As filed with the Securities and Exchange Commission on
May 2, 1996
Securities Act File No. 33-46973
Investment Company Act File No. 811-6625
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M N-1A
Registration Statement Under the Securities Act of 1933 [X]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. 23 [X]
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 26 [X]
-----------------------------------
THE PAYDEN & RYGEL INVESTMENT GROUP
(formerly P & R Investment Trust)
(Exact Name of Registrant as Specified in Charter)
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
(Address of Principal Executive Offices)
(213) 625-1900
(Registrant's Telephone Number, Including Area Code)
JOAN A. PAYDEN
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
(213) 625-1900
(Name and Address of Agent for Service)
Copy to: Michael Glazer
Paul, Hastings, Janofsky & Walker
555 S. Flower St., Los Angeles, California 90071
-------------------------------
Approximate Date of Proposed Public Offering:
As soon as practicable following effective date.
-------------------------------
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (b)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii), of Rule 485.
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered under the Securities Act of 1933 an indefinite number of shares of
beneficial interest. Registrant filed a Notice under such Rule for its fiscal
year ended October 31, 1995 on November 14, 1995.
THE PAYDEN & RYGEL INVESTMENT GROUP
CROSS REFERENCE SHEET
FORM N-1A
N-1A Location in
Item No. Item Registration Statement
- -------- ---- ----------------------
Part A: Information Required in Prospectus
-------------------------------------------
1. Cover Page Cover Page
2. Synopsis Prospectus Summary
3. Condensed Financial Financial Highlights
Information
4. General Description Other Information;
of Registrant Investment Objective
and Policies
5. Management of Management of the
the Fund Fund; Portfolio
Transactions
6. Capital Stock and Other Information;
Other Securities Purchase of Shares
Dividends, Distributions
and Taxes
7. Purchase of Securities Purchase of Shares;
Being Offered Management of the Fund;
Net Asset Value
8. Redemption or Redemption of Shares
Repurchase
9. Pending Legal Not Applicable
Proceedings
Part B: Information Required in
Statement of Additional Information
-----------------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objective
and Policies and Policies; Fundamental
and Operating Policies
14. Management of the Management of the Trust
Registrant
15. Control Persons and Management of the Trust;
Principal Holders of
Securities
16. Investment Advisory Management of the Trust:
and Other Services Other Information
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Information
Other Securities
19. Purchase, Redemption Purchases and Redemptions
and Pricing of Securities
Being Offered
20. Tax Status Taxation
21. Underwriters Management of the Trust
22. Calculation of Fund Performance
Performance Data
23. Financial Statements Other Information
Part C: Other Information
--------------------------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
PAYDEN & RYGEL
MARKET RETURN FUND
PROSPECTUS
May 2, 1996
[LOGO]
TABLE OF CONTENTS
Prospectus Summary 1
Expense Information 4
Financial Highlights 7
Investment Objectives 8
Investment Policies and Risk Factors 9
Management of the Fund 15
How to Purchase Shares 17
Shareholder Services 18
Redemption of Shares 20
Net Asset Value 20
Dividends, Distributions and Taxes 21
Other Information 22
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.
The objective of the Payden & Rygel Market Return Fund (the "Fund") is to
provide a total return in excess of the Standard & Poor's 500 Stock Index (the
"S&P 500 Index"). To achieve this objective, the Fund invests primarily in
equity based investments, such as stock index futures contracts and equity swap
contracts, as well as in fixed income securities.
The Fund is designed to provide individuals and institutions with access to the
professional investment management services offered by Payden & Rygel (the
"Adviser"), which serves as investment adviser to the Funds. However, unlike
most equity funds, in which much of an investor's return will typically come
from long-term capital gains, most income expected to be earned by the Fund
will be taxable at ordinary income tax rates. Due to the tax disadvantage of
ordinary income compared to long term gains, taxable investors may not deem the
Fund to be as advantageous as other equity funds after consideration of tax
effects. Taxable investors are advised to consult an income tax adviser prior
to investing in the Fund. There can be no assurance that the Fund's investment
objectives will be achieved.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional
Information, dated May 2, 1996, containing additional information about the
Fund, has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. It is available without charge
and may be obtained by writing the Fund at 333 South Grand Avenue, Los Angeles,
California 90071 or by telephone at (213) 625-1900 or (800) 5-PAYDEN (800/572-
9336).
This Prospectus should be read and retained for reference to information about
the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May 2, 1996.
<PAGE>
PROSPECTUS SUMMARY
THE FUND
The Fund is a non-diversified series of Payden & Rygel Investment Group, a no-
load, open-end management investment company organized as a Massachusetts
business trust in January, 1992. The Fund is primarily designed to provide
pension and profit sharing plans, employee benefit trusts, endowments,
foundations, other institutions, corporations and individuals with access to
the professional investment management services offered by Payden & Rygel,
which serves as investment adviser to the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The Fund seeks to earn a total return (consisting of realized and unrealized
capital appreciation and current income) in excess of the S&P 500 Index.
Under normal market conditions, the Fund does not invest directly in equity
securities. Instead, the Fund invests in a combination of equity-based
investments, such as stock index futures contracts and equity swap contracts,
and a portfolio of fixed income securities. The Adviser anticipates that
under normal market conditions the Fund's investment return will be similar to
that of the equity markets as a result of the Fund's equity-based investments.
The Fund attempts to outperform the S&P 500 Index by successfully managing its
fixed income assets. However, because of the manner in which S&P Index futures
contracts are priced, the Fund will theoretically outperform the Index only if
its fixed income assets earn a total return that is better than money market
rates and the expenses of the Fund.
Futures index contracts, which will generally be the majority of the Fund's
equity-based investments, require a small deposit called "initial margin" at
the time of acquisition (the equivalent of a good faith deposit). This allows
the Fund to invest the balance of its assets, initially about 95% of the Fund's
net assets, in other assets. The Fund is required to maintain a segregated
account with its Fund Custodian in an amount which, when added to its initial
margin account, equals the aggregate amount of the Fund's futures contract
liabilities. The debt securities purchased by the Fund will be deposited in
the segregated account for this purpose. The Fund cannot sell these securities
until the futures contracts are sold. Thus the Adviser anticipates that the
Fund will be able to meet its obligations under its futures contracts regardless
of movements in the equity markets.
If all fixed income assets held by the Fund were invested in short-term
securities such as U.S. Treasury Bills, the return of the Fund would approximate
the return of the S&P 500 Index, less Fund expenses. In order to attempt to
outperform the Index, the Fund generally invests the fixed income portion of
its assets in short and intermediate term securities. This strategy creates
financial leverage. For each dollar of net assets the Fund's portfolio
contains approximately one dollar in equity market exposure and one dollar in
fixed income exposure. Consequently, the Fund is affected by price movement in
both the equity and fixed income markets.
1
<PAGE>
Historically, short and intermediate term securities have outperformed money
market securities over time. If this historical experience were to continue in
the future, the Adviser believes that the Fund would outperform the Index.
However, the market value of the fixed income securities will fluctuate in
price as interest rates vary each day. It is therefore possible that the value
of the Fund could fall even when the equity market is rising in value. In
addition, it is possible that both the bond and equity markets could fall,
causing the value of the Fund to decline by more than the decline in the equity
markets. The Adviser will actively manage the Fund's fixed income investments
to attempt to minimize its risk of loss of value of such investments during
periods of falling bond market prices. The success of this strategy is
dependent on the ability of the Adviser to accurately predict interest rate
movements. If the Adviser's forecast is inaccurate, the return on the Fund may
be worse than if the Adviser had not utilized this strategy. There can be no
assurance that the Fund will achieve its objective.
INVESTMENT RISKS AND CONSIDERATIONS
Investment risks and other considerations relevant to the securities in which
the Fund invests are described under "Investment Objectives" and "Investment
Policies and Risk Factors." Because the Fund invests a substantial portion of
its assets in debt securities, the value of the fixed income portion of its
portfolio will generally vary inversely with changes in interest rates, and the
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, the Fund may invest a
greater percentage of its assets in the securities of one issuer than
diversified funds and may be more susceptible to risks associated with a single
economic, political or regulatory occurrence than diversified funds.
The acquisition of dollar-denominated debt securities issued by foreign
governments and foreign companies involves investment risks that are different
in some respects from those incurred by a fund that invests only in debt
obligations of U.S. governmental entities and domestic companies, including
differences in reporting standards; adverse changes in investment or tax
regulations; political instability; possible expropriation, nationalization or
confiscatory taxation; greater portfolio volatility; less liquidity; less
governmental regulation of securities issuers; possible difficulty in obtaining
and enforcing judgments in foreign courts; and imposition of restrictions on
foreign investments.
The Fund invests in certain derivative instruments such as put and call options
on securities and securities indexes, stock index and interest rate futures
contracts, options on such futures contracts, and equity swap contracts. The
Fund's use of derivatives and the purchase or sale of securities on a when-
issued or delayed-delivery basis, involve certain costs and risks. These
include the risk that the Adviser's forecasts of market values, interest rates
and other factors are not correct; imperfect correlation between the Fund's
hedging technique and the asset or liability being hedged; default by the other
party to the transaction; and inability to close out options or futures
positions because of the lack of a liquid market. Investment in such derivative
instruments may not be successful and may reduce the returns and increase the
volatility of the Fund.
2
The Fund's annual portfolio turnover rate may vary substantially, which could
cause its transaction costs to be higher than those of other mutual funds with
less aggressive trading strategies. To the extent that short-term trading
results in the realization of short-term capital gains, shareholders will be
taxed on such gains at ordinary income tax rates. See "Dividends,
Distributions and Taxes."
INVESTMENT ADVISER
Payden & Rygel serves as Adviser to the Fund. The Adviser is an investment
management firm established in 1983 and currently has over $20 billion of
assets under management. The Adviser receives a monthly fee from the Fund at
an annual rate of 0.28% of the Fund's average daily net assets up to $1
billion, decreasing to 0.25% of net assets in excess of $1 billion. Expenses
of Class A shares of the Fund (excluding interest, taxes, portfolio transaction
expenses, blue sky fees, 12b-1 plan fees [if any such plan is adopted in the
future] and extraordinary expenses) will not exceed 0.60% of average daily net
assets on an annualized basis. See "Management of the Funds."
In addition, the Adviser has voluntarily agreed to temporarily reduce its fees
further through at least October 31, 1996. See "Expense Information."
PURCHASE OF SHARES
Two classes of shares of the Fund are offered through Payden & Rygel
Distributors (the "Distributor"), an affiliate of the Adviser, at the net asset
value per share next determined after receipt of a proper purchase order, with
no sales charge for either class. The minimum initial investment is $5,000,
and the minimum subsequent investment is $1,000. Class B Shares are subject to
Shareholder Service Plan (the "Plan") fees of 0.20% of average daily net assets.
Class A Shares do not participate in the Plan. Fund shares may be exchanged
for Class A or Class B shares of any other series of the Group or for the other
class of shares of the Fund. See "How to Purchase Shares" and "Shareholder
Services."
REDEMPTIONS
Shares of the Fund may be redeemed without cost at the net asset value per
share of the Fund next determined after receipt of a redemption request in
proper form. The redemption price may be more or less than the purchase price.
See "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS
The Fund 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."
3
FUND ADMINISTRATOR AND TRANSFER AGENT
Fund administration is conducted by Treasury Plus, Inc., a wholly owned
subsidiary of the Adviser. Fund portfolio accounting and transfer agency
services are provided by Investors Fiduciary Trust Company.
CUSTODIAN
The First National Bank of Chicago (the "Custodian") acts as Fund custodian.
The Custodian maintains a global network of depository facilities.
EXPENSE INFORMATION
Two Classes of shares are offered to investors.
CLASS A SHARES
Class A shares of the Fund are offered to investors on a no-load basis without
any sales commissions or distribution ("12b-1 plan") charges.
SHAREHOLDER TRANSACTION EXPENSES - CLASS A SHARES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
MAXIMUM ANNUAL FUND OPERATING EXPENSES - CLASS A SHARES
(as an estimated percentage of average net assets for the fiscal year ended
October 31, 1996, after reimbursement of advisory fees and other expenses)
Advisory Fees 0.28%
Other Expenses (estimated) 0.17%
Total Expenses 0.45%
The Adviser has agreed to guarantee that, for so long as it acts as investment
adviser to the Fund, the expenses of the Fund attributable to Class A Shares,
including advisory fees (but excluding interest, taxes, portfolio transaction
expenses, blue sky fees, 12b-1 plan fees [if any such plan is adopted in the
future] and extraordinary expenses) will not exceed 0.60% of average annual net
assets of Class A Shares. In addition, the Adviser has voluntarily agreed to
temporarily reduce its fees through June 30, 1996 to zero and has voluntarily
agreed to temporarily reduce its fees through at least October 31, 1996, so
that the Fund expenses will not exceed 0.45% of average annual net assets. The
Fund will reimburse the Adviser for fees foregone or other expenses paid by it
in any fiscal year pursuant to the expense guarantee or
4
voluntary expense cap at a later date, without interest, so long as such
reimbursement will not cause the annual expense ratio for the year in which it
is made to exceed the amount of the expense guarantee or expense cap (whichever
is in effect at the time of reimbursement). The Fund will not be required to
repay any unreimbursed amounts to the Adviser upon termination of its investment
management contract with respect to the Fund. Actual expenses for Class A
Shares of the Fund for the fiscal year ended October 31, 1996, before
reimbursement by the Adviser, are estimated to be 1.0% of average net assets
(annualized).
The following table illustrates the expenses a Class A shareholder would pay on
a $1,000 investment over various time periods assuming (1) a 5% annual return
and (2) redemption at the end of each time period. As noted above, the Fund
does not charge redemption fees of any kind.
Expenses Per $1,000 Investment
1 Year 3 Years
$5 $14
The information in the previous tables is provided for purposes of assisting
current and prospective shareholders in understanding the various costs and
expenses that an investor in Class A shares will bear, directly or indirectly.
The hypothetical annual return of 5% is used for illustrative purposes only and
should not be interpreted as an estimate of the Fund's annual returns, as there
can be no guarantee of the Fund's future performance.
CLASS B SHARES
Class B Shares are similar to Class A Shares with the exception that Class B
Shares will be subject to a Shareholder Service Plan.
SHAREHOLDER TRANSACTION EXPENSES - CLASS B SHARES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Redemption Fees None
Exchange Fees None
MAXIMUM ANNUAL FUND OPERATING EXPENSES - CLASS B SHARES
(as an estimated percentage of average net assets for the fiscal year ended
October 31, 1996, after reimbursement of advisory fees and other expenses)
Advisory Fees 0.28%
Other Expenses* 0.37%
Total Expenses 0.65%
* includes Shareholder Service Plan fee of 0.20%
5
The Adviser has agreed to guarantee that, for so long as it acts as investment
adviser to the Fund, the expenses of the Fund attributable to Class B Shares,
including advisory fees (but excluding interest, taxes, portfolio transaction
expenses, blue sky fees, 12b-1 plan fees [if any such plan is adopted in the
future] and extraordinary expenses) will not exceed 0.80% of the average annual
net assets of Class B Shares. In addition, the Adviser has voluntarily agreed
to temporarily reduce its fees so that such Fund expenses will not exceed 0.65%
of average annual assets. This fee reduction will be maintained at least
through October 31, 1996. The Fund will reimburse the Adviser for fees
foregone or other expenses paid by it in any fiscal year pursuant to the expense
guarantee or voluntary expense cap at a later date, without interest, so long
as such reimbursement will not cause the annual expense ratio of Class B Shares
for the year in which it is made to exceed the amount of the expense guarantee
or expense cap (whichever is in effect at the time of reimbursement). The Fund
will not be required to repay any unreimbursed amounts to the Adviser upon
termination of its investment management contract with respect to the Fund.
Actual expenses for the Class B Shares for the Fund for the fiscal year ended
October 31, 1996, before reimbursement by the Adviser, are estimated to be
1.20% of average net assets (annualized).
The following table illustrates the expenses a Class B shareholder would pay on
a $1,000 investment over various time periods assuming (1) a 5% annual return
and (2) redemption at the end of each time period. As noted above, the Fund
charges no redemption fees of any kind.
Expenses Per $1,000 Investment
1 Year 3 Years
$7 $20
The information in the tables above is provided for purposes of assisting
current and prospective shareholders in understanding the various costs and
expenses that an investor in Class B Shares will bear, directly or indirectly.
The hypothetical annual return of 5% is used for illustrative purposes only and
should not be interpreted as an estimate of the Fund's annual returns, as there
can be no guarantee of the Fund's future performance.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The following information on selected per share data and ratios for the Class A
shares of the Fund is for the period since commencement of operations of the
Fund, has been prepared by the Group and is not audited. The information
should be read in conjunction with the Fund's unaudited financial statement for
the period and the notes thereon, which appear in the Statement of Additional
Information. Class B shares were not sold during the period.
<TABLE>
Market Return Fund
------------------
For the period
December 1, 1995
to March 31, 1996 (a)
====================
<S> <C>
Net asset value - beginning of period $10.00
---------
Income (loss) from investment activities:
Net investment income 0.17
Net realized and unrealized gains (losses) 0.20
---------
Total from investment activities 0.37
---------
Distributions to shareholders:
From net investment income (0.16)
---------
Total distributions to shareholders (0.16)
---------
Net increase in net asset value 0.21
Net asset value - end of period $10.21
=========
Total return 3.69% (b)
Ratios/supplemental data:
Net assets, end of period (000) $2,409
Ratio of expenses to average net assets 0.07% (c)
Ratio of net investment income to average net assets 5.44% (c)
Ratio of expenses to average net assets* 6.85% (c)
Ratio of net investment income to average net assets* -1.34% (c)
Portfolio turnover rate 162.51% (c)
(a) Period from commencement of operations
(b) Not annualized
(c) Annualized
* During the period, certain expenses were subsidized by the Adviser. If such
expense subsidies had not occurred, the ratios would have been as indicated.
</TABLE>
7
INVESTMENT OBJECTIVES
The Fund seeks to earn a total return in excess of the S&P 500 Index. The S&P
500 Index is a composite of 500 common stocks, most of which are listed on the
New York Stock Exchange. Standard & Poor's Corporation, which is not a sponsor
of or in any way affiliated with the Fund, chooses the 500 stocks included in
the Index based on market value and industry diversification. The stocks
listed in the S&P 500 Index comprise approximately 75% of the total market
capitalization within the publicly traded U.S. equity markets.
The Fund divides its assets between equity-based investments, such as stock
index futures contracts and equity swap contracts, and a portfolio of fixed
income securities. Under normal market conditions, the fixed income portion of
the Fund will comprise at least 80% of its total assets. The fixed income
portion of the Fund is invested in dollar-denominated debt obligations of the
U.S. and foreign governments and their agencies and instrumentalities, foreign
and domestic public corporations and mortgage-backed securities. Any dollar-
denominated obligations of foreign issuers purchased by the Fund will be
actively traded in the United States as of the purchase date. The average
portfolio duration of the fixed income portion of the Fund's portfolio will be
no more than five years. The duration of the fixed income portion is adjusted
according to the Adviser's outlook on interest rates.
Although the Fund's return will vary principally with changes in the equity
market, the Fund is not an index fund, and changes in the Fund's net asset
value per share will not precisely track changes in the S&P 500 Index. Most
Fund assets will be invested in fixed income securities, which fall in price
when interest rates are rising. It is possible that both the equity markets
and the fixed income markets may decline simultaneously, in which case the Fund
could underperform equity index funds.
All debt securities held by the Fund are rated "investment grade" at the time
of purchase by at least one of the established rating agencies (e.g., AAA, AA,
A, or BBB by Standard & Poor's Corporation) or, if unrated, are determined to
be of comparable quality by the Adviser. Securities rated BBB are considered
to have adequate capacity to pay interest and repay principal, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and principal than higher rated bonds. If
the rating of a debt security in which the Fund has made an investment falls
below the investment grade level, the Fund will discontinue making investments
in that issuer and liquidate any current holdings as soon as the Adviser
determines it is in the best interest of the Fund to do so. In no event will
the Fund hold more than 5% of its net assets in obligations rated below
investment grade. No such obligation will be rated below BB. Further
information regarding investment ratings is in the appendix to the Statement of
Additional Information.
The Adviser believes that investment in stock index futures and equity swap
contracts, when combined with a fixed income portfolio, will permit the Fund to
earn a total return in excess of the S&P 500 Index at a lower cost than
investing directly in equity securities, while permitting the equivalent of an
investment in a portfolio of equity securities. However, futures contracts are
priced so that sophisticated traders should be neutral as to whether to
8
employ a strategy of purchasing the stocks which comprise the index or
purchasing the futures contracts. Accordingly, in order for the Fund to earn a
total return equal to the relevant index by investing in futures contracts, the
total return from the fixed income portion of its investment portfolio must
recover the costs of the futures contracts, earn an amount equal to the
dividend that was foregone by not investing directly in the underlying stocks,
and cover the expenses of the Fund. There can be no assurance that the Fund
will be successful in earning such a total return on its fixed income
investments.
From time to time, the Fund may reduce its exposure to such equity-based
investments and instead may purchase shares of equity mutual funds which aim to
track the S&P 500 Index, S&P Depository Rights, or a portfolio of some of the
individual stocks which are included in the S&P 500 Index. Such reductions
will occur during periods of market volatility (when the costs of investing in
stock index futures and equity swap contracts are likely to rise), when for any
other reason the purchase of such securities is less expensive than the cost of
other equity-based investments, or when the cash available for investment in
stock index futures and equity swap contracts is not sufficient to purchase an
instrument with a contract price in the desired amount. During such periods,
the portion of Fund assets allocated to fixed income securities would be
reduced.
Because of its investment policies, the Fund may or may not be suitable or
appropriate for all investors. The Fund is not a money market fund and is not
appropriate for those whose primary objective is stability of principal. The
value of the portfolio securities of the Fund will fluctuate based upon market
conditions.
INVESTMENT POLICIES AND RISK FACTORS
The Fund may purchase the securities and instruments and participate in the
transactions listed below. See "Investment Objectives and Policies" in the
Statement of Additional Information for more detailed discussions of these
matters.
FUTURES AND OPTION CONTRACTS. The Fund may enter into equity index futures
contracts for the non-hedging investment purposes described above. An equity
index, such as the S&P 500 Index, is a statistical measure designed to reflect
specified facets of a particular financial or securities market. In addition,
the Fund may enter into interest rate futures contracts for the purpose of
hedging against the interest rate risk associated with the fixed income portion
of its portfolio, in order to establish more definitively the effective return
on the fixed income securities held or intended to be acquired by the Fund.
An index futures contract is an agreement pursuant to which two parties agree
to take or make delivery of an amount of cash equal to the difference between
the value of the index at the close of the last trading day of the contract and
the price at which the index contract was originally written. An interest rate
futures contract provides for the delivery by one party and the purchase by
another party of a specified quantity of a financial instrument at a specified
future date and price. Although the value of a futures contract may be a
function of
9
the value of certain specified securities, no physical delivery of these
securities is made. Such futures contracts are derivative instruments which
may be traded on U.S. exchanges or with broker-dealers which maintain futures
markets. Upon entering into a futures contract, the Fund will be required to
deposit with its custodian in a segregated account in the name of its futures
broker a specified amount of cash or securities. This amount is known as
"initial margin", and is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. Subsequent
payments, called "variation margin" to and from the broker, will be made on a
daily basis as the price of the index fluctuates, making the position in the
futures contract more or less valuable, a process known as "marking to market".
The Fund may also purchase covered and uncovered put and call options on
securities and securities indexes, write covered put and call options on
securities and securities indexes, and purchase and write put and call options
on futures contracts. Such options are derivative securities which may be
traded on U.S. exchanges or with broker-dealers which maintain markets for
options. The Fund may also employ combinations of put and call options,
including without limitation straddles, spreads, collars and strangles.
Transactions in options, futures contracts and options on futures contracts
involve a variety of risks, including the inability to close out a position
because of the lack of a liquid market, default by the other party to the
contract and, in the case of futures transactions, lack of correlation between
price movements in the derivative instruments and the equity markets or the
portfolio assets being hedged. In addition, the potential loss incurred by the
Fund in engaging in futures transactions and writing options on future
contracts is unlimited. No more than 5% of the value of the Fund's total
assets will be committed to initial margin deposits on futures contracts and
premiums on option contracts. The Fund covers its obligations with respect to
such futures contracts and options by maintaining assets sufficient (together
with its margin deposits) to meet such obligations; depending on the nature of
the contract or option, this cover is in the form of liquid assets, put or call
options on the underlying instruments which are the subject of the contract or
option, or a long or short position in the contract which is the subject of an
option.
Options and futures transactions can be highly volatile and could result in
reduction of a Fund's total return, and the Fund's attempt to use such
instruments for hedging purposes may not be successful. The aggregate market
value of the Fund's portfolio securities covering put and call options on
securities written by the Fund will not exceed 50% of the value of its net
assets.
EQUITY SWAP CONTRACTS. The Fund may enter into equity swap transactions. An
equity swap is a derivative instrument which involves an agreement between the
Fund and another party to exchange payments calculated as if they were interest
on a fictitious ("notional") principal amount. The Fund will typically pay a
floating rate of interest, such as the three-month London Interbank Offered
Rate, and receive the total return (price change plus dividends) of a specified
equity index (such as the S&P 500 Index). If the total return on the equity
index is negative for the contract period, the Fund will pay its counterparty
the amount of the loss in the value of the notional amount plus interest at the
floating rate. From
10
time to time, the Fund may wish to cancel an equity swap contract in order to
reduce its equity exposure. Although the swap contract may be sold back to the
Fund's counterparty, it may be more advantageous to enter into a swap contract
in which the Fund would reduce its equity exposure by agreeing to receive a
floating rate of interest and pay the change in the index. This is sometimes
called a "reverse equity swap contract" and would only be entered into to
reduce equity exposure. The Fund will not use reverse swap contracts to short
the equity market.
The Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amounts of the two
payment streams. The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each swap is accrued on a
daily basis, and an amount of cash or high-quality liquid securities having an
aggregate net asset value at least equal to the accrued excess is maintained in
a segregated account by the Group's Custodian. If the Fund enters into a swap
on other than a net basis, the Fund maintains a segregated account in the full
amount accrued on a daily basis of the Fund's obligations with respect to the
transaction. Such segregated accounts are maintained in accordance with
applicable regulations of the Securities and Exchange Commission.
The Fund does not enter into any swap transaction unless the unsecured senior
debt or the claims paying ability of the other party to the transaction
(typically a bank, investment banking firm or broker-dealer) is rated at least
A by Standard & Poor's Corporation or Moody's Investor Services, Inc. Swap
transactions do not involve the delivery of securities or other underlying
assets or principal, and the risk of loss with respect to such transactions is
limited to the net amount of payments that the Fund is contractually obligated
to make or receive. However, the staff of the Securities and Exchange
Commission considers equity and reverse equity swap contracts to be illiquid
securities. Consequently, while the staff maintains this position, the Fund
will not enter into an equity swap transaction at any time that the aggregate
amount of its net obligations under such transactions, together with the value
of all other illiquid securities the Fund owns, exceeds 15% of its net assets.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser's forecast of market values, interest
rates, and other applicable factors is incorrect, the investment performance of
the Fund will diminish compared with the performance that could have been
achieved if these investment techniques were not used. Moreover, even if the
Adviser's forecasts are correct, the Fund's swap position may correlate
imperfectly with the markets or the asset or liability being hedged. In
addition, in the event of a default by the other party to the transaction, the
Fund might incur a loss.
OTHER EQUITY INVESTMENTS. The Fund may purchase S&P Depository Rights ("SPDRs"),
shares of equity index funds, or individual equity securities. SPDRs are
shares of a publicly traded unit investment trust which owns the stocks
included in the S&P 500 Index, and changes in the prices of SPDRs track the
movement of the Index relatively closely. Equity index mutual funds, which own
the stocks included in the S&P 500 Index, are intended to
11
closely track the Index; although such funds generally have substantial assets
and low operating expenses, investment in such a fund by the Fund will involve
a duplication of expenses, as it will require payment by the Fund of its pro
rata share of advisory and administrative fees charged by the fund. The Fund
may also purchase some of the individual equity securities which comprise the
largest components of the S&P 500 Index. The Fund does not anticipate investing
more than 50% of its net assets in equity index mutual funds. The Fund does not
intend to invest in warrants.
U.S. GOVERNMENT AND AGENCY OBLIGATIONS. The Fund may invest in obligations
issued by the U.S. Treasury and in securities issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These securities include
Treasury bills, which mature in one year or less, Treasury notes and bonds that
mature in 2 to 30 years from the date of issue, and agency issues, which may
have maturities from one day to 40 years.
CORPORATE DEBT SECURITIES. The Fund may invest in U.S. dollar denominated
corporate bonds, debentures, notes and other similar debt instruments of
domestic and foreign corporations which, at the time of purchase, are rated
investment grade by at least one of the established rating agencies or, if
unrated, are determined to be of comparable quality by the Adviser. Such
obligations may have interest rates which are fixed, variable or floating.
The Fund may also purchase long-term debt obligations that have been coupled
with an option allowing the Fund at specified intervals to tender (or "put")
such debt obligations to the issuer and receive an agreed upon amount, usually
face value plus accrued interest.
MORTGAGE-BACKED SECURITIES. The Fund may invest in obligations issued to
provide financing for U.S. residential housing mortgages. Payments made on the
underlying mortgages and passed through to the 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.
ASSET-BACKED RECEIVABLES. The 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 the 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.
In addition, certain asset-backed securities, such as credit card receivable
securities, are backed by obligations that are not secured by interests in
personal or real property.
MONEY MARKET OBLIGATIONS. The Fund may invest in U.S. dollar denominated bank
certificates of deposit, bankers acceptances, commercial paper and other short-
term debt
12
obligations of U.S. and foreign issuers, including U.S. Government and agency
obligations. All money market obligations will be required to be high quality,
meaning that the security will be rated in one of the two highest categories for
short-term securities by at least two nationally recognized rating services (or
by one if only one rating service has rated the security) or, if unrated, will
be judged to be of equivalent quality by the Adviser.
MONEY MARKET FUNDS. To maintain liquidity, the Fund may invest in unaffiliated
money market funds. No money market fund investment by the Fund will be in
excess of 3% of the total assets of the money market fund. The Fund does not
anticipate investing more than 15% of its net assets in money market funds. An
investment in a money market mutual fund by the Fund will involve a duplication
of expenses, as it will require payment by the Fund of its pro rata share of
advisory and administrative fees charged by such money market fund.
FOREIGN GOVERNMENT OBLIGATIONS. The Fund 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.
DELAYED DELIVERY TRANSACTIONS. The 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 the Fund to purchase or sell
securities for a predetermined price or yield, with payment and delivery taking
place more than seven days in the future or after a period longer than the
customary settlement period for that type of security. No interest will be
earned by the Fund on such purchases until the securities are delivered;
however, the market value of the securities may change prior to delivery.
REPURCHASE AGREEMENTS. For the purpose of maintaining liquidity, the Fund may
enter into repurchase agreements (agreements to purchase U.S. Treasury notes and
bills, subject to the seller's agreement to repurchase them at a specified time
and price) with well-established registered securities dealers (primary
government dealers as designated by the Federal Reserve Bank). In the event of
a bankruptcy or default of any such dealer, the Fund could experience costs and
delays in liquidating the underlying securities which are held as collateral,
and the Fund might incur a loss if the value of the collateral held declines
during this period.
CERTAIN RISKS OF INVESTING IN DEBT OBLIGATIONS. Yields on short, intermediate,
and long-term debt obligations depend on a variety of factors, including the
general conditions of the money and bond markets, the size of a particular
offering, the maturity of the obligation and the rating of the issue. Debt
obligations with longer maturities tend to produce higher yields and are
generally subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities and lower yields. The market prices of
debt obligations usually vary depending upon available yields. An increase in
interest rates will generally reduce the value of such portfolio investments,
and a decline in interest rates will generally increase the value of such
portfolio investments. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of the debt
securities
13
in which the Fund invests to meet their obligations for the payment of interest
and principal when due.
As the Adviser may from time to time invest a large percentage of the Fund's
assets in securities of one or more issuers, the Fund is classified as a "non-
diversified" investment company. Accordingly, the Fund may be more susceptible
to risks associated with a single economic, political or regulatory occurrence
than a diversified investment company might be. However, the Fund intends to
qualify as a "regulated investment company" under the Internal Revenue Code, and
therefore will be subject to diversification limits requiring that, as of the
close of each fiscal quarter, (i) no more than 25% of its total assets may be
invested in the securities of a single issuer (other than U.S. Government
securities), and (ii) with respect to 50% of its total assets, no more than 5%
of such assets may be invested in the securities of a single issuer (other than
U.S. Government securities) or invested in more than 10% of the outstanding
voting securities of a single issuer.
FOREIGN INVESTMENT RISKS. Investing in the dollar-denominated securities of any
foreign issuer involves special risks and considerations not typically
associated with investing in U.S. issuers. These include differences in
accounting, auditing and financial reporting standards; different disclosure
laws, which may result in less publicly available information about foreign
issuers than U.S. issuers; the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations (which may include suspension of the ability to transfer currency
from a country); and political instability. Additionally, foreign securities
and 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.
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.
OTHER INVESTMENT POLICIES
The investment program and policies for the Fund are subject to further
restrictions and risks which are described in the Statement of Additional
Information. The Fund's investment objective is fundamental and, therefore, may
not be changed without obtaining shareholder approval. Other investment
policies and practices may be changed without shareholder approval unless
otherwise specified as fundamental policies.
FUNDAMENTAL INVESTMENT POLICIES. As a matter of fundamental policy, the Fund
will not (1) purchase a security of any issuer if, as a result, more than 10% of
the outstanding voting
14
securities of the issuer would be held by the Fund; (2) borrow money except for
temporary, extraordinary or emergency purposes or for the clearance of
transactions in amounts not exceeding 30% of its total assets valued at market
(for this purpose, equity and reverse equity swap transactions 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, the Fund will not
(1) purchase a security of any one issuer if, as a result, more than 15% of the
value of its net assets would be invested in illiquid securities, including
repurchase agreements which do not provide for payment within seven days, or
other securities which are not readily marketable; or (2) purchase additional
securities when borrowings exceed 5% of the Fund's total assets; or (3) 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 the Fund may be higher than that of other
mutual funds with less aggressive trading strategies, which would, in turn,
increase the Fund's transaction costs. The Fund cannot accurately predict its
annual portfolio turnover rate; however, although it could vary substantially,
it will generally not exceed 200% during any year. A high portfolio turnover
rate for debt securities should not result in the Fund paying more brokerage
commissions, since most transactions in debt securities are effected with
dealers on a principal basis; such securities, however, are subject to a mark-up
by the dealers. To the extent that short-term trading results in the
realization of short-term capital gains, shareholders will be taxed on such
gains at ordinary income tax rates.
MANAGEMENT OF THE FUND
The business of the Group is managed under the direction of its Board of
Trustees, which establishes the Group's policies and supervises and reviews the
management of the Fund. Information about the Trustees and the Group's
executive officers may be found in the Statement of Additional Information.
INVESTMENT ADVISER
Payden & Rygel serves as investment adviser to the Fund pursuant to an
investment management contract with the Group. The Adviser is an investment
counseling firm founded
15
in 1983 and currently has over $20 billion of assets under management. Payden &
Rygel's address is 333 South Grand Avenue, Los Angeles, California 90071. It is
registered as an investment adviser with the Securities and Exchange Commission
and as a commodity trading adviser with the Commodity Futures Trading
Commission.
The Adviser manages the investment and reinvestment of the assets of the Fund
and reviews, supervises and administers all investments. All investment
decisions for the Fund are made by an investment committee of five investment
professionals. In making such decisions, the committee primarily uses a
fundamental analysis approach, supported by extensive quantitative analysis.
The Adviser is also responsible for placing orders for the purchase and sale of
investments directly with brokers or dealers selected by it in its discretion.
See "Portfolio Transactions" in the Statement of Additional Information.
The Adviser receives a monthly fee from the Fund at an annual rate based on .28%
for the first $1 billion of the Fund's average daily net assets and .25% of the
Fund's net assets above $1 billion.
ADMINISTRATOR AND TRANSFER AGENT
Treasury Plus, Inc., a wholly owned subsidiary of the Adviser located at 3200
North Central Avenue, Suite 620, Phoenix, Arizona, 85012, serves as the
Administrator to the Fund pursuant to a management and administration contract
with the Group. The Administrator provides administrative services to the Fund,
including administrative and clerical functions, certain shareholder servicing
functions and supervision of the services rendered to the Fund by other persons.
Investors Fiduciary Trust Company, a Missouri trust company located at 127 West
10th Street, Kansas City, Missouri, 64105, provides accounting, dividend
disbursing and transfer agency services to the Fund pursuant to fund accounting
and transfer agency contracts with the Group.
For providing administrative services to the Group, the Administrator receives a
monthly fee at the annual rate of 0.06% of the daily net assets of the Group.
Investors Fiduciary Trust Company receives fees for fund accounting services and
dividend disbursing and transfer agency services. Certain out-of-pocket
expenses are also reimbursed at actual cost.
DISTRIBUTOR
Shares of the Fund are distributed through Payden & Rygel Distributors, a wholly
owned subsidiary of Payden & Rygel located at the same address. The Distributor
is a broker-dealer registered with the Securities and Exchange Commission and is
a member of the National Association of Securities Dealers.
SHAREHOLDER SERVICE PLAN
The Board of Trustees has adopted a Shareholder Service Plan with respect to
Class B shares of the Fund and of the other portfolios of the Group. Under the
Plan, the Class B shares of
16
the Fund pay the Distributor an annual fee of up to 0.20% of the average net
assets of the Fund attributable to the Class B shares for services provided by
the Distributor, broker-dealers and other service organizations to the
beneficial owners of Class B shares. Such support services include establishing
and maintaining accounts and records relating to clients; assisting clients in
processing purchase, exchange and redemption requests and account designations;
preparing tax reports and forms; forwarding shareholder communications from the
Fund; and responding to client inquiries concerning their investments.
Services provided under the Shareholder Service Plan are not primarily intended
to result in the sale or distribution of Class B Shares of the Fund. The Plan
is a "compensation" plan, which means that the fees paid to the broker-dealers
and other service organizations for services rendered are payable even if the
amounts paid exceed their actual expenses. If in any month the Distributor is
due more fees for shareholder services than are immediately payable because of
the expense limitations under the Plan, the unpaid amount is carried forward
from month to month while the Plan is in effect until such time when it may be
paid. However, no carried forward amount will be payable beyond the fiscal year
in which the amount was incurred, and no interest, carrying or other finance
charge is borne by the Class B Shares with respect to any amount carried
forward.
HOW TO PURCHASE SHARES
Shares of the Fund may be purchased at net asset value without a sales charge.
The minimum initial investment is $5,000, and the minimum subsequent investment
is $1,000. The minimum investment may be waived from time to time by the Group.
An account may be opened by calling the Distributor at (213) 625-1900 or (800)
5-PAYDEN (800/572-9336) and asking for a Fund Representative. The Representative
will answer any questions and provide a Fund Prospectus.
INITIAL INVESTMENT
By Check
- - Complete Application
- - Make check payable to the Fund and mail with application to:
Payden & Rygel Investment Group
333 South Grand Avenue,
Los Angeles, CA 90071
By Federal Funds Wire
- - Complete application and mail to:
Payden & Rygel Investment Group
333 South Grand Avenue,
Los Angeles, CA 90071
17
- - For Market Return 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 Market Return Fund
Account Number 10-122776-000
Note: Shares cannot be purchased until a properly completed application is
received by the Group.
Shares of the Fund are purchased at the net asset value per share next
determined after receipt by the Distributor of an order to purchase shares in
proper form. Purchase orders will be accepted only on days on which the Fund
and the Custodian are open for business, as defined below.
The Fund is "open for business" on each day the New York Stock Exchange is open
for trading, which excludes the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
ADDITIONAL INVESTMENTS
Additional investments may be made at any time (minimum additional investment
$1,000) at net asset value by check or by calling the Distributor and wiring
Federal funds to the Custodian as described above.
OTHER PURCHASE INFORMATION
Purchases of shares will be made in full and fractional shares. Certificates
for shares will not be issued. The Fund reserves the right, in its sole
discretion, to suspend the offering of shares or to reject purchase orders when,
in the judgment of its management, such suspension or rejection is in the best
interest of the Fund; to waive the minimum initial investment for certain
investors; and to redeem shares if information provided in the client
application proves to be incorrect in any material manner.
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
The Group currently consists of ten investment portfolios with varying
investment objectives and policies, and other investment portfolios may be
created by the Board of Trustees in the future. If a shareholder's investment
objective or outlook for the securities markets changes, Fund shares may be
exchanged for Class A or Class B shares of any of the other investment
18
portfolios of the Group which are eligible for sale to the shareholder by the
Distributor or for the other class of shares of the Fund. Exchanges are made on
the basis of the net asset values of the portfolios involved.
Because an exchange is considered a redemption and purchase of shares, the
shareholder may realize a gain or loss for federal income tax purposes.
Information regarding the possible tax consequences of an exchange is included
in the "Dividends, Distributions and Taxes" section of this Prospectus and in
the Statement of Additional Information.
Before making an exchange into another investment portfolio, a shareholder
should obtain and review a current prospectus of the investment portfolio into
which the shareholder wishes to transfer. When exchanging shares into another
investment portfolio, shareholders should be aware that, among other significant
differences, the portfolios may have different dividend payment dates, minimum
initial investments and minimum additional investments. Exchanges will be
effected upon receipt of written instructions signed by all account owners. In
addition, shareholders who complete the telephone privilege authorization
portion of the Account Registration Form may effect exchanges from the Fund into
or an identically registered account in one of the other available portfolios by
a telephone call to the Distributor at (213) 625-1900 or (800) 5-PAYDEN
(800/572-9336).
The Exchange Privilege may be modified or discontinued by the Group at any time
upon 60 days' notice to shareholders. The Group also reserves the right to
limit the number of exchanges a shareholder may make in any year to avoid
excessive Fund expenses. The Exchange Privilege is only available in states
where the exchange may be legally made.
TELEPHONE PRIVILEGE
Shareholders may exchange or redeem shares by telephone if they have elected the
telephone privilege authorization portion of the Account Registration Form.
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement. In this event,
shareholders should follow the other exchange and redemption procedures
discussed in this Prospectus.
Shareholders should realize that, by electing the telephone privilege, they may
be giving up a measure of security that they may have if they were to exchange
or redeem their shares in writing. The Group will employ procedures designed to
provide reasonable assurance that instructions communicated by telephone,
telegraph or wire communication are genuine and, if it does not do so, it may be
liable for any losses due to unauthorized or fraudulent instructions. The
procedures employed by the Group include requiring personal identification by
account number and social security or tax identification number, tape recording
telephone instructions and providing written confirmation of transactions. The
Group reserves the right to refuse a telephone, telegraph or wire communication
exchange or redemption request if it believes, for example, that the person
making the request is neither the record owner of the shares being exchanged or
redeemed nor otherwise authorized by the investor to request the exchange or
redemption. Shareholders will be promptly notified of
19
any refused request for a telephone, telegraph, or wire communication exchange
or redemption. Neither the Group nor its agents will be liable for any loss,
liability or cost which results from acting upon instructions of a person
reasonably believed to be a shareholder with respect to the telephone, telegraph
or wire communication privilege.
REDEMPTION OF SHARES
Fund shares will be redeemed at the net asset value next determined following
receipt of the request in proper form. Redemptions may be made in writing, by
calling the Distributor at (213) 625-1900 or (800) 5-PAYDEN (800/572-9336), by
telegraph or by other wire communication. No charge is made for redemptions.
Shares redeemed may be worth more or less than the purchase price of the shares,
depending on the market value of the investment securities held by the Fund at
the time of redemption.
Redemption requests in writing or by telegraph or other wire communications
should be directed to the Group at 333 South Grand Avenue, Attn.: Fund
Distributor, Los Angeles, California 90071. If the proceeds of a written
request are to be paid to a person other than the record owner of the shares, or
are to be sent to an address other than the address of record, the signature on
the request must be guaranteed by a commercial bank, a trust company or another
eligible guarantor institution. A signature guarantee may be rejected if it is
believed to be not genuine or if there is any reason to believe that the
transaction is improper. Telephone redemptions may be difficult to implement
during periods of drastic economic or market changes, which may result in an
unusually high volume of telephone calls. See "Shareholder Services - Telephone
Privilege."
Payment of the redemption price will ordinarily be wired to the shareholder's
bank or mailed to the shareholder's address of record one business day after
receipt of the request. The Fund may suspend the right of redemption or
postpone the payment date at times when the New York Stock Exchange is closed or
during certain other periods as permitted under the federal securities laws.
NET ASSET VALUE
For each class of shares the net asset value per share of the Fund is determined
as of the close of regular trading on the New York Stock Exchange (currently
4:00 p.m. New York Time) by dividing the difference between the value of the
assets and liabilities of the class by the number of shares of that class
outstanding. The net asset value per share of each class will vary due to
differences in expenses charged to each class and will generally be lower for
Class B shares than for Class A shares. Net asset value will not be determined
on days on which the New York Stock Exchange is closed.
Portfolio securities and other assets for which market quotations are readily
available (other than obligations with remaining maturities of 60 days or less)
are valued at market value.
20
Fixed income securities (other than obligations with remaining maturities of 60
days or less) are normally valued on the basis of quotes obtained from brokers
and dealers or pricing services, which take into account appropriate factors
such as institutional-sized trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data. Certain fixed income securities for which daily market quotations
are not available may be valued, pursuant to guidelines established by the Board
of Trustees, with reference to fixed income securities the prices of which are
more readily obtainable and the durations of which are comparable to the
securities being valued. The Board of Trustees has determined that debt
securities with remaining maturities of 60 days or less will be valued on an
amortized cost basis unless the Adviser determines that such basis does not
represent fair value at the time.
The Fund invests in securities that are traded in certain markets on days or at
times the Fund is not open for business. Accordingly, the Fund's net asset
value may be significantly affected on days or at times when investors cannot
purchase or redeem shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends are generally declared and distributed to shareholders monthly. Class
B dividends will normally be lower than Class A dividends. Any net realized
capital gains from the sale of portfolio securities will be distributed no less
frequently than once a year. Dividend and capital gain distributions of the
Fund will be paid in the form of additional shares of the Fund at the net asset
value on the ex-dividend date unless the shareholder elects to have them paid in
cash by completing an appropriate request form.
The Fund has elected and intends to qualify annually to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, the Fund will not be subject
to federal income tax on its investment company taxable income (which includes
taxable interest and net short-term capital gains in excess of any net long-term
capital losses) and net capital gain (net long-term capital gains in excess of
the sum of net short-term capital losses and unexpired capital loss carryovers),
if any, that it distributes to shareholders, provided it distributes each
taxable year at least 90% of its investment company taxable income, including
its net interest income excludable from gross income under section 103(a) of the
Code. The Fund intends to distribute to its shareholders, at least annually,
substantially all such amounts.
Unlike most equity funds in which much of an investor's return will typically
come from long term capital gains, most income expected to be earned by the Fund
will be short term income, taxable at ordinary income tax rates. The Fund does
not expect to earn any significant amount of long term capital gains. Due to
the tax disadvantage of short term income over long term gains, taxable
investors may not deem the Fund to be as advantageous as other equity funds
after consideration of tax effects. Taxable investors are advised to consult an
income tax adviser prior to investing in the Fund.
21
Any dividends or distributions paid shortly after a purchase by an investor will
have the effect of reducing the per share net asset value of the investor's
shares by the per share amount of the dividends or distributions. Accordingly,
prior to purchasing shares of the Fund, an investor should carefully consider
the impact of the dividends or capital gains distributions which are expected to
be or have been announced.
Distributions may be subject to additional state and local taxes, depending on
each shareholder's particular situation. Shareholders should consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in the Fund. For further discussion of these matters, please see the
Statement of Additional Information.
OTHER INFORMATION
CAPITALIZATION
The Group was organized as a Massachusetts business trust on January 22, 1992.
Its Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of shares of beneficial interest in the Group, and to classify or
reclassify any unissued shares into one or more series or classes of shares.
Pursuant to such authority, the Board of Trustees has authorized the issuance of
nine series of shares, which are sold through separate prospectuses. Each series
of shares has two classes, Class A and Class B. The Board of Trustees may
establish additional series or classes of shares in the future.
As of April 19, 1996, Joan A. Payden held 42.6% of the outstanding shares of the
Fund.
VOTING
Shareholders have the right to vote in the election of Trustees and on any and
all matters on which they may be entitled to vote by law or the provisions of
the Declaration of Trust. Shares entitle their holders to one vote per share
(with proportionate voting for fractional shares). Shareholders will vote in
the aggregate and not by series or class except as otherwise required by law or
when the Board of Trustees of the Group determines that a matter to be voted on
affects only the interest of a particular series or class. Voting rights are
not cumulative, and accordingly the holders of more than 50% of the shares of
the Group may elect all of the Trustees. The Group is not required to hold
regular annual meetings of shareholders and does not intend to do so except when
required by law. The Declaration of Trust provides that the holders of not less
than two-thirds of the outstanding shares of the Group may remove a person
serving as Trustee at a shareholder meeting called by written request of the
holders of not less than 10% of the outstanding shares of any series.
PERFORMANCE INFORMATION
The Group may, from time to time, include the yield and total return for shares
in advertisements or reports to shareholders or prospective investors. Yield
and total return are
22
calculated separately for Class A and Class B shares. Quotations of yield will
be based on annualizing the net investment income per share during a particular
30-day (or one month) period. Quotations of average annual total return will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over specified periods.
Any performance information, whether related to the Fund or to the Adviser,
should be considered in light of the Fund's investment objective and policies,
the characteristics and quality of its portfolio and the market conditions
during the time period indicated and should not be considered to be
representative of future results. For a description of the methods used to
determine yield and total return for the Fund, please see the Statement of
Additional Information.
OFFERING
No dealer, sales representative or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations may not be relied upon as having
been authorized by the Group or the Distributor. This Prospectus does not
constitute an offer by the Group or the Distributor to sell, or a solicitation
of an offer to buy, any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
23
Investment Adviser
Payden & Rygel
333 South Grand Avenue,
Los Angeles, California 90071
Distributor
Payden & Rygel Distributors
333 South Grand Avenue,
Los Angeles, California 90071
Administrator
Treasury Plus, Inc.
3200 North Central Avenue, Suite 620
Phoenix, AZ 85012
Custodian
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
May 2, 1996
24
PAYDEN & RYGEL INVESTMENT GROUP
PAYDEN & RYGEL MARKET RETURN FUND
STATEMENT OF ADDITIONAL INFORMATION
May 2, 1996
The Payden & Rygel Market Return Fund (the "Fund") is a series of the Payden &
Rygel Investment Group (the "Group"), a no-load, open-end management investment
company.
This Statement of Additional Information is not a Prospectus, and should be used
in conjunction with the Prospectus for the Fund dated May 2, 1996 which is
incorporated herein by reference. A copy of the Prospectus may be obtained free
of charge from the Group at 333 South Grand Avenue, Los Angeles, California
90071 (or by telephone at (213) 625-1900 or (800) 5-PAYDEN (800/572-9336).
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES ...................... 2
FUNDAMENTAL AND OPERATING POLICIES ......................19
PORTFOLIO TRANSACTIONS ..................................22
VALUATION OF PORTFOLIO SECURITIES .......................23
FUND PERFORMANCE ........................................24
TAXATION ................................................25
MANAGEMENT OF THE GROUP .................................30
PURCHASES AND REDEMPTIONS ...............................36
OTHER INFORMATION .......................................36
APPENDIX A - DESCRIPTION OF SECURITIES RATINGS...........40
APPENDIX B - FINANCIAL INFORMATION.......................45
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of the Fund are
described in the Prospectus. Additional information concerning the
characteristics of certain of the Fund's investments is set forth below.
FIXED INCOME SECURITIES
Securities in which the Fund may invest include but are not limited to those
described below.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt securities issued by the U.S. Treasury.
They are direct obligations of the U.S. Government and differ mainly in the
lengths of their maturities.
U.S. GOVERNMENT AGENCY SECURITIES
U.S. Government Agency securities are issued or guaranteed by U.S. Government
sponsored enterprises and federal agencies. These include securities issued by
the Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Bank, and the Tennessee Valley Authority.
Some of these securities are supported by the full faith and credit of the U.S.
Treasury, and others only by the credit of the instrumentality, which may
include the right of the issuer to borrow from the Treasury.
BANK OBLIGATIONS
Bank obligations include certificates of deposit, bankers' acceptances, and
other debt obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction.
The Fund will not invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, (ii) in the case of U.S. banks, the bank is a member of the Federal
Deposit Insurance Corporation, and (iii) in the case of foreign banks, the
security is, in the opinion of Payden & Rygel, of an investment quality
comparable with other debt securities which may be purchased by the Fund. These
limitations do not prohibit investments in securities issued by foreign branches
of U.S. banks, provided such U.S. banks meet the foregoing requirements.
CORPORATE DEBT SECURITIES
Investments in U.S. dollar denominated securities of domestic or foreign issuers
are limited to corporate debt securities (corporate bonds, debentures, notes and
other similar corporate debt instruments) which meet the minimum rating criteria
set forth in the Prospectus.
The Adviser will undertake several measures in seeking to preserve investors'
principal:
- First, the debt securities in which the 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 established rating agencies, or if not rated, will be
determined to be of comparable quality by the Adviser.
- Second, the Adviser will actively manage the maturity of the
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, the Fund will seek to shorten its portfolio's
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 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
the Fund's 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.
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 Fund 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.
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 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. The 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. 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 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 Fund may purchase asset-backed securities including, but not limited to,
Certificates for Automobile Receivablessm ("CARSsm") and credit card receivable
securities. CARSsm 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, CARSsm 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 CARSsm, 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.
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. The Fund will invest in foreign
government obligations rated in one of the two highest rating categories by an
established rating agency (e.g., rated AAA or AA by Standard & Poor's
Corporation). These obligations will be denominated in U.S. dollars.
FLOATING RATE AND VARIABLE RATE DEMAND NOTES
The Fund may purchase floating rate and variable rate demand notes and bonds.
These securities may have a stated maturity in excess of one year, but permit a
holder to demand payment of principal plus accrued interest upon a specified
number of days notice. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. The issuer has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal of the obligation plus accrued interest upon a specific
number of days notice to the holders. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank's prime rate,
and is reset whenever such rate is adjusted. The interest rate on a variable
rate demand note is reset at specified intervals at a market rate.
The Fund will limit its purchase of securities that bear floating rates and
variable rates of interest to those meeting the rating quality standards set
forth in the Prospectus. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. The quality of
the underlying creditor or of the bank, as the case may be, must, as determined
by the Adviser under the supervision of the Board of Trustees, also be
equivalent to the quality standards set forth above. In addition, the Adviser
monitors the earning power, cash flow and other liquidity ratios of the issuers
of such obligations, as well as the creditworthiness of the institution
responsible for paying the principal amount of the obligations under the demand
feature.
OBLIGATIONS WITH PUTS ATTACHED
The 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 the 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, the Fund may enter into repurchase
agreements (agreements to purchase U.S. Treasury notes and bills, subject to the
seller's agreement to repurchase them at a specified time and price) with well-
established registered securities dealers or banks. Repurchase agreements are
the economic equivalent of loans by the Fund. In the event of a bankruptcy or
default of any registered dealer or bank, the Fund could experience costs and
delays in liquidating the underlying securities which are held as collateral,
and the Fund might incur a loss if the value of the collateral declines during
this period.
DELAYED DELIVERY TRANSACTIONS
When delayed delivery purchases are outstanding, the 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, the
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 the 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, the Fund could miss a favorable price or yield opportunity or
could suffer a loss. The Fund will not invest more than 25% of its total assets
in when-issued and delayed delivery transactions.
ILLIQUID SECURITIES
The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Adviser will monitor the amount of
illiquid securities in the Fund's portfolio, to ensure compliance with the
Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and the Fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption requests within seven days. The Fund might also have to register
such restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public
offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Board of Trustees may determine that such securities are not illiquid
securities notwithstanding their legal or contractual restrictions on resale.
In all other cases, however, securities subject to restrictions on resale will
be deemed illiquid.
OPTIONS AND FUTURES CONTRACTS
The Fund may purchase and sell ("write") both put options and call options on
securities and securities indices, enter into interest rate and index futures
contracts, and purchase and sell futures contracts and options on such futures
contracts ("futures options"). If other types of broad market options, futures
contracts, or futures options are traded in the future, the Fund may also use
those instruments, provided the Board of Trustees determines that their use is
consistent with the Fund's investment objectives, and their use is consistent
with restrictions applicable to options and futures contracts currently eligible
for use by the Fund.
OPTIONS ON SECURITIES OR INDICES
The Fund may purchase and write options on securities and indices. An index is
a statistical measure designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators such as the Lehman Brothers
Government/Corporate Index.
An option on a security (or an index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a call)
or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the underlying index) at a specified
exercise price at any time during the term of the option (in the case of
"American Style" options) or at the expiration of the option (in the case of
"European Style" options). The writer of a call or put option on a security is
obligated upon exercise of the option to deliver the underlying security upon
payment of the exercise price or to pay the exercise price upon delivery of the
underlying security, as the case may be. The writer of an option on an index is
obligated upon exercise of the option to pay the difference between the cash
value of the index and the exercise price multiplied by a specified multiplier
for the index option.
The Fund will write call options and put options only if they are "covered." In
the case of a call option on a security, the option is covered if the Fund owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount are
placed in a segregated account with the Fund's Custodian) upon conversion or
exchange of other securities held by the Fund. A call option on an index is
covered if the Fund maintains with its Custodian cash or 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 the Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (i.e., of the
type, traded on the same exchange, with respect to the same underlying security
or index, and with the same exercise price and expiration date). The Fund will
realize a capital gain from a closing purchase transaction if the cost of the
closing option is less than the premium received from writing the option; if it
is more, the Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase the option,
the Fund will realize a capital gain; if it is less, the Fund will realize a
capital loss. The principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current market price
of the underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
The premium paid for a put or call option purchased by the Fund is an asset of
the Fund. The premium received for an option written by the Fund is recorded as
a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDICES
Several risks are associated with transactions in options on securities and
indices. For example, significant differences between the securities and
options markets could result in an imperfect correlation between those markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. Among the possible reasons for the absence of a
liquid secondary market on an exchange are: (i) insufficient trading interest
in certain options; (ii) restrictions on transactions imposed by an exchange;
(iii) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations of an exchange; (v) inadequacy of the
facilities of an exchange or the Options Clearing Corporation to handle current
trading volume; or (vi) a decision by an exchange to discontinue the trading of
options or a particular class or series of options (in which event the secondary
market on that exchange or in that class or series of options could cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms). If the
Fund were unable to close out an option that it had purchased on a security, it
would have to exercise the option in order to realize any profit. If the Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased by the Fund, the Fund would not
be able to close out the option. If restrictions on exercise were imposed, the
Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
COMBONATIONS OF OPTIONS
As indicated in the Prospectus, the Fund may employ certain combinations of put
and call options. A "straddle" involves the purchase of a put and call option
on the same security with the same exercise prices and expiration dates. A
"strangle" involves the purchase of a put option and a call option on the same
security with the same expiration dates but different exercise prices. A
"collar" involves the purchase of a put option and the sale of a call option on
the same security with the same expiration dates but different exercise prices.
A "spread" involves the sale of a put option and the purchase of a call option
on the same security with the same or different expiration dates and different
exercise prices.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may use interest rate or index futures contracts, as specified in the
Prospectus. An interest rate contract provides for the future sale by one party
and purchase by another party of a specified quantity of a financial instrument
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 S&P 500 Index, S&P 400 Index and the
Russell 2000 Index. Other futures contracts are likely to be developed and
traded in the future. The Fund will only enter into futures contracts and
futures options which are standardized and traded on a U.S. or foreign exchange,
board of trade, or similar entity, or quoted on an automated quotation system.
The Fund may also purchase and write call and put options on futures contracts.
Futures options possess many of the same characteristics as options on
securities and indices. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true.
In addition to the use of equity futures contracts, the Fund may use futures
contracts to hedge against anticipated changes in interest rates that might
adversely affect either the value of the Fund's fixed-income securities or the
price of the fixed-income securities which the Fund intends to purchase. The
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 the Fund's
exposure to interest rate fluctuations, the 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 the Fund, the Fund is
required to deposit with its Custodian (or futures commission merchant, if
legally permitted) a specified amount of cash or U.S. Government securities
("initial margin"). The margin required for a futures contract is set by the
exchange on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its initial margin
deposits. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market."
Variation margin does not represent a borrowing or loan by the Fund but is
instead a settlement between the Fund and the futures commission merchant of the
amount one would owe the other if the futures contract expired. In computing
daily net asset value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to put and
call options on futures contracts written by it. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(contracts traded on the same exchange, on the same underlying security or
index, and with the same delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital gain; if it is
more, the Fund realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund realizes a capital gain; if
it is less, the Fund realizes a capital loss. The transaction costs must also
be included in these calculations.
LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS
The Fund will not enter into a futures contract or futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. A call option is "in-the-money" if the value of the
futures contract that is the subject of the option exceeds the exercise price.
A put option is "in-the-money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.
When purchasing a futures contract, the Fund will maintain with its Custodian
(and mark to market on a daily basis) cash, U.S. Government securities, or other
highly liquid debt securities that, when added to the amounts deposited with a
futures commission merchant as margin, are equal to the net amount of its
obligations under the futures contract. Alternatively, the Fund may "cover" its
position by purchasing a put option on the same futures contract with a strike
price as high or higher than the price of the contract held by the Fund.
When selling a futures contract, the Fund will maintain with its Custodian (and
mark to market on a daily basis) liquid assets that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the net
amount of its obligations under the contract. Alternatively, the Fund may
"cover" its position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's Custodian).
When selling a call option on a futures contract, the Fund will maintain with
its custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other 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,
the Fund may cover its position by entering into a long position in the same
futures contract at a price no higher than the strike price of the call option,
by owning the instruments underlying the futures contract, or by holding a
separate call option permitting the Fund to purchase the same futures contract
at a price not higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, the Fund will maintain with its
custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other highly liquid debt securities that equal the purchase price
of the futures contract, less any margin on deposit. Alternatively, the Fund
may cover the position either by entering into a short position in the same
futures contract, or by owning a separate put option permitting it to sell the
same futures contract so long as the strike price of the purchased put option is
the same or higher than the strike price of the put option sold by the Fund.
In order to comply with applicable regulations of the Commodity Futures Trading
Commission ("CFTC") for exemption from the definition of a "commodity pool," the
Fund is limited in its futures trading activities to: (1) positions which
constitute "bona fide hedging" positions within the meaning and intent of
applicable CFTC rules, and (2) other positions for the establishment of which
the aggregate initial margin and premiums (less the amount by which such options
are "in-the-money") do not exceed 5% of the Fund's net assets (after taking into
account unrealized gains and unrealized losses on any contracts it has entered
into).
The requirements for qualification as a regulated investment company also may
limit the extent to which the Funds may enter into futures, futures options or
forward contracts. See "Taxation."
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS
There are several risks associated with the use of futures on equity indexes and
the use of futures contracts and futures options. A purchase or sale of a
futures contract may result in losses in excess of the amount invested in the
futures contract. There can be no guarantee that there will be a correlation
between price movements in a futures contract or option and in the equity market
or fixed income securities. In addition, there are significant differences
between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on circumstances
such as variations in speculative market demand for futures and futures options
on securities, including technical influences in futures trading and futures
options, and differences between financial instruments 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 purchase futures contracts or options involves
the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses, because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time when the
Fund seeks to close out a futures contract or a futures option position, in
which event the Fund would remain obligated to meet margin requirements until
the position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures contracts or options, the Fund could experience delays
and losses in liquidating open positions purchased or sold through the broker,
and incur a loss of all or part of its margin deposits with the broker.
DEALER OPTIONS
The Funds may engage in transactions involving dealer options on securities or
indices as well as exchange-traded options. Certain risks are specific to
dealer options. While the Fund would look to a clearing corporation to exercise
exchange-traded options, if a Fund were to purchase a dealer option it would
rely on the dealer from whom it purchased the option to perform if the option
were exercised. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, the Fund may generally be able to realize the
value of a dealer option it has purchased only by exercising or reselling the
option to the dealer who issued it. Similarly, when the Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to whom the Fund originally wrote the option. While the Fund will seek to enter
into dealer options only with dealers which will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that the Fund will be able to liquidate a dealer option at a
favorable price at any time prior to expiration. Unless the Fund, as a covered
dealer call option writer, is able to effect a closing purchase transaction, it
will not be able to liquidate securities (or other assets) used as cover until
the option expires or is exercised. In the event of insolvency of the other
party, the Fund may be unable to liquidate a dealer option. With respect to
options written by the Fund, the inability to enter into a closing transaction
may result in material losses to the Fund. For example, since the Fund must
maintain a secured position with respect to any call option on security it
writes, the Fund may not sell the assets which it has segregated to secure the
position while it is obligated under the option. This requirement may impair
the Fund's ability to sell portfolio securities at a time when such sale might
be advantageous.
The staff of the Securities and Exchange Commission has taken the position that
many purchased dealer options and the assets used to secure written dealer
options are illiquid securities. The Fund may treat the cover used for these
written dealer options as liquid if the dealer agrees that the Fund may
repurchase the dealer option it has written for a maximum price to be calculated
by a predetermined formula. In such cases, the dealer option would be
considered illiquid only to the extent the maximum purchase price under the
formula exceeds the intrinsic value of the option. Accordingly, the Funds will
treat certain dealer options as subject to the Funds' limitation on illiquid
securities. If the Securities and Exchange Commission changes its position on
the liquidity of dealer options on securities, currencies or indices, the Funds
will change their treatment of such instruments accordingly.
BORROWING
The Fund may borrow for temporary, extraordinary or emergency purposes, or for
the clearance of transactions. The Investment Company Act of 1940 (the "1940
Act") requires each Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300%
of the amount borrowed. If the 300% asset coverage should decline as a result
of market fluctuations or other reasons, the Fund may be required to sell some
of its portfolio holdings within three days to reduce the debt and restore the
300% asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. To avoid the potential leveraging
effects of the Fund's borrowings, additional investments will not be made while
borrowings are in excess of 5% of the Fund's total assets. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. The Fund also may be required to maintain minimum
average balances in connection with any such borrowings or to pay a commitment
or other fee to maintain a line of credit, either of which would increase the
cost of borrowing over the stated interest rate.
RISKS OF FOREIGN INVESTING
There are special risks in investing in any foreign securities in addition to
those relating to investments in U.S. securities.
POLITICAL AND ECONOMIC FACTORS
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource self-
sufficiency, diversification and balance of payments position. The internal
politics of certain foreign countries may not be as stable as those of the
United States.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities 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.
MARKET CHARACTERISTICS
The Trust expects that most foreign securities in which the Fund invests will be
actively traded in the United States at the time they are purchased. However,
on occasion they may be purchased in over-the-counter markets 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 Fund's 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.
The value of the Fund's portfolio positions may also be adversely impacted by
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States.
LEGAL AND REGULATORY MATTERS
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available to
issuers, than is available in the United States.
TAXES
The interest payable on certain of the Fund's foreign portfolio securities may
be subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to the Fund's shareholders. A shareholder otherwise
subject to United States federal income taxes may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his proportionate share of such foreign taxes paid by the Fund.
The Fund intends to sell such bonds prior to the interest payment date in order
to avoid withholding.
COSTS
The expense ratios of the Fund (before reimbursement by the Adviser pursuant to
the expense limitation described in the Prospectus under "Management of the
Funds - Expense Guarantee") is likely to be higher than those of investment
companies investing in domestic securities, since the cost of maintaining the
custody of foreign securities is higher.
THE CALCULATION OF DURATION
One common measure of the price volatility of a fixed income security is
duration, a weighted average term-to-maturity of the present value of a
security's cash flows. As it is a weighted term-to-maturity, duration is
generally measured in years and can vary from zero to the time-to-maturity of
the security. Duration is a complex formula that utilizes each cash flow and the
market yield of the security. Bonds of the same maturity can have different
durations if they have different coupon rates or yields.
For securities which pay periodic coupons and have a relatively short maturity,
duration tends to approximate the time to maturity. As the maturity of the bond
extends, the duration also extends but at a slower rate. For example, the
duration of a 2-year security can be about 1.8 years; the duration of a 30-year
bond will be roughly 10 to 11 years. However, the duration of any security that
pays interest only at maturity is the time to maturity. Thus a 30-year zero
coupon bond has a duration of 30 years.
If the duration of the security is divided by the sum of one plus its yield, the
resultant number is called the modified duration of the security. Modified
duration is important to portfolio managers as it is used to determine the
sensitivity of the security to changes in interest rates. For small changes in
yield, the price of a security, as a percentage of its initial price, will move
inversely to the yield change by an amount equal to the modified duration times
the yield change. The market price of a security with a modified duration of
ten years will change twice as much as a security with a with a five year
duration.
Modified duration is a much better indicator of price volatility than time to
maturity. For example, the times to maturity for a 30 year bond and a 30 year
zero coupon security are both 30 years. A portfolio manager using average
maturity to judge price volatility would expect to see no difference in
portfolio impact from these two securities (given equal yield). However, the
zero coupon bond will experience a percentage price change roughly three times
greater than the 30 year bond. The impact on a portfolio is so vastly different
that average maturity is no longer used as a portfolio management tool, but has
been replaced by duration.
FUNDAMENTAL AND OPERATING POLICIES
The Fund has adopted the investment restrictions described below. Fundamental
policies of the Fund may not be changed without the approval of the lesser of
(1) 67% of the Fund's shares present at a meeting of shareholders if the
holders of more than 50% of the outstanding shares are present in person or by
proxy or (2) more than 50% of the Fund's outstanding shares. Operating
policies are subject to change by the Board of Trustees without shareholder
approval. Any investment restriction which involves a maximum percentage of
securities or assets will not be considered to be violated unless an excess
occurs immediately after, and is caused by, an acquisition of securities or
assets of, or borrowings by, the Fund.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, the Fund may not:
(1) Borrowing. Borrow money, except as a temporary measure for extraordinary
or emergency purposes or for the clearance of transactions, and then only in
amounts not exceeding 30% of its total assets valued at market (for this
purpose, reverse repurchase agreements, equity and reverse equity swap
transactions and delayed delivery transactions covered by segregated accounts
are not considered to be borrowings). As an operating policy, the Fund will
not borrow amounts exceeding 33% of total assets valued at market (including
reverse repurchase agreements and delayed delivery transactions).
(2) Commodities. Purchase or sell commodities or commodity contracts, except
that the Fund may enter into equity and financial futures contracts and
options on such futures contracts.
(3) Loans. Make loans, except that the Fund may (i) purchase money market
securities and enter into repurchase agreements, and (ii) acquire bonds,
debentures, notes and other debt securities.
(4) Margin. Purchase securities on margin, except that the Fund may (i) use
short-term credit necessary for clearance of purchases of portfolio
securities, and (ii) make margin deposits in connection with futures contracts
and options on futures contracts.
(5) Mortgaging. Mortgage, pledge, hypothecate or in any manner transfer any
security owned by a Fund as security for indebtedness, except as may be
necessary in connection with permissible borrowings and then only in amounts not
exceeding 30% of the Fund's total assets valued at market at the time of the
borrowing. This restriction shall not prohibit the Fund from engaging in
options, futures and foreign currency transactions.
(6) Assets Invested in Any Issuer. Purchase a security if, as a result, with
respect to 50% of the value of the Fund's total assets, more than 5% of the
value of its total assets would be invested in the securities of any one issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities).
(7) Share Ownership of Any Issuer. Purchase a security if, as a result, with
respect to 50% of the value of the 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.
(9) Short Sales. Effect short sales of securities.
(10) Underwriting. Underwrite securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment program.
(11) Senior Securities. Issue senior securities, except that the Fund may
borrow money as permitted by restriction (1) above. This restriction shall not
prohibit the Fund from engaging in options, futures, and foreign currency
transactions.
(12) Concentration. Invest 25% or more of the market value of its total assets
in the securities of issuers in any one particular industry. This restriction
shall not prohibit the Fund from investing in securities of the U.S. Government
or its agencies or instrumentalities, or engaging in options, futures, swaps and
foreign currency transactions.
OPERATING POLICIES
As a matter of operating policy, the Fund may not:
(1) Control of Portfolio Companies. Invest in companies for the purpose of
exercising management or control.
(2) Illiquid Securities. Purchase a security if, as a result of such purchase,
more than 15% of the value of the Fund's net assets would be invested in
illiquid securities or other securities that are not readily marketable,
including repurchase agreements which do not provide for payment within seven
days. For this purpose, restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 may be determined to be liquid.
(3) Investment Companies. Purchase securities of open-end or closed-end
investment companies except in compliance with the 1940 Act.
(4) Oil and Gas Programs. Purchase participations or other direct interests in
oil, gas, or other mineral exploration or development programs or leases.
(5) Options. Invest in puts, calls, or any combination thereof, except that the
Fund may invest in or commit its assets to purchasing and selling call and put
options to the extent permitted by the Prospectus and Statement of Additional
Information.
(6) Ownership of Portfolio Securities by Officers and Directors. Purchase or
retain the securities of any issuer if any officers and Trustees of the Group
and of the Adviser who own beneficially more than 0.5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities.
(7) Unseasoned Issuers. Purchase a security (other than obligations issued or
guaranteed by the U.S. Government or any foreign government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the Fund's
total assets would be invested in the securities of issuers which at the time of
purchase had been in operation for less than three years (for this purpose, the
period of operation of any issuer will include the period of operation of any
predecessor or unconditional guarantor of such security).
STATE UNDERTAKINGS
In order to permit the sale of shares of the Fund in certain states, the Board
of Trustees may adopt restrictions on investment policies more restrictive than
those described above. Should the Trustees determine that any such more
restrictive policy is no longer in the best interests of the Fund or its
shareholders, the Trustees may revoke such policy and the Trust may cease
offering shares of the Fund in the state involved. Moreover, if the state
involved no longer requires any such restrictive policy, the Trustees may revoke
it.
The Group has undertaken to the Ohio Department of Commerce that (i) the Fund
will not invest more than 15% of its total assets in the securities of issuers
which together with any predecessors have a record of less than three years
continuous operation or securities of issuers which are restricted as to
disposition (including without limitation securities issued pursuant to rule
144A under the Securities Act of 1933), and (ii) the Fund will not invest any
assets in the securities of other investment companies except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
the purchase other than the customary broker's commission, or except when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
The Group has undertaken to the Arkansas Securities Department that (i) as a
matter of operating policy, the Fund will not invest more than 10% of its total
assets in the securities of issuers which it is restricted from selling to the
public without registration, other than restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, and (ii) except
for hedging purposes, the Fund will invest no more than 5% of its total assets
in premiums on securities options, including without limitation puts, calls,
straddles, spreads and any combination thereof.
PORTFOLIO TRANSACTIONS
There is generally no stated commission in the case of fixed-income securities,
which are traded in the over-the-counter markets, but the price paid by the Fund
usually includes an undisclosed dealer commission or mark-up. In underwritten
offerings, the price paid by a Fund includes a disclosed, fixed commission or
discount retained by the underwriter or dealer. Agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities involve commissions which are
generally higher than those in the United States.
The Adviser places all orders for the purchase and sale of portfolio securities,
options on securities and futures contracts and options on futures contracts for
the Fund and buys and sells such securities, futures and options for the Fund
through a substantial number of brokers and dealers. In so doing, the Adviser
seeks the best execution available. In seeking the most favorable execution,
the Adviser considers all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-dealer involved and the quality of service rendered by
the broker-dealer in other transactions.
Some securities considered for investment by the Fund's portfolio may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of the Fund is considered at
or about the same time as a similar transaction for one or more other clients
served by the Adviser, transactions in such securities will be allocated among
the Fund and other clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Board of
Trustees.
The Adviser manages the Fund without regard generally to restrictions on
portfolio turnover, except those imposed on its ability to engage in short-term
trading by provisions of the federal tax laws (see "Taxation"). 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 Fund
generally will be. The turnover rate of the Fund is calculated by dividing (a)
the lesser of purchases or sales of portfolio securities for a particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the fiscal year. In calculating the rate of portfolio
turnover, all securities, including options, whose maturities or expiration
dates at the time of acquisition were one year or less, are excluded. Swap
transactions do not affect the calculation of portfolio turnover.
The Board of Trustees will periodically review the Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund.
VALUATION OF PORTFOLIO SECURITIES
Debt securities are valued on the basis of valuations furnished by a pricing
service which utilizes both dealer-supplied valuations and electronic data
processing techniques. Such techniques take into account appropriate factors
such as institutional-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data, without exclusive reliance upon quoted prices or exchange or over-
the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities.
Short-term obligations that mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Futures and options contracts will be valued using the closing price from the
exchange on which they are traded. All other securities and other assets are
appraised at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the Board
of Trustees.
Generally, trading in U.S. corporate bonds, U.S. government securities, money
market instruments and repurchase agreements, is substantially completed each
day at various times prior to the close of regular trading on the New York Stock
Exchange. The values of any such securities held by the Fund are determined as
of such times for the purpose of computing the Fund's net asset value. If an
extraordinary event that is expected to affect the value of a portfolio security
materially occurs after the close of an exchange on which that security is
traded, then the security will be valued at fair value as determined in good
faith under procedures established by and under the general supervision of the
Board of Trustees.
FUND PERFORMANCE
The Fund may quote its performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's share price, yield and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
Performance information for the Fund may be compared to various unmanaged
indices (such as the S&P 500 Index) or indices prepared by Lipper Analytical
Services and other entities or organizations which track the performance of
investment companies or investment advisers. Comparisons may also be made to
indices or data in publications such as The Bond Buyer, Forbes, Barron's, The
Wall Street Journal, The New York Times, and Business Week. Unmanaged indices
generally do not reflect deductions for administrative and management costs and
expenses. Payden & Rygel may also report to shareholders or to the public in
advertisements concerning the performance of Payden & Rygel as adviser to
clients other than the Fund, and on the comparative performance or standing of
Payden & Rygel in relation to other money managers. Such comparative
information may be compiled or provided by independent rating services or other
organizations.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising with respect to a class of shares of the
Fund reflect all aspects of a Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the net asset value
per share over the period. Average annual total returns for each class are
calculated by determining the growth or decline in value of a hypothetical
historical investment in that class of shares of the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would result from an average annual total return of 7.18%, which is the
steady annual total return that would equal 100% growth on a compounded basis in
ten years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that the Fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns for each class of shares reflecting the simple change
in value of an investment over a stated period of time. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken down
into their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors and
their contributions to total return. Total returns, yields and other
performance information maybe quoted numerically, or in a table, graph or
similar illustration.
TAXATION
The Fund intends to qualify annually and has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, the Fund must,
among other things, (a) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income Test"); (b) derive in each taxable
year less than 30% of its gross income from the sale or other disposition of
certain assets held less than three months, namely (1) stocks or securities, (2)
options, futures, or forward contracts (other than those on foreign currencies),
and (3) foreign currencies (or options, futures, and forward contracts on
foreign currencies) not directly related to its business of investing in stocks
or securities (the "Short-Short Test"); (c) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of a Fund's assets is represented by cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of a Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies) (the "Diversification Test"); and (d) distribute
at least 90% of its investment company taxable income (which includes dividends,
interest and net short-term capital gains in excess of any net long-term capital
losses) each taxable year.
The ability of the Fund to satisfy the requirements of the Qualifying Income
Test, the Short-Short Test and the Diversification Test may depend on the manner
in which the Fund's swap transactions are classified, the characterization of
the income derived from such transactions, and the identity of the issuers of
the swap agreements. While the Fund believes that its gross income (including
any income from swap transactions) and assets (including any swap agreements)
should satisfy these Tests, no definitive guidance currently exists with respect
to the treatment under the Code of swap transactions by regulated investment
companies. Development of such guidance in the future by the Internal Revenue
Service could require changes in the operations of the Fund. In addition, if
for any reason the Fund were not to qualify as a regulated investment company,
it would become taxable on its income, which would adversely impact its total
return to shareholders.
As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (any
net long-term capital gains in excess of the sum of net short-term capital
losses and capital loss carryovers from the prior seven years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders. The
Fund intends to distribute to its shareholders substantially all of its
investment company taxable income monthly and any net capital gains annually.
In addition, amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, the Fund must distribute during each calendar
year an amount at least equal to the sum of (1) 98% of its ordinary income (with
adjustments) for the calendar year and foreign currency gains or losses for the
twelve month period ending on October 31 of the calendar year, (2) at least 98%
of its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. A distribution will be treated as
paid on December 31 of the calendar year if it is declared by the Fund in
October, November, or December of that year to shareholders of record on a date
in such a month and paid by the Fund during January of the following year. Such
distributions will be taxable to shareholders (other than those not subject to
federal income tax) in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To avoid application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
DISTRIBUTIONS
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions received by
tax-exempt shareholders will not be subject to federal income tax to the extent
permitted under the applicable tax exemption.
Dividends paid by the Fund generally are not expected to qualify for the
deduction for dividends received by corporations. Distributions of net capital
gains, if any, are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares and are not eligible for the
dividends received deduction. The tax treatment of dividends and distributions
will be the same whether a shareholder reinvests them in additional shares or
elects to receive them in cash.
OPTIONS, FUTURES AND FORWARD TRANSACTIONS
Many of the futures contracts, options on futures contracts and forward
contracts used by the Fund are "section 1256 contracts." Any gains or losses on
section 1256 contracts are generally considered 60% long-term and 40% short-term
capital gains or losses ("60/40"). Also, section 1256 contracts held by the
Fund at the end of each taxable year (and, for purposes of the 4% excise tax, on
certain other dates as prescribed under the Code) are "marked to market" with
the result that unrealized gains or losses are treated as though they were
realized and the resulting gain or loss is treated as ordinary or 60/40 gain or
loss, depending on the circumstances.
Certain transactions in futures, options, and forward contracts undertaken by
the Fund, may result in "straddles" for U.S. federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by the
Fund. In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the investment company taxable income or net capital gain
for the taxable year in which such losses are realized. Because only a few
regulations implementing the straddle rules have been promulgated, the tax
consequences of transactions in options, futures and forward contracts to the
Fund are not entirely clear. The transactions may increase the amount of short-
term capital gain realized by the Fund which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
The 30% limit on gains from the disposition of certain futures, options and
forward contracts held less than three months and the qualifying income and
diversification requirements applicable to the Fund's assets may limit the
extent to which the Fund will be able to engage in transactions in options,
futures contracts or forward contracts.
CERTAIN DEBT SECURITIES
Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by the Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by the Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. The
Fund may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some of the debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by the Fund may be treated as having
an acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
The Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
SALES OF SHARES
Upon disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed by "wash sale" rules to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending 30 days
after the disposition. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
a disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
BACKUP WITHHOLDING
The Fund may be required to withhold for U.S. federal income taxes 31% of all
taxable distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that they are subject
to backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal tax liability.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. In
addition, the Adviser intends to manage the Fund with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to elect to "pass-through" to the Fund's shareholders the amount of
foreign income and similar taxes paid by the Fund. If this election is made, a
shareholder generally subject to tax will be required to include in gross income
(in addition to taxable dividends actually received) his pro rata share of the
foreign income taxes paid by the Fund, and may be entitled either to deduct (as
an itemized deduction) his or her pro rata share of foreign taxes in computing
his taxable income or to use it (subject to limitations) as a foreign tax credit
against his or her U.S. federal income tax liability. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Each
shareholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass-through" for
that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income will flow through to shareholders of the Fund.
With respect to such election, gains from the sale of securities will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income, and to certain other types
of income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign
tax credit is modified for purposes of the Federal alternative minimum tax and
can be used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible in
computing alternative minimum taxable income.
OTHER TAXES
Distributions also may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Under the laws of various
states, distributions of investment company taxable income generally are taxable
to shareholders even though all or a substantial portion of such distributions
may be derived from interest on certain Federal obligations which, if the
interest were received directly by a resident of such state, would be exempt
from such state's income tax ("qualifying Federal obligations"). However, some
states may exempt all or a portion of such distributions from income tax to the
extent the shareholder is able to establish that the distribution is derived
from qualifying Federal obligations. Moreover, for state income tax purposes,
interest on some Federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on Federal National
Mortgage Association Certificates and Government National Mortgage Association
Certificates). The Fund will provide information annually to shareholders
indicating the amount and percentage of the Fund's dividend distribution which
is attributable to interest on Federal obligations, and will indicate to the
extent possible from what types of Federal obligations such dividends are
derived. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.
MANAGEMENT OF THE GROUP
TRUSTEES AND OFFICERS
The Trustees and officers of the Group are as set forth below. Unless otherwise
indicated, the address of all persons below is 333 South Grand Avenue, Los
Angeles, California 90071.
BOARD OF TRUSTEES:
<TABLE>
Position with Principal Occupations
Name the Group During Past Five Years
- ---- ------------- ----------------------
<S> <C> <C>
* Joan A. Payden Chairman of the President, Payden &
Board, Rygel
President,
Trustee
* Lynda L. Faber Trustee Senior Vice President,
Payden & Rygel
* John Paul Isaacson Trustee Executive Vice
President, Payden &
Rygel
* Christopher N. Orndorff Trustee Vice President, Payden &
Rygel (since 1990)
J. Clayburn La Force Trustee Dean Emeritus, The John
P.O. Box 1009 E. Anderson Graduate
Pauma Valley, CA 92061 School of Management at
University of
California, Los Angeles;
Director, The Timken
Company (since February,
1994); Trustee for PIC
Institutional Growth
Portfolio, PIC
Institutional Balanced
Portfolio and PIC Small
Capital Portfolio (since
June, 1992)
Thomas McKernon, Jr. Trustee President and Chief
2601 South Figueroa Executive Officer,
Street Automobile Club of
Los Angeles, CA 90007 Southern California
Dennis C. Poulsen Trustee President and Chief
3900 South Workman Executive Officer, Rose
Mill Road Hills Company
Whittier, CA 90601
Stender E. Sweeney Trustee Private investor since
1465 San Pasqual Street 1994; previously Vice
Pasadena, CA 91106 President, Finance,
Times Mirror Company
W.D. Hilton, Jr. Trustee Managing Trustee, NGC
310 East Interstate 30, Settlement Trust;
Suite 285 previously Chief
Garland, TX 75043 Financial Officer, Texas
Association of School
Boards and Board Member,
First Greenville
National Bank
</TABLE>
* An "interested person" of the Group, as defined in the 1940 Act.
Trustees other than those affiliated with the Adviser receive an annual retainer
of $10,000, plus $1,500 for each Board of Trustees meeting attended and
reimbursement of related expenses. The following table sets forth the aggregate
compensation paid by the Trust for the fiscal year ended October 31, 1995, to
the Trustees who are not affiliated with the Adviser and the aggregate
compensation paid to such Trustees for services on the Trust's Board and that of
all other funds in the "trust complex" (as defined in Schedule 14A under the
Securities Exchange Act of 1934):
<TABLE>
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued as Benefits from Trust and
Compensation Part of Trust Upon Trust Complex
from Trust Expenses Retirement Paid to Trustee
------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C>
Dennis Poulsen $12,000 None N/A $12,000 (9*)
James Clayburn La Force $12,000 None N/A $12,000 (9*)
Stender Sweeney $11,000 None N/A $11,000 (9*)
W.D. Hilton $12,000 None N/A $12,000 (9*)
Thomas V. McKernon, Jr. $12,000 None N/A $12,000 (9*)
</TABLE>
*Indicates total number of funds in "trust complex", all of which are series of
the Trust.
OFFICERS:
<TABLE>
Position with Principal Occupations
Name the Group During Past Five Years
- ---- ------------- ----------------------
<S> <C> <C>
Lynn M. Bowker Vice President, Vice President &
Treasurer Treasurer, Payden &
Rygel
Scott A. King Executive Executive Vice
Vice President President, Payden &
Rygel
David L. Wagner Vice President Portfolio Manager,
Payden & Rygel
Steven D. Persky Vice President, Vice President,
Assistant Secretary Payden & Rygel (since
1991); previously
Chief Financial
Officer, Endless
Pools, Inc. and Vice
President, Salomon
Brothers
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 April 30, 1996, its staff consisted of 75 employees, 18 of whom either have
advanced degrees and/or are Chartered Financial Analysts. As of such date, it
had over 200 clients, including pension funds, endowments, credit unions,
foundations, corporate cash accounts and individuals, and managed total assets
of approximately $20 billion, with about $2.6 billion invested globally.
The Adviser's focus is the management of fixed income securities in both the
domestic and global markets. These include securities that have absolute or
average maturities out to five years with a bias toward very high quality and
liquidity. Portfolios are actively managed according to client approved
guidelines and benchmarks. Payden & Rygel also utilizes futures and options
strategies, primarily as defensive measures to control interest rate and
currency volatility.
The Adviser provides investment management services to the Fund pursuant to an
Investment Management Agreement with the Trust dated as of June 24, 1992 as
amended on June 14, 1994 with respect to Class B shares of the Group. The
Agreement provides that the Adviser will pay all expenses incurred in connection
with managing the ordinary course of the Fund's business, except the following
expenses, which are paid by each Fund: (i) the fees and expenses incurred by a
Fund in connection with the management of the investment and reinvestment of the
Fund's assets; (ii) the fees and expenses of Trustees who are not affiliated
persons of the Adviser; (iii) the fees and expenses of the Trust's Custodian,
Transfer Agent, Fund Accounting Agent and Administrator; (iv) the charges and
expenses of legal counsel and independent accountants for the Trust; (v)
brokers' commissions and any issue or transfer taxes chargeable to a Fund in
connection with its securities and futures transactions; (vi) all taxes and
corporate fees payable by a Fund to federal, state or other governmental
agencies; (vii) the fees of any trade associations of which the Trust may be a
member; (viii) the cost of fidelity bonds and trustees and officers errors and
omission insurance; (ix) the fees and expenses involved in registering and
maintaining registration of the Fund and of its shares with the SEC, registering
the Trust as a broker or dealer and qualifying the shares of the Fund under
state securities laws, including the preparation and printing of the Trust's
registration statements, prospectuses and statements of additional information
for filing under federal and state securities laws for such purposes; (x)
communications expenses with respect to investor services and all expenses of
shareholders' and trustees' meetings and of preparing, printing and mailing
reports to shareholders in the amount necessary for distribution to the
shareholders; (xi) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business, and (xii) any expenses assumed by the Trust pursuant to a plan of
distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
The Adviser has agreed that if in any fiscal year the expenses borne by the Fund
exceed the applicable expense limitations imposed by the securities regulations
of any state in which shares of the Fund are registered or qualified for sale to
the public, it will reimburse the Fund for any excess to the extent required by
such regulations. Unless otherwise required by law such reimbursement would be
accrued and paid on the same basis that the advisory fees are accrued and paid
by the Fund. To the Trust's knowledge, the only state expense limitation in
effect on the date of this Statement of Additional Information is that of
California, which requires the Adviser to reimburse the Fund for advisory fees
to the extent that certain expenses exceed 2-1/2% of average annual net assets
up to $30,000,000, 2% of the next $70 million of average net assets, and 1-1/2%
of average net assets in excess of $100,000,000.
The Agreement provides that the Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or from reckless disregard by the Adviser of
its duties and obligations thereunder. Unless earlier terminated as described
below, the Agreement will continue in effect with respect to the Fund until June
14, 1996 and thereafter for successive annual periods, subject to annual
approval by the Board of Trustees (or by a majority of the outstanding voting
shares of the Fund as defined in the 1940 Act) and by a majority of the Trustees
who are not interested persons of any party to the Agreement by vote cast in
person at a meeting called for such purpose. The Agreement terminates upon
assignment and may be terminated with respect to the Fund without penalty on 60
days' written notice at the option of either party thereto or by the vote of the
shareholders of the Fund.
The Adviser makes certain payments to broker-dealers in connection with the
Fund's participation in no-transaction-fee mutual fund programs sponsored by
such broker-dealers. These payments are not obligations of the Fund.
Due to the expense cap imposed on the Fund, the Adviser has not received any
fees for the period from commencement of Fund operations through March 31, 1996.
During such period, absent such expense cap, the Adviser would have received
fees of $1,312.
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. During the period from commencement of Fund
operations through March 31, 1996, Treasury Plus was paid $281.
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. During the
period from commencement of Fund operations through March 31, 1996, IFTC was
paid $3,257.
The liability provisions of the Group's agreements with Treasury Plus and IFTC
are similar to those of the Investment Management Agreement discussed above. In
addition, the Group has agreed to indemnify IFTC against certain liabilities.
The respective agreements may be terminated by either party on 90 days notice.
The Administrator has agreed that, if in any fiscal year the expenses borne by
the Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or qualified
for sale to the public, it will reimburse the Fund for a portion of such excess
expenses, which portion is determined by multiplying the excess expenses by the
ratio of (i) the fees respecting the Fund otherwise payable to the Administrator
pursuant to its agreement with the Trust, to (ii) the aggregate fees respecting
the Fund otherwise payable to the Administrator pursuant to its agreement and to
the Adviser pursuant to its Investment Management Agreement with the Trust.
DISTRIBUTOR
Payden & Rygel Distributors, 333 South Grand Avenue, Los Angeles, California
90071, acts as Distributor to the Group pursuant to a Distribution Agreement
with the Group dated as of June 24, 1992, as amended. The Distributor has
agreed to use its best efforts to effect sales of shares of the Fund, but is not
obligated to sell any specified number of shares. The Distribution Agreement
contains provisions with respect to renewal and termination similar to those in
the Investment Management Agreement described above. Pursuant to the Agreement,
the Trust has agreed to indemnify the Distributor to the extent permitted by
applicable law against certain liabilities under the Securities Act of 1933.
No compensation is payable by the Fund to the Distributor for its distribution
services. The Distributor pays for the personnel involved in accepting orders
for purchase and redemption of Fund shares, expenses incurred in connection with
the printing of Prospectuses and Statements of Additional Information (other
than those sent to existing shareholders), sales literature, advertising and
other communications used in the public offering of shares of the Fund, and
other expenses associated with performing services as distributor of the Fund's
shares. The Fund pays the expenses of issuance, registration and transfer of
its shares, including filing fees and legal fees.
SHAREHOLDER SERVICE PLAN
Pursuant to the Shareholder Service Plan, the Fund will pay the Distributor for
expenses incurred in connection with non-distribution shareholder services
provided by the Distributor to securities broker-dealers and other securities
professionals ("Service Organizations") with respect to Class B shares of the
Fund, and to the beneficial owners of such shares, and for fees paid by the
Distributor to such Service Organizations for the provision of support services
to their clients who are beneficial owners of Class B shares ("Clients").
Support services provided pursuant to the Shareholder Service Plan include (a)
establishing and maintaining accounts and records relating to Clients who invest
in Class B shares; (b) aggregating and processing purchase, exchange and
redemption requests for Class B shares from Clients and placing net purchase and
redemption orders with respect to such shares; (c) investing, or causing to be
invested, the assets of Clients' accounts in Class B shares pursuant to specific
or pre-authorized instructions; (d) processing dividend and distribution
payments from the Group on behalf of Clients; (e) providing information
periodically to Clients showing their positions in Class B shares; (f) arranging
for bank wires; (g) responding to Client inquiries relating to the services
performed by Service Organizations; (h) providing sub-accounting services with
respect to Class B shares beneficially owned by Clients or the information to
the Group necessary for sub-accounting services; (i) preparing any necessary tax
reports or forms on behalf of Clients; (j) if required by law, forwarding
shareholder communications from a Fund to Clients; and (k) assisting Clients in
changing dividend options, account designations and addresses.
The Shareholder Service Plan continues in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Trustees of the Group, including a majority of the Trustees who have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
amended at any time by the Board of Trustees, provided that any material
amendments of the terms of the Plan will become effective only upon the approval
by a majority of the Board and a majority of the Independent Trustees pursuant
to a vote cast in person at a meeting called for the purpose of voting on the
Plan.
PURCHASES AND REDEMPTIONS
Certain managed account clients of the Adviser may purchase shares of the Fund.
To avoid the imposition of duplicative fees, the Adviser may be required to make
adjustments in the management fees charged separately by the Adviser to these
clients to offset the generally higher level of management fees and expenses
resulting from a client's investment in the Fund.
The Fund reserves the right to suspend or postpone redemptions during any period
when: (a) trading on the New York Stock Exchange is restricted, as determined
by the Securities and Exchange Commission, or that Exchange is closed for other
than customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to redeem shares in any account for their then-current value
(which will be promptly be paid to the investor) if at any time, due to
shareholder redemption, the shares in the Fund account do not have a value of at
least $5,000. An investor will be notified that the value of his account is
less than the minimum and allowed at least 30 days to bring the value of the
account up to at least $5,000 before the redemption is processed. The
Declaration of Trust also authorizes the Funds to redeem shares under certain
other circumstances as may be specified by the Board of Trustees.
The Fund redeems shares solely in cash up to the lesser of $250,000 or 1% of its
net assets during any 90-day period for any one shareholder. The Fund reserves
the right to pay any redemption price exceeding this amount in whole or in part
by a distribution in kind of readily marketable securities held by the Fund in
lieu of cash. It is highly unlikely that shares would ever be redeemed in kind.
If shares are redeemed in kind, however, the redeeming shareholder would incur
transaction costs upon the disposition of the securities received in the
distribution.
OTHER INFORMATION
CAPITALIZATION
The Fund is a series of Payden & Rygel Investment Group, an open-end management
investment company organized as a Massachusetts business trust in January 1992
(initially called P&R Investment Trust). The capitalization of the Fund
consists solely of an unlimited number of shares of beneficial interest. The
Board of Trustees has currently authorized ten series of shares: Global Fixed
Income Fund, Global Opportunity Fund, Short Duration Tax Exempt Fund, Tax Exempt
Bond Fund, Limited Maturity Fund, Short Bond Fund, Intermediate Bond Fund,
Opportunity Fund, U.S. Treasury Fund, and Equity Return Fund. Each series other
than the Fund offers Class B shares as well as Class A shares. The Board of
Trustees may establish additional funds (with different investment objectives
and fundamental policies) and additional classes of shares at any time in the
future. Establishment and offering of additional portfolios will not alter the
rights of the Fund's shareholders. Shares do not have preemptive rights or
subscription rights. In liquidation of a Fund, each shareholder is entitled to
receive their pro rata share of the assets of the Fund.
Expenses incurred by the Group in connection with its organization and the
initial public offering of shares of the Fund are $30,926. These expenses 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.
As of April 19, 1996, the following persons were known to hold more than 5% of
the outstanding shares of the Fund: Joan A. Payden, Los Angeles, California
90071, 42.6%; Teague Family Trust, Palos Verdes, California, 90274, 20.0%;
Thomas Wertheimer, Santa Monica, California, 90402, 10.0%.
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims liability of the shareholders of the Fund for
acts or obligations of the Group, which are binding only on the assets and
property of the Fund, and requires that notice of the disclaimer be given in
each contract or obligation entered into or executed by the Fund or the
Trustees. The Declaration of Trust provides for indemnification out of Fund
property for all loss and expense of any shareholder held personally liable for
the obligations of the Fund. The risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which a Fund
itself would be unable to meet its obligations and thus should be considered
remote.
The Declaration of Trust provides further that no officer or Trustee of the
Group will be personally liable for any obligations of the Group, nor will any
officer or Trustee be personally liable to the Group or its shareholders except
by reason of his own bad faith, willful misfeasance, gross negligence in the
performance of his duties or reckless disregard of his obligations and duties.
With these exceptions, the Declaration of Trust provides that a Trustee or
officer of the Group is entitled to be indemnified against all liabilities and
expenses, including reasonable accountants' and counsel fees, incurred by the
Trustee or officer in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee or officer.
The Group 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 the 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 expenses between the two classes of shares, and
this representation must be concurred with annually by an independent examiner.
In addition, the Board of Trustees must monitor each series for the existence of
any material conflicts between the interests of the two classes of shares, and
must take such action as is reasonably necessary to eliminate any such conflicts
that may develop. If a conflict arises, the Adviser and Distributor must remedy
the conflict at their own cost.
VOTING
Shareholders of the Fund and any other series of the Group will vote in the
aggregate and not by series or class except as otherwise required by law or when
the Board of Trustees determines that the matter to be voted upon affects only
the interests of the shareholders of a particular series or class of shares.
Pursuant to Rule 18f-2 under the 1940 Act, the approval of an investment
advisory agreement or any change in a fundamental policy would be acted upon
separately by the series affected. Matters such as ratification of the
independent public accountants and election of Trustees are not subject to
separate voting requirements and may be acted upon by shareholders of the Group
voting without regard to series or class.
CUSTODIAN
The First National Bank of Chicago serves as Custodian for the assets of the
Fund. 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 the Fund; hold
and disburse portfolio securities and other assets on behalf of the Fund;
collect and make disbursements of money on behalf of the Fund; and receive all
income and other payments and distributions on account of the Fund's portfolio
securities.
INDEPENDENT AUDITORS
Deloitte & Touche serves as the independent auditors for the Fund. Deloitte &
Touche provides audit and tax return preparation services to the Group. The
independent auditors' address is 1700 Courthouse Plaza Northeast, Dayton, Ohio
45402-1788.
COUNSEL
Paul, Hastings, Janofsky & Walker pass upon certain legal matters in connection
with the shares offered by the Group, and also act as Counsel to the Group.
Counsel's address is 555 South Flower Street, 22nd Floor, Los Angeles,
California 90071. Paul, Hastings, Janofsky & Walker also acts as counsel to
the Adviser and the Distributor.
LICENSE AGREEMENT
The Adviser has entered into a non-exclusive License Agreement with the Group
which permits the Group to use the name "Payden & Rygel". The Adviser has the
right to require the Group to cease using the name at such time as the Adviser
is no longer employed as investment manager to the Group.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain all
the information included in the Group's registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to the securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The registration statement, including the exhibits filed therewith, may be
examined at the offices of the Securities and Exchange Commission in Washington,
D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
FINANCIAL STATEMENTS
The Fund's unaudited financial statements for the period from commencement of
operations through March 31, 1996 are set forth in Appendix B.
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.
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.
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
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 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.
APPENDIX B
UNAUDITED FINANCIAL STATEMENTS
PAYDEN & RYGEL INVESTMENT GROUP
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
(Unaudited)
</TABLE>
<TABLE>
Market Return Fund
==================
<S> <C>
ASSETS:
Investments, at value (cost $2,463,628) $2,394,353
Interest receivable 27,164
Unamortized organization costs (Note 4) 36,900
Deferred expense subsidy (Note 5) 32,201
Prepaid expenses 13,312
---------
Total Assets 2,503,931
---------
LIABILITIES:
Payable to Payden & Rygel (Note 5) 65,687
Payable for open futures contracts 12,250
Accrued expenses:
Investment advisory fees 1,312
Administration fees 281
Other expenses 15,486
------
Total Liabilities 95,016
------
NET ASSETS:
Paid in capital 2,434,240
Undistributed net investment income 1,433
Accumulated net realized gains (losses) from investments 6,192
Accumulated net realized gains (losses) from futures contracts 32,149
Net unrealized appreciation (depreciation) from investments (69,275)
Net unrealized appreciation (depreciation) from open futures contracts 4,175
------
NET ASSETS $2,408,915
==========
Outstanding shares of beneficial interest 235,919
NET ASSET VALUE - offering and ==========
redemption price per share $10.21
==========
See notes to financial statements.
</TABLE>
PAYDEN & RYGEL INVESTMENT GROUP
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
Market Return Fund
------------------
For the period
December 1, 1995
to March 31, 1996 (a)
=====================
<S> <C>
INVESTMENT INCOME:
Interest $26,184
-------
Total Income 26,184
-------
EXPENSES:
Investment advisory fees (Note 5) 1,312
Administration fees (Note 5) 281
Custodian and accounting fees (Note 5) 3,257
Legal and audit fees 7,773
Organization expenses (Note 4) 2,501
Trustees' fees and expenses 57
Transfer agent fees (Note 5) 3,701
Registration and filing fees 10,807
Printing costs 2,437
Other 428
Expense subsidy (Note 5) (32,201)
-------
Total Expenses 353
-------
Net Investment Income 25,831
-------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) from investments 6,192
Net realized gains (losses) from futures contracts 32,149
Change in net unrealized appreciation (depreciation) from investments (69,275)
Change in net unrealized appreciation (depreciation) from futures contracts 4,175
-------
Net realized and unrealized gains (losses) (26,759)
-------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS ($928)
=======
</TABLE>
- ----------
(a) Period from commencement of operations
See notes to financial statements.
<TABLE>
PAYDEN & RYGEL INVESTMENT GROUP
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
Market Return Fund
------------------
For the period
December 1, 1995
to March 31, 1996 (a)
=====================
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $25,831
Net realized gains (losses) 38,341
Change in net unrealized appreciation (depreciation) (65,100)
-------
Change in net assets resulting from operations (928)
-------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (24,398)
-------
Change in net assets from distributions to shareholders (24,398)
-------
FROM CAPITAL TRANSACTIONS:
Proceeds from shares sold 2,482,184
Reinvestment of distributions 24,241
Cost of shares redeemed (72,185)
---------
Change in net assets from capital transactions 2,434,240
---------
Total Increase in Net Assets 2,408,915
NET ASSETS:
Beginning of period 0
----------
End of period $2,408,915
==========
STATEMENT OF SHARES OUTSTANDING:
Outstanding shares at beginning of period 0
----------
Shares sold 240,260
Shares issued in reinvestment of distributions 2,365
Shares redeemed (6,705)
----------
Change in shares outstanding 235,919
----------
Outstanding shares at end of period 235,919
==========
</TABLE>
- ----------
(a) Period from commencement of operations
See notes to financial statements.
PAYDEN & RYGEL INVESTMENT GROUP
MARKET RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
MARCH 31, 1996
(Unaudited)
<TABLE>
Shares or
Principal Amount Security Description Market Value
<S> <C> <C>
U.S. Treasury Notes (87.4%):
85,000 5.50%, 7/31/97(b) $84,863
115,000 5.63%, 1/31/98(b) 114,683
275,000 6.38%, 7/15/99(b) 278,000
630,000 7.50%, 2/15/05(b) 675,461
340,000 6.50%, 5/15/05(b) 341,836
610,000 6.13%, 7/31/00(b) 609,890
---------
Total U.S. Treasury Notes 2,104,733
---------
U.S. Treasury Bonds (2.9%):
75,000 6.25%, 8/15/23(b) 69,328
---------
Total U.S. Treasury Bonds 69,328
---------
Investment Companies (9.1%):
1,500,000 S&P 500 Depository Receipt 97,031
123,261 Prairie U.S. Government Securities
Cash Management Fund 123,261
---------
Total Investment Companies 220,292
---------
Total (Cost - $2,463,628)(a) (99.4%) 2,394,353
=========
</TABLE>
- ----------
Percentages indicated are based on net assets of $2,408,915.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
Unrealized appreciation $ 0
Unrealized depreciation (69,275)
---------
Net unrealized depreciation ($69,275)
=========
(b) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
At March 31, 1996, the Fund's open futures contracts were as follows:
# of Expiration Notional Current
Contracts Contract Type Date Amount Market Value
--------- ------------- ---------- -------- ------------
7 S&P 500 6/20/96 $2,275,200 $2,279,375
See notes to financial statements.
PAYDEN & RYGEL INVESTMENT GROUP
MARKET RETURN FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
1. Organization
Payden & Rygel Market Return Fund (the Equity Market Tracking Fund prior to
February 7, 1996) (the "Fund") is a non-diversified series of Payden & Rygel
Investment Group ("the Group"), a Massachusetts business trust organized on
January 22, 1992. The Group is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The objective
of the Fund is to provide a total return in excess of the Standard & Poor's 500
Stock Index. To achieve this objective, the Fund invests primarily in equity
based investments, such as stock index futures contracts and equity swap
contracts, as well as in fixed income securities; however, there can be no
assurance that the Fund's investment objectives will be achieved. The Fund
offers both Class A and Class B shares; however, as of March 31, 1996 there have
been no Class B shares issued. Class B shares are subject to certain fees under
a shareholder service plan (the "Plan"); Class A shares do not participate in
the Plan. Both classes of shares have identical rights and privileges except
with respect to the shareholder service fees borne by Class B and voting rights
on matters affecting a single class. The Group is authorized to issue an
unlimited number of shares of each class which are units of beneficial interest
with a par value of $.001 per share.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund:
Securities Valuation
Portfolio securities are valued on the basis of quotations obtained from
dealers or from a pricing service with consideration of such factors as
institutional-sized trading in similar groups of securities, quality, yield,
coupon rate, maturity, type of issue, trading characteristics and other market
data. Options, futures, swaps and other similar assets are valued at the last
available bid price in the case of listed securities or on the basis of
information provided by brokers in the case of other securities. Securities for
which market quotations are not readily available are valued at fair value as
determined in good faith pursuant to guidelines established by the Board of
Trustees. Debt securities with remaining maturities of sixty days or less are
valued on an amortized cost basis unless Payden & Rygel (the "Adviser")
determines that such basis does not represent fair value.
Investment Transactions and Related Income
Investment transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis. All premiums or original issue discounts are amortized or accreted for
both financial statement and tax reporting purposes as required by Federal
income tax regulations. Dividend income is recorded on the ex-dividend date.
Realized gains or losses on investment transactions are determined on the
identified cost basis.
Repurchase Agreements
The Fund may enter into repurchase agreements (agreements to purchase U.S.
Treasury notes and bills, subject to the seller's agreement to repurchase them
at a specified time and price) with well-established registered securities
dealers or banks. Repurchase agreements are the equivalent of loans by the
Fund. With respect to such agreements, it is the Fund's policy to take
possession of the underlying securities and, on a daily basis, mark-to-market
such securities to ensure that the value, including accrued interest, is at
least equal to the amount to be repaid to the Fund under each agreement.
Options Transactions
When the Fund writes a covered call or put option, an amount equal to the
premium received is included in the Fund's statement of assets and liabilities
as a liability. The amount of the liability is subsequently marked-to-market to
reflect the current market value of the option. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, a gain or loss is realized. If a written call option is exercised,
a gain or loss is realized for the sale of the underlying security and the
proceeds from the sale are increased by the premium originally received. If a
written put option is exercised, the cost of the security acquired is decreased
by the premium originally received.
When the Fund purchases a call or put option, an amount equal to the
premium paid is included in the Fund's statement of assets and liabilities as an
investment, and is subsequently marked-to-market to reflect the current market
value of the option. If an option expires on the stipulated expiration date or
if the Fund enters into a closing sale transaction, a gain or loss is realized.
If the Fund exercises a call option, the cost of the security acquired is
increased by the premium paid for the call. If the Fund exercises a put option,
a gain or loss is realized from the sale of the underlying security, and the
proceeds from such sale are decreased by the premium originally paid. Written
and purchased options are non-income producing securities.
The options techniques utilized are to hedge against changes in interest
rates or securities prices in order to establish more definitely the effective
return on securities held or intended to be acquired by the Fund or as an
efficient means of adjusting exposure to the bond and equity markets and not for
speculation.
Futures Contracts
The Fund may purchase or sell futures contracts and options on futures
contracts which provide for the future sale by one party and purchase by another
party of a specified quantity of a financial instrument at a fixed price on a
future date. Upon entering into such a contract, the Fund is required to
deposit and maintain as collateral such initial margin as required by the
exchange on which the contract is traded. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount equal to the daily
fluctuations in the value of the contract. Such receipts or payments are known
as variation margin and are recorded as unrealized gains or losses by the Fund.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. The Fund invests in futures contracts to
hedge against anticipated future changes in interest rates or security prices.
The potential risk to the Fund is that the change in value of the underlying
securities may not correlate to the change in value of the contracts.
The Fund may invest in stock index futures contracts which are 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. Variation margin accounting procedures as discussed above
apply to these index futures contracts. The Fund invests in these futures
contacts, combined with a fixed income portfolio, to permit the Fund to meet its
objectives at a lower cost than investing directly in equity securities, while
permitting the equivalent of an investment in a portfolio of equity securities.
The potential risk to the Fund is that the change in value of the underlying
index may not correlate to the change in value of the contracts.
Equity Swap Contracts
The Fund may enter into equity swap transactions which involve an agreement
between the Fund and another party to exchange payments calculated as if they
were interest on a fictitious ("notional") principal amount. The Fund will
typically pay a floating rate of interest and receive the total return of a
specified equity index. The Fund usually enters into such transactions on a
"net" basis, with the Fund receiving or paying, as the case may be, only the net
amounts of the two payment streams. The net amount of the excess or deficiency,
if any, of the Fund's obligations over its entitlements with respect to each
swap is accrued on a daily basis and is recorded as an unrealized gain or loss
by the Fund.
The Fund invests in these swap transactions to permit the Fund to meet its
objectives at a lower cost than investing directly in equity securities, while
permitting the equivalent of an investment in a portfolio of equity securities.
The potential risk to the Fund is that the swap position may correlate
imperfectly with the markets or the asset or liability being hedged.
Delayed Delivery Transactions
The 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 the Fund to purchase or sell securities for a predetermined price
or yield with payment and delivery taking place more than seven days in the
future, or after a period longer than the customary settlement period for that
type of security. No interest will be earned by the Fund on such purchases
until the securities are delivered; however, the market value may change prior
to delivery. There were no such commitments included in the Fund's schedules of
portfolio investments at March 31, 1996.
Distributions to Shareholders
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income are declared and paid monthly, and net
realized gains on investments, if any, are declared and distributed at least
annually. All distributions are paid in the form of additional shares unless
cash payment is requested.
Distributions to shareholders are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
Federal Income Taxes
It is the policy of the Fund to meet the requirements for qualification as
a regulated investment company as defined in applicable sections of the Internal
Revenue Code (the "Code"), and to make distributions of net investment income
and net realized gains sufficient to relieve it from all Federal income or
excise taxes. Accordingly, no provision for Federal income or excise tax is
necessary.
The Fund files a tax return annually using tax accounting methods required
under provisions of the Code which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared. The
differences arise primarily from the treatment of futures contracts and the
deferral of certain losses under Federal income tax regulations. Accordingly,
the amount of net investment income and net realized gains or losses reported in
these financial statements may differ from that reported in the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders for Federal income tax purposes.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Other
Shared expenses incurred by the Group are allocated among the series of the
Group on the basis of relative net assets. Series-specific expenses are charges
to each series as incurred. Fund expenses not specific to any class will be
allocated between the classes based upon net assets of each class.
3. Purchases and Sales of Investments
Purchases and sales of investments (excluding short-term investments) for
the period from December 1, 1995 (commencement of operations) to March 31, 1996
were $237,897 and $146,113, respectively.
Purchases and sales of long term U.S. Government Securities for the period
from December 1, 1995 (commencement of operations) to March 31, 1996 were
$2,712,588 and $467,323, respectively.
The Fund had no activity in written options for the period from December 1,
1995 (commencement of operations) to March 31, 1996.
4. Unamortized Organization Costs
The expenses incurred in connection with the organization and registration
of the Fund are $39,401. These expenses are being reimbursed to the Adviser and
amortized on a straight-line basis over a period not exceeding five years. As
of March 31, 1996, $2,501 of organization costs have been amortized.
5. Related Party Transactions
Investment advisory services are provided to the Fund by Payden & Rygel.
Under the terms of the investment advisory agreement, the Adviser is entitled to
receive fees monthly, computed on the average daily net assets of the Fund at an
annualized rate. The rate for the Market Return Fund is .28% on net assets up
to $1 billion, decreasing to .25% on net assets over $1 billion.
The Adviser has agreed to limit the Fund's total expenses, including
advisory fees, to .45% of the Fund's average daily net assets on an annualized
basis through October 31, 1996 (exclusive of interest, taxes, brokerage
commissions, blue sky fees, 12b-1 fees [if any such plan is adopted in the
future] and extraordinary expenses). (From January 1, 1996 through June 30,
1996, the Adviser has agreed to limit the Fund's total expenses, including
advisory fees, to 0.0% of the average daily net assets on an annualized basis.)
The Fund remains liable to the Adviser for expenses subsidized in any fiscal
year, so long as such reimbursement will not cause the annual expense ratio for
the year in which it is made to exceed the amount of the expense guarantee or
expense cap (whichever is in effect at the time of reimbursement). As of March
31, 1996, the Adviser had subsidized the $32,201 for the Fund.
The Adviser has incurred certain expenses in connection with the offering
of multiple class shares that will be charged to the Group upon the initial sale
of Class B shares to the public. Such expenses, approximately $41,000 as of
March 31, 1996, will be allocated to all series of the Group that offer Class B
shares on the basis of relative net assets at the time of the initial sale of
Class B shares, and will be prorated between the classes on the basis of
eligible net assets of each class over a twelve month period.
Payden & Rygel Distributors, a subsidiary of Payden & Rygel, serves as the
distributor for the Fund and is not entitled to receive any fees from the Group
under the distribution agreement.
Treasury Plus, Inc., a subsidiary of Payden & Rygel, serves as
administrator to the Fund. Under the terms of the administration agreement,
Treasury Plus, Inc. receives fees monthly, computed on the average daily net
assets of the Fund at an annualized rate of .06%.
Investors Fiduciary Trust Company ("IFTC") serves as transfer agent to the
Fund. Under the terms of the transfer agency agreement, IFTC is entitled to
receive fees based upon a specified amount per shareholder with a specified
minimum-per-Fund amount and surcharges, plus certain out-of-pocket expenses.
IFTC also serves as fund accountant. Under the terms of the fund accounting
agreement, IFTC receives fees based on specified minimum-per-Group amounts, plus
certain out-of-pocket expenses.
Certain officers and/or trustees of the Group are affiliated with Payden &
Rygel, Payden & Rygel Distributors and/or Treasury Plus, Inc. Such officers and
trustees receive no fees from the Fund for serving as officers and/or trustees
of the Group.
THE PAYDEN & RYGEL INVESTMENT GROUP
F O R M N-1A
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Registrant's unaudited statement of Assets and Liabilities as
of March 31, 1996, Statement of Operations for the period from
December 1, 1995 to March 31, 1996, Statement of charges in Net
Assets for such period, schedule of Portfolio Investments of March
31, 1996, and related notes, with respect to its Market Return Fund
Series, are included in Part B.
(b) Exhibits:
(1.1) Master Trust Agreement of
Registrant -- filed as Exhibit 1 to Registrant's Form N-1A
Registration Statement (the "Registration Statement") on April
2, 1992 and incorporated herein by reference.
(1.2) Certificate of Amendment
of Master Trust Agreement -- filed as Exhibit 1.2 to Pre-
Effective Amendment No. 2 to the Registration Statement ("Pre-
Effective Amendment No. 2") on July 28, 1992 and incorporated
herein by reference.
(1.3) Amendment No. 2 to the
Master Trust Agreement dated September 16, 1993 -- filed as
Exhibit 1.3 to Post-Effective Amendment No. 2 to Registrant's
Form N-1A Registration Statement ("Post-Effective Amendment
No. 2") and incorporated herein by reference.
(1.4) Amendment No. 3 to the
Master Trust Agreement dated December 13, 1993 -- filed as
Exhibit 1.4 to Post-Effective Amendment No. 4 to Registrant's
Form N-1A Registration Statement ("Post-Effective Amendment
No. 4") on January 24, 1994 and incorporated herein by
reference.
(1.5) Amendment No. 4 to the
Master Trust Agreement dated March 17, 1994 -- filed as
Exhibit 1.5 to Post-Effective Amendment No. 6 to the
Registration Statement ("Post-Effective Amendment No. 6") on
June 30, 1994 and incorporated herein by reference.
(1.6) Amendment No. 5 to the
Master Trust Agreement dated as of August 31, 1994 -- filed as
Exhibit 1.6 to Post-Effective Amendment No. 9 to the
Registration Statement ("Post-Effective Amendment No. 9") on
October 17, 1994 and incorporated herein by reference.
(1.7) Amendment No. 6 to the
Master Trust Agreement -- filed as Exhibit 1.7 to Post-
Effective Amendment No. 11 to the Registration Statement
("Post-Effective Amendment No. 11") on January 12, 1995 and
incorporated herein by reference.
(1.8) Amendment No. 7 to the Master Trust Agreement
-- filed as Exhibit 1.8 to Post-Effective Amendment No. 15
to the Registration Statement on July 6, 1995 and incorporated
herein by reference.
(1.9) Amendment No. 8 to the
Master Trust Agreement -- filed as Exhibit 1.8 to Post-
Effective Amendment No. 17 to the Registration Statement on
October 5, 1995 and incorporated herein by reference.
(1.10) Amendment No. 9 to the
Master Trust Agreement -- filed as Exhibit 1.10 to Post-
Effective Amendment No. 24 to the Registration Statement on
February 7, 1996 and incorporated herein by reference.
(2) By-laws of Registrant --
filed as Exhibit 2 to the Registration Statement on April 2,
1992 and incorporated herein by reference.
(3) None.
(4) None.
(5.1) Investment Management
Agreement between Registrant and Payden & Rygel -- filed as
Exhibit 5.1 to Post-Effective Amendment No. 7 to the
Registration Statement ("Post-Effective Amendment No. 7") on
July 1, 1994 and incorporated herein by reference.
(5.2) Amendment to Investment
Management Agreement between Registrant and Payden & Rygel
dated as of September 16, 1993, adding Tax-Exempt Bond Fund to
the Agreement -- filed as Exhibit 5.2 to Post-Effective
Amendment No. 7 on July 1, 1994 and incorporated herein by
reference.
(5.3) Amendment to Investment
Management Agreement between Registrant and Payden & Rygel
dated December 29, 1993, adding Short Bond, Intermediate Bond
and Opportunity Funds to the Agreement -- filed as Exhibit 5.3
to Post-Effective Amendment No. 7 on July 1, 1994 and
incorporated herein by reference.
(5.4) Amendment to Investment
Management Agreement between Registrant and Payden & Rygel
dated as of April 29, 1994, adding Limited Maturity Fund to
the Agreement -- filed as Exhibit 5.4 to Post-Effective
Amendment No. 6 on June 30, 1994 and incorporated herein by
reference.
(5.5) Amendment to Investment
Management Agreement between Registrant and Payden & Rygel
dated as of June 14, 1994 with respect to Class B shares --
filed as Exhibit 5.5 to Post-Effective Amendment No. 6 on June
30, 1994 and incorporated herein by reference.
(5.6) Amendment to Investment
Management Agreement between Registrant and Payden & Rygel
dated as of June 14, 1994, adding Short Duration Tax Exempt
Fund to the Agreement -- filed as Exhibit 5.6 to Post-
Effective Amendment No. 6 on June 30, 1994 and incorporated
herein by reference.
(5.7) Agreement between
Registrant and Payden & Rygel dated June 14, 1994 with respect
to voluntary expense limitations -- filed as Exhibit 5.7 to
Post-Effective Amendment No. 11 on January 12, 1995 and
incorporated herein by reference.
(5.8) Amendment to Investment
Management Agreement between Registrant and Payden & Rygel
adding U.S. Treasury Fund and International Bond Fund
(previously Global Opportunity Fund) to the Agreement -- filed
as Exhibit 5.8 to Post-Effective Amendment No. 11 on January
12, 1995 and incorporated herein by reference.
(5.9) Form of Amendment to
Investment Management Agreement between Registrant and Payden
& Rygel adding Market Return Fund to the Agreement -- filed as
Exhibit 5.9 to Post-Effective Amendment No. 16 to Registrant's
Form N-1A Registration Statement ("Post-Effective Amendment
No. 16") on September 11, 1995 and incorporated herein by
reference.
(6.1) Distribution Agreement
between Registrant and Payden & Rygel Distributors, Inc. --
filed as Exhibit 6.1 to Post-Effective Amendment No. 7 on July
1, 1994 and incorporated herein by reference.
(6.2) Amendment to Distribution
Agreement between Registrant and Payden & Rygel Distributors
dated August 31, 1992 -- filed as Exhibit 6.2 to Post-
Effective Amendment No. 1 to Registrant's Form N-1A
Registration Statement ("Post-Effective Amendment No. 1") on
February 17, 1993 and incorporated herein by reference.
(7) None.
(8.1) Global Mutual Fund Custody
Agreement between Registrant and The First National Bank of
Chicago dated July 20, 1992 -- filed as Exhibit 8.1 to Post-
Effective Amendment No. 8 to Registrant's N-1A Registration
Statement ("Post-Effective Amendment No. 8") on July 1, 1994
and incorporated herein by reference.
(8.2) Amendment No. 1 to Global
Mutual Fund Custody Agreement between Registrant and The First
National Bank of Chicago dated October 29, 1993 -- filed as
Exhibit 8.2 to Post-Effective Amendment No. 4 on January 24,
1994 and incorporated herein by reference.
(9.1) Management and
Administration Agreement between Registrant and Treasury Plus,
Incorporated dated as of January 1, 1996 -- filed as Exhibit
9.1 to Post-Effective Amendment No. 16 on September 11, 1995
and incorporated herein by reference.
(9.2) Form of Investment
Accounting Agreement between Registrant and Investors
Fiduciary Trust Company -- filed as Exhibit 9.2 to Post-
Effective Amendment No. 16 on September 11, 1995 and
incorporated herein by reference.
(9.3) Form of Transfer Agency
and Service Agreement between Registrant and Investors
Fiduciary Trust Company -- filed as Exhibit 9.3 to Post-
Effective Amendment No. 16 on September 11, 1995 and
incorporated herein by reference.
(9.4) License Agreement between
Registrant and Payden & Rygel -- filed as Exhibit 9.13 to Post-
Effective Amendment No. 7 on July 1, 1994 and incorporated
herein by reference.
(10) Opinion of Counsel --
filed as Exhibit 10 to Pre-Effective Amendment No. 2 on July
28, 1992 and incorporated herein by reference.
(11) Not applicable.
(12) Not applicable.
(13) Investment letter of
Payden & Rygel -- filed as Exhibit 13 to Pre-Effective
Amendment No. 2 on July 28, 1992 and incorporated herein by
reference.
(14) None.
(15) None.
(16) Total return calculations
-- filed as Exhibit 16 to Post-Effective Amendment No. 7 on
July 1, 1994 and incorporated herein by reference.
(17) Financial Data Schedule.
(18.1) Powers of Attorney of
Dennis Poulsen and J. Clayburn La Force -- filed as Exhibit 17
to Pre-Effective Amendment No. 1 to the Registration Statement
on June 19, 1992 and incorporated herein by reference.
(18.2) Power of Attorney of
Stender E. Sweeney -- filed as Exhibit 17.2 to Pre-Effective
Amendment No. 2 on July 28, 1992 and incorporated herein by
reference.
(18.3) Power of Attorney of
Thomas McKernan, Jr. -- filed as Exhibit 17.3 to Post-
Effective Amendment No. 5 to Registrant's Form N-1A
Registration Statement on March 1, 1994 and incorporated
herein by reference.
(18.4) Power of Attorney of W.D.
Hilton, Jr. -- filed as Exhibit 18.4 to Post-Effective
Amendment No. 9 on October 17, 1994 and incorporated herein by
reference.
Item 25. Persons Controlled by or Under Common Control with Registrant.
As of April 19, 1996, the following persons held of record more than
25% of the outstanding shares of the following classes of shares of Registrant:
Payden & Rygel International Bond Fund, Class A -- Consuelo Zobel Alger
Foundation (77.4%); Payden & Rygel Market Return Fund, Class A -- Joan A. Payden
(42.6%).
Item 26. Number of Holders of Securities.
As of April 19, 1996, the number of record holders of each class of
securities of Registrant was as follows:
Title of Class Number of Record Holders
Shares of beneficial interest of Payden
& Rygel Global Fixed Income Fund - Class A 243
- Class B -0-
Shares of beneficial interest of Payden
& Rygel International Bond Fund - Class A 5
- Class B -0-
Shares of beneficial interest of Payden
& Rygel Tax Exempt Bond Fund - Class A 64
- Class B -0-
Shares of beneficial interest of Payden
& Rygel Short Duration Tax Exempt Fund
- Class A 38
- Class B -0-
Shares of beneficial interest of Payden
& Rygel Short Bond Fund - Class A 36
- Class B -0-
Shares of beneficial interest of Payden
& Rygel Intermediate Bond Fund - Class A 34
- Class B -0-
Shares of beneficial interest of Payden
& Rygel Opportunity Fund - Class A 45
- Class B -0-
Shares of beneficial interest of Payden
& Rygel Limited Maturity Fund - Class A 58
- Class B -0-
Shares of beneficial interest of Payden
& Rygel U.S. Treasury Fund - Class A 27
- Class B -0-
Shares of beneficial interest of Payden
& Rygel Market Return Fund - Class A 71
- Class B -0-
Item 27. Indemnification.
Section 6.4 of Article VI of Registrant's Master Trust Agreement, filed
herewith as Exhibit 1, provides for the indemnification of Registrant's trustees
and officers against liabilities incurred by them in connection with the defense
or disposition of any action or proceeding in which they may be involved or with
which they may be threatened, while in office or thereafter, by reason of being
or having been in such office, except with respect to matters as to which it has
been determined that they acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office ("Disabling Conduct").
Section 7 of Registrant's Investment Management Agreement, filed herewith
as Exhibit 5, provides for the indemnification of Registrant's Adviser against
all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its Disabling Conduct.
Section 4 of Registrant's Distribution Agreement, filed herewith as Exhibit 6,
provides for the indemnification of Registrant's Distributor against all
liabilities incurred by it in performing its obligations under the Agreement,
except with respect to matters involving its Disabling Conduct.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser.
During the two fiscal years ended December 31, 1995, Payden & Rygel
has engaged principally in the business of providing investment services to
institutional clients. During such period, the other substantial businesses,
professions, vocations or employments of the directors and officers of Payden &
Rygel have been as set forth below. The principal business address of such
persons is 333 South Grand Avenue, 32nd Floor, Los Angeles, California 90071,
except as otherwise indicated below.
Name and Principal
Business Address Office Other Employment
- ------------------ --------------- ----------------
Joan A. Payden President and
Director
Lynn M. Bowker Vice President
and Treasurer
Lynda L. Faber Senior Vice
President and
Director
John P. Isaacson Executive Vice
President and
Director
Scott A. King Executive Vice
President and
Director
Brian W. Matthews Vice President
Christopher N. Orndorff Vice President
Item 29. Principal Underwriters.
(a) Payden & Rygel Distributors, Inc. does not act as a principal
underwriter, depositor or investment adviser to any investment company other
than Registrant.
(b) Information is furnished below with respect to the officers and
directors of Payden & Rygel Distributors, Inc. The principal business address
of such persons is 333 South Grand Avenue, Suite 3200, Los Angeles, California
90071, except as otherwise indicated below.
Positions and
Offices with Positions and
Name and Principal Principal Offices with
Business Address Underwriter Registrant
- ------------------ ------------- -------------
Joan A. Payden President Trustee, Chairman
and Director of the Board and
President
Christopher N. Orndorff Chief Financial Trustee
Officer, Secretary
and Director
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained either at the offices of the Registrant (333 South
Grand Avenue, 32nd Floor, Los Angeles, California 90071), its adviser Payden &
Rygel (333 South Grand Avenue, 32nd Floor, Los Angeles, California 90071), its
Administrator Treasury Plus, Inc. (333 South Grand Avenue, 32nd Floor, Los
Angeles, California 90071), its Fund Accountant and Transfer Agent Investors
Fiduciary Trust Company (127 West 10th Street, Kansas City, Missouri 64105), or
its Custodian The First National Bank of Chicago (One First National Plaza,
Chicago, Illinois 60670).
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings.
Registrant hereby undertakes that if it is requested by the holders of at
least 10% of its outstanding shares to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee, it will do so and
will assist in communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of Registrant's latest annual report to shareholders,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on the 30th
day of April, 1996.
THE PAYDEN & RYGEL INVESTMENT GROUP
By S/Joan A. Payden
Joan A. Payden
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Trustee and April 30, 1996
Principal
S/Joan A. Payden Executive Officer
Joan A. Payden
J. Clayburn La Force* Trustee April 30, 1996
J. Clayburn La Force
Dennis C. Poulsen* Trustee April 30, 1996
Dennis C. Poulsen
Thomas McKernan, Jr.* Trustee April 30, 1996
Thomas McKernan, Jr.
Stender E. Sweeney* Trustee April 30, 1996
Stender E. Sweeney
W.D. Hilton, Jr.* Trustee April 30, 1996
W.D. Hilton, Jr.
S/Lynda L. Faber Trustee April 30, 1996
Lynda L. Faber
S/John Paul Isaacson Trustee April 30, 1996
John Paul Isaacson
S/Christopher N. Orndorff Trustee April 30, 1996
Christopher N. Orndorff
S/Lynn M. Bowker Principal April 30, 1996
Lynn M. Bowker Financial and
Accounting Officer
* S/Joan A. Payden
By: Joan A. Payden
Attorney-In-Fact
EXHIBIT INDEX
THE PAYDEN & RYGEL INVESTMENT GROUP
FORM N-1A REGISTRATION STATEMENT
Post-Effective Amendment No. 22
Exhibit No. Title of Exhibit
(1.1) Master Trust Agreement of Registrant -- filed as
Exhibit 1 to Registrant's Form N-1A Registration Statement
(the "Registration Statement") on April 2, 1992 and
incorporated herein by reference.
(1.2) Certificate of Amendment of Master Trust
Agreement -- filed as Exhibit 1.2 to Pre-Effective Amendment
No. 2 to the Registration Statement ("Pre-Effective Amendment
No. 2") on July 28, 1992 and incorporated herein by
reference.
(1.3) Amendment No. 2 to Master Trust Agreement dated
September 16, 1993 -- filed as Exhibit 1.3 to Post-Effective
Amendment No. 2 to Registrant's N-1A Registration Statement
("Post-Effective Amendment No. 2") and incorporated herein by
reference.
(1.4) Amendment No. 3 to the Master Trust Agreement
dated December 13, 1993 -- filed as Exhibit 1.4 to Post-
Effective Amendment No. 4 to Registrant's Form N-1A
Registration Statement ("Post-Effective Amendment No. 4") on
January 24, 1994 and incorporated herein by reference.
(1.5) Amendment No. 4 to the Master Trust Agreement
dated March 17, 1994 -- filed as Exhibit 1.5 to Post-
Effective Amendment No. 6 to the Registration Statement
("Post-Effective Amendment No. 6") on June 30, 1994 and
incorporated herein by reference.
(1.6) Amendment No. 5 to the Master Trust Agreement
dated as of August 31, 1994 -- filed as Exhibit 1.6 to Post-
Effective Amendment No. 9 to the Registration Statement
("Post-Effective Amendment No. 9") on October 17, 1994 and
incorporated herein by reference.
(1.7) Amendment No. 6 to the Master Trust Agreement --
filed as Exhibit 1.7 to Post-Effective
Amendment No. 11 to the Registration Statement
("Post-Effective Amendment No. 11") on January 12,
1995 and incorporated herein by reference.
(1.8) Amendment No. 7 to the Master Trust Agreement --
filed as Exhibit 1.8 to Post-Effective Amendment No. 15 to
the Registration Statement on July 6, 1995 and incorporated
herein by reference.
(1.9) Amendment No. 8 to the Master Trust Agreement --
filed as Exhibit 1.8 to Post-Effective Amendment No. 17 to
the Registration Statement on October 5, 1995 and
incorporated herein by reference.
(1.10) Amendment No. 9 to the Master Trust Agreement -
- filed as Exhibit No. 1.10 to Post-Effective Amendment No.
21 to the Registration Statement on February 6, 1996 and
incorporated herein by reference.
(2) By-laws of Registrant -- filed as Exhibit 2 to the
Registration Statement on April 2, 1992 and incorporated
herein by reference.
(3) None.
(4) None.
(5.1) Investment Management Agreement between
Registrant and Payden & Rygel -- filed as Exhibit 5.1 to
Post-Effective Amendment No. 7 to Registration Statement
("Post-Effective Amendment No. 7") on July 1, 1994 and
incorporated herein by reference.
(5.2) Amendment to Investment Management Agreement
between Registrant and Payden & Rygel dated as of September
16, 1993, adding Tax-Exempt Bond Fund to the Agreement --
filed as Exhibit 5.2 to Post-Effective Amendment No. 7 on
July 1, 1994 and incorporated herein by reference.
(5.3) Amendment to Investment Management Agreement
between Registrant and Payden & Rygel dated December 29,
1993, adding Short Bond, Intermediate Bond and Opportunity
Funds to the Agreement -- filed as Exhibit 5.3 to Post-
Effective Amendment No. 7 on July 1, 1994 and incorporated
herein by reference.
(5.4) Amendment to Investment Management Agreement
between Registrant and Payden & Rygel dated as of April 29,
1994, adding Limited Maturity Fund to the Agreement -- filed
as Exhibit 5.4 to Post-Effective Amendment No. 6 on June 30,
1994 and incorporated herein by reference.
(5.5) Amendment to Investment Management Agreement
between Registrant and Payden & Rygel dated as of June 14,
1994 with respect to Class B shares -- filed as Exhibit 5.5
to Post-Effective Amendment No. 6 on June 30, 1994 and
incorporated herein by reference.
(5.6) Amendment to Investment Management Agreement
between Registrant and Payden & Rygel dated as of August 31,
1994, adding Short Duration Tax Exempt Fund to the Agreement
-- filed as Exhibit 5.6 to Post-Effective Amendment No. 6 on
June 30, 1994 and incorporated herein by reference.
(5.7) Agreement between Registrant and Payden & Rygel
dated June 14, 1994 with respect to voluntary expense
limitations -- filed as Exhibit 5.7 to Post-Effective
Amendment No. 11 on January 12, 1995 and incorporated herein
by reference.
(5.8) Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding U.S. Treasury
Fund and International Bond Fund
(previously Global Opportunity Fund) to the Agreement
-- filed as Exhibit 5.8 to Post-Effective Amendment No. 11 on
January 12, 1995 and incorporated herein by reference.
(5.9) Form of Amendment to Investment Management
Agreement between Registrant and Payden & Rygel adding Market
Return Fund to the Agreement -- filed as Exhibit 5.9 to Post-
Effective Amendment No. 16 to Registrant's Form N-1A
Registration Statement ("Post-Effective Amendment No. 16") on
September 11, 1995 and incorporated herein by reference.
(6.1) Distribution Agreement between Registrant and
Payden & Rygel Distributors, Inc. -- filed as Exhibit 6.1 to
Post-Effective Amendment No. 7 on July 1, 1994 and
incorporated herein by reference.
(6.2) Amendment to Distribution Agreement between
Registrant and Payden & Rygel Distributors dated August 31,
1992 -- filed as Exhibit 6.2 to Post-Effective Amendment No.
1 to Registrant's Form N-1A Registration Statement ("Post-
Effective Amendment No. 1") on February 17, 1993 and
incorporated herein by reference.
(7) None.
(8.1) Global Mutual Fund Custody Agreement between
Registrant and The First National Bank of Chicago dated July
24, 1992 -- filed as Exhibit 8.1 to Post-Effective Amendment
No. 8 to Registrant's Form N-1A Registration Statement
("Post-Effective Amendment No. 8") on July 1, 1994 and
incorporated herein by reference.
(8.2) Amendment No. 1 to Global Mutual Fund Custody
Agreement between Registrant and The First National Bank of
Chicago dated October 29, 1993 -- filed as Exhibit 8.2 to
Post-Effective Amendment No. 4 on January 24, 1994 and
incorporated herein by reference.
(9.1) Management and Administration Agreement between
Registrant and Treasury Plus, Incorporated dated as of
January 1, 1996 -- filed as Exhibit 9.1 to Post-Effective
Amendment No. 16 on September 11, 1995 and incorporated
herein by reference.
(9.2) Form of Investment Accounting Agreement between
Registrant and Investors Fiduciary Trust Company -- filed as
Exhibit 9.2 to Post-Effective Amendment No. 16 on September
11, 1995 and incorporated herein by reference.
(9.3) Form of Transfer Agency and Service Agreement
between Registrant and Investors Fiduciary Trust Company --
filed as Exhibit 9.2 to Post-Effective Amendment No. 16 on
September 11, 1995 and incorporated herein by reference.
(9.4) License Agreement between Registrant and Payden
& Rygel -- filed as Exhibit 9.13 to Post-Effective Amendment
No. 7 on July 1, 1994 and incorporated herein by reference.
(10) Opinion of Counsel -- filed as Exhibit 10 to Pre-
Effective Amendment No. 2 on July 28, 1992 and incorporated
herein by reference.
(11) Not applicable.
(12) Not applicable.
(13) Investment letter of Payden & Rygel -- filed as
Exhibit 13 to Pre-Effective Amendment No. 2 on July 28, 1992
and incorporated herein by reference.
(14) None.
(15) None.
(16) Total return calculations -- filed as Exhibit 16
to Post-Effective Amendment No. 7 on July 1, 1994 and
incorporated herein by reference.
(17) Financial Data Schedule.
(18.1) Powers of Attorney of Dennis Poulsen and J.
Clayburn La Force -- filed as Exhibit 17 to Pre-
Effective Amendment No. 1 to the Registration
Statement on June 19, 1992 and incorporated herein by
reference.
(18.2) Power of Attorney of Stender E. Sweeney --
filed as Exhibit 13 to Pre-Effective Amendment No. 2 on July
28, 1992 and incorporated herein by reference.
(18.3) Power of Attorney of Thomas McKernan, Jr. --
filed as Exhibit 17.3 to Post-Effective Amendment No. 5 to
Registrant's N-1A Registration Statement on March 1, 1994 and
incorporated herein by reference.
(18.4) Power of Attorney of W.D. Hilton, Jr. -- filed
as Exhibit 18.4 to Post-Effective Amendment No. 9 on October
17, 1994 and incorporated herein by reference.
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