Payden & Rygel
GROWTH & INCOME FUND
PROSPECTUS
August 14, 1996
[LOGO]
TABLE OF CONTENTS
Prospectus Summary 1
Expense Information 3
Investment Objectives 6
Investment Policies and Risk Factors 6
Management of the Fund 13
How to Purchase Shares 15
Shareholder Services 17
Redemption of Shares 18
Net Asset 18
Dividends, Distributions and Taxes 19
Other Information 20
The Payden & Rygel Investment Group (the "Group") is a professionally
managed, no-load, open-end management investment company. The Group
currently consists of eleven distinct portfolios with separate investment
objectives.
The Growth & Income Fund (the "Fund") seeks to provide growth of capital
and some current income. Under normal market conditions, the Fund invests
at least 45% of its total assets in equity securities, such as common and
preferred stocks and securities which are convertible into common stocks,
and the balance of its total assets in equity-based derivative instruments,
such as Standard & Poor's Depositary Receipts ("SPDRs"), stock index
futures contracts, options on stocks and stock indexes, and equity swap
contracts. The Fund currently anticipates that under normal market
conditions approximately 50% of its total assets will be invested each year
in the ten common stocks included in the Dow Jones Industrial Average which
had the highest dividend rates during the previous calendar year (as a
percentage of their market price at or about the end of such previous
year), and that the balance of its assets will be invested primarily in
SPDRs or a substantial number of additional common stocks that the Adviser
believes would closely replicate the performance of the Standard & Poor's
500 Index.
The Fund is designed to provide individuals and institutions with access to
the professional investment management services offered by Payden & Rygel
(the "Adviser"), which serves as investment adviser to the Funds. However,
unlike most equity funds, in which much of an investor's return will
typically come from long-term capital gains, most income expected to be
earned by the Fund will be taxable at ordinary income tax rates. Due to
the tax disadvantage of ordinary income compared to long-term gains,
taxable investors may not deem the Fund to be as advantageous as other
equity funds after consideration of tax effects. Taxable investors are
advised to consult an income tax adviser prior to investing in the Fund.
There can be no assurance that the Fund's investment objectives will be
achieved.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional
Information, dated August 14, 1996, containing additional information
about the Fund, has been filed with the Securities and Exchange Commission
and is incorporated by reference into this Prospectus. It is available
without charge and may be obtained by writing the Fund at 333 South Grand
Avenue, Los Angeles, California 90071 or by telephone at (213) 625-1900 or
(800) 5-PAYDEN (800/572-9336).
This Prospectus should be read and retained for reference to information
about the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 14, 1996.
PROSPECTUS SUMMARY
THE FUNDThe Fund is a non-diversified series of Payden & Rygel Investment
Group, a no-load, open-end management investment company organized as a
Massachusetts business trust in January, 1992. The Fund is primarily
designed to provide pension and profit sharing plans, employee benefit
trusts, endowments, foundations, other institutions, corporations and
individuals with access to the professional investment management services
offered by Payden & Rygel, which serves as investment adviser to the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The Fund seeks to provide growth of capital and some current income. Under
normal market conditions, the Fund invests at least 45% of its total assets
in equity securities, such as common and preferred stocks and securities
which are convertible into common stocks, and the balance of its total
assets in equity-based derivative instruments, such as Standard & Poor's
Depositary Receipts ("SPDRs"), stock index futures contracts, options on
stocks and stock indexes, and equity swap contracts. The Fund currently
anticipates that under normal market conditions approximately 50% of its
total assets will be invested each year in the ten common stocks included
in the Dow Jones Industrial Average which had the highest dividend rates
during the previous calendar year (as a percentage of their market price at
or about the end of such previous year), and that the balance of its assets
will be invested primarily in SPDRs or a substantial number of additional
common stocks that the Adviser believes would closely replicate the
performance of the Standard & Poor's 500 Index.
INVESTMENT RISKS AND CONSIDERATIONS
Investment risks and other considerations relevant to the securities in
which the Fund invests are described under "Investment Objectives" and
"Investment Policies and Risk Factors." Although equity securities have a
history of long-term growth in value, their prices fluctuate based on
changes in the issuer's financial condition and prospects, and on overall
market and economic conditions. As a "non-diversified" fund for purposes
of the Investment Company Act of 1940, the Fund may invest a greater
percentage of its assets in the securities of one issuer than diversified
funds and may be more susceptible to risks associated with a single
economic, political or regulatory occurrence than diversified funds.
The acquisition of dollar-denominated securities issued by foreign
governments and foreign companies involves investment risks that are
different in some respects from those incurred by a fund that invests only
in debt obligations of U.S. governmental entities and domestic companies,
including differences in reporting standards; adverse changes in investment
or tax regulations; political instability; possible expropriation,
nationalization or confiscatory taxation; greater portfolio volatility;
less liquidity; less governmental regulation of securities issuers;
possible difficulty in obtaining and enforcing judgments in foreign courts;
and imposition of restrictions on foreign investments.
The Fund invests in certain derivative instruments such as SPDRs, put and
call options on securities and securities indexes, stock index futures
contracts, options on such futures contracts, and equity swap contracts.
The Fund's use of derivatives involves certain costs and risks. These
include the risk that the Adviser's forecasts of market values, interest
rates and other factors are not correct; imperfect correlation between
derivatives used as a hedging technique and the asset or liability being
hedged; default by the other party to the transaction; and inability to
close out options or futures positions because of the lack of a liquid
market. Investment in such derivative instruments may not be successful
and may reduce the returns and increase the volatility of the Fund.
The Fund's annual portfolio turnover rate may vary substantially, which
could cause its transaction costs to be higher than those of other mutual
funds with less aggressive trading strategies. To the extent that short-
term trading results in the realization of short-term capital gains,
shareholders will be taxed on such gains at ordinary income tax rates.
See "Dividends, Distributions and Taxes."
INVESTMENT ADVISER
Payden & Rygel serves as Adviser to the Fund. The Adviser is an investment
management firm established in 1983 and currently has over $20 billion of
assets under management. The Adviser receives a monthly fee from the Fund
at an annual rate of 0.50% of the Fund's average daily net assets up to $2
billion and 0.30% of net assets in excess of $2 billion. Expenses of Class
A and Class B shares of the Fund (excluding interest, taxes, portfolio
transaction expenses, blue sky fees, 12b-1 plan fees [if any such plan is
adopted in the future] and extraordinary expenses) will not exceed 0.80%
and 1.00% of average daily net assets, respectively, on an annualized
basis. See "Management of the Funds."
In addition, the Adviser has voluntarily agreed to temporarily reduce its
fees further through at least October 31, 1996. See "Expense Information."
PURCHASE OF SHARES
Two classes of shares of the Fund are offered through Payden & Rygel
Distributors (the "Distributor"), an affiliate of the Adviser, at the net
asset value per share next determined after receipt of a proper purchase
order, with no sales charge for either class. The minimum initial
investment is $5,000, and the minimum subsequent investment is $1,000.
Class B Shares are subject to Shareholder Service Plan (the "Plan") fees of
0.20% of average daily net assets. Class A Shares do not participate in
the Plan. Fund shares may be exchanged for Class A or Class B shares of
any other series of the Group or for the other class of shares of the Fund.
See "How to Purchase Shares" and "Shareholder Services."
REDEMPTIONS
Shares of the Fund may be redeemed without cost at the net asset value per
share of the Fund next determined after receipt of a redemption request in
proper form. The redemption price may be more or less than the purchase
price. See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
The Fund generally distributes dividends from net investment income
quarterly and any net realized capital gains at least annually. All
dividends and distributions are paid in the form of additional shares at
net asset value unless cash payment is requested. See "Dividends,
Distributions and Taxes."
FUND ADMINISTRATOR AND TRANSFER AGENT
Fund administration is conducted by Treasury Plus, Inc., a wholly owned
subsidiary of the Adviser. Fund portfolio accounting and transfer agency
services are provided by Investors Fiduciary Trust Company.
CUSTODIAN
The Boston Safe Deposit and Trust Company, One Boston Place, Boston,
Massachusetts 02109, (the "Custodian") acts as Fund custodian. Foreign
securities are maintained in the custody of foreign branches of U.S. banks,
foreign banks and foreign trust companies that are members of the Boston
Company's global custody network or foreign depositories used by such
members.
EXPENSE INFORMATION
Two Classes of shares are offered to investors.
Class A Shares
Class A shares of the Fund are offered to investors on a no-load basis
without any sales commissions or distribution ("12b-1 plan") charges.
Shareholder Transaction Expenses - Class A Shares
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Maximum Annual Fund Operating Expenses - Class A Shares
(as an estimated percentage of average net assets for the fiscal year ended
October 31, 1996, after reimbursement of advisory fees and other expenses)
Advisory Fees 0.50%
Other Expenses (estimated) 0.10%
Total Expenses 0.60%
The Adviser has agreed to guarantee that, for so long as it acts as
investment adviser to the Fund, the expenses of the Fund attributable to
Class A Shares, including advisory fees (but excluding interest, taxes,
portfolio transaction expenses, blue sky fees, 12b-1 plan fees [if any such
plan is adopted in the future] and extraordinary expenses) will not exceed
0.80% of average annual net assets of Class A Shares. In addition, the
Adviser has voluntarily agreed to temporarily reduce its fees through at
least October 31, 1996, so that the Fund expenses will not exceed 0.60% of
average annual net assets. The Fund will reimburse the Adviser for fees
foregone or other expenses paid by it in any fiscal year pursuant to the
expense guarantee or voluntary expense cap at a later date, without
interest, so long as such reimbursement will not cause the annual expense
ratio for the year in which it is made to exceed the amount of the expense
guarantee or expense cap (whichever is in effect at the time of
reimbursement). The Fund will not be required to repay any unreimbursed
amounts to the Adviser upon termination of its investment management
contract with respect to the Fund. Actual expenses for Class A Shares of
the Fund for the fiscal year ended October 31, 1996, before reimbursement
by the Adviser, are estimated to be 1.0% of average net assets
(annualized).
The following table illustrates the expenses a Class A shareholder would
pay on a $1,000 investment over various time periods assuming (1) a 5%
annual return and (2) redemption at the end of each time period. As noted
above, the Fund does not charge redemption fees of any kind.
Expenses Per $1,000 Investment
1 Year 3 Years
$6 $19
The information in the previous tables is provided for purposes of
assisting current and prospective shareholders in understanding the various
costs and expenses that an investor in Class A shares will bear, directly
or indirectly. The hypothetical annual return of 5% is used for
illustrative purposes only and should not be interpreted as an estimate of
the Fund's annual returns, as there can be no guarantee of the Fund's
future performance.
Class B Shares
Class B Shares are similar to Class A Shares with the exception that Class
B Shares will be subject to a Shareholder Service Plan.
Shareholder Transaction Expenses - Class B Shares
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
Maximum Annual Fund Operating Expenses - Class B Shares
(as an estimated percentage of average net assets for the fiscal year ended
October 31, 1996, after reimbursement of advisory fees and other expenses)
Advisory Fees 0.50%
Other Expenses* 0.35%
Total Expenses 0.85%
* includes Shareholder Service Plan fee of 0.25%
The Adviser has agreed to guarantee that, for so long as it acts as
investment adviser to the Fund, the expenses of the Fund attributable to
Class B Shares, including advisory fees (but excluding interest, taxes,
portfolio transaction expenses, blue sky fees, 12b-1 plan fees [if any such
plan is adopted in the future] and extraordinary expenses) will not exceed
1.00% of the average annual net assets of Class B Shares. In addition, the
Adviser has voluntarily agreed to temporarily reduce its fees so that such
Fund expenses will not exceed 0.80% of average annual assets. This fee
reduction will be maintained at least through October 31, 1996. The Fund
will reimburse the Adviser for fees foregone or other expenses paid by it
in any fiscal year pursuant to the expense guarantee or voluntary expense
cap at a later date, without interest, so long as such reimbursement will
not cause the annual expense ratio of Class B Shares for the year in which
it is made to exceed the amount of the expense guarantee or expense cap
(whichever is in effect at the time of reimbursement). The Fund will not
be required to repay any unreimbursed amounts to the Adviser upon
termination of its investment management contract with respect to the Fund.
Actual expenses for the Class B Shares for the Fund for the fiscal year
ended October 31, 1996, before reimbursement by the Adviser, are estimated
to be 1.20% of average net assets (annualized).
The following table illustrates the expenses a Class B shareholder would
pay on a $1,000 investment over various time periods assuming (1) a 5%
annual return and (2) redemption at the end of each time period. As noted
above, the Fund charges no redemption fees of any kind.
Expenses Per $1,000 Investment
1 Year 3 Years
$8 $25
The information in the tables above is provided for purposes of assisting
current and prospective shareholders in understanding the various costs and
expenses that an investor in Class B Shares will bear, directly or
indirectly. The hypothetical annual return of 5% is used for illustrative
purposes only and should not be interpreted as an estimate of the Fund's
annual returns, as there can be no guarantee of the Fund's future
performance.
INVESTMENT OBJECTIVES
The Fund seeks to provide growth of capital and some current income. Under
normal market conditions, the Fund invests at least 45% of its total assets
in equity securities, such as common and preferred stocks and securities
which are convertible into common stocks, and the balance of its total
assets in equity-based derivative instruments, such as Standard & Poor's
Depositary Receipts ("SPDRs"), stock index futures contracts, options on
stocks and stock indexes, and equity swap contracts. The portion of the
Fund's total assets invested in equity securities will vary from time to
time, depending upon the Adviser's assessment of the available equity-based
derivative investments. The Fund currently anticipates that under normal
market conditions approximately 50% of its total assets will be invested
each year in the ten common stocks included in the Dow Jones Industrial
Average which had the highest dividend rates during the previous calendar
year (as a percentage of their market price at or about the end of such
previous year), and that the balance of its assets will be invested
primarily in SPDRs or a substantial number of additional common stocks that
the Adviser believes would closely replicate the performance of the
Standard & Poor's 500 Index.
Although the Fund's return will vary principally with changes in the equity
market, the Fund is not an index fund, and changes in the Fund's net asset
value per share will not precisely track changes in the general market.
The Fund earns income through investments in dividend paying stocks.
During times when the Adviser believes that a temporary defensive posture
is warranted, the Fund may hold part or all of its assets in cash, U.S.
Government and Government agency securities, money market obligations,
corporate debt securities and money market funds, as described below. When
the assets of the Fund are so invested, the Fund may not be achieving its
investment objective.
Because of its investment policies, the Fund may or may not be suitable or
appropriate for all investors. The Fund is not a money market fund and is
not appropriate for those whose primary objective is stability of
principal. The value of the portfolio securities of the Fund will
fluctuate based upon market conditions.
INVESTMENT POLICIES AND RISK FACTORS
The Fund may purchase the securities and instruments and participate in the
transactions listed below. See "Investment Objectives and Policies" in the
Statement of Additional Information for more detailed discussions of these
matters.
Equity Securities and ADRs. The Fund may invest in equity securities,
including common stocks, convertible securities and warrants. Common
stocks, the most familiar type of equity securities, represent an equity
(ownership) interest in a corporation. The Fund may also purchase dollar-
denominated American Depository Receipts ("ADRs"), which are securities
issued by domestic banks and evidence ownership of underlying foreign
securities. ADRs may be sponsored by the foreign issuer or may be
unsponsored. Unsponsored ADRs are organized independently and without the
cooperation of the foreign issuer of the underlying securities; as a
result, available information regarding the issuer may not be as current as
for sponsored ADRs, and the prices of unsponsored ADRs may be more volatile
than if they were sponsored by the issuers of the underlying securities.
Convertible Securities and Warrants. Convertible securities, such as
convertible preferred stocks and debentures, may be exchanged for or
converted into a predetermined number of shares of the issuer's common
stock at the option of the holder during a specified time period.
Convertible securities generally pay interest or dividends and provide for
participation in the appreciation of the underlying common stock. The
value of a convertible security is a function of a variety of factors,
including its yield in comparison with comparable non-convertible
securities, its value if converted into the underlying common stock, and
the credit standing of the issuer.
Warrants give the holder the right to purchase a specified number of shares
of the underlying stock at any time at a fixed price, but do not pay a
fixed dividend. Investment in warrants involve certain risks, including
the possible lack of a liquid market for resale, potential price
fluctuations as a result of speculation or other factors, and the failure
of the price of the underlying security to reach or have reasonable
prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of the Fund's entire investment in the warrant). As a
matter of operating policy, the Fund will not invest more than 5% of its
total assets in warrants.
Standard & Poor's Depositary Receipts. SPDRs are shares of a publicly
traded unit investment trust which owns the stocks included in the Standard
& Poor's 500 Index, and changes in the prices of SPDRs track the movement
of the Index relatively closely. SPDRs are subject to the risks of an
investment in a broadly based portfolio of common stocks, including the
risk of declines in the general level of stock prices. They are also
subject to the risks of trading halts due to market conditions or other
reasons that, in the view of the New York Stock Exchange, make trading in
SPDRs inadvisable.
Under normal market conditions, up to 50% of the total assets of the Fund
may be invested in a combination of SPDRs and equity index mutual funds.
However, under the Investment Company Act of 1940, the Trust and its
affiliated persons, including investors holding 5% or more of the
outstanding shares of the Fund and other clients of the Adviser, may not
hold in the aggregate more than 3% of the outstanding SPDRs.
In addition, the Act provides that (i) neither the unit investment trust
which issues SPDRs, nor any equity index mutual fund in which the Fund
invests, is obligated to redeem SPDRs or shares of such fund in an amount
exceeding 1% of the issuer's total outstanding securities during any period
of less than 30 days, and (ii) the Fund must vote shares of such investment
trust and any such equity index mutual fund in the same proportion as the
vote of all other shareholders of such securities, or must seek voting
instructions from the shareholders of the Fund with regard to the voting of
proxies with respect to such investment trust and such equity index mutual
fund and must vote the proxies in accordance with such instructions. The
Investment Adviser does not believe that these requirements will adversely
impact the Fund.
SPDR shares trade on the American Stock Exchange at approximately one-tenth
the value of the S&P 500 Index. SPDRs are relatively liquid with an
average daily volume during August, 1996 of 708,000 shares per day.
Because SPDRs exactly replicate the Index, any price movement away from the
value of the underlying stocks is generally quickly eliminated by
professional traders. Thus, the Adviser believes that the movement of SPDR
share prices should closely tract the movement of the Index.
The administrator of the SPDR program, the American Stock Exchange,
receives a fee to cover its costs of approximately 0.20% per year. This
fee is deducted from the dividends paid to SPDR investors. Investors in
Fund shares will incur not only the operational costs of the Fund, but will
also incur the expenses deducted by the administrator of the SPDR program.
Futures and Option Contracts. The Fund may enter into equity index futures
contracts for the non-hedging investment purposes described above, as well
as to hedge against declines in the value of equity securities held or
intended to be held by the Fund. An equity index, such as the S&P 500
Index, is a statistical measure designed to reflect specified facets of a
particular financial or securities market.
An index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written.
An interest rate futures contract provides for the delivery by one party
and the purchase by another party of a specified quantity of a financial
instrument at a specified future date and price. Although the value of a
futures contract may be a function of the value of certain specified
securities, no physical delivery of these securities is made. Such futures
contracts are derivative instruments which may be traded on U.S. exchanges
or with broker-dealers which maintain futures markets. Upon entering into
a futures contract, the Fund will be required to deposit with its custodian
in a segregated account in the name of its futures broker a specified
amount of cash or securities. This amount is known as "initial margin",
and is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Fund upon termination of the contract,
assuming all contractual obligations have been satisfied. Subsequent
payments, called "variation margin" to and from the broker, will be made on
a daily basis as the price of the index fluctuates, making the position in
the futures contract more or less valuable, a process known as "marking to
market".
The Fund may also purchase covered and uncovered put and call options on
securities and securities indexes, write covered put and call options on
securities and securities indexes, and purchase and write put and call
options on futures contracts. Such options are derivative securities which
may be traded on U.S. exchanges or with broker-dealers which maintain
markets for options. The Fund may also employ combinations of put and call
options, including without limitation straddles, spreads, collars and
strangles.
Transactions in options, futures contracts and options on futures contracts
involve a variety of risks, including the inability to close out a position
because of the lack of a liquid market, default by the other party to the
contract and, in the case of futures transactions, lack of correlation
between price movements in the derivative instruments and the equity
markets or the portfolio assets being hedged. In addition, the potential
loss incurred by the Fund in engaging in futures transactions and writing
options on future contracts is unlimited. No more than 5% of the value of
the Fund's total assets will be committed to initial margin deposits on
futures contracts and premiums on option contracts. The Fund covers its
obligations with respect to such futures contracts and options by
maintaining assets sufficient (together with its margin deposits) to meet
such obligations; depending on the nature of the contract or option, this
cover is in the form of liquid assets, put or call options on the
underlying instruments which are the subject of the contract or option, or
a long or short position in the contract which is the subject of an option.
Options and futures transactions can be highly volatile and could result in
reduction of a Fund's total return, and the Fund's attempt to use such
instruments for hedging purposes may not be successful. The aggregate
market value of the Fund's portfolio securities covering put and call
options on securities written by the Fund will not exceed 50% of the value
of its net assets.
Equity Swap Contracts. The Fund may enter into equity swap transactions.
An equity swap is a derivative instrument which involves an agreement
between the Fund and another party to exchange payments calculated as if
they were interest on a fictitious ("notional") principal amount. The Fund
will typically pay a floating rate of interest, such as the three-month
London Interbank Offered Rate, and receive the total return (price change
plus dividends) of a specified equity index (such as the S&P 500 Index).
If the total return on the equity index is negative for the contract
period, the Fund will pay its counterparty the amount of the loss in the
value of the notional amount plus interest at the floating rate. From time
to time, the Fund may wish to cancel an equity swap contract in order to
reduce its equity exposure. Although the swap contract may be sold back to
the Fund's counterparty, it may be more advantageous to enter into a swap
contract in which the Fund would reduce its equity exposure by agreeing to
receive a floating rate of interest and pay the change in the index. This
is sometimes called a "reverse equity swap contract" and would only be
entered into to reduce equity exposure. The Fund will not use reverse swap
contracts to short the equity market.
The Fund usually enters into such transactions on a "net" basis, with the
Fund receiving or paying, as the case may be, only the net amounts of the
two payment streams. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each swap is accrued on a
daily basis, and an amount of cash or high-quality liquid securities having
an aggregate net asset value at least equal to the accrued excess is
maintained in a segregated account by the Group's Custodian. If the Fund
enters into a swap on other than a net basis, the Fund maintains a
segregated account in the full amount accrued on a daily basis of the
Fund's obligations with respect to the transaction. Such segregated
accounts are maintained in accordance with applicable regulations of the
Securities and Exchange Commission.
The Fund does not enter into any swap transaction unless the unsecured
senior debt or the claims paying ability of the other party to the
transaction (typically a bank, investment banking firm or broker-dealer) is
rated at least A by Standard & Poor's Corporation or Moody's Investor
Services, Inc. Swap transactions do not involve the delivery of securities
or other underlying assets or principal, and the risk of loss with respect
to such transactions is limited to the net amount of payments that the Fund
is contractually obligated to make or receive. However, the staff of the
Securities and Exchange Commission considers equity and reverse equity swap
contracts to be illiquid securities. Consequently, while the staff
maintains this position, the Fund will not enter into an equity swap
transaction at any time that the aggregate amount of its net obligations
under such transactions, together with the value of all other illiquid
securities the Fund owns, exceeds 15% of its net assets.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Adviser's forecast of market
values, interest rates, and other applicable factors is incorrect, the
investment performance of the Fund will diminish compared with the
performance that could have been achieved if these investment techniques
were not used. Moreover, even if the Adviser's forecasts are correct, the
Fund's swap position may correlate imperfectly with the markets or the
asset or liability being hedged. In addition, in the event of a default by
the other party to the transaction, the Fund might incur a loss.
Other Equity Investments. The Fund may purchase preferred stocks and
shares of equity index funds. Preferred stock, unlike common stock, offers
a stated dividend rate payable from a corporation's earnings, and also
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation.
Equity index mutual funds, which own the stocks included in the S&P 500
Index, are intended to closely track the Index; although such funds
generally have substantial assets and low operating expenses, investment in
such a fund by the Fund will involve a duplication of expenses, as it will
require payment by the Fund of its pro rata share of advisory and
administrative fees charged by the fund. The Fund does not anticipate
investing more than 50% of its net assets in a combination of equity index
mutual funds and SPDRs.
U.S. Government and Agency Obligations. The Fund may invest in obligations
issued by the U.S. Treasury and in securities issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These securities
include Treasury bills, which mature in one year or less, Treasury notes
and bonds that mature in 2 to 30 years from the date of issue, and agency
issues, which may have maturities from one day to 40 years. Corporate Debt
Securities. The Fund may invest in U.S. dollar denominated corporate
bonds, debentures, notes and other similar non-convertible debt instruments
of domestic and foreign corporations which, at the time of purchase, are
rated investment grade by at least one of the established rating agencies
or, if unrated, are determined to be of comparable quality by the Adviser.
Such obligations may have interest rates which are fixed, variable or
floating. The Fund may also purchase long-term debt obligations that have
been coupled with an option allowing the Fund at specified intervals to
tender (or "put") such debt obligations to the issuer and receive an agreed
upon amount, usually face value plus accrued interest. All debt securities
held by the Fund are rated "investment grade" at the time of purchase by at
least one of the established rating agencies (e.g., AAA, AA, A, or BBB by
Standard & Poor's Corporation) or, if unrated, are determined to be of
comparable quality by the Adviser. Securities rated BBB are considered to
have adequate capacity to pay interest and repay principal, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and principal than higher rated bonds.
If the rating of a debt security in which the Fund has made an investment
falls below the investment grade level, the Fund will discontinue making
investments in that issuer and liquidate any current holdings as soon as
the Adviser determines it is in the best interest of the Fund to do so.
In no event will the Fund hold more than 5% of its net assets in
obligations rated below investment grade. No such obligation will be rated
below BB.
Money Market Obligations. The Fund may invest in U.S. dollar denominated
bank certificates of deposit, bankers acceptances, commercial paper and
other short-term debt obligations of U.S. and foreign issuers, including
U.S. Government and agency obligations. All money market obligations will
be required to be high quality, meaning that the security will be rated in
one of the two highest categories for short-term securities by at least two
nationally recognized rating services (or by one if only one rating service
has rated the security) or, if unrated, will be judged to be of equivalent
quality by the Adviser.
Money Market Funds. To maintain liquidity, the Fund may invest in
unaffiliated money market funds. No money market fund investment by the
Fund will be in excess of 3% of the total assets of the money market fund.
The Fund does not anticipate investing more than 15% of its net assets in
money market funds. An investment in a money market mutual fund by the
Fund will involve a duplication of expenses, as it will require payment by
the Fund of its pro rata share of advisory and administrative fees charged
by such money market fund.
Repurchase Agreements. For the purpose of maintaining liquidity, the Fund
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(primary government dealers as designated by the Federal Reserve
Bank). In the event of a bankruptcy or default of any such dealer, the
Fund could experience costs and delays in liquidating the underlying
securities which are held as collateral, and the Fund might incur a loss if
the value of the collateral held declines during this period.
Certain Risks of Investing in Debt Obligations. Yields on short,
intermediate, and long-term debt obligations depend on a variety of
factors, including the general conditions of the money and bond markets,
the size of a particular offering, the maturity of the obligation and the
rating of the issue. Debt obligations with longer maturities tend to
produce higher yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with shorter
maturities and lower yields. The market prices of debt obligations usually
vary depending upon available yields. An increase in interest rates will
generally reduce the value of such portfolio investments, and a decline in
interest rates will generally increase the value of such portfolio
investments.
Non-Diversified Status of Fund. As the Adviser may from time to time
invest a large percentage of the Fund's assets in securities of one or more
issuers, the Fund is classified as a "non-diversified" investment company.
Accordingly, the Fund may be more susceptible to risks associated with a
single economic, political or regulatory occurrence than a diversified
investment company might be. However, the Fund intends to qualify as a
"regulated investment company" under the Internal Revenue Code, and
therefore will be subject to diversification limits requiring that, as of
the close of each fiscal quarter, (i) no more than 25% of its total assets
may be invested in the securities of a single issuer (other than U.S.
Government securities), and (ii) with respect to 50% of its total assets,
no more than 5% of such assets may be invested in the securities of a
single issuer (other than U.S. Government securities) or invested in more
than 10% of the outstanding voting securities of a single issuer.
Foreign Investment Risks. Investing in the dollar-denominated securities
of any foreign issuer involves special risks and considerations not
typically associated with investing in U.S. issuers. These include
differences in accounting, auditing and financial reporting standards;
different disclosure laws, which may result in less publicly available
information about foreign issuers than U.S. issuers; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of
the ability to transfer currency from a country); and political
instability. Additionally, foreign securities and dividends payable on
those securities may be subject to foreign taxes, including taxes withheld
from payments on those securities. Foreign securities often trade with
less frequency and volume than domestic securities and, therefore, may
exhibit greater price volatility. Additional costs associated with an
investment in foreign securities may include higher custodial fees than
apply to U.S. custodial arrangements.
OTHER INVESTMENT POLICIES
The investment program and policies for the Fund are subject to further
restrictions and risks which are described in the Statement of Additional
Information. The Fund's investment objective is fundamental and,
therefore, may not be changed without obtaining shareholder approval.
Other investment policies and practices may be changed without shareholder
approval unless otherwise specified as fundamental policies.
Fundamental Investment Policies. As a matter of fundamental policy, the
Fund will not (1) purchase a security of any issuer if, as a result, more
than 10% of the outstanding voting securities of the issuer would be held
by the Fund; (2) borrow money except for temporary, extraordinary or
emergency purposes or for the clearance of transactions in amounts not
exceeding 30% of its total assets valued at market (for this purpose,
equity and reverse equity swap transactions are not considered to be
borrowings.); (3) in any manner transfer as collateral for indebtedness any
security of the Fund except in connection with permissible borrowings; or
(4) purchase any security which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the
securities of any one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation
with respect to U.S. Government obligations and repurchase obligations
secured by such obligations, (b) wholly owned finance companies will be
considered to be in the industries of their parents, (c) SPDRs will be
divided according to the industries of their underlying common stocks, and
(d) utilities will be divided according to their services. (For example,
gas, gas transmission, electric and telephone will each be considered a
separate industry.)
Other Investment Policies. As a matter of operating policy, the Fund will
not (1) purchase a security of any one issuer if, as a result, more than
15% of the value of its net assets would be invested in illiquid
securities, including repurchase agreements which do not provide for
payment within seven days, or other securities which are not readily
marketable; or (2) purchase additional securities when borrowings exceed 5%
of the Fund's total assets.
Portfolio Turnover. Securities may be sold without regard to the length of
time held. The portfolio turnover of the Fund may be higher than that of
other mutual funds with less aggressive trading strategies, which would, in
turn, increase the Fund's transaction costs. The Fund cannot accurately
predict its annual portfolio turnover rate; however, although it could vary
substantially, it will generally not exceed 100% during any year. To the
extent that short-term trading results in the realization of short-term
capital gains, shareholders will be taxed on such gains at ordinary income
tax rates.
MANAGEMENT OF THE FUND
The business of the Group is managed under the direction of its Board of
Trustees, which establishes the Group's policies and supervises and reviews
the management of the Fund. Information about the Trustees and the Group's
executive officers may be found in the Statement of Additional Information.
INVESTMENT ADVISER
Payden & Rygel serves as investment adviser to the Fund pursuant to an
investment management contract with the Group. The Adviser is an
investment counseling firm founded in 1983 and currently has over $20
billion of assets under management. Payden & Rygel's address is 333 South
Grand Avenue, Los Angeles, California 90071. It is registered as an
investment adviser with the Securities and Exchange Commission and as a
commodity trading adviser with the Commodity Futures Trading Commission.
The Adviser manages the investment and reinvestment of the assets of the
Fund and reviews, supervises and administers all investments. All
investment decisions for the Fund are made by an investment committee of
five investment professionals. In making such decisions, the committee
primarily uses a fundamental analysis approach, supported by extensive
quantitative analysis. The Adviser is also responsible for placing orders
for the purchase and sale of investments directly with brokers or dealers
selected by it in its discretion. See "Portfolio Transactions" in the
Statement of Additional Information.
The Adviser receives a monthly fee from the Fund at an annual rate based on
0.50% for the first $2 billion of the Fund's average daily net assets and
0.30% of the Fund's net assets above $2 billion.
ADMINISTRATOR AND TRANSFER AGENT
Treasury Plus, Inc., a wholly owned subsidiary of the Adviser located at
3200 North Central Avenue, Suite 620, Phoenix, Arizona, 85012, serves as
the Administrator to the Fund pursuant to a management and administration
contract with the Group. The Administrator provides administrative
services to the Fund, including administrative and clerical functions,
certain shareholder servicing functions and supervision of the services
rendered to the Fund by other persons. Investors Fiduciary Trust Company, a
Missouri trust company located at 127 West 10th Street, Kansas City,
Missouri, 64105, provides accounting, dividend disbursing and transfer
agency services to the Fund pursuant to fund accounting and transfer agency
contracts with the Group.
For providing administrative services to the Group, the Administrator
receives a monthly fee at the annual rate of 0.06% of the daily net assets
of the Group. Investors Fiduciary Trust Company receives fees for fund
accounting services and dividend disbursing and transfer agency services.
Certain out-of-pocket expenses are also reimbursed at actual cost.
DISTRIBUTOR
Shares of the Fund are distributed through Payden & Rygel Distributors, a
wholly owned subsidiary of Payden & Rygel located at the same address. The
Distributor is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities
Dealers.
SHAREHOLDER SERVICE PLAN
The Board of Trustees has adopted a Shareholder Service Plan with respect
to Class B shares of the Fund and of the other portfolios of the Group.
Under the Plan, the Class B shares of the Fund pay the Distributor an
annual fee of up to 0.20% of the average net assets of the Fund
attributable to the Class B shares for services provided by the
Distributor, broker-dealers and other service organizations to the
beneficial owners of Class B shares. Such support services include
establishing and maintaining accounts and records relating to clients;
assisting clients in processing purchase, exchange and redemption requests
and account designations; preparing tax reports and forms; forwarding
shareholder communications from the Fund; and responding to client
inquiries concerning their investments.
Services provided under the Shareholder Service Plan are not primarily
intended to result in the sale or distribution of Class B Shares of the
Fund. The Plan is a "compensation" plan, which means that the fees paid to
the broker-dealers and other service organizations for services rendered
are payable even if the amounts paid exceed their actual expenses. If in
any month the Distributor is due more fees for shareholder services than
are immediately payable because of the expense limitations under the Plan,
the unpaid amount is carried forward from month to month while the Plan is
in effect until such time when it may be paid. However, no carried forward
amount will be payable beyond the fiscal year in which the amount was
incurred, and no interest, carrying or other finance charge is borne by the
Class B Shares with respect to any amount carried forward.
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased at net asset value without a sales
charge. The minimum initial investment is $5,000, and the minimum
subsequent investment is $1,000. The minimum investment may be waived from
time to time by the Group. An account may be opened by calling the
Distributor at (213) 625-1900 or (800) 5-PAYDEN (800/572-9336) and asking
for a Fund Representative. The Representative will answer any questions
and provide a Fund Prospectus. If you wish to open a tax-sheltered
retirement plan such as an IRA, a special application form must be
completed. Please be sure to ask for an IRA information kit.
INITIAL INVESTMENT
By Check
- - Complete Application
- - Make check payable to the Fund and mail with application to:
Payden & Rygel Investment Group
333 South Grand Avenue
Los Angeles, CA 90071
By Federal Funds Wire
- - Complete application and mail to:
Payden & Rygel Investment Group
333 South Grand Avenue
Los Angeles, CA 90071
- - For Growth & Income Fund
Wire funds to The Boston Safe Deposit and Trust Company
ABA #011001234
A/C #115762
Mutual Funds #6630
Credit to Payden & Rygel Growth & Income Fund
For Benefit of (insert account name here)
Note: Third party checks will not be accepted without the prior consent of
the Distributor. Shares cannot be purchased until a properly completed
application is received by the Group.
Shares of the Fund are purchased at the net asset value per share next
determined after receipt by the Distributor of an order to purchase shares
in proper form. Purchase orders will be accepted only on days on which the
Fund and the Custodian are open for business, as defined below.
The Fund is "open for business" on each day the New York Stock Exchange is
open for trading, which excludes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
ADDITIONAL INVESTMENTS
Additional investments may be made at any time (minimum additional
investment $1,000) at net asset value by check or by calling the
Distributor and wiring Federal funds to the Custodian as described above.
TAX-SHELTERED RETIREMENT PLANS
The Funds accept purchases of shares by tax-sheltered retirement plans such
as IRAs, rollover IRAs, Keogh or corporate profit sharing plans, Simplified
Employee Pension plans and 401(k) plans. Please call a Fund Representative
to receive a retirement package which includes a special application for
tax-sheltered accounts. Investors should consult a tax adviser for
information specific to their particular investment situation. Fees paid
to the trustee of any such plan for account set up and annual maintenance
will be charged to the plan's account.
OTHER PURCHASE INFORMATION
Purchases of shares will be made in full and fractional shares.
Certificates for shares will not be issued. The Fund reserves the right,
in its sole discretion, to suspend the offering of shares or to reject
purchase orders when, in the judgment of its management, such suspension or
rejection is in the best interest of the Fund; to waive the minimum initial
investment for certain investors; and to redeem shares if information
provided in the client application proves to be incorrect in any material
manner.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
The Group currently consists of eleven investment portfolios with varying
investment objectives and policies, and other investment portfolios may be
created by the Board of Trustees in the future. If a shareholder's
investment objective or outlook for the securities markets changes, Fund
shares may be exchanged for Class A or Class B shares of any of the other
investment portfolios of the Group which are eligible for sale to the
shareholder by the Distributor or for the other class of shares of the
Fund. Exchanges are made on the basis of the net asset values of the
portfolios involved.
Because an exchange is considered a redemption and purchase of shares, the
shareholder may realize a gain or loss for federal income tax purposes.
Information regarding the possible tax consequences of an exchange is
included in the "Dividends, Distributions and Taxes" section of this
Prospectus and in the Statement of Additional Information.
Before making an exchange into another investment portfolio, a shareholder
should obtain and review a current prospectus of the investment portfolio
into which the shareholder wishes to transfer. When exchanging shares into
another investment portfolio, shareholders should be aware that, among
other significant differences, the portfolios may have different dividend
payment dates, minimum initial investments and minimum additional
investments. Exchanges will be effected upon receipt of written
instructions signed by all account owners. In addition, shareholders who
complete the telephone privilege authorization portion of the Account
Registration Form may effect exchanges from the Fund into or an identically
registered account in one of the other available portfolios by a telephone
call to the Distributor at (213) 625-1900 or (800) 5-PAYDEN (800/572-9336).
The Exchange Privilege may be modified or discontinued by the Group at any
time upon 60 days' notice to shareholders. The Group also reserves the
right to limit the number of exchanges a shareholder may make in any year
to avoid excessive Fund expenses. The Exchange Privilege is only available
in states where the exchange may be legally made.
TELEPHONE PRIVILEGE
Shareholders may exchange or redeem shares by telephone if they have
elected the telephone privilege authorization portion of the Account
Registration Form. During periods of drastic economic or market changes,
it is possible that the telephone exchange privilege may be difficult to
implement. In this event, shareholders should follow the other exchange
and redemption procedures discussed in this Prospectus.
Shareholders should realize that, by electing the telephone privilege, they
may be giving up a measure of security that they may have if they were to
exchange or redeem their shares in writing. The Group will employ
procedures designed to provide reasonable assurance that instructions
communicated by telephone, telegraph or wire communication are genuine and,
if it does not do so, it may be liable for any losses due to unauthorized
or fraudulent instructions. The procedures employed by the Group include
requiring personal identification by account number and social security or
tax identification number, tape recording telephone instructions and
providing written confirmation of transactions. The Group reserves the
right to refuse a telephone, telegraph or wire communication exchange or
redemption request if it believes, for example, that the person making the
request is neither the record owner of the shares being exchanged or
redeemed nor otherwise authorized by the investor to request the exchange
or redemption. Shareholders will be promptly notified of any refused
request for a telephone, telegraph, or wire communication exchange or
redemption. Neither the Group nor its agents will be liable for any loss,
liability or cost which results from acting upon instructions of a person
reasonably believed to be a shareholder with respect to the telephone,
telegraph or wire communication privilege.
REDEMPTION OF SHARES
Fund shares will be redeemed at the net asset value next determined
following receipt of the request in proper form. Redemptions may be made
in writing, by calling the Distributor at (213) 625-1900 or (800) 5-PAYDEN
(800/572-9336), by telegraph or by other wire communication. No charge is
made for redemptions. Shares redeemed may be worth more or less than the
purchase price of the shares, depending on the market value of the
investment securities held by the Fund at the time of redemption.
Redemption requests in writing or by telegraph or other wire communications
should be directed to the Payden & Rygel Investment Group, Attn.: Fund
Distributor, at 333 South Grand Avenue, Los Angeles, California 90071. If
the proceeds of a written request are to be paid to a person other than the
record owner of the shares, or are to be sent to an address other than the
address of record, the signature on the request must be guaranteed by a
commercial bank, a trust company or another eligible guarantor institution.
A signature guarantee may be rejected if it is believed to be not genuine
or if there is any reason to believe that the transaction is improper.
Telephone redemptions may be difficult to implement during periods of
drastic economic or market changes, which may result in an unusually high
volume of telephone calls. See "Shareholder Services - Telephone
Privilege."
Payment of the redemption price will ordinarily be wired to the
shareholder's bank or mailed to the shareholder's address of record one
business day after receipt of the request. The Fund may suspend the right
of redemption or postpone the payment date at times when the New York Stock
Exchange is closed or during certain other periods as permitted under the
federal securities laws.
NET ASSET VALUE
For each class of shares, the net asset value per share of the Fund is
determined as of the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m. New York Time) by dividing the difference
between the value of the assets and liabilities of the class by the number
of shares of that class outstanding. The net asset value per share of each
class will vary due to differences in expenses charged to each class and
will generally be lower for Class B shares than for Class A shares. Net
asset value will not be determined on days on which the New York Stock
Exchange is closed.
Portfolio securities and other assets for which market quotations are
readily available (other than obligations with remaining maturities of 60
days or less) are valued at market value. Fixed income securities (other
than obligations with remaining maturities of 60 days or less) are normally
valued on the basis of quotes obtained from brokers and dealers or pricing
services, which take into account appropriate factors such as institutional-
sized trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data.
Certain fixed income securities for which daily market quotations are not
available may be valued, pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities the prices of which are
more readily obtainable and the durations of which are comparable to the
securities being valued. The Board of Trustees has determined that debt
securities with remaining maturities of 60 days or less will be valued on
an amortized cost basis unless the Adviser determines that such basis does
not represent fair value at the time.
The Fund invests in securities that are traded in certain markets on days
or at times the Fund is not open for business. Accordingly, the Fund's net
asset value may be significantly affected on days or at times when
investors cannot purchase or redeem shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends are generally declared and distributed to shareholders quarterly.
Class B dividends will normally be lower than Class A dividends. Any net
realized capital gains from the sale of portfolio securities will be
distributed no less frequently than once a year. Dividend and capital gain
distributions of the Fund will be paid in the form of additional shares of
the Fund at the net asset value on the ex-dividend date unless the
shareholder elects to have them paid in cash by completing an appropriate
request form.
The Fund has elected and intends to qualify annually to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not
be subject to federal income tax on its investment company taxable income
(which includes taxable interest and net short-term capital gains in excess
of any net long-term capital losses) and net capital gain (net long-term
capital gains in excess of the sum of net short-term capital losses and
unexpired capital loss carryovers), if any, that it distributes to
shareholders, provided it distributes each taxable year at least 90% of its
investment company taxable income, including its net interest income
excludable from gross income under section 103(a) of the Code. The Fund
intends to distribute to its shareholders, at least annually, substantially
all such amounts.
Any dividends or distributions paid shortly after a purchase by an investor
will have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the dividends or
distributions. Accordingly, prior to purchasing shares of the Fund, an
investor should carefully consider the impact of the dividends or capital
gains distributions which are expected to be or have been announced.
Distributions may be subject to additional state and local taxes, depending
on each shareholder's particular situation. Shareholders should consult
their own tax advisers with respect to the particular tax consequences to
them of an investment in the Fund. For further discussion of these
matters, please see the Statement of Additional Information.
OTHER INFORMATION
CAPITALIZATION
The Group was organized as a Massachusetts business trust on January 22,
1992. Its Declaration of Trust authorizes the Board of Trustees to issue
an unlimited number of shares of beneficial interest in the Group, and to
classify or reclassify any unissued shares into one or more series or
classes of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of nine series of shares, which are sold through
separate prospectuses. Each series of shares has two classes, Class A and
Class B. The Board of Trustees may establish additional series or classes
of shares in the future.
VOTING
Shareholders have the right to vote in the election of Trustees and on any
and all matters on which they may be entitled to vote by law or the
provisions of the Declaration of Trust. Shares entitle their holders to
one vote per share (with proportionate voting for fractional shares).
Shareholders will vote in the aggregate and not by series or class except
as otherwise required by law or when the Board of Trustees of the Group
determines that a matter to be voted on affects only the interest of a
particular series or class. Voting rights are not cumulative, and
accordingly the holders of more than 50% of the shares of the Group may
elect all of the Trustees. The Group is not required to hold regular
annual meetings of shareholders and does not intend to do so except when
required by law. The Declaration of Trust provides that the holders of not
less than two-thirds of the outstanding shares of the Group may remove a
person serving as Trustee at a shareholder meeting called by written
request of the holders of not less than 10% of the outstanding shares of
any series.
PERFORMANCE INFORMATION
The Group may, from time to time, include the yield and total return for
shares in advertisements or reports to shareholders or prospective
investors. Yield and total return are calculated separately for Class A
and Class B shares. Quotations of yield will be based on annualizing the
net investment income per share during a particular 30-day (or one month)
period. Quotations of average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over specified periods.
Any performance information, whether related to the Fund or to the Adviser,
should be considered in light of the Fund's investment objective and
policies, the characteristics and quality of its portfolio and the market
conditions during the time period indicated and should not be considered to
be representative of future results. For a description of the methods used
to determine yield and total return for the Fund, please see the Statement
of Additional Information.
OFFERING
No dealer, sales representative or other person has been authorized to give
any information or to make any representations, other than those contained
in this Prospectus, in connection with the offer contained herein, and, if
given or made, such other information or representations may not be relied
upon as having been authorized by the Group or the Distributor. This
Prospectus does not constitute an offer by the Group or the Distributor to
sell, or a solicitation of an offer to buy, any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make
such offer in such jurisdiction.
Investment Adviser
Payden & Rygel
333 South Grand Avenue
Los Angeles, California 90071
Distributor
Payden & Rygel Distributors
333 South Grand Avenue
Los Angeles, California 90071
Administrator
Treasury Plus, Inc.
3200 North Central Avenue, Suite 620
Phoenix, AZ 85012
Custodian
Boston Safe Deposit and Trust Company
One Cabot Road
Medford, MA 02155
Transfer Agent
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Auditors
Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, Ohio 45402
Counsel
Paul, Hastings, Janofsky and Walker
555 South Flower Street
Los Angeles, California 90071
August 14, 1996
PAYDEN & RYGEL INVESTMENT GROUP
PAYDEN & RYGEL GROWTH & INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
August 14, 1996
The Payden & Rygel Growth & Income Fund (the "Fund") is a series of the
Payden & Rygel Investment Group (the "Group"), a no-load, open-end
management investment company.
This Statement of Additional Information is not a Prospectus, and should be
used in conjunction with the Prospectus for the Fund dated August 14, 1996
which is incorporated herein by reference. A copy of the Prospectus may be
obtained free of charge from the Group at 333 South Grand Avenue, Los
Angeles, California 90071 (or by telephone at (213) 625-1900 or (800) 5-
PAYDEN (800/572-9336).
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES 2
FUNDAMENTAL AND OPERATING POLICIES ......................14
PORTFOLIO TRANSACTIONS ..................................17
VALUATION OF PORTFOLIO SECURITIES .......................18
FUND PERFORMANCE ........................................19
TAXATION ................................................21
MANAGEMENT OF THE GROUP .................................26
PURCHASES AND REDEMPTIONS ...............................32
OTHER INFORMATION .......................................32
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of the Fund are
described in the Prospectus. Additional information concerning the
characteristics of certain of the Fund's investments is set forth below.
PREFERRED STOCKS
Preferred stock, unlike common stock, offers a stated dividend rate payable
from a corporation's earnings. Such preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate. If interest
rates rise, the fixed dividend on preferred stocks may be less attractive,
causing the price of preferred stocks to decline. Preferred stock may have
mandatory sinking fund provisions, as well as call/redemption provisions
prior to maturity, a negative feature when interest rates decline.
Dividends on some preferred stock may be "cumulative," requiring all or a
portion of prior unpaid dividends to be paid. Preferred stock also
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and
may be "participating," which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases. The rights of preferred
stocks on the distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
AMERICAN DEPOSITORY RECEIPTS
American Depository Receipt ("ADRs") may be listed on a national securities
exchange or may trade in the over-the-counter market. ADR prices are
denominated in United States dollars; the underlying security may be
denominated in a foreign currency, and may be subject to foreign government
taxes which would reduce the yield on such securities.
CONVERTIBLE SECURITIES
A convertible security is a fixed income security (a bond or preferred
stock) which may be converted at a stated price within a specified period
of time into a certain quantity of the common stock of the same or a
different issuer. Convertible securities are senior to common stocks in an
issuer's capital structure, but are usually subordinated to similar non-
convertible securities. While providing a fixed income stream (generally
higher in yield than the income derivable from common stock but lower than
that afforded by a similar non-convertible security), a convertible
security also affords an investor the opportunity, through its conversion
feature, to participate in the capital appreciation attendant upon a market
price advance in the convertible security's underlying common stock.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities
of comparable maturity and quality that do not have a conversion privilege)
and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The credit standing of the
issuer and other factors may also affect the investment value of a
convertible security. The conversion value of a convertible security is
determined by the market price of the underlying common stock. If the
conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value. To
the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion table.
Like other debt securities, the market value of convertible debt securities
tends to vary inversely with the level of interest rates. The value of the
security declines as interest rates increase and increases as interest
rates decline. Although under normal market conditions longer term
securities have greater yields than do shorter term securities of similar
quality, they are subject to greater price fluctuations. Fluctuations in
the value of the Fund's investments will be reflected in its net asset
value per share. A convertible security may be subject to redemption at
the option of the issuer at a price established in the instrument governing
the convertible security. If a convertible security held by the Fund is
called for redemption, the Fund will be required to permit the issuer to
redeem the security, convert it into the underlying common stock or sell it
to a third party.
FIXED INCOME SECURITIES
Securities in which the Fund may invest include but are not limited to
those described below.
U.S. Government Obligations
U.S. Government obligations are debt securities issued by the U.S.
Treasury. They are direct obligations of the U.S. Government and differ
mainly in the lengths of their maturities.
U.S. Government Agency Securities
U.S. Government Agency securities are issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These include
securities issued by the Federal National Mortgage Association, Government
National Mortgage Association, Federal Home Loan Bank, Federal Land Banks,
Farmers Home Administration, Banks for Cooperatives, Federal Intermediate
Credit Banks, Federal Financing Bank, Farm Credit Bank, and the Tennessee
Valley Authority. Some of these securities are supported by the full faith
and credit of the U.S. Treasury, and others only by the credit of the
instrumentality, which may include the right of the issuer to borrow from
the Treasury.
Bank Obligations
Bank obligations include certificates of deposit, bankers' acceptances, and
other debt obligations. Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction.
The Fund will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, (ii) in the case of U.S. banks, the bank is a member of
the Federal Deposit Insurance Corporation, and (iii) in the case of foreign
banks, the security is, in the opinion of Payden & Rygel, of an investment
quality comparable with other debt securities which may be purchased by the
Fund. These limitations do not prohibit investments in securities issued
by foreign branches of U.S. banks, provided such U.S. banks meet the
foregoing requirements.
Corporate Debt Securities
Investments in U.S. dollar denominated securities of domestic or foreign
issuers are limited to corporate debt securities (corporate bonds,
debentures, notes and other similar corporate debt instruments) which meet
the minimum rating criteria set forth in the Prospectus. Ratings represent
only the opinions of such organizations of the quality of the securities
which they undertake to rate, are general and are not absolute standards of
quality.
Floating Rate and Variable Rate Demand Notes
The Fund may purchase floating rate and variable rate demand notes and
bonds. These securities may have a stated maturity in excess of one year,
but permit a holder to demand payment of principal plus accrued interest
upon a specified number of days notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided
by banks. The issuer has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal of the obligation plus
accrued interest upon a specific number of days notice to the holders. The
interest rate of a floating rate instrument may be based on a known lending
rate, such as a bank's prime rate, and is reset whenever such rate is
adjusted. The interest rate on a variable rate demand note is reset at
specified intervals at a market rate.
The Fund will limit its purchase of securities that bear floating rates and
variable rates of interest to those meeting the rating quality standards
set forth in the Prospectus. Frequently, such obligations are secured by
letters of credit or other credit support arrangements provided by banks.
The quality of the underlying creditor or of the bank, as the case may be,
must, as determined by the Adviser under the supervision of the Board of
Trustees, also be equivalent to the quality standards set forth above. In
addition, the Adviser monitors the earning power, cash flow and other
liquidity ratios of the issuers of such obligations, as well as the
creditworthiness of the institution responsible for paying the principal
amount of the obligations under the demand feature.
Repurchase Agreements
For the purpose of maintaining liquidity, the Fund 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 economic equivalent of loans by the
Fund. In the event of a bankruptcy or default of any registered dealer or
bank, the Fund could experience costs and delays in liquidating the
underlying securities which are held as collateral, and the Fund might
incur a loss if the value of the collateral declines during this period.
Illiquid Securities
The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid. The Adviser will monitor
the amount of illiquid securities in the Fund's portfolio, to ensure
compliance with the Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Securities which
have not been registered under the Securities Act are referred to as
private placement or restricted securities and are purchased directly from
the issuer or in the secondary market. Mutual funds do not typically hold
a significant amount of these restricted or other illiquid securities
because of the potential for delays on resale and uncertainty in valuation.
Limitations on resale may have an adverse effect on the marketability of
portfolio securities and the Fund might be unable to dispose of restricted
or other illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemption requests within seven
days. The Fund might also have to register such restricted securities in
order to dispose of them, resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to
honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may
not be indicative of the liquidity of such investments. If such securities
are subject to purchase by institutional buyers in accordance with Rule
144A promulgated by the Commission under the Securities Act, the Adviser,
pursuant to guidelines established by the Board of Trustees, may determine
that such securities are not illiquid securities notwithstanding their
legal or contractual restrictions on resale. In all other cases, however,
securities subject to restrictions on resale will be deemed illiquid.
OPTIONS AND FUTURES CONTRACTS
The Fund may purchase and sell ("write") both put options and call options
on securities and securities indices, enter into index futures contracts,
and purchase and sell futures contracts and options on such futures
contracts ("futures options"). If other types of broad market options,
futures contracts, or futures options are traded in the future, the Fund
may also use those instruments, provided the Board of Trustees determines
that their use is consistent with the Fund's investment objectives, and
their use is consistent with restrictions applicable to options and futures
contracts currently eligible for use by the Fund.
Options on Securities or Indices
The Fund may purchase and write options on securities and indices. An
index is a statistical measure designed to reflect specified facets of a
particular financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators such as the
Lehman Brothers Government/Corporate Index.
An option on a security (or an index) is a contract that gives the holder
of the option, in return for a premium, the right to buy from (in the case
of a call) or sell to (in the case of a put) the writer of the option the
security underlying the option (or the cash value of the underlying index)
at a specified exercise price at any time during the term of the option (in
the case of "American Style" options) or at the expiration of the option
(in the case of "European Style" options). The writer of a call or put
option on a security is obligated upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to pay the
exercise price upon delivery of the underlying security, as the case may
be. The writer of an option on an index is obligated upon exercise of the
option to pay the difference between the cash value of the index and the
exercise price multiplied by a specified multiplier for the index option.
The Fund will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is
covered if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional
cash consideration (or, if additional cash consideration is required, cash
or other liquid assets in such amount are placed in a segregated account
with the Fund's Custodian) upon conversion or exchange of other securities
held by the Fund. A call option on an index is covered if the Fund
maintains with its Custodian cash or other liquid assets equal to the
contract value. A call option is also covered if the Fund holds a call on
the same security or index as the call written, and the exercise price of
the call held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written,
provided the difference is maintained by the Fund in cash or other liquid
assets in a segregated account with its Custodian. A put option on a
security or an index is covered if the Fund maintains cash or cash
equivalents equal to the exercise price in a segregated account with its
Custodian. A put option is also covered if the Fund holds a put on the
same security or index as the put written, and the exercise price of the
put held is (i) equal to or greater than the exercise price of the put
written, or (ii) less than the exercise price of the put written, provided
the difference is maintained by the Fund in cash or other liquid assets in
a segregated account with its Custodian.
If an option written by the Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was
written. If an option purchased by the Fund expires unexercised, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (i.e., of
the type, traded on the same exchange, with respect to the same underlying
security or index, and with the same exercise price and expiration date).
The Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from
writing the option; if it is more, the Fund will realize a capital loss.
If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Fund will realize a capital gain;
if it is less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security
or index in relation to the exercise price of the option, the volatility of
the underlying security or index, and the time remaining until the
expiration date.
The premium paid for a put or call option purchased by the Fund is an asset
of the Fund. The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased or written
is marked to market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no
closing price is available, at the mean between the last bid and asked
prices.
Risks Associated with Options on Securities and Indices
Several risks are associated with transactions in options on securities and
indices. For example, significant differences between the securities and
options markets could result in an imperfect correlation between those
markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected
events.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Among the possible reasons for the
absence of a liquid secondary market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities; (iv) interruption of the normal
operations of an exchange; (v) inadequacy of the facilities of an exchange
or the Options Clearing Corporation to handle current trading volume; or
(vi) a decision by an exchange to discontinue the trading of options or a
particular class or series of options (in which event the secondary market
on that exchange or in that class or series of options could cease to
exist, although outstanding options on that exchange that had been issued
by the Options Clearing Corporation as a result of trades on that exchange
would generally continue to be exercisable in accordance with their terms).
If the Fund were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to realize any
profit. If the Fund were unable to close out a covered call option that it
had written on a security, it would not be able to sell the underlying
security unless the option expired without exercise. As the writer of a
covered call option, the Fund forgoes, during the option's life, the
opportunity to profit from increases in the market value of the security
covering the call option above the sum of the premium and the exercise
price of the call.
If trading were suspended in an option purchased by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise
were imposed, the Fund might be unable to exercise an option it has
purchased. Except to the extent that a call option on an index written by
the Fund is covered by an option on the same index purchased by the Fund,
movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of the Fund's securities
during the period the option was outstanding.
Combinations of Options
As indicated in the Prospectus, the Fund may employ certain combinations of
put and call options. A "straddle" involves the purchase of a put and call
option on the same security with the same exercise prices and expiration
dates. A "strangle" involves the purchase of a put option and a call
option on the same security with the same expiration dates but different
exercise prices. A "collar" involves the purchase of a put option and the
sale of a call option on the same security with the same expiration dates
but different exercise prices. A "spread" involves the sale of a put
option and the purchase of a call option on the same security with the same
or different expiration dates and different exercise prices.
Futures Contracts and Options on Futures Contracts
The Fund may use index futures contracts as specified in the Prospectus. A
futures contract on an index is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written.
Although the value of an index might be a function of the value of certain
specified securities, no physical delivery of these securities is made.
A public market exists in futures contracts covering several indices,
including the S&P 500 Index, S&P 400 Index and the Russell 2000 Index.
Other futures contracts are likely to be developed and traded in the
future. The Fund will only enter into futures contracts and futures
options which are standardized and traded on a U.S. or foreign exchange,
board of trade, or similar entity, or quoted on an automated quotation
system.
The Fund may also purchase and write call and put options on futures
contracts. Futures options possess many of the same characteristics as
options on securities and indices. A futures option gives the holder the
right, in return for the premium paid, to assume a long position (call) or
short position (put) in a futures contract at a specified exercise price at
any time during the period of the option. Upon exercise of a call option,
the holder acquires a long position in the futures contract and the writer
is assigned the opposite short position. In the case of a put option, the
opposite is true.
When a purchase or sale of a futures contract is made by the Fund, the Fund
is required to deposit with its Custodian (or futures commission merchant,
if legally permitted) a specified amount of cash or U.S. Government
securities ("initial margin"). The margin required for a futures contract
is set by the exchange on which the contract is traded and may be modified
during the term of the contract. The initial margin is in the nature of a
performance bond or good faith deposit on the futures contract which is
returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. The Fund expects to earn
interest income on its initial margin deposits. A futures contract held by
the Fund is valued daily at the official settlement price of the exchange
on which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the futures commission merchant of the
amount one would owe the other if the futures contract expired. In
computing daily net asset value, the Fund will mark to market its open
futures positions.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin
deposits will vary depending on the nature of the underlying futures
contract (and the related initial margin requirements), the current market
value of the option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(contracts traded on the same exchange, on the same underlying security or
index, and with the same delivery month). If an offsetting purchase price
is less than the original sale price, the Fund realizes a capital gain; if
it is more, the Fund realizes a capital loss. Conversely, if an offsetting
sale price is more than the original purchase price, the Fund realizes a
capital gain; if it is less, the Fund realizes a capital loss. The
transaction costs must also be included in these calculations.
Limitations on Use of Futures and Futures Options
The Fund will not enter into a futures contract or futures option contract
if, immediately thereafter, the aggregate initial margin deposits relating
to such positions plus premiums paid by it for open futures option
positions, less the amount by which any such options are "in-the-money,"
would exceed 5% of the Fund's total assets. A call option is "in-the-
money" if the value of the futures contract that is the subject of the
option exceeds the exercise price. A put option is "in-the-money" if the
exercise price exceeds the value of the futures contract that is the
subject of the option.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other liquid debt or equity securities that, when added to
the amounts deposited with a futures commission merchant as margin, are
equal to the net amount of its obligations under the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option
on the same futures contract with a strike price as high or higher than the
price of the contract held by the Fund.
When selling a futures contract, the Fund will maintain with its Custodian
(and mark to market on a daily basis) liquid assets that, when added to the
amount deposited with a futures commission merchant as margin, are equal to
the net amount of its obligations under the contract. Alternatively, the
Fund may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Fund to
purchase the same futures contract at a price no higher than the price of
the contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Fund's Custodian).
When selling a call option on a futures contract, the Fund will maintain
with its custodian (and mark to market on a daily basis) cash, U.S.
Government securities, or other liquid debt or equity securities that, when
added to the amounts deposited with a futures commission merchant as
margin, equal the total market value of the futures contract underlying the
call option. Alternatively, the Fund may cover its position by entering
into a long position in the same futures contract at a price no higher than
the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the
Fund to purchase the same futures contract at a price not higher than the
strike price of the call option sold by the Fund.
When selling a put option on a futures contract, the Fund will maintain
with its custodian (and mark-to-market on a daily basis) cash, U.S.
Government securities, or other liquid debt or equity securities that equal
the purchase price of the futures contract, less any margin on deposit.
Alternatively, the Fund may cover the position either by entering into a
short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the
strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Fund.
In order to comply with applicable regulations of the Commodity Futures
Trading Commission ("CFTC") for exemption from the definition of a
"commodity pool," the Fund is limited in its futures trading activities to:
(1) positions which constitute "bona fide hedging" positions within the
meaning and intent of applicable CFTC rules, and (2) other positions for
the establishment of which the aggregate initial margin and premiums (less
the amount by which such options are "in-the-money") do not exceed 5% of
the Fund's net assets (after taking into account unrealized gains and
unrealized losses on any contracts it has entered into).
The requirements for qualification as a regulated investment company also
may limit the extent to which the Funds may enter into futures, futures
options or forward contracts. See "Taxation."
Risks Associated with Futures and Futures Options
There are several risks associated with the use of futures on equity
indexes and the use of futures contracts and futures options. A purchase
or sale of a futures contract may result in losses in excess of the amount
invested in the futures contract. There can be no guarantee that there
will be a correlation between price movements in a futures contract or
option and in the equity market. In addition, there are significant
differences between the securities and futures markets that could result in
an imperfect correlation between the markets, causing a given transaction
not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand
for futures and futures options on securities, including technical
influences in futures trading and futures options. A decision as to
whether, when and how to purchase futures contracts or options involves the
exercise of skill and judgment, and even a well-conceived transaction may
be unsuccessful to some degree because of market behavior or unexpected
interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end
of the current trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made on that
day at a price beyond that limit. The daily limit governs only price
movements during a particular trading day and therefore does not limit
potential losses, because the limit may work to prevent the liquidation of
unfavorable positions. For example, futures prices have occasionally moved
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures contract or a futures option
position, in which event the Fund would remain obligated to meet margin
requirements until the position is closed. In addition, many of the
contracts discussed above are relatively new instruments without a
significant trading history. As a result, there can be no assurance that
an active secondary market will develop or continue to exist.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures contracts or options, the Fund could experience
delays and losses in liquidating open positions purchased or sold through
the broker, and incur a loss of all or part of its margin deposits with the
broker.
Dealer Options
The Funds may engage in transactions involving dealer options on securities
or indices as well as exchange-traded options. Certain risks are specific
to dealer options. While the Fund would look to a clearing corporation to
exercise exchange-traded options, if a Fund were to purchase a dealer
option it would rely on the dealer from whom it purchased the option to
perform if the option were exercised. Failure by the dealer to do so would
result in the loss of the premium paid by the Fund as well as loss of the
expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, the Fund may generally be able to
realize the value of a dealer option it has purchased only by exercising or
reselling the option to the dealer who issued it. Similarly, when the Fund
writes a dealer option, the Fund may generally be able to close out the
option prior to its expiration only by entering into a closing purchase
transaction with the dealer to whom the Fund originally wrote the option.
While the Fund will seek to enter into dealer options only with dealers
which will agree to and which are expected to be capable of entering into
closing transactions with the Fund, there can be no assurance that the Fund
will be able to liquidate a dealer option at a favorable price at any time
prior to expiration. Unless the Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be
able to liquidate securities (or other assets) used as cover until the
option expires or is exercised. In the event of insolvency of the other
party, the Fund may be unable to liquidate a dealer option. With respect
to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. For example, since
the Fund must maintain a secured position with respect to any call option
on security it writes, the Fund may not sell the assets which it has
segregated to secure the position while it is obligated under the option.
This requirement may impair the Fund's ability to sell portfolio securities
at a time when such sale might be advantageous.
The staff of the Securities and Exchange Commission has taken the position
that many purchased dealer options and the assets used to secure written
dealer options are illiquid securities. The Fund may treat the cover used
for these written dealer options as liquid if the dealer agrees that the
Fund may repurchase the dealer option it has written for a maximum price to
be calculated by a predetermined formula. In such cases, the dealer option
would be considered illiquid only to the extent the maximum purchase price
under the formula exceeds the intrinsic value of the option. Accordingly,
the Funds will treat certain dealer options as subject to the Funds'
limitation on illiquid securities. If the Securities and Exchange
Commission changes its position on the liquidity of dealer options on
securities, currencies or indices, the Funds will change their treatment of
such instruments accordingly.
BORROWING
The Fund may borrow for temporary, extraordinary or emergency purposes, or
for the clearance of transactions. The Investment Company Act of 1940 (the
"1940 Act") requires each Fund to maintain continuous asset coverage (that
is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed. If the 300% asset coverage
should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell some of its portfolio holdings within three
days to reduce the debt and restore the 300% asset coverage, even though it
may be disadvantageous from an investment standpoint to sell securities at
that time. To avoid the potential leveraging effects of the Fund's
borrowings, additional investments will not be made while borrowings are in
excess of 5% of the Fund's total assets. Money borrowed will be subject to
interest costs which may or may not be recovered by appreciation of the
securities purchased. The Fund also may be required to maintain minimum
average balances in connection with any such borrowings or to pay a
commitment or other fee to maintain a line of credit, either of which would
increase the cost of borrowing over the stated interest rate.
RISKS OF FOREIGN INVESTING
There are special risks in investing in any foreign securities in addition
to those relating to investments in U.S. securities.
Political and Economic Factors
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, diversification and balance of payments position. The
internal politics of certain foreign countries may not be as stable as
those of the United States.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include
restrictions on foreign investment, nationalization, expropriation of goods
or imposition of taxes, and could have a significant effect on market
prices of securities. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the
trade policies and economic conditions of their trading partners.
Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
Market Characteristics
The Trust expects that most foreign securities in which the Fund invests
will be actively traded in the United States at the time they are
purchased. However, on occasion they may be purchased in over-the-counter
markets located in the countries in which the principal offices of the
issuers of the various securities are located, if that is the best
available market. Foreign markets may be more volatile than those in the
United States. While growing in volume, they usually have substantially
less volume than U.S. markets, and the Fund's portfolio securities may be
less liquid and more volatile than U.S. securities. Moreover, settlement
practices for transactions in foreign markets may differ from those in
United States markets, and may include delays beyond periods customary in
the United States.
Transactions in options on securities, futures contracts and futures
options may not be regulated as effectively on foreign exchanges as similar
transactions in the United States, and may not involve clearing mechanisms
and related guarantees. The value of such positions also could be
adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States.
The value of the Fund's portfolio positions may also be adversely impacted
by delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the United States.
Legal and Regulatory Matters
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available
to issuers, than is available in the United States.
Taxes
The dividends payable on certain of the Fund's foreign portfolio securities
may be subject to foreign withholding taxes, thus reducing the net amount
of income available for distribution to the Fund's shareholders. A
shareholder otherwise subject to United States federal income taxes may,
subject to certain limitations, be entitled to claim a credit or deduction
for U.S. federal income tax purposes for his proportionate share of such
foreign taxes paid by the Fund.
Costs
The expense ratios of the Fund (before reimbursement by the Adviser
pursuant to the expense limitation described in the Prospectus under
"Management of the Funds -- Expense Guarantee") is likely to be higher than
those of investment companies investing in domestic securities, since the
cost of maintaining the custody of foreign securities is higher.
FUNDAMENTAL AND OPERATING POLICIES
The Fund has adopted the investment restrictions described below.
Fundamental policies of the Fund may not be changed without the approval
of the lesser of (1) 67% of the Fund's shares present at a meeting of
shareholders if the holders of more than 50% of the outstanding shares
are present in person or by proxy or (2) more than 50% of the Fund's
outstanding shares. Operating policies are subject to change by the
Board of Trustees without shareholder approval. Any investment
restriction which involves a maximum percentage of securities or assets
will not be considered to be violated unless an excess occurs immediately
after, and is caused by, an acquisition of securities or assets of, or
borrowings by, the Fund.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money, except as a temporary measure for
extraordinary or emergency purposes or for the clearance of transactions,
and then only in amounts not exceeding 30% of its total assets valued at
market (for this purpose, reverse repurchase agreements, equity and
reverse equity swap transactions are not considered to be borrowings).
As an operating policy, the Fund will not borrow amounts exceeding 33% of
total assets valued at market (including reverse repurchase agreements
and delayed delivery transactions).
(2) Commodities. Purchase or sell commodities or commodity contracts,
except that the Fund may enter into equity futures contracts and options
on such futures contracts.
(3) Loans. Make loans, except that the Fund may (i) purchase money
market securities and enter into repurchase agreements, and (ii) acquire
bonds, debentures, notes and other debt securities.
(4) Margin. Purchase securities on margin, except that the Fund may (i)
use short-term credit necessary for clearance of purchases of portfolio
securities, and (ii) make margin deposits in connection with futures
contracts and options on futures contracts.
(5) Mortgaging. Mortgage, pledge, hypothecate or in any manner transfer
any security owned by a Fund as security for indebtedness, except as may be
necessary in connection with permissible borrowings and then only in
amounts not exceeding 30% of the Fund's total assets valued at market at
the time of the borrowing. This restriction shall not prohibit the Fund
from engaging in options, futures and foreign currency transactions.
(6) Assets Invested in Any Issuer. Purchase a security if, as a result,
with respect to 50% of the value of the Fund's total assets, more than 5%
of the value of its total assets would be invested in the securities of any
one issuer (other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities).
(7) Share Ownership of Any Issuer. Purchase a security if, as a result,
more than 10% of the outstanding voting securities of any issuer would be
held by the Fund (other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities).
(8) Real Estate. Purchase or sell real estate (although it may purchase
securities secured by real estate partnerships or interests therein, or
issued by companies or investment trusts which invest in real estate or
interests therein) or real estate limited partnership interests.
(9) Short Sales. Effect short sales of securities.
(10) Underwriting. Underwrite securities issued by other persons, except
to the extent that the Fund may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in connection with the purchase and
sale of its portfolio securities in the ordinary course of pursuing its
investment program.
(11) Senior Securities. Issue senior securities, except that the Fund may
borrow money as permitted by restriction (1) above. This restriction shall
not prohibit the Fund from engaging in options, futures, and foreign
currency transactions.
(12) Concentration. Invest 25% or more of the market value of its total
assets in the securities of issuers in any one particular industry. This
restriction shall not prohibit the Fund from investing in securities of the
U.S. Government or its agencies or instrumentalities, or engaging in
options, futures, and swap transactions.
OPERATING POLICIES
As a matter of operating policy, the Fund may not:
(1) Control of Portfolio Companies. Invest in companies for the purpose of
exercising management or control.
(2) Illiquid Securities. Purchase a security if, as a result of such
purchase, more than 15% of the value of the Fund's net assets would be
invested in illiquid securities or other securities that are not readily
marketable, including repurchase agreements which do not provide for
payment within seven days. For this purpose, restricted securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933
may be determined to be liquid.
(3) Investment Companies. Purchase securities of open-end or closed-end
investment companies except in compliance with the 1940 Act.
(4) Oil and Gas Programs. Purchase participations or other direct
interests in oil, gas, or other mineral exploration or development programs
or leases.
(5) Options. Invest in puts, calls, or any combination thereof, except
that the Fund may invest in or commit its assets to purchasing and selling
call and put options to the extent permitted by the Prospectus and
Statement of Additional Information.
(6) Ownership of Portfolio Securities by Officers and Directors. Purchase
or retain the securities of any issuer if any officers and Trustees of the
Group and of the Adviser who own beneficially more than 0.5% of the
outstanding securities of such issuer, together own beneficially more than
5% of such securities.
(7) Unseasoned Issuers. Purchase a security (other than obligations issued
or guaranteed by the U.S. Government or any foreign government, their
agencies or instrumentalities) if, as a result, more than 5% of the value
of the Fund's total assets would be invested in the securities of issuers
which at the time of purchase had been in operation for less than three
years (for this purpose, the period of operation of any issuer will include
the period of operation of any predecessor or unconditional guarantor of
such security).
(8) Warrants. Invest in warrants, valued at the lower of cost or market,
in excess of 5% of the market value of the Fund's net assets, or in excess
of 2% of the market value of the Fund's net assets if such warrants are not
listed on the New York Stock Exchange or the American Stock Exchange, as of
the date of investment.
STATE UNDERTAKINGS
In order to permit the sale of shares of the Fund in certain states, the
Board of Trustees may adopt restrictions on investment policies more
restrictive than those described above. Should the Trustees determine that
any such more restrictive policy is no longer in the best interests of the
Fund or its shareholders, the Trustees may revoke such policy and the Trust
may cease offering shares of the Fund in the state involved. Moreover, if
the state involved no longer requires any such restrictive policy, the
Trustees may revoke it.
The Group has undertaken to the Ohio Department of Commerce that (i) the
Fund will not invest more than 15% of its total assets in the securities of
issuers which together with any predecessors have a record of less than
three years continuous operation or securities of issuers which are
restricted as to disposition (including without limitation securities
issued pursuant to rule 144A under the Securities Act of 1933), (ii) the
Fund will not invest any assets in the securities of other investment
companies except by purchase in the open market where no commission or
profit to a sponsor or dealer results from the purchase other than the
customary broker's commission, or except when the purchase is part of a
plan of merger, consolidation, reorganization or acquisition, and (iii)
limit its investments in securities of issuers if, as to 75% of the assets
of the Group at the time of purchase, more than 10% of the voting
securities of an issuer would be held by the Group, in compliance with Rule
1301:6-3-09(E)(8) of the Ohio Administrative Code.
The Group has undertaken to the Arkansas Securities Department that (i) as
a matter of operating policy, the Fund will not invest more than 10% of its
total assets in the securities of issuers which it is restricted from
selling to the public without registration, other than restricted
securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933, and (ii) except for hedging purposes, the Fund will invest no
more than 5% of its total assets in premiums on securities options,
including without limitation puts, calls, straddles, spreads and any
combination thereof.
PORTFOLIO TRANSACTIONS
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-
up. In underwritten offerings, the price paid by a Fund includes a
disclosed, fixed commission or discount retained by the underwriter or
dealer. Agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers.
Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction. Transactions
in foreign securities involve commissions which are generally higher than
those in the United States.
The Adviser places all orders for the purchase and sale of portfolio
securities, options on securities and futures contracts and options on
futures contracts for the Fund and buys and sells such securities, futures
and options for the Fund through a substantial number of brokers and
dealers. In so doing, the Adviser seeks the best execution available. In
seeking the most favorable execution, the Adviser considers all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices
and trends, the reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the broker-
dealer in other transactions.
Some securities considered for investment by the Fund's portfolio may also
be appropriate for other clients served by the Adviser. If a purchase or
sale of securities consistent with the investment policies of the Fund is
considered at or about the same time as a similar transaction for one or
more other clients served by the Adviser, transactions in such securities
will be allocated among the Fund and other clients in a manner deemed fair
and reasonable by the Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Adviser, and the results of such allocations, are subject to periodic
review by the Board of Trustees.
The Adviser manages the Fund without regard generally to restrictions on
portfolio turnover, except those imposed on its ability to engage in short-
term trading by provisions of the federal tax laws (see "Taxation"). The
higher the rate of portfolio turnover, the higher the transaction costs
borne by the Fund generally will be. The turnover rate of the Fund is
calculated by dividing (a) the lesser of purchases or sales of portfolio
securities for a particular fiscal year by (b) the monthly average of the
value of the portfolio securities owned by the Fund during the fiscal year.
In calculating the rate of portfolio turnover, all securities, including
options, whose maturities or expiration dates at the time of acquisition
were one year or less, are excluded. Swap transactions do not affect the
calculation of portfolio turnover.
The Board of Trustees will periodically review the Adviser's performance of
its responsibilities in connection with the placement of portfolio
transactions on behalf of the Fund.
VALUATION OF PORTFOLIO SECURITIES
Debt securities are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and
electronic data processing techniques. Such techniques take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities.
Equity securities are also valued by a pricing service which uses the
closing price for securities traded on the New York Stock Exchange or the
American Stock Exchange. If no sale occurred during the day, the closing
bid price is used. Equities traded on other exchanges are valued as nearly
as possible in the same manner. If exchange quotations are not readily
available, securities are valued on the basis of closing over-the-counter
bid prices.
Short-term obligations that mature in 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Board of
Trustees. Futures and options contracts will be valued using the closing
price from the exchange on which they are traded. All other securities and
other assets are appraised at their fair value as determined in good faith
under consistently applied procedures established by and under the general
supervision of the Board of Trustees.
Generally, trading in U.S. corporate bonds, U.S. government securities,
money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of regular trading
on the New York Stock Exchange. The values of any such securities held by
the Fund are determined as of such times for the purpose of computing the
Fund's net asset value. If an extraordinary event that is expected to
affect the value of a portfolio security materially occurs after the close
of an exchange on which that security is traded, then the security will be
valued at fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Trustees.
FUND PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price, yield and
total returns fluctuate in response to market conditions and other factors,
and the value of Fund shares when redeemed may be more or less than their
original cost.
Performance information for the Fund may be compared to various unmanaged
indices (such as the S&P 500 Index) or indices prepared by Lipper
Analytical Services and other entities or organizations which track the
performance of investment companies or investment advisers. Comparisons
may also be made to indices or data in publications such as The Bond Buyer,
Forbes, Barron's, The Wall Street Journal, The New York Times, and Business
Week. For example, the Fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance the Fund to other funds in appropriate categories
over specific periods of time may also be quoted in advertising. Unmanaged
indices generally do not reflect deductions for administrative and
management costs and expenses. Payden & Rygel may also report to
shareholders or to the public in advertisements concerning the performance
of Payden & Rygel as adviser to clients other than the Fund, and on the
comparative performance or standing of Payden & Rygel in relation to other
money managers. Such comparative information may be compiled or provided
by independent rating services or other organizations.
Information regarding the Fund may also be included in newsletters or other
general communications by Payden & Rygel to advisory clients and potential
clients. These publications principally contain information regarding
market and economic trends and other general matters of interest to
investors, such as: principles of investing which, among other things
includes asset allocation, model portfolios, diversification, risk
tolerance and goal setting, saving for college or other goals or charitable
giving; long-term economic or market trends; historical studies of gold,
other commodities, equities, fixed income securities and statistical market
indices; new investment theories or techniques; economic and/or political
trends in foreign countries and their impact on the United States;
municipal bond market fundamentals and trends; corporate financing trends
and other factors that may impact corporate debt; and housing trends and
other economic factors that may impact mortgage rates and lending activity.
In addition, Payden & Rygel may quote financial or business publications
and periodicals as they relate to fund management, investment philosophy
and investment techniques. Materials may also include discussions
regarding Payden & Rygel's asset allocation services and other Payden &
Rygel funds, products and services.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills and the U.S. rate of inflation (based on the Consumer Price Index)
and a combination of various capital markets. The Group may use the long-
term performance of these capital markets in order to demonstrate general
long-term risk-versus-reward investment scenarios or the value of a
hypothetical investment in any of these capital markets. The performance
of these capital markets is based on the returns of several different
indices. Ibbotson calculates total returns in the same method as the
Group. Performance comparisons could also include the value of a
hypothetical investment in any of the capital markets.
If appropriate, the Group may compare the performance of a Fund or the
performance of securities in which a Fund may invest to averages published
by IBC USA (Publications, Inc.). These averages assume reinvestment of
distributions. The IBC/Donoghue's Money Fund Averages-TM-/All Taxable,
which is reported in the Donoghue's Money Fund Report-Registered Trademark-
, covers over 772 taxable money market funds. The Fund may quote its fund
number, Quotron-TM- number and CUSIP number or quote its current portfolio
manager or any member of Payden & Rygel's market strategy group.
Total Return Calculations
Total returns quoted in advertising with respect to a class of shares of
the Fund reflect all aspects of a Fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in the
net asset value per share over the period. Average annual total returns
for each class are calculated by determining the growth or decline in value
of a hypothetical historical investment in that class of shares of the Fund
over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative return of 100% over ten years would result from an average
annual total return of 7.18%, which is the steady annual total return that
would equal 100% growth on a compounded basis in ten years. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the Fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual year-to-
year performance of the Fund.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns for each class of shares reflecting the simple
change in value of an investment over a stated period of time. Average
annual and cumulative total returns may be quoted as a percentage or as a
dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate
the relationship of these factors and their contributions to total return.
Total returns, yields and other performance information maybe quoted
numerically, or in a table, graph or similar illustration.
TAXATION
The Fund intends to qualify annually and has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). To qualify as a regulated investment company, the
Fund must, among other things, (a) derive in each taxable year at least 90%
of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including gains from
options, futures and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies ("Qualifying
Income Test"); (b) derive in each taxable year less than 30% of its gross
income from the sale or other disposition of certain assets held less than
three months, namely (1) stocks or securities, (2) options, futures, or
forward contracts (other than those on foreign currencies), and (3) foreign
currencies (or options, futures, and forward contracts on foreign
currencies) not directly related to its business of investing in stocks or
securities (the "Short-Short Test"); (c) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of a Fund's assets is represented by cash, U.S. Government
securities, the securities of other regulated investment companies and
other securities, with such other securities of any one issuer limited for
the purposes of this calculation to an amount not greater than 5% of the
value of a Fund's total assets and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets
is invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies) (the
"Diversification Test"); and (d) distribute at least 90% of its investment
company taxable income (which includes dividends, interest and net short-
term capital gains in excess of any net long-term capital losses) each
taxable year.
The ability of the Fund to satisfy the requirements of the Qualifying
Income Test, the Short-Short Test and the Diversification Test may depend
on the manner in which the Fund's swap transactions are classified, the
characterization of the income derived from such transactions, and the
identity of the issuers of the swap agreements. While the Fund believes
that its gross income (including any income from swap transactions) and
assets (including any swap agreements) should satisfy these Tests, no
definitive guidance currently exists with respect to the treatment under
the Code of swap transactions by regulated investment companies.
Development of such guidance in the future by the Internal Revenue Service
could require changes in the operations of the Fund. In addition, if for
any reason the Fund were not to qualify as a regulated investment company,
it would become taxable on its income, which would adversely impact its
total return to shareholders.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-
term capital losses and capital loss carryovers from the prior seven years)
designated by the Fund as capital gain dividends, if any, that it
distributes to shareholders. The Fund intends to distribute to its
shareholders substantially all of its investment company taxable income
monthly and any net capital gains annually. In addition, amounts not
distributed by the Fund on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax.
To avoid the tax, the Fund must distribute during each calendar year an
amount at least equal to the sum of (1) 98% of its ordinary income (with
adjustments) for the calendar year and foreign currency gains or losses for
the twelve month period ending on October 31 of the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (and
adjusted for certain ordinary losses) for the twelve month period ending on
October 31 of the calendar year, and (3) all ordinary income and capital
gains for previous years that were not distributed during such years. A
distribution will be treated as paid on December 31 of the calendar year if
it is declared by the Fund in October, November, or December of that year
to shareholders of record on a date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable
to shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To avoid
application of the excise tax, the Fund intends to make its distributions
in accordance with the calendar year distribution requirement.
Distributions
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions received
by tax-exempt shareholders will not be subject to federal income tax to the
extent permitted under the applicable tax exemption.
Dividends paid by the Fund generally are not expected to qualify for the
deduction for dividends received by corporations. Distributions of net
capital gains, if any, are taxable as long-term capital gains, regardless
of how long the shareholder has held the Fund's shares and are not eligible
for the dividends received deduction. The tax treatment of dividends and
distributions will be the same whether a shareholder reinvests them in
additional shares or elects to receive them in cash.
Options, Futures and Forward Transactions
Many of the futures contracts, options on futures contracts and forward
contracts used by the Fund are "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally considered 60% long-term and
40% short-term capital gains or losses ("60/40"). Also, section 1256
contracts held by the Fund at the end of each taxable year (and, for
purposes of the 4% excise tax, on certain other dates as prescribed under
the Code) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or
loss is treated as ordinary or 60/40 gain or loss, depending on the
circumstances.
Certain transactions in futures, options, and forward contracts undertaken
by the Fund, may result in "straddles" for U.S. federal income tax
purposes. The straddle rules may affect the character of gains (or losses)
realized by the Fund. In addition, losses realized by the Fund on
positions that are part of a straddle may be deferred under the straddle
rules, rather than being taken into account in calculating the investment
company taxable income or net capital gain for the taxable year in which
such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions
in options, futures and forward contracts to the Fund are not entirely
clear. The transactions may increase the amount of short-term capital gain
realized by the Fund which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from
the affected straddle positions will be determined under rules that vary
according to the election(s) made. The rules applicable under certain of
the elections operate to accelerate the recognition of gains or losses from
the affected straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain futures, options and
forward contracts held less than three months and the qualifying income and
diversification requirements applicable to the Fund's assets may limit the
extent to which the Fund will be able to engage in transactions in options,
futures contracts or forward contracts.
Certain Debt Securities
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount.
Generally, the amount of the original issue discount ("OID") is treated as
interest income and is included in income over the term of the debt
security, even though payment of that amount is not received until a later
time, usually when the debt security matures. A portion of the OID
includable in income with respect to certain high-yield corporate debt
securities may be treated as a dividend for Federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, any
gain recognized on the disposition of, and any partial payment of principal
on, a debt security having market discount is treated as ordinary income to
the extent the gain, or principal payment, does not exceed the "accrued
market discount" on such debt security. Market discount generally accrues
in equal daily installments. The Fund may make one or more of the
elections applicable to debt securities having market discount, which could
affect the character and timing of recognition of income.
Some of the debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated
as having an acquisition discount, or OID in the case of certain types of
debt securities. Generally, the Fund will be required to include the
acquisition discount, or OID, in income over the term of the debt security,
even though payment of that amount is not received until a later time,
usually when the debt security matures. The Fund may make one or more of
the elections applicable to debt securities having acquisition discount, or
OID, which could affect the character and timing of recognition of income.
The Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in
income, even though cash representing such income may not have been
received by the Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by the Fund.
Sales of Shares
Upon disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss
will be capital gain or loss if the shares are capital assets in the
shareholder's hands, and will be long-term or short-term generally
depending upon the shareholder's holding period for the shares. Any loss
realized on a disposition will be disallowed by "wash sale" rules to the
extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the disposition. In such
a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of capital gain
dividends received by the shareholder with respect to such shares.
Backup Withholding
The Fund may be required to withhold for U.S. federal income taxes 31% of
all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service
that they are subject to backup withholding. Corporate shareholders and
certain other shareholders specified in the Code generally are exempt from
such backup withholding. Backup withholding is not an additional tax. Any
amounts withheld may be credited against the shareholder's U.S. federal tax
liability.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate
such taxes. In addition, the Adviser intends to manage the Fund with the
intention of minimizing foreign taxation in cases where it is deemed
prudent to do so. If more than 50% of the value of the Fund's total assets
at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible to elect to "pass-through" to the
Fund's shareholders the amount of foreign income and similar taxes paid by
the Fund. If this election is made, a shareholder generally subject to tax
will be required to include in gross income (in addition to taxable
dividends actually received) his pro rata share of the foreign income taxes
paid by the Fund, and may be entitled either to deduct (as an itemized
deduction) his or her pro rata share of foreign taxes in computing his
taxable income or to use it (subject to limitations) as a foreign tax
credit against his or her U.S. federal income tax liability. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Each shareholder will be notified within 60 days after the
close of the Fund's taxable year whether the foreign taxes paid by the Fund
will "pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through
election is made, the source of the Fund's income will flow through to
shareholders of the Fund. With respect to such election, gains from the
sale of securities will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign
source passive income, and to certain other types of income. Shareholders
may be unable to claim a credit for the full amount of their proportionate
share of the foreign taxes paid by the Fund. The foreign tax credit is
modified for purposes of the Federal alternative minimum tax and can be
used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible
in computing alternative minimum taxable income.
Other Taxes
Distributions also may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Under the
laws of various states, distributions of investment company taxable income
generally are taxable to shareholders even though all or a substantial
portion of such distributions may be derived from interest on certain
Federal obligations which, if the interest were received directly by a
resident of such state, would be exempt from such state's income tax
("qualifying Federal obligations"). However, some states may exempt all or
a portion of such distributions from income tax to the extent the
shareholder is able to establish that the distribution is derived from
qualifying Federal obligations. Moreover, for state income tax purposes,
interest on some Federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income. The Fund will provide information
annually to shareholders indicating the amount and percentage of the Fund's
dividend distribution which is attributable to interest on Federal
obligations, and will indicate to the extent possible from what types of
Federal obligations such dividends are derived. Shareholders are advised
to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
MANAGEMENT OF THE GROUP
TRUSTEES AND OFFICERS
The Trustees and officers of the Group are as set forth below. Unless
otherwise indicated, the address of all persons below is 333 South Grand
Avenue, Los Angeles, California 90071.
Board of Trustees:
<TABLE>
Position with Principal Occupations
Name the Group During Past Five Years
<S> <C> <C>
* Joan A. Payden Chairman of the President, Payden &
Board, Rygel
President,
Trustee
* Lynda L. Faber Trustee Senior Vice President,
Payden & Rygel
* John Paul Isaacson Trustee Executive Vice
President, Payden &
Rygel
* Christopher N. Orndorff Trustee Vice President, Payden &
Rygel (since 1990)
J. Clayburn La Force Trustee Dean Emeritus, The John
P.O. Box 1009 E. Anderson Graduate
Pauma Valley, CA 92061 School of Management at
University of
California, Los Angeles;
Director, The Timken
Company (since February,
1994); Trustee for PIC
Institutional Growth
Portfolio, PIC
Institutional Balanced
Portfolio and PIC Small
Capital Portfolio (since
June, 1992)
Thomas McKernon, Jr. Trustee President and Chief
2601 South Figueroa Executive Officer,
Street Automobile Club of
Los Angeles, CA 90007 Southern California
Dennis C. Poulsen Trustee President and Chief
3900 South Workman Mill Executive Officer, Rose
Road Hills Company
Whittier, CA 90601
Stender E. Sweeney Trustee Private investor since
1465 San Pasqual Street 1994; previously Vice
Pasadena, CA 91106 President, Finance,
Times Mirror Company
W.D. Hilton, Jr. Trustee Managing Trustee, NGC
310 East Interstate 30, Settlement Trust;
Suite 285 previously Chief
Garland, TX 75043 Financial Officer, Texas
Association of School
Boards and Board Member,
First Greenville
National Bank
</TABLE>
* An "interested person" of the Group, as defined in the 1940 Act.
Trustees other than those affiliated with the Adviser receive an annual
retainer of $10,000, plus $1,500 for each Board of Trustees meeting
attended and reimbursement of related expenses. The following table sets
forth the aggregate compensation paid by the Trust for the fiscal year
ended October 31, 1995, to the Trustees who are not affiliated with the
Adviser and the aggregate compensation paid to such Trustees for services
on the Trust's Board and that of all other funds in the "trust complex" (as
defined in Schedule 14A under the Securities Exchange Act of 1934):
<TABLE>
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued as Benefits from Trust and
Compensation Part of Trust Upon Trust Complex
from Trust Expenses Retirement Paid to Trustee
<S> <C> <C> <C> <C>
Dennis Poulsen $12,000 None N/A $12,000 (9*)
James Clayburn La Force $12,000 None N/A $12,000 (9*)
Stender Sweeney $11,000 None N/A $11,000 (9*)
W.D. Hilton $12,000 None N/A $12,000 (9*)
Thomas V. McKernon, Jr. $12,000 None N/A $12,000 (9*)
</TABLE>
*Indicates total number of funds in "trust complex", all of which are
series of the Trust.
Officers:
<TABLE>
Position with Principal Occupations
Name the Group During Past Five Years
<S> <C> <C>
Lynn M. Bowker Vice President, Vice President &
Treasurer Treasurer, Payden &
Rygel
Scott A. King Executive Executive Vice
Vice President President, Payden &
Rygel
David L. Wagner Vice President Portfolio Manager,
Payden & Rygel
Steven D. Persky Vice President, Vice President,
Assistant Secretary Payden & Rygel (since
1991); previously
Chief Financial
Officer, Endless
Pools, Inc. and Vice
President, Salomon
Brothers
Matthew A. Constancio Vice President Mutual Fund
Administrator, Payden
& Rygel (since 1995);
previously Business
Analyst, Great
Western Investment
Management
Carole Trist Secretary Manager, Mutual Fund
Operations, Payden &
Rygel (since 1991);
previously Audit
Manager at
Independent Insurance
Auditing Services
</TABLE>
ADVISER
Payden & Rygel was founded in 1983 as an independent investment counseling
organization specializing in the management of short-term fixed income
securities. The firm is owned by Joan Payden and several other employees.
As of August 31, 1996, its staff consisted of 81 employees, 23 of whom
either have advanced degrees and/or are Chartered Financial Analysts. As
of such date, it had over 200 clients, including pension funds, endowments,
credit unions, foundations, corporate cash accounts and individuals, and
managed total assets of approximately $20 billion, with about $2.6 billion
invested globally.
The Adviser's focus is the management of fixed income securities in both
the domestic and global markets. These include securities that have
absolute or average maturities out to five years with a bias toward very
high quality and liquidity. Portfolios are actively managed according to
client approved guidelines and benchmarks. Payden & Rygel also utilizes
futures and options strategies, primarily as defensive measures to control
interest rate and currency volatility.
The Adviser provides investment management services to the Fund pursuant to
an Investment Management Agreement with the Trust dated as of June 24, 1992
as amended on June 14, 1994 with respect to Class B shares of the Group.
The Agreement provides that the Adviser will pay all expenses incurred in
connection with managing the ordinary course of the Fund's business, except
the following expenses, which are paid by each Fund: (i) the fees and
expenses incurred by a Fund in connection with the management of the
investment and reinvestment of the Fund's assets; (ii) the fees and
expenses of Trustees who are not affiliated persons of the Adviser; (iii)
the fees and expenses of the Trust's Custodian, Transfer Agent, Fund
Accounting Agent and Administrator; (iv) the charges and expenses of legal
counsel and independent accountants for the Trust; (v) brokers' commissions
and any issue or transfer taxes chargeable to a Fund in connection with its
securities and futures transactions; (vi) all taxes and corporate fees
payable by a Fund to federal, state or other governmental agencies; (vii)
the fees of any trade associations of which the Trust may be a member;
(viii) the cost of fidelity bonds and trustees and officers errors and
omission insurance; (ix) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC,
registering the Trust as a broker or dealer and qualifying the shares of
the Fund under state securities laws, including the preparation and
printing of the Trust's registration statements, prospectuses and
statements of additional information for filing under federal and state
securities laws for such purposes; (x) communications expenses with respect
to investor services and all expenses of shareholders' and trustees'
meetings and of preparing, printing and mailing reports to shareholders in
the amount necessary for distribution to the shareholders; (xi) litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business, and (xii) any expenses
assumed by the Trust pursuant to a plan of distribution adopted in
conformity with Rule 12b-1 under the 1940 Act.
The Adviser has agreed that if in any fiscal year the expenses borne by the
Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or
qualified for sale to the public, it will reimburse the Fund for any excess
to the extent required by such regulations. Unless otherwise required by
law such reimbursement would be accrued and paid on the same basis that the
advisory fees are accrued and paid by the Fund. To the Trust's knowledge,
the only state expense limitation in effect on the date of this Statement
of Additional Information is that of California, which requires the Adviser
to reimburse the Fund for advisory fees to the extent that certain expenses
exceed 2-1/2% of average annual net assets up to $30,000,000, 2% of the
next $70 million of average net assets, and 1-1/2% of average net assets in
excess of $100,000,000.
The Agreement provides that the Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the performance of the Agreement, except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation
for services or a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of the Adviser's duties or from
reckless disregard by the Adviser of its duties and obligations thereunder.
Unless earlier terminated as described below, the Agreement will continue
in effect with respect to the Fund until June 14, 1996 and thereafter for
successive annual periods, subject to annual approval by the Board of
Trustees (or by a majority of the outstanding voting shares of the Fund as
defined in the 1940 Act) and by a majority of the Trustees who are not
interested persons of any party to the Agreement by vote cast in person at
a meeting called for such purpose. The Agreement terminates upon
assignment and may be terminated with respect to the Fund without penalty
on 60 days' written notice at the option of either party thereto or by the
vote of the shareholders of the Fund.
The Adviser makes certain payments to broker-dealers in connection with the
Fund's participation in no-transaction-fee mutual fund programs sponsored
by such broker-dealers. These payments are not obligations of the Fund.
ADMINISTRATOR, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Treasury Plus, Incorporated, a wholly owned subsidiary of the Adviser
serves as Administrator to the Fund. Under its Administration Agreement
with the Group, the Administrator has agreed to prepare periodic reports to
regulatory authorities, maintain financial accounts and records of the
Fund, transmit communications by the Fund to shareholders of record, make
periodic reports to the Board of Trustees regarding Fund operations, and
overview the work of the fund accountant and transfer agent.
Investors Fiduciary Trust Company ("IFTC") provides fund accounting and
transfer agency services to the Group. IFTC calculates daily expense
accruals and net asset value per share of the Funds, issues and redeems
Fund shares, maintains shareholder accounts and prepares annual investor
tax statements.
The liability provisions of the Group's agreements with Treasury Plus and
IFTC are similar to those of the Investment Management Agreement discussed
above. In addition, the Group has agreed to indemnify IFTC against certain
liabilities. The respective agreements may be terminated by either party
on 90 days notice.
The Administrator has agreed that, if in any fiscal year the expenses borne
by the Fund exceed the applicable expense limitations imposed by the
securities regulations of any state in which shares of the Fund are
registered or qualified for sale to the public, it will reimburse the Fund
for a portion of such excess expenses, which portion is determined by
multiplying the excess expenses by the ratio of (i) the fees respecting the
Fund otherwise payable to the Administrator pursuant to its agreement with
the Trust, to (ii) the aggregate fees respecting the Fund otherwise payable
to the Administrator pursuant to its agreement and to the Adviser pursuant
to its Investment Management Agreement with the Trust.
DISTRIBUTOR
Payden & Rygel Distributors, 333 South Grand Avenue, Los Angeles,
California 90071, acts as Distributor to the Group pursuant to a
Distribution Agreement with the Group dated as of June 24, 1992, as
amended. The Distributor has agreed to use its best efforts to effect
sales of shares of the Fund, but is not obligated to sell any specified
number of shares. The Distribution Agreement contains provisions with
respect to renewal and termination similar to those in the Investment
Management Agreement described above. Pursuant to the Agreement, the Trust
has agreed to indemnify the Distributor to the extent permitted by
applicable law against certain liabilities under the Securities Act of
1933.
No compensation is payable by the Fund to the Distributor for its
distribution services. The Distributor pays for the personnel involved in
accepting orders for purchase and redemption of Fund shares, expenses
incurred in connection with the printing of Prospectuses and Statements of
Additional Information (other than those sent to existing shareholders),
sales literature, advertising and other communications used in the public
offering of shares of the Fund, and other expenses associated with
performing services as distributor of the Fund's shares. The Fund pays the
expenses of issuance, registration and transfer of its shares, including
filing fees and legal fees.
SHAREHOLDER SERVICE PLAN
Pursuant to the Shareholder Service Plan, the Fund will pay the Distributor
for expenses incurred in connection with non-distribution shareholder
services provided by the Distributor to securities broker-dealers and other
securities professionals ("Service Organizations") with respect to Class B
shares of the Fund, and to the beneficial owners of such shares, and for
fees paid by the Distributor to such Service Organizations for the
provision of support services to their clients who are beneficial owners of
Class B shares ("Clients").
Support services provided pursuant to the Shareholder Service Plan include
(a) establishing and maintaining accounts and records relating to Clients
who invest in Class B shares; (b) aggregating and processing purchase,
exchange and redemption requests for Class B shares from Clients and
placing net purchase and redemption orders with respect to such shares; (c)
investing, or causing to be invested, the assets of Clients' accounts in
Class B shares pursuant to specific or pre-authorized instructions; (d)
processing dividend and distribution payments from the Group on behalf of
Clients; (e) providing information periodically to Clients showing their
positions in Class B shares; (f) arranging for bank wires; (g) responding
to Client inquiries relating to the services performed by Service
Organizations; (h) providing sub-accounting services with respect to Class
B shares beneficially owned by Clients or the information to the Group
necessary for sub-accounting services; (i) preparing any necessary tax
reports or forms on behalf of Clients; (j) if required by law, forwarding
shareholder communications from a Fund to Clients; and (k) assisting
Clients in changing dividend options, account designations and addresses.
The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by a vote
of the Board of Trustees of the Group, including a majority of the Trustees
who have no direct or indirect financial interest in the operation of the
Plan or in any agreement related to the Plan (the "Independent Trustees"),
cast in person at a meeting called for the purpose of voting on such
continuance. The Plan may be amended at any time by the Board of Trustees,
provided that any material amendments of the terms of the Plan will become
effective only upon the approval by a majority of the Board and a majority
of the Independent Trustees pursuant to a vote cast in person at a meeting
called for the purpose of voting on the Plan.
PURCHASES AND REDEMPTIONS
Certain managed account clients of the Adviser may purchase shares of the
Fund. To avoid the imposition of duplicative fees, the Adviser may be
required to make adjustments in the management fees charged separately by
the Adviser to these clients to offset the generally higher level of
management fees and expenses resulting from a client's investment in the
Fund.
The Fund reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that Exchange is
closed for other than customary weekend and holiday closings; (b) the
Securities and Exchange Commission has by order permitted such suspension;
or (c) an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or valuation of
net assets of the Fund not reasonably practicable.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account for their then-current
value (which will be promptly be paid to the investor) if at any time, due
to shareholder redemption, the shares in the Fund account do not have a
value of at least $5,000. An investor will be notified that the value of
his account is less than the minimum and allowed at least 30 days to bring
the value of the account up to at least $5,000 before the redemption is
processed. The Declaration of Trust also authorizes the Funds to redeem
shares under certain other circumstances as may be specified by the Board
of Trustees.
The Fund redeems shares solely in cash up to the lesser of $250,000 or 1%
of its net assets during any 90-day period for any one shareholder. The
Fund reserves the right to pay any redemption price exceeding this amount
in whole or in part by a distribution in kind of readily marketable
securities held by the Fund in lieu of cash. It is highly unlikely that
shares would ever be redeemed in kind. If shares are redeemed in kind,
however, the redeeming shareholder would incur transaction costs upon the
disposition of the securities received in the distribution.
OTHER INFORMATION
CAPITALIZATION
The Fund is a series of Payden & Rygel Investment Group, an open-end
management investment company organized as a Massachusetts business trust
in January 1992 (initially called P&R Investment Trust). The
capitalization of the Fund consists solely of an unlimited number of shares
of beneficial interest. The Board of Trustees has currently authorized ten
series of shares: Global Fixed Income Fund, Global Opportunity Fund, Short
Duration Tax Exempt Fund, Tax Exempt Bond Fund, Limited Maturity Fund,
Short Bond Fund, Intermediate Bond Fund, Opportunity Fund, U.S. Treasury
Fund, and Growth & Income Fund. Each series offers Class B shares as well
as Class A shares. The Board of Trustees may establish additional funds
(with different investment objectives and fundamental policies) and
additional classes of shares at any time in the future. Establishment and
offering of additional portfolios will not alter the rights of the Fund's
shareholders. Shares do not have preemptive rights or subscription rights.
In liquidation of a Fund, each shareholder is entitled to receive their pro
rata share of the assets of the Fund.
Expenses incurred by the Group in connection with its organization and the
initial public offering of shares of the Fund are estimated to be $15,000.
These expenses will be reimbursed to the Adviser, subject to the expense
limitation described in the Prospectus under "Management of the Funds --
Expense Guarantee", and amortized on a straight line basis over a period of
five years. Expenses incurred in the organization of subsequently offered
series of the Group will be charged to those series and will be amortized
on a straight line basis over a period of not less than five years.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims liability of the shareholders of the Fund
for acts or obligations of the Group, which are binding only on the assets
and property of the Fund, and requires that notice of the disclaimer be
given in each contract or obligation entered into or executed by the Fund
or the Trustees. The Declaration of Trust provides for indemnification out
of Fund property for all loss and expense of any shareholder held
personally liable for the obligations of the Fund. The risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations and thus should be considered remote.
The Declaration of Trust provides further that no officer or Trustee of the
Group will be personally liable for any obligations of the Group, nor will
any officer or Trustee be personally liable to the Group or its
shareholders except by reason of his own bad faith, willful misfeasance,
gross negligence in the performance of his duties or reckless disregard of
his obligations and duties. With these exceptions, the Declaration of
Trust provides that a Trustee or officer of the Group is entitled to be
indemnified against all liabilities and expenses, including reasonable
accountants' and counsel fees, incurred by the Trustee or officer in
connection with the defense or disposition of any proceeding in which he
may be involved or with which he may be threatened by reason of his being
or having been a Trustee or officer.
The Group and the Adviser have represented that they have adequate
facilities in place to ensure implementation of the methodology and
procedures for calculating the net asset value and dividends and
distributions of the two classes of shares and the proper allocation of
expenses between the two classes of shares, and this representation must be
concurred with annually by an independent examiner. In addition, the Board
of Trustees must monitor each series for the existence of any material
conflicts between the interests of the two classes of shares, and must take
such action as is reasonably necessary to eliminate any such conflicts that
may develop. If a conflict arises, the Adviser and Distributor must remedy
the conflict at their own cost.
VOTING
Shareholders of the Fund and any other series of the Group will vote in the
aggregate and not by series or class except as otherwise required by law or
when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the shareholders of a particular series or
class of shares. Pursuant to Rule 18f-2 under the 1940 Act, the approval
of an investment advisory agreement or any change in a fundamental policy
would be acted upon separately by the series affected. Matters such as
ratification of the independent public accountants and election of Trustees
are not subject to separate voting requirements and may be acted upon by
shareholders of the Group voting without regard to series or class.
CUSTODIAN
The Boston Safe Deposit and Trust Company serves as Custodian for the
assets of the Fund. The Custodian's address is One Cabot Road, Medford,
Massachusetts 02155. Under its Custodian Agreement with the Group, the
Custodian has agreed among other things to maintain a separate account in
the name of the Fund; hold and disburse portfolio securities and other
assets on behalf of the Fund; collect and make disbursements of money on
behalf of the Fund; and receive all income and other payments and
distributions on account of the Fund's portfolio securities.
INDEPENDENT AUDITORS
Deloitte & Touche serves as the independent auditors for the Fund.
Deloitte & Touche provides audit and tax return preparation services to the
Group. The independent auditors' address is 1700 Courthouse Plaza
Northeast, Dayton, Ohio 45402-1788.
COUNSEL
Paul, Hastings, Janofsky & Walker pass upon certain legal matters in
connection with the shares offered by the Group, and also act as Counsel to
the Group. Counsel's address is 555 South Flower Street, 22nd Floor, Los
Angeles, California 90071. Paul, Hastings, Janofsky & Walker also acts as
counsel to the Adviser and the Distributor.
LICENSE AGREEMENT
The Adviser has entered into a non-exclusive License Agreement with the
Group which permits the Group to use the name "Payden & Rygel". The
Adviser has the right to require the Group to cease using the name at such
time as the Adviser is no longer employed as investment manager to the
Group.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain
all the information included in the Group's registration statement filed
with the Securities and Exchange Commission under the Securities Act of
1933 with respect to the securities offered hereby, certain portions of
which have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The registration statement, including
the exhibits filed therewith, may be examined at the offices of the
Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
