PAYDEN & RYGEL INVESTMENT GROUP, 497, 1996-03-29

PAYDEN & RYGEL INVESTMENT GROUP
497, 1996-03-29

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<PAGE>
BOND FUNDS

LIMITED MATURITY FUND
SHORT BOND FUND
INTERMEDIATE BOND FUND
OPPORTUNITY FUND
U.S. TREASURY FUND
SHORT DURATION TAX EXEMPT FUND
TAX EXEMPT BOND FUND
GLOBAL FIXED INCOME FUND
INTERNATIONAL BOND FUND
PROSPECTUS
FEBRUARY 7, 1996
AS SUPPLEMENTED ON MARCH 29, 1996

[LOGO]
<PAGE>
TABLE OF CONTENTS

Prospectus Summary.................................................... 1

Expense Information................................................... 4

Financial Highlights.................................................. 7

Investment Objective.................................................. 18

Investment Practices.................................................. 22

Management of the Funds............................................... 27

How to Purchase Shares................................................ 29

Shareholder Services.................................................. 31

Redemption of Shares.................................................. 33

Net Asset Value....................................................... 33

Dividends, Distributions and Taxes.................................... 34

Other Information..................................................... 35
<PAGE>

The Payden & Rygel Investment Group (the "Group") is a professionally
managed, no-load, open-end management investment company. The Group
currently consists of ten distinct portfolios with separate investment
objectives. This Prospectus provides information about the nine investment
portfolios (each a "Fund") which invest primarily in fixed income
securities: the Payden & Rygel Limited Maturity Fund, Payden & Rygel Short
Bond Fund, Payden & Rygel U.S. Treasury Fund, Payden & Rygel Intermediate
Bond Fund, Payden & Rygel Opportunity Fund, Payden & Rygel Short Duration
Tax Exempt Fund, Payden & Rygel Tax Exempt Bond Fund, Payden & Rygel Global
Fixed Income Fund and Payden & Rygel International Bond Fund. Information
about the investment objectives of the Funds, the types of securities in
which each Fund may invest, and applicable investment policies and
restrictions, is set forth in this Prospectus. There can be no assurance
that the Funds' investment objectives will be achieved. Because the market
value of each Fund's investments will change, the net asset value per share
of the Funds also will vary.

This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. A Statement of Additional
Information, dated February 7, 1996, as supplemented on March 29, 1996,
containing additional information about each 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 Group at 333 South Grand Avenue, 32nd Floor, Los Angeles,
California 90071 or by telephone at (213) 625-1900 or (800) 5PAYDEN
(800-572-9336).

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THE SHARES FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.

This Prospectus should be read and retained for reference to information
about the Funds.

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 FEBRUARY 7, 1996, AS SUPPLEMENTED ON MARCH 29,
1996.
<PAGE>
PROSPECTUS SUMMARY

THE FUNDS

The Funds are 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. Each Fund is designed to
provide investors with access to the professional investment management
services offered by Payden & Rygel, which serves as investment adviser to
the Funds.

INVESTMENT OBJECTIVES AND POLICIES

The objective of the Short Duration Tax Exempt Fund and the Tax Exempt Bond
Fund is to earn federal tax-free income by investing in debt obligations
which are exempt from federal income tax and consistent with preservation
of capital. The objective of each of the other Funds is to realize a high
level of total return consistent with preservation of capital.

The PAYDEN & RYGEL LIMITED MATURITY FUND (the "Limited Maturity Fund")
seeks to earn a total return that, over time, is greater than that
available from money market funds. It invests in debt obligations of the
U.S. Treasury, U.S. government agencies, foreign and domestic public
corporations and mortgage-backed securities. The Fund is not constrained as
to the maximum maturity of its individual portfolio securities. However,
under normal conditions, the average portfolio maturity of the Limited
Maturity Fund will range from four to nine months with a maximum average
maturity of one year.

The PAYDEN & RYGEL SHORT BOND FUND (the "Short Bond Fund") invests in the
same types of debt obligations as the Limited Maturity Fund. However, the
Fund has a maximum portfolio average maturity of three years.

The PAYDEN & RYGEL U.S. TREASURY FUND (the "Treasury Fund") primarily
invests in U.S. Treasury securities guaranteed by the full faith and credit
of the United States Government. The Fund has no restrictions regarding
maturity of its investments; however, it primarily invests in securities
ranging from one day to ten years, and the average dollar-weighted maturity
of its portfolio is adjusted as market conditions warrant given the
investment outlook of the Adviser.

The PAYDEN & RYGEL INTERMEDIATE BOND FUND (the "Intermediate Fund") invests
in the same types of debt obligations as the Limited Maturity Fund, with an
average portfolio maturity, under normal market conditions, from three to
six years.

The PAYDEN & RYGEL OPPORTUNITY FUND (the "Opportunity Fund") also invests
in the same types of debt obligations as the Limited Maturity Fund, but its
average maturity is not constrained and it invests in securities with
maturities deemed by the Adviser to offer the best investment
opportunities.

The PAYDEN & RYGEL SHORT DURATION TAX EXEMPT FUND (the "Short Duration
Fund") invests in short and medium term tax-exempt securities. The Fund is
not constrained as to the maximum maturity of its individual portfolio
securities; however, under normal market conditions it maintains an average
portfolio maturity of one to four years.

Bond Funds 1
<PAGE>
The PAYDEN & RYGEL TAX EXEMPT BOND FUND (the "Tax Exempt Bond Fund")
invests in the same types of debt obligations as the Short Duration Fund.
However, the Fund is not constrained as to its average portfolio maturity,
and the average dollar-weighted maturity of its portfolio is adjusted as
market conditions warrant given the investment outlook of the Adviser.

The PAYDEN & RYGEL GLOBAL FIXED INCOME FUND (the "Global Fund") invests
primarily in U.S. and foreign government notes and bonds and U.S. and
foreign corporate debt securities. The Fund also has substantial
investments in foreign currency contracts. The Fund is not constrained as
to the maximum maturity of its individual portfolio securities; however,
under normal circumstances, its dollar-weighted average portfolio maturity
will not exceed ten years. Under normal circumstances Fund investments will
be primarily "high quality", which means that at the time of purchase a
security will be rated in one of the two top tiers by at least one of the
established rating agencies (e.g. AAA or AA by Standard & Poor's
Corporation).

The PAYDEN & RYGEL INTERNATIONAL BOND FUND (the "International Fund")
invests in the same types of securities and other instruments as the Global
Fund with the exception that the International Fund invests primarily in
securities that are not denominated in U.S. dollars.

INVESTMENT RISKS AND CONSIDERATIONS

Investment risks and other considerations relevant to the securities in
which each Fund invests are described under "Investment Objectives and
Policies." Because each Fund invests principally in debt securities, the
value of its portfolio will generally vary inversely with changes in
interest rates, and each Fund's ability to achieve its investment objective
will depend on the ability of issuers to pay their debt obligations when
due. As a "non-diversified" fund for purposes of the Investment Company Act
of 1940, each 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. By current SEC definition, a
diversified fund has, with respect to at least 75% of its total assets, no
more than 5% of its total assets invested in the securities of one issuer,
plus cash, Government securities, and other investment companies. In
addition, from time to time the Short Duration and Tax Exempt Bond Funds
may each invest more than 25% of its total assets in tax exempt debt
obligations issued by the state of California and other governmental
authorities, agencies and instrumentalities located in California.

Because each Fund invests primarily in debt securities, under certain
market conditions each Fund's ability to achieve a high total return may be
less than that of funds which may invest in equity securities.

Each Fund's annual portfolio turnover rate may vary substantially, which
could cause each Fund's transaction costs to be higher than those of other
mutual funds with less aggressive trading strategies. (For the fiscal year
ended October 31, 1995, only the Global and Opportunity Funds had turnover
greater than 200% (227% and 253% respectively). 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.

With the exception of the Treasury Fund, each Fund may invest in certain
derivative instruments (i.e., instruments whose value derives from the
value of an underlying security or index) such as interest rate and
currency futures contracts, options on such futures contracts, put and call
options on securities and currencies, interest rate and currency swaps and
the purchase or sale of securities on a when-issued or delayed-delivery
basis, all of which involve certain costs and risks. The risks include the
risk that the Adviser's forecasts of market values, interest rates,
currency rates of exchange and other factors are not correct. Another risk
is that the asset or liability being hedged by the Fund does not move in
the forecasted direction, or that the counterparty in a hedge transaction
defaults. The inability to close out options or futures positions because
of the lack of a liquid market is also a potential risk. Investment in such
derivative instruments may not be successful and may reduce the returns and
increase the volatility of the Funds. To realize additional income, each
Fund may also enter into repurchase agreements or lend its portfolio
securities. See "Investment Objectives and Policies" below and in the
Statement of Additional Information.

2 Payden & Rygel Investment Group
<PAGE>
The Global and International Funds will purchase debt obligations that are
payable in foreign currencies. The acquisition of securities issued by
foreign governments and foreign companies and denominated in foreign
currencies 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, exchange or tax control
regulations; political instability; changes in exchange rates; greater
portfolio volatility; additional transaction costs; less government
regulation of securities markets, brokers and issuers; possible difficulty
in obtaining and enforcing judgments in foreign courts and imposition of
restrictions on foreign investments.

INVESTMENT ADVISER

Payden & Rygel serves as Adviser to each 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 each Fund
at the following annual rates: Limited Maturity, Short Bond, Treasury,
Intermediate and Opportunity Funds -- 0.28% of average daily net assets up
to $1 billion, decreasing to 0.25% of net assets in excess of $1 billion;
Short Duration and Tax Exempt Bond Funds -- 0.32% of average daily net
assets up to $500 million, decreasing in increments to 0.25% of net assets
in excess of $1 billion; Global and International Funds -- 0.37% of average
daily net assets up to $200 million, decreasing in increments to 0.18% of
net assets in excess of $1.5 billion. The Adviser has agreed to limit the
expenses of each Fund. See "Management of the Funds."

PURCHASE OF SHARES

Two classes of shares of each Fund are offered through Payden & Rygel
Distributors, Inc. (the "Distributor"), an affiliate of the Adviser, at the
net asset value per share of each class of the Fund 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 fees of 0.20% of average daily net assets. Class A Shares do not
participate in the Plan. Shares of each Fund may be exchanged for Class A
or Class B Shares of any other Fund or for the other class of shares of the
Fund. See "How to Purchase Shares" and "Shareholder Services."

REDEMPTIONS

Shares of each 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

With the exception of the International Fund, which distributes dividends
from net investment income quarterly, each Fund distributes dividends from
net investment income monthly 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., an affiliate of
the Adviser. Fund portfolio accounting and transfer agency services are
provided by Investors Fiduciary Trust Company.

CUSTODIAN

The First National Bank of Chicago (the "Custodian") acts as Fund
custodian. The Custodian maintains a global network of depository
facilities.

Bond Funds 3
<PAGE>
EXPENSE INFORMATION

Two classes of shares are offered to investors.

CLASS A SHARES

Class A Shares are offered to investors on a no-load basis without any
sales commissions or distribution ("12b-1 plan") charges.

ALL FUNDS
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

ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1995 AFTER REIMBURSEMENT OF ADVISORY FEES AND OTHER EXPENSES)

<TABLE>
<CAPTION>
TOTAL FUND
ADVISORY FEES OTHER EXPENSES EXPENSES
------------- -------------- ----------
<S> <C> <C> <C>
Limited Maturity Fund 0.28% 0.05% 0.33%
Short Bond Fund 0.28% 0.12% 0.40%
U.S. Treasury Fund 0.28% 0.17% 0.45%
Intermediate Bond Fund 0.28% 0.17% 0.45%
Opportunity Fund 0.28% 0.17% 0.45%
Short Duration Tax Exempt Fund 0.32% 0.13% 0.45%
Tax Exempt Bond Fund 0.32% 0.13% 0.45%
Global Fixed Income Fund 0.33% 0.17% 0.50%
International Bond Fund 0.37% 0.33% 0.70%
</TABLE>

The Adviser has agreed to guarantee that, for so long as it acts as
investment adviser to a Fund, the expenses of a 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 0.70% of
the average annual net assets of Class A Shares for the Global and
International Funds and 0.60% of the average annual net assets of Class A
shares for all other Funds. In addition, the Adviser has voluntarily agreed
to temporarily reduce its fees so that such Fund expenses will not exceed
the following percentages of average annual net assets: the Limited
Maturity Fund, 0.30%; the Short Bond Fund, 0.40%; the Treasury,
Intermediate, Opportunity, Short Duration and Tax Exempt Bond Funds, 0.45%.
These fee reductions will be maintained at least through October 31, 1996.
Each 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 A Shares for
the year in which it is made to exceed the amount of the expense guarantee
or voluntary expense cap (whichever is in effect at the time of
reimbursement). No Fund will 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 A Shares of the Funds
for the fiscal year ended October 31, 1995, before reimbursement by the
Adviser, were as follows: Limited Maturity Fund, 0.83%; Short Bond Fund,
1.03%; U.S. Treasury Fund, 1.84%; Intermediate Bond Fund, 0.68%;
Opportunity Fund, 1.11%; Short Duration Tax Exempt Fund, 0.91%; Tax Exempt
Bond Fund, 0.74%; Global Fixed Income Fund, 0.50%; and International Bond
Fund, 1.64%.

4 Payden & Rygel Investment Group
<PAGE>
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, there are no Fund redemption fees of any kind.

EXPENSES PER $1,000 INVESTMENT

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Limited Maturity Fund $3 $11 $19 $42
Short Bond Fund $4 $13 $22 $51
U.S. Treasury Fund $5 $15 $25 $57
Intermediate Bond Fund $5 $15 $25 $57
Opportunity Fund $5 $15 $25 $57
Short Duration Tax Exempt Fund $5 $15 $25 $57
Tax Exempt Bond Fund $5 $15 $25 $57
Global Fixed Income Fund $5 $16 $28 $63
International Bond Fund $7 $22 $39 $87
</TABLE>

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 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 any Fund's
annual returns, as there can be no guarantee of any 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.

ALL FUNDS
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 A PERCENTAGE OF AVERAGE NET ASSETS FOR THE FISCAL YEAR ENDED
OCTOBER 31, 1996, AFTER REIMBURSEMENT OF ADVISORY FEES AND OTHER EXPENSES)

<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL FUND
ADVISORY FEES (ESTIMATED)* EXPENSES
------------- -------------- ----------
<S> <C> <C> <C>
Limited Maturity Fund 0.28% 0.27% 0.55%
Short Bond Fund 0.28% 0.37% 0.65%
U.S. Treasury Fund 0.28% 0.42% 0.70%
Intermediate Bond Fund 0.28% 0.42% 0.70%
Opportunity Fund 0.28% 0.42% 0.70%
Short Duration Tax Exempt Fund 0.32% 0.38% 0.70%
Tax Exempt Bond Fund 0.32% 0.38% 0.70%
Global Fixed Income Fund 0.33% 0.62% 0.95%
International Bond Fund 0.37% 0.58% 0.95%
</TABLE>

* 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 a 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
0.95% of the average annual net assets of Class B Shares of the Global and
International Funds and 0.85% for all other Funds. In addition, the Adviser
has voluntarily agreed to temporarily reduce its fees so that such Fund
expenses will not exceed the following percentages of average annual net
assets: the Limited Maturity Fund, 0.55%; the Short Bond Fund, 0.65%; the
Treasury, Intermediate, Opportunity, Short Duration and Tax Exempt Bond
Funds, 0.70%. These fee reductions will be maintained at least through

Bond Funds 5
<PAGE>
October 31, 1996. Each 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). No Fund will be required to repay any unreimbursed amounts
to the Adviser upon termination of its investment management contract with
respect to the Fund.

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, neither Fund charges redemption fees of any kind.

EXPENSES PER $1,000 INVESTMENT

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Limited Maturity Fund $ 6 $18 $31 $ 71
Short Bond Fund $ 7 $21 $37 $ 83
U.S. Treasury Fund $ 7 $23 $40 $ 89
Intermediate Bond Fund $ 7 $23 $40 $ 89
Opportunity Fund $ 7 $23 $40 $ 89
Short Duration Tax Exempt Fund $ 7 $23 $40 $ 89
Tax Exempt Bond Fund $ 7 $23 $40 $ 89
Global Fixed Income Fund $10 $31 $54 $120
International Bond Fund $10 $31 $54 $120
</TABLE>

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 any Fund's
annual returns, as there can be no guarantee of any Fund's future
performance.

6 Payden & Rygel Investment Group
<PAGE>
FINANCIAL HIGHLIGHTS

The following financial highlights are included to assist shareholders in
evaluating the performance of the Funds since their commencement of
operations through October 31, 1995. The information set forth in these
tables, has been derived from financial statements and financial highlights
audited by Deloitte & Touche LLP, independent auditors, whose report
thereon was unqualified. The information should be read in conjunction with
the Funds' financial statements and notes thereto, which appear in the 1995
Annual Report to Shareholders incorporated by reference in the Statement of
Additional Information. Class B Shares were not sold during the period.

Bond Funds 7
<PAGE>
PAYDEN & RYGEL
LIMITED MATURITY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED MAY 2, 1994 TO
OCTOBER 31, OCTOBER 31,
1995 1994 (A)
----------- --------------
<S> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00
----------- -------
Income from investing activities:
Net investment income 0.56 0.19
Total from investing activities 0.07 (0.01)
----------- -------
Net realized and unrealized gain (loss) on
investments 0.63 (0.18)
----------- -------

Distributions to shareholders:
From net investment income (0.57) (0.18)
----------- -------
Total from shareholder distributions (0.57) (0.18)
----------- -------
Net asset value, end of period $ 10.06 $ 10.00
----------- -------
----------- -------

Total return 6.43% 1.84%(b)

Ratios/supplementary data:
Net assets at end of period (000) $18,414 $14,248
Ratio of expenses to average net assets 0.33% 0.41%(c)
Ratio of net investment income to average net
assets 5.59% 4.74%(c)
Ratio of expenses to average net assets* 0.83% 2.92%(c)
Ratio of net investment income to average net
assets* 5.09% 2.23%(c)

Portfolio Turnover 166.07% 86.35%
</TABLE>

* During the period, certain fees were voluntarily reduced and certain
expenses were subsidized by the Adviser. If such voluntary fee
reductions and expense subsidies had not occurred, the ratios would
have been as indicated.

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

8 Payden & Rygel Investment Group
<PAGE>
PAYDEN & RYGEL
SHORT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 31, 1993 TO
OCTOBER 31, OCTOBER 31,
1995 1994 (A)
----------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.68 $ 10.00
----------- -------
Income from investing activities:
Net investment income 0.54 0.34
Net realized and unrealized gain (loss)
on investments 0.36 (0.32)
----------- -------
Total from investing activities 0.90 0.02
----------- -------

Distributions to shareholders:
From net investment income (0.54) (0.34)
----------- -------
Total from shareholder distributions (0.54) (0.34)
----------- -------
Net asset value, end of period $ 10.04 $ 9.68
----------- -------
----------- -------

Total return 9.56% 0.21%(b)

Ratios/supplementary data:
Net assets at end of period (000) $19,157 $ 2,592
Ratio of expenses to average net assets 0.40% 0.48%(c)
Ratio of net investment income to
average net assets 5.72% 4.47%(c)
Ratio of expenses to average net assets* 1.03% 4.56%(c)
Ratio of net investment income to
average net assets* 5.09% 0.39%(c)

Portfolio Turnover 170.27% 186.85%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

Bond Funds 9
<PAGE>
PAYDEN & RYGEL
INTERMEDIATE BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 31, 1993 TO
OCTOBER 31, OCTOBER 31,
1995 1994 (A)
----------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.30 $ 10.00
----------- -------
Income from investing activities:
Net investment income 0.57 0.35
Net realized and unrealized gain (loss)
on investments 0.55 (0.70)
----------- -------
Total from investing activities 1.12 (0.35)
----------- -------

Distributions to shareholders:
From net investment income (0.57) (0.35)
----------- -------
Total from shareholder distributions (0.57) (0.35)
----------- -------
Net asset value, end of period $ 9.85 $ 9.30
----------- -------
----------- -------

Total return 12.43% -3.52%(b)

Ratios/supplementary data:
Net assets at end of period (000) $34,391 $14,312
Ratio of expenses to average net assets 0.45% 0.46%(c)
Ratio of net investment income to
average net assets 6.10% 5.39%(c)
Ratio of expenses to average net assets* 0.68% 2.03%(c)
Ratio of net investment income to
average net assets* 5.87% 3.82%(c)

Portfolio Turnover 189.00% 358.23%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

10 Payden & Rygel Investment Group
<PAGE>
PAYDEN & RYGEL
OPPORTUNITY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 31, 1993 TO
OCTOBER 31, OCTOBER 31,
1995 1994 (A)
----------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.09 $ 10.00
----------- -------
Income from investing activities:
Net investment income 0.57 0.37
Net realized and unrealized gain (loss)
on investments 0.87 (0.91)
----------- -------
Total from investing activities 1.44 (0.54)
----------- -------

Distributions to shareholders:
From net investment income (0.57) (0.37)
----------- -------
Total from shareholder distributions (0.57) (0.37)
----------- -------
Net asset value, end of period $ 9.96 $ 9.09
----------- -------
----------- -------

Total return 16.39% -5.49%(b)

Ratios/supplementary data:
Net assets at end of period (000) $25,822 $ 3,030
Ratio of expenses to average net assets 0.45% 0.49%(c)
Ratio of net investment income to
average net assets 6.20% 5.25%(c)
Ratio of expenses to average net assets* 1.11% 4.52%(c)
Ratio of net investment income to
average net assets* 5.55% 1.22%(c)

Portfolio Turnover 252.09% 513.35%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

Bond Funds 11
<PAGE>
PAYDEN & RYGEL
U.S. TREASURY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1995 TO
OCTOBER 31, 1995 (A)
--------------------
<S> <C>
Net asset value, beginning of period $ 10.00
-------
Income from investing activities:
Net investment income 0.53
Net realized and unrealized gain (loss) on
investments 0.61
-------
Total from investing activities 1.14
-------
-------

Distributions to shareholders:
From net investment income (0.53)
-------
Total from shareholder distributions (0.53)
-------
Net asset value, end of period $ 10.61
-------
-------

Total return 11.61%(b)
Ratios/supplementary data:
Net assets at end of period (000) $10,894
Ratio of expenses to average net assets 0.45%(c)
Ratio of net investment income to average net
assets 6.31%(c)
Ratio of expenses to average net assets* 1.84%(c)
Ratio of net investment income to average net
assets* 4.92%(c)

Portfolio Turnover 87.10%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

12 Payden & Rygel Investment Group
<PAGE>
PAYDEN & RYGEL
SHORT DURATION TAX EXEMPT FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED SEPTEMBER 1, 1994
OCTOBER 31, TO OCTOBER 31,
1995 1994 (A)
----------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 9.93 $ 10.00
----------- -------
Income from investing activities:
Net investment income 0.42 0.04
Net realized and unrealized gain (loss) on
investments 0.15 (0.07)
----------- -------
Total from investing activities 0.57 (0.03)
----------- -------

Distributions to shareholders:
From net investment income (0.42) (0.04)
----------- -------
Total from shareholder distributions (0.42) (0.04)
----------- -------
Net asset value, end of period $ 10.08 $ 9.93
----------- -------
----------- -------

Total return 5.88% -0.35%(b)

Ratios/supplementary data:
Net assets at end of period (000) $16,019 $20,150
Ratio of expenses to average net assets 0.45% 0.45%(c)
Ratio of net investment income to average net
assets 4.12% 3.20%(c)
Ratio of expenses to average net assets* 0.91% 2.87%(c)
Ratio of net investment income to average net
assets* 3.66% 0.78%(c)

Portfolio Turnover 79.81% 0.00%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

Bond Funds 13
<PAGE>
PAYDEN & RYGEL
TAX EXEMPT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 21, 1993 TO
OCTOBER 31, OCTOBER 31,
1995 1994 (A)
----------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 8.90 $ 10.00
----------- -------
Income from investing activities:
Net investment income 0.46 0.33
Net realized and unrealized gain (loss)
on investments 0.69 (1.10)
----------- -------
Total from investing activities 1.15 (0.77)
----------- -------
Distributions to shareholders:
From net investment income (0.46) (0.33)
----------- -------
Total from shareholder distributions (0.46) (0.33)
----------- -------
Net asset value, end of period $ 9.59 $ 8.90
----------- -------
----------- -------

Total return 13.25% -7.85%(b)

Ratios/supplementary data:
Net assets at end of period (000) $40,052 $25,474
Ratio of expenses to average net assets 0.45% 0.50%(c)
Ratio of net investment income to
average net assets 4.97% 4.47%(c)
Ratio of expenses to average net assets* 0.74% 1.07%(c)
Ratio of net investment income to
average net assets* 4.69% 3.90%(c)

Portfolio Turnover 41.87% 97.53%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

14 Payden & Rygel Investment Group
<PAGE>
PAYDEN & RYGEL
GLOBAL FIXED INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
----------- -----------
<S> <C> <C>
Net asset value, beginning of period $ 9.77 $ 10.62
----------- -----------
Income from investing activities:
Net investment income 0.89 0.44
Net realized and unrealized gain (loss) on
investments 0.53 (0.65)
----------- -----------
Total from investing activities 1.42 (0.21)
----------- -----------

Distributions to shareholders:
From net investment income (0.87) (0.42)
In excess of net investment income
From net realized gains on investments (0.22)
In excess of net realized gains on investments
Total from shareholder distributions (0.87) (0.64)
----------- -----------
Net asset value, end of period $ 10.32 $ 9.77
----------- -----------
----------- -----------
Total return 15.10% -2.09%

Ratios/supplementary data:
Net assets at end of period (000) $540,041 $430,210
Ratio of expenses to average net assets 0.50% 0.55%
Ratio of net investment income to average net
assets 8.94% 4.24%
Ratio of expenses to average net assets* 0.50% 0.55%**
Ratio of net investment income to average net
assets* 8.94% 4.24%**

Portfolio Turnover 226.72% 348.12%
</TABLE>

* During the period, certain fees were voluntarily reduced and
certain expenses were subsidized by the Adviser. If such voluntary
fee reductions and expense subsidies had not occurred, the ratios
would have been as indicated.

** During the year ended October 31, 1994 certain fees were reimbursed
to the Adviser. If such expense reimbursements and subsidies had
not occurred, the ratios would have been as indicated.

Bond Funds 15
<PAGE>
PAYDEN & RYGEL
GLOBAL FIXED INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED SEPTEMBER 1, 1992
OCTOBER 31, TO OCTOBER 31,
1993 1992 (A)
----------- ------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.96 $ 10.00
----------- -------
Income from investing activities:
Net investment income 0.46 0.05
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.69 (0.02)
----------- -------
Total from investing activities 1.15 0.03
----------- -------

Distributions to shareholders:
From net investment income (0.46) (0.05)
In excess of net investment income (0.02)
From net realized gains on investments
In excess of net realized gains on
investments (0.03)
----------- -------
Total from shareholder distributions (0.49) (0.07)
----------- -------
Net asset value, end of period $ 10.62 $ 9.96
----------- -------
----------- -------

Total return 11.88% 1.85%(c)

Ratios/supplementary data:
Net assets at end of period (000) $296,958 $20,097
Ratio of expenses to average net assets 0.70% 0.70%(c)
Ratio of net investment income to average net
assets 4.22% 4.62%(c)
Ratio of expenses to average net assets* 0.68%** 2.29%(c)**
Ratio of net investment income to average net
assets* 4.24%** 3.03%(c)**

Portfolio Turnover 252.97% 53.98%
</TABLE>

* During the period, certain fees were voluntarily reduced and
certain expenses were subsidized by the Adviser. If such voluntary
fee reductions and expense subsidies had not occurred, the ratios
would have been as indicated.

** During the year ended October 31, 1993, certain fees were
reimbursed to the Adviser. During the period ended October 31,
1992, certain expenses were subsidized by the Adviser. If such
expense reimbursements and subsidies had not occurred, the ratios
would have been as indicated.

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

16 Payden & Rygel Investment Group
<PAGE>
PAYDEN & RYGEL
INTERNATIONAL BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD

<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 3, 1995
TO OCTOBER 31,
1995 (A)
--------------
<S> <C>
Net asset value, beginning of period $ 10.00
-------
Income from investing activities:
Net investment income 0.15
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.09
-------
Total from investing activities 0.24
-------

Distributions to shareholders:
From net investment income (0.15)
In excess of net investment income
From net realized gains on investments (0.04)
In excess of net realized gains on investments (0.01)
-------
Total from shareholder distributions (0.20)
-------
Net asset value, end of period $ 10.04
-------
-------

Total return 2.43%(b)

Ratios/supplementary data:
Net assets at end of period (000) $19,194
Ratio of expenses to average net assets 0.70%(c)
Ratio of net investment income to average net
assets 5.24%(c)
Ratio of expenses to average net assets* 1.64%(c)
Ratio of net investment income to average net
assets* 4.30%(c)

Portfolio Turnover 96.62%
</TABLE>

(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.

Bond Funds 17
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES

Each Fund invests primarily in debt obligations. Under normal
circumstances, all debt securities held by a 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. Further information
regarding investment ratings is in the appendix to the Statement of
Additional Information. Credit standards are higher for the Global Fixed
Income and the International Bond Funds. Under normal circumstances, each
such Fund invests primarily in debt securities that are considered high
quality at the time of purchase (e.g., AAA or AA by Standard & Poor's
Corporation) by at least one of the established rating agencies.

No Fund is constrained as to the maximum maturity of its individual
portfolio securities, and the dollar-weighted average maturity of each
Fund's portfolio will be adjusted as market conditions warrant given the
investment outlook of the Adviser. However, the average maturity objectives
of many of the Funds will act to limit the amount of longer term
investments in their portfolios. Average maturity objectives for each Fund
are discussed below. Certain debt securities such as, but not limited to,
mortgage-related securities, collateralized mortgage obligations (CMOs),
asset backed securities and securitized loan receivables, are expected to
be repaid prior to their stated maturity dates. As a result, the effective
maturity of these securities is expected to be shorter than their stated
maturity. For purposes of calculation of weighted average maturity, the
effective maturity of such securities will be used.

A Fund's dollar weighted average portfolio maturity ("average maturity") is
used as a measure of the potential price movement of the Fund. Dollar
weighting is used because it provides a more accurate indication than a
non-weighted average. For example, assume a Fund holds two Treasury
securities, with 99% invested in a 10-year note and 1% invested in a 30-day
bill. The mathematical average maturity is close to five years, but the
dollar weighted average maturity is close to ten years. When the Adviser
forecasts a positive environment for bonds, the Funds' average portfolio
maturity will generally be longer than when the Adviser is forecasting a
negative environment for bonds.

Because of its investment policies, each Fund may or may not be suitable or
appropriate for all investors. The Funds are not money market funds and are
not appropriate for those whose primary objective is stability of
principal. The value of the portfolio securities of each Fund will
fluctuate based upon market conditions. In addition, as each Fund's assets
will be invested in debt securities, the total returns realized by the
Funds may not be as great as those realized by funds which may allocate a
portion of their investments to equity securities.

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. The ability of a Fund to achieve its investment objective also
depends on the continuing ability of the issuers of the debt securities in
which the Fund invests to meet their obligations for the payment of
interest and principal when due.

The PAYDEN & RYGEL LIMITED MATURITY FUND seeks to earn a total return that,
over time, is greater than that available from money market funds. It
invests in debt obligations of the U.S. Treasury, U.S. government agencies,

18 Payden & Rygel Investment Group
<PAGE>
foreign and domestic public corporations and mortgage-backed securities.
Under normal conditions, the average portfolio maturity of the Limited
Maturity Fund will range from four to nine months with a maximum average
maturity of one year.

The PAYDEN & RYGEL SHORT BOND FUND invests in the same types of debt
obligations as the Limited Maturity Fund. However, the Fund has a maximum
portfolio average maturity of three years. Under normal market conditions,
at least 65% of the net assets of the Fund will be invested in securities
with more than one year to maturity.

The PAYDEN & RYGEL U.S. TREASURY FUND primarily invests in U.S. Treasury
securities guaranteed by the full faith and credit of the United States
Government. The Fund will invest at least 65% of its net assets in
obligations issued by the U.S. Treasury and guaranteed by the full faith
and credit of the U.S. government. In addition, the Fund may invest up to
15% of its total assets in securities issued by U.S. government agencies
and instrumentalities which may or may not be supported by the full faith
and credit of the U.S. government; the Fund will invest in such securities
only when the Adviser is satisfied that the credit risk is minimal. The
Fund will generally invest in U.S. Treasury securities with maturities
ranging from one day to ten years.

The PAYDEN & RYGEL INTERMEDIATE BOND FUND invests in the same types of debt
obligations as the Limited Maturity Fund, with an average portfolio
maturity, under normal market conditions, from three to six years. Under
normal market conditions, at least 65% of the net assets of the Fund will
be invested in securities with more than one year to maturity.

The PAYDEN & RYGEL OPPORTUNITY FUND also invests in the same types of debt
obligations as the Limited Maturity Fund, but its average maturity is not
constrained. Under normal market conditions, at least 65% of the net assets
of the Fund will be invested in securities with more than one year to
maturity.

The PAYDEN & RYGEL SHORT DURATION TAX EXEMPT FUND invests in short and
medium term debt securities that are exempt from federal income tax. Under
normal market conditions, it maintains an average portfolio maturity of one
to four years.

The PAYDEN & RYGEL TAX EXEMPT BOND FUND invests in the same types of debt
obligations as the Short Duration Fund. However, the Fund is not
constrained as to its average portfolio maturity.

The PAYDEN & RYGEL GLOBAL FIXED INCOME FUND invests primarily in U.S. and
foreign government notes and bonds and U.S. and foreign corporate debt
securities. The Fund also has substantial investment in foreign currency
contracts. Under normal circumstances, its dollar-weighted average
portfolio maturity will not exceed ten years. If the rating of bonds of any
country issuing or regulating securities or currencies in which the Fund
has made an investment is no longer rated in one of the two top rating
categories by at least one of the established rating agencies, the Fund
will discontinue making investments in that country and liquidate any
current holdings as soon as the Adviser determines it is in the best
interest of the Fund to do so.

The PAYDEN & RYGEL INTERNATIONAL BOND FUND invests in the same types of
securities and other investments and has the same high quality credit
guidelines as the Global Fund with the exception that the International
Fund invests primarily in securities that are not denominated in U.S.
dollars.

There is, of course, no guarantee that any Fund will accomplish its
objective. In addition, as the Adviser may from time to time invest a large
percentage of a Fund's assets in securities of one or more issuers, each
Fund has been classified as a "non-diversified" investment company. By
current SEC definition, a diversified fund has, with respect to at least
75% of its total assets, no more than 5% of its total assets invested in
the securities of one issuer, plus cash, Government securities, and other
investment companies. Accordingly, each Fund may be more susceptible to
risks associated with a single economic, political or regulatory occurrence
than a diversified investment company might be. However, each 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.

Bond Funds 19
<PAGE>
ADDITIONAL INFORMATION REGARDING THE GLOBAL AND INTERNATIONAL FUNDS

As global funds, each of the Global and International Funds may invest in
securities of any issuer and in any currency. Under normal market
conditions, as a fundamental policy which cannot be changed without
shareholder approval, at least 65% of the Global Fund's total assets are
invested in debt securities of issuers located in at least three countries,
one of which may be the United States and at least 65% of the International
Fund's assets are invested in debt securities of issuers located in at
least three countries other than the United States. Each Fund currently
expects to invest in securities of issuers in the United States, Canada,
Australia, New Zealand, the countries of Western Europe, and Japan. Each
Fund's "total return" is comprised principally of interest on debt
securities and market value changes realized from the purchase and sale of
such securities, the use of futures contracts and options on futures
contracts, and changes in foreign currency exchange rates.

The Global Fund invests in fixed income securities which, in the Adviser's
view, have attractive yields and potential capital gains. Some foreign
fixed income markets offering attractive returns may be denominated in
currencies which appear relatively weak or are potentially volatile
compared to the U.S. dollar. The Global Fund will, when deemed appropriate
by the Adviser, hedge this currency exposure in order to protect the Fund's
share price.

The investment objectives and policies of the International Fund are
similar to those of the Global Fund, with the exception that the
International Fund invests primarily in securities that are not denominated
in U.S. dollars. Under normal market conditions, (1) the Fund invests no
more than 35% of its assets in U.S. dollar denominated securities and (2)
at least 65% of net assets are invested in securities with more than one
year to maturity. However for temporary defensive or emergency purposes,
the Fund may invest without limit in U.S. debt securities. In addition, the
International Fund generally has more exposure to foreign currency exchange
rates than the Global Fund, which may cause greater share price volatility.

The Adviser undertakes several measures in seeking to preserve investors'
principal. First, the debt securities or currencies in which each Fund
invests are issued by or under the regulation of countries the bonds of
which are rated at the time of purchase in the top two tiers of the ratings
issued by Moody's Investor Services, Inc. or Standard & Poor's Corporation.
If the rating of bonds of any country issuing or regulating securities or
currencies in which a Fund has made an investment falls below such level,
the Fund will discontinue making investments in that country and liquidate
any current holdings as soon as the Adviser determines it is in the best
interest of the Funds to do so.

Second, under normal circumstances the debt securities in which each Fund
invests are considered "high quality" at the time of purchase (e.g., rated
AAA or AA by Standard & Poor's Corporation) by at least one of the
established rating agencies, or if not rated are determined to be of
comparable quality by the Adviser.

Third, the Adviser actively manages the maturity of each Fund's portfolio
in response to expected interest rate movements. When anticipating a
decline in interest rates, the Adviser attempts to lengthen the portfolio's
maturity to capitalize on the expected appreciation of such securities.
When interest rates are expected to rise, each Fund seeks to shorten its
maturity to protect against the expected capital depreciation.

Finally, the Adviser employs a variety of investment techniques to control
each Fund's exposure to foreign currency exchange risks. An increase in
value of a foreign currency relative to the U.S. dollar (the "weakening" of
the dollar) increases the U.S. dollar value of securities denominated in
that foreign currency. Conversely, a decline in the value of a foreign
currency relative to the U.S. dollar (the "strengthening" of the dollar)
causes a decline in the U.S. dollar value of these securities. The Adviser
seeks to use combinations of forward foreign currency contracts, foreign
currency futures contracts and options on futures contracts, options on
foreign currencies, and currency swap agreements to offset the impacts of
such movements. The Global Fund will generally hedge a greater proportion
of its foreign currency exchange risk than the International Fund. These
investment techniques involve certain risks described under "Investment
Practices" below.

Investments of the Global and International Funds will consist of: (1) debt
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (2) debt obligations issued or guaranteed by a foreign
sovereign government or one of its agencies, authorities, instrumentalities
or political subdivisions, including foreign states, provinces or
municipalities; (3) debt obligations issued or guaranteed by supranational
organizations such as the World Bank, Asian Development Bank, European
Investment Bank and European Economic

20 Payden & Rygel Investment Group
<PAGE>
Community; (4) debt obligations of U.S. and foreign banks and bank holding
companies; (5) debt securities and commercial paper issued by U.S. and
foreign companies, including commercial paper indexed to specific foreign
currency exchange rates; and (6) U.S. and foreign collateralized mortgage
obligations and asset-backed bonds.

Investing in the 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; generally
higher markups on foreign portfolio transactions; 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); political instability;
less government regulation of securities markets, brokers and issuers;
possible difficulty in obtaining and enforcing judgments in foreign courts;
and imposition of restrictions on foreign investments. Additionally,
foreign securities and interest 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, and transaction costs of foreign currency conversions.
Changes in foreign exchange rates will also affect the value of securities
denominated or quoted in currencies other than the U.S. dollar.

Investing in the debt obligations of supranational organizations involves
additional risks and considerations. Such organizations' debt obligations
are generally not guaranteed by their member governments, and payment
depends on the willingness and ability of their member governments to
support their obligations. Continued support of a supranational
organization by its government members is subject to a variety of
political, economic and other factors, as well as the financial performance
of the organization.

ADDITIONAL INFORMATION REGARDING THE TAX EXEMPT FUNDS

Both the Short Duration and Tax Exempt Bond Funds intend to achieve their
objectives by investing primarily in debt obligations issued by state and
local governments, territories, and possessions of the U.S., regional
government authorities, and their agencies and instrumentalities, which, in
the opinion of bond counsel to the issuer at the time of original issuance,
provide interest income that is exempt from U.S. federal income taxes.
Under normal circumstances, as a fundamental policy which cannot be changed
without shareholder approval, at least 80% of each Fund's net assets will
be invested in tax exempt municipal debt obligations.

From time to time, each Fund may invest more than 25% of its total assets
in tax exempt debt obligations issued by the state of California and other
governmental authorities, agencies and instrumentalities located in
California. In such event, each Fund's ability to meet its objective may be
subject to political, economic, regulatory or other developments which
constrain the taxing and spending authority of California issuers or
otherwise affect the ability of California issuers to pay interest or repay
principal.

Certain of the municipal debt obligations may pay interest which is exempt
from federal income taxes but is a preference item for purposes of
computing the federal alternative minimum tax. When a regulated investment
company receives such interest, a proportionate share of any
exempt-interest dividend paid by the investment company may be treated as a
preference item to shareholders. Each Fund may invest up to 20% of its
total assets in such municipal debt obligations if the Adviser determines
that their purchase is consistent with the Fund's investment objective.

Both Funds may, from time to time, invest in securities that are not exempt
from federal income tax. This will be done for temporary defensive
purposes, and will not exceed 20% of the value of a Fund's net assets.
Taxable debt securities will consist of obligations of the U.S. government
and its agencies and instrumentalities, money market funds, bank
obligations and repurchase obligations.

Bond Funds 21
<PAGE>
INVESTMENT PRACTICES

The Adviser utilizes various investment techniques in managing each Fund's
portfolio, including the following:

U.S. GOVERNMENT AND AGENCY OBLIGATIONS. Each 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, and agency issues, which may have
maturities from one day to 40 years. Securities are generally not callable
and normally have interest rates that are fixed for the life of the
security.

MONEY MARKET FUNDS. To maintain liquidity, each Fund may invest in
unaffiliated money market funds. Under normal circumstances, money market
investment of the Short Duration and Tax Exempt Bond Funds will be in
federal tax-free mutual funds. No money market fund investment by a Fund
will be in excess of 3% of the total assets of the money market fund. The
Funds do not anticipate investing more than 15% of their respective net
assets in money market funds. An investment in a money market mutual fund
by a Fund will involve payment by the Fund of its pro rata share of
advisory and administrative fees charged by such money market fund.

MONEY MARKET OBLIGATIONS. Each 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 considered 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.

CORPORATE DEBT SECURITIES. Each Fund other than the Treasury Fund may invest
in U.S. dollar denominated corporate bonds, debentures, notes and other
similar 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. Each 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.

MORTGAGE BACKED SECURITIES. Each of the Funds other than the Treasury Fund
may invest in obligations issued to provide financing for U.S. residential
housing mortgages. The Global and International Funds may also invest in
foreign mortgage-related securities. Payments made on the underlying
mortgages and passed through to a Fund will represent both regularly
scheduled principal and interest payments as well as prepayments of
principal. Investing in such obligations involves special risks as a result
of prepayments (which may require the Fund to reinvest the proceeds at a
lower rate), the illiquidity of certain of such securities and the possible
default by insurers or guarantors. The Tax Exempt Funds invest in municipal
debt obligations issued to provide financing for residential housing
mortgages to targeted groups.

ASSET BACKED RECEIVABLES. With the exception of the U.S. Treasury Fund, each
Fund may invest in asset backed receivables, which represent undivided
fractional interests in a trust with assets consisting of a pool of
domestic loans such as motor vehicle retail installment sales contracts or
credit card receivables. Payments are typically made monthly, consisting of
both principal and interest payments. Asset backed securities may be
prepaid prior to maturity, and hence the actual life of the security cannot
be accurately predicted. During periods of falling interest rates,
prepayments may accelerate, which would require a Fund to reinvest the
proceeds at a lower interest rate. Although generally rated AAA, it is
possible that the securities could become illiquid or experience losses if
guarantors or insurers default.

DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase securities on a
when-issued or delayed delivery basis and sell securities on a delayed
delivery basis. These transactions involve a commitment by a Fund to
purchase or sell securities for a predetermined price or yield, with
payment and delivery taking place more than seven days in the future, or
after a period longer than the customary settlement period for that type of
security. No interest will

22 Payden & Rygel Investment Group
<PAGE>
be earned by a Fund on such purchases until the securities are delivered;
however, the market value of the securities may change prior to delivery.
Neither the Global nor International Fund will invest more than 25% of its
total assets in when-issued and delayed delivery transactions.

FOREIGN GOVERNMENT OBLIGATIONS. Each of the Limited Maturity, Short Bond,
Intermediate and Opportunity Funds may invest in foreign government or
supranational obligations rated at least AA at the time of purchase by at
least one of the established rating agencies or, if unrated, determined to
be of comparable quality by the Adviser. Principal and interest will be
payable in U.S. dollars, except for the Global and International Funds
which normally invest in non-U.S. dollar obligations.

OPTIONS AND FUTURES CONTRACTS. Each Fund other than the Treasury Fund may
purchase and write covered put and call options on securities and securities
indexes, enter into interest rate and index futures contracts (agreements
to take or make delivery of a specified quantity of financial instruments
at a specified price and date), and purchase and write put and call options
on such futures contracts. The Global and International Funds may also
enter into such transactions with respect to foreign currencies. Such
options and futures contracts are derivative instruments which may be
traded on U.S. or foreign exchanges or with broker/dealers which maintain
markets for options. Each Fund may also employ combinations of put and call
options, including without limitation, straddles, spreads, collars, and
strangles. These techniques are used to hedge against changes in interest
rates, foreign currency exchange rates or securities prices in order to
establish more definitely the effective return on securities or currencies
held or intended to be acquired by a Fund, to reduce the volatility of the
currency exposure associated with investment in non-U.S. securities, or as
an efficient means of adjusting exposure to the bond and currency markets
and not for speculation.

Transactions in securities 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 and, in the
case of futures transactions, lack of correlation between price movements
in the hedging vehicle and the portfolio assets being hedged. No more than
5% of a Fund's total assets will be committed to initial margin deposits
and premiums on futures contracts and options on futures contracts. Each
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,
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 a Fund's attempt to use
such instruments for hedging purposes may not be successful. The aggregate
market value of a Fund's portfolio securities and foreign currencies
covering put options on securities and currencies written by the Fund will
not exceed 50% of its net assets.

REPURCHASE AGREEMENTS. For the purpose of maintaining liquidity or realizing
additional income, each 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 a Fund. In the event of
a bankruptcy or default of any such dealer or bank, a 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.

RESERVES. Each Fund other than the U.S. Treasury Fund may establish and
maintain reserves when the Adviser determines that such reserves would be
desirable for temporary defensive purposes (for example, during periods of
substantial volatility in interest rates) or to enable it to take advantage
of buying opportunities. A Fund's reserves may be invested in domestic and
foreign money market instruments, including government obligations,
commercial paper and short-term corporate debt issues meeting the quality
standards described above; money market funds, certificates of deposit and
bankers' acceptances of banking institutions described in the Statement of
Additional Information; and repurchase agreements. Although there is no
limit on the percentage of a Fund's assets which may be maintained in such
reserves, under normal circumstances no Fund anticipates that more than 10%
of its total assets will be maintained in such reserves.

REVERSE REPURCHASE AGREEMENTS. The Global and International Funds may enter
into reverse repurchase agreements (agreements to sell portfolio securities,
subject to such Fund's agreement to repurchase them at a specified time and
price) with well-established registered dealers and banks. A Fund covers
its obligations under a reverse repurchase agreement by maintaining a
segregated account comprised of cash, U.S. Government securities

Bond Funds 23
<PAGE>
or high-grade debt obligations, maturing no later than the expiration of
the agreement, in an amount (marked to market daily) equal to its
obligations under the agreement. Reverse repurchase agreements are the
economic equivalent of borrowings by a Fund.

VARIABLE AND FLOATING RATE SECURITIES. Each Fund may invest in variable and
floating rate securities of government and corporate issuers. The terms of
such obligations provide that interest rates are adjusted periodically
based upon some appropriate interest rate adjustment index e.g. the Federal
Funds rate. The adjustment intervals may be regular, and range from daily
to annually, or may be based on an event such as a change in the prime
rate. Accordingly, although such securities provide some protection against
changes in interest rates, depending on the terms of the instrument there
may be some interval between changes in such rates and adjustment of the
rate paid by the issuer. Any such instruments acquired by a Fund are rated
"high quality" at the time of purchase by at least one of the established
rating agencies or, if not rated, are determined at the time of purchase to
be of comparable quality by the Adviser.

ILLIQUID SECURITIES. Some debt obligations can be illiquid, meaning that
they may not be sold in the ordinary course of business within seven days at
approximately the price at which they are valued. A Fund will not invest
more than 15% of its net assets in illiquid securities. Under the
supervision of the Board, the Adviser will determine the liquidity of each
investment using various factors such as (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of
the security (including any demand or tender features) and (5) the
likelihood of continued marketability and credit quality of the issuer.

GLOBAL AND INTERNATIONAL FUNDS

FOREIGN CURRENCY TRANSACTIONS. Each of the Global and International Funds
normally conducts its foreign currency exchange transactions either on a
spot (cash) basis at the spot rate prevailing in the foreign currencies or
on a forward basis. Under normal circumstances, the Adviser expects that
both Funds will enter into forward currency contracts (contracts to
purchase or sell a specified currency at a specified future date and
price). Neither Fund generally enters into a forward contract with a term
of greater than one year. Although forward contracts are used primarily to
protect both Funds from adverse currency movements, they may also be used
to increase exposure to a currency, and involve the risk that anticipated
currency movements will not be accurately predicted and the Fund's total
return will be adversely affected as a result. Neither Fund enters into
forward currency contracts for speculative purposes. Open positions in
forward contracts are covered by the segregation with the Group's Custodian
of cash, U.S. Government securities or other high grade debt obligations
and are marked-to-market daily.

INTEREST RATE AND CURRENCY SWAPS. For hedging purposes, each of the Global
and International Funds may enter into interest rate and currency swap
transactions and purchase or sell interest rate caps and floors. An
interest rate or currency swap is a derivative instrument which involves an
agreement between a Fund and another party to exchange payments calculated
as if they were interest on a fictitious ("notional") principal amount
(e.g., an exchange of floating rate payments by one party for fixed rate
payments by the other). An interest rate cap or floor is a derivative
instrument which entitles the purchaser, in exchange for a premium, to
receive payments of interest on a notional principal amount from the seller
of the cap or floor, to the extent that a specified reference rate exceeds
or falls below a predetermined level.

A Fund usually enters into such transactions on a "net" basis, with the
Fund receiving or paying, as the case may be, only the net amount of the
two payment streams. The net amount of the excess, if any, of a 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 a Fund
enters into a swap on other than a net basis, or sells caps or floors, 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.

Neither Fund enters into any swap, cap or floor transaction unless the
unsecured senior debt or the claims paying ability of the other party to
the transaction is rated at least "high quality" at the time of purchase
(e.g. AAA or AA by Standard & Poor's Corporation) by at least one of the
established rating agencies. The swap market has grown substantially in
recent years, with a large number of banks and investment banking firms
acting both as

24 Payden & Rygel Investment Group
<PAGE>
principals and agents utilizing standard swap documentation, and the
Adviser has determined that the swap market has become relatively liquid.
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 each Fund is
contractually obligated to make or receive. Caps and floors are more recent
innovations for which standardized documentation has not yet been developed
and, accordingly, they are less liquid than swaps. A Fund will not enter
into an interest rate or currency swap transaction at any time that the
aggregate amount of its net obligations under such transactions exceeds 10%
of its total assets. The aggregate purchase price of caps and floors held
by a Fund may not exceed 5% of its total assets at the time of purchase,
and they are considered by the Fund to be illiquid assets; it may sell caps
and floors without limitation other than the segregated account requirement
described above.

The use of swaps, caps and floors 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, currency rates of exchange and other
applicable factors is incorrect, the investment performance of a 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, a Fund's swap position may correlate imperfectly
with the asset or liability being hedged. In addition, in the event of a
default by the other party to the transaction, a Fund might incur a loss.

TAX EXEMPT FUNDS

The Short Duration and Tax Exempt Bond Funds may purchase certain other
securities and engage in certain other transactions listed below.

GENERAL OBLIGATION NOTES AND BONDS. General obligation notes and bonds are
secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest.

REVENUE NOTES AND BONDS. These obligations are payable only from the
revenues derived from a particular facility or, in some cases, from the
proceeds of a special excise tax. Revenue notes and bonds are issued to
finance a wide variety of capital projects including electric, gas, water
and sewer systems; highways, bridges and tunnels; and colleges and
universities.

ZERO COUPON SECURITIES. Both Funds may invest in zero coupon securities,
which are debt securities issued or sold at a discount from their face
value. These securities do not entitle the holder to interest payments
prior to maturity or the specified redemption date, but instead are
redeemed at their face value upon maturity. The discount from face value is
amortized over the life of the security, and such amortization will
constitute the income earned on the security for accounting and tax
purposes. Even though income on such securities is accrued on a current
basis, a Fund does not receive such income currently in cash and may have
to sell other portfolio securities to obtain cash needed to make income
distributions. The price volatility of a zero coupon security is greater
than an interest-paying note of identical maturity.

THIRD PARTY PUTS. Both Funds may purchase long-term fixed rate municipal
debt obligations that have been coupled with an option granted by a third
party financial institution allowing a Fund at specified intervals to
tender (or "put") such debt obligations to the institution and receive the
face value. These third party puts are available in many different forms,
may be represented by custodial receipts or trust certificates and may be
combined with other features such as interest rate swaps.

MUNICIPAL LEASE OBLIGATIONS AND CERTIFICATES OF PARTICIPATION. Both Funds
may invest in lease obligations issued by state or local government
authorities to acquire land and a wide variety of equipment and facilities.
These obligations typically are not fully backed by the municipality's
credit, and their interest may become taxable if the lease is assigned. If
funds are not appropriated for the following year's lease payments, a
Fund's only recourse may be to the leased property securing payment, and
disposition of the property might prove difficult. In addition, as these
securities represent a relatively new type of financing, certain lease
obligations may be considered to be illiquid securities. Certificates of
participation are issued by a particular municipality or municipal
authority to evidence a proportionate interest in base rental or lease
payments relating to a specific project to be made by the municipality or
authority.

NON-HEDGING STRATEGIC TRANSACTIONS. Both Funds' options and futures
transactions will generally be entered into for hedging purposes. These
hedging transactions are designed to protect the market value of securities
held

Bond Funds 25
<PAGE>
in or to be purchased for a Fund's portfolio against possible changes
resulting from securities market or interest rate fluctuations, and to
protect the Fund's unrealized gains. Hedging is also used to facilitate the
sale of securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchase or sale of
particular securities. However, in addition to the hedging transactions
referred to above, each of the Funds may enter into options and futures
transactions to enhance potential gain in circumstances where hedging is
not involved. A Fund's net loss exposure resulting from transactions
entered into for such purposes will not exceed 2% of the Fund's net assets
at any one time and, to the extent necessary, the Fund will close out
transactions in order to comply with this limitation. Such transactions are
subject to the limitations described under "Options and Futures Contracts"
and to the same types of risks as described below under "Certain Risks of
Hedge Transactions."

OTHER INVESTMENT POLICIES

Each Fund's investment program and policies are subject to further
restrictions and risks which are described in the Statement of Additional
Information. Each Fund's investment objective is fundamental and,
therefore, may not be changed without obtaining shareholder approval. A
Fund's 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, a Fund
will not (1) purchase a security of any issuer if, as a result, with respect
to 50% of the Fund's total assets, more than 10% of the outstanding voting
securities of the issuer would be held by the Fund (other than obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities); (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,
reverse repurchase agreements and delayed delivery transactions covered by
segregated accounts as described above are not considered to be
borrowings,); or (3) in any manner transfer as collateral for indebtedness
any security of the Fund except in connection with permissible borrowings.

OTHER INVESTMENT POLICIES. As a matter of operating policy, a Fund will not
(1) purchase a security of any one issuer if, as a result, (a) 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 (b)
more than 5% of the value of the Fund's total assets would be invested in
the securities of unseasoned issuers which at the time of purchase have
been in operation for less than three years, including predecessors and
unconditional guarantors; or (2) purchase additional securities when
borrowings exceed 5% of the Fund's total assets. In addition, the Limited
Maturity, Short Bond, Intermediate and Opportunity Funds will not 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, and (c) utilities will be divided
according to their services. (For example, gas, gas transmission, electric
and telephone will each be considered a separate industry.) Each foreign
government and supranational organization is considered to be an industry.

PORTFOLIO TURNOVER. Securities may be sold without regard to the length of
time held. The portfolio turnover of each Fund may be higher than that of
other mutual funds with less aggressive trading strategies, which would, in
turn, increase each Fund's transaction costs. No Fund can accurately
predict its future annual portfolio turnover rate; however, although it
could vary substantially, it will generally not exceed 300% for the Global
and International Bond Funds and 200% for the other Funds. 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.

26 Payden & Rygel Investment Group
<PAGE>
MANAGEMENT OF THE FUNDS

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 Funds. 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 Funds 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
Funds and reviews, supervises and administers all investments. All
investment decisions for the Funds 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 each Fund at the Following annual
rates: the Limited Maturity, Short Bond, Treasury, Intermediate and
Opportunity Funds, 0.28% for the first $1 billion of each Fund's average
daily net assets and 0.25% of each Fund's net assets above $1 billion; the
Short Duration and Tax Exempt Bond Funds, 0.32% for the first $500 million
of each Fund's average daily net assets, 0.28% for the next $500 million
and 0.25% of average daily net assets above $1 billion; the Global and
International Funds, 0.37% for the first $200 million of each Fund's
average daily net assets, 0.29% of the next $500 million, 0.25% of the next
$800 million and 0.18% for amounts over $1.5 billion. For the fiscal year
which ended October 31, 1995, the Adviser earned a fee from each Fund as
follows: Limited Maturity, Short Bond, Treasury, Intermediate and
Opportunity Funds, 0.28%; Short Duration and Tax Exempt Funds, 0.32%;
Global Fund 0.33%; International Fund, 0.37%.

ADMINISTRATOR AND TRANSFER AGENT

Treasury Plus, Incorporated, a wholly owned subsidiary of the Adviser
serves as the Administrator to the Funds pursuant to a management and
administration contract with the Group. The Administrator's address is 3200
North Central Avenue, Suite 620, Phoenix, Arizona, 85012. The Administrator
provides administrative services to each 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.

Advisory and administrative fees generally will be charged to each class of
shares based upon the assets of that class. Expenses attributable to a
single class of shares will be charged to that class.

Bond Funds 27
<PAGE>
DISTRIBUTOR

Shares of the Funds 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, Inc.

SHAREHOLDER SERVICE PLAN

The Board of Trustees has adopted a Shareholder Service Plan with respect
to Class B shares of the Funds and of the other portfolios of the Group.
Under the Plan, the Class B shares of the Funds pay the Distributor an
annual fee of up to 0.25% of the average net assets of the Funds
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 Funds; 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
Funds. 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.

28 Payden & Rygel Investment Group
<PAGE>
HOW TO PURCHASE SHARES

Shares of the Funds 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. An account may be opened by calling the
Distributor at (213) 625-1900 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 - ALL FUNDS

- Complete Application

- Make check payable to the Fund
and mail with application to:

Payden & Rygel Investment Group
333 South Grand Avenue
32nd Floor
Los Angeles, CA 90071

BY FEDERAL FUNDS WIRE

- Complete application and mail to:

Payden & Rygel Investment Group
333 South Grand Avenue
32nd Floor
Los Angeles, CA 90071

- For LIMITED MATURITY FUND
Wire funds to The First National Bank of Chicago
ABA 071-000013
For credit to Investor Securities Services No. 4811-5200
For further credit to
Payden & Rygel Limited Maturity Fund
Account Number 10-122303-000

- For SHORT BOND FUND
Wire funds to The First National Bank of Chicago
ABA 071-000013
For credit to Investor Securities Services No. 4811-5200
For further credit to
Payden & Rygel Short Bond Fund
Account Number 10-122300-000

- For U.S. TREASURY FUND
The First National Bank of Chicago
ABA 071-000013
For credit to Investor Securities Services No. 4811-5200
For further credit to
Payden & Rygel U.S. Treasury Fund
Account Number 10-122460-000

- For INTERMEDIATE BOND FUND
Wire funds to The First National Bank of Chicago
ABA 071-000013
For credit to Investor Securities Services No. 4811-5200
For further credit to
Payden & Rygel Intermediate Bond Fund
Account Number 10-122301-000

- For OPPORTUNITY FUND
Wire funds to The First National Bank of Chicago
ABA 071-000013
For credit to Investor Securities Services No. 4811-5200
For further credit to
Payden & Rygel Opportunity Fund
Account Number 10-122302-000

- For SHORT DURATION TAX EXEMPT FUND
Wire Funds to The First National Bank of Chicago
ABA 071-000013
For credit to Investor Securities Services
No. 4811-5200
For further credit to
Payden & Rygel Short Duration Tax Exempt Fund
Account No. 10-122461-000

Bond Funds 29
<PAGE>
- For TAX EXEMPT BOND FUND
Wire Funds to The First National Bank of Chicago
ABA 071-000013
For credit to Investor Securities Services
No. 4811-5200
For further credit to
Payden & Rygel Tax Exempt Bond Fund
Account No. 10-122299-000

- For GLOBAL FIXED INCOME FUND
Wire funds to
First Chicago International New York
ABA 026-009797
For account of First Chicago London,
Account No. 03-0302-085001
For Payden & Rygel Global Fixed Income Fund
Account No. 7103794

- For INTERNATIONAL BOND FUND
Wire funds to
First Chicago International New York
ABA 026-009797
For account of First Chicago London,
Account No. 03-0302-085001
For Payden & Rygel International Bond Fund
Account No. 7125399

Note: SHARES CANNOT BE PURCHASED UNTIL A PROPERLY COMPLETED APPLICATION IS
RECEIVED BY THE GROUP.

Shares of the Funds are purchased at the net asset value per share for each
class 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 Funds and the Custodian are open for business, as defined
below.

All Funds are "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 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. PLEASE NOTE THAT THE TAX EXEMPT BOND AND
SHORT DURATION TAX EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR
TAX-SHELTERED RETIREMENT PLANS SINCE AN INVESTOR WOULD RECEIVE NO BENEFIT
FROM THE TAX-EXEMPT STATUS OF EITHER FUND'S DIVIDENDS.

OTHER PURCHASE INFORMATION

Purchases of each Fund's shares will be made in full and fractional shares.
Certificates for shares will not be issued. The Group reserves the right,
in its sole discretion, to suspend the offering of shares of any Fund or to
reject purchase orders when, in the judgment of its management, such
suspension or rejection is in the best interest of the Fund; and to redeem
shares if information provided in the client application proves to be
incorrect in any material manner.

30 Payden & Rygel Investment Group
<PAGE>
SHAREHOLDER SERVICES

EXCHANGE PRIVILEGE

The Group currently consists of ten investment portfolios with varying
investment objectives or 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, shares
of a Fund 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 a Fund into another class of
the Fund or an identically registered account in one of the other available
portfolios by a telephone call to the Distributor at (213) 625-1900.

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.

Bond Funds 31
<PAGE>
CHECKWRITING CAPABILITY

Free checkwriting is available for investors of the Limited Maturity Fund
only. With this service, a check may be written to any person in any amount
of $250 or more. To obtain checks, call a Fund Representative for a
signature card. Complete and return it to the Fund. To pay the check,
shares are redeemed from your Fund account at the net asset value per share
computed on the day the check is presented to the Fund for payment. It is
important to note that the Limited Maturity Fund is not a money market fund
and its net asset value per share will vary daily. An investor may incur a
taxable capital gain or loss on the shares redeemed each time a check is
paid.

Checks received by the Fund are credited to the account on the day
received. A fee of $20.00 may be imposed on the account if a check is
returned because it fails to meet the Fund's checkwriting criteria or if
there are insufficient funds in the account. The Fund reserves the right to
modify or terminate the checkwriting privilege upon 30 days prior written
notice to shareholders.

32 Payden & Rygel Investment Group
<PAGE>
REDEMPTION OF SHARES

Each Fund will redeem its shares 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, 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
Funds at the time of redemption.

Redemption requests in writing or by telegraph or other wire communications
should be directed to the Group at 333 South Grand Avenue, 32nd Floor,
Attn.: Fund Distributor, Los Angeles, California 90071. Payment for
redemption of recently purchased shares will be delayed until the Fund is
advised that the purchase check has been honored, which may take up to 15
days after receipt of the check. 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 "Shareholders Services -- Telephone Privilege."

Payment of the redemption price will ordinarily be wired to the
shareholder's bank or mailed to the shareholder address of record one
business day after receipt of the request. A 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 each Fund is
determined as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York Time) by dividing the difference
between the value of 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. Swaps,
caps and floors are valued on the basis of information provided by the
institution with which the Fund entered into the transaction. 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 Global and International Funds invest in securities that are traded in
certain markets on the days or at times the Funds are not open for
business. Accordingly, such Funds' net asset values may be significantly
affected on days or at times when investors cannot purchase or redeem
shares.

Bond Funds 33
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES

Dividends are generally declared and distributed to shareholders monthly
for all Funds except the International Fund, which declares and distributes
dividends 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 yearly.
Dividend and capital gain distributions of each 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.

Each 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, each Fund
generally is not be subject to federal income tax on its investment company
taxable income (which includes 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 any net interest income
excludable from gross income under section 103(a) of the Code. Each Fund
intends to distribute to its shareholders, at least annually, substantially
all such amounts.

Each of the Short Duration and Tax Exempt Bond Funds anticipates that
substantially all dividends paid by it will be exempt from federal income
taxes; a portion of the dividends may be a tax preference item for purposes
of the alternative minimum tax. Dividends paid by the other Funds, and
distributions paid by all Funds from long-term capital gains, are taxable.
Capital gains distributions are made when a Fund realizes net capital gains
on sales of portfolio securities during the year. Any short-term capital
gains or any taxable interest income will be distributed as a taxable
ordinary dividend distribution. For the Short Duration and Tax Exempt Bond
Funds, realized capital gains or any taxable interest income is not
expected to be a significant or predictable part of investment return. Sale
of any Fund's shares is a taxable event and may result in a capital gain or
loss.

Prior to purchasing shares of a Fund, an investor should carefully consider
the impact of the dividends or capital gains distributions which are
expected to be or have been announced. 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.

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 a Fund. For further discussion of these matters,
please see the Statement of Additional Information.

34 Payden & Rygel Investment Group
<PAGE>
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 ten series of shares, nine of which are sold
through this prospectus. 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 Funds 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. Yield will be quoted using the SEC definition, which is the
annualized 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 a Fund over specified periods.

Any performance information, whether related to a Fund or to the Adviser,
should be considered in light of a 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 Funds, 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.

Bond Funds 35
<PAGE>

INVESTMENT ADVISER

Payden & Rygel
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071

ADMINISTRATOR

Treasury Plus, Incorporated
3200 North Central Avenue, Suite 620
Phoenix, Arizona 85012

DISTRIBUTOR

Payden & Rygel Distributors
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071

CUSTODIAN

The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670

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

February 7, 1996, as supplemented March
29, 1996
<PAGE>

PAYDEN & RYGEL INVESTMENT GROUP

PAYDEN & RYGEL LIMITED MATURITY FUND
PAYDEN & RYGEL SHORT BOND FUND
PAYDEN & RYGEL U.S. TREASURY FUND
PAYDEN & RYGEL INTERMEDIATE BOND FUND
PAYDEN & RYGEL OPPORTUNITY FUND
PAYDEN & RYGEL SHORT DURATION TAX EXEMPT FUND
PAYDEN & RYGEL TAX EXEMPT BOND FUND
PAYDEN & RYGEL GLOBAL FIXED INCOME FUND
PAYDEN & RYGEL INTERNATIONAL BOND FUND

STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 7, 1996, AS SUPPLEMENTED MARCH 29, 1996

The Payden & Rygel Limited Maturity Fund ("Limited Maturity Fund"), Payden &
Rygel Short Bond Fund ("Short Bond Fund"), Payden & Rygel U.S. Treasury Fund
("Treasury Fund"), Payden & Rygel Intermediate Bond Fund ("Intermediate Fund"),
Payden & Rygel Opportunity Fund ("Opportunity Fund"), Payden & Rygel Short
Duration Tax Exempt Fund ("Short Duration Fund"), Payden & Rygel Tax Exempt Bond
Fund ("Tax Exempt Bond Fund"), Payden & Rygel Global Fixed Income Fund ("Global
Fund") and Payden & Rygel International Bond Fund ("International Fund") are
series ("Funds") of 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 Funds dated February 7, 1996, AS
SUPPLEMENTED MARCH 29, 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, 32nd Floor, Los Angeles, California 90071 (telephone 213/625-1900
or 800/572-9336).

TABLE OF CONTENTS
-----------------

INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . 2
FUNDAMENTAL AND OPERATING POLICIES . . . . . . . . . . . . . . . . . 31
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 34
VALUATION OF PORTFOLIO SECURITIES. . . . . . . . . . . . . . . . . . 36
FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 36
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
MANAGEMENT OF THE GROUP. . . . . . . . . . . . . . . . . . . . . . . 43
PURCHASES AND REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . 50
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 51
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS . . . . . . . . . . . 56

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective and general investment policies of the Funds are
described in the Prospectus. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below.

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.

FOREIGN GOVERNMENT OBLIGATIONS

Foreign government obligations are debt securities issued or guaranteed by a
supranational organization or a foreign sovereign government or one of its
agencies, authorities, instrumentalities or political subdivisions, including a
foreign state, province or municipality.

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 Funds 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,

<PAGE>

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. The rate of return or return of principal on some
debt obligations may be linked or indexed to the level of exchange rates between
the U.S. dollar and a foreign currency or currencies.

The Adviser will undertake several measures in seeking to preserve investors'
principal:

- First, the debt securities in which the Funds invest will be
considered "investment-grade"(e.g., rated AAA, AA, A or BBB by
Standard & Poor's Corporation) by at least one of the established
rating agencies, or if not rated, will bE determined to be of
comparable quality by the Adviser. However debt investments for
the Global and International Funds must be "high quality" as
discussed in the Prospectus. If the rating of a debt security in
which a Fund has made an investment falls below the investment
grade level, the Fundwill 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 a Fund hold more than 5% of its net assets in
obligations rated below investment grade. No such obligation will
be rated below BB.

- Second, the Adviser will actively manage the maturity of the
Funds' portfolios in response to expected interest rate
movements. When anticipating a decline in interest rates, the
Adviser will attempt to lengthen the portfolios' maturity to
capitalize on the expected appreciation of such securities. When
interest rates are expected to rise, the Funds will seek to
shorten their portfolios' maturities to protect against the
expected capital depreciation.

- Finally, the Adviser may use interest rate and bond index futures
and options on futures contracts, options on securities, and
interest rate swaps to effect a change in the Funds' exposure to
interest rate changes. These investment techniques involve
certain risks described below.

There is, of course, no guarantee these investment strategies will accomplish
the Funds' objectives. A description of the rating standards used by Standard &
Poor's Corporation, Moody's Investor Services, Inc., and Fitch Investor Services
is set forth in Appendix A to this Statement of Additional Information. 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.

<PAGE>

MORTGAGE-RELATED SECURITIES

Mortgage-related securities are interests in pools of mortgage loans made to
U.S. residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Funds may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities. Under
normal circumstances, all debt securities held by each Fund will be rated
"investment grade", at the time of purchase, by at least one of the established
rating agencies (e.g. AAA, AA, A or BAA by Standard & Poor's Corporation) or, if
unrated, will be determined to be of comparable quality by the Adviser.

U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect,
these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their residential mortgage loans, net of any fees paid
to the issuer or guarantor of such securities. Additional payments are caused
by repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association) are described as "modified pass-
through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.

The principal governmental guarantor of U.S. mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
United State Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the United States Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
mortgages insured by the Federal Housing Agency or guaranteed by the Veterans
Administration.

Government-related guarantors include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders and
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages not insured or guaranteed by
any government agency from a list of approved seller/services which include
state and federally chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers. FHLMC is a
government-sponsored corporation created to increase availability of mortgage
credit for residential housing and owned entirely by private stockholders.
FHLMC

<PAGE>

issues participation certificates which represent interests in conventional
mortgages from FHLMC's national portfolio. Pass-through securities issued by
FNMA and participation certificates issued by FHLMC are guaranteed as to timely
payment of principal and interest by FNMA and FHLMC, respectively, but are not
backed by the full faith and credit of the U.S. Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may, in addition, be the originators or services of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because they lack direct
or indirect government or agency guarantees of payment. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit, issued by governmental entities,
private insurers and mortgage poolers. Such insurance and guarantees and
the creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets the Fund's investment quality
standards. However, there can be no assurance that private insurers or
guarantors will meet their obligations. In addition, the Funds may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the originator/services
and poolers the Adviser determines that the securities meet
the Funds' quality standards.

Although the underlying mortgage loans in a pool may have maturities of up to 30
years, the actual average life of the pool certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Prepayment rates vary widely
and may be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the pool certificates. Conversely, when interest rates
are rising, the rate of prepayments tends to decrease, thereby lengthening the
actual average life of the certificates. Accordingly, it is not possible to
predict accurately the average life of a particular pool.

Although the market for mortgage pass-through securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. A Fund will not purchase mortgage-related securities
which in the Adviser's opinion are illiquid if, as a result, more than 15% of
the value of the Fund's total assets will be illiquid.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Like a bond,
interest and prepaid principal is paid, in most cases, semi-annually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or
FNMA.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual

<PAGE>

maturity and average life depend upon the prepayment experience of the
collateral. CMOs provide for a modified form of call protection through a de
facto breakdown of the underlying pool of mortgages according to how quickly the
loans are repaid. Monthly payment of principal received from the pool of
underlying mortgages, including prepayments, is first returned to investors
holding the shortest maturity class. Investors holding the longer maturity
classes receive principal only after the earlier classes have been retired.

OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include
securities of U.S. or foreign issuers that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property. These other mortgage-related securities may be equity or debt
securities issued by governmental agencies or instrumentalities or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities.

ASSET BACKED RECEIVABLES

The Funds may purchase asset-backed securities including, but not limited to,
Certificates for Automobile Receivables-sm- ("CARS-sm-") and credit card
receivable securities. CARS-sm- represent undivided fractional interests in
a trust with assets consisting of a pool of motor vehicle retail installment
sales contracts and security interests in the vehicles securing these
contracts. In addition to the general risks pertaining to all asset-backed
securities, CARS-sm- are subject to the risks of delayed payments or losses
if the full amounts due on underlying sales contracts are not realized by the
trust due to unanticipated legal or administrative costs of enforcing the
contracts, or due to depreciation, damage or loss of the vehicles securing
the contracts. Credit card receivable securities are backed by receivables
from revolving credit card accounts. Since balances on revolving credit card
accounts are generally paid down more rapidly than CARS-sm-, issuers often
lengthen the maturity of these securities by providing for a fixed period
during which interest payments are passed through and principal payments are
used to fund the transfer of additional receivables to the underlying pool.
The failure of the underlying receivables to generate principal payments may
therefore shorten the maturity of these securities. In addition, unlike most
other asset-backed securities, credit card receivable securities are backed
by obligations that are not secured by interests in personal or real property.

FLOATING RATE AND VARIABLE RATE DEMAND NOTES

The Funds 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

6
<PAGE>

whenever such rate is adjusted. The interest rate on a variable rate demand
note is reset at specified intervals at a market rate.

Each 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.

OBLIGATIONS WITH PUTS ATTACHED

Each Fund may purchase long-term fixed rate debt obligations that have been
coupled with an option granted by a third party financial institution allowing
the Fund at specified intervals to tender (or "put") such debt obligations to
the institution and receive the face value. These third party puts are
available in many different forms, and may be represented by custodial receipts
or trust certificates and may be combined with other features such as interest
rate swaps. The financial institution granting the option does not provide
credit enhancement. If there is a default on, or significant downgrading of,
the bond or a loss of its tax-exempt status, the put option will terminate
automatically. The risk to the Fund will then be that of holding a long-term
bond.

These investments may require that a Fund pay a tender fee or other fee for the
features provided. In addition, the Fund may acquire "stand-by commitments"
from banks or broker dealers with respect to the securities held in its
portfolios. Under a stand-by commitment, a bank or broker/dealer agrees to
purchase at the Fund's option a specific security at a specific price on a
specific date. The Fund may pay for a stand-by commitment either separately, in
cash, or in the form of a higher price paid for the security. The Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity.

REPURCHASE AGREEMENTS

For the purpose of maintaining liquidity, each 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 a Fund. In the event of a bankruptcy or
default of any registered dealer or bank, a Fund could experience costs and
delays in liquidating the underlying securities which are held as collateral,
and a Fund might incur a loss if the value of the collateral declines during
this period.

<PAGE>

DELAYED DELIVERY TRANSACTIONS

When delayed delivery purchases are outstanding, a Fund will set aside and
maintain until the settlement date in a segregated account cash, U.S. Government
securities or high grade debt obligations in an amount sufficient to meet the
purchase price. When purchasing a security on a delayed delivery basis, a Fund
assumes the rights and risks of ownership of the security, including the risk of
price and yield fluctuations, and takes such fluctuations into account when
determining its net asset value, but does not accrue income on the security
until delivery. When a Fund sells a security on a delayed delivery basis, it
does not participate in future gains or losses with respect to the security. If
the other party to a delayed delivery transaction fails to deliver or pay for
the securities, a Fund could miss a favorable price or yield opportunity or
could suffer a loss. A Fund will not invest more than 25% of its total assets
in when-issued and delayed delivery transactions.

REVERSE REPURCHASE AGREEMENTS

Each Fund covers its obligations under a reverse repurchase agreement by
maintaining a segregated account comprised of cash, U.S. Government securities
or high-grade debt obligations, maturing no later than the expiration of the
agreement, in an amount (marked-to-market daily) equal to its obligations under
the agreement. Reverse repurchase agreements are the economic equivalent of
borrowing by a Fund, and are entered into by a Fund to enable it to avoid
selling securities to meet redemption requests during market conditions deemed
unfavorable by the Adviser.

ILLIQUID SECURITIES

No Fund may 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 each 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.

<PAGE>

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 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.

FOREIGN INVESTMENTS

The countries in which each of the Global and International Funds will seek
investments include those listed below. A Fund may not invest in all the
countries listed, and it may invest in other countries as well when such
investments are consistent with the Fund's investment objective and policies.

PACIFIC BASIN WESTERN EUROPE NORTH AMERICA
- ------------- -------------- -------------
Australia Austria Canada
Japan Belgium United States
New Zealand Denmark
Finland
France
Germany
Ireland
Italy
Netherlands
Norway
Spain
Sweden
Switzerland
United Kingdom

FOREIGN MORTGAGE-RELATED SECURITIES. Foreign mortgage-related securities are
interests in pools of mortgage loans made to residential home buyers domiciled
in a foreign country. These include mortgage loans made by trust and mortgage
loan companies, credit unions, chartered banks, and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related, and private organizations (e.g., Canada Mortgage and Housing
Corporation and First Australian National Mortgage Acceptance Corporation
Limited). The mechanics of these mortgage-related securities are

<PAGE>

generally the same as those issued in the United States. However, foreign
mortgage markets may differ materially from the U.S. mortgage market with
respect to matters such as the sizes of loan pools, pre-payment experience, and
maturities of loans.

MUNICIPAL SECURITIES

Each of the Short Duration and Tax Exempt Bond Funds invest primarily in a
non-diversified portfolio of debt obligations issued by state and local
governments, territories and possessions of the U.S., regional government
authorities, and their agencies and instrumentalities which provide interest
income that, in the opinion of bond counsel to the issuer at the time of
original issuance, is exempt from federal income taxes ("municipal securities").
Municipal securities include both notes (which have maturities of less than
one year) and bonds (which have maturities of one year or more) that bear fixed
or variable rates of interest. Under normal market conditions, as a fundamental
policy which cannot be changed without shareholder approval, at least 80% of
the Fund's assets will be invested in municipal debt securities.

In general, "municipal securities" debt obligations are issued to obtain funds
for a variety of public purposes, such as the construction, repair, or
improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.

The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
a particular issuer, and the taxes that can be levied for the payment of debt
service may be limited or unlimited as to rates or amounts of special
assessments. Revenue securities are payable only from the revenues derived from
a particular facility, a class of facilities or, in some cases, from the
proceeds of a special excise tax. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water, and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund the assets of which may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and
collateralized mortgages, and the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assurance (although without obligation) to make up deficiencies in the
debt service reserve fund.

Both Funds may purchase insured municipal debt in which scheduled payments of
interest and principal are guaranteed by a private, non-governmental or
governmental insurance company. The insurance does not guarantee the market
value of the municipal debt or the

<PAGE>

value of the shares of a Fund.

The Adviser will undertake several measures in seeking to preserve investors'
principal:

- First, the debt securities in which a Fund invests will be
considered "investment-grade"(e.g., rated AAA, AA, A or BBB by
Standard & Poor's Corporation) at the time of purchase by at least
one of the following rating agencies: Fitch Investor Services,
Moody's Investor Services, Inc. or Standard & Poor's Corporation,
or if not rated, will be determined to be of comparable quality by
the Adviser. If the rating of a municipal 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 a Fund hold more than 5% of its net assets in
obligations rated below investment grade. No such obligation will
be rated below BB.

- Second, the Adviser will actively manage the maturity of a Fund's
portfolio in response to expected interest rate movements. When
anticipating a decline in interest rates, the Adviser will attempt
to lengthen the portfolio's maturity to capitalize on the expected
appreciation of such securities. When interest rates are expected
to rise, both Funds will seek to shorten their maturities to
protect against the expected capital depreciation.

- Finally, the Adviser may use interest rate and municipal bond
index futures and options on futures contracts, options on
securities, and interest rate swaps to effect a change in a Fund's
exposure to interest rate changes. These investment techniques
involve certain risks described below.

There is, of course, no guarantee these investment strategies will accomplish a
Fund's objective. See Appendix A for further information regarding the ratings
referred to above.

Securities of issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures of referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore,
as a result of legislation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
obligations may be materially affected.

Certain of the municipal securities in which the Funds may invest, and certain
of the risks of such investments, are described below.

<PAGE>

MORAL OBLIGATION SECURITIES

Municipal securities may include "moral obligation" securities which are usually
issued by special purpose public authorities. If the issuer of moral obligation
bonds cannot fulfill its financial responsibilities from current revenues, it
may draw upon a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.

INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS

Both Funds may invest in tax-exempt industrial development bonds and pollution
control bonds which, in most cases, are revenue bonds and generally are not
payable from the unrestricted revenues of an issuer. They are issued by or on
behalf of public authorities to raise money to finance privately operated
facilities for business, manufacturing, housing, sport complexes, and pollution
control. Consequently, the credit quality of these securities is dependent upon
the ability of the user of the facilities financed by the bonds and any
guarantor to meet its financial obligations.

ZERO COUPON SECURITIES

Both Funds may invest in zero coupon securities which are debt securities issued
or sold at a discount from their face value. These securities do not entitle
the holder to interest payments prior to maturity or a specified redemption
date, when they are redeemed at face value. Zero coupon securities may also
take the form of debt securities that have been stripped of their unmatured
interest coupons, the coupons themselves, and receipts and certificates
representing interests in such stripped obligations and coupons. The market
prices of zero coupon securities tend to be more sensitive to interest rate
changes, and are more volatile, than interest bearing securities of like
maturity. The discount from face value is amortized over the life of the
security and such amortization will constitute the income earned on the security
for accounting and tax purposes. Even though income is accrued on a current
basis, a Fund does not receive the income currently in cash. Therefore, a Fund
may have to sell other portfolio investments to obtain cash needed to make
income distributions.

MORTGAGE BACKED SECURITIES

Both Funds may invest in municipal debt obligations issued to provide financing
for residential housing mortgages to targeted groups. Payments made on the
underlying mortgages and passed through to a Fund will represent both regularly
scheduled principal and interest payments. A Fund may also receive additional
principal payments representing prepayments of the underlying mortgages.
Investing in such municipal debt obligations involves special risks and
considerations, including the inability to predict accurately the maturity of a
Fund's investments as a result of prepayments of the underlying mortgages (which
may require the Fund to reinvest principal at lower yields than would otherwise
have been realized), the illiquidity of certain of such securities, and the
possible default by insurers or guarantors supporting the timely payment of
interest and principal.

<PAGE>

MUNICIPAL LEASE OBLIGATIONS

Both Funds may invest in lease obligations or installment purchase contract
obligations of municipal authorities or entities ("municipal lease
obligations"). Although lease obligations do not constitute general obligations
of the municipality for which its taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payments due under the lease obligation. A Fund may also purchase
"certificates of participation", which are securities issued by a particular
municipality or municipal authority to evidence a proportionate interest in base
rental or lease payments relating to a specific project to be made by the
municipality, agency or authority.

However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in any year unless money is appropriated for such purpose for
such year. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of default and
foreclosure might prove difficult. In addition, these securities represent a
relatively new type of financing, and certain lease obligations may therefore be
considered to be illiquid securities.

Both Funds will attempt to minimize the special risks inherent in municipal
lease obligations and certificates of participation by purchasing only lease
obligations which meet the following criteria: (1) rated A or better by at
least one national recognized securities rating organization; (2)secured by
payments from a governmental lessee which has actively traded debt obligations;
(3) determined by the Adviser to be critical to the lessee's ability to deliver
essential services; and (4) contain legal features which the Adviser deems
appropriate, such as covenants to make lease payments without the right of
offset or counterclaim, requirements for insurance policies, and adequate debt
service reserve funds.

SHORT-TERM OBLIGATIONS

Both Funds may invest in short-term municipal obligations. These securities
include the following:

TAX ANTICIPATION NOTES are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the municipality for
the payment of principal and interest when due.

REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other kinds
of revenue, such as federal revenues available under the Federal Revenue Sharing
Program. They also are usually general obligations of the issuer.

BOND ANTICIPATION NOTES normally are issued to provide interim financing until
long-term

<PAGE>

financing can be arranged. The long-term bonds then provide the money for the
repayment of the notes.

CONSTRUCTION LOAN NOTES are sold to provide construction financing for specific
projects. After successful completion and acceptance, many projects receive
permanent financing through the Federal National Mortgage Association or the
Government National Mortgage Association.

SHORT-TERM DISCOUNT NOTES (tax-exempt commercial paper) are short-term (365 days
or less) promissory notes issued by municipalities to supplement their cash
flow.

FLOATING RATE AND VARIABLE RATE DEMAND NOTES

Both Funds 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.

Each Fund will limit its purchase of municipal 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.

Both Funds may also invest in municipal securities in the form of "participation
interests" in variable rate tax-exempt demand obligations held by a financial
institution, usually a commercial bank. Municipal participation interests
provide the purchaser with an undivided interest in one or more underlying
municipal securities and the right to demand payment from the institution upon a
specified number of days' notice (no more than seven) of the unpaid principal
balance plus accrued interest. In addition, the municipal participation
interests are typically enhanced by an irrevocable letter of credit or guarantee
from such institution. Since a Fund has an undivided interest in the
obligation, it participates equally with the institution with the exception that
the institution normally retains a fee out of the interest paid for servicing,
providing the letter of credit or guarantee, and issuing the

<PAGE>

repurchase commitment.

OBLIGATIONS WITH PUTS ATTACHED

Each Fund may purchase long-term fixed rate municipal debt obligations that have
been coupled with an option granted by a third party financial institution
allowing the Fund at specified intervals to tender (or "put") such debt
obligations to the institution and receive the face value. These third party
puts are available in many different forms, and may be represented by custodial
receipts or trust certificates and may be combined with other features such as
interest rate swaps. The financial institution granting the option does not
provide credit enhancement. If there is a default on, or significant
downgrading of, the bond or a loss of its tax-exempt status, the put option will
terminate automatically. The risk to the Fund will then be that of holding a
long-term bond.

These investments may require that a Fund pay a tender fee or other fee for the
features provided. In addition, a Fund may acquire "stand-by commitments" from
banks or broker dealers with respect to the municipal securities held in its
portfolios. Under a stand-by commitment, a bank or broker/dealer agrees to
purchase at a Fund's option a specific municipal security at a specific price on
a specific date. A Fund may pay for a stand-by commitment either separately, in
cash, or in the form of a higher price paid for the security. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity.

RISKS OF INVESTING IN CALIFORNIA MUNICIPAL DEBT OBLIGATIONS

From time to time, each Fund may invest more than 25% of its assets in
obligations issued by the State of California and other governmental
authorities, agencies and instrumentalities located in California. In such
event, investment in a Fund may be subject to greater risk and market
fluctuations than an investment in a portfolio of securities representing a
broader range of investment alternatives. Further, in such event a Fund will be
affected by any political, economic, regulatory or other developments which
constrain the taxing and spending authority of California issuers to pay
interest or repay principal. The following summary of some of such developments
is based upon information derived from public documents related to securities
offerings of California State and municipal issuers, independent municipal
credit reports and historically, reliable sources, but has not been
independently verified by the Fund's advisor.

California encompasses a relatively large geographic region and has a wealthy,
diverse economy. Its economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 32 million represents over
12% of the total United States population. Total employment is about 14
million; the fastest growing sectors are expected to be services, trade and
electronics-related manufacturing sectors.

California ended fiscal 1995 with a General Fund operating surplus due to higher
than expected tax receipts which were the result of the improving economy.
State officials estimate that jobs in California grew 2.3% in 1995 as compared
to a national jobs growth rate of 1.5%.

15
<PAGE>

As a result, the State's unemployment rate (7.9%) is expected to approximate the
nation's (5.8%) by year-end 1998. Importantly, this job growth was spread among
all 12 major metropolitan areas in California. Thirty percent of California
employment is business services, motion pictures, health services and
engineering and management services and these categories rose 6% this past year.
Construction employment picked up last year, but has not retraced the cumulative
losses of 1990-1993. The decline in aerospace employment continued, albeit at a
much slower pace and new orders for cargo jets, stealth bombers and commercial
satellites should help stabilize this sector in the upcoming year. Job losses
are projected for financial services and the federal government sector.

For the first time in four years, the State's finances on the revenue side
improved. The Legislative Analyst's Office projects that revenues will grow by
6 percent over the next two years and estimates that the General Fund balance
will reach $300 million by the end of fiscal year 1995-96 rather than the $28
million Finance Department estimate. However, unless budget imbalances are
corrected, the Fund balance will fall to only $10 million in fiscal year 1996-97
and to a negative $280 million in fiscal year 1997-98 because of major
expenditure increases that are required by existing law. As a result of these
major expenditure requirements, total spending would increase by 7.5 percent
annually over the next two years.

California's long-term structural budget problems include expanding education
and prison spending, demands for infrastructure spending and reductions in
federal support for health-care. K-14 spending requirements are expected to
increase 9.4% annually over the next two years, which is the largest single
expenditure in the budget. More prison inmates will translate to a 10% annual
growth in support costs for the Department of Corrections. Also, existing law
requires that welfare grants for the Aid to Families with Dependent Children and
the Supplemental Security Income/State Supplementary Program be increased in
1996-97.

Further, the State shifted some expenditure responsibilities to local
governments in order to balance its budget, which could impact these other
entities negatively. Major revenue sources for local government are not
expected to attain pre-recession growth levels while the programs they support
such as health, education and public safety are growing at a fast pace. Any
reductions in State aid could exacerbate financial pressures already experienced
by many local governments, particularly counties.

The State must also address the issues of its tax structure and business
climate. Risks to the budget include an economic slowdown, adverse court
rulings as well as changes that the Federal government may make to welfare and
Medi-Cal.

The budget for fiscal year 1995-96 calls for the smallest amount of short-term
debt issuance in years. The Department of Finance estimates cash flow
borrowings will be $2 billion notes issued in April 1996 and maturing by June
30, 1996. The $4 billion outstanding revenue anticipation warrants will be
repaid from internal borrowable cash resources and no further borrowing needs
are projected for fiscal year 1995-96.

The potential for California's credit ratings to be upgraded from the current
"A1/A" level is

<PAGE>

minimal. The State's ratings were last changed in July 1994 when Moody's lowered
its rating to "A1" from "Aa" and Standard & Poor's lowered its rating to "A"
from "A+".

On December 6, 1994, Orange County, California filed for bankruptcy protection
under chapter 9 of the U.S. Bankruptcy code, following reports that the Orange
County Invest Pool had suffered significant investment losses, which caused a
liquidity crisis for the Pooled Funds, Orange County and certain Pool
participants. It remains unclear what long-term effect such action by Orange
County and the Pooled Funds may have on the market for the obligations of Orange
County and its related entities.

In September 1995 the state legislature approved legislation permitting Orange
County to use for bankruptcy recovery $820 million over 20 years in sales taxes
previously earmarked for highways, transit and development. Such legislation
also permits the Governor to appoint a trustee to take over Orange County's
financial affairs if the county does not have a full recovery plan filed with
the Bankruptcy Court by May 1996.

Los Angeles County, the nation's largest county, is also experiencing financial
difficulty. In August 1995 the credit rating of the county's long term bonds
was downgraded for the third time since 1992 as a result of, among other things,
severe operating deficits for the county's health care system. In September
1995, federal and state aid to Los Angeles County totalling $514 million was
pledged, providing a short-term solution to the County's budget problems.
Despite such efforts, the County is facing a potential budget gap of $1.0
billion in the 1996-97 fiscal year.

Although an improving economy and healthier tax revenues are anticipated, the
political environment and voter initiatives may constrain the State's financial
flexibility. For example, according to the Legislative Analyst's Office, the
passage of Proposition 184 in the November 1994 election imposed mandatory,
lengthy prison sentences on individuals convicted of three felonies. This is
expected to increase prison operating costs by $3 billion annually and increase
prison construction costs by $20 billion. Proposition 98 sets the minimum
amount that the state must provide for California's public K-12 education system
and the California Community Colleges.

Certain of the securities in which the Funds invest may be obligations of
issuers that rely as a source of revenue, in whole or in part, directly or
indirectly, on real property taxes, which are limited by an amendment to the
State Constitution known as "Proposition 13." Briefly, Article XIIIA of the
California Constitution limits to 1% of full cash value the rate of ad valorem
property taxes on real property and generally restricts the assessed valuation
of property to increases of up to two percent per year, except upon new
construction or change of ownership (subject to a number of exemptions). Taxing
entities may, however, raise ad valorem taxes above the 1% limit to pay debt
service on voter-approved bonded indebtedness.

The application of Proposition 62 further limits the ability of California
cities to enact taxes. Proposition 62 seeks to enforce a two-thirds voter
approval for special taxes to include all forms of local government and to
create a new simple-majority requirement for voter

<PAGE>

approval of general taxes. While existing transportation sales taxes appear to
be protected by statute of limitations, the future application of Proposition 62
for all cities and counties is less clear.

Certain securities in which the Funds invest may be obligations of issuers which
rely in whole or in part on state revenues for payment of such obligations.
Such state revenues are affected by economic activity within the State as well
as by an appropriation limit in the State Constitution on the spending authority
of State and local government entities.

The application and interpretation of a number of the foregoing provisions of
the State Constitution and laws are currently and will probably continue to be
the subject of numerous lawsuits in the California courts. It is not possible
to predict the outcome of litigation or the ultimate scope and impact of such
provisions, their implementing legislation and regulations. However, the
outcome of such litigation, legislation and regulations could substantially
impact local property tax collection and the ability of state agencies, local
governments and districts to make future payments on outstanding debt
obligations.

OPTIONS AND FUTURES CONTRACTS

The Funds may purchase and sell ("write") both put options and call options on
securities, securities indices and (in the case of the Global and International
Funds) foreign currencies, enter into interest rate and index futures contracts
and (in the case of the Global and International Funds), foreign currencies
futures contracts, and purchase and sell options on such futures contracts
("futures options") for hedging purposes. The Global and International Funds
also may purchase and sell foreign currency options for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another. If other types of options, futures
contracts, or futures options are traded in the future, a 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 that Fund.

OPTIONS ON SECURITIES OR INDICES

A 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 Merrill Lynch 1 to 3 year
Global Government Bond Index, the JP Morgan Global Government Bond Index, and
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 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

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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.

A 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 cash equivalents in such amount are
placed in a segregated account with the Group'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 cash equivalents 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 cash equivalents 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 cash equivalents in a
segregated account with its Custodian.

If an option written by a 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 a 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). A 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 a Fund is an asset of the
Fund. The premium received for an option written by a 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

<PAGE>

available, at the mean between the last bid and asked prices.

FOREIGN CURRENCY OPTIONS

Each of the Global and International Funds may buy or sell put and call options
on foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. Each Fund will use foreign currency
options separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
a call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Currency options
traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of a Fund to reduce foreign currency risk using such
options.

COMBINATIONS OF OPTIONS

As indicated in the Prospectus, the Funds 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.

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 a 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

<PAGE>

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 a 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 a 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, a 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 a 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 a 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.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds may use interest rate, foreign currency or index futures contracts, as
specified in the Prospectus. An interest rate or foreign currency contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or foreign currency at a specified
price and time. 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 as well as
a number of financial instruments and foreign currencies, including U.S.
Treasury bonds, U.S. Treasury notes, GNMA Certificates, three-month U.S.
Treasury bills, 90-day commercial paper, bank certificates of deposit,
Eurodollar certificates of deposit, the Australian dollar, the Canadian dollar,
the British pound, the German mark, the Japanese yen, the Swiss franc and
certain multi-national currencies such as the European Currency Unit ("ECU").
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 Funds 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

<PAGE>

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.

As long as required by regulatory authorities the Funds will use futures
contracts and futures options for hedging purposes and not for speculation and
will comply with applicable regulations of the Commodity Futures Trading
Corporation which limit trading of futures contracts (See "Limitations on the
Use of Futures and Options"). For example, a Fund might use futures contracts
to hedge against anticipated changes in interest rates that might adversely
affect either the value of the Fund's securities or the price of the securities
which the Fund intends to purchase. A Fund's hedging activities may include
sales of futures contracts as an offset against the effect of expected increases
in interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce a Fund's exposure to interest rate fluctuations, a Fund may be
able to hedge its exposure more effectively and at a lower cost by using futures
contracts and futures options.

When a purchase or sale of a futures contract is made by a 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 Funds expect to earn interest income on their initial margin
deposits. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day a 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 a 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 Funds will mark to market their open futures positions.

Each 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, a Fund realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, a Fund realizes a capital gains; if it
is less, a Fund realizes a capital loss. The transaction costs must also be
included in these calculations.

<PAGE>

LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS

A 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, a Fund will maintain with its Custodian (and
mark to market on a daily basis) cash, U.S. Government securities, or other
highly liquid debt securities that, when added to the amounts deposited with a
futures commission merchant as margin, are equal to the market value of the
futures contract. Alternatively, a 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, a 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 market
value of the instruments underlying the contract. Alternatively, a 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, a Fund will maintain with its
custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt 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,
a 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, a Fund will maintain with its
custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that equal the purchase price
of the futures contract, less any margin on deposit. Alternatively, a 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.

<PAGE>

In order to comply with applicable regulations of the Commodity Futures Trading
Commission ("CFTC") for exemption from the definition of a "commodity pool,"
each 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 contracts and futures
options as hedging techniques. 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 the hedging vehicle and in the Fund securities being hedged. 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 hedge 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, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge 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 a 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

<PAGE>

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 a 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,
currencies or indices as well as exchange-traded options. Certain risks are
specific to dealer options. While a 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, a 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 a 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 Funds will seek to
enter into dealer options only with dealers who 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 a 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 Funds may be unable to liquidate a dealer option. With
respect to options written by a Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. For example, since a
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 SEC has taken the position that many purchased dealer options
and the assets used to secure written dealer options are illiquid securities. A
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.

<PAGE>

If the SEC changes its position on the liquidity of dealer options on
securities, currencies or indices, the Funds will change their treatment of such
instruments accordingly.

INTEREST RATE AND CURRENCY SWAPS

INTEREST RATE SWAPS

As indicated in the Prospectus, an interest rate swap is a contract between two
entities ("counterparties") to exchange interest payments (of the same currency)
between the parties. In the most common interest rate swap structure, one
counterparty agrees to make floating rate payments to the other counterparty,
which in turn makes fixed rate payments to the first counterparty. Interest
payments are determined by applying the respective interest rates to an agreed
upon amount, referred to as the "notional principal amount." In most such
transactions, the floating rate payments are tied to the London Interbank
Offered Rate, which is the offered rate for short-term eurodollar deposits
between major international banks. As there is no exchange of principal
amounts, an interest rate swap is not an investment or a borrowing.

CROSS-CURRENCY SWAPS

A cross-currency swap is a contract between two counterparties to exchange
interest and principal payments in different currencies. A cross-currency swap
normally has an exchange of principal at maturity (the final exchange); an
exchange of principal at the start of the swap (the initial exchange) is
optional. An initial exchange of notional principal amounts at the spot
exchange rate serves the same function as a spot transaction in the foreign
exchange market (for an immediate exchange of foreign exchange risk). An
exchange at maturity of notional principal amounts at the spot exchange rate
serves the same function as a forward transaction in the foreign exchange market
(for a future transfer of foreign exchange risk). The currency swap market
convention is to use the spot rate rather than the forward rate for the exchange
at maturity. The economic difference is realized through the coupon exchanges
over the life of the swap. In contrast to single currency interest rate swaps,
cross-currency swaps involve both interest rate risk and foreign exchange risk.

SWAP OPTIONS

Each of the Global and International Funds may invest in swap options. A swap
option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or
otherwise change an existing swap agreement, at some designated future time on
specified terms. It is different from a forward swap, which is a commitment to
enter into a swap that starts at some future date with specified rates. A swap
option may be structured European-style (exercisable on the pre specified date)
or American-style (exercisable during a designated period). The right pursuant
to a swap option must be exercised by the right holder. The buyer of the right
to pay fixed pursuant to a swap option is said to own a put. The buyer of the
right to receive fixed pursuant to a swap option is said to own a call.

<PAGE>

CAPS AND FLOORS

Each of the Global and International Funds may also invest in interest rate caps
and floors. An interest rate cap is a right to receive periodic cash payments
over the life of the cap equal to the difference between any higher actual level
of interest rates in the future and a specified strike (or "cap") level. The
cap buyer purchases protection for a floating rate move above the strike. An
interest rate floor is the right to receive periodic cash payments over the life
of the floor equal to the difference between any lower actual level of interest
rates in the future and a specified strike (or "floor") level. The floor buyer
purchases protection for a floating rate move below the strike. The strikes are
typically based on the three-month LIBOR (although other indices are available)
and are measured quarterly. Rights arising pursuant to both caps and floors are
exercised automatically if the strike is in the money. Caps and floors
eliminate the risk that the buyer fails to exercise an in-the-money option.

RISKS ASSOCIATED WITH SWAPS

The risks associated with interest rate and currency swaps and interest rate
caps and floors are similar to those described above with respect to dealer
options. In connection with such transactions, a Fund relies on the other party
to the transaction to perform its obligations pursuant to the underlying
agreement. If there were a default by the other party to the transaction, the
Fund would have contractual remedies pursuant to the agreement, but could incur
delays in obtaining the expected benefit of the transaction or loss of such
benefit. In the event of insolvency of the other party, the Fund might be
unable to obtain its expected benefit. In addition, while each Fund will seek
to enter into such transactions only with parties which are capable of entering
into closing transactions with the Fund, there can be no assurance that a Fund
will be able to close out such a transaction with the other party, or obtain an
offsetting position with any other party, at any time prior to the end of the
term of the underlying agreement. This may impair a Fund's ability to enter
into other transactions at a time when doing so might be advantageous.

FOREIGN CURRENCY TRANSACTIONS

Precise matching of the amount of forward currency contracts and the value of
the Global and International Fund's securities denominated in such currencies
will not generally be possible, since the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. Prediction of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Under certain circumstances, a Fund may commit a
substantial portion of its assets to the consummation of these contracts.
Neither Fund will enter into such forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency. Under
normal circumstances, consideration of the prospect for currency parities will
be incorporated into

<PAGE>

the longer term investment decisions made with regard to overall diversification
strategies. However, the Adviser believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of a Fund will be served by doing so.

At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.

It may be necessary for a Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.

If a Fund retains a portfolio security and engages in an off-setting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Fund enters into a forward contract for the sale of a foreign currency
and the date it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.

Each Fund's dealings in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, each Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Use of forward currency
contracts to hedge against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities.
Additionally, although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, they also tend to limit any
potential gain which might result from an increase in the value of that
currency.

Although each Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Foreign exchange dealers do not charge a fee for conversion, but
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to a Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.

<PAGE>

LENDING OF PORTFOLIO SECURITIES

For the purpose of realizing additional income, each Fund may lend securities
with a value of up to 33% of its total assets to broker-dealers, institutional
investors or other persons. Each loan will be secured by collateral which is
maintained at no less than 100% of the value of the securities loaned by
"marking to market" daily. A Fund will have the right to call each loan and
obtain the securities on five business days' notice or, in connection with
securities trading on foreign markets, within a longer period of time which
coincides with the normal settlement period for purchases and sales of such
securities in such foreign markets. Loans will only be made to persons deemed
by the Adviser to be of good standing in accordance with standards approved by
the Board of Trustees and will not be made unless, in the judgment of the
Adviser, the consideration to be earned from such loans would justify the risk.

BORROWING

Each 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, a 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 a 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 Funds 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,

<PAGE>

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 and payment of interest. 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.

CURRENCY FLUCTUATIONS

To the extent that a Fund invests in securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the Fund's
assets denominated in that currency. Such changes will also affect the Fund's
income. The value of a Fund's assets may also be affected significantly by
currency restrictions and exchange control regulations enacted from time to
time.

MARKET CHARACTERISTICS

The Group expects that most foreign securities in which the Funds invest will be
purchased in over-the-counter markets or on bond exchanges 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 bond
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
Funds' portfolio securities may be less liquid and more volatile than U.S.
Government 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. Foreign security trading practices, including those
involving securities settlement where Fund assets may be released prior to
payment, may expose a Fund to increased risk in the event of a failed trade or
the insolvency of a foreign broker-dealer.

The value of the Funds' portfolio positions may also be adversely impacted by
delays in the Funds' 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

<PAGE>

of securities, and less financial information available to issuers, than is
available in the United States.

TAXES

The interest payable on certain of a 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 a Fund.
The Funds intend to sell such bonds prior to the interest payment date in order
to avoid withholding.

COSTS

The expense ratios of Funds investing in foreign securities (before
reimbursement by the Adviser pursuant to the expense limitation described in the
Prospectus under "Management of the Funds -- Expense Guarantee") are 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.

AVERAGE MATURITY CALCULATIONS

The portfolio average maturity of each Fund will be computed by weighting the
maturity of each security in the Fund's portfolio by the market value of that
security. For securities which have put dates, reset dates, or trade based on
average maturity, the put date, reset date or average maturity will be used
instead of the final maturity date for the average maturity calculation.
Average maturity is normally used when trading mortgage backed securities and
asset backed securities.

FUNDAMENTAL AND OPERATING POLICIES

The Funds have adopted the investment restrictions described below. Fundamental
policies of a 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, a Fund may not:

31
<PAGE>

(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 and delayed delivery transactions covered
by segregated accounts are not considered to be borrowings).

(2) COMMODITIES. Purchase or sell commodities or commodity contracts, except
that (i) a Fund other than the Treasury Fund may enter into financial and
currency futures contracts and options on such futures contracts, (ii) a Fund
other than the Treasury, Short Duration and Tax Exempt Bond Fund may enter into
forward foreign currency exchange contracts (the Funds do not consider such
contracts to be commodities), and (iii) a Fund other than the Treasury Fund may
invest in instruments which have the characteristics of both futures contracts
and securities.

(3) LOANS. Make loans, except that (I) a Fund may purchase money market
securities and enter into repurchase agreements, (ii) a Fund may acquire bonds,
debentures, notes and other debt securities, and (iii) a Fund other than the
Treasury Fund may lend portfolio securities in an amount not to exceed 30% of
its total assets (with the value of all loan collateral being "marked to market"
daily at no less than 100% of the loan amount).

(4) MARGIN. Purchase securities on margin, except that (I) a Fund may use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) a Fund other than the Treasury Fund may 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.

(6) ASSETS INVESTED IN ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the value of a 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, with
respect to 50% of the value of a Fund's total assets, 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.

<PAGE>

(9) SHORT SALES. Effect short sales of securities.

(10) UNDERWRITING. Underwrite securities issued by other persons, except to the
extent that a 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) GLOBAL DIVERSIFICATION. Under normal market conditions, neither the Global
Fund nor the International Fund may invest less than 65% of the Fund's assets in
debt securities of issuers located in at least three countries (one of which may
be the United States for the Global Fund).

OPERATING POLICIES

As a matter of operating policy, a 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 a
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

<PAGE>

predecessor or unconditional guarantor of such security).

(8) RESTRICTED SECURITIES. Neither the Global Fund, the International Fund,
the Short Duration Fund nor the Bond Fund may invest more than 10% of its total
assets in the securities of issuers which are restricted as to disposition,
other than restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933.

(9) The Treasury Fund will not borrow amounts exceeding 33% of total assets
valued at market (including reverse repurchase agreements and delayed delivery
transactions).

STATE UNDERTAKINGS

In order to permit the sale of shares of the Funds 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 a 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 State of Arkansas that no more than 5% of the
total assets of the Limited Maturity Fund will be invested in premiums on
securities options including, without limitation, puts, calls, straddles,
spreads and any combination thereof.

The Group has undertaken to the Ohio Department of Commerce that no 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).

The Group has undertaken to the Texas State Securities Board and the Arizona
Corporation Commission that each of the Global and International Funds will
limit its investments in warrants to no more than 5% of the Fund's net assets
and, of this 5%, no more than 2% will be invested in warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange; provided,
however, that for the purposes of this limitation, warrants acquired in units or
attached to other securities will be deemed to be without value.

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 a 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 a Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge

<PAGE>

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 and futures contracts for the Funds and buys and sells such securities,
options and futures for the Funds 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 a 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 a 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 Funds 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"). Trading in
fixed-income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. The higher the rate
of portfolio turnover, the higher these transaction costs borne by the Funds
generally will be. The turnover rate of a 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. Interest
rate and currency swap, cap and floor transactions do not affect the calculation
of portfolio turnover.

During the fiscal year ended October 31, 1992, 1993 and 1994, the Global Fund
paid brokerage commissions of $736, $14,955 and $2,973, respectively. During
the fiscal year ended October 31, 1995, the Tax Exempt Bond Fund paid brokerage
commissions of $2,300. No other commissions were paid during the Group's last
three fiscal years.

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 Funds.

<PAGE>

VALUATION OF PORTFOLIO SECURITIES

Fixed Income 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.

Foreign securities are valued at the closing bid price in the principal market
where they are traded, or, if closing prices are unavailable, at the last traded
bid price available prior to the time a fund's net asset value is determined.
Foreign security prices that cannot be obtained by the quotation services are
priced individually by the pricing service using dealer-supplied quotations.
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. 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 corporate bonds, U.S. government securities, foreign
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 a Fund are
determined as of such times for the purpose of computing the Fund's net asset
value. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. 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 Funds may quote their performance in various ways. All performance
information supplied by a Fund in advertising is historical and is not intended
to indicate future returns. A 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 a Fund may be compared to various unmanaged indices
(such as the Lehman Brothers Municipal Bond 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

<PAGE>

York Times, and Business Week. 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 Funds,
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.

YIELD CALCULATIONS

Yields for each class of shares of a Fund used in advertising are computed by
dividing the interest income of the class for a given 30-day or one month
period, net of expenses allocable to the class, by the average number of shares
of the class entitled to receive dividends during the period, dividing this
figure by the class' net asset value per share at the end of the period and
annualizing the result (assuming compounding of income) in order to arrive at an
annual percentage rate. Income is calculated for purposes of yield quotations
in accordance with standardized methods applicable to bond funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. For a Fund's investments denominated in
foreign currencies, income and expenses are calculated first in their respective
currencies, and converted to U.S. dollars either when they are actually
converted or at the end of the period, whichever is earlier. Capital gains and
losses are generally excluded from the calculation, as are gains and losses from
currency exchange rate fluctuations.

Because yield accounting methods differ from the methods used for other
accounting purposes, the Fund's yield may not equal its distribution rate or
income reported in the Fund's financial statements.

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 class' 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 a 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 a 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.

<PAGE>

For Class A Shares, the one-year and since inception total return for each of
the funds through October 31, 1995 were as follows: Limited Maturity, 6.43% and
5.51%; Short Bond, 9.56% and 5.23%; Intermediate Bond, 12.43% and 4.54%;
Opportunity, 16.39% and 5.34%; Short Duration, 5.88% and 4.70%; Tax Exempt Bond,
13.25% and 2.32%; U.S. Treasury, 14.10% and 14.10%; Global, 15.10% and 7.70%;
and International, 4.19% and 4.19%; and all returns are annualized. The
inception dates for the Funds are Limited Maturity, May 1, 1994; Short Bond,
Intermediate and Opportunity, December 31, 1993; U.S. Treasury, December 31,
1994; Short Duration, September 1, 1994; Tax Exempt Bond, December 21, 1993;
Global, September 1, 1992; International, April 3, 1995.

In addition to average annual total returns, a 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, capital (including capital gains and changes in
share price) and currency returns 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

Each 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, a 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; (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

<PAGE>

in excess of any net long-term capital losses) each taxable year. The Treasury
Department is authorized to promulgate regulations under which gains from
foreign currencies (and options, futures, and forward contracts on foreign
currency) would constitute qualifying income for purposes of the Qualifying
Income Test only if such gains are directly relating to investing in stocks or
securities. To date, such regulations have not been issued.

In addition, no definitive guidance currently exists with respect to the
classification of interest rate swaps and cross-currency swaps as securities or
foreign currencies for purposes of certain of the tests described above.
Accordingly, to avoid the possibility of disqualification as a regulated
investment company, a Fund will limit its positions in swaps to transactions for
the purpose of hedging against either interest rate or currency fluctuation
risks, and will treat swaps as excluded assets for purposes of determining
compliance with the Diversification Test.

As a regulated investment company, a 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 eight years) designated by
the Fund as capital gain dividends, if any, that it distributes to shareholders.
Each Fund intends to distribute to its shareholders substantially all of its
investment company taxable income monthly and any net capital gains annually.
Investment company taxable income or net capital gains not distributed by a
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, a
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 a 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 Funds intend to make their distributions in accordance with the
calendar year distribution requirement.

DISTRIBUTIONS

The Short Duration and Tax Exempt Bond Funds intend to qualify to pay "exempt-
interest" dividends to its shareholders, who may exclude those dividends from
their gross income for federal income tax purposes. In order to be able to pay
those dividends, a Fund must satisfy the additional requirement that, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.

<PAGE>

With the exception of the Short Duration and Tax Exempt Bond Funds, dividends
paid out of a 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 a 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 a 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.

HEDGING TRANSACTIONS

Many of the options, futures contracts and forward contracts used by the Funds
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 a 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.

Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by a 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 a Fund. In addition, losses realized
by a 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 a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.

Each Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a 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.

40
<PAGE>

The 30% limit on gains from the disposition of certain options, futures, 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 a Fund will be able to engage in transactions in options,
futures contracts or forward contracts.

SALES OF SHARES

Upon disposition of shares of a 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

A 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.

FOREIGN INVESTMENTS

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund amortizes or accrues premiums or discounts,
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain futures contracts, forward contracts and
options, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

Income received by a Fund from sources within foreign countries may be subject
to

<PAGE>

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 Funds 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 a 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 a Fund's taxable year whether the
foreign taxes paid by the Fund will "pass-through" for that year. Absent the
Fund making the election to "pass through" the foreign source income and foreign
taxes, none of the distributions may be treated as foreign source income for
purposes of the foreign tax credit calculation.

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 a 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.

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 a 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 a 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 issued after July 18, 1984 is treated as ordinary income
to the extent the gain, or principal payment, does not exceed the

<PAGE>

"accrued market discount" on such debt security. Market discount generally
accrues in equal daily installments. A 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 a 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 ratably 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.

A 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.

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 (for example, interest on Federal National
Mortgage Association Certificates and Government National Mortgage Association
Certificates). Each 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 a Fund.

MANAGEMENT OF THE GROUP

TRUSTEES AND OFFICERS

The Trustees and officers of the Group are as set forth below. Unless otherwise
indicated, the

<PAGE>

address of all persons below is 333 South Grand Avenue, 32nd Floor, Los Angeles,
California 90071.

<TABLE>
<CAPTION>
BOARD OF TRUSTEES:
Position with Principal Occupations
Name the Group During Past Five Years
------ --------- ----------------------
<S> <C> <C>
* Joan A. Payden(1) Chairman of the Board, President, Payden & 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);
previously Second Vice
President, The Northern
Trust Company

J. Clayburn La Force Trustee Dean Emeritus, The
P.O. Box 1009 John 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. (1) Trustee President and Chief
2601 South Figueroa Street Executive Officer,
Los Angeles, CA 90007 Automobile Club of Southern
California

Dennis C. Poulsen Trustee President and Chief
3900 South Workman Mill Road Executive Officer, Rose
Whittier, CA 90601 Hills Company

Stender E. Sweeney Trustee Private Investor since
Times Mirror Square 1994; previously Vice
Fifth Floor President, Finance, Times
Los Angeles, CA 90053 Mirror Company

<PAGE>

W.D. Hilton, Jr. Trustee Managing Trustee, NGC
310 East Interstate 30, Settlement Trust; previously
Suite 285 Chief Financial Officer,
Garland, TX 75043 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.
(1) Ms. Payden is a Director of the Automobile Club of Southern California, of
which Mr. McKernon is President and Chief Executive Officer.

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>
<CAPTION>
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued as Benefits from Trust and
Compensation Part of Trust Upon Trust Complex
Name 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. McKernan, Jr. $12,000 None N/A $12,000 (9*)

</TABLE>

* Indicates total number of Funds in Trust Complex.
<TABLE>
<CAPTION>

OFFICERS:
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 President,
Vice President Payden & Rygel

David L. Wagner Vice President Portfolio Manager, Payden &
Rygel

<PAGE>

Steven D. Persky Vice President, Vice President, Payden &
Assistant Secretary Rygel (since 1991);
previously Chief Financial
Officer, Endless Pools, Inc.
and Vice President, Salomon
Brothers

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 December 31, 1995, its staff consisted of 70 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 $2.3 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 Funds 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 a 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 a Fund and of its shares with the SEC, registering
the Trust as a broker or dealer and qualifying the shares of a Fund under

<PAGE>

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 a Fund
exceed the applicable expense limitations imposed by the securities regulations
of any state in which shares of such 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. The Administrator will bear a portion of this
reimbursement obligation. 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.

Fees earned by the Adviser during the last three fiscal years ended October 31,
are shown below.

<TABLE>
<CAPTION>
Fiscal Year Ending October 31
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Limited Maturity $ * $ 7,360 $ 44,030
Short Bond * 4,974 27,936
U.S. Treasury * * 13,233
Intermediate Bond * 14,006 71,012
Opportunity * 5,115 23,790
Short Duration * 6,145 51,350
Tax Exempt Bond * 60,945 99,303
Global 523,973 1,216,816 1,533,836
International * * 25,948

</TABLE>

* FUND HAD NOT COMMENCED OPERATIONS

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 Funds 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 each Fund until
June 14, 1995 and

<PAGE>

thereafter for successive annual periods, subject to annual approval by the
Board of Trustees (or by a majority of the outstanding voting shares of each
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 a 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.

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.

During the last three fiscal years, the Administrator was paid the amounts
listed below.

<TABLE>
<CAPTION>
Fiscal Year Ending October 31
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Limited Maturity $ * $ 2,250 $ 12,864
Short Bond * 1,572 7,884
U.S. Treasury * * 4,476
Intermediate Bond * 4,317 20,487
Opportunity * 1,600 6,731

<PAGE>

Short Duration * 1,610 14,771
Tax Exempt Bond * 16,708 25,275
Global 183,400 353,701 386,974
International * * 5,469

</TABLE>

* FUND HAD NOT COMMENCED OPERATIONS

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 Funds, 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 Funds 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 a Fund, and other
expenses associated with performing services as distributor of the Funds'
shares. Each 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, each 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 a
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

<PAGE>

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.

No Plan fees were paid for any Fund during the fiscal year ended October 31,
1995.

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 Funds reserve 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.

Each Fund will redeem 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. Each Fund
reserves the right to pay any redemption price exceeding this amount in whole or
in part by a distribution in kind of 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.

Due to the relatively high cost of maintaining smaller accounts, each 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

<PAGE>

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

OTHER INFORMATION

CAPITALIZATION

Each 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 Funds
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 Market Return Fund. 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 Funds' 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 are being 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.

PRINCIPAL SHAREHOLDERS

As of January 31, 1996 , the following persons were known to hold of record more
than 5% of the outstanding shares of the Short Bond Fund: Rick Hoffman and
Jesse H. Bechtold, Seaboard Corporation Health Benefits Trust, Shawnee Mission,
KS 66201, 9.1%; Casa De Las Campanas, Los Angeles, CA 91101, 13.4%; Center
Theatre Group, Los Angeles, CA 90012, 14.9%; San Diego Electrical Health and
Welfare Plan, San Diego, CA 92194, 13.9%; Southern California Presbyterian
Homes, Glendale, CA 91202, 15.7%.

As of January 31, 1996 , the following persons were known to hold of record more
than 5% of the outstanding shares of the Intermediate Bond Fund: North Hills
Passavent Hospital, Philadelphia, PA 19182, 18.1%; Children's Memorial Hospital,
Chicago, IL 60675, 17.2%; Augustana College, Rock Island, IL 61201, 10.3%; Best
Products Co. Pension Plan, Richmond, VA 23260, 11.5%; Rose Hills Memorial Park,
Calabasas, CA 91302, 8.2%; San Diego Electrical Pension Plan, San Diego, CA
92194, 12.4%. .

51
<PAGE>

As of January 31, 1996 , the following persons were known to hold of record more
than 5% of the outstanding shares of the Opportunity Fund: Best Products Co.
Pension Plan, Richmond, VA 23260, 6.2%; Southern California Presbyterian Homes,
Glendale, CA 91202, 17.6%; USSF Foundation, McLean, VA 22101, 7.1%; World Cup
USA, 1994, Inc., Los Angeles, CA 90067, 27.0%.

As of January 31, 1996 , the following persons were known to hold of record more
than 5% of the outstanding shares of the Limited Maturity Fund: Foundation to
Assist California Teachers, Pasadena, CA 91101, 55.8%; University of
Washington, Chicago, IL 60607, 8.9%; San Diego Electrical Health and Welfare
Plan, San Diego, CA 92194, 8.7%.

As of January 31, 1996, the following persons were known to hold of record more
than 5% of the outstanding shares of the Bond Fund: Eugene Kleiner, Menlo Park,
CA 94025, 18.0%; Thomas and Elinor Wertheimer, Santa Monica CA 90402, 13.3%.

As of January 31, 1996, the following persons were known to hold of record more
than 5% of the outstanding shares of the Short Duration Fund: Lynne K.
Wasserman, Beverly Hills, CA 90210, 5.2%; Thomas and Elinor Wertheimer, Santa
Monica, CA 90402, 10.2%; Casey Wasserman, Los Angeles, CA 90069, 17.3%; Diane
Von Furstenberg, New Milford, CT 06766, 9.8%; Carol Ann Leif, Beverly Hills, CA
91210, 23.9%.

As of January 31, 1996, the following persons were known to hold of record more
than 5% of the outstanding shares of the U.S. Treasury Fund: Leonard C.
Horvitz, Moreland Hills, OH 44022; Carol Ann Leif, Beverly Hills, CA 90210,
16.1%; Casey Wasserman, Beverly Hills, CA 22.4%; Diane Von Furstenberg, New
Milford, CT 06776, 8.9%; Lynne K. Wasserman, Beverly Hills, CA 90210, 5.6%.

As of January 31, 1996, the following persons were known to hold of record more
than 5% of the outstanding shares of the Fixed Income Fund: Public Service
Electric & Gas Co. Pension Plan Trust, Bankers Trust Co., Trustee, Jersey City,
NJ 07302, 11.8%; SSM Health Care System, Pittsburgh, PA 15230, 9.6%; UniHealth
America, Burbank, CA 91505, 5.9%; Sheinberg Family Trust, Beverly Hills, CA
90210, 6.5%.

As of January 31, 1996, the following persons were known to hold of record more
than 5% of the outstanding shares of the International Fund: Consuelo Zobel
Alger Foundation, Honolulu, HI 96805, 61.0%; Fleetwood Retirement Plan,
Riverside, CA 92513, 28.2%; JMR Partnership, Santa Monica, CA 90405, 5.4%; Rose
Hills Memorial Park, First Interstate Bank, Trustee, Calabasas, CA 91302, 5.3%.

The Fund has no information regarding the beneficial ownership of such shares.
As of such date, the officers and directors of the Group as a group owned less
than 1% of the outstanding shares of the Funds (except for the Short Duration
and U.S. Treasury Funds, of which they own 4% and 3% respectively).

52
<PAGE>

DECLARATION OF TRUST

Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a Fund. However, the Declaration
of Trust disclaims liability of the shareholders of a 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 a 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 a 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.

CLASS B SHARES

The Group has obtained from the Securities and Exchange Commission certain
exemptions from the provisions of the 1940 Act necessary to establish two series
of shares. As a condition to such exemptions, the Group has agreed that Class A
and Class B shares will be identical in all respects except as follows: (a) the
designation of each class of shares of a Fund; (b) the exclusive right of Class
B shares to vote on matters related to the Shareholder Service Plan; (c) the
impact of the disproportionate payments made under the Plan; (d) the
incremental transfer agency costs attributable to the Class B Shares of the
Fund; (e) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific class; (f) Securities and Exchange
Commission registration fees incurred by a class of shares; (g) the expense of
administrative personnel and services required to support the shareholders of a
specific class; (h) trustees' fees or expenses incurred as a result of issues
relating to one class of shares; (i) accounting expenses relating solely to one
class of shares; (j) state blue sky registration fees incurred by one class of
shares; (k) litigation or other legal expenses relating solely to one class of
shares; and (l) any other incremental expenses subsequently identified that
should be properly allocated to one or more classes of shares that are approved
by the Securities and Exchange Commission.

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

<PAGE>

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 Fund 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 Funds 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 First National Bank of Chicago serves as Custodian for the assets of the
Funds. The Custodian's address is One First National Plaza, Chicago, Illinois
60670. Under its Custodian Agreement with the Group, the Custodian has agreed
among other things to maintain a separate account in the name of each Fund; hold
and disburse portfolio securities and other assets on behalf of the Funds;
collect and make disbursements of money on behalf of the Funds; and receive all
income and other payments and distributions on account of each Fund's portfolio
securities.

Pursuant to rules adopted under the 1940 Act, the Funds may maintain foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and financial stability of the
institution; the ability of the institution to perform capably custodial
services for the Funds; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and risks of nationalization or expropriation of Fund
assets. The Board of Trustees reviews annually the continuance of foreign
custodial arrangements for the Funds. No assurance can be given that the
Trustees' appraisal of the risks in connection with foreign custodial
arrangements will always be correct or that expropriation, nationalization,
freezes, or confiscation of assets that would impact assets of the Portfolio
will not occur, and shareholders bear the risk of losses arising from these or
other events.

INDEPENDENT AUDITORS

Deloitte & Touche LLP serves as the independent auditors for the Funds.
Deloitte & Touche

<PAGE>

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.

FINANCIAL STATEMENTS

The Funds' 1995 Annual Reports to Shareholders accompany this Statement of
Additional Information. The financial statements in such Annual Report are
incorporated in this Statement of Additional Information by reference. Such
financial statements have been audited by the Fund's independent auditors,
Deloitte & Touche LLP, whose report thereon also appears in such Annual Report
and is incorporated herein by reference. Such financial statements have been
incorporated herein in reliance upon such reports given upon their authority as
experts in accounting and auditing. Additional copies of the Funds' 1995 Annual
Report to Shareholders may be obtained at no charge by writing or telephoning
the Group at the address or number on the front page of this Statement of
Additional Information.

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.

<PAGE>

APPENDIX A

DESCRIPTION OF RATINGS

The following paragraphs summarize the descriptions for the ratings
referred to in the Prospectus and Statement of Additional Information.

MOODY'S INVESTORS SERVICE, INC.

The purpose of Moody's ratings is to provide investors with a single system of
gradation by which the relative investment qualities of bonds may be rated.

BONDS

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements, may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa: Bonds rated Baa are considered as medium grade obligations. They are
neither highly protected nor poorly secured. Interest payments and security
appear adequate for the present but certain protective elements may appear
lacking or unreliable.

Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.

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COMMERCIAL PAPER

Prime-1: Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
(a) leading market positions in well established industries;(b) high rates of
return on funds employed; (c) Conservative capitalization structures with
moderate reliance on debt and annual asset protection; (d) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (e) well established access to a range of financial markets and assured
sources of alternate liquidity.

STANDARD & POOR'S CORPORATION

A Standard & Poor's debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees. The
ratings are based on current information furnished by the issuer or obtained by
Standard & Poor's from other sources it considers reliable. Standard & Poor's
does not perform any audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings are based, in varying
degrees, on the following considerations: (a) likelihood of default-capacity
and willingness of the obligor as to the timely payment of interest and
repayment of principal in accordance with the terms of the obligation; (b)
nature of and provisions of the obligation; and (c) protection afforded by, and
relative position of, the obligation in the event of bankruptcy and other laws
affecting creditors' rights.

BONDS

AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated BBB is considered to have adequate capacity to pay
interest and repay principal. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
principal than higher rated bonds.

The Standard & Poor's ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.

<PAGE>

COMMERCIAL PAPER

A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

FITCH RATINGS

Fitch investment grade bond ratings provide a guide to investors in determining
the credit risk associated with a particular security. The ratings represent
Fitch's assessment of the issuer's ability to meet the obligations of a specific
debt issue or class of debt in a timely manner. The rating takes into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current and prospective financial condition and
operating performance of the issuer and any guarantor, as well as the economic
and political environment that might affect the issuer's future financial
strength and credit quality. Fitch ratings do not reflect any credit
enhancement that may be provided by insurance policies or financial guarantees
unless otherwise indicated.

BONDS

AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1
+".

A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Debt rated BBB is considered to be of satisfactory credit quality.
Ability to pay interest and principal is adequate. Adverse changes in economic
conditions and circumstances are more likely to impair timely payment than
higher rated bonds.

COMMERCIAL PAPER

F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment. Those issues regarded as having the strongest
degree of assurance of repayment are denoted

<PAGE>

with a plus (+) sign designation.

IBCA, LIMITED

IBCA analyzes credit quality of short term debt (maturities of one year or
less).

A: An issuer of impeccable financial condition, with a consistent record
of above average performance.

B: An issuer with a sound risk profile and without significant problems.
The issuer's performance has generally been in line with or better than that of
its peers.

C: An issuer which has an adequate risk profile but possesses one or more
troublesome aspects, giving rise to the possibility of risk developing, or which
has generally failed to perform in line with its peers.

In addition, ratings of "A/B" and "B/C" may be assigned.

THOMPSON BANK WATCH

Thompson Bank Watch ratings are based upon a qualitative and quantitative
analysis of all segments of the organization, including holding company and
operating subsidiaries.

ISSUER RATINGS

Thompson Bank Watch assigns only one Issuer Rating to each company, based on
consolidated financials. While the rating is blended to be equally applicable
to all operating entities of the organization, there may, in certain cases, be
more liquidity and/or credit risk associated with doing business with one
segment of the company as opposed to another (i.e., holding company vs.
subsidiary).

Bank Watch Issuer Ratings are not merely an assessment of the likelihood of
receiving payment of principal and interest on a timely basis. It is also
important to recognize that the ratings incorporate our opinion of the
vulnerability of the company to adverse developments, which may impact the
market's perception of the company, thereby affecting the marketability of its
securities.

Bank Watch Issuer Ratings are assigned using an intermediate time horizon.

RATING DEFINITIONS

A: Company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and very good access to its
natural money markets. If

<PAGE>

weakness or vulnerability exists in any aspect of the company's business, it is
entirely mitigated by the strengths of the organization.

A/B: Company is financially very solid with a favorable track record and
no readily apparent weakness. Its overall risk profile, while low, is not quite
as favorable as for companies in the highest rating category.

B: A strong company with a solid financial record and well received by its
natural money markets. Some minor weaknesses may exist, but any deviation from
the company's historical performance levels should be both limited and
short-lived. The likelihood of a problem developing is small, yet slightly
greater than for a higher-rated company.

B/C: Company is clearly viewed as a good credit. While some shortcomings
are apparent, they are not serious and/or are quite manageable in the
short-term.

C: Company is inherently a sound credit with no serious deficiencies, but
financials reveal at least one fundamental area of concern that prevents a
higher rating. Company may recently have experienced a period of difficulty,
but those pressures should not be long-term in nature. The company's ability to
absorb a surprise, however, is less than that for organizations with better
operating records.