Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-23308
PPM Funds
(Exact Name of registrant as specified in charter)
225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606
(Address of principal executive offices)
225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606
(Mailing address)
Daniel W. Koors
PPM Funds
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
(Name and address of agent for service)
Registrant’s telephone number, including area code: (312) 634-2500
Date of Fiscal Year End: December 31
Date of Reporting Period: January 1, 2018 – June 30, 2018
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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. §3507.
Table of Contents
Item 1. Report to Shareholders.
Table of Contents
Table of Contents
| PPMFunds (Unaudited) June 30, 2018
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| 25 |
PPM Funds Approval of the Investment Advisory Agreement
PPM Funds Supplements to Prospectus
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
1
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
2
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
3
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
4
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
5
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
6
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
7
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
8
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
Abbreviations:
LIBOR - London Interbank Offered Rate
Restricted Securities
| Initial Acquisition |
Cost ($) | Value ($) | Percent of Net Assets (%) |
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| Centene Escrow I Corp., 5.38%, 06/01/26 |
06/29/18 | 17,042 | 17,226 | — | ||||||||||||
| Community Health Systems Inc., 8.63%, 01/15/24 |
06/29/18 | 29,837 | 30,077 | 0.1 | ||||||||||||
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| 46,879 | 47,303 | 0.1 | ||||||||||||||
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Unfunded Commitments
| Unfunded Commitment ($) |
Appreciation/ (Depreciation) ($) |
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| DG Investment Intermediate Holdings 2 Inc. – Delayed Draw Term Loan |
6,953 | (69 | ) | |||||
| GFL Environmental Inc. – Delayed Draw Term Loan |
18,738 | (94 | ) | |||||
| ICSH Inc. – Delayed Draw Term Loan* |
3,595 | (53 | ) | |||||
| Mavis Tire Express Services Corp. – Delayed Draw Term Loan |
16,930 | (148 | ) | |||||
| Spectrum Holdings III Corp. – Delayed Draw Term Loan |
9,068 | (113 | ) | |||||
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| 55,284 | (477 | ) | ||||||
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| * | Security fair valued in good faith as a Level 3 security in accordance with the procedures approved by the PPM Funds’ Board of Trustees. Good faith fair valued securities are classified for Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurement” based on the applicable valuation inputs. See FASB ASC Topic 820 in the Notes to Financial Statements. |
Futures Contracts
| Reference Entity |
Contracts Long (Short)1 |
Expiration |
Notional1 | Variation Margin Receivable (Payable) ($) |
Unrealized Appreciation (Depreciation) ($) |
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| U.S. Treasury Note, 10-Year |
(3 | ) | September 2018 | (358,874 | ) | — | (1,688 | ) | ||||||||||
| U.S. Treasury Note, 5-Year |
(2 | ) | September 2018 | (228,164 | ) | 47 | 929 | |||||||||||
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| 47 | (759 | ) | ||||||||||||||||
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See accompanying Notes to Financial Statements.
9
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
10
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
11
Table of Contents
PPMFunds
Schedules of Investments (Unaudited)
June 30, 2018
See accompanying Notes to Financial Statements.
12
Table of Contents
PPMFunds
Statements of Assets and Liabilities (Unaudited)
June 30, 2018
| PPM Floating Rate Income Fund |
PPM Large Cap Value Fund |
PPM Mid Cap Value Fund |
PPM Small Cap Value Fund |
|||||||||||||
| Assets |
||||||||||||||||
| Investments - unaffiliated, at value |
$ | 44,689,382 | $ | 6,674,124 | $ | 5,739,630 | $ | 5,682,003 | ||||||||
| Variation margin on futures contracts |
47 | — | — | — | ||||||||||||
| Cash |
51,375 | — | — | 1,381 | ||||||||||||
| Receivable from: |
||||||||||||||||
| Investment securities sold |
146,039 | — | — | 1,345 | ||||||||||||
| Fund shares sold |
136,971 | — | — | — | ||||||||||||
| Dividends and interest |
72,608 | 11,881 | 11,586 | 7,230 | ||||||||||||
| Adviser |
12,196 | 1,995 | 1,800 | 1,792 | ||||||||||||
| Deposits with brokers and counterparties |
4,961 | — | — | — | ||||||||||||
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| Total assets |
45,113,579 | 6,688,000 | 5,753,016 | 5,693,751 | ||||||||||||
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| Liabilities |
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| Distributions payable |
136,971 | — | — | — | ||||||||||||
| Payable for: |
||||||||||||||||
| Investment securities purchased |
4,310,976 | 22,879 | 17,503 | 978 | ||||||||||||
| Return of securities loaned |
426,550 | 153,700 | 153,625 | — | ||||||||||||
| Advisory fees |
18,182 | 3,260 | 3,279 | 3,827 | ||||||||||||
| Administrative fees |
3,306 | 544 | 468 | 478 | ||||||||||||
| Board of trustee fees |
3,611 | 576 | 576 | 576 | ||||||||||||
| Chief compliance officer fees |
1,806 | 288 | 288 | 288 | ||||||||||||
| Other expenses |
16,275 | 3,668 | 3,668 | 3,668 | ||||||||||||
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| Total liabilities |
4,917,677 | 184,915 | 179,407 | 9,815 | ||||||||||||
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| Net assets |
$ | 40,195,902 | $ | 6,503,085 | $ | 5,573,609 | $ | 5,683,936 | ||||||||
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| Net assets consist of: |
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| Paid-in capital |
$ | 40,599,366 | $ | 6,477,338 | $ | 5,499,779 | $ | 5,499,781 | ||||||||
| Undistributed (excess of distributions over) net investment income (loss) |
(823 | ) | 21,158 | 15,654 | 9,513 | |||||||||||
| Accumulated net realized gain (loss) |
(5,996 | ) | 12,642 | 17,526 | 23,489 | |||||||||||
| Net unrealized appreciation (depreciation) on investments and foreign currency |
(396,645 | ) | (8,053 | ) | 40,650 | 151,153 | ||||||||||
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| Net assets |
$ | 40,195,902 | $ | 6,503,085 | $ | 5,573,609 | $ | 5,683,936 | ||||||||
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| Net assets |
$ | 40,195,902 | $ | 6,503,085 | $ | 5,573,609 | $ | 5,683,936 | ||||||||
| Institutional class shares outstanding |
4,073,214 | 647,734 | 549,978 | 549,978 | ||||||||||||
| Net asset value per share |
$ | 9.87 | $ | 10.04 | $ | 10.13 | $ | 10.33 | ||||||||
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| Investments - unaffiliated, at cost |
$ | 45,084,790 | $ | 6,682,177 | $ | 5,698,980 | $ | 5,530,850 | ||||||||
| Securities on loan included in investments - unaffiliated, at value |
418,879 | 150,036 | 149,918 | — | ||||||||||||
See accompanying Notes to Financial Statements.
13
Table of Contents
PPMFunds
Statements of Operations (Unaudited)
For the Period Ended June 30, 2018
| PPM Floating Rate Income Fund(a) |
PPM Large Cap Value Fund(a) |
PPM Mid Cap Value Fund(a) |
PPM Small Cap Value Fund(a) |
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| Investment income |
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| Dividends |
$ | — | $ | 28,724 | $ | 23,605 | $ | 18,619 | ||||||||
| Foreign taxes withheld |
— | — | — | (45 | ) | |||||||||||
| Interest |
218,381 | 680 | 567 | 569 | ||||||||||||
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| Total investment income |
218,381 | 29,404 | 24,172 | 19,143 | ||||||||||||
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| Expenses |
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| Advisory fees |
30,241 | 6,597 | 6,624 | 7,700 | ||||||||||||
| Administrative fees |
5,498 | 1,099 | 946 | 963 | ||||||||||||
| Legal fees |
6,018 | 961 | 961 | 961 | ||||||||||||
| Transfer agent fees |
4,375 | 1,769 | 1,769 | 1,769 | ||||||||||||
| Board of trustee fees |
3,611 | 576 | 576 | 576 | ||||||||||||
| Chief compliance officer fees |
1,806 | 288 | 288 | 288 | ||||||||||||
| Registration and filing fees |
4,514 | 720 | 720 | 720 | ||||||||||||
| Other expenses |
1,367 | 218 | 218 | 218 | ||||||||||||
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| Total expenses |
57,430 | 12,228 | 12,102 | 13,195 | ||||||||||||
| Expense waiver |
(18,950 | ) | (3,982 | ) | (3,584 | ) | (3,565 | ) | ||||||||
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| Net expenses |
38,480 | 8,246 | 8,518 | 9,630 | ||||||||||||
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| Net investment income (loss) |
179,901 | 21,158 | 15,654 | 9,513 | ||||||||||||
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| Realized and unrealized gain (loss) |
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| Net realized gain (loss) on: |
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| Investments - unaffiliated |
(1,534 | ) | 12,642 | 17,526 | 23,489 | |||||||||||
| Futures contracts |
(4,462 | ) | — | — | — | |||||||||||
| Net change in unrealized appreciation (depreciation) on: |
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| Investments - unaffiliated |
(395,886 | ) | (8,053 | ) | 40,650 | 151,153 | ||||||||||
| Futures contracts |
(759 | ) | — | — | — | |||||||||||
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| Net realized and unrealized gain (loss) |
(402,641 | ) | 4,589 | 58,176 | 174,642 | |||||||||||
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| Change in net assets from operations |
$ | (222,740 | ) | $ | 25,747 | $ | 73,830 | $ | 184,155 | |||||||
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| (a) | Period from commencement of operations on May 1, 2018. |
See accompanying Notes to Financial Statements.
14
Table of Contents
PPMFunds
Statements of Changes in Net Assets (Unaudited)
For the Period Ended June 30, 2018
| PPM Floating Rate Income Fund(a) |
PPM Large Cap Value Fund(a) |
PPM Mid Cap Value Fund(a) |
PPM Small Cap Value Fund(a) |
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| Operations |
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| Net investment income (loss) |
$ | 179,901 | $ | 21,158 | $ | 15,654 | $ | 9,513 | ||||||||
| Net realized gain (loss) |
(5,996 | ) | 12,642 | 17,526 | 23,489 | |||||||||||
| Net change in unrealized appreciation (depreciation) |
(396,645 | ) | (8,053 | ) | 40,650 | 151,153 | ||||||||||
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| Change in net assets from operations |
(222,740 | ) | 25,747 | 73,830 | 184,155 | |||||||||||
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| Distributions to shareholders |
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| From net investment income Institutional class |
(180,724 | ) | — | — | — | |||||||||||
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| Total distributions to shareholders |
(180,724 | ) | — | — | — | |||||||||||
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| Share transactions1 |
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| Proceeds from the sale of shares Institutional class |
40,407,642 | 6,466,338 | 5,488,779 | 5,488,781 | ||||||||||||
| Reinvestment of distributions Institutional class |
180,724 | — | — | — | ||||||||||||
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| Change in net assets from share transactions |
40,588,366 | 6,466,338 | 5,488,779 | 5,488,781 | ||||||||||||
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| Change in net assets |
40,184,902 | 6,492,085 | 5,562,609 | 5,672,936 | ||||||||||||
| Net assets beginning of period |
11,000 | 11,000 | 11,000 | 11,000 | ||||||||||||
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| Net assets end of period |
$ | 40,195,902 | $ | 6,503,085 | $ | 5,573,609 | $ | 5,683,936 | ||||||||
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| Undistributed (excess of distributions over) net investment income (loss) |
$ | (823 | ) | $ | 21,158 | $ | 15,654 | $ | 9,513 | |||||||
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| 1Share transactions |
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| Shares sold |
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| Institutional class |
4,053,825 | 646,634 | 548,878 | 548,878 | ||||||||||||
| Reinvestment of distributions |
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| Institutional class |
18,289 | — | — | — | ||||||||||||
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| Change in shares |
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| Institutional class |
4,072,114 | 646,634 | 548,878 | 548,878 | ||||||||||||
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| Purchases and sales of long term investments |
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| Purchase of securities |
$ | 42,118,147 | $ | 6,728,358 | $ | 5,769,044 | $ | 5,755,291 | ||||||||
| Proceeds from sales of securities |
$ | 3,179,766 | $ | 269,532 | $ | 282,022 | $ | 260,279 | ||||||||
| (a) | Period from commencement of operations on May 1, 2018. |
See accompanying Notes to Financial Statements.
15
Table of Contents
PPMFunds
Financial Highlights (Unaudited)
For a Share Outstanding
| Increase (decrease) from investment operations |
Distributions from | Supplemental data | Ratios(a) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Period |
Net asset value, beginning of period($) |
Net investment income (loss)($)(b) |
Net realized & unrealized gains (losses)($) |
Total from investment operations($) |
Net investment income($) |
Net realized gains on investment transactions($) |
Net asset value, end of period($) |
Total return(%) (c) |
Net assets, end of period ($) |
Portfolio turnover (%) |
Net expenses to average net assets(%) |
Total expenses to average net assets(%) |
Net investment income (loss) to average net assets(%) |
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| PPM Floating Rate Income Fund |
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| Institutional Class |
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| 06/30/18 * |
10.00 | 0.05 | (0.23 | ) | (0.18 | ) | 0.05 | — | 9.87 | (0.81 | ) | 40,195,902 | 8 | 0.70 | 1.04 | 3.27 | ||||||||||||||||||||||||||||||||||||
| PPM Large Cap Value Fund |
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| Institutional Class |
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| 06/30/18 * |
10.00 | 0.03 | 0.01 | 0.04 | — | — | 10.04 | 0.40 | 6,503,085 | 4 | 0.75 | 1.11 | 1.92 | |||||||||||||||||||||||||||||||||||||||
| PPM Mid Cap Value Fund |
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| Institutional Class |
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| 06/30/18 * |
10.00 | 0.03 | 0.10 | 0.13 | — | — | 10.13 | 1.30 | 5,573,609 | 5 | 0.90 | 1.28 | 1.65 | |||||||||||||||||||||||||||||||||||||||
| PPM Small Cap Value Fund |
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| Institutional Class |
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| 06/30/18 * |
10.00 | 0.02 | 0.31 | 0.33 | — | — | 10.33 | 3.30 | 5,683,936 | 5 | 1.00 | 1.37 | 0.99 | |||||||||||||||||||||||||||||||||||||||
| * | Commenced operations on May 1, 2018. |
| (a) | Annualized for periods less than one year. |
| (b) | Calculated using the average shares method. |
| (c) | Total return assumes reinvestment of all distributions for the period. Total return is not annualized for periods less than one year. |
See accompanying Notes to Financial Statements.
16
Table of Contents
PPMFunds
Notes to Financial Statements (Unaudited)
June 30, 2018
NOTE 1. ORGANIZATION
PPM Funds (the “Trust”) is an open-ended management investment company, organized under the laws of the Commonwealth of Massachusetts, by a Declaration of Trust, dated November 9, 2017, as amended and restated March 12, 2018. The Trust is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended (“the 1940 Act”), and its shares are registered under the Securities Act of 1933, as amended (“the 1933 Act”). The Trust consists of nine series (collectively, the “Funds” and each individually a “Fund”): PPM Core Plus Fixed Income Fund, PPM Credit Fund, PPM Floating Rate Income Fund, PPM High Yield Core Fund, PPM Long Short Credit Fund, PPM Strategic Income Fund, PPM Large Cap Value Fund, PPM Mid Cap Value Fund and PPM Small Cap Value Fund. The Funds initially intend to offer only Institutional Class shares. Each Fund represents shares of beneficial interest in a separate portfolio of securities and other assets, each with its own investment objective, policies and strategies. PPM Floating Rate Income Fund, PPM Large Cap Value Fund, PPM Mid Cap Value Fund and PPM Small Cap Value Fund commenced operations on May 1, 2018. See Note 12. Subsequent Events footnote for further discussion of fund activities after June 30, 2018. The Funds are classified as diversified under the 1940 Act, except PPM Floating Rate Income Fund, which is classified as a non-diversified fund.
PPM America, Inc. (“PPM” or “Adviser”) serves as the investment adviser of the Funds, with responsibility for the professional investment supervision and management of the Funds. The Adviser is an indirect, wholly-owned subsidiary of Prudential plc, a publicly traded company incorporated in the United Kingdom. Prudential plc is not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America. Jackson National Asset Management LLC (“JNAM” or “Administrator”), an affiliate of PPM, serves as the administrator. JNAM is an indirect wholly-owned subsidiary of Jackson National Life Insurance Company® (“Jackson”), a US-based financial services company, which in turn is an indirect wholly-owned subsidiary of Prudential plc.
The initial shares of each Fund were sold to PPM at a net asset value of $10.00 per share (aggregate purchase amount of $100,000). As of June 30, 2018, PPM or affiliates under common ownership owned 100% of the outstanding shares of beneficial interest in each of the Funds.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The Funds are investment companies and follow accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies”. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).
Security Valuation. Under the Trust’s valuation policy and procedures, the Board of Trustees (“Board” or “Trustees”) has delegated the daily operational oversight of the securities valuation function to the JNAM Valuation Committee (“Valuation Committee”), which consists of certain officers of the Trust and certain members of JNAM management. The Valuation Committee is responsible for determining fair valuations for any security for which market quotations are not readily available. For those securities fair valued under procedures adopted by the Board, the Valuation Committee reviews and affirms the reasonableness of the fair valuation determinations after considering all relevant information that is reasonably available. The Valuation Committee’s fair valuation determinations are subject to review by the Board at its next regularly scheduled meeting covering the calendar quarter in which the fair valuation was determined. For fair valuation determinations that are deemed significant, the Board is promptly notified of the fair valuation.
The net asset value (“NAV”) of a Fund’s shares is generally determined once each day on which the New York Stock Exchange (“NYSE”) is open, at the close of the regular trading session of the NYSE (generally, 4:00 PM Eastern Time). Stocks traded on an exchange are generally valued at the official closing price of the exchange where the security is principally traded. If there is no official closing price for the security, the security may be valued at the last quoted sale price on the exchange where the security is principally traded or final bid price in the absence of a sale. Stocks not listed on a national or foreign stock exchange may be valued at the closing bid price on the over the counter (“OTC”) market. Investments in mutual funds are valued at the NAV per share determined as of the close of the NYSE on each valuation date. Short-term securities maturing within sixty (60) days are valued at amortized cost, unless it is determined that such practice does not approximate market value. Debt securities are generally valued by independent pricing services approved by the Board. If pricing services are unable to provide valuations, debt securities are valued at the most recent bid quotation for a long position and ask quotation for a short position or an evaluated price, as applicable, obtained from the Adviser, a broker/dealer, a widely used quotation system or other approved third party sources. Term loans are generally valued at the composite bid prices provided by approved pricing services. Futures contracts traded on an exchange are generally valued at the exchange’s settlement price. If the settlement price is not available, exchange traded futures are valued at the last sales price as of the close of business on the primary exchange. If the last trade is determined to not be representative of fair value, exchange traded options are valued at the current day’s mid-price. Forward foreign currency contracts are generally valued at the foreign currency exchange rate as of the close of the NYSE. Pricing services utilized to value debt and derivative instruments may use various pricing techniques which take into account appropriate factors such as: yield; credit quality; coupon rate; maturity; type of issue; trading characteristics; call features; credit ratings; broker quotes; and other relevant data.
Market quotations may not be readily available for certain investments or it may be determined that a quotation of an investment does not represent market value. In such instances, the investment is valued as determined in good faith using procedures approved by the Board. Situations that may require an investment to be fair valued may include instances where a security is thinly traded, halted or restricted as to resale. In addition, investments may be fair valued based on the occurrence of a significant event. Significant events may be specific to a particular issuer, such as mergers, restructurings or defaults. Alternatively, significant events may affect an entire market, such as natural disasters, government actions, and significant changes in the value of U.S. securities markets. Securities are fair valued based on observable and unobservable inputs, including the Administrator’s or Valuation Committee’s own assumptions in determining the fair value of an investment. Under the procedures approved by the Board, the Administrator may utilize pricing services or other sources, determining the fair value of an investment. Factors considered to determine fair value may include the correlation with price movement of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer and trading or other market data.
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If an investment is valued at a fair value for purposes of calculating a Fund’s NAV, the value may be different from the last quoted price for the investment depending on the source and method used to determine the value. In general, the fair value of the investment is the amount the owner of such investment might reasonably expect to receive in an orderly transaction between market participants upon its current sale. There can be no assurance, however, that a fair value determination made by the Valuation Committee in accordance with the Funds’ valuation procedures will accurately reflect an investment’s value upon its current sale.
Distributions to Shareholders. Dividends from net investment income are declared daily and paid monthly for PPM Floating Rate Income Fund. PPM Large Cap Value Fund, PPM Mid Cap Value Fund and PPM Small Cap Value Fund declare and pay dividends from net investment income, if any, annually. Distributions of net realized capital gains, if any, are declared and distributed at least annually for all the Funds only to the extent they exceeded available capital loss carryovers. The amount and timing of distributions are determined in accordance with federal income tax regulations which may differ from GAAP.
Other Service Providers. State Street Bank and Trust Company (“State Street” or “Custodian”) acts as custodian and securities lending agent for the Funds. The custodian has custody of all securities and cash of the Trust maintained in the United States and attends to the collection of principal and income and payment for and collection of proceeds of securities bought and sold by the Trust.
The Trust has entered into a Transfer Agency Agreement and Shareholder Services Agreement with UMB Fund Services, Inc. UMB Fund Services, Inc. will be the transfer agent and dividend disbursing agent of all shares.
Security Transactions and Investment Income. Security transactions are recorded on the trade date for financial reporting purposes. Dividend income, net of applicable withholding taxes, is recorded on the ex-dividend date. Corporate actions involving foreign securities, including dividends, are recorded when the information becomes available. Income received in lieu of dividends for securities loaned is included in dividends in the Statements of Operations. Interest income, including level-yield amortization of discounts and premiums on debt securities and convertible bonds, is accrued daily. A Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured. Realized gains and losses are determined on the specific identification basis.
Expenses. Expenses are recorded on an accrual basis. Expenses of the Trust that are directly attributable to a specific Fund are charged to that Fund. Other Trust level expenses are allocated to the Funds based on the average daily net assets of each Fund.
Foreign Taxes. The Funds may be subject to foreign taxes on income, gains on investments or foreign currency purchases and repatriation, a portion of which may be recoverable. The Funds will accrue such taxes and recoveries as applicable, based upon the current interpretations of tax rules and regulations that exist in the markets in which the Funds invest. When a capital gains tax is determined to apply, a Fund will record an estimated tax liability in an amount that may be payable if the securities were disposed of on the valuation date. The estimated liability is recorded as deferred foreign capital gains tax liability in the Statements of Assets and Liabilities. Foreign capital gains tax paid and the current year’s change in deferred foreign capital gains tax liability are recorded in net realized gain (loss) on investments - unaffiliated and net change in unrealized appreciation (depreciation) on investments—unaffiliated, respectively, in the Statements of Operations.
Guarantees and Indemnifications. Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, certain of the Funds’ contracts with service providers contain general indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Funds cannot be determined and the Funds have no historical basis for predicting the likelihood of any such claims.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
NOTE 3. FASB ASC TOPIC 820, “FAIR VALUE MEASUREMENT”
This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. Various inputs are used in determining the value of a Fund’s investments under FASB ASC Topic 820 guidance. The inputs are summarized into three broad categories:
Level 1 includes valuations based on quoted prices of identical securities in active markets, including valuations for securities listed on a national or foreign stock exchange or investments in mutual funds.
Level 2 includes valuations determined from significant direct or indirect observable inputs. Direct observable inputs include broker quotes, third party prices, closing prices of similar securities in active markets, closing prices for identical or similar securities in non-active markets or corporate action or reorganization entitlement values. Indirect significant observable inputs include factors such as interest rates, yield curves, prepayment speeds or credit ratings. Level 2 includes valuations for fixed income securities, including certain term loans, OTC derivatives, centrally cleared swap agreements, broker quotes in active markets, securities subject to corporate actions, securities valued at amortized cost, swap agreements valued by pricing services, ADRs and GDRs for which quoted prices in active markets are not available or securities limited by foreign ownership.
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Level 3 includes valuations determined from significant unobservable inputs including the Administrator’s own assumptions in determining the fair value of the investment. Inputs used to determine the fair value of Level 3 securities include security specific inputs such as: credit quality, credit rating spreads, issuer news, trading characteristics, call features, maturity or anticipated cash flows; or industry specific inputs such as: trading activity of similar markets or securities, changes in the security’s underlying index or changes in comparable securities’ models. Level 3 valuations include securities; term loans that do not meet certain liquidity thresholds; securities where prices may be unavailable due to halted trading, restricted to resale due to market events, or newly issued; private placements; or investments for which reliable quotes are otherwise not available.
To assess the continuing appropriateness of security valuation, the Administrator regularly compares prior day prices with current day prices, transaction prices and alternative vendor prices. When the comparison results exceed pre-defined thresholds, the Administrator challenges the prices exceeding tolerance levels with the pricing service or broker. To verify Level 3 unobservable inputs, the Administrator uses a variety of techniques as appropriate to substantiate these valuation approaches including a regular review of key inputs and assumptions, transaction back-testing or disposition analysis and review of related market activity.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes each Fund’s investments in securities and other financial instruments as of June 30, 2018, by valuation level.
| Level 1 ($) | Level 2 ($) | Level 3 ($) | Other ($) | Total ($) | ||||||||||||||||
| PPM Floating Rate Income Fund |
| |||||||||||||||||||
| Assets - Securities |
||||||||||||||||||||
| Corporate Bonds And Notes |
— | 1,450,576 | — | — | 1,450,576 | |||||||||||||||
| Loan Interests |
— | 37,451,845 | 370,409 | — | 37,822,254 | |||||||||||||||
| Short Term Investments |
5,416,552 | — | — | — | 5,416,552 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 5,416,552 | 38,902,421 | 370,409 | — | 44,689,382 | ||||||||||||||||
| Liabilities - Securities |
| |||||||||||||||||||
| Loan Interests2 |
— | (424 | ) | (53 | ) | — | (477 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| — | (424 | ) | (53 | ) | — | (477 | ) | |||||||||||||
| Assets - Investments in Other Financial Instruments1 |
||||||||||||||||||||
| Futures Contracts |
929 | — | — | — | 929 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 929 | — | — | — | 929 | ||||||||||||||||
| Liabilities - Investments in Other Financial Instruments1 |
||||||||||||||||||||
| Futures Contracts |
(1,688 | ) | — | — | — | (1,688 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| (1,688 | ) | — | — | — | (1,688 | ) | ||||||||||||||
| PPM Large Cap Value Fund |
| |||||||||||||||||||
| Assets - Securities |
||||||||||||||||||||
| Common Stocks |
6,463,415 | — | — | — | 6,463,415 | |||||||||||||||
| Short Term Investments |
210,709 | — | — | — | 210,709 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 6,674,124 | — | — | — | 6,674,124 | ||||||||||||||||
| PPM Mid Cap Value Fund |
| |||||||||||||||||||
| Assets - Securities |
||||||||||||||||||||
| Common Stocks |
5,545,197 | — | — | — | 5,545,197 | |||||||||||||||
| Short Term Investments |
194,433 | — | — | — | 194,433 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 5,739,630 | — | — | — | 5,739,630 | ||||||||||||||||
| PPM Small Cap Value Fund |
| |||||||||||||||||||
| Assets - Securities |
||||||||||||||||||||
| Common Stocks |
5,669,655 | — | — | — | 5,669,655 | |||||||||||||||
| Short Term Investments |
12,348 | — | — | — | 12,348 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 5,682,003 | — | — | — | 5,682,003 | ||||||||||||||||
| 1 | Derivatives are reflected at the unrealized appreciation (depreciation) on the instrument. |
| 2 | Unfunded commitments in PPM Floating Rate Income Fund are not reflected in the Schedules of Investments. Net unrealized appreciation (depreciation) is reflected as an asset or liability in the table. See Unfunded Commitments in the Schedules of Investments. |
Significant changes in unobservable valuation inputs to a different amount might result in a significantly higher or lower fair value measurement than the one used in a security’s valuation. The Funds recognize transfers between levels as of the beginning of the period for financial reporting purposes. There were no significant transfers into or out of Level 1, 2 or 3 for the year. There were no significant Level 3 valuations for which unobservable valuation inputs were developed at June 30, 2018.
NOTE 4. SECURITIES AND OTHER INVESTMENTS
Securities Lending and Securities Lending Collateral. All Funds are approved to participate in agency based securities lending with the Funds’ custodian. State Street serves as custodian and securities lending agent to the Funds. Per the securities lending agreements, State Street is authorized to loan securities on behalf of the Funds to approved borrowers and is required to maintain collateral. Each Fund receives either cash or non-cash collateral against the loaned securities in an amount equal to at least 100% of the market value of the loaned securities. Generally, cash and non-cash collateral received for the following types of securities on loan are as follows: U.S. equities – 102%; U.S. corporate fixed income – 102%; U.S. government fixed income – 102%; international equities – 105%; international corporate fixed income – 105%; sovereign fixed income – 102%; and asset backed investments – 102%. Collateral requirements are evaluated at the close of each business day; any additional collateral required is generally delivered to the Fund on the next business day. The duration of each loan is determined by the agent and borrower and generally may be terminated at any time. Certain loans may be negotiated to mature on a specified date. State Street has agreed to indemnify the Funds in the event of default by a third party borrower. A Fund may experience a delay in the recovery of its securities or incur a loss if the borrower breaches its agreement with the Fund or becomes
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insolvent. For cash collateral, the Fund receives income from the investment of cash collateral, in addition to lending fees and rebates negotiated with the borrower. The Funds bear the market risk with respect to the collateral investment and securities loaned. The Funds also bear the risk that State Street may default on its obligations to the Funds. Non-cash collateral may include U.S. government securities; U.S. government agencies’ debt securities; and U.S. government-sponsored agencies’ debt securities and mortgage-backed securities. Certain Funds receive non-cash collateral in the form of securities received, which the Funds may not sell or re-pledge and accordingly are not reflected in the Statements of Assets and Liabilities. For non-cash collateral, the Funds receive lending fees negotiated with the borrower. State Street has agreed to indemnify the Fund with respect to the market risk related to the non-cash collateral investments.
The cash collateral is invested in the State Street Navigator Securities Lending Government Money Market Portfolio, a money market fund and a series of State Street Navigator Securities Lending Trust which is an open-end management company registered under the 1940 Act. The Funds also bear the risk of any deficiency in the amount of collateral available for return to a borrower due to a decline in value of the State Street Navigator Securities Lending Government Money Market Portfolio.
Cash collateral received from the borrower is recorded in the Statements of Assets and Liabilities as payable for return of securities loaned. Investments acquired with such cash collateral are reported as Investments - unaffiliated, at value on the Statements of Assets and Liabilities. The value of securities on loan is disclosed as Securities on loan included in investments - unaffiliated, at value on the Statements of Assets and Liabilities. Each Fund’s net exposure to a borrower is determined by the amount of any excess or shortfall in cash collateral received compared to the value of securities on loan.
U.S. Government Agencies or Government Sponsored Enterprises. Certain Funds may invest in U.S. government agencies or government sponsored enterprises. U.S. Government securities are obligations of, and in certain cases, guaranteed by, the U.S. government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds, and securities guaranteed by the Government National Mortgage Association, are supported by the full faith and credit of the U.S. government; others, such as those of the Federal Home Loan Bank, are supported by the right of the issuer to borrow from the U.S. Department of the Treasury (“U.S. Treasury”); others, such as those of the Federal National Mortgage Association (“FNMA” or “Fannie Mae”), are supported by the discretionary authority of the U.S. government to purchase the agency’s obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. U.S. Government securities may include zero coupon securities, which do not distribute interest on a current basis and tend to be subject to greater risk than interest paying securities of similar maturities.
Government-related guarantors (i.e., guarantors that are not backed by the full faith and credit of the U.S. government) include FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers, which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. government. FHLMC issues Participation Certificates (“PCs”), which are pass-through securities, each representing an undivided interest in a pool of residential mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. government.
FNMA and FHMLC were placed into conservatorship by the Federal Housing Finance Agency (“FHFA”). As the conservator, FHFA succeeded to all rights, titles, powers and privileges of FNMA and FHLMC and of any stockholder, officer or director of FNMA and FHLMC with respect to FNMA and FHLMC and each enterprise’s assets. In connection with the conservatorship, the U.S. Treasury entered into a Senior Preferred Stock Purchase Agreement with FNMA and FHLMC. This agreement contains various covenants that severely limit each enterprise’s operations. In exchange for entering into these agreements, the U.S. Treasury received senior preferred stock in each enterprise and warrants to purchase each enterprise’s common stock. The U.S. Treasury created a new secured lending facility, which is available to FNMA and FHLMC as a liquidity backstop and created a temporary program to purchase mortgage-backed securities issued by FNMA and FHLMC. FNMA and FHLMC are continuing to operate as going concerns while in conservatorship and each remains liable for all of its obligations, including its guaranty obligations, associated with its mortgage-backed securities.
Unregistered Securities. A Fund may own certain investment securities that are unregistered and thus restricted as to resale. These securities may also be referred to as “private placements”. Unregistered securities may be “illiquid” because there is no readily available market for sale of the securities. Where future dispositions of the securities require registration under the 1933 Act, the Funds have the right to include those securities in such registration generally without cost to the Funds. The Funds have no right to require registration of unregistered securities.
Senior and Junior Loans. Certain Funds may invest in Senior loans or secured and unsecured subordinated loans, second lien loans and subordinated bridge loans (“Junior loans”) which are purchased or sold on a when-issued or delayed-delivery basis and may be settled a month or more after the trade date. Interest income on these loans is accrued based on the terms of the securities. Senior and Junior loans can be acquired through an agent, by assignment from another holder of the loan, or as a participation interest in another holder’s portion of the loan.
Unfunded Commitments. Certain Funds may enter into certain credit agreements, all or a portion of which may be unfunded. The Fund is obligated to fund these loan commitments at the borrowers’ discretion. Unfunded loan commitments and funded portions of credit agreements are marked-to-market daily. Net unrealized appreciation/depreciation on unfunded commitments is reflected in other assets or payable for investment securities purchased in the Statements of Assets and Liabilities, as applicable, and unrealized appreciation (depreciation) on investments - unaffiliated in the Statements of Operations.
NOTE 5. INVESTMENT TRANSACTION AGREEMENTS AND COLLATERAL
Under various agreements, certain investment transactions require collateral to be pledged to or from a Fund and a counterparty or segregated at the custodian and the collateral is managed pursuant to the terms of the agreement. U.S. Treasury Bills and U.S. dollars are generally the preferred forms of collateral, although other forms of high quality or sovereign securities may be used. Securities held by a Fund that are used as collateral are identified as
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June 30, 2018
such within the Schedules of Investments. Collateral for OTC financial derivative transactions paid to or received from brokers and counterparties is included in receivable from deposits with brokers and counterparties or payable for deposits from counterparties in the Statements of Assets and Liabilities, as applicable.
Counterparty Agreements. Certain Funds enter into to various types of agreements with counterparties, which govern the terms of certain transactions and mitigate the counterparty risk associated with relevant transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. A Fund may net exposure and collateralize multiple transaction types governed by the same agreement with the same counterparty and may close out and net its total exposure to a counterparty in the event of a default and/or termination event with respect to all the transactions governed under a single agreement with a counterparty. Each agreement defines whether the Fund is contractually able to net settle daily payments. Additionally, certain circumstances, such as laws of a particular jurisdiction or settlement of amounts due in different currencies, may prohibit or restrict the right of offset as defined in the agreements.
These agreements also help limit credit and counterparty risk by specifying collateral posting arrangements at pre-arranged exposure levels. Under the agreements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral) governed under the relevant agreement with a counterparty in a given account exceeds a specified threshold depending on the counterparty and the type of agreement. A Fund’s overall exposure to counterparty risk can change substantially within a short period, as it is affected by each transaction subject to the relevant agreement. To the extent amounts due to a Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance. The Funds’ Adviser attempts to limit counterparty risk by only entering into agreements with counterparties that the Adviser believes to have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. For swap agreements executed with a Derivatives Clearing Organization (“DCO”) in a multilateral or other trade facility platform (“centrally cleared swaps”), counterparty risk is reduced by shifting exposure from the counterparty to the DCO. Additionally, the DCO has broad powers to provide an orderly liquidation in the event of a default.
International Swaps and Derivatives Association Inc. Master Agreements and Credit Support Annexes (“ISDA Master Agreements”). ISDA Master Agreements govern OTC financial derivative transactions entered into by a Fund’s Adviser and select counterparties. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, events of default, termination and maintenance of collateral. Termination includes conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election of early termination could be material to the financial statements. In the event of default, the total financial derivative value exposure will be offset against collateral exchanged to date, which would result in a net receivable/(payable) that would be due from/to the counterparty. The amount of collateral exchanged is based on provisions within the ISDA Master Agreements and is determined by the net exposure with the counterparty and is not identified for a specific OTC derivative instrument.
Customer Account Agreements. Customer Account Agreements and related addendums govern exchange traded or centrally cleared derivative transactions such as futures, options on futures and centrally cleared derivatives. If a Fund transacts in exchange traded or centrally cleared derivatives, the Adviser is a party to agreements with (1) a Futures Commissions Merchant (“FCM”) in which the FCM facilitates the execution of the exchange traded and centrally cleared derivative with the DCO and (2) with an executing broker/swap dealer to agree to the terms of the swap and resolution process in the event the centrally cleared swap is not accepted for clearing by the designated DCO. Exchange traded and centrally cleared derivatives transactions require posting an amount of cash or cash equivalents equal to a certain percentage of the contract amount known as the “initial margin” as determined by each relevant clearing agency and is segregated at an FCM which is registered with the Commodity Futures Trading Commission (“CFTC”) or the applicable regulator. The Fund receives from, or pays to, the counterparty an amount of cash equal to the daily fluctuation in the value of the contracts. Such receipts or payments are known as the “variation margin”. For certain exchanges or DCOs, variation margin may include more than one day’s fluctuation in the value of the contracts. Variation margin on the Statements of Assets and Liabilities may include variation margin on closed unsettled derivative transactions. Variation margin received may not be netted between exchange traded and centrally cleared derivatives. In the event of default, counterparty risk is significantly reduced as creditors to the FCM do not have claim to the Fund’s assets in the segregated account. Additionally, portability of exposure in the event of default further reduces risk.
Prime Brokerage Arrangements and Other Securities Borrowing Agreements. Certain Funds may enter into Prime Brokerage Arrangements or Securities Borrowing Agreements to facilitate execution and/or clearing of listed equity option transactions or short sales of securities between the Fund and select counterparties. The arrangements provide general guidelines surrounding the rights, obligations and other events, including but not limited to, margin, execution and settlement. These arrangements maintain provisions for, among other things, payments, maintenance of collateral, events of default, and termination. Cash margin and securities delivered as collateral are typically in the possession of the prime broker or lending agent and offset any obligations due to the prime broker or lending agent. Cash collateral held at the prime broker is reflected in Cash collateral segregated for short sales in the Statements of Assets and Liabilities. In the event of default, the value of securities sold short will be offset against collateral exchanged to date, which would result in a net receivable/(payable) that would be due from/to the counterparty.
NOTE 6. FINANCIAL DERIVATIVE INSTRUMENTS
FASB ASC Topic 815, “Derivatives and Hedging”. This standard requires for enhanced qualitative disclosure about objectives and strategies for using derivative instruments and disclosures regarding credit related contingent features in derivative instruments, as well as quantitative disclosures in the semi-annual and annual financial statements about fair value, gains and losses, and volume of activity for derivative instruments. Information about these instruments is disclosed in the context of each instrument’s primary underlying risk exposure may be categorized as credit, equity price, interest rate and foreign currency exchange rate risk. The objectives, strategies and underlying risks for futures held by PPM Floating Rate Income Fund are discussed in the following paragraphs.
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Futures Contracts. PPM Floating Rate Income Fund entered into futures contracts to hedge changes in interest rates. A futures contract is a standardized contract obligating two parties to exchange a specified asset at an agreed upon price and date. Variation margin is recorded by the Fund until the contracts are terminated at which time realized gains and losses are recognized. Futures contracts involve to varying degrees, risk of loss in excess of the variation margin recorded by the Fund. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in value of the securities held by the Fund or the change in the value of an underlying entity and the prices of the futures contracts and the possibility the Fund may not be able to enter into a closing transaction because of an illiquid market. With futures, counterparty risk to the Fund is reduced because futures contracts are exchange traded and the exchange’s clearinghouse, acting as counterparty to all exchange traded futures, guarantees the futures contracts against default.
At June 30, 2018, variation margin related to futures contracts is reflected as variation margin on futures contracts in the Statement of Assets and Liabilities. None of the futures contracts held by the Fund are subject to master netting agreements or a similar agreement and are not eligible for offset in the Statement of Assets and Liabilities as of June 30, 2018. During the period ended June 30, 2018, realized gain, loss and change in unrealized appreciation (depreciation) on futures contracts is reflected for such investments in the Statement of Operations. A Fund’s net exposure for futures contracts is the variation margin on futures contracts in addition to any collateral pledged for the initial margin on the futures contracts. At June 30, 2018, the Fund had $4,961 cash pledged as collateral for futures contracts. The futures contracts outstanding as of June 30, 2018, as disclosed in the Schedule of Investments and the amounts of realized and changes in unrealized gains and losses on futures contracts during the period as disclosed in the Statement of Operations serve as indicators of the volume of activity for the Fund. For the period ended June 30, 2018, the average outstanding notional amount of futures at each month end was $635,570.
NOTE 7. INVESTMENT RISKS AND REGULATORY MATTERS
Market and Volatility Risk. In the normal course of business, the Funds trade financial instruments and enter into financial transactions where the risk of potential loss exists due to changes in the market (“market risk”). Additionally, prices of financial instruments may fluctuate over short periods or extended periods of time in response to company, market, economic or political news (“volatility risk”). Equity securities generally have more price volatility than fixed-income securities, and long term fixed-income securities normally have more price volatility than short term fixed-income securities. Certain Funds may invest in derivatives to hedge a Fund’s portfolio as well as for investment purposes which may increase volatility. Volatility may cause a Fund’s net asset value per share to experience significant appreciation or depreciation in value over short periods of time.
Sector Risk. Companies with similar characteristics may be grouped together in broad categories called sectors. Sector risk is the risk that securities of companies within specific sectors of the economy can perform differently than the overall market. For example, this may be due to changes in the regulatory or competitive environment or to changes in investor perceptions regarding a sector. Because a Fund may allocate relatively more assets to certain sectors than others, a Fund’s performance may be more susceptible to any developments which affect those sectors emphasized by a Fund.
Concentration Risk. To the extent that the Funds focus on particular countries, regions, industries, sectors, issuers, types of investment or a limited number of securities from time to time, a Fund may be subject to greater risks of adverse economic, business or political developments in such areas of focus than a Fund that invests in a wider variety of countries, regions, industries, sectors or investments.
Interest Rate Risk. When interest rates increase, fixed-income securities generally will decline in value. A wide variety of factors can cause interest rates to rise such as central bank monetary policies, inflation rates and general economic conditions. Fixed-income securities with longer durations tend to be more sensitive to changes in interest rates than those with shorter durations.
Prepayment Risk. During periods of falling interest rates, there is the risk that a debt security with a high stated interest rate will be prepaid before its expected maturity date and that a Fund may have to reinvest the proceeds in an investment that may have a lower interest rate. In addition, prepayment rates are difficult to predict and the potential impact of prepayment on the price of a debt instrument depends on the terms of the instrument.
Credit and Counterparty Risk. In the normal course of business, the Funds trade financial instruments and enter into financial transactions where the risk of potential loss exists due to failure of the other party to a transaction to perform (“credit risk”). Bonds and other debt securities are subject to credit risk, which is the possibility that the credit strength of an issuer will weaken and/or an issuer of a debt security will fail to make timely payments of principal or interest and the security will go into default. Similar to credit risk, the Funds may be exposed to counterparty risk, or the risk that an institution or other entity with which the Funds have unsettled or open transactions will default. Financial assets, which potentially expose the Funds to credit risk, consist principally of investments and cash due from counterparties (“counterparty risk”). The extent of the Funds’ exposure to credit and counterparty risks in respect to these financial assets is incorporated within their carrying value as recorded in the Funds’ Statements of Assets and Liabilities. For certain derivative contracts, the potential loss could exceed the value of the financial assets recorded in the financial statements.
Senior and Junior Loan Risk. When a Fund invests in a loan or participation, the Fund is subject to the risk that an intermediate participant between the Fund and the borrower will fail to meet its obligations to the Fund, in addition to the risk that the borrower under the loan may default on its obligations. Senior and Junior loans typically have below investment grade credit ratings, which ratings are associated with securities having higher risk and speculative characteristics. The Fund is also subject to the risk that the agent bank administering the loan may fail to meet its obligations.
Cybersecurity Risk. Cyber-attacks could disrupt daily operations related to trading and portfolio management. In addition, technology disruptions and cyber-attacks may impact the operations or securities prices of an issuer or a group of issuers, and thus may have an adverse impact on the value of a Fund’s investments. Cyber-attacks on a Fund’s Adviser and service providers could cause business failures or delays in daily processing and a Fund may not be able to issue a NAV per share. As a result, cyber-attacks could impact the performance of a Fund.
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PPMFunds
Notes to Financial Statements (Unaudited)
June 30, 2018
NOTE 8. INVESTMENT ADVISORY FEES AND TRANSACTIONS WITH AFFILIATES
Advisory and Administrative Fees. The Trust has entered into an Investment Advisory and Management Agreement (the “Investment Advisory Agreement”) with PPM. Subject to the oversight of the Board, PPM is responsible for managing the affairs of the Trust including, but not limited to, continuously providing the Trust with investment advice and business management to the Funds either directly or through others. The Investment Advisory Agreement was effective upon the Funds’ commencement of operations. Pursuant to the Investment Advisory Agreement, PPM receives an annual fee accrued daily and payable monthly, at an annual rate of 0.55% of the average daily net assets of PPM Floating Rate Income Fund, 0.60% of the average daily net assets of PPM Large Cap Value Fund, 0.70% of the average daily net assets of PPM Mid Cap Value Fund and 0.80% of the average daily net assets of PPM Small Cap Value Fund.
The Trust has entered into an Administration Agreement with JNAM. Pursuant to the Administration Agreement, JNAM receives an annual fee accrued daily and payable monthly, at an annual rate of 0.10% of the average daily net assets of each Fund. JNAM will provide or procure all necessary administrative functions and services for the operation of the Funds. This includes, among other things, fund accounting; calculation of the daily NAV of each Fund; monitoring the Funds’ operations; calculating monthly total return; compliance monitoring and preparing financial statements and regulatory filings of the Trust. In addition, JNAM, at its own expense, arranges for legal, audit, custody (except overdraft and interest expense), printing and mailing of financial statements and prospectuses, a portion of the Chief Compliance Officer costs, and other services necessary for the operation of the Funds. Each Fund is responsible for payment for investment advisory services; transfer agency services; trading expenses including brokerage commissions; interest expenses; taxes; costs and expenses associated with short sales; nonrecurring and extraordinary expenses; registration fees; license fees; trustees’ and officers’ insurance; the fees and expenses of the independent Trustees; independent legal counsel to the independent Trustees; and a portion of the costs associated with the Chief Compliance Officer.
Advisory Fee Waivers. The Trust and the Adviser have entered into an Expense Limitation Agreement whereby PPM has contractually agreed to waive a portion of its management fee and/or reimburse other expenses for each of the Funds to the extent necessary to limit the annualized operating expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, dividend and interest expenses related to short sales, indirect expenses of investing in other investment companies, and extraordinary expenses) to 0.70% for PPM Floating Rate Income Fund, 0.75% for PPM Large Cap Value Fund, 0.90% for PPM Mid Cap Value Fund and 1.00% for PPM Small Cap Value Fund for an initial term expiring on April 30, 2019. Any waived amounts are not subject to future recoupment by the Adviser.
Security Transactions. Security transactions may occur in the Funds where both the buyer and seller of the security are Funds for which PPM serves as the Adviser. Such transactions occur to eliminate transaction costs normally associated with security trading activity. Such transactions are subject to compliance with Rule 17a-7 under the 1940 Act (“Rule 17a-7 transactions”) and are reviewed by the Board. Rule 17a-7 transactions are executed at current market price. There were no 17a-7 transactions that were deemed significant by the Administrator during the period ended June 30, 2018.
NOTE 11. INCOME TAX MATTERS
Each Fund is treated as a separate tax payer for federal income tax purposes. Each Fund intends to qualify as a regulated investment company (“RIC”) and to distribute substantially all net investment income and net capital gains, if any, to its shareholders and otherwise comply with Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to RICs. Therefore, no federal income tax provision is required.
The following information for the Funds is presented on an income tax basis. Differences between amounts for financial statements and federal income tax purposes are primarily due to timing and character differences in recognizing certain gains and losses on investment transactions. Permanent differences between financial statement and federal income tax reporting are reclassified within the capital accounts based on their federal income tax treatment. Temporary differences do not require reclassification. Permanent differences may include but are not limited to the following: expired capital loss carryforwards, foreign currency reclassifications, premium amortization or paydown reclassifications, reclassifications on the sale of passive foreign investment company (“PFIC”), net operating losses, accounting treatment of notional principal contracts and partnerships, equalization and other distribution adjustments. These reclassifications have no impact on net assets.
As of June 30, 2018, the cost of investments and the components of net unrealized appreciation (depreciation) for the Funds were as follows:
| Tax Cost of Investments($) |
Gross Unrealized Appreciation($) |
Gross Unrealized Depreciation($) |
Net Unrealized Appreciation (Depreciation)($) |
|||||||||||||
| PPM Floating Rate Income Fund |
45,093,859 | 7,852 | (403,374 | ) | (395,522 | ) | ||||||||||
| PPM Large Cap Value Fund |
6,682,177 | 198,233 | (206,286 | ) | (8,053 | ) | ||||||||||
| PPM Mid Cap Value Fund |
5,698,980 | 201,833 | (161,183 | ) | 40,650 | |||||||||||
| PPM Small Cap Value Fund |
5,530,850 | 271,264 | (120,111 | ) | 151,153 | |||||||||||
As of June 30, 2018, the components of net unrealized appreciation (depreciation) for derivatives were as follows:
| Tax Cost/ Adjustment($) |
Gross Unrealized Appreciation($) |
Gross Unrealized Depreciation($) |
Net Unrealized Appreciation (Depreciation)($) |
|||||||||||||
| PPM Floating Rate Income Fund |
||||||||||||||||
| Futures Contracts |
(1 | ) | — | — | — | |||||||||||
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PPMFunds
Notes to Financial Statements (Unaudited)
June 30, 2018
FASB ASC Topic 740 “Income Taxes” provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FASB ASC Topic 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing each Fund’s tax return 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 result in the Funds recording a tax expense in the current year. FASB ASC Topic 740 requires that management evaluate the tax positions taken in returns which remain subject to examination by the Internal Revenue Service and certain other jurisdictions. Management completed an evaluation of the Funds’ tax positions and based on that evaluation, determined that no provision for federal income tax was required in the Funds’ financial statements for the period ended June 30, 2018.
NOTE 12. SUBSEQUENT EVENTS
Management has evaluated subsequent events for the Funds through the date the financial statements were issued and the following events occurred:
Mergers. The following merger was effective prior to the open of business on July 2, 2018.
| Acquired Fund |
Acquiring Fund | |
| JNL/PPM America Strategic Income Fund (a series of the JNL Strategic Income Fund LLC) |
PPM Strategic Income Fund |
New Funds. PPM Strategic Income Fund commenced operations before the open of business on July 2, 2018. Also, PPM Core Plus Fixed Income Fund, PPM Credit Fund, PPM High Yield Core Fund and PPM Long Short Credit Fund commenced operations on July 16, 2018.
No other events were noted that required adjustments to the financial statements or disclosure in the notes to financial statements.
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PPMFunds
Additional Disclosures (Unaudited)
June 30, 2018
Disclosure of Fund Expenses. Shareholders incur ongoing costs, which include costs for portfolio management, administrative services and other operating expenses. Operating expenses such as these are deducted from each Fund’s gross income and directly reduce the final investment return. These expenses are expressed as a percentage of the Fund’s average net assets; this percentage is known as the Fund’s expense ratio. The examples below use the expense ratio and are intended to help the investor understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
Expenses Using Actual Fund Return. This section provides information about the actual account values and actual expenses incurred by the Fund. Use the information in this section, together with the amount invested, to estimate the expenses paid over the period. Simply divide the account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses paid during this period.
Expenses Using Hypothetical 5% Return. This section provides information that can be used to compare each Fund’s costs with those of other mutual funds. It assumes that the Fund’s expense ratio for the period is unchanged and assumes an annual 5% return before expenses, which is not the Fund’s actual return. This example is useful in making comparisons because the SEC requires all mutual funds to make the 5% calculation.
| Expenses Using Actual Fund Return | Expenses Using Hypothetical 5% Return | |||||||||||||||||||||||||||
| Annualized Expense Ratios(%) |
Beginning Account Value 05/01/18($) |
Ending Account Value 06/30/18($) |
Expenses Paid During Period($)† |
Beginning Account Value 01/01/18($) |
Ending Account Value 06/30/18($) |
Expenses Paid During Period($)†† |
||||||||||||||||||||||
| PPM Floating Rate Income Fund Institutional Class* |
0.70 | 1,000.00 | 991.90 | 1.17 | 1,000.00 | 1,021.32 | 3.51 | |||||||||||||||||||||
| PPM Large Cap Value Fund Institutional Class * |
0.75 | 1,000.00 | 1,004.00 | 1.26 | 1,000.00 | 1,021.08 | 3.76 | |||||||||||||||||||||
| PPM Mid Cap Value Fund Institutional Class * |
0.90 | 1,000.00 | 1,013.00 | 1.51 | 1,000.00 | 1,020.33 | 4.51 | |||||||||||||||||||||
| PPM Small Cap Value Fund Institutional Class * |
1.00 | 1,000.00 | 1,033.00 | 1.70 | 1,000.00 | 1,019.84 | 5.01 | |||||||||||||||||||||
| † | As the Funds have an operating history of less than six months, expenses paid during the period are equal to the annualized net expenses ratio, multiplied by the average account value over the period since inception, then multiplied by 61/365 (to reflect the period since the Funds’ inception). |
| * | Institutional Class has an operating history of less than six months and the amounts reported in Expenses Using Actual Fund Return are not comparable to Expenses Using Hypothetical 5% Return. |
| †† | Expenses paid during the period are equal to the annualized net expense ratio, multiplied by the average account value over the period, then multiplied by 181/365 (to reflect the period since the Fund’s inception). |
Quarterly Portfolio Holdings. The Funds file 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’ Forms N-Q are available on the SEC’s website at www.sec.gov. The Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. It is also available upon request from the registrant by calling the Funds toll-free at 1-844-446-4PPM (1-844-446-4776).
Proxy Voting Policies and Procedures and Proxy Voting Record. A description of the Policy that the Funds’ Adviser used to vote proxies relating to portfolio securities and additional information on how the Funds voted any proxies relating to portfolio securities during the period ended June 30, 2018, are available (1) without charge, upon request by calling 1-844-446-4PPM (1-844-446-4776), (2) by writing PPM Funds, PPM Funds, P.O. Box 2175, Milwaukee, Wisconsin 53201-2175, (3) online at www.ppmamerica.com/ppmfunds, and (4) on the SEC’s website at www.sec.gov.
The Statement of Additional Information includes additional information about Fund Trustees and may be obtained at no charge by calling 1-844-446-4PPM (1-844-446-4776) or by writing PPM Funds, PPM Funds, P.O. Box 2175, Milwaukee, Wisconsin 53201-2175, or visiting www.ppmamerica.com/ppmfunds.
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CONSIDERATION AND APPROVAL OF THE ADVISORY AGREEMENT
PPM Funds
(the “Trust”)
The Board of Trustees of the Trust (“Board”) oversees the management of the Trust and its separate Funds and, as required by law, determines whether to approve the Trust’s advisory agreement (“Advisory Agreement”) with PPM America, Inc. (“PPM”).
At a meeting on February 15, 2018, the Board, including all of the independent trustees, who are not interested persons of the Funds (as defined in the Investment Company Act of 1940, as amended) (the “Independent Trustees”), considered information relating to the approval of the investment advisory agreement between the Trust and PPM (the “Advisory Agreement”).
In advance of the meeting, independent legal counsel for the Independent Trustees requested that certain information be provided to the Board relating to the Advisory Agreement. The Board received, and had the opportunity to review, this and other materials, ask questions and request further information in connection with its consideration of the Advisory Agreement. At the conclusion of the Board’s discussions, the Board approved the Advisory Agreement.
In reviewing the Advisory Agreement and considering the information, the Board was advised by independent legal counsel. The Board considered the factors it deemed relevant, as applicable, including: (1) the nature, quality and extent of the services to be provided; (2) the investment performance of the Funds (3) cost of services of the Funds; (4) profitability data; (5) whether economies of scale may be realized and shared, in some measure, with investors as the Funds grow; and (6) other benefits that may accrue to PPM through its relationship with the Trust. In its deliberations, the Board, in exercising its business judgment did not identify any single factor that alone was responsible for the Board’s decision to approve the Advisory Agreement.
Before approving the Advisory Agreement, the Independent Trustees met in executive session with their independent legal counsel to consider the materials provided by PPM and to consider the terms of the Advisory Agreement. Based on its evaluation of those materials, the Board, including the interested and Independent Trustees, concluded that the Advisory Agreement is in the best interests of the shareholders of each Fund. In reaching its conclusions, the Board considered numerous factors, including those set forth below. The Board’s conclusions as to the approval of the Advisory Agreement were based on a comprehensive consideration of all information provided to the Board and were not the result of any single factor. Some of the factors that figured particularly in the Board’s deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, attributing different weights to various factors:
Nature, Quality and Extent of Services
The Board examined the nature, quality, and extent of the services to be provided by PPM.
The Board considered that the Adviser will furnish the Funds with investment advisory services, subject to the supervision of the Board, and in conformity with the stated policies of each applicable funds. The Board considered that PPM is a global, client-focused investment manager with over $100 billion in assets under management as of December 31, 2017. The Board also considered information provided by PPM regarding the firm’s track record and experience managing accounts and strategies similar to those for the Funds.
The Board also considered information about the Adviser’s personnel who will provide certain investment advisory oversight services to the Fund, and the Adviser’s organizational structure, financial condition, and regulatory history, and overall compliance culture. Based on the foregoing, the Board concluded for each Fund, as applicable, that (i) each Fund is likely to benefit from the nature, extent and quality of the services to be provided by PPM under the Advisory Agreement.
Investment Performance of the Fund
The Board considered that, while the Funds have not yet commenced operations, PPM manages other advisory accounts that have substantially similar investment objectives, policies and investment strategies as each Fund. Accordingly, the Board considered information provided by PPM regarding the composite performance of accounts managed by PPM with similar investment strategies to each Fund.
Costs of Services
The Board reviewed the projected advisory fees to be paid to PPM as well as the expected total expense ratios of the Funds (in each case, net of the expected impact of waivers). Using information provided by an independent data service, the Board evaluated the Fund’s projected advisory fees and total expense ratios compared to the median advisory fees and total expense ratios for other funds similar in size, character and investment strategy to each Fund (the “peer group”).
Further detail considered by the Board regarding the advisory fees of the Funds is set forth below:
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PPM Core Plus Fixed Income Fund. The Board considered that the Fund’s projected advisory fee (net of waivers) and total expense ratio (net of waivers) are below the applicable peer group medians. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM Credit Fund. The Board considered that the Fund’s projected advisory fee (net of waivers) and total expense ratio (net of waivers) are below the applicable peer group median. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM Long Short Credit Fund. The Board considered that the Fund’s projected advisory fee (net of waivers) and total expense ratio (net of waivers) are below the applicable peer group medians. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM Strategic Income Fund. The Board considered that the Fund’s projected advisory fee (net of waivers) is in line with the applicable peer group median, and its projected total expense ratio (net of waivers) is below the applicable peer group median. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM Floating Rate Income Fund. The Board considered that the Fund’s projected advisory fee (net of waivers) and total expense ratio (net of waivers) are below the applicable peer group medians. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM High Yield Core Fund. The Board considered that, while the Fund’s projected advisory fee (net of waivers) is above the applicable peer group median, its projected total expense ratio (net of waivers) is below the applicable peer group median. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM Large Cap Value Fund. The Board considered that, while the Fund’s projected advisory fee (net of waivers) is above the applicable peer group median, its projected total expense ratio (net of waivers) is in line with the applicable peer group median. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM Mid Cap Value Fund. The Board considered that the Fund’s projected advisory fee (net of waivers) and total expense ratio (net of waivers) are below the applicable peer group medians. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
PPM Small Cap Value Fund. The Board considered that, while the Fund’s projected advisory fee (net of waivers) is above the applicable peer group median, its projected total expense ratio (net of waivers) is in line with the applicable peer group median. The Board concluded that the advisory fees are in the best interests of the Fund and its potential shareholders in light of the services to be provided.
Economies of Scale
The Board considered whether each Fund’s advisory fee reflects the potential for economies of scale for the benefit of Fund shareholders. Based on information provided by PPM, the Board noted that, while PPM did not propose breakpoints in its advisory fee schedule for the Funds, the Board would continue to review the Adviser’s fees on an ongoing basis. The Board further noted that the Adviser had agreed to waive certain fees for each Fund, which would limit the expenses borne by shareholders as the Funds raised assets.
Profitability
While the Funds had not yet commenced operations, the Board considered information provided by PPM regarding its expected profitability for serving as Adviser to each of the Funds as compared to other funds and accounts managed by the Adviser.
Other Benefits to Affiliates of PPM
In evaluating the benefits that accrue to the Adviser, the Board noted that PPM and certain of its affiliates would serve in various capacities, including as adviser, administrator, and distributor for the Funds, and will receive compensation in connection with providing certain of these services. In particular, the Board considered that PPM proposed to engage Jackson National Asset Management, LLC (“JNAM”) to serve as Administrator to the Funds, and that JNAM proposes to charge administration fees at an annual rate of 0.10% of average daily net assets for the Funds. The Board noted that each service to be provided to the Funds by JNAM or one of its affiliates would be pursuant to a written agreement, which the Board would evaluate periodically as required by law.
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SUPPLEMENT DATED JULY 16, 2018 TO THE
PROSPECTUS DATED MARCH 26, 2018
For all prospective shareholders of the following funds:
| PPM Core Plus Fixed Income Fund |
PKPIX | |||
| PPM Credit Fund |
PKDIX | |||
| PPM Floating Rate Income Fund |
PKFIX | |||
| PPM High Yield Core Fund |
PKHIX | |||
| PPM Long Short Credit Fund |
PKLIX | |||
| PPM Strategic Income Fund |
PKSIX | |||
| PPM Large Cap Value Fund |
PZLIX | |||
| PPM Mid Cap Value Fund |
PZMIX | |||
| PPM Small Cap Value Fund |
PZSIX |
This supplement provides new and additional information that affects information contained in the Prospectus and should be read in conjunction with the Prospectus. This supplement supersedes the supplements to the Prospectus dated March 26, 2018, April 30, 2018, June 1, 2018, and July 2, 2018.
Shares of the funds are available for purchase by new investors on the following dates:
| Fund Name |
Effective Date | |||
| PPM Floating Rate Income Fund |
May 1, 2018 | |||
| PPM Large Cap Value Fund |
May 1, 2018 | |||
| PPM Mid Cap Value Fund |
May 1, 2018 | |||
| PPM Small Cap Value Fund |
May 1, 2018 | |||
| PPM Strategic Income Fund |
July 2, 2018 | |||
| PPM Core Plus Fixed Income Fund |
July 16, 2018 | |||
| PPM Credit Fund |
July 16, 2018 | |||
| PPM High Yield Core Fund |
July 16, 2018 | |||
| PPM Long Short Credit Fund |
July 16, 2018 | |||
In the section entitled “Fund Summaries” of the Prospectus, the Portfolio Managers table under “Portfolio Management”, is deleted and replaced in its entirety for the PPM Floating Rate Income Fund, PPM High Yield Core Fund, PPM Long Short Credit Fund and PPM Strategic Income Fund effective June 1, 2018, and effective July 16, 2018, for the PPM Core Plus Fixed Income Fund and PPM Credit Fund as set forth on the following pages.
Effective July 2, 2018, in the section entitled “Fund Summaries” of the Prospectus for the PPM Strategic Income Fund, the sections entitled “Expenses” and “Expense Example” are deleted and replaced in their entirety as set forth on the following pages.
Effective July 16, 2018, in the section entitled “Fund Summaries” of the Prospectus as it relates to each of the funds except PPM Strategic Income Fund, the sections entitled “Expenses” and “Expense Example” are deleted and replaced in their entirety as set forth on the following pages.
Effective July 16, 2018, in the section entitled “Fund Summaries” of the Prospectus for the PPM Floating Rate Income Fund, the third paragraph in the section entitled “Principal Investment Strategies” is deleted and replaced in its entirety with the following paragraph:
The Fund may also invest in secured and unsecured subordinated loans, second lien loans and subordinated bridge loans (“Junior Loans”), debtor-in-possession loans, mezzanine loans, fixed-income debt obligations, corporate bonds, and money market instruments. Junior Loans typically are of below investment grade quality and have below investment grade credit ratings, which rating are associated with securities having high risk and speculative characteristics. Money market holdings with a remaining maturity of less than 60 days will be deemed floating rate assets. While the Fund may invest in loans with no credit rating or without any credit rating restrictions, under normal circumstances PPM expects that the credit ratings of the Fund’s loan investments will primarily be at or above B3/B- as determined by Moody’s Investors Service, Inc. (“Moody’s”), S&P Global Ratings (“S&P”) or Fitch, Inc. (“Fitch”), or if unrated, determined by PPM to be of comparable quality.
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Effective July 16, 2018, as it relates to the PPM Core Plus Fixed Income Fund, under the “Fund Summaries” section of the Prospectus, the sections entitled “Expenses” and “Expense Example” on page 1 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE OF THE VALUE OF YOUR INVESTMENT)
| Institutional Shares | ||||
| Management Fee |
0.40 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.23 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
0.73 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.23 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.50 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.50% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 51 | $ | 210 | ||||
| Portfolio Managers |
Title |
Length of Service | ||
| Anthony Balestrieri | Chief Investment Officer, Total Return | Since inception | ||
| Michael Kennedy, CFA | Senior Managing Director | Since inception | ||
| Mark Redfearn, CFA | Senior Managing Director | Since inception | ||
| Matt Willey, CFA, CPA | Senior Managing Director | Since inception | ||
| Erica Lankfer, CPA (inactive) | Vice President | Since inception |
Effective July 16, 2018, as it relates to the PPM Credit Fund, under the “Fund Summaries” section of the Prospectus the sections entitled “Expenses” and “Expense Example” on page 5 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
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Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.45 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.23 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
0.78 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.23 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.55 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.55% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 56 | $ | 226 | ||||
| Portfolio Managers |
Title |
Length of Service | ||
| Anthony Balestrieri | Chief Investment Officer, Total Return | Since inception | ||
| Michael Kennedy, CFA | Senior Managing Director | Since inception | ||
| Mark Redfearn, CFA | Senior Managing Director | Since inception | ||
| Matt Willey, CFA, CPA | Senior Managing Director | Since inception | ||
| Erica Lankfer, CPA (inactive) | Vice President | Since inception |
Effective June 1, 2018, and July 16, 2018, respectively, as it relates to the PPM Floating Rate Income Fund, under the “Fund Summaries” section of the Prospectus, the Portfolio Managers table in the section entitled “Portfolio Management” on page 12 is deleted and replaced in its entirety, and the sections entitled “Expenses” and “Expense Example” on page 9 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Table of Contents
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.55 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.23 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
0.88 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.18 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.70 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.70% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 72 | $ | 263 | ||||
| Portfolio Managers |
Title |
Length of Service | ||
| Anthony Balestrieri | Chief Investment Officer, Total Return | Since inception | ||
| Adam Spielman | Senior Managing Director, Head of Leveraged Credit, Total Return | Since June 2018 | ||
| John Walding | Senior Managing Director, Head of Bank Loans | Since inception | ||
| Christopher Kappas | Senior Managing Director | Since inception | ||
| Scott Richards, CFA | Senior Managing Director | Since inception | ||
| David Wagner | Senior Managing Director | Since inception | ||
| Tim Kane | Vice President | Since inception |
Effective June 1, 2018, and July 16, 2018, respectively, as it relates to the PPM High Yield Core Fund, under the “Fund Summaries” section of the Prospectus, the Portfolio Managers table in the section entitled “Portfolio Management” on page 16 is deleted and replaced in its entirety, and the sections entitled “Expenses” and “Expense Example” on page 13 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Table of Contents
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.55 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.23 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
0.88 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.18 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.70 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.70% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 72 | $ | 263 | ||||
| Portfolio Managers |
Title |
Length of Service | ||
| Anthony Balestrieri | Chief Investment Officer, Total Return | Since inception | ||
| Adam Spielman | Senior Managing Director, Head of Leveraged Credit, Total Return | Since June 2018 | ||
| Curt Burns, CFA | Senior Managing Director | Since inception | ||
| Scott Richards, CFA | Senior Managing Director | Since inception | ||
| John Walding | Senior Managing Director | Since inception | ||
| Karl Petrovich | Vice President | Since inception |
Effective June 1, 2018, and July 16, 2018, respectively, as it relates to the PPM Long Short Credit Fund, under the “Fund Summaries” section of the Prospectus, the Portfolio Managers table in the section entitled “Portfolio Management” on page 21 is deleted and replaced in its entirety, and the sections entitled “Expenses” and “Expense Example” on page 17 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Table of Contents
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.50 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Total Other Expenses1 |
0.38 | % | ||
| Other Expenses |
0.23 | % | ||
| Dividend and Interest Expenses Relating to Short Sales |
0.15 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
0.98 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.13 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.85 | % | ||
| 1 | “Total Other Expenses” are based on estimated amounts for the current fiscal year. The amount includes the costs associated with the Fund’s short sales securities. When a cash dividend is declared on a security for which the Fund holds a short position, the Fund incurs the obligation to pay an amount equal to that dividend to the lender of the shorted security. In addition, the Fund incurs borrowing fees related to short sale transactions. The Fund’s actual dividend expense and borrowing fees on securities sold short in future periods may be significantly higher or lower than the amounts above due to, among other factors, the extent of the Fund’s short positions, the actual dividends paid with respect to the securities the Fund sells short, and the actual timing of the Fund’s short sale transactions, each of which is expected to vary over time. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, dividend and interest expenses related to short sales (if any), Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.70% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) a 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 87 | $ | 299 | ||||
| Portfolio Managers |
Title |
Length of Service | ||
| Anthony Balestrieri | Chief Investment Officer, Total Return | Since inception | ||
| Adam Spielman | Senior Managing Director, Head of Leveraged Credit, Total Return | Since June 2018 | ||
| Michael Kennedy, CFA | Senior Managing Director | Since inception | ||
| Scott Richards, CFA | Senior Managing Director | Since inception | ||
| Mark Redfearn, CFA | Senior Managing Director | Since inception |
Effective June 1, 2018 and July 2, 2018, respectively, as it relates to the PPM Strategic Income Fund, under the “Fund Summaries” section of the Prospectus, the Portfolio Managers table in the section entitled “Portfolio Management” on page 26 is deleted and replaced in its entirety, and the sections entitled “Expenses” and “Expense Example” on page 22 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Table of Contents
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.50 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.23 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
0.83 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.18 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.65 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. Accordingly, the expense ratio presented in the Financial Highlights section of the prospectus will not correlate to the Total Annual Operating Expenses disclosed above. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. Accordingly, the expense ratio presented in the Financial Highlights section of the prospectus will not correlate to the Total Annual Operating Expenses disclosed above. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.65% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 66 | $ | 247 | ||||
| Portfolio Managers |
Title |
Length of Service | ||
| Anthony Balestrieri | Chief Investment Officer, Total Return | Since inception | ||
| Adam Spielman | Senior Managing Director, Head of Leveraged Credit, Total Return | Since June 2018 | ||
| Michael Kennedy, CFA | Senior Managing Director | Since inception | ||
| Scott Richards, CFA | Senior Managing Director | Since inception | ||
| Mark Redfearn, CFA | Senior Managing Director | Since inception |
Effective July 16, 2018, as it relates to the PPM Large Cap Value Fund, under the “Fund Summaries” section of the Prospectus, the sections entitled “Expenses” and “Expense Example” on page 27 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Table of Contents
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.60 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.32 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
1.02 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.27 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.75 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.75% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 77 | $ | 298 | ||||
Effective July 16, 2018, as it relates to the PPM Mid Cap Value Fund, under the “Fund Summaries” section of the Prospectus, the sections entitled “Expenses” and “Expense Example” on page 30 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.70 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.32 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
1.12 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.22 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
0.90 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 0.90% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Table of Contents
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 92 | $ | 334 | ||||
Effective July 16, 2018, as it relates to the PPM Small Cap Value Fund, under the “Fund Summaries” section of the Prospectus, the sections entitled “Expenses” and “Expense Example” on page 33 are deleted and replaced in their entirety with the following:
Expenses
The table below shows the fees and expenses you may pay if you buy and hold shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
| Institutional Shares | ||
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
None | |
| Exchange Fee |
None | |
| Redemption Fee |
None |
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
| Institutional Shares | ||||
| Management Fee |
0.80 | % | ||
| Distribution and/or Service (12b-1) Fees |
None | |||
| Administration Fee |
0.10 | % | ||
| Other Expenses1 |
0.27 | % | ||
| Acquired Fund Fees and Expenses2 |
0.00 | % | ||
| Total Annual Fund Operating Expenses |
1.17 | % | ||
| Fee Waiver and Expense Reimbursement3 |
0.17 | % | ||
| Total Annual Fund Operating Expenses After Fee Waiver |
1.00 | % | ||
| 1 | “Other Expenses” are based on estimated amounts for the current fiscal year. |
| 2 | “Acquired Fund Fees and Expenses” are the indirect expenses of investing in other investment companies and are based on estimated amounts for the current fiscal year. |
| 3 | PPM America, Inc., the Fund’s investment adviser (“PPM” or the “Adviser”), has contractually agreed to bear certain expenses and waive its management fees to the extent necessary to cause annualized ordinary expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, Acquired Fund Fees and Expenses (if any) and extraordinary charges such as litigation costs, but including management fees paid to PPM) not to exceed 1.00% of the average daily net assets of the Institutional Shares. This contract continues through April 30, 2019 and may not be terminated prior to this date unless, upon the Adviser’s request, the Board of Trustees approves the termination. |
Expense Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The table below shows the expenses you would pay on a $10,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period. The example also assumes that the Fund’s operating expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the examples for the first year only. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
| 1 year | 3 years | |||||||
| Institutional Shares |
$ | 102 | $ | 355 | ||||
Table of Contents
Item 2. Code of Ethics.
Not applicable to the semi-annual filing.
Item 3. Audit Committee Financial Expert.
Not applicable to the semi-annual filing.
Item 4. Principal Accountant Fees and Services.
Not applicable to the semi-annual filing.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
| (a) | Included as a part of the report to shareholders filed under Item 1. |
| (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.
No material changes have been made.
Table of Contents
Item 11. Controls and Procedures.
| (a) | The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the registrant’s filings under the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, is recorded, processed, summarized, and reported within the periods specified in the rules and forms of the U.S. Securities and Exchange Commission. Such information is accumulated and communicated to the registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. |
Within ninety (90) days prior to the filing date of this report on Form N-CSR, the registrant had carried out an evaluation, under the supervision and with the participation of the registrant’s management, including the registrant’s principal executive officer and the registrant’s principal financial officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures. Based on such evaluation, the registrant’s principal executive officer and principal financial officer concluded that the registrant’s disclosure controls and procedures are effective.
| (b) | There have been no significant changes in the registrant’s internal controls over financial reporting during the registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal controls over financial reporting. There have been no significant changes in the registrant’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this report on Form N-CSR. |
Item 12. Exhibits.
| (a) | (1) Not applicable to the semi-annual filing. | |
| (2) The certifications required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto. | ||
| (3) Not applicable. | ||
| (b) | The certification required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, is attached hereto. | |
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PPM Funds | ||
| By: |
/s/ Mark D. Nerud | |
| Mark D. Nerud | ||
| Principal Executive Officer | ||
| Date: |
August 31, 2018 | |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, 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: |
/s/ Mark D. Nerud | |
| Mark D. Nerud | ||
| Principal Executive Officer | ||
| Date: |
August 31, 2018 | |
| By: |
/s/ Daniel W. Koors | |
| Daniel W. Koors | ||
| Principal Financial Officer | ||
| Date: |
August 31, 2018 | |
Table of Contents
EXHIBIT LIST
| Exhibit 12(a)(2) | Certification of the Principal Executive Officer required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended. | |
| Certification of the Principal Financial Officer required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended. | ||
| Exhibit 12(b) | Certification required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended. | |