Fire and EXHIBIT 1: Average of equity volatility and rates volatility stress is almost at historical lows
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1 AUGUST 2017 DRIEHAUS CREDIT COMMENTARY // JULY 31, 2017 DRIEHAUS ACTIVE INCOME FUND PERFORMANCE SUMMARY Fire and Fury Not only is that what our esteemed leader promises Kim Jong Un if he continues to threaten world peace, but it s also what I ve felt looking at our performance this year. We ve had a few difficult positions this year that we ve stuck with for too long. The good news is that I believe we ve turned a corner. Over the past month, we ve systematically exited all of them. At the very least, if we lose money during the remainder of 2017, it will be because we ve found a new way to do it as opposed to letting the same group of positions sap our NAV. Fire and fury also aptly describes our markets. There s been an impressive run of indices setting new highs while (and not unrelatedly) volatility, of all shapes and sizes, hits new lows. I could fill up the pages of this monthly with all sorts of charts showing you just how low volatility has been. But instead of wasting trees on that, I ll just show you one. This is a nice chart from Bank of America Merrill Lynch that averages global equity volatility and interest rate volatility. As shown (Exhibit 1), it s at its lowest levels since they began the index in Source: reddit.com Nonexistent volatility has now occurred three times over my 11 years as a portfolio manager. I haven t done well in any of them. In 2006, I was running a limited partnership and had positive, but low single digit performance. Meanwhile, just about everyone else was producing performance in the 10-20% range. I thought the market looked rich. Turns out that many others did too, but they overcame that richness by EXHIBIT 1: Average of equity volatility and rates volatility stress is almost at historical lows Source: Bank of America Merrill Page 1 of 12
2 levering their portfolio 5 10x. Kind of a perverse solution I know, but rest assured, it caught up with them the following year. In 2014, yields touched all-time lows. Our team thought the market looked rich, so we gravitated to higher credit quality and asset heavy businesses. We lagged most peers yet again. Then the markets widened for 18 months. Unfortunately many of our asset-heavy credits resided in the energy sector. That s two years that I ll never get back. Last, there s Volatility is hitting all-time lows in many spots. Credit spreads are scarce; yields are low. We haven t taken much market risk, yet we ve managed to get crushed on some idiosyncratic risk. Reflecting on all of these periods in our history, I draw a few conclusions. One, some level of market volatility is really helpful to us. That s not to say that we always make money when volatility rises, but there s no doubt that it drives a good portion of our performance. Second, we haven t been particularly good at buying general credit risk towards the top of these market cycles. We ve been a bit reluctant to stick our necks out and collect the fat coupons (fat being about 6-8% in today s skinny environment). But the cycles often last longer than you expect, and those fat coupons can really help in a low return world.until it all changes. Which brings me to my third point, change. Neither the 2006 no volatility cycle, nor the 2014 spread collapse, lasted forever. This one won t be any different. We re due 9 months into an epic collapse in volatility, and overdue for a change in the market environment. I m not saying that the bull market is over, but the path forward is likely to be a bit more adventurous than what we ve seen thus far this year. And fourth, I think it s worth noting that we ve come out on the other side of these cycles with better than average performance. I hope we deliver the same this time. In terms of when this cycle ends, it s difficult to say. I ve never thought that impeachment would pose much of a problem for this market. But war seems to be a greater possibility. I m no military strategy expert, but the ones on TV say that it would be insane for Kim Jong Un to start a war. Then again, many would ve argued it would be insane for our President to fire the FBI Director while he s in the middle of an investigation involving his cabinet and Russia, but he did it anyway. So we have two leaders of state, who at best, fall into the unconventional category. I d argue that the probability distribution for outcomes of this skirmish is getting squashed with fatter tails. That s bad news if you re an investor. While the likelihood of nuclear war still likely remains minute (I hope), the risk that knock-on effects become obstacles for the market remains very real. Heightened conflict in the Middle East, or between China and India, or in US/Asia trade wars/ sanctions could all pose problems for global growth and put a damper on business confidence. That would all be fine and dandy if this market was priced for pretty good, but it s priced for perfection. Until next month, K.C. & Cass K.C. Nelson Lead Portfolio Manager Elizabeth Cassidy Portfolio Manager Disclosures This material is not intended to be relied upon as a forecast or research. The opinions expressed are those of Driehaus Capital Management LLC ( Driehaus ) as of August 14, 2017 and are subject to change at any time due to changes in market or economic conditions. The commentary has not been updated since August 14, 2017 and may not reflect recent market activity. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Page 2 of 12
3 LCMAX Performance Review Features: Multi-strategy credit approach Absolute return focused, long/short credit strategy Volatility managed, low correlation return objectives Hedging of interest rate exposure Liquid, transparent hedged mutual fund vehicle Inception Date: November 8, 2005* Fund Assets Under Management: $1.97 billion Firm Assets Under Management: $8.9 billion Portfolio Concentration: Flexible, best ideas approach, generally trades Duration Target: +/- 1 year Volatility Target: Less than the Bloomberg Barclays Aggregate Index (about 5%, annually) Distributions: Quarterly dividends; annual capital gains Portfolio Managers: K.C. Nelson, Lead Portfolio Manager 18 years experience Elizabeth Cassidy, Portfolio Manager 17 years experience *The Driehaus 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 Predecessor Fund ) through a reorganization into the Driehaus Active Income Fund. 1 Performance Disclosure The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. Performance data represents the rate that an investor would have earned (or lost), during the given month, on an investment in the Fund (assuming reinvestment of all dividends and distributions). Average annual total return reflects annualized change. July The Fund lost 0.66% during the month. 1 High Yield and investment grade spreads contracted 16 basis points and 6 basis points to close the month at 361 (5.45% yield) and 109 (3.14% yield). High yield yields hit their lowest levels since 2014 driven by improving commodity prices, low volatility, rising equity markets, and flat interest rates. The directional long strategy contributed 0.44% to performance as HY credit spreads contracted throughout the month driven by strong macro fundamentals and a solid start to the second quarter earnings cycle. Sixteen positions in a variety of industries contributed % each, benefiting from credit spread tightening. These gains were offset by losses in our event driven strategy (-0.83%). Although one position in an entertainment technology company contributed 0.09%, losses in three other positions in the cinema, title insurance and utility industries detracted 0.81%. The drivers of the losses in these positions were largely idiosyncratic. The cinema company experienced negative downward earnings revisions going into second quarter earnings which reflected market concerns about box office attendance and news that Chinese regulators ordered Chinese banks to halt all loans to the company s largest shareholder in an effort to curb capital outflows from China. The title insurance company announced second quarter earnings at the end of the month that missed analyst expectations and provided significantly lower full year guidance than had been previously communicated. Finally, the utility company was due to be acquired and the transaction was amended in early July to assuage regulator concerns resulting in a 6.6% decline in the equity. The hedging strategies both detracted from performance. Volatility hedges focused on the Nasdaq, S&P and Russell 2000 detracted 0.17% as equity markets rallied during the month. The interest rate hedge detracted 0.05% as interest rates declined slightly during the month on the heels of a slightly dovish FOMC statement. No other strategy contributed meaningfully to performance this month. Since Fund performance is subject to change after the month-end, please call (877) or visit for more current performance information. Page 3 of 12
4 LCMAX Performance Review Month-end Performance as of 7/31/17 Average Annual Total Return Fund/Index MTH YTD 1 Year 3 Year 5 Year 10 Year Since Inception 1 Driehaus Active Income Fund % 0.00% 3.27% 0.95% 2.01% 3.56% 3.58% Citigroup 3-Month T-Bill Index % 0.38% 0.51% 0.23% 0.16% 0.48% 1.10% Bloomberg Barclays Aggregate Index % 2.71% -0.51% 2.71% 2.02% 4.44% 4.46% Calendar Quarter-end Performance as of 6/30/17 Average Annual Total Return Fund/Index QTR YTD 1 Year 3 Year 5 Year 10 Year Since Inception 1 Driehaus Active Income Fund % 0.70% 5.37% 1.15% 2.17% 3.56% 3.67% Citigroup 3-Month T-Bill Index % 0.30% 0.46% 0.20% 0.15% 0.51% 1.10% Bloomberg Barclays Aggregate Index % 2.27% -0.31% 2.48% 2.21% 4.48% 4.46% Annual Fund Operating Expenses 5 Management Fee 0.55% Other Expenses Excluding Dividends and Interest on Short Sales 0.25% Dividends and Interest on Short Sales 0.58% Total Annual Fund Operating Expenses 1.38% The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. Performance data represents the rate that an investor would have earned (or lost), during the given month, on an investment in the Fund (assuming reinvestment of all dividends and distributions). Average annual total return reflects annualized change. Since Fund performance is subject to change after the month-end, please call (877) or visit www. driehaus.com for more current performance information. 1 Inception Date: 11/8/ The Driehaus 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 Predecessor Fund ) through a reorganization into the Driehaus Active Income Fund (the Fund ). Lotsoff Capital Management was the investment adviser from inception through April 2, Driehaus Capital Management LLC (the Adviser ) became the interim investment adviser to the Predecessor Fund on April 3, 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 include reinvested dividends. 4 The Bloomberg Barclays Aggregate 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. 5 Represents the Annual Fund Operating Expenses as disclosed in the current prospectus dated April 30, It is important to understand that a decline in the Fund s average net assets due to unprecedented market volatility or other factors could cause the Fund s expense ratio for the current fiscal year to be higher than the expense information presented. The Driehaus Active Income Fund (the Fund ), in addition to investing in unrated and investment grade bonds, may also invest in junk bonds, which involve greater credit risk, including the risk of default. The prices of high yield bonds are more sensitive to changing economic conditions and can fall dramatically in response to negative news about the issuer or its industry, or the economy in general. The use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in the underlying assets. Derivatives can be highly volatile, illiquid and difficult to value, and there is a risk that changes in the value of a derivative held by the Fund will not correlate with the Fund s other investments. Further, the Fund may invest in derivatives for speculative purposes. Gains or losses from speculative positions in a derivative may be much greater than the derivative s original cost and potential losses may be substantial. The Fund may make short sales. Short sales expose the Fund to the risk of loss. It is anticipated that the Fund will experience high rates of portfolio turnover, which may result in payment by the Fund of above-average transaction costs. This is a nondiversified fund; compared to other funds, the Fund may invest a greater percentage of assets in a particular issuer or a small number of issuers. As a consequence, the Fund may be subject to greater risks and larger losses than diversified funds. No investment strategy, including an absolute return strategy, can ensure a profit or protect against loss. Additionally, investing in an absolute return strategy may lead to underperforming results during an upward moving market. When interest rates increase, bond prices decrease and bond funds become more volatile. Please consider the investment objectives, risks, fees and expenses of the Fund carefully prior to investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a copy of the prospectus and/or summary prospectus, please call us at (877) Please read the prospectus and summary prospectus carefully before investing. Driehaus Securities LLC, Distributor Page 4 of 12
5 LCMAX Portfolio Characteristics* Executive Summary excluding cash Assets Under Management (AUM) $1,970,189,221 Long $2,008,857,807 $1,796,255,243 Short $(1,011,388,268) $(1,011,388,268) Net $997,469,540 $784,866,976 Net /AUM 50.63% 39.84% Gross $3,029,064,993 $2,807,643,511 Gross /AUM 1.54x 1.43x Risk Summary Effective Duration Years Spread Duration 2.33 Years 30-day SEC Yield 2.96% Portfolio Yield-To-Worst % Average % of Par Longs % Average % of Par Shorts % Beta vs. S&P Day Volatility 2.89% Trading Strategy Type Gross % of Gross % Contrib. to Total Return Capital Structure Arbitrage 2 350,454, % 0.00% Convertible Arbitrage 2 177,336, % 0.02% Directional Long 2 1,149,998, % 0.44% Directional Short 2 82,386, % -0.02% Event Driven 2 478,280, % -0.83% Interest Rate Hedge 2 475,025, % -0.05% Pairs Trading 2 4, % 0.00% Volatility Trading 2 102,974, % -0.17% Cash** 212,602, % 0.00% Expenses*** -0.06% Total 3,029,064, % -0.66% Preliminary data. May differ from data shown by third-party providers because of rounding or for other reasons. Source: Bloomberg, Factset 1 Refers to credit only 2 A definition of this term can be found on page 12. *: please note exposure may be different than market value. For equities, bonds, and interest rate swap products, exposure is the same as market value. For options and foreign exchange forwards exposure represents greek-adjusted underlying exposure. For credit default swap and credit default swap indices, exposure represents bond-equivalent exposure. **This figure represents the fund s operating cash plus receivables for investments sold and minus payables for investments purchased, and includes USD and FX cash. ***Estimated expenses for the month (not annualized) as a percentage of the fund s net assets for the month. Note: A definition of key terms can be found on page 12 Page 5 of 12
6 Credit Rating* Long % of Long Short % of Short Gross % of Gross AAA % 0 0.0% 0 0.0% AA 0 0.0% 0 0.0% 0 0.0% A 2 40,701, % 0 0.0% 0 0.0% BBB 168,731, % (149,057,341) 58.3% 317,788, % BB 242,569, % (16,567,833) 6.5% 259,137, % B 793,854, % (26,292,443) 10.3% 820,195, % CCC 144,588, % (23,732,822) 9.3% 168,321, % CC 0 0.0% 0 0.0% 0 0.0% C 0 0.0% 0 0.0% 0 0.0% D 0 0.0% 0 0.0% 0 0.0% Not Rated 85,821, % (40,135,058) 15.7% 125,956, % Total 1,476,268, % (255,785,498) 100.0% 1,691,400, % Credit rating data is shown only for the following asset classes: Bank Loan, Corporate CDS, Corporate Credit, Convertible Bonds and Preferred Stocks. Industry Sector GICS 3 Long % of Long Page 6 of 12 Short % of Short Gross % of Gross Consumer Discretionary 368,576, % (100,081,423) 9.9% 468,657, % Consumer Staples 65,868, % (6,947,653) 0.7% 72,815, % Energy 109,930, % (54,425,333) 5.4% 164,356, % Financials 613,398, % (105,319,996) 10.4% 718,718, % Health Care 83,923, % (6,162,840) 0.6% 90,086, % Industrials 118,776, % (21,065,222) 2.1% 139,841, % Information Technology 248,897, % (43,749,366) 4.3% 292,647, % Materials 18,300, % 0 0.0% 18,300, % Real Estate 0 0.0% 0 0.0% 0 0.0% Telecommunication Services 95,700, % 0 0.0% 95,700, % Utilities 52,490, % 24, % 52,514, % Other 4 232,995, % (673,660,573) 66.6% 915,426, % Total 2,008,857, % (1,011,388,268) 100.0% 3,029,064, % Source: Bloomberg, Factset Moody s, Standard & Poor s, Global Industry Classification Standard *Credit ratings listed are subject to change. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). NR is used to classify securities for which a rating is not available. The Adviser receives credit quality ratings on underlying securities of the portfolio from the three major ratings agencies - Moody s Investors Service (Moody s), Fitch Ratings (Fitch), and Standard & Poor s (S&P). When calculating the credit quality breakdown, the Adviser utilizes Moody s and if Moody s is not available the manager selects the lower rating of S&P and Fitch. Note: A definition of key terms can be found on page 12 Credit Ratings: AAA and AA: A and BBB: BB, B, CCC, CC, C: Not Rated: High credit-quality investment grade Medium credit-quality investment grade Low credit-quality (non-investment grade), or junk bonds Bonds currently not rated 1 All government bonds are rated AAA. 2 All agency Mortgage Backed Securities (MBS) are rated A. 3 The Global Industry Classification Standard (GICS), a collaboration between Standard & Poor s and Morgan Stanley Capital International, is a system of classification that identifies a company according to its business activity. 4 The Other Industry Sector data is not categorized within the GICS classification system.
7 Product Type Long % of Long Short % of Short Gross % of Gross Bank Loan 455,456, % 0 0.0% 455,456, % Convertible Bond 56,199, % 0 0.0% 56,199, % Convertible Preferred 33,075, % 0 0.0% 33,075, % Corporate 787,167, % (54,336,312) 5.4% 841,552, % Preferred 47,987, % 0 0.0% 47,987, % Sovereign 7,007, % (34,662,730) 3.4% 41,670, % Fixed Income 1,386,892, % (88,999,042) 8.8% 1,475,939, % ADR/GDR 0 0.0% (30,757,575) 3.0% 30,757, % Equity Common 299,594, % (89,323,227) 8.8% 388,917, % Exchange Traded Fund 0 0.0% (119,465,405) 11.8% 119,465, % Equity 299,594, % (239,546,207) 23.7% 539,140, % Credit Default Swap 96,383, % (201,449,186) 19.9% 297,832, % Currency Forward 0 0.0% (701,255) 0.1% 9,471, % Index Future 0 0.0% (40,722,000) 4.0% 40,722, % Index Options 0 0.0% 0 0.0% 0 0.0% Interest Rate Future 0 0.0% (439,970,578) 43.5% 439,970, % Residential Mortgage Backed 0 0.0% 0 0.0% 0 0.0% Securitized / Covered 0 0.0% 0 0.0% 0 0.0% Swaptions 0 0.0% 0 0.0% 0 0.0% Total Return Swap 13,385, % 0 0.0% 13,385, % Derivatives 109,768, % (682,843,019) 67.5% 801,382, % Cash 212,602, % 0 0.0% 212,602, % Total 2,008,857, % (1,011,388,268) 100.0% 3,029,064, % Note: A definition of key terms can be found on page 12 Page 7 of 12
8 LCMAX Effective Duration LCMAX Spread Duration (years) Jul-17 (years) Jul-17 LCMAX Average Yield-to-Worst LCMAX Net / AUM (Excluding Cash) 8% 7% 6% 5% 4% 3% 2% 1% 0% Jul-17 80% 70% 60% 50% 40% 30% 20% 10% 0% Jul-17 LCMAX Gross / AUM (Excluding Cash) 2.0x 1.5x 1.0x 0.5x LCMAX Monthly Return* 5% 3% 1% -1% -3% 0.0x Jul-17-5% Jul-17 Sources: Driehaus Capital Management LLC, Bloomberg, Factset Note: A definition of key terms can be found on page 12 *The performance data shown represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Principal value and investment returns will fluctuate so that investors shares, when redeemed, may be worth more or less than their original cost. Page 8 of 12
9 Spread Distribution* ($M) Bank Loan Convertible Bond Convertible Preferred Corporate Credit Default Swap Preferred Total >1000 Total Long 6,582, ,647,227 98,853,929 7,372, ,456,030 Short Net 6,582, ,647,227 98,853,929 7,372, ,456,030 Gross 6,582, ,647,227 98,853,929 7,372, ,456,030 Long 56,199, ,199,070 Short Net 56,199, ,199,070 Gross 56,199, ,199,070 Long 33,075, ,075,225 Short Net 33,075, ,075,225 Gross 33,075, ,075,225 Long 419,044, ,806,862 94,120,902 36,195, ,167,625 Short (30,603,490) (21,065,222) 0 (2,667,600) (54,336,312) Net 388,440, ,741,640 94,120,902 33,527, ,831,313 Gross 449,696, ,872,085 94,120,902 38,862, ,552,215 Long 96,383, ,383,268 Short (183,824,139) (17,625,046) 0 0 (201,449,186) Net (87,440,872) (17,625,046) 0 0 (105,065,918) Gross 280,207,407 17,625, ,832,454 Long 10,060,200 37,926, ,987,167 Short Net 10,060,200 37,926, ,987,167 Gross 10,060,200 37,926, ,987,167 Long 621,344, ,381, ,974,830 43,567,995 1,476,268,384 Short (214,427,629) (38,690,269) 0 (2,667,600) (255,785,498) Net 406,916, ,690, ,974,830 40,900,395 1,220,482,886 Gross 835,820, ,071, ,974,830 46,235,595 1,732,102,160 Net % 33.3% 47.5% 15.8% 3.4% 100.0% Gross % 48.3% 37.9% 11.1% 2.7% 100.0% Regional Allocation Long % of Long Short % of Short Gross % of Gross Developed 291,929, % (133,471,869) 13.2% 434,172, % Emerging 57,958, % (37,372,343) 3.7% 95,330, % United States 1,658,969, % (840,544,055) 83.1% 2,499,562, % Total 2,008,857, % (1,011,388,268) 100.0% 3,029,064, % Source: Bloomberg, Factset *Spread Distributions are shown only for the following asset classes: Bank Loan, Corporate CDS, Corporate Credit, Convertible Bonds and Preferred Stocks. Spread differential between the underlying securities and Treasury bonds in basis points. The chart above measures the excess yield (in basis points) that these securities provide over the yield offered by U.S. treasuries of comparable maturities according to Page 9 of 12 market prices at the end of the month. We then define the security type, as well as the Fund s long and short exposure, and plot these exposures based on current market values to show a more accurate view of where the Fund s capital is allocated than can be depicted by simply defining exposures by credit rating or security type. Note: A definition of key terms can be found on page 12
10 100-Day Volatility 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% Bloomberg Barclays Aggregate Index % 3.00% 2.00% 1.00% 0.00% Driehaus Active Income Fund Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Mar-10 May-10 Sep-10 Nov-10 Mar-11 May-11 Sep-11 Nov-11 Mar-12 May-12 Sep-12 Nov-12 Mar-13 May-13 Sep-13 Nov-13 Mar-14 May-14 Sep-14 Nov-14 Mar-15 May-15 Sep-15 Nov-15 Mar-16 May-16 Sep-16 Nov-16 Mar-17 May-17 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Correlation 1 Comparison 12-Month Rolling Correlations vs. Driehaus Active Income Fund S&P 500 Index 3 Bloomberg Barclays Aggregate Index 2 Sources: Driehaus Capital Management, Bloomberg, Factset Standards & Poor s ( S&P ) 500 Index total return data from Bloomberg. Bloomberg Barclays Aggregate Index data from Barclays The benchmarks for the Driehaus Active Income Fund are the Citigroup 3-Month T-Bill and the Bloomberg Barclays Aggregate Index. The S&P 500 Index is shown for illustrative purposes only. 2 The Bloomberg Barclays Aggregate Index is a broad base index, maintained by Barclays, used to represent investment grade bonds being traded in the United States. 3 The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group. It is a market-weighted index (stock price times number of shares outstanding), with each stock s weight in the index proportionate to its market value. 1 Correlation is a statistical measure of how return sets move in relation to each other. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. The S&P 500 Index and the Bloomberg Barclays Aggregate Index are recognized proxies for the U.S. fixed income market. Page 10 of 12
11 The Driehaus Active Income Fund (the Fund ), in addition to investing in unrated and investment grade bonds, may also invest in junk bonds, which involve greater credit risk, including the risk of default. The prices of high yield bonds are more sensitive to changing economic conditions and can fall dramatically in response to negative news about the issuer or its industry, or the economy in general. The use of derivatives involves risks different from, and possibly greater than, the risks associated with investing directly in the underlying assets. Derivatives can be highly volatile, illiquid and difficult to value, and there is a risk that changes in the value of a derivative held by the Fund will not correlate with the Fund s other investments. Further, the Fund may invest in derivatives for speculative purposes. Gains or losses from speculative positions in a derivative may be much greater than the derivative s original cost and potential losses may be substantial. The Fund may make short sales. Short sales expose the Fund to the risk of loss. It is anticipated that the Fund will experience high rates of portfolio turnover, which may result in payment by the Fund of above-average transaction costs. This is a nondiversified fund; compared to other funds, the Fund may invest a greater percentage of assets in a particular issuer or a small number of issuers. As a consequence, the Fund may be subject to greater risks and larger losses than diversified funds. No investment strategy, including an absolute return strategy, can ensure a profit or protect against loss. Additionally, investing in an absolute return strategy may lead to underperforming results during an upward moving market. When interest rates increase, bond prices decrease and bond funds become more volatile. This material is not intended to provide investment advice. Nothing herein should be construed as a solicitation or a recommendation to buy or sell securities or other investments. You should assess your own investment needs based on your individual financial circumstances and investment objectives. The opinions expressed are those of Driehaus Capital Management LLC ( Driehaus ) and are subject to change at any time due to changes in market or economic conditions. Driehaus does not guarantee the accuracy or completeness of this information. This data was prepared on August 14, 2017 and has not been updated since then. It may not reflect recent market activity. Driehaus assumes no obligation to update or supplement this information to reflect subsequent changes. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this information. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Please consider the investment objectives, risks, fees and expenses of the Fund carefully prior to investing. The prospectus and summary prospectus contain this and other important information about the Fund. To obtain a copy of the prospectus and/or summary prospectus, please call us at (877) Please read the prospectus and summary prospectus carefully before investing. Driehaus Securities LLC, Distributor Page 11 of 12
12 FUND INFORMATION The Fund invests primarily in U.S. fixed income and floating rate securities, of both investment and non-investment grade credit quality, as well as equities and derivative instruments. The Fund intends to pursue its fundamental opportunistic bottom-up trading approach using the following investment strategies: Capital Structure Arbitrage attempt to exploit pricing inefficiencies between two securities of the same company. Example: buying a debt instrument that is believed to be undervalued while simultaneously shorting a subordinated debt instrument of the same issuer that is believed to be overvalued. Convertible Arbitrage attempt to profit from changes in a company s equity volatility or credit quality by purchasing a convertible bond and simultaneously shorting the same issuer s common stock. Directional Trading taking long or short positions in equity or corporate debt instruments in anticipation of profiting from movements in the prices of these assets. Event Driven attempt to profit from the consummation of a given event, e.g. a takeover, merger, reorganization or conclusion of material litigation, or based upon the perceptions of a potential pending corporate event. Pairs Trading attempt to exploit pricing inefficiencies between the securities of two similar companies by buying the security of one company and shorting the security of the other. Interest Rate Hedging attempt to reduce the performance impact of rising or falling interest rates. Volatility Hedging attempt to profit from extreme market volatility. DEFINITIONS OF KEY TERMS Agency Mortgage-Backed Security - A mortgage-backed security issued and guaranteed by a government agency such as the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association. Asset-Backed Security (ABS) - A security whose value and income payments are derived from and collateralized (or backed ) by a specified pool of underlying assets. Average % of Par-Longs - The average dollar price of a bond the Fund is long as a percentage of par. Average % of Par-Shorts - The average dollar price of a bond the Fund is short as a percentage of par. Credit Default Swap (CDS) - A contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) goes into default. In its simplest form, a credit default swap is a bilateral contract between the buyer and seller of protection. Equity Beta - A measure describing the relation of a portfolio s returns with that of the financial market as a whole. A portfolio with a beta of 0 means that its price is not at all correlated with the market. A positive beta means that the portfolio generally follows the market. A negative beta shows that the portfolio inversely follows the market; the portfolio generally decreases in value if the market goes up and vice versa. Effective Duration - A duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Spread Duration - The sensitivity of the price of a bond to a 100 basis point change to its option-adjusted spread. As the rate of the Treasury security in the option-adjusted spread increases, the rate of the optionadjusted spread also increases. Mortgage-Backed Security (MBS) - An asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. Portfolio Coupon - The annualized interest earned for the portfolio. Portfolio Current Yield - The annual income (interest or dividends) divided by the current price of the security, aggregated to the portfolio level. Portfolio Yield-to-Worst - The lowest potential yield that can be received on a bond without the issuer actually defaulting, aggregated to the portfolio level. The yield to worst is calculated by making worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call or sinking fund, are used by the issuer. Sharpe ratio - A measure of return per unit of risk, it is calculated by finding the portfolio s excess return and then dividing by the portfolio s standard deviation. Stock Vega - The change in the price of an option that results from a 1% change in volatility. Vega changes when there are large price movements in the underlying asset and Vega falls as the option gets closer to maturity. Vega can change even if there is no change in the price of the underlying asset (e.g., if there is a change in expected volatility). Swap - A derivative in which two counterparties exchange certain benefits of one party s financial instrument for those of the other party s financial instrument. Page 12 of 12
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