MAY 2016 DRIEHAUS CREDIT COMMENTARY // APRIL...

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The Hedge Fund ApocalypseMAY 2016 DRIEHAUS CREDIT COMMENTARY // APRIL 30, 2016 DRIEHAUS SELECT CREDIT FUND PERFORMANCE SUMMARY

During a fairly average day this past March, I reviewed year-to-date performance numbers for a number of funds and indices that I monitor. After staring at the numbers for about 15 minutes, it hit me like a left hook. I called a friend and let him in on my epiphany, “Hey man, the great culling of hedge funds, and all things alternative for that matter, is now upon us. Buckle up, because the next 12 months are going to reshape the investment world.”

I make predictions all the time. (For instance, I think the Thunder’s length, led by Adam Morrison’s doppelganger, will give the Warriors a run for their money and offer great value at 4:1 to win the series.) Of course, many turn out to be duds, but I feel pretty good about this one. Since making this call, I’ve noticed that there’s been a number of articles supporting my thesis (surely no confirmation bias here). Here’s a sample:

» “Dan Loeb Warns of Hedge Fund ‘Killing Field,’” FT.com, 4/27/16

» “Hedge Fund Managers Lose Their Swagger,” Bloomberg.com, 5/5/16

» “Investors Join Buffet Slamming Hedge Fund Fees at Milken,” Bloomberg.com, 5/2/16

» “New York City Public Pension Pulls Hedge Fund Invest-ments,” WSJ.com, 4/4/16

» “Leon Cooperman Considering Taking His Ball and Going Home,”Dealbreaker.com, 5/12/16

» “Hedge Funds Suffer Worst Outflows Since Financial Crisis Era,” Bloomberg.com, 4/20/16

I must confess, this isn’t the first time I thought the industry was destined for shrinkage. That was in 2009, after hedge funds’ generally miserable 2008 performance. To make matters worse, many funds were gating investors, either out of necessity or convenience, from making redemptions. At the time, I thought the vitriol spewed by investors would do permanent damage to the industry. After all, losing money is one thing, but restricting your investors from accessing their money is a whole other affair entirely.

Further, an increasing number of liquid alternative and specialized ETF strategies were coming online. That meant more competition for the less liquid, less transparent hedge fund world. Ultimately though, I was wrong. The hedge fund industry changed, but didn’t really incur any lasting damage. The change was that the big got bigger (exactly the oppo-site of what I would’ve predicted since many of the biggest funds were the first to gate investors), and life became much tougher for small hedge funds. On the whole though, the industry survived relatively unscathed.

The situation now appears much more threatening though, and the risks seem to be more secular than cyclical. More specifically, here’s the confluence of events I see facing the industry:

1) The Performance Problem. It starts and ends here. Exhibit 1 lists the 1-, 3- and 5-year returns for the HFRX Global Composite, the S&P 500 Index, the Barclays Aggregate Index, and a 60/40 mix of the S&P 500 and the Barclays Agg.

EXHIBIT 1: Performance returns, as of April 30, 2016

Source: eVestment Alliance, Driehaus Capital Management

Annualized

1 Year 3 Years 5 Years Since 1/1/09

HFRX Global Hedge Fund Index -7.18% -0.99% -1.19% 1.72%

S&P 500 Index 1.21% 11.26% 11.02% 14.37%

Barclays US Aggregate Index 2.72% 2.29% 3.60% 4.38%

60% S&P 500 / 40% Barclays Aggregate 2.05% 7.76% 8.20% 10.56%

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As shown, the hedge fund index has gotten trounced by plain vanilla investments over almost any time period since the 2008 global financial crisis. This performance misery isn’t only limited to hedge funds, liquid alternatives have been no better. Part of that underperformance is justifiable. Had you known that both stocks and bonds were going to go straight up in a largely beta-driven rally since 2009, then there’s not much use in spending money on hedging. However, there are plenty of times in the recent past (such as the first quarter of this year), when hedge funds have lost significant money during a sideways, albeit rather volatile, market.

Further, this underperformance is magnified in today’s mar-ketplace, where investors are irritated after a bad quarter…or month…or week. The idea of investing over a market cycle is increasingly a foreign one. Nowadays, not only does the investment manager have to find a compelling investment to buy low and sell higher at a later date, he or she must also anticipate the path the investment will take along the way.

2) The Alternatives to Alternatives. The proliferation of investment products over the past five years has given investors plenty of alternatives to choose from when build-ing the “less correlated” segments of their portfolios. There are a number of commodity, currency and credit funds to now choose from in ETF and mutual fund vehicles. Moreover, there are a number of daily liquidity funds that run the hedge strategies themselves. This gives investors the option to tactically move in and out of exposures that previously they often had to access through hedge funds.

Of course you lose access to an individual manager’s skill by investing in this manner, but as shown in the performance numbers above, the skill component has been somewhat lacking lately. Even if there is demonstrable skill, investors are opting for the lower fee, higher liquidity alternatives in many cases. So while point #1 (Performance) was generally negative for all alternatives (daily liquidity funds and hedge funds), this phenomena affects hedge funds more acutely. However, even liquid alternatives are facing pressure from more choices. For instance, you could easily have bought a bank loan ETF coming into this year and be up 4.5%, year to date. That would likely place you in the top decile of all alternative managers—and that option wasn’t as easily executable in size several years ago.

3) Institutional Adoption of the Hedge Fund Culling. Follow-ing the 2008 financial crisis, I met with a number of insti-tutional consultants to large public plans. When I told them about what we do and asked if they invest in any hedged strategies in liquid funds, you would’ve thought that I had asked them if they were interested in buying some bitcoin. Responses ranged from scoffing to staring in bewilderment. Their hedge funds were their “secret sauce,” and how dare I suggest an alternative (even if in 2009 they were locked up for a few quarters…small detail)?!

After years of inaction, the tide is now changing fast on this front. Whether driven by their own decision making or their clients’, the institutional consultant community is under severe pressure to justify the presence of hedge funds in client portfolios. Of course, they can preach diversification, but that’s a harder leg to stand on with each passing year—given that we’re currently in the seventh year that their hedge fund basket hasn’t done something meaningfully different (read better) than their plain vanilla exposures. As a manager of liquid alternatives, I’d like to think that this trend will benefit us, but it doesn’t look that way.

It appears as if many public plans are throwing in the towel on diversification, skipping the move to liquid alts, and going straight to a traditional investment allocation. Some are transitioning to private equity, which has many of the same aforementioned problems with the hedge fund model, but there are two important differences. First, performance has been great, and that cures almost all ills. Second, the observable path along the way between a purchase and sale of an asset is much different. In this investment, the client is spared from looking at the falling value of their investment on a daily basis during a market downturn, or better yet, can pretend their private investment is unaffected by all that “noise” in the public markets. Absent private equity though, virtually all alternatives under institutional consultants’ purview are under performance, fee, liquidity and complexity scrutiny. It took years for that trend to take hold, and it won’t be changing any time soon.

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Whether consciously or not, consultants and investors alike are making this shift to the “traditional” 60/40 allocation at likely a very poor time. Exhibit 2 from Lake Partners is one of the more important charts for investors to study that I’ve seen in a long time. Here are a few of my observations:

» Since 1979, the rolling three-year Sharpe ratio of the 60/40 model has averaged 0.65.

» The chart has a mean-reverting profile, with multiple periods of out- and underperformance, typically lasting roughly five years.

» We’re currently in the sixth year of notable outperfor-mance of the mix, with the 60/40 model averaging a Sharpe ratio of about 1.6 since 2010.

» The mix has spent much of the past two years averaging performance that’s roughly two standard deviations (on the positive side) away from the norm of the past 37 years.

» One could speculate that QE was a large driver of the above average performance of the past five years, and now QE is going away.

EXHIBIT 2: Rolling 3-year Sharpe ratio: 60% S&P 500 / 40% Barclays Aggregate Bond indices

Source: Lake Partners, Morningstar Direct, and Principal Management

From January 1976 through March 2016 (based on monthly returns)

2.5

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1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

+2 Std Dev

+1 Std Dev

Avg: 0.65

-1 Std Dev

-2 Std Dev

12/3

1/78

12/3

1/81

12/3

1/84

12/3

1/87

12/3

1/90

12/3

1/93

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1/96

12/3

1/99

12/3

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12/3

1/05

12/3

1/08

12/3

1/11

12/3

1/14

Note: A definition of key terms can be found on page 13

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DisclosuresThis 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 May 18, 2016 and are subject to change at any time due to changes in market or economic conditions. The commentary has not been updated since May 18, 2016 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. Reli-ance upon information in this material is at the sole discretion of the reader.

So what’s the bottom line of these changing industry dynam-ics? I believe there will be a culling of hedge funds like we’ve never seen before. I’d estimate the number of funds gets cut in half over the next couple of years. There will be a new push for lower fees, similar to the one that took average fees from 2 & 20 to 1.5 & 15 several years ago. Liquid alternatives will continue to see outflows for quarters to come, following several years of inflows. The pain will be widespread…and it won’t stop until there’s one or two years of a meaningfully different outcome from plain vanilla index exposures.

That means, at best, we’re 12 months away from the trends changing, and I’d be shocked if we saw it shift that quickly. On the bright side, capital will continue to get sucked out of many strategies, leaving larger-than-average excess returns behind for those who can pursue the attractive opportuni-ties. It’s a small consolation prize for the industry, but one worth mentioning nonetheless. Last, history argues that we’re overdue for a multi-year period of underperformance from the 60/40 model. That likely comes along when all but a few have thrown in the towel on alternatives, and diversification for that matter. After a few years of underperformance in the traditional model, investors will likely want to diversify with less correlated strategies. Come to think of it, that’s exactly what happened in 2001…and 2008....

K.C. Nelson Portfolio Manager

Elizabeth Cassidy Assistant Portfolio Manager

Godspeed,K.C. & Cass

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The Driehaus Select Credit Fund gained 26 basis points in April on the back of a continued rally in the broader markets and positive idiosyncratic contributions across the portfolio. The event driven bucket had the largest contribution across the fund’s strategies, adding 50 basis points to returns during the month. The directional long sleeve added 21 basis points as deal activity picked up follow-ing a lull in the first quarter. The directional short bucket detracted 21 basis points as the rally in credit aided prices of some of the fund’s largest short positions. No other strategies added or detract-ed more than 10 basis points to returns.

On a single name basis, an event driven trade in a regional gam-ing REIT aided returns by 37 basis points as the company closed a strategic acquisition that dramatically diversified its property portfolio. The second largest contributor to performance (adding 28 basis points) was a directional long investment in a salt producer that reported better-than-expected numbers for the first quarter. Last, a directional long trade in an independent energy and produc-tion (E&P) company added 26 basis points to returns as the position participated in the broad market energy rally.

On the losing side, a directional long trade in a Brazilian airline detracted 45 basis points during April as the company initiated talks of a debt exchange with current bondholders. The second largest detractor from returns was a long investment in a restaurant operator that reported weaker-than-expected results during the first quarter, resulting in a 35 basis points loss. Last, a directional short on an investment grade producer of equipment for oilfield services detracted 14 basis points throughout the month as the energy complex continued its steep ascent following the selloff in the first quarter.

DRSLX Performance ReviewAPRIL 30, 2016 // DRIEHAUS SELECT CREDIT FUND

1Performance DisclosureThe 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) 779-0079 or visit www.driehaus.com for more current performance information.

Features:

• Provides differentiated exposure within fixed income and alternative asset allocations

• 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: September 30, 2010

Fund Assets Under Management: $186 million

Firm Assets Under Management: $8.5 billion

Portfolio Concentration: Flexible, best ideas approach, generally 40-60 trades

Duration Target: +/- 3 year

Volatility Target: Less than the BofA Merrill Lynch US High Yield Master II Index (about 8%, annually)

Distributions: Quarterly dividends; annual capital gains

Portfolio Managers:

K.C. Nelson, Portfolio Manager 17 years experience

Elizabeth Cassidy, Assistant Portfolio Manager 16 years experience

@DriehausCapital

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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) 779-0079 or visit www.driehaus.com for more current performance information.

1Inception Date: 9/30/2010. 2The 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. 3 BofA Merrill Lynch US High Yield 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. 4Represents the Annual Fund Operating Expenses as disclosed in the current prospectus dated April 30, 2016. 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 Select Credit 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

DRSLX Performance Review

APRIL 30, 2016 // DRIEHAUS SELECT CREDIT FUND

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 prospec-tus and/or summary prospectus, please call us at (877) 779-0079. Please read the prospectus and summary prospectus carefully before investing.

Driehaus Securities LLC, Distributor

Month-end Performance as of 4/30/16

Average Annual Total Return

Fund/Index QTR YTD 1 Year 3 Year 5 Year Since Inception1

Driehaus Select Credit Fund -2.40% -2.40% -11.39% -3.93% -1.45% -0.27%

Citigroup 3-Month T-Bill Index2 0.05% 0.05% 0.08% 0.05% 0.06% 0.06%

BofA Merrill Lynch US High Yield Index3 3.25% 3.25% -3.99% 1.75% 4.71% 5.58%

Calendar Quarter-end Performance as of 3/31/16

Annual Fund Operating Expenses4

Management Fee 0.80%

Other Expenses Excluding Dividends and Interest on Short Sales

0.36%

Dividends and Interest on Short Sales 0.24%

Total Annual Fund Operating Expenses 1.40%

Average Annual Total Return

Fund/Index MTH YTD 1 Year 3 Year 5 Year Since Inception1

Driehaus Select Credit Fund 0.26% -2.15% -11.93% -4.04% -1.56% -0.22%

Citigroup 3-Month T-Bill Index2 0.02% 0.08% 0.10% 0.06% 0.06% 0.07%

BofA Merrill Lynch US High Yield Index3 4.00% 7.37% -1.34% 2.46% 5.22% 6.24%

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excluding cash

Assets Under Management (AUM) $185,568,407

Long Exposure $210,047,487 $201,438,375

Short Exposure $(139,168,849) $(139,168,849)

Net Exposure $70,878,638 $62,269,526

Net Exposure/AUM 38.20% 33.56%

Gross Exposure $349,216,336 $340,607,224

Gross Exposure/AUM 1.88x 1.84x

Effective Duration 0.56 years

Spread Duration 0.85 years

30-day SEC Yield 2.95%

Portfolio Yield-To-Worst1 4.40%

Average % of Par Longs 87.21%

Average % of Par Shorts 94.09%

Beta vs. S&P 500 0.08

100-Day Volatility 5.30%

Source: Bloomberg

1 Refers to credit only2 A definition of this term can be found on page 13.

*Exposure: 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.


Gross Exposure

% of Gross Exposure

% Contrib. to Total Return

% of Gross Exposure Change vs. Previous Month End

Capital Structure Arbitrage2 75,696,897 21.7% -0.05% 1.6%

Convertible Arbitrage2 12,225,490 3.5% 0.00% 0.2%

Event Driven2 115,480,280 33.1% 0.49% -1.8%

Pairs Trading2 7,103,869 2.0% 0.04% 0.1%

Directional Long2 81,619,543 23.4% 0.20% -0.4%

Directional Short2 13,563,863 3.9% -0.18% 1.1%

Interest Rate Hedge2 20,589,708 5.9% -0.01% 3.3%

Volatility Trading2 14,327,574 4.1% -0.05% 0.3%

Cash** 8,609,112 2.5% 0.00% -4.3%

Expenses*** - - -0.12% -

Total 349,216,336 100.0% 0.31% -

Executive Summary Risk Summary

Trading Strategy Type

Preliminary data. May differ from data shown by third-party providers because of rounding or for other reasons.

DRSLX Portfolio Characteristics*

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Long Exposure

($)

% of Long Exposure

Short Exposure

($)

% of Short Exposure

Gross Exposure

($)

% of Gross Exposure


AAA1 - 0.0% - 0.0% - 0.0% 0.0%

AA - 0.0% - 0.0% - 0.0% 0.0%

A2 - 0.0% - 0.0% - 0.0% 0.0%

BBB 45,210,983 34.9% (62,324,131) 91.1% 107,535,114 54.3% -0.2%

BB 5,971,624 4.6% (4,725,064) 6.9% 10,696,689 5.4% 2.8%

B 39,975,386 30.9% - 0.0% 39,975,386 20.2% -0.8%

CCC 38,320,411 29.6% (1,386,988) 2.0% 39,707,399 20.1% -1.9%

CC - 0.0% - 0.0% - 0.0% 0.0%

C - 0.0% - 0.0% - 0.0% 0.0%

D - 0.0% - 0.0% - 0.0% 0.0%

Not Rated 12,000 0.0% - 0.0% 12,000 0.0% 0.0%

Total 129,490,405 100.0% (68,436,183) 100.0% 197,926,588 100.0%

Credit Rating*

Long Exposure

($)

% of Long Exposure

Short Exposure

($)

% of Short Exposure

Gross Exposure

($)

% of Gross Exposure

GICS3

Consumer Discretionary 63,888,748 30.4% (12,675,732) 9.1% 76,564,479 21.9%

Consumer Staples 12,811,817 6.1% (11,579,683) 8.3% 24,391,500 7.0%

Energy 5,994,254 2.9% (22,338,607) 16.1% 28,332,862 8.1%

Financials 53,918,558 25.7% (32,508,875) 23.4% 86,427,433 24.7%

Health Care 25,297,334 12.0% (7,896,136) 5.7% 33,193,469 9.5%

Industrials 2,893,821 1.4% (1,002,377) 0.7% 3,896,198 1.1%

Information Technology 10,619,383 5.1% (1,528,000) 1.1% 12,147,383 3.5%

Materials 9,662,406 4.6% - 0.0% 9,662,406 2.8%

Telecommunication Services 6,084,697 2.9% (1,989,000) 1.4% 8,073,697 2.3%

Utilities 5,190,242 2.5% - 0.0% 5,190,242 1.5%

Other4 13,686,226 6.5% (47,650,439) 34.2% 61,336,665 17.6%

Total 210,047,487 100.0% (139,168,849) 100.0% 349,216,336 100.0%

Industry Sector

Source: Bloomberg, 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.


Credit Ratings:AAA and AA: High credit-quality investment gradeA and BBB: Medium credit-quality investment gradeBB, B, CCC, CC, C: Low credit-quality (non-investment grade), or “junk bonds” Not Rated: 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.

Credit rating data is shown only for the following asset classes: Bank Loan, Corporate CDS, Corporate Credit, Convertible Bonds and Preferred Stocks

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Long Exposure

($)

% of Long Exposure

Short Exposure

($)

% of Short Exposure

Gross Exposure

($)

% of Gross Exposure


ABS - 0.0% - 0.0% - 0.0% 0.0%

Agency Mortgage ARM - 0.0% - 0.0% - 0.0% 0.0%

Agency Mortgage CMO - 0.0% - 0.0% - 0.0% 0.0%

Bank Loan 24,107,361 11.5% - 0.0% 24,107,361 6.9% -0.1%

CMBS - 0.0% - 0.0% - 0.0% 0.0%

Convertible 3,408,430 1.6% - 0.0% 3,408,430 1.0% 0.3%

Corp Credit 63,562,876 30.3% (8,394,399) 6.0% 71,957,275 20.6% 0.4%

Equity 66,870,856 31.8% (23,082,227) 16.6% 89,953,083 25.8% 3.9%

ETF - 0.0% - 0.0% - 0.0% 0.0%

FX Cash - 0.0% - 0.0% - 0.0% 0.0%

Govt Bond 3,577,425 1.7% (2,277,600) 1.6% 5,855,025 1.7% 0.3%

MBS - 0.0% - 0.0% - 0.0% 0.0%

Mortgage CMO - 0.0% - 0.0% - 0.0% 0.0%

Pfd 4,093,017 1.9% - 0.0% 4,093,017 1.2% 0.2%

REIT - 0.0% - 0.0% - 0.0% 0.0%

Sovereign Credit - 0.0% - 0.0% - 0.0% -1.3%

USD Cash 8,609,112 4.1% - 0.0% 8,609,112 2.5% -5.4%

Non-Derivatives Total 174,229,078 82.9% (33,754,225) 24.3% 207,983,303 59.6%

CDS Index - 0.0% - 0.0% - 0.0% 0.0%

CDS Index Option - 0.0% - 0.0% - 0.0% 0.0%

Commodity Future - 0.0% - 0.0% - 0.0% 0.0%

Commodity Option - 0.0% - 0.0% - 0.0% 0.0%

Corp CDS 34,318,719 16.3% (60,041,784) 43.1% 94,360,504 27.0% 6.3%

Equity Index Future - 0.0% (6,399,668) 4.6% 6,399,668 1.8% -1.0%

Equity Index Option - 0.0% (7,927,906) 5.7% 7,927,906 2.3% 0.3%

Equity Option - 0.0% - 0.0% - 0.0% -0.7%

Equity Variance Swap - 0.0% - 0.0% - 0.0% 0.0%

Equity Warrant - 0.0% - 0.0% - 0.0% 0.0%

FX Forward 1,499,690 0.7% (6,898,572) 5.0% 8,398,262 2.4% -7.3%

FX Option - 0.0% - 0.0% - 0.0% 0.0%

IR Swaption - 0.0% (16,207) 0.0% 16,207 0.0% 0.0%

Sovereign CDS - 0.0% (7,103,869) 5.1% 7,103,869 2.0% 0.5%

Treasury Future - 0.0% (17,026,617) 12.2% 17,026,617 4.9% 3.5%

Volatility Index Option - 0.0% - 0.0% - 0.0% 0.0%

Volatility Swap - 0.0% - 0.0% - 0.0% 0.0%

Derivatives Total 35,818,409 17.1% (105,414,624) 75.7% 141,233,033 40.4%

Total 210,047,487 100.0% (139,168,849) 100.0% 349,216,336 100.0%

Product Type


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DRSLX Effective Duration

DRSLX Net Exposure / AUM (Excluding Cash)

DRSLX Monthly Return*

Sources: Driehaus Capital Management LLC, Bloomberg


DRSLX Gross Exposure / AUM (Excluding Cash)

*The performance data shown represents past performance and does not guarantee future re-sults. 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.

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15%

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6 0%

10%

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80%

Oct-

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0.0%

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Oct-

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DRSLX Spread Duration

DRSLX Average Yield-to-Worst


of 13 of 13


Long Exposure

($)

% of Long Exposure

Short Exposure

($)

% of Short Exposure

Gross Exposure

($)

% of Gross Exposure

Developed 59,470,736 28.3% (53,535,480) 38.5% 113,006,216 32.4%

Emerging 6,230,108 3.0% (9,291,561) 6.7% 15,521,670 4.4%

United States 144,346,642 68.7% (76,341,808) 54.9% 220,688,450 63.2%

Total 210,047,487 100.0% (139,168,849) 100.0% 349,216,336 100.0%

Regional Allocation

0-300 300-600 600-1000 >1000 Total

Bank

Loan

Long Exposure - 5,971,624 18,135,737 - 24,107,361

Short Exposure - - - - -

Net Exposure - 5,971,624 18,135,737 - 24,107,361

Gross Exposure - 5,971,624 18,135,737 - 24,107,361

Conv

ertib

le Long Exposure 2,000 - 3,396,430 10,000 3,408,430


Net Exposure 2,000 - 3,396,430 10,000 3,408,430

Gross Exposure 2,000 - 3,396,430 10,000 3,408,430

Corp

CDS

Long Exposure 5,729,505 28,589,215 - - 34,318,719

Short Exposure (30,189,769) (27,062,735) (2,789,280) - (60,041,784)

Net Exposure (24,460,264) 1,526,479 (2,789,280) - (25,723,065)

Gross Exposure 35,919,274 55,651,950 2,789,280 - 94,360,504

Corp

Cre

dit Long Exposure 10,043,527 10,358,406 35,096,264 8,064,678 63,562,876

Short Exposure - (7,007,411) (591,383) (795,605) (8,394,399)

Net Exposure 10,043,527 3,350,996 34,504,882 7,269,073 55,168,477

Gross Exposure 10,043,527 17,365,817 35,687,647 8,860,284 71,957,275

Pfd

Long Exposure - - 4,093,017 - 4,093,017


Net Exposure - - 4,093,017 - 4,093,017

Gross Exposure - - 4,093,017 - 4,093,017

Tota

l

Long Exposure 15,775,032 44,919,245 60,721,449 8,074,678 129,490,405

Short Exposure (30,189,769) (34,070,146) (3,380,663) (795,605) (68,436,183)

Net Exposure (14,414,737) 10,849,099 57,340,786 7,279,073 61,054,221

Gross Exposure 45,964,800 78,989,391 64,102,113 8,870,284 197,926,588

Net Exposure % -23.6% 17.8% 93.9% 11.9% 100.0%

Gross Exposure % 23.2% 39.9% 32.4% 4.5% 100.0%

Spread Distribution* ($M)

Source: Bloomberg *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 market prices at

Spread distribution data is shown only for the following asset classes: Bank Loan, Corporate CDS, Corporate Credit, Convertible Bonds and Preferred Stocks

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 13

of 13


Sources: Driehaus Capital Management LLC

1BofA Merrill Lynch U.S. High Yield 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.

Driehaus Select Credit Fund

BofA Merrill Lynch U.S. High Yield Index1

100-Day Volatility

The Driehaus Select Credit 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 invest-ing 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. Driehaus does not guarantee the accuracy or completeness of this information. This data was prepared on May 16, 2016 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.

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 May 18, 2016 and are subject to change at any time due to changes in market or economic conditions. The commentary has not been updated since May 18, 2016 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.

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) 779-0079. Please read the prospectus and summary prospectus carefully before investing.

Driehaus Securities LLC, Distributor

of 13 of 13

FUND INFORMATION

The Fund invests primarily in U.S. fixed income and floating rate securi-ties, 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 op-tions. 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 option-adjusted spread also increases.

Mortgage-Backed Security (MBS) - An asset-backed security or debt ob-ligation 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 move-ments 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.


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