<PAGE>
SHORT DURATION
TAX EXEMPT FUND
TAX EXEMPT
BOND FUND
Annual Report
October 31, 1995
[PAYDEN & RYGEL LOGO]
PAYDEN & RYGEL
INVESTMENT
GROUP
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Shareholder Letter........................................................ 1
Management Discussion..................................................... 3
Performance Data.......................................................... 5
Portfolio Highlights...................................................... 6
Statements of Assets & Liabilities........................................ 8
Statements of Operations.................................................. 9
Statements of Changes in Net Assets....................................... 10
Schedules of Portfolio Investments........................................ 11
Notes to Financial Statements............................................. 17
Financial Highlights...................................................... 24
Independent Auditors' Report.............................................. 26
Glossary of Terms......................................................... 27
</TABLE>
[LOGO]
<PAGE>
October 31, 1995
Dear Fellow Shareholders:
The challenge for investors and fund managers alike during the past twelve
months has been to focus on longer-term investment objectives and not over react
to short-term changes in perception. In retrospect, the period from October 1994
to October 1995 encompassed a cycle that included one of the worst bond markets
in history, but also a period where there was the fastest recovery in bonds. The
panic that prevailed during the second and third quarter of 1994 quickly
dissipated, and a positive tone returned to the market during the first quarter
of 1995. Actually, by March 1995 bonds had earned back what they had lost in
1994, and they have continued to perform very favorably through our current
fiscal year ending October 31, 1995. In the global arena, the U.S. dollar
endured a roller coaster ride of its own, reaching an all time low versus the
Japanese yen and German mark, in April 1995, only to strengthen back to more
neutral levels by the end of the Fund's fiscal year in October.
Our investment strategy was based on a fundamental belief that the global
economies would sustain low to moderate growth without any pick up of inflation.
In fact, we anticipated that a deflationary trend would prevail and continue
throughout 1995. It was our anticipation that perception would change.
The last year also marked key developments for the Payden & Rygel Funds. All
Funds grew in size, with the flagship Global Fixed Income Fund growing another
25% to $540 million by fiscal year end. This makes it one of the largest global
bond mutual funds in the country. As of October 31, 1995, Morningstar awarded
its highest rating of five stars to the Global Fixed Income Fund highlighting
the superior return it has achieved with a low level of risk. We also launched
the U.S. Treasury Fund in January 1995 and the International Bond Fund in April
1995, expanding the range of fixed income vehicles available to our clients.
1
<PAGE>
We are very positive about the prospects for bonds in the coming fiscal
year, as sound fiscal and monetary policies are the key factors in most
developed nations. With the prospect of low inflation, it is very possible that
in the next few years it may be the start of a long-term era in which moderate
growth and contained inflation will allow interest rates to fall even further.
Against this scenario, we also believe that the investor may witness real
returns (adjusted for inflation) higher than has been evidenced in the last
three decades.
We appreciate your investment in our Funds and look forward to another
profitable year in 1996.
Best Wishes,
[SIG]
Joan A. Payden
President and Chairman of the Board
Payden & Rygel Investment Group
2
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TAX EXEMPT FUNDS
MANAGEMENT DISCUSSION
THE YEAR IN REVIEW
The past twelve months were exciting for the tax exempt market. During the
year, we experienced a dramatic decline in interest rates, the largest municipal
bankruptcy filing in the market's history, a raging bull equity market, and
discussions of a change in the tax code that could impact the treatment of
municipal bonds.
The most significant factor during the year was the change in Federal
Reserve policy. The Federal Reserve Board lowered short-term interest rates for
the first time in three years, reversing the aggressive tightening that was
implemented during 1994. As a result of this change in policy, the market
psychology became positive, and the municipal market participated in the strong
bond market rally. Municipal interest rates declined significantly from their
peak in November 1994.
Throughout the first nine months of the year, the market watched the Orange
County, California bankruptcy unfold. The Funds did not own any Orange County
securities when the County filed for bankruptcy protection, but we carefully
watched as the drama unfolded to see market reactions. As the County struggled
with losses from failed investment strategies, uncertainty over the payment of
interest and principal on the County's bonds caused the market for certain
California issues to underperform issues in other states. After the initial
uncertainty, the market regained its strength and municipal issues were not
stigmatized. Despite the voters in Orange County soundly rejecting a sales tax
increase to help the troubled county from its financial mess, a plan was devised
to bring the County back to fiscal health and ensure that bondholders would be
paid. The Governor allowed funds to be diverted from several other entities, and
the County was able to borrow in the markets with the help of bond insurance.
On the political side, talk of tax reform surfaced in April and the market
experienced uncertainty over its impact on municipal bonds. Long-term municipal
yields have remained high due to continued uncertainty, and shorter maturity
instruments have rallied as investors have placed an emphasis on these issues.
3
<PAGE>
The uncertainty of the relative tax advantage of municipal bonds has
increased the "tax-risk" premium in municipal bond yields. We view this as an
opportunity to capture attractive yields, which will continue to be of value
even at substantially lower interest rates.
Consider the following:
<TABLE>
<S> <C>
Yield on 15 year AA-rated Municipal Bond........ 5.4%
Yield on 15 year U.S. Treasury Obligation....... 6.2%
</TABLE>
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD OF YIELD ADVANTAGE
TAX RATE MUNICIPAL BOND OVER U.S. TREASURY
- ------------ --------------------------- -------------------
<S> <C> <C>
39.6% 8.9% +2.74%
33 8.1% +1.86%
25 7.2% +1.00%
17 6.5% +0.31%
13 6.2% Break-even, no
yield advantage
</TABLE>
FUND STRATEGIES AND PERFORMANCE
Our strategy throughout the past year has been to position the Funds for a
decline in interest rates. We maintained a longer maturity orientation in each
Fund. In addition, we focused our purchases on securities that would not be
subject to being called away as interest rates declined. Callable bonds are
common in municipal securities, and in a declining interest rate environment,
callable bonds have much lower performance than bonds which do not have a call
feature. Our longer maturity orientation was rewarded as municipal interest
rates declined significantly from their peak in November 1994, leading to
favorable performance. During the year the Tax Exempt Bond Fund and Short
Duration Tax Exempt Fund returned 13.25% and 5.88% respectively.
In addition to the interest rate strategies employed in the Funds, we also
targeted sectors and regions that exhibited strong performance. We increased the
exposure in the Southeast and Far West, as these economic regions posted strong
growth.
LOOKING FORWARD
Going forward, we are optimistic about the values in the municipal bond
market. We anticipate further reductions in interest rates as economic strength
subsides as a result of the Federal Reserve tightening done in 1994. Because
this slowdown will likely affect the revenues of municipal entities, we are
focusing our investments on regions with stronger than average growth potential
and those that are less sensitive to the decline in the U.S. manufacturing
sector.
4
<PAGE>
SHORT DURATION TAX EXEMPT FUND
COMPARISON TO BROAD BASED SECURITIES MARKET INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SHORT DURATION TAX EXEMPT FUND LEHMAN 1 YEAR G.O. INDEX
<S> <C> <C>
9/1/94 100,000 100,000
10/31/94 99,653 100,039
11/30/94 99,575 100,251
12/31/94 99,575 100,251
1/31/95 99,895 100,375
2/28/95 100,402 100,807
3/31/95 101,172 101,463
4/30/95 102,059 102,244
5/31/95 103,275 102,640
6/30/95 103,421 103,633
7/31/95 104,390 104,818
8/30/95 104,772 105,290
9/30/95 105,015 105,560
10/31/95 105,510 105,955
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
Since Inception
1 Year (September 1, 1994)
---------- ----------------------
<S> <C> <C>
Short Duration Tax Exempt Fund...... 5.88% 4.70%
Lehman 1 Year G.O. Index............ 5.91 5.08
</TABLE>
- ----------------------------------------------------------------------
TAX EXEMPT BOND FUND
COMPARISON TO BROAD BASED SECURITIES MARKET INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TAX EXEMPT LEHMAN STATE LEHMAN QUALITY
BOND FUND G.O. INDEX INTERMEDIATE INDEX
MONTH END VALUE OF $100,000 INVESTED
<S> <C> <C> <C>
12/31/93 100,258 100,000 100,000
1/31/94 100,943 101,190 101,046
4/30/94 94,524 95,735 96,957
7/31/94 95,283 97,324 98,632
10/31/94 92,159 95,118 97,240
1/31/95 94,750 97,770 99,110
4/30/95 98,110 101,680 102,640
7/31/95 100,850 105,200 106,440
10/31/95 104,370 108,300 108,940
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year Since Inception
---------- -----------------------
<S> <C> <C>
Tax Exempt Bond Fund
(since December 21, 1993)......... 13.25 2.32
Lehman State G.O. Index
(since January 1, 1994)........... 13.86 4.45
Lehman Quality Intermediate Index
(since January 1, 1994)........... 12.03 4.78
</TABLE>
NOTE: PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THIS INFORMATION IS NOT PART OF THE AUDITED FINANCIAL STATEMENTS.
5
<PAGE>
PORTFOLIO HIGHLIGHTS
TAX EXEMPT BOND FUND
KEY STATISTICS
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, 1994 October 31, 1995
----------------- -----------------
<S> <C> <C>
Net Assets: $25,473,725 $40,051,668
Number of Issues: 30 43
Average Maturity: 12.1 years 9.4 years
SEC Yield: 5.50% 4.75%
</TABLE>
SECTOR AND QUALITY COMPOSITION
- ----------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
CREDIT QUALITY
AA 36%
AAA 43%
Baa 5%
A 16%
SECTOR
Revenue Bonds 25%
Insured Bonds 26%
Pre-refunded Bonds 9%
General Obligation 40%
</TABLE>
LARGEST HOLDINGS
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
Charleston County, South Carolina General Obligation........ 4%
Port Authority of New York and New Jersey Transit Revenue... 4%
California State Dept. of Water Resources, Central Valley
Project.................................................... 4%
Florida Board of Education General Obligation............... 4%
New York State Dorm Authority Revenue....................... 3%
</TABLE>
NOTE: PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THIS INFORMATION IS NOT PART OF THE AUDITED FINANCIAL STATEMENTS.
6
<PAGE>
PORTFOLIO HIGHLIGHTS
SHORT DURATION TAX EXEMPT FUND
KEY STATISTICS
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31, 1994 October 31, 1995
----------------- -----------------
<S> <C> <C>
Net Assets: $20,150,089 $16,018,618
Number of Issues: 33 24
Average Maturity: 1.7 years 3.5 years
SEC Yield: 3.31% 3.80%
</TABLE>
SECTOR AND QUALITY COMPOSITION
- ----------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
CREDIT QUALITY
A 25%
AA 27%
AAA 48%
SECTOR
Revenue Bonds 30%
Insured Bonds 25%
Pre-refunded Bonds 21%
General Obligation 24%
</TABLE>
LARGEST HOLDINGS
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
Tennessee State General Obligation......................... 10%
Maryland State Health Pre-refunded Bond.................... 7%
Washington Suburban Sanitation District Water Revenue
Bond...................................................... 6%
Puerto Rico Telephone...................................... 6%
</TABLE>
NOTE: PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THIS INFORMATION IS NOT PART OF THE AUDITED FINANCIAL STATEMENTS.
7
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHORT DURATION
TAX EXEMPT TAX EXEMPT
BOND FUND FUND
------------ --------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost $38,512,498 and $16,401,224,
respectively)............................................ $ 39,604,148 $ 16,537,022
Interest receivable....................................... 678,374 277,445
Receivable for investments sold 0 457,182
Unamortized organization costs (Note 4)................... 9,461 4,203
Deferred expense subsidy (Note 5)......................... 186,593 113,640
Other assets.............................................. 3,748 0
------------ --------------
Total Assets.......................................... 40,482,324 17,389,492
------------ --------------
LIABILITIES:
Payable for investments purchased......................... 0 1,151,386
Accrued expenses and other liabilities:
Investment advisory fees................................ 151,964 51,349
Administration fees..................................... 1,154 463
Accounting and transfer agent fees...................... 3,985 3,702
Legal and audit fees.................................... 20,669 19,821
Payable to Payden & Rygel (Notes 5)..................... 239,584 124,319
Other................................................... 13,300 19,834
------------ --------------
Total Liabilities..................................... 430,656 1,370,874
------------ --------------
NET ASSETS:
Paid in capital........................................... 40,137,709 15,848,471
Undistributed net investment income....................... 5,164 1,672
Net unrealized appreciation on investments................ 1,091,650 135,798
Net unrealized appreciation on futures contracts.......... 124,437 0
Accumulated net realized gains (losses) on investment
transactions............................................. (1,307,292) 32,677
------------ --------------
Net Assets............................................ $ 40,051,668 $ 16,018,618
------------ --------------
------------ --------------
Outstanding shares of beneficial interest................. 4,177,567 1,589,820
------------ --------------
------------ --------------
NET ASSET VALUE -- offering and redemption price per
share.................................................... $ 9.59 $ 10.08
------------ --------------
------------ --------------
</TABLE>
See notes to financial statements.
8
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHORT DURATION
TAX EXEMPT TAX EXEMPT
BOND FUND FUND
------------ --------------
<S> <C> <C>
INVESTMENT INCOME -- Interest $ 1,685,457 $ 819,153
------------ --------------
EXPENSES:
Investment advisory fees (Note 5)........................ 99,303 57,405
Administration fees (Note 5)............................. 25,275 14,771
Custodian and accounting fees (Note 5)................... 41,000 39,778
Legal and audit fees..................................... 24,436 22,424
Organization costs (Note 4).............................. 2,920 1,883
Trustees' fees and expenses.............................. 4,113 2,280
Transfer agent fees (Note 5)............................. 6,008 6,752
Registration and filing fees............................. 13,849 11,429
Printing costs........................................... 11,729 6,647
Expenses voluntarily reduced by investment adviser and/or
administrator (Note 5).................................. 0 (7,714)
Expense subsidy (Note 5)................................. (88,809) (74,930)
------------ --------------
Total Expenses......................................... 139,824 80,725
------------ --------------
Net Investment Income.................................. 1,545,633 738,428
------------ --------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses) on investment transactions... (216,473) 33,670
Change in net unrealized appreciation (depreciation) on
investments............................................. 2,318,851 227,515
Change in net unrealized appreciation (depreciation) on
futures contracts....................................... 124,437 0
------------ --------------
Net realized and unrealized gains on investments......... 2,226,815 261,185
------------ --------------
Change in net assets resulting from operations......... $ 3,772,448 $ 999,613
------------ --------------
------------ --------------
</TABLE>
See notes to financial statements.
9
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT DURATION
TAX EXEMPT BOND FUND TAX EXEMPT FUND
------------------------------- ----------------------------
FOR THE PERIOD FOR THE PERIOD
DECEMBER 21, SEPTEMBER 1,
YEAR ENDED 1993 TO YEAR ENDED 1994 TO
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 (a) 1995 1994 (a)
-------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income............ $ 1,545,633 $ 850,604 $ 738,428 $ 61,492
Net realized gains (losses) on
investment transactions......... (216,473) (1,090,819) 33,670 (993)
Change in net unrealized
appreciation (depreciation) on
investments..................... 2,318,851 (1,227,201) 227,515 (91,717)
Change in net unrealized
appreciation (depreciation) on
futures contracts............... 124,437 0 0 0
-------------- -------------- ------------ --------------
Change in net assets resulting from
operations........................ 3,772,448 (1,467,416) 999,613 (31,218)
-------------- -------------- ------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS --
From net investment income....... (1,550,994) (840,079) (743,140) (55,108)
-------------- -------------- ------------ --------------
CAPITAL TRANSACTIONS:
Proceeds from shares sold........ 14,684,139 39,602,270 17,480,222 20,181,626
Reinvestment of distributions.... 1,467,907 832,795 678,179 54,789
Cost of shares redeemed.......... (3,795,557) (12,653,845) (22,546,345) 0
-------------- -------------- ------------ --------------
Change in net assets from capital
transactions...................... 12,356,489 27,781,220 (4,387,944) 20,236,415
-------------- -------------- ------------ --------------
Total change in net assets......... 14,577,943 25,473,725 (4,131,471) 20,150,089
NET ASSETS:
Beginning of period.............. 25,473,725 0 20,150,089 0
-------------- -------------- ------------ --------------
End of period.................... $ 40,051,668 $ 25,473,725 $ 16,018,618 $20,150,089
-------------- -------------- ------------ --------------
-------------- -------------- ------------ --------------
CAPITAL SHARE TRANSACTIONS:
Shares sold...................... 1,570,000 4,148,836 1,745,760 2,024,214
Shares issued in reinvestment of
distributions................... 158,441 90,122 67,925 5,514
Shares redeemed.................. (412,149) (1,377,683) (2,253,593) 0
-------------- -------------- ------------ --------------
Change in shares outstanding....... 1,316,292 2,861,275 (439,908) 2,029,728
Outstanding at beginning of
period............................ 2,861,275 0 2,029,728 0
-------------- -------------- ------------ --------------
Outstanding at end of period....... 4,177,567 2,861,275 1,589,820 2,029,728
-------------- -------------- ------------ --------------
-------------- -------------- ------------ --------------
</TABLE>
- ------------
(a) Period from commencement of operations.
See notes to financial statements.
10
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR SECURITY MARKET
PRINCIPAL AMOUNT DESCRIPTION VALUE
- ---------------- -------------------------------------------------- -----------
<C> <S> <C>
CERTIFICATE OF PARTICIPATION (0.4%):
Water (0.4%):
160,000 San Diego County, California Water Authority,
5.30%, 5/1/02.................................... $ 166,600
-----------
Total Certificate of Participation................................. 166,600
-----------
GENERAL OBLIGATIONS (51.4%):
Limited (1.8%):
700,000 Clark County, Nevada, School District, 5.88%,
6/15/13.......................................... 711,375
-----------
Unlimited (49.6%):
250,000 California State, 4.75%, 9/1/09................... 228,750
1,500,000 Charleston County, South Carolina, 5.75%,
6/1/08........................................... 1,569,375
1,200,000 Chicago, Illinois, Metropolitan Water Reclaimation
District, 6.30%, 12/1/09......................... 1,285,500
1,500,000 Florida State Board of Education, 5.00%, 6/1/08... 1,473,750
1,000,000 Fort Worth, Texas, Independent School District,
0.00%, 2/15/06................................... 597,500
1,000,000 Georgia State, 5.50%, 7/1/07...................... 1,038,750
1,000,000 Honolulu, Hawaii, City & County, 5.00%, 10/1/02... 1,023,750
1,000,000 City of Los Angeles, California, 5.25%, 9/1/06.... 1,012,500
1,000,000 Massachusetts State, 5.75%, 2/1/15................ 1,006,250
750,000 Mecklenburg County, North Carolina, 6.20%,
1/1/01........................................... 810,938
1,000,000 Mississippi State, 5.80%, 6/1/09.................. 1,040,000
1,250,000 Montgomery County, Maryland, 6.88%, 10/1/99....... 1,364,062
1,000,000 New York, New York, 6.20%, 8/1/07................. 1,022,500
1,000,000 Pennsylvania State, 5.20%, 6/15/04................ 1,031,250
1,000,000 Texas Public Finance Authority, 5.38%, 10/1/03.... 1,052,500
1,000,000 Virginia State, 6.10%, 6/1/06..................... 1,097,500
1,000,000 Washington State, 5.25%, 9/1/05................... 1,025,000
1,000,000 Washington Suburban Sanitation District, Maryland,
6.50%, 11/1/13, Pre-refunded 11/1/01 @ 102....... 1,118,750
</TABLE>
See notes to financial statements.
11
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR SECURITY MARKET
PRINCIPAL AMOUNT DESCRIPTION VALUE
- ---------------- -------------------------------------------------- -----------
<C> <S> <C>
GENERAL OBLIGATIONS (CONTINUED):
Unlimited (continued):
1,000,000 Wisconsin State, 6.30%, 5/1/10, Pre-refunded
5/1/02 @ 100..................................... $ 1,091,250
-----------
19,889,875
-----------
Total General Obligations.......................................... 20,601,250
-----------
REVENUE (45.0%):
Education (8.7%):
1,250,000 New York State Dorm Authority, 6.13%, 7/1/07...... 1,357,813
1,000,000 Ohio State Public Facilities, 5.00%, 11/1/04...... 1,015,000
1,100,000 Pennsylvania State, Higher Educational Facilities
Authority, 5.85%, 9/1/13......................... 1,124,750
-----------
3,497,563
-----------
Electric (4.7%):
575,000 Indiana Municipal Power Agency Power Supply,
5.13%, 1/1/01.................................... 590,813
300,000 City of Knoxville, Tennessee Gas System, 4.85%,
3/1/06........................................... 293,625
1,000,000 Sacramento, California Municipal Utility District,
5.25%, 11/15/04.................................. 1,026,250
-----------
1,910,688
-----------
Health (1.4%):
500,000 Maryland State Health & Higher Education, 6.75%,
7/1/23, Pre-refunded 7/1/00 @ 102................ 556,875
-----------
Housing (3.0%):
1,000,000 Virginia State Housing Development Authority,
6.30%, 7/1/11.................................... 1,031,250
170,000 Wisconsin Housing & Economic Development, 5.30%,
11/1/05.......................................... 167,875
-----------
1,199,125
-----------
</TABLE>
See notes to financial statements.
12
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR SECURITY MARKET
PRINCIPAL AMOUNT DESCRIPTION VALUE
- ---------------- -------------------------------------------------- -----------
<C> <S> <C>
REVENUE (CONTINUED):
Sewer (5.5%):
1,000,000 City and County of San Francisco, California
Sewer, 6.50%, 10/1/21, Pre-refunded 10/1/99 @
102.............................................. $ 1,097,500
2,500,000 City and County of San Francisco, California
Sewer, 0.00%, 10/1/10............................ 1,087,500
-----------
2,185,000
-----------
Telecommunication (2.5%):
1,000,000 Puerto Rico Telecommunications Authority, 4.80%,
1/1/01........................................... 1,011,250
-----------
Transportation (12.8%):
1,200,000 Los Angeles, California, City Department of
Airports, 5.50%, 5/15/07......................... 1,219,500
1,000,000 Massachusetts Bay Transportation Authority, 5.60%,
3/1/08........................................... 1,027,500
1,465,000 Port Authority New York & New Jersey, 5.80%,
12/1/12.......................................... 1,488,806
1,000,000 Puerto Rico Commonwealth Highway Authority, 6.75%,
7/1/05........................................... 1,091,250
280,000 San Bernardino County, California, Transportation
Authority, 5.70%, 3/1/00 (b)..................... 295,050
-----------
5,122,106
-----------
Water (6.4%):
1,400,000 California State Department of Water Resources,
6.00%, 12/1/06................................... 1,522,500
1,000,000 Ohio State Water Development Authority, 5.70%,
6/1/09........................................... 1,032,500
-----------
2,555,000
-----------
Total Revenue...................................................... 18,037,607
-----------
</TABLE>
See notes to financial statements.
13
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR SECURITY MARKET
PRINCIPAL AMOUNT DESCRIPTION VALUE
- ---------------- -------------------------------------------------- -----------
VARIABLE RATE DEMAND NOTES (1.5%):
<C> <S> <C>
Industrial Development Revenue
400,000 Grapevine Industrial Development Corp., Texas,
3.90%*, 12/1/24.................................. $ 400,000
200,000 Phenix County, Alabama, 3.95%*, 6/1/28............ 200,000
-----------
Total Variable Rate Demand Notes................................... 600,000
-----------
INVESTMENT COMPANIES (0.5%):
198,691 Prairie Municipal Money Market Fund............... 198,691
-----------
Total Investment Companies......................................... 198,691
-----------
Total (Cost -- $38,512,498)(a) (98.8%)............ $39,604,148
-----------
-----------
</TABLE>
- ------------
Percentages indicated are based on net assets of $40,051,668.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $1,148,719
Unrealized depreciation............................................... (57,069)
----------
Net unrealized appreciation........................................... $1,091,650
----------
----------
</TABLE>
(b) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
* Variable rate investments. The rate reflected on the Schedule of Portfolio
Investments is the rate in effect at October 31, 1995.
At October 31, 1995, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
# OF EXPIRATION OPENING CURRENT
CONTRACTS CONTRACT TYPE DATE POSITION MARKET VALUE
- --------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
41 Municipal Bond 12/19/95 $4,673,844 $4,798,281
</TABLE>
See notes to financial statements.
14
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR SECURITY MARKET
PRINCIPAL AMOUNT DESCRIPTION VALUE
- ---------------- -------------------------------------------------- -----------
<C> <S> <C>
GENERAL OBLIGATIONS (35.9%):
Unlimited (35.9%):
300,000 California State, 5.50%, 3/1/99................... $ 311,625
700,000 Florida State Board Education, Capital Outlay,
6.50%, 6/1/97.................................... 727,125
700,000 Illinois State, 5.50%, 2/1/99..................... 724,500
700,000 Minnesota State, 6.80%, 8/1/00, Prerefunded 8/1/98
@ 100............................................ 747,250
500,000 Phoenix, Arizona, City of, 5.30%, 7/1/06.......... 516,250
1,500,000 Tennessee State, 5.90%, 6/1/98.................... 1,565,625
150,000 Texas State Tax & Revenue Anticipation Note,
4.75%, 8/30/96................................... 151,213
1,000,000 Washington Suburban Sanitation District, Maryland,
5.00%, 6/1/97.................................... 1,016,250
-----------
Total General Obligations.......................................... 5,759,838
-----------
REVENUE (64.7%):
Electric (21.4%):
700,000 Georgia Municipal Electric Authority, 4.50%,
1/1/98........................................... 700,000
700,000 Omaha Public Power District Electric Revenue,
6.50%, 2/1/17, Prerefunded 2/1/02 @ 101.50....... 781,375
500,000 Sacramento, California, Municipal Utility
District, 5.25%, 11/15/04........................ 513,125
500,000 San Antonio Electric & Gas Revenue, 6.00%,
2/1/98........................................... 521,250
900,000 Tacoma Washington Electric System, 4.90%,
1/1/98........................................... 914,625
-----------
3,430,375
-----------
Housing (2.8%):
450,000 Alaska State Housing Finance Corp., 4.35%,
12/1/98.......................................... 450,000
-----------
Health (11.2%):
600,000 Harris County, Texas Health Facilities, 9.00%,
10/1/17, Pre-refunded 10/1/97 @ 102.............. 664,500
1,000,000 Maryland State Health & Higher Education
Facilities Authority, 7.00%, 7/1/19, Prerefunded
7/1/00 @ 102..................................... 1,125,000
-----------
1,789,500
-----------
</TABLE>
See notes to financial statements.
15
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1995
<TABLE>
<CAPTION>
SHARES OR SECURITY MARKET
PRINCIPAL AMOUNT DESCRIPTION VALUE
- ---------------- -------------------------------------------------- -----------
<C> <S> <C>
REVENUE (CONTINUED):
Lease (2.8%):
450,000 Phoenix Arizona Civic Plaza Building Corp. Excise
Tax, 4.70%, 7/1/98............................... $ 457,313
-----------
Telecommunications (6.3%):
1,000,000 Puerto Rico Telecommunications Authority, 4.80%,
1/1/01........................................... 1,011,250
-----------
Transportation (15.4%):
675,000 New Jersey State Turnpike Authority, 6.00%,
1/1/98........................................... 698,625
1,000,000 New York State Thruway Authority, 5.00%, 4/1/98... 1,018,750
700,000 Pennsylvania State Turnpike, 6.15%, 6/1/99........ 742,000
-----------
2,459,375
-----------
Water (4.8%):
755,000 Ohio State Water Development Authority, 4.95%,
12/1/98.......................................... 771,044
-----------
Total Revenue...................................................... 10,368,857
-----------
VARIABLE RATE DEMAND NOTE (1.9%):
Education (1.9%):
300,000 Colorado Student Loan Obligation Bond, 3.85%*,
8/1/00........................................... 300,000
-----------
Total Variable Rate Demand Note.................................... 300,000
-----------
INVESTMENT COMPANIES (0.7%):
108,327 Prairie Municipal Money Market Fund............... 108,327
-----------
Total Investment Companies......................................... 108,327
-----------
Total (Cost $16,401,224)(a) (103.2%).............. $16,537,022
-----------
-----------
</TABLE>
- ------------
Percentages indicated are based on net assets of $16,018,618.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $ 143,615
Unrealized depreciation............................................... (7,817)
----------
Net unrealized appreciation........................................... $ 135,798
----------
----------
</TABLE>
* Variable rate investments. The rate reflected on the Schedule Portfolio of
Investments is the rate in effect at October 31, 1995.
See notes to financial statements.
16
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TAX EXEMPT FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
1. ORGANIZATION
Payden & Rygel Tax Exempt Bond Fund and Payden & Rygel Short Duration Tax
Exempt Fund ("Funds") are non-diversified series of Payden & Rygel Investment
Group ("Group"), a Massachusetts business trust organized on January 22, 1992.
The Group is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The Funds offer both Class A and
Class B shares; however, as of October 31, 1995 there have been no Class B
shares issued. Class B shares are subject to certain fees under a shareholder
service plan (the "Plan"); Class A shares do not participate in the Plan. Both
classes of shares have identical rights and privileges except with respect to
the shareholder service fees borne by Class B and voting rights on matters
affecting a single class. The Group is authorized to issue an unlimited number
of shares of each class which are units of beneficial interest with a par value
of $.001 per share.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds:
SECURITIES VALUATION
Portfolio securities are valued on the basis of quotes obtained from dealers
or from a pricing service with consideration of such factors as
institutional-sized trading in similar groups of securities, quality, yield,
coupon rate, maturity, type of issue, trading characteristics and other market
data. Options, futures, swaps, and other similar assets are valued at the last
available bid price in the case of listed securities or on the basis of
information provided by brokers in the case of other securities. Securities for
which market quotations are not readily available are valued at fair value as
determined in good faith pursuant to guidelines established by the Board of
Trustees. Debt securities with remaining maturities of sixty days or less are
valued on an amortized cost basis unless Payden & Rygel (the "Adviser")
determines that such basis does not represent fair value.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVESTMENT TRANSACTIONS AND RELATED INCOME
Investment transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis. All premiums or original issue discounts are amortized or accreted for
both financial statement and tax reporting purposes as required by Federal
income tax regulations. Realized gains or losses on investment transactions are
determined on the identified cost basis.
FUTURES CONTRACTS
The Funds may purchase or sell financial futures contracts and options on
futures contracts which provide for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument at a fixed price
on a future date. Upon entering into such a contract, the Funds are required to
deposit and maintain as collateral such initial margin as required by the
exchange on which the contract is traded. Pursuant to the contract, the Funds
agree to receive from or pay to the broker an amount equal to the daily
fluctuations in the value of the contract. Such receipts or payments are known
as variation margin and are recorded as unrealized gains or losses by the Funds.
When the contract is closed, the Funds record a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. The Funds invest in financial futures
contracts to hedge against anticipated future changes in interest rates or
security prices. The potential risk to the Funds is that the change in value of
the underlying securities may not correlate to the change in value of the
contracts.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements (agreements to
purchase U.S. Treasury notes and bills, subject to the seller's agreement to
repurchase them at a specified time and price) with well-established registered
securities dealers or banks. Repurchase agreements are the equivalent of loans
by the Funds. With respect to such agreements, it is the Funds' policy to take
possession of the underlying securities and, on a daily basis, mark-to-market
such securities to ensure that the value, including accrued interest, is at
least equal to the amount to be repaid to the Funds under each agreement.
DELAYED DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when issued or delayed
delivery basis and sell securities on a delayed delivery basis. These
transactions involve a commitment by a Fund to purchase or sell securities for a
predetermined price or yield with payment and delivery taking place more than
seven days in the future or after a period longer than the customary settlement
period for that type of security. No interest will be earned by a
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Fund on such purchases until the securities are delivered; however, the market
value may change prior to delivery. There were no such commitments included in
the Funds' schedules of portfolio investments at October 31, 1995.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income are declared and paid monthly, and
distributable net realized capital gains on investments, if any, are declared
and distributed at least annually. All distributions are paid in the form of
additional shares unless cash payment is requested.
Distributions to shareholders are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
FEDERAL INCOME TAXES
It is the policy of each of the Funds to meet the requirements for
qualification as a regulated investment company as defined in applicable
sections of the Internal Revenue Code ("Code"), and to make distributions of net
investment income and net realized gains sufficient to relieve it from all
Federal income or excise taxes. Accordingly, no provision for Federal income or
excise tax is necessary.
The Funds each file a tax return annually using tax accounting methods
required under provisions of the Code which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. The differences arise primarily from the treatment of futures
contracts and deferral of certain losses under Federal income tax regulations.
Accordingly, the amount of net investment income and net realized capital gains
or losses reported in these financial statements may differ from that reported
in each Fund's tax return and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that reported
to shareholders for Federal income tax purposes.
OTHER
Shared expenses incurred by the Group are allocated among the series of the
Group on the basis of relative net assets. Series-specific expenses are charged
to each series as incurred. Fund expenses not specific to any class will be
allocated between the classes based upon net assets of each class.
Class-specific expenses will be charged to each class as incurred.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities (excluding short-term securities) for the
year ended October 31, 1995 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Tax Exempt Bond Fund.......... $25,727,317 $12,318,499
Short Duration Tax Exempt
Fund......................... $12,850,848 $11,297,950
</TABLE>
4. UNAMORTIZED ORGANIZATION COSTS
The expenses incurred in connection with the organization and registration
of the Tax Exempt Bond Fund and the Short Duration Tax Exempt Fund ($15,168 and
$6,170, respectively) are being reimbursed to the Adviser and amortized on a
straight-line basis over a period of approximately five years. As of October 31,
1995, organization costs of $5,707 for the Tax Exempt Bond Fund and $1,967 for
the Short Duration Tax Exempt Fund have been amortized.
5. RELATED PARTY TRANSACTIONS
Investment advisory services are provided to the Funds by Payden & Rygel.
Under the terms of the investment advisory agreement, the Adviser is entitled to
receive fees monthly, computed on the average daily net assets of the Funds at
an annualized rate of .32% on net assets up to $500 million and decreasing to
.25% on net assets over $1 billion. The Adviser has agreed to limit the total
expenses, including advisory fees, of the Funds to .45% of each of the Fund's
average daily net assets on an annualized basis (exclusive of interest, taxes,
brokerage commissions, blue sky fees, 12b-1 fees [if any such plan is adopted in
the future] and extraordinary expenses). The Funds remain liable to the Adviser
for expenses subsidized in any fiscal year. As of October 31, 1995, the Adviser
has subsidized expenses of $186,593 and $113,640 for the Tax Exempt Bond Fund
and the Short Duration Tax Exempt Fund, respectively. The deferred expense
subsidies will be recognized in the statement of operations in future periods,
if expense limits permit.
The Adviser has incurred certain expenses in connection with the offering of
multiple class shares that will be charged to the Group upon the initial sale of
Class B shares to the public. Such expenses, approximately $40,000 as of October
31, 1995, will be allocated to all series of the Group that offer Class B shares
on the basis of relative net assets at the time of the initial sale of Class B
shares, and will be prorated between the classes on the basis of eligible net
assets of each class over a five year period.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Payden & Rygel Distributors Inc., an affiliate of Payden & Rygel, serves as
the distributor for the Funds and is not entitled to receive any fees under the
distribution agreement.
On October 10, 1995, The Winsbury Company Limited Partnership changed its
name to BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"). BISYS and BISYS Fund Services Ohio, Inc. are subsidiaries of the
BISYS Group, Inc.
BISYS serves as administrator (the "Administrator") to the Group. Under the
terms of the administration agreement, BISYS receives fees monthly, computed on
the average daily net assets of the Group at an annualized rate of .10% on net
assets up to $250 million and decreasing to .02% on net assets over $1 billion.
From time to time, fees may be permanently reduced on a voluntary basis by
the Adviser and/or Administrator in order to assist the Funds in maintaining
certain specified expense ratios. For the year ended October 31,1995, the
adviser and administrator waived $6,055 and $1,659, respectively, for the Short
Duration Tax Exempt Fund.
BISYS Fund Services Ohio, Inc. ("Company"), serves as transfer agent to the
Group. Under the terms of the transfer agency agreement, the Company is entitled
to receive fees based upon a specified amount per shareholder with specified
minimum per portfolio amounts and surcharges, plus certain out-of-pocket
expenses. The Company also serves as fund accountant. Under the terms of the
fund accounting agreement, the Company receives fees monthly at an annual rate
of $30,000 for each Fund, plus certain out-of-pocket expenses. Total transfer
agent and fund accounting fees were $40,981 for the Tax Exempt Bond Fund and
$40,522 for the Short Duration Tax Exempt Fund for the year ended October 31,
1995.
Certain officers and trustees of the Group are affiliated with the Adviser
or Administrator. Such officers and trustees receive no fees from the Funds for
serving as officers and trustees of the Group.
Effective January 1, 1996, Treasury Plus Inc., a subsidiary of Payden &
Rygel will serve as administrator to the Group. Effective November 11, 1995,
Investors Fiduciary Trust Company will serve as transfer agent to the Group, and
as of January 1, 1996, they will serve as fund accountant.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL INCOME TAXES:
For Federal income tax purposes, the Tax Exempt Bond Fund has capital loss
carryforwards as of October 31, 1995, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
----------- -------
<S> <C> <C>
Tax Exempt Bond Fund.......... $ 1,090,819 2002
$ 92,036 2003
</TABLE>
7. EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED):
The Group designates the following exempt-interest income for the taxable
year ended October 31, 1995:
<TABLE>
<CAPTION>
SHORT DURATION
TAX EXEMPT TAX EXEMPT
BOND FUND FUND
----------- --------------
<S> <C> <C>
Exempt-interest dividends..... $1,550,981* $743,140*
Exempt-interest dividends per
share........................ 0.46 0.42
</TABLE>
* Includes exempt-interest income from alternative minimum tax paper in the
amounts of $29,997 and $43,379 for the Tax Exempt Bond Fund and the Short
Duration Tax Exempt Fund, respectively.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The percentage break-down of the exempt-interest income by state for the
Funds' taxable year ended October 31, 1995 was as follows:
<TABLE>
<CAPTION>
SHORT DURATION
TAX EXEMPT TAX EXEMPT
BOND FUND FUND
---------- --------------
<S> <C> <C>
Alabama........................................... 0.3% 0.5%
Arizona........................................... 1.2 4.1
California........................................ 15.8 6.7
Colorado.......................................... 0.3 0.3
Connecticut....................................... 0.0 4.2
Delaware.......................................... 0.5 0.0
Florida........................................... 3.2 6.6
Georgia........................................... 2.1 4.4
Hawaii............................................ 0.8 0.0
Illinois.......................................... 3.2 9.2
Indiana........................................... 1.6 0.3
Kansas............................................ 0.1 0.0
Kentucky.......................................... 0.2 0.0
Louisiana......................................... 0.1 5.5
Maryland.......................................... 5.4 6.8
Massachusetts..................................... 5.7 0.1
Michigan.......................................... 0.3 0.1
Minnesota......................................... 0.0 5.0
Mississippi....................................... 3.8 0.0
Nebraska.......................................... 0.0 3.2
Nevada............................................ 1.2 2.0
New Hampshire..................................... 0.1 0.3
New Jersey........................................ 1.6 4.8
New York.......................................... 13.7 2.2
North Carolina.................................... 2.5 0.0
Ohio.............................................. 1.8 1.4
Pennsylvania...................................... 4.0 0.1
Puerto Rico....................................... 3.8 1.3
South Carolina.................................... 5.2 2.6
Tennessee......................................... 0.9 1.5
Texas............................................. 4.6 18.4
Utah.............................................. 0.0 3.7
Virginia.......................................... 9.4 0.3
Washington........................................ 4.7 2.5
Wisconsin......................................... 1.8 1.3
Wyoming........................................... 0.1 0.6
----- -----
Total........................................... 100.0% 100.0%
----- -----
----- -----
</TABLE>
23
<PAGE>
PAYDEN & RYGEL INVESTMENT GROUP
TAX EXEMPT FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT ACTIVITIES SHAREHOLDERS
Net
Net Asset Net realized Total From Total Asset
Value, Net and unrealized from net from Value,
Beginning investment gains (losses) investment investment shareholder End of Total
of Period income on investments activities income distributions Period Return
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
TAX EXEMPT BOND FUND
Year ended $ 8.90 0.46 0.69 1.15 (0.46) (0.46) $ 9.59 13.25%
October 31, 1995
For the period $ 10.00 0.33 (1.10) (0.77) (0.33) (0.33) $ 8.90 (7.85)%(b)
December 21, 1993 to
October 31, 1994 (a)
- ------------------------------------------------------------------------------------------------------------------------------
SHORT DURATION TAX EXEMPT FUND
- ------------------------------------------------------------------------------------------------------------------------------
Year ended $ 9.93 0.42 0.15 0.57 (0.42) (0.42) $ 10.08 5.88%
October 31, 1995
For the period $ 10.00 0.04 (0.07) (0.03) (0.04) (0.04) $ 9.93 (0.35)%(b)
September 1, 1994 to
October 31, 1994 (a)
<CAPTION>
RATIOS/SUPPLEMENTARY DATA
Ratio Ratio
Net Ratio of net Ratio of net
Assets of investment of investment
at end expenses income expenses income
of to to to to
period average average average average Portfolio
(000) net assets net assets net assets* net assets* Turnover
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
TAX EXEMPT BOND FUND
Year ended $ 40,052 0.45% 4.97% 0.74% 4.69% 41.87%
October 31, 1995
For the period $ 25,474 0.50%(c) 4.47%(c) 1.07%(c) 3.90%(c) 97.53%
December 21, 1993 to
October 31, 1994 (a)
- ------------------------------------------------------------------------------------------------------------------------------
SHORT DURATION TAX EXEMPT FUND
- ------------------------------------------------------------------------------------------------------------------------------
Year ended $ 16,019 0.45% 4.12% 0.91% 3.66% 79.81%
October 31, 1995
For the period $ 20,150 0.45%(c) 3.20%(c) 2.87%(c) 0.78%(c) 0.00%
September 1, 1994 to
October 31, 1994 (a)
</TABLE>
* During the period, certain fees were voluntarily reduced and/or certain
expenses were subsidized by the Adviser. If such voluntary fee reductions
and expense subsidies had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
See notes to financial statements.
24 25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees
Payden & Rygel Tax Exempt Bond Fund and
Payden & Rygel Short Duration Tax Exempt Fund:
We have audited the accompanying statements of assets and liabilities of the
Payden & Rygel Tax Exempt Bond Fund and the Payden & Rygel Short Duration Tax
Exempt Fund, including the schedules of portfolio investments, as of October 31,
1995, and the related statements of operations for the year then ended, and the
statements of changes in net assets and the financial highlights for the periods
presented. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the Funds' custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Payden & Rygel
Tax Exempt Bond Fund and the Payden & Rygel Short Duration Tax Exempt Fund at
October 31, 1995, the results of their operations for the year then ended, the
changes in their net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
December 8, 1995
26
<PAGE>
GLOSSARY OF TERMS
ASSET-BACKED SECURITY
A fixed income investment that is created when a lender pools assets such as
auto loans or credit card receivables and sells interests in the asset pool to
investors. These pools typically mature in less than five years. In order to
receive a AAA credit rating, the issuer of the security will often
overcollateralize the pool by placing more assets in the pool than the value of
the newly created securities.
AVERAGE MATURITY
The amount of time until half of the portfolio will mature. This is computed
by weighting the time to maturity of each investment by the dollars invested.
CALLABLE BOND
A bond in which the issuer has the right to prepay the debt prior to the
stated maturity date. When interest rates fall, many issuers pay off their
existing debt and issue new debt at the lower rate (much like refinancing a
mortgage). Callable bonds are generally not as desirable when interest rates are
falling and thus their prices do not increase as much as non-callable bonds in
market rallies.
COMMERCIAL PAPER
Typically commercial paper does not exceed 270 days to maturity.
CURRENCY EXPOSURE
The potential for gain or loss from changes in currency exchange rates. A
bond denominated in a foreign currency will increase in value as the U.S. dollar
weakens (foreign currency strengthens). Conversely, this same investment will
decrease in value as the U.S. dollar strengthens (foreign currency weakens).
CURRENCY HEDGE
An investment strategy designed to neutralize or change currency exposure.
Using the forward exchange market, or currency options, these strategies can
reduce the effect of changes in currency exchange rates on the portfolio.
DURATION
A mathematical calculation that computes a time-weighted value of each cash
flow to be received from an investment. Duration is somewhat analogous to a
bond's weighted average maturity, and generally increases as the time to
maturity increases. Duration is a measure of price sensitivity. The higher the
duration, the more the price of an investment will move for a given change in
interest rates.
27
<PAGE>
GENERAL OBLIGATION BONDS
Debt issued by a municipality which is backed by the good faith and credit
and general taxing power of the issuer. No specific source of revenue is
earmarked to repay the debt. Interest is generally Federal tax-free to
investors.
NET ASSET VALUE (NAV)
The value of the Fund after the deduction of any liabilities and expenses.
When divided by the number of shares outstanding, this is the price per share
for the Fund.
REVENUE BONDS
Debt issued by a municipality to finance a particular project such as the
construction of roads or airport facilities. The debt is repaid from the
revenues of the project. Investors have no recourse to other assets of the
municipality should the project be unable to repay its debt. Principal and
interest payments are often insured by a third party in order to increase the
credit rating of the debt issue and thus improve its attractiveness to
investors.
TOTAL RETURN
The true return on an investment which is the total of interest earned, all
realized capital gains and any unrealized capital gains.
VARIABLE RATE DEMAND NOTE
A municipal debt issue in which the interest rate is reset to meet market
demand, generally on a daily or weekly basis. The investor has the right to
return the investment at any time at a price of 100 cents on the dollar.
Although the debt may not mature for several years, investors consider this to
be a short-term investment due to the right to return the note.
YIELD CURVE
A graph showing the relationship between bond yields and their time to
maturity. Yield curves are generally constructed using government bonds. Other
fixed income investments, such as corporate bonds or mortgages, are then valued
by adding an additional yield to that of the comparable maturity government
issue. This additional yield is called the "yield spread" of the investment.
28
<PAGE>
[logo]
Payden & Rygel
Investment
Group
333 SOUTH GRAND AVENUE-32ND FLOOR-LOS ANGELES, CALIFORNIA 90071
TELEPHONE (213) 625-1900
