth Fund | Growth Fund | |||||||||||||||||||||||||||||
For the period | For the period | |||||||||||||||||||||||||||||||
For the year | For the year | For the year | For the year | For the year | April 27, 2009 | For the year | April 27, 2009 | |||||||||||||||||||||||||
ended | ended | ended | ended | ended | through | ended | through | |||||||||||||||||||||||||
December 31, 2010 | December 31, 2009 | December 31, 2010 | December 31, 2009 | December 31, 2010 | December 31, 2009* | December 31, 2010 | December 31, 2009* | |||||||||||||||||||||||||
$ | (1,608,988 | ) | $ | (792,614 | ) | $ | (685,936 | ) | $ | (285,533 | ) | $ | (210,356 | ) | $ | (104,566 | ) | $ | (179,882 | ) | $ | (59,644 | ) | |||||||||
| 52,018,616 | 21,848,692 | 6,461,194 | (985,638 | ) | 2,231,602 | 2,093,891 | 1,834,936 | 1,382,973 | |||||||||||||||||||||||
| 4,004,389 | 47,707,195 | 2,532,721 | 12,533,715 | 1,530,998 | 2,949,104 | 1,720,320 | 2,895,405 | ||||||||||||||||||||||||
| 54,414,017 | 68,763,273 | 8,307,979 | 11,262,544 | 3,552,244 | 4,938,429 | 3,375,374 | 4,218,734 | ||||||||||||||||||||||||
(1,697,404 | ) | — | (130,775 | ) | — | — | — | — | — | |||||||||||||||||||||||
— | — | — | — | (1,227,343 | ) | (1,323,047 | ) | (969,241 | ) | (436,275 | ) | |||||||||||||||||||||
(1,697,404 | ) | — | (130,775 | ) | — | (1,227,343 | ) | (1,323,047 | ) | (969,241 | ) | (436,275 | ) | |||||||||||||||||||
54,394,213 | 38,026,172 | 15,723,555 | 16,563,936 | 5,368,327 | 10,817,841 | 7,203,826 | 11,038,064 | |||||||||||||||||||||||||
1,571,651 | — | 130,775 | — | 1,173,613 | 1,264,383 | 956,036 | 432,420 | |||||||||||||||||||||||||
(51,259,574 | ) | (17,220,177 | ) | (11,613,598 | ) | (2,083,320 | ) | (2,115,249 | ) | (877,188 | ) | (3,272,399 | ) | (1,378,140 | ) | |||||||||||||||||
2,879 | 5,229 | — | 494 | 106 | 489 | 176 | 323 | |||||||||||||||||||||||||
| 4,709,169 | 20,811,224 | 4,240,732 | 14,481,110 | 4,426,797 | 11,205,525 | 4,887,639 | 10,092,667 | ||||||||||||||||||||||||
57,425,782 | 89,574,497 | 12,417,936 | 25,743,654 | 6,751,698 | 14,820,907 | 7,293,772 | 13,875,126 | |||||||||||||||||||||||||
$ | 201,020,296 | $ | 111,445,799 | $ | 40,300,768 | $ | 14,557,114 | $ | 14,820,907 | $ | — | $ | 13,875,126 | $ | — | |||||||||||||||||
$ | 258,446,078 | $ | 201,020,296 | $ | 52,718,704 | $ | 40,300,768 | $ | 21,572,605 | $ | 14,820,907 | $ | 21,168,898 | $ | 13,875,126 | |||||||||||||||||
$ | (890,575 | ) | $ | 884,310 | $ | (518,937 | ) | $ | (253,514 | ) | $ | — | $ | 13,038 | $ | — | $ | 1,291 | ||||||||||||||
6,400,797 | 6,661,227 | 1,941,686 | 2,778,119 | 398,098 | 1,247,215 | 584,787 | 1,250,021 | |||||||||||||||||||||||||
167,019 | — | 14,546 | — | 84,615 | 108,717 | 68,928 | 36,246 | |||||||||||||||||||||||||
(6,109,192 | ) | (2,983,422 | ) | (1,415,181 | ) | (392,000 | ) | (180,990 | ) | (81,937 | ) | (280,713 | ) | (124,287 | ) | |||||||||||||||||
458,624 | 3,677,805 | 541,051 | 2,386,119 | 301,723 | 1,273,995 | 373,002 | 1,161,980 | |||||||||||||||||||||||||
Notes to Financial Statements are an integral part of these Statements.
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Table of Contents
Driehaus International Discovery Fund
Financial Highlights
Financial Highlights
For the year | For the year | For the year | For the year | For the year | |||||||||||||||||||||
ended | ended | ended | ended | ended | |||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||
Net asset value, beginning of period | $ | 27.19 | $ | 18.28 | $ | 41.55 | $ | 39.35 | $ | 41.20 | |||||||||||||||
INCOME (LOSS) FROM INVESTMENT OPERATIONS: | |||||||||||||||||||||||||
Net investment income (loss) | (0.22 | ) | 0.00 | ~ | (0.06 | ) | (0.03 | ) | (0.21 | ) | |||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 3.86 | 9.02 | (22.85 | ) | 12.19 | 6.82 | |||||||||||||||||||
Total income (loss) from investment operations | 3.64 | 9.02 | (22.91 | ) | 12.16 | 6.61 | |||||||||||||||||||
LESS DISTRIBUTIONS: | |||||||||||||||||||||||||
Dividends from net investment income | (0.56 | ) | (0.11 | ) | — | (0.13 | ) | — | |||||||||||||||||
Distributions from capital gains | — | — | (0.38 | ) | (9.83 | ) | (8.47 | ) | |||||||||||||||||
Total distributions | (0.56 | ) | (0.11 | ) | (0.38 | ) | (9.96 | ) | (8.47 | ) | |||||||||||||||
Redemption fees added to paid-in capital | 0.00 | ~ | 0.00 | ~ | 0.02 | 0.00 | ~ | 0.01 | |||||||||||||||||
Net asset value, end of period | $ | 30.27 | $ | 27.19 | $ | 18.28 | $ | 41.55 | $ | 39.35 | |||||||||||||||
Total Return | 13.47 | % | 49.28 | % | (55.07 | ) | % | 32.32 | % | 16.41 | % | ||||||||||||||
RATIOS/SUPPLEMENTAL DATA | |||||||||||||||||||||||||
Net assets, end of period (in 000’s) | $ | 338,840 | $ | 364,411 | $ | 302,112 | $ | 857,041 | $ | 639,751 | |||||||||||||||
Ratio of expenses before reimbursements, waivers and fees paid indirectly to average net assets | 1.71 | % | 1.75 | % | 1.65 | % | 1.63 | % | 1.74 | % | |||||||||||||||
Ratio of net expenses to average net assets | 1.70 | %# | 1.74 | %# | 1.64 | %# | 1.59 | %# | 1.68 | %# | |||||||||||||||
Ratio of net investment income (loss) to average net assets | (0.77 | ) | %# | 0.07 | %# | (0.07 | ) | %# | (0.28 | ) | %# | (0.50 | ) | %# | |||||||||||
Portfolio turnover | 93 | % | 145 | % | 188 | % | 218 | % | 216 | % | |||||||||||||||
~ | Amount represents less than $0.01 per share | |
# | Such ratios are net of fees paid indirectly (see Note B in the Notes to Financial Statements). |
Notes to Financial Statements are an integral part of this Schedule.
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Table of Contents
Driehaus Emerging Markets Growth Fund
Financial Highlights
Financial Highlights
For the year | For the year | For the year | For the year | For the year | |||||||||||||||||||||
ended | ended | ended | ended | ended | |||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||
Net asset value, beginning of period | $ | 29.24 | $ | 17.19 | $ | 43.45 | $ | 39.09 | $ | 28.29 | |||||||||||||||
INCOME (LOSS) FROM INVESTMENT OPERATIONS: | |||||||||||||||||||||||||
Net investment income (loss) | (0.04 | ) | ^ | (0.05 | ) | (0.08 | ) | (0.09 | ) | (0.07 | ) | ||||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 6.84 | 12.09 | (23.53 | ) | 16.00 | 11.68 | |||||||||||||||||||
Total income (loss) from investment operations | 6.80 | 12.04 | (23.61 | ) | 15.91 | 11.61 | |||||||||||||||||||
LESS DISTRIBUTIONS: | |||||||||||||||||||||||||
Dividends from net investment income | (0.69 | ) | — | — | — | — | |||||||||||||||||||
Distributions from capital gains | (3.15 | ) | — | (2.65 | ) | (11.56 | ) | (0.84 | ) | ||||||||||||||||
Total distributions | (3.84 | ) | — | (2.65 | ) | (11.56 | ) | (0.84 | ) | ||||||||||||||||
Redemption fees added to paid-in capital | 0.00 | ~ | 0.01 | 0.00 | ~ | 0.01 | 0.03 | ||||||||||||||||||
Net asset value, end of period | $ | 32.20 | $ | 29.24 | $ | 17.19 | $ | 43.45 | $ | 39.09 | |||||||||||||||
Total Return | 23.56 | % | 70.10 | % | (54.45 | ) | % | 42.36 | % | 41.22 | % | ||||||||||||||
RATIOS/SUPPLEMENTAL DATA | |||||||||||||||||||||||||
Net assets, end of period (in 000’s) | $ | 834,311 | $ | 575,842 | $ | 263,406 | $ | 958,230 | $ | 788,791 | |||||||||||||||
Ratio of expenses before reimbursements, waivers and fees paid indirectly to average net assets | 1.69 | % | 1.78 | % | 1.77 | % | 1.74 | % | 1.83 | % | |||||||||||||||
Ratio of net expenses to average net assets | 1.63 | %# | 1.75 | %# | 1.75 | %# | 1.69 | %# | 1.78 | %# | |||||||||||||||
Ratio of net investment income (loss) to average net assets | (0.15 | ) | %# | (0.30 | ) | %# | (0.19 | ) | %# | (0.22 | ) | %# | (0.32 | ) | %# | ||||||||||
Portfolio turnover | 293 | % | 275 | % | 313 | % | 165 | % | 181 | % | |||||||||||||||
^ | Net investment income (loss) per share has been calculated using the average shares method. | |
~ | Amount represents less than $0.01 per share | |
# | Such ratios are net of fees paid indirectly (see Note B in the Notes to Financial Statements). |
Notes to Financial Statements are an integral part of this Schedule.
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Table of Contents
Driehaus International Small Cap Growth Fund
Financial Highlights
Financial Highlights
For the year | For the year | For the year | For the period | |||||||||||||||||
ended | ended | ended | September 17, 2007 | |||||||||||||||||
December 31, | December 31, | December 31, | through | |||||||||||||||||
2010 | 2009 | 2008 | December 31, 2007 | |||||||||||||||||
Net asset value, beginning of period | $ | 7.64 | $ | 4.93 | $ | 11.14 | $ | 10.00 | ||||||||||||
INCOME (LOSS) FROM INVESTMENT OPERATIONS: | ||||||||||||||||||||
Net investment income (loss) | (0.06 | ) | (0.02 | ) | (0.01 | ) | (0.02 | ) | ||||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 2.14 | 2.73 | (5.90 | ) | 1.84 | |||||||||||||||
Total income (loss) from investment operations | 2.08 | 2.71 | (5.91 | ) | 1.82 | |||||||||||||||
LESS DISTRIBUTIONS: | ||||||||||||||||||||
Dividends from net investment income | (0.06 | ) | — | (0.01 | ) | (0.10 | ) | |||||||||||||
Distributions from capital gains | — | — | (0.29 | ) | (0.61 | ) | ||||||||||||||
Total distributions | (0.06 | ) | — | (0.30 | ) | (0.71 | ) | |||||||||||||
Redemption fees added to paid-in capital | 0.00 | ~ | 0.00 | ~ | 0.00 | ~ | 0.03 | |||||||||||||
Net asset value, end of period | $ | 9.66 | $ | 7.64 | $ | 4.93 | $ | 11.14 | ||||||||||||
Total Return | 27.13 | % | 55.17 | % | (53.12 | ) | % | 18.88 | %** | |||||||||||
RATIOS/SUPPLEMENTAL DATA | ||||||||||||||||||||
Net assets, end of period (in 000’s) | $ | 258,446 | $ | 201,020 | $ | 111,446 | $ | 143,364 | ||||||||||||
Ratio of expenses before reimbursements, waivers and fees paid indirectly to average net assets | 1.75 | % | 1.87 | % | 1.88 | % | 1.94 | %* | ||||||||||||
Ratio of net expenses to average net assets | 1.72 | %+# | 1.85 | %+# | 1.83 | %+# | 1.90 | %*+# | ||||||||||||
Ratio of net investment income (loss) to average net assets | (0.76 | ) | %+# | (0.54 | ) | %+# | (0.71 | ) | %+# | (0.83 | ) | %*+# | ||||||||
Portfolio turnover | 298 | % | 265 | % | 271 | % | 100 | %** | ||||||||||||
* | Annualized | |
** | Not Annualized | |
~ | Amount represents less than $0.01 per share | |
+ | Such ratios are after administrative and transfer agent waivers and adviser expense reimbursements, when applicable. BNY Mellon Investment Servicing (US) Inc., the administrative agent and transfer agent, waived a portion of its fees beginning with the Fund’s commencement of operations, September 17, 2007. The Adviser agreed to waive its investment advisory fee or absorb other operating expenses to the extent necessary to ensure that total Fund operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures, and extraordinary expenses) would not exceed the Fund’s operating expense cap of 2.00% of average daily net assets until September 16, 2010. Fund expenses were reimbursed for expenses exceeding the 2.00% expense cap after reduction of amounts received through commission recapture programs that were applied to Fund expenses. | |
# | Such ratios are net of fees paid indirectly (see Note B in the Notes to Financial Statements). |
Notes to Financial Statements are an integral part of this Schedule.
46
Table of Contents
Driehaus Global Growth Fund
Financial Highlights
Financial Highlights
For the year | For the year | For the period | |||||||||||||
ended | ended | May 1, 2008 | |||||||||||||
December 31, | December 31, | through | |||||||||||||
2010 | 2009 | December 31, 2008 | |||||||||||||
Net asset value, beginning of period | $ | 7.59 | $ | 4.98 | $ | 10.00 | |||||||||
INCOME (LOSS) FROM INVESTMENT OPERATIONS: | |||||||||||||||
Net investment income (loss) | (0.11 | ) | (0.05 | ) | (0.02 | ) | |||||||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | 1.55 | 2.66 | (5.00 | ) | |||||||||||
Total income (loss) from investment operations | 1.44 | 2.61 | (5.02 | ) | |||||||||||
LESS DISTRIBUTIONS: | |||||||||||||||
Dividends from net investment income | (0.02 | ) | — | — | |||||||||||
Distributions from capital gains | — | — | — | ||||||||||||
Total distributions | (0.02 | ) | — | — | |||||||||||
Redemption fees added to paid-in capital | — | 0.00 | ~ | 0.00 | ~ | ||||||||||
Net asset value, end of period | $ | 9.01 | $ | 7.59 | $ | 4.98 | |||||||||
Total Return | 19.00 | % | 52.41 | % | (50.20 | ) | %** | ||||||||
RATIOS/SUPPLEMENTAL DATA | |||||||||||||||
Net assets, end of period (in 000’s) | $ | 52,719 | $ | 40,301 | $ | 14,557 | |||||||||
Ratio of expenses before reimbursements and/or recapture, waivers and fees paid indirectly to average net assets | 1.81 | % | 2.34 | % | 3.94 | %* | |||||||||
Ratio of net expenses to average net assets | 2.00 | %+# | 2.00 | %+# | 2.00 | %*+# | |||||||||
Ratio of net investment income (loss) to average net assets | (1.37 | ) | %+# | (1.09 | ) | %+# | (0.86 | ) | %*+# | ||||||
Portfolio turnover | 145 | % | 119 | % | 74 | %** | |||||||||
* | Annualized | |
** | Not Annualized | |
~ | Amount represents less than $0.01 per share | |
+ | Such ratios are after administrative and transfer agent waivers and adviser expense reimbursements and/or recapture, when applicable. BNY Mellon Investment Servicing (US) Inc., the administrative agent and transfer agent, waived a portion of its fees beginning with the Fund’s commencement of operations, May 1, 2008. The Adviser agreed to waive its investment advisory fee or absorb other operating expenses to the extent necessary to ensure that total Fund operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures, and extraordinary expenses) would not exceed the Fund’s operating expense cap of 2.00% of average daily net assets until April 30, 2011. Fund expenses were reimbursed for expenses exceeding the 2.00% expense cap after reduction of amounts received through commission recapture programs that were applied to Fund expenses. | |
# | Such ratios are net of fees paid indirectly (see Note B in the Notes to Financial Statements). |
Notes to Financial Statements are an integral part of this Schedule.
47
Table of Contents
Driehaus Mid Cap Growth Fund
Financial Highlights
Financial Highlights
For the year | For the period | |||||||||
ended | April 27, 2009 | |||||||||
December 31, | through | |||||||||
2010 | December 31, 2009 | |||||||||
Net asset value, beginning of period | $ | 11.63 | $ | 10.00 | ||||||
INCOME (LOSS) FROM INVESTMENT OPERATIONS: | ||||||||||
Net investment income (loss) | (0.14 | ) | (0.08 | ) | ||||||
Net realized and unrealized gain (loss) on investments | 3.25 | 2.85 | ||||||||
Total income (loss) from investment operations | 3.11 | 2.77 | ||||||||
LESS DISTRIBUTIONS: | ||||||||||
Dividends from net investment income | — | — | ||||||||
Distributions from capital gains | (1.05 | ) | (1.14 | ) | ||||||
Total distributions | (1.05 | ) | (1.14 | ) | ||||||
Redemption fees added to paid-in capital | 0.00 | ~ | 0.00 | ~ | ||||||
Net asset value, end of period | $ | 13.69 | $ | 11.63 | ||||||
Total Return | 26.59 | % | 27.66 | %** | ||||||
RATIOS/SUPPLEMENTAL DATA | ||||||||||
Net assets, end of period (in 000’s) | $ | 21,573 | $ | 14,821 | ||||||
Ratio of expenses before reimbursements and waivers to average net assets | 2.47 | % | 2.82 | %* | ||||||
Ratio of net expenses to average net assets | 1.75 | %+ | 1.75 | %*+ | ||||||
Ratio of net investment income (loss) to average net assets | (1.39 | ) | %+ | (1.15 | ) | %*+ | ||||
Portfolio turnover | 182 | % | 208 | %** | ||||||
* | Annualized | |
** | Not Annualized | |
~ | Amount represents less than $0.01 per share | |
+ | Such ratios are after administrative and transfer agent waivers and adviser expense reimbursements, when applicable. BNY Mellon Investment Servicing (US) Inc., the administrative agent and transfer agent, waived a portion of its fees beginning with the Fund’s commencement of operations, April 27, 2009. The Adviser agreed to waive its investment advisory fee or absorb other operating expenses to the extent necessary to ensure that total Fund operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures, and extraordinary expenses) would not exceed the Fund’s operating expense cap of 1.75% of average daily net assets until April 26, 2012. |
Notes to Financial Statements are an integral part of this Schedule.
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Table of Contents
Driehaus Large Cap Growth Fund
Financial Highlights
Financial Highlights
For the year | For the period | |||||||||
ended | April 27, 2009 | |||||||||
December 31, | through | |||||||||
2010 | December 31, 2009 | |||||||||
Net asset value, beginning of period | $ | 11.94 | $ | 10.00 | ||||||
INCOME (LOSS) FROM INVESTMENT OPERATIONS: | ||||||||||
Net investment income (loss) | (0.12 | ) | (0.05 | ) | ||||||
Net realized and unrealized gain (loss) on investments | 2.67 | 2.36 | ||||||||
Total income (loss) from investment operations | 2.55 | 2.31 | ||||||||
LESS DISTRIBUTIONS: | ||||||||||
Dividends from net investment income | — | — | ||||||||
Distributions from capital gains | (0.70 | ) | (0.37 | ) | ||||||
Total distributions | (0.70 | ) | (0.37 | ) | ||||||
Redemption fees added to paid-in capital | 0.00 | ~ | 0.00 | ~ | ||||||
Net asset value, end of period | $ | 13.79 | $ | 11.94 | ||||||
Total Return | 21.36 | % | 23.14 | %** | ||||||
RATIOS/SUPPLEMENTAL DATA | ||||||||||
Net assets, end of period (in 000’s) | $ | 21,169 | $ | 13,875 | ||||||
Ratio of expenses before reimbursements and waivers to average net assets | 2.28 | % | 2.72 | %* | ||||||
Ratio of net expenses to average net assets | 1.75 | %+ | 1.75 | %*+ | ||||||
Ratio of net investment loss to average net assets | (1.12 | ) | %+ | (0.67 | ) | %*+ | ||||
Portfolio turnover | 140 | % | 142 | %** | ||||||
* | Annualized | |
** | Not Annualized | |
~ | Amount represents less than $0.01 per share | |
+ | Such ratios are after administrative and transfer agent waivers and adviser expense reimbursements, when applicable. BNY Mellon Investment Servicing (US) Inc., the administrative agent and transfer agent, waived a portion of its fees beginning with the Fund’s commencement of operations, April 27, 2009. The Adviser agreed to waive its investment advisory fee or absorb other operating expenses to the extent necessary to ensure that total Fund operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures, and extraordinary expenses) would not exceed the Fund’s operating expense cap of 1.75% of average daily net assets until April 26, 2012. |
Notes to Financial Statements are an integral part of this Schedule.
49
Table of Contents
Driehaus Mutual Funds
Notes to Financial Statements
Notes to Financial Statements
A. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization
The Driehaus Mutual Funds (the “Trust”) is a registered management investment company, organized as a Delaware statutory trust, with eight separate series currently in operation. The Trust was organized under an Agreement and Declaration of Trust dated May 31, 1996 and may issue an unlimited number of full and fractional units of beneficial interest (shares) without par value. The six series (“Funds” or each a “Fund”) included in this report are as follows:
Fund | Commencement of Operations | |||
Driehaus International Discovery Fund | 12/31/98 | |||
Driehaus Emerging Markets Growth Fund | 12/31/97 | |||
Driehaus International Small Cap Growth Fund* | 09/17/07 | |||
Driehaus Global Growth Fund | 05/01/08 | |||
Driehaus Mid Cap Growth Fund | 04/27/09 | |||
Driehaus Large Cap Growth Fund | 04/27/09 | |||
* | On December 29, 2010, the Driehaus International Small Cap Growth Fund was closed to new investors. |
The investment objective of each Fund is to maximize capital appreciation.
Driehaus International Discovery Fund seeks to achieve its objective by generally investing in equity securities of small to mid-size foreign companies; however, the Fund may shift its focus toward large cap foreign stocks when market conditions suggest doing so will help the Fund achieve its objective.
Driehaus Emerging Markets Growth Fund seeks to achieve its objective by investing primarily in equity securities of emerging markets companies.
Driehaus International Small Cap Growth Fund seeks to achieve its objective by investing primarily in equity securities of smaller capitalization non-U.S. companies exhibiting strong growth characteristics.
Driehaus Global Growth Fund seeks to achieve its objective by investing primarily in equity securities of both U.S. and non-U.S. companies exhibiting strong growth characteristics.
Driehaus Mid Cap Growth Fund seeks to achieve its objective by investing primarily in equity securities of mid capitalization U.S. companies exhibiting strong growth characteristics.
Driehaus Large Cap Growth Fund seeks to achieve its objective by investing primarily in equity securities of large capitalization U.S. companies exhibiting strong growth characteristics.
Fiscal Year End
The fiscal year end for the Funds is December 31.
Securities Valuation and Transactions
Equity securities are valued at the last sale price as of the close of the primary exchange or other designated time. In addition, if quotations are not readily available, if the values have been materially affected by events occurring after the closing of a foreign market, or if there has been a movement in the United States market that exceeds a certain threshold, assets may be valued at fair value as determined in good faith by or under the direction of the Trust’s Board of Trustees. Events that may materially affect asset values that could cause a fair value determination include, but are not limited to: corporate announcements relating to a specific security; natural and other disasters which may impact an entire market or region; and political and other events which may be global or impact a particular country or region. The frequency with which these procedures are used cannot be predicted and may be utilized to a significant extent. To the extent utilized, securities would be considered level 2 in the hierarchy described below.
50
Table of Contents
Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Securities transactions are accounted for on trade date. The cost of investments sold is determined by the use of specific identification method for both financial reporting and income tax purposes. Interest income is recorded on an accrual basis. Dividend income, net of non-reclaimable foreign taxes withheld, is recorded on the ex-dividend date or as soon as the information is available. Income and expenses are accrued daily.
Each Fund is subject to fair value accounting standards that define fair value, establish the framework for measuring fair value and provide a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. The three levels of the fair value hierarchy are as follows:
Level 1 — quoted prices in active markets for identical securities
Level 2 — significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The summary of inputs used to value each Fund’s net assets as of December 31, 2010 is as follows:
Level 2 | Level 3 | |||||||||||||||
Total | Level 1 | Significant | Significant | |||||||||||||
Value at | Quoted | Observable | Unobservable | |||||||||||||
Fund | December 31, 2010 | Price | Input | Input | ||||||||||||
Driehaus International Discovery Fund | ||||||||||||||||
Assets: | ||||||||||||||||
Investments in Securities* | $ | 333,471,054 | $ | 333,471,054 | $ | — | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward contracts** | $ | 43,029 | $ | — | $ | 43,029 | $ | — | ||||||||
Driehaus Emerging Markets Growth Fund | ||||||||||||||||
Assets: | ||||||||||||||||
Investments in Securities* | $ | 790,193,380 | $ | 790,193,380 | $ | — | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward contracts** | $ | 16,908 | $ | — | $ | 16,908 | $ | — | ||||||||
Driehaus International Small Cap Growth Fund | ||||||||||||||||
Assets: | ||||||||||||||||
Investments in Securities* | $ | 244,128,810 | $ | 244,128,810 | $ | — | $ | — | ||||||||
Foreign currency forward contracts** | 13,322 | — | 13,322 | — | ||||||||||||
Total Assets | $ | 244,142,132 | $ | 244,128,810 | $ | 13,322 | $ | — | ||||||||
Driehaus Global Growth Fund | ||||||||||||||||
Assets: | ||||||||||||||||
Investments in Securities* | $ | 50,622,886 | $ | 50,622,886 | $ | — | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Foreign currency forward contracts** | $ | 6,596 | $ | — | $ | 6,596 | $ | — | ||||||||
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Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Level 2 | Level 3 | |||||||||||||||
Total | Level 1 | Significant | Significant | |||||||||||||
Value at | Quoted | Observable | Unobservable | |||||||||||||
Fund | December 31, 2010 | Price | Input | Input | ||||||||||||
Driehaus Mid Cap Growth Fund | ||||||||||||||||
Assets: | ||||||||||||||||
Investments in Securities* | $ | 16,954,458 | $ | 16,954,458 | $ | — | $ | — | ||||||||
Driehaus Large Cap Growth Fund | ||||||||||||||||
Assets: | ||||||||||||||||
Investments in Securities* | $ | 19,638,039 | $ | 19,638,039 | $ | — | $ | — | ||||||||
* | See Schedule of Investments for industry and/or country breakout. | |
** | These are derivative instruments not reflected on the Schedule of Investments, which reflects the unrealized appreciation or depreciation on the forward contracts (see Note C in the Notes to Financial Statements). |
Federal Income Taxes
No provision is made for Federal income taxes since each Fund has elected to be taxed as a “regulated investment company” under Subchapter M of the Internal Revenue Code (the “Code”) and has made and declared all the required distributions to its shareholders in amounts sufficient to relieve each Fund from all or substantially all Federal income and excise taxes under provisions of current Federal tax law.
Each Fund is subject to accounting standards that establish a minimum threshold for recognizing, and a system for measuring, the benefits of a tax position taken or expected to be taken in a tax return. Taxable years ending 2010, 2009, 2008 and 2007 remain open to Federal and state audit. As of December 31, 2010, management has evaluated the application of these standards to each Fund, and has determined that no provision for income tax is required in each Fund’s financial statements for uncertain tax provisions. Foreign taxes are provided for based on the Funds’ understanding of the tax rules and regulations that exist in the foreign markets in which they invest.
The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with Federal income tax regulations, which may differ from U.S. generally accepted accounting principles.
For the year ended December 31, 2010, reclassifications were recorded to undistributed net investment income, undistributed net realized foreign exchange loss and undistributed net realized gain for any permanent tax differences. These reclassifications relate primarily to foreign currency losses, sales of passive foreign investment companies, net operating losses and capital loss carryforwards expiring. Results of operations and net assets were not affected by these reclassifications.
Driehaus | Driehaus | |||||||||||||||||||||||
Driehaus | Emerging | International | Driehaus | Driehaus | Driehaus | |||||||||||||||||||
International | Markets | Small Cap | Global | Mid Cap | Large Cap | |||||||||||||||||||
Discovery | Growth | Growth | Growth | Growth | Growth | |||||||||||||||||||
Fund | Fund | Fund | Fund | Fund | Fund | |||||||||||||||||||
Undistributed ordinary income | $ | 1,945,823 | $ | 12,414,223 | $ | 1,531,507 | $ | 551,288 | $ | 197,318 | $ | 178,591 | ||||||||||||
Undistributed net realized gain | (1,605,606 | ) | (12,414,223 | ) | (1,531,507 | ) | (46,857 | ) | (197,318 | ) | (178,591 | ) | ||||||||||||
Paid-in capital | (340,217 | ) | — | — | (504,431 | ) | — | — |
During the year ended December 31, 2010, Driehaus International Discovery Fund utilized $48,375,870 of capital loss carryforwards and as of December 31, 2010, had capital loss carryforwards of $7,319,729 expiring in 2015, $167,115,441 expiring in 2016 and $109,113,076 expiring in 2017. During the year ended December 31, 2010, Driehaus Emerging Markets Growth Fund utilized $27,303,673 of capital loss carryforwards and as of
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Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
December 31, 2010, the Fund had no capital loss carryforwards. During the year ended December 31, 2010, Driehaus International Small Cap Growth Fund utilized $50,673,162 of capital loss carryforwards and as of December 31, 2010, had capital loss carryforwards of $16,816,716 expiring in 2017. During the year ended December 31, 2010, Driehaus Global Growth Fund utilized $3,794,044 of capital loss carryforwards and as of December 31, 2010, the Fund had no capital loss carryforwards. To the extent that the Funds realize future net capital gains, those capital gains will be offset by any unused capital loss carryforwards subject to the limitations described below. For the year ended December 31, 2010, none of the Funds had any realized post-October capital losses. Driehaus International Discovery Fund, Driehaus Emerging Markets Growth Fund, Driehaus International Small Cap Growth Fund and Driehaus Global Growth Fund realized post-October foreign currency losses of $22,455, $931,687, $152,540 and $4,374, respectively, which were deferred for tax purposes and were recognized on January 1, 2011.
Included in the capital loss carryforward amounts stated above are capital losses that Driehaus International Discovery Fund inherited from its merger with Driehaus International Equity Yield Fund on September 19, 2008 of approximately $7,319,729, which may be applied against any realized net taxable capital gains in future years. Section 382 of the Code imposes certain limitations that will likely reduce the Fund’s ability to use these capital loss carryforwards.
Distributions to Shareholders
The tax character of distributions paid during the fiscal year ended December 31, 2010 was as follows:
Driehaus | Driehaus | |||||||||||||||||||||||
Driehaus | Emerging | International | Driehaus | Driehaus | Driehaus | |||||||||||||||||||
International | Markets | Small Cap | Global | Mid Cap | Large Cap | |||||||||||||||||||
Discovery | Growth | Growth | Growth | Growth | Growth | |||||||||||||||||||
Distributions paid from: | Fund | Fund | Fund | Fund | Fund | Fund | ||||||||||||||||||
Ordinary income | $ | 6,325,312 | $ | 62,595,686 | $ | 1,697,404 | $ | 130,742 | $ | 440,656 | $ | 1,652 | ||||||||||||
Net long-term capital gain | — | 25,891,729 | — | 33 | 786,687 | 967,589 | ||||||||||||||||||
Total distributions paid | $ | 6,325,312 | $ | 88,487,415 | $ | 1,697,404 | $ | 130,775 | $ | 1,227,343 | $ | 969,241 | ||||||||||||
The tax character of distributions paid during the fiscal year ended December 31, 2009 was as follows:
Driehaus | Driehaus | |||||||||||||||||||||||
Driehaus | Emerging | International | Driehaus | Driehaus | Driehaus | |||||||||||||||||||
International | Markets | Small Cap | Global | Mid Cap | Large Cap | |||||||||||||||||||
Discovery | Growth | Growth | Growth | Growth | Growth | |||||||||||||||||||
Distributions paid from: | Fund | Fund | Fund | Fund | Fund | Fund | ||||||||||||||||||
Ordinary income | $ | 1,485,266 | $ | — | $ | — | $ | — | $ | 1,276,530 | $ | 305,345 | ||||||||||||
Net long-term capital gain | — | — | — | — | 46,517 | 130,930 | ||||||||||||||||||
Total distributions paid | $ | 1,485,266 | $ | — | $ | — | $ | — | $ | 1,323,047 | $ | 436,275 | ||||||||||||
�� |
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Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
As of December 31, 2010, the components of net assets on a tax basis were as follows:
Driehaus | Driehaus | |||||||||||||||||||||||
Driehaus | Emerging | International | Driehaus | Driehaus | Driehaus | |||||||||||||||||||
International | Markets | Small Cap | Global | Mid Cap | Large Cap | |||||||||||||||||||
Discovery | Growth | Growth | Growth | Growth | Growth | |||||||||||||||||||
Fund | Fund | Fund | Fund | Fund | Fund | |||||||||||||||||||
Undistributed ordinary income | $ | — | $ | 44,003,189 | $ | 1,347,367 | $ | — | $ | 253,415 | $ | 414,273 | ||||||||||||
Undistributed long-term capital gain | — | 1,860,551 | — | 2,164,876 | 386,601 | 123,240 | ||||||||||||||||||
Accumulated earnings | $ | — | $ | 45,863,740 | $ | 1,347,367 | $ | 2,164,876 | $ | 640,016 | $ | 537,513 | ||||||||||||
Paid-in capital | 548,290,440 | 706,129,683 | 237,481,618 | 39,807,084 | 16,474,077 | 16,113,501 | ||||||||||||||||||
Accumulated capital and other losses | (283,570,701 | ) | (931,687 | ) | (16,969,256 | ) | (4,374 | ) | — | — | ||||||||||||||
Unrealized appreciation (depreciation) on foreign currency | 103,114 | 851,731 | 349,768 | 85,429 | — | — | ||||||||||||||||||
Unrealized appreciation on investments | 74,016,912 | 82,397,231 | 36,236,581 | 10,665,689 | 4,458,512 | 4,517,884 | ||||||||||||||||||
Net assets | $ | 338,839,765 | $ | 834,310,698 | $ | 258,446,078 | $ | 52,718,704 | $ | 21,572,605 | $ | 21,168,898 | ||||||||||||
The differences between book-basis and tax-basis unrealized appreciation are attributable primarily to the tax deferral of losses on wash sales and passive foreign investment company (PFIC) mark-to-market.
Foreign Currency Translation
Foreign currency and equity securities not denominated in U.S. dollars are translated into U.S. dollar values based upon the current rates of exchange on the date of the Funds’ valuations.
Net realized foreign exchange gains or losses which are reported by the Funds result from currency gains and losses on transaction hedges arising from changes in exchange rates between the trade and settlement dates on forward contracts underlying securities transactions, and the difference between the amounts accrued for dividends, interest, and foreign taxes and the amounts actually received or paid in U.S. dollars for these items. Net unrealized foreign exchange gains and losses result from changes in the U.S. dollar value of assets and liabilities (other than investments in securities), which are denominated in foreign currencies, as a result of changes in exchange rates.
Net realized foreign exchange gains or losses on portfolio hedges result from the use of forward contracts to hedge portfolio positions denominated or quoted in a particular currency in order to reduce or limit exposure in that currency. The Funds had no portfolio hedges during the year ended December 31, 2010.
The Funds do not isolate that portion of the results of operations which results from fluctuations in foreign exchange rates on investments. These fluctuations are included with the net realized gain (loss) from security transactions and the net change in unrealized appreciation (depreciation) of investments.
Use of Estimates
The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net increases or decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
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Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
Indemnifications
Under the Trust’s organizational documents, the officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that provide general indemnifications to other parties. The Funds’ maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
New Accounting Pronouncement
On January 21, 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”), Fair Value Measurements and Disclosures (“ASC 820”): Improving Disclosures about Fair Value Measurements which provides guidance on how investment assets and liabilities are to be valued and disclosed. Specifically, the amendment requires reporting entities to disclose: i) the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements, for Level 2 or Level 3 positions; ii) transfers between all levels (including Level 1 and Level 2) will be required to be disclosed on a gross basis (i.e. transfers out must be disclosed separately from transfers in) as well as the reason(s) for the transfer; and iii) purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 rollforward rather than as one net number. The effective date of the amendment is for interim and annual periods beginning after December 15, 2009 however, the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis will be effective for interim and annual periods beginning after December 15, 2010. Fund management has implemented parts (i) and (ii) and is evaluating the implications of part (iii) of ASC 820 and the impact to the financial statements.
B. | INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES, AND ADMINISTRATIVE FEES |
Richard H. Driehaus, the President of the Trust, is also the Chairman of the Board of Driehaus Capital Management LLC (“DCM” or the “Adviser”), a registered investment adviser, and of Driehaus Securities LLC (“DS LLC” or the “Distributor”), a registered broker-dealer.
DCM serves as the Funds’ investment adviser. In return for its services to the Funds, DCM receives monthly fees. Driehaus International Discovery Fund pays the Adviser an annual management fee on a monthly basis computed and accrued daily as follows: 1.50% on the first $500 million of average daily net assets, 1.35% on the next $500 million and 1.25% of average daily net assets in excess of $1 billion. Driehaus Emerging Markets Growth Fund and Driehaus International Small Cap Growth Fund each pay the Adviser a monthly fee computed and accrued daily at an annual rate of 1.50% of each Fund’s average daily net assets. Driehaus Global Growth Fund pays the Adviser a monthly fee computed and accrued daily at an annual rate of 1.25% of the Fund’s average daily net assets. Driehaus Mid Cap Growth Fund pays the Adviser a monthly fee computed and accrued daily at an annual rate of 1.00% of the Fund’s average daily net assets. Driehaus Large Cap Growth Fund pays the Adviser a monthly fee computed and accrued daily at an annual rate of 0.90% of the Fund’s average daily net assets.
DCM has entered into an agreement to cap Driehaus Emerging Markets Growth Fund’s annual operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures and extraordinary expenses) at 2.00% of average daily net assets until November 30, 2011. For a period of three years subsequent to December 1, 2008, DCM is entitled to reimbursement for previously waived fees and reimbursed expenses to the extent that the Fund’s expense ratio remains below the operating expense cap. For the year ended December 31, 2010, the Fund did not have any fees waived by DCM.
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Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
DCM has entered into an agreement to cap Driehaus International Small Cap Growth Fund’s annual operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures and extraordinary expenses) at 2.00% of average daily net assets until September 16, 2010. For a period of three years subsequent to the Fund’s commencement of operations, DCM is entitled to reimbursement for previously waived fees and reimbursed expenses to the extent that the Fund’s expense ratio remains below the operating expense cap. For the year ended December 31, 2010, the Fund did not have any fees waived by DCM.
DCM has entered into an agreement to cap Driehaus Global Growth Fund’s annual operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures and extraordinary expenses) at 2.00% of average daily net assets until April 30, 2011. For a period of three years subsequent to the Fund’s commencement of operations, DCM is entitled to reimbursement for previously waived fees and reimbursed expenses to the extent that the Fund’s expense ratio remains below the operating expense cap. For the year ended December 31, 2010, the Fund did not have any fees waived by DCM. During 2010, DCM recaptured $97,994 of the Fund’s fees waived in prior years.
DCM has entered into agreements to cap Driehaus Mid Cap Growth Fund’s and Driehaus Large Cap Growth Fund’s annual operating expenses (other than interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures and extraordinary expenses) at 1.75% of average daily net assets until April 26, 2012. For a period of three years subsequent to the Funds’ commencement of operations, DCM is entitled to reimbursement for previously waived fees and reimbursed expenses to the extent that each Fund’s expense ratio remains below the operating expense cap. For the year ended December 31, 2010, DCM waived fees for Driehaus Mid Cap Growth Fund and Driehaus Large Cap Growth Fund totaling $90,076 and $67,291, respectively, under these agreements.
The amounts accrued and payable to DCM during the year ended December 31, 2010, are as follows:
Advisory Fees | ||||||||||||
Payable | ||||||||||||
Fund | Advisory Fees | (included in Due to affiliates) | ||||||||||
Driehaus International Discovery Fund | $ | 5,058,686 | $ | 435,031 | ||||||||
Driehaus Emerging Markets Growth Fund | 9,590,271 | 1,023,266 | ||||||||||
Driehaus International Small Cap Growth Fund | 3,156,041 | 317,343 | ||||||||||
Driehaus Global Growth Fund | 624,349 | 63,776 | ||||||||||
Driehaus Mid Cap Growth Fund | 150,988 | 3,454 | ||||||||||
Driehaus Large Cap Growth Fund | 144,180 | 6,255 | ||||||||||
Certain of the Funds direct certain portfolio trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the Funds part of the commissions generated. Such rebates are currently used to offset a portion of the Funds’ operating expenses. For the year ended December 31, 2010, these arrangements reduced the expenses of Driehaus International Discovery Fund, Driehaus Emerging Markets Growth Fund, Driehaus International Small Cap Growth Fund and Driehaus Global Growth Fund by $18,260 (0.3%), $379,425 (3.5%), $52,349 (1.4%) and $605 (0.1%), respectively.
DS LLC is the Funds’ distributor. DS LLC also acts as a broker for the Funds for domestically traded securities. For the year ended December 31, 2010, the Funds paid the following brokerage commissions:
Total | Shares Traded | |||||||||||
Fund | Commissions | Commissions Paid to DS LLC | through DS LLC | |||||||||
Driehaus International Discovery Fund | $ | 1,116,278 | $ | 183,824 | 5,908,738 | |||||||
Driehaus Emerging Markets Growth Fund | 7,907,817 | 389,722 | 14,151,374 | |||||||||
Driehaus International Small Cap Growth Fund | 2,243,976 | 53,038 | 1,751,975 | |||||||||
Driehaus Global Growth Fund | 174,468 | 120,965 | 4,562,422 | |||||||||
Driehaus Mid Cap Growth Fund | 61,303 | 61,303 | 2,174,819 | |||||||||
Driehaus Large Cap Growth Fund | 36,053 | 36,053 | 1,325,689 | |||||||||
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Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
A portion of these commissions are, in turn, paid by DS LLC to third parties for clearing and execution services.
Beginning January 1, 2011, DS LLC ceased providing domestic brokerage services to the Funds.
Certain officers of the Trust are also officers of DCM and DS LLC. The Funds pay a portion of the Chief Compliance Officer’s salary and bonus. No other officers received compensation from the Funds.
BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”) (formerly known as PNC Global Investment Servicing (U.S.) Inc.) serves as the Funds’ administrative and accounting agent. In compensation for these services, BNY Mellon receives the larger of a monthly minimum fee or a monthly fee based upon average net assets. BNY Mellon also acts as the transfer agent and dividend disbursing agent for the Funds. For these services, BNY Mellon receives a monthly fee based on shareholder processing activity during the month. BNY Mellon has agreed to waive a portion of its monthly fee for transfer agent service for the first two years of operations for Driehaus Global Growth Fund, Driehaus Mid Cap Growth Fund and Driehaus Large Cap Growth Fund. For the year ended December 31, 2010, BNY Mellon waived $3,000, $18,000 and $18,000, respectively, for Driehaus Global Growth Fund, Driehaus Mid Cap Growth Fund and Driehaus Large Cap Growth Fund.
C. | DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS |
The Funds enter into foreign currency forward contracts to facilitate transactions in foreign denominated securities. These forward contracts are typically open for 2 to 5 days, depending on the settlement terms of the underlying security transaction. At December 31, 2010, the Funds had foreign currency forward contracts outstanding under which they are obligated to exchange currencies at specified future dates. The primary risk exposure for forward contracts is foreign exchange contracts risk. The unrealized appreciation or depreciation on forward contracts is reflected as a separate line item in the Statements of Assets and Liabilities. At December 31, 2010, the Funds’ currency transactions were limited to transaction hedges.
The following table sets forth each Fund’s realized gains (losses) and change in unrealized appreciation/(depreciation) for the forward currency forward contracts for the year ended December 31, 2010:
Change in | ||||||||||||
Amount of | unrealized | Notional value | ||||||||||
realized gain (loss) | appreciation | of foreign | ||||||||||
on foreign | (depreciation) on | currency | ||||||||||
currency forward | foreign currency | forward | ||||||||||
Fund | contracts | forward contracts | contracts | |||||||||
Driehaus International Discovery Fund | $ | (278,925 | ) | $ | (48,320 | ) | $ | 534,000,000 | ||||
Driehaus Emerging Markets Growth Fund | (2,312,152 | ) | 13,584 | 3,016,000,000 | ||||||||
Driehaus International Small Cap Growth Fund | (261,482 | ) | 62,893 | 1,138,000,000 | ||||||||
Driehaus Global Growth Fund | 7,823 | (6,596 | ) | 34,000,000 | ||||||||
Driehaus Mid Cap Growth Fund | — | — | — | |||||||||
Driehaus Large Cap Growth Fund | — | — | — | |||||||||
The contractual amounts of foreign currency forward contracts do not necessarily represent the amounts potentially subject to risk. The measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are considered. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in currency values.
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Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Notes to Financial Statements — (Continued)
D. | INVESTMENT TRANSACTIONS |
The aggregate purchases and sales of investment securities, other than short-term obligations, for the year ended December 31, 2010 were as follows:
Fund | Purchases | Sales | ||||||
Driehaus International Discovery Fund | $ | 299,264,337 | $ | 362,419,974 | ||||
Driehaus Emerging Markets Growth Fund | 1,855,200,050 | 1,748,412,702 | ||||||
Driehaus International Small Cap Growth Fund | 583,572,553 | 583,849,040 | ||||||
Driehaus Global Growth Fund | 70,334,064 | 67,687,610 | ||||||
Driehaus Mid Cap Growth Fund | 26,419,304 | 27,902,853 | ||||||
Driehaus Large Cap Growth Fund | 24,043,052 | 21,632,992 | ||||||
E. | RESTRICTED SECURITIES |
Restricted securities are securities that are not registered for sale under the Securities Act of 1933 or applicable foreign law and that may be re-sold only in transactions exempt from applicable registration. Restricted securities include Rule 144A securities which may be sold normally to qualified institutional buyers. At December 31, 2010, the Funds held no restricted securities.
F. | LINES OF CREDIT |
Effective April 1, 2010, the Driehaus International Discovery Fund, Driehaus Emerging Markets Growth Fund and Driehaus International Small Cap Growth Fund obtained an uncommitted line of credit in the amount of $25,000,000 and the Driehaus Global Growth Fund, Driehaus Mid Cap Growth Fund and Driehaus Large Cap Growth Fund obtained an uncommitted line of credit in the amount of $5,000,000. These lines of credit are available primarily to meet large, unexpected shareholder withdrawals subject to certain restrictions. Interest is charged at a rate per annum equal to the Federal Funds Rate in effect at the time of the borrowings plus 1.5%. At December 31, 2010, the Funds had no outstanding borrowings under the lines of credit.
G. | RISKS CONCENTRATIONS |
To the extent a Fund invests in foreign securities, it may entail risks due to the potential for political and economic instability in the countries where the issuers of these securities are located. In addition, foreign exchange fluctuations could affect the value of positions held. These risks are generally intensified in emerging markets.
H. | REDEMPTION FEES |
The Funds may charge a redemption fee of 2.00% of the redemption amount for shares redeemed within 60 days of purchase. The redemption fees are recorded in paid-in capital.
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of the Driehaus Mutual Funds:
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Driehaus Emerging Markets Growth Fund, Driehaus Global Growth Fund, Driehaus International Discovery Fund, Driehaus International Small Cap Growth Fund, Driehaus Large Cap Growth Fund, and Driehaus Mid Cap Growth Fund, (collectively, the “Funds”), comprising the Driehaus Mutual Funds, as of December 31, 2010, and the related statements of operations for the period then ended, the statements of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective Funds constituting the Driehaus Mutual Funds at December 31, 2010, the results of their operations for the period then ended, the changes in their net assets and their financial highlights for the periods indicated therein in conformity with US generally accepted accounting principles.
Chicago, Illinois
February 25, 2011
February 25, 2011
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Interested and Independent Trustees of the Trust
The following table sets forth certain information with respect to the Trustees of the Trust:
Term of | ||||||||
Office and | Other | |||||||
Position(s) | Length of | Principal | Directorships | |||||
Name, Address and | Held with | Time | Occupation(s) | Held by | ||||
Year of Birth | the Trust | Served** | During Past 5 Years | Trustee | ||||
Interested Trustee:* | ||||||||
Richard H. Driehaus 25 East Erie Street Chicago, IL 60611 YOB: 1942 | Trustee and President | Since 1996 | Chairman of the Board of the Adviser, the Distributor and Driehaus Capital Management (USVI) LLC (“USVI”); Chief Investment Officer and Portfolio Manager of the Adviser. | Driehaus Capital Holdings LLC; Driehaus Enterprise Management, Inc.; The Richard H. Driehaus Foundation; and The Richard H. Driehaus Museum | ||||
Independent Trustees: | ||||||||
A.R. Umans c/o Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 YOB: 1927 | Trustee and Chairman | Since 1996 Since 2005 | Chairman of the Board, Commerce National Group (investment company) since 2005; Chairman of the Board and Chief Executive Officer, RHC/Spacemaster Corporation (manufacturing corporation) prior thereto. | Sinai Health System; Schwab Rehabilitation Hospital | ||||
Francis J. Harmon c/o Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 YOB: 1942 | Trustee | Since 1998 | Relationship Manager, Great Lakes Advisors, Inc. since February 2008; Principal Account Executive — Labor Affairs, Blue Cross and Blue Shield of Illinois prior thereto. | None | ||||
Daniel F. Zemanek c/o Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 YOB: 1942 | Trustee | Since 1996 | President of Ludan, Inc. (real estate services specializing in senior housing) since April 2008; Senior Vice President of Sunrise Development, Inc. (senior living) from 2003-2007; Consultant, real estate development prior thereto. | None |
* | Mr. Driehaus is an “interested person” of the Trust, the Adviser and the Distributor, as defined in the 1940 Act, because he is an officer of the Adviser and the Distributor. In addition, Mr. Driehaus has a controlling interest in the Adviser and the Distributor. | |
** | Each Trustee will serve as a Trustee of the Trust until (i) termination of the Trust, or (ii) the Trustee’s retirement, resignation, or death, or (iii) as otherwise specified in the Trust’s governing documents. |
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Officers of the Trust
The following table sets forth certain information with respect to the officers of the Trust.
Position(s) | Principal | |||||
Name, Address and | Held with | Length of | Occupation(s) | |||
Year of Birth | the Trust | Time Served | During Past 5 Years | |||
Robert H. Gordon 25 East Erie Street Chicago, IL 60611 YOB: 1961 | Senior Vice President | Since 2006 | President and Chief Executive Officer of Adviser, Distributor and USVI since October 2006; Advisor to Adviser and Distributor from April to September 2006; Chief Operating Officer, Aris Capital Management from 2003-2006. | |||
Michelle L. Cahoon 25 East Erie Street Chicago, IL 60611 YOB: 1966 | Vice President and Treasurer | Since 2006 Since 2002 | Vice President, Treasurer and Chief Financial Officer of the Adviser, Distributor and USVI since 2004. | |||
Janet L. McWilliams 25 East Erie Street Chicago, IL 60611 YOB: 1970 | Chief Compliance Officer and Assistant Vice President | Since 2006 Since 2007 | Chief Compliance Officer of the Adviser and Distributor since 2006; Senior Attorney with the Adviser since 2003; Attorney with the Adviser since 2000. | |||
Diane J. Drake 301 Bellevue Parkway Wilmington, DE 19809 YOB: 1967 | Secretary | Since 2006 | Managing Director and Senior Counsel, BNY Mellon Investment Servicing (US) Inc. (formerly, PNC Global Investment Servicing (U.S.) Inc. (“PNC”), a financial services company) since 2008; Vice President and Associate Counsel, PNC from 2003-2007. | |||
Michael P. Kailus 25 East Erie Street Chicago, IL 60611 YOB: 1971 | Assistant Secretary | Since 2010 | Assistant Secretary of the Adviser, Distributor and USVI since 2010; Associate General Counsel of Superfund Group (financial services company) from 2005-2010. | |||
William H. Wallace, III 301 Bellevue Parkway Wilmington, DE 19809 YOB: 1969 | Assistant Secretary | Since 2008 | Vice President and Manager, BNY Mellon Investment Servicing (US) Inc. (formerly, PNC, a financial services company) since 2008; Sr. Regulatory Administrator, PNC from 2007-2008; Regulatory Administrator, PNC from 2004-2007. |
The Statement of Additional Information for Driehaus Mutual Funds contains more detail about the Trust’s Trustees and officers and is available upon request, without charge. For further information, please call 1-800-560-6111.
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Fund Expense Examples
As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, including sales charges; redemption fees; and exchange fees and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six months ending December 31, 2010.
Actual Expenses
The first line of the tables below (“Actual”) provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expense that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the tables below (“Hypothetical”) provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. You may use this information to compare the ongoing costs of investing in the Funds versus other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges, redemption fees or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Driehaus International Discovery Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | Six Months Ending | ||||||||||
July 1, 2010 | December 31, 2010 | December 31, 2010* | ||||||||||
Actual | $ | 1,000 | $ | 1,285.50 | $ | 9.74 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,016.69 | $ | 8.59 | ||||||
Driehaus Emerging Markets Growth Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | Six Months Ending | ||||||||||
July 1, 2010 | December 31, 2010 | December 31, 2010* | ||||||||||
Actual | $ | 1,000 | $ | 1,276.60 | $ | 9.24 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,017.09 | $ | 8.19 | ||||||
Driehaus International Small Cap Growth Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | Six Months Ending | ||||||||||
July 1, 2010 | December 31, 2010 | December 31, 2010* | ||||||||||
Actual | $ | 1,000 | $ | 1,317.80 | $ | 9.99 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,016.59 | $ | 8.69 | ||||||
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Fund Expense Examples — (Continued)
Driehaus Global Growth Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | Six Months Ending | ||||||||||
July 1, 2010 | December 31, 2010 | December 31, 2010* | ||||||||||
Actual | $ | 1,000 | $ | 1,316.70 | $ | 11.68 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,015.12 | $ | 10.16 | ||||||
Driehaus Mid Cap Growth Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | Six Months Ending | ||||||||||
July 1, 2010 | December 31, 2010 | December 31, 2010* | ||||||||||
Actual | $ | 1,000 | $ | 1,304.00 | $ | 10.16 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,016.38 | $ | 8.89 | ||||||
Driehaus Large Cap Growth Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | Six Months Ending | ||||||||||
July 1, 2010 | December 31, 2010 | December 31, 2010* | ||||||||||
Actual | $ | 1,000 | $ | 1,305.40 | $ | 10.17 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,016.38 | $ | 8.89 | ||||||
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period in the table below multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365 to reflect the half-year period. |
Driehaus International Discovery Fund | 1.69% | |||
Driehaus Emerging Markets Growth Fund | 1.61% | |||
Driehaus International Small Cap Growth Fund | 1.71% | |||
Driehaus Global Growth Fund | 2.00% | |||
Driehaus Mid Cap Growth Fund | 1.75% | |||
Driehaus Large Cap Growth Fund | 1.75% |
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Shareholder Information
TAX INFORMATION (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 2010
We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.
The Funds’ distributions included capital gain amounts as follows:
Driehaus | Driehaus | |||||||||||||||||||||||
Driehaus | Emerging | International | Driehaus | Driehaus | Driehaus | |||||||||||||||||||
International | Markets | Small Cap | Global | Mid Cap | Large Cap | |||||||||||||||||||
Discovery | Growth | Growth | Growth | Growth | Growth | |||||||||||||||||||
Fund | Fund | Fund | Fund | Fund | Fund | |||||||||||||||||||
Total long-term gains 20% rate gains | $ | — | $ | 27,752,280 | $ | — | $ | 2,164,909 | $ | 1,070,083 | $ | 1,070,026 |
For taxable non-corporate shareholders, the following percentages of income and short-term capital gains represent qualified dividend income subject to the 15% rate category:
Driehaus | ||||||||||||||||||||||||
Driehaus | Driehaus | International | Driehaus | Driehaus | Driehaus | |||||||||||||||||||
International | Emerging Markets | Small Cap | Global | Mid Cap | Large Cap | |||||||||||||||||||
Discovery Fund | Growth Fund | Growth Fund | Growth Fund | Growth Fund | Growth Fund | |||||||||||||||||||
51.85 | % | 9.74 | % | 72.97 | % | 100.00 | % | 11.12 | % | 100.00 | % |
For corporate shareholders, the following percentages of income and short-term capital gains qualified for the dividends-received deduction:
Driehaus | ||||||||||||||||||||||||
International | Driehaus | Driehaus | Driehaus | Driehaus | Driehaus | |||||||||||||||||||
Discovery | Emerging Markets | International Small Cap | Global | Mid Cap | Large Cap | |||||||||||||||||||
Fund | Growth Fund | Growth Fund | Growth Fund | Growth Fund | Growth Fund | |||||||||||||||||||
0.00 | % | 0.00 | % | 0.00 | % | 100.00 | % | 10.92 | % | 100.00 | % |
PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the Funds’ policies and procedures with respect to the voting of proxies relating to the Funds’ portfolio securities is available without charge, upon request, by calling 1-800-560-6111. This information is also available on the Funds’ website at http://www.driehaus.com.
Information regarding how the Funds voted proxies related to portfolio securities during the 12-month period ended June 30, 2010 is available without charge, upon request, by calling 1-800-560-6111. This information is also available on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS
Each Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available electronically on the SEC’s website at http://www.sec.gov; hard copies may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330. Each Fund’s complete schedule of portfolio holdings is also available on the Fund’s website at http://www.driehaus.com.
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Board Considerations in Connection with the Annual Review of the
Investment Advisory Agreement
Investment Advisory Agreement
The Board of Trustees of Driehaus Mutual Funds (the “Trust”) approved the renewal of the investment advisory agreement (the “Agreement”) with Driehaus Capital Management LLC (the “Adviser”) for Driehaus Emerging Markets Growth Fund (“DEMG”), Driehaus International Discovery Fund (“DIDF”), Driehaus International Small Cap Growth Fund (“DISCG”), Driehaus Global Growth Fund (“DGGF”), Driehaus Mid Cap Growth Fund (“DMCG”) and Driehaus Large Cap Growth Fund (“DLCG”) (DEMG, DIDF, DISCG, DGGF, DMCG and DLCG are each a “Fund” and collectively the “Funds”) in September 2010. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate the Agreement. The Board reviewed comprehensive materials received from the Adviser and from independent legal counsel. The Board also received extensive information throughout the year regarding performance and operating results of each Fund. The Independent Trustees, represented by independent legal counsel, met independent of Fund management to consider renewal of the Agreement. After their review of the information received, the Independent Trustees presented their findings and their recommendation to renew the Agreement to the full Board.
In connection with the contract review process, the Board considered the factors discussed below, among others. The Board also considered that the Adviser has managed each Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious adviser is in the best interests of each Fund. The Board considered, generally, that shareholders invested in each Fund, knowing that the Adviser managed the Fund and knowing the investment advisory fee schedule.
Nature, Quality and Extent of Services. The Board considered the nature, extent and quality of services provided under the Agreement, including portfolio management services and administrative services. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of the Adviser to attract and retain high-quality personnel, and the organizational depth of the Adviser. The Board also considered compliance with legal and regulatory requirements, as well as the Adviser’s handling of portfolio brokerage, including the use of its affiliated broker-dealer to execute portfolio transactions in the U.S. for the Funds, and noted the Adviser’s process for evaluating best execution.
The Board reviewed DEMG’s and DIDF’s performance on a net return basis over the 1-, 3-and 5-year periods and for the year-to-date period ended June 30, 2010. Given the relatively recent inception of DISCG (resulting from the conversion of a predecessor limited partnership’s assets in September 2007), DGGF (on May 1, 2008), DMCG (resulting from the conversion of two predecessor limited partnerships’ assets in April 2009) and DLCG (resulting from the conversion of a predecessor limited partnership’s assets in April 2009), the Board considered the performance of these Funds on a net return basis for the 1-year and for the year-to-date period ended June 30, 2010. In addition, the Board reviewed (i) performance for DISCG on a net basis for the 3- and 5-year periods ended June 30, 2010, that includes the performance of its predecessor limited partnership; and (ii) performance for DMCG, including that of one of its predecessor limited partnerships on a net return basis for the 3- and 5- year periods ended June 30, 2010. Because the predecessor limited partnerships to DISCG and DMCG did not operate as mutual funds and were not subject to certain investment and operational restrictions, the Board factored those differences into its evaluation of these Funds’ performance information. The Board noted that the Adviser represented that because the Funds’ performance can be volatile over shorter time periods, it was meaningful to also analyze the performance of DEMG, DIDF, DISCG, DMCG and DLCG over rolling time periods to show the consistent out-performance to their benchmark indices. The Board compared short-term and, for DEMG, DIDF, DISCG and DMCG, long-term returns to various agreed-upon performance measures, including market indices and peer groups. Peer group data was compiled from Morningstar, Inc. and Lipper Inc., independent providers of mutual fund data. The Board also considered whether investment results were consistent with each Fund’s investment objective and policies.
On the basis of this evaluation and its ongoing review of investment results, the Board concluded that the nature, quality and extent of services provided by the Adviser continue to be satisfactory. As to the specific Funds, the Board noted that DEMG’s performance was above the median of its peer group for the 1-, 3- and 5-year periods. The Board also noted that DEMG outperformed its benchmark index for the 1-, 3-, 5- and 10-year periods. For DIDF, the Board noted that the Fund underperformed the median of its peer group for the 1-, 3- and 5- year periods. The Board also noted that the Fund underperformed its benchmark index for the 1- and 3-year periods, but outperformed its benchmark index for the 5- and 10-year periods. The Board reviewed the reasons for the
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underperformance, which were primarily related to performance in the second quarter of 2010. The Board noted that DISCG’s performance for the 1-year period, and for the 3- and 5-year periods, which includes the performance of its predecessor limited partnership, was above the median of its peer group (indeed, was no lower than the top 5% for any of these periods). In addition, the Board noted that DISCG outperformed its benchmark index for the 1-, 3- and 5-year periods (the latter of which includes the performance of its predecessor partnership). For DGGF, the Board noted that the Fund’s performance was above the median of its peer group and the Fund outperformed its benchmark index for the 1-year period. The Board noted that DMCG’s performance for the 1- and 3-year periods trailed the median of its peer group, while the Fund’s performance for the 5-year period was above the median. The Board also considered that DMCG’s performance for the 3- and 5-year periods includes the performance of a predecessor partnership and that the year-to-date performance was above the median. In addition, the Board noted that DMCG underperformed its benchmark index for the 1-year period and that the Fund, including the performance of a predecessor partnership, underperformed the index for the 3- and 10-year periods and outperformed the index for 5-year period. The Board noted that DLCG had underperformed its peer group median and its benchmark index for the 1-year period but that its performance year-to-date had significantly improved. The Board also considered DEMG’s, DIDF’s, DISCG’s, DMCG’s and DLCG’s rolling one-year, three-year and five-year returns over the life of the Funds relative to their benchmarks and noted that, with the exception of DLCG, in a majority of the time periods measured, each Fund outperformed its benchmark index. As to the Funds in general, the Board concluded that the Adviser had consistently implemented its investment philosophy, and that over the long-term, the investment philosophy produces value for shareholders.
Fees. The Board considered each Fund’s advisory fee rates, operating expenses and total expense ratio as of June 30, 2010, and compared the advisory fee and total expense ratio to the fees and expense ratios of peer group funds based on data compiled from Lipper Inc. as of June 30, 2010. The information provided to the Board showed that each Fund’s advisory fee rate ranked high as compared to its peer group. However, because of the Funds’ fee structures, total expense ratios are relatively competitive, as they all fall between the 28th and 49th percentile (1st percentile being the highest expense ratio). Although the Funds’ total expense ratios were above the median, the Board considered the Funds’ asset size and for DEMG, DISCG, DGGF, DMCG and DLCG, the expense reimbursement arrangements with the Adviser. The Board also considered the Funds’ advisory fee rates as compared to fees charged by the Adviser for similarly managed institutional accounts. With respect to institutional accounts, the Board noted that: (i) both the mix of services provided and the level of responsibility required under the Agreement were significantly greater as compared to the Adviser’s obligations for managing the other accounts; and (ii) the advisory fees for the other accounts are less relevant to the Board’s consideration because they reflect significantly different competitive forces than those in the mutual fund marketplace. In considering the reasonableness of the advisory fees, the Board took into account the Adviser’s aggressive growth style, which resulted in high portfolio turnover for DEMG, DISCG, DGGF, DMCG and DLCG, the substantial human and technological resources devoted to investing for the Funds, the relatively small amount of assets under management and the limited capacity of the investment style. The Board also noted that the Funds do not have a Rule 12b-1 fee or shareholder service fee, and that the Adviser’s affiliate, Driehaus Securities LLC (“DS LLC”), serves as distributor of the Funds without compensation and that DS LLC provides compensation to intermediaries for distribution of Fund shares and for shareholder and administrative services to shareholders. The Board also noted that the Adviser’s directed brokerage program had resulted in reducing expenses of DEMG, DIDF and DISCG.
On the basis of the information reviewed, the Board concluded that the advisory fee schedule for each Fund was reasonable and appropriate in light of the nature and quality of services provided by the Adviser.
Profitability. The Board reviewed information regarding revenues received by the Adviser under the Agreement from each Fund and discussed the Adviser’s methodology in allocating its costs to the management of the Funds. The Board considered the estimated costs to the Adviser of managing the Funds. The Board concluded that, based on the projected profitability calculated for the Trust as well as the Funds individually (noting that DISCG, DGGF, DMCG and DLCG were currently being operated at a loss), the advisory fees appeared to be reasonable.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Funds and whether the Funds benefit from any such economies of scale. Given the size of the Funds and the capacity constraints of the investment style, the Board concluded that the advisory fee rates under the Agreement are reasonable and reflect an appropriate sharing of any such economies of scale, noting the breakpoints in DIDF’s advisory fee schedule.
Other Benefits to the Adviser and its Affiliates. The Board also considered the character and amount of other incidental benefits received by the Adviser and its affiliates, including fees received by DS LLC for brokerage
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services. The Board also considered benefits to the Adviser related to soft dollar allocations. The Board concluded that advisory fees were reasonable in light of these fall-out benefits.
Based on all of the information considered and the conclusions reached, the Board determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of each Fund. No single factor was determinative in the Board’s analysis.
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DRH-AR2010
Table of Contents
Driehaus Mutual Funds Trustees & Officers Richard H. Driehaus President & Trustee A.R. Umans Chairman of the Board Francis J. Harmon Trustee Daniel F. Zemanek Trustee Robert H. Gordon Senior Vice President Michelle L. Cahoon Vice President & Treasurer Janet L. McWilliams Assistant Vice President & Chief Compliance Officer Diane J. Drake Secretary Michael P. Kailus Assistant Secretary William H. Wallace, III Assistant Secretary Investment Adviser Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 Distributor Driehaus Securities LLC 25 East Erie Street Chicago, IL 60611 Administrator UMB Fund Services, Inc. 803 W. Michigan St. Milwaukee, WI 53233 Transfer Agent UMB Fund Services, Inc. 803 W. Michigan St. Milwaukee, WI 53233 Custodian UMB Bank, n.a. 928 Grand Blvd. Kansas City, MO 64106 | Annual Report to Shareholders December 31, 2010 Driehaus Active Income Fund Driehaus Select Credit Fund Distributed by: Driehaus Securities LLC This report has been prepared for the shareholders of the Funds and is not an offering to sell or buy any Fund securities. Such offering is only made by the Funds’ prospectus. |
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Portfolio Manager Letter, Performance Overview and Schedule of Investments: | ||||
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18 | ||||
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Dear Shareholders,
The Driehaus Active Income Fund (“Fund”) returned 5.18% for the year ending December 31, 2010. This return was above the performance of the Fund’s benchmark index, the Citigroup 3-Month Treasury Bill Index (the “Benchmark”), which returned 0.13% for the same period. The Fund underperformed the Barclays Capital U.S. Aggregate Bond Index (the “Index”), which returned 6.55% for the same period.
The year began with an economy bringing itself back to life. Mixed economic signals and sovereign debt worries throughout the first half of the year kept many investors divided between bull and bear camps. Volatility spiked in response to the prospect of European sovereign defaults and the U.S. flash crash in May. Unemployment remained chronically high and subdued inflation weighed on a matrix of financial underpinnings. Quantitative Easing 1 (“QE1”), which was put in place to stabilize the banking system in 2008, began to fade and was followed by Quantitative Easing 2 (“QE2”). This new bout of quantitative easing set the tone for an overriding theme in the markets throughout 2010 as the U.S. Federal Reserve set out to achieve higher levels of employment, economic output and inflation.
As the year progressed, strong economic data and plentiful credit paved the way for gains across stocks, bonds and commodities. A record low yield environment courtesy of the U.S. Federal Reserve supported the restructuring of corporate capital structures and provided the backbone for a benign default outlook. Rising global growth prospects trumped Euro-led contagion and U.S. “double dip” fears, which in turn sparked a rally in commodities and stocks. The fixed income markets posted a year of gains, but showed substantial weakness into year end as Treasury yields began to rise.
Reflecting back on the year, 2010 was a great year for investing. It is not too often when you will record gains across stocks, bonds, and commodities all in the same year. Unfortunately for the Fund, absolute return strategies generally lagged long-only strategies during the year. Nevertheless, with the HFRI and HFRX Global Hedge Fund Indices up 10.3% and 5.2% for the year, respectively, 2010 can hardly be considered a disaster. As for the Fund’s performance, we would characterize it as mildly satisfactory for the year.
For our investors that use the Fund as primarily a fixed income exposure, our lack of duration caused the Fund to lag most major benchmarks for the past year. However, for our absolute return-oriented investors, the Fund modestly outperformed other liquid alternative mutual funds.
The Fund experienced a 3% drawdown in May as the precarious situation in Greece took center stage. Fortunately, we made some changes to the Fund that enabled us to perform well relative to the broader equity markets during tumultuous periods in the market later in the year, such as in June and August. We stayed focused on corporate fundamentals during the second and third quarters when the bears took over the airwaves. As a result, we took advantage of market weakness to initiate some attractive positions within the Fund.
The bulk of our gains were generated from our Directional Long exposure in 2010. This is not surprising given our significant weighting to the strategy over the past 12 months and our belief that spreads would tighten, particularly in high yield. The largest detractor from returns was our Interest Rate Hedge, which worked against the Fund all year until the fourth quarter. Our Capital Structure exposure contributed meaningfully to performance as volatility remained elevated for the year and selected debt versus equity trades performed well.
We took our cues from a very transparent U.S. Federal Reserve. Their commentary and actions throughout the year dictated that investors should be buying riskier assets (equities, high yield, commodities and preferred securities) and decrease exposure to those that may be hurt by inflation (U.S. Treasuries, investment grade fixed income and cash). We have stated many times throughout 2010 that high grade fixed income securities seem pretty unattractive to us given: (1) the high level of interest sensitivity to many of these products; (2) the current level of interest rates; and (3) the current level of investment grade credit spreads. An investment in high grade fixed income is now simply a bet on interest rates.
Our Directional Short strategy detracted from returns in most months. However, due to our general view that credit fundamentals would improve for most companies, we committed a relatively small amount of capital to the strategy (usually less than 5% of the Fund’s exposure).
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From a correlation standpoint, the Fund performed fairly well in 2010. Correlations between the Fund and the other instruments (S&P 500 Index, oil futures, the U.S. Dollar Index, the 10 Year Treasury, the Barclays Capital U.S. Aggregate Bond Index, the Chicago Board Options Exchange Volatility Index, and the J.P. Morgan High Yield 100 Index) exceeded +0.500 in only one circumstance, namely with the J.P. Morgan High Yield 100 Index. This was not unexpected, as we relayed throughout 2010 that we were shifting our credit exposure from investment grade corporates to the high yield end of the spectrum. The correlation between the Fund and the other instruments was less than -0.500 in only one case. The Fund’s correlation to the 10 Year Treasury finished the year at -0.683. Due to the Fund’s interest rate hedge and the nature of the rate move in 2010, our Fund often dropped when rates were quickly falling and rose when rates started to sharply rise.
Going forward into 2011, we expect the markets to continue to support risky assets. We would not be surprised to see spikes in volatility along the way, much like in 2010, as fiscal budgets globally are stretched and inflation signals have clearly emerged around the world. But in the end, we believe high yield and distressed credit should benefit from an increased appetite for risk and strong balance sheets. Given that, we expect the default rate for U.S. high yield next year will fall below 3% and that spreads should continue to tighten towards historical averages. We expect rates to grind higher given the end of the Fed’s Treasury purchase program, concerns over continued budget deficits, and fund flows out of fixed income and into equities.
In summary, we believe 2011 presents another great year for investment opportunities and will likely bring a host of mergers and acquisitions, leveraged buyouts and shareholder friendly actions that will lift equity valuations and provide us with greater investment opportunities within a company’s capital structure. Based on our current positioning, we would expect returns to be negatively affected by widening spreads, declining asset volatility, and quickly dropping U.S. Treasury yields. If credit spreads were to tighten, volatility remain elevated, and U.S. Treasury yields rise sharply, the Fund’s returns may exceed our expectations. Annualized volatility is expected to track around 3% for the Driehaus Active Income Fund, as it has for most of the Fund’s existence.
We thank you for your continued support and interest in the Driehaus Active Income Fund. We wish you the best in getting off to a positive start in the New Year.
Sincerely,
K.C. Nelson | Mirsada Durakovic | Elizabeth Cassidy | ||
Portfolio Manager | Assistant Portfolio Manager | Assistant Portfolio Manager |
Performance is historical and does not represent future results.
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Driehaus Active Income Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains. Average annual total return reflects annualized change.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $25,000 investment (minimum investment) in the Fund since November 8, 2005 (the date of the Predecessor Fund’s inception), with all dividends and capital gains reinvested, with the indicated indices (and dividends reinvested) for the same period.
Since Inception | ||||||||||||||||||
Average Annual Total Returns as of 12/31/10 | 1 Year | 3 Years | 5 Years | (11/08/05 - 12/31/10) | ||||||||||||||
Driehaus Active Income Fund (LCMAX)1 | 5.18% | 8.85% | 6.44% | 6.34% | ||||||||||||||
Citigroup 3-Month T-Bill Index2 | 0.13% | 0.69% | 2.30% | 2.35% | ||||||||||||||
Barclays Capital U.S. Aggregate Bond Index3 | 6.55% | 5.90% | 5.80% | 5.99% | ||||||||||||||
1 | The Driehaus Active Income Fund (the “Fund”) performance shown above includes the performance of the Lotsoff Capital Management Active Income Fund (the “Predecessor Fund”) for the periods before the Fund’s registration statement became effective. The Fund received the assets and liabilities of the Predecessor Fund on June 1, 2009 through a reorganization of the Predecessor Fund into the Fund. The Predecessor Fund was a nondiversified fund that was a series of another management investment company registered under the Investment Company Act of 1940, as amended. The Fund had no prior operating history prior to succeeding to the assets of the Predecessor Fund. The Fund has substantially similar investment objectives, strategies, and policies as the Predecessor Fund. Financial and performance information of the Fund includes the Predecessor Fund information. The returns for the periods prior to October 1, 2006, reflect fee waivers and/or reimbursements without which performance would have been lower. |
2 | The Citigroup 3-Month T-Bill Index is designed to mirror the performance of the 3 month U.S. Treasury Bill. The Citigroup 3-Month T-Bill Index is unmanaged and its returns reflect reinvestment of all distributions and changes in market prices. |
3 | The Barclays Capital U.S. Aggregate Bond Index, an unmanaged index, represents securities that are SEC-registered, taxable and dollar denominated. This index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. |
3
Table of Contents
Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
Shares, | ||||||||
Principal | ||||||||
Amount, or | ||||||||
Number of | ||||||||
Contracts | Value | |||||||
ASSET-BACKED SECURITIES — 4.90% | ||||||||
321 Henderson Receivables I LLC 0.46%, 9/15/411,2,4 | $ | 673,522 | $ | 603,302 | ||||
Bear Stearns Asset Backed Securities Trust 0.32%, 2/25/282 | 6,486,202 | 6,186,183 | ||||||
Capital Auto Receivables Asset Trust 5.21%, 3/17/14 | 19,082,098 | 19,511,197 | ||||||
Citigroup Mortgage Loan Trust, Inc. 0.33%, 1/25/372 | 456,235 | 193,063 | ||||||
CNL Funding 7.65%, 6/18/141 | 4,771,823 | 4,464,073 | ||||||
Countrywide Asset-Backed Certificates 0.50%, 4/25/342 | 122,988 | 101,709 | ||||||
Fannie Mae REMICS 0.58%, 6/25/362 | 19,158,785 | 19,199,057 | ||||||
Freddie Mac REMICS 1.50%, 3/15/15 | 37,943,139 | 38,059,586 | ||||||
Freddie Mac REMICS 0.46%, 1/15/352 | 10,170,011 | 10,141,840 | ||||||
JP Morgan Alternative Loan Trust 0.32%, 3/25/372 | 404,002 | 343,848 | ||||||
Merrill Lynch Mortgage Investors, Inc. 0.73%, 8/25/352 | 143,868 | 129,984 | ||||||
Wachovia Auto Loan Owner Trust 5.15%, 7/20/121 | 5,210,467 | 5,222,065 | ||||||
Wells Fargo Mortgage Loan Trust 0.36%, 8/27/471,2,4 | 3,125,125 | 2,906,366 | ||||||
Total ASSET-BACKED SECURITIES (Cost $106,562,593) | 107,062,273 | |||||||
BANK LOANS — 1.85% | ||||||||
Advertising — 0.50% | ||||||||
Advantage Sales & Marketing LLC 9.25%, 5/29/182,4 | 3,500,000 | 3,535,000 | ||||||
Visant Corp. 7.00%, 12/22/162 | 7,406,438 | 7,487,908 | ||||||
11,022,908 | ||||||||
Aerospace & Defense — 0.46% | ||||||||
TransDigm Group, Inc. 6.76%, 12/25/162,4 | 10,000,000 | 10,087,500 | ||||||
Commercial Services — 0.74% | ||||||||
Altegrity, Inc. 7.75%, 2/21/152 | 13,442,475 | 13,560,097 | ||||||
Language Line LLC 10.50%, 10/26/162,4 | 2,500,000 | 2,562,500 | ||||||
16,122,597 | ||||||||
Diversified Financial Services — 0.07% | ||||||||
Fifth Third Processing Solutions, Inc. 8.25%, 11/1/172 | 1,500,000 | 1,526,250 | ||||||
Telecommunications — 0.08% | ||||||||
Sorenson Communications, Inc. 6.00%, 8/16/132 | 1,728,578 | 1,645,243 | ||||||
Total BANK LOANS (Cost $39,892,060) | 40,404,498 | |||||||
CORPORATE BONDS — 44.85% | ||||||||
Agriculture — 2.14% | ||||||||
Altria Group, Inc. 9.70%, 11/10/18 | 8,000,000 | 10,569,240 | ||||||
Lorillard Tobacco Co. 8.13%, 6/23/19 | 12,000,000 | 13,373,520 | ||||||
Lorillard Tobacco Co. 6.88%, 5/1/20 | 22,000,000 | 22,761,332 | ||||||
46,704,092 | ||||||||
Auto Parts & Equipment — 0.44% | ||||||||
Lear Corp. 7.88%, 3/15/18 | 712,000 | 765,400 | ||||||
Lear Corp. 8.13%, 3/15/20 | 6,313,000 | 6,896,952 | ||||||
Tower Automotive Holdings USA LLC/TA Holdings Finance, Inc. 10.63%, 9/1/171 | 1,878,000 | 2,028,240 | ||||||
9,690,592 | ||||||||
Banks — 4.31% | ||||||||
JPMorgan Chase & Co. 7.90%, 4/29/492 | 57,813,000 | 61,661,669 | ||||||
Morgan Stanley 7.30%, 5/13/19 | 16,000,000 | 18,038,848 | ||||||
Wells Fargo & Co. 7.98%, 3/15/182 | 13,500,000 | 14,310,000 | ||||||
94,010,517 | ||||||||
Chemicals — 2.54% | ||||||||
CF Industries, Inc. 7.13%, 5/1/20 | 18,500,000 | 20,303,750 | ||||||
Hexion U.S. Finance Corp./Hexion Nova Scotia Finance ULC 9.00%, 11/15/201 | 250,000 | 265,000 | ||||||
Momentive Performance Materials, Inc. 11.50%, 12/1/16 | 25,250,000 | 27,522,500 |
Notes to Financial Statements are an integral part of this Schedule.
4
Table of Contents
Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
Shares, | ||||||||
Principal | ||||||||
Amount, or | ||||||||
Number of | ||||||||
Contracts | Value | |||||||
Momentive Performance Materials, Inc. 9.00%, 1/15/211 | $ | 250,000 | $ | 264,375 | ||||
Nalco Co. 6.63%, 1/15/191 | 7,000,000 | 7,192,500 | ||||||
55,548,125 | ||||||||
Coal — 0.35% | ||||||||
International Coal Group, Inc. 9.13%, 4/1/18 | 7,100,000 | 7,703,500 | ||||||
Commercial Services — 2.64% | ||||||||
DynCorp International, Inc. 10.38%, 7/1/171,4 | 26,250,000 | 26,578,125 | ||||||
United Rentals North America, Inc. 8.38%, 9/15/20 | 7,250,000 | 7,413,125 | ||||||
Wyle Services Corp. 10.50%, 4/1/181,4 | 24,285,000 | 23,556,450 | ||||||
57,547,700 | ||||||||
Computers — 0.93% | ||||||||
Seagate HDD Cayman (Cayman Islands) 7.75%, 12/15/181,3 | 20,000,000 | 20,350,000 | ||||||
Diversified Financial Services — 2.58% | ||||||||
American Express Co. 6.80%, 9/1/662 | 34,843,000 | 34,755,892 | ||||||
AMO Escrow Corp. 11.50%, 12/15/171,4 | 1,000,000 | 1,050,000 | ||||||
Ford Motor Credit Co. LLC 7.38%, 2/1/11 | 5,000,000 | 4,987,500 | ||||||
Jefferies Group, Inc. 8.50%, 7/15/19 | 10,800,000 | 12,367,696 | ||||||
Textron Financial Corp. 6.00%, 2/15/671,2 | 3,824,000 | 3,274,300 | ||||||
56,435,388 | ||||||||
Electronics — 1.18% | ||||||||
NXP BV/NXP Funding LLC (Netherlands) 3.04%, 10/15/132,3 | 26,000,000 | 25,707,500 | ||||||
Entertainment — 0.77% | ||||||||
AMC Entertainment Holdings, Inc. 9.75%, 12/1/201 | 3,000,000 | 3,135,000 | ||||||
Midwest Gaming Borrower LLC/Midwest Finance Corp. 11.63%, 4/15/161 | 13,137,000 | 13,662,480 | ||||||
16,797,480 | ||||||||
Healthcare — Services — 1.85% | ||||||||
Aurora Diagnostics Holdings/Aurora Diagnostics Financing, Inc. 10.75%, 1/15/181,4 | 14,500,000 | 14,500,000 | ||||||
Healthsouth Corp. 7.75%, 9/15/22 | 25,000,000 | 25,875,000 | ||||||
40,375,000 | ||||||||
Holding Companies — Diversified — 0.23% | ||||||||
Hutchison Whampoa International 10 Ltd. (Cayman Islands) 6.00%, 12/29/491,2,3 | 5,000,000 | 4,969,440 | ||||||
Household Products/Wares — 1.93% | ||||||||
Armored Autogroup, Inc. 9.25%, 11/1/181,4 | 33,775,000 | 33,268,375 | ||||||
Spectrum Brands Holdings, Inc. 9.50%, 6/15/181 | 8,000,000 | 8,800,000 | ||||||
42,068,375 | ||||||||
Insurance — 1.59% | ||||||||
Chubb Corp. 6.38%, 3/29/672 | 29,500,000 | 30,901,250 | ||||||
MBIA Insurance Corp. 14.00%, 1/15/331,2,4 | 7,150,000 | 3,789,500 | ||||||
34,690,750 | ||||||||
Iron/Steel — 1.92% | ||||||||
Allegheny Technologies, Inc. 9.38%, 6/1/19 | 13,000,000 | 15,210,000 | ||||||
ArcelorMittal (Luxembourg) 7.00%, 10/15/393 | 25,625,000 | 26,677,086 | ||||||
41,887,086 | ||||||||
Leisure Time — 1.45% | ||||||||
Equinox Holdings, Inc. 9.50%, 2/1/161 | 29,867,000 | 31,696,354 | ||||||
Lodging — 0.35% | ||||||||
Hyatt Hotels Corp. 6.88%, 8/15/191 | 7,000,000 | 7,665,035 | ||||||
Media — 1.44% | ||||||||
Clear Channel Worldwide Holdings, Inc. 9.25%, 12/15/17 | 600,000 | 655,500 | ||||||
Clear Channel Worldwide Holdings, Inc. 9.25%, 12/15/17 | 2,400,000 | 2,640,000 | ||||||
ProQuest LLC/ProQuest Notes Co. 9.00%, 10/15/181 | 27,230,000 | 28,183,050 | ||||||
31,478,550 | ||||||||
Notes to Financial Statements are an integral part of this Schedule.
5
Table of Contents
Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
Shares, | ||||||||
Principal | ||||||||
Amount, or | ||||||||
Number of | ||||||||
Contracts | Value | |||||||
Miscellaneous Manufacturing — 2.41% | ||||||||
Amsted Industries, Inc. 8.13%, 3/15/181 | $ | 19,475,000 | $ | 20,765,219 | ||||
GE Capital Trust I 6.38%, 11/15/672 | 32,140,000 | 31,858,775 | ||||||
52,623,994 | ||||||||
Oil & Gas — 1.35% | ||||||||
Anadarko Petroleum Corp. 8.70%, 3/15/19 | 7,000,000 | 8,561,490 | ||||||
Tesoro Corp. 6.63%, 11/1/15 | 13,000,000 | 13,260,000 | ||||||
Valero Energy Corp. 6.63%, 6/15/37 | 7,500,000 | 7,641,120 | ||||||
29,462,610 | ||||||||
Packaging & Containers — 0.24% | ||||||||
Graham Packaging Co. LP/GPC Capital Corp. I 9.88%, 10/15/14 | 5,000,000 | 5,200,000 | ||||||
Pharmaceuticals — 0.76% | ||||||||
ConvaTec Healthcare E S.A. (Luxembourg) 10.50%, 12/15/181,3,4 | 4,500,000 | 4,533,750 | ||||||
Patheon, Inc. (Canada) 8.63%, 4/15/171,3 | 12,000,000 | 12,030,000 | ||||||
16,563,750 | ||||||||
Pipelines — 1.67% | ||||||||
Enbridge Energy Partners LP 8.05%, 10/1/772 | 31,500,000 | 32,434,605 | ||||||
Oneok, Inc. 6.00%, 6/15/35 | 4,250,000 | 4,130,001 | ||||||
36,564,606 | ||||||||
Retail — 6.81% | ||||||||
Dunkin Finance Corp. 9.63%, 12/1/181 | 29,000,000 | 29,435,000 | ||||||
Giraffe Acquisition Corp. 9.13%, 12/1/181 | 10,500,000 | 10,998,750 | ||||||
Michaels Stores, Inc. 11.38%, 11/1/16 | 15,500,000 | 16,972,500 | ||||||
Michaels Stores, Inc. 7.75%, 11/1/181 | 19,000,000 | 19,047,500 | ||||||
Neiman Marcus Group, Inc. 9.00%, 10/15/15 | 19,483,000 | 20,505,857 | ||||||
Neiman Marcus Group, Inc. 10.38%, 10/15/15 | 10,362,000 | 10,996,673 | ||||||
QVC, Inc. 7.38%, 10/15/201 | 500,000 | 526,250 | ||||||
Rite Aid Corp. 10.38%, 7/15/16 | 22,850,000 | 23,878,250 | ||||||
Rite Aid Corp. 9.50%, 6/15/17 | 12,850,000 | 10,986,750 | ||||||
Rite Aid Corp. 10.25%, 10/15/19 | 5,000,000 | 5,218,750 | ||||||
148,566,280 | ||||||||
Software — 0.50% | ||||||||
SSI Investments II/SSI Co. — Issuer LLC 11.13%, 6/1/18 | 10,000,000 | 10,900,000 | ||||||
Telecommunications — 2.47% | ||||||||
PAETEC Escrow Corp. 9.88%, 12/1/181 | 17,500,000 | 18,068,750 | ||||||
PAETEC Holding Corp. 9.50%, 7/15/15 | 9,229,000 | 9,598,160 | ||||||
Telcordia Technologies, Inc. 11.00%, 5/1/181 | 26,000,000 | 26,260,000 | ||||||
53,926,910 | ||||||||
Total CORPORATE BONDS (Cost $928,770,523) | 979,133,634 | |||||||
CONVERTIBLE CORPORATE BONDS — 18.20% | ||||||||
Airlines — 1.45% | ||||||||
UAL Corp. 5.00%, 2/1/21 | 22,900,000 | 21,583,250 | ||||||
UAL Corp. 4.50%, 6/30/21 | 10,000,000 | 10,175,000 | ||||||
31,758,250 | ||||||||
Auto Manufacturers — 3.50% | ||||||||
Ford Motor Co. 4.25%, 11/15/16 | 38,150,000 | 76,443,062 | ||||||
Biotechnology — 0.88% | ||||||||
Amylin Pharmaceuticals, Inc. 2.50%, 4/15/11 | 19,170,000 | 19,217,925 | ||||||
Computers — 1.30% | ||||||||
SanDisk Corp. 1.50%, 8/15/17 | 25,100,000 | 28,457,125 | ||||||
Electrical Components & Equipment — 2.21% | ||||||||
SunPower Corp. 4.50%, 3/15/151 | 8,500,000 | 7,666,150 | ||||||
Suntech Power Holdings Co., Ltd. (China) 3.00%, 3/15/133 | 46,119,000 | 40,642,369 | ||||||
48,308,519 | ||||||||
Energy — Alternate Sources — 0.64% | ||||||||
LDK Solar Co., Ltd. (China) 4.75%, 4/15/133 | 14,124,000 | 13,929,795 | ||||||
Entertainment — 1.80% | ||||||||
International Game Technology 3.25%, 5/1/14 | 33,818,000 | 39,186,608 | ||||||
Lodging — 0.34% | ||||||||
Gaylord Entertainment Co. 3.75%, 10/1/141 | 5,000,000 | 7,312,500 |
Notes to Financial Statements are an integral part of this Schedule.
6
Table of Contents
Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
Shares, | ||||||||
Principal | ||||||||
Amount, or | ||||||||
Number of | ||||||||
Contracts | Value | |||||||
Real Estate Investment Trusts — 1.54% | ||||||||
Boston Properties LP 3.63%, 2/15/141 | $ | 14,000,000 | $ | 14,962,500 | ||||
Developers Diversified Realty Corp. 1.75%, 11/15/40 | 1,000,000 | 1,063,750 | ||||||
Host Hotels & Resorts LP 2.50%, 10/15/291 | 12,500,000 | 17,671,875 | ||||||
33,698,125 | ||||||||
Retail — 0.09% | ||||||||
Regis Corp. 5.00%, 7/15/14 | 1,500,000 | 1,923,750 | ||||||
Semiconductors — 1.14% | ||||||||
ON Semiconductor Corp. 2.63%, 12/15/26 | 21,100,000 | 24,818,875 | ||||||
Telecommunications — 3.31% | ||||||||
Ixia 3.00%, 12/15/151 | 6,000,000 | 6,697,500 | ||||||
NII Holdings, Inc. 3.13%, 6/15/12 | 16,625,000 | 16,396,406 | ||||||
Virgin Media, Inc. 6.50%, 11/15/16 | 29,550,000 | 49,053,000 | ||||||
72,146,906 | ||||||||
Total CONVERTIBLE CORPORATE BONDS (Cost $333,184,005) | 397,201,440 | |||||||
U.S. GOVERNMENT AND AGENCY SECURITIES — 3.87% | ||||||||
Federal Home Loan Banks 1.38%, 5/16/11 | 20,000,000 | 20,089,400 | ||||||
Freddie Mac Non Gold Pool 2.68%, 6/1/342 | 1,384,959 | 1,444,911 | ||||||
United States Treasury Inflation Indexed Bonds 3.50%, 1/15/11 | 62,829,000 | 62,912,437 | ||||||
Total U.S. GOVERNMENT AND AGENCY SECURITIES (Cost $84,293,275) | 84,446,748 | |||||||
COMMON STOCK — 0.74% | ||||||||
Airlines — 0.13% | ||||||||
United Continental Holdings, Inc. | 118,124 | $ | 2,813,714 | |||||
Auto Parts & Equipment — 0.57% | ||||||||
Lear Corp.* | 126,795 | 12,515,934 | ||||||
Miscellaneous Manufacturing — 0.04% | ||||||||
Griffon Corp. | 66,800 | 851,032 | ||||||
Total COMMON STOCK (Cost $12,190,987) | 16,180,680 | |||||||
CONVERTIBLE PREFERRED STOCK — 7.15% | ||||||||
Auto Manufacturers — 3.13% | ||||||||
Motors Liquidation Co. 5.25%, 6/6/324 | 475,000 | 3,819,000 | ||||||
Motors Liquidation Co. 6.25%, 7/15/334 | 7,940,650 | 64,636,891 | ||||||
68,455,891 | ||||||||
Banks — 2.44% | ||||||||
Bank of America Corp. 7.25%, 12/31/49 | 49,255 | 47,135,557 | ||||||
Citigroup, Inc. 7.50%, 12/15/12 | 45,000 | 6,151,050 | ||||||
53,286,607 | ||||||||
Telecommunications — 1.58% | ||||||||
Lucent Technologies Capital Trust I 7.75%, 3/15/174 | 39,434 | 34,406,165 | ||||||
Total CONVERTIBLE PREFERRED STOCK (Cost $146,646,367) | 156,148,663 | |||||||
PREFERRED STOCKS — 4.48% | ||||||||
Banks — 0.42% | ||||||||
Goldman Sachs Group, Inc. 6.13%, 11/1/60 | 400,000 | 9,260,000 | ||||||
Diversified Financial Services — 0.02% | ||||||||
Citigroup Capital XIII 7.88%, 10/30/402 | 20,000 | 538,200 | ||||||
Food — 1.41% | ||||||||
H.J. Heinz Finance Co. 8.00%, 7/15/131 | 285 | 30,735,469 | ||||||
Lodging — 1.27% | ||||||||
Las Vegas Sands Corp. 10.00%, 11/15/114 | 247,238 | 27,628,847 | ||||||
Telecommunications — 1.36% | ||||||||
Centaur Funding Corp. (Cayman Islands) 9.08%, 4/21/201,3 | 27,242 | 29,574,596 | ||||||
Total PREFERRED STOCKS (Cost $93,307,124) | 97,737,112 | |||||||
PURCHASED PUT OPTIONS — 0.01% | ||||||||
LDK Solar Co. Ltd., Exercise Price: $2.50, (China) Expiration Date: January, 2011*3,4 | 66,845 | — | ||||||
MBIA, Inc., Exercise Price: $5.00, Expiration Date: January, 2012* | 3,300 | 181,500 |
Notes to Financial Statements are an integral part of this Schedule.
7
Table of Contents
Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
Shares, | ||||||||
Principal | ||||||||
Amount, or | ||||||||
Number of | ||||||||
Contracts | Value | |||||||
MBIA, Inc., Exercise Price: $4.00, Expiration Date: January, 2012* | 2,700 | $ | 89,100 | |||||
Suntech Power Holdings Co., Exercise Price: $5.00, (China) Expiration Date: January, 2011*3 | 22,719 | — | ||||||
Trina Solar Ltd. — Spon. ADR, Exercise Price: $2.50, (China) Expiration Date: January, 2011*3 | 6,668 | — | ||||||
Trina Solar Ltd. — Spon. ADR, Exercise Price: $1.25, (China) Expiration Date: January, 2011*3 | 10,000 | — | ||||||
UAL Corp., Exercise Price: $2.50, Expiration Date: January, 2011* | 14,447 | — | ||||||
Total PURCHASED PUT OPTIONS (Cost $8,419,076) | 270,600 | |||||||
SHORT-TERM INVESTMENTS — 14.42% | ||||||||
UMB Money Market Fiduciary 0.01% | 314,769,315 | 314,769,315 | ||||||
Total SHORT-TERM INVESTMENTS (Cost $314,769,315) | 314,769,315 | |||||||
TOTAL INVESTMENTS (COST $2,068,035,325) | 100.47 | % | $ | 2,193,354,963 | ||||
Other Assets less Liabilities | (0.47 | )% | (10,292,623 | ) | ||||
Net Assets | 100.00 | % | $ | 2,183,062,340 | ||||
SECURITIES SOLD SHORT | ||||||||
CORPORATE BONDS — (0.53)% | ||||||||
Advertising — (0.36)% | ||||||||
Visant Corp. 10.00%, 10/1/171 | $ | (7,320,000 | ) | $ | (7,795,800 | ) | ||
Telecommunications — (0.17)% | ||||||||
Clearwire Communications LLC/Clearwire Finance, Inc. 12.00%, 12/1/151 | (1,662,000 | ) | (1,799,115 | ) | ||||
Clearwire Communications LLC/Clearwire Finance, Inc. 12.00%, 12/1/171 | (1,900,000 | ) | (1,971,250 | ) | ||||
(3,770,365 | ) | |||||||
Total CORPORATE BONDS (Proceeds $11,549,922) | (11,566,165 | ) | ||||||
U.S. GOVERNMENT AND AGENCY SECURITIES — (18.04)% | ||||||||
United States Treasury Note/Bond | ||||||||
2.63%, 6/30/14 | (58,300,000 | ) | (61,019,170 | ) | ||||
3.13%, 1/31/17 | (30,000,000 | ) | (31,176,570 | ) | ||||
2.75%, 2/15/19 | (156,239,000 | ) | (154,249,453 | ) | ||||
3.13%, 5/15/19 | (10,000,000 | ) | (10,107,030 | ) | ||||
3.63%, 8/15/19 | (20,000,000 | ) | (20,896,880 | ) | ||||
3.50%, 5/15/20 | (30,000,000 | ) | (30,736,110 | ) | ||||
4.25%, 5/15/39 | (31,062,500 | ) | (30,606,285 | ) | ||||
4.50%, 8/15/39 | (53,500,000 | ) | (54,946,158 | ) | ||||
(393,737,656 | ) | |||||||
Total U.S. GOVERNMENT AND AGENCY SECURITIES (Proceeds $383,028,797) | (393,737,656 | ) | ||||||
COMMON STOCK — (8.20)% | ||||||||
Airlines — (0.08)% | ||||||||
United Continental Holdings, Inc.* | (70,875 | ) | (1,688,243 | ) | ||||
Auto Manufacturers — (3.03)% | ||||||||
Ford Motor Co.* | (3,935,747 | ) | (66,081,192 | ) | ||||
Computers — (0.69)% | ||||||||
SanDisk Corp.* | (302,145 | ) | (15,064,950 | ) | ||||
Electrical Components & Equipment — (0.09)% | ||||||||
SunPower Corp. — Cl. A* | (151,900 | ) | (1,948,877 | ) | ||||
Entertainment — (0.80)% | ||||||||
International Game Technology | (988,808 | ) | (17,492,014 | ) | ||||
Lodging — (0.25)% | ||||||||
Gaylord Entertainment Co.* | (155,450 | ) | (5,586,873 | ) | ||||
Real Estate Investment Trusts — (0.72)% | ||||||||
Boston Properties, Inc. | (35,800 | ) | (3,082,380 | ) | ||||
Host Hotels & Resorts, Inc. | (703,100 | ) | (12,564,397 | ) | ||||
(15,646,777 | ) | |||||||
Retail — (0.05)% | ||||||||
Regis Corp. | (72,750 | ) | (1,207,650 | ) | ||||
Semiconductors — (0.60)% | ||||||||
ON Semiconductor Corp.* | (1,337,988 | ) | (13,219,321 | ) | ||||
Telecommunications — (1.89)% | ||||||||
Ixia* | (199,466 | ) | (3,347,039 | ) | ||||
Virgin Media, Inc.* | (1,389,700 | ) | (37,855,428 | ) | ||||
(41,202,467 | ) | |||||||
Total COMMON STOCK (Proceeds $138,707,151) | (179,138,364 | ) | ||||||
Total INVESTMENT SECURITIES SOLD SHORT (Proceeds $533,285,870) | (26.77 | )% | $ | (584,442,185 | ) | |||
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
* Non-income producing security.
1 | 144A restricted security. |
2 | Variable rate security. |
3 | Foreign security denominated in U.S. dollars and traded on a U.S. exchange. |
4 | Security valued at fair value as determined in good faith by Driehaus Capital Management LLC, investment adviser to the Fund, in accordance with procedures established by, and under the general supervision of, the Trust’s Board of Trustees. |
Percentages are stated as a percent of net assets.
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
Pay/ | ||||||||||||||||||||||||||||
ReceiveA | Premium | Unrealized | ||||||||||||||||||||||||||
Notional | Fixed | Fixed | Expiration | Paid | Appreciation/ | |||||||||||||||||||||||
Counterparty | Reference Instrument | AmountB | Rate | Rate | Date | (Received) | (Depreciation) | Credit Event | RatingC | |||||||||||||||||||
SWAP CONTRACTS | ||||||||||||||||||||||||||||
Credit Default Swaps | ||||||||||||||||||||||||||||
Goldman Sachs | Alcatel-Lucent USA, Inc. 6.50%, 1/15/28 | $ | 15,000,000 | Pay | 5.00 | % | 9/20/2012 | $ | (480,584 | ) | $ | (281,716 | ) | Bankruptcy/FTP | B | |||||||||||||
Goldman Sachs | Alcatel-Lucent USA, Inc. 6.50%, 1/15/28 | 5,000,000 | Pay | 5.00 | 12/20/2012 | (278,812 | ) | 17,236 | Bankruptcy/FTP | B | ||||||||||||||||||
Goldman Sachs | Boston Properties L.P. 6.25%, 1/15/13 | 11,000,000 | Pay | 1.00 | 9/20/2014 | 848,323 | (901,029 | ) | Bankruptcy/FTP | A- | ||||||||||||||||||
Goldman Sachs | Brunswick Corp. 7.13%, 8/1/27 | 10,000,000 | Pay | 5.00 | 12/20/2014 | 40,542 | (1,101,006 | ) | Bankruptcy/FTP | CCC | ||||||||||||||||||
Goldman Sachs | Brunswick Corp. 7.13%, 8/1/27 | 10,000,000 | Pay | 5.00 | 12/20/2014 | (143,212 | ) | (917,252 | ) | Restructuring/ Bankruptcy/FTP | CCC | |||||||||||||||||
Goldman Sachs | Centex Corp. 5.25%, 6/15/15 | 5,000,000 | Pay | 4.21 | 3/20/2013 | — | (287,301 | ) | Bankruptcy/FTP | BB- | ||||||||||||||||||
Goldman Sachs | Continental Airlines, Inc. 5.00%, 6/15/23 | 1,000,000 | Receive | 5.00 | 6/20/2013 | (400,000 | ) | 403,340 | Bankruptcy/FTP | B | ||||||||||||||||||
Goldman Sachs | Continental Airlines, Inc. 5.00%, 6/15/23 | 500,000 | Receive | 4.93 | 6/20/2012 | — | 5,299 | Bankruptcy/FTP | B | |||||||||||||||||||
Goldman Sachs | Continental Airlines, Inc. 5.00%, 6/15/23 | 1,000,000 | Receive | 5.00 | 6/20/2013 | (290,000 | ) | 293,340 | Bankruptcy/FTP | B | ||||||||||||||||||
Goldman Sachs | CVS Caremark Corp. 4.88%, 9/15/14 | 10,000,000 | Pay | 1.00 | 9/20/2014 | (286,840 | ) | 57,879 | Bankruptcy/FTP | BBB+ | ||||||||||||||||||
Goldman Sachs | Dow Jones CDX NA High Yield Series II Index | 7,830,000 | Pay | 5.00 | 12/20/2013 | 2,158,144 | (2,691,009 | ) | Bankruptcy/FTP | CCC | ||||||||||||||||||
Goldman Sachs | Dow Jones CDX NA Investment Grade Series 8 Index | 2,420,000 | Receive | 0.35 | 6/20/2012 | (34,974 | ) | 26,653 | Bankruptcy/FTP | BBB | ||||||||||||||||||
Goldman Sachs | Enbridge Energy, L.P. 4.75%, 6/1/13 | 10,000,000 | Pay | 1.00 | 6/20/2015 | 56,732 | (83,792 | ) | Bankruptcy/FTP | BBB | ||||||||||||||||||
Goldman Sachs | H.J. Heinz Co. 6.38%, 7/15/28 | 10,000,000 | Pay | 1.00 | 9/20/2014 | (320,193 | ) | 74,380 | Bankruptcy/FTP | BBB | ||||||||||||||||||
Goldman Sachs | iStar Financial, Inc. 6.00%, 12/15/10 | 4,000,000 | Pay | 5.50 | 3/20/2013 | — | 131,851 | Bankruptcy/FTP | CCC | |||||||||||||||||||
Goldman Sachs | iStar Financial, Inc. 6.00%, 12/15/10 | 4,000,000 | Pay | 5.05 | 6/20/2013 | — | 179,245 | Bankruptcy/FTP | CCC | |||||||||||||||||||
Goldman Sachs | iStar Financial, Inc. 5.95%, 10/15/13 | 5,000,000 | Pay | 5.00 | 6/20/2013 | 700,000 | (471,205 | ) | Bankruptcy/FTP | CCC- | ||||||||||||||||||
Goldman Sachs | iStar Financial, Inc. 5.95%, 10/15/13 | 5,000,000 | Pay | 5.00 | 6/20/2013 | 725,000 | (496,205 | ) | Restructuring/ Bankruptcy/FTP | CCC- | ||||||||||||||||||
Goldman Sachs | Limited Brands, Inc. 6.13%, 12/1/12 | 4,150,000 | Pay | 3.38 | 6/20/2013 | — | (269,096 | ) | Restructuring/ Bankruptcy/FTP | BB+ | ||||||||||||||||||
Goldman Sachs | Limited Brands, Inc. 6.13%, 12/1/12 | 4,700,000 | Pay | 2.55 | 6/20/2013 | — | (208,343 | ) | Restructuring/ Bankruptcy/FTP | BB+ | ||||||||||||||||||
Goldman Sachs | Limited Brands, Inc. 6.90%, 7/15/17 | 15,000,000 | Pay | 1.00 | 12/20/2015 | 679,159 | (383,546 | ) | Restructuring/ Bankruptcy/FTP | BB+ | ||||||||||||||||||
Goldman Sachs | Liz Claiborne, Inc. 5.00%, 7/8/13 | 15,000,000 | Pay | 5.00 | 9/20/2014 | 1,875,000 | (1,862,780 | ) | Restructuring/ Bankruptcy/FTP | CCC+ | ||||||||||||||||||
Goldman Sachs | Liz Claiborne, Inc. 5.00%, 7/8/13 | 15,000,000 | Pay | 5.00 | 12/20/2014 | 1,087,500 | (1,015,087 | ) | Restructuring/ Bankruptcy/FTP | CCC+ |
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Active Income Fund
Schedule of Investments
December 31, 2010
Pay/ | ||||||||||||||||||||||||||||
ReceiveA | Premium | Unrealized | ||||||||||||||||||||||||||
Notional | Fixed | Fixed | Expiration | Paid | Appreciation/ | |||||||||||||||||||||||
Counterparty | Reference Instrument | AmountB | Rate | Rate | Date | (Received) | (Depreciation) | Credit Event | RatingC | |||||||||||||||||||
Goldman Sachs | Masco Corp. 6.13%, 10/3/16 | $ | 15,000,000 | Pay | 1.00 | % | 12/20/2015 | $ | 1,047,333 | $ | (182,640 | ) | Bankruptcy/FTP | BBB | ||||||||||||||
Goldman Sachs | Newell Rubbermaid, Inc. 5.50%, 4/15/13 | 30,000,000 | Pay | 1.00 | 6/20/2014 | 620,488 | (850,009 | ) | Bankruptcy/FTP | BBB- | ||||||||||||||||||
Goldman Sachs | RadioShack Corp. 7.38%, 5/15/11 | 9,000,000 | Pay | 2.27 | 9/20/2013 | — | (312,147 | ) | Bankruptcy/FTP | BB | ||||||||||||||||||
Morgan Stanley | Sprint Nextel Corp. 6.00%, 12/1/16 | 5,000,000 | Pay | 5.00 | 12/20/2015 | (276,094 | ) | (42,378 | ) | Restructuring/ Bankruptcy/FTP | BB- | |||||||||||||||||
Goldman Sachs | Standard Pacific Corp. 7.00%, 8/15/15 | 4,000,000 | Receive | 6.70 | 9/20/2013 | — | 496,279 | Bankruptcy/FTP | B | |||||||||||||||||||
Goldman Sachs | The Chubb Corp. 6.60%, 8/15/18 | 10,000,000 | Pay | 1.00 | 12/20/2014 | (242,813 | ) | 134,116 | Bankruptcy/FTP | A+ | ||||||||||||||||||
Goldman Sachs | The Chubb Corp. 6.60%, 8/15/18 | 10,000,000 | Pay | 1.00 | 3/20/2015 | (257,326 | ) | 152,141 | Bankruptcy/FTP | A+ | ||||||||||||||||||
Goldman Sachs | TRW Automotive, Inc. 7.25%, 3/15/17 | 5,000,000 | Pay | 5.00 | 3/20/2015 | 92,579 | (737,595 | ) | Bankruptcy/FTP | BB | ||||||||||||||||||
Goldman Sachs | TRW Automotive, Inc. 7.25%, 3/15/17 | 3,000,000 | Pay | 5.00 | 6/20/2015 | (133,100 | ) | (250,910 | ) | Bankruptcy/FTP | BB | |||||||||||||||||
Goldman Sachs | Tyson Foods, Inc. 7.35%, 4/1/16 | 6,000,000 | Pay | 3.05 | 9/20/2013 | — | (308,759 | ) | Bankruptcy/FTP | BB+ | ||||||||||||||||||
Goldman Sachs | Vornado Realty L.P. 4.75%, 12/1/10 | 5,500,000 | Pay | 1.50 | 6/20/2013 | — | (123,330 | ) | Restructuring/ Bankruptcy/FTP | BBB | ||||||||||||||||||
Total Credit Default Swaps | 6,786,852 | (11,805,376 | ) | |||||||||||||||||||||||||
Total Swap Contracts | $ | 6,786,852 | $ | (11,805,376 | ) | |||||||||||||||||||||||
A | If the Fund is paying a fixed rate, the counterparty acts as guarantor of the variable instrument and thus the Fund is a buyer of protection. If the Fund is receiving a fixed rate, the Fund acts as guarantor of the variable instrument and thus is a seller of protection. |
B | For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse has been entered into in association with the contracts. |
C | Based on Standard & Poor’s corporation credit rating (unaudited). |
FTP=Failure to Pay
FUTURES CONTRACTS
Number of | Unrealized | |||||||||||
Contracts | Expiration | Appreciation/ | ||||||||||
Futures Contracts | Long/(Short) | Date | (Depreciation) | |||||||||
U.S. 10 Year Treasury Note | (100 | ) | March 2011 | $ | (139,249 | ) | ||||||
U.S. 30 Year Treasury Note | (50 | ) | March 2011 | (145,406 | ) | |||||||
Total Futures Contracts | $ | (284,655 | ) | |||||||||
Notes to Financial Statements are an integral part of this Schedule.
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Dear Shareholders,
The Driehaus Select Credit Fund, which launched on September 30, 2010, finished the year with a since inception gain of 3.43%1. The Fund outperformed its benchmark, the Citigroup 3-Month Treasury Bill Index (the “Benchmark”), which returned 0.04% for the same period. The Fund also outperformed the Merrill Lynch U.S. High Yield Master II Index (the “Index”), which returned 3.07% for the same period.
The year began with an economy bringing itself back to life. Mixed economic signals and sovereign debt worries throughout the first half of the year kept many investors divided between bull and bear camps. Volatility spiked in response to the prospect of European sovereign defaults and the U.S. flash crash in May. Unemployment remained chronically high and subdued inflation weighed on a matrix of financial underpinnings. Quantitative Easing 1 (“QE1”), which was put in place to stabilize the banking system in 2008, began to fade and was followed by Quantitative Easing 2 (“QE2”). This new bout of quantitative easing set the tone for an overriding theme in the markets throughout 2010 as the U.S. Federal Reserve set out to achieve higher levels of employment, economic output and inflation.
As the year progressed, strong economic data and plentiful credit paved the way for gains across stocks, bonds and commodities. A record low yield environment courtesy of the U.S. Federal Reserve supported the restructuring of corporate capital structures and provided the backbone for a benign default outlook. Rising global growth prospects trumped Euro-led contagion and U.S. “double dip” fears, which in turn sparked a rally in commodities and stocks. The fixed income markets posted a year of gains, but showed substantial weakness into year end as treasury yields began to rise.
Reflecting back on the year, 2010 was a great year for investing. It is not too often when you will record gains across stocks, bonds, and commodities all in the same year. Unfortunately for the Fund, absolute return strategies generally lagged long-only strategies during the year. Nevertheless, with the HFRI and HFRX Global Hedge Fund Indices up 10.3% and 5.2% for the year, respectively, 2010 can hardly be considered a disaster.
The Fund outperformed the Benchmark in October aided by stronger fundamental macroeconomic data and expectations for QE2, which increased appetite for risk across global markets. In November, markets wrestled with continued worries over the fate of Europe. As a result, most assets dropped in value slightly as equities inched lower and credit spreads widened. Even Treasuries, typically a safe haven during these bouts of fear, traded lower throughout November resulting in underperformance relative to the Benchmark; however, the Fund did outperform its Index. The Fund finished 2010 on a strong note as investors embraced continued signs of a global economic recovery. The response by risky assets was strong in December, as the S&P 500 Index jumped 6.7% during the month. Even more impressive, the Dow Jones UBS Commodity Total Return Index leapt 10.7%. This flight to risk sparked another month of losses in U.S. Treasuries as yields jumped across the curve.
The bulk of our gains were generated from our Capital Structure Arbitrage, Convertible Arbitrage and Directional Long strategies since the Fund’s inception. The largest detractor from returns was our Volatility Trading segment. We took our cues from a very transparent U.S. Federal Reserve. Their commentary and actions throughout the year dictated that investors should be buying riskier assets (equities, high yield, commodities and preferred securities) and decrease exposure to those that may be hurt by inflation (U.S. Treasuries, investment grade fixed income and cash).
Correlations between the Fund and the other instruments (S&P 500 Index, oil futures, the U.S. Dollar Index, the 10 Year Treasury, the Barclays Capital U.S. Aggregate Bond Index, the Chicago Board Options Exchange Volatility Index, and the J.P. Morgan High Yield 100 Index) were relatively low. Though there is only one quarter’s worth of data, there were no assets that displayed any significant correlation to the Fund. Given the concentrated construction of the Fund and the event driven nature of many of the trades, we do not expect the Fund to be significantly correlated to any of the aforementioned assets over extended periods of time.
Going forward, we expect the markets to continue to support risky assets. We would not be surprised to see spikes in volatility along the way, much like in 2010, as fiscal budgets globally are stretched and inflation signals have clearly emerged around the world. But in the end, we believe high yield and distressed credit should benefit from an increased appetite for risk and strong balance sheets. Given that, we expect the default rate for U.S. high yield next year will fall below 3% and that spreads should continue to tighten towards historical averages. We
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expect rates to grind higher given the end of the Fed’s Treasury purchase program, concerns over continued budget deficits, and fund flows out of fixed income and into equities.
In summary, we believe 2011 presents another great year for investment opportunities and will likely bring a host of mergers and acquisitions, leveraged buyouts and shareholder friendly actions that will lift equity valuations and provide us with greater investment opportunities within a company’s capital structure. The Driehaus Select Credit Fund currently has a net long bias, and consequently, we would expect it to perform better in a stable or improving credit environment as compared to a deteriorating one. We believe the Driehaus Select Credit Fund will exhibit annualized volatility of 5-7% over the next year.
We thank you for your continued support and interest in our Fund. We wish you the best in getting off to a positive start in the New Year.
Sincerely,
K.C. Nelson | Mirsada Durakovic | Elizabeth Cassidy | ||
Portfolio Manager | Assistant Portfolio Manager | Assistant Portfolio Manager |
1 | During this period, the Fund’s return reflects fee waivers and/or reimbursements without which performance would have been lower. |
Performance is historical and does not represent future results.
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Driehaus Select Credit Fund
Performance Overview (unaudited)
The performance summarized below is historical and does not represent future results. Investment returns and principal value vary, and you may have a gain or loss when you sell shares. Performance data presented measures the change in the value of an investment in the Fund, assuming reinvestment of all dividends and capital gains.
The table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The graph compares the results of a $25,000 investment (minimum investment) in the Fund since September 30, 2010 (the date of the Fund’s inception), with all dividends and capital gains reinvested, with the indicated indices (and dividends reinvested) for the same period.
Since Inception | ||||||
Cumulative Total Return as of 12/31/10 | (09/30/10 - 12/31/10) | |||||
Driehaus Select Credit Fund (DRSLX)1 | 3.43% | |||||
Citigroup 3-Month T-Bill Index2 | 0.04% | |||||
Merrill Lynch U.S. High Yield Master II Index3 | 3.07% | |||||
1 | The returns for the period reflect fee waivers and/or reimbursements without which performance would have been lower. |
2 | The Citigroup 3-Month T-Bill Index is designed to mirror the performance of the 3 month U.S. Treasury Bill. The Citigroup 3-Month T-Bill Index is unmanaged and its returns reflect reinvestment of all distributions and changes in market prices. |
3 | The Merrill Lynch U.S. High-Yield Bond Master II Index is an unmanaged index that tracks the performance of below-investment grade, U.S.-dollar denominated corporate bonds publicly issued in the U.S. domestic market. |
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Driehaus Select Credit Fund
Schedule of Investments
December 31, 2010
Shares, | ||||||||
Principal | ||||||||
Amount, or | ||||||||
Number of | ||||||||
Contracts | Value | |||||||
BANK LOANS — 11.17% | ||||||||
Advertising — 4.70% | ||||||||
Advantage Sales & Marketing LLC 9.25%, 5/29/182,4 | $ | 500,000 | $ | 505,000 | ||||
Visant Corp. 7.00%, 12/22/162 | 600,000 | 606,600 | ||||||
1,111,600 | ||||||||
Commercial Services — 2.17% | ||||||||
Language Line LLC 10.50%, 10/26/162,4 | 500,000 | 512,500 | ||||||
Diversified Financial Services — 4.30% | ||||||||
Fifth Third Processing Solutions, Inc. 8.25%, 11/1/172 | 1,000,000 | 1,017,500 | ||||||
Total BANK LOANS (Cost $2,580,866) | 2,641,600 | |||||||
CORPORATE BONDS — 24.99% | ||||||||
Banks — 3.63% | ||||||||
ABN Amro North American Holding Preferred Capital Repackage Trust I 6.52%, 12/29/491,2 | 1,000,000 | 857,500 | ||||||
Commercial Services — 4.60% | ||||||||
DynCorp International, Inc. 10.38%, 7/1/171,4 | 500,000 | 506,250 | ||||||
Wyle Services Corp. 10.50%, 4/1/181,4 | 600,000 | 582,000 | ||||||
1,088,250 | ||||||||
Food — 4.25% | ||||||||
Dean Foods Co. 9.75%, 12/15/181,4 | 1,000,000 | 1,005,000 | ||||||
Healthcare — Services — 2.12% | ||||||||
Aurora Diagnostics Holdings/Aurora Diagnostics Financing, Inc. 10.75%, 1/15/181,4 | 500,000 | 500,000 | ||||||
Household Products/Wares — 3.12% | ||||||||
Armored Autogroup, Inc. 9.25%, 11/1/181,4 | 750,000 | 738,750 | ||||||
Insurance — 2.80% | ||||||||
MBIA Insurance Corp. 14.00%, 1/15/331,2,4 | 1,250,000 | 662,500 | ||||||
Pharmaceuticals — 2.13% | ||||||||
ConvaTec Healthcare E S.A. (Luxembourg) 10.50%, 12/15/181,3,4 | 500,000 | 503,750 | ||||||
Retail — 2.34% | ||||||||
Rite Aid Corp. 6.88%, 8/15/13 | 600,000 | 552,000 | ||||||
Total CORPORATE BONDS (Cost $5,878,996) | 5,907,750 | |||||||
CONVERTIBLE CORPORATE BONDS — 15.05% | ||||||||
Computers — 3.84% | ||||||||
SanDisk Corp. 1.50%, 8/15/17 | 800,000 | 907,000 | ||||||
Electrical Components & Equipment — 1.87% | ||||||||
Suntech Power Holdings Co., Ltd. (China) 3.00%, 3/15/133 | 500,000 | 440,625 | ||||||
Healthcare — Products — 2.45% | ||||||||
Volcano Corp. 2.88%, 9/1/15 | 500,000 | 580,000 | ||||||
Retail — 2.17% | ||||||||
Regis Corp. 5.00%, 7/15/14 | 400,000 | 513,000 | ||||||
Telecommunications — 4.72% | ||||||||
Ixia 3.00%, 12/15/151 | 1,000,000 | 1,116,250 | ||||||
Total CONVERTIBLE CORPORATE BONDS (Cost $3,357,435) | 3,556,875 | |||||||
PREFERRED STOCKS — 14.69% | ||||||||
Auto Manufacturers — 6.27% | ||||||||
General Motors Co. 4.75%, 12/01/13 | 20,000 | 1,082,200 | ||||||
Motors Liquidation Co. 7.25%, 4/15/41 | 50,000 | 400,625 | ||||||
1,482,825 | ||||||||
Lodging — 4.73% | ||||||||
Las Vegas Sands Corp. 10.00%, 11/15/114 | 10,000 | 1,117,500 | ||||||
Telecommunications — 3.69% | ||||||||
Lucent Technologies Capital Trust I 7.75%, 3/15/174 | 1,000 | 872,500 | ||||||
Total PREFERRED STOCKS (Cost $3,409,062) | 3,472,825 | |||||||
PURCHASED CALL OPTIONS — 0.45% | ||||||||
Equinix, Inc., Exercise Price: $75.00, Expiration Date: January, 2011* | 150 | 106,500 | ||||||
Total PURCHASED CALL OPTIONS (Cost $80,112) | 106,500 | |||||||
PURCHASED PUT OPTIONS — 3.66% | ||||||||
Great Atlantic and Pacific Tea Co., Exercise Price: $2.00, Expiration Date: May, 2011*4 | 4,560 | 804,384 | ||||||
MBIA, Inc., Exercise Price: $5.00, Expiration Date: January, 2012* | 1,100 | 60,500 | ||||||
Total PURCHASED PUT OPTIONS (Cost $329,822) | 864,884 | |||||||
Notes to Financial Statements are an integral part of this Schedule.
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Driehaus Select Credit Fund
Schedule of Investments
December 31, 2010
Shares, | ||||||||
Principal | ||||||||
Amount, or | ||||||||
Number of | ||||||||
Contracts | Value | |||||||
SHORT-TERM INVESTMENTS — 28.58% | ||||||||
UMB Money Market Fiduciary 0.01% | $ | 6,755,648 | $ | 6,755,648 | ||||
Total SHORT-TERM INVESTMENTS (Cost $6,755,648) | 6,755,648 | |||||||
TOTAL INVESTMENTS (COST $22,391,941) | 98.59 | % | $ | 23,306,082 | ||||
Other Assets less Liabilities | 1.41 | % | 332,960 | |||||
Net Assets | 100.00 | % | $ | 23,639,042 | ||||
SECURITIES SOLD SHORT | ||||||||
CORPORATE BONDS — (2.64)% | ||||||||
Advertising — (1.80)% | ||||||||
Visant Corp. 10.00%, 10/1/171 | $ | (400,000 | ) | $ | (426,000 | ) | ||
Telecommunications — (0.84)% | ||||||||
Clearwire Communications LLC/Clearwire Finance, Inc. 12.00%, 12/1/151 | (88,000 | ) | (95,260 | ) | ||||
Clearwire Communications LLC/Clearwire Finance, Inc. 12.00%, 12/1/171 | (100,000 | ) | (103,750 | ) | ||||
(199,010 | ) | |||||||
Total CORPORATE BONDS (Proceeds $624,590) | (625,010 | ) | ||||||
COMMON STOCK — (7.16)% | ||||||||
Computers — (2.42)% | ||||||||
SanDisk Corp. | (11,455 | ) | (571,146 | ) | ||||
Healthcare — Products — (1.17)% | ||||||||
Volcano Corp. | (10,120 | ) | (276,377 | ) | ||||
Retail — (1.27)% | ||||||||
Regis Corp. | (18,110 | ) | (300,626 | ) | ||||
Telecommunications — (2.30)% | ||||||||
Ixia | (32,471 | ) | (544,864 | ) | ||||
Total COMMON STOCK (Proceeds $1,668,673) | (1,693,013 | ) | ||||||
Total INVESTMENT SECURITIES SOLD SHORT (Proceeds $2,293,263) | (9.80 | )% | $ | (2,318,023 | ) | |||
* | Non-income producing security. |
1 | 144A restricted security. |
2 | Variable rate security. |
3 | Foreign security denominated in U.S. dollars and traded on a U.S. exchange. |
4 | Security valued at fair value as determined in good faith by Driehaus Capital Management LLC, investment adviser to the Fund, in accordance with procedures established by, and under the general supervision of, the Trust’s Board of Trustees. |
Percentages are stated as a percent of net assets.
Notes to Financial Statements are an integral part of this Schedule.
16
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Driehaus Select Credit Fund
Schedule of Investments
December 31, 2010
Pay/ | ||||||||||||||||||||||||||||
ReceiveA | Premium | Unrealized | ||||||||||||||||||||||||||
Notional | Fixed | Fixed | Expiration | Paid | Appreciation/ | |||||||||||||||||||||||
Counterparty | Reference Instrument | AmountB | Rate | Rate | Date | (Received) | (Depreciation) | Credit Event | RatingC | |||||||||||||||||||
SWAP CONTRACTS | ||||||||||||||||||||||||||||
Credit Default Swaps | ||||||||||||||||||||||||||||
Goldman Sachs | Masco Corp. 6.13%, 10/3/16 | $ | 500,000 | Pay | 1.00 | % | 12/20/2015 | $ | 39,569 | $ | (10,746 | ) | Bankruptcy/FTP | BBB | ||||||||||||||
Total Credit Default Swaps | 39,569 | (10,746 | ) | |||||||||||||||||||||||||
Total Swaps Contracts | $ | 39,569 | $ | (10,746 | ) | |||||||||||||||||||||||
A | If the Fund is paying a fixed rate, the counterparty acts as guarantor of the variable instrument and thus the Fund is a buyer of protection. If the Fund is receiving a fixed rate, the Fund acts as guarantor of the variable instrument and thus is a seller of protection. |
B | For contracts to sell protection, the notional amount is equal to the maximum potential amount of the future payments and no recourse has been entered into in association with the contracts. |
C | Based on Standard & Poor’s corporation credit rating (unaudited). |
FTP=Failure to Pay
FUTURES CONTRACTS
Number of | Unrealized | |||||||||||
Contracts | Expiration | Appreciation/ | ||||||||||
Futures Contracts | Long/(Short) | Date | (Depreciation) | |||||||||
U.S. 10 Year Treasury Note | (10 | ) | March 2011 | $ | (2,050 | ) | ||||||
Notes to Financial Statements are an integral part of this Schedule.
17
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Statements of Assets and Liabilities
December 31, 2010
December 31, 2010
Driehaus | Driehaus | |||||||
Active Income | Select Credit | |||||||
Fund | Fund | |||||||
ASSETS: | ||||||||
Investments securities, at fair value (cost $2,059,616,249 and $21,982,007, respectively) | $ | 2,193,084,363 | $ | 22,334,698 | ||||
Purchased options, at fair value (cost $8,419,076 and $409,934, respectively) | 270,600 | 971,384 | ||||||
Unrealized appreciation on open swap contracts | 1,971,759 | — | ||||||
Premiums paid on open swap contracts | 9,930,800 | 39,569 | ||||||
Collateral held at custodian for the benefit of brokers | 559,519,250 | 2,466,370 | ||||||
Receivable for capital stock sold | 8,223,743 | — | ||||||
Receivable for interest and dividends | 21,271,715 | 200,287 | ||||||
Prepaid expenses | 59,765 | 23,551 | ||||||
Due from adviser | — | 4,878 | ||||||
TOTAL ASSETS | 2,794,331,995 | 26,040,737 | ||||||
LIABILITIES: | ||||||||
Payable for investment securities sold short, at fair value (proceeds $533,285,870 and $2,293,263, respectively) | 584,442,185 | 2,318,023 | ||||||
Unrealized depreciation on open swap contracts | 13,777,135 | 10,746 | ||||||
Premiums received on open swap contracts | 3,143,948 | — | ||||||
Payable for capital stock redeemed | 2,443,042 | — | ||||||
Payable for investment securities purchased | 1,530,000 | — | ||||||
Payable for interest and dividends on securities sold short | 3,867,054 | 12,613 | ||||||
Payable for variation margin | 101,562 | 4,531 | ||||||
Accrued investment advisory fees | 1,022,874 | — | ||||||
Accrued shareholder services plan fees | 501,674 | 1,064 | ||||||
Accrued administration and accounting fees | 78,344 | 3,822 | ||||||
Accrued trustees’ fees | 18,027 | 3,828 | ||||||
Accrued expenses | 343,810 | 47,068 | ||||||
TOTAL LIABILITIES | 611,269,655 | 2,401,695 | ||||||
NET ASSETS | $ | 2,183,062,340 | $ | 23,639,042 | ||||
SHARES OUTSTANDING (Unlimited shares authorized, no par value) | 197,530,538 | 2,304,284 | ||||||
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE | $ | 11.05 | $ | 10.26 | ||||
NET ASSETS CONSISTED OF THE FOLLOWING AT DECEMBER 31, 2010: | ||||||||
Paid-in capital | $ | 2,147,550,461 | $ | 23,196,341 | ||||
Undistributed net investment income | 7,994,791 | 10,579 | ||||||
Undistributed net realized loss on investments, futures and swap contracts | (34,556,204 | ) | (444,463 | ) | ||||
Net unrealized appreciation (depreciation) on: | ||||||||
Investments | 133,468,114 | 352,691 | ||||||
Purchased options | (8,148,476 | ) | 561,450 | |||||
Securities sold short | (51,156,315 | ) | (24,760 | ) | ||||
Futures contracts | (284,655 | ) | (2,050 | ) | ||||
Swap contracts | (11,805,376 | ) | (10,746 | ) | ||||
NET ASSETS | $ | 2,183,062,340 | $ | 23,639,042 | ||||
Notes to Financial Statements are an integral part of these Statements.
18
Table of Contents
Statements of Operations
For the year ended December 31, 2010
For the year ended December 31, 2010
Driehaus | Driehaus | |||||||
Active Income | Select Credit | |||||||
Fund | Fund* | |||||||
INVESTMENT INCOME: | ||||||||
Interest income | $ | 78,296,978 | $ | 167,529 | ||||
Dividend income | 10,938,137 | 17,188 | ||||||
Total investment income | 89,235,115 | 184,717 | ||||||
Expenses: | ||||||||
Investment advisory fees | 9,750,389 | 35,381 | ||||||
Shareholder services plan fees | 3,343,687 | 1,064 | ||||||
Custody fees | 1,624,844 | 9,401 | ||||||
Administration and fund accounting fees | 818,199 | 11,343 | ||||||
Federal and state registration fees | 151,446 | 8,191 | ||||||
Legal fees | 125,938 | 5,499 | ||||||
Transfer agent fees and expenses | 104,067 | 12,911 | ||||||
Audit and tax fees | 84,789 | 45,856 | ||||||
Trustees’ fees | 83,144 | 3,828 | ||||||
Reports to shareholders | 53,579 | 1,853 | ||||||
Chief compliance officer fees | 9,063 | 1,562 | ||||||
Miscellaneous | 117,435 | 3,965 | ||||||
Total expenses before dividends and interest on short positions, interest expense, reimbursements and waivers | 16,266,580 | 140,854 | ||||||
Interest on short positions | 14,743,705 | 16,057 | ||||||
Dividends on short positions | 628,465 | 828 | ||||||
Interest expense | 105,272 | 770 | ||||||
Fees waived by adviser | — | (62,523 | ) | |||||
Net expenses | 31,744,022 | 95,986 | ||||||
Net investment income | 57,491,093 | 88,731 | ||||||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||||||
Net realized gain (loss) on transactions from: | ||||||||
Investments | 70,758,381 | (354,838 | ) | |||||
Purchased options | 14,600,249 | (65,741 | ) | |||||
Securities sold short | (18,451,436 | ) | 1,586 | |||||
Written options | (6,578,591 | ) | — | |||||
Futures contracts | 871,756 | 49,103 | ||||||
Swap contracts | (5,636,344 | ) | (736 | ) | ||||
Total realized gain (loss) on investments | 55,564,015 | (370,626 | ) | |||||
Change in net unrealized appreciation (depreciation) on: | ||||||||
Investments | 24,981,422 | 352,691 | ||||||
Purchased options | (3,580,613 | ) | 561,450 | |||||
Short positions | (34,611,193 | ) | (24,760 | ) | ||||
Written options | (92,376 | ) | — | |||||
Futures contracts | (284,655 | ) | (2,050 | ) | ||||
Swap contracts | (6,545,853 | ) | (10,746 | ) | ||||
Total change in net unrealized appreciation (depreciation) on investments | (20,133,268 | ) | 876,585 | |||||
Net realized and unrealized gain on investments | 35,430,747 | 505,959 | ||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 92,921,840 | $ | 594,690 | ||||
* | Fund commenced operations on September 30, 2010. |
Notes to Financial Statements are an integral part of these Statements.
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Driehaus | ||||||||||||||||
Select Credit | ||||||||||||||||
Driehaus Active Income Fund | Fund | |||||||||||||||
October 1, | September 30, | |||||||||||||||
2009* | 2010** | |||||||||||||||
Year Ended | to | Year Ended | to | |||||||||||||
December 31, | December 31, | September 30, | December 31, | |||||||||||||
2010 | 2009 | 2009 | 2010 | |||||||||||||
Operations: | ||||||||||||||||
Net investment income | $ | 57,491,093 | $ | 8,433,258 | $ | 26,884,733 | $ | 88,731 | ||||||||
Net realized gain (loss) on investments | 55,564,015 | 3,144,737 | 34,857,664 | (370,626 | ) | |||||||||||
Net change in unrealized appreciation (depreciation) on investments | (20,133,268 | ) | 22,130,705 | 78,893,647 | 876,585 | |||||||||||
Net increase in net assets resulting from operations | 92,921,840 | 33,708,700 | 140,636,044 | 594,690 | ||||||||||||
Distributions: | ||||||||||||||||
Net investment income | (50,500,194 | ) | (166,733,165 | ) | (2,850,202 | ) | (122,175 | ) | ||||||||
Net capital gains | (11,667,411 | ) | — | — | (48,949 | ) | ||||||||||
Total distributions | (62,167,605 | ) | (166,733,165 | ) | (2,850,202 | ) | (171,124 | ) | ||||||||
Capital share transactions: | ||||||||||||||||
Proceeds from shares sold | 1,656,262,651 | 338,381,727 | 1,059,804,828 | 23,097,012 | ||||||||||||
Reinvested distributions | 57,722,879 | 166,549,891 | 2,850,202 | 170,921 | ||||||||||||
Cost of shares redeemed | (821,391,429 | ) | (148,375,290 | ) | (651,368,419 | ) | (52,457 | ) | ||||||||
Net increase from capital transactions | 892,594,101 | 356,556,328 | 411,286,611 | 23,215,476 | ||||||||||||
Total increase in net assets | 923,348,336 | 223,531,863 | 549,072,453 | 23,639,042 | ||||||||||||
NET ASSETS: | ||||||||||||||||
Beginning of period | $ | 1,259,714,004 | $ | 1,036,182,141 | $ | 487,109,688 | $ | — | ||||||||
End of period | $ | 2,183,062,340 | $ | 1,259,714,004 | $ | 1,036,182,141 | $ | 23,639,042 | ||||||||
Undistributed net investment income (loss) | $ | 7,994,791 | $ | (77,448,914 | ) | $ | 77,706,256 | $ | 10,579 | |||||||
Capital share transactions in shares: | ||||||||||||||||
Shares sold | 150,264,703 | 27,798,243 | 98,672,505 | 2,292,712 | ||||||||||||
Reinvested distributions | 5,238,011 | 15,407,020 | 279,158 | 16,692 | ||||||||||||
Shares redeemed | (74,511,512 | ) | (12,139,102 | ) | (61,398,545 | ) | (5,120 | ) | ||||||||
Net increase | 80,991,202 | 31,066,161 | 37,553,118 | 2,304,284 | ||||||||||||
* | Fiscal year end changed to December 31. |
** | Fund commenced operations on September 30, 2010. |
Notes to Financial Statements are an integral part of these Statements.
20
Table of Contents
Driehaus Active Income Fund
Financial Highlights
Financial Highlights
October 1, | November 8, | |||||||||||||||||||||||||||||
Year ended | 2009** to | Year ended | Year ended | Year ended | 2005* to | |||||||||||||||||||||||||
December 31, | December 31, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||
2010 | 2009 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.81 | $ | 12.12 | $ | 10.17 | $ | 10.25 | $ | 10.37 | $ | 10.00 | ||||||||||||||||||
INCOME FROM INVESTMENT OPERATIONS: | ||||||||||||||||||||||||||||||
Net investment income | 0.36 | 0.09 | 0.38 | 0.23 | 0.40 | 0.23 | ||||||||||||||||||||||||
Net realized and unrealized gain/(loss) on investments | 0.20 | 0.26 | 1.61 | (0.24 | ) | (0.21 | ) | 0.18 | ||||||||||||||||||||||
Total from investment operations | 0.56 | 0.35 | 1.99 | (0.01 | ) | (0.19 | ) | 0.41 | ||||||||||||||||||||||
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||||||||||||||||||||||||
Net investment income | (0.26 | ) | (1.66 | ) | (0.04 | ) | (0.04 | ) | (0.31 | ) | (0.04 | ) | ||||||||||||||||||
Tax return of capital | — | — | — | (0.03 | ) | — | — | |||||||||||||||||||||||
Net capital gains | (0.06 | ) | — | — | — | — | — | |||||||||||||||||||||||
Total distributions | (0.32 | ) | (1.66 | ) | (0.04 | ) | (0.07 | ) | (0.31 | ) | (0.04 | ) | ||||||||||||||||||
Net asset value, end of period | $ | 11.05 | $ | 10.81 | $ | 12.12 | $ | 10.17 | $ | 10.25 | $ | 10.37 | ||||||||||||||||||
Total Return | 5.18 | % | 2.87 | %1 | 19.66 | % | (0.13 | ) | % | 1.88 | % | 4.16 | %1 | |||||||||||||||||
SUPPLEMENTAL DATA AND RATIOS: | ||||||||||||||||||||||||||||||
Net assets, end of year (in 000’s) | $ | 2,183,062 | $ | 1,259,714 | $ | 1,036,182 | $ | 487,110 | $ | 191,949 | $ | 93,604 | ||||||||||||||||||
Ratio of total expenses to average net assets less waivers | 1.79 | %3 | 1.99 | %2,5 | 1.96 | %7 | 1.45 | %9 | 1.17 | %11 | 0.95 | %2 | ||||||||||||||||||
Ratio of total expenses to average net assets before waivers | 1.79 | %3 | 1.99 | %2,5 | 1.96 | %7 | 1.45 | %9 | 1.17 | %11 | 0.98 | %2 | ||||||||||||||||||
Ratio of net investment income to average net assets, net of waivers | 3.24 | %4 | 2.85 | %2,6 | 3.52 | %8 | 2.54 | %10 | 3.86 | %12 | 3.48 | %2 | ||||||||||||||||||
Ratio of net investment income to average net assets, before waivers | 3.24 | %4 | 2.85 | %2,6 | 3.52 | %8 | 2.54 | %10 | 3.86 | %12 | 3.45 | %2 | ||||||||||||||||||
Portfolio turnover rate | 51 | % | 7 | %1 | 150 | % | 387 | % | 495 | % | 363 | %1 | ||||||||||||||||||
* | Inception | |
** | Fiscal year end change to December 31. |
1 | Not annualized. | |
2 | Annualized. | |
3 | The ratio of expenses to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the ratio of expenses to average net assets was 0.92%. | |
4 | The ratio of net investment income to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the net investment income to average net assets was 4.12%. | |
5 | The ratio of expenses to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the ratio of expenses to average net assets was 0.96%. | |
6 | The ratio of net investment income to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the net investment income to average net assets was 3.88%. | |
7 | The ratio of expenses to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the ratio of expenses to average net assets was 0.91%. | |
8 | The ratio of net investment income to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the net investment income to average net assets was 4.56%. | |
9 | The ratio of expenses to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the ratio of expenses to average net assets was 0.94%. | |
10 | The ratio of net investment income to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the net investment income to average net assets was 3.05%. | |
11 | The ratio of expenses to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the ratio of expenses to average net assets was 0.87%. | |
12 | The ratio of net investment income to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the net investment income to average net assets was 4.16%. |
Notes to Financial Statements are an integral part of this Schedule.
21
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Driehaus Select Credit Fund
Financial Highlights
Financial Highlights
September 30, | |||||
2010* | |||||
to | |||||
December 31, | |||||
2010 | |||||
Net asset value, beginning of period | $ | 10.00 | |||
INCOME FROM INVESTMENT OPERATIONS: | |||||
Net investment income | 0.05 | ||||
Net realized and unrealized gain on investments | 0.29 | ||||
Total from investment operations | 0.34 | ||||
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||||
Net investment income | (0.06 | ) | |||
Net capital gains | (0.02 | ) | |||
Total distributions | (0.08 | ) | |||
Net asset value, end of period | $ | 10.26 | |||
Total Return | 3.43 | %1 | |||
SUPPLEMENTAL DATA AND RATIOS: | |||||
Net assets, end of year (in 000’s) | $ | 23,639 | |||
Ratio of total expenses to average net assets less waivers | 2.15 | %2,3 | |||
Ratio of total expenses to average net assets before waivers | 3.54 | %2,3 | |||
Ratio of net investment income to average net assets, net of waivers | 1.98 | %2,4 | |||
Ratio of net investment income to average net assets, before waivers | 0.59 | %2,4 | |||
Portfolio turnover rate | 52 | %1 | |||
* | Fund commenced operations on September 30, 2010. | |
1 | Not annualized. | |
2 | Annualized. | |
3 | The ratio of expenses to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the ratio of expenses to average net assets, less waivers, was 1.75%. Excluding dividends and interest on short positions and interest expense, the ratio of expenses to average net assets before waivers was 3.14%. | |
4 | The ratio of net investment income to average net assets includes dividends and interest on short positions and interest expense. Excluding dividends and interest on short positions and interest expense, the net investment income to average net assets less waivers, was 2.38%. Excluding dividends and interest on short positions and interest expense, the ratio of net investment income to average net assets before waivers was 0.99%. |
Notes to Financial Statements are an integral part of this Schedule.
22
Table of Contents
Driehaus Mutual Funds
A. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Organization
The Driehaus Mutual Funds (the “Trust”) is an open-end registered management investment company, organized as a Delaware statutory trust, with eight separate series currently in operation. The Trust was organized under an Agreement and Declaration of Trust dated May 31, 1996, as subsequently amended, and may issue an unlimited number of full and fractional units of beneficial interest (shares) without par value. The Driehaus Active Income Fund (the “Active Income Fund”) commenced operations on June 1, 2009 following the receipt of the assets and liabilities of the Lotsoff Capital Management Active Income Fund (the “Acquired Fund”) pursuant to a plan of reorganization approved by the shareholders of the Acquired Fund. The reorganization was accomplished by a tax-free exchange of Acquired Fund shares for an equal number of shares of the Active Income Fund as of June 1, 2009. The Active Income Fund seeks to provide current income and capital appreciation. The Driehaus Select Credit Fund (the “Select Credit Fund” and, together with the Active Income Fund, the “Funds”) commenced operations on September 30, 2010. The Select Credit Fund seeks to provide positive returns under a variety of market conditions.
Significant Accounting Policies
The presentation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses. Actual results may differ from those estimates.
Securities Valuation
Investments in securities traded on a national securities exchange are valued at the last reported sales price on the day of valuation. Securities traded on the Nasdaq markets are valued at the Nasdaq Official Closing Price (“NOCP”). Exchange-traded securities for which no sale was reported and Nasdaq-traded securities for which there is no NOCP are valued at the mean of the closing bid and ask prices from the exchange the security is primarily traded on. Long-term fixed income securities are valued at the mean of representative quoted bid and asked prices or, if such prices are not available, at prices for securities of comparable maturity, quality and type or as determined by an independent pricing service. Short-term investments with remaining maturities of 60 days or less are stated at amortized cost, which approximates fair value. If amortized cost does not approximate fair value, short-term securities are reported at fair value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith by or under the direction of the Trust’s Board of Trustees.
Each Fund is subject to the Financial Accounting Standards Board (“FASB”) “Fair Value Measurements” (the “Fair Value Statement”), which clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and provides a three-level hierarchy for fair valuation based upon the inputs to the valuation as of the measurement date. In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06 “Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends FASB’s “Fair Value Statement” and provides guidance on how investment assets and liabilities are to be valued and disclosed. Specifically, the ASU requires reporting entities to disclose i) the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 or Level 3 positions, ii) transfers between all levels (including Level 1 and Level 2) will be required to be disclosed on a gross basis (i.e., transfers out must be disclosed separately from transfers in) as well as the reason(s) for the transfer and iii) purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 rollforward rather than as one net number. The effective date of the ASU is for interim and annual periods beginning after December 15, 2009; however, the requirement to provide the Level 3 activity for purchases, sales, issuances and settlements on a gross basis will be effective for interim and annual periods beginning after December 15, 2010. During the year ended December 31, 2010, there were no significant transfers between levels for the Active Income Fund. For the period from inception
23
Table of Contents
Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
through December 31, 2010, there were no significant transfers between levels for the Select Credit Fund. The three levels of the fair value hierarchy under the Fair Value Statement are described below:
Level 1 — quoted prices for active markets for identical securities
Level 2 — significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the Active Income Fund’s investments as of December 31, 2010:
Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Asset-Backed Securities | $ | — | $ | 107,062,273 | $ | — | $ | 107,062,273 | ||||||||
Bank Loans | — | 40,404,498 | — | 40,404,498 | ||||||||||||
Common Stocks | ||||||||||||||||
Airlines | 2,813,714 | — | — | 2,813,714 | ||||||||||||
Auto Parts & Equipment | 12,515,934 | — | — | 12,515,934 | ||||||||||||
Miscellaneous Manufacturing | 851,032 | — | — | 851,032 | ||||||||||||
Convertible Corporate Bonds | — | 397,201,440 | — | 397,201,440 | ||||||||||||
Convertible Preferred Stocks | ||||||||||||||||
Auto Manufacturers | — | 68,455,891 | — | 68,455,891 | ||||||||||||
Banks | 53,286,607 | — | — | 53,286,607 | ||||||||||||
Telecommunications | — | 34,406,165 | — | 34,406,165 | ||||||||||||
Corporate Bonds | — | 979,133,634 | — | 979,133,634 | ||||||||||||
Demand Deposit | 314,769,315 | — | — | 314,769,315 | ||||||||||||
Preferred Stocks | ||||||||||||||||
Banks | 9,260,000 | — | — | 9,260,000 | ||||||||||||
Diversified Financial Services | 538,200 | — | — | 538,200 | ||||||||||||
Food | — | 30,735,469 | — | 30,735,469 | ||||||||||||
Lodging | — | 27,628,847 | — | 27,628,847 | ||||||||||||
Telecommunications | — | 29,574,596 | — | 29,574,596 | ||||||||||||
Purchased Put Options | 270,600 | — | — | 270,600 | ||||||||||||
U.S. Government And Agency Securities | — | 84,446,748 | — | 84,446,748 | ||||||||||||
Total | $ | 394,305,402 | $ | 1,799,049,561 | $ | — | $ | 2,193,354,963 | ||||||||
24
Table of Contents
Driehaus Mutual Funds
Notes to Financial Statements — (Continued)
Liabilities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | ||||||||||||||||
Airlines | $ | (1,688,243 | ) | $ | — | $ | — | $ | (1,688,243 | ) | ||||||
Auto Manufacturers | (66,081,192 | ) | — | — | (66,081,192 | ) | ||||||||||
Computers | (15,064,950 | ) | — | — | (15,064,950 | ) | ||||||||||
Electrical Components & Equipment | (1,948,877 | ) | — | — | (1,948,877 | ) | ||||||||||
Entertainment | (17,492,014 | ) | — | — | (17,492,014 | ) | ||||||||||
Lodging | (5,586,873 | ) | — | — | (5,586,873 | ) | ||||||||||
Real Estate Investment Trusts | (15,646,777 | ) | — | — | (15,646,777 | ) | ||||||||||
Retail | (1,207,650 | ) | — | — | (1,207,650 | ) | ||||||||||
Semiconductors | (13,219,321 | ) | — | — | (13,219,321 | ) | ||||||||||
Telecommunications | (41,202,467 | ) | — | — | (41,202,467 | ) | ||||||||||
Corporate Bonds | — | (11,566,165 | ) | — | (11,566,165 | ) | ||||||||||
U.S. Government And Agency Securities | — | (393,737,656 | ) | — | (393,737,657 | ) | ||||||||||
Total | $ | (179,138,364 | ) | $ | (405,303,821 | ) | $ | — | $ | (584,442,185 | ) | |||||
Other Financial Instruments* | ||||||||||||||||
Credit Default Swaps | $ | — | $ | (5,018,524 | ) | — | $ | (5,018,524 | ) | |||||||
Futures Contracts | (284,655 | ) | — | — | (284,655 | ) | ||||||||||
Total Swap and Futures Contracts | $ | (284,655 | ) | $ | (5,018,524 | ) | $ | — | $ | (5,303,179 | ) | |||||
* | Other financial instruments are swap and futures contracts, which are detailed in the Schedule of Investments. |
The following is a summary of the inputs used to value the Select Credit Fund’s investments as of December 31, 2010:
Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Bank Loans | $ | — | $ | 2,641,600 | $ | — | $ | 2,641,600 | ||||||||
Convertible Corporate Bonds | — | 3,556,875 | — | 3,556,875 | ||||||||||||
Corporate Bonds | — | 5,907,750 | — | 5,907,750 | ||||||||||||
Demand Deposit | 6,755,648 | — | — | 6,755,648 | ||||||||||||
Preferred Stocks | ||||||||||||||||
Auto Manufacturers | 1,082,200 | 400,625 | — | 1,482,825 | ||||||||||||
Lodging | — | 1,117,500 | — | 1,117,500 | ||||||||||||
Telecommunications | — | 872,500 | — | 872,500 | ||||||||||||
Purchased Call Options | 106,500 | — | — | 106,500 | ||||||||||||
Purchased Put Options | 60,500 | 804,384 | — | 864,884 | ||||||||||||
Total | $ | 8,004,848 | $ | 15,301,234 | $ | — | $ | 23,306,082 | ||||||||
Liabilities | ||||||||||||||||
Corporate Bonds | $ | — | $ | (625,010 | ) | $ | — | $ | (625,010 | ) | ||||||
Common Stocks | ||||||||||||||||
Computers | (571,146 | ) | — | — | (571,146 | ) | ||||||||||
Healthcare — Products | (276,377 | ) | — | — | (276,377 | ) | ||||||||||
Retail | (300,626 | ) | — | — | (300,626 | ) | ||||||||||
Telecommunications | (544,864 | ) | — | — | (544,864 | ) | ||||||||||
Total | $ | (1,693,013 | ) | $ | (625,010 | ) | $ | — | $ | (2,318,023 | ) | |||||
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Other Financial Instruments* | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Credit Default Swaps | $ | — | $ | 28,823 | $ | — | $ | 28,823 | ||||||||
Futures Contracts | (2,050 | ) | — | — | (2,050 | ) | ||||||||||
Total Swap and Futures Contracts | $ | (2,050 | ) | $ | 28,823 | $ | — | $ | 26,773 | |||||||
* | Other financial instruments are swap and futures contracts, which are detailed in the Schedule of Investments. |
Securities Sold Short
The Funds are engaged in selling securities short, which obligates them to replace a borrowed security with the same security at current market value. Each Fund incurs a loss if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security. Each fund realizes a gain if the price of the security declines between those dates. Gains are limited to the price at which the Fund sold the security short, while losses are potentially unlimited in size.
The Funds are required to establish a margin account with the broker lending the security sold short. While the short sale is outstanding, the broker retains the proceeds of the short sale and the fund must maintain a deposit with the broker consisting of cash and securities having a value equal to a specified percentage of the value of the securities sold short. Such deposit is included in “Collateral held at custodian for the benefit of brokers” on the Statements of Assets and Liabilities. Each Fund is obligated to pay the counterparty any dividends or interest due on securities sold short. Such dividends and interest are recorded as an expense to the Funds on the Statements of Operations.
Federal Income Taxes
The Funds’ policy is to continue to comply with the requirements of Subchapter M of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all their taxable income to their shareholders. Therefore, no federal income tax provision is required.
FASB’s “Accounting for Uncertainty in Income Taxes” (“Tax Statement”) requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management has evaluated the implications of the Tax Statement and all of the uncertain tax positions and has determined that no liability is required to be recorded in the financial statements as of December 31, 2010. The Funds file tax returns with the U.S. Internal Revenue Service and various states. Generally, the tax years ended September 30, 2007, September 30, 2008, September 30, 2009, December 31, 2009 and December 31, 2010 remain subject to examination by taxing authorities.
At December 31, 2010, gross unrealized appreciation and depreciation on investments, based on cost for federal income tax purposes, were as follows:
Active | Select | |||||||
Income | Credit | |||||||
Fund | Fund | |||||||
Cost of Investments | $ | 2,106,505,281 | $ | 23,387,492 | ||||
Gross Unrealized Appreciation | $ | 100,882,280 | $ | 1,067,948 | ||||
Gross Unrealized Depreciation | (14,032,598 | ) | (153,807 | ) | ||||
Net Unrealized Appreciation/(Depreciation) on Investments | $ | 86,849,682 | $ | 914,141 | ||||
The difference between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and losses in security transactions.
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The tax character of distributions paid were as follows:
Active Income Fund
January 1, 2010 | October 1, 2009 | October 1, 2008 | ||||||||||
to | to | to | ||||||||||
Distributions paid from: | December 31, 2010 | December 31, 2009 | September 30, 2009 | |||||||||
Ordinary income | $ | 62,167,605 | $ | 166,733,165 | $ | 2,850,202 | ||||||
Total distributions paid | $ | 62,167,605 | $ | 166,733,165 | $ | 2,850,202 | ||||||
Select Credit Fund
October 1, 2010 | ||||
to | ||||
Distributions paid from: | December 31, 2010 | |||
Ordinary income | $ | 171,124 | ||
Total distributions paid | $ | 171,124 | ||
As of December 31, 2010, the components of accumulated earnings (deficit) were as follows:
Active | Select | |||||||
Income | Credit | |||||||
Fund | Fund | |||||||
Undistributed ordinary income | $ | 911,353 | $ | |||||
Undistributed long-term capital gains | — | — | ||||||
Accumulated earnings | 911,353 | |||||||
Accumulated capital and other losses | — | — | ||||||
Unrealized appreciation/(depreciation) | 86,849,682 | 914,141 | ||||||
Total accumulated earnings/(deficit) | $ | 87,761,035 | $ | 914,141 | ||||
Distributions to Shareholders
The Funds record distributions to shareholders, which are determined in accordance with income tax regulations, on the ex-dividend date. The Funds may periodically make reclassifications among certain income and capital gains distributions determined in accordance with federal tax regulations, which may differ from GAAP. These reclassifications are due to differing treatment for items such as deferral of wash sales. Prior to January 1, 2010, the Active Income Fund elected treatment as a trader in securities and marked to market its portfolio of securities held at the end of each taxable year for income tax reporting purposes. The Active Income Fund no longer marks to market its portfolio securities at the end of each year.
Foreign Currency Translation
Foreign currency and equity securities not denominated in U.S. dollars are translated into U.S. dollar values based upon the current rates of exchange on the date of the Funds’ valuations.
Net realized foreign exchange gains or losses which are reported by the Funds result from currency gains and losses on transaction hedges arising from changes in exchange rates between the trade and settlement dates on forward contract transactions, and the difference between the amounts accrued for dividends, interest, and foreign taxes and the amounts actually received or paid in U.S. dollars for these items. Net unrealized foreign exchange gains and losses result from changes in the U.S. dollar value of assets and liabilities (other than investments in securities), which are denominated in foreign currencies, as a result of changes in exchange rates.
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Net realized foreign exchange gains or losses on portfolio hedges result from the use of forward contracts to hedge portfolio positions denominated or quoted in a particular currency in order to reduce or limit exposure in that currency. The Active Income Fund had no portfolio hedges during the period January 1, 2010 through December 31, 2010. The Select Credit Fund had no portfolio hedges during the period from inception through December 31, 2010.
The Funds do not isolate that portion of the results of operations which results from fluctuations in foreign exchange rates on investments. These fluctuations are included with the net realized gain (loss) from security transactions and the net change in unrealized appreciation (depreciation) of investments.
Indemnifications
Under the Trust’s organizational documents, the officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that provide general indemnifications to other parties. A Fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against a Fund that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
Other
The Trust records security transactions based on trade date. Realized gains and losses on sales of securities are calculated using the first-in, first-out method. Dividend income is recognized on the ex-dividend date, and interest income is recognized on an accrual basis. Discounts and premiums on securities purchased are amortized over the lives of the respective securities using the effective yield method. Withholding taxes on foreign dividends have been provided for in accordance with the Trust’s understanding of the applicable country’s tax rules and rates.
Pursuant to the terms of certain of the senior unsecured bridge loan agreements, the Funds may have unfunded loan commitments, which are callable on demand. Each Fund has available with the custodian, cash and/or liquid securities having an aggregate value at least equal to the amount of unfunded senior bridge loan commitments. At December 31, 2010, Driehaus Active Income Fund had unfunded senior bridge loan commitments of $100,000,000.
With respect to the senior loans held in each Fund’s portfolio, the Funds may: 1) invest in assignments; 2) act as a participant in primary lending syndicates; or 3) invest in participations. If a Fund purchases a participation of a senior loan interest, the Fund would typically enter into a contractual agreement with the lender or other third party selling the participation, rather than directly with the borrower. As such, the Fund not only assumes the credit risk of the borrower, but also that of the selling participant or other persons interpositioned between the Fund and the borrower. At December 31, 2010, there were no such outstanding senior loan participation commitments in the Funds.
B. | INVESTMENTS IN DERIVATIVES |
Swap Contracts
The Funds are subject to credit risk and interest rate risk exposure in the normal course of pursuing their investment objectives. The Funds may engage in various swap transactions, including forward rate agreements and interest rate, currency, index and total return swaps, primarily to manage duration and yield curve risk, or as alternatives to direct investments. In addition to the swap contracts described above, the Funds may also engage in credit default swaps which involve the exchange of a periodic premium for protection against a defined credit event (such as payment default, refinancing or bankruptcy).
Interest rate swaps are agreements between two parties to exchange cash flows based on a notional principal amount. The Funds may elect to pay a fixed rate and receive a floating rate or receive a floating rate and pay a fixed rate on a notional principal amount. The net interest received or paid on interest rate swap agreements is accrued daily as interest income/expense. Interest rate swaps are marked-to-market daily using fair value estimates
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provided by an independent pricing service. Changes in value, including accrued interest, are recorded as unrealized appreciation/(depreciation). Unrealized gains are reported as an asset and unrealized losses are reported as a liability. The change in value of swaps, including accruals of periodic amounts of interest to be paid or received on swaps, is reported as unrealized gains or losses. Gains or losses are realized upon termination of the contracts. The risk of loss under a swap contract may exceed the amount recorded as an asset or a liability.
Under the terms of a credit default swap contract, one party acts as a guarantor receiving a periodic payment that is a fixed percentage applied to a notional amount. In return, the party agrees to purchase the notional amount of the underlying instrument, at par, if a credit event occurs during the term of the contract. The Funds may enter into credit default swaps in which the Funds act as guarantor, and may enter into credit default swaps in which the counterparty acts as guarantor. Premiums paid to or by the Funds are accrued daily and included in realized gain (loss) on swaps. The contracts are marked-to-market daily using fair value estimates provided by an independent pricing service. Changes in value are recorded as unrealized appreciation/(depreciation). Unrealized gains are reported as an asset and unrealized losses are reported as a liability. The change in value of swaps, including accruals of periodic amounts of interest to be paid or received on swaps is reported as unrealized gains or losses. Gains or losses are realized upon termination of the contracts. The risk of loss under a swap contract may exceed the amount recorded as an asset or a liability. The notional amount of a swap contract is the reference amount pursuant to which the counterparties make payments. For swaps in which the referenced obligation is an index, in the event of default of any debt security included in the corresponding index, the Funds pay or receive the percentage of the corresponding index that the defaulted security comprises (1) multiplied by the notional value and (2) multiplied by the ratio of one minus the ratio of the market value of the defaulted debt security to its par value.
Risks associated with swap contracts include changes in the returns of underlying instruments, failure of the counterparties to perform under the contracts’ terms and the possible lack of liquidity with respect to the contracts. Credit default swaps can involve greater risks than if an investor had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk. The Funds disclose swap contracts on a gross basis, with no netting of contracts held with the same counterparty. As of December 31, 2010, the Funds had outstanding swap contracts as listed on the Schedules of Investments and the required collateral is included in the Statements of Assets and Liabilities.
Futures Contracts
The Funds may enter into futures contracts to produce incremental earnings, hedge existing positions or protect against market changes in the value of equities or interest rates. Upon entering into a futures contract with a broker, the Funds are required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a “variation margin” account. Daily, the Funds receive from or pay to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Funds recognize a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with changes in the value of the underlying securities. With futures, there is minimal counterparty credit risk to the Funds since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures contract against default. As of December 31, 2010, the Funds had outstanding futures contracts as listed on the Schedules of Investments and the required collateral is included in the Statements of Assets and Liabilities.
Options Contracts
The Funds may use options contracts to hedge downside risk on their fixed income holdings, produce incremental earnings or protect against market changes in the value of equities or interest rates. The Funds may write covered call and put options on futures, swaps, securities or currencies the Funds own or in which they may invest. Writing put options tends to increase a Fund’s exposure to the underlying instrument. Writing call options tends to decrease a Fund’s exposure to the underlying instrument. When a Fund writes a call or put option, an
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amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. These liabilities are reflected as written options outstanding in the Schedules of Investments. Payments received or made, if any, from writing options with premiums to be determined on a future date are reflected as such in the Schedules of Investments. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying future, swap, security or currency transaction to determine the realized gain or loss. A Fund, as a writer of an option, has no control over whether the underlying future, swap, security or currency may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the future, swap, security or currency underlying the written option. The risk exists that a Fund may not be able to enter into a closing transaction because of an illiquid market.
The premium amount and the number of option contracts written by the Active Income Fund during the period January 1, 2010 through December 31, 2010, were as follows:
Number of | Premium | |||||||
Active Income Fund | Contracts | Amount | ||||||
Options outstanding at December 31, 2009 | 402 | $ | 111,471 | |||||
Options written | 3,203 | 2,828,548 | ||||||
Options closed | (3,605 | ) | (2,940,019) | |||||
Options expired | — | — | ||||||
Options outstanding at December 31, 2010 | — | $ | — | |||||
For the period from inception through December 31, 2010, the Select Credit Fund had no written option contracts.
The Funds may also purchase put and call options. Purchasing call options tends to increase a Fund’s exposure to the underlying instrument. Purchasing put options tends to decrease a Fund’s exposure to the underlying instrument. A Fund pays a premium which is included in its Schedule of Investments as an investment and subsequently marked-to-market to reflect the current value of the option. Premiums paid for purchasing options which expire are treated as realized losses. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying future, swap, security or currency transaction to determine the realized gain or loss. When entering into purchased option contracts, a Fund bears the risk of securities prices moving unexpectedly, in which case, a Fund may not achieve the anticipated benefits of the purchased option contracts; however, the risk of loss is limited to the premium paid. As of December 31, 2010, the Funds had outstanding options as listed on the Schedules of Investments and the required collateral is included in the Statements of Assets and Liabilities.
Derivative Investment Holdings Categorized by Risk Exposure
Each Fund is subject to FASB’s “Disclosures about Derivative Instruments and Hedging Activities” (the “Derivatives Statement”). The Derivatives Statement amends and expands disclosures about derivative instruments and hedging activities. The Derivatives Statement is intended to improve financial reporting about derivative instruments by requiring enhanced disclosures to enable investors to better understand how and why the Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Funds’ financial position and results of operations.
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The following table sets forth the fair value and the location in the Statement of Assets and Liabilities of the Active Income Fund’s derivative contracts by primary risk exposure as of December 31, 2010:
Asset derivatives | Liability derivatives | |||||||||||||||
Statement of Assets | Statement of Assets | |||||||||||||||
and Liabilities | and Liabilities | |||||||||||||||
Risk exposure category | location | Fair value | location | Fair value | ||||||||||||
Credit contracts | Unrealized appreciation | Unrealized depreciation | ||||||||||||||
on open swap contracts | $ | 1,971,759 | on open swap contracts | $ | 13,777,135 | |||||||||||
Equity contracts | Purchased options, at fair value | 270,600 | N/A | N/A | ||||||||||||
Futures contracts* | N/A | N/A | N/A | 284,655 | ||||||||||||
Total | $ | 2,242,359 | $ | 14,061,790 | ||||||||||||
* | Includes cumulative appreciation/depreciation of futures contracts as shown in the Schedule of Investments. |
Only current day’s varation margin is reported in the Statement of Assets and Liabilities.
The following table sets forth the fair value and the location in the Statement of Assets and Liabilities of the Select Credit Fund’s derivative contracts by primary risk exposure as of December 31, 2010:
Asset derivatives | Liability derivatives | |||||||||||||||
Statement of Assets | Statement of Assets | |||||||||||||||
and Liabilities | and Liabilities | |||||||||||||||
Risk exposure category | location | Fair value | location | Fair value | ||||||||||||
Credit contracts | Unrealized appreciation | Unrealized depreciation | ||||||||||||||
on open swap contracts | N/A | on open swap contracts | $ | 10,746 | ||||||||||||
Equity contracts | Purchased options, at fair value | $ | 971,384 | N/A | N/A | |||||||||||
Futures contracts* | N/A | N/A | N/A | 2,050 | ||||||||||||
Total | $ | 971,384 | $ | 12,796 | ||||||||||||
* | Includes cumulative appreciation/depreciation of futures contracts as shown in the Schedule of Investments. |
Only current day’s varation margin is reported in the Statement of Assets and Liabilities.
The following table sets forth the Active Income Fund’s realized gains/losses by primary risk exposure and by type of derivative contract for the period January 1, 2010 through December 31, 2010:
Amount of realized gain/(loss) on derivatives | ||||||||||||||||||||
Purchased | Written | Futures | Swap | |||||||||||||||||
Risk exposure category | Options | Options | Contracts | Contracts | Total | |||||||||||||||
Credit contracts | $ | — | $ | — | $ | 871,756 | $ | (4,239,992 | ) | $ | (3,368,236) | |||||||||
Equity contracts | 14,600,249 | (6,578,591 | ) | — | — | 8,021,658 | ||||||||||||||
Interest rate contracts | — | — | — | (1,396,352 | ) | (1,396,352) | ||||||||||||||
Total | $ | 14,600,249 | $ | (6,578,591 | ) | $ | 871,756 | $ | (5,636,344 | ) | $ | 3,257,070 | ||||||||
The following table sets forth the Select Credit Fund’s realized gains/losses by primary risk exposure and by type of derivative contract for the period from inception through December 31, 2010:
Amount of realized gain/(loss) on derivatives | ||||||||||||||||||||
Purchased | Written | Futures | Swap | |||||||||||||||||
Risk exposure category | Options | Options | Contracts | Contracts | Total | |||||||||||||||
Credit contracts | $ | — | $ | — | $ | 49,103 | $ | (736 | ) | $ | 48,367 | |||||||||
Equity contracts | (65,741 | ) | — | — | — | (65,741) | ||||||||||||||
Interest rate contracts | — | — | — | — | — | |||||||||||||||
Total | $ | (65,741 | ) | $ | — | $ | 49,103 | $ | (736 | ) | $ | (17,374) | ||||||||
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The following table sets forth the Active Income Fund’s change in unrealized appreciation (depreciation) by primary risk exposure and by type of derivative contract for the period January 1, 2010 through December 31, 2010:
Change in unrealized appreciation (depreciation) on derivatives | ||||||||||||||||||||
Purchased | Written | Futures | Swap | |||||||||||||||||
Risk exposure category | Options | Options | Contracts | Contracts | Total | |||||||||||||||
Credit contracts | $ | — | $ | — | $ | (284,655 | ) | $ | (7,695,875 | ) | $ | (7,980,530) | ||||||||
Equity contracts | (3,580,613 | ) | (92,376 | ) | — | — | (3,672,989) | |||||||||||||
Interest rate contracts | — | — | — | 1,150,022 | 1,150,022 | |||||||||||||||
Total | $ | (3,580,613 | ) | $ | (92,376 | ) | $ | (284,655 | ) | $ | (6,545,853 | ) | $ | (10,503,497) | ||||||
The gross notional amount of swap contracts and the number of option contracts for the Active Income Fund as of December 31, 2010 is included on the Schedule of Investments. The quarterly average gross notional amount of the swap contracts for the Active Income Fund was $231,750,000 for the period January 1, 2010 through December 31, 2010. The quarterly average number of purchased futures contracts for the Active Income Fund was 0 for the period January 1, 2010 through December 31, 2010. The quarterly average number of purchased option contracts for the Active Income Fund was 119,459 for the period January 1, 2010 through December 31, 2010. The fair value of such contracts at December 31, 2010 is set forth in the table above.
The following table sets forth the Select Credit Fund’s change in unrealized appreciation (depreciation) by primary risk exposure and by type of derivative contract for the period from inception through December 31, 2010:
Change in unrealized appreciation (depreciation) on derivatives | ||||||||||||||||||||
Purchased | Written | Futures | Swap | |||||||||||||||||
Risk exposure category | Options | Options | Contracts | Contracts | Total | |||||||||||||||
Credit contracts | $ | — | $ | — | $ | (2,050 | ) | $ | (10,746 | ) | $ | (12,796) | ||||||||
Equity contracts | 561,450 | — | — | — | 561,450 | |||||||||||||||
Interest rate contracts | — | — | — | — | — | |||||||||||||||
Total | $ | 561,450 | $ | — | $ | (2,050 | ) | $ | (10,746 | ) | $ | 548,654 | ||||||||
The gross notional amount of swap contracts and the number of option contracts for the Select Credit Fund as of December 31, 2010 is included on the Schedule of Investments. The quarterly average gross notional amount of the swap contracts for the Select Credit Fund was $500,000 for the period September 30, 2010 through December 31, 2010. The quarterly average number of purchased futures contracts for the Select Credit Fund was 0 for the period September 30, 2010 through December 31, 2010. The quarterly average number of purchased option contracts for the Select Credit Fund was 5,810 for the period September 30, 2010 through December 31, 2010. The fair value of such contracts at December 31, 2010 is set forth in the table above.
C. INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES, AND ADMINISTRATIVE FEES
Richard H. Driehaus, the President of the Trust, is also the Chairman of the Board of Driehaus Capital Management LLC (“DCM” or the “Adviser”), a registered investment adviser, and of Driehaus Securities LLC (“DS LLC” or the “Distributor”), a registered broker-dealer.
DCM serves as the Funds’ investment adviser. In return for its services to the Funds, the Funds pay the Adviser an annual management fee on a monthly basis of 0.55% and 0.80% of average net assets, respectively, for the Active Income Fund and Select Credit Fund.
DCM has entered into a written agreement to cap the Select Credit Fund’s annual ordinary operating expenses (other than interest, taxes, brokerage commissions, dividends and interest on short sales, other investment-related expenses and extraordinary expenses) at 1.75% of average daily net assets until at least September 30, 2013. For this same time period, DCM is entitled to reimbursement for previously waived fees and reimbursed expenses to the extent that the Select Credit Fund’s expense ratio remains below the operating expense cap. For the period
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September 30, 2010 through December 31, 2010, DCM waived fees and reimbursed expenses totaling $62,523 in the Select Credit Fund pursuant to this agreement.
The Active Income Fund accrued $9,750,389 for investment advisory fees during the period January 1, 2010 through December 31, 2010, of which $1,022,874 was payable to DCM at December 31, 2010. The Select Credit Fund accrued $35,381 for investment advisory fees during the period September 30, 2010 through December 31, 2010, and $4,878 was due to the Select Credit Fund from DCM at December 31, 2010 under the expense agreement described above.
DS LLC is the Funds’ distributor. DS LLC does not earn any compensation from the Funds for these services. DS LLC has entered into a Fee Reimbursement Agreement with the Funds. Under this agreement, the Funds reimburse DS LLC for certain fees paid by DS LLC to intermediaries who provide shareholder administrative and/or sub-transfer agency services to the Fund. Currently, the annual amount to be reimbursed will not exceed 0.25% of the average daily net assets held by such intermediaries. Prior to June 1, 2010 the annual amount to be reimbursed did not exceed 0.15%. For the period January 1, 2010 through December 31, 2010, the Active Income Fund owes $122,883 in reimbursements to DS LLC under this agreement, which is included in accrued shareholder services plan fees on the Statement of Assets and Liabilities. For the period September 30, 2010 through December 31, 2010, the Select Credit Fund owes $1,064 in reimbursements to DS LLC under this agreement, which is included in accrued shareholder services plan fees on the Statement of Assets and Liabilities.
Certain officers of the Trust are also officers of DCM and DS LLC. The Funds pay a portion of the Chief Compliance Officer’s salary and bonus. No other officers received compensation from the Funds.
Affiliates of DCM hold approximately 72% of the Select Credit Fund’s outstanding shares as of December 31, 2010.
UMB Fund Services, Inc. (“UMBFS”), an affiliate of UMB Financial Corporation, serves as the Funds’ administrative and accounting agent. In compensation for these services, UMBFS receives the larger of a monthly minimum fee or a monthly fee based upon each Fund’s average net assets. UMBFS also acts as the transfer agent and dividend disbursing agent for the Funds. For these services, UMBFS receives a monthly fee based in part on shareholder processing activity during the month.
D. | INVESTMENT TRANSACTIONS |
Purchases and sales of investment securities (excluding options, futures, short-term securities and U.S. government obligations) for the Active Income Fund for the year ended December 31, 2010, were as follows:
Purchases | $ | 1,433,741,528 | ||
Sales | $ | 730,038,681 |
The aggregate purchases and sales of U.S. government obligations for the Active Income Fund for the year ended December 31, 2010, were as follows:
Purchases | $ | — | ||
Sales | $ | 208,828 |
Purchases and sales of investment securities (excluding options, futures, short-term securities and U.S. government obligations) for the Select Credit Fund for the period September 30, 2010 through December 31, 2010, were as follows:
Purchases | $ | 21,396,691 | ||
Sales | $ | 5,886,562 |
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The aggregate purchases and sales of U.S. government obligations for the Select Credit Fund for the period September 30, 2010 through December 31, 2010, were as follows:
Purchases | $ | — | ||
Sales | $ | — |
E. | RESTRICTED SECURITIES |
Restricted securities are securities that are not registered for sale under the Securities Act of 1933 or applicable foreign law and that may be re-sold only in transactions exempt from applicable registration. Restricted securities include Rule 144A securities which may be sold normally to qualified institutional buyers. At December 31, 2010, the Funds held restricted securities as denoted on the Schedule of Investments.
F. | PRINCIPAL SHAREHOLDER |
As of December 31, 2010, the Active Income Fund had a shareholder that holds 54% of the outstanding shares of the Fund. A significant redemption by this shareholder could affect the Fund’s liquidity. The shareholder is a registered investment adviser providing advisory services to a variety of individual and institutional clients. The Active Income Fund is offered as one of several investment choices for these clients. Clients are permitted to transfer some or all of their account balances into or out of the Active Income Fund at any time.
In addition, the Active Income Fund has a Shareholder Servicing Agreement (the “Agreement”) in place with this shareholder. Under the terms of this Agreement, the Active Income Fund makes payments for services provided on behalf of the Active Income Fund. Such services may include, but shall not be limited to: transfer agent and sub-transfer agent services; aggregating and processing purchase and redemption orders; providing periodic statements; receiving and transmitting funds; processing dividend payments; providing sub-accounting services; forwarding shareholder communications; receiving, tabulating and transmitting proxies; responding to inquiries and performing such other related services as the Active Income Fund may request. The Shareholder Services Plan allows for annual payments not to exceed 0.25% of average daily net assets; however, the Board of Trustees of the Trust limited payment to 0.15% of average daily net assets for this Agreement for the period June 1, 2009 through May 31, 2010. For the period January 1, 2010 through December 31, 2010 the Active Income Fund had expenses of $2,556,839 under the terms of this Agreement with this shareholder.
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To the Board of Trustees and Shareholders of the Driehaus Active Income Fund and Driehaus Select Credit Fund:
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Driehaus Active Income Fund and Driehaus Select Credit Fund, (collectively, the “Funds”), comprising the Driehaus Mutual Funds, as of December 31, 2010, and the related statements of operations for the period then ended, the statements of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2010, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Driehaus Active Income Fund and Driehaus Select Credit Fund at December 31, 2010, the results of their operations for the period then ended, the changes in their net assets and their financial highlights for the periods indicated therein in conformity with US generally accepted accounting principles.
Chicago, Illinois
February 25, 2011
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The following table sets forth certain information with respect to the Trustees of the Trust:
Term of | ||||||||
Office and | Other | |||||||
Position(s) | Length of | Principal | Directorships | |||||
Name, Address and | Held with | Time | Occupation(s) | Held by | ||||
Year of Birth | the Trust | Served** | During Past 5 Years | Trustee | ||||
Interested Trustee:* | ||||||||
Richard H. Driehaus 25 East Erie Street Chicago, IL 60611 YOB: 1942 | Trustee and President | Since 1996 | Chairman of the Board of the Adviser, the Distributor and Driehaus Capital Management (USVI) LLC (“USVI”); Chief Investment Officer and Portfolio Manager of the Adviser. | Driehaus Capital Holdings LLC; Driehaus Enterprise Management, Inc.; The Richard H. Driehaus Foundation; and The Richard H. Driehaus Museum | ||||
Independent Trustees: | ||||||||
A.R. Umans c/o Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 YOB: 1927 | Trustee and Chairman | Since 1996 Since 2005 | Chairman of the Board, Commerce National Group (investment company) since 2005; Chairman of the Board and Chief Executive Officer, RHC/Spacemaster Corporation (manufacturing corporation) prior thereto. | Sinai Health System; Schwab Rehabilitation Hospital | ||||
Francis J. Harmon c/o Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 YOB: 1942 | Trustee | Since 1998 | Relationship Manager, Great Lakes Advisors, Inc. since February 2008; Principal Account Executive — Labor Affairs, Blue Cross and Blue Shield of Illinois prior thereto. | None | ||||
Daniel F. Zemanek c/o Driehaus Capital Management LLC 25 East Erie Street Chicago, IL 60611 YOB: 1942 | Trustee | Since 1996 | President of Ludan, Inc. (real estate services specializing in senior housing) since April 2008; Senior Vice President of Sunrise Development, Inc. (senior living) from 2003-2007; Consultant, real estate development prior thereto. | None |
* | Mr. Driehaus is an “interested person” of the Trust, the Adviser and the Distributor, as defined in the 1940 Act, because he is an officer of the Adviser and the Distributor. In addition, Mr. Driehaus has a controlling interest in the Adviser and the Distributor. | |
** | Each Trustee will serve as a Trustee of the Trust until (i) termination of the Trust, or (ii) the Trustee’s retirement, resignation, or death, or (iii) as otherwise specified in the Trust’s governing documents. |
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The following table sets forth certain information with respect to the officers of the Trust.
Position(s) | Principal | |||||
Name, Address and | Held with | Length of | Occupation(s) | |||
Year of Birth | the Trust | Time Served | During Past 5 Years | |||
Robert H. Gordon 25 East Erie Street Chicago, IL 60611 YOB: 1961 | Senior Vice President | Since 2006 | President and Chief Executive Officer of Adviser, Distributor and USVI since October 2006; Advisor to Adviser and Distributor from April to September 2006; Chief Operating Officer, Aris Capital Management from 2003-2006. | |||
Michelle L. Cahoon 25 East Erie Street Chicago, IL 60611 YOB: 1966 | Vice President and Treasurer | Since 2006 Since 2002 | Vice President, Treasurer and Chief Financial Officer of the Adviser, Distributor and USVI since 2004. | |||
Janet L. McWilliams 25 East Erie Street Chicago, IL 60611 YOB: 1970 | Chief Compliance Officer and Assistant Vice President | Since 2006 Since 2007 | Chief Compliance Officer of the Adviser and Distributor since 2006; Senior Attorney with the Adviser since 2003; Attorney with the Adviser since 2000. | |||
Diane J. Drake 301 Bellevue Parkway Wilmington, DE 19809 YOB: 1967 | Secretary | Since 2006 | Managing Director and Senior Counsel, BNY Mellon Investment Servicing (US) Inc. (formerly, PNC Global Investment Servicing (U.S.) Inc. (“PNC”), a financial services company) since 2008; Vice President and Associate Counsel, PNC from 2003-2007. | |||
Michael P. Kailus 25 East Erie Street Chicago, IL 60611 YOB: 1971 | Assistant Secretary | Since 2010 | Assistant Secretary of the Adviser, Distributor and USVI since 2010; Associate General Counsel of Superfund Group (financial services company) from 2005-2010. | |||
William H. Wallace, III 301 Bellevue Parkway Wilmington, DE 19809 YOB: 1969 | Assistant Secretary | Since 2008 | Vice President and Manager, BNY Mellon Investment Servicing (US) Inc. (formerly, PNC, a financial services company) since 2008; Sr. Regulatory Administrator, PNC from 2007-2008; Regulatory Administrator, PNC from 2004-2007. |
The Statement of Additional Information for Driehaus Mutual Funds contains more detail about the Trust’s Trustees and officers and is available upon request, without charge. For further information, please call 1-877-779-0079.
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As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, including sales charges; redemption fees; and exchange fees and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six months ending December 31, 2010.
Actual Expenses
The first line of the tables below (“Actual”) provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expense that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the tables below (“Hypothetical”) provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. You may use this information to compare the ongoing costs of investing in the Funds versus other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges, redemption fees or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Driehaus Active Income Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | Six Months Ending | ||||||||||
July 1, 2010 | December 31, 2010 | December 31, 2010* | ||||||||||
Actual | $ | 1,000 | $ | 1,049.80 | $ | 9.36 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,016.08 | $ | 9.20 | ||||||
Driehaus Select Credit Fund
Expenses Paid During | ||||||||||||
Beginning Account Value | Ending Account Value | the period September 30, 2010 | ||||||||||
September 30, 2010 | December 31, 2010 | through December 31, 2010** | ||||||||||
Actual | $ | 1,000 | $ | 1,034.30 | $ | 5.56 | ||||||
Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,007.28 | $ | 5.48 | ||||||
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period in the table below multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365 to reflect the half-year period. | |
** | Expenses are equal to the Driehaus Select Credit Fund’s annualized expense ratio for the period September 30, 2010 (commencement of operations) through December 31, 2010 in the table below multiplied by the average account value over the period, multiplied by the number of days in the period (93), then divided by 365 to reflect the period since commencement of operations. |
Driehaus Active Income Fund | 1.81% | |||
Driehaus Select Credit Fund | 2.14% |
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PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD
A description of the Funds’ policies and procedures with respect to the voting of proxies relating to the Funds’ portfolio securities is available without charge, upon request, by calling 1-877-779-0079. This information is also available on the Funds’ website at http://www.driehaus.com.
Information regarding how the Driehaus Active Income Fund voted proxies related to portfolio securities during the 12-month period ended June 30, 2010 is available without charge, upon request, by calling 1-877-779-0079. This information is also available on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS
Each Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available electronically on the SEC’s website at http://www.sec.gov; hard copies may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330. Each Fund’s complete schedule of portfolio holdings is also available on the Funds’ website at http://www.driehaus.com.
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The Board of Trustees of the Driehaus Mutual Funds (the “Trust”) approved the renewal of the investment advisory agreement (the “Agreement”) with Driehaus Capital Management LLC (the “Adviser”) for the Driehaus Active Income Fund (“DAIF” or the “Fund”) in September 2010. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate the Agreement. The Board reviewed comprehensive materials received from the Adviser and from independent legal counsel. The Independent Trustees, represented by independent legal counsel, met independent of Fund management to consider renewal of the Agreement. After their review of the information received, the Independent Trustees presented their findings and their recommendation to renew the Agreement to the full Board. In connection with the contract review process, the Board considered the factors discussed below, among others.
Nature, Quality and Extent of Services. The Board considered the nature, extent and quality of services provided under the Agreement, including portfolio management services and administrative services. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of the Adviser to attract and retain high-quality personnel, and the organizational depth of the Adviser. The Board also considered the Trust’s compliance with legal and regulatory requirements, as well as the Adviser’s handling of portfolio brokerage, and noted the Adviser’s process for evaluating best execution. The Board considered the Adviser’s risk management strategies and the process developed by the Adviser for analyzing, reviewing and assessing risk exposure for the Fund. In addition, the Board reviewed DAIF’s performance, including that of its predecessor fund (which was reorganized into DAIF on June 1, 2009), given that a core portion of the portfolio management team managed the predecessor fund from 2007 to 2009. The Board noted the limitations to comparing the performance of DAIF to a peer group of funds compiled from Morningstar, Inc. and Lipper Inc., independent providers of mutual fund data, given the investment strategies of the Fund. The Board compared DAIF’s performance to peer groups of funds and to a benchmark index for the year-to-date and 1- and 3-year periods ended June 30, 2010, and considered the Adviser’s explanation for the Fund’s 1-year underperformance compared to its peers as being largely due to its zero duration, which will result in relative underperformance in falling interest rate environments. The Board also considered whether investment results were consistent with the Fund’s investment objective and policies. The Board concluded that performance was satisfactory.
On the basis of this evaluation and its ongoing review of investment results, the Board concluded that the nature, quality and extent of services provided by the Adviser continue to be satisfactory.
Fees. The Board considered DAIF’s advisory fee, operating expenses and total expense ratio, and compared the advisory fee and expense ratio to a peer group based on data compiled from Lipper Inc. as of the fiscal year end of each fund in the peer group. The Board noted that DAIF’s annual advisory fee rate of .55% is in the 32nd percentile of this peer group (1st percentile being the highest fee). The Board also considered that the Adviser had agreed to reimburse DAIF’s expenses (excluding dividends and interest on short sales) in excess of 1.00% of net assets for its first year of operations, which ran from June 1, 2009 until May 31, 2010. The Board noted that the Adviser does not provide services to any other account with similar objectives and policies as DAIF at a lower advisory fee. In considering the reasonableness of the advisory fee, the Board took into account the substantial human and technological resources devoted to investing for the Fund and the limited capacity of the investment style. The Board also noted that the Fund does not have a Rule 12b-1 fee and that the Adviser’s affiliate, Driehaus Securities LLC (“DS LLC”), serves as distributor of the Fund without compensation and that DS LLC may provide compensation to intermediaries for distribution of Fund shares and for shareholder services, and that DS LLC is reimbursed by DAIF under a Shareholder Services Plan for certain amounts paid for shareholder services covered under the plan. The Board also considered that for the six months ended June 30, 2010, DAIF’s expense ratio was in the 40th percentile.
On the basis of the information provided, the Board concluded that the advisory fee was reasonable and appropriate in light of the nature and quality of services provided by the Adviser.
Profitability. The Board reviewed information regarding the revenues received by the Adviser under the Agreement and discussed the methodology in allocating its costs to the management of DAIF. The Board considered the estimated costs to the Adviser of managing DAIF. The Board concluded that, taking into account the projected profitability for DAIF, the advisory fee appeared to be reasonable.
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Economies of Scale. In considering the reasonableness of the advisory fee, the Board considered whether there are economies of scale with respect to the management of DAIF and whether DAIF benefits from any economies of scale. Given the size of the Fund and the capacity constraints of the investment style, the Board concluded that the advisory fee rate under the Agreement is reasonable and reflects an appropriate sharing of any such economies of scale.
Other Benefits to the Adviser and its Affiliates. The Board also considered the character and amount of other incidental benefits received by the Adviser and its affiliates. The Board noted that the Adviser’s affiliated broker-dealer does not execute any portfolio transactions for DAIF, and that payments to DS LLC under a Shareholder Services Plan are in reimbursement of payments made to intermediaries for shareholder services. The Board noted that there are no benefits to the Adviser related to soft dollar allocations. The Board concluded that the advisory fee was reasonable in light of any fall-out benefits.
Based on all of the information considered and the conclusions reached, the Board determined that the terms of the Agreement for DAIF were fair and reasonable and that the continuation of the Agreement is in the best interests of DAIF. No single factor was determinative in the Board’s analysis.
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The Board of Trustees of the Driehaus Mutual Funds (the “Trust”) approved the investment advisory agreement (the “Agreement”) with Driehaus Capital Management LLC (the “Adviser”) for the Driehaus Select Credit Fund (the “New Fund”) on September 10, 2010. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate the Agreement. The Board reviewed comprehensive materials received from the Adviser and from independent legal counsel. After their review of the information received, the Independent Trustees presented their findings and their recommendation to approve the Agreement to the full Board. In connection with the review, the Board considered the factors discussed below, among others.
Nature, Quality and Extent of Services. The Board considered the nature, extent and quality of services to be provided under the Agreement, including portfolio management services and administrative services. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of the Adviser to attract and retain high-quality personnel, and the organizational depth of the Adviser. The Board also considered the Trust’s compliance with legal and regulatory requirements as well as the Adviser’s risk management processes developed for analyzing, reviewing and assessing risk exposure for the New Fund. In particular, the Board considered the management team’s experience in managing absolute return products, including managing another series of the Trust, the Driehaus Active Income Fund (the “Active Income Fund”).
On the basis of this evaluation and the Board’s experience with the Adviser in managing other series of the Trust, the Board concluded that the nature, quality and extent of services to be provided by the Adviser are expected to be satisfactory.
Fees. The Board considered the New Fund’s proposed advisory fee, operating expenses and estimated total expense ratio, and compared the advisory fee and expense ratio to fees and expense ratios of a peer group of general bond funds based on data compiled from Lipper Inc. (“Lipper”) as of the fiscal year end of each fund in the peer group. The Board noted that the New Fund’s proposed advisory fee would be in the 3rd percentile of its anticipated Lipper peer group (1st percentile being the highest fee), but noted that the New Fund employs different strategies than other funds in the peer group, making it difficult to compare fees. Given the unique nature of the New Fund’s absolute return credit strategy, in addition to the Lipper data, the Board also compared the New Fund’s proposed advisory fee and estimated total expense ratio to a peer universe of absolute return funds compiled by the Adviser from the Morningstar Principia (“Morningstar”) database as of June 30, 2010. The Board noted that the New Fund’s proposed advisory fee would be in the 59th percentile of its Morningstar-based peer universe. The Board also considered that the Adviser will reimburse the New Fund for expenses in excess of 1.75% of net assets (excluding dividends and interest on short sales) for a three-year period. In addition, the Board considered the New Fund’s proposed advisory fee rate as compared to fees charged by the Adviser to the Active Income Fund and to another absolute return credit product managed by the Adviser and noted that although the Active Income Fund has a lower advisory fee, that fee is a legacy fee from a predecessor fund that pursued a less complex investment style which was carried over when the predecessor fund was reorganized into the Active Income Fund. Furthermore, the advisory fee rate for the Adviser’s other absolute credit product is higher than the New Fund’s proposed advisory fee. The Board also considered the estimated expense ratio of the New Fund after reaching the first year projected asset level, which would rank the Fund in the 6th percentile of its Lipper peer group and in the 38th percentile of the Morningstar-based peer universe.
On the basis of the information provided, the Board concluded that the proposed advisory fee was reasonable and appropriate in light of the nature and quality of services expected to be provided by the Adviser.
Profitability and Economies of Scale. In considering the reasonableness of the proposed advisory fee, the Board considered the undertaking by the Adviser to assume New Fund organizational expenses as well as to reimburse New Fund expenses exceeding a 1.75% cap (other than dividends and interest on short sales) for a three-year period.
The Board also considered potential economies of scale with respect to the management of the New Fund and whether the New Fund will benefit from any economies of scale. The Board noted the Adviser’s conclusion that it will not earn its full fee until assets reach approximately $50 million. The Board also noted that the New Fund is capacity constrained, which limits the Adviser’s ability to achieve economies of scale.
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Other Benefits to the Adviser and its Affiliates. The Board also considered the character and amount of other incidental benefits to be received by the Adviser and its affiliates. The Board noted that the Adviser’s affiliated broker-dealer is not expected to execute any portfolio transactions for the New Fund and the Adviser does not expect to earn any fall-out benefits in the form of soft dollar credits from its relationship with the New Fund. The Board concluded that the proposed advisory fee was reasonable in light of any anticipated fall-out benefits.
Based on all of the information considered and the conclusions reached, the Board determined that the terms of the Agreement for the New Fund were fair and reasonable and that the approval of the Agreement is in the best interests of the New Fund. No single factor was determinative in the Board’s analysis.
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Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
(b) | No response required. |
(c) | None. |
(d) | None. |
(e) | Not applicable. |
(f) | The registrant’s Code of Ethics for Principal Executive and Principal Financial Officers was filed as Exhibit 12(a)(1) to the registrant’s Certified Shareholder Report on Form N-CSR, Accession Number 0000950137-09-001484, on March 4, 2009, and is incorporated herein by reference. |
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees has designated A.R. Umans as an audit committee financial expert. Mr. Umans is “independent,” as defined by this Item 3.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
For the fiscal years ended December 31, 2010 and 2009, Ernst & Young LLP, the registrant’s principal accountant (“E&Y”), billed the registrant $300,100 and $295,000, respectively, for professional services rendered for the audit of the registrant’s annual financial statements or services that are normally provided in connection with statutory and regulatory filings.
(b) Audit-Related Fees
For the fiscal years ended December 31, 2010 and 2009, E&Y billed the registrant $0 and $0, respectively, for assurance and related services that are reasonably related to the performance of the audit of the registrant’s financial statements and that are not reported above.
For engagements that Driehaus Capital Management LLC, the registrant’s investment adviser (“DCM”), or Driehaus Securities LLC, the registrant’s distributor (“DS”), entered into with E&Y for fiscal years 2010 and 2009, E&Y provided no audit-related services to DCM or DS that were for engagements directly related to the registrant’s operations and financial reporting.
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(c) Tax Fees
For the fiscal years ended December 31, 2010 and 2009, E&Y billed the registrant $107,400 and $72,400, respectively, for professional services rendered for tax compliance, tax advice and tax planning. Such services consisted of review of the registrant’s income tax returns and tax distribution requirements, analysis related to passive foreign investment company status, analysis related to loss carryforward limitations as well as assistance with the preparation, submission and responses related to a change in method of accounting election. The Audit Committee pre-approved all tax services that E&Y provided to the registrant.
For fiscal years 2010 and 2009, E&Y provided no tax services to DCM or DS that were for engagements directly related to the registrant’s operations and financial reporting.
(d) All Other Fees
For the fiscal years ended December 31, 2010 and 2009, E&Y billed the registrant $0 and $0, respectively, for products and services provided, other than the services reported above.
For fiscal years 2010 and 2009, E&Y provided no other services to DCM or DS that were for engagements directly related to the registrant’s operations and financial reporting.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
Pursuant to registrant’s Audit Committee Charter (the “Charter”), the Audit Committee is responsible for pre-approving any engagement of the principal accountant to provide non-prohibited services to the registrant, including the fees and other compensation to be paid to the principal accountant, to the extent required by Rule 2-01(c)(7) of Regulation S-X. The Chairman of the Audit Committee may grant pre-approval for engagements of $5,000 or less. All such delegated pre-approvals will be presented to the Audit Committee no later than the next Audit Committee meeting.
Pursuant to the Charter, the Audit Committee is also responsible for pre-approving any engagement of the principal accountant, including the fees and other compensation to be paid to the principal accountant, to provide non-audit services to the registrant’s investment adviser (or any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant), if the engagement relates directly to the operations and financial reporting of the registrant, to the extent required by Rule 2-01(c)(7) of Regulation S-X. The Chairman of the Audit Committee may grant pre-approval for engagements of $5,000 or less. All such delegated pre-approvals will be presented to the Audit Committee no later than the next Audit Committee meeting.
(e) | (2)The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X is 0%. |
(f) | Not applicable. | ||
(g) | Non-Audit Fees | ||
For the fiscal years ended December 31, 2010 and 2009, E&Y billed the registrant $107,400 and $72,400, respectively, in aggregate non-audit fees. For the fiscal years ended December 31, 2010 and 2009, E&Y billed DCM or DS $0 and $0, respectively, in aggregate non-audit fees. |
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(h) Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the reports to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as |
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defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). | |||
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Exhibits.
(a)(1) | Code of ethics, that is the subject of disclosure required by Item 2, filed as Exhibit 12(a)(1) to the Registrant’s Form N-CSR, filed on March 4, 2009 (Accession No. 0000950137-09- 001484) incorporated herein by reference. | ||
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. | ||
(a)(3) | Not applicable. | ||
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) | Driehaus Mutual Funds | |
By (Signature and Title)* | /s/Richard H. Driehaus | |
Richard H. Driehaus, President | ||
(principal executive officer) |
Date March 4, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/Richard H. Driehaus | |
Richard H. Driehaus, President | ||
(principal executive officer) |
Date March 4, 2011
By (Signature and Title)* | /s/Michelle L. Cahoon | |
Michelle L. Cahoon, Vice President and Treasurer | ||
(principal financial officer) |
Date March 4, 2011
* | Print the name and title of each signing officer under his or her signature. |